Tree Island Steel Ltd.
Annual Report 2015

Plain-text annual report

ASX  ANNOUNCEMENT  (ASX:  TSM)   26  October  2015   Company  Announcements   Australian  Securities  Exchange   20  Bridge  Street   SYDNEY  NSW  2000   Dear  Sir  /  Madam   2015  Annual  Report   Attached  please  find  the  ThinkSmart  Limited  (“the  Company”)  2015  Annual  Report.   The  abovementioned  document  will  be  available  on  the  Company’s  website   www.thinksmartworld.com   Yours  faithfully   Neil  Hackett   Company  Secretary   ThinkSmart  Limited   ABOUT  THINKSMART:   ThinkSmart   Limited   (ASX:   TSM)   a   Financial   Technology   company   and   leader   in   digital,   paperless,   retail   point   of   sale   finance   which   processes   high   volumes   of   transactions   quickly   and   efficiently   through   its   SmartCheck  proprietary  technology.  This  enables  online  credit  approval  in  just  a  few  minutes  whether   customers   are   online   or   in   store.   Our   products   are   executable   throughout   today’s   complex   retail   channel,  creating  additional  revenue  and  enhanced  margin  performance  –  on  and  off  line.   For   over   12   years,   ThinkSmart   has   been   an   exclusive   partner   to   Dixons   Retail,   now   the   newly   merged   Dixons  Carphone  Group  Plc,  where  we  have  developed  compelling  Business  and  Consumer  lease  finance   propositions,   most   recently   introducing   Upgrade   Anytime   –   a   first   to   market   offer   which   enables   consumers   to   upgrade   to   the   very   latest   computing   and   vision   products,   bringing   more   technology   to   more  customers  more  often.     ThinkSmart Limited ABN 24 092 319 698 Australian Registered Office Suite 5, 531 Hay Street Subiaco, 6008 WESTERN AUSTRALIA P +61 8 9380 8333 F +61 8 9380 8300 European Head Office 7th Floor, Oakland House Talbot Road, Old Trafford Manchester, M16 0PQ UNITED KINGDOM P +44 161 333 2400 F +44 161 333 2426 www.thinksmartworld.com                             SUPERIOR PERFORMANCE in retail finance THINKSMART LIMITED ANNUAL REPORT 2015 ABN 24 092 319 698  Annual Report 2015 ThinkSmart is a financial technology company and leader in digital, paperless, retail point of sale finance in the UK, since 2003. CONTENTS Highlights Chairman and Chief Executive Officer Report 2015 Financial Report Shareholder Information Corporate Information 4 5 28 74 76 ThinkSmart United Kingdom Office: 7th Floor, Oakland House, Talbot Road Manchester M16 0PQ, UNITED KINGDOM Australian Registered Office: Suite 5, 531 Hay Street Subiaco Perth WESTERN AUSTRALIA 6008 www.thinksmartworld.com 3 Annual Report 2015 HIGHLIGHTS FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2015 • • • • • • • • • • • • • • • • • • • • • • • • $3.5m NPAT for period in line with updated market guidance issued on 5th June 2015 and up 23% on previous 12 months 53% growth in EPS to 2.73 cents from 1.78 cents for the previous 12 months from continuing activities UK delivered $7.6m Net Profit before Tax with 33% growth in volumes and 14% growth in assets under management and active customers Strong balance sheet with total cash reserves as at 30 June 2015 of $16.8m Declares fully franked Dividend of 3.5 cents per share 2016 FY Guidance anticipating continued strong double digit year on year percentage growth in Group Operating NPAT A total of $32m Surplus Capital has now been returned to Shareholders, by way of Special Dividend and Share Buy-Backs, following the sale of the Australian and New Zealand business and completion of the $21m Off-Market Buy-Back Tender, completed 27 January 2015 Post Buy-Back there are 96.2m shares in issue 33% growth in UK business volumes on 12 months to 30 June 2014 Assets under management grew by 14% on a constant FX basis in the last 12 months to $56.5m Active customer base grew by 14% UK net assets increased by 38% to $36.4m 15% Reduction in Group corporate costs on the 12 months to 30 June 2014 ThinkSmart has extended its contract with the recently expanded and market leading Dixons Carphone Group, which builds on the 12 - year mutually beneficial partnership. The agreement extends ThinkSmart’s B2B (SmartPlan) and B2C (Upgrade Anytime) contract with Dixons Carphone, subject to usual terms and conditions, to at least January 2019 Dixons Carphone plc is Europe’s leading specialist electrical and telecommunications retailer and services company, with over 2,300 stores in 9 countries, employing over 40,000 people ThinkSmart is committed to extending the model to new sectors, categories and distribution partners where consumer leasing has wide appeal, as supported by national surveys and insight Our propositions leverage ThinkSmart’s unique sector leading software and processing IP together with paperless transactions, online basket integration and a planned mobile smartphone application later this year Development of a new multi leasing account proposition is currently in advanced stages and will be launched in 2015 ThinkSmart has been approved by the Financial Conduct Authority to operate a leasing business under the new regulatory requirements, one of the first companies to be authorised in the UK £10m Additional funding facility now completed with Santander complementing existing £60m Secure Trust Bank facility, providing a multi funder platform A new multi-leasing customer account proposition is in development which will enable customers to make a single application and receive a credit limit which will enable them to lease multiple products over time, without making additional applications. The new account proposition is planned for launch in 2015 Funding in place to support growth initiatives Strong UK economy and a positive outlook for continued growth in retail sales, building consumer confidence and further reductions in unemployment Appointed Canaccord Genuity as strategic advisor to the Board, to assist in continuing to unlock value for the UK business 4 Annual Report 2015 CHAIRMAN AND CHIEF EXECUTIVE OFFICER REPORT Welcome to all our shareholders reading our 2015 Annual Report. The 2015 financial year has continued to be a successful period in shaping and executing the Group’s strategy as reflected in our financial performance. ThinkSmart is a leading financial technology company providing digital and paperless retail point of sale finance products to both B2B and B2C customer segments via UK national retail distribution, pre-dominantly with the Dixons Carphone Group through a 12-year relationship now extended to 2019. Dixons Carphone plc is Europe’s leading specialist electrical and telecommunications retailer. During the year we have invested significantly in our proprietary systems, people, and funding platforms to further leverage our sector leading software and processing IP together with paperless transactions, online basket integration and market innovative new customer account and mobile application products and services. We continue to execute our strategy of building long term value in the UK with a focus on the release and distribution of our leading integrated online basket and mobile finance solutions for retailers and continual optimisation of our credit scoring and decision engine capabilities to maximise volumes and manage risk. ThinkSmart’s business continues to perform well supported by a strong UK economy with a continuing positive outlook for growth in retail sales, consumer confidence and further reductions in unemployment. ThinkSmart remains focused on positioning the business for growth and profitability through the ongoing development and execution of our strategy to build long-term value in the UK through our 3 Pillars of Growth: 1. Organic growth with current and new product with existing partners 2. Diversification in product and market development by extending the model with new 3. distribution, sectors and products, and Investment in strategically aligned businesses with the opportunity to unlock value through synergies and leveraging the platform through products and distribution We continue to look to build long term, distribution agreements and entrenched partnerships which deliver value for retailers and their customers. Our products are executable throughout today’s complex retail channel, creating additional revenue and enhanced margin performance for our retail partners both on and offline. 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 the UK market is nearly three times the size of Australia with 62 million consumers. ThinkSmart has secured access to many of these consumers through its strong relationship with Dixons. ThinkSmart’s sector leading intellectual property delivers capability for point of sale financing solutions and facilitates the rapid development of innovative products into other retail sectors allowing us to create financing solutions with various partners at relatively low cost and in rapid timeframes. 5 Annual Report 2015 The 2015 financial period enabled ThinkSmart to reshape its balance sheet with the successful on market buy- back of up to 10% of issued shares being completed on 30 September 2014 and an off market tender share buy-back purchasing 63m shares being implemented during January 2015 at a cost of $20m. As part of the off market share buy-back a $6m special dividend, composing a fully franked amount at 4 cents per share and an unfranked amount at 8 cents per share, was declared on 27 January 2015 and paid on 30 January 2015. As a result the company now has approximately 96.2m fully paid ordinary shares on issue. Further unlocking shareholder value Following this transformational and successful year, and to further assist in unlocking value in the UK business, the Board has appointed Canaccord Genuity, a global full-service investment banking and financial services group, as its strategic advisor to explore options open to the company to continue to maximise value for shareholders. Finally, on behalf of the Board of Directors, we would like to thank all of ThinkSmart’s customers, partners, funders and shareholders for their continuing support. We especially want to thank the entire team at ThinkSmart for their ongoing commitment and enthusiasm, and their hard work and contribution in developing and delivering our plans. We look forward to implementing the initiatives ahead for the benefit of all our stakeholders. Ned Montarello Executive Chairman Fernando de Vicente Chief Executive Officer 6 THINKSMART LIMITED DIRECTORS’ REPORT Your Directors present their report on the consolidated entity (referred to hereafter as the “Group”) consisting of ThinkSmart Limited (“the Company” or “ThinkSmart”) and the entities it controlled at the end of, or during, the 12 months ended 30 June 2015, and the auditor’s report there on. DIRECTORS The following persons were Directors of the Company during the financial year and until the date of this report. Names, qualifications, experience and special responsibilities Ned Montarello Executive Chairman Ned was appointed Executive Chairman on 22 May 2010 and stepped down as Chief Executive Officer on 31 January 2014. Ned has over 28 years’ experience in the finance industry. He founded ThinkSmart in 1996 and through this vehicle has been credited with elevating the Nano-Ticket rental market sector in Australia, receiving the Telstra and Australian Government’s Entrepreneur of the Year Award in 1998. Ned led the development of the Group’s Australian distribution network by building partnerships with key retailers, including JB Hi-Fi and Dick Smith. Ned also steered the expansion of the business into Europe, establishing agreements with DSG International and a joint venture with HBOS to launch in the UK. In 2007 Ned successfully listed, via IPO, the business in Australia. In 2010 he led the development of the “Infinity” product with Dixons to move into the “Business to Consumer” market for the first time in the UK. Ned continued to drive the business to maintain its sector leading IP in point of sale finance with the introduction of e-sign to its process ensuring that it maintained its relevance to the fast moving retail environment. Fernando de Vicente B. Econ, MBA Bus Chief Executive Officer Fernando joined the Board on 7 April 2010 and the Audit and Risk Committee on 18 August 2013. Fernando was then subsequently appointed group Chief Executive Officer from 1 January 2015. Fernando has a Degree in Economics (International Development) from the University Complutense in Madrid, and an Executive MBA from IESE Business School in Madrid. Fernando spent nine years at Dixons Retail, one of Europe’s largest electrical retailers. His latest role in Dixons was International Managing Director, with responsibility for Dixons Central & Southern European operations, a A$3 billion business with 350 stores across six countries. Fernando started his career with Dixons in 2001 as Finance Director for the Spanish subsidiary, and became the MD of the subsidiary in 2003. In 2006 he was promoted to Regional Managing Director for South-East Europe based in Greece, before assuming the role of International Managing Director in 2008. In March 2010, Fernando left Dixons to become the Executive Chairman of BodyBell Group, one of Spain’s largest speciality retailers. On 15 February 2012, Fernando was appointed Non-Executive Director of Levantina, a leading multinational company dealing with natural stone products. Keith Jones MBA Bus Group Strategy and Development Director Keith joined the Board on 24 May 2013 and was appointed Chief Executive Officer on 1 February 2014 through to 31 December 2014. Keith has since moved to the role of Group Strategy and Development Director from 1 January 2015 whilst at the same time ensuring a smooth hand over with the current CEO, Fernando. Keith has 30 years of retail experience in Europe including roles as Chief Executive Officer of JJB Sports plc and Group Retail Director of Dixons Retail plc, one of Europe’s largest electrical retailers. At Dixons, Keith was a member of the Group Executive Committee with responsibility for all UK and Ireland fascia’s including PC World and Currys. Previously he was Managing Director of PC World Stores Group with responsibility for stores in the UK, Spain, France, Italy and Nordics in addition to Group Service Operations. Keith has a MBA from the Manchester Business School. 7 THINKSMART LIMITED DIRECTORS’ REPORT David Griffiths B. Ec (Hons), M. Ec, D. Ec (Hon), FAICD Non-Executive Director, Deputy 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 a number of senior financial positions across a wide range of industries. He holds an Honours Degree in Economics and an honorary Doctor of Economics from The University of Western Australia, a Masters Degree in Economics from Australian National University and is a Fellow of the Australian Institute of Company Directors. David is a Director of the Contemporary Dance Company of Western Australia. He is Chairman of Automotive Holdings Group Limited. David is Chair of the Audit and Risk Committee of ThinkSmart. Steven Penglis (Retired 26 November 2014) B. Juris and B. Law Non-Executive Director Steven joined the Board on 1 July 2000 and stepped down as Chairman on 6 May 2007. Until 30 September 2012, Steven was a partner of Freehills, having been appointed to the partnership on 1 July 1987. Steven now practises solely as a barrister, specialising in the area of Corporate and 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 served from 1 January 2002 to 31 December 2012). Steven was Chairman of the Nomination and Remuneration Committee of ThinkSmart before retiring on 26 November 2014. COMPANY SECRETARY Neil Hackett B. Ec, FFin, GAICD (merit) Mr Neil Hackett holds a Bachelor of Economics from the University of Western Australia, Post-graduate qualifications in Applied Finance and Investment, and is a Graduate (Order of Merit) with the Australian Institute of Company Directors. Mr Hackett is an Affiliate of the Governance Institute of Australia and a Fellow of the Financial Services Institute of Australia. He is currently a Non-executive Director of Australian Securities Exchange listed entities; Azonto Petroleum Limited and Ardiden Limited. Neil is also on the Board of two unlisted entities, Steel Blue Pty Ltd and WestCycle Inc. PRINCIPAL ACTIVITIES The Group’s principal activity during the period was the provision of lease and rental financing services in the UK. OPERATING AND FINANCIAL REVIEW The Board of Directors of the Group resolved to change the Group’s financial year end from 31 December to 30 June commencing from 1 January 2014. The Board presents its Operating and Financial Review for the 12 month financial period to 30 June 2015 and as a result of the year end change the comparative is for the 6 month financial period to 30 June 2014. This information should be read in conjunction with the financial statements and accompanying notes. Business model ThinkSmart is an international finance company, creating differentiation and competitive advantage in ‘point of sale’ finance. It has an exclusive distribution agreement and partnership with Dixons Carphone Group, one of the UK’s leading electrical retailers and their customers. ThinkSmart’s products leverage its sector leading software and processing IP for delivering fast finance solutions in today’s complex retail environment and it offers a compelling and profitable value proposition for retail partners, customers and funders. Since the sale of the Australian and New Zealand operations settled on 31 January 2014 the Group has focused on the UK market. The company continues to innovate within this growing market of 64.6 million consumers through new product and system development and new distribution channels whilst further building on the strong relationship it has with Dixons Carphone Group. 8 THINKSMART LIMITED DIRECTORS’ REPORT Key financial data For the year ending June 2015 June 2014 Dec 2013 June 2015 June 2014 Dec 2013 June 2015 Continuing operations Discontinued operations Total June 2014 Dec 2013 12 mths 6 mths 12 mths 12 mths 6 mths 12 mths 12 mths 6 mths 12 mths $000 $000 $000 $000 $000 $000 $000 $000 $000 Total revenue Indirect customer acquisition costs Operating expenses Depreciation and amortisation Impairment losses Profit / (loss) before tax Income tax (expense) / benefit Profit / (loss) after tax 24,957 (8,290) (10,840) (648) (512) 4,667 (1,177) 3,490 11,461 (3,805) (4,960) (275) (155) 2,266 (716) 1,550 18,933 (4,943) (9,923) (463) (255) 3,349 (752) 2,597 - - - - - - - - 17,257 (89) 18,758 (1,361) 24,957 (8,290) (3,694) (13,039) (10,840) (197) - 13,277 (3,490) 9,787 (2,399) (2,338) (379) 91 (288) (648) (512) 4,667 (1,177) 3,490 28,718 (3,894) (8,654) (472) (155) 15,543 (4,206) 11,337 37,691 (6,304) (22,962) (2,862) (2,593) 2,970 (661) 2,309 Summary of results (12 months ended 30 June 2015 compared to 6 months ended 30 June 2014) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) Net profit after tax of $3.5m, compared to $11.3m in prior 6 month period The comparative (six months to June 2014) includes $9.8m after tax profit from sale of the Australian and New Zealand businesses. Total revenue of $25.0m, up 32% on last 12 month reporting period from continuing operations. Total expenses of $20.3m, up 30% on last 12 month reporting period from continuing operations. Operating expenses of $10.8m, up 9% on last 12 month reporting period from continuing operations. Available cash assets of $16.4m, down 57% on 30 June 2014 position as a result of share buy backs. Earnings per share of 2.73 cents, compared to an earnings per share of 0.97 cents for six months to 30 June 2014 from continuing operations. During the period 63m shares were purchased through market buy-backs and cancelled at a cost of $20m (see note 19). As part of the off market share buy-back a $6m special dividend composing of a fully franked amount at 4 cents per share and an unfranked amount at 8 cents per share, was declared on 27 January 2015 and paid on 30 January 2015. Review of operations Continuing operations – UK A consistent set of results was delivered by the UK business. New originations totalling $37.8m are up 33% on a constant currency basis against the last 12 month reporting period from continuous operations. This is mainly a result of the growth in the consumer offering ‘Upgrade Anytime’ launched on 15 May 2014 which has revitalised the product whilst broadening the product range to now include televisions as well as computers and tablets. This combined with strong repeat business (circa 30%) is now producing a strong pattern of growth and customer retention. The business offering ‘SmartPlan’ has seen growth in every month of the 12 months to 30 June 2015 and benefitted from successful Spring and Autumn campaigns. UK average transaction values (ATV’s) have reduced to $1,336 down 7% on a constant currency basis against same period last year due to a higher proportion of Upgrade Anytime leases. The growth in volumes has now reversed the decline in assets under management which have now increased to $56.5m up 14% on a constant currency basis against same period last year. A new £10m 5 year revolving credit facility was signed with Santander on 15 December 2014 resulting in lease receivables together with related bank debt strengthening the group balance sheet. In addition reduced funding costs will improve margins, however lease accounting means income and costs will be recognised over the 24 month term of each lease rather than upfront. Continuing operations – Corporate Corporate costs continue to fall being $3.3m for the 12 months to 30 June 2015 (down 25% on last 12 month reporting period). 9 THINKSMART LIMITED DIRECTORS’ REPORT Financial position and cash flows Summary financial position As at Cash and cash equivalents (unrestricted) Cash and cash equivalents (restricted) Other assets Goodwill and intangibles Total assets Other liabilities Total liabilities Equity Net cash from operating activities 30 June 2015 $000 16,396 436 17,508 17,431 30 June 2014 $000 38,498 572 12,216 16,216 51,771 67,502 12,262 12,262 39,509 8,555 8,555 58,947 1,155 2,536 The return of surplus capital to shareholders through the on and off market buy-backs is reflected in the table above through the reduction in cash as at 30 June 2015. The company has now taken on $4.1m (note 18) corporate debt through the UK Santander facility but available cash remains strong at $16.4m at the end of June 2015. Business strategies and prospects for future financial years Distribution network ThinkSmart has a 12 year partnership with Dixons, now extended to 2019, and there is now a strong leadership focus on the UK, aimed at establishing additional relationships. Operational capability and efficiency With the recent appointment of Mr Fernando de Vicente as Chief Executive Officer along with Mr Keith Jones continuing in the new role of Executive Director Group Strategy and Development on a part time basis, both with extensive retail experience, ThinkSmart plans to use its market leading IP capability to further develop its multi-channel operating model at an efficient and scalable level. Asset quality Our continued focus on consistent improvements in loss history is expected to improve the cost of funding, as it will make ThinkSmart a more attractive proposition to potential new funding partners. Product diversification Upgrade Anytime was launched on 15 May 2014 and replaced the Infinity consumer product within Dixon stores. Upgrade Anytime has broadened the category range to TVs and gives the customer more flexibility in terms of upgrading early and product/service range. The SmartPlan offering will be revitalised in the second half of 2015, targeting realignment to meet the changing retail environment. 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 The group now has a multi-funder model after signing a new £10m 5 year revolving credit facility with Santander contracted to 2019 to fund the Group’s on balance sheet leases. This compliments the current £60m facility with Secure Trust Bank contracted to April 2016, which funds off balance sheet leases. 10 THINKSMART LIMITED DIRECTORS’ REPORT Strategic Review The group has appointed Canaccord Genuity as strategic advisor to the Board to assist in continuing to unlock value for the UK business and this could result in a range of outcomes including the Group entering new partnerships, new businesses or changes to the ownership or structure of the group 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 costs. 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 its Retail partners’ own growth strategies, key relationships with those partners, the ability to establish new partnerships, regulatory risks 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. Concentration Risk The vast majority of the Group’s new business volumes are from its Retail partner, Dixons Carphone, Europe’s leading specialist electrical and telecommunications retailer. The Group has a long term exclusive contract with Dixons which has recently been extended to 2019 which is conditional on the group continuing to perform and develop the financial products it provides to Dixons just as it has done since 2003. Currency Risk The majority of the Group’s income and assets are from its UK operations and therefore are denominated in GBP creating currency risk when translating to AUD. This risk is mitigated by ensuring that the majority of the Group’s costs and liabilities are also denominated in GBP however the currency translation risk remains on the net profit and net assets held in GBP. SIGNIFICANT CHANGES IN STATE OF AFFAIRS During the period to 30 June 2015 63,006,935 shares (40% of shares in issue) were purchased and cancelled as part of an on market buyback scheme at a cost of $20m (see note 19(a)). 11 THINKSMART LIMITED DIRECTORS’ REPORT DIVIDENDS Dividends paid or declared by the Company to members since the end of the previous financial year were: Declared and paid during the period Special dividend Special dividend Cents per share Total amount Franked/ unfranked Date paid 4 cents $1,999,958 franked 31 January 2015 8 cents $3,999,917 unfranked 31 January 2015 SIGNIFICANT EVENTS AFTER THE BALANCE DATE A fully franked dividend of 3.5 cents per share was declared at the board meeting on 25 August 2015 and will be paid in September 2015. There has not arisen, in the interval between the end of the financial period and the date of this report, any other item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. DIRECTORS’ MEETINGS The following table sets out the number of Directors’ meetings held during the financial period. Director Board Meetings N Montarello D Griffiths S Penglis F de Vicente K Jones A 9 9 4 9 9 B 9 9 4 9 9 Audit and Risk Committee Meetings Nomination and Remuneration Committee Meetings A 2* 2 1 2 2* B - 2 1 2 - A - 1 1 - - B - 1 1 - - A – Number of meetings attended B – Number of meetings held during the time the Director held office during the period * – Attendance by invitation from the Committee DIRECTORS’ INTERESTS The relevant interests of each Director in ThinkSmart Limited shares and options at the date of this report are as follows: Number of ordinary shares Options granted over ordinary shares 31,059,356 2,592,001 603,500 341,000 - - 2,000,000 2,000,000 N Montarello D Griffiths F de Vicente K Jones 12 THINKSMART LIMITED DIRECTORS’ REPORT Unissued Shares under Options At the date of this report there were 5,033,333 unissued ordinary shares of the Company subject to option or performance rights, comprising: Number of shares under option Exercise price of options 200,000 500,000 1,000,000 1,000,000 333,333 2,000,000 Expiry date of options 09 August 2017 04 July 2018 10 June 2019 10 June 2019 $0.1923 $0.2652 $0.3448 $0.4195 $0.3471 11 December 2019 $0.4021 31 March 2020 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 7 to 19. 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: Principles of remuneration B: Key Management Personnel remuneration C: Service agreements D: Share-based compensation (loan-funded shares and options) E: F: Bonus remuneration G: Key Management Personnel transactions Share-based compensation (shares) 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 12 months ended 30 June 2015: Executive Chairman N Montarello Executive Director and Chief Executive Officer F de Vicente Non-Executive Directors D Griffiths (deputy Chairman) S Penglis (retired 26/11/14) Executive Director K Jones (Group Strategy and Development Director) Executives G Halton (Chief Financial Officer) D Twigg (Chief Operating Officer (Credit and Operations)) 13 THINKSMART LIMITED 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 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 per annum and was approved by shareholders at a previous general meeting. The total fees paid in the financial period were $105,720. 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. CEO Other executives 94% 78% -% 13% 6% 9% Fixed remuneration Short-term incentive Long-term incentive At risk 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. 14 THINKSMART LIMITED DIRECTORS’ REPORT 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 10 to 11. Consequences of Performance on Shareholder Wealth In considering the Group’s performance and benefits for shareholder wealth, the Nomination and Remuneration committee have regard to the following indices in respect of the current financial period 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 12 Months to June 2015 6 Months to June 2014 12 Months to Dec 2013 12 Months to Dec 2012 12 Months to Dec 2011 $3,490 $11,337 $2,309 ($1,441) $6,798 2.73 cents $5,999,875 6 cents $0.31 ($0.06) 7.06 cents $5,843,055 3.6 cents $0.37 $0.01 1.45 cents - - $0.36 $0.17 (0.95) cents - - $0.19 ($0.22) 5.23 cents $4,545,779 3.5 cents $0.41 ($0.32) 15 THINKSMART LIMITED DIRECTORS’ REPORT 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. There were $500,000 of loan-funded shares issued to Executives in the financial year ended 30th June 2015 and the table below sets out the details of the loan-funded share plan: 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 Vesting conditions 2012 loan-funded share issue: $0.1923 2013 loan-funded share issue: $0.2652 2015 loan-funded share issue: $0.3620 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 VWAP target Percentage of shares vesting 2012 Tranche 1 Tranche 2 Tranche 3 2013 Tranche 1 Tranche 2 Tranche 3 2015 Tranche 1 Tranche 2 Tranche 3 $0.35 $0.55 $0.75 $0.3802 $0.4889 $0.5975 $0.5537 $0.7119 $0.8701 25% 25% 50% 25% 25% 50% 25% 25% 50% Vesting is subject to the Executive remaining an employee of the Group. Why vesting conditions are chosen The vesting conditions were chosen to align the financial interests of participants with those of shareholders. Vesting date Performance period 2012 loan-funded share issue: 10 August 2015 2013 loan-funded share issue: 04 July 2016 2015 loan-funded share issue: 18 September 2017 2012 loan-funded share issue: 10 August 2012 to 10 August 2015 2013 loan-funded share issue: 04 July 2013 to 04 July 2016 2015 loan-funded share issue: 18 September 2014 to 18 September 2017 Exercise period From vesting date until expiry date Expiry date 2012 loan-funded share issue: 09 August 2017 2013 loan-funded share issue: 03 July 2018 2015 loan-funded share issue: 18 September 2019 16 THINKSMART LIMITED DIRECTORS’ REPORT The table below sets out the details of the performance options issued to Executives since 2012: Instrument Each option represents an entitlement to one ordinary share. Exercise price 2012 performance option issue: $0.1923 2013 performance option issue: $0.2652 2014 Series 1 performance option issue: $0.3448 2014 Series 2 performance option issue: $0.4195 2014 Series 3 performance option issue: $0.3471 2015 performance option issue: $0.4021 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 the ASX over any consecutive 30 trading days is, or is in excess of, the following performance conditions. Performance option issue VWAP target Percentage of shares vesting 2012 Tranche 1 Tranche 2 Tranche 3 2013 Tranche 1 Tranche 2 Tranche 3 2014 Tranche 1 Tranche 2 Tranche 3 2015 Tranche 1 Tranche 2 Tranche 3 $0.35 $0.55 $0.75 $0.3802 $0.4889 $0.5975 Series2 $0.5873 $0.7551 $0.9229 $0.4691 $0.6032 $0.7372 Series3 $0.5527 $0.7107 $0.8686 Series1 $0.4827 $0.6206 $0.7586 25% 25% 50% 25% 25% 50% 25% 25% 50% 25% 25% 50% Vesting is subject to the Executive remaining an employee of the Group. Why vesting conditions are chosen The vesting conditions were chosen to align the financial interests of participants with those of shareholders. Vesting date Performance period 2012 performance option issue: 10 August 2015 2013 performance option issue: 04 July 2016 2014 (Series 1 and 2) performance option issue: 11 June 2017 2014 (Series 3) performance option issue: 12 December 2017 2015 performance option issue: 31 March 2018 2012 performance option issue: 10 August 2012 to 10 August 2015 2013 performance option issue: 04 July 2013 to 04 July 2016 2014 (Series 1 and 2) performance option issue: 11 June 2014 to 11 June 2017 2014 (Series 3) performance option issue: 12 December 2014 to 12 December 2017 2015 performance option issue: 31 March 2015 to 31 March 2018 Exercise period From vesting date until expiry date Expiry date 2012 performance option issue: 09 August 2017 2013 performance option issue: 03 July 2018 2014 (Series 1 and 2) performance option issue: 11 June 2019 2014 (Series 3) performance option issue: 11 December 2019 2015 performance option issue: 31 March 2020 17 2 1 5 1 0 2 l i r p A . s e l b a t g n i w o l l o f e h t n i t u o t e s e r a p u o r G e h t f o ) s e r u s o l c s i D y t r a P d e t a l e R 4 2 1 B S A A n i d e n i f e d s a ( l e n n o s r e P t n e m e g a n a M y e K e h t d n a s r o t c e r i D e h t f o n o i t a r e n u m e r e h t f o s l i a t e D 6 2 3 , 7 8 2 7 8 , 6 3 7 3 4 , 8 2 7 8 6 , 4 3 8 7 8 , 5 2 4 9 9 7 , 4 2 2 0 2 9 , 8 0 4 5 7 7 , 2 3 7 3 1 , 2 1 8 5 7 9 , 3 9 3 - 5 8 2 , 1 7 2 2 0 3 , 1 3 1 5 8 2 , 8 6 1 0 1 4 , 4 5 8 8 6 2 , 2 0 2 , 2 - - - - - - - - - - - - - - - - - - - - 7 6 6 , 4 6 8 5 4 , 3 2 7 1 4 , 3 1 - 1 8 5 , 4 3 8 0 , 6 8 - 6 9 8 , 8 0 9 9 , 4 3 8 0 , 4 9 2 0 , 3 3 6 4 1 , 7 7 1 - - - - 1 1 2 , 6 4 1 1 , 3 - - - - - - - - 1 1 2 , 6 4 1 1 , 3 - - - - - - - - - - - - - - - - 6 7 5 , 7 2 2 1 , 3 7 6 4 , 2 7 3 9 , 2 0 0 0 , 0 3 0 0 5 , 2 1 - - - - - 8 3 6 , 5 9 1 4 , 7 4 6 3 , 0 1 6 2 8 , 7 5 7 9 1 , 4 2 l a t o T $ s e r a h S $ $ $ $ $ & s n o i t p O # s t h g i r e c i v r e s g n o L t n e m e l t i t n e s t i f e n e b s t i f e n e b n o i t a n i m r e T n o i t a u n n a r e p u S s t n e m y a p d e s a b - e r a h S g n o l r e h t O m r e t t n e m y o l p m e t s o P l a t o T $ 0 5 7 , 9 7 0 5 7 , 3 3 0 7 9 , 5 2 0 5 7 , 1 3 0 0 0 , 5 2 3 7 2 7 , 5 8 1 3 0 5 , 5 9 3 5 7 7 , 2 3 4 5 0 , 6 2 7 4 9 3 , 9 8 3 - 5 2 0 , 2 5 2 4 7 6 , 0 2 1 3 8 7 , 6 5 1 0 7 0 , 4 9 7 5 8 0 , 1 6 9 , 1 $ - - - - - - - - - - - 5 5 3 , 2 9 7 0 , 1 0 5 1 6 0 5 , 2 9 7 0 , 1 $ - - - - - - - - 2 1 0 , 6 5 0 1 1 , 2 1 2 - - - - 2 1 0 , 6 5 0 1 1 , 2 1 2 $ 0 5 7 , 9 7 0 5 7 , 3 3 0 7 9 , 5 2 0 5 7 , 1 3 0 0 0 , 5 2 3 7 2 7 , 5 8 1 3 0 5 , 5 9 3 5 7 7 , 2 3 4 4 9 , 3 1 5 2 8 3 , 3 3 3 - 0 7 6 , 9 4 2 5 9 5 , 9 1 1 3 3 6 , 6 5 1 9 7 9 , 6 3 7 0 7 4 , 6 4 7 , 1 - n o N y r a t e n o m s t i f e n e b h s a c I T S s u n o b m r e T t r o h S s e e f & y r a l a S 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 s r o t c e r i D e v i t u c e x E o l l e r a t n o M N * * e t n e c i V e d F s h t i f f i r G D * s i l g n e P S † s e n o J K s e v i t u c e x E n o t l a H G ) i ( g g i w T D l a t o T l a t o T s r o t c e r i D e v i t u c e x E - n o N s r o t c e r i D g n i t r o p e r h c a e o t d e t a c o l l a d n a s l e d o m g n i c i r p d n a n o i t p o n o i t a l u m i S o l r a C - e t n o M d n a e e r T l a i m o n i B e h t g n i s u t n a r g f o e t a d e h t t a d e t a l u c l a c s i s e r a h s d e d n u f - n a o l d n a s n o i t p o e h t f o e u l a v r i a f e h T . d o i r e p g n i t r o p e r s i h t n i d e s i n g o c e r s n o i t p o e h t f o e u l a v r i a f e h t f o n o i t r o p e h t s i d e s o l c s i d e u l a v e h T . e t a d g n i t s e v o t e t a d t n a r g m o r f d o i r e p e h t r e v o y l n e v e d o i r e p . 5 1 0 2 e n u J h t 0 3 g n i d n e d o i r e p l a i c n a n i f e h t n i d e s u e r e w s t n a t l u s n o c n o i t a r e n u m e r o N n o i t a r e n u m e R l e n n o s r e P t n e m e g a n a M y e K . B s t n a t l u s n o C n o i t a r e n u m e R m o r f s e c i v r e S n o i t a r e n u m e R f o t n u o m A D E T I M I L T R A M S K N I H T T R O P E R ’ S R O T C E R I D 18 3 2 3 , 1 4 1 $ f o e c n a w o l l a n o i t a c o l e r a s i s e e f d n a y r a l a s n i h t i w d e d u l c n I t s 1 m o r f t s 1 s i s a b e m i t - t r a p a n o d n a 5 1 0 2 y r a u n a J f o e h t n o t n e m p o l e v e D d n a y g e t a r t S p u o r G r o f r o t c e r i D e v i t u c e x E s a d e t n i o p p a s a w ) r e c i f f O e v i t u c e x E f e i h C y l s u o i v e r p ( s e n o J h t i e K - † . 5 1 0 2 y r a u n a J f o t s 1 e h t n o r o t c e r i D e v i t u c e x E n a s a d e t n i o p p a s a w ) r o t c e r i D e v i t u c e x E - n o N a y l s u o i v e r p ( e t n e c i V e d o d n a n r e F - * * 4 1 0 2 r e b m e v o N h t 6 2 n o d e r i t e r s i l g n e P n e v e t S - * t s 1 4 1 0 2 r e b m e c e D n o t n e m y o l p m e d e c n e m m o C - ) i ( s t h g i r e r a h s d e d n u f - n a o l s e d u l c n I - # THINKSMART LIMITED 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 20 October 2014, Fernando de Vicente was appointed Chief Executive Officer, effective 1 January 2015. Mr Keith Jones continued with ThinkSmart as Executive Director Group Strategy and Development on a part time basis from 1 April 2015. Ned Montarello will remain Executive Chairman. Remuneration and other terms of employment for the Chief Executive Officer are formalised in a service agreement. Fernando de Vicente’s employment agreement, signed on 17 October 2014, 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 of an amount equal to the monthly instalment of basic salary for any unexpired period of notice. In the event of retrenchment, the Executives listed in the table on page 12 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 to Key Management Personnel in the financial period ending 30th June 2015 as part of the loan-funded share or options over ordinary shares in the Company and details on options that vested during the same period are as follows: Number of options/shares granted Grant date Fair value per share/option at grant date $ Exercise price per option/share $ Number of options/shares vested Expiry date 500,000 2,000,000 18/09/2014 31/03/2015 $0.133-$0.170 $0.071-$0.096 $0.3620 $0.4021 18/09/2019 31/03/2020 333,333 12/12/2014 $0.053-$0.080 $0.3471 11/12/2019 - - - Directors N Montarello F de Vicente Executives D Twigg All shares and options were granted during the financial period. The shares and options are subject to Performance Conditions as set out on pages 10 to 11. The options are provided at no cost to the recipients. No shares have been granted since the end of the financial period. During the financial period, no shares were issued as a result of the exercise of options. 19 THINKSMART LIMITED 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 1,000,000 1,000,000 500,000 2,000,000 1,000,000 1,000,000 100,000 250,000 333,333 Grant Date 10/08/2012 04/07/2013 18/09/2014 31/03/2015 11/06/2014 11/06/2014 10/08/2012 04/07/2013 12/12/2014 % vested in period % forfeited, lapsed or expired in period (a) Financial year in which grant vests -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% 2016 2017 2018 2018 2017 2017 2016 2017 2018 Directors N Montarello F de Vicente Executives K Jones G Halton D Twigg (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. 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: Granted in period (a) $ Exercised in period (b) $ Lapsed in period Number Year(s) in which lapsed options granted Directors N Montarello F de Vicente Executives K Jones G Halton D Twigg 500,000 2,000,000 - - 333,333 3,333,333 - - - - - - - - - - - - - - - - - - (a) The value of loan-funded shares granted in the period 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 period 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. 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 period. 20 - - - - - - - - - - - - - - - - 0 0 0 , 0 0 5 , 2 0 0 0 , 0 0 0 , 2 0 0 0 , 0 5 3 3 3 3 , 3 3 3 0 0 0 , 0 0 0 , 2 - - - - - - - - - - - - - - 0 0 0 , 0 0 5 0 0 0 , 0 0 0 , 2 - - - - 3 3 3 , 3 3 3 - - - - - - - d n a d e t s e V , d e s p a L e t a d t a d l e H 0 3 t a e l b a s i c r e x e g n i r u d d e t s e V e n u J 0 3 t a d l e H r o d e t i e f r o f r e h t O s a d e t n a r G w e n f o 5 1 0 2 e n u J d o i r e p e h t 5 1 0 2 d e r i p x e t n e m e v o m n o i t a s n e p m o c t n e m t n i o p p a - - - 1 t a d l e H 4 1 0 2 y l u J 0 0 0 , 0 0 0 , 2 - 0 0 0 , 0 5 3 0 0 0 , 0 0 0 , 2 - - - - - a / n - a / n - - - - - - - - 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 2 - - - - - ) 8 1 5 , 8 6 2 ( - ) 1 1 1 , 1 6 1 ( a / n a / n 0 0 0 , 0 5 3 ) 8 4 1 , 8 9 3 ( - ) 9 8 8 , 8 3 2 ( - - - - - - - - - - - - - - - 0 0 0 , 0 0 0 , 2 - - - - - - - - - - - - 0 0 0 , 0 0 0 , 2 6 6 6 , 6 6 6 0 0 0 , 0 5 3 0 0 0 , 0 0 4 d n a d e t s e V , d e s p a L e t a d t a d l e H 4 1 0 2 e n u J r a e y e h t 0 3 t a e l b a s i c r e x e g n i r u d d e t s e V 0 3 t a d l e H 4 1 0 2 e n u J r o d e t i e f r o F r e h t O s a d e t n a r G w e n f o 1 t a d l e H d e r i p x e t n e m e v o m n o i t a s n e p m o c t n e m t n i o p p a 4 1 0 2 y r a u n a J o l l e r a t n o M N e t n e c i V e d F s r o t c e r i D s h t i f f i r G D s i l g n e P S s e v i t u c e x E n o t l a H G g g i w T D s e n o J K o l l e r a t n o M N s r o t c e r i D s h t i f f i r G D s i l g n e P S s e n o J K e t n e c i V e d F s e v i t u c e x E m u a B A n o t l a H G a m r a V G . e g a p g n i w o l l o f e h t n o g n i d l o h e r a h s s i h n i d e d u l c n i o s l a e r o f e r e h t e r a d n a s e r a h S d e d n u F n a o L l l a e r a o l l e r a t n o M N f o t c e p s e r n i s t n u o m a e v o b a e h t – e t o N . s e t a d n o i t a n g i s e r e v i t c e p s e r r i e h t o t p u d o i r e p e h t o t s e t a l e r y l n o t n e m e v o m e r a h s e h t , e t a d t r o p e r e h t n o d e y o l p m e r e g n o l o n e r a l e n n o s r e p e r e h W : a / n . s n o i t p O e r a h S e e y o l p m E e r a s e e y o l p m e r e h t o y b 5 1 0 2 e n u J 0 3 t a d l e h s t n u o m a r e h t o e h t f o l l A s e r a h S d e d n u F - n a o L d n a s n o i t p O e e y o l p m E D E T I M I L T R A M S K N I H T T R O P E R ’ S R O T C E R I D 5 1 21 g n i d u l c n i , n o s r e P t n e m e g a n a M y e K h c a e y b , y l l a i c i f e n e b r o y l t c e r i d n i , y l t c e r i d , d l e h d e t i m L i t r a m S k n i h T n i s e r a h s y r a n i d r o f o r e b m u n e h t n i d o i r e p g n i t r o p e r e h t g n i r u d t n e m e v o m e h T : s w o l l o f s a s i , s e i t r a p d e t a l e r r i e h t D E T I M I L T R A M S K N I H T T R O P E R ’ S R O T C E R I D 22 s e r a h s n i t n e m e v o M t a d l e H 5 1 0 2 e n u J 0 3 a / n 0 0 5 , 3 0 6 0 0 0 , 1 4 3 1 0 0 , 2 9 5 , 2 6 5 3 , 9 5 0 , 1 3 t a d l e H 4 1 0 2 e n u J 0 3 1 0 0 , 2 9 5 , 2 0 0 6 , 2 7 2 , 1 6 5 3 , 9 5 5 , 0 3 0 0 5 , 3 0 6 0 0 0 , 1 4 3 a / n a / n 6 1 - - - - - - - - - - - - - - 0 0 0 , 0 0 5 - - - - - - - - - - - - - - - - - - - - s a d e t n a r G d e t i e f r o f , d e s p a l d e d n u f - n a o L f o e s i c r e x e e u s s i e r a h s d e d n u f - n a o L n o d e v i e c e R n o i t a s n e p m o c d e r i p x e r o e u s s i e r a h s s n o i t p o s e l a S e u s s i s t h g i R s e s a h c r u P t a d l e H 4 1 0 2 y l u J 1 1 0 0 , 2 9 5 , 2 0 0 6 , 2 7 2 , 1 6 5 3 , 9 5 5 , 0 3 0 0 5 , 3 0 6 0 0 0 , 1 4 3 - - - - - - - - - - - - ) 8 4 1 , 8 9 3 ( ) 9 8 8 , 8 3 2 ( - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 0 0 5 , 7 7 1 0 0 0 , 1 4 3 - 1 0 0 , 2 9 5 , 2 0 0 6 , 2 7 2 , 1 0 0 0 , 6 2 4 6 5 3 , 9 5 5 , 0 3 - - 0 0 0 , 0 0 4 8 9 7 , 2 9 7 , 1 e u s s i e r a h s d e d n u f - n a o L n o d e v i e c e R s a d e t n a r G d e t i e f r o f , d e s p a l d e d n u f - n a o L f o e s i c r e x e t a d l e H n o i t a s n e p m o c d e r i p x e r o e u s s i e r a h s s n o i t p o s e l a S e u s s i s t h g i R s e s a h c r u P 4 1 0 2 y r a u n a J 1 o l l e r a t n o M N s r o t c e r i D s h t i f f i r G D s i l g n e P S e t n e c i V e d F s e n o J K o l l e r a t n o M N s r o t c e r i D s h t i f f i r G D s i l g n e P S e t n e c i V e d F s e n o J K s e v i t u c e x E m u a B A a m r a V G . s e t a d n o i t a n g i s e r e v i t c e p s e r r i e h t o t p u d o i r e p e h t o t s e t a l e r y l n o t n e m e v o m e r a h s e h t , e t a d t r o p e r e h t n o d e y o l p m e r e g n o l o n e r a l e n n o s r e p e r e h W : a / n THINKSMART LIMITED DIRECTORS’ REPORT 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: Short term incentive bonus Included in remuneration (a) $ Maximum entitlement $ % vested in period % forfeited in period (b) - - 212,110 - - - 181,364 424,220 47,108 74,194 -% -% 50% -% -% -% 100% 50% 100% 100% Directors N Montarello F de Vicente K Jones Executives G Halton D Twigg (a) Amounts included in remuneration for the financial period represent the amount that vested in the financial period based on achievement of personal goals and satisfaction of specified performance criteria pertaining to the financial period ending 30 June 2015. 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 period. G. Key Management Personnel Transactions 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 30 June 2015 (30 June 2014: nil), with the exception of the limited recourse loans in relation to the loan-funded share scheme (refer to Note 19(b)(i) and pages 10 – 11 of this Remuneration 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 Options over ordinary shares in ThinkSmart Ltd held have been issued to Key Management Personnel during the financial year and are detailed in Note 19(b)(i) and pages 10 – 11 of this Remuneration Report. 23 THINKSMART LIMITED 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”. A copy of the Company’s Corporate Governance policy can be found at the Company’s website www.thinksmartworld.com. Indemnification and Insurance During the period ended 30 June 2015, 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 period, 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. 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. NON-AUDIT SERVICES During the period 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 period by the auditor 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 and Risk 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 below. Services other than audit and review of financial statements Other services Taxation compliance services Advisory services Audit and review of financial statements Total paid to KPMG 24 12 Months to June 2015 $ 10,542 8,461 19,003 208,649 227,652 THINKSMART LIMITED DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration which forms part of this report is included in page 20 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, Western Australia, 25 August 2015 25 ABCD 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 30 June 2015 there have been: (i) (ii) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Matthew Beevers Partner Perth 25 August 2015 26 THINKSMART LIMITED DIRECTORS’ DECLARATION 1. In the opinion of the Directors of ThinkSmart Limited: (a) The consolidated financial statements, notes and disclosures and 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 30 June 2015 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 30 June 2015. Signed in accordance with a resolution of the Directors: ______________________________ N Montarello Chairman Perth, Western Australia, 25 August 2015 27 THINKSMART LIMITED CONSOLIDATED STATEMENT OF PROFIT & LOSS AND OTHER COMPREHENSIVE INCOME Consolidated Statement of Profit & Loss and Other Comprehensive Income for the Financial Year Ended 30 June 2015 Continuing operations Revenue Other revenue Total revenue Indirect customer acquisition cost Other operating expenses Depreciation and amortisation Impairment losses Profit before tax Income tax expense Profit after tax from continuing operations Profit/(loss) from discontinued operation, net of tax Profit/(loss) after tax – attributable to owners of the Company 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 relating to the disposal group, net of tax 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 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) 12 Months to June 2015 $000 6 Months to June 2014 $000 22,060 2,897 24,957 (8,290) (10,840) (648) (512) 4,667 (1,177) 3,490 - 3,490 3,138 - 3,138 3,138 6,628 2.73 2.69 2.73 2.69 10,161 1,300 11,461 (3,805) (4,960) (275) (155) 2,266 (716) 1,550 9,787 11,337 (378) 45 (333) (333) 11,004 7.06 7.01 0.97 0.96 Notes 6(a) 6(b) 6(c) 6(d) 6(e) 7 8 8 28 28 28 28 The attached notes form an integral part of these consolidated financial statements 28 THINKSMART LIMITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION Consolidated Statement of Financial Position as at 30 June 2015 Current assets Cash and cash equivalents Trade receivables Loan and lease receivables Other current assets 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 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 Notes 20(a) 9 10 9 12 13 15 7 11 16 17 18 7 16 17 18 19(a) The attached notes form an integral part of these consolidated financial statements *Refer to note 2(e) for further details June 2015 $000 June 2014 *Restated $000 16,832 1,014 2,301 5,786 25,933 2,361 506 12,658 4,773 57 5,483 25,838 51,771 2,374 3,369 2,205 834 230 9,012 1,833 1,417 3,250 12,262 39,509 27,838 1,852 9,819 39,509 39,070 1,092 - 5,088 45,250 - 236 12,000 4,216 342 5,458 22,252 67,502 3,247 3,354 - 100 233 6,934 1,621 - 1,621 8,555 58,947 48,096 (1,286) 12,137 58,947 29 e l b a t u b i r t t A y t i u q e e h t f o t n e r a p o t s r e d l o h t i f o r P d e t a l u m u c c A e v r e s e r g n i g d e H e v r e s e r n g i e r o F y c n e r r u c n o i t a l s n a r t y t i u q E d e l t t e s s t i f e n e b e v r e s e r e e y o l p m e s e r a h s y r a n i d r o d i a p y l l u F - 0 0 0 $ 9 1 6 , 3 5 9 1 6 , 3 5 5 4 ) 8 7 3 ( 7 3 3 , 1 1 4 0 0 , 1 1 ) 9 2 2 ( ) 0 8 6 , 5 ( 4 3 2 ) 1 ( 7 4 9 , 8 5 0 9 4 , 3 8 3 1 , 3 8 2 6 , 6 7 4 9 , 8 5 ) 0 0 0 , 6 ( ) 5 1 7 , 9 1 ( 2 9 1 ) 3 4 5 ( 9 0 5 , 9 3 4 2 0 0 0 $ 0 4 3 , 5 1 4 1 , 1 1 8 4 , 6 - - 7 3 3 , 1 1 7 3 3 , 1 1 ) 0 8 6 , 5 ( - - ) 1 ( 7 3 1 , 2 1 0 9 4 , 3 7 3 1 , 2 1 - 0 9 4 , 3 - - 2 9 1 9 1 8 , 9 ) 0 0 0 , 6 ( 0 0 0 $ ) 5 4 ( - ) 5 4 ( - - 5 4 5 4 - - - - - - - - - - - - - - - 0 0 0 $ ) 8 0 9 ( ) 8 0 9 ( - - ) 8 7 3 ( ) 8 7 3 ( - - - - ) 6 8 2 , 1 ( - 8 3 1 , 3 8 3 1 , 3 ) 6 8 2 , 1 ( - - - - 2 5 8 , 1 - - - - - - - - - - - - - - - - - - - 0 0 0 $ 1 4 1 , 1 ) 1 4 1 , 1 ( - 0 0 0 $ 1 9 0 , 8 4 1 9 0 , 8 4 - - - - - - 4 3 2 ) 9 2 2 ( 6 9 0 , 8 4 6 9 0 , 8 4 - - - - ) 3 4 5 ( ) 5 1 7 , 9 1 ( - 8 3 8 , 7 2 x a t f o t e n , s n o i t a r e p o n g i e r o f f o n o i t a l s n a r t n o g n i s i r a s e c n e r e f f i d e g n a h c x E x a t f o t e n , s e g d e h w o l f h s a c f o e u l a v r i a f n i s e g n a h c f o n o i t r o p e v i t c e f f E d o i r e p e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T y t i u q e n i y l t c e r i d d e s i n g o c e r , y n a p m o C e h t f o s r e n w o h t i w s n o i t c a s n a r T y n a p m o C e h t f o s r e n w o o t s n o i t u b i r t s i d d n a y b s n o i t u b i r t n o C d o i r e p e h t r o f t i f o r P s n o i t p o e r a h s e e y o l p m e f o e s i c r e x e m o r f d e v i e c e r h s a C s t n e m y a p d e s a b - e r a h s f o n o i t i n g o c e R 4 1 0 2 e n u J 0 3 t a e c n a l a B ) ) c ( 9 1 e t o N ( d i a p s d n e d i v i D k c a b y u b e r a h S x a t f o t e n , s n o i t a r e p o n g i e r o f f o n o i t a l s n a r t n o g n i s i r a s e c n e r e f f i d e g n a h c x E d o i r e p e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T y t i u q e n i y l t c e r i d d e s i n g o c e r , y n a p m o C e h t f o s r e n w o h t i w s n o i t c a s n a r T y n a p m o C e h t f o s r e n w o o t s n o i t u b i r t s i d d n a y b s n o i t u b i r t n o C 4 1 0 2 y l u J 1 t a e c n a l a B d o i r e p e h t r o f t i f o r P s t n e m y a p d e s a b - e r a h s f o n o i t i n g o c e R k c a b y u b e r a h s o t d e t a i c o s s a s t s o C 5 1 0 2 e n u J 0 3 t a e c n a l a B ) ) c ( 9 1 e t o N ( d i a p s d n e d i v i D k c a b y u b e r a h S s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a m r o f s e t o n d e h c a t t a e h T y c i l o p g n i t n u o c c a n i e g n a h c f o t c a p m I 4 1 0 2 y r a u n a J 1 t a e c n a l a b d e t a t s e R 4 1 0 2 y r a u n a J 1 t a e c n a l a B d e t a d i l o s n o C y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C 5 1 0 2 e n u J 0 3 d e d n E r a e Y l a i c n a n i F e h t r o f Y T I U Q E N I S E G N A H C F O T N E M E T A T S D E T A D I L O S N O C 30 D E T I M I L T R A M S K N I H T THINKSMART LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS Consolidated Statement of Cash Flows for the Financial Year Ended 30 June 2015 12 Months to June 2015 $000 6 Months to June 2014 $000 Notes Cash Flows from Operating Activities Receipts from customers Payments to suppliers and employees Interest received Interest and finance charges Income tax paid Payments from security guarantee Net cash from operating activities Cash Flows from Investing Activities Disposal of discontinued operations net of cash disposed Income tax paid on discontinued operations Payments for plant and equipment Payment for intangible assets – Software Payment for intangible assets – Contract rights Net cash used in investing activities 20(b) Cash Flows from Financing Activities Proceeds from other interest bearing liabilities, inclusive of related costs Repayment of other interest bearing liabilities Dividends paid Share buyback, inclusive of transaction costs Proceeds from exercise of share options Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Effect of exchange rate fluctuations on cash held Cash and cash equivalents from continuing operations at beginning of the financial year Cash and cash equivalents from discontinued operations at beginning of year Total cash and cash equivalents at the end of the financial period Restricted cash and cash equivalents at the end of the financial period 20(a) 20(a) Net available cash and cash equivalents at the end of the financial period The attached notes form an integral part of these consolidated financial statements 25,329 (24,107) 758 (194) (451) (180) 1,155 - - (398) (1,227) (657) (2,282) 3,776 - (6,000) (20,258) - (22,482) (23,609) 1,371 39,070 - 16,832 (436) 16,396 14,797 (11,579) 457 (287) (852) - 2,536 26,366 (3,206) (355) - (220) 22,585 2,500 (2,296) (5,680) (229) 234 (5,471) 19,650 (132) 7,569 11,983 39,070 (572) 38,498 31 THINKSMART LIMITED 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 twelve months ended 30 June 2015 comprise of the Company and its subsidiaries (the “Group”). The Group is a for profit entity and its principal activity during the period was the provision of lease and rental financing services in the UK. The address of the Company’s registered office is Suite 5, 531 Hay Street, Subiaco, West Perth, WA 6008 and further information can be found at www.thinksmartworld.com. 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 25 August 2015. (b) Basis of measurement The financial report has been prepared on the basis of historical cost, except for 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) Discontinued operations Discontinued operations are 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 operation; is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operation; 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. (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 The accounting policies applied by the consolidated entity in this financial report are consistent with those applied by the consolidated entity in its consolidated financial report as at and for the period ended 30 June 2014 other than the following: Share-based payments The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense over the period that the employees unconditionally become entitled to the awards, with a corresponding increase in equity. Previously this increase in equity was held in a separate reserve named ‘Equity settled employee benefits reserve’. AASB 2 allows share based payment transactions to be presented within a separate reserve or within retained earnings. The Group has decided to present the share based payment transactions within retained earnings and therefore in accordance with AASB 108 have retrospectively applied this change with amounts previously recorded in ‘Equity settled employee benefits reserve’ totalling $1,141,000 at 1 January 2014 transferred to ‘Accumulated Profit’. 32 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS (f) Change of Financial Year End The Group changed its financial year end from 31 December to 30 June effective 1 January 2014. As a result of the change, the financial report for the Group at 30 June 2015 reflects the results for the twelve months ended 30 June 2015. The comparative period disclosures are for the six months ended 30 June 2014. (g) Accounting policies available for early adoption not yet adopted A number of new standards and interpretations are effective for annual periods beginning after 1 July 2015 and have not been applied in preparing this financial report. The Group does not plan to adopt these standards early and the extent of the impact has not been determined. Reference Title Summary AASB 9 Financial Instruments AASB 2014-7 AASB 2014-8 Amendments to Australian Accounting Standards arising from AASB 9 Amendments to Australian Accounting Standards arising from AASB 9 AASB 15 Revenue from Contracts with Customers AASB 9 includes revised guidance on the classification and measurement of financial assets, including a new expected credit loss model for calculating impairment, and supplements the new general hedge accounting requirements previously published. (a) These amendments arise from the issuance of AASB 9 Financial Instruments that set out requirements for the classification and measurement of financial assets. (b) This Standard shall be applied when AASB 9 is applied. The application of the existing versions of AASB 9 (December 2009 and December 2010, including the hedging amendments made in December 2013) from 1 February 2015 is limited to entities that have already early adopted them. The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised. AASB 2014-5 Amendments to Australian Accounting Standards arising from AASB 15 (a) These amendments arise from the issuance of AASB 15 Revenue from contracts with customers that set out requirements for the classification and measurement of financial assets. (b) This Standard shall be applied when AASB 15 is applied. Application date of standard 1-Jan-2018 Application date for Group 1-Jan-2018 Impact on Group financial report The Group has not yet determined the extent of the impacts of the amendments, if any. 1-Jul-2017 1-Jul-2017 The Group has not yet determined the extent of the impacts of the amendments, if any. 33 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 3. Significant Accounting Policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities. (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 period 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. 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. (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. 34 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS (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 Leasehold improvements Leased computer equipment and software 3 to 5 years the lease term 3 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. 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. 35 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 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. 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 income and costs Initial direct income/costs or directly attributable, incremental transaction income/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 (refer note 3(f)(iii)). 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. 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. Transaction 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. 36 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 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. 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. 37 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS (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 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 between 3 and 5 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. 38 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS (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. 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 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: Finance lease income Finance lease income is recognised on those leases originated 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. 39 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 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) 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 balance sheet method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint ventures except where the 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. 40 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 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. (n) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST/VAT) except: (i) where the amount of GST/VAT 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 receivables and payables which are recognised inclusive of GST/VAT. (ii) 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/VAT 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 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 period. 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. 41 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 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 are translated to Australian dollars at exchange rates at the dates of the transactions. 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 period. 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 compromise mainly loans and borrowings and related expenses, and head office expenses, and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. 42 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS (t) Measurement of fair values A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non- financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the CFO. The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. Significant valuation issues are reported to the Audit and Risk Committee. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • • • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included in 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). If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair values is included in the following notes: • • • Note 13 – Intangible inertia assets; Note 19(b)(i) – Share based payment transactions; Note 25(b) – Financial instruments. 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 affect 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. 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 period are discussed below: • • • • Note 13 - fair value at inception of inertia intangible assets and recoverable amount; Note 15 - measurement of the recoverable amount of cash generating units containing goodwill; Note 17 - measurement of deferred services income; Note 19(b)(i) - measurement of share-based payments. 43 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 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’s UK operations have adopted a policy of only dealing with credit worthy counterparties as a means of mitigating the risk of financial loss from defaults. The Chief Financial Officer and Group Financial Controller have 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 UK operations have 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 25. To manage credit risk in relation to its customers, UK 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 General Manager of Credit and Operations who monitors ongoing credit performance on different cohorts of customer contracts. UK has a specialist collections function which manages all delinquent accounts. 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. UK 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 is shown in Note 18. 44 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 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 (2014: nil). In respect of other monetary assets and liabilities denominated in foreign currencies, 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 25 for further information). Interest rate risk The Group has $4.1m corporate borrowings as at 30 June 2015 (30 June 2014: nil). 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. As at 30 June 2015 there were no contracts relating to interest rate swaps. 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 45 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 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. 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/(Net cash) Total equity Debt-to-adjusted capital ratio June 2015 $000 June 2014 $000 12,262 (16,832) (4,570) 39,509 - 8,555 (39,070) (30,515) 58,947 - 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 the financial period to 30 June 2015, the Board declared and paid a special dividend composing of a fully franked amount at 4 cents per share and an unfranked amount at 8 cents per share, was declared on 27 January 2015 and paid on 30 January 2015 (refer to Note 19(c)). During the period to 30 June 2015 63,006,935 shares were purchased and cancelled as part of an on market and off market buyback scheme at a cost of $19,714,956 (see note 19(a)). 46 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 6. Consolidated Statement of Profit and Loss Profit/(loss) from continuing operations is arrived at after crediting/(charging) the following items: (a) Revenue Finance lease income 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) 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 (d) Depreciation and amortisation Depreciation Amortisation (e) Impairment losses Impairment losses finance leases and receivables Impairment losses on intangible assets (net) 12 months to June 2015 $000 6 months to June 2014 $000 Notes 17 269 758 3,183 7,597 4,502 286 5,465 22,060 2,789 108 2,897 6,612 426 190 - 7,228 549 1,591 216 1,256 10,840 168 480 648 42 470 512 - 560 2,025 2,707 2,519 195 2,155 10,161 1,220 80 1,300 3,177 185 (1) (117) 3,244 233 656 119 708 4,960 93 182 275 - 155 155 47 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 12 months to June 2015 $000 6 months to June 2014 $000 Notes 7. Income Tax The major components of income tax expense/(benefit) for the 12 months ended 30 June 2015 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) 1,105 710 - 72 - 1,177 - 1,177 1 2 3 716 3,490 4,206 A reconciliation between tax expense and the product of accounting profit before income tax from continuing operations 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: Overseas tax losses not recognised/(recognised) Adjustments in respect of prior periods Income tax expense from continuing operations 4,667 1,398 (381) 136 24 - 1,177 2,266 681 (99) 121 10 3 716 48 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 7. Income Tax (continued) Deferred tax asset – continuing operations Accrued expenses Employee entitlements Equity raising costs Borrowing costs Plant & equipment Intangible assets Total Deferred tax liability – continuing operations Plant & equipment Intangible assets Total Net deferred tax (liability)/asset for UK Net deferred tax asset for Australia 12 months to June 2015 $000 6 months to June 2014 $000 28 69 136 7 - 736 976 10 909 919 (182) 239 65 70 248 13 63 736 1,195 - 853 853 61 281 (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 834 834 100 100 The current tax liability is recognised for income tax payable in respect of all periods to date. 49 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 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 and settlement for the sale occurred on 31 January 2014. 12 Months to June 2015 $000 6 Months to June 2014 $000 Notes (a) Results of discontinued operations Total revenue Expenses Loss from operating activities Income tax benefit/(expense) Loss from operating activities, net of tax Gain on sale of discontinued operation Costs associated with sale of discontinued operation Tax on gain on sale of discontinued operation Profit/(loss) for the period (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 period Earnings per share – discontinued operations Basic (cents per share) Diluted (cents per share) 28 28 Cumulative income or expense included in other comprehensive income - - - - - - - - - - - - - - - 1,536 (1,648) (112) (27) (139) 15,721 (2,332) (3,463) 9,787 292 (88) 212 416 6.09 6.05 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 50 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 9. Loan and lease receivables Current Rental receivables Unguaranteed residuals Unearned finance income Net lease receivable Allowance for losses Non-current Rental receivables Unguaranteed residuals Unearned finance income Net lease receivable Allowance for losses Refer to note 25(c) for further information relating to credit risk. 10. Other Current Assets Prepayments Inventories Sundry debtors 11. Other Non-Current Assets Insurance prepayments Deposits held by funders (i) 30 June 2015 $000 30 June 2014 $000 2,519 41 (245) 2,315 (14) 2,301 2,667 44 (335) 2,376 (15) 2,361 - - - - - - - - - - - - 30 June 2015 $000 30 June 2014 $000 3,380 1,567 839 5,786 2,177 3,306 5,483 2,795 1,185 1,108 5,088 1,672 3,786 5,458 (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. 51 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 12. Plant and Equipment Gross Carrying Amount Cost or deemed cost Balance at 1 January 2014 Effect of movement in exchange rate Additions Balance at 30 June 2014 Effect of movement in exchange rate Additions Balance at 30 June 2015 Accumulated Depreciation Balance at 1 January 2014 Effect of movement in exchange rate Depreciation expense Balance at 30 June 2014 Effect of movement in exchange rate Depreciation expense Balance at 30 June 2015 Net Book Value At 30 June 2014 At 30 June 2015 13. Intangible Assets Gross carrying amount At cost Balance at 1 January 2014 Additions Disposals/transfer to inventory Effect of movement in exchange rate Balance at 30 June 2014 Additions Disposals/transfer to inventory Effect of movement in exchange rate Balance at 30 June 2015 52 Plant & Equipment $000 Lease equipment & software $000 Notes 1,868 (77) 178 1,969 513 432 2,914 (1,713) 73 (93) (1,733) (507) (168) (2,408) 236 506 73 - - 73 - - 73 (73) - - (73) - - (73) - - Total $000 1,941 (77) 178 2,042 513 432 2,987 (1,786) 73 (93) (1,806) (507) (168) (2,481) 236 506 Contract rights $000 Software $000 Distribution network $000 Intellectual Property $000 Inertia Contracts $000 Total $000 1,579 170 - (34) 1,715 196 - 201 2,112 48 138 - - 186 1,333 - 18 1,537 498 - - (9) 489 - - 65 554 642 - - - 642 - - - 642 12,660 2,099 (1,929) (235) 12,595 4,292 (5,396) 1,571 13,062 15,427 2,407 (1,929) (278) 15,627 5,821 (5,396) 1,855 17,907 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 13. Intangible Assets (continued) Accumulated amortisation and impairment Balance at 1 January 2014 Amortisation expense Effect of movement in exchange rate Impairment loss (i) Balance at 30 June 2014 Amortisation expense Effect of movement in exchange rate Impairment loss (i) Balance at 30 June 2015 Net book value At 30 June 2014 At 30 June 2015 Contract rights $000 (1,016) (158) 25 - (1,149) (306) (148) - (1,603) Software $000 (48) (7) - - (55) (141) (13) - (209) Distribution network $000 Intellectual Property $000 Inertia Contracts $000 (497) - 9 - (488) - (66) - (554) (433) (16) - - (449) (33) - - (482) (1,115) - 24 (395) (1,486) - (445) (470) (2,401) Total $000 (3,109) (181) 58 (395) (3,627) (480) (672) (470) (5,249) 566 509 131 1,328 1 - 193 160 11,109 10,661 12,000 12,658 (i) Impairment loss relates to the write off where the related contract has early terminated principally due to contract default. 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 tables show the valuation techniques used in measuring Level 3 fair values, as well as the significant unobservable inputs used. Valuation technique Significant unobservable inputs The fair value is based on current levels of return (25%-30%) less an allowance and for expected costs (5%-10%) of realization. cancellations (10%-30%) The discount rate applied to the fair value is 13.21%. if it has The Group recognises an intangible asset arising the unconditional contractual right to receive income arising from equipment and rights to the hiring agreement at the end of term. This inertia asset 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 asset term. at Subsequent the intangible asset is measured at cost. the minimum the end of recognition initial to During the hiring term the valuation is impaired for any assets that have been written off. is derecognised and At the end of the hiring term the intangible asset the group recognises the equipment as inventory at the corresponding value. Inter-relationship between key unobservable inputs and fair value measurement The estimated increase (decrease) if: fair value would • 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)(cid:1) 53 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 14. Interest in Subsidiaries Interest in Subsidiaries Country of Incorporation RentSmart Limited UK ThinkSmart Insurance Services Administration Ltd UK UK ThinkSmart Financial Services Ltd UK ThinkSmart Europe Ltd UK ThinkSmart UK Ltd UK SmartCheck Ltd Spain SmartCheck Finance Spain SL Spain SmartPlan Spain SL Italy ThinkSmart Italy Srl USA ThinkSmart Inc Australia ThinkSmart Employee Share Trust Australia ThinkSmart LTI Pty Limited 15. Goodwill Balance at beginning of financial period Effect of movement in exchange rate Balance at end of financial period % of Equity 2015 2014 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 30 June 2015 $000 30 June 2014 $000 4,216 557 4,773 4,295 (79) 4,216 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 22, 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 the 12 months to 30 June 2016 and management estimates for 2017 to 2021. • A post tax discount rate of 10.43% (13.20% pre-tax) was applied in determining the recoverable amount of the unit. 54 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 16. Trade and Other Payables, and Provisions Trade and other payables GST/VAT Payable Other accrued expenses Provisions Annual leave Long service leave Other 17. Deferred Service Income Balance at 1 July 2014 Effect of movement in exchange rate Intangible inertia assets acquired Reversal due to intangible asset impairment Recognised in Consolidated Statement of Profit and Loss Deferred service income to be recognised within 12 months Deferred service income to be recognised in greater than 12 months 18. Other interest bearing liabilities Current - Loan advances net of deferred costs of raising facility (i) Non-current - Loan advances net of deferred costs of raising facility (i) Customer financing facilities - Loan advances net of deferred costs of raising facility - Amount used - Amount unused Total Facility (i) (i) The loan is a £10m 5 year revolving credit facility provided by Santander UK PLC dated 15 December 2014 to finance lease receivables. Other finance facilities (business credit card): - - amount used amount unused 30 June 2015 $000 30 June 2014 $000 1,037 231 1,106 2,374 81 148 1 230 1,059 575 1,613 3,247 77 155 1 233 Notes 30 June 2015 $000 30 June 2014 $000 13 6(a) 4,975 505 4,292 (68) (4,502) 5,202 3,369 1,833 5,202 5,533 (104) 2,099 (34) (2,519) 4,975 3,354 1,621 4,975 30 June 2015 $000 30 June 2014 $000 2,205 1,417 3,622 3,622 16,849 20,471 12 90 102 - - - - - - 10 87 97 55 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 19. (a) Issued Capital Issued and paid up capital 30 June 2015 $000 30 June 2014 $000 96,227,922 Ordinary Shares fully paid (2014: 158,734,857) 27,838 48,096 Fully Paid Ordinary Shares Balance at beginning of the financial period Issue of new shares for employee loan-funded share plan Issue of new shares for employee share-based payment Proceeds from exercise of employee loan-funded share plan Cancellation of shares through buyback Costs associated to buy-back Cancellation employee loan-funded shares Balance at end of the financial period 2015 Number 2015 $000 2014 Number 158,734,857 500,000 - - (63,006,935) - - 48,096 - - - (19,715) (543) - 162,307,097 - - - (572,981) - (2,999,259) 96,227,922 27,838 158,734,857 2014 $000 48,091 - - 234 (229) - - 48,096 During the period no employee share options or loan-funded shares were exercised (2014: nil). 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 and loan-funded shares issued in previous periods: • 400,000 options over ordinary shares were issued 10 August 2012 and exercisable at $0.1923, vesting and exercisable on 10 August 2015 until 9 August 2017. The fair value of these options at grant date was $0.02-$0.06. Vesting of the options is subject to achievement of the following performance conditions: (cid:2) Tranche 1: 25% of options will vest if the share price hurdle of $0.35 is met in accordance with the performance conditions; (cid:2) Tranche 2: 25% of options will vest if the share price hurdle of $0.55 is met in accordance with the performance conditions; and (cid:2) Tranche 3: 50% of loan options will vest if the share price hurdle of $0.75 is met in accordance with the performance conditions. • 3,033,333 loan-funded shares were issued 10 August 2012 and exercisable at $0.1923, vesting and exercisable on 10 August 2015 until 9 August 2017. The fair value of these options at grant date was $0.02-$0.06. Vesting of the loan-funded shares is subject to achievement of the following performance conditions: (cid:2) 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; (cid:2) 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 (cid:2) 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. 56 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS Issued Capital (continued) 19. (b)(i) Share options – employee options and loan-funded shares (continued) • 750,000 options over ordinary shares were issued 4 July 2013 and exercisable at $0.2652, vesting and exercisable on 4 July 2016 until 3 July 2018. The fair value of these options at grant date was $0.098-$0.118. Vesting of the options is subject to achievement of the following performance conditions: (cid:2) Tranche 1: 25% of options will vest if the share price hurdle of $0.3802 is met in accordance with the performance conditions; (cid:2) Tranche 2: 25% of options will vest if the share price hurdle of $0.4889 is met in accordance with the performance conditions; and (cid:2) Tranche 3: 50% of loan 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 4 July 2013 and exercisable at $0.2652, vesting and exercisable on 4 July 2016 until 3 July 2018. The fair value of these options at grant date was $0.098-$0.118. Vesting of the loan-funded shares is subject to achievement of the following performance conditions: (cid:2) 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; (cid:2) 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 (cid:2) 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. • 1,000,000 (series 1) and 1,000,000 (series 2) options over ordinary shares were issued 11 June 2014 and exercisable at $0.3448 and $0.4195 respectively, vesting and exercisable on 11 June 2017 until 10 June 2019. The fair value of these options at grant date was $0.135-$0.158 for series 1 and $0.104-$0.131 for series 2. Vesting of the options is subject to achievement of the following performance conditions: Series 1 (cid:2) Tranche 1: 25% of loan-funded shares will vest if the share price hurdle of $0.4827 is met in accordance with the performance conditions; (cid:2) Tranche 2: 25% of loan-funded shares will vest if the share price hurdle of $0.6206 is met in accordance with the performance conditions; and (cid:2) Tranche 3: 50% of loan-funded shares will vest if the share price hurdle of $0.7586 is met in accordance with the performance conditions. Series 2 (cid:2) Tranche 1: 25% of loan-funded shares will vest if the share price hurdle of $0.5873 is met in accordance with the performance conditions; (cid:2) Tranche 2: 25% of loan-funded shares will vest if the share price hurdle of $0.7551 is met in accordance with the performance conditions; and (cid:2) Tranche 3: 50% of loan-funded shares will vest if the share price hurdle of $0.9229 is met in accordance with the performance conditions. Options and loan-funded shares issued in the current period: • 333,333 options over ordinary shares were issued 12 December 2014 and exercisable at $0.3471, vesting and exercisable on 12 December 2017 until 11 December 2019. The fair value of these options at grant date was $0.053-$0.08. Vesting of the options is subject to achievement of the following performance conditions: (cid:2) Tranche 1: 25% of options will vest if the share price hurdle of $0.5527 is met in accordance with the performance conditions; (cid:2) Tranche 2: 25% of options will vest if the share price hurdle of $0.7107 is met in accordance with the performance conditions; and (cid:2) Tranche 3: 50% of loan options will vest if the share price hurdle of $0.8686 is met in accordance with the performance conditions. 57 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS Issued Capital (continued) 19. (b)(i) Share options – employee options and loan-funded shares (continued) • 2,000,000 options over ordinary shares were issued 31 March 2015 and exercisable at $0.4021, vesting and exercisable on 31 March 2018 until 31 March 2020. The fair value of these options at grant date was $0.071-$0.096. Vesting of the options is subject to achievement of the following performance conditions: (cid:2) Tranche 1: 25% of options will vest if the share price hurdle of $0.4691 is met in accordance with the performance conditions; (cid:2) Tranche 2: 25% of options will vest if the share price hurdle of $0.6032 is met in accordance with the performance conditions; and (cid:2) Tranche 3: 50% of loan options will vest if the share price hurdle of $0.7372 is met in accordance with the performance conditions. • 500,000 loan-funded shares were issued 18 September 2014 and exercisable at $0.3620, vesting and exercisable on 22 May 2017 until 18 September 2019. The fair value of these options at grant date was $0.133-$0.17. Vesting of the loan-funded shares is subject to achievement of the following performance conditions: (cid:2) Tranche 1: 25% of options will vest if the share price hurdle of $0.5537 is met in accordance with the performance conditions; (cid:2) Tranche 2: 25% of options will vest if the share price hurdle of $0.7119 is met in accordance with the performance conditions; and (cid:2) Tranche 3: 50% of loan options will vest if the share price hurdle of $0.8701 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. Measurement of fair values 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. The weighted average fair value of the share options granted in the period to 30 June 2015 is $0.09 (period to 30 June 2014: $0.129). Options and loan-funded shares 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. Other measurement inputs include share price on measurement date, exercise price of the instrument, 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. Below are the inputs used to measure the fair value of the options and loan-funded shares: Employee options and loan-funded shares Employee options and loan-funded shares Employee options and loan-funded shares Employee options and loan-funded shares 30 June 2015 30 June 2015 30 June 2015 30 June 2014 31/03/2015 $0.071- $0.096 $0.365 12/12/2014 $0.053- $0.080 $0.315 22/5/2014 $0.133- $0.170 $0.390 $0.4021 $0.3471 $0.3620 11/06/2014 $0.104- $0.158 $0.375 $0.3448/$0.41 95 55% 45% 4 years 4.0% 1.76% 50% 4 years 4.7% 2.35% 55% 4.2 years 4 years 1.6% 3.04% 1.6% 3.1% Employee options and loan-funded shares 31 December 2013 4/07/2013 $0.098- $0.118 $0.27 Employee options and loan-funded shares 31 December 2012 10/08/2012 $0.02-$0.06 $0.19 $0.2652 $0.1923 55% 4 years 0% 2.99% 50% 4 years 2.14% 2.5% Period ending 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 58 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 19. Issued Capital (continued) (b)(i) Share options – employee options and loan-funded shares (continued) 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 period: Balance at beginning of the financial year Granted during the financial period Forfeited during the financial period Expired during the financial period Balance at the end of financial period Exercisable at end of the financial period Period ending 30 June 2015 Period ending 30 June 2014 Number of options/loan funded shares 5,050,000 2,833,333 (350,000) - 7,533,333 - Weighted average exercise price $ $0.29 $0.39 $0.24 - $0.33 - Number of options/loan funded shares 7,126,666 2,000,000 (4,076,666) - 5,050,000 - Weighted average exercise price $ $0.23 $0.38 $0.23 - $0.29 - The options and loan-funded shares outstanding at 30 June 2015 have an exercise price in the range of $0.1923 to $0.4195 (30 June 2014: $0.1923 to $0.4195) and a weighted average contractual life of 3.72 years (30 June 2014: 4.15 years). The following is the total expense recognised for the period arising from share-based payment transactions: 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 Share options/loan-funded shares granted in 2014 – equity settled Share options/loan-funded shares granted in 2015 – equity settled Total expense recognised as employee costs (note 6c) Less discontinued operations Total expense recognised from continuing operations (b)(ii) Share compensation – employee shares 12 months to 30 June 2015 $000 - - 54 86 52 6 months to 30 June 2014 $000 28 (30) 1 - - 192 - 192 (1) (41) 40 No shares of the Company were granted as remuneration and no share options vested during the reporting period. (c) Dividends Dividends paid or declared by the Company to members since the end of the previous financial period were. Special dividend Special dividend Cents per share Total amount Franked/ unfranked Date paid 4 cents $1,999,958 Fully franked 31 January 2015 8 cents $3,999,917 unfranked 31 January 2015 59 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 19. Issued Capital (continued) (d) Franking credits Franking credit account balance as at the beginning of the financial period at a tax rate of 30% (2014: 30%) Franking credits attached to the dividend paid during the financial period Franking credits from the payment of income tax paid and payable as at the end of the financial period Franking credit account balance as at the end of the financial period at a tax rate of 30% (2014: 30%) 30 June 2015 $000 30 June 2014 $000 2,885 (881) (129) 1,875 5,733 (2,504) (344) 2,885 As noted in note 27, subsequent to the year end the company has declared a dividend payable in September 2015. The payment of this dividend will result in $1,443,000 of the above franking credit being utilised. 20. 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 period 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 as at 30 June 2015 $000 as at 30 June 2014 $000 16,396 436 16,832 38,498 572 39,070 The Group’s exposure to credit risk, interest rate and sensitivity analysis of the financial assets and liabilities are provided in Note 25. 60 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 20. Notes to the Cash Flow Statement (continued) (b) Reconciliation of the profit/(loss) for the period to net cash flows from operating activities: Profit after tax Add back non-cash and non-operating items: Depreciation Amortisation Impairment losses on finance lease receivables Foreign currency loss/(gain) unrealised Provision for employee entitlements Equity settled share-based payment (Profit) on disposal of discontinued operation Costs associated with disposal of discontinued operation Income tax paid on discontinued operations Other non-cash items (Increase)/decrease in assets: Trade receivables, deposits held with funders and other movements in lease assets Finance lease receivable 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 12 months to 30 June 2015 $000 6 months to 30 June 2014 $000 3,490 11,337 168 516 42 (17) - 190 - - - - 66 (3,999) - 73 1,079 (180) (927) 654 - - 1,155 108 363 64 (249) 5 2 (15,721) 2,332 3,206 278 (1,013) - 837 (24) (533) 715 843 119 (7) (126) 2,536 61 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 21. 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 More than 5 years June 2015 $000 June 2014 $000 196 784 425 1,405 173 693 635 1,501 No provisions have been recognised in respect of non-cancellable operating leases. 22. 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: - ThinkSmart Europe Ltd - RentSmart Ltd - ThinkSmart Insurance Services Administration Ltd - ThinkSmart Financial Services Ltd Other: - SmartCheck Finance Spain SL - 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 62 e n u J 4 1 0 2 0 0 0 $ 6 3 5 , 1 1 2 7 , 5 1 7 5 2 , 7 1 ) 9 8 ( ) 5 0 1 , 1 ( ) 7 9 1 ( ) 2 6 ( ) 5 9 1 ( ) 2 3 3 , 2 ( 7 7 2 , 3 1 - - - - e n u J 5 1 0 2 0 0 0 $ - - - - - - - - - - - - - - * s n o i t a r e p o d e u n i t n o c s i D l a t o T e t a r o p r o C s e i r o t i r r e T r e h t O K U e n u J 4 1 0 2 0 0 0 $ 1 6 1 , 0 1 0 0 3 , 1 1 6 4 , 1 1 ) 5 0 8 , 3 ( ) 0 6 9 , 4 ( ) 5 7 2 ( ) 5 5 1 ( - - e n u J 5 1 0 2 0 0 0 $ 0 6 0 , 2 2 7 9 8 , 2 7 5 9 , 4 2 ) 0 9 2 , 8 ( e n u J 4 1 0 2 0 0 0 $ - 8 3 4 8 3 4 ) 1 ( - - ) 8 4 6 ( ) 2 1 5 ( - - - ) 4 3 ( ) 0 4 8 , 0 1 ( ) 1 6 7 , 1 ( e n u J 5 1 0 2 0 0 0 $ - 3 0 5 3 0 5 - ) 8 7 ( ) 8 3 2 , 3 ( - - - e n u J 4 1 0 2 0 0 0 $ - 4 1 4 1 - e n u J 5 1 0 2 0 0 0 $ 1 - 1 - - - - - - - - - ) 0 5 ( ) 3 8 ( e n u J 4 1 0 2 0 0 0 $ 9 0 7 , 9 0 0 3 , 1 9 0 0 , 1 1 ) 4 0 8 , 3 ( ) 9 4 1 , 3 ( ) 1 4 2 ( ) 5 5 1 ( - - e n u J 5 1 0 2 0 0 0 $ 6 5 5 , 1 2 7 9 8 , 2 3 5 4 , 4 2 ) 0 9 2 , 8 ( ) 9 1 5 , 7 ( ) 0 7 5 ( ) 2 1 5 ( - - 6 6 2 , 2 7 6 6 , 4 ) 8 5 3 , 1 ( ) 3 1 8 , 2 ( ) 6 3 ( ) 2 8 ( 0 6 6 , 3 2 6 5 , 7 x a t e m o c n i e r o f e b ) s s o l ( / t i f o r p t n e m g e s e l b a t 0 5 2 , 5 4 2 5 2 , 2 2 6 8 4 5 5 5 , 8 3 3 9 , 5 2 8 3 8 , 5 2 2 6 2 , 2 1 2 6 9 , 1 6 1 5 3 1 4 6 3 1 3 1 3 9 9 3 1 1 2 3 , 2 3 8 3 2 , 3 2 5 1 - 3 3 - 5 7 - 9 - 7 7 7 , 2 1 6 3 7 , 1 2 0 5 3 9 0 1 , 8 0 2 6 , 2 2 5 2 5 , 5 2 4 5 8 , 1 1 1 6 9 , 1 s t e s s a t n e r r u c - n o n t n e m g e s e l b a s t e s s a t n e r r u c t n e m g e s e l b a s e i t i l i b a i l t n e m g e s e l b a e r u t i d n e p x e l 8 e t o N 63 S T N E M E T A T S L A I C N A N I F E H T O T S E D E T I M I L T R A M S K N ) d e u n i t n o c ( n o i t a m r o f n I t n e m g e S s t n e m g e s e l b a t r o p e r t u o b a n o i t a m s t n e m g e S g n i t : d e d n e d o i r e p e s n o i t a r e p o d e u n i t n o c s i d f o e l a s h t i w d e t a i c o s s s t s o c n o i t i s i u q c a r e m o t s u c t n o i t a s i t r o m a d n a n o i t a i s e s n e p x e g n i ) 3 1 d n a ) e ( 6 e t o N ( s e s s o l t n e m e s n e p x e t e u n e v e r e u n e v e r e u THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 22. Segment Information (continued) Major customer Revenues from the Group’s funding partners represent $5.8m (30 June 2014: $2.2m) of the Group’s total revenue. 23. Remuneration of Auditor Audit and review services: Auditor of the Company: Audit and review of financial reports (Australia) Audit and review of financial reports (Overseas) Assurance services associated with disposal of Australian business Services other than statutory audit: Tax compliance and advisory services Other regulatory services* Advisory services *relates to statutory accounting requirements within Spain and Italy The Group’s auditors are KPMG. 24. Commitments and Contingent Liabilities 12 Months to June 2015 $ 6 Months to June 2014 $ 50,000 158,649 - 208,649 10,542 59,581 8,461 78,584 50,000 99,440 57,946 207,386 29,135 20,508 23,766 73,409 Under the terms of the UK current funding agreement with Secure Trust Bank, the group is obliged to purchase delinquent leases from the funder at the funded amount. As at 30 June 2015, the total funded amount of all leases funded by the funder is $52.182m (2014: $43.606m). The group has entered into a Credit Default Swap ("CDS") with STB for which it has provided a deposit of $8.575m (2014: $7.401m) as collateral for the obligation under the CDS. The group has recognised a provision against this deposit of $5.269m (2014: $3.617m) being its estimate of the funded amount of these 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 $3.306m (2014: $3.784m). 64 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 25. Financial Instruments (a) Interest rate risk At the reporting date, the interest rate profile of the Group’s interest bearing financial instruments were: Variable rate instruments Cash and cash equivalents Deposits held by funder (note 24) Other interest bearing liabilities (note 18) Net financial assets Carrying amount June 2015 $000 June 2014 $000 16,832 8,575 (4,101) 21,306 39,070 3,786 - 42,856 Sensitivity analysis A change in 1% in interest rates would have increased or decreased the Group’s profit for continuing operations by the amounts shown below (2014: 1% increase $0.429m, 1% decrease $0.429m). This analysis assumes that all other factors remain constant including foreign currency rates. Variable rate instruments Net profit sensitivity (b) Fair value of financial instruments Profit or Loss Increase 1% $000 213 213 Decrease 1% $000 (213) (213) The carrying amounts of financial assets and financial liabilities recorded in the financial statements are not materially different to their fair values. 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: quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices) inputs for the asset or liability that are not based on observable market data (unobservable inputs) Level 3: Key assumptions in the valuation of the instruments were limited to interpolating interest rates for certain future periods where there was no observable market data. 65 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 25. 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 Trade receivables Loan and lease receivable (current) Loan and lease receivable (non-current) Prepayments (current) Sundry debtors Other non-current assets Note 20(a) 9 9 10 11 June 2015 $000 16,832 1,108 2,315 2,376 2,507 839 5,483 31,460 June 2014 $000 39,070 1,153 - - 2,038 1,108 5,458 48,827 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 June 2015 $000 3,161 28,224 75 31,460 June 2014 $000 32,213 16,346 268 48,827 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 customers Others June 2015 $000 16,832 3,306 4,684 4,691 1,947 31,460 June 2014 $000 39,070 3,786 3,711 - 2,260 48,827 (i) Cash and cash equivalents are held with banks with S&P ratings of A- and AA-. (ii) In the current financial reporting period, 100% (prior year: 100%) of the total prepayment relates to RentSmart Limited’s (UK) 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. 66 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 25. Financial Instruments (continued) (c) Credit risk management (continued) The ageing of the Group’s trade and lease 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 2015 $000 5,031 635 47 86 5,799 Impairment 2015 $000 23 5 23 72 123 Gross 2014 $000 378 711 59 5 1,153 Impairment 2014 $000 - - 59 - 59 The movement in the allowance for impairment in respect of trade and lease receivables during the period was as follows: Balance at 1 January Impairment loss recognised Bad debt written off Effect of exchange rate movement Balance at 31 December June 2015 $000 June 2014 $000 59 226 (170) 8 123 37 63 (36) (5) 59 Trade and lease receivables are reviewed and considered for impairment on a periodic basis, based on the number of days outstanding and number of payments in arrears. (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 Lease receivable Trade and other payables Net exposure Cash and cash equivalents Trade receivables Trade and other payables Net exposure 30 June 2015 GBP £000 6,238 684 2,277 (1,197) 8,002 EUR €000 51 - (4) 47 30 June 2014 GBP £000 3,789 1,138 (1,572) 3,355 EUR €000 98 1 (21) 78 USD $000 - - (3) (3) USD $000 5 - 3 8 67 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 25. Financial Instruments (continued) (d) Currency risk management (continued) The following significant exchange rates applied during the period: AUD EUR GBP USD Average rate 2015 0.6963 0.5307 0.8382 2014 0.6673 0.5481 0.9147 Reporting date spot rate 2014 0.6906 0.5531 0.9420 2015 0.6866 0.4885 0.7680 Sensitivity analysis A 10% strengthening of the Australian dollar against the following currencies at 30 June 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 2014: 30 June 2015 EUR GBP USD 30 June 2014 EUR GBP USD Equity $000 Profit or loss $000 (7) (1,151) - 115 (2,433) - 8 (489) 1 4 (345) - A 10% weakening of the Australian dollar against the above currencies at 30 June 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. (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 30 June 2015 Trade and other payables Other interest bearing liabilities 30 June 2014 Trade and other payables Carrying Amount $000 Contractual cash flow $000 Less than 1 year $000 1-2 years $000 2-5 years $000 2,374 4,101 6,518 3,247 3,247 (2,374) (4,101) (6,518) (3,247) (3,247) (2,374) (2,308) (4,725) (3,247) (3,247) - (1,793) (1,793) - - - - - - - 68 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 26. 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: Executive Chairman N Montarello Executive Directors F de Vicente (Chief Executive Officer) K Jones (Group Strategy and Development Director) Non-Executive Directors D Griffiths (deputy Chairman) S Penglis (retired 26 November 2014) Executives G Halton (Chief Financial Officer) D Twigg (Chief Operating Officer (Credit and Operations)) The Key Management Personnel remuneration included in ‘employee benefits expense’ in Note 6(c) is as follows: Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments 27. Subsequent Events 12 Months to June 2015 $ 6 Months to June 2014 $ 1,961,085 57,826 6,211 177,146 2,202,268 969,070 403,788 3,114 60,564 1,436,536 A fully franked dividend of 3.5 cents per share was declared at the board meeting on 25 August 2015 and will be paid in September 2015. 69 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 28. Earnings per Share 12 months to 30 June 2015 Discontinued operations $000 Continuing operations $000 Total $000 6 months to 30 June 2014 Discontinued operations $000 Continuing operations $000 Total $000 Profit/(loss) after tax attributable to ordinary shareholders (basic and diluted) 3,490 - 3,490 1,550 9,787 11,337 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) 30 June 2015 30 June 2014 Number Number 127,672,035 160,688,734 129,555,185 161,844,290 30 June 2015 30 June 2014 2.73 2.69 2.73 2.69 - - 7.06 7.01 0.97 0.96 6.09 6.05 At 30 June 2015, 1,500,000 (2014: 105,556) employee share options were excluded from the diluted weighted average number of ordinary shares calculation as they do not currently meet their share price hurdle and thus would have been anti-dilutive if included. 70 THINKSMART LIMITED NOTES TO THE FINANCIAL STATEMENTS 29. Parent Entity Disclosures As at, and throughout, the financial period ending 30 June 2015, the parent entity of the Group was ThinkSmart Limited. Result of parent entity (Loss)/profit for the period Other comprehensive income Total comprehensive (loss)/profit for the period Financial position of parent entity at period end Current assets Total assets Current liabilities Total liabilities Total equity of the parent entity comprising of: Share capital Retained earnings Total equity 12 Months to 30 June 2015 $000 6 Months to 30 June 2014 $000 588 - 588 3,236 28,574 705 705 27,838 31 27,869 (4,809) 26 (4,783) 32,320 47,283 413 413 48,096 (1,224) 46,872 Parent entity contingencies 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 provided an unlimited guarantee to Santander UK PLC in support of the financing facility provided to ThinkSmart Financial Services Ltd. 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. 71 ABCD 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 30 June 2015, the consolidated statement of profit and loss and other comprehensive income, the consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 29 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(a), the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position and of its performance. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. 72 ABCD Auditor’s opinion In our opinion: (a) the financial report of ThinkSmart Limited is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Group’s financial position as at 30 June 2015 and of its performance for the year ended on that date; and 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(a). Report on the remuneration report We have audited the Remuneration Report included in pages 7 to 17 of the directors’ report for the year ended 30 June 2015. 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 30 June 2015, complies with Section 300A of the Corporations Act 2001. KPMG Matthew Beevers Partner Perth 25 August 2015 73 Annual Report 2015 SHAREHOLDER INFORMATION The shareholder information set out below was applicable as at 9 October 2015. Distribution of Equity Security 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Number of ordinary shares Security holders Options 100 627 352 392 82 - - - - 2 There were 149 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 Units % of Units PERSHING AUSTRALIA NOMINEES PTY LTD 28,561,036 29.68 WULURA INVESTMENTS PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED THINKSMART LTI PTY LTD DARJU PTY LTD PHOENIX PROPERTIES INTERNATIONAL PTY LTD CITICORP NOMINEES PTY LIMITED EQUITAS NOMINEES PTY LIMITED <2874398 A/C> WULURA INVESTMENTS PTY LTD WULURA INVESTMENTS PTY LTD EQUITAS NOMINEES PTY LIMITED <3021524 A/C> WULURA INVESTMENTS PTY LTD MR FERNANDO VINCENTE LOPEZ HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MR DANIEL EDWARD GAMMELL MR ROBERT BAGNARA WULURA INVESTMENTS PTY LTD MR HONG KEONG CHIU + MS YOK KEE KHOO MRS JULANNE MARY GRIFFITHS + MS JULIA MARY GRIFFITHS 5,537,740 3,473,701 2,500,000 2,107,239 2,000,000 1,881,314 1,880,000 1,636,118 1,566,948 981,200 764,144 678,000 635,000 605,000 600,000 577,622 563,766 484,762 5.75 3.61 2.60 2.19 2.08 1.96 1.95 1.70 1.63 1.02 0.79 0.70 0.66 0.63 0.62 0.60 0.59 0.50 MR MILAN HERCEG Total 430,000 57,463,590 0.45 59.72 Unquoted Equity Securities Options issued under the ESOP to take up ordinary shares Number on Issue 2,333,000 Number of holders 2 The Company has no other unquoted equity securities. 74 Annual Report 2015 Substantial Holders Substantial holders in the Company are set out below: Include those above 5% PERSHING AUSTRALIA NOMINEES PTY LTD WULURA INVESTMENTS PTY LTD Number of ordinary shares 28,561,036 5,537,740 Percentage % 29.68 5.75 Voting Rights The voting rights attaching to equity securities are set out below: a) b) c) 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 entitles to one vote. 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. Options There are no voting rights attached to the options. 75 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 CORPORATE INFORMATION ABN 24 092 319 698 Directors N R Montarello (Executive Chairman) D Griffiths (Deputy Chairman) F de Vicente (Chief Executive Officer) K Jones (Executive Director) Company Secretary Neil Hackett ThinkSmart United Kingdom Office: 7th Floor, Oakland House, Talbot Road, Old Trafford Manchester M16 0PQ, UK Phone: +44 161 333 2400 Registered and Principal Office Suite 5, 531 Hay Street Subiaco Western Australia 6008 Phone: +61 8 9380 8333 Share Register Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace Perth WA 6000 Australia Phone: 1300 787 272 ThinkSmart Limited shares are listed on the Australian Securities Exchange (ASX code: TSM) 

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