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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Thinksmart Limited | LSE:TSL | London | Ordinary Share | AU000XINEAE8 | ORD NPV (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 28.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMTSL
RNS Number : 9073P
ThinkSmart Limited
06 September 2017
06 September 2017
ThinkSmart Limited
("ThinkSmart" or the "Company" and together with its subsidiaries the "Group")
Final Results for the year to 30 June 2017
ThinkSmart Limited (AIM: TSL), a leading provider in the UK of retail point-of-sale lease finance for high-volume small-ticket electronic and commercial equipment, today announces its full year results for the twelve month period to 30 June 2017.
Highlights
-- Successful migration of the Company's listing from the Australian Securities Exchange ("ASX") to AIM of the London Stock Exchange
-- Completion of GBP5m placement with cornerstone investor Lombard Odier (formerly Henderson Global Investors)
-- Appointment of Gerald Grimes as Chief Executive Officer on 1 July 2017 who brings significant industry expertise to the senior leadership team
-- Revenues for the relevant period were down to GBP10.1m, driven by lower volume performance -- Ongoing investment in proprietary SmartCheck platform underpins growth strategy
-- Group Operating NPAT1 loss of GBP-0.7m, reflecting lower revenues and ongoing investment in SmartCheck platform
-- Total funding facilities increased to GBP90m, after a further GBP20m financing facility agreed with Secure Trust Bank in the year, GBP70m of which undrawn
-- The executive team supported by high calibre non-executive Directors: Keith Jones, David Adams, Roger McDowell and Peter Gammell
-- Further progress in execution of strategic product and customer diversification plan, enabled by investment in market-leading SmartCheck platform
Commenting on the results Ned Montarello, Executive Chairman, said:
"The last twelve months has been a period of investment in the business, building out a strong platform for growth. We've continued to invest in our proprietary SmartCheck credit decision platform, deepened our relationship with Dixons Carphone and appointed an experienced consumer finance CEO to oversee our expansion plans. We are now well placed to accrue value as a result of our focused investment.
"Despite performance for the period being impacted by a number of factors, including the timing of product launches and partner activity, the strength of market demand drivers underpin our confidence going forward. The ongoing digitalisation of purchasing habits and the trend towards "lease" rather than "buy" support our growth strategy.
"Looking forward we are focused on leveraging our investment in our proprietary SmartCheck technology to broaden our product and customer portfolio. Our new smartphone leasing product with Carphone Warehouse is primed for a full launch in the second half of this calendar year, whilst we expect to launch new to market consumer finance propositions later in the year."
For further information please contact:
ThinkSmart Limited Via Instinctif Partners Ned Montarello Canaccord Genuity (Nominated Adviser, Financial Adviser and Joint Broker) +44 (0)20 7523 8350 Sunil Duggal David Tyrrell Andrew Buchanan Richard Andrews Peel Hunt LLP (Joint Broker) +44 (0) 20 7418 8900 Charles Batten Guy Wiehahn Rishi Shah Instinctif Partners +44 (0)20 7457 2020 Giles Stewart Kaj Sahota
Key:
(1) Group Operating NPAT excludes non-operating strategic review and advisory expenses. Statutory NPAT loss of GBP-1.8m after GBP1.1m of one off non-operating strategic review and advisory expenses.
Notes to Editors
About ThinkSmart Limited
ThinkSmart Limited is a leading provider in the UK of retail point-of-sale lease finance for high-volume small-ticket electronic and commercial equipment. The Group provides both B2B and B2C point-of-sale lease finance, primarily through its longstanding relationship with Dixons Retail and its new relationship with Carphone Warehouse. The Group's product offering is underpinned by a proprietary, innovative and scalable technology platform, SmartCheck. Since it commenced operations in the UK in 2003, the Group has processed in excess of 350,000 individual applications.
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.
Chairman's Statement
Introduction
This is ThinkSmart's first set of full year results since its successful admission to trading on AIM in December 2016. This has been a transformative year for the business with the move to a London listing a strategic one, aligning our listing venue with our place of operations and business. We welcomed Lombard Odier (formerly Henderson Global Investors) as our cornerstone UK investor through this process and the listing will provide ThinkSmart with a deeper capital pool as we address opportunities going forward.
ThinkSmart is now well positioned to capitalise on a number of significant consumer and business finance trends, including the impact of digitalisation on purchasing habits and the trend toward "rent" rather than "buy". We have developed our strategy around these structural drivers and over the course of the year have focused on building out our capability set in order to leverage our positioning.
From a product perspective we have continued to invest in our leading proprietary credit-decision and finance origination engine, SmartCheck. This platform enables the full functionality of our products, with the capacity to process up to 12,000 transactions per hour. SmartCheck has been designed to easily integrate into customers' POS systems and the accuracy of its underwriting is supported by the Group's in excess of 350,000 records. Crucially, the platform enables the broader roll-out of the Group's mobile and app-based solutions, reflecting shifting finance management trends.
During the year we also made significant progress with key customer relationships. The Group has a 14 year relationship with Dixons Carphone, and signed an exclusive agreement with Carphone Warehouse earlier this year through to 2021 in relation to an innovative smartphone consumer finance proposition. This proposition demonstrates significant growth potential and is in the process of being prepared for full launch in the second half of this calendar year.
From a funding perspective we signed a new GBP20m funding facility with Secure Trust Bank (STB), an existing funding partner. At period end we held GBP70m of unused facilities and given our strong relationships with existing funders, we remain well placed to execute on our new business plan from a position of balance sheet robustness.
On 1 July 2017 we welcomed Gerald Grimes as our new Chief Executive Officer and he is already making a valuable mark on the business and its operations. Gerald is an important hire for ThinkSmart as a proven consumer finance operator with a track record of transforming retail point of finance businesses into market leaders.
I expect the business to benefit significantly from Gerald's experience and I look forward to working with him to develop our growth and diversification plan and deliver on the strength of our proposition.
Performance
Overall volumes for the relevant period were lower by 29% against the previous year, mainly as a result of the Upgrade Anytime product and also impacted by a number of other factors including the timing of product launches and partner activity.
Total revenues were lower at GBP10.1m driven mainly by volume performance. Whilst disappointing, a number of one-off factors contributed to this result. Importantly, we can clearly see the tangible growth opportunities afforded to us given the strength of our relationship with Dixons Carphone and our committed drive to diversify our offering into different distribution channels and sectors.
The expected full launch of the Group's innovative new smartphone leasing proposition with Carphone Warehouse, in the second half of the calendar year, is expected to contribute to the significant growth of its new active customer base.
The Group recognises the impact of changing macro environmental factors both on the market, distribution channels and partners, particularly in respect to regulation, the frequency of hardware innovation and end customer refresh cycles.
As such, the Group continues to review existing and new propositions for current and potential partners, to ensure their relevance and best fit with end customer needs and distribution channels.
Group Operating NPAT(1) fell to a loss of GBP-0.7m, largely reflecting the drop in revenues. The cost base reflects the recent significant investment in the SmartCheck platform, as well as in the Group's operational base and broadened Executive talent pool.
Statutory earnings per share fell to -1.77 pence, down from 0.31 pence during the equivalent prior year period. Statutory EPS reflects the impact of GBP1.1m of non-recurring non-operating strategic review and advisory expenses relating to, inter alia, the Company's admission to AIM.
Position
Lease receivables under management at the end of the relevant period stood at around GBP20m, with approximately 45,400 active customer contracts. During the year we built on our existing relationship with STB by agreeing a GBP20 million approved financing facility (under the Secure Trust Bank Invoice Discounting Agreement) for use with the smartphone financing proposition, due to be fully launched with Carphone Warehouse in the second half of this calendar year. At the end of the period, approximately GBP20 million was drawn from a funding pool of up to GBP90 million available to support our new business activities. Relationships with our funding providers remain strong.
At 30 June 2017 the business had cash and cash equivalents of cGBP4.5m.
Partners
Our longstanding partner of 14 years, Dixons Carphone, continues to be Europe's leading specialist electrical and telecommunications retailer and services company. The depth and longevity of our relationship, and the extent to which we are embedded into their operating system and procedures, is a testament to the quality of our offering and our ability to deliver commercial benefit.
Our new business plans with Dixons Carphone revolve around the launch of the new innovative mobile phone consumer leasing proposition, envisaged for a full rollout in the second half of 2017. It is designed for smartphone users who wish to upgrade their phones in line with the technology cycles, typically of 12 months duration. ThinkSmart's solution will allow Carphone Warehouse's customers to acquire the latest smartphone, either with or without SIM, via a convenient financing agreement with practically instant credit decisions given at the point of sale. This product is current and relevant to the current mobile phone landscape and meets both the requirements of the consumer and our partner.
The Group is well positioned to make progress on further diversifying its customer and distribution base, supported by the quality of our platform and product offering and financed by our strong funding relationships.
Regulatory Update
ThinkSmart maintains good, open relations with its UK regulator, the FCA. In addition to its leasing activities, ThinkSmart is also able to enter into regulated credit agreements as a lender. Broadening our consumer finance offering remains a strategic imperative for the business.
Investment in the business
The Company has invested approximately GBP4m over the past two years in developing its digital solutions, including its SmartCheck platform. As a result, the business benefits from a proprietary, market-leading digital consumer finance platform that facilitates leasing, as well as credit finance at the point of sale.
The platform has been engineered to manage the multi-channel manner in which consumers and businesses acquire goods online, via mobile or in store.
The Group's online basket technology has been further developed during the year, enabling solution penetration, in addition to higher volume and value purchases.
The Group has also continued its investment in its customer account facility. This app-based solution allows customers to make a single credit application to obtain a pre-approved credit limit which they can use to lease multiple pieces of equipment without the need to make additional credit applications.
The Group is also investing significantly in diversification through the development of our SmartCheck IP to offer new to market consumer finance propositions which we expect to be launched in the coming financial year.
Growth Strategy
In the current term, ThinkSmart has identified mobile phone leasing as a key target for growth. In the UK, 91.5 million live mobile subscriptions were in existence by the end of 2015 and 93% of adults owned or used a mobile phone.
In recent months some manufacturers (such as Apple and Samsung) have launched their own upgrade programmes which allow customers to get the latest phone every year, thus shortening replacement cycles. We expect our exclusive contractual arrangement with Carphone Warehouse to provide a leasing solution and contribute to the emergence of this new trend.
Central to the Groups diversification strategy is the significant growth of its active customer base through the development of a portfolio of new financial propositions, diversified channels of distribution and new partners and where it can leverage its investment in its leading digital technology, people and systems.
In the coming financial year the Group expects to launch new to market consumer finance propositions, driving a broader diversified revenue base.
We are confident that our plan will enable the company to capitalise on its scalable and innovative technology, thus driving up new customer acquisitions, additional repeat customer business and increased orders.
Board Appointments
During the period the Company announced that the Board had accepted the resignation of Fernando de Vicente, CEO of ThinkSmart. Fernando left the business on 30 April 2017.
Gerald Grimes became Chief Executive Officer on 1 July 2017. He joined from Hitachi Capital where he was Managing Director of Hitachi Capital Consumer Finance and sat on the board of Hitachi Capital (UK) PLC. After joining the business in 2007, he successfully built a market leading UK point-of-sale finance business founded on deep relationships with some of the UK's foremost retailers. Gerald was instrumental in diversifying the consumer finance product offering, including launching Hitachi Capital's direct to consumer personal finance proposition and growing this into a GBP1bn portfolio within three years.
The executive team benefit from the input and wisdom of a high calibre Board of Non-executives, namely Keith Jones, David Adams, Roger McDowell and Peter Gammell.
Current Trading Update
In the first eight weeks of the new financial year, volumes from the Group's higher margin SmartPlan product are up 14% year on year, offset by the continued year on year decline in Upgrade Anytime volumes. This resulted in overall volumes for the first eight weeks of the current financial year broadly maintaining a similar trajectory as the previous financial year.
Upgrade Anytime volume and margin contributions have been decreasing over recent years and the Group therefore expects this decline in volume to have a minimal impact on profit in this current financial year.
The Group recognises the impact of changing macro environmental factors both on the market, distribution and partners. As such the Group continues to review its propositions, and the design of new propositions for existing and new partners, to ensure their relevance and best fit with end customer need and distribution channels.
The expected full launch of the new mobile phone proposition with Carphone Warehouse is scheduled for the second half of this calendar year. The Group expects this to be followed later in the year by the launch of new to market consumer finance propositions.
Ned Montarello, Executive Chairman
Key Performance Indicators:
Hot Features
Premium
12 Months to
12 Months 30 June 2016
to
30 June
2017
--------------------------------------- ------------ --------------- ------
Business Volumes
--------------------------------------- ------------ --------------- ------
* SmartPlan/Upgrade Anytime GBP11.2m GBP16.1m -30%
--------------------------------------- ------------ --------------- ------
* TBL GBP0.5m GBP0.4m +10%
--------------------------------------- ------------ --------------- ------
Total GBP11.7m GBP16.5m -29%
--------------------------------------- ------------ --------------- ------
Revenue (Total) GBP10.1m GBP13.3m -24%
--------------------------------------- ------------ --------------- ------
Group Operating NPAT(1) GBP(0.7m) GBP2.1m -134%
--------------------------------------- ------------ --------------- ------
Statutory (Loss)
/ Profit After Tax GBP(1.8m) GBP0.3m -712%
--------------------------------------- ------------ --------------- ------
Basic EPS (pence) (1.77) 0.31 -671%
--------------------------------------- ------------ --------------- ------
As at
30 June As at
2017 30 June 2016
--------------------------------------- ------------ --------------- ------
Lease Receivables
Under Management
(Closing) GBP20m GBP25m -19%
--------------------------------------- ------------ --------------- ------
Active Customer Contracts
(,000) 45.4 57.2 -21%
--------------------------------------- ------------ --------------- ------
ATV GBP846 GBP784 +8%
--------------------------------------- ------------ --------------- ------
Cash and Cash Equivalents GBP4.5m GBP4.9m -7%
--------------------------------------- ------------ --------------- ------
Net Assets GBP18.3m GBP17.9m +3%
--------------------------------------- ------------ --------------- ------
(1) Group Operating NPAT excludes non-operating strategic review and advisory expenses
Consolidated Statement of Profit & Loss and Other Comprehensive Income
for the Financial Year Ended 30 June 2017
12 Months 12 Months
to June to June
2017 2016
Notes GBP,000 GBP,000
Continuing operations
Revenue 6(a) 8,951 11,813
Other revenue 6(b) 1,185 1,459
---------- ----------
Total revenue 10,136 13,272
Customer acquisition cost 6(c) (1,349) (1,561)
Cost of inertia assets realised 6(d) (1,925) (2,099)
Other operating expenses 6(e) (6,123) (5,826)
Depreciation and amortisation 6(f) (1,159) (704)
Impairment losses 6(g) (474) (390)
Non-operating strategic review
and advisory expenses 8 (1,106) (1,846)
---------- ----------
Loss before tax (2,000) 846
Income tax credit/(expense) 7 158 (545)
---------- ----------
Loss after tax - attributable
to owners of the Company (1,842) 301
Other comprehensive (loss)/income
Items that may be reclassified
subsequently to profit or loss,
net of income tax:
Foreign currency translation differences
for foreign operations (223) 346
Total items that may be reclassified
subsequently to profit or loss
net of income tax (223) 346
---------- ----------
Other comprehensive (loss)/income
for the period, net of income
tax (223) 346
---------- ----------
Total comprehensive (loss)/income
for the period attributable to
owners of the Company (2,065) 647
---------- ----------
Earnings per share
Basic (loss)/earnings per share
(pence) 28 (1.77) 0.31
Diluted (loss)/earnings per share
(pence) 28 (1.72) 0.31
The attached notes form an integral part of these consolidated financial statements
Consolidated Statement of Financial Position
as at 30 June 2017
June 2017 June 2016
Notes GBP,000 GBP,000
Current assets
Cash and cash equivalents 20(a) 4,527 4,854
Trade receivables 290 295
Finance lease receivables 9 2,107 2,796
Other current assets 10 2,177 2,623
Total current assets 9,101 10,568
Non-current assets
Finance lease receivables 9 1,282 1,525
Plant and equipment 12 207 263
Intangible assets 13 7,459 7,213
Goodwill 15 2,332 2,332
Deferred tax assets 7 96 512
Tax receivable 7 222 53
Other non-current
assets 11 2,857 3,309
Total non-current
assets 14,455 15,207
Total assets 23,556 25,775
Current liabilities
Trade and other payables 16 1,155 1,717
Deferred service income 17 1,059 1,297
Other interest bearing
liabilities 18 1,158 2,182
Provisions 16 314 192
Total current liabilities 3,686 5,388
Non-current liabilities
Deferred service income 17 746 819
Deferred tax liability 7 27 526
Other interest bearing
liabilities 18 789 1,190
Total non-current
liabilities 1,562 2,535
Total liabilities 5,248 7,923
Net assets 18,308 17,852
Equity
Issued capital 19(a) 17,332 14,376
Reserves (2,703) (2,480)
Accumulated profits 3,679 5,956
Total equity 18,308 17,852
The attached notes form an integral part of these consolidated financial statements
Consolidated Statement of Changes in Equity
for the Financial Year Ended 30 June 2017
Attributable
Fully Foreign to equity
paid currency holders
ordinary translation Accumulated of the
Consolidated shares reserve Profit parent
GBP,000 GBP,000 GBP,000 GBP,000
Balance at 1 July 2015 14,376 (2,826) 7,750 19,300
Profit for the period - - 194 194
Exchange differences arising
on translation of foreign
operations, net of tax - 346 (1) 345
Total comprehensive income
for the period - 346 193 539
Transactions with owners
of the Company, recognised
directly in equity
Contributions by and distributions
to owners of the Company
Dividends paid - - (2,094) (2,094)
Recognition of share-based
payments - - 107 107
Balance at 30 June 2016 14,376 (2,480) 5,956 17,852
Balance at 1 July 2016 14,376 (2,480) 5,956 17,852
Profit for the period - - (1,842) (1,842)
Exchange differences arising
on translation of foreign
operations, net of tax - (223) - (223)
Total comprehensive (loss)/income
for the period - (223) (1,842) (2,065)
Transactions with owners
of the Company, recognised
directly in equity
Contributions by and distributions
to owners of the Company
Issue of ordinary shares 5,000 - - 5,000
Share buyback (1,721) - - (1,721)
Costs associated to capital
raising and buyback (323) - - (323)
Dividends paid (Note 19(c)) - - (536) (536)
Recognition of share-based
payments - - 101 101
Balance at 30 June 2017 17,332 (2,703) 3,679 18,308
The attached notes form an integral part of these consolidated financial statements
Consolidated Statement of Cash Flows
for the Financial Year Ended 30 June 2017
12 Months 12 Months
to June to June
2017 2016
Notes GBP,000 GBP,000
Cash Flows from Operating Activities
Receipts from customers 9,722 13,557
Payments to suppliers and employees (8,502) (10,915)
Payments relating to strategic
review and advisory expenses (1,866) (1,225)
Payments in respect of lease
receivables 1,886 (1,963)
Proceeds from other interest
bearing liabilities, inclusive
of related costs (1,274) 1,555
Interest received 97 146
Interest and finance charges (387) (311)
Receipts from security guarantee 15 763
Income tax paid (95) (622)
Net cash (used in)/from operating
activities 20(b) (404) 985
---------- ----------
Cash Flows from Investing Activities
Payments for plant and equipment (103) (147)
Payment for intangible assets
- Software (1,872) (1,961)
Payment for intangible assets
- Contract rights (210) (172)
Net cash used in investing activities (2,185) (2,280)
---------- ----------
Cash Flows from Financing Activities
Proceeds from share issue net
of costs 4,748 -
Payment for establishing financing
facilities (150) -
Dividends paid (536) (2,094)
Share buyback net of costs (1,792) -
Net cash used in financing activities 2,270 (2,094)
---------- ----------
Net decrease in cash and cash
equivalents (319) (3,389)
Effect of exchange rate fluctuations
on cash held (8) 21
Cash and cash equivalents from
continuing operations at beginning
of the financial year 4,854 8,222
Total cash and cash equivalents
at the end of the financial period 20(a) 4,527 4,854
---------- ----------
Restricted cash and cash equivalents
at the end of the financial period 20(a) (124) (117)
---------- ----------
Net available cash and cash equivalents
at the end of the financial period 4,403 4,737
---------- ----------
The attached notes form an integral part of these consolidated financial statements
1. General Information
ThinkSmart Limited (the "Company" or "ThinkSmart") is a limited liability company incorporated in Australia. The consolidated financial statements of the Company comprise 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 Company is listed on the Alternative Investment Market ("AIM"), a sub-market of the London Stock Exchange. The financial information has been prepared in accordance with the AIM Rules for Companies and in accordance with this basis of preparation, including the significant accounting policies set out below.
The consolidated financial statements are general purpose financial statements which have been prepared and approved by the Directors in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporation Act 2001. The consolidated financial statements comply with International Financial Reporting Standard (IFRS) adopted by the International Accounting Standards Board (IASB) as well as International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs"). The consolidated financial statements were authorised for issue by the Board of Directors on 5 September 2017.
Accounting period
The financial information presented covers the audited period ended 30 June 2017 (12 months) and for comparison the period ended 30 June 2016 (12 months). The accounting policies set out below have, unless otherwise stated, been applied consistently to these consolidated financial statements.
3. 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 Sterling unless otherwise noted.
1) Functional and presentation currency
These consolidated financial statements are presented in British Pounds, which is the Group's functional currency. The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/ Directors' Reports) Instrument 2016/191b and in accordance with that instrument, amounts in the consolidated financial statements and directors' report have been rounded off to the nearest thousand pounds, unless otherwise stated. Previous to the AIM listing the financial statements were presented in Australian Dollars.
(b) Going Concern
The directors believe the Group is well placed to manage its business risks successfully and therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements. Note 5 and note 25 to the financial statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and its exposure to credit risk and liquidity risk.
(c) 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 2017 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.
Ref Title Summary Application Application Impact on Group
date date financial report
of standard for Group
----- ------------- ------------------------ ------------- ------------ ------------------------
IFRS Financial Replaces IAS39, 1 January 1 July The main impact
9 Instruments the standard 2018 2018 to the Group
includes requirements will be related
for classification to impairment
and measurement of the lease
of financial receivable. The
assets and Group already
liabilities, provides an impairment
hedge accounting provision and
and the impairment it is expected
of financial that this change
assets will only slightly
increase this
provision. At
the time of preparing
this report the
Group continues
to assess the
possible impact
of the adoption
of these standards
in future periods
and updates will
be provided in
a future annual
report.
----- ------------- ------------------------ ------------- ------------ ------------------------
IFRS Revenue The new standard 1 January 1 July At the time of
15 from creates a single 2017 2017 preparing this
Contracts model for revenue report the Group
with recognition continues to
Customers from contracts assess the possible
with customers. impact of the
adoption of these
standards in
future periods
and updates will
be provided in
a future annual
report.
----- ------------- ------------------------ ------------- ------------ ------------------------
IFRS Leases Replaces IAS17, 1 January 1 July The Group currently
16 the standard 2019 2019 only leases its
introduces office and company
a single lessee vehicles. The
accounting office lease
model and requires is shown in note
a lessee to 21. At the time
recognise assets of preparing
and liabilities this report the
for all leases Group continues
with a term to assess the
of more than possible impact
12 months, of the adoption
unless the of these standards
underlying in future periods
asset is of and updates will
low value. be provided in
A lessee is a future annual
required to report.
recognise a
right-of-use
asset representing
its right to
use the underlying
leased asset
and a lease
liability representing
its obligation
to make lease
payments.
----- ------------- ------------------------ ------------- ------------ ------------------------
The following new and revised Standards and Interpretations were issued during the financial year and had no material impact on the accounts:
- IAS 7 (amendments) Disclosure initiative
- IAS 12 (amendments) Recognition of deferred tax assets for unrealised losses
- IFRS 2 (amendments) Classification and measurement of share-based payment transactions
- IFRS 1- and IAS 28 (amendments) Sale or contribution of assets between an investor and its associate or joint venture
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 applied 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) Revenue recognition
The Group has relationships with retail partners to act as a facilitator and arranger of financing arrangements to allow those retailers to provide technological products to consumers under short/medium term finance contracts. The financing is obtained by the Group from third party funding partners.
Depending on the nature of the agreements with those funders, these contracts result in the Group acting as a lessor or as the agent of the funder (who is then the lessor).
Where the Group is acting as the lessor it follows the treatment outlined in IAS 17. In accordance with IAS 17 nearly all the contracts are considered to be finance leases and the only source of revenue is Finance Lease Income. This Finance Lease Income is recognised on the effective interest rate method at the constant rate of return. This method amortises the lease asset over its economic life down to the estimate of any unguaranteed residual value that is expected to be accrued to the Group at the end of the lease.
In the Year ended 30(th) June 2017 the Group piloted a Product where it acted as the lessor in a B2C operating lease. The pilot produced a small number of contracts which generated less than 0.3% of the total lease income revenue. Due to the small value of this it has been included in Other Revenue in these financial statements.
Where the Group is acting as the agent it receives the following revenue streams:
Commission income
An upfront brokerage fee receivable from the funder in exchange for arranging the contract.
Deferred service income
As part of the agreement with funders the Group obtain the right to receive income arising from equipment and rights to the hiring agreement at the end of the minimum term, which is recognised upfront as an Inertia Contract Intangible Asset (see note 3h). An amount equal to this asset is then recognised as deferred service income over the life of the contract.
Extended rental income
Once the contract between the funder and the customer expires the asset becomes the property of the Group and any extended rental income is payable to Group, being recognised when receivable.
Income earned from sale of inertia assets
At the end of the extended rental period any proceeds on disposal of the asset are recognised at the point of disposal.
Services revenue - insurance
Lease customers of hire agreements originated by the Group are required to have suitable insurance in respect of the leased equipment. If these customers do not make independent insurance arrangements the Group arrange insurance and collect the premiums on their behalf, receiving a commission from the insurer for doing so.
(d) Cash and cash equivalents
Cash comprises cash on hand and demand deposits with an original maturity of less than 3 months. Cash equivalents are short-term, highly liquid investments that are readily converted to known amounts of cash which are subject to an insignificant risk of change in value. Restricted cash comprises amounts held in trust in relation to dividends paid on employee loan funded shares.
(e) 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:
- 3 to 5 years
* Office furniture, fittings, equipment and computers
- the lease term
* Leasehold improvements
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
(f) 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 and measured at fair value.
(g) 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.
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.
Lease receivables
The Group has entered into financing transactions with customers and has classified nearly all of 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 minimum 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 minimum lease term. This asset represents the Group's net investment in the lease.
Unearned finance lease income
Unearned finance lease income 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 on 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(g)(iii)).
Insurance prepayment
In relation to business customers who do not already have insurance, a policy is set up through a third party insurance provider. The Group pays for the insurance cover upfront and also recognises its income upfront which creates an insurance prepayment on the balance sheet. The Group subsequently collects the insurance premium from the customer on a monthly basis over the life of the rental agreement, which reduces the prepayment. Where a policy is cancelled, the unexpired premiums are refunded to the Group.
Other financial assets
These are classified as 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
(ii) Non-derivative financial liabilities
The Group initially recognises financial liabilities on the date 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.
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, 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 asset's 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 when an asset is either non recoverable or has suffered arrears of at least 91 days. 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 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.
(h) 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
As noted in note 3(c), where the Group is acting as an agent the Group recognises an intangible asset once it has an unconditional contractual right to receive income arising from equipment and rights to the hiring agreement at the end of minimum 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 minimum 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 minimum 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 contract rights, the expected useful life is the earlier of the initial contract minimum 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 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.
(i) 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.
(j) 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 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.
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.
(k) 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 ready for sale. Refer to note 3(h) in relation to inertia contracts where, at the end of the minimum lease term, the intangible asset is derecognised and the Group recognises the equipment as inventory at the corresponding value.
(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.
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 (VAT/GST) except:
(i) where the amount of VAT/GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; and
(ii) receivables and payables which are recognised inclusive of VAT/GST.
The net amount of VAT/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 VAT/GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.
(o) Foreign currency transactions
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 at 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.
(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 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 minimum term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the minimum 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 minimum lease term so as to produce a constant period rate of interest on the remaining balance of the liability.
(s) 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. 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 quoted prices (unadjusted) in active markets for identical
1: assets or liabilities.
-- Level inputs other than quoted prices included in Level 1 that
2: are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
-- Level inputs for the asset or liability that are not based on
3: 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 highest 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 contracts; -- Note 19(b)(i) - share based payment transactions; and -- Note 25(b) - financial instruments. 4. Critical accounting estimates and judgements
The preparation of the consolidated financial statements in conforming to 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 13 - measurement of deferred services income;
-- Note 15 - measurement of the recoverable amount of cash generating units containing goodwill;
-- Note 19(b)(i) - measurement of share-based payments; and -- Note 24 - value of financial guarantee contract net of loss provision. 5. Financial Risk Management
Overview
The Group has exposure to the following risks from the use of financial instruments:
-- Credit risk -- Liquidity risk -- Market risk -- Operational risk
This note presents information about the Group's exposure to each of the above risks, the objectives, policies and processes for measuring and managing financial risks, and the management of capital. Further quantitative disclosures are included throughout this financial report.
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has established the Audit and Risk Management Committee, which is responsible for developing and monitoring risk management policies. The Committee reports to the Board of Directors on its activities.
Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect the changes in market conditions and the Group's activities. The Audit and Risk Committee oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.
Credit Risk
Credit risk refers to the risk that a counterparty or customer will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with credit worthy counterparties as a means of mitigating the risk of financial loss from defaults. The 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 trading subsidiaries 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 24.
To manage credit risk in relation to its customers, there is a credit assessment and fraud minimisation process delivered through its patented SmartCheck 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 by the Head of Credit Risk and applied by the Credit Risk Committee with Board approval. The Head of Credit Risk monitors ongoing credit performance on different cohorts of customer contracts. In addition there exists a specialist collections function to manage any delinquent accounts.
Credit risk exposure to funder deposits is more concentrated, however the counterparties are regulated banking institutions and the credit risk exposure is assessed as low. The Group closely monitors the credit risk associated with each funder deposit counterparty.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The consolidated entity manages liquidity risk by maintaining adequate reserve facilities by continuously reviewing its facilities and cash flows. The Group ensures that it has sufficient cash on demand to meet expected operational expenses and financing subordination requirements. In addition, the Group maintains the operational facilities which are shown in note 18.
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's exposure to foreign currency risk is limited to the cash balances held by the Australian parent ThinkSmart Limited denominated in Australian Dollars.
Interest rate risk
As at 30 June 2017 the Group has drawn down GBP2.4m on its Santander loan facility of GBP10m which runs until July 2018. Exposure to interest rate risk on any 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 2017 there were interest rate swaps with an original notional value of GBP5m in place with Santander UK plc to fix the future interest rate exposure on the Santander loan facility (see note 18). The mark to market value of these interest rate swaps as at 30 June 2017 was GBP4,000.
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; and -- Risk mitigation, including insurance where this is effective.
Concentration risk
The Company's main retail distribution partner in the UK is Dixons Carphone plc and an exclusive contract for both business sales and consumer sales is in place until 2019. Should Dixons cease trading or terminate the exclusive contract, turnover would be reduced until alternative distribution partners were found.
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:
30 June 30 June
2017 2016
GBP,000 GBP,000
Total liabilities 5,248 7,923
Less cash and cash equivalents (4,527) (4,854)
-------- --------
Net debt/(Net cash) 721 3,069
-------- --------
Total capital 18,308 17,852
Debt-to-adjusted capital ratio 0.04 0.17
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 on a periodic basis. During the financial period to 30 June 2017, the Board declared and paid a special dividend unfranked at 5.36 pence per share relating only to the 9,999,178 shares participating in the off-market buy-back (Note 19(c)).
30 June 30 June
2017 2016
Notes GBP,000 GBP,000
6. Consolidated Statement of
Profit and Loss
Profit/(loss) is arrived at
after crediting/(charging) the
following items:
a) Revenue
Finance lease income 842 909
Interest revenue - other entities 97 146
Income earned from sale of inertia
assets 796 1,159
Extended rental income 3,101 3,092
Deferred service income 1,516 1,969
Fee revenue - customers 118 123
Commission income 2,481 4,415
8,951 11,813
b) Other revenue
Services revenue - insurance 1,164 1,444
Other revenue 21 15
--------- -----------
1,185 1,459
--------- -----------
c) Customer acquisition costs
Customer acquisition costs relate to sales and marketing
expenses incurred during the ongoing promotional
activity of the finance contracts to new and existing
customers.
d) Cost of inertia asset realised
Cost of inertia asset realised includes write down
of assets held for secondary rental and net book
value of the assets sold at date of disposal.
e) Other operating expenses
Employees benefits expense:
- Payments to employees (3,640) (3,582)
- Employee superannuation costs (232) (262)
- Share-based payment expense (101) (107)
- Provision for employee entitlements - (22)
--------- -----------
(3,973) (3,973)
Occupancy costs (322) (307)
Professional services (505) (488)
Finance charges (279) (204)
Other costs (1,044) (854)
--------- -----------
(6,123) (5,826)
--------- -----------
f) Depreciation and amortisation
Depreciation (159) (133)
Amortisation (1,000) (571)
--------- -----------
(1,159) (704)
--------- -----------
g) Impairment losses
Impairment losses finance leases
and receivables (147) (147)
Impairment losses on intangible
assets (net) (327) (243)
--------- -----------
(474) (390)
--------- -----------
30 June 30 June
2017 2016
Notes GBP,000 GBP,000
7. Income Tax
(a) Amounts recognised in profit
and loss
The major components of income tax (benefit)/expense
are:
Current income tax credit/(expense) 402 (598)
Adjustment for prior period (190) 95
Deferred income tax expense
Origination and reversal of
temporary differences 4 (42)
Adjustment for prior period (58) -
Total income tax credit/(expense) 158 (545)
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 (loss)/profit before
tax (2,000) 846
-------- --------
At the statutory income tax rate
of 30% 600 (254)
Effect of tax rates in foreign jurisdictions (133) 232
Non-deductible expenses (315) (611)
Losses carried back (99) -
Losses carried forward (130) -
Overseas tax losses not recognised/(recognised) (13) (7)
Adjustments in respect of prior
periods 248 95
-------- --------
Income tax credit/(expense) 158 (545)
-------- --------
Deferred tax asset
Accrued expenses 14 26
Employee entitlements 60 46
Equity raising costs 5 31
Borrowing costs - 1
Plant & equipment 1 -
Intangible assets - 408
Losses carried forward 16 -
-------- --------
Total 96 512
-------- --------
Deferred tax liability
Plant & equipment 16 22
Intangible assets 11 504
-------- --------
Total 27 526
-------- --------
Net deferred tax asset/(liability)
for UK 1 (114)
Net deferred tax asset for Australia 68 100
Tax payable/(receivable)
Current (222) (53)
The current tax (asset)/liability is recognised for income tax (receivable)/payable in respect of all periods to date.
30 June 30 June
2017 2016
GBP,000 GBP,000
8. Non-operating strategic
review and advisory expenses
Non-operating strategic review
and advisory expenses* (1,106) (1,846)
*Costs associated with the successful completion
of GBP5m Henderson placement, buyback of 10m shares
and migration of listing to the AIM of the London
Stock Exchange.
30 June 30 June
2017 2016
GBP,000 GBP,000
9. Finance lease receivables
Current
Gross investment in finance lease
receivables 1,928 2,862
Unguaranteed residuals 154 230
Unearned future finance lease income 51 (259)
Net lease receivable 2,133 2,833
Allowance for losses (26) (37)
2,107 2,796
Non-current
Gross investment in finance lease
receivables 1,169 1,561
Unguaranteed residuals 91 125
Unearned future finance lease income 38 (141)
Net lease receivable 1,298 1,545
Allowance for losses (16) (20)
--------- ---------
1,282 1,525
--------- ---------
All finance leases detailed above have a minimum lease term of 2 years, see note 3(c) for further information on the accounting policy for these finance leases.
30 June 30 June
2017 2016
GBP,000 GBP,000
10. Other Current Assets
Prepayments 631 610
Insurance prepayments 454 565
Accrued income (i) 639 785
Inventories 284 498
Sundry debtors 169 165
2,177 2,623
--------- ---------
30 June 30 June
2017 2016
GBP,000 GBP,000
11. Other Non- Current Assets
Insurance prepayments 293 465
Accrued income (i) 381 646
Deposits held by funders, net of
provision (ii) 2,183 2,198
--------- ---------
2,857 3,309
--------- ---------
(i) Accrued income reflects brokerage commission earned from making insurance arrangements on behalf of leaseholders and is net of a clawback provision. The clawback provision for each reporting period has been estimated to be 30% based on historical experience, and is calculated on the gross commission receivable.
(ii) 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. See note 24 for further information.
12. Plant and Equipment
Plant Plant
& Equipment & Equipment
(AU) (UK) Total
Notes GBP,000 GBP,000 GBP,000
------------- ------------- ---------
Gross Carrying Amount
Cost or deemed cost
Balance at 1 July 2015 66 2,242 2,308
Effect of movement in exchange
rate - - -
Additions - 147 147
Balance at 30 June 2016 66 2,389 2,455
------------- ------------- ---------
Effect of movement in exchange
rate 14 - 14
Additions 2 101 103
Balance at 30 June 2017 82 2,490 2,572
Accumulated Depreciation
Balance at 1 July 2015 (30) (2,031) (2,061)
Effect of movement in exchange
rate 2 - 2
Depreciation expense (22) (111) (133)
Balance at 30 June 2016 (50) (2,142) (2,192)
------------- ------------- ---------
Effect of movement in exchange
rate (14) - (14)
Depreciation expense (17) (142) (159)
Balance at 30 June 2017 (81) (2,284) (2,365)
------------- ------------- ---------
Net Book Value
At 30 June 2016 16 247 263
------------- ------------- ---------
At 30 June 2017 1 206 207
------------- ------------- ---------
13. Intangible Assets
Contract Software Distribution Intellectual Inertia Total
rights network Property Contracts
GBP,000 GBP,000 GBP,000 GBP,000 GBP,000 GBP,000
--------- --------- ------------- ------------- ----------- ---------
Gross carrying
amount
At cost
Balance at 1
July 2015 971 727 270 314 6,250 8,532
Effect of movement
in exchange
rate - - - 42 - 42
Additions 179 1,951 - - 1,691 3,821
Disposals/transfer
to inventory - - - - (1,838) (1,838)
Balance at 30
June 2016 1,150 2,678 270 356 6,103 10,557
--------- --------- ------------- ------------- ----------- ---------
Effect of movement
in exchange
rate - - - 24 - 24
Additions 210 1,872 - - 1,338 3,420
Disposals/transfer
to inventory - - - - (1,720) (1,720)
Balance at 30
June 2017 1,360 4,550 270 380 5,721 12,281
--------- --------- ------------- ------------- ----------- ---------
Contract Software Distribution Intellectual Inertia Total
rights network Property Contracts
GBP,000 GBP,000 GBP,000 GBP,000 GBP,000 GBP,000
--------- --------- ------------- ------------- ----------- ---------
Accumulated
amortisation
and impairment
Balance at 1
July 2015 (721) (79) (270) (237) (1,043) (2,350)
Effect of movement
in exchange
rate - - - (33) - (33)
Amortisation
expense (190) (365) - (16) - (571)
Impairment loss
(i) - - - - (390) (390)
Balance at 30
June 2016 (911) (444) (270) (286) (1,433) (3,344)
--------- --------- ------------- ------------- ----------- ---------
Effect of movement
in exchange
rate - - - (18) - (18)
Amortisation
expense (170) (811) - (19) - (1,000)
Impairment loss
(i) - - - - (460) (460)
--------- --------- ------------- ------------- ----------- ---------
Balance at 30
June 2017 (1,081) (1,255) (270) (323) (1,893) (4,822)
Net book value
At 30 June 2016 239 2,234 - 70 4,670 7,213
--------- --------- ------------- ------------- ----------- ---------
At 30 June 2017 279 3,295 - 57 3,828 7,459
--------- --------- ------------- ------------- ----------- ---------
(i) Impairment loss relates to the write off where the related contract has early terminated principally due to contract default.
13. Intangible Assets (continued)
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 minimum lease 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 Inter-relationship
inputs between key unobservable
inputs and fair
value measurement
-------------------------- -------------------------- ------------------------------------------------------------
The Group recognises The fair value In order of financial
an intangible asset is based on current impact the estimated
arising if it has levels of return fair value would
the unconditional (25%-30%) less increase (decrease)
contractual right an allowance for if:
to receive income cancellations (10%-30%)
arising from equipment and expected costs * Expected sale value was higher (lower). A 1%
and rights to the (5%-10%) of realisation. reduction in the sale value would create a 1%
hiring agreement deduction in the overall value of the asset.
(customer hire agreement The discount rate
for goods) at the applied to the
end of minimum term. fair value is 10.38% * Expected secondary hire term was longer (shorter)
This inertia asset pre-tax.
is measured at fair
value at the inception * Expected cancellations/bad debts were lower (higher)
of the hiring agreement,
and is based on
discounted cash * Expected realisation costs were lower (higher)
flows expected to
be derived from
the sale or hire * Discount rate derived from group cost of capital was
of the asset at lower (higher)
the end of the minimum
term. Subsequent
to initial recognition
the intangible asset
is measured at cost.
During the hiring
minimum term the
valuation is impaired
for any assets that
have been written
off.
At the end of the
hiring minimum term
the intangible asset
is derecognised
and the group recognises
the equipment as
inventory at the
corresponding value.
-------------------------- -------------------------- ------------------------------------------------------------
% of Equity
30 June 30 June
2017 2016
14. Interest in Subsidiaries
Interest in Subsidiaries Country of Incorporation
RentSmart Limited UK 100 100
ThinkSmart Insurance
Services Administration
Ltd UK 100 100
ThinkSmart Financial
Services Ltd UK 100 100
ThinkSmart Europe Ltd UK 100 100
ThinkSmart UK Ltd UK 100 100
SmartCheck Ltd UK 100 100
SmartCheck Finance
Spain SL Spain 100 100
SmartPlan Spain SL Spain 100 100
ThinkSmart Italy Srl Italy 100 100
ThinkSmart Inc USA 100 100
ThinkSmart Employee
Share Trust Australia 100 100
ThinkSmart LTI Pty
Limited Australia 100 100
30 June 30 June
2017 2016
GBP,000 GBP,000
15. Goodwill
Balance at beginning of financial
period 2,332 2,332
Impairment - -
------------------------- ------------------
Balance at end of financial period 2,332 2,332
------------------------- ------------------
Impairment testing for cash-generating
units containing goodwill
The goodwill arose on the acquisition of the UK
business, RentSmart Limited. Further financial
information relating to the UK business is shown
within the segment information (note 22).
The recoverable amount of the cash-generating unit,
being the UK business, was based on its value in
use using business plan assumptions and a market
discount rate 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. The value in
use is determined by discounting the future cash
flows generated from the continuing use of the
unit derived from the three year business plan
and was based on the following key assumptions:
12m to 12m to
30 June 30 June
2017 2016
Annual growth in cash flows 2.00% 2.00%
Post tax discount rate 8.33% 8.46%
Terminal growth rate 2.00% 2.00%
30 June 30 June
2017 2016
GBP,000 GBP,000
16. Trade and Other Payables, and
Provisions
Trade and other payables 545 519
GST/VAT Payable 256 88
Other accrued expenses 354 1,110
--------- ---------
1,155 1,717
--------- ---------
Provisions
Annual leave 103 64
Long service leave 97 87
Risk Transfer cancellation and claims 114 41
--------- ---------
314 192
--------- ---------
Annual and long service leave
Balance at 1 July 151 112
Effect of exchange rate movement 10 15
Additional provisions made in period 39 34
Amounts used during the period - (10)
--------- ---------
Balance at 30 June 200 151
--------- ---------
Other
Balance at 1 July 41 -
Effect of exchange rate movement - 2
Additional provisions made in period 73 39
Amounts used during the period - -
Balance at 30 June 114 41
30 June 30 June
2017 2016
Notes GBP,000 GBP,000
17. Deferred Service Income
Balance at 1 July 2,116 2,541
Intangible inertia assets acquired 13 1,338 1,691
Reversal due to intangible asset
impairment (133) (147)
Recognised in Consolidated Statement
of Profit and Loss 6(a) (1,516) (1,969)
--------- ---------
1,805 2,116
--------- ---------
Deferred service income to be
recognised within 12 months 1,059 1,297
Deferred service income to be
recognised in greater than 12
months 746 819
--------- ---------
1,805 2,116
--------- ---------
30 June 30 June
2017 2016
GBP,000 GBP,000
18. Other interest bearing liabilities
Current - Loan advances net of deferred
costs of raising facility (i) 1,158 2,182
--------- -----------
Non-current- Loan advances net of
deferred costs of raising facility
(i) 789 1,190
--------- -----------
Customer financing facilities
- Amount used 2,365 3,559
- Amount unused 17,635 6,441
Total Facility (i) 20,000 10,000
--------- -----------
(i) The loan is a made up of a GBP10m 5 year revolving
credit facility provided by Santander UK plc dated
15 December 2014 and a GBP10m (option to extend
to GBP20m) minimum 3 year credit facility provided
by STB dated 15 November 2016.
Other finance facilities (business
credit card):
- amount used 12 8
- amount unused 38 42
--------- -----------
50 50
--------- -----------
30 June 30 June
2017 2016
GBP,000 GBP,000
19. Issued Capital
(a) Issued and paid up capital
105,478,744 Ordinary Shares fully
paid (2016: 95,477,922) 17,332 14,376
--------- -----------
2017 2017 2016 2016
Number $000 Number $000
Fully Paid Ordinary Shares
Balance at beginning of
the financial period 95,477,922 14,376 96,227,922 14,376
Issue of ordinary shares 20,000,000 5,000 - -
Cancellation of shares
through buyback (9,999,178) (1,721) - -
Costs associated to capital
raising and buy-back - (323) - -
Cancellation employee loan-funded
shares - - (750,000) -
Balance at end of the financial
period 105,478,744 17,332 95,477,922 14,376
-------------- --------- ----------- -------
During the period no employee share options or loan-funded shares were exercised (2016: 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 and not yet vested or exercised as at 30 June 2017:
-- 1,000,000 loan-funded shares issued 10 August 2012 and exercisable at GBP0.1131, vesting and exercisable on 10 August 2015 until 9 August 2017. The fair value of these options at grant date was GBP0.0118-GBP0.0353. Vesting of the loan-funded shares is subject to achievement of the following performance conditions:
-- Tranche 1: 25% of loan-funded shares vest if the share price hurdle of GBP0.2058 is met in accordance with the
performance conditions;
-- Tranche 2: 25% of loan-funded shares vest if the share price hurdle of GBP0.3233 is met in accordance with the
performance conditions; and
-- Tranche 3: 50% of loan-funded shares vest if the share price hurdle of GBP0.4409 is met in accordance with the
performance conditions.
25% vested on 10 August 2015 and the remaining 75% failed to meet the share price hurdle and were cancelled.
-- 500,000 options over ordinary shares were issued 4 July 2013 and exercisable at GBP0.1559, vesting and exercisable on 4 July 2016 until 3 July 2018. The fair value of these options at grant date was GBP0.0576-GBP0.0694. Vesting of the options is subject to achievement of the following performance conditions:
-- Tranche 1: 25% of options vest if the share price hurdle of GBP0.2235 is met in accordance with the performance
conditions;
-- Tranche 2: 25% of options vest if the share price hurdle of GBP0.2874 is met in accordance with the performance
conditions; and
-- Tranche 3: 50% of loan options vest if the share price hurdle of GBP0.3513 is met in accordance with the
performance conditions.
25% vested on 4 March 2017 and the remaining 75% failed to meet the share price hurdle and were cancelled.
19. Issued Capital (continued) (b)(i) Share options - employee options and loan-funded shares (continued)
-- 1,000,000 loan-funded shares were issued 4 July 2013 and exercisable at GBP0.1559, vesting and exercisable on 4 March 2017 until 4 March 2019. The fair value of these options at grant date was GBP0.0576-GBP0.0694. Vesting of the loan-funded shares is subject to achievement of the following performance conditions:
-- Tranche 1: 25% of loan-funded shares will vest if the share price hurdle of GBP0.2235 is met in accordance with
the performance conditions;
-- Tranche 2: 25% of loan-funded shares will vest if the share price hurdle of GBP0.2874 is met in accordance with
the performance conditions; and
-- Tranche 3: 50% of loan-funded shares will vest if the share price hurdle of GBP0.3513 is met in accordance with
the performance conditions.
25% vested on 4 March 2017 and the remaining 75% failed to meet the share price hurdle and were cancelled.
-- 500,000 loan-funded shares were issued 18 September 2014 and exercisable at GBP0.2128, vesting and exercisable on 18 September 2017 until 18 September 2019. The fair value of these options at grant date was GBP0.0782-GBP0.0999. Vesting of the loan-funded shares is subject to achievement of the following performance conditions:
-- Tranche 1: 25% of options will vest if the share price hurdle of GBP0.3255 is met in accordance with the
performance conditions;
-- Tranche 2: 25% of options will vest if the share price hurdle of GBP0.4185 is met in accordance with the
performance conditions; and
-- Tranche 3: 50% of loan options will vest if the share price hurdle of GBP0.5115 is met in accordance with the
performance conditions.
Options and loan-funded shares issued in current period:
-- 3,126,026 options over ordinary shares were issued 21 December 2016 and exercisable at GBP0.22, vesting and exercisable on 21 December 2019 until 21 December 2026. The fair value of these options at grant date was GBP0.0371. Vesting of the options is subject to achievement of the following performance conditions:
Earnings per Share Condition 1 (EPS1) - Vesting of
75% of the share options will be subject to meeting
EPS1. The metric for EPS1 is growth in earnings per
share over the performance period. Share options
will vest as follows;
Metric <15% Nil EPS1 options will vest
--------------------------- ---------------------------------
Metric = 15% (Lower Target 25% of EPS1 options will vest
1)
--------------------------- ---------------------------------
15% < Metric < 50% Straight line vesting between
Lower Target 1 and Upper Target
1
--------------------------- ---------------------------------
Metric = 50% (Upper Target 100% of EPS1 options will vest
1)
--------------------------- ---------------------------------
Earnings per Share Condition 2 (EPS2) - Vesting of
25% of the share options will be subject to meeting
EPS2. The metric for EPS2 is growth in earnings per
share over the performance period adjusted to exclude
profit generated from any business transacted with
any member of the Dixons Carphone plc Group. Share
options will vest as follows;
Metric <15% Nil EPS2 options will vest
--------------------------- ---------------------------------
Metric = 15% (Lower Target 25% of EPS2 options will vest
2)
--------------------------- ---------------------------------
15% < Metric < 50% Straight line vesting between
Lower Target 2 and Upper Target
2
--------------------------- ---------------------------------
Metric = 50% (Upper Target 100% of EPS2 options will vest
2)
--------------------------- ---------------------------------
The value of these options and loan-funded shares will be expensed over the vesting period in accordance with IFRS 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.
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:
19. Issued Capital (continued)
(b)(i) Share options - employee options and loan-funded shares (continued)
Employee Employee Employee Employee
options options options options
and loan-funded and loan-funded and loan-funded and loan-funded
shares shares shares shares
--------------------- ----------------- -------------------- -------------------- --------------------
30 June 30 June 31 December 31 December
Period ending 2017 2015 2013 2012
--------------------- ----------------- -------------------- -------------------- --------------------
Grant date 21/12/16 22/05/2014 04/07/2013 10/08/2012
--------------------- ----------------- -------------------- -------------------- --------------------
Fair value at GBP0.0371 GBP0.0782-GBP0.0999 GBP0.0576-GBP0.0694 GBP0.0118-GBP0.0353
grant date
--------------------- ----------------- -------------------- -------------------- --------------------
Grant date share GBP0.22 GBP0.2293 GBP0.1587 GBP0.1117
price
--------------------- ----------------- -------------------- -------------------- --------------------
Exercise price GBP0.22 GBP0.2128 GBP0.1559 GBP0.1131
--------------------- ----------------- -------------------- -------------------- --------------------
Expected volatility 29.42% 55% 55% 50%
--------------------- ----------------- -------------------- -------------------- --------------------
Option/loan share 10 years 4.2 years 4 years 4 years
life
--------------------- ----------------- -------------------- -------------------- --------------------
Dividend yield 2.00% 1.6% 0% 2.14%
--------------------- ----------------- -------------------- -------------------- --------------------
Risk-free interest
rate 0.23% 3.04% 2.99% 2.5%
--------------------- ----------------- -------------------- -------------------- --------------------
The following reconciles the outstanding share options/loan-funded shares granted under the employee share option plan and loan-funded shares at the beginning and end of the financial period:
Period ending Period ending
30 June 2017 30 June 2016
Weighted Weighted
Number average Number average
of options/loan exercise of options/loan exercise
funded price funded price
shares GBP shares GBP
Balance at beginning
of the financial year 6,583,333 0.2058 7,533,333 0.1940
Granted during the financial
period 4,660,116 0.2200 - -
Cancelled during the
financial period (6,242,423) 0.2220 (950,000) 0.1117
Expired during the financial
period - - - -
----------------- ---------- ----------------- ----------
Balance at the end of
financial period 5,001,026 0.1995 6,583,333 0.2058
----------------- ---------- ----------------- ----------
Exercisable at end of
the financial period 375,000 0.1273 250,000 0.1117
----------------- ---------- ----------------- ----------
The options and loan-funded shares outstanding at 30 June 2016 have an exercise price in the range of GBP0.1131 to GBP0.22 (30 June 2015: GBP0.1131 to GBP0.2466) and a weighted average contractual life of 6.38 years (30 June 2016: 2.95 years). The following is the total expense recognised for the period arising from share-based payment transactions:
12 months 12 months
to 30 to 30
June 2017 June 2016
GBP,000 GBP,000
Share options/loan-funded shares
granted in 2013 - equity settled - 24
Share options/loan-funded shares
granted in 2014 - equity settled 65 57
Share options/loan-funded shares
granted in 2015 - equity settled 24 26
Share options/loan-funded shares
granted in 2016 - equity settled 12 -
----------- -----------
Total expense recognised as employee
costs (note 6e) 101 107
----------- -----------
(b)(ii) Share compensation - employee shares
No shares of the Company were granted as remuneration whilst 125,000 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.
Pence Total Franked/ Date paid
per share amount unfranked
5.36 7 November
Special dividend Pence GBP535,546 Unfranked 2016
This dividend relates only to the 9,999,178 shares participating in the off-market buy-back completed on 7 November 2016.
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:
as at as at
30 June 30 June
2017 2016
GBP,000 GBP,000
Reconciliation of cash and cash
equivalents
Cash balance comprises:
* Available cash and cash equivalents 4,403 4,737
* Restricted cash 124 117
--------- ---------
4,527 4,854
--------- ---------
The Group's exposure to credit risk, interest rate and sensitivity analysis of the financial assets and liabilities are provided in Note 25.
12 months 12 months
to to
30 June 30 June
2017 2016
GBP,000 GBP,000
(b) Reconciliation of the (loss)/profit
for the period to net cash flows
from operating activities:
Profit after tax (1,842) 301
Add back non-cash and non-operating
items:
Depreciation 159 133
Amortisation 1,000 571
Impairment losses on intangible
assets 327 243
Impairment losses on finance lease
receivables 147 147
Foreign currency (gain)/loss unrealised (4) 29
Equity settled share-based payment 101 107
(Increase)/decrease in assets:
Trade receivables, deposits held
with funders and other movements
in lease assets 640 (84)
Finance lease receivable (474) 22
Deferred tax asset (19) 40
Other assets (35) (129)
Rental asset inventory 214 325
Increase/(decrease) in liabilities:
Trade and other creditors (629) (49)
Deferred service revenue 205 (675)
Provisions 39 56
Provision for income tax (233) (451)
Other payables - 399
Net cash (used in)/from operating
activities (404) 985
---------- ----------
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. No provisions have been recognised in respect of non-cancellable operating leases.
June 2017 June 2016
GBP,000 GBP,000
Non-cancellable operating lease
payments:
No later than 1 year 96 96
Later than 1 year and not later
than 5 years 383 383
More than 5 years 96 112
---------- ----------
575 591
---------- ----------
22. Segment Information
The Group currently has one reportable segment which comprise the Group's core business unit (UK). Head office and other unallocated corporate functions are shown separately. For the segment, the Board and the CEO review internal management reports on a monthly basis. The composition of the reportable segment is as follows:
UK:
- ThinkSmart Europe Ltd - RentSmart Ltd - ThinkSmart Insurance Services Administration Ltd - ThinkSmart Financial Services Ltd - ThinkSmart UK Ltd
Corporate and unallocated:
- ThinkSmart Limited - SmartCheck Finance Spain SL - ThinkSmart Italy Srl - ThinkSmart Inc
Operating Segments
Information about Corporate
reportable segments UK and unallocated Total
For the period ended: June June June June June June
2017 2016 2017 2016 2017 2016
GBP,000 GBP,000 GBP,000 GBP,000 GBP,000 GBP,000
Revenue 8,950 11,800 1 13 8,951 11,813
Other revenue 1,185 1,459 - - 1,185 1,459
Total revenue 10,135 13,259 1 13 10,136 13,272
Customer acquisition
cost (1,341) (1,561) (8) - (1,349) (1,561)
Cost of inertia assets
realised (1,925) (2,099) - - (1,925) (2,099)
Other operating expenses (4,691) (4,329) (1,432) (1,497) (6,123) (5,826)
Depreciation and
amortisation (1,123) (666) (36) (38) (1,159) (704)
Impairment losses (474) (390) - - (474) (390)
Non-operating strategic
review and advisory
expenses - - (1,106) (1,846) (1,106) (1,846)
Reportable segment
profit/(loss) before
income tax 581 4,214 (2,581) (3,368) (2,000) 846
-------- -------- ------------ ------------ -------- --------
Reportable segment
current assets 8,734 10,318 367 250 9,101 10,568
Reportable segment
non-current assets 14,159 14,579 210 116 14,369 14,695
Reportable segment
liabilities 4,852 6,483 310 928 5,162 7,411
Capital expenditure 2,183 2,277 2 - 2,185 2,277
22. Segment Information (continued)23. Remuneration of Auditor
12 Months 12 Months
to June to June
2017 2016
GBP,000 GBP,000
Audit and review services:
Auditor of the Company:
---------- ----------
Audit and review of financial reports 147 137
---------- ----------
Services other than statutory audit:
Tax compliance and advisory services 15 28
Other regulatory services* 27 18
Advisory services 4 13
Transaction compliance and advisory
services 279 380
325 439
---------- ----------
*relates to statutory accounting
requirements within Spain and Italy
The Group's auditors are KPMG.
24. Commitments and Contingent Liabilities
June 2017 June 2016
GBP,000 GBP,000
Leases where Group acts as agent
(off balance sheet) 16,792 20,899
Gross capital deposited with STB 2,954 3,426
Less provision for delinquent leases (771) (1,228)
---------- ----------
Deposits held by funders 2,183 2,198
---------- ----------
Under the terms of the UK current funding agreement with Secure Trust Bank (STB), the group is obliged to purchase delinquent leases (contracts in arrears for 91 days) from the funder at the funded amount. The Group has entered into a financial guarantee contract with STB for which the Group has provided capital to support future delinquent leases and at the same time recognised a provision against this deposit being its estimate of the funded amount of these leases that are likely to become delinquent in the future and will therefore not be recoverable from STB. The Group estimates this amount based on historical loss experience for assets with similar characteristics.
The net deposit held by funders is recognised as an asset on the Group's balance sheet within other non-current assets (see note 11).
Management have reviewed the sensitivity relating to delinquent leases funded by STB and an increase/decrease of 5% in expected delinquencies would impact the provision by -/+ GBP128k.
Sensitivity analysis
A change of 5% in delinquent leases would have increased or decreased the Group's profit for continuing operations by GBP128k.
25. Financial Instruments (a) Interest rate risk
At the reporting date, the interest rate profile of the Group's interest bearing financial instruments were:
Carrying amount
June 2017 June 2016
GBP,000 GBP,000
Variable rate instruments
Cash and cash equivalents (note 20a) 4,527 4,854
Deposits held by funder (note 24) 2,954 3,426
Other interest bearing liabilities
(note 18) (2,365) (3,559)
---------- ----------
Net financial assets 5,116 4,721
---------- ----------
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. This analysis assumes that all other factors remain constant including foreign currency rates.
June 2017 June 2016
GBP,000 GBP,000
Effect of 1% increase in rates 51 47
Effect of 1% decrease in rates (51) (47)
(b) Fair value of financial instruments
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 quoted prices (unadjusted) in active
1: markets for identical assets or liabilities.
-- Level inputs other than quoted prices included
2: 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 inputs for the asset or liability that
3: are not based on observable market data
(unobservable inputs).
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. The majority of financial assets and liabilities are measured at amortised cost. The only financial instrument measured at fair value is the interest rate swaps with Santander UK plc. This is a level 2 financial instrument with a fair value of GBP4,000 at 30 June 2017 (30 June 2016: GBP15,000).
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:
June 2017 June 2016
Note GBP,000 GBP,000
Cash and cash equivalents 20(a) 4,527 4,854
Trade receivables 310 336
Loan and lease receivable (current) 9 2,133 2,833
Loan and lease receivable (non-current) 9 1,298 1,545
Insurance prepayment and accrued
income (current) 10 1,093 1,350
Insurance prepayment and accrued
income (non-current) 11 674 1,111
Sundry debtors 10 169 165
Deposits held by funders 11 2,183 2,198
12,387 14,392
---------- ----------
The carrying amount of the Group's financial assets that are exposed to credit risk at the reporting date by geographic region is:
June 2017 June 2016
GBP,000 GBP,000
Australia 261 210
UK 12,100 14,166
Other 26 16
12,387 14,392
---------- ----------
The carrying amount of the Group's financial assets that are exposed to credit risk at the reporting date by types of counterparty is:
June 2017 June 2016
GBP,000 GBP,000
Banks (i) 4,527 4,854
Funders (ii) 2,183 2,198
Insurance partners (iii) 1,767 2,461
Retail customers (iv) 3,431 4,378
Others 479 501
12,387 14,392
---------- ----------
(i) Cash and cash equivalents are held with banks with S&P ratings of A- and AA-.
(ii) Deposits held with banks with S&P ratings of A- and AA-.
(iii) In the current financial reporting period, 100% (prior year: 100%) of the 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. Allianz holds an AA rating with S&P Insurer Financial Strength and Counterparty Credit Rating.
(iv) Retail customers are assessed for creditworthiness against a bespoke credit scorecard based on information drawn from a selection of industry sources.
25. Financial Instruments (continued) (c) Credit risk management (continued)
The ageing of the Group's trade and lease receivables at the reporting date was:
Gross Impairment Gross Impairment
June 2017 June 2017 June 2016 June 2016
GBP,000 GBP,000 GBP,000 GBP,000
Not past due 3,663 16 4,524 21
Past due 0-30 days 27 5 118 14
Past due 31-120 days 28 26 29 39
Past due 121-365
days 23 14 44 24
3,741 61 4,715 98
----------- ----------- ----------- -----------
The movement in the allowance for impairment in respect of trade and lease receivables during the period was as follows:
June 2017 June 2016
GBP,000 GBP,000
Balance at 1 July 98 59
Impairment loss recognised 146 198
Bad debt written off (183) (159)
Balance at 30 June 61 98
---------- ----------
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 is limited to the cash balances held by the Australian parent ThinkSmart Limited denominated in Australian Dollars:
June 2017 June 2016
GBP,000 GBP,000
Cash and cash equivalents 261 149
10% strengthening of
AUD (26) (15)
10% weakening of AUD 26 15
30 June
30 June 2017 2016
AUD/GBP period end exchange
rate 0.5913 0.5549
25. Financial Instruments (continued)
(e) Liquidity risk management
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements:
June 2017 June 2016
GBP,000 GBP,000
Trade and other payables 1,155 1,717
Other interest bearing liabilities 2,365 3,559
3,520 5,276
---------- ----------
Less than 1 year 2,623 4,020
1-2 years 897 1,256
---------- ----------
3,520 5,276
---------- ----------
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) (resigned 30 April 2017)
G Halton (Chief Financial Officer)
Non-Executive Directors
D Griffiths (resigned 30 April 2016
P Gammell (appointed 23 May 2016)
K Jones
D Adams (appointed 2 December 2016)
R McDowell (appointed 2 December 2016)
Executives
D Twigg (Chief Operating Officer (Credit and Operations)) (resigned 7 March 2017)
D Fletcher (Sales and Business Development Director) (resigned 10 April 2017)
The Key Management Personnel remuneration included in 'employee benefits expense' in Note 6(e) is as follows:
12 Months 12 Months
to June to June
2017 2016
GBP,000 GBP,000
Short-term employee benefits 904 1,353
Post-employment benefits 95 33
Other long-term benefits 3 4
Share-based payments 86 105
---------- ----------
1,088 1,495
---------- ----------
27. Subsequent Events
There has not arisen, in the interval between the end of the financial period and the date of this report, any subsequent events.
28. Earnings per Share
12 months 12 months
to 30 to 30 June
June 2017 2016
GBP,000 GBP,000
(Loss)/ profit after tax
attributable to ordinary
shareholders (1,842) 301
30 June 30 June
2017 2016
Number Number
Weighted average number of
ordinary shares (basic) 103,802,629 95,560,114
Weighted average number of
ordinary shares (diluted) 106,895,058 95,685,114
30 June 30 June
2017 2016
Earnings per share
Basic (loss)/earnings per share
(pence) (1.77) 0.31
Diluted (loss)/earnings per share
(pence) (1.72) 0.31
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LAMPTMBIMBLR
(END) Dow Jones Newswires
September 06, 2017 02:00 ET (06:00 GMT)
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