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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 2021 to Apr 2024
TIDMTSL
RNS Number : 6314L
ThinkSmart Limited
14 September 2021
14 September 2021
ThinkSmart Limited
("ThinkSmart" or the "Company" which together with its subsidiaries is the "Group")
Results for the year ended 30 June 2021
Clearpay holding revaluation drives 35% profit uplift to GBP71.7m
ThinkSmart Limited (AIM: TSL), the specialist digital payments business with a 10%(1) equity shareholding in Clearpay Finance Ltd ("Clearpay"), today announces its results for the year ended 30 June 2021 (the "year" or "FY21").
Highlights
Clearpay shareholding revaluation continues to drive material value
Hot Features
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-- Profit after tax up 35% to GBP71.7 million (FY20: GBP53.0 million)
driven by a GBP71.3 million non-cash fair value gain on the independent
valuation(2) of the Group's retained 10%(1) shareholding in Clearpay.
-- 10%(1) shareholding in Clearpay independently revalued to GBP125
million(2) at year end (up from GBP106.6 million at 31 December
2020 and GBP53.7 million at 30 June 2020). Afterpay Ltd ("Afterpay")
retains the remaining 90% of Clearpay.
-- The revaluation is as at 30 June 2021 and therefore prior to
the announcement of the proposed takeover of Afterpay by Square
Inc. Since then the Afterpay share price has risen from AU$118.17
on 30 June 2021 to AU$133.30 as at 1 September 2021.
-- Net assets at period end of GBP134.5 million are equivalent to
126.20 pence per share (FY20: GBP66.5 million/62.42 pence per
share).
-- Put/call option agreement with Afterpay Ltd ("Afterpay"), exercisable
in 2023/24, for the remaining 10%(1) shareholding in Clearpay
provides a clear and agreed legal mechanism to enable Clearpay
shareholding realisation.
-- A change of control of Afterpay from the announced Square takeover
would give Afterpay the right to exercise its call option anytime
following the change of control occurring. As announced by Square
and Afterpay, this takeover is expected to complete Q1 calendar
2022. Following a change of control, ThinkSmart will continue
to retain its reciprocal put option, exercisable in February
2024. The exercise price for the call option will be determined
by the same pre-agreed valuation principles whether or not the
option is exercised early. In addition, if the shares of Afterpay
are no longer quoted on a recognised stock exchange at the time
of the exercise then Afterpay can only elect to pay the exercise
price in cash.
-- Shareholder return with special dividend and capital return of
A$6.5 million (6.1 cents per share), equivalent to GBP3.7 million,
paid in December 2020.
-- Sale of 90% shareholding in Clearpay to Afterpay and retained
10%(1) shareholding has now generated cumulative accounting profit
of GBP135.1 million (including GBP124.9 million(2) of non-cash
fair value gains), with the 10%(1) stake offering further upside
potential subject to the ongoing performance of Clearpay.
-- Cash and cash equivalents of GBP7.1 million at 30 June 2021 (FY20:
GBP8.8 million).
Clearpay trading performance for the year ended 30 June 2021
Figures are as announced to the Australian Stock Exchange by Afterpay Ltd on 25 August 2021 in its full year results to 30 June 2021 and have been extracted from that announcement. All currency figures are in Australian dollars unless otherwise stated. Clearpay is 90% owned by Afterpay. The performance of Clearpay has an impact on the valuation of the Group's retained 10% (1) shareholding in Clearpay.
-- AUS$1.8b(3) underlying sales reflects an increase of 227% on
FY20 and equates to c8.5% of Afterpay's global total. The proportion
of Clearpay's underlying sales to Afterpay's global sales total
has continued to increase, having stood at c5.4% at FY20.
-- 2.1 million(3) active customers equates to c13% of Afterpay's
global total and an increase of 104% from FY20. The proportion
of Clearpay's active customers to Afterpay's global active customer
total has continued to increase, having stood at c10.1% at FY20.
-- AUS$13.6m(3) EBITDA represents c35% of Afterpay's EBITDA.
-- Top 10% of Clearpay UK customers use Clearpay 32x per year, up
60% of FY20.
-- The number of active merchants increased by 501%(3) . Merchant
acceptance in Clearpay UK continued strongly with more than 5,000
new merchants added during FY21 including Wayfair, Lazy Oaf,
Cox and Cox, Lick, Serenata Flowers, Bottle Club, Lucy and Yak,
T.M Lewin, Steve Madden, Rat & Boa, and Feel Unique.
-- During FY21, Afterpay launched in-store cards across ANZ and
the US, with the UK to follow in Q2 FY22.
-- Clearpay continues to engage with HM Treasury and the UK Government
regarding a proportionate regulatory framework for currently
exempted Buy Now Pay Later (BNPL) products.
Managed wind down of legacy operations continues to generate positive cash flow
-- ThinkSmart's operating business, powered by SmartCheck, a proprietary
digital payments platform and credit decision-making engine,
continues to generate positive cashflow through its managed wind
down.
-- GBP1.45 million cash receipt and realised gain in the period,
as announced on 10 August 2020, from the settlement agreement
in relation to the legal proceedings issued by the Group against
Carphone Warehouse.
-- Total revenue of GBP4.3 million (FY20: GBP6.3 million) includes
GBP0.9 million (FY20: GBP0.5 million) from the provision of the
outsourced call centre customer support service for Clearpay.
-- Optimised cash management with GBP2.2 million net cash generated
from operating activities (FY20: GBP1.0 million) including GBP1.45
million from settlement agreement in relation to legal proceedings.
-- Operating costs further reduced to GBP3.4 million (FY20: GBP4.3
million) and remain controlled, aligned to current volume performance.
Commenting on the results , Ned Montarello, Executive Chairman of ThinkSmart, said:
"Our 10% shareholding in Clearpay gives us significant and material exposure to a rapidly expanding segment of consumer finance and allows us to benefit from the continued shift away from credit card use and into BNPL. Our expectation is for that shift to sustain, given BNPL remains in its early stages of growth penetrating 2% of a US$10 trillion global market. Millennials and Gen Z are key drivers of this shift and their share of spend is set to continue to grow over the next decade.
"We are particularly pleased that Clearpay's trading performance continues to represent an increasing proportion of the Afterpay group, highlighting both its strategic and financial importance. We believe that the expansion of Clearpay to omni-channel with the roll-out of the UK instore-card in Q1 FY22 together with the announced takeover of Afterpay by Square Inc - which, as announced by Square and Afterpay, is expected to complete in Q1 calendar 2022 - will serve to further accelerate the growth of Clearpay, which has been outstanding to date.
"For shareholders, our investment in Clearpay has now generated over GBP135 million of profit, and we believe there remains further upside potential. While our focus is on value creation via our holding in Clearpay, the managed wind down of our legacy operations continues to generate positive cash flow as we control costs while rightsizing the operations to lower volumes. This leaves our balance sheet robust with GBP7.1 million of cash and no debt.
"Ultimately, we believe ThinkSmart is well placed to continue accruing material value for shareholders, subject to Clearpay's ongoing progress, and we thank shareholders for their ongoing support of the strategy."
For further information please contact:
ThinkSmart Limited Via Buchanan Ned Montarello Canaccord Genuity Ltd (Nominated Adviser and Broker) Sunil Duggal Andrew Potts Tom Diehl +44 (0)20 7523 8350 Buchanan Giles Stewart Chris Lane Toto Berger +44 20 7466 5000
(1) A proportion of the 10% retained shareholding (up to 3.5% of the total share capital of Clearpay) will be made available to employees of Clearpay under an employee share ownership plan.
(2) The Group engaged a third party global professional services firm to independently value its retained shareholding in Clearpay at 30 June 2021 for accounting purposes under AASB 9 in accordance with AASB 13 (Fair Value Measurement). This valuation has been undertaken based on publicly available information, reflecting the Afterpay call option (exercisable from 23 August 2023) and ThinkSmart put option (exercisable from 23 February 2024) and including a discount for the lack of marketability of Clearpay as a privately owned company, and has produced a range of values for the Group's 10%(1) shareholding in Clearpay from which the Group has taken at two thirds of the range. Under either the call or put option, the sale of the 10%(1) shareholding in Clearpay to Afterpay will be at a price calculated on agreed valuation principles at the time. Further detail is provided in Note 10 to the 30 June 2021 Group audited financial statements below.
(3) Afterpay segment reporting for Clearpay now includes UK and Europe. Clearpay Europe only launched in March 2021 and as such only made a minor contribution to Afterpay's Group results to 30 June 2021.
Notes to Editors
About ThinkSmart Limited
ThinkSmart is a specialist digital payments platform business. It offers investors unique exposure to the UK 'Buy Now Pay Later' payments sector which is undergoing exponential growth, driven by ongoing digital transformation of consumer shopping habits and financial services.
This announcement contains inside information for the purposes of article 7 of the Market Abuse Regulation (EU) 596/2014 as amended by regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the publication of this announcement, this information is now considered to be in the public domain.
Chairman's Statement
Clearpay drives significant value for shareholders
Our year to 30 June 2021 has been beneficial for our shareholders. Our business was founded on a deeply entrepreneurial mindset and culture, always ready to move quickly, in particular in relation to how digital transformation has and continues to reshape consumer behaviour in the core retail markets and the way in which retailers have needed to adapt their offerings to stay relevant. Accordingly, in 2017/18 we developed and launched Clearpay in the UK, taking first mover advantage in the nascent 'Buy Now, Pay Later' market. Our decision in 2018 to sell 90% of Clearpay, together with the put/call options to sell the remaining 10%, to Australian listed Afterpay, a highly capitalised, well-funded global financial technology business, has delivered - and I'm confident will continue to deliver - material value for shareholders.
Our results for the year reflect record profitability, with profit after tax of GBP71.7m, driven by the revaluation gains attributable to our remaining 10% (1) holding in Clearpay as a result of the exceptional underlying performance of that business. Regarding Clearpay's trading, we are particularly pleased to see that it continues to represent an increasing proportion the Afterpay group. Clearpay's increased scale and sustained trading success has positive connotations for our 10%(1) holding and highlights both Clearpay's strategic and financial importance as a business within Afterpay. In addition, we view the expansion of Clearpay to omni-channel with the roll-out of the UK instore-card in Q1 FY22 as a logical next step. That, together with the announced takeover of Afterpay by Square Inc, is something we believe will accelerate the growth of Clearpay, which has been outstanding to date.
Our Net Asset Value stood at GBP134.5 million at the year end, or 126.20 pence per share. On a per share basis this is an uplift of 63.78 pence per share in the last 12 months, in addition to the 3.4 pence per share capital return and special dividend paid to shareholders in December 2020. All in all, the sale of 90% of the Clearpay business and our retained 10% (1) shareholding has now generated cumulative profit of GBP135.1 million (including GBP124.9(2) million of non-cash fair value gains), with the 10%(1) stake offering further upside
potential subject to the performance of Clearpay.
As part of the agreement with Afterpay, made at the time of the Clearpay sale, there is a put/call option mechanism which gives an agreed, clear legal mechanism to a realisation of the 10% (1) stake in Clearpay in 2023/24. The price will be calculated on pre-agreed principles based on market valuations at that time. These principles are reflected in the carrying valuation of the asset on our balance sheet.
On 2 August 2021, Square Inc announced its plans to acquire Afterpay. A change of control of Afterpay would bring forward the Afterpay call option to anytime following the change of control occurring, expected in Q1 calendar 2022. The exercise price for the call option will be determined by the same pre-agreed valuation principles whether or not the option is exercised early. In addition, if the shares of Afterpay are no longer quoted on a recognised stock exchange at the time of the exercise then Afterpay can only elect to pay the exercise price in cash. The announcement of the planned takeover has had a significantly positive impact on both Square and Afterpay's share prices, with Afterpay's increasing from AU$118.17 at 30 June 2021 to AU$133.30 at 1 September 2021. We believe the takeover will have a positive and material impact on Clearpay UK.
The Board has consistently sought to return capital to shareholders where appropriate and is mindful of maintaining a prudent level of cash reserves in the business. In line with this, the business paid a special dividend and capital return of A$6.5 million (6.1 cents per share), equivalent to GBP3.7 million (3.4 pence per share), in December 2020.
Turning to our legacy retail consumer and business finance offerings, shareholders will be aware that this has been in managed wind-down, reflecting our strategic focus on delivering value to holders via the Clearpay asset, together with providing the outsourced call centre customer support service for Clearpay. As announced on 10 August 2020 we reached a settlement with Carphone Warehouse for GBP1.45 million and as a result have now ceased writing any new business. We are managing the wind-down by adjusting the cost base accordingly and are continuing to deliver net positive cash flows. Therefore, we expect our cash reserves to continue to build over the next few years.
The Group has a robust financial position, with net cash of GBP7.1 million at 30 June 2021 (after the payment of GBP3.7 million special dividend/capital return in December 2020 and including receipt of the GBP1.45 million settlement amount in August 2020).
I'm very pleased to be reporting this level of value accretion to our shareholders.
Operating Business Performance
As expected, leasing volumes fell 74% to GBP0.5 million (FY20: GBP1.9 million) in the year, and we expect this volume reduction to continue as we manage the division's wind down. Revenues were consequently 31% lower for the year at GBP4.3 million (FY20: GBP6.3 million) as the lower volumes in the period are partially offset by the majority of revenue for the period being derived from higher volumes in previous years.
As announced on 10 August 2020, ThinkSmart reached a settlement agreement of GBP1.45 million in relation to the legal proceedings issued by the Group against Carphone Warehouse. As part of the settlement, the Group has agreed with Dixons Carphone ("DC") to the orderly winding up of all of its agreements with DC including Flexible Leasing, SmartPlan and Upgrade Anytime. In the year to 30 June 2021, all of ThinkSmart's new business volumes were generated from its existing agreements with DC. The Group will continue to service its existing customer base, ensuring the fair treatment of customers, during the orderly winding up of the three products and will continue to benefit from cash generation in the meantime.
The Group continues to have a good mix of consumer and business customers, in addition to being diversified by region and demography. The quality of the Group's underwriting procedures, as well as the small value of debt per customer and its high-quality credit customer portfolio, continues to mitigate the risk to any adverse impact on its existing customers' financial positions. As at 30 June 2021, lease receivables under management were GBP2.6 million, with approximately 6,900 active customer contracts.
Operating costs decreased further to GBP3.4 million (FY20: GBP4.3 million) over the period and remain controlled, aligned to the volume performance of the division.
Group Financial Position
The Group's 10%(1) holding in Clearpay Finance Limited was revalued to GBP125 million(2) at 30 June 2021 (FY20: GBP53.7 million). An asset valuation exercise was performed by an independent third-party valuer, a leading global professional services firm. The sale of the Group's holding is subject to a put/call arrangement with Afterpay in 2023/24, based on agreed valuation principles using the same valuation metrics, multiples and methodologies, including those used by market participants and with regard to sell-side analysts, to value the Clearpay business within the Afterpay listed group. These valuation principles are the same principles that the independent third-party valuer used to determine the GBP125 million(2) valuation of the Group's 10% (1) stake in Clearpay as at 30 June 2021. In addition, these principles will apply should the call option be exercised early following a change of control of Afterpay.
The Group held cash and cash equivalents of GBP7.1 million at 30 June 2021, after the GBP3.7 million payment of the special dividend/capital return in December 2019 and including receipt of the GBP1.45 million settlement amount in August 2020. This is down from GBP8.8m at 30 June 2020.
Current Trading Update
ThinkSmart anticipates its cash reserves will continue to build over the next few years, as the Group's operating division continues to service its existing customer base during the orderly winding up of its existing agreements. ThinkSmart also provides an outsourced call centre customer support service for Clearpay. As announced in August 2020, following the settlement agreement with DC, the Group has now ceased writing any new business.
Looking ahead, the business is well positioned to further benefit from future growth in the value of its shareholding in Clearpay, subject to the ongoing performance of Clearpay, and therefore to continue creating material value for shareholders.
Key Performance Indicators:
12 Months to
12 Months 30 June 2020
to
30 June 2021
Business Volumes (ex VAT
cost of equipment acquired
in period and leased to
customers)
--------------- -------------- ------
* SmartPlan GBP0.5m GBP1.6m -69%
--------------- -------------- ------
* Upgrade Anytime - GBP0.2m -100%
--------------- -------------- ------
* Flexible Leasing - GBP0.1m -100%
--------------- -------------- ------
Total GBP0.5m GBP1.9m -74%
--------------- -------------- ------
Revenue (Total) GBP4.3m GBP6.3m -31%
--------------- -------------- ------
Net profit after tax GBP71.7m GBP53.0m +35%
--------------- -------------- ------
Basic EPS in pence 67.28 49.80 +35%
--------------- -------------- ------
As at As at
30 June 2021 30 June 2020
--------------- -------------- ------
Lease Receivables Under
Management (Closing) GBP2.6m GBP6.5m -60%
--------------- -------------- ------
Active Customer Contracts
(000) 6.9 15.4 -55%
--------------- -------------- ------
Cash and Cash Equivalents GBP7.1m GBP8.8m -20%
--------------- -------------- ------
Net Assets GBP134.5m GBP66.5m +75%
--------------- -------------- ------
The following results have been extracted from the audited financial statements
Consolidated Statement of Profit & Loss and Other Comprehensive Income
For the Financial Year Ended 30 June 2021
12 Months
12 Months to June
to June 2021 2020
Notes GBP,000 GBP,000
Continuing operations
Revenue 6(a) 4,286 6,079
Other revenue 6(b) 62 253
-------------- ----------
Total revenue 4,348 6,332
Customer acquisition cost 6(c) (258) (627)
Cost of inertia assets sold 6(d) (335) (700)
Other operating expenses 6(e) (3,431) (4,270)
Depreciation and amortisation 6(f) (1,401) (2,047)
Impairment gains/(losses) 6(g) 41 (2)
Gains on Financial Instruments 6(h) 71,267 54,418
Other gains 6(i) 1,450 -
-------------- ----------
Profit before tax 71,681 53,104
Income tax charge 7 (17) (62)
-------------- ----------
Net Profit after tax - attributable to owners
of the Company 71,664 53,042
Other comprehensive income/(loss)
Items that may be reclassified subsequently
to profit or loss, net of income tax:
Foreign currency translation differences
for foreign operations (43) 146
Total items that may be reclassified subsequently
to profit or loss net of income tax (43) 146
-------------- ----------
Other comprehensive income/(loss) for the
year, net of income tax (43) 146
-------------- ----------
Total comprehensive income for the year
attributable to owners of the Company 71,621 53,188
-------------- ----------
Earnings per share
Basic Earnings per share (pence) 27 67.28 49.80
Diluted Earnings per share (pence) 27 66.21 48.99
The attached notes form an integral part of these consolidated financial statements.
Consolidated Statement of Financial Position
As at 30 June 2021
June 2021 June 2020
Notes GBP,000 GBP,000
Current assets
Cash and cash equivalents 20(a) 7,067 8,805
Trade receivables 24(c) 55 129
Finance lease receivables 8 38 431
Other current assets 9 380 924
Total current assets 7,540 10,289
---------- ----------
Non-current assets
Finance lease receivables 8 - 15
Plant and equipment 13 302 460
Intangible assets 14 590 1,433
Financial assets at fair value through profit
or loss 10 125,000 53,733
Contract assets 11 777 1,430
Other non-current assets 12 2,069 2,147
Total non-current assets 128,738 59,218
---------- ----------
Total assets 136,278 69,507
---------- ----------
Current liabilities
Trade and other payables 16 (728) (1,195)
Lease liabilities 17 (103) (94)
Contract liabilities 18 (410) (648)
Provisions 16 (202) (255)
Total current liabilities (1,443) (2,192)
---------- ----------
Non-current liabilities
Lease liabilities 17 (46) (148)
Contract liabilities 18 (332) (679)
Total non-current liabilities (378) (827)
---------- ----------
Total liabilities (1,821) (3,019)
---------- ----------
Net assets 134,457 66,488
---------- ----------
Equity
Issued capital 19(a) 10,413 13,164
Reserves (2,875) (2,832)
Accumulated profits 126,919 56,156
---------- ----------
Total equity 134,457 66,488
---------- ----------
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 2021
Foreign Attributable
Fully paid currency to equity
ordinary translation Accumulated holders
Consolidated shares reserve Profit of the parent
GBP,000 GBP,000 GBP,000 GBP,000
----------- ------------- ------------ ---------------
Balance at 1 July 2019 15,211 (2,977) 4,340 16,574
Effects of adoption of IFRS 16 - (1) (98) (99)
----------- ------------- ------------ ---------------
Restated Balance at 1 July 2019 15,211 (2,978) 4,242 16,475
Profit for the year - - 53,042 53,042
Exchange differences arising on translation
of foreign operations, net of tax - 146 - 146
Total comprehensive income for the year - 146 53,042 53,188
----------- ------------- ------------ ---------------
Transactions with owners of the Company,
recognised directly in equity
Contributions by and distributions to owners
of the Company
Capital return paid (2,047) - - (2,047)
Dividends paid - - (1,135) (1,135)
Recognition of share-based payments - - 7 7
Balance at 30 June 2020 13,164 (2,832) 56,156 66,488
----------- ------------- ------------ ---------------
Balance at 1 July 2020 13,164 (2,832) 56,156 66,488
Profit for the year - - 71,664 71,664
Exchange differences arising on translation
of foreign operations, net of tax - (43) - (43)
Total comprehensive income for the year - (43) 71,664 71,621
-------- -------- -------- --------
Transactions with owners of the Company,
recognised directly in equity
Contributions by and distributions to owners
of the Company
Capital return paid (2,757) - - (2,757)
Dividends paid - - (901) (901)
Share options exercised 6 - - 6
-------- -------- -------- --------
Balance at 30 June 2021 10,413 (2,875) 126,919 134,457
-------- -------- -------- --------
The attached notes form an integral part of these consolidated financial statements.
Consolidated Statement of Cash Flows
For the Financial Year Ended 30 June 2021
12 Months 12 Months
to June to June
2021 2020
Notes GBP,000 GBP,000
Cash Flows from Operating Activities
Receipts from customers 4,033 4,741
Payments to suppliers and employees (3,796) (4,670)
Receipts in respect of lease receivables 511 3,244
Payments from other interest-bearing liabilities,
inclusive of related costs - (2,533)
Interest received 65 108
Interest and finance charges paid (92) (380)
Receipts/(Payments) from security guarantee 35 (29)
Income tax (paid)/received (17) 478
Other gains receipts 1,450 -
Net cash from operating activities 20(b) 2,189 959
---------- ----------
Cash Flows from Investing Activities
Payments for plant and equipment (17) (398)
Payment for intangible assets - software
& contract rights (122) (111)
Payments for purchase of financial instruments - (987)
Receipts from sale of financial instruments - 5,376
---------- ----------
Net cash from investing activities (139) 3,880
---------- ----------
Cash Flows from Financing Activities
Payment of lease liabilities (93) (114)
Dividends paid (901) (1,135)
Proceeds from share issue net of costs 6 -
Share buyback/return of capital net of
costs (2,757) (2,047)
Net cash used in financing activities (3,745) (3,296)
---------- ----------
Net (decrease)/increase in cash and cash
equivalents (1,695) 1,543
Effect of exchange rate fluctuations on
cash held (43) 163
Cash and cash equivalents at beginning
of the financial year 8,805 7,099
Total cash and cash equivalents at the
end of the financial period 20(a) 7,067 8,805
---------- ----------
Restricted cash and cash equivalents at
the end of the financial period 20(a) (60) (61)
---------- ----------
Net available cash and cash equivalents
at the end of the financial period 7,007 8,744
---------- ----------
The attached notes form an integral part of these consolidated financial statements.
Notes to the 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 year was the provision of lease and rental financing services in the UK and the holding of a financial asset. The address of the Company's registered office is Suite 5, 531 Hay Street Subiaco, WA 6008, Australia 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 Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB) as well as International Financial Reporting Standards as adopted by the UK ("Adopted IFRSs"). The consolidated financial statements were authorised for issue by the Board of Directors on 13 September 2021.
(b) Basis of measurement
The financial report has been prepared on the basis of historical cost, except for 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 British Pounds ("GBP") unless otherwise noted.
(c) 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 2016/191 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.
(d) Going Concern
The consolidated financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group has the resources to continue in business for the foreseeable future (which has been taken as 12 months from the date of approval of these consolidated financial statements). In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including the current state of the statement of financial position, future projections of profitability, cash flows and resources and the longer term strategy of the business. The Directors have assessed the impact of COVID-19 on the current and forecast position of the Group. As the Group has only been minimally impacted the Directors are satisfied that the Group has more than adequate resources to meet its liabilities as they fall due even when stressed to reasonable worst case scenarios.
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 year are included in the consolidated statement of profit and loss from the effective date of acquisition or up to the effective date of disposal, as appropriate. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.
(ii) Transactions eliminated on consolidation
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those 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.
(c) Revenue recognition
The Group recognises revenue as follows:
Revenue from contracts with customers
Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised.
Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a contract liability.
Some forms of revenue fall outside the scope of AASB 15 - Revenue from Contracts with Customers, of relevance to ThinkSmart this includes revenue under AASB 16 Leases (previously AASB 117) and AASB 9 Financial Instruments.
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 AASB 16. In accordance with AASB 16 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.
Where the Group is acting as the agent it receives the following revenue streams:
Commission income
This includes the upfront cash transaction fee receivable from the funder together with the non-cash consideration between the funder and the end customer (for the contract or inertia asset) which is allocated under AASB 15 between the inception/brokerage of the lease arrangement, a financial guarantee contract premium over the lease term, a contract liability reflecting the reversal constraint for the potential refund of the transaction fee, and the non-cash consideration contract asset accruing over the lease term.
Extended rental income
Once the contract between the funder and the end customer expires the asset becomes the property of the Group and any extended rental income is payable to the 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.
The Group has a further revenue stream for the provision of outsourced services. The Group is a B2B provider of call centre customer services. The services provided by the Group are simultaneously created, transferred and consumed at a point in time with the corresponding revenue being recognised at the same point in time. The provision of call centre services comprise the whole and single contractual obligation and all revenue is recognised at the same time as this is fulfilled. There is no variable income attached to the services provided and all costs are expensed as incurred.
(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:
-- Office furniture, fittings, equipment and computers 3 to 5 years
-- Leasehold improvements the lease term
Depreciation methods, useful lives and residual values are reviewed at each reporting date. If on review the remaining useful life of any asset is found to be shorter than its useful life at recognition then the depreciation schedule is accelerated to reflect the shorter remaining useful life with any adjustment charged to depreciation cost.
(f) Customer acquisition costs
Customer acquisition costs are capitalised as an asset where such costs are incremental to obtaining a contract between the funder and the end customer, for which the Group receives commission under the funder contract, and are expected to be recovered. Customer acquisition costs are amortised on a straight-line basis over the term of the contract.
Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained or which are not otherwise recoverable from a customer are expensed as incurred to profit or loss. Incremental costs of obtaining a contract where the contract term is less than one year is immediately expensed to profit or loss.
(g) 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.
(h) Financial instruments
The financial instruments held by the Group are the financial assets and financial liabilities reflected in the statement of financial position. As at 30 June 2021 the financial instruments held by the Group comprised the 10% holding in Clearpay Finance Limited and the Financial Guarantee Contract with STB. Other assets and liabilities held by the Group excluded from financial instruments include lease contracts which are accounted for under AASB 16, property, plant and equipment, intangible assets, prepayments, provisions, tax liabilities and investments in subsidiaries.
(i) Non-derivative financial assets
The Group classifies financial assets as subsequently measured at amortised cost, fair value through other comprehensive income or fair value through profit or loss on the basis of both:
-- The Group's business model for managing the financial assets; and -- The contractual cash flow characteristics of the financial asset.
The Group measures a financial asset at fair value through profit or loss unless it is measured at amortised cost or fair value through other comprehensive income having met the criteria specified in AASB 9 - Financial Instruments in respect of business model and cash flows that are solely payments of principal and interest.
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.
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 statement of financial position. 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
Other financial assets are initially valued at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which assets are held and the contractual cash flow characteristics of the financial asset.
(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 expected credit losses determined under AASB 9 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. Any liability remaining is derecognised in profit or loss when the guarantee is discharged, cancelled or expires.
(iii) Impairment of assets
Financial assets, including finance lease receivables and loan receivables
The Group recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through profit or loss. The measurement of the loss allowance depends upon the Group's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.
Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For lease receivables the Group applies the simplified approach as such the loss allowance is based on the asset's lifetime expected credit losses.
For financial assets measured at fair value through other comprehensive income, gains or losses are recognised in other comprehensive income, except for impairment gains of losses and foreign exchange gains or losses, until the asset is derecognised or reclassified. In all other cases, the loss allowance in excess of amounts previously recognised is recognised in profit or loss.
Non-financial assets
The carrying amounts of the Group's non-financial assets, other than 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 Group 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 (Group 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.
(i) Intangible assets
Intellectual property
Intellectual property is recorded at the cost of acquisition and is amortised on a straight line basis over 20 years.
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.
(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) 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.
(l) 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 probable 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 consolidated 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 the initial recognition of 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 year
Current and deferred tax is recognised as an expense or income in profit or 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.
(m) 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.
(n) 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.
(o) 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.
(p) 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.
(q) 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 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the 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 10 - financial assets at fair value through profit or loss;
Note 19(b) - share based payment transactions; and
Note 24(b) - financial instruments.
(r) Government Grants
In the current year the Group has applied for and received government support through the UK government Coronavirus Job Retention Scheme (CJRS). The Group recognises government grants only where it is reasonably certain that the Group will comply with the conditions attached to the grant and it is reasonably likely that the grant will be received. The CJRS is designed to compensate for staff costs so the Group recognises grant funding in the period necessary to match it with the corresponding staff costs. A grant receivable as compensation for expenses already incurred is recognised when it becomes receivable. The Group presents the relevant expenses net of any grant income received (note 6(e)).
(s) Leases where the Group acts as lessee
The Group recognises assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. On entering a lease contract the Group recognises 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 right of use asset is measured as being equal to the value of the lease liability at the inception of the lease, plus the initial direct costs incurred and the estimated costs for restoring the property to its original condition. Depreciation on the right of use asset is charged on a straight-line basis over the ten year period of the lease.
The lease liability in respect of the lease payments due to the lessor is measured at each reporting date as the present value of all future lease payments due. As the interest rate implicit in the lease is not readily determinable the discount rate of 9.14% used is the Group's incremental borrowing rate being the STB cost of funds using an estimated 10 year interest rate swap at February 2013. The only lease held by the Group which is relevant to AASB 16 is for its office space at Oakland House, Manchester.
(t) New or amended Accounting Standards and Interpretations adopted
The Group has adopted all of the new or amended Australian Accounting Standards that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The following Accounting Standards and Interpretations have been adopted in the annual financial statements for the year ended 30 June 2021, but have not had a material effect on the Group:
Interest Rate Benchmark Reform - IBOR 'phase 2' (Amendments to AASB 9, AASB 139, AASB 7, AASB 4 and AASB 16)
These amendments to various AASB standards are mandatorily effective for reporting periods beginning on or after 1 January 2021. As the Group has no loans whose contractual terms are affected by interest benchmark reform there was no impact on the Group from the adoption of these amendments.
(u) Accounting policies available for early adoption not yet adopted
A number of new and revised standards issued by the AASB have not yet come into effect. Below are those which are effective in future accounting periods that the group has decided not to adopt early.
The following amendments are effective for accounting periods beginning on or after 1 January 2022:
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to AASB 137); -- Property, Plant and Equipment: Proceeds before Intended Use (Amendments to AASB 116);
-- Insurance Contracts - In June 2020, the AASB issued amendments to AASB 17, including a deferral of its effective date to 1 January 2023;
-- Annual Improvements to IFRS Standards 2018-2020 (Amendments to AASB 1, AASB 9, AASB 16 and AASB 141); and
-- References to Conceptual Framework (Amendments to AASB 3).
In January 2020, the AASB issued amendments to AASB 101, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that 'settlement' includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments were originally effective for annual reporting periods beginning on or after 1 January 2022. However, in May 2020, the effective date was deferred to annual reporting periods beginning on or after 1 January 2023.
4. Critical accounting estimates and judgements
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results.
The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Revenue from contracts with customers
When recognising revenue in relation to the provision of services to customers, the key performance obligation of the consolidated entity is considered to be the point of delivery of the service to the customer, as this is deemed to be the time that the customer obtains the benefits and control of the service.
Principal vs agent
Judgement is exercised in relation to certain services that the group is providing in relation to leases entered in to by an end customer with the lessor (STB) as to whether the group is acting as principal in the arrangement or as agent. Management have determined that having regard to the contractual conditions with STB and the rights attaching to consumer contracts for the leases entered in to by the end customer with STB that the group is acting as agent and records commission income from STB.
Financial guarantee contract
Financial guarantee contracts are initially recognised at fair value and subsequently at the higher of the amount of expected credit losses determined under AASB 9 and the amount initially recognised less cumulative amortisation. The fair value of the financial guarantee is a key estimate and 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. This has been determined from historic data and forward looking estimates to determine expected default rates. This fair value determines a financial guarantee premium which is recognised as revenue over the term of the lease between the end customer and STB.
Determination of variable consideration
Judgement is exercised in estimating variable consideration which is determined having regard to past experience with respect to the expected default rates where the customer (STB) has the right to clawback from the group's commission income any amount of default on lease payments due from the end customer under the financial guarantee contract. Revenue in respect of this amount of commission income will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised under the contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Contract right income
A contract asset is recognised where the Group act as agent for the lessor (STB) during an end customer's minimum lease term with STB and the Group have a contractual right to an inertia asset at the end of this minimum lease term. Contract assets are recognised as revenue accruing over the minimum lease term up to the fair value of the inertia asset at the end of that minimum lease term. The fair value is determined based on available market data regarding expected returns for a similar risk asset and discounted using a credit risk rate.
Estimation of useful lives of assets
The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.
A. Judgements
Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the consolidated financial statements is included in the following notes:
Note 6 - commission income: whether the Group acts as an agent in the transaction rather than as principal; and
Note 8 - leases: whether an arrangement contains a finance lease.
B. Assumptions and estimation uncertainties
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 3(c) - Determination of consideration of separate performance obligation Note 11 - measurement of contract asset non-cash consideration; Note 18 - measurement of contract liabilities; and Note 19(b) - measurement of share-based payments.
Fair Value of Investments
The valuation of the Group's retained holding in Clearpay Finance Limited ("Clearpay"), following the sale of 90% of Clearpay to ASX listed Afterpay Ltd (formerly Afterpay Touch Group Ltd)("Afterpay") on 23 August 2018, is based on the agreed valuation principles for the purpose of the Afterpay call option to purchase and the Group's put option to sell the Group's holding in Clearpay to Afterpay at any time after 23 August 2023 and 23 February 2024 respectively. The key judgements that are critical to the valuation are the interpretation of the agreed valuation principles, market valuation of Afterpay Ltd in GBP equivalent, and the relevant proportion of this that relates to Clearpay, and the discount to be applied for minority holding and lack of marketability of Clearpay as a standalone entity. In order to support these judgements, management have appointed independent valuation experts to advise on this matter. The independent valuation process, in accordance with the agreed valuation principles, uses the same valuation metrics, multiples and methodologies, including those used by market participants and with regard to sell-side analysts, to value the Clearpay business within the Afterpay listed group. The Directors note that, as at 30 June 2021, Afterpay have included the Group's put option as a separate financial liability in their accounts at AU$99.9m.
Right of use lease asset and lease liability - AASB 16
AASB 16 - Leases requires management to make estimates and judgements in respect of the term of the lease and the discount rate used where it is not possible to determine the interest rate implicit in the lease. At the reporting date it is reasonably certain that the Group will not terminate the lease before the minimum term while there is also no indication that it is reasonably certain that the lease will be extended beyond that date. As it is not possible to determine the interest rate implicit in the lease management have estimated the discount rate equivalent to the borrowing rate available to the business over the same period as the lease term.
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; and -- 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 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 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 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. Further information is provided in Note 24(c).
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 the funder deposit with Secure Trust Bank is more concentrated, however the counterparty is a regulated banking institution and the credit risk exposure is assessed as low. The Group monitors the credit risk associated with the 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.
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
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 management and the Board.
Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.
The 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.
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 it achieves this objective. The Group's debt-to-adjusted capital ratio at the end of the reporting period was as follows:
30 June 30 June
2021 2020
GBP,000 GBP,000
Total liabilities 1,821 3,019
Less cash and cash equivalents (7,067) (8,805)
-------- --------
Net (cash) (5,246) (5,786)
-------- --------
Total capital 134,457 66,488
Debt-to-adjusted capital ratio (0.04) (0.09)
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. At the AGM on 11 November 2020 shareholders approved a return of capital of up to AUD $6,497,111 to shareholders (the "Distribution") in two parts:
1. a capital reduction, pursuant to which the Company will return 4.575 cents per share (or depositary interest) to shareholders (or depositary interest holders) ("Return of Capital"); and
2. a special unfranked dividend of 1.525 cents per ordinary share (or depositary interest) - declared as attaching conduit foreign income ("Dividend").
The return of capital and dividend had a record date of 13 November 2020 and were paid on 9 December 2020.
6. Consolidated Statement of Profit and Loss
12 Months
to 12 Months
30 June to
2021 30 June 2020
GBP,000 GBP,000
Profit is arrived at after crediting/(charging)
the following items:
a) Revenue
Commission income 851 2,409
Extended rental income 1,566 1,869
Income earned from sale of inertia equipment 698 727
Outsourced services 863 496
Services revenue - insurance commission 226 398
Interest revenue - other entities 65 108
Fee revenue - customers 17 72
---------- --------------
4,286 6,079
---------- --------------
b) Other revenue
Finance lease income 62 247
Other revenue - 6
---------- --------------
62 253
---------- --------------
Total revenue 4,348 6,332
---------- --------------
All revenue is generated in the UK from
the following products:
SmartPlan 3,205 5,088
Upgrade Anytime 147 450
Flexible Leasing 68 185
Other/non-product specific 928 609
---------- --------------
4,348 6,332
---------- --------------
c) Customer acquisition costs
Customer acquisition costs relate to commissions payable to our
retail partners together with sales and marketing expenses incurred
during the ongoing promotional activity of the finance contracts
to new and existing customers.
d) Cost of inertia assets sold
Cost of inertia assets sold is the write-off of inertia assets,
including that transferred from PPE Operating Lease assets when
the end customer terminates their lease agreement during secondary
period, upon sale of inertia equipment.
30 June
2021 30 June 2020
GBP,000 GBP,000
e) Other operating expenses
Employee benefits expense:
- Payments to employees (i) (1,725) (1,749)
- Employee superannuation costs (109) (90)
- Share-based payment expense - (7)
(1,834) (1,846)
Occupancy costs (171) (169)
Lease interest charge (19) (26)
Professional services (758) (805)
Finance charges (92) (380)
Losses arising from financial guarantee
contract (104) (367)
Other costs (453) (677)
--------- -------------
(3,431) (4,270)
--------- -------------
(i) Payments to employees are presented net of government grants received through the UK government Coronavirus Job Retention Scheme. In the year the Group received payments of GBP30,629 (FY20: GBP19,372).
30 June
2021 30 June 2020
GBP,000 GBP,000
f) Depreciation and amortisation
Depreciation (437) (820)
Amortisation (964) (1,227)
--------- -------------
(1,401) (2,047)
--------- -------------
g) Impairment gains/(losses)
Impairment losses finance leases and receivables (16) (182)
Movement in provision for expected credit
losses 57 180
41 (2)
--------- -------------
(h) Gains on financial instruments
Realised gain - 745
Unrealised gain 71,267 53,673
71,267 54,418
------- -------
In the period to 30 June 2021 unrealised gains arose from the revaluation of the Group's investment in 10% of Clearpay Finance Limited (see note 11(ii)).
In the period to 30 June 2020 realised gains arose on the disposal of the remaining 125,000 Afterpay Limited (APT) shares on 28 August 2019 at AU$27.73 (GBP15) per share. An additional realised gain arose on the trading of 205,000 APT shares, purchased on 23 March 2020 at AU$9.71 and disposed on 25 March 2020 at AU$15.08. Unrealised gains arose from the revaluation of the Group's investment in 10% of Clearpay Finance Limited (see note 11(ii)). These amounts are shown above.
(i) Other gains
Fair value gain on financial asset through
profit and loss 1,450 -
1,450 -
------
In the period to 30 June 2021 other gains arose on the settlement of legal claims against Dixons as announced on 10 August 2020.
7. Income Tax
30 June 30 June
2021 2020
GBP,000 GBP,000
Amounts recognised in profit and loss
The major components of income tax (expense)/benefit are:
Current income tax expense (17) (62)
Total income tax (expense)/benefit (17) (62)
--------- ---------
A reconciliation between tax expense and the product of accounting profit before income tax from continuing operations multiplied by the applicable income tax rate is as follows:
Accounting profit before tax 71,681 53,104
--------- -----------
At the statutory income tax rate of 30% (21,504) (15,931)
Effect of tax rates in foreign jurisdictions 7,885 5,824
Non-deductible expenses (3) (1)
Non-taxable gain (Substantial Shareholdings
Exemption) 13,541 10,198
Reversal of unrecognised deferred tax asset 81 -
Losses carried forward - (136)
Irrecoverable withholding tax (17) (16)
Income tax credit/(charge) (17) (62)
--------- -----------
Tax receivable/(payable)
Current - -
The current tax asset/(liability) is recognised for income tax receivable/(payable) in respect of all periods to date. The Group has an unrecognised deferred tax asset of GBP1.1m at 30 June 2021 (30 June 2020: GBP1.0m) being mainly in respect of the estimated GBP4.4m (30 June 2020: GBP5.3m) of UK tax losses carried forward at the substantively enacted UK corporation tax rate of 25% (30 June 2020: 19%).
8. Finance lease receivables
30 June 2021 30 June 2020
GBP,000 GBP,000
Current
Gross investment in finance lease receivables 29 207
Unguaranteed residuals 24 331
Unearned future finance lease income (6) (43)
------------- -------------
Net lease receivable 47 495
Allowance for expected credit losses (9) (64)
------------- -------------
38 431
------------- -------------
Non-current
Gross investment in finance lease receivables - 7
Unguaranteed residuals - 11
Unearned future finance lease income - (1)
------------- -------------
Net lease receivable - 17
Allowance for expected credit losses - (2)
------------- -------------
- 15
------------- -------------
Balance at 1 July 446 3,445
Receipts in respect of lease receivable (511) (3,244)
Finance lease income 62 247
Impairment loss 41 (2)
------ --------
38 446
------ --------
All finance leases detailed above have a minimum lease term of 2 years, see note 3(h)(i) for further information on the accounting policy for these finance leases and note 5 for further information on financial risk management. See note 24(c) for detailed analysis of the ageing of lease receivables and expected credit losses recognised.
9. Other Current Assets
30 June 2021 30 June 2020
GBP,000 GBP,000
Prepayments 222 233
Insurance prepayments 4 55
Accrued income - insurance commission (see
Note 12(i)) 154 290
Sundry debtors - 346
380 924
------------- -------------
10. Financial assets at fair value through profit or loss
30 June 2021 30 June 2020
GBP,000 GBP,000
Investment in Clearpay Finance Limited 125,000 53,733
125,000 53,733
------------- -------------
On 23 August 2018 the Group sold 90% of Clearpay Finance Limited to Afterpay Ltd (formerly Afterpay Touch Group Ltd)(ASX:APT). The Group retains a 10% shareholding in Clearpay which is held as an investment at fair value through profit or loss under AASB 9. A proportion of the 10% shareholding (up to 35%) will be made available by the Group to employees of Clearpay under an employee share ownership plan ("ESOP"). Afterpay has a call option to purchase the remaining shares held by the Group, exercisable at any time after 23 August 2023. The Group has a reciprocal put option to sell the remaining shares held by the Group to Afterpay, exercisable after 23 February 2024. Under either the call or put option, the sale of the Clearpay shares to Afterpay will be at a price calculated on agreed valuation principles. The Group engaged a third party global professional services firm to value its retained shareholding in Clearpay at 30 June 2021 for accounting purposes under AASB 9 in accordance with AASB 13 (Fair Value Measurement). The independent valuation process, in accordance with the agreed valuation principles, uses the same valuation metrics, multiples and methodologies, including those used by market participants and with regard to sell-side analysts, to value the Clearpay business within the Afterpay listed group. This valuation has been undertaken based on publicly available information, reflecting the above and including a discount of 17.5% to be applied for minority holding and the lack of marketability of Clearpay as a privately owned company, and has produced a range of values for the Group's 10% shareholding in Clearpay. In August 2021 Square Inc ("Square") and Afterpay announced the intention for Square to acquire Afterpay in a deal which valued Afterpay at US$29 billion (AU$39 billion). The transaction is expected to complete in the first quarter of the calendar year 2022. Under the terms of the agreement that ThinkSmart has with Afterpay, relating to the sale of the Group's remaining holding in Clearpay, a change of control of Afterpay gives Afterpay the right to exercise its call option to purchase the remaining shares in Clearpay from ThinkSmart at any time following said change of control. The exercise price for the call option will be determined by the same pre-agreed valuation principles whether or not the option is exercised early. To reflect the relationship between maturity of customer base and underlying sales the Directors believe that greater weighting should be assigned to active customers. In line with this the Group has taken the valuation of the 10% shareholding at two thirds of the range produced by the independent valuation. As the Group has limited control over the setting of the price that it will receive for the transfer of the ESOP shares to the Clearpay employees, the Group has further discounted the valuation by 35% to determine the accounting fair value of its retained shareholding in Clearpay to be GBP125.0m at 30 June 2021. The investment in Clearpay is a level 3 financial instrument.
Sensitivity of the asset to changes in the principal assumptions
If all other assumptions remained unchanged, reducing the discount for lack of marketability by 10% would increase the fair value by GBP15.2m; increasing the discount for lack of marketability by 10% would reduce the fair value by GBP15.2m.
The valuation range identified by the independent valuation reflects the sensitivities of the key inputs used in that valuation. If all other assumptions remained unchanged, selecting a point in the independent valuation range 10% higher would increase the fair value by GBP2.7m; selecting a point in the independent valuation range 10% lower would decrease the fair value by GBP2.7m.
11. Contract assets
30 June 30 June
2021 2020
GBP,000 GBP,000
Balance at 1 July 1,430 2,032
Recognised as revenue in period (i) 370 858
Recognised as customer acquisition cost
(ii) (110) (145)
Transferred to Plant & Equipment Operating
lease additions (913) (1,315)
--------- ---------
777 1,430
--------- ---------
Contract asset revenue to be recognised
less than 1 year 215 479
Contract asset revenue to be recognised
between 1 and 2 years 71 180
Contract asset revenue to be recognised
between 2 and 3 years 10 42
Contract asset revenue to be recognised
between 3 and 4 years - 2
---- ----
296 703
---- ----
i) A contract asset is recognised where the Group act as agent for the lessor (STB) during the minimum lease term and have a contractual right to the inertia asset at the end of the minimum lease term. Contract assets are recognised as revenue accruing over the minimum lease term building up inertia asset (non-cash consideration) over the minimum lease term.
ii) Customer acquisition costs are capitalised as an asset where such costs are incremental to obtaining a contract between the funder and the end customer, for which the Group receives commission under the funder contract, and are expected to be recovered. Customer acquisition costs are amortised on a straight-line basis over the term of the contract.
12. Other Non-Current Assets
30 June 2021 30 June 2020
GBP,000 GBP,000
Insurance prepayments - 5
Accrued income - insurance commission (i) 48 86
Deposits held by funders (ii) 2,021 2,056
------------- -------------
2,069 2,147
------------- -------------
(i) Accrued income reflects brokerage commission earned from making insurance arrangements on behalf of lessee's and is net of a clawback provision. The clawback provision for each reporting year 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.
13. Plant and Equipment
Plant &
Plant & Office Lease Equipment
Equipment Right of Operating
(UK) Use Asset Lease Total
GBP,000 GBP,000 GBP,000 GBP,000
----------- ------------- ----------- ---------
Gross Carrying Amount
Cost or deemed cost
Balance at 30 June 2019 2,601 690 3,023 6,314
Transferred from contract
assets - - 1,315 1,315
Transferred to cost of inertia
assets sold - - (587) (587)
Additions 14 - - 14
Disposals (2,463) - (3,391) (5,854)
Balance at 30 June 2020 152 690 360 1,202
----------- ------------- ----------- ---------
Transferred from contract
assets - - 917 917
Transferred to cost of inertia
assets sold - - (655) (655)
Additions 17 - - 17
Disposals (78) - (339) (417)
Balance at 30 June 2021 91 690 283 1,064
Accumulated Depreciation
Balance at 30 June 2019 (2,511) (437) (2,828) (5,852)
Depreciation expense (54) (69) (697) (820)
Disposals 2,463 - 3,391 5,854
Balance at 30 June 2020 (102) (506) (134) (742)
----------- ------------- ----------- ---------
Depreciation expense (35) (69) (333) (437)
Disposals 78 - 339 417
Balance at 30 June 2021 (59) (575) (128) (762)
----------- ------------- ----------- ---------
Net Book Value
At 30 June 2020 50 184 226 460
----------- ------------- ----------- ---------
At 30 June 2021 32 115 155 302
----------- ------------- ----------- ---------
14. Intangible Assets
Contract Software Intellectual Total
rights Property
GBP,000 GBP,000 GBP,000 GBP,000
--------- --------- ------------- ---------
Gross carrying amount
At cost
Balance at 30 June 2019 1,456 5,697 356 7,509
Effect of movement in exchange
rate - - 3 3
Additions 385 109 - 494
Disposals (1,400) (1,437) - (2,837)
Balance at 30 June 2020 441 4,369 359 5,169
--------- --------- ------------- ---------
Effect of movement in exchange
rate - - (11) (11)
Additions 8 115 - 123
Disposals (41) (2,755) - (2,796)
Balance at 30 June 2021 408 1,729 348 2,485
--------- --------- ------------- ---------
Contract Software Intellectual Total
rights Property
GBP,000 GBP,000 GBP,000 GBP,000
--------- --------- ------------- ---------
Accumulated amortisation and
impairment
Balance at 30 June 2019 (1,418) (3,587) (321) (5,326)
Effect of movement in exchange
rate - - (20) (20)
Amortisation expense (57) (1,153) (17) (1,227)
Disposals 1,400 1,437 - 2,837
Balance at 30 June 2020 (75) (3,303) (358) (3,736)
--------- --------- ------------- ---------
Effect of movement in exchange
rate - - 9 9
Amortisation expense (139) (826) 1 (964)
Disposals 41 2,755 - 2,796
Balance at 30 June 2021 (173) (1,374) (348) (1,895)
--------- --------- ------------- ---------
Net book value
At 30 June 2020 366 1,066 1 1,433
--------- --------- ------------- ---------
At 30 June 2021 235 355 - 590
--------- --------- ------------- ---------
15. Interest in Subsidiaries
% of Equity
30 June 30 June
Interest in Subsidiaries Country of Incorporation 2021 2020
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
ThinkSmart Finance Group
Ltd UK 100 100
ThinkSmart Inc USA 100 100
ThinkSmart Employee Share
Trust Australia 100 100
ThinkSmart LTI Pty Limited Australia 100 100
16. Trade and Other Payables, and Provisions
30 June 30 June
2021 2020
GBP,000 GBP,000
Trade and other payables 79 220
GST/VAT Payable 132 92
Other accrued expenses 517 883
--------- ---------
728 1,195
--------- ---------
Provisions
Annual leave 111 159
Long service leave 86 86
Risk Transfer cancellation and claims 5 10
--------- ---------
202 255
--------- ---------
Annual and long service leave
Balance at 1 July 245 218
Effect of exchange rate movement (7) 3
Additional provisions made in the year 3 24
Amounts used during the year (44) -
--------- ---------
Balance at 30 June 197 245
--------- ---------
Other
Balance at 1 July 10 34
Additional provisions made in the year - -
Amounts used during the year (5) (24)
--------- ---------
Balance at 30 June 5 10
--------- ---------
17. Lease liabilities
30 June 30 June
2021 2020
GBP,000 GBP,000
Balance brought forward 242 330
Rental paid in period (112) (114)
Interest charged 19 26
--------- ---------
149 242
--------- ---------
30 June 30 June
2021 2020
GBP,000 GBP,000
Lease liabilities due within 12 months 103 94
Lease liabilities due greater than 12
months 46 148
--------- ---------
149 242
--------- ---------
Undiscounted maturity analysis
Lease liabilities due up to 1 year 113 113
Lease liabilities due between 1 and 2
years 47 113
Lease liabilities due between 3 and 5
years - 47
Lease liabilities due over 5 years - -
---- ----
160 273
---- ----
18. Contract liabilities
30 June 30 June
2021 2020
GBP,000 GBP,000
Balance brought forward 1,327 1,993
Recognised as revenue in period (585) (666)
--------- ---------
742 1,327
--------- ---------
Contract liabilities to be recognised
as revenue within 12 months 410 648
Contract liabilities to be recognised
as revenue greater than 12 months 332 679
--------- ---------
742 1,327
--------- ---------
19. Issued Capital and reserves
(a) Issued and paid up capital
30 June
30 June 2021 2020
GBP,000 GBP,000
106,542,814 Ordinary Shares fully paid (2020:
106,509,994) 10,413 13,164
------------- ---------
2021 2021 2020 2020
Number GBP000 Number GBP000
Fully Paid Ordinary Shares
Balance at beginning of the financial
year 106,509,994 13,164 106,509,994 15,211
Issue of ordinary shares 32,820 6 - -
Return of capital to shareholders - (2,757) - (2,047)
Balance at end of the financial
period 106,542,814 10,413 106,509,994 13,164
------------ -------- ------------ --------
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.
At the AGM on 11 November 2020 shareholders approved a return of capital to shareholders. The return of capital had a record date of 13 November 2020 and was paid on 9 December 2020. The following return of capital was paid by the Group for the year:
12 months 12 months
to to
30 June 30 June
2021 2020
GBP,000 GBP,000
2.59 pence per ordinary share (2020: 1.92) 2,757 2,047
---------- ----------
2,757 2,047
---------- ----------
(b) Share options - employee options
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. The options carry neither rights to dividends nor voting rights.
Options issued in previous years and vested but not yet exercised as at 30 June 2021:
1,724,532 options over ordinary shares were issued 21 December 2016 and exercisable at GBP0.1745, vested and exercisable on 21 December 2019 until 21 December 2026. The fair value of these options at grant date was GBP0.0371. The value of these options has been expensed over the vesting period in accordance with AASB 2.
(c) 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:
Employee
options and
loan-funded
shares
Period ending 30 June 2017
-------------
Grant date 21/12/16
-------------
Fair value at grant date GBP0.0371
-------------
Grant date share price GBP0.22
-------------
Exercise price at Grant GBP0.22
date
-------------
Expected volatility 29.42%
-------------
Option/loan share life 10 years
-------------
Dividend yield 2.00%
-------------
Risk-free interest rate 0.23%
-------------
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:
Year ended 30 June Year ended 30 June
2021 2020
Weighted Weighted
average average
Number of exercise Number of exercise
options/loan price options/loan price
funded shares GBP funded shares GBP
Balance at beginning of the
financial year 1,757,352 0.2200 1,757,352 0.2200
Exercised during the financial
year (32,820) 0.1745 - -
Balance at the end of financial
year 1,724,532 0.1745 1,757,352 0.2200
--------------- ---------- --------------- ----------
Exercisable at end of the
financial year 1,724,532 0.1745 1,757,352 0.2200
--------------- ---------- --------------- ----------
The options and loan-funded shares outstanding at 30 June 2021 have an exercise price of GBP0.1745 (30 June 2020: GBP0.22) and a weighted average contractual life of 5 years (30 June 2020: 6 years). The following is the total expense recognised for the year arising from share-based payment transactions:
12 months 12 months
to 30 June to 30 June
2021 2020
GBP GBP
Share compensation - employee shares - 6,502
------------- ------------
Total expense recognised as employee costs
(note 6e) - 6,502
------------- ------------
(d) Dividends
The following dividends were declared and paid by the Group for the year:
12 months 12 months
to to
30 June 30 June
2021 2020
GBP,000 GBP,000
0.85 pence per ordinary share (2020: 1.09) 901 1,135
---------- ----------
901 1,135
---------- ----------
(e) Nature and purpose of reserves
The Group's reserves are as stated in the consolidated statement of changes in equity and represent the following:
Accumulated profit
Cumulative profit and loss net of distributions to owners.
Foreign currency translation reserve
The cumulative effect of movements in foreign exchange rates on the translation of Group entities with a functional currency other than the Group's presentation currency. These amounts are recognised in other comprehensive income.
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 year 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
2021 2020
GBP,000 GBP,000
Reconciliation of cash and cash equivalents
Cash balance comprises:
* Available cash and cash equivalents 7,007 8,744
* Restricted cash 60 61
--------- ---------
7,067 8,805
--------- ---------
The Group's exposure to credit risk, interest rate and sensitivity analysis of the financial assets and liabilities are provided in Note 24.
(a) Reconciliation of the profit for the year to net cash flows from operating activities:
12 months 12 months
to to
30 June 30 June
2021 2020
GBP,000 GBP,000
Profit after tax 71,664 53,042
Add back non-cash and non-operating items:
Depreciation 437 820
Amortisation 964 1,227
Impairment losses on finance lease receivables (57) (181)
Equity settled share-based payment - 7
Lease interest 19 26
Gain on Financial Instruments (71,267) (54,418)
Cost of inertia assets sold 655 594
(Increase)/decrease in assets:
Trade receivables, deposits held with funders
and other movements in lease assets 654 121
Finance lease receivable 465 3,180
Contract asset recognised to revenue (264) (719)
Increase/(decrease) in liabilities:
Trade and other creditors (466) (84)
Contract liabilities (585) (666)
Other interest bearing liabilities 23 (2,533)
Provisions (53) 3
Provision for income tax - 540
Net cash from operating activities 2,189 959
---------- ----------
21. 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; and - ThinkSmart UK Ltd.
Corporate and unallocated:
- ThinkSmart Limited;
- ThinkSmart Inc.
Operating Segments
Information about reportable Corporate and
segments UK unallocated Total
For the year ended: June June June June June June
2021 2020 2021 2020 2021 2020
GBP,000 GBP,000 GBP,000 GBP,000 GBP,000 GBP,000
Revenue 4,286 6,079 - - 4,286 6,079
Other revenue 61 233 1 20 62 253
Total revenue 4,347 6,312 1 20 4,348 6,332
Customer acquisition cost (258) (627) - - (258) (627)
Cost of inertia assets sold (335) (700) - - (335) (700)
Other operating expenses (2,782) (3,555) (649) (715) (3,431) (4,270)
Depreciation and amortisation (1,401) (2,047) - - (1,401) (2,047)
Impairment gains/(losses) 41 (2) - - 41 (2)
Gain on Financial Instruments 71,267 54,418 - - 71,267 54,418
Other gains 1,450 - - - 1,450 -
Reportable segment profit/(loss)
before income tax 72,329 53,799 (648) (695) 71,681 53,104
-------- -------- ----------- ---------- -------- --------
Reportable segment current
assets 4,181 6,162 3,359 4,127 7,540 10,289
Reportable segment non-current
assets 128,738 59,218 - - 128,738 59,218
Reportable segment liabilities 1,575 2,695 246 324 1,821 3,019
Capital expenditure 139 509 - - 139 509
22. Remuneration of Auditor
12 Months 12 Months
to June 2021 to June 2020
GBP GBP
Audit and review services:
Auditor of the Company:
Provided by BDO 124,791 139,948
-------------- ---------------
Audit and review of financial statements 124,791 139,948
The Group's auditors are BDO.
23. Commitments and Contingent Liabilities
June 2021 June 2020
GBP,000 GBP,000
Leases where Group acts as agent (not included
in the statement of financial position) 2,583 6,029
Deposits held by funder 2,021 2,056
Under the terms of the UK current funding agreement with Secure Trust Bank (STB) where STB is the lessor, 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 a deposit to support future delinquent leases.
The deposit held by funders is recognised as an asset on the Group's statement of financial position within other non-current assets (see note 12).
24. 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 2021 June 2020
GBP,000 GBP,000
Variable rate instruments
Cash and cash equivalents (note 20a) 7,067 8,805
Deposits held by funder (note 12) 2,021 2,056
Net financial assets 9,088 10,861
---------- ----------
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 2021 June 2020
GBP,000 GBP,000
Effect of 1% increase in rates 91 109
Effect of 1% decrease in rates (91) (109)
(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 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that 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. At 30 June 2021 the Group held the following financial instruments measured at fair value through profit or loss:
-- 10% holding in Clearpay Finance Limited with a fair value of GBP125,000,000 (2020: GBP53,733,333). The holding in Clearpay is a Level 3 financial instrument. Details of the key inputs included in the valuation of this asset, as well as the sensitivity of these inputs are included in note 10.
(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 2021 June 2020
Note GBP,000 GBP,000
Cash and cash equivalents 20(a) 7,067 8,805
Trade receivables 55 129
Loan and lease receivable (current) 8 38 495
Loan and lease receivable (non-current) 8 - 17
Insurance prepayment and accrued income
(current) 9 158 345
Insurance prepayment and accrued income
(non-current) 12 48 91
Sundry debtors 9 - 346
Deposits held by funders 12 2,021 2,056
9,387 12,284
---------- ----------
The carrying amount of the Group's financial assets that are exposed to credit risk at the reporting date by geographic region is:
June 2021 June 2020
GBP,000 GBP,000
Australia 3,278 4,075
UK 6,109 8,209
9,387 12,284
---------- ----------
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 2021 June 2020
GBP,000 GBP,000
Banks (i) 7,067 8,805
Funders (ii) 2,021 2,056
Insurance partners (iii) 206 436
Retail customers (iv) 38 512
Others 55 475
9,387 12,284
---------- ----------
(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.
The ageing of the Group's trade and lease receivables at the reporting date was:
Gross Impairment Gross Impairment
June June 2021 June 2020 June 2020
2021 GBP,000 GBP,000 GBP,000
GBP,
000
Not past due 66 - 492 2
Past due 0-30 days 19 - 29 4
Past due 31-120 days 10 8 43 30
Past due 121-365 days 17 11 90 43
--------------------- ---------------------- --------------------- ------------
112 19 654 79
--------------------- ---------------------- --------------------- ------------
Impairment is measured using a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available.
The Group applies the simplified approach to providing for expected credit losses (ECLs) under AASB 9, which permits the use of the lifetime expected loss provision for trade and lease receivables. The Group makes specific provisions for lifetime expected credit losses against these receivables where additional information is known regarding the recoverability of those balances. For the remaining trade and lease receivables balances, the Group has established an ECL model using provision matrices for recognising ECLs on its trade receivables, based on its historical credit loss experience over a two year period, adjusted (where appropriate) for forward-looking factors.
The movement in the allowance for impairment in respect of trade and lease receivables during the year was as follows:
June 2021 June 2020
GBP,000 GBP,000
Balance at 1 July 79 253
Impairment loss recognised (44) (2)
Bad debt written off (16) (172)
Balance at 30 June 19 79
---------- ----------
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, adjusted (where appropriate) for forwards looking factors.
(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 2021 June 2020
GBP,000 GBP,000
Cash and cash equivalents 3,277 4,074
10% strengthening of AUD (328) (407)
10% weakening of AUD 328 407
June 2021 June 2020
AUD/GBP year end exchange rate 0.5429 0.5586
(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 2021 June 2020
GBP,000 GBP,000
Trade and other payables 728 1,195
Lease liabilities 149 242
877 1,437
---------- ----------
Less than 1 year 831 1,289
1-2 years 46 148
---- ------
877 1,437
---- ------
25. 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
G Halton (Chief Financial Officer)
Non-Executive Directors
P Gammell
D Adams
R McDowell
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
2021 2020
GBP GBP
Short-term employee benefits 414,690 463,409
Post-employment benefits 14,403 13,971
Other long-term benefits 2,958 2,575
Share-based payments - 5,825
432,051 485,780
---------- ----------
Business expenses incurred by KMP's and
reimbursed by the Company - 55,922
---------- ----------
26. Subsequent Events
There has not arisen, in the interval between the end of the financial period and the date of this report, any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years.
27. Earnings per Share
12 months 12 months
to June to June
2021 2020
GBP,000 GBP,000
Profit after tax attributable to ordinary
shareholders 71,664 53,042
30 June 30 June
2021 2020
Number Number
Weighted average number of ordinary shares
(basic) 106,518,740 106,509,994
Effects of dilution from share options 1,724,532 1,757,352
------------ -------------
Weighted average number of ordinary shares
(diluted) 108,243,272 108,267,346
------------ -------------
30 June 30 June
Earnings per share 2021 2020
Basic earnings per share (pence) 67.28 49.80
Diluted earnings per share (pence) - continuing
operations 66.21 48.99
28. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
June 2021 June 2020
GBP,000 GBP,000
(Loss)/Profit after tax (319) 476
Total comprehensive income (319) 476
Statement of financial position
June 2021 June 2020
GBP,000 GBP,000
Total current assets 3,359 4,127
---------- ----------
Total assets 10,137 14,186
---------- ----------
Total current liabilities 246 324
---------- ----------
Total liabilities 246 324
---------- ----------
Equity
Issued share capital 10,413 13,164
Accumulated profits (522) 698
---------- ----------
Total equity 9,891 13,862
---------- ----------
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
The parent entity has provided third party guarantees in relation to the debts of its subsidiaries. No deficiencies of assets exist in any of these subsidiaries.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2021 and 30 June 2020.
Capital commitments - Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 30 June 2021 and 30 June 2020.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except for the following:
-- Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity;
-- Investments in associates are accounted for at cost, less any impairment, in the parent entity; and
-- Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment.
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