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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Thinksmart Limited | LSE:TSL | London | Ordinary Share | AU000XINEAE8 | ORD NPV (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 28.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMTSL
RNS Number : 1808B
ThinkSmart Limited
19 September 2018
19 September 2018
ThinkSmart Limited
("ThinkSmart" or the "Company" and together with its subsidiaries the "Group")
Final Results for the year to 30 June 2018
ThinkSmart Limited (AIM: TSL), a leading provider of digital point of sale payments and financing solutions, today announces its full year results for the twelve month period to 30 June 2018.
Highlights
-- Volumes up 17% to GBP13.7m (FY17: GBP11.7m), driven by launch of new products 'Flexible Leasing' and 'ClearPay' (discontinued post sale of company)
-- Revenues of GBP8.1m (FY17: GBP10.1m), reflecting the shift in product mix to lower revenue. 'Flexible Leasing' volumes compounded by shift towards on balance sheet lease accounting, where revenue is spread over term of lease rather than upfront commission income
-- Statutory loss after tax of GBP4.9m (FY17: GBP1.8m) includes one-off non-cash impairment to write-off goodwill of GBP2.3m, relating to a legacy 2007 acquisition, and GBP0.6m loss from discontinued activities
-- Investment in year in proprietary payment and financing platform, including credit decision engine, 'SmartCheck', enabled development and successful launch of innovative new products:
- 'Flexible Leasing', mobile phone consumer leasing proposition, in conjunction with longstanding commercial partner Dixons Carphone
- 'ClearPay', a new consumer credit product, which offers consumers the option to split retail purchases into three interest-free payments
-- Post year-end, 90% of 'ClearPay' acquired by Afterpay Touch Group Limited ("Afterpay") for 1 million Afterpay shares (valued at approximately GBP10.6m at completion), representing an initial pre-tax ROI of approximately 500% after transaction related costs
-- Cash and cash equivalents of GBP2.5m at 30 June 2018 increasing to GBP10.5m at 31 August 2018, post receipt of the proceeds from the sale of the initial tranche of 750,000 Afterpay shares pursuant to the 'ClearPay' transaction, but prior to the expected special dividend/capital return. The Group is currently reviewing its capital allocation plan and how best to reward shareholders
-- Available funding of GBP60m for volume growth under existing debt facilities
-- Executed non-binding strategic alliance with leading global bank offering greater reach into the retail point of sale asset finance market place
-- Significant investment programme in 'SmartCheck' technology and platform capability now largely complete, leaves business well positioned to further leverage its proprietary IP for expansion into new products and markets
Commenting on the results Ned Montarello, Executive Chairman, said:
"It has been a year of significant progress and achievement for ThinkSmart. Our strategic focus on developing our digital point of sale payments and financing platform yielded positive results with higher volumes, new product launches and the successful sale of our 'ClearPay' business to Afterpay.
"We have always built our strategy around our core values of entrepreneurialism and innovation. The rapid development of the 'ClearPay' offering, enabled by our proprietary technology platform and market know-how, and subsequent sale of 90% of the business to emerging global leader Afterpay, is testament to our capabilities. The transaction represents a 500% initial return on investment for shareholders, and we also retain significant upside potential in the value of our minority holding. We have confidence in the product and Afterpay's impressive management team to execute on a well-defined market growth strategy.
"In our core leasing business, we are pleased to have entered into a non-binding strategic alliance with a leading global bank to leverage our core capabilities and their balance sheet and reverse logistics expertise. This will allow us greater reach into the retail point of sale asset finance market place.
The continued longstanding relationship with leading retailer Dixons Carphone also presents further significant opportunities for growth.
The investment in our technology platform, along with our team, proven processes, licences and compliance regime, position us to continue developing further new innovative products and partnerships going forward."
For further information please contact:
ThinkSmart Limited Via Instinctif Partners Ned Montarello finnCap Ltd (Nominated Adviser and Joint Broker) +44 (0)20 7220 0500 Jonny Franklin-Adams, Emily Watts, Anthony Adams (Corporate Finance) Tim Redfern, Richard Chambers (Corporate Broking) Canaccord Genuity (Joint Broker) +44 (0)20 7523 8350 Sunil Duggal David Tyrrell Instinctif Partners +44 (0)20 7457 2020 Giles Stewart Catherine Wickman Rui Videira
Notes to Editors
About ThinkSmart Limited
ThinkSmart Limited is a leading platform provider of digital point of sale payments and financing solutions for both consumers and businesses. ThinkSmart's solutions are underpinned by its innovative and scalable proprietary technology platform, 'SmartCheck'. Since it commenced operations in the UK in 2003, the Group has processed in excess of 400,000 individual applications.
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.
Chairman's Statement
Introduction
It has been a year of significant progress for the business, with the Group's strategic focus on developing its point of sale payments and financing platform allowing us to launch compelling and innovative new products during the period to meet evolving consumer and retailer demand for digital payment solutions.
In September 2017 we launched our 'Flexible Leasing' smartphone solution, with longstanding partner, Dixons Carphone, which enables end customers to upgrade to the latest handset after 12 months, at a point in time of their choosing. From commencement in July 2017, we fully launched in March 2018 our first to market digital payments plan, 'ClearPay', which gives retailers the ability to allow customers to spread the cost of purchases over three interest-free monthly payments at the point of sale.
Post the year end, the Group sold 90% of the 'ClearPay' business to ASX listed Afterpay for 1 million Afterpay shares (approximately GBP10.6m), representing an initial return on investment of 500%. As well as crystallising a significant initial return on investment for shareholders, the ongoing 10% stake in Afterpay's UK business offers shareholders the prospect of significant upside. 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 ("ESOP"). Afterpay, currently valued at A$4billion, is a global leader in online payments. Utilising the local capabilities of the 'ClearPay' entity and team, Afterpay will prepare to launch its globally scalable system into the UK within the next six months.
The business continues to review its capital allocation programme and reiterates its intention to reward shareholders with a capital return and/or special dividend following the 'ClearPay' transaction, whilst retaining sufficient cash to invest in the business. The Group intends to inform shareholders of the outcome of this review in the near term.
The Group continues to operate its existing core leasing business, and to invest in its proprietary 'SmartCheck' solution which has the capability for both credit and leasing. The business is keenly attuned to emerging digital payments trends and consumer needs and, having proven the value of the Group's proprietary IP, contract management systems, licences and compliance regime, is well positioned to monetise this further through developing new partnerships and new products while expanding into new markets.
With net cash at 31 August 2018 of GBP10.5m (before expected special dividend/capital return), and available headroom on its funding facilities of GBP60m for volume growth, the Group is securely financed, which offers a strong base for ongoing growth.
Performance
Overall UK volumes for the period grew by 17% to GBP13.7m (FY17: GBP11.7m). This was driven by the launches of Flexible Leasing, which contributed GBP6.5m, and 'ClearPay', which contributed GBP0.3m (discontinued post sale of company). Collectively the contribution from Flexible Leasing and 'ClearPay' more than offset the decrease in volumes from the established products, 'SmartPlan' and 'Upgrade Anytime'.
Revenues were 20% lower at GBP8.1m (FY17: GBP10.1m) reflecting the shift in product mix to lower revenue Flexible Leasing volumes compounded by a shift towards on balance sheet lease accounting where revenue is spread over term of lease rather than upfront commission income.
Statutory loss after tax of GBP4.9m (FY17: GBP1.8m) includes one-off non-cash impairment to write-off goodwill of GBP2.3m, relating to a legacy 2007 acquisition, and GBP0.6m loss from discontinued activities.
Performance also reflects an investment of GBP2.3m in improving the capability of the Group's 'SmartCheck' platform (FY17: GBP1.9m). While the development of new products would inherently incur its own investment, the period of heavy investment in the development of the Group's platform and 'SmartCheck' technology is now drawing to a close and the Group expects the level of investment in FY19 to reflect this. The sale of 'ClearPay' also reduces the cost base.
The investment in operations has allowed the Group to develop the attributes of a successful digital payments company, offering a proprietary payments decision engine, a leading team, proven processes, licences and compliance regime. Therefore, the business is now well positioned to leverage this investment through its ability to develop customer-focused solutions more rapidly.
The Group is protected against any adverse impact on its existing customers financial position, in an environment of rising interest rates, through the quality of its underwriting procedures, which form a fundamental part of the business's core capabilities, as well as the small value of debt per customer and its high-quality credit customer portfolio. Additionally we are well diversified by region and demography, with a good mix of consumer and business customers.
Position
As a result of the volume of leases maturing from prior years, assets under management reduced marginally by 1% to GBP19.9m, while active customer contracts decreased by 11% to 41,000.
Cash and cash equivalents stood at GBP2.5m at the end of the period, and at GBP10.5m as at 31 August 2018, following the sale of 'ClearPay' (and before the expected special dividend/capital return). The Group has plenty of available headroom to support volume growth of the business, with funding facilities totalling GBP80m in place of which less than 25% has been drawn.
Partnerships
We continue to partner with Dixons Carphone, one of the UK's leading electrical and mobile phone retailers, and have further strengthened our relationship during the period with the launch of the Group's 'Flexible Leasing' smartphone product in September 2017. The product is aligned with current consumer behaviour as attitudes towards ownership shift and leasing becomes increasingly popular. The business is constantly looking at ways to best align products with customer behaviour.
Alongside our partnership with Dixons Carphone, we are looking to partner with scale retailers in other sectors, as part of our multi-faceted, multi-channel approach to growing the business. ThinkSmart's innovative payments propositions integrate seamlessly both online and in-store, creating differentiation and advantage for retailers in high volume, low value sectors.
In particular, the Group has executed a new strategic relationship with a leading global bank, focused on optimising the credit leasing value chain, delivering benefits to consumers and retailers as well as offering us a broader set of potential commercial relationships
Growth Strategy
The Group will continue to focus on its digital proprietary technology platform 'SmartCheck' and mobile app to develop its core capability in the provision of leasing and credit point of sale finance for retailers of scale in the UK. In particular, the Group intends to focus on the following core technological and service attributes:
Credit Decision Capability:
The Group intends to introduce increased sophistication and automation to its credit decision capability, which serves both consumers and business customers. This will further enhance our market leading decision capability and provide optimal decision-making for our customers, retail partners and funders.
Mobile App and Mobile Customer Experience:
Continue development of the Group's mobile app and digital mobile-optimised customer journey to ensure the company remains at the forefront of retail finance transactions from mobile devices, creating a unified experience across the digital customer journey.
Life Cycle Contract Management:
Further development of the Group's lifecycle contract management capabilities with automated low-cost customer service and programmable digital communication technologies to serve customers through product lifecycles.
Breadth of Proposition:
The Group is authorised by the Financial Conduct Authority and holds permissions for consumer credit lending, consumer hire and debt collections enabling it to develop and bring to market a full range of retail finance propositions which it can service end to end.
In addition, the Group has more than 16 years' experience of providing regulated retail finance products, together with established operations and processes with an embedded culture of Treating Customers Fairly.
This combination of proprietary technology and regulatory expertise and experience creates a differentiated market position and advantage for the Group.
The Group executes its growth strategy across the following channels:
Organic Growth Through Existing Retail Partners
The Group has a long-term relationship with Dixons Retail, one of Europe's largest electrical and telecommunications companies, through which it has an exclusive arrangement to distribute an innovative mobile phone proposition, 'Flexible Leasing', via Carphone Warehouse stores, the dominant market leader in the UK for retailing mobile phones. The Group's B2B leasing proposition 'SmartPlan' is distributed through Dixons Retail's Currys PC World stores, the UK market leader for retailing electricals.
Expansion into New Markets and Sectors
The Directors believe that the opportunity to lease extends to markets beyond the coverage of the arrangement with Dixons Retail. The Directors' focus is on identifying sectors and markets that offer similar customer replacement cycles, average transaction values (ATVs) and residual values, and the ability for the Group to rapidly gain market share.
Innovate and Leverage Proprietary Technology
The Group's ability to innovate and leverage its proprietary technology and expertise can be evidenced by its recent sale in August 2018 of 'ClearPay' to Afterpay.
Disposal of Shares in ClearPay
As announced on 23 August 2018, post year end, the Company's subsidiary, ThinkSmart Europe Limited ("TSE"), completed the sale of 90% of the issued shares in 'ClearPay' to Afterpay for 1,000,000 shares in the capital of Afterpay. On 24 August 2018, the Company sold its initial tranche of 750,000 shares in the capital of Afterpay at a price of $20 per share. The Company will be issued a second tranche of 250,000 shares in the capital of Afterpay on 23 February 2019, six months following completion.
The Group's subsidiary, RentSmart Limited has entered into a business separation and transitional services agreement with ClearPay to support the transaction and facilitate the transition to Afterpay. In addition, the Group has indemnified Afterpay against any losses incurred by 'ClearPay' in shutting down the existing 'ClearPay' retailers, and Afterpay has the right to reduce the second tranche of 250,000 shares if any such shut down losses arise and have not been reimbursed by the Group prior to the issue of these shares.
Current Trading Update
In the two months to 31 August 2018 settled value volumes were GBP1.47m, up 3.5% on same period last year. Growth continues to be driven primarily by the 'Flexible Leasing' proposition. Due to the two-year duration of the leasing term, revenue and profit will have an increasing impact over the coming periods. The volume and margin contributions from 'Upgrade Anytime' have been decreasing steadily over the past years and the product is no longer offered to new customers.
The Group remains highly attuned to the impact of evolving consumer demands and trends, and is focused on leveraging its well invested proprietary payments decision technology platform, 'SmartCheck', to design new products for both existing and new partners and to grow its customer base through innovative digital payment propositions.
Ned Montarello, Executive Chairman
Key Performance Indicators:
Hot Features
Premium
12 Months to
12 Months 30 June 2017
to
30 June 2018
Business Volumes
--------------- --------------- ------
* SmartPlan/Upgrade Anytime GBP6.8m GBP11.2m -39%
--------------- --------------- ------
- GBP0.5m N/A
* TBL
--------------- --------------- ------
GBP6.5m - N/A
* Flexible Leasing
--------------- --------------- ------
Total - Continuing Operations GBP13.4m GBP11.7m +15%
--------------- --------------- ------
GBP0.3m - N/A
* ClearPay
--------------- --------------- ------
Total GBP13.7m GBP11.7m +17%
--------------- --------------- ------
Revenue (Total) GBP8.1m GBP10.1m -20%
--------------- --------------- ------
Statutory Loss After Tax(1) GBP(4.9m) GBP(1.8m) -172%
--------------- --------------- ------
Basic EPS Loss (pence) (4.67) (1.77) -164%
--------------- --------------- ------
As at
30 June 2018 As at
30 June 2017
--------------- --------------- ------
Lease Receivables Under
Management (Closing) GBP19.9m GBP20.2m -1%
--------------- --------------- ------
Active Customer Contracts
(,000) 41.0 45.4 -10%
--------------- --------------- ------
ATV GBP703 GBP846 -17%
--------------- --------------- ------
Cash and Cash Equivalents GBP2.5m GBP4.5m -44%
--------------- --------------- ------
Net Assets GBP13.4m GBP18.3m -27%
--------------- --------------- ------
(1) FY18 results include one-off non-cash impairment to write off goodwill of GBP2.3m, and a loss from discontinued operations of GBP0.6m
Consolidated Statement of Profit & Loss and Other Comprehensive Income
For the Financial Year Ended 30 June 2018
12 Months
12 Months to June
to June 2018 2017
Notes GBP,000 GBP,000
Continuing operations
Revenue 6(a) 7,417 8,951
Other revenue 6(b) 721 1,185
-------------- ----------
Total revenue 8,138 10,136
Customer acquisition cost 6(c) (1,225) (1,349)
Cost of inertia assets realised 6(d) (1,264) (1,925)
Other operating expenses 6(e) (5,910) (6,123)
Depreciation and amortisation 6(f) (1,436) (1,159)
Impairment losses 6(g) (3,145) (474)
Non-operating strategic review and advisory
expenses 8 - (1,106)
-------------- ----------
Loss before tax (4,842) (2,000)
Income tax benefit 7 530 158
-------------- ----------
Net Loss after tax from continuing operations (4,312) (1,842)
Loss from discontinued operations net of
tax 9 (594) -
Net Loss after tax - attributable to owners
of the Company (4,906) (1,842)
Other comprehensive (loss)/income
Items that may be reclassified subsequently
to profit or loss, net of income tax:
Foreign currency translation differences
for foreign operations (140) (223)
Total items that may be reclassified subsequently
to profit or loss net of income tax (140) (223)
-------------- ----------
Other comprehensive loss for the year,
net of income tax (140) (223)
-------------- ----------
Total comprehensive loss for the year attributable
to owners of the Company (5,046) (2,065)
-------------- ----------
Loss per share
Basic loss per share (pence) 30 (4.67) (1.77)
Diluted loss per share (pence) 30 (4.67) (1.72)
The attached notes form an integral part of these consolidated financial statements
Consolidated Statement of Financial Position
As at 30 June 2018
June 2018 June 2017
Notes GBP,000 GBP,000
Current assets
Cash and cash equivalents 22(a) 2,523 4,527
Trade receivables 180 290
Finance lease receivables 10 3,399 2,107
Other current assets 11 1,807 2,177
Assets held for sale 12 1,528 -
Total current assets 9,437 9,101
---------- ----------
Non-current assets
Finance lease receivables 10 3,420 1,282
Plant and equipment 14 133 207
Intangible assets 15 6,335 7,459
Goodwill 17 - 2,332
Deferred tax assets 7 71 96
Tax receivable 7 578 222
Other non-current assets 13 2,135 2,857
Total non-current assets 12,672 14,455
---------- ----------
Total assets 22,109 23,556
---------- ----------
Current liabilities
Trade and other payables 18 1,617 1,155
Deferred service income 19 863 1,059
Other interest bearing liabilities 20 2,510 1,158
Provisions 18 283 314
Liabilities held for sale 12 141 -
Total current liabilities 5,414 3,686
---------- ----------
Non-current liabilities
Deferred service income 19 621 746
Deferred tax liability 7 - 27
Other interest bearing liabilities 20 2,708 789
---------- ----------
Total non-current liabilities 3,329 1,562
---------- ----------
Total liabilities 8,743 5,248
---------- ----------
Net assets 13,366 18,308
---------- ----------
Equity
Issued capital 21(a) 17,397 17,332
Reserves (2,843) (2,703)
Accumulated profits (1,188) 3,679
---------- ----------
Total equity 13,366 18,308
---------- ----------
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 2018
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 2016 14,376 (2,480) 5,956 17,852
Loss for the year - - (1,842) (1,842)
Exchange differences arising on translation
of foreign operations, net of tax - (223) - (223)
Total comprehensive loss for the year - (223) (1,842) (2,065)
----------- ------------- ------------ ---------------
Transactions with owners of the Company,
recognised directly in equity
Contributions by and distributions to owners
of the Company
Issue of ordinary shares 5,000 - - 5,000
Share buyback (1,721) - - (1,721)
Costs associated to capital raising and buyback (323) - - (323)
Dividends paid (Note 21(c)) - - (536) (536)
Recognition of share-based payments - - 101 101
----------- ------------- ------------ ---------------
Balance at 30 June 2017 17,332 (2,703) 3,679 18,308
----------- ------------- ------------ ---------------
Balance at 1 July 2017 17,332 (2,703) 3,679 18,308
Loss for the year - - (4,906) (4,906)
Exchange differences arising on translation
of foreign operations, net of tax - (140) - (140)
Total comprehensive loss for the year - (140) (4,906) (5,046)
------- -------- -------- --------
Transactions with owners of the Company,
recognised directly in equity
Contributions by and distributions to owners
of the Company
Issue of ordinary shares - - - -
Dividends paid in respect of Loan Funded
Shares exercised in year - - (12) (12)
Recognition of share-based payments - - 51 51
Share options exercised 65 - - 65
------- -------- -------- --------
Balance at 30 June 2018 17,397 (2,843) (1,188) 13,366
------- -------- -------- --------
The attached notes form an integral part of these consolidated financial statements
Consolidated Statement of Cash Flows
For the Financial Year Ended 30 June 2018
12 Months 12 Months
to June to June
2018 2017
Notes GBP,000 GBP,000
Cash Flows from Operating Activities
Receipts from customers 6,227 9,722
Payments to suppliers and employees (6,579) (8,502)
Payments relating to strategic review and
advisory expenses - (1,866)
(Payments)/receipts in respect of lease
receivables (2,826) 1,886
Proceeds/(payments) from other interest
bearing liabilities, inclusive of related
costs 3,274 (1,274)
Interest received 77 97
Interest and finance charges paid (412) (387)
Receipts from security guarantee 649 15
Income tax received/(paid) 36 (95)
Net cash (used in)/from operating activities 22(b) 446 (404)
---------- ----------
Cash Flows from Investing Activities
Payments for plant and equipment (67) (103)
Payment for intangible assets - Software (2,252) (1,872)
Payment for intangible assets - Contract
rights (81) (210)
Net cash used in investing activities (2,400) (2,185)
---------- ----------
Cash Flows from Financing Activities
Proceeds from share issue net of costs 65 4,748
Payment for establishing financing facilities - (150)
Dividends paid (12) (536)
Share buyback net of costs - (1,792)
Net cash used in financing activities 53 2,270
---------- ----------
Net decrease in cash and cash equivalents (1,901) (319)
Effect of exchange rate fluctuations on
cash held (16) (8)
Cash and cash equivalents at beginning of
the financial year 4,527 4,854
Cash and cash equivalents from discontinued
operations 12 (87) -
Total cash and cash equivalents at the end
of the financial period 22(a) 2,523 4,527
---------- ----------
Restricted cash and cash equivalents at
the end of the financial period 22(a) (56) (124)
---------- ----------
Net available cash and cash equivalents
at the end of the financial period 2,467 4,403
---------- ----------
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. 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 Corporation Act 2001. The consolidated financial statements comply with International Financial Reporting Standard (IFRS) adopted by the International Accounting Standards Board (IASB) as well as International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs"). The consolidated financial statements were authorised for issue by the Board of Directors on 18 September 2018.
(b) Basis of measurement
The financial report has been prepared on the basis of historical cost, except for derivative financial instruments measured at fair value. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in 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 2016/191b and in accordance with that instrument, amounts in the consolidated financial statements and directors' report have been rounded off to the nearest thousand pounds, unless otherwise stated. Previous to the AIM listing, in December 2016, the consolidated financial statements were presented in Australian Dollars.
(d) Going Concern
The Group has incurred losses of GBP4.9 million (including GBP2.3m one off impairment of goodwill, and GBP0.6m loss on discontinued activities) for the year and has an excess of current assets over current liabilities of GBP4.1 million at 30 June 2018 including cash of GBP2.5 million. After the balance sheet date, on 23 August 2018 the Group completed the sale of 90% of its shares in ClearPay Finance Ltd (ClearPay) for 1,000,000 shares in Afterpay Touch Group Ltd (Afterpay), and on 24 August 2018 sold 750,000 of these shares for A$15,000,000 increasing the Group cash balance at 31 August 2018 to GBP10.5 million (based on 0.56 GBP:AUD, and before the special dividend/capital return referred to below).
It is expected that shareholders will be paid a special dividend/capital return whilst the business will ensure that it retains sufficient cash reserves for further expansion and product development opportunities. To assess this, the directors have prepared base and alternative cash flow forecasts for a period in excess of 12 months from the date of approval of these consolidated financial statements. Those forecasts reflect the sale of ClearPay, expected special dividend/return of capital to shareholders, sale of remaining 250,000 shares in Afterpay when received in February 2019, effect of recent operating cost rationalisation and additional actions that the Board has committed to implement. In preparing the forecasts, the directors have considered scenarios assessing the impact of changes in volumes of the existing products, and also variances in the proceeds received from the sale of the second tranche 250,000 shares in Afterpay, on the working capital requirements of the Group.
The directors have considered the concentration risk on Dixons Carphone as the sole provider of new business volumes following the sale of ClearPay, and the uncertainty regarding the cashflow impact of the sale of the second tranche 250,000 Afterpay shares.
(d) Going Concern (continued)
These forecasts show that the Group's cash reserves remain above the Group's current GBP1 million bank covenant minimum cash balance throughout the forecast period without the need to raise any additional working capital.
The directors acknowledge that risk is an inherent part of doing business and believe the Group is well placed to manage its business risks noting that they are not all wholly within their control, and as a result the directors have also assessed the mitigating actions that are within their control. Consequently, after making enquires and considering the forecast and the alternative scenarios, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons they continue to adopt the going concern basis in preparing the consolidated financial statements.
(e) Accounting policies available for early adoption not yet adopted
A number of new standards and interpretations are effective for annual periods beginning after 1 January 2018 and have not been applied in preparing this financial report. The Group has not adopted these standards early with the first implementation effective for the next financial year.
Ref Title Summary Application Application Impact on Group financial
date of date for report
standard Group
IFRS Financial Replaces IAS39, 1 January 1 July At the time of preparing
9 Instruments the standard includes 2018 2018 this report the Group
requirements for has assessed that
classification and there will be no
measurement of financial material impact due
assets and liabilities, to the adoption of
hedge accounting IFRS 9 in future
and the impairment periods.
of financial assets
---------------- ----------------------------- ------------ ------------ --------------------------
IFRS Revenue The new standard 1 January 1 July At the time of preparing
15 from Contracts creates a single 2018 2018 this report the Group
with Customers model for revenue has assessed that
recognition from there will be no
contracts with customers. material impact due
to the adoption of
IFRS 15 in future
periods.
---------------- ----------------------------- ------------ ------------ --------------------------
IFRS Leases Replaces IAS17, 1 January 1 July The Group currently
16 the standard introduces 2019 2019 only leases its office
a single lessee and company vehicles.
accounting model The office lease
and requires a lessee is shown in note
to recognise assets 23. At the time of
and liabilities preparing this report
for all leases with the Group has assessed
a term of more than that there will be
12 months, unless no material impact
the underlying asset due to the adoption
is of low value. of IFRS 16 in future
A lessee is required periods.
to recognise a right-of-use
asset representing
its right to use
the underlying leased
asset and a lease
liability representing
its obligation to
make lease payments.
---------------- ----------------------------- ------------ ------------ --------------------------
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.
Measuring goodwill
The Group measures goodwill as the fair value of consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. Consideration transferred includes the fair values of the asset transferred, liabilities incurred by the Group to the previous owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination.
(c) Revenue recognition
The Group has relationships with retail partners to act as a facilitator and arranger of financing arrangements to allow those retailers to provide technological products to consumers under short/medium term finance contracts. The financing is obtained by the Group from third party funding partners.
Depending on the nature of the agreements with those funders, these contracts result in the Group acting as a lessor or as the agent of the funder (who is then the lessor).
Where the Group is acting as the lessor it follows the treatment outlined in IAS 17. In accordance with IAS 17 nearly all the contracts are considered to be finance leases and the only source of revenue is Finance Lease Income. This Finance Lease Income is recognised on the effective interest rate method at the constant rate of return. This method amortises the lease asset over its economic life down to the estimate of any unguaranteed residual value that is expected to be accrued to the Group at the end of the lease.
In the Year ended 30th June 2017 the Group piloted a product where it acted as the lessor in a B2C operating lease. The pilot produced a small number of contracts which generated less than 0.3% of the total lease income revenue. Due to the small value of this it has been included in Other Revenue in these consolidated financial statements.
Where the Group is acting as the agent it receives the following revenue streams:
Commission income
An upfront brokerage fee receivable from the funder in exchange for arranging the contract.
Deferred service income
As part of the agreement with funders the Group obtain the right to receive income arising from equipment and rights to the hiring agreement at the end of the minimum term, which is recognised upfront as an Inertia Contract Intangible Asset (see note 3h). An amount equal to this asset is then recognised as deferred service income over the life of the contract.
Extended rental income
Once the contract between the funder and the customer expires the asset becomes the property of the Group and any extended rental income is payable to Group, being recognised when receivable.
Income earned from sale of inertia assets
At the end of the extended rental period any proceeds on disposal of the asset are recognised at the point of disposal.
Services revenue - insurance
Lease customers of hire agreements originated by the Group are required to have suitable insurance in respect of the leased equipment. If these customers do not make independent insurance arrangements the Group arrange insurance and collect the premiums on their behalf, receiving a commission from the insurer for doing so.
(d) Cash and cash equivalents
Cash comprises cash on hand and demand deposits with an original maturity of less than 3 months. Cash equivalents are short-term, highly liquid investments that are readily converted to known amounts of cash which are subject to an insignificant risk of change in value. Restricted cash comprises amounts held in trust in relation to dividends paid on employee loan funded shares.
(e) Plant and equipment
Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives they are accounted for as separate items (major components) of property, plant and equipment. The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognised net within other income/other expenses in profit or loss.
Depreciation
Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of the asset, that component is depreciated separately. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. The following estimated useful lives are used in the calculation of depreciation:
-- 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.
(f) Trade and other payables
Trade payables are recognised when the consolidated entity becomes obliged to make future payments resulting from the purchase of goods and services and measured at fair value.
(g) Financial instruments
(i) Non-derivative financial assets
The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset and allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset or, where appropriate, a shorter period.
Lease receivables
The Group has entered into financing transactions with customers and has classified nearly all of its leases as finance leases for accounting purposes. Under a finance lease, substantially all the risks and benefits incidental to the ownership of the leased asset are transferred by the lessor to the lessee. The Group recognises at the beginning of the lease minimum term an asset at an amount equal to the aggregate of the present value (discounted at the interest rate implicit in the lease) of the minimum lease payments and an estimate of the value of any unguaranteed residual value expected to accrue to the benefit of the Group at the end of the minimum lease term. This asset represents the Group's net investment in the lease.
Unearned finance lease income
Unearned finance lease income on leases and other receivables is brought to account over the life of the lease contract based on the interest rate implicit in the lease using the effective interest rate method.
Initial direct transaction income and costs
Initial direct income/costs or directly attributable, incremental transaction income/costs incurred in the origination of leases are included as part of receivables on the balance sheet and are amortised in the calculation of lease income and interest income.
Allowance for losses
The collectability of lease receivables is assessed on an ongoing basis. A provision is made for losses based on historical rates of arrears and the current delinquency position of the portfolio (refer note 3(g)(iii)).
Insurance prepayment
In relation to business customers who do not already have insurance, a policy is set up through a third party insurance provider. The Group pays for the insurance cover upfront and also recognises its income upfront which creates an insurance prepayment on the balance sheet. The Group subsequently collects the insurance premium from the customer on a monthly basis over the life of the rental agreement, which reduces the prepayment. Where a policy is cancelled, the unexpired premiums are refunded to the Group.
Other financial assets
These are classified as 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
(ii) Non-derivative financial liabilities
The Group initially recognises financial liabilities on the date they are originated. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
Financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate method.
Transaction costs consist of legal and other costs that are incurred in connection with the borrowing of funds. These costs are capitalised and then amortised over the life of the loan.
Financial guarantee contracts
Financial guarantees issued by the Group are recognised as financial liabilities at the date the guarantee is issued. Liabilities arising from financial guarantee contracts, are initially recognised at fair value and subsequently at the higher of the amount of projected future losses and the amount initially recognised less cumulative amortisation.
The fair value of the financial guarantee is determined by way of calculating the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligation. Any increase in the liability relating to financial guarantees is recognised in profit and loss. Any liability remaining is derecognised in profit and loss when the guarantee is discharged, cancelled or expires.
(iii) Impairment of assets
Financial assets, including finance lease receivables and loan receivables
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
In assessing collective impairment, the Group uses modelling of historical trends of the probability of defaults, timing of recoveries and the amount of loss incurred. Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial assets and the present value of the estimated future cash flows discounted at the asset's original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in Group's that share similar credit risk characteristics. All impairment losses are recognised in profit and loss when an asset is either non recoverable or has suffered arrears of at least 91 days. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in profit and loss.
Non-financial assets
The carrying amounts of the Group's non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or 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.
(h) Intangible assets
Intellectual property
Intellectual property is recorded at the cost of acquisition over the fair value of the identifiable net assets acquired, and is amortised on a straight line basis over 20 years.
Inertia Contracts
As noted in note 3(c), where the Group is acting as an agent the Group recognises an intangible asset once it has an unconditional contractual right to receive income arising from equipment and rights to the hiring agreement at the end of minimum term. This inertia contract is measured at fair value at the inception of the hiring agreement, and is based on discounted cash flows expected to be derived from the sale or hire of the assets at the end of the minimum term. Subsequent to initial recognition the intangible asset is measured at cost. Amortisation is based on cost less estimated residual value. Individual intangible assets are assessed at each reporting period for impairment. Impaired contracts are offset against any unamortised deferred service income with the remainder recognised in profit and loss. At the end of the hiring minimum term the intangible asset is derecognised and the Group recognises the equipment as inventory at the corresponding value.
Contract Rights
The contractual rights obtained by the Group under financing agreements entered into with its funding partners and operating agreements with its retail partners constitute intangible assets with finite useful lives. These contract rights are recognised initially at cost and amortised over their expected useful lives. In relation to funder contract rights, the expected useful life is the earlier of the initial contract minimum term or expected period until facility limit is reached. At each reporting date a review for indicators of impairment is conducted.
Software development
Software development costs are capitalised only up to the point when the software has been tested and is ready for use in the manner intended by management. Software development expenditure is capitalised only if the development costs can be measured reliably, the product process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. The intangible asset is amortised on a straight line basis over its estimated useful life, which is between 3 and 5 years. Capitalised software development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses.
(i) Goodwill
Goodwill acquired in a business combination is initially measured at its cost, being the excess of the cost of the business combination over the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. Goodwill is subsequently measured at its cost less any impairment losses.
For the purpose of impairment testing, goodwill is allocated to each of the Group's cash generating units (CGUs) or Group's of CGUs, expected to benefit from the synergies of the business combination. CGUs (or Group's of CGUs) to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired.
If the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the CGU (or group of CGUs), the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or group of CGUs) and then to the other assets of the CGU (or group of CGUs) pro-rata on the basis of the carrying amount of each asset in the CGU (or CGUs). The impairment loss recognised for goodwill is recognised immediately in the profit or loss and is not reversed in the subsequent period.
On disposal of an operation within a CGU, the attributable goodwill is included in the determination of the profit or loss of disposal on the operation.
(j) Employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries and annual leave when it is probable that settlement will be required and they are capable of being measured reliably.
The Group pays defined contributions for post-employment benefit into a separate entity. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the period during which services are rendered by employees. Termination benefits are recognised as an expense when the Group is committed, it is probable that settlement will be required, and they are capable of being reliably measured.
Share-based payments
The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
(k) Inventories
Inventories are valued at the lower of cost and net realisable value. Net realisable value represents the estimated selling price less all estimated costs of completion and costs necessary to make ready for sale. Refer to note 3(h) in relation to inertia contracts where, at the end of the minimum lease term, the intangible asset is derecognised and the Group recognises the equipment as inventory at the corresponding value.
(l) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.
(m) Income tax
Current tax
Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax payable for current and prior periods is recognised as a liability to the extent that it is unpaid. Carried forward tax recoverable on tax losses is recognised as a deferred tax asset where it is probably that future taxable profit will be available to offset in future periods.
Deferred tax
Deferred tax is accounted for using the balance sheet method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the 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 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 the statement of profit and loss, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess purchase consideration.
(n) Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (VAT/GST) except:
(i) where the amount of VAT/GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; and
(ii) receivables and payables which are recognised inclusive of VAT/GST.
The net amount of VAT/GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.
Cash flows are included in the statement of cash flows on a gross basis. The VAT/GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.
(o) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured at historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on retranslation are presented in profit or loss on a net basis, except for differences arising on the retranslation of a financial liability designated as a hedge of the net investment in a foreign operation that is effective, which are recognised in other comprehensive income.
(p) Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.
(q) Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligations. Provisions are determined by discounting the expected future cash flows at a rate that reflects current market assessments of the time value of money and the risks specific to the liability.
(r) Lease payments
Payments made under operating leases are recognised in profit or loss on a straight line basis over the minimum term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the minimum term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the minimum lease term so as to produce a constant period rate of interest on the remaining balance of the liability.
(s) Measurement of fair values
A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the 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 15 - Intangible assets;
Note 21(b)(i) - share based payment transactions; and
Note 27(b) - financial instruments.
4. Critical accounting estimates and judgements
The preparation of the consolidated financial statements in conforming to IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. R The Group makes estimates and assumptions concerning the future.
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 10 - 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 15 - fair value at inception of inertia intangible assets and recoverable amount;
Note 15 - measurement of deferred services income;
Note 17 - measurement of the recoverable amount of cash generating units containing goodwill;
Note 21(b)(i) - measurement of share-based payments; and Note 26 - value of financial guarantee contract net of loss provision. 5. Financial Risk Management
Overview
The Group has exposure to the following risks from the use of financial instruments:
-- Credit risk -- Liquidity risk -- Market risk -- Operational risk
This note presents information about the Group's exposure to each of the above risks, the objectives, policies and processes for measuring and managing financial risks, and the management of capital. Further quantitative disclosures are included throughout this financial report.
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has established the Audit and Risk 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 and are recorded net of the Group's estimate of this credit risk. Further information is provided in Note 26.
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. In addition, the Group maintains the operational facilities which are shown in note 20.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising return.
Currency risk
The Group's exposure to foreign currency risk is limited to the cash balances held by the Australian parent ThinkSmart Limited denominated in Australian Dollars.
Interest rate risk
As at 30 June 2018 the Group has drawn down GBP0.8m on its Santander loan facility of GBP10m which runs until September 2018. The Group has also drawn down GBP4.8m on its STB loan facility of GBP10m. Exposure to interest rate risk on any corporate borrowings will be assessed by the Board and, where appropriate, the exposure to movement in interest rates may be hedged by entering into interest rate swaps, when considered appropriate by the management and the Board. As at 30 June 2018 there were interest rate swaps with an original notional value of GBP5m in place with Santander UK plc to fix the future interest rate exposure on the Santander loan facility (see note 20). The mark to market value of these interest rate swaps as at 30 June 2018 was GBP4,000.
Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.
The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall group standards for the management of operational risk in the following areas:
-- Requirements for appropriate segregation of duties, including the independent authorisation of transactions;
-- Requirements for the reconciliation and monitoring of transactions; -- Compliance with regulatory and other legal requirements; -- Documentation of controls and procedures;
-- Requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified;
-- Ethical and business standards; and -- Risk mitigation, including insurance where this is effective.
Concentration risk
The Company's main retail distribution partner in the UK is Dixons Carphone plc and contracts for both business sales and consumer sales are in place until at least 2020, with the consumer "Flexible Leasing" contract being exclusive. Should Dixons cease trading or terminate the contracts, turnover would be reduced until alternative distribution partners were found.
Capital management
The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management aims to maintain a capital structure that ensures the lowest cost of capital available to the Group. Management constantly reviews the capital structure to ensure 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
2018 2017
GBP,000 GBP,000
Total liabilities 8,743 5,248
Less cash and cash equivalents (2,523) (4,527)
-------- --------
Net debt 6,220 721
-------- --------
Total capital 13,366 18,308
Debt-to-adjusted capital ratio 0.47 0.04
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. No dividends were paid or declared during the financial year to 30 June 2018.
6. Consolidated Statement of Profit and Loss
30 June
30 June 2018 2017
Notes GBP,000 GBP,000
Profit/(loss) is arrived at after crediting/(charging)
the following items:
(a) Revenue
Finance lease income 653 842
Interest revenue - other entities 77 97
Income earned from sale of inertia assets 818 796
Extended rental income 2,739 3,101
Deferred service income 1,288 1,516
Fee revenue - customers 91 118
Commission income 1,751 2,481
7,417 8,951
(b) Other revenue
Services revenue - insurance 715 1,164
Other revenue 6 21
------------- ---------
721 1,185
------------- ---------
(c) Customer acquisition costs
Customer acquisition costs relate to sales and marketing expenses
incurred during the ongoing promotional activity of the finance
contracts to new and existing customers.
(d) Cost of inertia asset realised
Cost of inertia asset realised includes write down of assets held
for secondary rental and net book value of the assets sold at date
of disposal.
30 June
30 June 2018 2017
Notes GBP,000 GBP,000
(e) Other operating expenses
Employees benefits expense:
- Payments to employees (3,076) (3,640)
- Employee superannuation costs (236) (232)
- Share-based payment expense (51) (101)
(3,363) (3,973)
Occupancy costs (286) (322)
Professional services (687) (505)
Finance charges (359) (279)
Other costs (1,215) (1,044)
------------- ---------
(5,910) (6,123)
------------- ---------
(f) Depreciation and amortisation
Depreciation (141) (159)
Amortisation (1,295) (1,000)
------------- ---------
(1,436) (1,159)
------------- ---------
(g) Impairment losses
Impairment losses finance leases and receivables (410) (147)
Impairment losses on intangible assets (403) (327)
Impairment of goodwill 17 (2,332) -
------------- ---------
(3,145) (474)
------------- ---------
7. Income Tax
30 June 30 June
2018 2017
Notes GBP,000 GBP,000
(a) Amounts recognised in profit and loss
The major components of income tax (benefit)/expense are:
Current income tax credit/(expense) (59) 402
Adjustment for prior year 477 (190)
Deferred income tax expense
Origination and reversal of temporary differences 119 4
Adjustment for prior year (7) (58)
Total income tax benefit 530 158
--------- ---------
A reconciliation between tax expense and the product of accounting profit before income tax from continuing operations multiplied by the applicable income tax rate is as follows:
Accounting loss before tax (4,842) (2,000)
------------ ----------
At the statutory income tax rate of 30% 1,453 600
Effect of tax rates in foreign jurisdictions (562) (133)
Non-deductible expenses (633) (315)
Losses carried back - (99)
Losses carried forward (192) (130)
Overseas tax losses not recognised/(recognised) (6) (13)
Adjustments in respect of prior years 470 248
------------ ----------
Income tax credit/(expense) 530 158
------------ ----------
Deferred tax asset
Accrued expenses 6 14
Employee entitlements 64 60
Equity raising costs - 5
Borrowing costs - -
Plant & equipment - 1
Intangible assets 1 -
Losses carried forward - 16
Total 71 96
------------ --------
Deferred tax liability
Plant & equipment - 16
Intangible assets - 11
Total - 27
------------ --------
Net deferred tax asset/(liability) for UK - 1
Net deferred tax asset for Australia 71 68
Tax payable/(receivable)
Current (578) (222)
The current tax (asset)/liability is recognised for income tax (receivable)/payable in respect of all periods to date.
8. Non-operating strategic review and advisory expenses
30 June
2018 30 June 2017
GBP,000 GBP,000
Non-operating strategic review and advisory
expenses* - (1,106)
*Costs associated with the successful completion of GBP5m Henderson
placement, buyback of 10m shares and migration of listing to the
AIM of the London Stock Exchange.
9. Loss from discontinued operations
In June 2018, management committed to a plan to sell one of the subsidiary companies, ClearPay Finance Limited. The sale was completed on 23 August 2018. ClearPay was developed and began trading in July 2017 and therefore did not make up part of the Financial Statements for the comparative year ended 30 June 2017. As such therefore there is no requirement to re-state the comparative consolidated statement of Profit & Loss and Other Comprehensive Income.
30 June 2018 30 June 2017
GBP,000 GBP,000
Revenue 11 -
------------- -------------
Total revenue 11 -
Customer acquisition costs (293) -
Other operating expenses (235) -
Depreciation and amortisation (61) -
Impairment losses (16) -
------------- -------------
Loss before tax (594) -
Income tax expense - -
------------- -------------
Loss after tax (594) -
------------- -------------
10. Finance lease receivables
30 June 2018 30 June 2017
GBP,000 GBP,000
Current
Gross investment in finance lease receivables 3,468 1,928
Unguaranteed residuals 434 154
Unearned future finance lease income (355) 51
------------- -------------
Net lease receivable 3,547 2,133
Allowance for losses (148) (26)
------------- -------------
3,399 2,107
------------- -------------
Non-current
Gross investment in finance lease receivables 3,607 1,169
Unguaranteed residuals 478 91
Unearned future finance lease income (506) 38
------------- -------------
Net lease receivable 3,579 1,298
Allowance for losses (159) (16)
------------- -------------
3,420 1,282
------------- -------------
All finance leases detailed above have a minimum lease term of 2 years, see note 3(g)(i) for further information on the accounting policy for these finance leases.
11. Other Current Assets
30 June 2018 30 June 2017
GBP,000 GBP,000
Prepayments 578 631
Insurance prepayments 320 454
Accrued income (see Note 13(i)) 451 639
Inventories 324 284
Sundry debtors 134 169
1,807 2,177
------------- -------------
12. Disposal group held for sale
In June 2018, management committed to a plan to sell its subsidiary ClearPay Finance Limited. Accordingly, the assets and liabilities of ClearPay Finance Limited are presented as a disposal group held for sale. Efforts to sell ClearPay Finance Limited have progressed well and with a sale of 90% of the shares of the company completed on 23 August 2018. At 30 June 2018, the disposal group was stated at fair value and comprised the following assets and liabilities.
30 June 2018 30 June 2017
GBP,000 GBP,000
Cash and equivalents 87 -
Trade receivables 12 -
Finance loan receivable 72 -
Intangible assets 1,357 -
------------- -------------
Assets held for sale 1,528 -
------------- -------------
Trade and other payables 137 -
Deferred income 4 -
------------- -------------
Liabilities held for sale 141 -
------------- -------------
13. Other Non- Current Assets
30 June 2018 30 June 2017
GBP,000 GBP,000
Insurance prepayments 234 293
Accrued income (i) 322 381
Deposits held by funders, net of provision
(ii) 1,579 2,183
------------- -------------
2,135 2,857
------------- -------------
(i) Accrued income reflects brokerage commission earned from making insurance arrangements on behalf of leaseholders and is net of a clawback provision. The clawback provision for each reporting 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.
14. Plant and Equipment
Plant & Plant &
Equipment Equipment
(Australia) (UK) Total
Notes GBP,000 GBP,000 GBP,000
------------- ----------- ---------
Gross Carrying Amount
Cost or deemed cost
Balance at 30 June 2016 66 2,389 2,455
Effect of movement in exchange
rate 14 - 14
Additions 2 101 103
Balance at 30 June 2017 83 2,489 2,572
------------- ----------- ---------
Effect of movement in exchange
rate (4) - (4)
Additions - 67 67
Balance at 30 June 2018 79 2,556 2,635
Accumulated Depreciation
Balance at 30 June 2016 (50) (2,142) (2,192)
Effect of movement in exchange
rate (14) - (14)
Depreciation expense (17) (142) (159)
Balance at 30 June 2017 (81) (2,284) (2,365)
------------- ----------- ---------
Effect of movement in exchange
rate 4 - 4
Depreciation expense (1) (140) (141)
Balance at 30 June 2018 (78) (2,424) (2,502)
------------- ----------- ---------
Net Book Value
At 30 June 2017 1 206 207
------------- ----------- ---------
At 30 June 2018 1 132 133
------------- ----------- ---------
15. Intangible Assets
Contract Software Distribution Intellectual Inertia Total
rights network Property Contracts
GBP,000 GBP,000 GBP,000 GBP,000 GBP,000 GBP,000
--------- --------- ------------- ------------- ----------- ---------
Gross carrying amount
At cost
Balance at 30 June
2016 1,150 2,678 270 356 6,103 10,557
Effect of movement
in exchange rate - - - 24 - 24
Additions 210 1,872 - - 1,338 3,420
Disposals/transfer
to inventory - - - - (1,720) (1,720)
Balance at 30 June
2017 1,360 4,550 270 380 5,721 12,281
--------- --------- ------------- ------------- ----------- ---------
Effect of movement
in exchange rate - - - (18) - (18)
Additions 81 2,252 - - 1,039 3,372
Disposals/transfer
to inventory - - - - (1,273) (1,273)
Transfer to assets
held for sale - (1,418) - - - (1,418)
Balance at 30 June
2018 1,441 5,384 270 362 5,487 12,944
--------- --------- ------------- ------------- ----------- ---------
Contract Software Distribution Intellectual Inertia Total
rights network Property Contracts
GBP,000 GBP,000 GBP,000 GBP,000 GBP,000 GBP,000
--------- --------- ------------- ------------- ----------- ---------
Accumulated amortisation
and impairment
Balance at 30 June
2016 (911) (444) (270) (286) (1,433) (3,344)
Effect of movement
in exchange rate - - - (18) - (18)
Amortisation expense (170) (811) - (19) - (1,000)
Impairment loss
(i) - - - - (460) (460)
Balance at 30 June
2017 (1,081) (1,255) (270) (323) (1,893) (4,822)
--------- --------- ------------- ------------- ----------- ---------
Effect of movement
in exchange rate - - - 15 - 15
Amortisation expense (161) (1,177) - (18) - (1,356)
Impairment loss
(i) (132) - - - (376) (508)
Transfer to assets
held for sale - 61 - - - 61
--------- --------- ------------- ------------- ----------- ---------
Balance at 30 June
2018 (1,374) (2,371) (270) (326) (2,269) (6,610)
--------- --------- ------------- ------------- ----------- ---------
Net book value
At 30 June 2017 279 3,295 - 57 3,828 7,459
--------- --------- ------------- ------------- ----------- ---------
At 30 June 2018 67 3,013 - 36 3,219 6,335
--------- --------- ------------- ------------- ----------- ---------
(i) Impairment loss relates to the write off where the related contract has early terminated principally due to contract default.
Inertia contract assets acquired are measured at fair value based on the discounted cash flows expected to be derived from the sale or hire of the assets at the end of the minimum lease term. This measurement inherently introduces estimation uncertainty. The Group continually assesses current inertia proceeds and includes these in the estimation of inertia assets acquired. As such the fair value measurement for inertia contract assets has been categorised as Level 3 fair value. The following tables show the valuation techniques used in measuring Level 3 fair values, as well as the significant unobservable inputs used.
Valuation technique Significant unobservable Inter-relationship
inputs between key unobservable
inputs and fair value
measurement
The Group recognises The fair value is based In order of financial
an intangible asset arising on current levels of impact the estimated
if it has the unconditional return (25%-30%) less fair value would increase
contractual right to an allowance for (decrease) if:
receive income arising cancellations
from equipment and rights (10%-30%) and expected * Expected sale value was higher (lower). A 1%
to the hiring agreement costs (5%-10%) of reduction in the sale value would create a 1%
(customer hire agreement realisation. deduction in the overall value of the asset.
for goods) at the end
of minimum term. This The discount rate applied
inertia asset is measured to the fair value is * Expected secondary hire term was longer (shorter)
at fair value at the 8.38% per annum.
inception of the hiring
agreement, and is based * Expected cancellations/bad debts were lower (higher)
on discounted cash flows
expected to be derived
from the sale or hire * Expected realisation costs were lower (higher)
of the asset at the end
of the minimum term.
Subsequent to initial * Discount rate derived from group cost of capital was
recognition the intangible lower (higher)
asset is measured at
cost.
During the hiring minimum
term the valuation is
impaired for any assets
that have been written
off.
At the end of the hiring
minimum term the intangible
asset is derecognised
and the group recognises
the equipment as inventory
at the corresponding
value.
--------------------------- -----------------------------------------------------------
16. Interest in Subsidiaries
% of Equity
30 June 30 June
Interest in Subsidiaries Country of Incorporation 2018 2017
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
ClearPay Finance Ltd UK 100 100
ThinkSmart Finance Group
Ltd UK 100 -
SmartCheck Finance Spain
SL Spain 100 100
SmartPlan Spain SL Spain 100 100
ThinkSmart Inc USA 100 100
ThinkSmart Employee Share
Trust Australia 100 100
ThinkSmart LTI Pty Limited Australia 100 100
17. Goodwill
30 June 30 June
2018 2017
GBP,000 GBP,000
Balance at beginning of financial year 2,332 2,332
Impairment (2,332) -
--------- ----------
Balance at end of financial year - 2,332
--------- ----------
Impairment testing for cash-generating (CGU) units containing goodwill
The goodwill of GBP2.33 million arose on the acquisition of the UK business, RentSmart Limited from Bank of Scotland plc in 2007 (taking ThinkSmart's holding to 100%). Further financial information relating to the UK business is shown within the segment information (note 24).
The recoverable amount of the cash-generating unit, being ThinkSmart's UK leasing business, was based on its value in use using business plan assumptions and a market discount rate and hence includes inherent estimation uncertainty. Having been historically profitable, and in the absence of an active market, value in use was deemed to be the appropriate method for measurement of the value of the CGU. However, in the year to 30 June 2018 ThinkSmart's UK leasing business incurred operating losses of GBP1.2 million (being UK losses of GBP4.1m less GBP0.6m relating to ClearPay and GBP2.3m goodwill impairment). In addition, the Group received an indicative proposal from a third party in May 2018 which valued the ThinkSmart leasing business below its net assets (including GBP2.33m goodwill). These indicators imply that the current value of the goodwill in the ThinkSmart UK leasing business is impaired and as such a GBP2.33m impairment of the goodwill has been made at 30 June 2018.
18. Trade and Other Payables, and Provisions
30 June 30 June
2018 2017
GBP,000 GBP,000
Trade and other payables 428 545
GST/VAT Payable 553 256
Other accrued expenses 636 354
--------- ---------
1,617 1,155
--------- ---------
Provisions
Annual leave 123 103
Long service leave 89 97
Risk Transfer cancellation and claims 71 114
--------- ---------
283 314
--------- ---------
Annual and long service leave
Balance at 1 July 200 151
Effect of exchange rate movement (8) 10
Additional provisions made in the year 20 39
Amounts used during the year - -
--------- ---------
Balance at 30 June 212 200
--------- ---------
Other
Balance at 1 July 114 41
Additional provisions made in the year (43) 73
Amounts used during the year - -
--------- ---------
Balance at 30 June 71 114
--------- ---------
19. Deferred Service Income
30 June 30 June
2018 2017
Notes GBP,000 GBP,000
Balance at 1 July 1,805 2,116
Intangible inertia assets acquired 15 1,039 1,338
Reversal due to intangible asset impairment (72) (133)
Recognised in Consolidated Statement of
Profit and Loss 6(a) (1,288) (1,516)
--------- ---------
1,484 1,805
--------- ---------
Deferred service income to be recognised
within 12 months 863 1,059
Deferred service income to be recognised
in greater than 12 months 621 746
--------- ---------
1,484 1,805
--------- ---------
20. Other interest bearing liabilities
30 June
30 June 2018 2017
GBP,000 GBP,000
Current - Loan advances net of deferred costs
of raising facility (i) 2,510 1,158
------------- ---------
Non-current- Loan advances net of deferred
costs of raising facility (i) 2,708 789
------------- ---------
Customer financing facilities
- Amount used 5,553 2,365
- Amount unused 14,447 17,635
Total Facility (i) 20,000 20,000
------------- ---------
Other finance facilities (business credit card):
- amount used 8 12
- amount unused 27 38
------------- ---------
35 50
------------- ---------
(i) The loan is made up of a GBP10 million 5 year revolving credit facility provided by Santander UK plc dated 15 December 2014 and a GBP10 million (option to extend to GBP20 million) minimum 3 year credit facility provided by STB dated 2 October 2017.
21. Issued Capital
30 June
30 June 2018 2017
GBP,000 GBP,000
(a) Issued and paid up capital
------------- ---------
104,728,744 Ordinary Shares fully paid (2017:
105,478,744) 17,434 17,332
------------- ---------
2018 2018 2017 2017
Number GBP000 Number GBP000
Fully Paid Ordinary Shares
Balance at beginning of the financial
year 105,478,744 17,332 95,477,922 14,376
Issue of ordinary shares 500,000 - 20,000,000 5,000
Repayment of loans in respect
of 500,000 loan funded shares* - 65
Cancellation of shares through
buyback - - (9,999,178) (1,721)
Costs associated to capital raising
and buy-back - - - (323)
Cancellation employee loan-funded
shares (1,250,000) - - -
------------ -------- ------------ --------
Balance at end of the financial
period 104,728,744 17,397 105,478,744 17,332
------------ -------- ------------ --------
*During the year 500,000 employee loan-funded shares were exercised with the related loans being repaid (2017: nil)
Ordinary Shares entitle the holder to participate in dividends and the proceeds on winding up the Company in proportion to the number of and amount paid on the Shares held. On a show of hands, every holder of Ordinary Shares present in the meeting in person or by proxy is entitled to one vote, and upon a poll each Share is entitled to one vote. The Company does not have authorised capital or par value in respect to its issued shares.
(b)(i) Share options - employee options and loan-funded shares
The Company has an ownership-based remuneration scheme for Executives and senior employees. Each employee share option converts to one ordinary share of ThinkSmart Limited on exercise and payment of the exercise price. Each employee loan-funded share converts to one ordinary share of ThinkSmart Limited on exercise and repayment of the loan. The options carry neither rights or dividends nor voting rights. The loan-funded shares carry voting and rights to dividends.
Options and loan-funded shares issued in previous years and not yet vested or exercised as at 30 June 2018:
-- 500,000 options over ordinary shares were issued 4 July 2013 and exercisable at GBP0.1559, vesting and exercisable on 4 July 2016 until 3 July 2018. The fair value of these options at grant date was GBP0.0576-GBP0.0694. Vesting of the options is subject to achievement of the following performance conditions:
- Tranche 1: 25% of options vest if the share price hurdle of GBP0.2235 is met in accordance with the performance conditions;
- Tranche 2: 25% of options vest if the share price hurdle of GBP0.2874 is met in accordance with the performance conditions; and
- Tranche 3: 50% of loan options vest if the share price hurdle of GBP0.3513 is met in accordance with the performance conditions.
25% vested on 4 March 2017 and the remaining 75% failed to meet the share price hurdle and were cancelled.
-- 1,000,000 loan-funded shares were issued 4 July 2013 and exercisable at GBP0.1559, vesting and exercisable on 4 March 2017 until 4 March 2019. The fair value of these options at grant date was GBP0.0576-GBP0.0694. Vesting of the loan-funded shares is subject to achievement of the following performance conditions:
- Tranche 1: 25% of loan-funded shares will vest if the share price hurdle of GBP0.2235 is met in accordance with the performance conditions;
- Tranche 2: 25% of loan-funded shares will vest if the share price hurdle of GBP0.2874 is met in accordance with the performance conditions; and
- Tranche 3: 50% of loan-funded shares will vest if the share price hurdle of GBP0.3513 is met in accordance with the performance conditions.
25% vested on 4 March 2017 and the remaining 75% failed to meet the share price hurdle and were cancelled.
-- 2,320,629 options over ordinary shares were issued 21 December 2016 and exercisable at GBP0.22, vesting and exercisable on 21 December 2019 until 21 December 2026. The fair value of these options at grant date was GBP0.0371. Vesting of the options is subject to achievement of the following performance conditions:
Earnings per Share Condition 1 (EPS1) - Vesting of 75% of the share options will be subject to meeting EPS1. The metric for EPS1 is growth in earnings per share over the performance period. Share options will vest as follows;
Metric <15% Nil EPS1 options will vest
Metric = 15% (Lower Target 1) 25% of EPS1 options will vest
------------------------------------
15% < Metric < 50% Straight line vesting between Lower
Target 1 and Upper Target 1
------------------------------------
Metric = 50% (Upper Target 1) 100% of EPS1 options will vest
------------------------------------
Earnings per Share Condition 2 (EPS2) - Vesting of 25% of the share options will be subject to meeting EPS2. The metric for EPS2 is growth in earnings per share over the performance period adjusted to exclude profit generated from any business transacted with any member of the Dixons Carphone plc Group. Share options will vest as follows;
Metric <15% Nil EPS2 options will vest
Metric = 15% (Lower Target 2) 25% of EPS2 options will vest
------------------------------------
15% < Metric < 50% Straight line vesting between Lower
Target 2 and Upper Target 2
------------------------------------
Metric = 50% (Upper Target 2) 100% of EPS2 options will vest
------------------------------------
The value of these options and loan-funded shares will be expensed over the vesting period in accordance with IFRS 2.
Measurement of fair values
The fair value of employee share options is measured using a binomial model and loan-funded shares are measured using a Monte-Carlo simulation model.
Other measurement inputs include share price on measurement date, exercise price of the instrument, weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. Below are the inputs used to measure the fair value of the options and loan-funded shares:
Employee Employee
options and options and
loan-funded loan-funded
shares shares
30 June 2017 31 December
Period ending 2013
------------- --------------------
Grant date 21/12/16 04/07/2013
------------- --------------------
Fair value at grant date GBP0.0371 GBP0.0576-GBP0.0694
------------- --------------------
Grant date share price GBP0.22 GBP0.1587
------------- --------------------
Exercise price GBP0.22 GBP0.1559
------------- --------------------
Expected volatility 29.42% 55%
------------- --------------------
Option/loan share life 10 years 4 years
------------- --------------------
Dividend yield 2.00% 0%
------------- --------------------
Risk-free interest rate 0.23% 2.99%
------------- --------------------
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
2018 2017
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 5,001,026 0.1995 6,583,333 0.2058
Granted during the financial
year - - 4,660,116 0.2200
Cancelled during the financial
year (2,055,397) 0.1949 (6,242,423) 0.2220
Exercised/Repaid Loan during
the financial year (500,000) 0.1345 - -
--------------- ---------- --------------- ----------
Balance at the end of financial
year 2,445,629 0.2167 5,001,026 0.1995
--------------- ---------- --------------- ----------
Exercisable at end of the
financial year 125,000 0.1559 375,000 0.1273
--------------- ---------- --------------- ----------
The options and loan-funded shares outstanding at 30 June 2018 have an exercise price in the range of GBP0.1559 to GBP0.22 (30 June 2017: GBP0.1131 to GBP0.2466) and a weighted average contractual life of 8.05 years (30 June 2017: 6.38 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
2018 2017
GBP,000 GBP,000
Share options/loan-funded shares granted in
2014 - equity settled - 65
Share options/loan-funded shares granted in
2015 - equity settled - 24
Share options/loan-funded shares granted in
2016 - equity settled 14 12
------------ ------------
Total expense recognised as employee costs
(note 6e) 14 101
------------ ------------
(b)(ii) Share compensation - employee shares
500,000 shares of the Company were granted as remuneration whilst 1,250,000 employee loan funded shared were cancelled during the reporting period.
(c) Dividends
No dividends were paid or declared by the Company since the end of the previous financial period.
22. Notes to the Cash Flow Statement
(a) For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash flow statement is reconciled to the related items in the balance sheet as follows:
as at as at
30 June 30 June
2018 2017
GBP,000 GBP,000
Reconciliation of cash and cash equivalents
Cash balance comprises:
* Available cash and cash equivalents 2,467 4,403
* Restricted cash 56 124
--------- ---------
2,523 4,527
--------- ---------
The Group's exposure to credit risk, interest rate and sensitivity analysis of the financial assets and liabilities are provided in Note 25.
(b) Reconciliation of the (loss)/profit for the year to net cash flows from operating activities:
12 months 12 months
to to
30 June 30 June
2018 2017
GBP,000 GBP,000
Loss after tax (4,906) (1,842)
Add back non-cash and non-operating items:
Depreciation 141 159
Amortisation 1,356 1,000
Impairment losses on intangible assets 2,735 327
Impairment losses on finance lease receivables 410 147
Foreign currency (gain)/loss unrealised 4 (4)
Equity settled share-based payment 74 101
(Increase)/decrease in assets:
Trade receivables, deposits held with funders
and other movements in lease assets 836 640
Finance lease receivable (415) (474)
Deferred tax asset 16 (19)
Other assets 185 (35)
Rental asset inventory (40) 214
Increase/(decrease) in liabilities:
Trade and other creditors 523 (629)
Deferred service revenue 14 205
Provisions 22 39
Provision for income tax (509) (233)
Net cash (used in)/from operating activities 446 (404)
---------- ----------
23. Leases and Hire Purchase Obligations
Operating leases - leasing arrangements
Operating leases relate to office facilities with lease terms of up to 5 years. All operating lease contracts contain market review clauses in the event that the consolidated entity exercises its option to renew. The consolidated entity does not have an option to purchase the leased asset at the expiry of the lease period. No provisions have been recognised in respect of non-cancellable operating leases.
June 2018 June 2017
GBP,000 GBP,000
Non-cancellable operating lease payments:
No later than 1 year 96 96
Later than 1 year and not later than 5 years 359 383
More than 5 years - 96
---------- ----------
455 575
---------- ----------
24. Segment Information
The Group currently has one reportable segment which comprise the Group's core business unit (UK). Head office and other unallocated corporate functions are shown separately. For the segment, the Board and the CEO review internal management reports on a monthly basis. The composition of the reportable segment is as follows:
UK:
- ThinkSmart Europe Ltd - RentSmart Ltd - ThinkSmart Insurance Services Administration Ltd - ThinkSmart Financial Services Ltd - ThinkSmart UK Ltd - ClearPay Finance Ltd
Corporate and unallocated:
- ThinkSmart Limited
- SmartCheck Finance Spain SL
- ThinkSmart Italy Srl
- ThinkSmart Inc
Operating Segments
Information about reportable Corporate and
segments UK unallocated Total
For the year ended: June June June June June June
2018 2017 2018 2017 2018 2017
GBP,000 GBP,000 GBP,000 GBP,000 GBP,000 GBP,000
Revenue 7,415 8,950 2 1 7,417 8,951
Other revenue 721 1,185 - - 721 1,185
Total revenue 8,136 10,135 2 1 8,138 10,136
Customer acquisition cost (1,214) (1,341) (11) (8) (1,225) (1,349)
Cost of inertia assets realised (1,264) (1,925) - - (1,264) (1,925)
Other operating expenses (4,608) (4,691) (1,302) (1,432) (5,910) (6,123)
Depreciation and amortisation (1,435) (1,123) (1) (36) (1,436) (1,159)
Impairment losses* (3,145) (474) - - (3,145) (474)
Non-operating strategic review
and advisory expenses - - - (1,106) - (1,106)
Loss from discontinued operations (594) - - - (594) -
Reportable segment profit/(loss)
before income tax (4,124) 581 (1,312) (2,581) (5,436) (2,000)
-------- -------- ----------- ---------- -------- --------
Reportable segment current
assets 9,149 8,734 288 367 9,437 9,101
Reportable segment non-current
assets 12,601 14,159 71 210 12,672 14,369
Reportable segment liabilities 8,409 4,852 335 310 8,743 5,162
Capital expenditure 2,400 2,183 - 2 2,400 2,185
* Impairment losses for the year include a one-off impairment to write off goodwill of GBP2.33m
25. Remuneration of Auditor
12 Months 12 Months
to June 2018 to June 2017
GBP,000 GBP,000
Audit and review services:
Auditor of the Company:
-------------- --------------
Audit and review of financial statements 218 147
-------------- --------------
Services other than statutory audit:
Tax compliance and advisory services 74 46
Transaction compliance and advisory services - 279
292 325
-------------- --------------
The Group's auditors are KPMG.
26. Commitments and Contingent Liabilities
June 2018 June 2017
GBP,000 GBP,000
Leases where Group acts as agent (off balance
sheet) 13,129 16,792
Gross capital deposited with STB 2,305 2,954
Less provision for delinquent leases (726) (771)
---------- ----------
Deposits held by funders 1,579 2,183
---------- ----------
Under the terms of the UK current funding agreement with Secure Trust Bank (STB), the group is obliged to purchase delinquent leases (contracts in arrears for 91 days) from the funder at the funded amount. The Group has entered into a financial guarantee contract with STB for which the Group has provided capital to support future delinquent leases and at the same time recognised a provision against this deposit being its estimate of the funded amount of these leases that are likely to become delinquent in the future and will therefore not be recoverable from STB. The Group estimates this amount based on historical loss experience for assets with similar characteristics.
The net deposit held by funders is recognised as an asset on the Group's balance sheet within other non-current assets (see note 13).
Management have reviewed the sensitivity relating to delinquent leases funded by STB.
Sensitivity analysis
A change of 5% in delinquent leases would have increased or decreased the Group's profit for continuing operations by GBP36k.
27. 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 2018 June 2017
GBP,000 GBP,000
Variable rate instruments
Cash and cash equivalents (note 22a) 2,523 4,527
Deposits held by funder (note 26) 2,305 2,954
Other interest bearing liabilities (note 20) (5,553) (2,365)
---------- ----------
Net financial assets (725) 5,116
---------- ----------
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 2018 June 2017
GBP,000 GBP,000
Effect of 1% increase in rates (7) 51
Effect of 1% decrease in rates 7 (51)
(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).
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. The only financial instrument measured at fair value is the interest rate swaps with Santander UK plc. This is a level 2 financial instrument with a fair value of GBP4,000 at 30 June 2018 (30 June 2017: GBP4,000).
(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 2018 June 2017
Note GBP,000 GBP,000
Cash and cash equivalents 22(a) 2,523 4,527
Trade receivables 180 310
Loan and lease receivable (current) 10 3,399 2,133
Loan and lease receivable (non-current) 10 3,420 1,298
Insurance prepayment and accrued income
(current) 11 771 1,093
Insurance prepayment and accrued income
(non-current) 13 556 674
Sundry debtors 11 134 169
Deposits held by funders 13 1,579 2,183
12,562 12,387
---------- ----------
The carrying amount of the Group's financial assets that are exposed to credit risk at the reporting date by geographic region is:
June 2018 June 2017
GBP,000 GBP,000
Australia 242 261
UK 12,320 12,100
Other - 26
12,562 12,387
---------- ----------
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 2018 June 2017
GBP,000 GBP,000
Banks (i) 2,523 4,527
Funders (ii) 1,579 2,183
Insurance partners (iii) 1,327 1,767
Retail customers (iv) 6,819 3,431
Others 314 479
12,562 12,387
---------- ----------
(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 2018 June 2017 June 2017
2018 GBP,000 GBP,000 GBP,000
GBP,
000
Not past due 6,920 76 3,663 16
Past due 0-30 days 185 40 27 5
Past due 31-120 days 161 142 28 26
Past due 121-365 days 59 56 23 14
--------------------- ---------------------- --------------------- ------------
7,325 314 3,741 61
--------------------- ---------------------- --------------------- ------------
The movement in the allowance for impairment in respect of trade and lease receivables during the year was as follows:
June 2018 June 2017
GBP,000 GBP,000
Balance at 1 July 61 98
Impairment loss recognized 410 146
Bad debt written off (157) (183)
Balance at 30 June 314 61
---------- ----------
Trade and lease receivables are reviewed and considered for impairment on a periodic basis, based on the number of days outstanding and number of payments in arrears.
(d) Currency risk management
Exposure to currency risk
The Group's exposure to foreign currency risk is limited to the cash balances held by the Australian parent ThinkSmart Limited denominated in Australian Dollars:
June 2018 June 2017
GBP,000 GBP,000
Cash and cash equivalents 242 261
10% strengthening of AUD (24) (26)
10% weakening of AUD 24 26
June 2018 June 2017
AUD/GBP year end exchange rate 0.5634 0.5913
(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 2018 June 2017
GBP,000 GBP,000
Trade and other payables 1,617 1,155
Other interest bearing liabilities 5,553 2,365
---------- ----------
7,170 3,520
Less than 1 year 5,124 2,623
1-2 years 2,046 897
------ ------
7,170 3,520
28. 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
K Jones
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
2018 2017
GBP,000 GBP,000
Short-term employee benefits 669 904
Post-employment benefits 22 95
Other long-term benefits 3 3
Share-based payments 49 86
743 1,088
---------- ----------
29. Subsequent Events
On the 23 August 2018 the Group announced that it had sold 90% of the share capital of ClearPay Finance Limited to AfterPay Touch Group Limited ("AfterPay"), a company listed on the ASX. The Group sold 90% of the issued shares in ClearPay to AfterPay for 1,000,000 shares in the capital of AfterPay. The shares were valued at the transaction date at AUD $18.55m and issued to ThinkSmart Europe Limited (TSE). An initial tranche of 750,000 shares was issued to TSE at completion on 23 August 2018 (am AEST) and a second tranche of 250,000 shares will be issued to TSE on 23 February 2019, being 6 months from completion. The first tranche of shares was subsequently sold at AUD $20 per share for a total of AUD $15m.
The Group's subsidiary, RentSmart Limited has entered into a business separation and transitional services agreement with ClearPay to support the transaction and facilitate the transition to AfterPay. In addition, the Group has indemnified AfterPay against any losses incurred by ClearPay in shutting down the existing ClearPay retailers, and AfterPay has the right to reduce the second tranche of 250,000 shares if any such shut down losses arise and have not been reimbursed by the Group prior to the issue of these shares.
A proportion of the 10% shareholding in ClearPay retained by TSE will be made available to employees of ClearPay under an employee share ownership plan ("ESOP"). After completion, TSE will make available some of the shares in ClearPay held by it for the grant of options under the ESOP (up to 3.5% of the total share capital of ClearPay). Any such options will only be exercisable on an ultimate exit event or at such time as TSE no longer holds shares in ClearPay.
TSE also has rights of pre-emption to subscribe for shares in ClearPay in any follow on fundraise. Afterpay has an option to acquire the remaining shares held by TSE (and any shares forming part of the ESOP), exercisable any time after 5 years from Completion based on agreed valuation principles. If the option to purchase is not exercised by AfterPay within 5 years and 6 months from Completion then TSE may exercise a put option to sell the remaining shares in ClearPay held by it (and any shares forming part of the ESOP) to AfterPay at a price calculated on agreed valuation principles.
For the 12 month period to 30 June 2018 ClearPay incurred losses of GBP0.6m and at 30 June 2018 had balance sheet net assets of GBP1.4m (excluding inter-company debt).
As part of the transaction AfterPay will ensure that the Consideration Shares are listed on the ASX. It is expected that shareholders will be rewarded in the form of a special dividend and capital return whilst the business will ensure that it retains sufficient cash reserves for further expansion and product development opportunities.
30. Earnings per Share
12 months 12 months
to June to June
2018 2017
GBP,000 GBP,000
(Loss)/ profit after tax attributable to
ordinary shareholders (4,906) (1,842)
30 June 30 June
2018 2017
Number Number
Weighted average number of ordinary shares
(basic) 104,981,491 103,802,629
Weighted average number of ordinary shares
(diluted) 104,981,491 106,895,058
30 June 30 June
Earnings per share 2018 2017
Basic (loss)/earnings per share (pence) (4.67) (1.77)
Diluted (loss)/earnings per share (pence) (4.67) (1.72)
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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September 19, 2018 02:00 ET (06:00 GMT)
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