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ThinkSmart Limited (TSL)

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Thursday 17 September, 2020

ThinkSmart Limited

Results for the year ended 30 June 2020

RNS Number : 2312Z
ThinkSmart Limited
17 September 2020
 

 

 

17 September 2020

 

ThinkSmart Limited

 

("ThinkSmart" or "the Company" which together with its subsidiaries is the "Group")

 

Results for the year ended 30 June 2020

 

 

Clearpay holding drives 513% profit uplift to £53m

 

ThinkSmart Limited (AIM: TSL), a specialist digital payments platform business, today announces its results for the year ended 30 June 2020.

 

Highlights

 

Holding in Clearpay drives significant, ongoing value accretion and capital returns

 

·

Profit after tax up 513% to £53.0 million (FY19 restated(1): £8.7 million) driven by £53.7 million(2) non-cash fair value gain on independent valuation of the Group's retained 10% shareholding in Clearpay Finance Ltd ("Clearpay")

·

Net assets are £66.5 million at 30 June 2020, equivalent to 62.42 pence per share (30 June 2019 restated(1): £16.5 million/15.47 pence per share)

·

Outstanding trading momentum at Clearpay, one of the UK's leading providers of "Buy Now Pay Later" payment services, with over one million customers signed up in its first 12 months of trading to 30 June 2020

·

Put/call option agreement with Afterpay Ltd ("Afterpay), exercisable in 2023/24, provides a clear and agreed runway to enable Clearpay stake realisation

·

Proven delivery of shareholder return with special dividend and capital return of A$5.96 million (5.6 cents per share) equivalent to £3.2 million paid in December 2019

·

Cash and cash equivalents of £8.8 million at 30 June 2020 (30 June 2019 £7.1m)

·

Investment of 10%(3) holding in Clearpay Finance Limited revalued to £53.7m(2) at 30 June 2020 (30 June 2019: £0.1m)

·

Sale of Clearpay subsidiary has now generated cumulative accounting profit of £63.8 million (including £53.7m(2) million non-cash fair value gain), with the 10%(3) stake offering further upside potential

 

Cashflow positive operating business with IP

 

·

Operating business built on investment in proprietary digital payments platform and credit decision-making engine, SmartCheck

·

Continuation of managed wind down of business yielded revenue of £6.3 million, down 22% versus same period last year, which includes £0.5 million (FY19 restated(1): £0.1 million) from the provision of the outsourced call centre customer support service for Clearpay

·

Optimised cash management with £0.96 million net cash generated from operating activities (FY19: £2.56 million)

·

Operating costs further reduced to £4.3 million (FY19 restated(1): £4.8 million) and remain controlled, aligned to current volume performance

·

Since the year end, as announced on 10 August 2020, ThinkSmart has reached a settlement agreement of £1.45m in relation to the legal proceedings issued by the Group against Carphone Warehouse

 

Commenting on the results , Ned Montarello, Executive Chairman of ThinkSmart, said:

 

"Our 10% (3) stake in Clearpay, a leader in the UK in one of the fastest growing, most dynamic payments markets globally, has driven a 513% uplift in profit to £53m. Our NAV at 30 June stood at to £66.5m, or 62p per share.

 

"The value of our holding in Clearpay is underpinned by the rapid consumer acceptance and subsequent compelling growth of the Buy Now Pay Later payment market coupled with the proven trading performance of Clearpay. In only its first year of trading to 30 June 2020 Clearpay welcomed over one million customers, signing up retailers including M&S, ASOS and Boohoo.

 

"Our investment in Clearpay has now generated over £63 million of profit for shareholders, with further upside potential thanks to our retained stake. Our agreement with Afterpay gives shareholders a clear, agreed runway to a realisation of our Clearpay holding in 2023/24.

 

"We continue to manage the wind down of our legacy business, focusing on rightsizing the operations to the lower volumes, generating positive cash flow and exploring options to realise value in our proprietary payments technology. This leaves our balance sheet robust and our strategic efforts focused on realising further value for shareholders via our holding in Clearpay."

 

For further information please contact:

 

ThinkSmart Limited

Via Buchanan

Ned Montarello

 

 

 

Canaccord Genuity Ltd (Nominated Adviser and Broker)

Sunil Duggal

David Tyrrell

Tom Diehl

 

+44 (0)20 7523 8350

 

 

 

 

Buchanan

Giles Stewart

Toto Berger

 

+44 20 7466 5000

(1)  Restated for the adoption of AASB 16 in the current year applying the full retrospective transition approach with the date of initial application being 1 July 2019.

(2)  The Group engaged a third party global professional services firm to independently value its retained shareholding in Clearpay at 30 June 2020 for accounting purposes under AASB 9 in accordance with AASB 13 (Fair Value Measurement).  This valuation has been undertaken based on publicly available information, reflecting the Afterpay call option (exercisable from 23 August 2023) and ThinkSmart put option (exercisable from 23 February 2024) and including a discount for the lack of marketability of Clearpay as a privately owned company, and has produced a range of values for the Group's 10%(3) shareholding in Clearpay from which the Group has taken at two thirds of the range. Under either the call or put option, the sale of the Clearpay shares to Afterpay will be at a price calculated on agreed valuation principles at the time. Further detail is provided   in Note 11(ii) to the 30 June 2020 Group full year financial report below.

(3)  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.

 

Notes to Editors

 

About ThinkSmart Limited

 

ThinkSmart is a specialist digital payments platform business. It offers investors unique exposure to the UK 'Buy Now Pay Later' payments sector which is undergoing exponential growth, driven by ongoing digital transformation of consumer shopping habits and financial services.  

 

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

 

Clearpay Drives Significant Value for Shareholders

 

Our year to 30 June 2020 has proven to be transformational for our shareholders. Our business was founded on and has evolved thanks to a deeply entrepreneurial mindset and culture, always ready to move quickly, in particular in relation to how digital transformation has and continues to reshape consumer behaviour in our core retail markets and the way in which retailers needed to adapt their offerings to stay relevant.  Accordingly, in 2017/18 we developed and launched Clearpay in the UK, taking first mover advantage in the nascent "buy now, pay later" market. Our decision in 2018 to sell 90% of Clearpay to Australian listed Afterpay Ltd, a highly capitalised, well funded global financial technology business, has delivered - and I'm confident will continue to deliver - material value for shareholders.

 

Our results for the year reflect record profitability, with profit after tax of £53.0m, driven by the revaluation gains attributable to our holding in Clearpay and the exceptional underlying performance of that business. Our Net Asset Value stood at £66.5 million at year end, or 62.42 pence per share. On a per share basis this is an uplift of 47 pence per share in the last 12 months, in addition to the 3 pence per share capital return and special dividend paid to holders in December 2019. All in all, the sale of 90% of the Clearpay business has now generated cumulative profit of £63.8 million (including £53.7(2) million non-cash fair value gain), with the 10%(3) stake offering further upside potential.

 

As part of the agreement with Afterpay, made at the time of the Clearpay sale, there is a put/call option mechanism which gives an agreed, clear pathway to a realisation of the stake in 2023/24. The price will be calculated on agreed principles based on market valuations at that time. These principles are reflected in the carrying valuation of the asset in our balance sheet.

 

The Board has consistently sought to return capital to shareholders where appropriate and is mindful of maintaining a prudent level of cash reserves in the business. As such we were able to pay a special dividend and capital return of A$5.96 million (5.6 cents per share), equivalent to £3.2 million (3 pence per share), in December 2019.

 

Turning to our legacy retail consumer and business finance offerings, shareholders will be aware that this has been in managed wind-down, reflecting our strategic focus on delivering value to holders via the Clearpay asset, together with providing the outsourced call centre customer support service for Clearpay. As announced on 10 August 2020 we reached a settlement with Carphone Warehouse for £1.45 million and as a result will now cease writing any new business. We are managing the wind-down via adjusting the cost base accordingly and in order to continue to deliver net positive cash flows. We expect our cash reserves to continue to build over the next few years.

 

We do see tangible value, however, in the investment made in our proprietary, highly robust credit origination and decision engine, SmartCheck, which powers point-of-sale lease finance payments solutions. The Board will continue to consider how best to optimise value for this asset.

 

The Group has a robust financing position, with net cash of £8.8m million at 30 June 2020 (after payment of £3.2 million special dividend/capital return in December 2019 and before receipt of the £1.45m settlement amount in August 2020).

 

I'm very pleased to have delivered this level of value accretion to our shareholders and I would like to take this opportunity to thank Non-Executive Director, Roger McDowell, who will retire at this year's AGM, for his many years of service to the business.  

 

Performance

 

As expected, leasing volumes fell 56% to £1.9 million (FY19: £4.3 million) in the year, and we expect this volume reduction to continue as we continue to manage the wind down of this division. Revenues were consequently 22% lower for the period at £6.3 million (FY19 restated: £8.1 million) as the lower volumes in the period are partially offset by the majority of revenue for the period being derived from higher volumes in previous years.

 

Since the year end, as announced on 10 August 2020, ThinkSmart has reached a settlement agreement of £1.45 million in relation to the legal proceedings issued by the Group against Carphone Warehouse. As part of the settlement, the Group has agreed with Dixons Carphone ("DC"), to the orderly winding up of all of its agreements with DC including Flexible Leasing, SmartPlan and Upgrade Anytime.  In the year to 30 June 2020, all of ThinkSmart's new business volumes were generated from its agreements with DC. The Group will continue to service its existing customer base ensuring the fair treatment of customers, along with any new volumes generated during the orderly winding up of the three products and will continue to benefit from cash generation in the meantime.

 

The Group continues to have a good mix of consumer and business customers, in addition to being diversified by region and demography.  The quality of the Group's underwriting procedures, as well as the small value of debt per customer and its high-quality credit customer portfolio continues to mitigate the risk to any adverse impact on its existing customers' financial position.

 

Operating costs decreased further to £4.3 million (FY19 restated: £4.8 million) over the period and remain controlled, aligned to the current volume performance.

 

Profit after tax increased to £53.0 million (FY19 restated £8.7 million), driven by the £53.7 million fair value gain on revaluation of the retained shareholding in Clearpay Finance Ltd.

 

Statutory earnings per share of 49.8 pence (FY19 restated 8.20 pence) is largely due to the fair value gain on the revaluation of the retained shareholding in Clearpay.

 

Position

 

As at 30 June 2020, lease receivables under management were £6.5 million, with approximately 15,400 active customer contracts.

 

The Group's investment of 10%(3) holding in Clearpay Finance Limited was revalued to £53.7(2) million at 30 June 2020 (30 June 2019: £0.1 million). The asset valuation was performed by an independent third-party valuer, a leading global professional services firm. The Group's holding is subject to a put/call arrangement with Afterpay in 2023/24, based on agreed valuation principles using the same valuation metrics, multiples and methodologies, including those used by market participants and with regard to sell-side analysts, to value the Clearpay business within the Afterpay listed group.

 

The Group held cash and cash equivalents of £8.8 million at 30 June 2020, after the £3.2 million payment of the special dividend/capital return in December 2019 and before receipt of the £1.45 million settlement amount in August 2020. This is up from £7.1 million at 30 June 2019.

 

The Group has sufficient headroom available to support its current business volumes.

 

Current Trading Update

 

Post the period end, the business reached a settlement with DC which includes the orderly wind up of all of its agreements with DC. This will result in new business volumes ceasing over the next six months.

 

The Group will continue to service its existing customer base ensuring the fair treatment of customers, along with any new volumes generated during the orderly winding up of the agreements and will continue to benefit from the cash generated from this division. ThinkSmart anticipates its cash reserves will continue to build over the next few years.

 

ThinkSmart also retains a 10% share of the Afterpay's UK subsidiary, which continues to trade as Clearpay, inclusive of 3.5% being made available to the Afterpay UK employee share ownership scheme. In addition, ThinkSmart provides an outsourced call centre customer support service for Clearpay.

 

Looking ahead, the business is well positioned to further benefit from future growth in the value of its shareholding in Clearpay, and to create value for shareholders.

 

 

Key Performance Indicators:

 

 

 

12 Months to

30 June 2020

 

 

Restated 12 Months to

30 June 2019

 

Business Volumes (ex VAT cost of equipment acquired in period and leased to customers)

 

 

 

 

· SmartPlan

£1.6m

£2.7m

-41%

· Upgrade Anytime

£0.2m

£0.8m

-75%

· Flexible Leasing

£0.1m

£0.8m

-88%

Total - Continuing Operations

£1.9m

£4.3m

-56%

· Clearpay

-

£0.3m

 

Total

£1.9m

£4.6m

-59%

 

 

 

 

Revenue (Total)

£6.3m

£8.1m

-22%

 

 

 

 

Net profit after tax from continuing operations

£53.0m

£0.9m

+5,616%

 

 

 

 

Statutory Profit After Tax

£53.0m

£8.7m

+513%

 

 

 

 

Basic EPS in pence

49.80

8.20

+507%

 

 

 

 

 

 

As at

30 June 2020

Restated as at

30 June 2019

 

 

Lease Receivables Under Management (Closing)

£6.5m

£13.3m

-51%

 

 

 

 

Active Customer Contracts (000)

15.4

29.6

-48%

 

 

 

 

ATV (Average Transaction Value)

£1,216

£982

+24%

 

 

 

 

Cash and Cash Equivalents

£8.8m

£7.1m

+24%

 

 

 

 

Net Assets

£66.5m

£16.5m

+304%

 

 

The following results have been extracted from the audited financial statements

 

 

 

 

 

 

Consolidated Statement of Profit & Loss and Other Comprehensive Income

  For the Financial Year Ended 30 June 2020

 

 

Notes

12 Months to June 2020

£,000

Restated

12 Months to June 2019

£,000

Continuing operations

 

 

 

Revenue

6(a)

6,079

7,240

Other revenue

6(b)

253

897

Total revenue

 

6,332

8,137

 

 

 

 

Customer acquisition cost

6(c)

(627)

(965)

Cost of inertia assets sold

6(d)

(700)

(902)

Other operating expenses

6(e)

(4,270)

(4,753)

Depreciation and amortisation

6(f)

(2,047)

(2,368)

Impairment losses

6(g)

(2)

(272)

Gains on Financial Instruments

6(h)

54,418

1,647

Profit before tax

 

53,104

524

Income tax (charge)/benefit

7

(62)

404

Net Profit after tax from continuing operations

 

53,042

928

Gain from discontinued operations net of tax

8

-

7,731

Net Profit after tax - attributable to owners of the Company

 

53,042

8,659

 

 

 

 

Other comprehensive income/(loss)

 

 

 

Items that may be reclassified subsequently to profit or loss, net of income tax:

 

 

 

Foreign currency translation differences for foreign operations

 

146

(134)

 

 

 

 

Total items that may be reclassified subsequently to profit or loss net of income tax

 

146

(134)

Other comprehensive income/(loss) for the year, net of income tax

 

146

(134)

Total comprehensive income for the year attributable to owners of the Company

 

53,188

8,525

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

Basic Earnings per share (pence)

30

49.80

8.20

Diluted Earnings per share (pence)

30

48.99

8.20

 

 

 

 

 

The attached notes form an integral part of these consolidated financial statements.

The comparative information for the prior period has been restated (note 32).

 

 

 

Consolidated Statement of Financial Position

As at 30 June 2020

 

 

Notes

June 2020

£,000

Restated

June 2019

£,000

Current assets

 

 

 

Cash and cash equivalents

22(a)

8,805

7,099

Trade receivables

26(c)

129

82

Finance lease receivables

9

431

2,640

Tax receivable

7

-

540

Other current assets

10

924

2,721

Total current assets

 

10,289

13,082

Non-current assets

 

 

 

Finance lease receivables

9

15

805

Plant and equipment

14

460

539

Intangible assets

15

1,433

2,183

Financial assets at fair value through profit or loss

11

53,733

1,795

Contract assets

12

1,430

2,032

Other non-current assets

13

2,147

2,403

Total non-current assets

 

59,218

9,757

Total assets

 

69,507

22,839

Current liabilities

 

 

 

Trade and other payables

17

(1,195)

(1,279)

Lease liabilities

18

(94)

(86)

Contract liabilities

19

(648)

(772)

Other interest bearing liabilities

20

-

(1,907)

Provisions

17

(255)

(252)

Total current liabilities

 

(2,192)

(4,296)

Non-current liabilities

 

 

 

Lease liabilities

18

(148)

(244)

Contract liabilities

19

(679)

(1,221)

Other interest bearing liabilities

20

-

(603)

Total non-current liabilities

 

(827)

(2,068)

Total liabilities

 

(3,019)

(6,364)

Net assets

 

66,488

16,475

 

 

 

 

Equity

 

 

 

Issued capital

21(a)

13,164

15,211

Reserves

 

(2,832)

(2,978)

Accumulated profits

 

56,156

4,242

Total equity

 

66,488

16,475

 

The attached notes form an integral part of these consolidated financial statements.

The comparative information for the prior period has been restated (note 32).

 

Consolidated Statement of Changes in Equity

For the Financial Year Ended 30 June 2020

 

Consolidated

Fully paid ordinary shares

Foreign currency translation reserve

Accumulated Profit

Attributable to equity holders of the parent

 

£,000

£,000

£,000

£,000

Balance at 1 July 2018

17,397

(2,844)

(2,310)

12,243

Effects of adoption of IFRS 16

-

-

(91)

(91)

Restated balance at 1 July 2018

17,397

(2,844)

(2,401)

12,152

Profit for the year

-

-

8,659

8,659

Exchange differences arising on translation of foreign operations, net of tax

-

(134)

-

(134)

Total comprehensive income/(loss) for the year

-

(134)

8,659

8,525

Transactions with owners of the Company, recognised directly in equity

 

 

 

 

Contributions by and distributions to owners of the Company

 

 

 

 

Capital return paid

(2,186)

-

-

(2,186)

Dividends paid

-

-

(2,214)

(2,214)

Recognition of share-based payments

-

-

198

198

Restated Balance at 30 June 2019

15,211

(2,978)

4,242

16,475

 

 

Balance at 1 July 2019

15,211

(2,977)

4,340

16,574

Effects of adoption of IFRS 16

-

(1)

(98)

(99)

Restated Balance at 1 July 2019

15,211

(2,978)

4,242

16,475

Profit for the year

-

-

53,042

53,042

Exchange differences arising on translation of foreign operations, net of tax

-

146

-

146

Total comprehensive income for the year

-

146

53,042

53,188

Transactions with owners of the Company, recognised directly in equity

 

 

 

 

Contributions by and distributions to owners of the Company

 

 

 

 

Capital return paid

(2,047)

-

-

(2,047)

Dividends paid

-

-

(1,135)

(1,135)

Recognition of share-based payments

-

-

7

7

Share options exercised

-

-

-

-

Balance at 30 June 2020

13,164

(2,832)

56,156

66,488

 

The attached notes form an integral part of these consolidated financial statements.

The comparative information for the prior period has been restated (note 32).

 

Consolidated Statement of Cash Flows

For the Financial Year Ended 30 June 2020

 

 

Notes

12 Months to June 2020

£,000

Restated

12 Months to June 2019

£,000

Cash Flows from Operating Activities

 

 

 

Receipts from customers

 

4,741

6,228

Payments to suppliers and employees

 

(4,670)

(5,449)

Receipts in respect of lease receivables

 

3,244

3,916

Payments from other interest-bearing liabilities, inclusive of related costs

 

(2,533)

(2,708)

Interest received

 

108

131

Interest and finance charges paid

 

(380)

(348)

(Payments)/receipts from security guarantee

 

(29)

278

Income tax received

 

478

513

Net cash from operating activities

22(b)

959

2,561

 

 

 

 

Cash Flows from Investing Activities

 

 

 

Payments for plant and equipment

 

(398)

(54)

Payment for intangible assets - software & contract rights

 

(111)

(328)

Disposal of discontinued operation net of tax

 

-

(1,392)

Payments for purchase of financial instruments

 

(987)

-

Receipts from sale of financial instruments

 

5,376

Net cash from investing activities

 

3,880

 

 

 

 

Cash Flows from Financing Activities

 

 

 

Payment of lease liabilities

 

(114)

(112)

Dividends paid

 

(1,135)

(2,214)

Share buyback/return of capital net of costs

 

(2,047)

(2,186)

Net cash (used in) financing activities

 

(3,296)

(4,512)

 

 

 

 

Net increase in cash and cash equivalents

 

1,543

4,728

Effect of exchange rate fluctuations on cash held

 

163

(152)

Cash and cash equivalents at beginning of the financial year

 

7,099

2,523

Cash and cash equivalents from discontinued operations

8

-

-

Total cash and cash equivalents at the end of the financial period

22(a)

8,805

7,099

Restricted cash and cash equivalents at the end of the financial period

22(a)

(61)

(55)

Net available cash and cash equivalents at the end of the financial period

 

8,744

7,044

 

 

 

 

 

 

The attached notes form an integral part of these consolidated financial statements.

The comparative information for the prior period has been restated (note 32).

 

 

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 Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB) as well as International Financial Reporting Standards as adopted by the EU (''Adopted IFRSs''). The consolidated financial statements were authorised for issue by the Board of Directors on 16 September 2020.

 

(b)  Basis of measurement

The financial report has been prepared on the basis of historical cost, except for financial instruments measured at fair value. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in British Pounds ("GBP") unless otherwise noted.

 

(c)  Functional and presentation currency

These consolidated financial statements are presented in British Pounds, which is the Group's functional currency. The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/ Directors' Reports) Instrument 2016/191 and in accordance with that instrument, amounts in the consolidated financial statements and Directors' report have been rounded off to the nearest thousand pounds, unless otherwise stated.

 

(d)  Going Concern

The consolidated financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group has the resources to continue in business for the foreseeable future (which has been taken as 12 months from the date of approval of these consolidated financial statements). In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including the current state of the statement of financial position, future projections of profitability, cash flows and resources and the longer term strategy of the business. The Directors have assessed the impact of COVID-19 on the current and forecast position of the Group. As the Group has only been minimally impacted the Directors are satisfied that the Group has more than adequate resources to meet its liabilities as they fall due even when stressed to reasonable worst case scenarios.

 

3.  Significant Accounting Policies

 

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities.

 

(a)  Basis of consolidation

 

(i)  Subsidiaries

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of profit and loss from the effective date of acquisition or up to the effective date of disposal, as appropriate. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.

(ii)  Transactions eliminated on consolidation

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those applied by other members of the Group.  All intra-group balances, transactions, income and expenses are eliminated in full on consolidation.

 

(b)  Business combinations

For every business combination, the Group identifies the acquirer, which is the combining entity that obtains control of the other combining entities or businesses.  The acquisition date is the date on which control is transferred to the acquirer.  Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another.

 

(c)  Revenue recognition

The Group recognises revenue as follows:

 

Revenue from contracts with customers

Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised.

 

Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a contract liability.

 

Some forms of revenue fall outside the scope of AASB 15 - Revenue from Contracts with Customers, of relevance to ThinkSmart this includes revenue under AASB 16 Leases (previously AASB 117) and AASB 9 Financial Instruments.

 

The Group has relationships with retail partners to act as a facilitator and arranger of financing arrangements to allow those retailers to provide technological products to consumers under short/medium term finance contracts.  The financing is obtained by the Group from third party funding partners.

 

Depending on the nature of the agreements with those funders, these contracts result in the Group acting as a lessor or as the agent of the funder (who is then the lessor). 

 

Where the Group is acting as the lessor it follows the treatment outlined in AASB 16. In accordance with AASB 16 nearly all the contracts are considered to be finance leases and the only source of revenue is Finance Lease Income. This Finance Lease Income is recognised on the effective interest rate method at the constant rate of return. This method amortises the lease asset over its economic life down to the estimate of any unguaranteed residual value that is expected to be accrued to the Group at the end of the lease.

 

Where the Group is acting as the agent it receives the following revenue streams:

 

Commission income

This includes the upfront cash transaction fee receivable from the funder together with the non-cash consideration between the funder and the end customer (for the contract or inertia asset) which is allocated under AASB 15 between the inception/brokerage of the lease arrangement, a financial guarantee contract premium over the lease term, a contract liability reflecting the reversal constraint for the potential refund of the transaction fee, and the non-cash consideration contract asset accruing over the lease term.

 

Extended rental income

Once the contract between the funder and the end customer expires the asset becomes the property of the Group and any extended rental income is payable to the Group, being recognised when receivable.

 

Income earned from sale of inertia assets

At the end of the extended rental period any proceeds on disposal of the asset are recognised at the point of disposal.

Services revenue - insurance

Lease customers of hire agreements originated by the Group are required to have suitable insurance in respect of the leased equipment. If these customers do not make independent insurance arrangements the Group arrange insurance and collect the premiums on their behalf, receiving a commission from the insurer for doing so.

 

(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)  Customer acquisition costs

Customer acquisition costs are capitalised as an asset where such costs are incremental to obtaining a contract between the funder and the end customer, for which the Group receives commission under the funder contract, and are expected to be recovered. Customer acquisition costs are amortised on a straight-line basis over the term of the contract.

 

Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained or which are not otherwise recoverable from a customer are expensed as incurred to profit or loss. Incremental costs of obtaining a contract where the contract term is less than one year is immediately expensed to profit or loss.

 

(g)  Trade and other payables

Trade payables are recognised when the consolidated entity becomes obliged to make future payments resulting from the purchase of goods and services and measured at fair value.

 

(h)  Financial instruments

The financial instruments held by the Group are the financial assets and financial liabilities reflected in the statement of financial position. As at 30 June 2020 the financial instruments held by the Group comprised the 10% holding in Clearpay Finance Limited and the Financial Guarantee Contract with STB. Other assets and liabilities held by the Group excluded from financial instruments include lease contracts which are accounted for under AASB 16, property, plant and equipment, intangible assets, accruals, prepayments, provisions, tax liabilities and investments in subsidiaries.

 

(i)  Non-derivative financial assets

The Group classifies financial assets as subsequently measured at amortised cost, fair value through other comprehensive income or fair value through profit or loss on the basis of both:

· The Group's business model for managing the financial assets; and

· The contractual cash flow characteristics of the financial asset.

The Group measures a financial asset at fair value through profit or loss unless it is measured at amortised cost or fair value through other comprehensive income having met the criteria specified in AASB 9 - Financial Instruments in respect of business model and cash flows that are solely payments of principal and interest.

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

 

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.  Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

 

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset or, where appropriate, a shorter period.

 

Insurance prepayment

In relation to business customers who do not already have insurance, a policy is set up through a third party insurance provider. The Group pays for the insurance cover upfront and also recognises its income upfront which creates an insurance prepayment on the statement of financial position. The Group subsequently collects the insurance premium from the customer on a monthly basis over the life of the rental agreement, which reduces the prepayment. Where a policy is cancelled, the unexpired premiums are refunded to the Group.

 

Other financial assets

Other financial assets are initially valued at fair value.  Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss.  Such assets are subsequently measured at either amortised cost or fair value depending on their classification.  Classification is determined based on both the business model within which assets are held and the contractual cash flow characteristics of the financial asset.

 

(ii)  Non-derivative financial liabilities

The Group initially recognises financial liabilities on the date they are originated. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

 

Financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate method.

 

Transaction costs consist of legal and other costs that are incurred in connection with the borrowing of funds. These costs are capitalised and then amortised over the life of the loan.

 

Financial guarantee contracts

Financial guarantees issued by the Group are recognised as financial liabilities at the date the guarantee is issued. Liabilities arising from financial guarantee contracts, are initially recognised at fair value and subsequently at the higher of the amount of expected credit losses determined under AASB 9 and the amount initially recognised less cumulative amortisation.

 

The fair value of the financial guarantee is determined by way of calculating the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligation. Any increase in the liability relating to financial guarantees is recognised. Any liability remaining is derecognised in profit or loss when the guarantee is discharged, cancelled or expires.

 

(iii) Impairment of assets

Financial assets, including finance lease receivables and loan receivables

The Group recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through profit or loss. The measurement of the loss allowance depends upon the Group's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.

 

Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.  For lease receivables the Group applies the simplified approach as such the loss allowance is based on the asset's lifetime expected credit losses.

 

For financial assets measured at fair value through other comprehensive income, gains or losses are recognised in other comprehensive income, except for impairment gains of losses and foreign exchange gains or losses, until the asset is derecognised or reclassified. In all other cases, the loss allowance in excess of amounts previously recognised is recognised in profit or loss.

 

Non-financial assets

The carrying amounts of the Group's non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date.

 

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or Group of assets (the "cash-generating unit"). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination.

 

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of the other assets in the unit (Group of units) on a pro rata basis.

 

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in the prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

(i)  Intangible assets

Intellectual property

Intellectual property is recorded at the cost of acquisition and is amortised on a straight line basis over 20 years.

 

Contract Rights

The contractual rights obtained by the Group under financing agreements entered into with its funding partners and operating agreements with its retail partners constitute intangible assets with finite useful lives. These contract rights are recognised initially at cost and amortised over their expected useful lives. In relation to funder contract rights, the expected useful life is the earlier of the initial contract minimum term or expected period until facility limit is reached. At each reporting date a review for indicators of impairment is conducted.

 

Software development

Software development costs are capitalised only up to the point when the software has been tested and is ready for use in the manner intended by management. Software development expenditure is capitalised only if the development costs can be measured reliably, the product process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. The intangible asset is amortised on a straight line basis over its estimated useful life, which is between 3 and 5 years. Capitalised software development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses.

 

(j)  Employee benefits

A liability is recognised for benefits accruing to employees in respect of wages and salaries and annual leave when it is probable that settlement will be required and they are capable of being measured reliably.

 

The Group pays defined contributions for post-employment benefit into a separate entity. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the period during which services are rendered by employees. Termination benefits are recognised as an expense when the Group is committed, it is probable that settlement will be required, and they are capable of being reliably measured.

 

Share-based payments

The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

 

(k)  Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

 

(l)  Income tax

Current tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax payable for current and prior periods is recognised as a liability to the extent that it is unpaid.  Carried forward tax recoverable on tax losses is recognised as a deferred tax asset where it is probable that future taxable profit will be available to offset in future periods. 

 

Deferred tax

Deferred tax is accounted for using the balance sheet method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax base of those items.

 

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from the initial recognition of goodwill.

 

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint ventures except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

 

Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Consolidated Entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

 

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company/Group intends to settle its current tax assets and liabilities on a net basis.

 

Current and deferred tax for the year

Current and deferred tax is recognised as an expense or income in profit or loss, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess purchase consideration.

 

(m)  Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (VAT/GST) except:

 

(i)  where the amount of VAT/GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; and

(ii)  receivables and payables which are recognised inclusive of VAT/GST.

 

The net amount of VAT/GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.

Cash flows are included in the statement of cash flows on a gross basis.  The VAT/GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.

 

(n)  Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period.

 

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured at historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on retranslation are presented in profit or loss on a net basis, except for differences arising on the retranslation of a financial liability designated as a hedge of the net investment in a foreign operation that is effective, which are recognised in other comprehensive income.

 

(o)  Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the period.

 

Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

 

(p)  Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligations. Provisions are determined by discounting the expected future cash flows at a rate that reflects current market assessments of the time value of money and the risks specific to the liability.

 

(q)  Measurement of fair values

A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

 

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the highest level input that is significant to the entire measurement.

 

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the following notes:

 

Note 11 (ii) - financial assets at fair value through profit or loss;

Note 21(b)(i) - share based payment transactions; and

Note 26(b) - financial instruments.

 

(r)  Government Grants

In the current year the Group has applied for and received government support through the UK government Coronavirus Job Retention Scheme (CJRS). The Group recognises government grants only where it is reasonably certain that the Group will comply with the conditions attached to the grant and it is reasonably likely that the grant will be received. The CJRS is designed to compensate for staff costs so the Group recognises grant funding in the period necessary to match it with the corresponding staff costs. A grant receivable as compensation for expenses already incurred is recognised when it becomes receivable. The Group presents the relevant expenses net of any grant income received (note 6(e)).

 

(s)  New or amended Accounting Standards and Interpretations adopted

The Group has adopted all of the new or amended Australian Accounting Standards that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.

 

The following Accounting Standards and Interpretations are most relevant to the Group:

 

AASB 16 Leases

The Group has adopted AASB 16 in the current year applying the full retrospective transition approach with the date of initial application being 1 July 2019. The standard introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required 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. The only operating lease held by the Group which is relevant to AASB 16 is for its office space at Oakland House, Manchester.

 

Under the full retrospective transition approach the Group has restated the prior year statement of financial position to recognise a right of use asset equal to the value of the lease liability at the inception of the lease, plus the initial direct costs incurred and the estimated costs for restoring the property to its original condition. The Group has simultaneously recognised accumulated depreciation on the right of use asset from the inception of the lease through to the reporting date. Depreciation on the right of use asset is charged on a straight-line basis over the ten year period of the lease.

 

In addition to the right of use asset AASB 16 also requires the Group to recognise a lease liability in respect of the lease payments due to the lessor. Again, the prior year financial statements have been restated to reflect the position as if AASB 16 had always been in effect. The lease liability has been recognised at the present value of all future lease payments due. As the interest rate implicit in the lease is not readily determinable the discount rate of 9.14% used is the Group's incremental borrowing rate being the STB cost of funds using an estimated 10 year interest rate swap at February 2013.

 

As at 30 June 2020 the effect of the adoption of AASB 16 is that the Group now holds a right of use lease asset with a value of £184,011 and a corresponding lease liability with a value of £241,859. Including the elimination of accruals and prepayments held under AASB 117 the overall impact as at the date of adoption is a reduction to Net Assets of £96,262. Right of use assets are detailed in note 14 and lease liabilities are detailed in note 18 below. The interest and depreciation charged on the lease are included in the Consolidated Statement of Profit or Loss with the interest charged disclosed in note 6 and the depreciation charge disclosed in note 14 below.

 

Reconciliation of operating lease commitments:

£,000

Operating lease commitments disclosed as at 30 June 2019

359

Add: release of initial rent free period benefit deferred under AASB 117

29

Less: discount using Group's incremental borrowing rate of 9.14% at lease inception

(58)

Lease liabilities recognised at 1 July 2019 (Note 18)

330

 

The impact on the financial performance and position of the Group from the adoption of these Accounting Standards is detailed in note 32.

 

Lease receivables

The adoption of AASB 16 has no effect on the accounting treatment for lessor accounting and therefore the Group's accounting policy remains the same as under AASB 117. The Group has entered into financing transactions with customers and has classified 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 expected credit losses

The collectability of lease receivables is assessed on an ongoing basis. A provision is made for expected credit losses using the simplified approach of measuring expected credit losses on a lifetime expected credit loss basis (refer note 3(h)(iii)).

 

IFRIC Interpretation 23 Uncertainty over Income Tax Treatment

IFRIC 23 (issued on 7 June 2017 and effective for annual periods beginning on or after 1 January 2019) provides a framework and specific guidance to consider, recognise and measure the accounting impact of tax uncertainties that was not included in AASB 112. IFRIC 23 applies to all aspects of income tax accounting where there is an uncertainty regarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, tax losses and credits and tax rates. Under IFRIC 23, an entity shall assume that a taxation authority will examine amounts which it has a right to examine and have full knowledge of all related information when making those examinations.

 

The Group determined that it is probable that the tax treatments adopted by the Group will be accepted by the tax authorities. This interpretation did not have an impact on the Group's consolidated financial statements.

 

(t)  Accounting policies available for early adoption not yet adopted

A number of new and revised standards issued by the AASB have not yet come into effect. Below are those which are relevant to the Group.

 

Amendment to AASB 3: Definition of a Business

In October 2018, the AASB issued amendments to the definition of a business in AASB 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and outputs, and introduce an optional fair value concentration test. New illustrative examples were provided along with the amendments.

 

Since the amendments apply prospectively to transactions or other events that occur on or after the date of first application, the Group will not be affected by these amendments on the date of transition.

 

Amendments to AASB 101 and AASB 108: Definition of Material

In October 2018, the AASB issued amendments to AASB 101 Presentation of Financial Statements and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of 'material' across the standards and to clarify certain aspects of the definition. The new definition states that, 'Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.'

 

The amendments to the definition of material is not expected to have a significant impact on the Group's consolidated financial statements.

 

4.  Critical accounting estimates and judgements

 

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results.

 

The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

 

Revenue from contracts with customers

 

When recognising revenue in relation to the provision of services to customers, the key performance obligation of the consolidated entity is considered to be the point of delivery of the service to the customer, as this is deemed to be the time that the customer obtains the benefits and control of the service.

 

Principal vs agent

Judgement is exercised in relation to certain services that the group is providing in relation to leases entered in to by an end customer with the lessor (STB) as to whether the group is acting as principal in the arrangement or as agent. Management have determined that having regard to the contractual conditions with STB and the rights attaching to consumer contracts for the leases entered in to by the end customer with STB that the group is acting as agent and records commission income from STB.

 

Financial guarantee contract

Financial guarantee contracts are initially recognised at fair value and subsequently at the higher of the amount of expected credit losses determined under AASB 9 and the amount initially recognised less cumulative amortisation. The fair value of the financial guarantee is a key estimate and is determined by way of calculating the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligation. This has been determined from historic data and forward looking estimates to determine expected default rates. This fair value determines a financial guarantee premium which is recognised as revenue over the term of the lease between the end customer and STB.

 

Determination of variable consideration

Judgement is exercised in estimating variable consideration which is determined having regard to past experience with respect to the expected default rates where the customer (STB) has the right to clawback from the group's commission income any amount of default on lease payments due from the end customer under the financial guarantee contract. Revenue in respect of this amount of commission income will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised under the contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

 

Contract right income

A contract asset is recognised where the Group act as agent for the lessor (STB) during an end customer's minimum lease term with STB and the Group have a contractual right to an inertia asset at the end of this minimum lease term. Contract assets are recognised as revenue accruing over the minimum lease term up to the fair value of the inertia asset at the end of that minimum lease term. The fair value is determined based on available market data regarding expected returns for a similar risk asset and discounted using a credit risk rate.

 

Estimation of useful lives of assets

 

The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.

 

A. Judgements

 

Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the consolidated financial statements is included in the following notes:

 

Note 6 - commission income: whether the Group acts as an agent in the transaction rather than as principal; and

Note 9 - leases: whether an arrangement contains a finance lease.

 

 

 

 

B. Assumptions and estimation uncertainties

 

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial period are discussed below:

 

Note 3(c) -  Determination of consideration of separate performance obligation

Note 12 -  measurement of contract asset non-cash consideration;

Note 19  -  measurement of contract liabilities; and

Note 21(b)(i) -   measurement of share-based payments.

 

Fair Value of Investments

 

The valuation of the Group's retained holding in Clearpay Finance Limited ("Clearpay"), following the sale of 90% of Clearpay to ASX listed Afterpay Ltd (formerly Afterpay Touch Group Ltd)("Afterpay") on 23 August 2018, is based on the agreed valuation principles for the purpose of the Afterpay call option to purchase and the Group's put option to sell the Group's holding in Clearpay to Afterpay at any time after 23 August 2023 and 23 February 2024 respectively. The key judgements that are critical to the valuation are the interpretation of the agreed valuation principles, market valuation of Afterpay Ltd in GBP equivalent, and the relevant proportion of this that relates to Clearpay, and the discount to be applied for minority holding and lack of marketability of Clearpay as a standalone entity. In order to support these judgements, management have appointed independent valuation experts to advise on this matter.   The independent valuation process, in accordance with the agreed valuation principles, uses the same valuation metrics, multiples and methodologies, including those used by market participants and with regard to sell-side analysts, to value the Clearpay business within the Afterpay listed group.    The Directors note that, as at 30 June 2020, Afterpay have included the Group's put option as a separate financial liability in their accounts at AU$3m.

 

Right of use lease asset and lease liability - AASB 16

 

The Group has adopted AASB 16 - Leases in the current accounting period with the date of adoption being 1 July 2019. The Group has implemented the full retrospective transition approach. The adoption of AASB 16 has introduced related estimates and judgements in respect of the term of the lease and the discount rate used where it is not possible to determine the interest rate implicit in the lease. At the reporting date it is reasonably certain that the Group will not terminate the lease before the minimum term while there is also no indication that it is reasonably certain that the lease will be extended beyond that date. As it is not possible to determine the interest rate implicit in the lease management have estimated the discount rate equivalent to the borrowing rate available to the business over the same period as the lease term.

 

5.  Financial Risk Management

 

Overview

 

The Group has exposure to the following risks from the use of financial instruments:

 

· Credit risk;

· Liquidity risk;

· Market risk; and

· Operational risk.

 

This note presents information about the Group's exposure to each of the above risks, the objectives, policies and processes for measuring and managing financial risks, and the management of capital. Further quantitative disclosures are included throughout this financial report.

 

The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has established the Audit and Risk Committee, which is responsible for developing and monitoring risk management policies. The Committee reports to the Board of Directors on its activities.

 

Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed to reflect the changes in market conditions and the Group's activities. The Audit and Risk Committee oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

Credit Risk

 

Credit risk refers to the risk that a counterparty or customer will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with credit worthy counterparties as a means of mitigating the risk of financial loss from defaults. The Chief Financial Officer and Financial Controller have day to day responsibility for managing credit risk within the risk appetite of the Board. Appropriate oversight occurs via monthly credit performance reporting to management and the Board.

 

The trading subsidiaries have an obligation to meet the cost of future bad debts incurred by its funders. The funder deposits discussed below represent security for that credit exposure. Further information is provided in Note 26(c).

 

To manage credit risk in relation to its customers, there is a credit assessment and fraud minimisation process delivered through its patented SmartCheck system. The credit underwriting system uses a combination of credit scoring and credit bureau reports as well as electronic identity verification and a review of an applicant's details against a fraud database. The credit policy is developed by the Head of Credit Risk and applied by the Credit Risk Committee with Board approval. The Head of Credit Risk monitors ongoing credit performance on different cohorts of customer contracts. In addition there exists a specialist collections function to manage any delinquent accounts.

 

Credit risk exposure to the funder deposit with Secure Trust Bank is more concentrated, however the counterparty is a regulated banking institution and the credit risk exposure is assessed as low. The Group monitors the credit risk associated with the funder deposit counterparty.

 

Liquidity risk

 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.  The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The consolidated entity manages liquidity risk by maintaining adequate reserve facilities by continuously reviewing its facilities and cash flows. The Group ensures that it has sufficient cash on demand to meet expected operational expenses and financing subordination requirements. 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 2020 the Group has drawn down £5k on its STB loan facility of £10m due to account charges applied on the last day of the month and paid off as the rental payments are received on the first day of the month. Exposure to interest rate risk on any corporate borrowings will be assessed by the Board and, where appropriate, the exposure to movement in interest rates may be hedged by entering into interest rate swaps, when considered appropriate by management and the Board.

 

Operational risk

 

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.

 

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall group standards for the management of operational risk in the following areas:

· Requirements for appropriate segregation of duties, including the independent authorisation of transactions;

· Requirements for the reconciliation and monitoring of transactions;

· Compliance with regulatory and other legal requirements;

· Documentation of controls and procedures;

· Requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified;

· Ethical and business standards; and

· Risk mitigation, including insurance where this is effective.

 

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 2020

 

Restated

30 June 2019

 

£,000

 

£,000

Total liabilities

3,019

 

6,364

Less cash and cash equivalents

(8,805)

 

(7,099)

Net (cash)

(5,786)

 

(735)

 

 

 

 

Total capital

66,488

 

16,475

Debt-to-adjusted capital ratio

(0.09)

 

(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. At the AGM on 29 November 2019 shareholders approved a return of capital of up to AUD $3,834,360 along with an unfranked dividend of up to AUD $2,130,200. On 29 November 2019 the Group announced that the Company would distribute AUD $5,964,560 to shareholders (the "Distribution") in two parts:

 

1.  a capital reduction, pursuant to which the Company will return 3.6 cents per share (or depositary interest) to shareholders (or depositary interest holders) ("Return of Capital"); and

 

2.  a special unfranked dividend of 2.0 cents per ordinary share (or depositary interest) - declared as attaching conduit foreign income ("Dividend").

 

The return of capital and dividend have a record date of 6 December 2019 and were paid on 20 December 2019.

 

 

6.  Consolidated Statement of Profit and Loss 

 

 

 

12 Months to

30 June 2020

£,000

Restated

12 Months to

30 June 2019

£,000

Profit is arrived at after crediting/(charging) the following items:

 

 

 

 

a)  Revenue

 

 

 

Commission income

 

2,409

3,200

Extended rental income

 

1,869

2,444

Income earned from sale of inertia equipment

 

727

778

Outsourced services

 

496

-

Services revenue - insurance commission

 

398

586

Interest revenue - other entities

 

108

131

Fee revenue - customers

 

72

101

 

 

6,079

7,240

 

 

 

 

b)  Other revenue

 

 

 

Finance lease income

 

247

814

Other revenue

 

6

83

 

 

253

897

 

Total revenue

 

6,332

8,137

 

All revenue is generated in the UK from the following products:

 

SmartPlan

 

5,088

5,828

Upgrade Anytime

 

450

1,220

Flexible Leasing

 

185

742

Other/non-product specific

 

609

347

 

 

6,332

8,137

 

 

 

 

c)  Customer acquisition costs

 

Customer acquisition costs relate to commissions payable to our retail partners together with sales and marketing expenses incurred during the ongoing promotional activity of the finance contracts to new and existing customers.

 

d)  Cost of inertia assets sold

 

 

 

 

Cost of inertia assets sold is the write-off of inertia assets, including that transferred from PPE Operating Lease assets when the end customer terminates their lease agreement during secondary period, upon sale of inertia equipment.

 

 

 

 

 

 

 

 

 

 

 

30 June 2020

£,000

Restated  30 June 2019

£,000

e)  Other operating expenses

 

 

 

Employee benefits expense:

 

 

 

-  Payments to employees (i)

 

(1,749)

(1,871)

-  Employee superannuation costs

 

(90)

(139)

-  Share-based payment expense

 

(7)

(195)

 

 

(1,846)

(2,205)

 

 

 

 

Occupancy costs

 

(169)

(174)

Lease interest charge

 

(26)

(37)

Professional services

 

(805)

(720)

Finance charges

 

(380)

(348)

Losses arising from financial guarantee contract

 

(367)

(344)

Other costs

 

(677)

(925)

 

 

(4,270)

(4,753)

 

(i) Payments to employees are presented net of government grants received through the UK government Coronavirus Job Retention Scheme. In the year the Group received payments of £19,372 (FY19: £nil).

 

 

 

30 June 2020

£,000

Restated  30 June 2019

£,000

f)  Depreciation and amortisation

 

 

 

Depreciation

 

(820)

(1,090)

Amortisation

 

(1,227)

(1,278)

 

 

(2,047)

(2,368)

 

 

 

 

g)  Impairment losses

 

 

 

Impairment losses finance leases and receivables

 

(182)

(333)

Movement in provision for expected credit losses

 

180

61

 

 

(2)

(272)

 

(h)  Gains on financial instruments

 

 

 

Realised gain

 

745

1,226

Unrealised gain

 

53,673

421

 

 

54,418

1,647

 

In the period to 30 June 2020 realised gains arose on the disposal of the remaining 125,000 Afterpay Limited (APT) shares on 28 August 2019 at AU$27.73 (£15) per share. An additional realised gain arose on the trading of 205,000 APT shares, purchased on 23 March 2020 at AU$9.71 and disposed on 25 March 2020 at AU$15.08. Unrealised gains arose from the revaluation of the Group's investment in 10% of Clearpay Finance Limited (see note 11(ii)). These amounts are shown above.

 

In the period to 30 June 2019 realised gains arose on disposal of the full tranche 1 of 750,000 APT shares on 24 August 2018 and the further disposal of the first 125,000 tranche 2 shares on 27 June 2019. In the period to 30 June 2019 unrealised gains arose on revaluation of the remaining 125,000 shares in APT to a share price of AUD $25.07 per share. These amounts are shown above.
 

7.  Income Tax

 

 

30 June 2020

£,000

Restated  30 June 2019

£,000

(a)  Amounts recognised in profit and loss

 

 

 

The major components of income tax (expense)/benefit are:

Current income tax expense

 

(62)

(67)

Adjustment for prior year

 

-

540

Deferred income tax (expense)/benefit

 

 

 

Origination and reversal of temporary differences

 

-

-

Adjustment for prior year

 

-

(69)

Total income tax (expense)/benefit

 

(62)

404

 

A reconciliation between tax expense and the product of accounting profit before income tax from continuing operations multiplied by the applicable income tax rate is as follows:

Accounting profit before tax

53,104

8,265

At the statutory income tax rate of 30%

(15,931)

(2,480)

Effect of tax rates in foreign jurisdictions

5,824

885

Non-deductible expenses

(1)

(147)

Non-taxable gain (Substantial Shareholdings Exemption)

10,198

1,954

Losses carried back

-

-

Losses carried forward

(136)

-

Irrecoverable withholding tax

(16)

-

Overseas tax losses (recognised)

-

(279)

Adjustments in respect of prior years

-

471

Income tax credit/(charge)

(62)

404

Deferred tax asset

 

 

 

Accrued expenses

-

-

 

Employee entitlements

-

-

 

Intangible assets

-

-

 

Total

-

-

 

 

Net deferred tax asset/(liability) for UK

-

-

 

Net deferred tax asset for Australia

-

-

 

Tax receivable/(payable)

 

 

 

Current

-

540

 

        

 

The current tax asset/(liability) is recognised for income tax receivable/(payable) in respect of all periods to date.  The Group has an unrecognised deferred tax asset of £1.0m at 30 June 2020 (30 June 2019 restated: £0.8m) being mainly in respect of the estimated £6.1m (30 June 2019 restated: £5.3m) of UK tax losses carried forward.

 

 

8.  Profit/(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.

 

 

30 June 2020

£,000

30 June 2019

£,000

Revenue

-

11

Total revenue

-

11

 

 

 

Customer acquisition costs

-

(62)

Other operating expenses

-

(52)

Depreciation and amortisation

-

(49)

Impairment losses

-

(8)

Loss before tax

-

(160)

Income tax expense

-

-

Loss after tax

-

(160)

 

 

 

Consideration for sale of discontinued operation

-

10,510

Net assets sold (see below)

-

(1,727)

Costs associated with sale of discontinued operation

-

(892)

Profit on sale of discontinued operation net of tax

-

7,891

 

 

 

Profit after tax from discontinued operations

-

7,731

 

The sale of Clearpay Finance Limited is not considered to result in a tax charge for the Group by virtue of the Substantial Shareholdings Exemption. Based on professional advice, the Directors consider that the Group is exempt from the charge to tax on gains or losses accruing on the disposal by companies of shares as they meet the conditions of this exemption.

 

At 23 August 2018 the disposal group was stated at Fair Value and comprised the following assets and liabilities.

 

 

30 June 2020

£,000

30 June 2019

£,000

23 August 2018

£,000

Cash and equivalents

-

-

-

Trade receivables

-

-

24

Finance loan receivable

-

-

178

Intangible assets

-

-

1,554

Assets held for sale/sold

-

-

1,756

 

 

 

 

Trade and other payables

-

-

20

Deferred income

-

-

9

Liabilities held for sale/sold

-

-

29

Net assets sold 

-

-

1,727

 

 

 

 

Cash flows in relation to discontinued operations were as follows.

 

30 June 2020

£,000

30 June 2019

£,000

Cash Flows from Operating Activities

 

 

Receipts from customers

-

11

Payments to suppliers and employees

-

(352)

 

-

(341)

 

 

 

Cash Flows from Investing Activities

 

 

Payment for intangible assets - software

-

(246)

Payment of costs associated with sale of discontinued operation

-

(892)

 

-

(1,138)

 

 

 

Net increase/(decrease) in cash and cash equivalents

-

(1,479)

Cash and cash equivalents at beginning of the financial year

-

87

Cash and cash equivalents at the end of the financial period

-

-

Cash flows from discontinued operations

-

(1,392)

 

9.  Finance lease receivables

 

30 June 2020

£,000

30 June 2019

£,000

Current

 

 

Gross investment in finance lease receivables

207

2,721

Unguaranteed residuals

331

390

Unearned future finance lease income

(43)

(283)

Net lease receivable

495

2,828

Allowance for expected credit losses

(64)

(188)

 

431

2,640

Non-current

 

 

Gross investment in finance lease receivables

7

556

Unguaranteed residuals

11

430

Unearned future finance lease income

(1)

(122)

Net lease receivable

17

864

Allowance for expected credit losses

(2)

(59)

 

15

805

 

 

Balance at 1 July

 

3,445

6,819

Receipts in respect of lease receivable

 

(3,244)

(3,916)

Finance lease income

 

247

814

Impairment loss

 

(2)

(272)

 

 

446

3,445

 

All finance leases detailed above have a minimum lease term of 2 years, see note 3(h)(i) for further information on the accounting policy for these finance leases and note 5 for further information on financial risk management.  See note 26(c) for detailed analysis of the ageing of lease receivables and expected credit losses recognised.

 

 

 

 

10.  Other Current Assets

 

30 June 2020

£,000

Restated

30 June 2019

£,000

Prepayments

233

290

Insurance prepayments

55

137

Accrued income - insurance commission (see Note 13(i))

290

321

Other debtors (i)

-

1,909

Sundry debtors

346

64

 

924

2,721

 

i)  In the year ended 30 June 2019 other debtors includes the realised sale of 125,000 Afterpay (APT) shares on the 27 June 2019. The cash of £1.909m for this sale was received on 01 July 2019.

 

11.  Financial assets at fair value through profit or loss

 

30 June 2020

£,000

Restated

30 June 2019

£,000

125,000 APT shares held at fair value (i)

-

1,735

Investment in Clearpay Finance Limited (ii)

53,733

60

 

 

53,733

1,795

 

i)  At 30 June 2019 the Group held 125,000 Afterpay Ltd (APT) shares at fair value. APT are listed on the Australian Stock Exchange (ASX) and the shares are a level 1 financial instrument held at fair value through the profit and loss account under AASB 9. At 30 June 2019, the APT shares closed at AUD 25.07 per share. The holding of 125,000 APT shares were sold on 28 August 2019 at AUD 27.73 per share.

 

 

 

ii)  On 23 August 2018 the Group sold 90% of Clearpay Finance Limited to Afterpay Ltd (formerly Afterpay Touch Group Ltd)(ASX:APT).  The Group retains a 10% shareholding in Clearpay which is held as an investment at fair value through profit or loss under AASB 9.  A proportion of the 10% shareholding (up to 35%) will be made available by the Group to employees of Clearpay under an employee share ownership plan ("ESOP").  Afterpay has a call option to purchase the remaining shares held by the Group, exercisable at any time after 23 August 2023.  The Group has a reciprocal put option to sell the remaining shares held by the Group to Afterpay, exercisable after 23 February 2024.  Under either the call or put option, the sale of the Clearpay shares to Afterpay will be at a price calculated on agreed valuation principles.  The Group engaged a third party global professional services firm to value its retained shareholding in Clearpay at 30 June 2020 for accounting purposes under AASB 9 in accordance with AASB 13 (Fair Value Measurement). The independent valuation process, in accordance with the agreed valuation principles, uses the same valuation metrics, multiples and methodologies, including those used by market participants and with regard to sell-side analysts, to value the Clearpay business within the Afterpay listed group. This valuation has been undertaken based on publicly available information, reflecting the above and including a discount of 20% to be applied for minority holding and the lack of marketability of Clearpay as a privately owned company, and has produced a range of values for the Group's 10% shareholding in Clearpay. Reducing the discount for lack of marketability to 10% would increase the fair value by £6.7m; increasing the discount for lack of marketability to 30% would reduce the fair value by £6.7m. Since March 2020 the Afterpay share price has been on an upward trajectory which has continued since the year end indicating continued growth in the value of the Group's 10% shareholding. Further, the Afterpay FY20 accounts reflect that initial growth in active customers is followed by increases in the transaction value and underlying sales metrics as the customer base matures and repeat spend increases. In FY20 Afterpay's Australia and New Zealand business, which is their most mature market, represented 59.5% of underlying sales but only 33.3% of active customers. For the same period, the US market represented 36% of underlying sales but 57% of active customers, and the UK market represented 5.4% of underlying sales but 10% of active customers. To reflect the relationship between maturity of customer base and underlying sales the Directors believe that greater weighting should be assigned to active customers. In line with this the Group has taken the valuation of the 10% shareholding at two thirds of the range produced by the independent valuation. As the Group has limited control over the setting of the price that it will receive for the transfer of the ESOP shares to the Clearpay employees, the Group has further discounted the valuation by 35% to determine the accounting fair value of its retained shareholding in Clearpay to be £53.733m at 30 June 2020.  The investment in Clearpay is a level 3 financial instrument.

12.  Contract assets

 

 

30 June 2020

£,000

Restated

30 June 2019

£,000

 

 

 

 

Balance at 1 July

 

2,032

2,739

Recognised as revenue in period (i)

 

858

1,208

Recognised as customer acquisition cost (ii)

 

(145)

(135)

Transferred to Plant & Equipment Operating lease additions

 

(1,315)

(1,780)

 

 

1,430

2,032

 

Contract asset revenue to be recognised less than 1 year

 

479

741

Contract asset revenue to be recognised between 1 and 2 years

 

180

347

Contract asset revenue to be recognised between 2 and 3 years

 

42

83

Contract asset revenue to be recognised between 3 and 4 years

 

2

5

 

 

703

1,176

 

 

 

 

i)  A contract asset is recognised where the Group act as agent for the lessor (STB) during the minimum lease term and have a contractual right to the inertia asset at the end of the minimum lease term. Contract assets are recognised as revenue accruing over the minimum lease term building up inertia asset (non-cash consideration) over the minimum lease term.

 

ii)  Customer acquisition costs are capitalised as an asset where such costs are incremental to obtaining a contract between the funder and the end customer, for which the Group receives commission under the funder contract, and are expected to be recovered. Customer acquisition costs are amortised on a straight-line basis over the term of the contract.

 

13.  Other Non-Current Assets

 

30 June 2020

£,000

Restated

30 June 2019

£,000

 

 

 

Insurance prepayments

5

100

Accrued income - insurance commission (i)

86

276

Deposits held by funders (ii)

2,056

2,027

 

2,147

2,403

 

 

 

(i)  Accrued income reflects brokerage commission earned from making insurance arrangements on behalf of lessee's and is net of a clawback provision.  The clawback provision for each reporting year has been estimated to be 30% based on historical experience and is calculated on the gross commission receivable.

 

(ii)    Deposits held by funders for the servicing and management of their portfolios in the event of default. The deposits earn interest at market rates of return for similar instruments. See note 26 for further information.

 

 

 

14.  Plant and Equipment

 

Plant & Equipment (Australia)

£,000

Plant & Equipment (UK)

£,000

Office Lease Right of Use Asset

£,000

Plant & Equipment Operating Lease

£,000

Total

£,000

Gross Carrying Amount

 

 

 

 

 

Cost or deemed cost

 

 

 

 

 

Restated balance at 30 June 2018

79

2,556

690

2,135

5,460

Effect of movement in exchange rate

(2)

-

-

-

(2)

Transferred from contract assets

-

-

-

1,780

1,780

Transferred to cost of inertia assets sold

-

-

-

(901)

(901)

Additions

-

45

-

9

54

Restated balance at 30 June 2019

77

2,601

690

3,023

6,391

Effect of movement in exchange rate

-

-

-

-

-

Transferred from contract assets

-

-

-

1,315

1,315

Transferred to cost of inertia assets sold

-

-

-

(587)

(587)

Additions

-

14

-

-

14

Disposals

(77)

(2,463)

-

(3,391)

(5,931)

Balance at 30 June 2020

-

152

690

360

1,202

 

 

 

 

 

 

Accumulated Depreciation

 

 

 

 

 

Restated balance at 30 June 2018

(78)

(2,424)

(368)

(1,895)

(4,765)

Effect of movement in exchange rate

2

-

-

-

2

Depreciation expense

-

(87)

(69)

(933)

(1,089)

Restated balance at 30 June 2019

(76)

(2,511)

(437)

(2,828)

(5,852)

Effect of movement in exchange rate

-

-

-

-

-

Depreciation expense

-

(54)

(69)

(697)

(820)

Disposals

76

2,463

-

3,391

5,930

Balance at 30 June 2020

-

(102)

(506)

(134)

(742)

 

 

 

 

 

 

Net Book Value

 

 

 

 

 

At 30 June 2019

1

90

253

195

539

At 30 June 2020

-

50

184

226

460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15.  Intangible Assets

 

Contract rights

£,000

Software

 

£,000

Distribution network

£,000

Intellectual Property

£,000

Total

 

£,000

Gross carrying amount

 

 

 

 

 

At cost

 

 

 

 

 

Restated balance at 30 June 2018

1,441

5,384

270

362

7,457

Effect of movement in exchange rate

-

-

-

(6)

(6)

Additions

15

313

-

-

328

Disposals

-

-

-

-

-

Restated balance at 30 June 2019

1,456

5,697

270

356

7,779

Effect of movement in exchange rate

-

-

-

3

3

Additions

385

109

-

-

494

Disposals

(1,400)

(1,437)

(270)

-

(3,107)

Balance at 30 June 2020

441

4,369

-

359

5,169

 

 

 

 

 

 

 

 

 

Contract rights

£,000

Software

 

£,000

Distribution network

£,000

Intellectual Property

£,000

Total

 

£,000

Accumulated amortisation and impairment

 

 

 

 

 

Restated balance at 30 June 2018

(1,374)

(2,371)

(270)

(326)

(4,341)

Effect of movement in exchange rate

-

-

-

23

23

Amortisation expense

(44)

(1,216)

-

(18)

(1,278)

Restated balance at 30 June 2019

(1,418)

(3,587)

(270)

(321)

(5,596)

Effect of movement in exchange rate

-

-

-

(20)

(20)

Amortisation expense

(57)

(1,153)

-

(17)

(1,227)

Disposals

1,400

1,437

270

-

3,107

Balance at 30 June 2020

(75)

(3,303)

-

(358)

(3,736)

 

 

Net book value

 

 

 

 

 

At 30 June 2019

38

2,110

-

35

2,183

At 30 June 2020

366

1,066

-

1

1,433

 

 

 

 

 

 

 

 

 

 

 

 

 

16.  Interest in Subsidiaries 

 

% of Equity

Interest in Subsidiaries

Country of Incorporation

30 June 2020

30 June 2019

RentSmart Limited

UK

100

100

ThinkSmart Insurance Services Administration Ltd

UK

100

100

ThinkSmart Financial Services Ltd

UK

100

100

ThinkSmart Europe Ltd

UK

100

100

ThinkSmart UK Ltd

UK

100

100

ThinkSmart Finance Group Ltd

UK

100

100

SmartCheck SL

Spain

100

100

ThinkSmart Inc

USA

100

100

ThinkSmart Employee Share Trust

Australia

100

100

ThinkSmart LTI Pty Limited

Australia

100

100

 

 

17.  Trade and Other Payables, and Provisions 

 

30 June 2020

£,000

Restated

30 June 2019

£,000

Trade and other payables

220

219

GST/VAT Payable

92

350

Other accrued expenses

883

710

 

1,195

1,279

Provisions

 

 

Annual leave

159

136

Long service leave

86

82

Risk Transfer cancellation and claims

10

34

 

255

252

Annual and long service leave

 

 

Balance at 1 July

218

212

Effect of exchange rate movement

3

(3)

Additional provisions made in the year

24

9

Amounts used during the year

-

-

Balance at 30 June

245

218

 

 

 

Other

 

 

Balance at 1 July

34

71

Additional provisions made in the year

-

-

Amounts used during the year

(24)

(37)

Balance at 30 June

10

34

 

 

 

 

 

 

 

 

 

18.  Lease liabilities

 

 

30 June 2020

£,000

Restated

30 June 2019

£,000

Balance brought forward

 

330

408

Rental paid in period

 

(114)

(112)

Interest charged

 

26

34

 

 

242

330

 

 

 

 

Lease liabilities due within 12 months

 

94

86

Lease liabilities due greater than 12 months

 

148

244

 

 

242

330

 

Undiscounted maturity analysis

 

 

 

Lease liabilities due up to 1 year

 

113

113

Lease liabilities due between 1 and 2 years

 

113

113

Lease liabilities due between 3 and 5 years

 

47

113

Lease liabilities due over 5 years

 

-

47

 

 

273

386

 

19.  Contract liabilities

 

 

30 June 2020

£,000

Restated

30 June 2019

£,000

Balance brought forward

 

1,993

2,667

Recognised as revenue in period

 

(666)

(674)

 

 

1,327

1,993

 

 

 

 

Contract liabilities to be recognised as revenue within 12 months

 

648

772

Contract liabilities to be recognised as revenue greater than 12 months

 

679

1,221

 

 

1,327

1,993

 

20.  Other interest bearing liabilities 

 

 

30 June 2020

£,000

Restated  30 June 2019

£,000

Current -  Loan advances net of deferred costs of raising facility (i)

-

1,907

 

 

 

Non-current- Loan advances net of deferred costs of raising facility (i)

-

603

 

Customer financing facilities

 

 

-  Amount used

-

2,510

-  Amount unused

10,000

17,490

Total Facility (i)

10,000

20,000

 

Other finance facilities (business credit card):

-  amount used

4

5

-  amount unused

11

21

 

15

26

  (i)  The loan is made up of a £10 million (option to extend to £20 million) minimum 3 year credit facility provided by STB dated 2 October 2017.

21.  Issued Capital

 

30 June 2020

£,000

Restated

30 June 2019

£,000

(a)  Issued and paid up capital

 

 

106,509,994 Ordinary Shares fully paid (2019: 106,509,994)

13,164

15,211

 

 

2020

Number

2020

£000

2019

Number

2019

£000

Fully Paid Ordinary Shares

 

 

 

 

Balance at beginning of the financial year

106,509,994

15,211

104,728,744

17,397

Issue of ordinary shares

-

-

1,781,250

-

Return of capital to shareholders

-

(2,047)

-

(2,186)

Balance at end of the financial period

106,509,994

13,164

106,509,994

15,211

 

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 vested but not yet exercised as at 30 June 2020:

 

· 1,757,352 options over ordinary shares were issued 21 December 2016 and exercisable at £0.22, vested and exercisable on 21 December 2019 until 21 December 2026.  The fair value of these options at grant date was £0.0371. Vesting of the options was subject to achievement of the following performance conditions:

 

Earnings per Share Condition 1 (EPS1) - Vesting of 75% of the share options was subject to meeting EPS1. The metric for EPS1 was growth in earnings per share over the performance period being the 3 years from 1 July 2016. Share options vested as follows;

 

Metric <15%

Nil EPS1 options would have vested

Metric = 15% (Lower Target 1)

25% of EPS1 options vested

15% < Metric < 50%

Straight line vesting between Lower Target 1 and Upper Target 1

Metric = 50% (Upper Target 1)

100% of EPS1 options vested

 

Earnings per Share Condition 2 (EPS2) - Vesting of 25% of the share options was subject to meeting EPS2. The metric for EPS2 is growth in earnings per share over the performance period, being the 3 years from 1 July 2016, 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 would have vested

Metric = 15% (Lower Target 2)

25% of EPS2 options vested

15% < Metric < 50%

Straight line vesting between Lower Target 2 and Upper Target 2

Metric = 50% (Upper Target 2)

100% of EPS2 options vested

 

The value of these options and loan-funded shares has been expensed over the vesting period in accordance with AASB 2.

 

Measurement of fair values

The fair value of employee share options is measured using a binomial model and loan-funded shares are measured using a Monte-Carlo simulation model.

 

Other measurement inputs include share price on measurement date, exercise price of the instrument, weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. Below are the inputs used to measure the fair value of the options and loan-funded shares:

 

 

Employee options and loan-funded shares

Period ending

30 June 2017

Grant date

21/12/16

Fair value at grant date

£0.0371

Grant date share price

£0.22

Exercise price

£0.22

Expected volatility

29.42%

Option/loan share life

10 years

Dividend yield

2.00%

Risk-free interest rate

0.23%

 

The following reconciles the outstanding share options/loan-funded shares granted under the employee share option plan and loan-funded shares at the beginning and end of the financial period:

 

 

Year ended 30 June 2020

Year ended 30 June 2019

 

Number of options/loan

funded shares

 

Weighted average exercise price

£

Number of options/loan

funded shares

 

Weighted average exercise price

£

Balance at beginning of the financial year

1,757,352

0.2200

2,445,629

0.2167

Cancelled during the financial year

-

-

(688,277)

0.2083

Balance at the end of financial year

1,757,352

0.2200

1,757,352

0.2200

Exercisable at end of the financial year

0.2200

-

-

 

The options and loan-funded shares outstanding at 30 June 2020 have an exercise price of £0.22 (30 June 2019: £0.22) and a weighted average contractual life of 6 years (30 June 2019: 7 years). The following is the total expense recognised for the year arising from share-based payment transactions:

 

 

12 months to 30 June 2020

£

12 months to 30 June 2019

£

Share compensation - employee shares (note 21(b)(ii))

6,502

195,682

Total expense recognised as employee costs (note 6e)

6,502

195,682

 

 

(b)(ii)  Share compensation - employee shares

In the prior year 1,781,250 shares of the Company, with a fair value of £195k, were granted to Ned Montarello as remuneration.

 

(c)  Dividends

The following dividends were declared and paid by the Group for the year:

 

12 months to

30 June 2020

£,000

12 months to

30 June 2019

£,000

1.09 pence per ordinary share (2019: 2.08)

1,135

2,214

 

1,135

2,214

 

 

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

30 June 2020

£,000

as at

30 June 2019

£,000

Reconciliation of cash and cash equivalents

 

 

Cash balance comprises:

 

 

-  Available cash and cash equivalents

8,744

7,044

-  Restricted cash

61

55

 

8,805

7,099

 

The Group's exposure to credit risk, interest rate and sensitivity analysis of the financial assets and liabilities are provided in Note 26.

 

(b)  Reconciliation of the profit for the year to net cash flows from operating activities: 

 

12 months to

30 June 2020

£,000

Restated  12 months to

30 June 2019

£,000

 

Profit after tax

53,042

8,659

Add back non-cash and non-operating items:

 

 

Depreciation

820

1,089

Amortisation

1,227

1,278

Impairment losses on finance lease receivables

(181)

(60)

Equity settled share-based payment

7

195

Lease interest

26

24

Gain on Financial Instruments

(54,418)

(1,647)

Profit on disposal of discontinued operations

-

(7,731)

Cost of inertia assets sold

594

901

 

 

 

(Increase)/decrease in assets:

 

 

Trade receivables, deposits held with funders and other movements in lease assets

121

1,196

Finance lease receivable

3,180

3,434

Deferred tax asset

-

71

Contract asset recognised to revenue

(719)

(1,208)

 

 

 

Increase/(decrease) in liabilities:

 

 

Trade and other creditors

(84)

(265)

Contract liabilities

(666)

(674)

Other interest bearing liabilities

(2,533)

(2,708)

Provisions

3

(31)

Provision for income tax

540

38

Net cash from operating activities

959

2,561

 

 

 

 

 

23.  Segment Information

 

The Group currently has one reportable segment which comprise the Group's core business unit (UK). Head office and other unallocated corporate functions are shown separately. For the segment, the Board and the CEO review internal management reports on a monthly basis. The composition of the reportable segment is as follows:

 

UK:

ThinkSmart Europe Ltd;

RentSmart Ltd;

ThinkSmart Insurance Services Administration Ltd;

ThinkSmart Financial Services Ltd; and

ThinkSmart UK Ltd.

 

Corporate and unallocated:

ThinkSmart Limited;

SmartCheck Finance Spain SL; and

ThinkSmart Inc.

 

 

Operating Segments

 

 

 

 

 

Information about reportable segments

 

 

UK

Corporate and unallocated

Total

For the year ended:

June

2020

 

Restated

June

2019

June

2020

June

2019

June

2020

Restated

June

2019

 

£,000

£,000

£,000

£,000

£,000

£,000

 

 

 

 

 

 

 

Revenue

6,079

7,183

-

57

6,079

7,240

Other revenue

233

897

20

-

253

897

Total revenue

6,312

8,080

20

57

6,332

8,137

Customer acquisition cost

(627)

(963)

-

(2)

(627)

(965)

Cost of inertia assets sold

(700)

(902)

-

-

(700)

(902)

Other operating expenses

(3,555)

(4,059)

(715)

(694)

(4,270)

(4,753)

Depreciation and amortisation

(2,047)

(2,367)

-

(1)

(2,047)

(2,368)

Impairment gains/(losses)

(2)

(272)

-

-

(2)

(272)

Gain on Financial Instruments

54,418

1,647

-

-

54,418

1,647

Profit from discontinued operations

-

8,053

-

(322)

-

7,731

Reportable segment profit/(loss) before income tax

53,799

9,217

(695)

(962)

53,104

8,255

 

 

 

 

 

 

 

Reportable segment current assets

6,162

12,924

4,127

158

10,289

13,082

Reportable segment non-current assets

59,218

9,757

-

-

59,218

9,757

Reportable segment liabilities

2,695

6,019

324

345

3,019

6,364

Capital expenditure

509

382

-

-

509

382

 

 

 

 

 

 

 

 

24.  Remuneration of Auditor

 

12 Months to June 2020

£

 

12 Months to June 2019

£

Audit and review services:

 

 

Auditor of the Company:

 

 

 

Provided by KPMG

-

104,783

Provided by BDO

140,966

Audit and review of financial statements

140,966

213,783

 

 

 

Services other than statutory audit (all provided by KPMG):

 

 

Tax compliance and advisory services

40,675

82,340

 

181,641

296,123

 

The Group's auditors are BDO.

 

25.  Commitments and Contingent Liabilities

 

June 2020

£,000

June 2019

£,000

 

 

 

Leases where Group acts as agent (not included in the statement of financial position)

6,029

9,588

 

 

 

Deposits held by funder

2,056

2,027

 

Under the terms of the UK current funding agreement with Secure Trust Bank (STB) where STB is the lessor, the Group is obliged to purchase delinquent leases (contracts in arrears for 91 days) from the funder at the funded amount.  The Group has entered into a financial guarantee contract with STB for which the Group has provided a deposit to support future delinquent leases.

 

The deposit held by funders is recognised as an asset on the Group's statement of financial position within other non-current assets (see note 13).

 

26.  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 2020

£,000

June 2019

£,000

Variable rate instruments

 

 

Cash and cash equivalents (note 22a)

8,805

7,099

Deposits held by funder (note 13)

2,056

2,027

Other interest bearing liabilities (note 20)

-

(2,510)

Net financial assets

10,861

6,616

 

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 2020

£,000

June 2019

£,000

Effect of 1% increase in rates

109

66

Effect of 1% decrease in rates

(109)

(66)

 

(b)  Fair value of financial instruments

The carrying amounts of financial assets and financial liabilities recorded in the financial statements are not materially different to their fair values.

 

Fair value hierarchy

The financial instruments carried at fair value have been classified by valuation method.

The different levels have been defined as follows:

 

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

Key assumptions in the valuation of the instruments were limited to interpolating interest rates for certain future periods where there was no observable market data. The majority of financial assets and liabilities are measured at amortised cost. At 30 June 2020 the Group held the following financial instruments measured at fair value through profit or loss:

 

· 10% holding in Clearpay Finance Limited with a fair value of £53,733,333 (2019: £60,000). The holding in Clearpay is a Level 3 financial instrument.

(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:

 

Note

June 2020

£,000

Restated

June 2019

£,000

Cash and cash equivalents

22(a)

8,805

7,099

Trade receivables

 

129

82

Loan and lease receivable (current)

9

495

2,828

Loan and lease receivable (non-current)

9

17

864

Insurance prepayment and accrued income (current)

10

345

458

Insurance prepayment and accrued income (non-current)

13

91

376

Sundry debtors

10

346

64

Deposits held by funders

13

2,056

2,027

 

 

12,284

13,798

 

The carrying amount of the Group's financial assets that are exposed to credit risk at the reporting date by geographic region is:

 

 

 

June 2020

£,000

Restated

June 2019

£,000

Australia

 

4,075

116

UK

 

8,209

13,682

 

 

12,284

13,798

 

 

 

 

 

 

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 2020

£,000

Restated

June 2019

£,000

Banks (i)

 

8,805

7,099

Funders (ii)

 

2,056

2,027

Insurance partners (iii)

 

436

834

Retail customers (iv)

 

512

3,692

Others

 

475

146

 

 

12,284

13,798

 

(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 2020

£,000

June 2020

£,000

June 2019

£,000

  June 2019

  £,000

 

Not past due

492

2

3,544

42

 

Past due 0-30 days

29

4

115

25

 

Past due 31-120 days

43

30

75

65

 

Past due 121-365 days

90

43

150

121

 

 

654

79

3,884

253

 

 

 

 

 

          

Impairment is measured using a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available.

 

The Group applies the simplified approach to providing for expected credit losses (ECLs) under AASB 9, which permits the use of the lifetime expected loss provision for trade and lease receivables. The Group makes specific provisions for lifetime expected credit losses against these receivables where additional information is known regarding the recoverability of those balances. For the remaining trade and lease receivables balances, the Group has established an ECL model using provision matrices for recognising ECLs on its trade receivables, based on its historical credit loss experience over a two year period, adjusted (where appropriate) for forward-looking factors.

 

The movement in the allowance for impairment in respect of trade and lease receivables during the year was as follows:

 

 

 

June 2020

£,000

June 2019

£,000

Balance at 1 July

 

253

314

Impairment loss recognised

 

(2)

272

Bad debt written off

 

(172)

(333)

Balance at 30 June

 

79

253

 

Trade and lease receivables are reviewed and considered for impairment on a periodic basis, based on the number of days outstanding and number of payments in arrears, adjusted (where appropriate) for forwards looking factors.

 

(d)  Currency risk management

Exposure to currency risk

The Group's exposure to foreign currency risk is limited to the cash balances held by the Australian parent ThinkSmart Limited denominated in Australian Dollars:

 

 

 

June 2020

£,000

June 2019

£,000

Cash and cash equivalents

 

4,074

116

10% strengthening of AUD

 

(407)

(12)

10% weakening of AUD

 

407

12

 

 

 

June 2020

June 2019

AUD/GBP year end exchange rate

 

0.5586

0.5535

   

(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 2020

£,000

Restated

June 2019

£,000

Trade and other payables

 

1,195

1,138

Lease liabilities

 

242

330

Other interest bearing liabilities

 

-

2,678

 

 

1,437

4,146

 

Less than 1 year

 

1,289

3,558

1-2 years

 

148

588

 

 

1,437

4,146

 

27.  Related Party Disclosures

 

The following were Key Management Personnel of the Group at any time during the reporting period and unless otherwise indicated were Key Management Personnel for the entire period:

 

Executive Chairman

N Montarello

 

Executive Directors

G Halton (Chief Financial Officer)

 

Non-Executive Directors

P Gammell

D Adams

R McDowell

 

The Key Management Personnel remuneration included in 'employee benefits expense' in Note 6(e) is as follows:

 

 

 

 

 

 

12 months to June 2020

£

12 months to June 2019

£

Short-term employee benefits

 

463,409

591,293

Post-employment benefits

 

13,971

20,650

Other long-term benefits

 

2,575

2,662

Share-based payments

 

5,825

75,000

 

 

485,780

689,605

 

 

 

 

Business expenses incurred by KMP's and reimbursed by the Company

 

55,922

164,638

   

28.  Subsequent Events

 

In November 2019, one the of the Group companies, RentSmart Ltd (RentSmart), issued a claim against The Carphone Warehouse Ltd (part of the Dixons Carphone plc group (DC)) in respect of the Flexible Leasing contract and its predecessor Upgrade Everytime contract. The Group announced on 10 August 2020 that it had agreed a settlement in relation to these contracts of £1.45m inclusive of costs.  Legal proceedings were not issued in relation to other contracts with the Dixons Carphone plc group (SmartPlan and Upgrade Anytime).  As part of this settlement, RentSmart has agreed with DC to the orderly winding up of all its agreements with DC including Flexible Leasing, SmartPlan and Upgrade Anytime.

 

There has not arisen, in the interval between the end of the financial period and the date of this report, any other item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years.

29.  Contingent Assets

 

AASB 137 (IAS 37) defines a contingent asset as a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

 

On 29 November 2019, RentSmart Ltd (RentSmart), issued formal legal proceedings against The Carphone Warehouse Ltd (CPW) for damages for losses estimated at £20m. At 30 June 2020 the outcome of the litigation against CPW was uncertain both from a litigation and settlement perspective with the expectation that it was unlikely that there was a realistic possibility of a resolution being achieved. As such, the settlement of the claim on 7 August 2020 is indicative of conditions that arose after the balance sheet date and is therefore a non-adjusting event.

 

From an accounting perspective, the Group has not recognised any benefit for this contingent asset in the financial statements for the current year, and this remains the case notwithstanding the post reporting date settlement.  The contingent asset only became certain when settlement was reached as announced on 10 August 2020. As such, the Group will recognise the asset and income in August 2020 (ie year to 30 June 2021).

30.  Earnings per Share

 

 

 

12 months to June 2020

£,000

Restated

12 months to June 2019

£,000

Profit after tax attributable to ordinary shareholders

 

53,042

8,659

 

 

 

30 June 2020

Number

30 June 2019

Number

Weighted average number of ordinary shares (basic)

 

 106,509,994

 105,606,491

Weighted average number of ordinary shares (diluted)

 

 108,267,346

 105,606,491

 

 

Earnings per share

 

30 June 2020

 

Restated

30 June 2019

 

Basic earnings per share (pence)

 

49.80

8.20

Basic earnings per share (pence) - continuing operations

 

49.80

0.88

Basic earnings per share (pence) - discontinued operations

 

-

7.32

 

Diluted earnings per share (pence) - continuing operations

 

48.99

0.88

 

31.  Parent entity information

 

Set out below is the supplementary information about the parent entity.

 

Statement of profit or loss and other comprehensive income

 

 

June 2020

£,000

June 2019

£,000

Profit after tax

 

476

4,294

Total comprehensive income

 

476

4,294

 

 

 

 

 

Statement of financial position

 

 

June 2020

£,000

June 2019

£,000

Total current assets

 

4,127

158

Total assets

 

14,186

16,907

Total current liabilities

 

324

345

Total liabilities

 

324

345

 

 

 

 

Equity

 

 

 

Issued share capital

 

13,164

15,211

Accumulated profits

 

698

1,351

Total equity

 

13,862

16,562

 

 

 

 

 

Guarantees entered into by the parent entity in relation to the debts of its subsidiaries

The parent entity has provided third party guarantees in relation to the debts of its subsidiaries.  No deficiencies of assets exist in any of these subsidiaries.

 

Contingent liabilities

The parent entity had no contingent liabilities as at 30 June 2020 and 30 June 2019.

 

Capital commitments - Property, plant and equipment

The parent entity had no capital commitments for property, plant and equipment as at 30 June 2020 and 30 June 2019.

 

Significant accounting policies

The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except for the following:

· Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity;

· Investments in associates are accounted for at cost, less any impairment, in the parent entity; and

· Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment.

 

 

 

32.  Effects of changes in accounting policies

 

The Group adopted AASB 16 in the current year applying full retrospective transition approach with the date of initial adoption being 1 July 2019 (see Note 3 above for an explanation of the main changes resulting from this).  This has resulted in the following restatement of comparatives for the statement of profit or loss and other comprehensive income for the year ended 30 June 2019, and the statement of financial position as at 30 June 2018 and as at 30 June 2019.

 

The following tables show the adjustments recognised for each line item of the financial statements affected.

 

 

Original

30 June 2019

AASB 16

Restated

30 June 2019

 

£,000

£,000

£,000

 

 

 

 

Revenue

7,240

-

7,240

Other revenue

897

-

897

Total revenue

8,137

-

8,137

 

 

 

 

Customer acquisition costs

(965)

-

(965)

Cost of inertia asset sold

(901)

(1)

(902)

Other operating expenses

(4,813)

60

(4,753)

Depreciation and amortisation

(2,299)

(69)

(2,368)

Impairment losses

(272)

-

(272)

Gains on financial instruments

1,647

-

1,647

Profit before tax

534

(10)

524

Income tax benefit

404

-

404

Net Profit after tax from continuing operations

938

(10)

928

Profit after tax from discontinued operations

7,731

-

7,731

Net Profit after tax - attributable to owners of the Company

8,669

(10)

8,659

 

 

 

 

 

 

 

 

Other comprehensive (loss)

 

 

 

Items that may be reclassified subsequently to profit or loss (net of income tax):

 

 

 

Foreign currency translation differences for foreign operations

(134)

-

(134)

Total items that may be reclassified subsequently to loss, net of income tax

(134)

-

(134)

Other comprehensive (loss) for the period, net of income tax

(134)

-

(134)

Total comprehensive profit for the period, net of income tax

8,535

(10)

8,525

 

 

 

 

 

32.  Effects of changes in accounting policies (continued)

 

 

 

Original

30 June 2018

AASB 16

Restated

30 June 2018

 

£,000

£,000

£,000

Current Assets

 

 

 

Cash and cash equivalents

2,523

-

2,523

Trade receivables

180

(103)

77

Finance lease receivables

3,399

-

3,399

Tax receivable

578

-

578

Other current assets

1,325

98

1,423

Assets held for sale

1,528

-

1,528

Total Current Assets

9,533

(5)

9,528

Non-Current Assets

 

 

 

Finance lease receivables

3,420

-

3,420

Plant and equipment

373

322

695

Intangible assets

3,116

-

3,116

Deferred tax assets

71

-

71

Contract Assets

2,739

-

2,739

Other non-current assets

2,861

-

2,861

Total Non-Current Assets

12,580

322

12,902

Total Assets

22,113

317

22,430

Current Liabilities

 

 

 

Trade and other payables

1,560

2

1,562

Lease liabilities

-

78

78

Contract liabilities

1,029

-

1,029

Other interest bearing liabilities

2,510

-

2,510

Provisions

283

-

283

Liabilities held for sale

141

-

141

Total Current Liabilities

5,523

80

5,603

Non-Current Liabilities

 

 

 

Lease liabilities

-

328

328

Contract liabilities

1,638

-

1,638

Other interest bearing liabilities

2,708

-

2,708

Total Non-Current Liabilities

4,346

328

4,674

Total Liabilities

9,869

408

10,277

Net Assets

12,244

(91)

12,153

 

Equity

 

 

 

Issued Capital

17,397

-

17,397

Reserves

(2,843)

-

(2,843)

Accumulated losses

(2,310)

(91)

(2,401)

 

12,244

(91)

12,153

32.  Effects of changes in accounting policies (continued)

 

 

Original

30 June 2019

AASB 16

Restated

30 June 2019

 

£,000

£,000

£,000

Current Assets

 

 

 

Cash and cash equivalents

7,099

-

7,099

Trade receivables

82

-

82

Finance lease receivables

2,640

-

2,640

Tax receivable

540

 

540

Other current assets

2,729

(8)

2,721

Total Current Assets

13,090

(8)

13,082

Non-Current Assets

 

 

 

Finance lease receivables

805

-

805

Plant and equipment

286

253

539

Intangible assets

2,183

-

2,183

Financial assets at fair value through profit and loss

1,795

-

1,795

Contract assets

2,032

-

2,032

Other non-current assets

2,403

-

2,403

Total Non-Current Assets

9,504

253

9,757

Total Assets

22,594

245

22,839

Current Liabilities

 

 

 

Trade and other payables

1,265

14

1,279

Lease liabilities

-

86

86

Contract liabilities

772

-

772

Other interest bearing liabilities

1,907

-

1,907

Provisions

252

-

252

Total Current Liabilities

4,196

100

4,296

Non-Current Liabilities

 

 

 

Lease liabilities

-

244

244

Contract liabilities

1,221

-

1,221

Other interest bearing liabilities

603

-

603

Total Non-Current Liabilities

1,824

244

2,068

Total Liabilities

6,020

344

6,364

Net Assets

16,574

(99)

16,475

 

Equity

 

 

 

Issued Capital

15,211

-

15,211

Reserves

(2,977)

(1)

(2,978)

Accumulated profits

4,340

(98)

4,242

 

16,574

(99)

16,475

 

 

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