Thorn : Annual Report to shareholders

onlyuse Annual personalFor

Report

31 March 2022

ACN 072 507 147

CONTENTS

onlyDirectors' Report

Lead Auditor's Independence Declaration

Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements useDirectors' Declaration

Independent Auditor's Report personalFor

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Annual Report 2022 I 1

DIRECTORS' REPORT

For the year ended 31 March 2022

onlyThe directors present their report together with the financial report of Thorn Group Limited (the 'Company') and its controlled entities (together referred to as 'Thorn', the 'Group' or the 'consolidated entity') for the financial year ended 31 March 2022 and the auditor's report thereon.

PREFACE

During the year, Thorn has taken significant decisions to place the Group in the best position for the future. This includes the asset sale of the Consumer Finance division to Credit Corp Group Limited ('Credit Corp') in December 2021 and launching the asset finance product with key focus on scalability through technology.

The securitised warehouse facility remains in amortisation, however Thorn is in negotiations with its funders to re-open the warehouse.

Each of these matters has had a significant impact on the financial statements and are explained further in this report.

OPERATING AND FINANCIAL REVIEW

	Principal activities
	Thorn is a financial services group providing commercial finance to small and medium-sized enterprises and the leasing of
usehousehold products to consumers. During the year, the Group made a strategic decision to sell the assets of its former
	Consumer Finance division to Credit Corp and focus on growing its suite of lending products for SMEs through the Thornmoney
	brand.
	Financial performance
	A$m	Segment revenue			Segment EBIT to NPAT
		2022		2021*		2022		2021*
	Business Finance	17.3		33.4		25.7		12.7
	Corporate	-		-		(7.6)		(8.9)
	Significant items					-		2.4
	Sub-total	17.3		33.4		19.1		6.2
	Fair value gains on derivative					1.5
	Net interest expense					(6.8)		(10.6)
	Profit/ (loss) before tax					12.8		(4.4)
	Tax expense					-		-
	Profit / (loss) after tax from continuing operations					12.8		(4.4)
	Profit from discontinued operation after tax					19.5		12.8
	Net profit after tax					32.3		8.4
	* Restated to redirect the results of discontinued business, into one line above Net profit after tax for the year
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	Revenue fell 48% to $17.3m (2021: $33.4m), and the net profit after tax ('NPAT') increased from $8.4m to $32.3m. $11.7m of
	NPAT is attributable to gain on sale of assets from the Consumer Finance division.

ForBusiness Finance

Equipment finance originations were $21.7m for the year (2021: $5.2m), the majority of which took place in the last quarter of the year, reflecting growth.

An Invoice Finance value proposition was launched in July 2021, providing a line of credit, backed by the SME's invoices. The equipment finance book's 30 day arrears, were at 7.4% at the end of March 2022 (2021: 8.6%).

The receivables book and the profit or loss statement have been heavily influenced by the absence of originations in the first half of the year and the impact of COVID-19; receivables (pre provision) reduced from $192.5m to $110.0m; revenue decreased 48% to $17.3m (2021: $33.4m) and impairment expenses netted a positive impact of $19.9m due to the release of COVID-19 provision (2021: $12.4m).

EBIT was a $25.7m profit (2021: $12.7m).

2 I Annual Report 2022

DIRECTORS' REPORT

For the year ended 31 March 2022

Corporate

Corporate expenses were down 15% to $7.6m (2021: $8.9m). This is largely due to the sale of the Consumer Finance business in onlyDecember 2021, reducing communications and IT costs, and personnel expenses.

Significant items

No significant items in the current financial year.

In the prior year, the Group incurred the following costs related to the closure of the Consumer Finance store network: redundancy costs of $3.5m and IT-related costs of $0.6m offset by a $1.4m net gain on exiting the majority of the Group's lease

bligations. In addition, $2.9m in JobKeeper grants received have been presented as a significant item.

Fair value gains on derivative

useThe fair value gains on derivative consists of the ineffective portion of the interest rate swap on the warehouse funding balance. In December 2021, the Group made an assessment that the interest rate swap has fallen outside the prescribed range of effectiveness as per AASB 139. This is attributable to the warehouse being in amortisation leading to the funding balance decreasing at a faster rate than the expected repayment of the warehouse receivables. The swap remained ineffective for the period from December 2021 through to March 2022. At 31 March 2022, Thorn was hedged at 139% of its warehouse borrowing balance of $60.6m. In absence of any variations on the swap, the Group expect the hedge to remain ineffective in the future.

Net interest expense

personalNet interest expense decreased by 36% from $10.6m to $6.8m (excluding discontinued operation). This includes a $0.4m djustment of the derivative interest in accordance to AASB 139. Borrowings in the warehouse declined to $60.6m (2021:

$166.3m) as the warehouse was in amortisation with the majority of cash collected used to pay down the outstanding notes.

Tax expense

While there is a taxable profit, there is no current tax payable as a result of the tax losses carried forward. Additionally, the Group has not recognised any deferred tax benefits attributable as the directors consider that, as disclosed last year, there remains a continuing risk that Thorn may not make sufficient taxable profits in future years to justify their recognition as an asset on the balance sheet.

Discontinued Operation

The Group's assets in the Consumer Finance division, Radio Rentals, were sold to Credit Corp in December 2021. Thorn has

r ceived a cash consideration for the sale of $43.9m, with an additional amount of approximately $2.3m payable on a deferred and conditional basis. An assessment of the deferred amount deemed it highly improbable that the conditions to receive the amount will be met by the agreed timeline and hence the $2.3m was not taken to revenue.

The sale consideration was offset by $1.4m payable to Credit Corp for employees' leave liability transfer. Thorn and Credit Corp commenced a transitional services period of six months in December 2021, including the secondment and subsequent transfer of relevant employees. The profit on sale was reduced by the costs of sale and provisioning to record a net gain on sale of $11.7m.

ForBefore the sale completion on 20 December 2021, the Consumer Finance division recorded a profit after tax of $7.7m (2021: $12.8m including significant items).

Annual Report 2022 I 3

DIRECTORS' REPORT

For the year ended 31 March 2022

	Financial position
	The balance sheet is presented below in two versions; the first excluding the warehouse borrowings for the business finance
only
	receivables together with the associated receivables and cash in the warehouse (non-recourse funding for the warehouse)
	("excl. Trust"), and the second including the warehouse which is as per the statutory accounts format ("incl. Trust").
	Summarised financial position	31 March 2022		31 March 2021
	$m	excl. Trust	incl. Trust	excl. Trust	incl. Trust
	Cash at bank	68.1	86.8	68.3	88.0
	Receivables	24.5	88.6	55.0	196.6
	Inventories and other assets	6.4	6.4	3.1	3.1
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	Investments	-	-	1.0	1.0
	Total Assets	99.0	181.8	127.4	288.7
	Borrowings	-	60.6	-	166.3
	Other liabilities	18.0	18.4	23.6	27.3
	Total Liabilities	18.0	79.0	23.6	193.6
	Total Equity	81.0	102.8	103.8	95.1
personalThe Business Finance receivables	gross balance reduced by $82.5m to $110.0m	(2021: $192.5m) due to lower originations. The
	Gearing (net debt/equity) (i)		(25.5)%	n/a	103.0%
	Return on Equity		32.6%		8.4%
	Earnings Per Share		9.5		2.6

(i) Gearing is calculated as closing net debt (i.e. debt less free cash) divided by closing equity

Cash at bank

The cash at bank amount includes the free cash available to the Group plus the cash in the warehouse (a mixture of customer receipts collected in the last month of the year and cash reserves). At the year-end, free cash was $68.1m and cash in the warehouse was $18.7m (2021: $68.3m and $19.7m). The free cash reflects cash consideration received for the sale of assets in the Consumer Finance division, the payment of a special dividend in February 2022 totalling $23.8m, the inflow of receipts

f om previously written contracts exceeding both operating expenses and the origination of new contracts in both divisions.

Receivables

The balance consists of Business Finance receivables. All are stated at their gross amount less unearned interest, less a rovision for expected credit losses.

provision reduced by 51% to $(22.0m) (2021: $(45.0m)). The net receivables balance reduced by $59.5m to $88.0m (2021: $147.5m).

ForIn the table above, the columns which exclude the warehouse (headed excl. Trust) do not include the Business Finance receivables and related provisions held in the warehouse.

Investments

The Group made a $1m strategic investment in Quicka Holdings Pty Ltd trading as "QuickaPay" in financial year 2021. The business was sold in December 2021, Thorn received $1.15m for its initial investment.

Other liabilities

The other liabilities reduction of $5.2m was driven by the sale of its Consumer Finance division, with the balance attributable to reduced payables and employee-related liabilities as the size of the business has reduced.

4 I Annual Report 2022