Cash Converters International Limited ABN 39 069 141 546 Half-Year Report For the half-year ended 31 December 2020 Directors’ report For the half-year ended 31 December 2020 The directors of Cash Converters International Limited (the Company) submit the following report of the Company and its subsidiaries (the Group) for the half-year ended 31 December 2020. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows: Directors The following persons held office as directors of the Company during or since the end of the half-year: Mr Jason Kulas Non-Executive Chairman (appointed 28 August 2020) Mr Peter Cumins Executive Deputy Chairman Mr Sam Budiselik Managing Director (appointed 18 December 2020) Ms Julie Elliott Non-Executive Director Mr Lachlan Given Non-Executive Director Mr Robert Hines Non-Executive Director Mr Kevin Dundo Non-Executive Director (retired 23 November 2020) Mr Stuart Grimshaw Non-Executive Chairman (resigned 28 August 2020) Dividends Amount per Franked Record date Payable date security percentage 2021 interim dividend 1.00 cent 100% 25 March 2021 14 April 2021 (declared, not provided at 31 December 2021) On 28 August 2020 the directors of the Company announced that there would be no final dividend in respect of the financial year ended 30 June 2020. There is no provision for the interim dividend in respect of the half-year ended 31 December 2020. Provisions for dividends to be paid by the Company are recognised in the Consolidated Balance Sheet as a liability and a reduction in retained earnings when the dividend has been declared. A Dividend Reinvestment Plan (DRP) was in operation as from the final dividend for 2016 and applies for all subsequent dividends unless notice is given for its suspension or termination. The last date for receipt of an election notice for participation in the Interim 2021 ordinary DRP is 26 March 2021. Review of operations The Cash Converters International Limited Group is diverse, generating revenues from franchising, consumer retail store operations, personal finance and vehicle finance and is supported by a corporate head office in Perth, Western Australia. The Company operates in Australia and the United Kingdom and has an equity interest of 25% in Cash Converters New Zealand. There is a franchise presence in a further 13 countries around the world. Impact of COVID-19 As noted in the 30 June 2020 Annual Report, the Group has continued to focus on the health and wellbeing of its employees and customers. The ability to service customers while doing so and remain profitable demonstrates resilience and an ability to operate effectively during periods of significant uncertainty and change. The impact of COVID-19 on operations was experienced from mid-March 2020 when the closure of non-essential businesses and the implementation of stay-at-home requirements began. During the year ended 30 June 2020 (FY 2020) all Australian Corporate stores remained open for business while observing the necessary hygiene and social distancing measures. Cash Converters International Limited 2 Half-year report for the half-year ended 31 December 2020 Directors’ report For the half-year ended 31 December 2020 During the half-year under review the Group experienced lock-down protocols most significantly in Victoria where store closures extended well over 100 days of the half-year period. Shorter but nonetheless disruptive store closure periods have been experienced in South Australia during the half-year reporting period. Our franchise operation in the United Kingdom has been significantly affected by national lockdowns, implemented in a bid by the government to eradicate the virus, which has resulted in our stores operating under restrictive measures. These restrictions have resulted in franchise fees being discounted and waived to support stores being able to reopen fully at a future date. It is worth noting that the Group has not been eligible for and has made no direct claims under the JobKeeper Payment scheme allowances. Economic support packages provided to affected workers, businesses and the broader community had a noticeable impact on business. A reduction in credit demand due to COVID-related Government stimulus and early superannuation access, resulted in the Group’s loan book values decreasing throughout the second half of FY 2020, a trend that continued into the first quarter of FY 2021 but has since reversed. Whilst all loan books are rebuilding, the impact softened performance in the first half of FY 2021, when compared to the previous corresponding period. Despite the progress made domestically and abroad towards limiting the spread of COVID-19, significant uncertainty remains. There is prevailing uncertainty with respect to forward-looking statements and there has been a focus on presenting appropriate disclosure with respect to business impacts, risks and uncertainties and key assumptions. Key financial performance highlights The Group recorded a net profit after tax for the half-year ended 31 December 2020 of $7.693 million (half-year ended 31 December 2019 net loss after tax: $19.397 million). A summary of consolidated revenues and results by significant segment is set out below: Operating basis 1 As reported basis Segment revenues Segment EBITDA 2 Segment EBITDA 2 31 Dec 20 31 Dec 19 31 Dec 20 31 Dec 19 31 Dec 20 31 Dec 19 $’000 $’000 $’000 $’000 $’000 $’000 Personal finance 34,405 58,433 17,684 19,093 17,684 19,093 Vehicle financing 8,232 10,572 6,411 3,134 6,411 3,134 Store operations 48,141 63,580 7,341 13,298 7,341 13,298 Franchise operations 7,523 9,924 5,214 6,953 5,214 6,953 Totals before head office costs 98,301 142,509 36,650 42,478 36,650 42,478 Head office (12,017) (12,125) (12,017) (55,042) Totals after head office costs 24,633 30,353 24,633 (12,564) Depreciation, amortisation and (8,282) (8,652) impairment Finance costs (5,882) (6,529) Profit / (loss) before tax 10,469 (27,745) Tax (expense) / benefit (2,776) 8,348 Profit / (loss) for the half-year 7,693 (19,397) 1 The operating results are presented net of the significant expense items incurred in the previous corresponding period and reconciled below that were directly associated with the settlement of class action litigation claims, to aid the comparability and usefulness of the financial information reflecting the underlying performance of the business. This information should be considered in addition to, but not instead of or superior to, our financial statements prepared in accordance with IFRS. The operating results presented may be determined or calculated differently by other companies, limiting the usefulness of those measures for external comparative purposes. 2 The Company reports EBIT calculated as earnings before interest expense and tax and EBITDA calculated as EBIT before depreciation and amortisation. EBIT and EBITDA are non-IFRS measures and are alternative performance measures reported in addition to but not as a substitute for the performance measures reported in accordance with IFRS. These measures focus directly on operating earnings and enhance comparability between periods. Cash Converters International Limited 3 Half-year report for the half-year ended 31 December 2020 Directors’ report For the half-year ended 31 December 2020 31 Dec 2020 31 Dec 2019 $’000 $’000 Operating cash inflow / (outflow) 8,598 (15,549) Basic earnings / (loss) per share (cents) 1.25 cents (3.15 cents) To provide a meaningful comparison to the prior period, the table below highlights the effect of costs relating to the Class Action settlement and other costs of a non-recurring nature during the previous corresponding period to show the underlying operational performance of the Company. 31 Dec 2020 31 Dec 2019 $’000 $’000 Net profit / (loss) after tax from continuing operations 7,693 (19,397) Normalisation adjustments: Class action settlement - 42,500 Class action legal fees - 416 Tax effect of adjustments - (12,875) Operating profit 7,693 10,644 Management has noted previously the impact of reduced credit demand due to COVID-related Government stimulus and early superannuation access. Loan book values decreased significantly throughout the second half of FY 2020, a trend that continued into the first quarter of FY 2021. The second quarter has seen a return to growth in the loan books albeit a net negative period to period comparison as reported against 30 June 2020. 31 Dec 20 30 Jun 20 Change $'000 $'000 Gross Loan Books 151,057 159,997 -5.6% Comprising: Personal finance 103,553 101,690 1.8% Vehicle finance 47,503 58,284 -18.5% Vehicle finance customer accounts represent longer tenured loan agreements and have not recovered at the same pace as personal finance with a continued trend of early loan settlements due to customer refinancing patterns. Interest and fees earned on personal and vehicle finance has declined markedly against the previous corresponding period with the significant step change in loan book volume. The impact to EBITDA is mitigated by the significant reduction in net bad debt expense. While some of this is a volume driven dynamic in the expected credit loss provision, it is also the case that credit origination has been disciplined during this loan book recovery period reflecting our ongoing investment in data analytics, credit risk modelling and assessor training. Store trading retail gross profit margins have continued to trend strongly, evidencing discipline in inventory management. While Victoria lagged the performance trend, the balance sheet reflects the growth in inventory with a return to normal trading conditions across the balance of Australia. The pawnbroking loan book recovered significantly during the half-year despite the lag evidenced in Victoria with the extended lock down and this contributed strongly to the store operation result.