Cash Converters Annual Report International for the year Limited ended ABN 39 069 141 546 30 June 2017 — — cashconverters.com Contents — 4 Corporate directory 6 Chairman’s report 8 Chief Executive Officer’s report 10 Highlights 12 Operating and financial review 18 Directors’ report 60 Corporate governance 61 Consolidated statement of profit or loss and other comprehensive income 62 Consolidated statement of financial position 63 Consolidated statement of changes in equity 64 Consolidated statement of cash flows 65 Notes to the financial statements 111 Directors’ declaration 112 Auditor’s independence declaration “ At the heart of any 113 Independent auditor’s report business is its people 118 Additional securityholder information and I would like to thank and applaud the team at Cash Converters, both colleagues and franchisees, for their resilience through a period of change and their ongoing commitment to success in the future.” — Mark Reid CEO 2 | Cash Converters International Limited – Annual Report 2017 Cash Converters International Limited – Annual Report 2017 | 3 Directors Registered and Principal Office Auditors Corporate Mr Stuart Grimshaw Level 18, Citibank House Deloitte Touche Tohmatsu Non-Executive Chairman 37 St Georges Terrace Brookfield Place, Tower 2 directory Perth WA 6000 123 St Georges Terrace Mr Peter Cumins Australia Perth WA 6000 — Executive Deputy Chairman Tel: +61 8 9221 9111 Australia Web: www.cashconverters.com Mr Lachlan Given Stock Exchange Non-Executive Director Share Registrar Australian Securities Exchange Mr Kevin Dundo Australia: Exchange Plaza Non-Executive Director Computershare Investor Services Pty Ltd 2 The Esplanade Level 11 Perth WA 6000 Ms Andrea Waters 172 St Georges Terrace Australia Non-Executive Director Perth WA 6000 ASX code: CCV Australia Ms Ellen Comerford Tel: 1300 850 505 Non-Executive Director Company Secretary Mr Brad Edwards 4 | Cash Converters International Limited – Annual Report 2017 Cash Converters International Limited – Annual Report 2017 | 5 Chairman’s report — Last year I wrote about the challenges This restructuring of the management and The issue of reputational risk that the banks banks in refusing to provide services to Cash 3. Continued investment in technology and encountered through that period and the Board teams has been achieved seamlessly have used against your Company is a Converters, then surely all capital markets data analytics will continue to enhance our steps being taken to return the Company to its and reflects the strong passion each member mysterious viewpoint when they will not even should be closed to these banks, given underwriting capabilities. primary strengths. The first stage was removing has for the Company. The shift in focus to a allow the Company to open transactional the significant reputational risks they now ourselves from the corporate store model in more diversified lending business that has seen accounts with them. Ironically, when reviewing represent. 4. The demand for credit from our customer the UK and reverting to a master franchise a reduced reliance on the SACC product, while the performance of the banks over the past base will not disappear. Discussion in arrangement – this means the Company only developing the additional medium term loan few years, what is evident is a focus on In addition, UBS in a recent survey introduced certain circles focusing on eliminating the has corporately owned stores in Australia. The and Green Light Auto car financing, will see driving profitability at the expense of sound the subject ‘mortgage books are worse than provision of credit to this segment without Company recorded a profit in the UK for the a more stable income position evolve as we reputational risk management. We have believed’. The basis of this survey appears to consideration of the impact on the wider first time as a result of these changes. grow these businesses. We have continued to seen media commentary around allegations revolve around a number of loan applications economy or the lives of those concerned, invest in risk management systems and people concerning: being ‘soft’ on expenditure disclosures and is ill-informed and misguided. When people The next step was to revitalise the to provide the pre-requisite under-pinning aggressive on income assumptions – the UBS who have never had an issue in obtaining management team and Board. There were governance to grow these businesses at the • Life insurance claims being rejected due to survey found that roughly 29% of the $1.7 credit, start determining how people who many layers of action that occurred: right pace, with the right amount of risk being a supposed policy of rejecting or restricting trillion of outstanding housing debt was based cannot get access to credit should behave, both understood and underwritten. legitimate claims being paid, through harsh on information that was not factual or accurate. then we have a problem. 1. Peter Cumins moved from the role of CEO and restrictive policy definitions. and Managing Director to that of Executive A number of our customers remain unable to Notwithstanding the apparent tightening in We believe that the customers we serve are Deputy Chairman, focusing on the growth obtain credit from banks – which has been • Financial advice being provided to credit standards that should make access an integral part of the fabric of this wonderful of the international franchise business. a benefit to us and we thank the banks for individuals on the investment of their life to credit harder, the respondents to the UBS nation and we are proud to serve them. this. However, while we continue to serve this savings that benefited the financial return mortgage survey found that applicants were We have a terrific group of employees who 2. Mark Reid was appointed as Chief segment, the banks continue to determine to the adviser or bank rather than the finding it easier to get credit than before. As are passionate about the Company and its Executive of the Company, previously Chief that Cash Converters represent ‘reputational individual who had entrusted their life or the apparent credit tightening occurred, the customers and this will continue to lay the Executive Australia. risk’ to their businesses, notwithstanding retirement savings to these institutions. banks moved interest rates up. The foregoing foundation for future sustainable growth. UBS survey would suggest that an ability to 3. There were numerous management we (and the sector) are subject to a high • Remuneration targets at branch levels that increase profits, while not materially altering As always, I thank our shareholders for their changes including the retirement of the level of compliance scrutiny and regulatory were based on objectives inconsistent credit standards, was a determined outcome. support and patience, and believe we are CFO at the time, Ralph Groom, who was oversight. It is somewhat ironic that the banks, with the approach of ‘what is best for the The winner of this is the banks and the loser positioned to benefit from changes made to replaced by Martyn Jenkins, previously and this is all banks, can maintain a view customer’. the customer! We continue to see this trend our operating model over the ensuing years. CEO of the UK operations. of what industries are most appropriate to in approaches by the banks in trading off the economy. When the commentators talk • The use of benchmarks in establishing profitability for consumer well-being. For these 4. We have a relatively new management about the ‘quadropoly’ of banking, we can repayment capacity of borrowers when a same institutions to determine your Company team in place under Mark Reid’s guidance see it most evident in the consistent herd-like more focused investigation of expenditure is not worthy of their support, is difficult to and each executive comes with unique behaviour exhibited in approaches to issues may have been more appropriate. and broad experience which will benefit the such as these. Our customers make up a comprehend. Company over the coming years. significant part of the Australian economy • ASIC’s Federal Court case which alleges There were four key principles I mentioned last Stuart Grimshaw and need immediate access to cash for the rigging of the BBSW interest rates in 5. We also have rejuvenated the Board and year and they continue to hold: Chairman emergencies such as car problems, medical order to drive profits which may effectively dramatically increased the diversity with the emergencies or utility bills. We are able to harm small businesses and institutions 1. We respect our customers and without appointment of Andrea Waters (who Chairs provide comfort to our customers in a very whose lending is based off these rates. us they have to borrow from friends and the Audit and Risk Committee) and Ellie short time as opposed to the banks who take families or worse, the bottom of the shadow Comerford (who chairs the Remuneration • AUSTRAC’s Federal Court case against a long time and inevitably say ”no”. We are finance industry. and Nomination Committee). a bank, alleging that they failed in their “We are there there for our customers, consistently. compliance and enabled transfers of large 2. We are transparent on pricing which is for our customers, 6. At last year’s AGM, we acknowledged sums to suspected terrorist organisations governed by a high degree of regulatory the long service of Reginald Webb who consistently.” and drug cartels. oversight and imposed legislative has been outstanding over many years in conditions. Contrast this with recent supporting the Company and assisting it The breadth of these issues is breathtaking — comments by the RBA in its submission to through some challenging times. and continues to drive consumer apathy the Productivity Commission, stating that towards these large institutions. If we were competition in banking is being restricted to use the same underlying reasoning as the by bundling of products, particularly with cross-subsidisation “obscuring the pricing of individual products”.