Cash Converters International : Annual Report 2019

Cash

Converters

International

Limited

Annual Report

For the year ended 30 June 2019

ABN 39 069 141 546

Contents

Corporate directory	3
Chairman's report	4
Chief Executive Officer's report	6
FY 2019 highlights	8
GEM	10
Our digital transformation	12
Operating and financial review	14
Directors' report	21
Corporate governance	39
Consolidated statement of profit or loss and other comprehensive income	40
Consolidated statement of financial position	41
Consolidated statement of changes in equity	42
Consolidated statement of cash flows	43
Notes to the financial statements	44
Directors' declaration	84
Auditor's independence declaration	85
Independent auditor's report	86
Additional securityholder information	91

These financial statements have been organised into the following six sections:

1. Basis of preparation
2. Financial performance
3. Assets and liabilities
4. Capital structure and financing costs
5. Group structure
6. Other items

Each section sets out the accounting policies applied in producing the relevant notes, along with details of any key judgements and estimates used or information required to understand the note. The purpose of this format is to provide readers with a clearer understanding of what drives the financial performance and financial position of the Group.

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Corporate directory

Directors		Auditors
Mr Stuart Grimshaw	Non-Executive Chairman	Deloitte Touche Tohmatsu
Mr Peter Cumins	Executive Deputy Chairman	Brookfield Place, Tower 2
123 St Georges Terrace
Mr Kevin Dundo	Non-Executive Director
Perth WA 6000
Mr Lachlan Given	Non-Executive Director
Australia

Company Secretary	Stock Exchange
Mr Brad Edwards	Australian Securities Exchange
		Level 40, Central Park
Registered and principal office
152-158 St Georges Terrace
Level 11, Citibank House
Perth WA 6000
37 St Georges Terrace	Australia
Perth WA 6000	ASX code: CCV
Australia
Tel:	[phone]
Web: www.cashconverters.com
Share registrar
Computershare Investor Services Pty Ltd
Level 11
172 St Georges Terrace
Perth WA 6000
Australia
Tel:	1300 850 505

Annual Report 2019 | 3

Chairman's report

For the year ended 30 June 2019

Another year has passed and your Company continues to work tirelessly to meet the cash needs of our customers. It has been both an eventful and formative period of time where one of the outstanding two class actions has been settled. We continue to work diligently to resolve the last remaining action and, while this is a distraction to management and investors, we continue to evolve our business for the benefit of our staff, shareholders and customers.

We have also been fortunate in hiring a new CEO, Brendan White, who brings with him an enthusiasm to grow the business. I have known Brendan for some time as he worked with me previously at CBA and BOQ and for us to be able to leverage him away from BOQ is testament to his belief in what is possible at Cash Converters combined with what is not possible while working with banks.

While we continue to focus on the customer and ways we can assist with their needs, it is hard not to reflect on the macro challenges of the past 12 months. The impacts of the Royal Commission into banking have been far reaching and possibly it was "the Commission we had to have". The question that arises from the Commission, from my perspective, is whether anything has changed culturally, aside from increased compliance costs.

For example, I was intrigued by the latest research piece from UBS that suggested that the effect of the Royal Commission in regards to factual accuracy in home loan applications may have been a short term aberration. The July 2019 survey found that only 63% of respondents said their home loan applications were "completely factual and accurate" - a record low in their coverage period. If we put this into context,

it can be perceived that around one third of all home loan applications are assessed on the basis of inaccurate information.

Another example of "the more things seem to change the less they do" is around the treatment of existing mortgage customers compared to new customers. New mortgage customers are typically offered superior interest rates than existing customers.

4 | Annual Report 2019

Chairman's report

For the year ended 30 June 2019

Loyalty does not appear to be rewarded and the desire to attract new mortgage customers at the expense of existing ones does seem counter-intuitive. The Commission really challenged banks on the sales targets that are allocated to staff as it led to poor behaviours and was not in the interests of customers. It would appear that sales targets are still alive and well if the behaviour of attracting new customers is more rewarding than retaining existing ones. Surely customer retention is actually the best way to attract new customers rather than just pricing.

A healthy banking system is critical to the country and the focus on long term customer retention will reduce costs over time.

At Cash Converters we are always looking at ways that we can assist all customers who have a need for cash. Increasingly we are seeing pressures on small business as the banks struggle to economically balance the returns as well as understand the importance of this sector. By economic returns I mean the way that risk weightings, and therefore capital allocated, affect the focus of banks - small business has a very high capital risk weighting when compared with housing. A recent report showed that the returns on housing, due to beneficial capital risk weightings, are in excess of 30%. When the ROEs of banks are now sitting around 10-12%, the impact of the business segments can be a drain on returns. However, for the economy, a healthy business segment that invests into the country via infrastructure and innovation is hugely beneficial. I believe more needs to be done in the supporting of small business and we, at Cash Converters, will be looking closely as to the opportunities that banks always seem to present to us.

As readers of our annual report, it will come as no surprise that it is getting more complex to understand. We have witnessed changes to accounting standards such as the new changes to provisioning calculations as well as the imminent change to the way leases are accounted for. All in all, the accounting profession seems to have done a wonderful job in confusing the end reader into not being able to understand exactly how companies are performing.

We have seen a change in management of Cash Converters and we continue to build a platform that will sustain growth for the Company. We are fortunate that there are opportunities for us to grow with the demand for cash in the economy, across many segments. While it continues to be a challenge to investors with the share price performance of the Company, your directors believe the future is a robust one should we be able to clear the noise of the outstanding class action. We have the management team, committed staff, loyal customers and the strategy to succeed.

Your board is looking forward to the year ahead and we would like to thank you for your support as well as our staff for their commitment to our customers.

Stuart Grimshaw

Chairman

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