Australian Finance Group Limited
ABN 11 066 385 822
Annual Report
30 June 2014
Contents
Directors’ Report
Statement of Financial Position
Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Audit Report
Auditor’s Independence Declaration
Page
1
5
6
7
8
9
51
52
54
Australian Finance Group Limited
Directors’ Report
For the year ended 30 June 2014
The Directors present their report together with the financial report on the consolidated entity consisting of Australian Finance
Group Limited (‘the Company’), and its controlled entities (‘the Group’), for the financial year ended 30 June 2014 and the
auditor’s report thereon.
Directors and Company Secretary
The Directors and Company Secretary of the Company at any time during or since the end of the financial year are:
Tony Gill
Chairman
Non-Executive Director
Age: 61
Mr Gill is based in Sydney and has relevant experience that spans two
decades with expertise in banking, mortgage origination and securitisation.
Mr Gill was with Macquarie Bank Ltd for 16 years, most recently serving as
the Head of the Banking and Securitisation Group.
Brett McKeon
Managing Director
Age: 50
Mr McKeon is responsible for the Group’s strategy and is also responsible
for the AFG Home Loans and Securitisation lines of business.
Malcolm Watkins
Executive Director
Kevin Matthews
Executive Director
Age: 50
Age: 56
James Minto
Non-Executive Director
Age: 62
John Atkins
Non-Executive Director
Age: 59
Mr Watkins has responsibility for the Group’s technology development
programmes, electronic delivery systems and marketing operations.
Mr Matthews is responsible for negotiating and managing relationships with
financial institutions, product development and the Commercial line of
business.
Mr Minto is a Chartered Accountant who joined the board in August 2004.
He is currently the Managing Director of TAL Life Ltd having served as the
CEO for 10 years. He has also been Managing Director/CEO of other
TOWER companies since 1988. Resigned on 28 November 2013.
Mr Atkins is the former head of the Perth office of Freehills and a former
Chairman Western Australia – ANZ Banking Group Ltd.
Mr Atkins was a senior commercial lawyer who has acted for major banks
and other financial institutions together with property developers and other
commercial enterprises and is an experienced public company director.
Company Secretary
Lisa Bevan
Directors Meetings
Age: 42
Ms Bevan is a Chartered Accountant with over 15 years experience.
The number of directors’ meetings and number of meetings attended by each of the directors of the Company during the
financial year are:
Director
Board Meetings
A
B
Tony Gill
Brett McKeon
Malcolm Watkins
Kevin Matthews
James Minto
John Atkins
A – Number of meetings attended
B – Number of meetings held during the time the director held office during the year
9
11
11
8
6
10
12
12
12
12
6
12
Page 1
Australian Finance Group Limited
Directors’ Report (continued)
For the year ended 30 June 2014
Principal Activities
The Group’s principal activities in the course of the financial year continued to be mortgage origination and management. The
principal activities during the year of entities within the Group were:
• mortgage origination and management of home loans;
•
securitisation of mortgages through special purpose entities used to issue residential mortgage backed securities;
and
property development.
•
Trading Results
The Group’s net profit after income tax for the year ended 30 June 2014 was $17,869 thousand (2013: $$15,259 thousand);
after an income tax expense of $8,095 thousand (2013: $7,365 thousand).
Operating Results for the Year
The 2014 financial year has seen an unexpected, yet welcomed increase in competition within the Australian mortgage market.
This combined with a sustained low interest rate environment has meant that it has never been a better time to be a mortgage
customer. As a consequence our settlement volumes for the year jumped by over 25% on the volumes achieved in the prior
financial year. We have also experienced a solid growth in the volume of our Commercial business and this saw our trail book
exceed $4b for the first time during the year. We have witnessed lenders’ appetite for commercial business improving during
the year and we have set in place plans to capitalise on this should the appetite continue to expand.
The settlement volumes achieved by our core residential mortgage business were also fuelled by a successful 36 month broker
recruitment period. Those brokers recruited to AFG over the past three years have continued to grow their own businesses that
in turn have grown our own. Whilst the Directors are pleased with the overall performance of the Group for the 2014 financial
year they do note that the unprecedented growth in residential mortgage activity may ultimately impact run off rates with respect
to our trail book accounting adjustment. We would expect these run off rates to increase from the below historical average
levels as consumers continue to look to take advantage of the competitive landscape.
The inverse of the intense level of competition in the market place, has meant that our own AFG Home Loans business and in
turn AFG Securities business have not been able to compete as effectively with some of the products being offered in the
market place, particularly by the Majors. Specific reference here is made to our inability to provide a compelling fixed rate
offer. In an environment of low interest rates, consumers are looking to lock in a rate for the future and our inability to compete
– like a number of our competitors in the market - has shrunk the relative size of our market. Having said this, the AFG Home
Loans and AFG Securities businesses remain an important plank in the future growth of the Group and it was with a significant
level of satisfaction that during the financial year the Group was able to execute two new term transactions, with pricing and
investor participation improving in each transaction. The success of these transactions further validated the business model
that was first demonstrated during the 2013 financial year when we completed our inaugural term transaction. We also
welcomed ANZ as an additional warehouse provider to our securitisation program during the year thus ensuring the business
was no longer reliant on only one source of warehouse funding.
The 2014 financial year also saw further positive steps with our Property Business. We were able to successfully close out our
Lillydale development located in the foothills of Perth, and made significant progress on our Richmond Quarter development in
East Fremantle. Construction and debt funding via CBA of this development has commenced and as at the date of this report,
only 7 out the 119 apartments and 11 of the commercial lots remain unsold. We also commenced a 22 apartment development
located in Success which is in the southern corridor of Perth. All 22 apartments were sold in a very short space of time and on
the back of this, construction via funding from a St George facility has commenced.
The warehouse facility, which was due to expire on 6 September 2014, has been extended after the balance sheet date to 14
August 2015 in substantially the same form as it currently exists..
The security for advances under these facilities is a combination of fixed and floating charges over all assets of the special
purpose entity, AFG 2010-1 Trust. If the warehouse facility is not renewed or should there be a default by the trustee under the
existing terms and conditions, the warehouse facility funder will not have a right of recourse against the remainder of the Group.
Should the warehouse facility not be renewed then the maximum exposure to the group would be the loss of future income
streams from excess spread, being the difference between the group's mortgage rate and the underlying cost of funds.
The Directors are satisfied that the Group’s ability to continue as a going concern will not be affected.
Page 2
Australian Finance Group Limited
Directors’ Report (continued)
For the year ended 30 June 2014
Financial results for the year
The Group’s cash and cash equivalents as at 30 June 2014 amounted to $76,022 thousand, which represents an increase of
17% on 2013.
Australian Accounting Standards require us to reflect the fair value of our residential trail book, which is influenced amongst
other things by the runoff and discount rates that are applied to this valuation. The change in assumptions for 2014 has
increased the earnings beyond the underlying earnings generated by the Group. Excluding the non cash entries to recognise the
net present value of the future trailing commission receivable and payable, the underlying profit before tax is $23,619 thousand
(2013: $20,046). The assessment of the trail loan book and the associated assumptions was undertaken by independent
actuaries.
The following table reconciles the underlying earnings to the reported profit before tax for the period in accordance with
Australian Accounting Standards:
2014
2013
Total Revenue
333,339
61,412
394,751
Profit
before tax
Total Revenue
Profit
before tax
23,619
2,345
25,964
282,770
20,046
49,454
332,224
2,577
22,624
Underlying result from operations
Change in the net present value of trailing
Commission receivable and payable
Total result from operations
Likely Developments and Expected Results
The Group will continue to focus on its core business whilst also looking to further develop its securitisation and mortgage
management business lines with a view to maximizing their long term benefits. Additionally, the Group will look to managing its
growing property development interests to maximize returns to the shareholders, and to keep a healthy pipeline of projects in
place to maintain a stable longer term earnings contribution from this division.
Further information about likely developments in the operations and the expected results of those operations in future financial
years have not been included in this report because disclosure of the information would, in the opinion of the Directors, be likely
to result in unreasonable prejudice to the Group.
Changes in State Of Affairs
Total equity increased to $85,470 thousand from $79,091 thousand, an increase of 8%. The movement was largely the result of
increased profits.
During the year the Group incorporated AFG Property Pty Ltd and AFG Property Investment No.1 Pty Ltd to raise funds through
the issue of redeemable preference shares to sophisticated investors. The funds were subsequently used to subscribe for
redeemable preference shares in Harold’s Developments Pty Ltd, which is undertaking a residential property development
project. The investment amount and the accrued interest are secured by a first mortgage over the land of the project.
There were no other significant changes in the state of affairs of the Group, other than as outlined above.
Dividends
Total dividends paid or declared during the financial year ended 30 June 2014 were $11.5 million (2013: $12 million), which
included:
A final fully franked ordinary dividend of $3 million (3.21 cents per fully paid share) was declared out of profits of the
Company for the year ended 30 June 2013 and paid in July 2013.
An interim fully franked ordinary dividend of $4.5 million (4.82 cents per fully paid share) was declared out of profits of
the Company for 2014 and paid in November 2013.
An interim fully franked ordinary dividend of $4 million (4.29 cents per fully paid share) was declared out of profits of the
Company for 2014 and paid in May 2014.
Subsequent Events
On 14 August 2014, the Group secured an extension to the term of the residential warehouse facility that was due to expire on 6
September 2014. The funding continues to be provided through the issue of two classes of secured, limited and floating rate
notes, with the senior notes being issued to the lender and the subordination notes to Australian Finance Group Limited. The
maturity date has been reset to 14 August 2015 and the cost of funds has been reviewed favourably to the end to term.
Page 3
Australian Finance Group Limited
Statement of Financial Position
As at 30 June 2014
In thousands of AUD
Assets
Cash and cash equivalents
Other financial assets
Trade and other receivables
Loans and advances
Investments in equity-accounted investees
Inventories
Property, plant and equipment
Intangible assets
Total assets
Liabilities
Interest-bearing liabilities
Trade and other payables
Employee benefits
Current tax payable
Deferred income
Other financial liabilities
Deferred tax liability
Provisions
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity attributable to equity holders of the
Company
Non-controlling interest
Total equity
Note
2014
2013
13
17
14
15
18
16
20
21
23
22
24
19
27
28
19
26
29
29
76,022
196
515,741
1,025,191
2,674
24,442
3,394
832
65,145
51
453,956
804,832
3,224
9,515
3,954
752
1,648,492
1,341,429
1,034,685
502,301
2,972
211
4,299
4,690
13,479
385
804,237
436,899
3,137
769
3,955
-
12,398
943
1,563,022
1,262,338
85,470
79,091
11,434
(61)
74,093
11,434
(71)
67,726
85,466
79,089
4
2
85,470
79,091
The Statement of Financial Position should be read in conjunction with the Notes to the financial statements.
Page 5
Australian Finance Group Limited
Statement of Comprehensive Income
For the year ended 30 June 2014
In thousands of AUD
Continuing Operations
Commission and other income
Securitisation interest income
Securitisation interest expense
Other cost of sales
Gross profit
Other income
Administration expenses
Other expenses
Results from operating activities
Financial income
Financial expenses
Net finance income
Share of profit / (loss) of equity-accounted investees
(net of tax)
Profit before tax from continuing operations
Income tax expense
Profit from continuing operations
Note
6
7
8
11
11
18
12
Profit for the year
Other comprehensive income
Net gain change in fair value of available-for-sale
financial assets
Income tax on other comprehensive income
Other comprehensive income for the year, net of
income tax
2014
2013
394,751
46,814
(37,411)
(355,536)
48,618
10,870
(2,958)
(34,164)
22,366
3,669
(327)
3,342
332,224
27,118
(23,952)
(290,045)
45,345
9,878
(1,863)
(32,567)
20,793
2,722
(170)
2,552
256
25,964
(8,095)
17,869
(721)
22,624
(7,365)
15,259
17,869
15,259
15
(5)
10
-
-
-
Total comprehensive income for the year
17,879
15,259
Profit attributable to:
Owners of the Company
Non-controlling interests
Profit for the year
Total comprehensive income for the year
attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive income for the year
17,877
2
17,879
15,255
4
15,259
17,877
2
17,879
15,255
4
15,259
The Statement of Comprehensive Income should be read in conjunction with the Notes to the financial statements.
Page 6
Australian Finance Group Limited
Statement of Changes in Equity
For the year ended 30 June 2014
In thousands of AUD
Balance at 1 July 2012
Total comprehensive income for the year
Profit
Other comprehensive income
Total comprehensive income for the period
Transactions with owners, recorded directly in
equity
Contributions by and distributions to owners
Dividends to equity holders
Total contributions by and distributions to owners
Total transactions with owners
Balance at 30 June 2013
Balance at 1 July 2013
Total comprehensive income for the year
Profit /(loss)
Other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded directly in
equity
Contributions by and distributions to owners
Dividends to equity holders
Share-based payment transactions
Total contributions by and distributions to owners
Total transactions with owners
Balance at 30 June 2014
Share
capital
Foreign currency
Fair value
translation reserve
reserve
Retained
earnings
Total
Non-
Total equity
controlling
interest
11,434
(15)
(56)
64,467
75,830
(2)
75,828
-
-
-
-
-
-
11,434
11,434
-
-
-
-
-
-
-
-
-
-
-
-
(15)
(15)
-
-
-
-
-
-
-
-
-
-
-
-
(56)
(56)
-
10
10
-
-
-
11,434
(15)
(46)
15,259
-
15,259
15,259
-
15,259
(12,000)
(12,000)
(12,000)
67,726
(12,000)
(12,000)
(12,000)
79,089
67,726
79,089
17,867
-
17,867
17,867
10
17,877
(11,500)
(11,500)
(11,500)
(11,500)
74,093
(11,500)
(11,500)
85,466
4
-
4
-
-
-
2
2
2
-
2
-
-
-
4
15,263
-
15,263
(12,000)
(12,000)
(12,000)
79,091
79,091
17,869
10
17,879
(11,500)
(11,500)
(11,500)
85,470
Page 7
The Statement of Changes in Equity should be read in conjunction with the Notes to the financial statements.
Australian Finance Group Limited
Statement of Cash Flows
For the year ended 30 June 2014
In thousands of AUD
Note
2014
2013
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
(Advances)/repayments of customer borrowings
(Repayments of)/proceeds from warehouse facility
(Repayments to)/proceeds from bondholders
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from/(Purchase of) investments
Interest received
Interest paid
Acquisition of property, plant and equipment
Investment in intangible assets
Dividend received from equity-accounted investees
Proceeds from / (Acquisition) of equity-accounted
investees
Increase / (Decrease) in loans from funders
Proceeds/(Acquisition of) other investments
(Purchase of)/proceeds from preference shares
Decrease/(Increase) in other loans and advances
Net cash used in investing activities
Cash flows used in financing activities
Proceeds from borrowings
Proceeds from issuance of preference shares
Dividends paid to equity holders of the parent
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 July
Cash and cash equivalents at 30 June
13(b)
18
29
13(a)
345,220
(338,454)
(167,662)
(278,564)
464,464
(7,576)
17,428
293,774
(286,115)
(512,280)
263,129
256,199
(9,012)
5,695
(128)
2,114
(123)
(379)
(286)
340
465
(764)
-
(4500)
(622)
(3,883)
4,932
3,900
(11,500)
(2,668)
10,877
65,145
76,022
5,000
2,863
(155)
(3,598)
(478)
-
(750)
35
303
(6,000)
80
(2,700)
3,273
-
(12,000)
(8,727)
(5,732)
70,877
65,145
The Statement of Cash Flows should be read in conjunction with the Notes to the financial statements.
Page 8
Australian Finance Group Limited
Notes to the Financial Statements
Contents
1.
2.
3.
4.
5.
6.
Reporting entity
Basis of preparation
Significant accounting policies
Determination of fair values
Financial risk management
Revenue
7.
Other income
8.
9.
10.
11.
12.
13.
14
15.
16.
Other expenses
Employee costs
Auditors’ remuneration
Finance income and expenses
Income tax expense
Cash and cash equivalents
Trade and other receivables
Loans and advances
Inventories
17. Other financial assets
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
Investments in equity-accounted investees
Tax assets and liabilities
Property, plant and equipment
Intangible assets
Trade and other payables
Interest-bearing liabilities
Employee benefits
Share based payments
Provisions
Deferred income
28. Other financial liabilities
29.
30.
Capital and reserves
Financial instruments
31. Operating leases
32. Group entities
33.
34.
35.
36.
37.
Parent entity
Capital and other commitments
Contingencies
Related parties
Subsequent events
Page 9
Australian Finance Group Limited
Notes to the Financial Statements
1.
Reporting entity
The consolidated financial statements for the financial year ended 30 June 2014 comprise of Australian Finance Group
Limited (the ‘Company’), which is a for profit entity and a company domiciled in Australia and its subsidiaries (together
referred to as the ‘Group’) and the Group’s interest in associates and jointly controlled entities. The Group’s principal
activities in the course of the financial year were mortgage origination and management, and property development. The
Company’s principal place of business is 100 Havelock Street, West Perth, Western Australia.
2.
Basis of preparation
(a)
Statement of compliance
The financial report is a general purpose financial report which has been prepared in accordance with the Corporation
Act 2001 and the Australian Accounting Standards (‘AASBs’) (including Australian Interpretations) as issued by the
Australian Accounting Standards Board (‘AASB’). The consolidated financial report of the Group also complies with the
International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB).
The consolidated financial statements were authorised for issue by the Board of Directors on 30 October, 2014.
(b) Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis except for the following material
items:
Receivables and payables relating to trailing commission are initially measured at fair value and subsequently at
amortised cost;
Financial instruments at fair value through profit or loss are measured at fair value;
Available-for-sale financial assets are measured at fair value except for equity instruments that do not have a
quoted price in an active market and whose fair value cannot be reliably measured.
(c)
Functional and presentation currency
These consolidated financial statements are presented in Australian dollars (“AUD”).
The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class
Order, all financial information presented in Australian dollars has been rounded to the nearest thousand dollars unless
otherwise stated.
(d) Use of estimates and judgements
The preparation of financial statements in conformity with AASBs requires management to make judgements, estimates
and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities,
income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised and in any future periods affected.
Information about critical judgements in applying accounting policies that have the most significant effect on the amounts
recognised in the financial statements is included in the following notes:
Notes 14 and 22 - Net present value of future trailing commissions: recognition of future trailing commissions
receivable and payable.
Information about assumptions and estimation that have a significant risk of resulting in a material adjustment within the
next financial years are included in the following:
Note 4 - Determination of fair values: key assumptions used in forecasting and discounting future trailing
commissions.
Note 25 - Measurement of share-based payments
Note 26 - Provisions
Note 30 - Valuation of financial instruments
Page 10
Australian Finance Group Limited
Notes to the Financial Statements
2.
Basis of preparation (continued)
(d) Use of estimates and judgements (continued)
Taxation
The Group’s accounting for taxation require management’s judgment in assessing whether deferred tax assets and
certain deferred tax liabilities are recognised on the Statement of Financial Position. Deferred tax assets, including
those arising from un-recouped tax losses, capital losses and temporary differences, are recognised only where it is
considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future
taxable profits.
Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows.
These depend on estimates of future income, operating costs, capital expenditure, dividends and other capital
management transactions. Judgments and assumptions are also required about the application of income tax
legislation. These judgments and assumptions are subject to risk uncertainty, hence there is a possibility that
changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred
tax liabilities recognised on the Statement of Financial Position and the amount of other tax losses and temporary
differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred
tax assets and liabilities may require adjustment, resulting in corresponding credit or charge to charge to the
Statement of Comprehensive Income.
Long service leave provision
The liability for long service leave is recognised and measured at the present value of the estimated future cash
flows to be made in respect of all employees at balance date. In determining the present value of the liability, attrition
rates and pay increases through inflation have been taken into account.
(e) Changes in accounting policies and disclosures
The accounting policies adopted are consistent with those of the previous financial year except as follows:
(i) New and amended Australian Accounting Standards and AASB Interpretations
The Group has adopted the following new and amended Australian Accounting Standards and AASB interpretations as
of 1 July 2014:
•
AASB 10 Consolidated Financial Statements
• AASB 11 Joint Arrangements
• AASB 13 Fair Value Measurement
AASB 119 Employee Benefits:
•
AASB 7 Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities –
•
Amendments to AASB 7
The adoption of the standards or interpretations is described below:
AASB 119 Employee Benefits (Revised 2011)
In the current year the Group adopted AASB 119 (Revised 2011), which revised the definition of short-term employee
benefits to benefits that are expected to be settled wholly within 12 months after the end of the annual reporting period in
which the employees render the related service. As a result of the change, the annual leave liability for certain of the
Group’s employees is now considered other long-term employee benefit, when previously it was a short term benefit. As
the Group does not have an unconditional right to defer settlement for at least twelve months after the reporting period,
the obligation for employees continues to be presented as a current liability under AASB 101 Presentation of Financial
Statements. The Group has applied the new policy retrospectively; however the impact from the change in the policy had
no material impact on the reported results of 2013, and accordingly the comparative figures have not been restated.
The Group applied, for the first time, other standards and amendments that require restatement of previous financial
statements. These include AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 13 Fair
Value Measurement and amendments to AASB 101 Presentation of Financial Statements. The amendments had no
impact on the annual financial statements of the Group.
Page 11
Australian Finance Group Limited
Notes to the Financial Statements
2.
Basis of preparation (continued)
(ii) Accounting Standards and Interpretations issued but not yet effective
The following standards, amendments to standards and interpretations have been identified as those which may impact
the entity in the period of initial application. They are available for early adoption at 30 June 2014, but have not been
applied in preparing this financial report:
AASB 9 Financial Instruments, which becomes mandatory for the Group’s 30 June 2015 financial statements. It
includes requirements for the classification and measurement of financial assets. The Group does not plan to
adopt this standard early and the extent of the impact has not been determined.
AASB 1031 Materiality. The revised AASB 1031 is an interim standard that cross-references to other Standards
and the Framework (issued December 2013) that contain guidance on materiality. AASB 1031 will be withdrawn
when references to AASB 1031 in all Standards and Interpretations have been removed.
AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial
Liabilities, which becomes mandatory for the Group’s 30 June 2015 financial statements. AASB 2012-3 adds
application guidance to AASB 132 Financial Instruments: Presentation to address inconsistencies identified in
applying some of the offsetting criteria of AASB 132, including clarifying the meaning of "currently has a legally
enforceable right of set-off" and that some gross settlement systems may be considered equivalent to net
settlement. The extent of the impact has not been determined.
AASB 2013-3 Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets, which
becomes mandatory for the Group’s 30 June 2015 financial statements. AASB 2013-3 amends the disclosure
requirements in AASB 136 Impairment of Assets. The amendments include the requirement to disclose
additional information about the fair value measurement when the recoverable amount of impaired assets is
based on fair value less costs of disposal.
AASB 2013-5 Amendments to Australian Accounting Standards – Investment Entities (AASB 1, AASB 3, AASB
7, AASB 10, AASB 12, AASB 107, AASB 112, AASB 124, AASB 127, AASB 132, AASB 134 & AASB 139).
These amendments become mandatory for the Group’s 30 June 2015 financial statements. The amendments
define an investment entity and require that, with limited exceptions, an investment entity does not consolidate
its subsidiaries or apply AASB 3 Business Combinations when it obtains control of another entity. These
amendments require an investment entity to measure unconsolidated subsidiaries at fair value through profit or
loss in its consolidated and separate financial statements. These amendments also introduce new disclosure
requirements for investment entities to AASB 12 and AASB 127.
AASB 2013-7 Amendments to AASB 1038 arising from AASB 10 in relation to Consolidation and Interests of
Policyholders [AASB 1038], with an application date for the Group of 30 June 2015. AASB 2013-7 removes the
specific requirements in relation to consolidation from AASB 1038, which leaves AASB 10 as the sole source for
consolidation requirements applicable to life insurer entities.
AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and
Financial Instruments. The Standard contains three main parts and makes amendments to a number of
Standards and Interpretations. Part A of AASB 2013-9 makes consequential amendments arising from the
issuance of AASB CF 2013-1. Part B makes amendments to particular Australian Accounting Standards to
delete references to AASB 1031 and also makes minor editorial amendments to various other standards. Part C
makes amendments to a number of Australian Accounting Standards, including incorporating Chapter 6 Hedge
Accounting into AASB 9 Financial Instruments. Application dates for the Group are: Part A 30 June 2014, Part B
30 June 15 and Part C 30 June 16.
Page 12
Australian Finance Group Limited
Notes to the Financial Statements
3.
Significant accounting policies
Except as expressly described in the notes to the financial statements, 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 all Group entities.
(a)
Basis of consolidation
(i)
Subsidiaries
Subsidiaries are entities controlled by the Group. The financial results of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases.
The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by
the Group.
Non-controlling interests are allocated their share of net profit after tax in the Statement of Comprehensive income and
are presented within equity in the Statement of Financial Position, separately from the equity of the owners of the Parent.
Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if that results in a deficit
balance.
(ii)
Special purpose entities
Special purpose entities are those entities over which the group has no ownership interest but in effect the substance of
the relationship is such that the Group controls the entity so as to obtain the majority of benefits from its operation. The
Group has established special purpose entities to support its Securitisation and Residential Mortgage Backed Securities
issues (RMBS) programmes.
Securitisation programme
The Group has established a special purpose entity (‘SPE’), AFG 2010-1 Trust, and its Series to conduct securitisation
activities on behalf and according to the specific business needs of AFG Securities Pty Ltd, a wholly owned subsidiary of
the Company. The SPE is consolidated based on an evaluation of the substance of its relationship with the Group, and
the SPE’s risks and rewards. The Group has control over the SPE.
The SPE was established under terms that impose strict limitations on the decision-making powers of the SPE’s
management that result in the Group receiving the majority of the benefits related to the SPE’s operations and net
assets, being exposed to risks incidental to the SPE’s activities, and retaining the majority of the residual or ownership
risks related to the SPE or its assets.
RMBS programme
The special purpose entities (SPE-RMBS) AFG 2013-1, AFG 2013-2 and AFG 2014-1 trusts were established to hold
securitised assets and issue Residential Mortgage Backed Securities (RMBS) to support the specific funding needs of
the Group’s Securitisation Programme. The SPE-RMBS meet the criteria of being controlled entities under SIC12 and
AASB 127 – Consolidated and Separate Financial Statements.
The elements indicating control include, but not limited to, the below:
the Group has the majority of the residual interest in the SPE-RMBS
fees received by the Group from the SPE-RMBS vary on the performance, or non performance of the SPE-
RMBS assets
the Group has the ability to direct decision making accompanied by the objective of obtaining benefits from the
SPE-RMBS' activities.
The Group continues to retain control over the financial assets, for which some but not substantially all the risks and
rewards have been transferred to the bond holders. The securitised assets and the corresponding liabilities are recorded
in the Statement of Financial Position and the interest earned and paid recognised in the Statement of Comprehensive
Income.
Page 13
Australian Finance Group Limited
Notes to the Financial Statements
3.
Significant accounting policies (continued)
(iii)
Investments in associates (equity accounted investee)
Associates are those entities in which the Group has significant influence, but not control, over the financial and
operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the
voting power of another entity.
Investments in associates are accounted for using the equity method (equity accounted investee) and are initially
recognised at cost. The cost of the investment includes transaction costs.
The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of
the investee, after adjustments to align the accounting policies with those of the Group, from the date that significant
influence commences until the date that significant influence ceases.
When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that
interest, including any long-term investments, is reduced to zero, and the recognition of further losses is discontinued
except to the extent that the Group has an obligation or has made payments on behalf of the investee.
Jointly controlled operations
A jointly controlled operation is a joint venture carried on by each venturer using its own assets in pursuit of the joint
operations. The consolidated financial statements include the assets that the Group controls and the liabilities that it
incurs in which there is joint control, in the course of pursuing the joint operation, and the expenses that the Group incurs
and its share of the income that it earns from the joint operation.
Non-controlling interests
Non-controlling interest is determined as the non-controlling interest’s proportion of the fair value of the recognised
identifiable assets, liabilities and contingent liabilities at the date of the original acquisition. Post acquisition of non-
controlling interest in the identifiable assets and liabilities of a subsidiary comprises the non controlling interest’s share of
movements in equity since the date of the original controlling acquisition, after eliminating intragroup transactions.
(iv)
Transactions eliminated on consolidation
Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in
preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted
investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses
are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
(b)
(i)
Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated to the functional currency of the Group at exchange rates at the date of
the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated
to the functional currency at the foreign exchange rate at that date. The foreign exchange 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 the foreign currency translated at the exchange rate
at the end of the period.
(ii)
Foreign operations
The assets and liabilities of foreign operations are translated to Australian dollars at exchange rates at the reporting date.
The income and expenses of foreign operations are translated to Australian dollars at the average exchange rates of the
relevant period.
Foreign currency differences are recognised in other comprehensive income. Since 1 July 2004, the Group’s date of
transition to AASBs, such differences have been recognised in the foreign currency translation reserve (“FCTR”) in
equity.
Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the
settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment
in a foreign operation and are recognised directly in equity in the FCTR.
Page 14
Australian Finance Group Limited
Notes to the Financial Statements
3.
(c)
(i)
Significant accounting policies (continued)
Financial instruments
Non-derivative financial assets
Initial recognition and measurement
Financial assets within the scope of AASB 139 are classified as financial assets at fair value through profit or loss, loans
and receivables, held to maturity investments, or available–for-sale financial assets. The Group determines the
classification of its financials assets at initial recognition. All financial assets are recognised initially at fair value plus
transaction costs, except in the case of financial assets recorded at fair value through profit or loss.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as described below:
Financial assets at fair value through profit or loss
The Group’s investments in equity securities are classified as financial assets at fair value through profit or loss. An
instrument is classified as at fair value through profit or loss if it is held for trading or is designated as such upon initial
recognition. Financial instruments are designated at fair value through profit or loss if the Group manages such
instruments and makes purchase and sale decisions based on their fair value in accordance with the Group’s risk
management and investment strategy. Upon initial recognition, attributable transaction costs are recognised in profit or
loss when incurred. Financial instruments at fair value through profit or loss are subsequently measured at fair value, and
changes therein are recognised in profit or loss.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market.
Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest
method, less impairment losses.
Loans and receivables comprise trade and other receivables, redeemable preference shares and loans and advances
which relate mainly to residential mortgages issued under the securitisation programme.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale and that
are not classified in any of the previous categories. Subsequent to initial recognition, available-for-sale financial assets
are measured at fair value and changes therein, other than impairment losses (see note 3(c)(ii)), are recognised in other
comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the
cumulative gain or loss is transferred to profit or loss. The investments have no quoted prices in an active market and
there is insufficient information available to determine fair value. As a result of this cost was deemed to represent the
best estimate of fair value.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is
derecognised when:
The rights to receive cash flows from the asset have expired
The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay
the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and
either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has
neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of
the asset
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither
transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the
asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also
recognises an associate liability. The transferred asset and the associated liability are measured on a basis that reflects
the rights and obligations that the Group has retained.
The Group utilises SPE-RMBS to hold securitised assets (financial assets) and issue residential mortgage asset backed
securities to investors. After the securitisation transaction, the Group continues to retain control of the financial assets for
which some but not substantially all the risks and rewards have been transferred to the investors. Consequently, the
securitised assets do not meet the requirements of AASB 139 - Financial Instruments: Recognition and Measurement in
respect of the derecognition of financial instruments. The securitised assets have been recorded in the Statement of
Financial Position with the related interest recognised through the consolidated Statement of Comprehensive Income.
Page 15
Australian Finance Group Limited
Notes to the Financial Statements
3.
(c)
(ii)
Significant accounting policies (continued)
Financial instruments (continued)
Impairment of financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether
there is any objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss
event has occurred after the initial recognition of the asset, that has a negative effect on the estimated future cash flows
of that asset.
Objective evidence that financial assets are impaired can include failure to meet repayment of principal and interest in
accordance with the terms of the governing agreement (loans and advances within the SPE), indications that a debtor or
issuer will enter bankruptcy, disappearance of an active market for a security, or wider economic and financial market
indicators pertaining to a particular industry sector or local economy. In addition, for an investment in an equity security, a
significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
Significant financial assets and loans and advances within the special purpose entities are individually assessed and
regularly tested for impairment. The remaining financial assets are assessed collectively in groups that share similar
credit risk characteristics. In assessing collective impairment the Group uses historical trends of the probability of default,
timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current
economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by
historical trends.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its
carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest
rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. For the SPE
loans and advances the present value of estimated cash flows recoverable is determined after taking into account net
realisable value from sale of collateral held. When a subsequent event causes the amount of impairment loss to
decrease, the decrease in impairment loss is reversed through profit or loss.
An impairment loss in respect of an available-for-sale financial asset is recognised by transferring the cumulative loss
that has been recognised previously in equity to profit or loss. When a subsequent event causes the fair value of an
impaired available-for-sale asset to increase and the increase can be related objectively to an event occurring after the
impairment loss was recognised in profit or loss, then the impairment loss is reversed , with the amount of the reversal
recognised in profit or loss. However, any subsequent recovery in the fair value is recognised in other comprehensive
income.
(iii) Non-Derivative financial liabilities
Initial recognition and measurement
Financial liabilities within the scope of AASB 139 are classified as financial liabilities at fair value through profit or loss, or
loans and borrowings. The Group determines the classification of its financial liabilities at initial recognition.
All financial liabilities are recognised initially at fair value, in the case of loans and borrowings, net of directly attributable
transactions
The Group initially recognises financial liabilities (including liabilities designated at fair value through profit or loss) on the
trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises
a financial liability when its contractual obligations are discharged, cancelled or expired.
The Group’s non-derivative financial liabilities include: interest-bearing liabilities and trade and other payables.
Subsequent measurement
Subsequent to initial recognition, interest – bearing liabilities are measured at amortised cost using the effective interest
rate method.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an
existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the
original liability and the recognition of a new liability. The difference in respect of the carrying amounts is recognised in
the income statement.
Page 16
Australian Finance Group Limited
Notes to the Financial Statements
3.
(c)
Significant accounting policies (continued)
Financial instruments (continued)
(iv) Fair value of financial instruments
The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference
to quoted market prices (bid price for long positions and ask price for short positions), without any deduction for
transaction costs.
Refer to accounting policy 4 for the financial instruments not traded in an active market fair value determination.
(v)
Share capital
Ordinary shares
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 at the time of issuance, net of any related income tax benefit.
Repurchase of share capital
When share capital recognised as equity is repurchased, the amount of consideration paid, including directly attributable
costs, is recognised as a reduction in equity.
Dividends
Dividends are recognised as a liability in the period in which they are declared.
(d)
Cash and short term-deposits
Cash and short-term deposits in the Statement of Financial Position comprise cash at banks and on hand, short term
deposits with a maturity of three months or less and collections in the special purpose entities’ accounts which are not
available to the shareholders.
For the purpose of the Statement of cash flows, cash and cash equivalents consist of the cash and term deposits as
defined above, net of outstanding bank overdrafts.
(e)
(i)
Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation (see (iii) below) and
impairment losses (see accounting policy 3(g)).
Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
Borrowing costs related to the acquisition or construction of qualifying assets are capitalised as part of the cost of the
assets.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for separately.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds
from disposal with the carrying amount and are recognised net within “other income” in profit or loss.
(ii)
Subsequent costs
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it
is probable that the future economic benefits embodied within the part will flow to the Group and its costs can be
measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss
as incurred.
(iii) Depreciation
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item
of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful life
unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.
The estimated useful lives for the current and comparative periods are as follows:
(i)
(ii)
plant and equipment
2-5 years
fixtures and fittings
5-20 years
Depreciation methods, useful lives and residual values are reassessed at each reporting date.
Page 17
Australian Finance Group Limited
Notes to the Financial Statements
3.
Significant accounting policies (continued)
(f)
(i)
Intangibles
Software development costs
Software development costs are recognised as an expense when incurred, except to the extent that such costs, together
with previous unamortised deferred costs in relation to that project, are expected beyond reasonable doubt, to provide
future economic benefits. Any deferred development costs are amortised over the estimated useful lives of the relevant
assets. The balance of deferred software development costs is disclosed as such in note 21 to the financial statements.
The unamortised balance of software development costs deferred in previous periods is reviewed regularly and at each
reporting date, to ensure the criterion for deferral continues to be met. Where such costs are considered to no longer
provide future economic benefits they are written-off as an expense in the profit or loss.
(ii) Other intangible assets
Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less
accumulated amortisation (see above (i)) and impairment losses (see accounting policy 3(g)).
(iii) Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset
to which it relates. All other expenditure is recognised in profit or loss when incurred.
(iv) Amortisation
Amortisation is recognised in profit or loss on a straight line basis over the estimated useful lives of intangible assets
from the date that they are available for use. The estimated useful lives for the current and comparative periods are as
follows:
(i)
(ii)
Capitalised software development costs
2.5 - 5 years
Software licenses
2.5 - 5 years
(g)
Impairment of Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than inventories and 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 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 groups of assets (the
“cash-generating unit”).
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable
amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are
independent from other assets and groups.
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 pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Impairment losses recognised in 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 that have
been used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss has been recognised.
(h)
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories includes the costs of
acquisition, development and holding costs, including such costs as borrowing costs rates and taxes. Holding costs
incurred post completion of development are expensed.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion
and the estimated costs necessary to make the sale.
Page 18
Australian Finance Group Limited
Notes to the Financial Statements
3.
(i)
Significant accounting policies (continued)
Employee benefits
i.
Long-term employee benefits
The Group’s liability in respect of long-term employee benefits is the amount of future benefits that employees have
earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value,
and the fair value of any related assets is deducted. Consideration is given to the expected future wage and salary
levels, and periods of service. The discount rate is the yield at the reporting date on government bonds that have
maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency as the
Group’s functional currency.
ii.
Short term benefits
Short-term employee benefits are measured on an undiscounted basis and are expensed as the related service is
provided.
A liability is recognised for employee benefits such as wages, salaries, annual leave and sick leave if the Group has
present obligations resulting from employees’ services provided to reporting date.
A provision is recognised for the amount expected to be paid under short-term and long term cash bonus or profit sharing
plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by
the employee and the obligation can be estimated reliably.
iii.
Share-based payment transactions
The grant date fair value of options and shares granted to employees is recognised as an employee expense, with a
corresponding increase in equity over the period in which the employees become unconditionally entitled to the options
or shares. The amount recognised as an expense is adjusted to reflect the actual number of options or shares that
vested, except for those that fail to vest due to market conditions not being met.
(j)
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 obligation.
Provisions are determined by discounting expected future cash flows at a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the liability.
The unwinding of the discount is recognised as a finance cost.
(k)
Revenue
i.
Commission revenues
The Group provides loan origination services and receives origination commission on the settlement of loans.
Additionally the lender normally pays a trailing commission over the life of the loan. Commission revenue is recognised
as follows:
Origination commissions: Origination commissions are recognised upon the loans being settled and receipt of
commission.
Trailing commissions: The Group receives trailing commissions from lenders on loans they have settled that were
originated by the Group. The trailing commissions are received over the life of the loans based on individual loan
balance outstanding. The Group also makes trailing commission payments to authorised mortgage originators
(members) based on the individual loan balance outstanding.
On initial recognition, trailing commission revenue and receivables are recognised at fair value, being the
expected future trailing commission receivables discounted to their net present value. In addition, an associated
payable and expense to the members are also recognised, initially measured at fair value being the future trailing
commission payable to members discounted to their net present value.
Subsequent to initial recognition and measurement both the trailing commission asset and trailing commission
payable are measured at amortised cost. The carrying amount of the trailing commission asset and trailing
commission payable are adjusted to reflect actual and revised estimated cash flows by recalculating the carrying
amount by computing the present value of estimated future cash flows at the original effective interest rate. The
resulting adjustment is recognised as income or expense in the Statement of Comprehensive Income.
Page 19
Australian Finance Group Limited
Notes to the Financial Statements
Significant accounting policies (continued)
3.
(k) Revenue (continued)
ii.
Mortgage management revenues
The Group provides mortgage management services to its clients as an alternative to traditional bank home loans.
Revenue generated includes origination commission, trailing commission and fees associated with loans’ settlement and
management. Origination commissions are recognised upon the loans being settled and receipt of the commission.
Trailing commissions are recognised over the contract of service. Other fees are recognised in the Statement of
Comprehensive Income in proportion to the stage of completion of the transaction at the reporting date.
iii.
Property development services
The Group provides project management services for property syndication projects. The Group receives an ongoing
management fee for providing these services. Revenue is recognised by reference to the stage of completion of the
contract.
iv.
Sale of goods and disposal of assets
Revenue from the sale of goods and disposal of assets is recognised when the Group has passed control of the goods or
other assets to the buyer.
v.
Fees for services
Revenue from contracts to provide marketing, compliance and administration services to the members that is recognised
with reference to the stage of completion for the contract of services.
vi.
Rendering of other services and sponsorship income
Revenue from contracts to provide other services is recognised by reference to the stage of completion of the contract.
Sponsorship income is brought to account when services relating to the income have been performed.
vii.
Securitisation and residential mortgage backed securities programme
Revenue arising from issuing residential loans which are funded by the warehouse facility is initially recognised at the fair
value of the consideration received or receivable when it is probable that future economic benefits will flow to the Group
and these benefits can be measured reliably.
Loans and advances are initially recognised at fair value. Subsequent to initial recognition, the loans are measured at
amortised cost using the effective interest method over the estimated actual (but not contractual) life of the mortgage
loan, taking into account all income and expenditure directly attributable to the loan. Interest income is the key
component of this revenue stream and it is recognised as it accrues using the effective interest method. The rate at
which revenue is recognised is referred to as the effective interest rate and is equivalent to the rate that effectively
discounts estimated future cash flows throughout the estimated life to the net carrying value of the loan. Acquisition costs
are also spread across the estimated life of the loan.
Lease payments
(l)
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at
inception date, whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the
arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.
Payments made under operating leases are recognised in the profit or loss on a straight line basis over the term of the
lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of
the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a
constant periodic rate of interest on the remaining balance of the liability.
(m)
Finance income and expenses
Finance income comprises interest income on funds invested, changes in the fair value of financial assets at fair value
through profit or loss and foreign currency gains. Interest income is recognised as it accrues, using the effective interest
method.
Finance expenses comprise interest payable on borrowings, unwinding of the discount on provisions, changes in fair
value of financial assets at fair value through profit or loss.
Page 20
Australian Finance Group Limited
Notes to the Financial Statements
3.
Significant accounting policies (continued)
Borrowing costs
(n)
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as
part of the cost of that asset. Borrowing costs that are not directly attributable to the acquisition, construction or
production of a qualifying asset are recognised in profit or loss using the effective interest method.
Income tax expense
(o)
Income tax expense comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent
that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. Deferred tax in not recognised for: temporary
differences on the initial recognition of assets and liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit or loss; temporary differences related to investments in subsidiaries and
jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and taxable
temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse,
using tax rates enacted or substantively enacted by the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are
recognised in correlation to the underlying transaction either in other comprehensive income or directly to equity
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets
and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities,
but they intend to settle current tax liabilities and assets on a set basis or their tax assets and liabilities will be realised
simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it
is no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the obligation to
pay the related dividend is recognised.
Tax consolidation
(i)
The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from
1 July 2004 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is
the Company.
Current tax expenses, deferred tax liabilities and deferred tax assets arising from temporary differences of the members
of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated
group using the ‘group allocation’ approach by reference to the carrying amounts of assets and liabilities in the separate
financial statements of each entity and the tax values applying under tax consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries is
assumed by the head entity in the tax-consolidated group and are recognised by the Company as amounts payable
(receivable) to (from) other entities in the tax-consolidated group in conjunction with any tax funding arrangement
amounts (refer below). Any difference between these amounts is recognised by the Company as an equity contribution
or distribution.
The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent
that it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can be
utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised
assessments of the probability of recoverability is recognised by the head entity only.
Page 21
Australian Finance Group Limited
Notes to the Financial Statements
Significant accounting policies (continued)
3.
(o) Income tax expense (continued)
(ii)
Nature of tax funding arrangements and tax sharing arrangements
The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding
arrangement which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts.
The tax funding arrangements require payments to/from the head entity equal to the current tax liability (asset) assumed
by the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity
recognising an inter-entity receivable (payable) equal in amount to the tax liability (asset) assumed. The inter-entity
receivables (payables) are at call.
Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of
the head entity’s obligation to make payments for tax liabilities to the relevant tax authorities.
The head entity in conjunction with other members of the tax-consolidated group has also entered into a tax sharing
agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between
the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the
financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is
considered remote.
Goods and services tax
(p)
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the
amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as
part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or
payable to, the Australian Taxation Office (ATO) is included as a current asset or liability or as part of the expense.
Cash flows are included in the Statement of Cash Flows on a gross basis. The GST components of cash flows arising
from investing and financing activities which are recoverable from, or payable to, the ATO are classified as cash flows
from operating activities.
Deferred income
(q)
Professional indemnity insurance income is deferred to the extent it gives rise to future economic benefits and
recognised as income on the stage of completion of the contract.
Sponsorship and other deferred income are brought to account when services relating to the income have been
performed.
4. Determination of fair values
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and
non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes
based on the following methods. Where applicable, further information about the assumptions made in determining fair
values are disclosed in the notes specific to that asset or liability.
Trailing commissions
The Group receives trailing commissions from lenders on settled loans over the life of the loan based on the loan book
balance outstanding. The Group is entitled to the trailing commissions without having to perform further services. The
Group also makes trailing commission payments to Members when trailing commission is received from lenders.
The fair value of trailing commission receivable from lenders and the corresponding payable to members is determined
by using a discounted cash flow valuation. These calculations require the use of assumptions which are determined by
management with the assistance of external actuaries. The key assumptions underlying the fair value calculations of
trailing commission receivable and the corresponding payable to members at the reporting date is summarised in the
following table:
2014
2013
Average loan life
Between 4.4 and 5.3 years
Between 4.4 and 5.2 years
Discount rate per annum
Between 9.15% and 13.5%
Between 10% and 13.5%
Percentage paid to members Between 85% and 91%
Between 85% and 91%
The percentage paid to members is fixed by the terms of their agreement with the Group. As a consequence,
management does not expect changes to the percentage paid to members to be reasonably possible.
Page 22
Australian Finance Group Limited
Notes to the Financial Statements
4. Determination of fair values (continued)
Fixed rate instruments
The carrying amounts of the fixed rate instruments at year end is a reasonable approximation of their fair values with the
exception of the net present value of future trailing commissions receivable which are accounted for at amortised cost.
At reporting date a change in interest rate will not affect the fair values of the fixed rate instruments.
Trade and other receivables/payables
All trade and other receivables/payables have a remaining life of less than one year and the notional amount is deemed
to reflect the fair value.
Investments in equity instruments
The fair value of financial assets at fair value through profit or loss is determined by reference to their quoted closing bid
price at reporting date.
The fair value of available-for-sale asset cannot be measured reliably because it does not have a quoted price in an
active market (see note 3(c)(i)).
5. Financial risk management
(a) Overview
The Group has exposure to credit, liquidity and markets risks from the use of financial instruments.
This note presents information about the Group’s exposure to each of the above risks, the objectives, policies and
processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are
included throughout the financial report.
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework.
The Audit and Risk Committee is responsible for developing and monitoring risk management policies.
Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed
regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and
management standards and procedures, aims to develop a disciplined and constructive control environment in which all
employees understand their roles and obligations.
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 Company and the Group.
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s receivables from customers.
Receivables
Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The
demographics of the Group’s customer base, including the default risk of the industry and country, in which customers
operate, has less of an influence on credit risk.
The Group’s trade and other receivables relate mainly to high credit quality financial institutions who are the members of
the lender panel. New panel entrants are subject to commercial due diligence by the Group’s management prior to
joining the panel. The Group bears the risk of non-payment of future trailing commissions by lenders should they not
maintain solvency. However, should a lender not meet its obligations as a debtor then the Group is under no obligation to
pay out any future trailing commissions to members.
Excluding financial institutions on the lender panel, trade and other receivables from other customers are rare given the
nature of the Group’s business. In the unlikely event that trade and other receivables arise, limits will be established for
each customer that represents the maximum open amount without requiring approval from the Group’s Directors. These
limits are reviewed on an ongoing basis by management. The risk limits reflect the business strategy and market
environment of the Group as well as the level of risk that the Group is willing to accept. Customers that fail to meet the
Group’s benchmark creditworthiness may transact with the Group only on a cash or prepayment basis. The Group does
not require collateral in respect of trade and other receivables.
Page 23
Australian Finance Group Limited
Notes to the Financial Statements
5. Financial risk management (continued)
(b) Credit risk (continued)
Loans and advances
To mitigate exposure to credit risk on loans and advances, the Group has adopted the policy of only dealing with
creditworthy counterparties and obtaining sufficient collateral or other security where appropriate.
The Group’s loans and advances relate mainly to loans advanced through its residential mortgage securitisation
programme. Credit risk management is linked to the origination conditions externally imposed on the Group by the
warehouse facility provider including geographical limitations. As a consequence, the Group has no significant
concentrations of credit risk. The Group has established a credit quality review process to provide early identification of
possible changes in credit worthiness of counterparties by the use of external credit agencies, which assigns each
counterparty a risk rating. Risk ratings are subject to regular review.
The Group’s maximum exposure is the excess of the net realisable value and the carrying amount of the loans, net of
any impairment losses. Importantly, all residential mortgages are covered by a lender’s mortgage insurance contract
which covers 100% of the principal.
The Group has established an allowance for impairment that represents the estimate of incurred losses in respect of its
receivables. The main component of this allowance is a specific loss component that relates to individually significant
exposures, and a collective loss component established for groups of similar assets in respect of losses that have been
incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics
and industry data for similar classes of financial assets. Throughout this financial year and the comparative year no loans
that would otherwise be past due or impaired have been renegotiated.
(c) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due or will have to do
so at excessive cost. 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.
To limit this risk, the Group manages assets with liquidity in mind, and monitors future cash flows and liquidity on a
regular basis. This incorporates an assessment of expected cash flows and the availability of high grade collateral which
could be used to secure additional funding if required.
The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors
relating to both the market in general and specifically to the Group.
(d) 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 the return.
Currency risk
The Group is exposed to foreign currency risk on cash assets that are denominated in a currency other than AUD. The
currencies giving rise to this risk are denominated in US dollars (USD), New Zealand dollars (NZD) and euro. The Group
elects not to enter into foreign exchange contracts to hedge this exposure as the net movements would not be material.
The Group has no significant exposure to currency risk.
Interest rate risk
Interest rate risk is the risk to the Group’s earnings and equity arising from movements in interest rates. Positions are
monitored on an ongoing basis to ensure risk levels are maintained within established limits.
The Group’s most significant exposure to interest rate risk is on the interest-bearing loans within the SPE which fund the
residential mortgage securitisation programme. To minimise its exposure to increases in cost of funding, the Group only
lends monies on variable interest rate term. Should there be changes in pricing the Group has the option to review its
position and offset those costs by passing on interest rate changes to the end customer.
Prepayment risk
Prepayment risk is the risk that the Group will incur a financial loss because its customers and counterparties repay or
request repayment earlier or later than expected.
The Group’s key exposure relates to the net present value of future trailing commissions receivable and payable. The
Group uses regression models to project the impact of varying levels of prepayment on its net income. The model makes
a distinction between the different reasons for repayment and takes into account the effect of any prepayment penalties.
The model is back tested against actual outcomes.
Page 24
Australian Finance Group Limited
Notes to the Financial Statements
5.
Financial risk management (continued)
For the loans and advances within the SPE and SPE-RMBS, the Group minimises the prepayment risk by passing back
all principal repayments to the warehouse facility providers and bondholders. Deferred establishment fees are charged to
the customer on early repayment of loans to minimise losses on the costs of acquisition.
Other market risk
The Group is exposed to an increase in the securitisation programme credit support loan from changes in the credit
rating of mortgage insurers used by the SPE, and the composition of the available collateral held. The Group uses
reputable valuers and management to regularly review and report on the credit ratings of those insurers as well as the
Company’s maximum cash flow requirements should there be any adverse movement in those credit ratings.
(e) 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. The Board of Directors monitors the return on capital, which the Group
defines as net operating income divided by total shareholders’ equity and aims to maintain a capital structure that
ensures the lowest cost of capital available to the Group. The Board of Directors also monitors the level of dividends to
ordinary shareholders.
The Group’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the
interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial
covenants would see the Group repaying the shortfall sufficient to the lenders satisfaction, or alternatively provide
additional security or cash equity. There have been no breaches in the financial covenants of any interest-bearing loans
and borrowings in the current period.
The SPEs are subject to the external requirements imposed by the warehouse facility providers. The terms of the
warehouse facilities provide a mechanism for managing the lending activities of the SPE, and ensure that all outstanding
principal and interest is paid at the end of each reporting period. Similarly, the SPE-RMBS are subject to external
requirements imposed by the bondholders and the rating agencies. The terms of the RMBS transactions provide a
mechanism for ensuring that all outstanding principal and interest is paid at the end of each reporting period. There were
no breaches in the current period.
AFG Securities Pty Ltd and AFG Property Pty Ltd are subject to externally imposed minimum capital requirements by the
Australian Securities and Investments Commission (ASIC) in accordance with the conditions of their Australian Financial
Services Licence. There was no breach of the requirements for the year ended 30 June 2014.
6.
Revenue
In thousands of AUD
Commissions
Interest on commission income receivable
Mortgage management services
Property development services
Securitisation transaction fees
7.
Other income
In thousands of AUD
Sponsorship and performance bonus income
Software licence fees
Professional indemnity insurance
Fees for services
Other
2014
341,635
49,185
1,584
1,561
786
394,751
2014
4,425
1,540
1,556
2,775
574
10,870
2013
280,181
47,177
2,802
1,645
419
332,224
2013
3,541
1,459
1,405
2,463
1,010
9,878
Page 25
Australian Finance Group Limited
Notes to the Financial Statements
8.
Other expenses
In thousands of AUD
Advertising and promotion
Consultancy and professional fees
Information technology
Occupancy costs
Employee costs
Depreciation and amortisation
Operating lease costs
(Reversal of) /impairment loss on receivables
Net loss on disposal of property, plant and equipment
9.
Employee costs
In thousands of AUD
Wages and salaries
Other associated personnel expenses
Change in liability for long service leave
Change in liabilities for annual and sick leave
Termination benefits
Superannuation
10. Auditors’ remuneration
In AUD
Audit services
Amounts due and receivable for:
Audit of the financial report of the Group and other entities
of the Group
Ernst & Young
Other auditors
Other services
Other assurance services - Ernst & Young
11.
Finance income and expenses
Recognised in profit or loss
In thousands of AUD
Interest income on loans and receivables
Interest income on bank deposits
Net foreign exchange gain
Finance income
Net change in fair value of financial assets designated at fair
value through profit or loss
Interest expense on loans and borrowings
Interest on loans from funders
Unwind of discount on leave provisions
Finance expense
Note
9
2014
2,965
1,813
2,788
377
23,141
1,141
1,978
(42)
3
34,164
2014
15,700
5,529
(80)
(8)
364
1,636
23,141
2013
2,744
1,374
2,391
507
22,553
872
2,095
29
2
32,567
2013
15,503
4,882
46
91
454
1,577
22,553
2014
2013
154,293
2,125
156,418
106,610
1,880
108,490
64,803
64,803
35,000
35,000
2014
1,621
2,089
(41)
3,669
3
(198)
(123)
(9)
(327)
2013
98
2,634
(10)
2,722
(16)
-
(154)
-
(170)
Net finance income and expense
3,342
2,552
The above financial income and expense include the following
in respect of assets (liabilities)
(not at fair value through profit or loss):
Total interest income on financial assets
Total interest expense on financial liabilities
3,710
(123)
2,732
(154)
Page 26
Australian Finance Group Limited
Notes to the Financial Statements
11. Finance income and expenses (continued)
Recognised in other comprehensive income
In thousands of AUD
Net change in fair value of available-for-sale financial
assets
Tax on net change in fair value of available-for-sale
financial assets
Finance income recognised in other comprehensive
income, net of tax
2014
2013
15
(5)
10
-
-
-
Other finance income and expenses
Revenue includes the interest income of $49,185 thousand (2013: $47,177 thousand) from the unwinding of the discount
in relation to the net present value of future trailing commission receivable. Refer to note 6 and 14. Cost of sales includes
the interest expense from the unwinding of the discount in relation to the net present value of future trailing commission
payable of $43,534 thousand (2013: $41,314 thousand).
12.
Income tax expense
Current tax expense
In thousands of AUD
Income tax recognised in profit or loss
Current tax expense
Current period
Adjustments for prior periods
Deferred tax expense
Origination and reversal of temporary differences
Income tax from continuing operations
Total income tax expense
Income tax recognised in other comprehensive income
Unrealised gain/(loss) on available-for-sale financial assets
Income tax charged directly to other comprehensive income
Numerical reconciliation between tax expense and pre-tax accounting profit
In thousands of AUD
Profit for the period
Total income tax expense
Profit excluding income tax
Income tax using the Company’s domestic tax rate of 30%
(2013: 30%)
Non-deductible expenses
Prior year temporary differences
Under provision in prior periods
2014
2013
7,324
(310)
7,014
1,081
1,081
6,411
374
6,785
580
580
8,095
7,365
8,095
7,365
2014
2013
5
5
-
-
2014
17,869
8,095
25,964
7,789
616
(310)
8,095
2013
15,259
7,365
22,624
6,787
550
-
28
7,365
Page 27
Australian Finance Group Limited
Notes to the Financial Statements
13. Cash and cash equivalents
(a)
Cash and cash equivalents
In thousands of AUD
Cash at bank
Short term deposits
Cash collections accounts1
Restricted cash2
Cash and cash equivalents
Cash and cash equivalents in the Statement
of Cash Flows
2014
36,884
4,678
26,602
7,858
76,022
2013
45,490
1,148
10,637
7,870
65,145
76,022
65,145
(1) Discloses amounts held in the special purpose securitised trusts and series on behalf of the warehouse funder
and the bondholders
(2) Discloses cash collateralised standby letter of credit and cash provided in trust by the warehouse providers to
fund pending settlements.
The effective interest rate on at short term deposits in 2014 was 3% (2013: 4.57%). The deposits had an average
maturity of 414 days (2013: 90 days).
Cash and cash equivalents include cash in Collections Account held in the SPE-RMBS on behalf of the bondholders and
is not available for use by the shareholders.
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in
note 30.
(b)
Reconciliation of cash flows from operating activities
In thousands of AUD
Cash flows from operating activities
Profit for the period
Adjustments for:
Depreciation
Amortisation of intangible assets
Loss on sale of property, plant and equipment
Non cash movement in impairment losses on receivables
Net change in the fair value of financial assets designated
at fair value through profit or loss
Net interest income from investing activities
Net interest expense on financing activities
Share of (profit) / loss of equity accounted investees
Unwind of discount on leave provisions
Net present value of future trailing commission income
Net present value of future trailing commission expense
Changes in assets and liabilities
Increase/(Decrease) in trade and other receivables
Increase in prepayments
Increase/(Decrease) in trade and other payables
Increase/(Decrease) in inventories
Increase/(Decrease) in deferred income
Increase/(Decrease) for employee entitlements
Increase/(Decrease) in provisions
Increase/(Decrease) in tax provision
Increase in securitisation lending
Increase in warehouse facility
Increase/(Decrease) in bondholders loan
Net cash from operating activities
Note
2014
2013
17,869
15,259
20
21
8
8
11
18
935
206
3
(42)
(3)
(3,586)
198
(256)
9
(61,411)
59,067
12,989
831
(406)
5,210
(10,240)
345
(98)
(558)
519
(214,476)
(259,427)
482,739
17,428
677
195
2
29
16
(1,504)
-
721
-
(49,454)
46,878
12,819
(344)
(214)
(1,540)
(6,783)
1,509
(552)
(359)
(1,648)
(539,397)
283,636
258,568
5,695
Page 28
Australian Finance Group Limited
Notes to the Financial Statements
14.
Trade and other receivables
In thousands of AUD
Current
Trade receivables
Other trade receivables
Accrued income
Net present value of future trailing commissions receivable1
Prepayments
Non-current
Net present value of future trailing commissions receivable1
2014
2013
582
221
849
1,652
95,281
3,173
100,106
208
68
1,381
1,657
85,473
2,795
89,925
415,635
415,635
364,031
364,031
515,741
453,956
(1) See fair value determinations for trailing commissions – note 4
Trade and other receivables are shown net of a provision for impairment of $2 thousand (2013: $17 thousand).
The non-current receivables represent the net present value of future trailing commissions receivable.
The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables are
disclosed in note 30.
15.
Loans and advances
Current
In thousands of AUD
Securitised assets1
Other secured loans2
Redeemable preference shares (RPS)3
Non-current
In thousands of AUD
Securitised assets1
Capitalised origination cost
Other secured loans2
Redeemable preference shares (RPS)3
Less: Provision for impairment4
2014
168,972
1,140
7,290
177,402
2014
836,813
4,877
1,329
4,808
(38)
847,789
2013
130,566
47
-
130,613
2013
660,743
5,706
1,750
6,075
(55)
674,219
1,025,191
804,832
(1) The securitised assets are held as security for the various debt interests in the special purpose securitised trusts and series.
(2) Other secured loans include:
(3)
i.
ii.
i.
ii.
Loans and advances to Members secured over future trailing commissions’ payable to the member and in some cases
personal guarantees. Interest is charged on average at 9.42% p.a (2013:10.77% p.a).
Loan and advances to McCabe St Limited are secured over its land and assets. Interest is charged on average at 5.01%
p.a (2013: 5.38% p.a).
During the year the Group acquired $4.5 million RPS in Harold Developments Pty Ltd for the amount of $4.5 million. The
RPS are mandatorily redeemable at their face amount and at a determinable date, no later than 9 years from issue, and
provide an annual fixed rate of return of 20%. During 2014 the accrued interest recognised in the profit or loss amounted
to $1,598 thousand (2013: $75 thousand). Accrued interest is payable on redemption of the RPS.
During 2013 the Group acquired 6 million RPS for the amount of $6 million. The RPS are redeemable on completion of
the projects at the face amount and at determinable date, and provide an annual fixed rate of return of 20% calculated
daily and compounded annually. During 2014 the accrued interest recognised in the profit or loss amounted to $1,215
thousand (2013: $75 thousand). Accrued interest is payable on redemption of the RPS.
(4) Refer to note 30(a)(ii) for the split between collective and individual provision.
Page 29
Australian Finance Group Limited
Notes to the Financial Statements
15. Loans and advances (continued)
Loans and advances that are performing in accordance with the underlying contract are classified as neither past due nor
impaired. If a customer fails to make payment that is contractually due then the receivable asset is classified as past
due. If subsequently all contractually due payments are made the asset reverts to its neither past due nor impaired
status.
At the end of the reporting period, the balance of the Group’s non-current loans and advances includes a provision for
impairment of $38 thousand (2013: $55 thousand).
During the financial year, new loans issued in the Group’s securitisation programme were $412,398 thousand (2013:
$636,326).
The Group’s exposure to credit, currency and interest rate risks related to loans and advances is disclosed in note 30.
16.
Inventories
In thousands of AUD
Current
Finished development stock held for sale
Inventories carried at lower of cost and net realisable value
Non-current
Development work in progress
Inventories carried at lower of cost and net realisable value
17.
Other financial assets
In thousands of AUD
Current
Financial assets designated at fair value through profit or loss
Non-current
Available-for-sale financial assets
Long term deposits
2014
2013
-
-
24,442
24,442
1,360
1,360
8,155
8,155
24,442
9,515
2014
2013
22
22
46
128
174
196
20
20
31
-
31
51
The financial assets designated at fair value through profit or loss are equity securities that otherwise would have been
classified as available-for-sale.
Net change in the fair value of available-for-sale financial assets of $15 thousand has been recognised in 2014 (2013:
nil).
The Group’s exposure to credit, currency and market risks related to other investments is disclosed in note 30.
18.
Investments in equity-accounted investees
The Group has a 35.8% (2013: 40%) interest in Qube Havelock Street Development Pty Ltd (Qube), an associate
involved in the property development and management of real estate. The Group’s interest in Qube is accounted for
using the equity method in the consolidated financial statements.
During the year ended 30 June 2014 the Group received dividends of $340 thousand from its investments in equity-
accounted investees (2013: nil).
During the year ZincFinance Pty Ltd disposed of all its assets and liabilities and ceased trading. The carrying amount of
the Group’s investment in this joint venture was subsequently written off to the Statement of Comprehensive Income.
None of the Group’s equity-accounted investees are publicly listed entities and consequently do not have published price
quotations.
The Group’s share of profit in its equity-accounted investees for the year was $256 thousand (2013: loss of $721
thousand), and the carrying amount was $2,674 thousand (2013: $3,224 thousand).
Page 30
Australian Finance Group Limited
Notes to the Financial Statements
18.
Investments in equity-accounted investees (continued)
Summary of financial information for equity-accounted investees, based on their Australian Accounting Standards
financial statements, are set out below:
2014
In thousands of AUD
Reporting
Ownership
Total
Total
Income
Expenses
Profit /
Group share
Group
date
assets
liabilities
(Loss)
of net
assets
share of
Profit/(loss
ZincFinance Pty Ltd1
30 June
0%
-
-
-
1
(1)
-
Qube 2
30 June
35.8%*
27,849
20,230
2,534
1,747
787
2,727
27,849
20,230
2,534
1,748
786
2,727
-
256
256
* The Group’s interest in Qube decreased to 35.8% on 1 August 2013.
2013
In thousands of AUD
Reporting
Ownership
Total
Total
Income
Expenses
Loss
Group
Group
date
assets
liabilities
share of net
share of
assets
loss
ZincFinance Pty Ltd1
30 June
50%
931
-
64
634
(570)
465
(285)
Qube Havelock Street
Development Pty Ltd 2
30 June
40%
(1)
Joint Venture
(2) Associate
19.
(a)
Tax assets and liabilities
Current tax assets and liabilities
25,655
26,586
18,808
18,808
340
404
1,431
2,065
(1,091)
(1,661)
2,739
3,204
(436)
(721)
The current tax liability for the Group of $211 thousand (2013: $769 thousand) represents the amount of income taxes
payable in respect of current and prior financial periods.
(b)
Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
In thousands of AUD
Property, plant and equipment and
intangibles
Trade and other receivables
Revaluation of available-for-sale-
investments to fair value
Employee benefits
Trade and other payables
Other items
Tax (assets) / liabilities
Set off of tax
Net tax (assets) / liabilities
Assets
Liabilities
Net
2014
2013
2014
2013
2014
2013
-
(1,045)
(35)
(1,045)
189
153,328
-
189
134,862 152,283
(35)
133,817
-
(2,983)
(136,094)
(13)
(140,135)
140,135
-
(3,395)
(117,959)
(87)
(122,521)
5
-
-
92
153,614
122,521 (140,135)
5
-
-
(2,983)
- (136,094)
79
13,479
-
57
134,919
(122,521)
-
(3,395)
(117,959)
(30)
12,398
-
-
-
13,479
12,398
13,479
12,398
Page 31
Australian Finance Group Limited
Notes to the Financial Statements
20.
Property, plant and equipment
In thousands of AUD
Cost
Balance at 1 July 2012
Additions
Disposals
Balance at 30 June 2013
Balance at 1 July 2013
Additions
Disposals
Balance at 30 June 2014
Depreciation
Balance at 1 July 2012
Depreciation charge for the year
Disposals
Balance at 30 June 2013
Balance at 1 July 2013
Depreciation charge for the year
Disposals
Balance at 30 June 2014
Carrying amounts
At 30 June 2013
At 30 June 2014
21.
Intangible assets
In thousands of AUD
Cost
Balance at 1 July 2012
Acquisitions – internally developed
Balance at 30 June 2013
Balance at 1 July 2013
Acquisitions
Retirements
Balance at 30 June 2014
Amortisation
Balance at 1 July 2012
Amortisation for the year
Balance at 30 June 2013
Balance at 1 July 2013
Amortisation for the year
Retirements
Balance at 30 June 2014
Carrying amounts
At 30 June 2013
At 30 June 2014
Plant and
equipment
Fixtures and
fittings
Total
4,500
488
(174)
4,814
4,814
274
(101)
4,987
4,130
603
(1,220)
3,513
3,513
923
(98)
4,338
1,301
649
Software
development
9,623
478
10,101
10,101
286
(73)
10,314
9,154
195
9,349
9,349
206
(73)
9,482
752
832
1,655
3,111
(1,048)
3,718
3,718
105
(118)
3,705
991
74
-
1,065
1,065
12
(117)
960
2,653
2,745
6,155
3,599
(1,222)
8,532
8,532
379
(219)
8,692
5,121
677
(1,220)
4,578
4,578
935
(215)
5,298
3,954
3,394
Page 32
Australian Finance Group Limited
Notes to the Financial Statements
22.
Trade and other payables
In thousands of AUD
Current
Net present value of future trailing commissions payable
Other trade payables
Non-trade payables and accrued expenses
Note
4
Non-current
Net present value of future trailing commissions payable
2014
2013
84,550
44,193
2,861
75,097
37,450
3,270
131,604
115,817
370,697
321,082
370,697
321,082
502,301
436,899
Trade payables are non interest-bearing and are normally settled on 60-day terms.
Non trade payables are non interest-bearing and are normally paid on a 60-day basis.
The Group’s exposure to liquidity risk related to trade and other payables is disclosed in note 30.
23.
Interest-bearing liabilities
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For
more information about the Group’s exposure to interest rate risk, see note 30.
Current
In thousands of AUD
Securitisation warehouse facilities
Loans from funders
Secured bond issues
Secured bank loans
Non-current
In thousands of AUD
Secured bond issues
Secured bank loans
Loans from funders
Redeemable preference shares (RPS)
2014
281,316
601
125,894
-
407,811
2014
613,561
8,205
1,010
4,098
626,874
2013
540,852
758
42,664
3,273
587,547
2013
215,072
-
1,618
216,690
1,034,685
804,237
Terms and debt repayment schedule
Terms and conditions of outstanding loans were as follows:
2014
2013
In thousands of AUD
Nominal
Year of
interest
maturity
Face value
rate
Warehouse facilities
4.12%
2015
Loans from funders
Secured bond issues
Secured bank loans
Redeemable preference
shares
6.25% 2015-2018
3.60% 2015-2019
3.94% 2015-2017
15.00%
2017
281,469
1,611
741,308
8,205
4,098
Carrying
amount
Nominal
Year of
interest
maturity
Face
value
Carrying
amount
rate
281,316
4.32%
2014
1,611
739,455
8,205
4,098
6.31% 2014-2018
4.22% 2014-2018
3.20%
2014
540,897
2,376
258,569
3,273
-
540,852
2,376
257,736
3,273
-
1,036,691
1,034,685
805,115
804,237
Page 33
Australian Finance Group Limited
Notes to the Financial Statements
23.
Interest-bearing liabilities (continued)
(a)
Secured bank loans
During the year additional debt facilities (secured bank loans) were obtained to fund the development of the land owned
by AFG Developments Pty Ltd and AFG Developments 2 Pty Ltd (Land). As at balance sheet date total debt facilities
was $56,190 thousand (2013: $3,273 thousand) with an unused amount of $48,113 (2013: nil).The pledged security
includes: first registered mortgage over the Land and first registered general security over the assets and undertakings of
the two subsidiaries. Furthermore, the Parent entity provided a project performance guarantee limited to $5 million.
The secured bank loans contain covenants in respect of the value of secured property and the loan advance against the
development costs (Loan to Value Ratio and Loan to Cost Ratio). Breaches in meeting the financial covenants would see
the Group repaying the shortfall sufficient to the lenders satisfaction, or alternatively provide additional security or cash
equity. There have been no breaches in the financial covenants of any interest-bearing loans and borrowings in the
current period.
The carrying amount of the inventories relating to the development of the Land, including the Land, is $24,443 thousand
(2013: 8,155 thousand).
(b)
Redeemable preference shares
During the year AFG Property Investment No.1 Pty Ltd issued 4,500 thousand fully paid $1 redeemable preference
shares (RPS) to sophisticated investors (2013: nil), with 600 thousand RPS acquired by the Parent entity. The funds
raised were used to subscribe for redeemable preference shares in Harold Developments Pty Ltd (Developer) to enable
it to acquire land and develop it (see Note 15). The RPS are mandatorily redeemable at their face amount and at
determinable date upon the redemption of the preference shares subscribed to by the Group in the Developer, however
no later than 9 years from issue. The RPS provide an annual fixed rate of return of 15%.
The rights attached to the RPS include: the right to receive a fixed cumulative preferential dividend at the specified rate,
priority over all other classes of shares on a reduction of capital or winding up of the issuer, and no right to share in the
remaining assets of the Developer on winding up.
During 2014 the accrued interest recognised in the profit or loss amounted to $198 thousand (2013: Nil). Accrued interest
is payable on redemption of the RPS.
(c) Warehouse and secured bond issues
The carrying amount of the collaterals pledged as security for the warehouse facility and the secured bond issues is
$1,779,647 thousand (2013: $1,335,226 thousand).
i. Warehouse facilities
The warehouse facilities provide funding for the financing of loans and advances to customers within the SPE and its
Series.
The security for advances under these facilities is a combination of fixed and floating charges over all assets of the SPE.
If the warehouse facility is not renewed or should there be a default by the trustee under the existing terms and
conditions, the warehouse facility funder will not have a right of recourse against the remainder of the Group.
Borrowings are secured against residential properties only, and each mortgage is covered by a lender’s mortgage
insurance contract which covers 100% of the principal of the loan. The carrying amount of the collaterals pledged as
security is $487,331 thousand (2013: $895,452 thousand).
During the financial year there were no breaches to the agreement that permitted the warehouse facility provider to
demand payment of the outstanding value.
As at the reporting date the unutilised securitisation warehouse facility for all Series is $214,031 thousand (2013:
$152,603 thousand).
After the balance sheet date the Group secured an extension to the term of the residential warehouse facility that was due
to expire in 9 September 2014 to 14 August 2015.
Liquidity facility
The Liquidity facility is established by the warehouse facility providers to temporarily fund any excess amount of interest,
fees and any other charges which may accrue from the date of cash flows calculation to the date of cash flows payment.
As at the reporting date the unutilised facility is $4,960 thousand (2013: $16,000 thousand).
Page 34
Australian Finance Group Limited
Notes to the Financial Statements
23.
Interest-bearing liabilities (continued)
ii.
Secured bond issues
SPE-RMBS were established to provide funding for loans and advances (securitised assets) originated by AFG
Securities Pty Ltd. The 2013 and 2014 bond issues have a legal final maturity of 31.5 years from issue, and a weighted
average life of up to 5 years. The security for loans and advances under this facility is a combination of fixed and floating
charges over all assets of the SPE-RMBS. Importantly, all residential mortgages are covered by a lender’s mortgage
insurance contract which covers 100% of the principal of the loan. The carrying amount of the collaterals pledged as
security is $1,292,316 thousand (2013: 439,773 thousand).
Under the current trust terms, a default by the borrowers will not result in the bondholders having a right of recourse
against the Group (as Originator, Trust Manager or Servicer). The interest is recognised at an effective rate 3.6% (2013:
4.22%).
Liquidity facility
Various mechanisms have been put in place to support liquidity within the transaction to support timely payment of
interest, including
principal draws which are covered by Redraw Notes for redraws that cannot be covered by normal collections
(available principal),
a liquidity facility between 1% and 1.3% of the initial invested amount of all notes,
$150 thousand Reserve Account which is an Extraordinary Expense Ledger account, and
Available income.
Additional credit support includes subordinated credit enhancement held by the Group (unrated Class C Notes) which
had an aggregate initial invested amount of $2,750 thousand (2013: $1,500 thousand).
During the financial year there were no breaches to the terms of the SPE-RMBS that gave right to the bondholder to
demand payment of the outstanding value.
(d)
Loans from funders
Some of the upfront commissions received from specific funders at the point of loan origination are refunded by the
Group via reduced ongoing management fees over a period of 5 years. The Group recognises the upfront commission
from these funders as a loan, and interest is charged on this facility by the funders. The principal and interest will be paid
back over the 5 year period. Interest is recognised at an effective rate of 6.25% (2013: 6.31%).
Refer to note 30 for further disclosures on interest-bearing liabilities.
(e)
Other finance facilities
In thousands of AUD
Standby facility
Bank guarantee facility
Facilities utilised at reporting date
Standby facility
Bank guarantee facility
Facilities not utilised at reporting date
Standby facility
Bank guarantee facility
The facilities are subject to annual review.
2014
600
1,380
1,980
122
693
815
478
687
1,165
2013
200
500
700
-
492
492
200
8
208
Page 35
Australian Finance Group Limited
Notes to the Financial Statements
23.
Interest-bearing liabilities (continued)
(f)
Performance guarantee
During the year the Group has provided a performance guarantee to AFG Developments Pty Ltd debt facility provider of
$5 million in relation to the due performance of Richmond Quarter development project (Project). In the event that the
Project’s costs exceed the facility obtained from the funder of $51,510 thousand and the equity contributed to the project,
the Group is obligated to pay for the cost overrun that the Bank will not meet from the loan. In the event of the Group
failing to meet its obligations in respect of the cost overrun, or should there be any default on the loan repayment, the
funder on demand will request the payment of the guarantee up to a limit of $5 million. In view of the timely progress of
the project, the fixed price nature of the construction contract and the presales secured at balance sheet date, the Group
expects to meet all of its obligations under the terms of facility. Accordingly, no provision for any liability has been made
in these financial statements.
24. Employee benefits
In thousands of AUD
Current
Salaries and wages accrued
Liability for sick leave
Liability for long service leave
Liability for annual leave
Non Current
Liability for long-service leave
25. Share based payments
(a)
Options
2014
2013
739
30
944
909
816
20
889
927
2,622
2,652
350
350
485
485
2,972
3,137
At 29 August 2001, the Group established a share option programme that grants key management personnel and
employees shares in the entity.
No options were issued to key management personnel or employees during 2014 (2013: Nil).
(b)
Employee share scheme
An employee share scheme has been established where the Group may, at the discretion of management, grant
ordinary shares in the Group to certain members of staff of the Group. The shares issued for nil consideration, are
granted in accordance with the performance guidelines established by the directors of the Group.
With respect to the share scheme:
(i)
Unless the Board otherwise determines, all issues of Plan Shares are made subject to the following restrictions:
an Eligible Participant may not deal with 1/2 of the Plan Shares prior to the expiration of 24 months from the
issue date.
an Eligible Participant may not deal with 1/2 of the Plan Shares prior to the expiration of 12 months from the
issue date; and
(ii)
No issues may be made under the Plan at a time when the number of Plan Shares exceeds 5% of the total
number of issued ordinary shares in the capital of the Company.
Each Plan Share will rank equally with other fully paid ordinary shares of the Company in respect of voting rights and
dividends, and will be entitled to participate in any Bonus Issues and Entitlement Issues made by the Company on the
same basis as other issued fully paid ordinary shares in the Company, save as regards any rights attaching to shares by
reference to a record date prior to the Issue Date.
Page 36
Australian Finance Group Limited
Notes to the Financial Statements
25. Share based payments (continued)
Issue Date
28 Sep 2001
31 Dec 2001
27 May 2002
30 Sep 2003
31 Oct 2003
8 July 2004
25 Aug 2004
28 July 2005
25 Nov 2005
24 Jan 2006
18 July 2006
4 May 2009
Number
Issued
234,000
562,500
50,000
77,000
146,000
53,000
60,000
10,000
95,000
66,667
50,000
650,000
Vested
234,000
562,500
50,000
77,000
146,000
53,000
60,000
10,000
95,000
66,667
50,000
650,000
Non
Vested
-
-
-
-
-
-
-
-
-
-
-
-
Total
234,000
562,500
50,000
77,000
146,000
53,000
60,000
10,000
95,000
66,667
50,000
650,000
Value per
Share
$0.031
$0.027
$0.014
$0.011
$0.011
$0.150
$0.150
$0.200
$0.180
$0.200
$0.150
$0.300
Total
Value
$7,254
$15,187
$700
$847
$1,606
$7,950
$9,000
$2,000
$17,100
$13,333
$7,500
$195,000
The fair values of services received in return for the issue of shares under the Scheme are measured by reference to the
fair value of the shares issued under the Scheme. The valuation of the shares issued under the Scheme considered the
following factors:
The Group is a non listed group and as such the relative liquidity of the shares
The number of shares held or controlled by directors, related entities and other significant shareholders
The net tangible assets of the Group as at the time of the issue of shares under the scheme
No amount was expensed to employee expenses for the fair value of shares issued under the terms of the Employee
Share Scheme in 2014 (2013: Nil).
No shares were bought back during the financial year from ex-employees, as allowed under the terms of the Scheme
(2013: NIL).
26. Provisions
In thousands of AUD
Balance at 1 July 2013
Provision made during the period
Provision reversed during the
period
Balance at 30 June 2014
Current
Non-current
Provision for terminated members
Terminated
members
Make good
Legal
Total
613
9
(553)
69
69
-
69
80
20
(34)
66
-
66
66
250
-
-
250
250
-
250
943
29
(587)
385
319
66
385
The provision for terminated members relates mainly to commission currently disputed with terminated members and as
such have been withheld. The provision has been raised in certain circumstances where it is expected that there is a
possibility of legal action from the terminated member.
Provision for make good
It is a condition of the lease of the Group’s premises to return the property in its original condition at the end of the lease
term. The Group recognises a provision for make good as the expected cost of the refurbishment over the life of the
lease.
Legal
A provision for the Group’s liability in respect of the excess and the related legal costs on a litigation claim that is
expected to be fully indemnified by the insurer.
Page 37
Australian Finance Group Limited
Notes to the Financial Statements
27. Deferred income
Current
In thousands of AUD
Sponsorship income
Lease incentives
Unearned professional indemnity insurance
28. Other financial liabilities
Non-current
In thousands of AUD
Secured non-interest bearing loans
2014
2,182
1,083
1,034
4,299
2014
4,690
4,690
2013
1,736
1,311
908
3,955
2013
-
-
The Group has an obligation of $4,690 thousand payable to a terminated joint operator of Richmond Quarter project
(Project). The loan, which is repayable on completion of the Project, was obtained to facilitate the acquisition of 30% of
the land and interest in the Project that was previously held by the joint operator. This has effectively resulted in the
Group securing 100% ownership of the land and all the undertakings of the Project. The loan is non-interest bearing
loan and is expected to be repaid in full, in accordance with the terms of Deed of Termination of Joint Venture
Agreement, on the earlier of 30 June 2016, 30 months after 30 September 2014, and 6 months after the registration of
the strata plan and the issuing of the titles of the project.
29. Capital and reserves
(a)
Share capital
The Company
In thousands of shares
On issue at 1 July
Issued for cash or nil consideration
On issue at 30 June – fully paid
Ordinary shares
(’000)
2014
93,340
-
93,340
2013
93,340
-
93,340
The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully
paid and rank equally with regard to the Company’s residual assets.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote
per share at meetings of the Company.
(b)
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements
of foreign operations.
(c)
Fair value reserve
The fair value reserve comprises the cumulative net change in fair value of available-for-sale financial assets until the
investments are derecognised or impaired.
Page 38
Australian Finance Group Limited
Notes to the Financial Statements
29. Capital and reserves (continued)
(d) Dividends
Dividends paid in the current year by the Group are:
2014
Final 2013 ordinary
1st interim 2014 ordinary
2nd interim 2014 ordinary
2013
Final 2012 ordinary
1st interim 2013 ordinary
2nd interim 2013 ordinary
Cents per
Total
share
amount
($’000)
Franked /
unfranked
Date of
payment
3.21
4.82
4.29
6.43
3.21
3.21
3,000
4,500
4,000
11,500
6,000
3,000
3,000
12,000
Franked
Franked
Franked
05/07/13
29/11/13
30/05/14
Franked
Franked
Franked
04/07/2012
07/12/2012
26/02/2013
After 30 June 2014 the following dividends were declared and paid. The dividends have not been provided for in the
financial statements and there are no income tax consequences.
Total
Cents per
Franked /
Date of
share
amount
($’000)
unfranked
payment
Final 2014 ordinary
10,000
10,000
Franked
06/10/2014
Dividends declared or paid during the year or after 30 June 2014 were franked at the rate of 30%.
In thousands of AUD
Dividend franking account
30 per cent franking credits available to shareholders of
Australian Finance Group Limited for subsequent
financial years
2014
2013
21,223
19,867
70,744
66,223
The ability to utilise the franking credits is dependent upon the ability to declare dividends. In accordance with the tax
consolidation legislation, the Company as the head entity in the tax-consolidated group has also assumed the benefit of
$70,744 thousand (2013: $66,223 thousand) franking credits.
30.
(a)
Financial instruments
Credit risk
Exposure to credit risk
The carrying amount of the Group financial assets represents the maximum credit exposure.
Page 39
Australian Finance Group Limited
Notes to the Financial Statements
30.
(a)
(i)
Financial instruments (continued)
Credit risk (continued)
Trade and other receivables
Exposure to credit risk
The Group’s maximum exposure to credit risk for trade and other receivables by type of customer is detailed below:
In thousands of AUD
Type of customer
Financial institutions
Members
Other
Carrying amount
2014
2013
511,744
147
676
450,469
81
612
All outstanding trade and other receivables are with customers located within Australia. The amounts owing from
financial institutions include the net present value of trailing commissions’ receivable of $510,916 thousand (2013:
$449,504 thousand).
The majority of the Group’s net present value of future trailing commission receivable is from counterparties that are
rated between AA+ and A-. The following table provides information on the credit ratings at the reporting date according
to the Standard & Poor’s counterparty credit with AAA and BBB being respectively the highest and the lowest possible
ratings.
In thousands of AUD
Standard & Poor’s Credit rating
AA+
AA-
A+
A
A-
BBB+
BBB
BB+
Not rated
In thousands of AUD
Standard & Poor’s Credit rating
AA+
AA-
A+
A
A-
BBB+
BBB
BBB-
BB+
Not rated
Current
Non
2014
Current
2014
19
65,430
1,213
13,120
429
35
316
259
14,460
85
285,418
5,292
57,234
1,871
151
1,380
1,130
63,074
95,281
415,635
Current
Non
2013
Current
2013
30
59,685
1,042
11,087
7
40
185
111
220
13,066
128
254,200
4,440
47,220
30
170
787
470
936
55,650
85,473
364,031
Page 40
Australian Finance Group Limited
Notes to the Financial Statements
30.
(a)
(i)
Financial instruments (continued)
Credit risk (continued)
Trade and other receivables (continued)
Impairment losses
The ageing of the Group’s trade and other receivables (excluding the net present value of future trailing commissions),
at the reporting date was:
In thousands of AUD
Not past due
Past due 0-30 days
Past due 30-60 days
Past due more than 61 days
Gross
2014
Impairment
allowance
2014
Gross
2013
Impairment
allowance
2013
1,070
75
1
508
1,654
-
-
(1)
(1)
(2)
1,507
64
14
89
1,674
-
-
(7)
(10)
(17)
During the year ended 30 June 2014 the Group has not renegotiated or entered into any agreement to renegotiate a
trade receivable that would otherwise be past due or impaired.
The allowance accounts in respect of trade and other receivables are used to record impairment losses unless the Group
is satisfied that no recovery of the amount owing is possible; at that point the amount is considered irrecoverable and is
written off against the receivable account.
During 2014 and 2013 there were no individual impairment allowances raised. The movement in the allowance for
collective impairments in respect of trade and other receivables during the year was as follows:
In thousands of AUD
Balance at 1 July
Impairment loss recognised
Amounts written off or
Balance at 30 June
(ii)
Loans and advances
Exposure to credit risk
2014
2013
17
-
(15)
2
14
3
-
17
The Group’s maximum exposure to credit risk for loans and advances at the reporting date by customer type are
summarised as follows:
In thousands of AUD
Customer type
Residential mortgage borrowers
Members
Other
Residential mortgage borrowers
Carrying amount
2014
2013
1,010,624
2,330
12,236
1,025,190
796,960
1,797
6,075
804,832
The Group minimises credit risk by obtaining security over residential mortgage property for each loan. The estimated
value of collaterals held at balance date was $1,779,647 thousands (2013: 1,335,226 thousands). During the year ended
30 June 2014 the Group has taken possession of 4 residential properties that were held as security for loans issued by
the Group. The carrying amount of the repossessed residential property was $1,796 thousand (2013: $200 thousand).
One property has been sold before the end of the financial year, and the outstanding loan has been repaid by our
lender’s mortgage insurance, except for an expected shortfall of $17k which was provided for during the year.
In monitoring the credit risk, mortgage securitisation customers are grouped according to their credit characteristics using
credit risk classification systems. This includes the use of the Loan to Value Ratio (LVR) to assess its exposure to credit
risk from loans originated through the securitisation programme.
Page 41
Australian Finance Group Limited
Notes to the Financial Statements
30.
(a)
(ii)
Financial instruments (continued)
Credit risk (continued)
Loans and advances (continued)
The table below summarises the Group exposure to residential mortgage borrowers by LVR, with the valuation used
determined as at the time of settlement of the individual loan.
In thousands of AUD
Loan to value ratio
Greater than 95%
Between 90%-95%
Between 80%-90%
Less than 80%
Carrying amount
2014
2013
-
52,550
166,199
787,036
1,005,785
367
57,668
127,579
605,695
791,309
The Group exposure to credit risk by geographic region at reporting date is limited to Australia.
Impairment Losses
The aging of the Group’s loans and advances at the reporting date was:
In thousands of AUD
Not past due
Past due 31-120 days
Past due 121 days to one year
Past due more than one year
Gross
2014
1,020,944
2,910
1,211
163
1,025,228
Impairment
allowance
2014
-
-
(20)
(18)
(38)
Gross
2013
802,002
2,259
617
9
804,887
Impairment
allowance
2013
(1)
(14)
(31)
(9)
(55)
The impairment loss provision as at 30 June 2014 of $38 thousand (2013: $55 thousand) is a specific provision for loans
that are past due.
The movement in the allowance for impairment in respect of loans and advances for the Group during the year was as
follows:
In thousands of AUD
Balance at 1 July 2012
Charge for the year
Utilised
Unused amounts reversed
Balance as at 30 June 13
Balance as at 1 July 2013
Charge for the year
Utilised
Unused amounts reversed
Balance at 30 June 14
Individual
Collective
8
46
-
-
54
54
1
-
(17)
38
8
-
-
(7)
1
1
-
-
(1)
-
Securitisation loans
Loans and advances of SPEs: The Group is required to provide the warehouse facility provider with a level of
subordination or Credit Support. The Group’s maximum exposure to credit risk on this securitisation loan at reporting
date is the carrying amount.
The SPE-RMBS loans and advances: Under the current trust terms, a default by the borrowers will not result in the bond
holders having a right of recourse against the Group (as Originator, Trust Manager or Servicer). Importantly, all
residential mortgages are covered by a lender’s mortgage insurance contract which covers 100% of the principal.
The Group’s maximum exposure is the loss of future interest income on its Class C Notes investment.
No impairment loss was recognised during 2014 (2013: NIL).
Page 42
Australian Finance Group Limited
Notes to the Financial Statements
30.
(a)
(ii)
Financial instruments (continued)
Credit risk (continued)
Loans and advances (continued)
Redeemable preference shares
All the RPS were acquired to enable a reputable property developer to fund property projects. The Group limits its
exposure to credit risk by only investing in counterparties that are creditworthy with an extensive past experience in
property development, and by obtaining sufficient collateral or other security where appropriate and a higher ranking than
ordinary shareholders in any proceeds’ distribution. All RPS are mandatorily redeemable and a failure to redeem the
RPS within the agreed term will see the counterparties liable to indemnify the Group for the shortfall through either sale
of their assets, or any other means in accordance with the agreed terms.
As at the balance sheet date all the property projects are on track to agreed key targets in terms of sales, budget and
completion date. The Group does not expect any counterparty to fail to meet its obligations in full when due.
The likelihood of an exposure by the Group to credit risk for the RPS is assessed to be minimal.
No impairment loss was recognised during 2014 (2013: NIL).
Other secured loans
The Group has minimal exposure to credit risk for loans made during the year.
No impairment loss was recognised during 2014 (2013: NIL).
(b)
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another financial asset. 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 Board of
Directors reviews the cash flows’ rolling forecast on a monthly basis to ensure that the level of its cash and cash
equivalents is at an amount in excess of expected cash outflows over the succeeding months. Excess funds are
generally invested in at call bank accounts with maturities of less than 90 days. Within the special purpose entities the
Group also maintains sufficient cash reserves to fund redraws and additional advances on existing loans. As stated in
note 23, the Group has unused warehouse facilities at the reporting date.
The following are the contractual maturities of financial liabilities based on contractual undiscounted payments, including
estimated interest payments and excluding the impact of netting agreements for the Group.
2014
In thousands of AUD
Redeemable preference shares
Securitisation warehouse facilities
Secured bond issues
Secured bank loans
Loans from funders
Net present value of future trailing
commissions payable
Trade and other payables
2013
Securitisation warehouse facilities
Secured bond issues
Secured bank loans
Loans from funders
Net present value of future trailing
Carrying
amount
4,098
281,316
739,455
8,205
1,611
Contractual
cash flows
5,075
287,273
765,744
8,773
1,725
6 months
or less
-
111,522
63,626
161
320
6-12
months
-
175,751
63,626
160
300
1-2 years
2-5 years
5,075
-
107,745
8,452
540
-
-
530,747
-
565
More
than 5
years
-
-
-
-
-
455,247
47,054
1,536,986
615,784
47,054
1,731,428
64,378
47,054
287,061
61,656
-
301,493
110,313
-
232,125
227,851
-
759,163
151,587
-
151,587
540,852
257,736
3,273
2,376
552,589
260,975
3,307
2,562
552,589
21,783
3,307
418
-
21,783
-
364
-
37,129
-
698
-
180,280
-
1,082
-
-
-
-
commissions payable
Trade and other payables
396,179
40,720
544,907
40,720
58,203
40,570
55,088
150
97,613
-
199,334
-
134,668
-
1,241,136
1,405,060
676,870
77,385
135,440
380,696
134,668
Page 43
Australian Finance Group Limited
Notes to the Financial Statements
30.
(b)
Financial instruments (continued)
Liquidity risk (continued)
The obligation in respect of the net present value of future trailing commission only arises if and when the Group receives
the corresponding trailing commission revenue from the lenders.
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly
different amounts.
Securitisation warehouse facilities
The warehouse facilities are short term funding facilities that are generally renewable annually. Post balance sheet date
the Group has extended the term of the warehouse facility that was due to expire on 6 September 2014 to 14 August
2015. If the warehouse facility is not renewed or should there be a default by the trustee under the existing terms and
conditions, the warehouse facility funder will not have a right of recourse against the remainder of the Group. Should the
warehouse facility not be renewed then the maximum exposure to the group would be the loss of future income streams
from excess spread, being the difference between the group's mortgage rate and the underlying cost of funds.
Secured bond issues
The securities are issued by the SPE-RMBS with an expected weighted average life of 5 years. They are a pass through
type of securities that may be repaid early (at the call date) by the issuer (the Group) in certain circumstances. The
above maturity assumes that the securities will be paid at their respective maturity dates and that the Group will not opt
to repay the securities at the call date.
The Directors are satisfied that the Group’s ability to continue as a going concern will not be affected.
For terms and conditions relating to trade payables and net present value of future trailing commissions payable refer to
notes 4 and 22.
(c)
(i)
Exposure to currency risk
Market risk
Currency risk
As at reporting date the Group held cash assets denominated in New Zealand dollars (NZD), USD and euro.
Fluctuations in the foreign currencies are not expected to have material impact on the Statement of Comprehensive
Income and equity of the Group and have therefore not formed part of the disclosures.
Interest rate risk
(ii)
Profile
The table below summarises the profile of the Group’s interest-bearing financial instruments at reporting date.
In thousands of AUD
Fixed rate instruments
Financial assets
Financial liabilities
Variable rate instruments
Financial assets
Financial liabilities
Carrying amount
2014
2013
525,482
459,345
66,137
1,086,646
1,030,587
56,059
457,377
396,179
61,198
862,105
804,237
57,868
The Group’s main interest rate risk arises from the securitised assets, cash deposits and interest bearing liabilities. All
the Group’s borrowings are issued at variable rates, however the vast majority pertains to the warehouse facility which is
arranged as a ‘pass through’ facility, and therefore the exposure to the interest rate risk is mitigated by passing any rate
increases onto the borrowers.
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss therefore a
change in interest rates at reporting date would not affect profit or loss.
Cash flow sensitivity analysis for variable rate instruments
Due to the market conditions existing at 30 June 2014, the Group does not expect that interest rates will move in excess
of 100 basis points (bps) from current conditions in the next reporting period. This has therefore formed the basis for the
sensitivity analysis.
Page 44
Australian Finance Group Limited
Notes to the Financial Statements
30.
(c)
(ii)
Financial instruments (continued)
Market risk
interest rate risk
A change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or
loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates,
remain constant. The analysis is performed on the same basis for 2013.
Effect in thousands of AUD
30 June 2014
Variable rate financial assets
Variable rate financial liabilities
Cash flow sensitivity (net)
30 June 2013
Variable rate financial assets
Variable rate financial liabilities
Cash flow sensitivity (net)
After tax profit
Equity
100bp
increase
100bp
decrease
100bp
increase
100bp
decrease
7,209
3,233
3,976
4,226
2,620
1,606
(7,209)
(3,243)
(3,966)
(4,226)
(3,924)
(302)
7,209
3,233
3,976
4,226
2,620
1,606
(7,209)
(3,243)
(3,966)
(4,226)
(3,924)
(302)
(iii)
Prepayment risk
Net present value of future trailing commissions receivable and payable
Exposure to prepayment risk
The Group will incur financial loss if customers or counterparties repay or request repayment earlier or later than
expected. A change in the pattern of repayment by end consumers will have an impact on the fair value of future trailing
commissions receivable and payable. Refer to note 4 for more details.
Sensitivity analysis
Management have engaged the use of actuaries for the purposes of reviewing the run-off rate of the loans under
management. Management does not expect the run-off rate to change in excess of 4% positive or 4% negative of the
rates revealed from the actuarial analysis. The change estimate is calculated based on historical movements of the
prepayment rate.
The effect from changes in prepayment rates, with all other variables held constant, is as follows:
In thousands of AUD
2014
2013
After tax profit
Equity
Securitised assets
+4%
-4%
+6%
-6%
(1,138)
(1,138)
1,182
1,182
(1,625)
(1,625)
1,717
1,717
The Group is exposed to prepayment risk on its securitised assets. The warehouse facilities and the secured bond
issues funding the securitisation operations are pass through funding facilities in nature. All principal amounts prepaid by
residential mortgage borrowers are passed through to the warehouse facility provider or the bond holders as part of the
monthly payment terms. Consequently, the Group has no material exposure to prepayment risk on its securitised assets.
(iv)
Equity price risk
Exposure to equity price risk
The Group’s maximum exposure to this risk, deemed insignificant, is presented by the carrying amounts of its financial
assets designated at fair value through profit or loss and available-for-sale financial asset carried in the Statement of
Financial Position.
At 30 June 2014 an increase in the fair value of financial assets designated at fair value through profit or loss of $2
thousand (2013: $16 thousand decrease) was recognised.
Page 45
Australian Finance Group Limited
Notes to the Financial Statements
30.
(c)
(v)
Financial instruments (continued)
Market risk (continued)
Other market risks
The Group is exposed to other market risks on the credit support (securitisation loan receivable) provided by the Group
in relation to the warehouse facilities. The value of the loan is dynamic in that it can change due to circumstances
including the credit ratings of mortgage insurers. The Group has assessed that if this were to occur, it would not have a
material impact on the Group’s profit after tax and equity.
(d)
Accounting classifications and fair values
Fair values versus carrying amounts
The fair values of financial assets and liabilities, together with the carrying amounts shown in the Statement of Financial
Position, are as follows:
In thousands of AUD
Assets carried at fair value
Financial assets designated at fair value
through profit or loss
Available-for-sale financial assets
Assets carried at amortised cost
Cash and cash equivalents
Trade and other receivables
Loans and advances
Other financial assets
Liabilities carried at amortised cost
Trade and other payables
Interest-bearing liabilities
Other financial liabilities
2014
2013
Note
Carrying
Fair value
Carrying
Fair value
amount
amount
17
17
13(a)
14
15
17
22
46
22
46
20
31
20
31
76,022
512,568
1,025,191
128
76,022
512,568
1,025,191
128
65,145
451,161
804,832
-
65,145
451,161
804,832
-
22
23
28
(502,301)
(1,034,685)
(4,690)
(502,301)
(1,034,685)
(4,690)
(436,899)
(804,237)
-
(436,899)
(804,237)
-
72,301
72,301
80,053
80,053
Fair value hierarchy
The table below analyses financial instruments carried at fair value, 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 within level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
Effect in thousands of AUD
30 June 2014
Available-for-sale financial assets
Financial assets designated at fair value
through profit or loss
30 June 2013
Available-for-sale financial assets
Financial assets designated at fair value
through profit or loss
Fair value measurement at end of the reporting
period using :
Level 1
Level 2
Level 3
Total
-
22
22
-
20
20
-
-
-
-
-
46
-
46
31
-
31
46
22
68
31
20
51
There have been no transfers between levels during the year ended 30 June 2014 (2013: no transfers in either direction).
Page 46
Australian Finance Group Limited
Notes to the Financial Statements
Financial instruments (continued)
Accounting classifications and fair values (continued)
30.
(d)
Reconciliation of movement per class pertaining to Level 3 financial instruments for the period:
In thousands of AUD
Balance at 1 July 2013
Total gains and losses recognised in
comprehensive income
Purchases and disposals
Balance at 30 June 2014
Available-for-sale
financial assets
Financial assets
designated at fair
value through
profit or loss
31
15
-
46
20
2
-
22
31.
Operating leases
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
In thousands of AUD
Less than one year
Between one and five years
2014
2,033
5,800
7,833
2013
2,048
5,956
8,004
The Group leases a number of office facilities under operating leases. The leases run for a period of up to 6 years, with
an option to renew the lease after that date. Lease payments are generally increased every year to at least reflect
Consumer Price Index (CPI) movements, with regular adjustments to reflect market rentals.
During the financial year ended 30 June 2014, $1,978 thousand was recognised as an expense in the Statement of
Comprehensive Income in respect of operating leases (2013: $2,095 thousand).
32.
Group entities
Country of
incorporation
Ownership
interest
2014
2013
Parent entity
Australian Finance Group Limited
Significant subsidiaries
Australian Finance Group (Commercial) Pty Ltd
Australian Finance Group Insurance Brokers Pty Ltd
Australian Finance Group Securities Pty Ltd
AFG Securities Pty Ltd
AFG 2010-1 Trust
AFG 2013-1 Trust
AFG 2013-2 Trust
AFG 2014-1 Trust
New Zealand Finance Group Ltd
Lilydale Pastures Estate Pty Ltd
Longford Road Pty Ltd
AFG Home Loans Pty Ltd
Venture Lending Pty Ltd
Cambridge WA Pty Ltd
AFG Developments Pty Ltd
AFG Developments 2 Pty Ltd
AFG Property Investment No.1 Pty Ltd
AFG Property Pty Ltd
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
-
-
100
100
100
100
51
100
100
100
-
-
The Group holds a 51% interest in Venture Lending Pty Ltd, has majority representation on the entity’s board of
directors, and has control over its operating and financial decisions. Consequently, the Group has consolidated this entity
into its financial statements.
Page 47
Australian Finance Group Limited
Notes to the Financial Statements
33.
Parent entity
Throughout the financial year ending 30 June 2014, the parent Company of the Group was Australian Finance Group
Limited.
In thousands of AUD
Results of the parent entity
Profit for the period
Other comprehensive income
Total comprehensive income for the period
In thousands of AUD
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising of:
Share capital
Reserves
Retained earnings
Total equity
2014
2013
18,855
10
18,865
18,879
-
18,879
2014
2013
164,975
609,748
136,177
521,522
11,435
(75)
76,866
88,226
147,261
535,953
120,840
455,092
11,435
(85)
69,511
80,861
See notes 34 and 35 for the parent entity capital and other commitments, and contingencies.
Refer to note 23 (d) for the parent entity’s guarantees.
As at reporting date the credit support facility provided by the parent entity to AFG 2010-1 Trust was $9.5 million (2013:
$6.5 million).
34.
Capital and other commitments
During the year ended 30 June 2014 the Group entered into two construction contracts to develop AFG Developments 2
Pty Ltd and AFG Developments Pty Ltd lands. As at the reporting date the Group is committed to incur additional capital
expenditure in respect of these contracts of $2,860 thousand (2013: nil) and $37,803 thousand (2013: nil), respectively.
These commitments are expected to be settled in 2016.
35.
Contingencies
Performance guarantee
During the year the Group has provided a performance guarantee to AFG Developments Pty Ltd debt facility provider of
$5 million in relation to the due performance of Richmond Quarter development project (Project). In the event that the
Project’s costs exceed the facility obtained from the funder of $51,510 thousand and the equity contributed to the project,
the Group is obligated to pay for the cost overrun that the Bank will not meet from the loan. In the event of the Group
failing to meet its obligations in respect of the cost overrun, or should there be any default on the loan repayment, the
funder on demand will request the payment of the guarantee up to a limit of $5 million. Given the timely progress of the
project and the presales secured at balance sheet date, the Group expects to meet all of its obligations under the terms
of facility. Accordingly, no provision for any liability has been made in these financial statements.
Third Party Guarantees
Bank guarantees have been issued by third parties financial institutions on behalf of the Group and its subsidiaries for
items in the normal course of business such as operating lease contracts. The amounts involved are not considered to
be material to the Group.
Other than above, no material claims against these warranties have been received by the Group at the date of this
report, and the Directors are of the opinion that no material loss will be incurred.
Page 48
Australian Finance Group Limited
Notes to the Financial Statements
36.
(a)
Related parties
Key management personnel compensation
The key management personnel compensation paid and payable as at the reporting date comprised:
In AUD
Short-term employee benefits1
Other long term benefits – long service and annual
leave
Termination benefits
Post-employment benefits-superannuation
2014
2,522,209
295,936
2013
2,727,595
326,290
185,144
165,686
-
166,046
3,168,975
3,219,931
In addition to their salaries, the Group also provides non-cash benefits to key management personnel.
(1)
Short-term employee benefits include salaries and other accrued short term entitlements in relation to key
management personnel’s services rendered to the Group.
Executive officers may also participate in the Group’s employee share scheme (see note 25).
The balance of short- term employee benefits outstanding to key management personnel and other related parties at
reporting date is a payable amount of $212,112 (2013: $104,330).
(b)
Other related parties
A number of key management personnel held positions in other entities that result in them having control over the
financial or operating policies of these entities.
A number of these entities transacted with the Group in the reporting period. The terms and conditions of the
transactions with the other related parties were no more favourable than those available, or which might reasonably be
expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length
basis.
The aggregate amounts recognised during the year relating to other related parties were as follows:
In AUD
Transactions value year ended
30 June
2014
2013
Gill Family Pty Ltd - Provision of chairman services
97,000
95,000
(i)
(ii)
(iii)
McCabe Street Limited is a special purpose company incorporated for development of a specific property. Mr B
McKeon, Ms L Bevan, and the Chief Financial Officer, Mr Bailey, are directors of McCabe Street Limited. AFG
Property division is responsible for the project management of the development. During 2013 the Board of
Directors agreed to provide McCabe Street Limited with a loan facility of a maximum amount of $1.2m for a term
of 24 months or until alternative financing is sourced whichever is earlier, on commercial arms length terms. The
outstanding balance as at reporting date is $138,002 (2013: $49,331) and comprises of administrative costs that
the financing facility will not meet. The interest charged during the year is $13,529 (2013: $5,626)
During the year the Group received payments from TAL Life Ltd. Jim Minto is a director of TAL Life Ltd and also
a non-executive director of the Company. These dealings were in the ordinary course of business and were on
normal terms and conditions. These payments were received as commission for life and risk insurance products
provided by TAL Life Ltd. Total commissions received during the financial year was $779 thousand (2013 : $706
thousand).
During the year the Group made payments to Genworth Financial, one of our providers of Lenders Mortgage
Insurance (LMI). Tony Gill is a non-executive director of Genworth Australia. These dealings were in the
ordinary course of business and were on normal terms and conditions. The payments made for the provision of
LMI products were $2,633 thousand (2013:$ 3,874 thousand).
Page 49
Australian Finance Group Limited
Notes to the Financial Statements
36.
(b)
(iv)
Related parties (continued)
Other related parties (continued)
Tony Gill is an Independent Director of First Mortgage Services (FMS), one of our providers of loan settlement
services. During the year the Group made payments to FMS. These dealings were in the ordinary course of
business and were on normal terms and conditions. The payments made for the provision of the settlement
services were $404,417 (2013: $277,300).
(e) Subsidiaries
Loans are made by the parent entity to wholly owned subsidiaries to fund working capital and purchases of shares from
one subsidiary to the other subsidiary. Loans outstanding between the Company and its subsidiaries are unsecured,
have no fixed date of repayment and are non-interest bearing.
Interest-free loans made by the parent entity to all its subsidiaries are payable on demand. Each of the individual loans
owed by / (to) the subsidiaries is detailed below:
In AUD
Australian Finance Group Securities Pty Ltd
AFG Securities Pty Ltd
New Zealand Finance Group Ltd (‘NZFG’)
Lilydale Pastures Estate Pty Ltd
Longford Road Pty Ltd
AFG Home Loans Pty Ltd
Cambridge Pty Ltd
AFG Developments Pty Ltd
Venture Lending Pty Ltd
AFG Developments 2 Pty Ltd
AFG Property Pty Ltd
AFG Property Investment No.1 Pty Ltd
Less provision for impairment
Parent entity
2014
2013
8,162,348
4,123,195
329,596
(654,093)
(122)
6,936,604
(21,853)
9,671,990
760
2,133,330
52,732
383
(4,220,898)
5,842,261
7,740,461
329,596
833,634
(122)
3,282,925
(36)
5,167,218
19,534
(100)
-
-
(4,220,898)
26,513,972
18,994,473
37.
Subsequent events
On 14 August 2014, the Group secured an extension to the term of the residential warehouse facility that was due to
expire in 6 September 2014. The funding continues to be provided through the issue of two classes of secured, limited and
floating rate notes, with the senior notes being issued to the lender and the subordination notes to Australian Finance
Group Limited. The maturity date has been reset to 14 August 2015 and the cost of funds has been reviewed favourably to
the end to term.
On 26 August 2014 the Directors recommended the payment of a dividend of 10.71 cents per fully paid ordinary share,
fully franked based on tax paid at 30%, out of profits of the Company for the year ended 30 June 2014. The aggregate
amount of the dividends paid out in October out of retained profits at 30 June 2014 is $10 million. The financial effect of
these dividends has not been brought to account in the financial statements for the year ended 30 June 2014.
On 1 July 2014, the Group amalgamated the construction warehouse AFG 2010-1 Trust Warehouse Series No.2 into AFG
2010-1 Trust Warehouse Series No.1.
Other than the above, there has not been any matter or circumstance, other than that referred to in the financial
statements or notes thereto, that has arisen since the end of the financial year, that has significantly affected, or may
significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in
future financial years.
Page 50