American Financial Group Annual Report 2015

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FY2015 Annual Report · American Financial Group

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www.afgonline.com.au

Level 4, 100 Havelock Street

West Perth WA 6005

T 08 9420 7888

F 08 9420 7858

ANNUAL REPORT

ABN 11 066 385 822

Contents

PERFORMANCE highlights

CHAIRMAN’S LETTER

CEO’ S REPORT

Directors’ Report

Auditor’s Independence Declaration

Financial Statements

Consolidated Statement of Financial Position

Consolidated Statement of Profit or Loss and Other Comprehensive Income

Statement of Changes in Equity

Statement of Cash Flows

Notes to the Financial Statements

Directors’ Declaration

Audit Report

SHAREHOLDER INFORMATION

Corporate directory

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PERFORMANCE highlights

ANNUAL REPORT | 2015$19.3 MILLION FOR THE 2015 FINANCIAL YEAR20% $16.1 MILLION IN FY2014COMPARED WITHANINCREASE OFOUR PERFORMANCEOUR BROKERSOUR SIZE AND SCALEOUR REVENUEPROFORMA NPATLOAN BOOKOUR LENDER PANELOUR COMMERCIAL SETTLEMENTS23%RECORD COMMERCIAL SETTLEMENTS$2.39 BILLION AN INCREASE OF4321520%OF AUSTRALIA’S MORTGAGE BROKERS ARE AFG MEMBERS16% FROM THE PREVIOUS CORRESPONDING PERIOD ($453M)$526 MILLIONREVENUE FOR FY 2015 WASAN INCREASE OFMARKET SHARECUSTOMERSOUR RESIDENTIAL SETTLEMENTSOUR PARTNERS AND PRODUCTS19% $31.24 BILLIONAN INCREASE OFFROM FY2014AFG HOME LOANS SETTLEMENTS OF OUR EDGE PRODUCT ALONEVERSUS A FORECAST OF $150 MILLION$460 MILLION2,400+BROKERS AROUND AUSTRALIAOVER 51% OF AUSTRALIAN MORTGAGES ARE WRITTEN THROUGH A BROKER AND GROWINGLOAN BOOK OF OVER $107B ONE IN 12OF ALL RESIDENTIAL MORTGAGES WRITTEN IN AUSTRALIA ARE ARRANGED BY AN AFG BROKER.2+ MILLION CUSTOMERS12.6 MILLION16%ON OUR BOOKS, THAT ISTHE OVERALL POPULATIONAUSTRALIA OVER 18 BEINGOF THE WORKINGPOPULATION10,000CUSTOMERS PER MONTH40+THE NUMBER OF LENDERS ON THE AFG PANEL 1,450+THE NUMBER OF FINANCIAL PRODUCTS AVAILABLE TO AFG BROKERSAND MOREAdelaideBankHome Loans5

Tony Gill

Independent Non-Executive
Chairman

CHAIRMAN'S LETTER
I am delighted to present this annual report – our first as a publicly listed company. The level of
activity within the company over the past twelve months has been astounding. Not only was
management required to focus on an Initial Public Offering but before this could be done it
needed to demerge its Property assets to ensure the company was a streamlined entity.
Ordinarily, both of these projects soak up a lot of day to day management time and as such,
it is testament to the strength of the business that the financial performance continued strongly
during this period.

We are very pleased to report a pro forma net profit after tax (NPAT) result of $19.3 million for the
2015 financial year (FY2015), approximately 8.4 per cent ahead of Prospectus forecasts of $17.8
million, and an increase of 19.8 per cent compared with the pro forma $16.1 million in FY2014.
Our total residential settlements achieved for the full year was at an all time high of $31.24 billion
and on top of this, we achieved monthly mortgage applications in excess of $5 billion for the first
time in May. This monthly record was subsequently eclipsed in the month of June, setting up the
company for a strong start to the new financial year.

The higher-margin strategy of our branded white label products through AFG Home Loans will
further increase profit. At present it represents a $2.5 billion loan book.

It was not just in the Residential mortgage market that we have experienced growth.
Our Commercial mortgage business generated settlement volume over the year in excess of
$2.39 billion and therefore helped grow the AFG Commercial mortgage book to in excess of
$5 billion. Broker penetration of the commercial mortgage market, whilst significantly lower than
the levels experienced in the residential market, continues to grow and is being seen as an
increasingly important avenue for lenders looking to grow their exposure in this sector.

AFG’s footprint across the country has increased. In the key housing markets of NSW and VIC we
have grown market share. In WA, QLD and SA, AFG has historically had very strong market share
and it is good to see the other states making some ground in this area.

Our reach into the homes of Australians in the property market is also on the rise. The past 12
months has seen some of the biggest in the business partner with AFG. We continue to be the
partner of choice.

Behind the scenes of every successful company is a team of experienced and motivated
professionals. AFG is no different. So to those within the executive and senior management
team, on behalf of the Board I extend a thank you for your contribution to a tremendous financial
year. It would also be very remiss of me not to mention the ongoing hard work of all AFG staff and
just importantly the AFG Brokers who continue to support us.

I would also like to take this opportunity to personally thank my fellow Director John Atkins for
his contribution to AFG over many years. John leaves AFG to take up his appointment to the role
of Western Australia’s Agent General, based in London. He has been a tireless non-executive
director and his support of senior management has been invaluable.

Our IPO came at a time when some of the industry regulators expressed concern around
the Australian housing market. Knock on impacts, were in many ways inevitable. Whilst we
believe that the APRA initiated changes to the Australian mortgage market did have an impact
on our initial public offering, we remain confident that AFG is well placed to provide valuable
services to all participants in the market be they lenders, brokers or our broker’s customers.
The ongoing changes to the market, particularly with the investor market does add another level
of complexity to the residential mortgage market making the services that a broker provides
their customer even more relevant.

And the key drivers of long-term growth for the mortgage market are positive – population
growth, low interest rates, good employment numbers, broker penetration and commission
rates are all strong.

Capturing underlying market growth by adapting quickly to the changing landscape of the
residential mortgage market is the core strength of AFG, proven time and again over the past
22 years. AFG is well placed to continue on this path.

Yours sincerely,

Tony Gill
Chairman

ANNUAL REPORT | 2015
8

Brett McKeon

CEO

CEO'S REPORT
Our proposition has always been providing a win four ways: A win for our brokers, a win for their
customers, a win for our lender partners and a win for AFG’s shareholders. This proposition has
enabled AFG to grow over the past 22 years to the business it is today. The final validation of our
business philosophy was the successful listing of AFG on the Australian Securities Exchange on
22 May 2015.

Coupled with the significance of the IPO, it has been a watershed year across the business.
We have set new benchmarks with lodgements and settlements in our core residential business.
The 2015 financial year drew to a close with a record-breaking volume of $5.1 billion in mortgages
processed for the month of June. Solid settlement numbers in the last few months of FY2015
flowed into a strong start for FY2016.

AFG enters the new financial year in a strong position with a residential and commercial
loan book of more than $107 billion. The result was underpinned by another strong period of
settlement growth primarily by our residential mortgage business. Our commercial arm of the
business is tracking well and we have brought on new lenders in this field to further drive growth.

The Australian mortgage market continues to evolve and with the recent APRA introduced
changes to lending guidelines around investment lending we would expect the consumer
demand for a broker to assist them in making what is for some, their most important financial
decision, to continue to increase.

Broker penetration of mortgage volumes written in the Australian market is now in excess
of 51%. The value a broker delivers is recognised by consumers and they are voting with their feet.
A broker provides options – options a consumer can only access through our channel.

With more liquidity in the market than ever before we have welcomed new commercial and
residential lenders to our panel over the past 12 months and negotiations are well underway with
a number of new lenders set to join. All of this points towards more competition in the market and a
greater range of mortgage products for consumers to select from. We are also expanding our leasing
offer and expect FY2016 to reflect the focus on this part of our business.

The value AFG delivers to its member brokers and their customers drives our value proposition
and this has been reflected in our recruitment numbers. With more than 400 new brokers joining
AFG, during FY2015, at the end of the financial year we had 2,400 active brokers.

AFG continues to leverage its technology investment for established business lines by
broadening its technology offering, exploring diversified business opportunities and achieving
operational efficiency through an ongoing focus on innovation and improved customer servicing.

Recent partnerships with some of the biggest businesses in the growing online segment of the
market have further expanded our potential to harness the growth this channel represents.

We were above target on our white label business for FY2015. In the latter half of 2015 financial
year we launched the AFG Home Loans Edge product. The support received from our brokers
was exceptional and the product settled $460 million for the year. Whilst not wishing to detract
from the contribution of our more traditional AFG Home Loans funders, the roll out of the Edge
product represented the first time our brokers could write white label AFG mortgage products
without being constrained by warehouse funding parameters or funder lending appetites and
the response from our brokers reflected this. Edge however does remain a book build process
and whilst initial financial returns are relatively small, as the underlying book increases, so will
the contribution to our overall profitability. The planned launch of a new funding line in the first
quarter of FY2016 will help drive further growth in this part of the business.

Recently at the Australian Broker Awards, AFG was recognised by winning the Best IT award as
well as the Best Marketing Platform. Whilst pleasing to receive this form of external confirmation,
it simply underlines what we already suspected. It is testament to the foresight and significant
investment we have undertaken in this area.

Across the country our state offices recently celebrated our annual broker awards. These are
important events in our calendar as it provides us with an opportunity recognise the contribution
of all of our brokers and to congratulate those who have had sensational years.

Finally I would like to close by thanking all AFG staff and brokers for a fantastic year and for their
continued support.

Yours sincerely,

Brett McKeon
CEO

ANNUAL REPORT | 2015
Directors’
Report

The Directors present their report together with the
financial report on the consolidated entity consisting
of Australian Finance Group Limited (‘the Company’ or
‘AFG’), and its controlled entities (‘the Group’), for the
financial year ended 30 June 2015 and the auditor’s
report thereon.

Directors
The Directors and Company Secretary of the Company at any
time during or since the end of the financial year are:

Anthony (Tony) Gill (Non-executive Chairman)

Mr Gill has been the Chairman of the Board since 2008.
Mr Gill has extensive experience across Australia’s finance
industry including Macquarie Bank for more than 16 years,
most recently as Group Head of the Banking and Securitisation
Group (BSG). Mr Gill is also a director of First Mortgage Services,
First American Title Insurance, Genworth Australia and also sits
on the board of the Butterfly Foundation for Eating Disorders.
Mr Gill holds a Bachelor of Commerce and is a Chartered
Accountant (retired).

Brett McKeon (Managing Director and Chief Executive Officer)

for

is responsible

Mr McKeon is a founding director of the Group and is the
Company’s Managing Director/Chief Executive Officer.
He
the Group’s strategy, corporate
governance and for driving future growth. Mr McKeon has
worked for over 30 years in the finance industry and brings
considerable management, capital raising, public company
and sales experience to the board of AFG. Mr McKeon is
a licensed finance broker and in 2006 he was awarded
The Ernst & Young Entrepreneur of the year for WA.

During the past three years Mr McKeon has also served as a
director of listed company:

■

Caravel Minerals
resigned in 2015.

Limited – appointed

in 2012;

ANNUAL REPORT | 2015
ANNUAL REPORT | 2015

asdasdasdaasdasdasdasdasMalcolm Watkins (Executive Director)

Mr Watkins is a founding director of the Group. He holds strategic
responsibility for the Group’s technology development programs,
electronic delivery systems and national marketing operations.
Mr Watkins’ key focus is extracting real and tangible returns
on the investments made and leveraging the strengths of the
Group today to further expand market share, profitability and
brand awareness. Mr Watkins has recently been invited to join the
board of the Mortgage and Finance Association of Australia (MFAA).

Kevin Matthews (Non-executive director)

Mr Matthews is a founding director of the Group. He previously held
a role of Executive Director and was responsible for negotiating
and managing key relationships with banks and lending institutions,
including product development and the Commercial line of business.
Mr Matthews ceased to be an Executive Director and became a
non-executive director on 1 May 2015. Mr Matthews has worked in
the finance industry for more than 35 years and has been a licensed
finance broker for more than 25 years. He is a former director of
the Mortgage and Finance Association of Australia (MFAA) and
served on the MFAA’s National Brokers Committee for 12 years.
Mr Matthews is also a Senior Fellow of the Financial Services Institute
of Australasia (FINSIA).

James (Jim) Minto (Independent non-executive director)

Mr Minto rejoined the AFG board in 2015 having retired as Group CEO
and Managing Director of life insurer TAL (formerly TOWER Australia).
TAL is 100% owned by Dai-ichi Life, a major global Japanese-based
life insurer. Mr Minto had been in that role since November 2006 and
prior to that was Group CEO of the trans-Tasman TOWER Limited
Group. Mr Minto has extensive experience in the financial services
sector and an intimate understanding of the AFG business having
previously been a member of the AFG board from 2004 until 2013.
A Chartered Accountant, Mr Minto recently retired as Chair of the
Association of Superannuation Funds of Australia (ASFA) and
was a panel member of the Australian Government’s 2011 Review
of Natural Disasters Insurance. He is also an executive officer of
Dai-ichi Life of Japan, a director of Singapore-based Dai-ichi Life Asia
Pacific and a member of the Superannuation Complaints Tribunal
Advisory Council.

Craig Carter (Independent non-executive director)

Mr Carter has 35 years experience in stockbroking, capital markets
and corporate finance. He was a founding partner of Porter Western
Ltd which Macquarie Group Limited acquired in 1999. Most recently
Mr Carter was Chairman and Executive Director of Macquarie
Capital in Western Australia. Mr Carter has been involved in many
capital raisings including initial public offerings across many industry
groups. Mr Carter is Chairman of the Audit Committee and of the
AFG Risk and Compliance Committee. Mr Carter is also currently
a Board member of the Fremantle Football Club. Mr Carter holds a
Bachelor of Business and is a Fellow of FINSIA.

John Atkins (Independent non-executive director)

Mr Atkins background is as a commercial lawyer having been a
partner of leading Australian law firm Freehills and its predecessors
for over 20 years. He held senior management and leadership
positions with that firm prior to his retirement as a partner in 2008.
Mr Atkins is a former Chairman of Lotterywest, Minotaur Exploration
Ltd and BWP Trust, a former director of the Chamber of Commerce
and Industry of WA and Deputy Chairman of Committee for Perth.
During the past three years Mr Atkins has also served as a director
of the following listed companies:

■

Breakaway Resources Ltd – appointed November 2006;
resigned 25 June 2014.

Aurora oil & Gas Limited – appointed June 2003;
resigned 11 June 2014.

ANNUAL REPORT | 2015

Mr Atkins holds a Bachelor of Jurisprudence and a Bachelor
of Law (Masters) and is a Fellow of the Australian Institute of
Company Directors.

The above named directors held office during the whole of the
financial year and since the end of the financial year except for:

■ Mr James Minto – resigned 28 November 2013 and appointed

1 April 2015.

■ Mr Craig Carter – appointed 25 March 2015.

■ Mr John Atkins – resigned 31 August 2015.

Company Secretary

Lisa Bevan (Company Secretary)

Ms Bevan joined AFG in 1998 and was appointed to the position
of Company Secretary in 2001. Lisa is a Chartered Accountant,
holds a Bachelor of Commerce degree and has a Diploma of
Corporate Governance with the Institute of Chartered Secretaries.
Ms Bevan is responsible for managing AFG’s secretariat, compliance,
governance and risk management programs. Ms Bevan also
oversees the legal and human resources functions.

Interests in the shares and rights of the Company
As at the date of this report, the interests of the directors in the
shares of the Group were:

Director

Tony Gill

Brett McKeon

Malcolm Watkins

Kevin Matthews

Craig Carter

James Minto

John Atkins

Number
of ordinary
shares

Number of rights
over ordinary
shares

2,250,000

21,179,773

21,102,689

16,882,151

500,000

166,666

136,364

125,000

41,667

Changes in State Of Affairs
The Company listed on the Australian Securities Exchange on 22
May 2015, with 214,812,671 of shares at a price of $1.20 per share.
As part of this listing, existing shareholders sold down some of their
existing holdings in the Group and additional capital was raised
from new shareholders. Upon listing and the related capital raising,
approximately 52% of issued capital in the company was retained by
existing shareholders of the Company.

Prior to the listing, but linked to the overall strategy of listing a
Company which was focussed on the financial services industry, the
Property-related assets previously forming part of the Group were
de-merged. As part of the de-merger, the Company incorporated
Establish Property Group Ltd on 20 December 2014 as a wholly
owned subsidiary. Subsequently, a sale agreement between the
Company and Establish Property Group Ltd was executed whereby
the Group agreed, amongst other things, to transfer the Group’s
property development interests to Establish Property Group Ltd in
consideration for the issue of Establish Property Group Ltd shares to
the Company. On 20 April 2015 an ordinary resolution was passed
by the members at a General Meeting to make a pro-rata distribution

ANNUAL REPORT | 2015Changes in State Of Affairs (cont...)
of all of its shares in Establish Property Group Ltd to the members of the Company and to approve the subsequent share capital reduction by
divesting its property development interests to Establish Property Group Ltd. The demerger became effective on 22 April 2015.

Total equity decreased to $72,230 thousand from $85,470 thousand, a decrease of 15%. The movement was largely the result of the property
business demerger. There were no other significant changes in the state of affairs of the Group, other than as outlined above.

At a general meeting of shareholders held on 24 April 2015, shareholders approved a two for one share split of all issued capital. Under the
terms of the share split, shareholders received an additional share for every Company share they formerly held, and as such the issued capital
of the Company post 24 April 2015 became comprised of 187,680,000 shares.

Dividends
Total dividends paid during the financial year ended 30 June 2015 were $38,000 thousand (2014: $11,500 thousand), which included:

■

A final fully franked ordinary dividend of $10,000 thousand (10.71 cents per fully paid share) was declared out of profits of the Company for the
year ended 30 June 2014 and paid in October 2014.

An interim fully franked ordinary dividend of $10,000 thousand (10.71 cents per fully paid share) was declared out of profits of the Company
for 2015 and paid in February 2015.

An interim fully franked ordinary dividend of $10,000 thousand (5.33 cents per fully paid share) was declared out of profits of the Company
for 2015 and paid on 4 May 2015.

An interim fully franked ordinary dividend of $8,000 thousand (4.26 cents per fully paid share) was declared out of profits of the Company for
2015 and paid on 29 May 2015.

As part of the demerger discussed in the Change in State of Affairs section of this Report, on 22 April 2015 a pro-rata distribution of all of the
Company’s shares in Establish Property Group Ltd was made to the shareholders of the Company. The distribution is in part a return of capital
and in part a dividend to the shareholders, $1,187 thousand and $27,709 thousand respectively.

As disclosed in the prospectus prepared for the IPO, no further dividend is proposed for the 2015 financial year.

Total dividends paid during the financial year ended 30 June 2014 were $11,500 thousand (2013: $12,000 thousand), which included:

■

A final fully franked ordinary dividend of $3,000 thousand (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 $4,500 thousand (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 $4,000 thousand (4.29 cents per fully paid share) was declared out of profits of the Company for
2014 and paid in May 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 and commercial loans;

■

Securitisation of mortgages through special purpose entities used to issue residential mortgage backed securities; and

Property development and investment prior to the demerger of the property business. The demerger took effect from 22 April 2015.

Corporate Governance Statement
The Company’s Corporate Governance Statement can be found at http://investors.afgonline.com.au/investor/?page=corporate-governance

ANNUAL REPORT | 2015

ANNUAL REPORT | 2015Directors' Report (cont... )Review of operations
The 2015 financial year result across a number of indicators represents AFG’s best ever result.

The Group’s net profit after income tax for the year ended 30 June 2015 was $20,374 thousand (2014: $17,869 thousand); after an income tax
expense of $6,806 thousand (2014: $8,095 thousand).

Total revenues surpassed the $526,000 thousand mark which represents a 16% increase on the prior financial year. Excluding the pro forma
impact of the costs and incomes related to the IPO, together with the demerger of the former Property Business, discussed below, the Pro
forma Net Profit After Tax result of $19,256 thousand is 8.4% ahead of the FY2015 IPO forecast. A comparison of the pro forma result against
the forecast included in the Company’s prospectus is as follows:

In thousands of AUD

Statutory Profit Before Tax

Add/(Less) Pro Forma Adjustments:

Capital Raising Costs

Other

Pro forma Net Profit Before Tax

Statutory Taxation

Taxation on Pro Forma Adjustments

Pro forma Net Profit After Tax

2015

27,180

5,636

(5,262)

27,554

(6,806)

(1,491)

19,256

The major item within the Other Pro Forma adjustment relates to the gain arising from the de-merger of the Property assets to Establish Property
Group Limited described in Note 7. Prior to the de-merger the company obtained roll over relief from the Australian Taxation Office with respect
to these assets and as a consequence no tax is payable (and as such no franking credits arise) from the gain which has been realised.

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 2015 has increased the earnings beyond the
underlying earnings generated by the Group. Excluding the non cash entries to recognise the present value of the future trailing commission
receivable and payable, the underlying profit before tax is $18,478 thousand (2014: $23,619 thousand). The assessment of the trail loan book
and the associated assumptions was assisted by independent actuaries.

The following table reconciles the unaudited underlying earnings to the reported profit before tax for the period in accordance with Australian
Accounting Standards:

In thousands of AUD

2015

2014

Total Revenue

Profit before tax

Total Revenue

Profit before tax

Underlying results from continuing operations

447,258

18,488

391,599

22,338

Change in the present value of trailing
commission receivable and payable

78,937

3,238

61,412

2,345

Total result from continuing operations

526,195

21,726

453,011

24,683

ANNUAL REPORT | 2015

ANNUAL REPORT | 2015
Review of operations (CONT...)
The Group’s 2015 result was underwritten by another strong year of settlement growth primarily by the residential mortgage business and
supported by the commercial business. We have successfully grown our residential settlements by 19% and our commercial settlements by
23%, year on year, with both business lines setting new benchmarks for settlement volumes. Underpinning the residential settlement growth
has been a record settlement experience in both New South Wales and Victoria.

Broker recruitment and retention has continued to be a focus and as the financial year drew to a close broker numbers were slightly behind
forecast with approximately 2,400 active brokers working with AFG.

Residential Settlements ($billions)

FY2011

FY2012

FY2013

FY2014

FY2015

The residential trail book continued its upward momentum as a result of sustained settlement growth and low run off rates (when compared to
historical averages). The company celebrated a significant milestone in May 2015 when the total of all loans generating trail income exceeded
$100 billion.

Residential Loan Book ($billions)

120

100

JUN 03 JUN 04 JUN 05 JUN 06 JUN 07

JUN 08 JUN 09 JUN 10

JUN 11

JUN 12

JUN 13

JUN 14

JUN 15

When the residential loan book is added to the commercial loan book, which also experienced strong net growth, total loans under management
as at year end was close to $107 billion. The last three months in particular were very strong in terms of settlement volumes for the commercial
business, giving rise to overall year on year settlement growth of $450 million or 23%. Of this growth, around 9% was due to an increased
average loan size, which grew to just over $0.8 million during the 2015 financial year. In addition to the traditional commercial broking business

ANNUAL REPORT | 2015

ANNUAL REPORT | 2015Directors' Report (cont... )
AFG also experienced solid growth within the leasing and personal
loans lines of the business. Leasing experienced growth of 16% and
personal loans grew by 30%, with the last quarter in particular being
strong for the leasing business.

The success of the AFG Home Loans Edge product is also worthy of
mention. The prospectus prepared for AFG’s Initial Public Offering
suggested settlements of circa $150 million by the close of the
2015 financial year. The response by AFG brokers to this white label
product was impressive and as at the end of the financial year, the
Company has been able to achieve settlements in excess of $460
million since launch, and maintain a healthy pipeline leading into
the new financial year. The launch was influenced by some very
competitive pricing and industry-best practice loan processing
service provided by the Edge white label partner. Longer term it
is expected the growth trajectory for the product will level out as
pricing realigns to the market. For AFG, the result demonstrates
a strong willingness from the broker network to support an AFG
branded home loan product.

The market remains competitive for AFG’s own securitised loan
products. The Company’s ability to generate significant volumes in
the owner occupier segment was limited given the desire to write
home loan business at margins that align with longer term profit
benchmarks. There was however some relief in terms of the cost
of funds towards the end of the financial year which generated
additional margin, and this is expected to continue for at least the
next six months.

From a business development perspective, AFG has continued
to invest in technology which has been the cornerstone of the
Company’s strength and a key differentiator for broker partners.
AFG continues to be recognised as a partner of choice by
organisations that possess a technological edge to their business
and are looking to establish a presence in the mortgage market.
AFG continues to evolve its technological capabilities to meet these
new opportunities and has also enhanced the Company’s bespoke
Marketing and CRM suite (SMART) with a number of new digital
initiatives. During the year the regularly awarded SMART offering
has been expanded to provide a service to commercial brokers and
the uptake has been strong.

There has recently been a significant level of activity and comment
around the Australian mortgage market and of the role the broker
plays in this market. APRA initiated changes to investor loan limits,
together with increased capital adequacy requirements for banks
and additional market commentary about an overheated market in
some states, increases the complexity of the Australian mortgage
market. This increased level of complexity translates into an
environment where consumers are even more in need of a broker’s
assistance to ensure they are making the correct financing decision
for their individual circumstances.

When preparing the prospectus for AFG’s IPO, broker market share
of the total Australian mortgage market sat at 50%. Since this
time this share has increased to circa 51.5%. Statistics such as this
demonstrate that consumers are increasingly looking to the broker
channel to ensure they are provided with choice and independent
advice in an increasingly complex market. AFG remains optimistic of
the role the Company and our brokers play in providing choice, ease
and peace of mind for Australian consumers.

Our forecasts for FY2016 are well documented, as are our existing
business plans. In terms of current trading, we have experienced
a strong residential lodgement month of $4.7 billion for July which
was approximately 13% ahead of July 2014. Remembering that
there is a seasonality aspect to July lodgement numbers, primarily
related to school holidays, this number is in line with our forecast
for July 2015. A further aspect of this lodgement activity is that
the percentage of investment lending was steady at 37% which is
more in line with historical averages. Strong recruitment activity
of new brokers to AFG is expected to continue. Bank of China,

ANNUAL REPORT | 2015

AFS (Australian Financial Services), Prospa and QPCU have recently
been added to AFG’s lender panel and new lender agreements have
been executed with Bank of Australia (MECU) & Bank of Sydney.
Both will appear on the panel shortly. The Company is also at
advanced stages of contract negotiation with a number of additional
lenders with a view to providing more choice to AFG brokers and
their customers over the next six months.

The Group’s cash and cash equivalents as at 30 June 2015 amounted
to $90,776 thousand, which represents an increase of 19% on 2014.

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 maximising their long
term benefits.

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.

Environmental regulation
The Group is not subject to any significant environmental regulation
under a law of the Commonwealth or of a State or Territory in respect
of its activities.

Subsequent Events
On 3 August 2015, the Group secured an extension to the term of the
NAB residential warehouse facility, until 10 February 2016 with the
same funding structure in place.

On 13 August 2015, the Group secured an extension to the term
of the residential warehouse facility that was due to expire on
14 August 2015.

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.

Share option
There were no options issued or exercised during the financial year
(2014: Nil).

Indemnification of insurance of officers and auditors
During the financial year, the Group paid a premium in respect of
a contract insuring the Directors of the Group (as named above)
against a liability incurred as a director to the extent permitted by the
Corporations Act 2001. The contract of insurance prohibits disclosure
of the nature of the liability and the amount of the premium.

The Group has not otherwise, during or since the financial year,
indemnified or agreed to indemnify an officer or auditor of the Group
or of any related body corporate against a liability incurred as such
an officer or auditor.

ANNUAL REPORT | 2015Directors Meetings
The number of meetings of directors (including meetings of committees of directors) held during the year and the number of directors’ meetings
and number of meetings attended by each director were as follows:

Directors

Board Meetings

Audit

Meetings of committees

Nomination and
remuneration

Risk and Compliance

Tony Gill

Brett McKeon

Malcolm Watkins

Kevin Matthews

John Atkins

Jim Minto

Craig Carter

Held

Attended

Held

Attended

Held

Attended

Held

Attended

All directors were eligible to attend all meetings held, except for C. Carter and J. Minto who were eligible to attend five director meetings.

*On 1 May 15 the board resolved to form two new committees: Risk and Compliance committee and Audit committee.

Prior to this date the board had the following committees:

■

Remuneration and Nomination

Audit and Risk

Meetings of the Audit and Risk committee (pre 1 May 2015)

John Atkins

Kevin Matthews

Committee membership

Held

Attended

As at the date of this report, the company had an audit committee, a remuneration and nomination committee and a risk and
compliance committee.

Members acting on the committees of the board during the year were:

Audit

C. Carter (C)

J. Minto

J. Atkins

Notes

Remuneration and Nomination

Risk and Compliance

J. Atkins (C)

C. Carter

K. Matthews

C. Carter (C)

J. Minto

J. Atkins

Rounding
The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) and
where noted ($000) under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the class
order applies.

Non-audit services
The following non-audit services were provided by the entity’s auditor, Deloitte Touche Tohmatsu. The directors are satisfied that the provision
of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.

ANNUAL REPORT | 2015Directors' Report (cont... )The directors are of the opinion that the services as disclosed in note 12 to the financial statements do not compromise the external auditors’
independence, based on advice received from the Audit Committee, for the following reasons:

■

All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and

■ None of the services undermine the general principles relating to auditor independence as set out in APES 110 ‘Code of Ethics for Professional
Accountants’ issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work,
acting in a management or decision-making capacity for the Company, acting as advocate for the company or jointly sharing economic risks
and rewards.

The nature and scope of each type of non-audit service provided means that auditor independence was not compromised.

Deloitte Touche Tohmatsu received or are due to receive the following amounts for the provision of non-audit services:

Tax compliance services

Due diligence services

Other non-audit services

176,458

465,500

87,575

729,533

Auditor’s Independence declaration
The auditor’s independence declaration is included on page 30 of this financial report for the year ended 30 June 2015.

This report is made with a resolution of the Directors.

Remuneration report (audited)

Introduction

The Remuneration and Nomination Committee is pleased to present the remuneration report for Australian Finance Group Limited for the
year ended 30 June 2015. The report outlines AFGs remuneration philosophy, framework and outcomes for all Non-Executive Directors,
Executive Directors and other Key Management Personnel (collectively KMP). The report is written in accordance with the requirements of the
Corporations Act 2001 (the Act) and its regulations. This information has been audited as required by section 308(3C) of the Act.

Key Management Personnel (KMP) are those persons who have specific responsibility for planning, directing and controlling material activities
of the Group. In this report, “Executives” refers to the KMP excluding the Non Executive Directors.

The current KMP of the Group for the entire financial year unless otherwise stated are as follows:

Current Non-Executive Directors

Anthony Gill

Kevin Matthews

Craig Carter

James Minto

John Atkins

Current Executive Directors

Brett McKeon

Malcolm Watkins

Current Executives

David Bailey

Lisa Bevan

Chairman

Appointed 28 August 2008

Non Executive Director

Appointed 20 January 1995

Non Executive Director

Appointed 25 March 2015

Non Executive Director

Appointed 1 April 2015

Non Executive Director

Appointed 20 December 2007

Managing Director/CEO Appointed 19 June 2006

Executive Director

Appointed 8 December 1997

Chief Financial Officer

Appointed 8 March 2004

Company Secretary

Appointed 9 March 1998

* Craig Carter is Chairman of the Audit Committee and the Risk and Compliance Committee

* John Atkins is Chairman of the Remuneration and Nomination Committee

* John Atkins resigned as a Non Executive Director effective 31 August 2015

* Other than Kevin Matthews, all Non Executive Directors listed above are Independent Directors.

ANNUAL REPORT | 2015Remuneration report (audited) (CONT...)

The structure of the remuneration report is as follows:

Section

Details

Remuneration Governance

Executive Remuneration Structure

Executive Remuneration Outcomes for 2015

Executive Service Agreements

Non Executive Director Remuneration

Additional disclosures relating to rights and shares

Loans to KMP and their related parties

Other transactions and balances with KMP and their relate parties

REMUNERATION GOVERNANCE

1.1

Remuneration and Nomination committee

The Remuneration and Nomination Committee is responsible for ensuring AFG has remuneration strategies and a framework that fairly and
responsibly rewards executives and non-executive directors with regard to performance, the law and corporate governance. The Committee
ensures that AFG remuneration policies are directly aligned to business strategy, financial performance and support increased shareholder
wealth over the long term.

As at 30 June 2015 the Committee comprised independent non executive director John Atkins (Chair), independent non executive director
Craig Carter and non executive director Kevin Matthews. Following John Atkins’ resignation, effective 31 August 2015, independent
non-executive director Jim Minto was appointed to Chair this Committee.

Further information on the role of the Remuneration and Nomination committee is set out in the Charter available at www.afgonline.com.au and
in the Corporate Governance statement also available on the Company’s website.

1.2 Remuneration Philosophy

The performance of the company depends upon the quality of its directors and executives. To prosper, the company must attract, motivate and
retain highly skilled directors and executives.

The Board embodies the following principles in its remuneration framework:

■

Remuneration levels for KMP are set to attract and retain appropriately qualified and experienced directors and executives;

Alignment of executive reward with shareholder interest and strategy;

The relationship between performance and remuneration of executives is clear and transparent.

1.3 Use of independent consultants

In performing their role the Remuneration and Nomination committee can directly commission and receive information and advice from
independent external advisors. The committee has protocols in place to ensure that any advice and recommendations are provided in an
appropriate manner, free from undue influence of management.

Prior to AFGs listing, and during the financial period ended 30 June 2015 the Company sought advice from 3 Degree consulting to provide
comparable listed company remuneration data and assist them to design a post listing remuneration framework. They did not provide any
“remuneration recommendations” for the purposes of the Corporations Act.

1.4

Policy for dealing in securities

AFG has a policy for dealing in securities to establish best practice procedures that protects AFG, Directors and employees against the misuse
of unpublished information that could materially affect the value of securities. Directors, executives and their connected persons are restricted
by trading windows.

1.5 Remuneration report approval at 2014 AGM

The Company listed on the ASX on 22 May 2015. As a consequence, no remuneration report was presented (or required to be presented)
to the shareholders at the 2014 Annual General Meeting.

ANNUAL REPORT | 2015Directors' Report (cont... )
EXECUTIVE REMUNERTATION STRUCTURES

2.
The Company aims to reward executives with a level of remuneration commensurate with their responsibilities and position within the group
and their ability to influence shareholder value creation.

The remuneration framework links rewards with the strategic goals and performance of the Group and provides a market competitive mix
of both fixed and variable rewards including a blend of short and long term incentives.

The variable (or “at risk”) remuneration of executives is linked to the Group performance through measures based on the operational
performance of the business.

Remuneration component

Vehicle

Purpose

Link to performance

Fixed remuneration

Comprises base salary,
superannuation contributions
and other benefits

To provide competitive fixed
remuneration set with reference
to role, market and experience

Short-term incentive

Paid in cash

Long-term incentive

Awards are made in the form
of share rights

Rewards executives for their
contribution to achievement
of Group outcome

Rewards executives for their
contribution to the creation
of shareholder value over the
longer term

Company and individual
performance are considered
during the annual
remuneration review

Profit after tax of the Group

Vesting of the awards is
dependent on an absolute total
shareholder return (TSR) in
addition to continuous service
vesting conditions

2.1

Remuneration structure prior to listing on the Australian stock exchange (ASX)

2.1.1 Executive Directors

In FY2015 Executive Directors were awarded the following types of remuneration:

■

cash salary and superannuation contributions (based on legislative requirements)

non-monetary benefits in the form of car parking and associated fringe benefit tax, and additional annual leave allocations

No short term or long term incentives were awarded or paid as all Executive Directors were substantial shareholders in the business and were
rewarded via dividends and share price growth.

2.1.2 Other KMP (excluding directors)

In FY2015, the Executive team was awarded with the following types of remuneration:

■

cash salary and superannuation contributions (based on legislative requirements)

non monetary benefits in the form of car parking (and FBT)

short term incentives paid in cash with performance measures aligned to the performance of the company

long term incentives with performance measures aligned to the performance of AFG Home Loans and the company as a whole. For FY2015
(and previous financial years), the company’s LTI plan consisted of a cash payment, with payment split equally over a two year period provided
the employee had not tendered their resignation prior to payment being made at the end of Year 1 and Year 2.

2.2 Remuneration structure subsequent to listing on ASX

The listing of the company necessitated a review of the Remuneration structure commencing operation from listing to 30 June 2016. As part
of this review, it became a requirement to wind up all existing LTI and STI plans which ultimately necessitated the early payout of all existing
entitlements. The financial impact of this early wind up of the pre IPO remuneration structure is disclosed in Section 3 of this report.

New short and long term incentive plans with performance hurdles set to align and link shareholder value have been put in place for the
Executive team. NPAT and TSR measures have been chosen as the performance hurdles that members of the executive team are required to
meet to ensure alignment with shareholders objectives.

The targeted remuneration mix for:

■

The MD/CEO is 56% fixed and 44% variable (at risk); and

■ Other members of the executive team are in the range of 58% to 76% fixed and 42% to 24% variable (at risk).

ANNUAL REPORT | 2015Remuneration report (audited) (CONT...)

2.2.1 STI Plan

AFG executives are entitled to participate in AFG’s STI plan. The amount of the STI award each participant may become entitled to (if any) will
be determined by the Remuneration and Nomination Committee based on achievement against set performance targets.

Each year performance will be measured for the 12-month period ended 30 June. Any STI which is awarded will be delivered in cash around
the end of September each year after specific performance targets have been measured.

Participants will need to be employed and not under notice of resignation or termination until at least 30 June of the relevant year to be eligible
for an STI award, except in good leaver cases including retirement or bona fide redundancy where some or all of the payment may be made at
the discretion of the Board.

2.2.2 STI opportunity

Offers to participate in STI awards for 2016 have been made to executives under the STI Plan on the terms set out below. The Executive will be
entitled to an STI award up to a maximum percentage of the annual fixed remuneration (the maximum amount will differ between individuals,
but not exceed 50% of annual fixed remuneration).

The amount of the STI award each participant may become entitled to (if any) will be determined by the Remuneration and Nomination
Committee and approved by the Board based on achievement against the targeted NPAT set out in the AFG Prospectus.

In order for an STI award to be payable, a threshold target must be satisfied, being 100% of NPAT achievement to forecast set out in the
AFG Prospectus.

The percentage of the STI award that will become payable, if any, will be determined over the performance period by reference to the
following schedule:

NPAT achievement to forecast

STI award payable

Less than 100%

100%

100% - 120%

100%

Straight line between 100% - 120%

The Board has discretion to take into account unbudgeted extraordinary items approved by the Board. From time to time bonuses may
be paid outside this structure in relation to a special project or special circumstances subject to approval from the Remuneration and
Nomination Committee.

ANNUAL REPORT | 2015Directors' Report (cont... )2.2.3 The LTI Plan

AFG has established the LTI Plan to assist in the motivation, retention and reward of senior executives. The LTI Plan is designed to align the
interests of executives and senior management with the interests of shareholders by providing an opportunity for the participants to receive
an equity interest in AFG.

The Plan Rules provide the framework under which the LTI Plan and individual grants will operate.

The key features of the LTI Plan are outlined below.

Eligibility

Offers may be made at the Board’s discretion to employees of AFG or its related bodies corporate or any
other person that the Board determines to be eligible to receive a grant under the LTI Plan.

The Plan Rules provide flexibility for AFG to grant one or more of the following securities as incentives,
subject to the terms of individual offers:

Grant of performance rights

■

performance rights

options

restricted shares

Options are an entitlement to receive a Share upon satisfaction of applicable conditions and payment
of an applicable exercise price. Performance rights and restricted shares are an entitlement to receive a
Share for no consideration upon satisfaction of applicable conditions.

Unless otherwise specified in an offer document, the Board has the discretion to settle performance
rights or options with a cash equivalent payment.

The Board may make offers at its discretion and any offer documents must contain the information
required by the Plan Rules. The Board has the discretion to set the terms and conditions on which it will
offer performance rights, options and restricted shares in individual offer documents.

Offers must be accepted by the employee and can be made on an opt-in or opt-out basis. AFG intends
to make opt-out offers.

Offers under the LTI Plans

Issue price

Unless the Board determines otherwise, no payment is required for a grant of a performance right,
option or restricted share under the LTI Plan.

Vesting of performance rights, options or restricted shares under the LTI Plan is subject to any vesting or
performance conditions determined by the Board and specified in the offer document.

Vesting

Options must be exercised by the employee and the employee is required to pay the exercise price
before Shares are allocated.

Subject to the Plan Rules and the terms of the specific offer document, any performance rights, options
or restricted shares will either lapse or be forfeited if the relevant vesting and performance conditions
are not satisfied.

Cessation of employment

Under the Plan Rules, the Board has a broad discretion in relation to the treatment of entitlements
on cessation of employment. It is intended that individual offer documents will provide more specific
information on how the entitlements will be treated if the participating employee ceases employment.

Clawback and preventing
inappropriate benefits

The Plan Rules provide the Board with broad ‘clawback’ powers if, amongst other things, the participant
has acted fraudulently or dishonestly, engaged in gross misconduct or has acted in a manner that has
brought AFG or its related bodies corporate into disrepute, or there is a material financial misstatement,
or AFG is required or entitled under law or company policy to reclaim remuneration from the participant,
or the participant’s entitlements vest as a result of the fraud, dishonesty or breach of obligations of any
other person and the Board is of the opinion that the incentives would not have otherwise vested.

Change of control

The Board may determine that all or a specified number of a participant’s performance rights, options
or restricted shares will vest or cease to be subject to restrictions on a change of control event in
accordance with the Plan Rules.

Other terms

The LTI Plan contains customary and usual terms for dealing with administration, variation, suspension
and termination of the LTI Plan.

ANNUAL REPORT | 2015Remuneration report (audited) (CONT...)

2.2.4 The 2016 LTI award

The key terms of the 2016 LTI award are summarised in the table below:

Participants

Awards have been granted to the Executive of AFG who were invited by the Board to participate.

Grant date and timing
of future offers

The LTI award was made just prior to the initial listing of AFG. Any future grants will be at the discretion
of the Board and subject to any requirements for shareholder approval.

The LTI award will comprise Performance Rights.

Grant of Performance Rights

The value of Performance Rights granted was a percentage of the participant’s total fixed remuneration.
The number of Performance Rights issued was that value divided by the Final Listing Price ($1.20).
Rights were issued to the participant for nil consideration.

Performance Rights will vest subject to the satisfaction of performance conditions.

The performance rights will vest one third each year for three years.

The vesting conditions must be satisfied in order for the Performance Rights to vest.

The Performance Rights for the first year only will be subject to a performance condition based on the total
shareholder return as at 30 June 2016 as set out in the table below. For the first year and subsequent years
the Performance Rights will also be subject to continuation of employment. If the total shareholder return
vesting condition is not satisfied in relation to the Performance Rights for the first year, the Performance
Rights for the subsequent years will lapse.

Performance conditions,
performance period
and vesting

Year

Vesting

Performance Conditions

1st year –
listing to 30 June 2016

One third

10%

50%

Total shareholder
return

% of LTI payable

10% - 15%

Straight line vesting
between 50% - 100%

2nd Year –
1 July 2016 – 30 June 2017

3rd Year –
1 July 2017 – 30 June 2018

One third

Continuation of employment

One third

Continuation of employment

ANNUAL REPORT | 2015Directors' Report (cont... )Rights associated with
Performance Rights

The Performance Rights do not carry dividends or voting rights prior to vesting.

Restrictions on dealing

The participant must not sell, transfer, encumber, hedge or otherwise deal with Performance Rights.

Unless the Board determines otherwise, the participant will be free to deal with the Shares allocated on
vesting of the Performance Rights, subject to the requirements of AFG’s Policy for dealing in securities.

Cessation of employment

If the participant ceases employment for cause or resigns, unless the Board determines otherwise, any
unvested Performance Rights will automatically lapse.

Generally, if the participant ceases employment for any other reason, all of their unvested Performance
Rights will remain on foot and subject to the original performance condition. However, the Board retains
discretion to determine that some of their Rights (up to a pro rata portion based on how much of the
Performance Period remains) will lapse.

Change of control

In a situation where there is likely to be a change of control, the Board has the discretion to accelerate
vesting of some or all of the Performance Rights. Where only some of the Performance Rights have vested
on a change of control, the remainder of the Performance Rights will immediately lapse. If the change of
control occurs before the Board exercises its discretion:

■

a pro-rata portion of the Performance Rights equal to the portion of the relevant Performance Period that
has elapsed up to the expected or actual (as appropriate) date of the change of control will immediately
vest; and

■

the Board may, in its absolute discretion, decide whether the balance should vest or lapse.

Reconstructions, corporate
action, rights issues, bonus
issues, etc

A participant cannot participate in new issues of securities by AFG prior to vesting of the
Performance Rights.

However, the rules of the LTI Plan include specific provisions dealing with rights issues, bonus issues, and
corporate actions and other capital reconstructions. These provisions are intended to ensure that there is
no material advantage or disadvantage to the participant in respect of their Performance Rights as a result
of such corporate actions.

ANNUAL REPORT | 2015/
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Directors' Report (cont... )

Remuneration report (audited) (CONT...)

3.1

FY2015 remuneration outcomes linked to Company Performance

AFG was admitted to the official list of ASX Limited on 22 May 2015. Prior to this date the Company did not have publicly traded securities.
The short and long term incentive element of executive remuneration has historically been awarded at the discretion of the Board. The primary
financial performance measure driving STI and LTI outcomes for the FY2015 was Net Profit Before Tax (NPBT). The following chart shows the
Group’s NPAT over the five years to 30 June 2015.

NPAT - $’000

25,000

20,000

15,000

10,000

5,000

NPAT - $’000

2011

2012

2013

2014

2015

For the financial year ended 30 June 2015, 100% of the maximum available STI and LTI were awarded to executive KMP that were eligible to
participate under the 2015 plans. To facilitate the transition to a listed environment and to finalise all legacy STI and LTI plans the Board awarded
100% of the LTI in FY2015 (as opposed to 50% being deferred until the end of the 2016 financial year).

EXECUTIVE SERVICE AGREEMENTS

4.
Remuneration and other terms of employment for Executives are formalised in employment agreements. Each of these employment agreements
provides for the payment of fixed and performance based remuneration and employer superannuation contributions. The following outlines
the details of these agreements.

Managing Director and Chief Executive Officer

The MD/CEO, Mr B. McKeon, is employed under an ongoing contract which can be terminated with notice by either side.

Under the terms of the present contract:

■

The MD/CEO receives annual fixed remuneration of $500,000, inclusive of superannuation.

The MD/CEO’s target STI opportunity is $250,000 per annum, subject to meeting performance targets based on NPAT.

The MD/CEO is entitled to participate in the executive LTI Plan, having been granted Rights over ordinary shares with a total face value
of $150,000, subject to the satisfaction of vesting conditions. The board retains a discretion to make equivalent value cash payment in lieu
of an allocation of shares.

■ Mr B. McKeon’s employment may be terminated by either party with twelve months notice by the company or three months by Mr B. McKeon.

Non-disclosure and non-compete restrictions apply for twelve months after termination date.

Executive Director – IT and Marketing

The Director – IT and Marketing, Mr M. Watkins, is employed under an ongoing contract which can be terminated with notice by either side.

Under the terms of the present contract he is entitled;

■

to receive an annual fixed remuneration (or pro-rata equivalent), inclusive of superannuation.

to an opportunity to earn an STI subject to meeting performance targets based on NPAT.

to participate in the executive LTI Plan, having been granted Rights over ordinary shares subject to the satisfaction of vesting conditions.
The board retains a discretion to make equivalent value cash payment in lieu of an allocation of shares.

■ Mr M. Watkins’ employment may be terminated by either party with twelve months notice by the company or three months by Mr M. Watkins.

Non-disclosure and non-compete restrictions apply for twelve months after termination date.

ANNUAL REPORT | 2015Remuneration report (audited) (CONT...)

Other Key Management Personnel

Chief Financial Officer

The CFO, Mr D. Bailey, is employed under an ongoing contract which can be terminated with notice by either side.

Under the terms of the present contract he is entitled;

■

to receive an annual fixed remuneration inclusive of superannuation.

to an opportunity to earn an STI subject to meeting performance targets based on NPAT.

to participate in LTI arrangements, having been granted Rights over ordinary shares subject to the satisfaction of vesting conditions. The board
retains a discretion to make equivalent value cash payment in lieu of an allocation of shares.

■ Mr D. Bailey’s employment may be terminated by either party with twelve months notice by the company or three months by Mr D. Bailey.

Non-disclosure and non-compete restrictions apply for six months after termination date.

Company Secretary

The Company Secretary, Ms L. Bevan, is employed under an ongoing contract which can be terminated with notice by either side.

Under the terms of the present contract she is entitled:

■

to receive an annual fixed remuneration (or pro rata equivalent), inclusive of superannuation.

to an opportunity to earn an STI subject to meeting performance targets based on NPAT.

to participate in LTI arrangements, having been granted Performance Rights over ordinary shares which will vest if performance targets are
met. The board retains a discretion to make equivalent value cash payment in lieu of an allocation of shares.

■ Ms L. Bevan’s employment may be terminated by either party with twelve months notice by the company or three months by Ms L. Bevan.

Non-disclosure and non-compete restrictions apply for six months after termination date.

The notice and termination provisions of the employment agreement for Executives are summarised below. All payments on termination will be
subject to the termination benefits cap under the Corporations Act.

Term

Duration of Agreement

Who

Conditions

CEO and all Executives

Ongoing until notice given by either party

Notice to be provided by the Company to terminate the
employment agreement1

Notice to be provided by the Executive to terminate the
employment agreement1

CEO and all Executives

12 months

CEO and all Executives

3 months

Termination payments to be made on termination without cause

CEO and all Executives

Termination for cause

CEO and all Executives

Deferred STI and LTI awards vest
according to the applicable equity plan

Immediately for misconduct
3 months notice for poor performance

Post Employment Restraints

CEO and all Executives

12 month non-solicitation restraint

1 Payment in lieu of notice may in certain circumstances be approved by the Board for some or all of the notice period

NON EXECUTIVE DIRECTOR REMUNERATION

5.1

Remuneration policy

The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain directors of the
highest calibre, whilst incurring a cost that is acceptable to shareholders.

The amount of aggregate remuneration sought to be approved by shareholders and the fee structure is reviewed annually against fees paid to
NEDs of comparable companies. The Board considers advice from external consultants when undertaking the annual review process.

The Company’s constitution and the ASX listing rules specify that the NED fee pool shall be determined from time to time by a general
meeting. The latest determination was the Shareholders meeting held on 24 April 2015 when shareholders approved an aggregate fee pool
of $1,000,000 per year.

The Board will not seek any increase for the NED pool at the 2015 AGM.

ANNUAL REPORT | 2015Directors' Report (cont... )
5.2 Structure

The remuneration of NEDs consists of directors’ fees, which is inclusive of statutory superannuation and committee fees. The below summarises
the NED fees from the date of AFG listing on the ASX:

■

Chairman: $150,000 inclusive of superannuation

■ Non Executive Directors: $90,000 inclusive of superannuation

NEDs do not receive retirement benefits, other than statutory superannuation contributions, nor do they participate in any incentive programs.
Directors may also be reimbursed for travel and other expenses incurred in attending to the Company’s affairs. Some of the Non Executive
Directors receive non cash benefits in the form of off-shore conference entitlements. The table below outlines the NED remuneration for the
years ended 30 June 2015 and 30 June 2014:

Financial Year

Salary and Fees Short-term benefits (non-monetary)

Post-employment Superannuation

Total $

2015

2014

2015

2014

2015

2014

2015

2014

2015

2014

T. Gill

K. Matthews

J. Atkins

J. Minto

C. Carter

FY2015 NED

FY2014 NED

88,710

88,587

12,645

61,497

58,027

19,916

21,496

204,264

146,614

57,685

67,877

22,781

4,478

4,478*

80,466

76,833

7,725

154,120

8,209

164,673

1,201

13,846

5,842

5,367

90,120

67,872

1,892

21,808

4,478

2,042

23,538

18,702

303,432

13,576

237,023

* Jim Minto resigned as a director of AFG on 28 November 2013 and was reappointed on 01 April 2015. During his first appointment, due to his principal employer
TAL, being a shareholder in AFG, Mr Minto elected not to receive a director’s fee.

ADDITIONAL DISCLOSURES RELATING TO RIGHTS AND SHARES

6.1

Rights awarded, vested and lapsed during the year

The table below discloses the number of rights granted to executives as remuneration during FY2015 as well as the number of rights that
vested or lapsed during the year. Rights do not carry any voting or dividend rights and shares can be allocated once the vesting conditions
have been met until their expiry date.

Executive
directors

Year /
Tranches (T)

Rights awarded
during the
year No.

Grant
date

Fair value
per rights at
award date $

Vesting
date

Exercise
price

Expiry
date

No.
Vested
during
the year

B. McKeon

M. Watkins

Other KMP

L. Bevan

D. Bailey

2015 / T1

2015 / T2

2015 / T3

2015 / T1

2015 / T2

2015 / T3

2015 / T1

2015 / T2

2015 / T3

2015 / T1

2015 / T2

2015 / T3

41,666

41,667

13,889

25,000

33,333

33,334

22 May 2015

$0.51

$0.50

$0.47

$0.51

$0.50

$0.47

$0.51

$0.50

$0.47

$0.51

$0.50

$0.47

30 June 2016

30 June 2017

30 June 2018

30 June 2016

30 June 2017

30 June 2018

30 June 2016

30 June 2017

30 June 2018

30 June 2016

30 June 2017

30 June 2018

$0.00

30 June 2016

30 June 2017

30 June 2018

30 June 2016

30 June 2017

30 June 2018

30 June 2016

30 June 2017

30 June 2018

30 June 2016

30 June 2017

30 June 2018

No rights awarded have vested or lapsed during the year.

ANNUAL REPORT | 2015Remuneration report (audited) (CONT...)

6.2 Shareholdings of key management personnel*

Ordinary shares held in Australian Finance Group Limited (number)

30 June 2015

Directors

Balance
1 July 2014

Granted as
remuneration

On exercise
of rights

Net change
other#

Balance
30 June 2015

Held
nominally

T. Gill

2,250,000

B. McKeon

33,887,636

M. Watkins

33,764,302

K. Matthews

33,764,302

136,364

J. Atkins

J. Minto

C. Carter

Executives

L. Bevan

D. Bailey

1,050,000

400,000

650,000

400,000

2,250,000

(12,187,863)

21,179,773

(12,661,613)

21,102,689

(16,882,151)

16,882,151

136,364

166,666

500,000

83,333

1,533,333

83,333

1,050,000

530,000

* Includes shares held directly, indirectly and beneficially by the KMP.

# All equity transactions with KMP other that those arising from the vesting of remuneration rights have been entered into under terms and conditions no more
favourable than those the Group would have adopted if dealing at arm’s length.

* Prior to IPO, a one-off Key Executive pre-offer share issue in recognition of the contribution of certain executives was made.

ANNUAL REPORT | 2015Directors' Report (cont... )7.

OTHERS TRANSACTIONS AND BALANCES WITH KMP AND THEIR RELATED PARTIES

(i) 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 $1,538 thousand (2014:$ 2,633 thousand).

(ii) 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 $191,840 (2014: $404,417).

(iii) Establish

As part of the demerger of the property business on 22 April, the Group entered into a a shared services agreement with Establish
Property Group Ltd (EPG). Mr B. McKeon, Ms L. Bevan and Mr D. Bailey, Chief Financial Officer, are directors of EPG. Under the terms
of the shared services agreement the Group provides premises, administration, accounting and some company secretarial services to
EPG at an agreed arms length rate. During 2015 a total of $38,510 was paid by EPG to the Group for these services (2014: Nil). In addition
to the above, the Group’s head office is located at 100 Havelock Street West Perth. The Group leases these premises from an investee
of EPG, Qube Havelock Street Development Pty Ltd (Qube), that was held by the Group prior to the demerger transaction see note 20.
During the 2015 financial year a rent of $1,633 thousand has been paid to Qube (2014: $1,625 thousand).

This directors’ report is signed in accordance with a resolution of directors made pursuant to the s.298(2) of the Corporations Act 2001.

On behalf of the Directors

B M McKeon

Managing Director

Dated at Perth, this 16 September 2015

ANNUAL REPORT | 2015

Auditor’s Independence Declaration

Independence declaration under Section 307C of the Corporations Act 2001

ANNUAL REPORT | 2015Financial
Statements

ANNUAL REPORT | 2015
Consolidated Statement of Financial Position

As at 30 June 2015

In thousands of AUD

Assets

Cash and cash equivalents

Trade and other receivables

Current tax asset

Loans and advances

Other financial assets

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

Provisions

Deferred tax liability

Total liabilities

Net assets

Equity

Share capital

Share-based payment reserve

Other capital reserves

Retained earnings

Total equity attributable to equity holders of the Company

Non-controlling interest

Total equity

Note

2015

2014

30(d)

7,20

29(c)

90,776

593,931

687

76,022

515,741

1,025,344

1,025,191

2,998

865

196

2,674

24,442

3,394

832

1,714,649

1,648,492

1,041,099

1,034,685

580,341

502,301

3,131

4,916

292

12,641

2,972

211

4,299

4,690

385

13,479

1,642,420

1,563,022

72,230

85,470

43,541

11,434

(76)

28,757

72,231

(1)

(61)

74,093

85,466

72,230

85,470

The Consolidated Statement of Financial Position should be read in conjunction with the Notes to the financial statements.

ANNUAL REPORT | 2015Consolidated Statement of Profit or Loss
and Other Comprehensive Income

For the year ended 30 June 2015

In thousands of AUD

Continuing Operations

Commission and other income

Securitisation interest income

Operating income

Securitisation interest expense

Other cost of sales

Gross profit

Other income

Administration expenses

Other expenses

Results from operating activities

Finance income

Finance expenses

Net finance income

Profit before tax from continuing operations

Income tax expense

Profit from continuing operations

Discontinued operations

Profit after tax for the year from discontinued operations

Profit for the year

Attributable to:

Owners of the Company

Non-controlling interests

Other comprehensive income

Items that may be reclassified subsequently to profit or loss

Net 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

Total comprehensive income for the year

Total comprehensive income for the year attributable to:

Owners of the Company

Non-controlling interests

Total comprehensive income for the year

Earnings per share

Basic earnings per share (dollars)

Diluted earnings per share (dollars)

Earnings per share – continuing operations

Basic earnings per share (dollars)

Diluted earnings per share (dollars)

The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read
in conjunction with the Notes to the financial statements.

Note

2015

2014

462,820

48,534

511,354

(38,096)

(421,324)

51,934

12,296

(3,209)

(41,757)

19,264

2,545

(83)

2,462

21,726

(6,430)

15,296

5,078

20,374

20,379

(5)

20,374

(20)

(15)

393,190

46,814

440,004

(37,411)

(354,171)

48,422

10,876

(2,928)

(33,689)

22,681

2,131

(129)

2,002

24,683

(8,160)

16,523

1,346

17,869

17,867

17,869

(5)

20,359

17,879

20,364

(5)

20,359

0.11

0.08

17,877

17,879

0.10

0.09

ANNUAL REPORT | 2015Statement of Changes in Equity

For the year ended 30 June 2015

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ANNUAL REPORT | 2015

Statement of Cash Flows

For the year ended 30 June 2015

In thousands of AUD

Note

2015

2014

Cash flows from operating activities

Cash receipts from customers

Cash paid to suppliers and employees

Repayments/(Advances) of customer borrowings

(Repayments)/Proceeds from securitisation

Interest paid

Income taxes paid

Net cash generated by operating activities

15(b)

399,849

345,220

(397,454)

(338,454)

Cash flows from investing activities

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 equity-accounted investees

Purchase of preference shares

Increase in other loans and advances

Net cash outflow on disposal of discontinued operations

Net cash used in investing activities

Cash flows used in financing activities

Proceeds from borrowings

Proceeds from issuance of share capital

Decrease in loans from funders

Transaction costs on issue of shares, net of tax

Proceeds from issuance of preference shares

Dividends paid to equity holders of the parent

Net cash generated/(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

34,025

(19,687)

(7)

(8,328)

8,398

2,423

(76)

(530)

(242)

459

(113)

(2,689)

(768)

13,805

32,558

(716)

(523)

(38,000)

7,124

14,754

76,022

90,776

15(a)

(167,662)

185,900

(7,576)

17,428

(128)

2,114

(123)

(379)

(286)

340

465

(4,500)

(622)

(3,119)

4,932

(764)

3,900

(11,500)

(3,432)

10,877

65,145

76,022

The Statement of Cash Flows should be read in conjunction with the Notes to the financial statements.

ANNUAL REPORT | 2015Notes
to the
Financial
Statements

Contents

Significant accounting policies

Financial risk management

1.
Reporting entity
2. Basis of preparation
3.
4. Determination of fair values
5.
6.
Segment information
7. Discontinued operations
8.
Revenue
9. Other income
10. Other expenses
11. Employee costs
12. Auditors’ remuneration

Income tax

13. Finance income and expenses
14.
15. Cash and cash equivalents
16. Trade and other receivables
17. Trade and other payables
18. Loans and advances
19. Group entities
20.

Investments in equity-
accounted investees

21. Property, plant and equipment
22.
23. Employee benefits

Interest-bearing liabilities

24. Provisions
25. Deferred income
26. Operating leases
27. Capital and reserves
28. Earnings per share
29. Share based payments
30. Financial instruments
31. Parent entity
32. Capital and other commitments
33. Contingencies
34. Related parties
35. Subsequent events

ANNUAL REPORT | 2015

asdasdasdaasdasdasdasdasANNUAL REPORT | 2015Reporting entity

1.
The consolidated financial statements for the financial year
ended 30 June 2015 comprise 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. However it is noted that effective 22 April the Group’s
property assets were demerged. The Company’s principal place of
business is 100 Havelock Street, West Perth, Western Australia.

Basis of preparation

(a)

Statement of compliance

The financial report complies with Australian Accounting Standards,
and International Financial Reporting Standards (‘IFRS’) as issued by
the International Accounting Standards Board.

The financial report is a general-purpose financial report, for a
‘for-profit’ entity, which has been prepared in accordance with
the requirements of the Corporations Act 2001 and Australian
Accounting Standards and other authoritative pronouncements of
the Australian Accounting Standards Board. The financial report has
also been prepared on a historical cost basis, except where noted.

The financial statements comprise the consolidated financial
statements of the Australian Finance Group Limited Group
of companies.

Certain comparative information within the statement of financial
position has been reclassified to be comparable to current
year presentation.

The financial report is presented in Australian dollars and all values
are rounded to the nearest thousand dollars ($000’s) unless
otherwise stated.

The consolidated financial statements were authorised for issue by
the Board of Directors on 16 September, 2015.

(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
initially measured at fair value and subsequently at
are
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.

ANNUAL REPORT | 2015

(d) Use of estimates and judgements

The preparation of financial statements in conformity with AASBs
requires management
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.

to make

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 16 and 17 - Net present value of future trailing commissions:
recognition of future trailing commissions receivable and payable.

■ Note 3(ii) - Consolidation of special purpose entities.

Information about assumptions and estimates 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 29 - Measurement of share-based payments.

■ Note 24 - Provisions.

■ Note 30 - Valuation of financial instruments.

■

Taxation

The Group’s accounting for taxation requires 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 a corresponding
credit or charge to the Consolidated Statement of Profit or Loss
and Other Comprehensive Income.

■

Long service leave provision

The liability for long service leave is recognised and measured
at the present value of the estimated future payments to be
made in respect of services provided by employees up to
the reporting date. In determining the present value of the
liability, consideration is given to the expected future wage and
salary levels, experience of employee departures, and period
of service. Expected future payments are discounted using
market yields at the reporting date on national government
bonds with terms to maturity that match, as closely as possible,
the estimated future cash outflows.

ANNUAL REPORT | 20152.

Basis of preparation (cont...)

(e)

Changes in accounting policies and disclosures

The accounting policies adopted are consistent with those of the previous financial year except as follows:

(i)

Adoption of new and revised Accounting Standards

The Group has adopted all of the new and revised Standards and Interpretations, including amendments to the existing standards issued by the
Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current reporting period.

The adoption of these amendments has not resulted in any significant changes to the Group’s accounting policies nor any significant effect on
the measurement or disclosure of the amounts reported for the current or prior periods.

The Group has early adopted AASB 2015-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments
to AASB 101’.

The early adoption of this amendment has not resulted in any significant changes to the Group’s accounting policies nor any significant effect
on the measurement or disclosure of the amounts reported for the current or prior periods.

(ii)

Accounting Standards and Interpretations issued but not yet effective

A project team exists to assess the impact of new standards and interpretations. Assessment of the expected impacts of these standards and
interpretations is ongoing, however, it is expected that that there will be no significant changes in the Group’s accounting policies.

At the date of authorization of the financial statements, the Standards and Interpretations that were issued but not yet effective, which have not
been early adopted are listed below:

Affected Standards
and Interpretations

Application date
(reporting period commences on or after)

Application date
for Group

AASB 9 ‘Financial instruments’ and the
relevant amending standards

AASB 15 ’Revenue from Contracts with
Customers’ and AASB 2014-5 ‘Amendments
to Australian Accounting Standards, arising
from AASB 15’

AASB 2014-3 ‘Amendments to Australian
Accounting Standards – Accounting for
Acquisitions of Interests in Joint Operations’

AASB 2014-4 ‘Amendments to Australian
Accounting Standards – Clarification of
Acceptable Methods of Depreciation
and Amortisation’

AASB 2015-1 ‘Amendments to Australian
Accounting Standards – Annual
Improvements to Australian Accounting
Standards 2012-2014 Cycle’

AASB 2015-3 ‘Amendments to Australian
Accounting Standards arising from the
Withdrawal of AASB 1031 Materiality’

1 January 2018

30 June 2019

1 January 2017

30 June 2018

1 January 2016

30 June 2017

1 January 2016

30 June 2017

1 January 2016

30 June 2017

1 July 2015

30 June 2016

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )Significant accounting policies

3.
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

The consolidated financial statements incorporate the financial
statements of the Company and entities (including structured
entities) controlled by the Company and its subsidiaries. Control is
achieved when the Company:

■ Has the power over the investee;

■

Is exposed, or has rights, to variable returns from its involvement
with the investee; and

■ Has the ability to use its power to affect its returns.

When the Group has less than a majority of the voting rights or
similar rights of an investee, the Group considers all relevant facts
and circumstances in assessing whether it has power over an
investee, including:

■

The contractual arrangement with the other vote holders
of the investee

Right arising from other contractual arrangements

The Group’s voting rights and potential voting rights

Consolidation of a subsidiary begins when the Group obtains control
over the subsidiary and ceases when the Group loses control of
the subsidiary. Specifically, income and expenses of a subsidiary
acquired or disposed of during the year are included in the
Consolidated Statement of Profit or Loss and Other Comprehensive
Income from the date the Company gains control until the date
when the company ceases to control the subsidiary 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.

When necessary, adjustments are made to the financial statements
of subsidiaries to bring their accounting policies in line with the
Group’s accounting policies.

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
intra-group transactions.

Profit or loss and each component of other comprehensive income
are attributed to the owners of the Company and to the non
controlling interests. Total comprehensive income of subsidiaries is
attributed to the owners of the Company and to the non-controlling
interests even if this results in the non-controlling interests having a
deficit balance.

All Intragroup 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.

Changes in the Group’s ownership interests in subsidiaries that
do not result in the Group losing control over the subsidiaries are
accounted for as equity transactions. The carrying amounts of the

Group’s interests and the non-controlling interests are adjusted
to reflect the changes in their relative interests in the subsidiaries.
Any difference between the amount by which the non-controlling
interests are adjusted and the fair values of the consideration pair or
received is recognised directly in equity and attributed to the owners
of the Company.

When the Group loses control of a subsidiary, a gain or loss is
recognised in the profit or loss and is calculated as the difference
between (i) the aggregate of the fair value of the consideration
received and the fair value of any retained interest and (ii) the
previous carrying amount of the assets, and liabilities of the
subsidiary and any non-controlling interests. All the amounts
previously recognised in other comprehensive income in relation to
that subsidiary are accounted or as if the Group has directly disposed
of the related assets and liabilities of the subsidiary. The fair value of
any investment retained in the former subsidiary at the date when
control is lost is regarded as the fair value on initial recognition
for subsequent accounting under AASB 139, when applicable,
the cost on initial recognition of an investment in an associate or a
joint venture.

(i)

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 the benefits from its operation.

The Group has established the following special purpose entities
to support the specific funding needs of the Group’s securitisation
programme:

■

AFG 2010-1 Trust and its Series (SPE) to conduct securitisation
activities funded by short term warehouse facilities provided by
reputable lenders.

AFG 2013-1 Trust, AFG 2013-2 Trust and AFG 2014-1 Trust (SPE-
RMBS) to hold securitised assets and issue Residential Mortgage
Backed Securities (RMBS).

The special purpose entities meet the criteria of being controlled
entities under AASB 10 – Consolidated Financial Statements.

The elements indicating control include, but not limited to, the below:

■

The Group has existing rights that gives it the ability to direct
relevant activities that significantly affect the special purpose
entities’ returns.

The Group is exposed, and has rights, to variable returns from its
involvement with the special purpose entities.

The Group has all
purpose entities.

the residual

interest

the special

from the special purpose
Fees received by the Group
entities vary on the performance, or non performance of the
securitised assets.

The Group has the ability to direct decision making accompanied
by the objective of obtaining benefits from the special purpose
entities’ 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 warehouse facilities providers and
the bondholders. The securitised assets and the corresponding
liabilities are recorded in the Statement of Financial Position and the
interest earned and paid recognised in the Consolidated Statement
of Profit or Loss and Other Comprehensive.

ANNUAL REPORT | 2015Significant accounting policies (cont...)

Subsequent measurement

(ii)

Investments in associates
(equity accounted investee)

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 the 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.

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.

Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating policies.
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.

On 22 April 2015 the Group divested its property development
interests to Establish Property Group Ltd, including its investment
in associates (See Discontinued Operations Note 7).

(b)

Foreign currency

(i)

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.

(c)

Financial instruments

(i)

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 financial 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.

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )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 Profit or Loss and Other
Comprehensive Income.

(ii)

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 the
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.

(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.

For financial instruments that are not traded in an active market,
the Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data is available to measure
fair value, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs. Refer to notes 4
and 30 for further information on the determination of fair value
of financial instruments.

(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
repurchased,
the amount of consideration paid, including directly attributable
costs, is recognised as a reduction in equity.

recognised as equity

Dividends

Dividends are recognised as a liability in the period in which they
are declared.

ANNUAL REPORT | 20153.

Significant accounting policies (cont...)

(f)

Intangibles

(d) Cash and short term-deposits

(i)

Software development costs

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, as well as restricted cash such as
proceeds 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)

Property, plant and equipment

(i)

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) plant and equipment

2 - 5 years

(ii) fixtures and fittings

5 - 20 years

Depreciation methods, useful
reassessed at each reporting date.

lives and residual values are

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 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) Capitalised software development costs

2.5 - 5 years

(ii) 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.

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )

(h)

Inventories

(k)

Revenue

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.

(i)

Employee benefits

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
to
reporting date.

from employees’ services provided

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.

(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 the individual loan balance outstanding.
The Group also makes trailing commission payments to
authorised mortgage originators (brokers) based on the individual
loan balance outstanding.

initial recognition,

On
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 Consolidated Statement of Profit or Loss and
Other Comprehensive Income.

(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
Consolidated Statement of Profit or Loss and Other 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.

The fee earned on the property development services has been
discontinued subsequent to the Group divesting its property
development interests to Establish Property Group Ltd. Refer to
Discontinued Operations Note 7.

(iv)

Fees for services

Revenue from contracts to provide marketing, compliance and
administration services to the members is recognised with reference
to the stage of completion for the contract of services.

ANNUAL REPORT | 20153.

Significant accounting policies (cont...)

(n)

Borrowing costs

(v)

Rendering of other services

Revenue from contracts to provide other services is recognised by
reference to the stage of completion of the contract.

(vi) 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.

(vii) Sponsorship and incentive income

Sponsorship and incentive income is the income generated from
sponsorship and incentive payment arrangements with Lenders.
The income is brought to account when services relating to the
income have been performed.

(l)

Lease payments

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.

lease payments made under finance

Minimum
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.

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.

(o)

Capital raising costs

Capital raising costs are accounted for as follows:

■

Costs directly associated with the sale of existing shares are
expensed to the profit or loss

Costs directly attributable to the issue of new shares, raising of
additional equity, are accounted for as a deduction from equity,
net of any income tax benefit

■ Other costs which include elements of both are apportioned
based on the proportion of existing shares and new shares, and
as such are accounted for in part as an equity deduction and in
part as an expense.

(p)

Income tax expense

Current tax assets and liabilities for the current and prior periods are
measured at the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute
the amount are those that are enacted or substantively enacted by
the balance sheet date.

Deferred income tax is generally provided on all temporary
differences at the balance sheet date between the tax bases
of assets and liabilities and their carrying amounts for financial
reporting purposes.

Deferred tax assets are recognised where management consider
that it is probable that future taxable profits will be available to utilise
those temporary differences. The carrying amount of deferred
income tax assets is reviewed at each balance sheet date and
reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred
income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each
balance sheet date and are recognised to the extent that it has
become probable that future taxable profit will allow the deferred tax
asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax
rates that are expected to apply to the year when the asset is realised
or the liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are
recognised in equity and not in the profit or loss.

(m) Finance income and expenses

Tax consolidation

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 and
changes in fair value of financial assets at fair value through profit
or loss.

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.

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )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.

(i)

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.

(q)

Goods and services tax

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.

(r)

Deferred income

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.

Determination of fair values

4.
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. Further assumptions are disclosed
in Note 30(d).

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
and available-for-sale assets is determined by reference to their
quoted closing bid price at reporting date.

Other financial instruments

The carrying amount of all other financial assets and liabilities
recognised in the Statement of Financial Position approximate
their fair value, with the exception of the trailing commission
receivables and payables that are initially recognised at fair value
and subsequently carried at amortised cost.

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
The Board of Directors has overall
establishment and oversight of the risk management framework.
The Risk Committee is responsible for developing and monitoring
risk management policies.

responsibility

for

ANNUAL REPORT | 2015Financial risk management (cont...)

5.
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 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.

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, prior to July 2014 all residential mortgages were
covered by a lender’s mortgage insurance contract which covers
100% of the principal. Subsequent to July 2014 all loans with a loan to
value ratio of greater than 70% were subject to a lenders mortgage
insurance contract.

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 an
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.

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )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.

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.

Other market risk

The Group is exposed to an increase in the level of credit support
required within its securitisation programme arising from changes
in the credit rating of mortgage insurers used by the SPE, and the
composition of the available collateral held. The Group 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 is 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 2015.

Segment information

6.
AASB 8 requires operating segments to be identified on the basis
of internal reports about business activities in which the Group is
engaged and that are regularly received by the chief operating
decision maker, the board of directors, in order to allocate resources
to the segment and to assess its performance.

The Group has identified two reportable segments based on the
nature of the products and services, the type of customers for
those products and services, the processes followed to produce,
the method used to distribute those products and services and the
similarity of their economic characteristics.

The following summary describes the operations in each of the
Group’s reportable segments:

AFG Wholesale Mortgage Broking

The mortgage broking segment refers to the operating activities in
which the Group acts as a wholesale mortgage broker that provides
its broker members with administrative and infrastructure support as
well as access to a panel of lenders.

The Group receives two types of commission payments on loans
originated through its network, as described below:

■ Upfront commissions on settled loans

Upfront commissions are received by the Group from lenders as
a percentage of the total amount borrowed. Once a loan settles,
The Group receives a one-off payment linked to the total amount
borrowed as an upfront commission, a large portion of which is then
paid by the Group to the originating broker.

■

Trail commissions on the loan book

Trail commissions are received by the Group from lenders over the life
of the loan (if it is in good order and not in default), as a percentage of
the particular loan’s outstanding balance. The trail book represents
the aggregate of residential mortgages outstanding that have been
originated by the Group’s brokers and are generating trail income.

AFG Home Loans

AFG Home Loans offers the Group’s branded mortgage products,
funded by third party wholesale funding providers (white label
products) and AFG Securities mortgages (Securitised loans issued
by AFG Securities Pty Ltd) that are distributed through the Group’s
broker network. AFG Home Loans sits on the Group’s panel of
lenders alongside the other over 30 Lenders and competes with
them for home loan customers. The segment earns fees for services,
largely in the form of upfront and trail commissions, and net interest
margin on it securitisation programme.

Segment results that are reported to the Managing Directors include
items directly attributable to the relevant segment as well as those
that can be allocated on a reasonable basis. Other/unallocated items
are comprised mainly of other operating activities from which the
Group earns revenues and incurs expenses that are not required
to be reported separately since they don’t meet the quantitative
thresholds prescribed by AASB 8 or are not managed separately
and include corporate and taxation overheads, assets and liabilities.

Information regarding the results of each reportable segment is
included below.

Performance is measured based on segment profit before tax, as
included in the internal management reports that are reviewed by
the Board of Directors.

ANNUAL REPORT | 2015Segment profit before income tax

36,949

638

(15,861)

Segment information (cont...)

Year ended 30 June 2015

In thousands of AUD

Revenue

External customers

Inter-segment

Other operating income

Interest income

Total segment revenue

Results

Income tax expense

Net profit after tax

Assets and liabilities

Total segment assets

Total segment liabilities

Other segment information

Depreciation and amortisation

Interest expense

Year ended 30 June 2014

In thousands of AUD

Revenue

External customers

Inter-segment

Other operating income

Interest income

Total segment revenue

Results

AFG Wholesale
Mortgage Broking

AFG Home Loans

Other / Unallocated

Total

449,032

9,239

5,639

463,910

61,072

921

61,993

1,250

(9,239)

6,809

1,473

293

595,480

1,082,555

36,614

1,714,649

581,031

1,052,485

8,904

1,642,420

(126)

(23)

(76)

(983)

(7)

(1,132)

(83)

AFG Wholesale
Mortgage Broking

AFG Home Loans

Other / Unallocated

Total

380,425

57,973

7,631

4,426

392,482

798

58,771

1,605

(7,631)

6,409

1,375

1,757

Segment profit before income tax

31,669

331

(7,317)

Income tax expense

Net profit after tax

Assets and liabilities

Total segment assets

Total segment liabilities

Other segment information

Depreciation and amortisation

Interest expense

515,973

499,938

(105)

1,066,086

1,038,054

(30)

(123)

66,433

25,030

(1,006)

511,354

12,448

2,394

526,196

21,726

(6,430)

15,296

440,003

10,835

2,172

453,011

24,683

(8,160)

16,523

1,648,492

1,563,022

(1,141)

(123)

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )7.

Discontinued operations

During the year, the board of directors recommended a demerger of the property business, which involved the establishment of a sale
agreement between the Company and Establish Property Group Ltd pursuant to which the Group agreed, amongst other things, to transfer the
Group’s property development interests to Establish Property Group Ltd in consideration for the issue of Establish Property Group Ltd shares
to the Company.

On 26 March 2015 the Group called a General Meeting to pass an ordinary resolution to make a pro-rata distribution of all of its shares in
Establish Property Group Ltd to the members of the Company and to approve the subsequent share capital reduction from divesting its
property development interests to Establish Property Group Ltd.

On 20 April 2015 the ordinary resolution was passed by the members and the demerger became effective on 22 April 2015.

As part of this demerger the Group has also agreed to continue in its role as guarantor under the debt funding arrangements of AFG
Developments 2 Pty Ltd and a former joint venture arrangement in relation to Richmond Quarter development project.

The results of the property development operations for the year are presented below:

In thousands of AUD

Results of discontinued operation

Revenue

Expenses

Finance income

Finance costs

Results from operating activities

Share of profit of equity accounted investees (net of tax)

Gain on sale of discontinued operation

Results before income tax

Income tax (expense) / benefit

Profit for year

Basic earnings per share (dollars)

Diluted earnings per shares (dollars)

1 July 2014 to
22 April 2015

(59)

1,880

(485)

1,336

322

3,796

5,454

(376)

5,078

0.03

2014

1,555

(1,870)

1,538

(198)

1,025

256

1,281

1,346

0.01

The profit from discontinued operation of $5,078 thousand (2014: 1,346 thousand) is attributable entirely to the owners of the Company.

The effect of disposal on the financial position of the Group is summarised in the table on the following page. Significant changes to the financial
position of the continuing Group include;

■

The demerger of all of the Group’s Inventories (which related to property development projects).

■ During 2014 the Group had an obligation of $4,690 thousand payable to a terminated joint operator of the Richmond Quarter project (Project).
The loan, which was 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. The loan is non-interest bearing and was 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. This non-current financial liability is included in the
liabilities demerged.

ANNUAL REPORT | 20157.

Discontinued operations (CONT...)

In thousands of AUD

Effect of disposal on the financial position of the Group

Cash and cash equivalents

Inventories

Trade and other receivables

Loans and advances

Investments in equity-accounted investees

Total assets

Interest bearing liabilities

Trade and other payables

Total liabilities

Net assets distributed to shareholders

Gain on sale of discontinued operation

Distribution to shareholders*

Net assets distributed to shareholders

Gain on sale of discontinued operation

As at
22 April 2015

2,689

36,876

155

13,968

2,537

56,225

26,594

4,530

31,124

25,101

28,897

(25,101)

3,796

2014

611

24,442

281

12,099

2,674

40,107

12,303

5,779

18,082

22,025

* Effective on 22 April 2015 a pro-rata distribution of all of the Company’s shares in Establish Property Group Ltd was made to the shareholders of the Company.
The distribution is in part a return of capital and in part a dividend to the shareholders of $1,187,623 and $27,709,745 respectively.

In thousands of AUD

Cash flows from (used in) discontinued operation

Net cash used in operating activities

Net cash from investing activities

Net cash from financing activities

Net cash flows for the year

Consideration received, satisfied in cash

Cash and cash equivalents disposed of

Revenue

1 July 2014 to
22 April 2015

(14,196)

469

15,805

2,078

(2,689)

2014

(4,144)

(4,273)

8,832

415

(611)

In thousands of AUD

Commissions

Interest on commission
income receivable

Mortgage management services

Property development services

Securitisation transaction fees

Continuing operation

Discontinued operations

Total

2015

2014

2015

2014

2015

2014

412,775

341,635

48,536

49,185

713

796

1,584

786

462,820

393,190

1,561

412,775

341,635

48,536

49,185

713

796

1,584

1,561

786

462,820

394,751

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )9.

Other income

In thousands of AUD

Sponsorship and incentive income

Software licence fees

Professional indemnity insurance

Fees for services

Other

10.

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

Capital raising costs

11.

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

Share-based payment transactions

Superannuation

Note

2015

5,639

1,693

1,733

2,743

488

2014

4,425

1,540

1,556

2,775

580

12,296

10,876

2015

3,142

1,732

2,889

386

24,795

1,132

2,117

(75)

5,636

41,757

2015

15,878

5,877

1,269

1,685

24,795

2014

2,960

1,343

2,788

377

23,141

1,141

1,978

(42)

33,689

2014

15,700

5,529

(80)

(8)

364

1,636

23,141

ANNUAL REPORT | 201512.

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

Deloitte Touche Tohmatsu (2014: Ernest & Young)

Other auditors

Other services - Deloitte Touche Tohmatsu

Tax compliance services

Due diligence services

Other non audit services

Other services - Ernst & Young

Other assurance services

13.

Finance income and expenses

In thousands of AUD

Recognised in profit or loss

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 from funders

Interest expense

Finance expense

2015

2014

146,750

176,458

465,500

87,575

729,533

154,293

2,125

156,418

3,000

64,803

2015

300

2,093

152

2,545

(76)

(7)

(83)

2014

2,074

(41)

2,131

(123)

(9)

(129)

Net finance income and expense

2,462

2,002

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

Other finance income and expenses

2,383

(83)

2,172

(132)

Revenue includes the interest income of $48,536 thousand (2014: $49,185 thousand) from the unwinding of the discount in relation to the net
present value of future trailing commission receivable.

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 $43,214 thousand (2014: $43,534 thousand).

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )14.

Income tax

(a)

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 expense reported in the statement of profit or loss

Income tax from continuing operations

Income tax expense/(benefit) from discontinued operation (excluding gain on sale)

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

In thousands of AUD

Numerical reconciliation between tax expense and pre-tax accounting profit

Profit before tax from continuing operations

Profit before tax from discontinued operations

Profit excluding income tax

Income tax using the Company’s domestic tax rate of 30% (2014: 30%)

Non-deductible expenses

Non- assessable gain on disposal of discontinued operations

Under provision in prior periods

Other adjustments

Income tax reported in the statement of profit or loss

Income tax attributable to a discontinued operation

2015

2014

7,459

(255)

(398)

6,806

6,430

376

6,806

7,324

(310)

1,081

8,095

8,160

(65)

8,095

2015

2014

(5)

2015

21,726

5,454

27,180

8,154

200

(1,139)

(195)

(214)

6,806

6,430

376

6,806

2014

24,683

1,281

25,963

7,789

616

(310)

8,095

8,160

(65)

8,095

ANNUAL REPORT | 201514.

Income tax (Cont...)

(b) Current tax assets and liabilities

The current tax asset for the Group of $687 thousand (2014: $211 thousand tax payable) represents the amount of income taxes receivable in
respect of current and prior financial periods.

(c)

Deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

In thousands of AUD

2015

2014

Property, plant and equipment
and intangibles

2015

117

2014

189

Assets

Liabilities

Net

2015

117

2014

189

Trade and other receivables

(1,045)

183,011

153,328

181,966

152,283

Revaluation of available-for-sale-
investments to fair value

Employee benefits

(3,126)

(2,983)

Trade and other payables

(163,668)

(136,094)

Other items

(2,648)

(13)

Tax (assets) / liabilities

(170,487)

(140,135)

183,128

Set off of tax

170,487

140,135

(170,487)

Net tax (assets) / liabilities

12,641

153,614

(140,135)

13,479

(3,126)

(2,983)

(163,668)

(136,094)

(2,648)

12,641

13,479

12,641

13,479

15.

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

2015

48,339

7,409

31,162

3,866

90,776

2014

36,884

4,678

26,602

7,858

76,022

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 2015 was 2.39% (2014: 3%). The deposits had an average maturity of 90 days
(2014: 90 days).

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 30.

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )
(b)

Reconciliation of cash flows from operating activities

In thousands of AUD

Cash flows from operating activities

Profit for the period from continuing operations

Profit for the period from discontinued operations

Adjustments to reconcile the profit to net cash flows:

Income tax expense from continuing operations

Income tax expense/(benefit) from discontinued operations

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

Expense recognised in respect of equity-settled share-based payments

Share of profit of equity accounted investees

Change in the discount applied to leave provisions

Gain on disposal of discontinued operations

Present value of future trailing commission income

Present value of future trailing commission expense

Working capital adjustments:

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 in securitisation lending

Increase in securitisation borrowings

Cash generated from operations

Interest paid

Income tax paid

Net cash generated by operating activities

Note

2015

2014

15,296

5,078

20,374

16,523

1346

17,869

6,430

8,160

376

923

209

(75)

(65)

935

206

(42)

(3)

(4,198)

(3,586)

493

1,269

(322)

(17)

(3,796)

(78,937)

75,699

18,431

2,977

238

2,999

198

(256)

(61,411)

59,067

21,084

831

(406)

5,210

(12,432)

(10,240)

616

(93)

345

(98)

(558)

(14,509)

(214,476)

18,409

16,733

(7)

(8,328)

8,398

223,312

25,004

(7,576)

17,428

ANNUAL REPORT | 201516.

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

2015

2014

763

339

1,113

117,343

2,965

121,421

472,510

582

221

849

1,652

95,281

3,173

100,106

415,635

593,931

515,741

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 (2014: $2 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.

17.

Trade and other payables

In thousands of AUD

Current

Note

2015

2014

Present value of future trailing commissions payable

4,30

Other trade payables

Non-trade payables and accrued expenses

Non-current

Net present value of future trailing commissions payable

105,364

48,681

715

154,760

425,581

84,550

44,193

2,861

131,604

370,697

580,341

502,301

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.

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )18.

Loans and advances

In thousands of AUD

Current

Securitised assets1

Other secured loans2

Redeemable preference shares (RPS)3

In thousands of AUD

Non-current

Securitised assets1

Capitalised origination cost

Other secured loans2

Redeemable preference shares (RPS)3

Less: Provision for impairment4

2015

2014

172,430

168,972

1,528

1,140

7,290

173,958

177,402

2015

2014

847,864

836,813

2,502

1,053

(33)

4,877

1,329

4,808

(38)

851,386

847,789

1,025,344

1,025,191

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:

a. 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 10.97% p.a (2014:9.42% p.a).

b. Loan and advances to McCabe St Limited are secured over its land and assets. Interest is charged on average at 4.79% p.a (2014: 5.01% p.a).

i. During the year ended 30 June 2014 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%. On 22 April 2015 the Group divested its property development interests to Establish Property Group Ltd, including the RPS acquired in Harold
Developments Pty Ltd (See Note 7).

ii. During 2013 the Group acquired 6 million RPS in Rowe Avenue Ltd and Roydhouse Ltd 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.
On 22 April 2015 the Group divested its property development interests to Establish Property Group Ltd, including its RPS in Rowe Avenue Ltd and
Roydhouse Ltd (See Note 7).

4 Refer to note 30(a)(ii) for the split between collective and individual provision.

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 $33
thousand (2014: $38 thousand).

During the financial year, new loans issued in the Group’s securitisation programme were $273,630 thousand (2014: $412,398).

The Group’s exposure to credit, currency and interest rate risks related to loans and advances is disclosed in note 30.

ANNUAL REPORT | 201519.

Group entities

Composition of the Group

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

Establish Property Group Ltd

Country of
incorporation

Ownership interest

2015

2014

Australia

New Zealand

Australia

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.

Change in the Group composition

On 20 December 2014 the Group incorporated Establish Property
Group Ltd, a wholly owned subsidiary. During the year the Board
of directors recommended a demerger of its property business,
which involved the establishment of a sale agreement between
the Company and Establish Property Group Ltd pursuant to which
the Group agreed, amongst other things, to transfer the Group’s
property development interests to Establish Property Group Ltd in
consideration for the issue of Establish Property Group Ltd shares
to the Company. On 20 April 2015 an ordinary resolution was
passed by the members at a General Meeting to make a pro-rata
distribution of all of its shares in Establish Property Group Ltd to the
members of the Company and to approve the subsequent share
capital reduction from divesting its property development interests
to Establish Property Group Ltd. The demerger became effective on
22 April 2015.

Additional disclosures with respect to Consolidated
Structured Entities

Subscription of Subordinated Notes within the Trust Structures

As part of the funding arrangement for the Group’s Securitisation
business the Company has subscribed for the subordinated note in
each of the independent funding structures. These notes represent
the first loss position for each of the funding trusts. In the event
that a loss is incurred in the relevant structure, then the balance of
subordinated note is first applied against such losses. A loss would
only be incurred within the respective Trust in the event that the
sale of the underlying security was not sufficient to cover the loan
balance, there was no mortgage insurance policy in existence and
the loss could not be covered out of the excess spread generated by
the respective Trust.

The weighted average loan to value ratio of all loans as at time of
settlement was below 70% and as at year end, approximately 91%
(2014: 100%) of the loans (in dollar value) have a lenders mortgage
insurance policy which have been individually underwritten by a
mortgage insurer. With respect to those loans which do not have
mortgage insurance, the weighted average loan to value ratio for all of
these loans is 51%. No individual loans have an LVR in excess of 70%.

At no point since the inception of the Securitisation business has
the subordinated note been required to be accessed to cover any
lending losses within the respective Trusts.

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )
In thousands of AUD

Subordinated Notes held in AFG 2010-1 Trust and Series1

Subordinated notes held in SPE-RMBS trusts following a term transaction:

■

AFG 2013-1

AFG 2013-2

AFG 2014-1

2015

5,293

1,500

750

500

2014

9,500

1,500

750

500

1 The level of subordination subscribed by the company will increase or decrease over time depending upon a number of factors including the size of the

warehouse as well as the ratings methodology used for these warehouse facilities.

Other

Holders of RMBS are limited in their recourse to the assets of the Securitisation vehicle (subject to limited exceptions). AFG group companies may however incur
liabilities in connection with RMBS which are not subject to the limited recourse restrictions (for example where an AFG Group company acts as a trust manager
or servicer of a Securitisation vehicle).

20.

Investments in equity-accounted investees

Associates

Joint ventures

Prior to the demerger of the property business the group had a
35.8% (2014: 35.8%) 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
was accounted for using the equity method in the consolidated
financial statements.

On 22 April 2015 the Group divested its property development
interests to Establish Property Group Ltd, including its investment in
Qube (See Note 7).

During the year ended 30 June 2015 the Group received dividends of
$459 thousand from its investments in equity-accounted investees
(2014: $340 thousand).

During the year ended 30 June 2014 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 Consolidated Statement of Profit or Loss and Other
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,
discontinued operations, for the year was $322 thousand (2014:
$256 thousand).

Summary of financial information for equity-accounted investees, based on their Australian Accounting Standards financial statements, are set
out below:

2015

In thousands
of AUD

Reporting
date

Ownership

Total
assets

Total
liabilities

Income

Expenses

Profit /
(Loss)

Group
share of
net assets

Group
share of
Profit/(loss)

Qube2

30 June

2,341

1,440

901

322

2014

In thousands
of AUD

Reporting
date

Ownership

Total
assets

Total
liabilities

Income

Expenses

Loss

Group
share of
net assets

Group
share of
loss

ZincFinance
Pty Ltd1

Qube
Havelock
Street
Development
Pty Ltd2

30 June

(1)

30 June

35.8%

27,849

20,230

2,534

1,747

787

2,727

256

27,849

20,230

2,534

1,748

786

2,727

256

1 Joint Venture

2 Associate – demerged during 2015

ANNUAL REPORT | 2015
21.

Property, plant and equipment

In thousands of AUD

Cost

Balance at 1 July 2013

Additions

Disposals

Balance at 30 June 2014

Balance at 1 July 2014

Additions

Disposals

Balance at 30 June 2015

Depreciation

Balance at 1 July 2013

Depreciation charge for the year

Disposals

Balance at 30 June 2014

Balance at 1 July 2014

Depreciation charge for the year

Disposals

Balance at 30 June 2015

Carrying amounts

At 30 June 2014

At 30 June 2015

Plant and
equipment

Fixtures and
fittings

4,814

274

(101)

4,987

109

(3,921)

1,175

3,513

923

(98)

4,338

433

(3,916)

855

649

320

3,718

105

(118)

3,705

421

(253)

3,873

1,065

(117)

960

490

(255)

1,195

2,745

2,678

Total

8,532

379

(219)

8,692

530

(4,174)

5,048

4,578

935

(215)

5,298

923

(4,171)

2,050

3,394

2,998

Interest-bearing liabilities

22.
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.

In thousands of AUD

Current

Securitisation warehouse facilities

Loans from funders

Secured bond issues

In thousands of AUD

Non-current

Secured bond issues

Secured bank loans

Loans from funders

Redeemable preference shares (RPS)

2015

506,739

429

90,006

597,174

2015

443,458

467

2014

281,316

601

125,894

407,811

2014

613,561

8,205

1,010

4,098

443,925

626,874

1,041,099

1,034,685

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )Terms and debt repayment schedule

Terms and conditions of outstanding loans were as follows:

2015

2014

In thousands of AUD

Nominal
interest
rate

Year of
maturity

Face value

Carrying
amount

Nominal
interest
rate

Year of
maturity

Face value

Carrying
amount

Warehouse facilities

3.36%

2016

506,760

506,739

4.12%

2015

281,469

281,316

Secured bond issues

3.85%

2016-2019

534,425

533,464

3.60%

2015-2019

741,308

739,455

Loans from funders

6.25% 2016-2020

896

6.25%

2015-2018

3.94%

2015-2017

1,611

8,205

1,611

8,205

Secured bank loans

Redeemable
preference shares

15.00%

2017

4,098

1,042,081

1,041,099

1,036,691

1,034,685

(a)

Warehouse and secured bond issues

ii.

Secured bond issues

SPE-RMBS were established to provide funding for loans and
advances (securitised assets) originated by AFG Securities Pty Ltd.
The 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 is a combination of fixed and floating charges over
all assets of the SPE-RMBS. Importantly, all the securitised assets,
residential mortgages, of the SPE-RMBS are covered by a lender’s
mortgage insurance contract which covers 100% of the principal of
the loan.

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 3.85% (2014: 3.6%).

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 Company (unrated Class C Notes) of $2,750 thousand
(2014: $2,750 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.

The carrying amount of the collaterals pledged as security for
the warehouse facility and the secured bond issues is $1,868,314
thousand (2014: $1,779,647 thousand).

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. Up
until 1 July 2014, all new loans settled irrespective of their LVR
were covered by a separate individual lenders mortgage insurance
contract. Subsequent to this date, all new loans settled with an
LVR of less than or equal to 70% were settled on the basis that no
lenders mortgage insurance policy was required. When taken out, a
lender’s mortgage insurance contract covers 100% of the principal of
the loan.

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 $99,947 thousand (2014: $214,031 thousand).
The interest is recognised at an effective rate 3.36% (2014: 4.12%).

The Group secured an extension to the term of the residential
warehouse facility that was due to expire on 14 August 2015 to
15 August 2016.

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 $7,948 thousand
(2014: $4,960 thousand).

Additional credit support includes subordinated credit enhancement
held by the Company of $5,293 thousand (2014: $9,500 thousand).

ANNUAL REPORT | 201522.

interest-bearing liabilities (cont...)

(b)

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% (2014: 6.25%).

(c)

Secured bank loans

The obligations for the debt facilities (secured bank loans) that were obtained to fund the development of the land owned by AFG Developments
Pty Ltd and AFG Developments 2 Pty Ltd (Land) were transferred to Establish Property Group Ltd subsequent to the Group’s demerger (see
Note 7). As part of this demerger the Group has also agreed to continue in its role as a guarantor in relation to the debt funding arrangements
of Richmond Quarter development project undertaken by AFG Developments Pty Ltd and a former joint venture arrangement. The guarantees
provided by the Group are as follows:

■

project performance guarantee limited to $5,000 thousand.

Completion guarantee under which the Group agrees to contribute additional funds to the extent required by the debt provider from time to
time to cover any cost overruns.

Breaches in meeting the financial covenants by Establish Property Group Ltd 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 the
interest-bearing loans in the current period.

(d)

Redeemable preference shares

During the year ended 30 June 2014 AFG Property Investment No.1 Pty Ltd issued 4,500 thousand fully paid $1 redeemable preference shares
(RPS) to sophisticated investors (2013: 4,500 thousand), 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
18). On 22 April 2015 the Group divested its property development interests to Establish Property Group Ltd, including the RPS issued by AFG
Property Investment No.1 Pty Ltd.

During 2015 the interest recognised in the profit or loss amounted to $486 thousand (2014: $198 thousand). Accrued interest is payable on
redemption of the RPS.

Refer to note 30 for further disclosures on interest-bearing liabilities.

2015

200

1,438

1,638

900

200

538

738

2014

600

1,380

1,980

122

693

815

478

687

1,165

(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.

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )23.

Employee benefits

In thousands of AUD

Current

Salaries and wages accrued

Liability for long service leave

Liability for annual leave

Non Current

Liability for long-service leave

2015

2014

819

1,259

993

3,071

739

974

909

2,622

350

3,131

2,972

Provisions

24.
The provisions balance relates primarily to:

■ Make good provisions where 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. As at 30
June 2015 the provision is $42 thousand (2014: $66 thousand).

■

Provisions 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. As at 30 June 2015 the provision is $250 thousand (2014: $250 thousand).

Provision for terminated members which relates mainly to fees charged to terminated brokers and as such have been withheld. No provision
was raised during 2015 (2014: $69 thousand).

No significant new provisions have been raised in the year.

25.

Deferred income

In thousands of AUD

Current

Sponsorship income

Lease incentives

Unearned professional indemnity insurance

26.

Operating leases

In thousands of AUD

Leases as lessee

Non-cancellable operating lease rentals are payable as follows:

Less than one year

Between one and five years

2015

2014

2,798

1,011

1,107

4,916

2,182

1,083

1,034

4,299

2015

2014

2,284

6,639

8,923

2,033

5,800

7,833

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 2015 $2,117 thousand was recognised as an expense in the
Consolidated Statement of Profit or Loss and Other Comprehensive Income in respect of operating
leases (2013: $1,978 thousand).

ANNUAL REPORT | 2015
27.

Capital and reserves

(a)

Share capital

The Company

On issue at 1 July

Issued for cash or nil consideration

Two for one share split1

Issued for cash2

Capital reduction (Demerger)

On issue at 30 June – fully paid

Share Capital
($’000)

Ordinary shares
(’000)

2015

11,434

1,260

12,694

32,035

(1,188)

43,541

2014

11,434

2015

93,340

500

93,840

27,132

2014

93,340

11,434

214,812

93,340

1 At a general meeting of shareholders held on 24 April the shareholders approved a two for one share split of all issued capital. Under the terms of the share
split, shareholders were entitled to one additional share for every Company share they formerly held, and as such the issued capital of the Company became
comprised of 187,680,000 shares.

2 On 22 May 2015 the Group completed an Initial Public Offer which raised equity capital of $32,558 thousand at a price of $1.20 per share.

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.

(d) Dividends

Dividends paid in the current year by the Group are:

Cents per
share

Total amount
($’000)

Franked /
unfranked

Date of
payment

10.71

5.33

4.26

3.21

4.82

4.29

10,000

8,000

38,000

3,000

4,500

4,000

11,500

Franked

6/10/14

27/2/15

4/5/15

29/5/15

Franked

5/7/13

29/11/13

30/5/14

2015

1st interim 2015 ordinary

2nd interim 2015 ordinary

3rd interim 2015 ordinary

Final 2015 ordinary

2014

Final 2013 ordinary

1st interim 2014 ordinary

2nd interim 2014 ordinary

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )Dividends declared or paid during the year or after 30 June 2015 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

2015

13,262

44,207

2014

21,223

70,744

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 $44,207 thousand (2014: $70,744 thousand)
franking credits.

Earnings per share (EPS)

28.
Basic EPS amounts are calculated by dividing the profit for the year attributable to ordinary equity holders of Australian Finance Group Ltd by
the weighted average number of ordinary shares outstanding during the year.

Diluted EPS amounts are calculated by dividing the profit attributable to ordinary equity holders of Australian Finance Group Ltd by the weighted
average number of ordinary shares during the year plus the weighted average number of ordinary shares that would be issued on conversion
of all the dilutive potential ordinary shares into ordinary shares.

The following reflects in the income and share data used in the basic and dilutive EPS computations:

In thousands of AUD

2015

2014

Profit attributable to ordinary equity holders of the Parent:

Continuing operations

Discontinued operations

Profit attributable to ordinary equity holders of the Parent

Weighted average number of ordinary shares for basic EPS (thousands)1

Effect of dilution:

Performance rights

Weighted average number of ordinary shares adjusted for the effect of dilution

15,301

5,078

20,379

16,523

1,346

17,869

Thousands

189,901

186,681

342

190,243

186,681

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of
authorisation of these financial statements.

1 At a general meeting of shareholders held on 24 April 2015, shareholders approved a two for one share split of all issued capital. Under the terms of the share
split, shareholders received an additional share for every Company share they formerly held, and as such the issued capital of the Company post 24 April 2015
became comprised of 187,680,000 shares.

To calculate the EPS amounts for discontinued operations, the weighted average number of ordinary shares for both basic and diluted EPS is
as per the table above. The following table provides the profit / (loss) amount used:

In thousands of AUD

Profit attributable to ordinary equity holders of the Company from discontinued operations for basic and
diluted EPS calculations

2015

5,078

2014

1,346

ANNUAL REPORT | 2015

29.

Share based payments

(a) Options

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 2015 (2014: 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.

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

Vested

Non Vested

Total

Value per Share

Total Value

234,000

562,500

50,000

77,000

146,000

53,000

60,000

10,000

95,000

66,667

50,000

234,000

562,500

50,000

77,000

146,000

53,000

60,000

10,000

95,000

66,667

50,000

650,000

234,000

562,500

50,000

77,000

146,000

53,000

60,000

10,000

95,000

66,667

50,000

650,000

$0.031

$0.027

$0.014

$0.011

$0.150

$0.200

$0.180

$0.200

$0.150

$0.300

$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 at the time of issue was 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

Pre IPO share issue

Prior to the listing of the Company on the ASX, a one off Key Executive pre-offer share issue of 500,000 shares in recognition of the contribution
of certain key executives was awarded. The Group ascertained fair value of $2.52 (pre share split) per share by reference to the midpoint of
the price range disclosed in the Prospectus.

In 2015 $1,260,000 (2014: NIL) was expensed to employee expenses being the fair value of shares issued under the Key Executive pre-offer
share issue.

No shares were bought back during the financial year from ex-employees, as allowed under the terms of the Scheme (2014: NIL).

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )
(c)

Executive Rights plan (Long-Term Incentive Plan)

During the year the Group established an Executive Long-Term Incentive Plan (LTIP) which grants rights to certain executives subject to
the achievement of performance and service requirements. Eligible executives are granted rights to a value determined by the board that
is benchmarked against direct industry peers and other Australian listed companies of a similar size and complexity.

Executives participating in the plan will not be required to make any payment for the acquisition of rights.

The rights lapse if the performance and service criteria are not met. The rights granted under this plan are subject to instalment vesting over
a three year period. The first instalment of rights is subject to an absolute total shareholder return (TSR) performance hurdle in addition to
continuous service vesting conditions. The second and third instalments are not subject to performance hurdle, but will lapse immediately if
the TSR performance hurdle is not satisfied in relation to the first instalment of the rights. The Board has the full discretion to determine whether
some or all of the rights vest or lapse or whether unvested rights remain subject to vesting conditions in the event of a change of control.

In any event, any rights that remain unvested will lapse immediately after the end of the relevant vesting period.

Upon vesting the company must issue the number of shares or, at the board’s discretion, settle the entitlement in cash.

In the case of a bona fide termination payment of any pro rata entitlement will be made taking into account the period of service as at termination
date. Bona fide termination includes death, redundancy, corporate restructure, resignation with an appropriate notice provided and disability.
Rights that remain unvested will lapse immediately after the end of the relevant vesting period.

In the event that the employment of an executive ceases due to a breach of obligations to the Group, serious misconduct, redundancy, poor
performance, fraudulent act and dishonest act, the executive will not be entitled to any pro rata right. In all other circumstances pro rata LTIP
payment will be made taking into account the period of service as at termination date.

In 2015 $9,361 (2014: NIL) was expensed to employee expenses being the fair value of performance rights that have vested during the
financial year.

The assessed fair value at grant date of the rights is determined using the final price set out in the prospectus for the initial public offering
of shares in the Company that was lodged with the Australian Securities and Investments Commission on 4 May 2015.

The following table outlines performance rights that are conditionally issued under LTIP:

Offer Date

Vesting date

Value

Balance
at start of
the year

22/05/2015

30/06/2016

22/05/2015

30/06/2017

22/05/2015

30/06/2018

103,333

Granted
during
the year

103,333

Vested
during
the year

Expired
during
the year

Forfeited
during
the year

Balance
at end of
the year

103,333

30.

Financial instruments

(a)

Credit risk

Exposure to credit risk

The carrying amount of the Group financial assets represents the maximum credit exposure.

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

2015

2014

590,862

511,744

100

147

676

ANNUAL REPORT | 2015Financial instruments (Cont...)

30.
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 $589,853 thousand (2014: $510,916 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-

BBB+

BBB

BBB-

Not rated

Current

Non Current

Current

Non Current

2015

2014

78,603

1,392

11,898

5,951

105

537

402

18,438

117,343

316,512

5,606

47,910

23,965

422

2,163

1,616

74,246

472,510

65,430

285,418

1,213

13,120

429

316

259

14,460

95,281

5,292

57,234

1,871

151

1,380

1,130

63,074

415,635

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

2015

435

586

1,115

Impairment
allowance

2015

(1)

(2)

Gross

2014

1,070

508

1,654

Impairment
allowance

2014

(1)

(2)

During the year ended 30 June 2015 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 2015 and 2014 there were no individual impairment allowances raised.

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )
(ii)

Loans and advances

Exposure to credit risk

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

2015

2014

1,022,762

1,010,624

2,396

186

2,330

12,237

1,025,344

1,025,191

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 $1,868,314 thousand (2014: 1,779,647 thousand). During the year ended 30 June 2015 the Group has taken possession
of three residential properties that were held as security for loans issued by the Group. The carrying amount of the repossessed residential
property was $1,138 thousand (2014: $1,796 thousand). Two properties have been sold before the end of the financial year, with the shortfall
repaid by our lender’s mortgage insurance.

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.

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

2015

2014

57,430

171,881

790,983

52,550

166,199

787,036

1,020,294

1,005,785

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

2015

1,023,783

1,087

322

185

1,025,377

Impairment
allowance

2015

(33)

Gross

2014

1,020,944

2,910

1,211

163

1,025,228

Impairment
allowance

2014

(20)

(18)

(38)

The impairment loss provision as at 30 June 2015 of $33 thousand (2014: $38 thousand) is a specific provision for loans that are past due.

ANNUAL REPORT | 2015
30.

Financial instruments (Cont...)

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 under SPE-RMBS are insured
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 2015 (2014: NIL).

Redeemable preference shares

On 22 April 2015 the Group divested its property development interests to Establish Property Group Ltd, including its redeemable preference
shares (see note 7).

No impairment loss was recognised during 2015 (2014: NIL).

Other secured loans

The Group has minimal exposure to credit risk for loans made during the year.

No impairment loss was recognised during 2015 (2014: 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 22, 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.

2015

In thousands of AUD

Carrying
amount

Contractual
cash flows

6 months or
less

6-12 months

1-2 years

2-5 years

More than 5
years

Securitisation warehouse facilities

506,739

515,281

533,464

553,233

896

949

424,011

46,264

238

91,270

46,264

204

78,342

382,363

314

193

Secured bond issues

Loans from funders

Net present value of future
trailing commissions payable

530,945

676,853

74,800

69,381

121,402

249,841

161,429

Trade and other payables

49,396

1,621,440

1,795,712

594,709

207,119

200,058

632,397

161,429

2014

Redeemable preference shares

Securitisation warehouse facilities

Secured bond issues

Secured bank loans

Loans from funders

Net present value of future
trailing commissions payable

4,098

281,316

739,455

8,205

1,611

5,075

287,273

765,744

8,773

1,725

111,522

63,626

161

320

5,075

107,745

530,747

8,452

540

565

175,751

63,626

160

300

455,247

615,784

64,378

61,656

110,313

227,851

151,587

Trade and other payables

47,054

1,536,986

1,731,428

47,054

287,061

301,493

232,125

759,163

151,587

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )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 14 August 2015 to 15 August 2016. 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 4 to 5 years. They are pass through 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 note 17.

Currency risk

Exposure to 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 Consolidated Statement of Profit or Loss and Other
Comprehensive Income and equity of the Group and have therefore not formed part of the disclosures.

ii.

Interest rate risk

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

2015

2014

589,853

530,945

58,908

525,482

459,345

66,137

1,116,119

1,086,646

1,041,099

1,030,587

75,020

56,059

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.

Cash flow sensitivity analysis for variable rate instruments

Due to the market conditions existing at 30 June 2015, 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.

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 2014.

ANNUAL REPORT | 2015
30.

Financial instruments (Cont...)

Effect in thousands of AUD

30 June 2015

Variable rate financial assets

Variable rate financial liabilities

Cash flow sensitivity (net)

30 June 2014

Variable rate financial assets

Variable rate financial liabilities

Cash flow sensitivity (net)

iii.

Prepayment risk

After tax profit

Equity

100bp
increase

100bp
decrease

100bp
increase

100bp
decrease

7,741

2,882

4,859

7,209

3,233

3,976

(7,741)

(2,895)

(4,846)

(7,209)

(3,243)

(3,966)

7,741

2,882

4,859

7,209

3,233

3,976

(7,741)

(2,895)

(4,846)

(7,209)

(3,243)

(3,966)

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 30(d) 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 5% positive or 5% 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

After tax profit

Equity

Securitised assets

2015

2014

+5%

(1,605)

-5%

1,685

+4%

(1,138)

-4%

1,182

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.

During 2015 no change in the fair value of financial assets designated at fair value through profit or loss was recognised in the profit or loss
(2014: $2 thousand increase).

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.

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )(d)

Accounting classifications and fair values

Fair value hierarchy

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).

Fair value of financial assets and liabilities that are measured at fair value on a recurring basis

Some of the Group’s financial assets and liabilities are measured at fair value at the end of each reporting period

Financial assets

Fair value as at

Fair value hierarchy

Valuation technique(s)
and key input(s)

30/06/15

$22,455

Financial assets
designated at fair
value through profit
or loss (see note 19)

30/06/14

$22,245

Listed securities in:

■ NKWE Platinum Limited

- $7,455; and

■

International Petroleum
Limited - $15,000.

Level 1

Quoted bid prices
in an active market

Available-for-sale
financial assets
(see note 19)

$26,551

$46,296

Listed securities in
Rent.com.au limited

Private equity investment
in Rent.com.au Limited

Level 1 in 2015 and
Level 3 in 2014

2015- quoted bid prices
in an active market

2014- latest
valuation performed
by Rent.com.au Limited

During 2015 the available-for-sale financial assets were transferred from Level 3 to Level 1 because quoted prices became available due to the
investee listing on the Australian Stock Exchange (2014: no transfers in either direction).

Reconciliation of Level 3 fair value measurement

2014

In thousands of AUD

Balance at 1 July 2013

Total gains recognised in comprehensive income

Purchases and disposals

Balance at 30 June 2014

Available-for-sale financial assets

Other

Fair value of financial assets and liabilities that are not measured at fair value (but fair value disclosures are required)

With the exception of the trailing commission receivables and payables that are initially recognised at fair value and subsequently carried
at amortised cost, the carrying amount of all financial assets and liabilities recognised in the Statement of Financial Position approximate their
fair value.

Trailing commissions are received 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.

ANNUAL REPORT | 2015
30.

Financial instruments (Cont...)

In thousands of AUD

Financial assets

2015

2014

Carrying amount

Fair value

Carrying amount

Fair value

Future Trailing commission receivables

589,853

646,341

510,916

527,858

Financial liabilities

Future Trailing commission payables

530,945

580,889

455,246

469,961

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 the management, with the assistance of
external actuaries, by reference to market observable inputs. The valuation is classified as level 2 in the fair value measurement hierarchy.

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:

Average loan life

Discount rate per annum

Percentage paid to members

2015

2014

Between 4.4 and 5.3 years

Between 4.4 and 5.2 years

Between 5% and 13.5%

Between 85% and 91%

Between 10% and 13.5%

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.

Parent entity

31.
Throughout the financial year ending 30 June 2015, 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

2015

2014

17,804

(15)

17,789

18,855

18,865

2015

2014

186,878

672,344

160,843

599,922

43,542

(80)

28,960

72,422

164,975

609,748

136,177

521,522

11,435

(75)

76,866

88,226

See notes 32 and 33 for the parent entity capital and other commitments, and contingencies.

Refer to note 22(c) for the parent entity’s guarantees.

As at reporting date the credit support facility provided by the parent entity under the securitisation programme is $8,043 million
(2014: $9.5 million).

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )Capital and other commitments

32.
There are no capital commitments as at the reporting date.

33.

Contingencies

Performance and completion guarantees

On 22 April 2015 the Group divested its property business interests to Establish Property Group Ltd. As part of this demerger the Group has
also agreed to continue in its role as guarantor under the debt funding arrangements of a former joint venture arrangement in relation to
Richmond Quarter development project. (See note 7 and note 22(c)).

Given the 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.

34.

Related parties

(a) 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

Gill Family Pty Ltd - Provision of chairman services

Transactions value year
ended 30 June

2015

97,947

2014

97,000

(iv)

(v)

(vi)

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 D. 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 $184,672 (2014: $138,002) and comprises of administrative costs that the
financing facility will not meet. The interest charged during the year is $7,345 (2014: $13,529).

During the year the Group received payments from TAL Life Ltd. Mr J. Minto, a non-executive director who rejoined the board on 1
April 2015, was a Group CEO and Managing Director of TAL Life Ltd until 31 March 2015. 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 $747 thousand (2014: $779 thousand).

During the year the Group made payments to Genworth Financial, one of our providers of Lenders Mortgage Insurance (LMI). Mr A. 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 $1,538 thousand (2014: $2,633 thousand).

(vii) Mr A. 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 $191,840 (2014: $404,417).

ANNUAL REPORT | 201534.
(viii)

Related parties (cont...)
Establish

As part of the demerger of the property business on 22 April, the Group entered into a shared services agreement with Establish Property
Group Ltd (EPG). Mr B. McKeon, Ms L. Bevan and Mr D. Bailey, Chief Financial Officer, are directors and shareholders of EPG. Under the terms of
the shared services agreement the Group provides premises, administration, accounting and some company secretarial services to EPG at an
agreed arms length rate. During 2015 a total of $38,510 was paid by EPG to the Group for these services (2014: Nil). In addition to the above, the
Group’s head office is located at 100 Havelock Street Wets Perth. The Group leases these premises from an investee of EPG, Qube Havelock
Street Development Pty Ltd (Qube), that was held by the Group prior to the demerger transaction (see note 20). During the 2015 financial year
a rent of $1,633 has been paid to Qube (2014: $1,625 thousand).

(b)

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

2015

2014

9,819,555

8,162,348

6,254,358

4,123,195

329,596

(625,069)

(654,093)

(201)

(122)

9,017,835

6,936,604

(21,880)

(21,853)

9,671,990

20,738

760

2,133,330

52,732

383

(4,220,898)

20,574,035

26,513,972

Subsequent events

35.
On 3 August 2015, the Group secured an extension to the term of the NAB residential warehouse facility, until 10 February 2016 with the same
funding structure in place.

On 13 August 2015, the Group secured an extension to the term of the residential warehouse facility that was due to expire on 14 August 2015.

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.

ANNUAL REPORT | 2015Notes to the Financial Statements (cont... )Directors’ Declaration

In accordance with a resolution of the Directors of Australian Finance Group Limited, I state that:

In the opinion of the Directors:

a. The financial statements and notes of Australian Finance Group Limited are in accordance with the Corporations Act 2001, including:

(i) Giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 and of its performance for the year

ended on that date.

(ii) Complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations

Regulations 2001.

b. The financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2(a).

c. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

The Directors have been given the declarations by the Managing Director and Chief Executive Officer, and the Chief Financial Officer required
by Section 295A of the Corporations Act 2001.

On behalf of the board

B M McKeon

Director

Dated at Perth, Western Australia on 16 September 2015.

ANNUAL REPORT | 2015Audit Report

Independent Audit Report to the members of Australian Finance Group Limited

ANNUAL REPORT | 201579

ANNUAL REPORT | 2015SHAREHOLDER INFORMATION

Additional information required by the Australian Stock Exchange Ltd (ASX) and not disclosed elsewhere in this report is set out below.
The information is current as at 31 August 2015.

(a) Number of holders of equity securities

Ordinary share capital

214,812,671 fully paid ordinary shares are held by 1,205 individual shareholders.

All issued ordinary shares carry one vote per share.

Rights

310,000 rights are held by 4 individual right holders.

Rights do not carry a right to vote.

(b) Distribution of holders of equity securities

The number of shareholders by size of holding is set out below:

Range

100,001 and Over

10,001 to 100,000

5,001 to 10,000

1,001 to 5,000

1 to 1,000

TOTAL

Unmarketable Parcels

Securities

196,273,873

15,038,872

2,721,759

761,560

16,607

214,812,671

1,599

91.37

7.00

1.27

0.35

0.01

100.00

0.00

No. of holders

545

334

234

1,205

5.23%

45.23%

27.72%

19.42%

2.41%

100%

0.84

(c)

Substantial shareholders

The names and the number of securities held by substantial shareholders are set out below:

Australian Finance Group Ltd

MBM Investments ATF The Brett McKeon Family Trust

MSW Investments ATF The Malcolm Stephen Watkins Family Trust

FIL Limited

Oceancity Investments ATF The Matthews Family Trust

Commonwealth Bank of Australia and its related bodies corporate

Banyard Holdings Pty Ltd ATF The B&K McGougan Trust

Macquarie Group Limited

# Shares

% of issues
capital

105,099,961

48.90%

21,179,773

21,102,689

19,468,411

16,882,151

13,799,436

14,788,765

11,835,646

9.86%

9.82%

9.06%

7.86%

6.42%

6.88%

5.50%

Restriction on disposal of shares under voluntary escrow arrangements disclosed in Australian Finance Group Ltd’s prospectus dated 4 May
2015 gives Australian Finance Group Ltd a technical “relevant interest” in its own shares under section 608(1)(c) of the Corporations Act 2001
(Cth). However, Australian Finance Group Ltd has no right to acquire or to control the voting rights attaching to these shares.

ANNUAL REPORT | 2015

21,179,773

21,102,689

# Shares

% of issues capital

(d)

Twenty largest holders of quoted equity securities

Top holders

MBM INVESTMENTS PTY LTD

MSW INVESTMENTS PTY LTD

CITICORP NOMINEES PTY LIMITED

J P MORGAN NOMINEES AUSTRALIA LIMITED

OCEANCITY INVESTMENTS PTY LTD

NATIONAL NOMINEES LIMITED

BANYARD HOLDINGS PTY LTD

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

MACQUARIE BANK LIMITED

MRS KAREN JANE MCGOUGAN

ALLIANZ AUSTRALIA INSURANCE

TAL DISTRIBUTION HOLDINGS

AMP LIFE LIMITED

BNP PARIBAS NOMS PTY LTD

ASSURED FINANCIAL SERVICES PTY LTD

GILLFAMILY PTY LTD

ANGELA MIDDLETON

LISA BEVAN

ADRIEN MANN (SOUTH PACIFIC) PTY LTD

EDI NOMINEES PTY LTD

18,980,603

18,349,225

16,882,151

15,975,720

14,788,765

14,355,992

11,184,907

5,469,816

4,577,180

3,853,814

3,060,183

2,000,000

1,950,000

1,600,250

1,450,000

1,200,000

1,087,500

9.86%

9.82%

8.84%

8.54%

7.86%

7.44%

6.88%

6.68%

5.21%

2.55%

2.13%

1.79%

1.42%

0.93%

0.91%

0.74%

0.68%

0.56%

0.51%

(e)

Escrowed shares

Shareholder

MBM INVESTMENTS PTY LTD

MSW INVESTMENTS PTY LTD

OCEANCITY INVESTMENTS PTY LTD

BANYARD HOLDINGS PTY LTD

MACQUARIE BANK LIMITED

MRS KAREN JANE MCGOUGAN

ALLIANZ AUSTRALIA INSURANCE LTD

TAL DISTRIBUTION HOLDINGS LIMITED

ASSURED FINANCIAL SERVICES PTY LTD

GILLFAMILY PTY LTD

EDI NOMINEES PTY LTD

ANTHONY PETER GILL

TOTAL

# Shares

21,179,773

21,102,689

16,882,151

14,788,765

5,469,816

11,184,907

4,577,180

2,000,000

1,950,000

1,087,500

300,000

105,099,961

Escrowed shares are subject to voluntary escrow arrangements which prevent the escrowed shareholders from disposing of their escrowed
shares until after the release of the 2016 financial year audited full year results.

ANNUAL REPORT | 2015Share Registry

Link Market Services

Level 12
680 George Street
Sydney NSW 2000

Postal Address

Locked Bag A14
Sydney South NSW 1235

Phone
Email

1300 554 474
registrars@linkmarketservices.com.au

Stock Listing

Australian Finance Group Limited’s ordinary shares are listed on the
Australian Securities Exchange (ASX code: AFG).

Corporate directory

Directors
Anthony (Tony) Gill
(Non-executive Chairman)

Brett McKeon
(Managing Director and Chief Executive Officer)

Malcolm Watkins
(Executive Director)

Kevin Matthews
(Non-executive director)

James Minto
(Independent non-executive director)

Craig Carter
(Independent non-executive director)

Company Secretary
Lisa Bevan
(Company Secretary)

Notice of AGM
The annual general meeting of Australian Finance Group Limited
will be held on Wednesday 28 October 2015 at 2:00pm at Level 4,
100 Havelock Street, West Perth WA 6005.

Corporate Office

Australian Finance Group Limited

Level 4
100 Havelock Street
West Perth WA 6005

Postal Address

PO Box 710
West Perth WA 6872

Phone
Email
Website www.afgonline.com.au

08 9420 7888
investors@afgonline.com.au

ANNUAL REPORT | 2015www.afgonline.com.au

Level 4, 100 Havelock Street
West Perth WA 6005

T 08 9420 7888
F 08 9420 7858

ANNUAL REPORT

ABN 11 066 385 822