2021
ANNUAL REPORT
1
Annual Report 2021 Contents
Sustainability at AFG
Directors’ Report
Auditor’s Independence Declaration
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
Independent Audit Report
Shareholder Information
Corporate Directory
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19
42
43
44
45
46
47
92
93
99
101
Naomi
Information Technology
3
Annual Report 2021 $33.0M $38.1M
$51.3M
$28.6M
$36.3M
$49.6M
FY19
FY20
FY21
FY19
FY20
FY21
AFG reported NPAT
has increased to $51.3M
FY21 from $38.1M FY20
AFG underlying NPAT
has increased to $49.6M
FY21 from $36.3M FY20
5,500+
Individual products
70+
Lenders
238
Employees
1 in 11
Australian residential mortgages
are arranged by an AFG broker
FY21 AFGS RMBS
term transactions
$1.95B
AFG maintains a well
capitalised, debt-free balance
sheet with unrestricted cash,
trail book assets, financial
assets and sub-ordinated
capital totaling $282 million
4
Annual Report 2021 Go far.
Go together.
Lender Market Share
42%
of flows to non-majors FY21
Non-Majors
42%
Majors
58%
AFG Broker
numbers grew
to over
3,050
nationally increased
from 2,975 at FY20
28,500
AFG Home Loans customers serviced
5
Annual Report 2021 59%
of Australian mortgages are
written through a broker 2
2 Mortgage and Finance Association of Australia (MFAA)
FY20
FY21
52%
59%
FY21 Residential Settlements of
FY21 Commercial Settlements of
$43.6B
up 28% from FY20
$2.32B
up 1% from FY20
FY21 AFG Business Settlements of
FY21 Asset Finance Settlements of
$200M
down 42% from FY20
$611M
up 14% from FY20
6
Annual Report 2021 FY21 Residential Trail book of
FY21 AFG Home Loans Trail book of
$166.6B
up 8% from FY20
$11.2B
up 7% from FY20
FY20
FY21
$2.91B
$3.39B
FY21 AFGS Loan Book
up 17% from FY20
Dividends up
32%
Interim
Final
FY21 AFGS Settlements
$1.35B
5.9
4.7
4.7
5.4
7.4
5.9
FY19
FY20
FY21
cents per share
AFG reported return on equity remains at
27%
7
Annual Report 2021 Tony Gill
Chairman
Letter from the Chairman
In providing my Chairman’s Report for AFG I am once again very pleased to be able to report an outstanding result from the
company. AFG brokers have experienced increased demand for their services and have risen to the challenge of supporting
their clients through the difficulties presented by the past 12 months.
AFG’s combined residential and commercial loan book now stands
at $175.71 billion. This represents growth of 8% over FY20. In an
exceptional year of activity, our core residential lending business
delivered record settlements of $43.63 billion, an increase of 28% on
the prior year.
Company Update
As I write the country is once again experiencing lockdowns
brought on by the COVID-19 pandemic. The effects will be felt by
our community and the financial impacts will be felt in our economy
for some time to come.
Dividends
For the full year to 30 June 2021 the Board resolved to pay a final
ordinary dividend of 7.4 cents per share (fully franked). This results
in a total ordinary dividend for the year of 13.3 cents per share, up
from 10.1 cents per share in the prior year and represents a yield
of 5%.
Outlook
AFG’s financial results demonstrate the strength of the company
and the sector. Industry data reports overall broker market share
in Australia has lifted to 59% and an AFG broker arranges one in
Through the period, AFG staff and our brokers have shown great
every 11 Australian mortgages. The choice of lender and products
resilience as all adapted to intermittent lockdowns alongside
available to those homebuyers is central to the decision to seek help
unprecedented demand for home loans. I commend the business
from a mortgage broker. We expect this trend to continue.
on its smooth transition to working remotely when required.
AFG remains debt free with unrestricted cash of $106.9 million and
AFG staff now have the flexibility to operate under a hybrid work
is delivering positive NPAT, both reported and underlying. We remain
schedule of working from home alongside in the office. This model
positive about the future of our company and our industry.
of working is supported by the board and management, with
significant investment in technology to ensure that staff are able to
perform their duties to high standards, meet regulatory obligations
and remain connected with their teams and their brokers.
On behalf of the board, I would like to thank AFG staff, brokers, our
lender partners, and our shareholders for their ongoing support of
the company.
Environmental, Social and Governance
This year AFG is taking the first steps to report on the company’s
Environmental, Social and Governance (ESG) practices. At the heart
of our business is a commitment to driving shareholder value by
conducting business in a sustainable, ethically sound, and socially
responsible manner. We extend this commitment to all stakeholders.
From our board, management and staff to our investors, contracted
brokers, lending partners, consumers, and the community.
The company is lifting the disclosure of our ESG performance and
to ensure transparency we have added a sustainability section to
our website and included a statement in this Annual Report outlining
further details about our approach.
Tony Gill
Chairman
8
Annual Report 2021 Erin
Corporate
9
Annual Report 2021 David Bailey
CEO
Letter from the CEO
AFG has delivered another highly successful result. We report a record profit of $51.3 million, an increase
of 35% on the prior year.
AFG has delivered another highly successful result. We report a
FY21 compared to the prior period. For the full year, Commercial
record profit of $51.3 million, an increase of 35% on the prior year.
settlements were $2.32 billion.
Our core residential business delivered a record result for the year
Our investment in commercial lender ThinkTank is also contributing
and our AFG Home Loans’ white label products also increased
strongly, recording $5.3m share of profit, an increase of 130%.
18% to $2.1 billion. Our higher margin AFG Securities products
contributed settlements of $1.35 billion, representing book growth
of 17% and a loan book on 30 June 2021 of $3.39 billion.
We remain alert to the risks presented by the health and economic
challenges our community continues to face, and we are confident
AFG is well equipped to respond. Our workforce is adept at working
remotely when required and our broker network is a proven force
in providing frontline support for their customers. With the country
once again grappling with lockdowns in many states AFG is pleased
to note we are not seeing high numbers of hardship requests come
through AFG Securities’ business. We remain aware of the impacts
the shutdowns may have on the financial wellbeing of our customers
and stand ready to respond, if necessary, with supportive programs
in place while customers get back on their feet.
AFG Home Loans
The success of our lending business, AFG Home Loans, and, in
particular, our own securitised home loan products, remains a
highlight. Despite a pandemic-initiated slowdown in settlements in
the first quarter of FY21, the AFG Securities business has reported
an excellent full year of settlements and at the end of the financial
year has a loan book of $3.39 billion.
Residential Mortgage-Backed
Securities
In FY21 we continued our successful RMBS program, issuing $1.95
billion to the RMBS market. This takes the total paper issued by AFG
Securities since 2013 to A$4.825 billion.
A highlight was the successful completion of our first non-
conforming RMBS issue in October 2020, valued at $500 million.
The portfolio included low-documentation and non-conforming
loans originated by AFG Securities and received strong support from
domestic and international investors. We are now recognised as a
regular issuer of quality RMBS paper.
Technology
AFG’s new technology platform, CRM, is built on enterprise grade
technology and is a key pillar of AFG’s wider technology toolkit.
Plans for a staged migration across the AFG network are underway.
The migration of each broker to the CRM platform will be managed
by AFG support staff, including the historical data transfer and
seamless linkage with other key systems. A significant number of
our brokers have been with AFG for many years, so it is a big task,
but we are both excited and committed in every sense to a smooth
Since the end of the first quarter, momentum in this business has
built, and importantly, lodgements in the second half were up 82%
transition and a great outcome.
on the previous half.
Commercial
The Commercial lending market has been impacted the most
As the financial year drew to a close AFG acquired an 8% stake in
neobank Volt. Volt’s innovative technology combined with AFG’s
large distribution footprint will deliver competitive products to the
market and streamlined digital solutions for our brokers and their
customers. Volt’s digital banking services and technology platform
by COVID restrictions, but activity increased in the second half
will be utilised within our AFG Securities business to streamline
of the year driving settlements for FY21 in line with last year.
credit decisioning and position our securitised products as a leader
Importantly, commercial mortgage settlements were up 23% in H2
in the marketplace.
10
Annual Report 2021 Connective
When we announced the proposed merger with Connective
Looking ahead
In the residential market, government incentives are rolling back, and
in August 2019, we informed the market the transaction was
the Term Funding Facility offered to the major banks is no longer
conditional upon clearance by the ACCC (which was granted on 18
in place. Combined with compression in RMBS spreads this means
June 2020), and the resolution of court case involving Connective.
the country’s smaller lenders, including AFG Securities, are better
The end date to satisfy those two conditions for the transaction to
able to compete.
proceed is the 31 August 2021. Despite the Connective court case
AFG now has 3,050 member brokers in our network and more
concluding in March 2020, the decision by the judge has not yet
than 70 lenders on our panel, providing choice for consumers and
been delivered.
driving competitive tension in a market that has seen the third-party
Unfortunately, the extraordinary length of time that the judgement
channel well surpass that of direct to lender.
has taken meant the merger has not been able to proceed at
AFG is positioned well to respond to the current environment
this time.
and continue to support our broker network in the service of their
Regulatory change
The introduction of a new statutory obligation for Australian
mortgage brokers to act in the best interests of consumers, and
to prioritise consumers’ interest when providing credit assistance
came into effect in FY21. Our brokers were well equipped to meet
this obligation six months ahead of the implementation date.
This new legal requirement provides additional peace of mind for
consumers and further positions mortgage brokers as the channel
of choice for home lending.
customers.
I would like to thank AFG staff for their commitment to the company,
and our brokers and shareholders for their ongoing support.
David Bailey
CEO
Sahani & Peter
Learning & Development
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Annual Report 2021 Leanne
Marketing
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Annual Report 2021 Sustainability
at AFG
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Annual Report 2021 Sustainability
Highlights
This year I am very pleased to introduce our first report on the
company’s Environmental, Social and Governance (ESG) practices.
Tony Gill
Chairman
14
Annual Report 2021 AFG carbon footprint
880.69
tonnes of carbon dioxide
equivalent
Principal partner
Women in AFG Mentorship
Program established
Program established to measure
annual carbon footprint
AFG Winning Women Broker
Scholarship established
Diversity & Inclusion (% of women in positions)
Board
33%
Senior executives
22%
Senior managers
Total workforce
47%
51%
15
Annual Report 2021 Our approach
Although reporting accountability for our ESG performance is
relatively new, actions on those things that feed into the ESG
metrics, are not new to AFG. We are, and have always been, focused
on continuing to drive value for our investors and create a positive
impact for our employees, brokers, customers, and the communities
in which we operate.
The issue of what to report on, and how best to embed reportable
corporate sustainability practices within the business are new.
Standardised data will help inform companies such as ours to
transparently disclose those things that many of us do every day,
but they are not necessarily public processes.
user-group Board
In addition, this year AFG has been working to understand our direct
impact on the environment (our ‘climate footprint’) and we have
engaged with carbon solutions provider Carbon Neutral to measure
our carbon emissions. The report examined AFG’s Scope 1, 2 and 3
Greenhouse Gas Emissions (GHG) under the operational control of
the company for the full year 1 July 2020 to 30 June 2021.
A summary of GHG emissions sources by activity is
displayed below:
Figure 1: Total gross GHG emissions by activity - AFG FY2021 (t COre: %).
IT & Comms
330.45
(37.5%)
Waste
10.65
(1.2%)
Water
13.90
(1.6%)
Working from home
1.17
(4.7%)
Electricity
103.90
(11.8%)
users AFG Management Sustainability Committee
Operations, AFG Securities, Risk, IT, Legal, HR,
Marketing, Lender & Industry Partnerships,
Finance and Communication
Land travel
49.51
(5.6%)
The company has established a Management Sustainability
Committee, with representatives from across the business.
The committee provides enhanced oversight of the company’s
sustainability policies, principles and practices to meet stakeholder
expectations and ensure good governance. The committee reports
through to the AFG Board.
🌱︁ Environment
The droughts and floods of recent years, and the devastation of the
2020 bushfires brought into sharp focus the impacts of a changing
climate on our land and our communities. AFG has now integrated
climate change risk into its risk management framework.
Environmental risks identified by AFG include the risks of adverse
consequences of our direct impact on the environment and our
indirect impact through our business operations. AFG has also
identified the risks associated with changes to environmental laws,
regulations, or other policies adopted by governments or regulatory
authorities, including carbon pricing and climate change adaptation
or mitigation policies. Environmental risks (including climate
change) impact our brokers, their customers and our AFG Home
Loans customers, including their communities and the businesses in
which they work.
Staff commuting
191.19
(21.7%)
Air travel
114.60
(13.0%)
Figure 2: Emission intensity per staff - FY2021
Measure/Metric
C02-e per measure for FY 2021
Number of staff during
period (224)
3.9 t CO2-e / staff member
The main GHG emitting activities were associated with our use of
technology, followed by staff commuting, air travel and electricity
use. This year we all faced restrictions on travel due to the COVID-19
pandemic, this means the emissions generated by AFG through
travel were likely lower during this period than at other times. From
this starting point our challenge is now to develop consistent,
accountable, and transparent internal practices to reduce avoidable
GHG emissions where possible, and to examine opportunities to
offset unavoidable GHG emissions to address our impact on the
environment.
16
SUSTAINABILITYAnnual Report 2021 🗪︁ Social
AFG is committed to managing social risks and contributing to the
community as a core part of our values. To achieve this, we have
begun work on ways in which AFG can help to resolve some social
risks impacting our key stakeholders.
One of those is the social crisis of homelessness and disadvantage.
In June 2021 we were very pleased to announce a landmark
sponsorship agreement to help play our part in addressing that
problem. AFG is now Principal Partner of Foyer Foundation,
an independent charitable organisation that works with young
Australians at-risk of, or experiencing, homelessness.
The effective functioning of the company from the Board down,
seen through sound governance, risk and compliance practices,
employee protections, and the support provided to our brokers and
customers creates a culture that delivers value to our stakeholders
and guides our interactions in our industry and the wider community.
I am pleased to report AFG is on track with our Diversity and
Inclusion Objectives. Key metrics are below:
Objective
Status as at 30 June 2021
Achieve a minimum of 40%
37% of our management
women in management
positions are held by women.
positions (including KMP,
This is an increase of 1% from
Foyer Foundation is an organisation that has a globally proven
senior managers and other
our reported numbers last
model that works to address the issue among young people,
managers) by 2022 with
year.
one of the hardest hit parts of our community when faced with
increased year on year
homelessness. Foyers are integrated learning and accommodation
representation.
settings that provide young Australians experiencing disadvantage
with a pathway to education, training and employment that is
founded on access to stable and secure housing.
Continue to develop cultural
89% of employees agreed in
awareness across AFG
our 2021 Employee Survey
ensuring our workforce
that AFG supports cultural
As one of the country’s largest networks of mortgage brokers we
reflects the diverse Australian
diversity.
see firsthand the importance of a place to call home. By partnering
population, demonstrated by a
with Foyer Foundation, we are supporting a program that helps
positive cultural diversity score
young people into a stable and secure home from which they can
of at least 80% in our annual
(Survey period closed 6 August
2021)
find their feet and take their place in the community.
employee survey.
The COVID-19 pandemic has had a significant impact on all aspects
of life in Australia, particularly working arrangements affected by
the numerous lockdowns across the country. In 2020 and 2021 our
Maintain workplace diversity
Workplace diversity was our
as one of the top three
highest performing area in our
performing areas of our
2021 Employee Survey.
AFG Securities (AFGS) business has been working hard to limit the
employee pulse surveys.
impact of the pandemic on our customers. For those in financial
Continue training and
The Diversity & Inclusion
hardship due to COVID-19 related lost income, we have offered a
awareness programs to
Committee continues to deliver
variety of tailored solutions to assist their recovery. Pleasingly, those
ensure employees maintain
a quarterly program of training
numbers are low.
In addition, an important area of focus for our AFGS business is
providing access to those currently under-served in the lending
market. AFGS employs a manual, “traditional” approach to credit
assessment focusing on the individual borrower. Current credit
scoring methodologies employed by the majority of lenders -
particularly large ADIs - are favourably weighted to the depth of
credit records and repayment history which can be biased against
borrowers with changeable employment profiles. As a consequence,
and uphold AFG’s acceptable
and awareness initiatives.
and expected behaviors and
Mental health was a key focus
diversity and inclusion values
of the committee in response
in the workplace.
to challenges caused by
COVID-19. Domestic violence
awareness and support was
also highlighted tying in with
government education and
awareness campaigns.
the self-employed, sole-traders, part-time (often younger) workers
Maintain no less than
At 33%, AFG meets this
with multiple income sources, borrowers who have suffered a one-off
30% of each gender in the
objective.
life event that impacted their credit score, and recent migrants can
composition of AFG’s Board of
be disadvantaged. By maintaining an approach that focuses on a
Directors.
personalised, circumstances-sensitive assessment model, AFGS
supports borrowers whose needs may not be met by the broader
AFG’s Women in Leadership mentor program launched in March
banking sector.
🏛︁ Governance
2021. The program provides female employees a female mentor
from our senior leadership team. The program runs for 12 months
with mentees given guidance, suggestions for development and
insights into key leadership traits. It has been well received and is
The culture of an organisation is one that is difficult to distill to
providing positive opportunities for development for both mentors
numbers on a page, however the performance of a company that
and the staff they are supporting.
has an average of almost six years of service for its staff speaks to
a strong and supportive culture.
17
SUSTAINABILITY (continued)Annual Report 2021 More broadly, AFG is committed to equality in the mortgage broking
industry and championing the important role women play. The AFG
Winning Women program seeks to empower female brokers to help
them reach their potential through a number of initiatives including a
scholarship, state-based events, the provision of coaching courses,
and mentoring opportunities with highly successful female brokers
from the AFG network.
Whilst not subject to compulsory reporting, AFG undertakes a
voluntary Ethnicity Survey among staff. This year, we included two
additional questions relating to religious beliefs and whether people
have lived or worked overseas, contributing to global experience
and awareness. These new questions reflect a broader meaning of
‘cultural diversity’ that the Diversity Council Australia has recently
adopted. Interestingly, more than 50% of participants have lived or
worked overseas, bringing significant global and cultural experience
to AFG and the way staff work together.
The AFG Group is committed to the highest level of integrity and
ethical standards in all business practices and in upholding human
rights across our operations and supply chains. This year we
produced our first Joint Modern Slavery Statement setting out the
steps we are taking to ensure that those practices are not taking
place within our organisation or our supply chains. In addition,
the Company has recently finalised its Modern Slavery Supplier
Procedure. This internal procedure provides for an assessment of
the risks of modern slavery in our supply chain and a due diligence
process when any risks are identified.
Looking ahead
This is the first year AFG has published information about our
approach to Sustainability. By raising the bar on disclosure, we aim
to help our stakeholders understand more about how as a company
we make decisions and how we create value.
Our challenge is to identify the risks and opportunities presented
by this new reporting environment and respond in a manner that is
both consistent with the social contract under which we operate and
the maintenance of long-term business success. I look forward to
continuing to tell the story of AFG’s development through the lens of
ESG metrics.
Tony Gill
Chairman
18
SUSTAINABILITY (continued)Annual Report 2021 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 2021 and the auditor’s report thereon.
Directors
The Directors and Company Secretary of the Company at any time
Malcolm Watkins
(Executive Director)
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, mostly with
Macquarie Bank. Mr Gill is a Director of First Mortgage Services and
First American Title Insurance. He sits on the Board of the Butterfly
Foundation for Eating Disorders and the Pinchgut Opera. Mr Gill is
a former member of the Board of Genworth Mortgage Insurance
Limited (GMA.AX), and a former member of ASIC’s External Advisory
Panel. Mr Gill holds a Bachelor of Commerce and is a Chartered
Accountant (retired).
Brett McKeon
(Non-Executive Director)
Mr McKeon is a founding Director of AFG and the Group’s former
Managing Director. Mr McKeon has worked for more than 31 years
in the financial services industry. He has considerable management,
capital raising, public company and sales experience and is an
experienced director in both the public and private arenas.
In addition to his role as Non-Executive Director of AFG,
Mr McKeon is the Chair of Establish Property Group (EPG).
Mr Watkins is a founding Director of AFG and plays a key role in the
strategic direction of the Company. For 27 years he has driven the
company’s tactical development of market-leading IT and marketing
divisions. Mr Watkins is also on the board of Thinktank, a leading
commercial property lender in which AFG holds a 32.29% stake.
He is tasked with overseeing the opportunity to blend Thinktank’s
commercial property lending expertise with AFG’s broad distribution
and securitisation capabilities, to deliver strategic value to both
businesses. Mr Watkins is also a former board member of the
industry’s peak national body representing the sector, the Mortgage
and Finance Association of Australia (MFAA).
Craig Carter
(Independent Non-Executive Director)
Mr Carter joined the AFG Board in early 2015 and is the Chair of the
Audit Committee, a member of the Risk and Compliance Committee,
and a member of the Remuneration and Nomination Committee.
Following a career spanning 35 years in stockbroking and investment
banking, specialising in Corporate Advice and Equity Capital Markets,
Mr Carter now actively manages his own family business interests
across a range of investment activities. Mr Carter is a well-known
professional with unique experience in both business ownership
and corporate advisory. This experience and reputation provides
a platform for integrity and good governance.
19
DIRECTORS’ REPORTAnnual Report 2021 Melanie Kiely
(Independent Non-Executive Director)
Company Secretary
Lisa Bevan (Company Secretary)
Ms Kiely is an experienced Executive and Company Director with
Ms Bevan joined AFG in 1998 and was appointed to the position of
over 30 years of experience in health care, financial services and
Company Secretary in 2001. Ms Bevan is a Chartered Accountant,
consulting in Australia, Europe and South Africa. Ms Kiely is also
holds a Bachelor of Commerce degree and has a Diploma of
currently a Non-Executive Director of AIA Health and the Black Dog
Corporate Governance from the Governance Institute of Australia.
Institute. She is also CEO of Good Sammy Enterprises. Prior to
Ms Bevan is responsible for managing AFG’s secretariat, governance
this, she has held senior roles with Silver Chain, HBF Health Fund,
and ASX requirements. Ms Bevan also oversees the legal and
nib health funds, MBF and was an Associate Partner at global
human resources functions of the Company.
consulting firm Accenture. She has also held a number of Board
positions in the financial services and health sectors. Ms Kiely has
an Honours Degree in Business Science from the University of Cape
Town and is a Graduate of the Australian Institute of Company
Directors. Ms Kiely joined the AFG Board as a Non-Executive Director
in March 2016 and is Chair of the Remuneration and Nomination
Interests in the shares and rights of the
Company
As at the date of this report, the interests of the Directors in the
Committee, a member of the Audit Committee and a member of the
shares of the Group were:
Risk and Compliance Committee.
Director
Tony Gill
Number of
ordinary
shares
1,329,546
Brett McKeon
16,310,694
Malcolm Watkins
17,493,656
Craig Carter
Melanie Kiely
Jane Muirsmith
960,714
89,376
86,819
Number of rights
over ordinary shares
-
20,114
54,362
-
-
-
Changes in state of affairs
Other than matters dealt with in this report there were no significant
changes in the state of affairs of the Group during the financial year.
Jane Muirsmith
(Independent Non-Executive Director)
Ms Muirsmith is an accomplished digital and marketing strategist,
having held several executive positions in Sydney, Melbourne,
Singapore and New York. Ms Muirsmith is Managing Director of
Lenox Hill, a digital strategy and advisory firm and is a Non-Executive
Director of Cedar Woods Properties Ltd, the Telethon Kids Institute,
and Chair and Non-Executive Director of HealthDirect Australia. She
is a Graduate of the Australian Institute of Company Directors and a
Fellow of Chartered Accountants Australia and New Zealand, where
she is a member of the Australian and New Zealand Corporate
Sector and Advisory Committee. Ms Muirsmith is also a member of
the Ambassadorial Council UWA Business School. Ms Muirsmith
was appointed to the AFG Board in March 2016 and is Chair of the
Risk and Compliance Committee, a member of the Audit Committee
and a member of the Remuneration and Nomination Committee.
The above-named Directors held office during the whole of the
financial year and since the end of the financial year except where
noted otherwise.
20
DIRECTORS’ REPORT (continued)Annual Report 2021 Mick
Information Technology
Dividends
Total dividends paid during the financial year ended 30 June 2021 were $28,449k (2020: $24,359k), which included:
• A final fully franked ordinary dividend of $12,614k (4.7 cents per fully paid share) was declared out of profits of the Company for 2020
and paid on 29 September 2020.
• An interim fully franked ordinary dividend of $15,835k (5.9 cents per fully paid share) was declared out of profits of the Company for
2021 and paid on 18 March 2021.
A final fully franked ordinary dividend of $19,860k (7.4 cents per fully paid share) has been declared out of profits of the Company for the
financial year ended 30 June 2021 and is to be paid on 23 September 2021.
Principal activities
The Group’s principal activities in the course of the financial year continued to be:
• Mortgage origination and management of home loans and commercial loans; and
• Distribution of own branded home loan products, funded through its established RMBS programme and white label arrangements.
Corporate Governance Statement
The Company’s Corporate Governance Statement can be found at investors.afgonline.com.au/investor/?page=corporate-governance
21
DIRECTORS’ REPORT (continued)Annual Report 2021 Review of operations
For the year ended 30 June 2021 the Group recorded a net profit after tax of $51,304k, which is 34.7% above the prior period (2020: $38,078k).
Revenue from operating activities was up 10.7% to $747,043k (2020: $675,009k) as residential settlement volumes grew by 28% and the
AFG Securities loan book was up 16.5%.
The increase in profit was attributable to the following:
• AFG Securities loan book growing by 16.5% to $3.39B (2020: $2.91B).
•
•
•
Increased residential trail book of 7.8% to $166.6B (2020: $154.6B).
Increased residential settlements of 27.8% to $43.6B (2020: $34.1B).
Increased AFGHL white label settlements of 17.8% to $2.10B (2020: $1.79B).
Net cash flows from operating activities $58,602k (2020: $40,316k) was a result of increased interest income, growth in the AFGHL white
label trail books and favourable working capital movements when compared to prior period. The increased AFGS loan book provides a solid
platform to generate increased ongoing cashflow and earnings in future years. AFG continues to generate strong cash flows and this will
enable AFG to continue to invest to generate future growth.
During the year ended 30 June 2021, AFGS (wholly owned subsidiary of Australian Finance Group Ltd ) successfully priced three Residential
Mortgage-Backed Securities (RMBS) issuances:
• A$700M RMBS issue in July 2020
• A$500M Non-conforming RMBS issue in October 2020; and
• A$750M RMBS issue in May 2021.
COVID-19, as well as measures to slow the spread of the virus, have had a significant impact on global economies and equity, debt and
commodity markets. The Group has considered the impact of COVID-19 and other market volatility in preparing the financial statements.
The 30 June results included a provision for impairment charges due to the expected economic impact of the COVID-19 pandemic. The
expected credit loss (ECL) provision has remained at $3,272k for the year ended 30 June 2021 (2020: $3,272k). Impairment charges are
discussed further in Note 3(b)(ii) and Note 29 of the 2021 Annual Report.
Given the dynamic and evolving nature of COVID-19, changes may arise to the estimates and outcomes that have been applied in the
measurement of the Group assets and liabilities in the future.
In response to the current pandemic, the Group has provided support to its customers and brokers by implementing a range of initiatives, such
as granting deferrals of loan repayments if required.
The following table reconciles the unaudited underlying earnings to the reported profit after tax for the period in accordance with Australian
Accounting Standards:
In thousands of AUD
Underlying results from continuing operations
Change in the carrying value of trailing commissions
contract asset and payable
30 June 2021
30 June 2020
Operating
income
671,029
Profit
after tax
49,586
Operating
income
600,137
Profit
after tax
36,266
76,014
1,718
74,872
1,812
Total result from operating activities
747,043
51,304
675,009
38,078
22
DIRECTORS’ REPORT (continued)Annual Report 2021 Mel, Sej & Jesse
Revenue & IT
Likely developments and
expected results
The Group will continue to provide choice and lead the market by
building on the strengths of our traditional wholesale mortgage
broking business while developing our significant distribution
network to access other areas of the finance market.
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 12 July 2021, the Group successfully acquired an 8.04% interest
in Volt Corporation Limited, and entered into a strategic alliance with
Australia’s first neobank.
On 23 July 2021, the Group noted the expiry date of the Connective
merger of 31 August 2021. The Connective merger is unlikely
to proceed due to the length of time the Connective court case
judgment has taken to date.
On 26 August 2021, the Directors recommended the payment of
a dividend of 7.4 cents per fully paid ordinary share, fully franked
based on tax paid at 30%. The dividend has a record date of
out of retained earnings at 30 June 2021 is $19,860k. The financial
effect of this dividend has not been brought to account in the
financial statements for the year ended 30 June 2021.
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 options
There were no options issued or exercised during the financial year
(2020: Nil).
Indemnification of insurance of
directors and officers
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.
Indemnification of auditors
To the extent permitted by law, the Company has agreed to
indemnify its auditors, Ernst & Young Australia, as part of the terms
of its audit engagement agreement against claims by third parties
arising from the audit (for an unspecified amount). No payment has
been made to indemnify Ernst & Young Australia during or since the
7 September 2021 and a payment date of 23 September 2021.
financial year.
The aggregate amount of the proposed dividend expected to be paid
23
DIRECTORS’ REPORT (continued)Annual Report 2021 Directors’ meetings
The number of Directors’ meetings (excluding circulatory resolutions) held during the year and each Director’s attendance at those meetings
is set out in the table below.
The Directors met as a Board 13 times during the year. 11 meetings were main meetings, and 2 meetings were convened to consider special
business. Special meetings are convened at a time to enable the maximum number of Directors to attend and are generally held to consider
specific items that cannot be held over to the next scheduled main meeting. Apologies were received from Directors in all instances where
they were unable to attend a meeting.
Directors’ Board Meetings
Tony Gill
Brett McKeon
Malcolm Watkins
Craig Carter
Melanie Kiely
Jane Muirsmith
Main Meetings
Held
Main Meetings
Attended
Special
Meetings Held
Special Meetings
Attended
11
11
11
11
11
11
11
11
11
11
11
11
2
2
2
2
2
2
2
2
2
2
1
2
Committee membership
As at the date of this report the Company had an Audit Committee, Remuneration and Nomination Committee, and a Risk and Compliance
Committee.
Members acting on the Committees of the Board during the year were:
Audit
Craig Carter (C)
Melanie Kiely
Jane Muirsmith
Notes
(C) designates the Chair of the Committee
Remuneration and Nomination
Risk and Compliance
Melanie Kiely (C)
Craig Carter
Jane Muirsmith
Jane Muirsmith (C)
Craig Carter
Melanie Kiely
The following table sets out the number of meetings of the Committees of the Board and the number of meetings attended by each Director
who is/was a member of that Committee:
Committee Meetings
Directors
Audit
Remuneration and Nomination
Risk and Compliance
Maximum
Possible
Meetings
Attended
Maximum
Possible
Meetings
Attended
Maximum
Possible
Meetings
Attended
Craig Carter
Melanie Kiely
Jane Muirsmith
4
4
4
4
4
4
5
5
5
5
5
5
6
6
6
6
6
6
24
DIRECTORS’ REPORT (continued)Annual Report 2021 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 Corporations Instrument 2016/191. 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, Ernst & Young. 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.
The Directors are of the opinion that the services as disclosed in Note 10 to the Financial Statements do not compromise the external
auditor’s 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.
Ernst & Young received or is due to receive the following amounts for the provision of non-audit services:
Other non-audit services
$
55,000
55,000
Auditor’s independence declaration
The auditor’s independence declaration is included on page 42 of this financial report for the year ended 30 June 2021.
This report is made in accordance with a resolution of the Directors.
25
DIRECTORS’ REPORT (continued)Annual Report 2021 Jacinta
Partner Support
26
DIRECTORS’ REPORT (continued)Annual Report 2021 Remuneration Report
Dear Shareholder,
On behalf of the Board, I am pleased to present AFG’s Remuneration
Report for FY21.
The AFG Board remains committed to an Executive Remuneration
structure that aligns effective performance with shareholder returns
and balances both of these elements in the short term and over time.
FY21 Performance & remuneration
outcomes summary
The Group delivered a record result in FY21 with strong growth in the
Residential Aggregation business and AFGHL. The business achieved
NPAT growth of 35% with a FY21 result of $51.3 million, up from $38.1
million in FY20 and representing EPS CAGR of 7.2% since FY18.
Just as importantly, good conduct, adherence to responsible lending
Over the TSR LTI performance period of 1 July 2018 to 1 July 2021,
obligations and ensuring positive customer outcomes must remain
AFG has delivered TSR performance at the 90th and 95th percentile of
front of mind as an effective ‘gateway’ to any incentive payment.
the Diversified Financials and Small Industrials Indexes respectively.
In setting our remuneration structure and targets, we value and seek
Residential volumes were up 28% to a record $43.6 billion and the
the feedback of our shareholders, stakeholders and proxy advisors.
AFG Securities loan book grew strongly in the second half of the
Over time, we have incorporated this feedback into our revisions of
year to be $3.39 billion, up 17% on 30 June 2020. These strong
the Executive Remuneration framework.
results drove an increased dividend of 7.4 cents per share.
For FY2021, like many organisations, we had to review our
remuneration structure to reflect the uncertainty in the medium to
When combined with the interim dividend this represents a yield
of approximately 5%.
longer terms during the early stages of the COVID-19 pandemic.
In addition, the number of active brokers grew during the year, up
The modifications made to the Group’s Short-Term Incentive (STI)
from 2,975+ to 3,050+.
and Long-Term Incentive (LTI) structures for FY21 are as follows:
A 5-year history of AFG’s NPAT, Residential, AFGHL and AFG
• With the increased need to adapt strategies and priorities
100% of the STI award for all KMPs (other than COO) was
allocated to NPAT rather than specific strategic outcomes.
Securities’ loan books, AFG Securities Settlements, ROE and
Dividends is provided below:
The STI targets for the COO included an allocation of 30%
Net Profit After Tax
MILLIONS
$30
$40
$50
$60
towards the progress of the Group’s strategic IT development
programme, and 70% allocated to NPAT. Importantly, NPAT
remained as a gate opener (of 90%) for the payment of the
IT-related performance indicator.
• With respect to the LTI, due to the difficulty in forecasting
longer term earnings results, a greater weighting of the
KMPs LTI award was allocated to Total Shareholder Return
(TSR) given the comparable nature of this target and strong
alignment to shareholder wealth creation. Historically, the
split of the dollar value of an executive’s LTI award has
been 65% EPS and 35% TSR. In FY21 this changed to 65%
TSR and 35% EPS. The TSR target will continue to include a
positive absolute TSR gateway for payment to occur.
•
ln line with the general market, the uncertainty created by
the COVID-19 pandemic meant the company did not make
any increases to fixed remuneration for KMP in FY20/21.
For FY22, given the increased level of market certainty, the following
modifications have been made to the remuneration structure:
• STI targets have reverted to a combination of NPAT (50%)
and other strategic targets (50%).
• LTI targets will retain the higher weighting to TSR (65%), due
to AFG’s growth and inclusion in the ASX300.
• The gateway and cap for NPAT performance has been
changed from 90% and 150% to 85% and 125% respectively,
reflecting the increased challenge presented by current
markets and sensitivity of the Group’s P&L to net interest
margin (and a desire not to over reward for this).
0
$10
$20
FY17
FY18
FY19
FY20
FY21
*Grey shading of FY17 NPAT shows the initial recognition of AFGHL white label
trail book relating to loans settled in prior periods.
Normalised Return on Equity
0%
5%
10%
15%
20%
25%
30%
35%
40%
FY17
FY18
FY19
FY20
FY21
27
DIRECTORS’ REPORT (continued)Annual Report 2021 Dividends (cents per share)
AFGS Loan Book
0
5
10
15
20
25
0
$0.5
$1.0
$1.5
BILLIONS
$2.0
$2.5
$3.0
$3.5
$4.0
FY17
FY18
FY19
FY20
FY21
Interim
Final
Special
FY17
FY18
FY19
FY20
FY21
In line with this performance, the key remuneration outcomes, which
are detailed further in the Remuneration Report include:
• Total FY21 STI NPAT payments made at 150% (capped), an
outstanding result in an uncertain year.
• While significant progress has been made in the Group’s
IT development programme, delivery timeframes have
been impacted by a number of factors including COVID-19
lockdowns and strict travel restrictions and a decision to
increase scope. As a consequence, the programme target
in the COO’s STI measures for FY21 was not fully achieved,
and has therefore been retained by the board. Using this
same discretion, the board has retained 20% of the CEO’s
target STI opportunity. These payments will be disbursed at
the board’s discretion subject to satisfactory future delivery
of the IT Program.
• Performance rights associated with the EPS target vested at
72% reflecting the EPS CAGR of 7.2% since FY18.
• Performance rights associated with TSR targets vested at
150% (Diversified Financials – 90th percentile) and 150%
(Small Industrials – 90th percentile).
We are pleased with the outcome for our executive team as it
reflects the excellent business performance and the foundations
built for the long term growth of the company. It also aligns with
our shareholder returns for the period and builds the foundation for
potential returns into the future.
We continue to believe the Group’s remuneration structure delivers
outcomes that reflect an appropriate balance between shareholder
returns and the ability to attract and incentivise a high performing
management team. This balance is something we will continue to
review as we navigate these uncertain times.
Further detail on these remuneration results is provided in section 3
of the annual report. These results, fittingly reflect the outcomes of a
Residential Loan Book
BILLIONS
0
$20
$40 $60 $80 $100 $120 $140 $160 $180
FY17
FY18
FY19
FY20
FY21
AFGHL Settlements
MILLIONS
0
$500
$1,000
$1,500 $2,000 $2,500 $3,000 $3,500 $4,000
FY17
FY18
FY19
FY20
FY21
AFGHL Portfolio
BILLIONS
0
$2
$4
$6
$8
$10
$12
FY17
FY18
FY19
FY20
FY21
AFGS Settlements
0
$0.2
$0.4
FY17
FY18
FY19
FY20
FY21
28
$0.6 $0.8
BILLIONS
$1.0
$1.2
$1.4
$1.6
very successful year for AFG.
Melanie Kiely
Chair, Remuneration & Nomination Committee
DIRECTORS’ REPORT (continued)Annual Report 2021
Introduction
1.
The Remuneration Report outlines AFG’s 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 Corporations Act) and its regulations. This information has been audited as required by section 308(3C)
of the Corporations Act.
2. 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 (NED).
The current KMPs of the Group for the entire financial year unless otherwise stated are as follows:
Non-Executive Directors
Anthony Gill
Craig Carter1
Melanie Kiely2
Jane Muirsmith3
Brett McKeon4
Executive Director
Malcolm Watkins
Executives
David Bailey
Lisa Bevan
Ben Jenkins
John Sanger
Non-Executive Chairman
Appointed 28 August 2008
13 years
Non-Executive Director
Appointed 25 March 2015
Non-Executive Director
Appointed 31 March 2016
Non-Executive Director
Appointed 31 March 2016
6 years
5 years
5 years
Non-Executive Director
Transitioned 1 July 2019
25 years
Executive Director
Appointed 8 December 1997
24 years
Chief Executive Officer
Appointed 16 June 2017
Company Secretary
Appointed 9 March 1998
Chief Financial Officer
Appointed 14 December 2015
Chief Operating Officer
Appointed 6 March 2018
(1) Craig Carter is Chair of the Audit Committee.
(2) Melanie Kiely is Chair of the Remuneration and Nomination Committee.
(3) Jane Muirsmith is Chair of the Risk and Compliance Committee.
(4) Brett McKeon was appointed to the Board 19 June 1996 and transitioned to Non-Executive Director effective 1 July 2019.
Other than Brett McKeon, all Non-Executive Directors listed above are Independent Directors.
The average tenure for the AFG Board is 13 years.
3. Executive remuneration structures
The Group 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 within the context of appropriate conduct.
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 outcomes based measures linked to the absolute and relative performance of the business. As is
appropriate, conduct continues to be an absolute gateway for incentive payment.
29
DIRECTORS’ REPORT (continued)Annual Report 2021 AFG Business Strategy
To provide customers choice and lead the market by continuing to build on the strengths
of our core wholesale mortgage broking business while developing our significant
distribution network to access other areas of the finance market.
Executive Remuneration Strategy
Remuneration component
Performance measure
Strategic objective/performance link
Fixed annual
remuneration (FAR)
Comprises base
salary, superannuation
contributions and other
benefits
Short-term incentive (STI)
Paid in cash
Key roles and responsibilities as set out
in the individual’s employment contract
and position description.
To provide competitive fixed remuneration set with
reference to role, market and experience in order to attract,
retain and engage key talent.
Considerations:
• Role and responsibility
• External benchmarking
• Contribution, competencies and capabilities
• Company size and performance
Rewards Executives for their contribution to achievement
of Group outcome and the achievement of strategically
relevant KPI targets in the given financial year.
Group Financial Measures FY21:
Given the uncertain economic
environment, the majority of KMP had
100% of their STI allocated to the Group’s
NPAT target.
Given the critical nature of our broker
IT systems, the STI targets for the COO
included an allocation of 30% towards
the progress of the Group’s strategic
IT development programme with 70%
allocated to NPAT.
Group Financial Measures FY22:
50% allocation to NPAT, 30% to AFGS
book growth and 20% to KPI’s linked to
broker technology project.
Long-term incentive (LTI)
FY21 & 22 grants:
Awards are made in the
form of performance
rights
• 35% of a KMP’s entitlement
allocated to a 3-year CAGR EPS
target.
Ensures a strong link to the long-term creation of
shareholder value.
• CAGR EPS was chosen as a performance hurdle
as it is:
• 65% of a KMP’s entitlement
» A key indicator of the creation and growth in
allocated to relative TSR
targets, 50% measure against
the ASX Diversified Financials
Index and 50% against the ASX
Small Industrials Index. Both
TSR targets include a gateway
requirement for absolute TSR to
be positive.
shareholder value over the long term.
» Provides a reliable measurement of the
creation of shareholder value, and has been
given a lower weighting due to the ongoing
difficulty in long term forecasts with a greater
weighting given to TSR.
• TSR was chosen as a performance hurdle as it:
» Provides a relative, external market
performance measure with a requirement
for TSR to be at least positive even if relative
performance against Indices is on target. This
will help to ensure Executive remuneration
is clearly tied to positive shareholder value
creation.
30
DIRECTORS’ REPORT (continued)Annual Report 2021 3.1 Executive remuneration outcomes
STI award outcomes FY21
The combined cash bonus pool available to be paid to the Executives for on target performance in the 2021 financial year was $541,884 and
the minimum is nil. For the 2021 financial year, 150% of the target STI NPAT bonus amount was achieved by the Executives as outlined below.
The technology measure for the Group’s COO has been deferred along with 20% of the CEO’s original STI entitlement pending completion of
certain project milestones.
Target
FY20
000’s
FY21
000’s
Growth
Payment
NPAT ($’000)
$38,078
$51,304
35%
150%
150%
Total
D. Bailey
M. Watkins
L. Bevan1
B. Jenkins
J. Sanger
Total
Target STI
opportunity
$229,000
$22,556
$88,128
$90,000
$112,200
$541,884
As a % of fixed
remuneration
STI outcome
% Achieved
% Retained
% Forfeited
40%
17%
33%
31%
34%
$297,700
$33,834
$132,192
$135,000
$117,810
$716,536
130%
150%
150%
150%
105%
20%
0%
0%
0%
30%
0%
0%
0%
0%
0%
1. L. Bevan is employed on a part time basis 4 days per week.
LTI award outcomes FY21
For the 2021 financial year, 109% of the target LTI bonus (granted in FY19) was achieved by the Executives as outlined below. This is reflective
of stretch performance against target for CAGR EPS and TSR.
Measure
CAGR EPS
TSR Small Industrials
TRS Diversified Industrials
Target
10%
Achieved
% Achieved
7.2%
75th Percentile
95th Percentile
75th Percentile
90th Percentile
72%
150%
150%
Performance Rights
Target LTI opportunity
LTI outcome
% Achieved
% Forfeited
D. Bailey
B. McKeon*
M. Watkins
L. Bevan
B. Jenkins
J. Sanger
Total
255,131
278,260
20,114
20,114
78,222
77,313
81,861
21,938
21,938
85,313
84,322
89,282
532,755
581,053
109%
109%
109%
109%
109%
109%
109%
0%
0%
0%
0%
0%
0%
* B. McKeon was MD of AFG at the commencement of the LTI period (1 July 2017) and as he continued to be employed as an Executive Director (and transitioned to
Non-Executive Director from 1 July 2020) his rights were not forfeited.
31
DIRECTORS’ REPORT (continued)Annual Report 2021 3.2 Fixed annual remuneration
No significant changes to the remuneration structure were required during the financial year.
The targeted remuneration mix for:
• The CEO is 38% fixed and 62% variable (at risk): and
• Other members of the Executive team are in the range of 47% to 75% fixed and 25% to 53% variable (at risk).
3.3 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.
Objective
The AFG STI plan rewards Executives for the achievement of objectives directly linked to AFG’s business
strategy that is focused on earnings diversification and providing choice and competition to consumers.
Participation
All Executives
STI opportunity
Performance period
Link between performance
and reward
The STI available to each Executive is set at a level based on role, responsibilities and market data
for the achievement of stretching targets against specific KPIs. The target STI opportunity for each
Executive in FY21 is listed at 3.1 as an absolute dollar amount and as a percentage of the Executive’s
fixed base.
The performance period is the relevant Financial Year. KPIs and weightings are set and reviewed each
year to ensure that the STI targets remain relevant for the current environment and Executives remain
focused on clear goals for the period.
The KPI targets are selected based on what needs to be achieved over each financial performance
period to deliver the business strategy over the long term. In FY22 50% of the STI target for all KMPs will
be allocated to NPAT, 30% to AFGS book growth and 20% to KPI’s linked to the broker technology project.
The weightings for each KPI is set for each performance period based on the specific business targets
set by the Board. A minimum threshold hurdle is set for each KPI included in the scorecard before any
payment is made in respect of that KPI measure. In order for any STI award to be payable, a conduct
gateway including leadership qualities must also be achieved.
Assessment of performance
The Board reviews and approves the performance assessment and STI payments for the CEO and all
other Executives.
Payment method
STI payments are delivered as cash.
3.4 FY22 STI opportunity
Offers to participate in STI awards for 2022 were made to Executives under the STI plan on the terms set out below.
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 (50%), AFGS book growth (30%) and to the KPI’s
linked to the broker technology project (20%) and as approved by the Board. More broadly the allocation of targets is dependent upon the
Executive’s role in the business, however all have a substantial proportion of their STI linked to a NPAT target.
32
DIRECTORS’ REPORT (continued)Annual Report 2021 3.5 The LTI plan – 2020, 2021 and 2022 Grants
AFG has established the LTI plan to assist in the longer-term motivation, retention and reward of KMP and certain senior employees. 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 and to ensure a focus on long term sustainable growth. Details of the LTI grants are
provided below.
2020 LTI Grant
2021 & 2022 LTI Grant
Instrument
Performance rights to acquire ordinary AFG shares
Performance rights to acquire ordinary AFG shares
Quantum
65% of an Executive’s annual LTI entitlement weighted to
an EPS target
35% of an Executive’s annual LTI entitlement weighted to an
EPS target
35% of an Executive’s annual LTI entitlement weighted to
relative TSR targets
65% of an Executive’s annual LTI entitlement weighted to
relative TSR targets
Grant date
1 July 2019, other than those approved at the 2019 AGM 1 July 2020 & 2021 other than those approved at the 2020
AGM and those subject to approval at the 2021 AGM.
Grant date
fair value
Gateway
performance
measure
Key
performance
measure
TSR Small Industrials Index 2020 $1.04;
TSR Small Industrials Index 2021 $1.153; 2022 $1.910.
TSR Diversified Financials Index 2020 $0.98;
TSR Diversified Financials Index 2021 $1.149; 2022 $1.770.
EPS $1.58 (being the 20-day Volume Weighted Average
Price leading up to 30 June 2020)
EPS $1.796 (being the 20-day Volume Weighted Average
Price leading up to 30 June 2021)
EPS $2.750 (being the 20-day Volume Weighted Average
Price leading up to 30 June 2020)
TSR – Absolute TSR must be positive
TSR – Absolute TSR must be positive
EPS – 2.5% CAGR EPS
EPS – 2.5% CAGR EPS
Given the uncertain economic environment resulting
from the ongoing impacts of the COVID-19 pandemic a
3-year EPS CAGR gateway is considered appropriate. This
uncertainty was also a factor in changing the weighting of
the LTI award further towards TSR.
TSR
TSR
Relative Total Shareholder Return (pro-rata vesting
between hurdles) 50% measured against the Diversified
Financials Index, 50% against Small Industrials
Relative Total Shareholder Return (pro-rata vesting between
hurdles) 50% measured against the Diversified Financials
Index, 50% against Small Industrials
50th Percentile – 50% vesting
50th Percentile – 50% vesting
75th Percentile – 100% vesting
75th Percentile – 100% vesting
85th Percentile – 125% vesting (stretch target)
85th Percentile – 125% vesting (stretch target)
90th Percentile – 150% vesting (stretch target)
90th Percentile – 150% vesting (stretch target)
EPS accretion
2.5% CAGR – 50% vesting
5% CAGR – 100% vesting
EPS accretion
2.5% CAGR – 50% vesting
5% CAGR – 100% vesting
Performance &
service period
Performance
assessment
7.5% CAGR – 150% vesting (stretch target)
7.5% CAGR – 150% vesting (stretch target)
1 July 2019 – 30 June 2022 (FY20 Grant)
1 July 2020 – 30 June 2023 (FY21 Grant)
1 July 2021 – 30 June 2024 (FY22 Grant)
30 June 2022
30 June 2023 and 30 June 2024
Performance period not yet complete.
Performance period not yet complete.
33
DIRECTORS’ REPORT (continued)Annual Report 2021 LTI Plan Rules & Design Considerations
TSR
TSR encapsulates performance across the underlying key performance measures throughout the business
aimed at achieving targeted business outcomes that will result in increased shareholder wealth through
share price growth and dividends. TSR is measured against the ASX Diversified Financials Index (50%) and
against the ASX Small Industries Index (50%). Both TSR targets include a gateway requirement for absolute
TSR to be positive.
Link between performance
and reward
Stretch targets are available giving Executives the opportunity to increase the number of performance rights
by up to 50% for exceptional performance.
EPS
Long term EPS accretion targets are set at levels that are challenging yet achievable in a sustainable
manner. EPS directly links creation of shareholder wealth to the delivery of the businesses strategy over a
long term period.
Stretch targets are available giving Executives the opportunity to increase the number of performance rights
by up to 50% for exceptional performance.
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.
Cessation of employment
Dividends & voting
The Performance Rights do not carry dividends or voting rights prior to vesting.
Clawback and preventing
inappropriate benefits
Change of control
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. This would include circumstances where 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.
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.
The participant must not sell, transfer, encumber, hedge or otherwise deal with Performance Rights.
Restrictions on dealing
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.
Reconstructions,
corporate action, rights
issues, bonus issues, etc.
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.
34
DIRECTORS’ REPORT (continued)Annual Report 2021 n
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35
DIRECTORS’ REPORT (continued)Annual Report 2021
5. 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 and in line with the market. 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 may consider advice from external consultants when undertaking the annual review process as appropriate.
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 be seeking to increase the NED pool to $1.2m at the 2021 AGM to cover the increase in relative market pay
for NED’s since this date.
5.2 Structure
The remuneration of NEDs consists of Directors’ fees, which is inclusive of statutory superannuation and Committee fees (if any). The below
summarises the NED fees:
• Chairman: $158,000 inclusive of superannuation
• Non-Executive Directors: $95,000 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. The table below outlines the
NED remuneration for the years ended 30 June 2021 and 30 June 2020:
Board and
Committee
Fees
Short-term benefits
(non-monetary)
Superannuation
Total
$
144,292
144,292
-
28,285
86,758
86,758
86,758
86,758
86,758
86,758
86,758
86,758
491,324
519,609
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
13,708
158,000
13,708
158,000
-
2,687
8,242
8,242
8,242
8,242
8,242
8,242
8,242
8,242
-
30,972
95,000
95,000
95,000
95,000
95,000
95,000
95,000
95,000
46,676
538,000
49,363
568,972
Year
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
T. Gill
K. Matthews*
C. Carter
M. Kiely
J. Muirsmith
B. McKeon
Total
Total
* Kevin Matthews resigned 28 October 2019
36
DIRECTORS’ REPORT (continued)Annual Report 2021 Additional disclosures relating to rights and shares
5.3 Rights awarded, vested and lapsed during the year
The table below discloses the number of rights granted to Executives as remuneration during FY19, FY20 and FY21 as well as the number of
rights that vested, lapsed or forfeited 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.
The 2019 plan vested on 30 June 2021 as detailed below.
KMP
Year /
Tranches
(T)
No. of
rights
awarded
during the
year1
Grant
date
Fair value
per rights
at award
date $
Vesting
date
Exercise
price
Expiry
date
No.
forfeited
during the
year
No. vested
during the
year1
2019 / T1
10,608
1-Jul-18
$1.36
30-Jun-21
B. McKeon
2019 / T2
4,899
1-Jul-18
$0.79
30-Jun-21
2019 / T3
4,607
1-Jul-18
$0.84
30-Jun-21
2019 / T1
10,608
1-Jul-18
$1.36
30-Jun-21
2019 / T2
4,899
1-Jul-18
$0.79
30-Jun-21
2019 / T3
4,607
1-Jul-18
$0.84
30-Jun-21
M. Watkins
2020 / T1
9,285
1-Jul-19
$1.58
30-Jun-22
2020 / T2
4,028
1-Jul-19
$0.98
30-Jun-22
2020 / T3
3,795
1-Jul-19
$1.04
30-Jun-22
2021 / T1
4,396
1-Jul-20
$1.80
30-Jun-23
2021 / T2
6,386
1-Jul-20
$1.15
30-Jun-23
2021 / T3
6,358
1-Jul-20
$1.15
30-Jun-23
2019 / T1
41,255
1-Jul-18
$1.36
30-Jun-21
2019 / T2
19,051
1-Jul-18
$0.79
30-Jun-21
2019 / T3
17,916
1-Jul-18
$0.84
30-Jun-21
2020 / T1
90,276
1-Jul-19
$1.58
30-Jun-22
2020 / T2
39,161
1-Jul-19
$0.98
30-Jun-22
2020 / T3
36,901
1-Jul-19
$1.04
30-Jun-22
2021 / T1
42,737
1-Jul-20
$1.80
30-Jun-23
2021 / T2
62,084
1-Jul-20
$1.15
30-Jun-23
2021 / T3
61,815
1-Jul-20
$1.15
30-Jun-23
L. Bevan
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30-Jun-21
2,929
30-Jun-21
30-Jun-21
-
-
30-Jun-21
2,929
30-Jun-21
30-Jun-21
30-Jun-22
30-Jun-22
30-Jun-22
30-Jun-23
30-Jun-23
30-Jun-23
-
-
-
-
-
-
-
-
30-Jun-21
11,393
30-Jun-21
30-Jun-21
30-Jun-22
30-Jun-22
30-Jun-22
30-Jun-23
30-Jun-23
30-Jun-23
-
-
-
-
-
-
-
-
7,679
7,348
6,911
7,679
7,348
6,911
-
-
-
-
-
-
29,862
28,576
26,876
-
-
-
-
-
-
37
DIRECTORS’ REPORT (continued)Annual Report 2021 Additional disclosures relating to rights and shares
5.3 Rights awarded, vested and lapsed during the year (continued)
KMP
Year /
Tranches
(T)
No. of
rights
awarded
during the
year1
Grant
date
Fair value
per rights
at award
date $
Vesting
date
Exercise
price
Expiry
date
No.
forfeited
during the
year
No. vested
during the
year1
2019 / T1
134,557
1-Jul-18
$1.36
30-Jun-21
2019 / T2
62,136
1-Jul-18
$0.79
30-Jun-21
2019 / T3
58,438
1-Jul-18
$0.84
30-Jun-21
D. Bailey
2020 / T1
288,672
1-Jul-19
$1.58
30-Jun-22
2020 / T2
125,223
1-Jul-19
$0.98
30-Jun-22
2020 / T3
117,999
1-Jul-19
$1.04
30-Jun-22
2021 / T1
136,658
1-Jul-20
$1.80
30-Jun-23
2021 / T2
198,525
1-Jul-20
$1.15
30-Jun-23
2021 / T3
197,664
1-Jul-20
$1.15
30-Jun-23
2019 / T1
40,775
1-Jul-18
$1.36
30-Jun-21
2019 / T2
18,830
1-Jul-18
$0.79
30-Jun-21
2019 / T3
17,708
1-Jul-18
$0.84
30-Jun-21
2020 / T1
92,622
1-Jul-19
$1.58
30-Jun-22
B. Jenkins
2020 / T2
40,178
1-Jul-19
$0.98
30-Jun-22
2020 / T3
37,861
1-Jul-19
$1.04
30-Jun-22
2021 / T1
43,847
1-Jul-20
$1.80
30-Jun-23
2021 / T2
63,698
1-Jul-20
$1.15
30-Jun-23
2021 / T3
63,422
1-Jul-20
$1.15
30-Jun-23
2019 / T1
43,174
1-Jul-18
$1.36
30-Jun-21
2019 / T2
19,937
1-Jul-18
$0.79
30-Jun-21
2019 / T3
18,750
1-Jul-18
$0.84
30-Jun-21
2020 / T1
100,855
1-Jul-19
$1.58
30-Jun-22
J. Sanger
2020 / T2
43,750
1-Jul-19
$0.98
30-Jun-22
2020 / T3
41,226
1-Jul-19
$1.04
30-Jun-22
2021 / T1
47,745
1-Jul-20
$1.80
30-Jun-23
2021 / T2
69,360
1-Jul-20
$1.15
30-Jun-23
2021 / T3
69,059
1-Jul-20
$1.15
30-Jun-23
* T1 – Earnings Per Share allocation
T2 – TSR (Diversified Financials) allocation
T3 – TSR (Small Industrials) allocation
1 Number vested during the year is calculated on T1 72%, T2 150% and T3 150%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30-Jun-21
37,158
30-Jun-21
30-Jun-21
30-Jun-22
30-Jun-22
30-Jun-22
30-Jun-23
30-Jun-23
30-Jun-23
-
-
-
-
-
-
-
-
30-Jun-21
11,260
30-Jun-21
30-Jun-21
30-Jun-22
30-Jun-22
30-Jun-22
30-Jun-23
30-Jun-23
30-Jun-23
-
-
-
-
-
-
-
-
30-Jun-21
11,923
30-Jun-21
30-Jun-21
30-Jun-22
30-Jun-22
30-Jun-22
30-Jun-23
30-Jun-23
30-Jun-23
-
-
-
-
-
-
-
-
97,399
93,204
87,657
-
-
-
-
-
-
29,515
28,243
26,562
-
-
-
-
-
-
31,251
29,905
28,125
-
-
-
-
-
-
38
DIRECTORS’ REPORT (continued)Annual Report 2021 5.4 Shareholdings of KMP
Ordinary shares held in Australian Finance Group Limited ASX:AFG (number)
30 June 2021
Balance
1 July 2020
Shares issued on
vesting of rights
Sold during
the period
Net change
other 2
Balance 30
June 20211
Held
nominally
Directors
T. Gill
1,329,546
B. McKeon
16,289,779
M. Watkins
17,462,284
C. Carter
M. Kiely
J. Muirsmith
Executives
L. Bevan
D. Bailey
B. Jenkins
J. Sanger
960,714
89,376
86,819
1,280,304
1,198,744
50,403
35,081
-
20,915
31,372
-
-
-
81,035
265,293
81,999
63,551
-
-
-
-
-
-
(262,854)
(160,000)
(38,500)
-
-
-
-
-
-
-
-
-
-
-
1,329,546
1,152,274
16,310,694
16,310,694
17,493,656
17,414,195
960,714
960,714
89,376
86,819
1,098,485
1,304,037
93,902
98,632
89,376
86,819
98,485
609,334
-
-
1 Includes shares held directly, indirectly and beneficially by the KMP
2 Direct market purchase due to equity raising
30 June 2020
Balance
1 July 2019
Shares issued on
vesting of rights
Sold during
the period
Net change
other 2
Balance 30
June 20201
Held
nominally
Directors
T. Gill
1,125,000
B. McKeon
21,179,773
M. Watkins
19,602,689
C. Carter
M. Kiely
J. Muirsmith
Executives
L. Bevan
D. Bailey
B. Jenkins
J. Sanger
500,000
67,164
65,000
1,533,333
1,066,666
-
35,000
-
240,440
48,089
-
-
-
115,412
224,410
80,148
-
-
204,546
1,329,546
1,152,274
(6,000,000)
869,566
16,289,779
16,289,779
(5,000,000)
2,811,506
17,462,284
17,424,195
-
-
-
(565,412)
(140,000)
(37,500)
-
460,714
960,714
960,714
22,212
21,819
89,376
86,819
196,971
1,280,304
47,668
7,755
81
1,198,744
50,403
35,081
89,376
86,819
98,485
609,334
-
-
1 Includes shares held directly, indirectly and beneficially by the KMP
2 Direct market purchase due to equity raising
39
DIRECTORS’ REPORT (continued)Annual Report 2021 6. Executive service agreements
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:
Name
M. Watkins
D. Bailey
L. Bevan
B. Jenkins
J. Sanger
Agreement expires
Notice of termination by Company
Employee notice
No expiry, continuous agreement
12 months (or payment in lieu of notice)
12 weeks
No expiry, continuous agreement
12 months (or payment in lieu of notice)
12 weeks
No expiry, continuous agreement
12 months (or payment in lieu of notice)
12 weeks
No expiry, continuous agreement
6 months (or payment in lieu of notice)
12 weeks
No expiry, continuous agreement
6 months (or payment in lieu of notice)
12 weeks
7. Remuneration governance
7.1 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 2021 the Committee comprised independent Non-Executive Director Melanie Kiely (Chair), and independent Non-Executive
Directors Craig Carter and Jane Muirsmith.
Further information on the role of the Remuneration and Nomination Committee is set out in the Committee’s Charter available at
www.afgonline.com.au and in the Corporate Governance Statement also available on the Company’s website.
7.2 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, conduct and remuneration of Executives is clear and transparent.
7.3 Use of independent consultants
In performing its 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 and free from undue influence of management.
No remuneration advice or recommendations from independent consultants was received during the financial period ended 30 June 2021.
40
DIRECTORS’ REPORT (continued)Annual Report 2021 7.4 Policy for dealing in securities
AFG has a policy for dealing in securities to establish best practice procedures that protect AFG, Directors and employees against the misuse
of unpublished information that could materially affect the value of AFG securities. Directors, Executives and their connected persons are
restricted by trading windows.
7.5 Director minimum shareholding policy
During the year AFG adopted a formal Director Minimum Shareholding Policy. All Non-Executive Directors must establish and maintain a
minimum level of ownership in AFG shares equal to their base annual director fees (including superannuation) within the later of 3 years of
appointment and the date of adoption of the policy.
All Non-Executive Directors currently meet the minimum shareholding requirements under the policy.
7.6 Remuneration Report approval at 2020 AGM
The 30 June 2020 Remuneration Report was presented to shareholders and was approved at the 2020 Annual General Meeting.
8. Other Transactions and Balances with KMP and their Related Parties
(i) Mr T. 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 $837k (2020: $1,038k). These payments
are not considered to be material to the financial results of the Group and therefore do not impact on Mr T. Gill’s independence as
a Director.
(ii)
Establish Property Group Ltd (EPG) was created as part of the demerger of the property business prior to listing on the ASX
on 22 April 2015. Directors of EPG include B. McKeon, D. Bailey and L. Bevan.
The Group’s head office is located at 100 Havelock Street West Perth. The Group leases these premises at commercial arm’s
length rates from an investee of EPG, Qube Havelock Street Development Pty Ltd (Qube). AFG paid rent of $1,150k which has
been paid to Qube (2020: $1,076k). In addition to the above McCabe Street Ltd has an outstanding loan owing to AFG amounting
to $230k (2020: $224k), this loan is on commercial terms at arms-length. Directors of McCabe Street Ltd include B. McKeon,
D. Bailey and L. Bevan.
End of Audited Remuneration Report
Independent Audit of Remuneration Report
9.
The Remuneration Report has been audited by Ernst & Young. Please see page 93 of this Annual Report for Ernst & Young’s report on the
Remuneration Report.
This Directors’ Report, including the Remuneration Report, is signed in accordance with a Resolution of Directors of AFG.
Tony Gill
Chairman
Sydney
26 August 2021
41
DIRECTORS’ REPORT (continued)Annual Report 2021 Independence declaration under Section 307C
of the Corporations Act 2001
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Auditor’s independence declaration to the directors of Australian Finance
Group Limited
As lead auditor for the audit of the financial report of Australian Finance Group Limited for the
financial year ended 30 June 2021, I declare to the best of my knowledge and belief, there have been:
a. No contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b. No contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Australian Finance Group Limited and the entities it controlled during
the financial year.
Ernst & Young
F Drummond
Partner
26 August 2021
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
FD:LC:AFG:157
42
Annual Report 2021
Consolidated Statement of Financial Position
As at 30 June 2021
In thousands of AUD
Assets
Cash unrestricted
Cash restricted
Trade and other receivables
Other asset
Contract assets
Property, plant and equipment
Intangible assets
Loans and advances
Investment in associates
Right of use assets
Total assets
Liabilities
Trade and other payables
Interest-bearing liabilities
Employee benefits
Current tax payable
Provisions
Contract liability
Lease Liability
Deferred tax liability
Total liabilities
Net assets
Equity
Share capital
Share-based payment reserve
Other capital reserves
Retained earnings
Total equity
Note
13(a)
13(a)
14
15
16
17
17
18
19
25
20
21
22
12(b)
23
24
25
12(c)
26(a)
2021
2020
106,930
119,118
5,645
15,000
1,050,613
693
9,506
108,147
53,381
5,446
-
974,599
506
3,318
3,403,102
2,920,773
25,999
4,979
17,034
6,323
4,741,585
4,089,527
1,036,275
3,457,712
6,283
3,260
3,327
8,681
5,362
17,704
4,538,604
950,792
2,914,562
5,194
5,988
2,787
5,619
6,559
19,813
3,911,314
202,981
178,213
102,125
4,572
(29)
96,313
202,981
102,157
2,604
(14)
73,466
178,213
The Consolidated Statement of Financial Position should be read in conjunction with the Notes to the Financial Statements.
43
Annual Report 2021 Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the year ended 30 June 2021
In thousands of AUD
Continuing Operations
Commission and other income
Securitisation interest income
Operating income
Commission and other cost of sales
Securitisation interest expense
Gross profit
Other income
Administration expenses
Impairment loss on loans and advances
Other expenses
Results from operating activities
Finance income
Finance expenses
Share of profit/(loss) of associates
Net finance and investing income
Profit before tax from continuing operations
Income tax expense
Profit for the period
Attributable to:
Owners of the Company
Other comprehensive profit for the year, net of income tax
Note
2021
2020
7
8
9
11
11
19
12(a)
656,801
90,242
747,043
(598,108)
(46,520)
102,415
14,423
(7,383)
-
(44,175)
65,280
753
(187)
4,919
5,485
70,765
(19,461)
51,304
51,304
51,304
(15)
589,342
85,667
675,009
(531,107)
(53,317)
90,585
14,488
(5,770)
(2,612)
(46,236)
50,455
940
(163)
2,314
3,091
53,546
(15,468)
38,078
38,078
38,078
-
Total comprehensive income for the year
51,289
38,078
Earnings per share
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
27
27
19.12
18.88
17.30
17.09
The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction
with the Notes to the Financial Statements.
44
Annual Report 2021 Statement of Changes in Equity
For the year ended 30 June 2021
In thousands of AUD
Share
capital
Foreign
currency
translation
reserve
Fair value
reserve
Share-
based
payment
reserve
Retained
earnings
Total
equity
Balance at 1 July 2019
43,541
(14)
(82)
1,630
59,747
104,822
Total comprehensive income for the period
Profit
Transferred to Statement of Profit or Loss
Total comprehensive income for the period
Transactions with owners,
recorded directly in equity
Shares issued
Share issue costs (net of tax)
Dividends to equity holders
Share-based payment transactions
Total transactions with owners
Balance at 30 June 2020
Balance at 1 July 2020
Total comprehensive income for the period
Movement in reserve
Profit
Total comprehensive income for the period
Transactions with owners,
recorded directly in equity
Shares issued
Share issue costs (net of tax)
Dividends to equity holders
Share-based payment transactions
Total transactions with owners
-
-
-
-
60,001
(1,385)
-
-
58,616
102,157
102,157
-
-
-
-
-
(32)
-
-
(32)
-
-
-
-
-
-
-
-
-
(14)
(14)
-
(15)
-
(15)
-
-
-
-
-
Balance at 30 June 2021
102,125
(29)
-
-
82
82
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
38,078
38,078
-
82
38,078
38,160
-
-
60,001
(1,385)
(24,359)
(24,359)
974
974
-
974
(24,359)
35,231
2,604
73,466
178,213
2,604
73,466
178,213
-
-
-
-
-
-
-
-
-
51,304
51,304
-
(15)
51,304
51,289
-
(8)
-
(40)
(28,449)
(28,449)
1,968
-
1,968
1,968
(28,457)
(26,521)
4,572
96,313
202,981
The Consolidated Statement of Changes in Equity should be read in conjunction with Notes to the Financial Statements.
45
Annual Report 2021 Statement of Cash Flows
For the year ended 30 June 2021
In thousands of AUD
Note
2021
2020
597,068
(558,825)
90,242
(46,520)
(23,363)
58,602
753
(455)
(6,522)
(215)
(3,700)
(15,000)
581
(481,388)
(505,946)
-
(729,500)
1,672,390
(400,795)
(40)
(1,742)
(28,449)
511,864
64,520
161,528
226,048
521,491
(499,226)
85,666
(53,317)
(14,298)
40,316
940
(330)
(2,645)
(379)
-
-
1,977
(847,490)
(847,927)
1,255,854
(602,798)
432,543
(245,740)
58,614
(1,793)
(24,359)
872,321
64,710
96,818
161,528
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Interest received
Interest paid
Income taxes paid
Net cash generated by operating activities
13(b)
Cash flows from investing activities
Gross interest received
Acquisition of property, plant and equipment
Purchase of intangible assets
Additional Investment in Thinktank
Investment in MAB Broker Services Pty Ltd
Investment in Volt Corporation Ltd
Decrease in broker loans and advances
Net loans and advances to borrowers
Net cash used in investing activities
Cash flows used in financing activities
Proceeds from warehouse facility
Repayments of warehouse facility
Proceeds from securitised funding facilities
Repayments to securitised funding facilities
Proceeds from issue of ordinary shares, net of issue costs
Payment of principal portion of lease liability
Dividends paid
26(b)
Net cash generated by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 July
Cash and cash equivalents at 30 June
13(a)
The Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements.
46
Annual Report 2021 Notes to the Financial Statements
1. Reporting entity
2. Basis of preparation
19. Investment in associate
20. Trade and other payables
3. Significant accounting policies
21. Interest-bearing liabilities
4. Determination of fair values
22. Employee benefits
5. Financial risk management
6. Segment information
23. Provisions
24. Contract liability
7. Commissions and other income
25. Leases
8. Other income
26. Capital and reserves
9. Other expenses and employee costs
27. Earnings per share
10. Auditors’ remuneration
28. Share based payments
11. Finance income and expenses
29. Financial instruments
12. Income tax
13. Cash and cash equivalents
30. Group entities
31. Parent entity
14. Trade and other receivables
32. Capital and other commitments
15. Other asset
16. Contract assets
33. Contingencies
34. Related parties
17. Property, plant and equipment & Intangibles
35. Subsequent events
18. Loans and advances
47
Annual Report 2021 1. Reporting entity
The Consolidated Financial Statements for the financial year ended
(d) Use of estimates and judgements
The preparation of Financial Statements in conformity with
30 June 2021 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’)
AASB’s requires management to make judgements, estimates and
assumptions that affect the application of accounting policies
and the reported amounts of assets and liabilities, income and
and the Group’s interest in associates and jointly controlled entities.
expenses. Actual results may differ from these estimates.
The Group’s principal activities in the course of the financial year
were mortgage origination and lending. The Company’s principal
place of business is 100 Havelock Street, West Perth, Western
Australia.
2. Basis of preparation
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:
(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 (“AASB”).
• Note 3(a)(i) – Consolidation of special purpose entities
• Note 3(b)(ii) – Impairment of financial assets held at
amortised cost being customer loans and advances
• Note 3(i) – Expected value of trail commission income
The Financial Report is a general-purpose financial report, for a
contract assets
‘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 AFG Group of companies.
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 26 August 2021. The Directors have the
power to amend and reissue the financial report.
(b) Basis of measurement
The consolidated financial statements have been prepared on a
historical cost basis except for the following material items:
• Note 5(a) – Impairment of contract asset
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 3(i) and 29(d) - Determination of assumptions used in
forecasting and discounting future trail commissions
• Note 28 - Measurement of share-based payments
• Note 29 - Valuation of contract assets and expected credit
losses
Taxation
The Group’s accounting for taxation requires Management’s
judgement 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
• Payables relating to trailing commission are initially
measured at fair value and subsequently at amortised cost;
future taxable profits.
• Contract assets are measured using the expected value
method under AASB 15 “Revenue from contracts with
customers”.
(c) Functional and presentation currency
These Consolidated Financial Statements are presented in
Australian dollars (“AUD”).
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. Judgements
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
The Group is of a kind referred to in ASIC Corporations Instrument
of deferred tax assets and deferred tax liabilities recognised on
2016/191 dated 31 March 2016 and in accordance all financial
the Statement of Financial Position and the amount of other tax
information presented in Australian dollars has been rounded to the
losses and temporary differences not yet recognised. In such
nearest thousand dollars unless otherwise stated.
48
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.
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 (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
New and revised Standards and amendments thereof and interpretations effective for the current year end that are relevant to the Group include:
• Conceptual Framework for Financial Reporting
• AASB 2019-1 Amendments to Australian Accounting Standards – Reference to the Conceptual Framework
• AASB 2018-6 Amendments to Australian Accounting Standards – Definition of a Business
• AASB 2019-3 Amendments to Australian Accounting Standards – Interest rate Benchmark reform
• AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material
• AASB 2019-5 Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS
• AASB 2020-4 Amendments to Australian Accounting Standards – COVID-19 Related Rent Concessions
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.
(ii) Accounting Standards and Interpretations Issued But Not Yet Effective
At the date of authorisation of the Financial Statements, the Standards and Interpretations that were issued but not yet effective, which have
not been early adopted are listed below. The Group is still currently assessing the impact:
Affected Standards and Interpretations
AASB 2020-8 Amendments to Australian Accounting Standards – Interest Rate Benchmark
Reform – Phase 2
Application
date*
Application
date for
Group
1 January 2021
30 June 2022
AASB 2021-3 Amendments to Australian Accounting Standards – COVID-19 related rent
concessions beyond 30 June 2021
1 April 2021
30 June 2022
AASB 2020-2 Amendments to Australian Accounting Standards – Removal of Special Purpose
Financial Statements for Certain For-Profit Private Sector Entities
1 July 2021
30 June 2022
AASB 2020-7 Amendments to Australian Accounting Standards – COVID-19 Related Rent
Concessions: Tier 2 Disclosures
1 July 2021
30 June 2022
AASB 2020-9 Amendments to Australian Accounting Standards – Tier 2 Disclosures: Interest Rate
Benchmark Reform (Phase 2) and Other Amendments
1 July 2021
30 June 2022
AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018-
2020 and Other Amendments
1 January 2022
30 June 2023
AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture
1 January 2022
30 June 2023
AASB 17 Insurance Contracts
AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as
Current or Non-Current
1 January 2023
30 June 2024
1 January 2023
30 June 2024
AASB 2021-2 Amendments to Australian Accounting Standards – Disclosure of Accounting
Policies and Definitions of Accounting Estimates
1 January 2023
30 June 2024
AASB 2021-5 Amendments to Australian Accounting Standards – Deferred Tax related to Assets
and Liabilities arising from a single transaction
1 January 2023
30 June 2024
*Reporting period commences on or after the application date.
49
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 3. Significant accounting policies
Except as expressly described in the Notes to the Financial
Statements, the accounting policies set out below have been applied
consistently to all periods presented in these Consolidated Financial
Statements and have been applied consistently by all Group entities.
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 paid
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
(a) Basis of consolidation
The Consolidated Financial Statements incorporate the Financial
recognised in the profit or loss and is calculated as the difference
between (i) the aggregate of the fair value of the consideration
Statements of the Company and entities (including structured
received and the fair value of any retained interest and (ii) the
entities) controlled by the Company and its subsidiaries. Control is
previous carrying amount of the assets, and liabilities of the
achieved when the Company:
• Has power over the investee
•
Is exposed, or has rights, to variable returns from its
involvement with the investee
subsidiary and any non-controlling interests. All the amounts
previously recognised in other comprehensive income in relation
to that subsidiary are accounted for 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
• Has the ability to use its power to affect its returns
the date when control is lost is regarded as the fair value on initial
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
recognition for subsequent accounting under AASB 9 as it becomes
a financial instrument on loss of control.
(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. The Group holds capital
• Right arising from other contractual arrangements
and residual units in these respective special purpose entities.
• The Group’s voting rights and potential voting rights
The Group has established the following special purpose entities
Consolidation of a subsidiary begins when the Group obtains control
to support the specific funding needs of the Group’s securitisation
over the subsidiary and ceases when the Group loses control of
programme:
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.
• AFG 2010-1 Trust and its Series (SPE) to conduct
securitisation activities funded by short term warehouse
facilities provided by warehouse and related mezzanine
facility providers.
• AFG 2016-1 Trust, AFG 2017-1 Trust, AFG 2018-1 Trust,
AFG 2019-1 Trust, AFG 2019-2 Trust, AFG 2020-1 Trust, AFG
When necessary, adjustments are made to the Financial Statements
2020-1 NC Trust and AFG 2021-1 Trust (SPE-RMBS) to hold
of subsidiaries to bring their accounting policies in line with the
securitised assets and issue Residential Mortgage-Backed
Group’s accounting policies.
Securities (RMBS)
Profit or loss and each component of other comprehensive income
are attributed to the owners of the Company. 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.
• AFG 2010-2 Pty Ltd and AFG 2010-3 Pty Ltd to hold and fund
investments in some of our Residential Mortgage Backed
Securities (RMBS) to meet risk retention requirements
The special purpose entities meet the criteria of being controlled
entities under AASB 10 – Consolidated Financial Statements.
All intra-group balances, and any unrealised income and expenses
The elements indicating control include, but are not limited to, the
arising from intra-group transactions, are eliminated in preparing the
below:
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
• The Group has existing rights that gives it the ability to
direct relevant activities that significantly affect the special
purpose entities’ returns
gains, but only to the extent that there is no evidence of impairment.
• The Group is exposed, and has rights, to variable returns
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
50
from its involvement with the special purpose entities
• The Group has all the residual interest in the special purpose
entities
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 • Fees received by the Group from the special purpose
The amortised cost of a financial asset is:
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 amount at which the financial asset is measured at
initial recognition;
• minus the principal repayments;
• plus the cumulative amortisation using the effective interest
method of any difference between that initial amount and
As a result, the Company controls the SPE and on consolidation the
underlying loans and notes issued are recognised as assets and
liabilities and interest on loans is recognised in the statement of
the maturity amount; and
• adjusted for any loss allowance.
profit and loss.
Interest income, foreign exchange gains and losses and impairment
are recognised in profit and loss.
(ii)
Investments in associates (equity accounted
investee)
Derecognition of financial assets
Associates are those entities in which the Group has significant
The Group derecognises a financial asset when the contractual
influence, but not control, over the financial and operating policies.
rights to the cash flows from the asset expire, or when it transfers
Investments in associates are accounted for using the equity
the financial asset and substantially all the risks and rewards
method (equity accounted investee) and are initially recognised at
of ownership of the asset to another entity. If the Group neither
cost. The cost of the investment includes transaction costs (see
transfers nor retains substantially all the risks and rewards of
Note 19).
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.
(b) Financial instruments
(i) Financial assets
Initial recognition and measurement
ownership and continues to control the transferred asset, the Group
recognises its retained interest in the asset and an associated
liability for amounts it may have to pay. When assessing whether
or not to derecognise an asset, the entity considers whether there
has been a change in counterparty and whether there has been a
substantial modification to the terms of the arrangement. If the
modification does not result in cashflows that are substantially
different, the modification does not result in derecognition however,
the modification will result in a gain/loss recognised in statement of
profit and loss.
(ii)
Impairment
With the exception of trade receivables that do not contain a
significant financing component, the Group initially measures
a financial asset at its fair value, plus in the case of a financial
asset not at fair value through profit or loss, transaction costs that
are directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at fair value through
profit or loss are expensed in profit or loss. Trade receivables that do
not contain a significant financing component are initially measured
at the transaction price determined under AASB 15 (see Note 3(i)
Revenue from contracts with customers).
The Group applies the Expected Credit Loss (“ECL”) model under
AASB 9. This applies to contract assets, and financial assets
measured at amortised cost and but not to investments in equity
instruments.
ECLs are a probability-weighted estimate of credit losses. Credit
losses are measured as the present value of all cash shortfalls
(i.e. the difference between the cash flows due to the entity in
accordance with the contract and the cash flows that the Group
expects to receive). It consists of 3 components:
Subsequent measurement
Financial assets at amortised cost
A financial asset is measured at amortised cost if it meets the
following conditions:
•
it is held within a business model whose objective is to hold
assets to collect contractual cash flows;
•
its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest
(SPPI) on the principal amount outstanding; and
•
it is not designated at Fair Value through Profit and Loss
(FVPL).
a) probability of default (PD): represents the possibility of a
default over the next 12 months and remaining lifetime of
the financial asset;
b) a loss given default (LGD): expected loss if a default occurs,
taking into consideration the mitigating effect of collateral
assets and time value of money;
c) exposure at default (EAD): the expected loss when a default
takes place.
The Group measures the loss allowance for a financial instrument at
an amount equal to the lifetime ECL if the credit risk on that financial
instrument has increased significantly since initial recognition,
or if the financial instrument is a purchased or originated credit-
impaired financial asset. If the credit risk on a financial instrument
51
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 has not increased significantly since initial recognition (except for a
As part of the forward-looking assessment, the Group has
purchased or originated credit-impaired financial asset), the Group
considered:
measures the loss allowance for that financial instrument at an
amount equal to a 12-month ECL.
• actual or expected adverse changes in business, financial
or economic conditions that are expected to cause a
The Group has assessed the loans and advances (securitised
significant change to the borrower’s ability to meet its
assets) and recognised the ECL for these assets.
obligations such as market interest rates, unemployment
Impairment of Loans and Advances
The Group has applied the three-stage model based on the
change in credit risk since initial recognition to determine the loss
allowances of its loans and advances.
Stage 1: 12-month ECL
At initial recognition, ECL is collectively assessed and measured by
classes of financial assets with the same level of credit risk based
on the PD within the next 12 months and LGDs with consideration to
forward looking economic indicators. Loss allowances for financial
rates or property growth rates are incorporated in the model;
• external (if available) credit ratings;
• significant changes in the value of the collateral supporting
the obligation or in the quality of third-party guarantees or
credit enhancements;
• significant changes in the quality of the underwriter;
• S&P assumptions such as first homebuyer, occupancy,
employment type, geographical concentration, principal and
interest and interest only.
assets measured at amortised cost are deducted from the gross
In addition to the above, the Group has considered the impact of
carrying amount of the assets.
COVID-19 in preparing the ECL.
Stage 2: Lifetime ECL
As part of this assessment, the Group has considered:
When the Group determines that there has been a significant
increase in credit risk since initial recognition but not considered to
be credit impaired, the Group recognises a lifetime ECL calculated
as a product of the PD for the remaining lifetime of the financial
asset and LGD, with consideration to forward looking economic
• Government support to borrowers;
•
Increased probability weightings for downside cases; and
• Staging for borrowers who have asked for a deferral of
mortgage payments.
indicators. Similar to Stage 1, loss allowances for financial assets
The 30 June 2020 results included an increased provision for
measured at amortised cost are deducted from the gross carrying
impairment charges due to the expected economic impact of
amount of the assets.
Stage 3: Lifetime ECL - credit impaired
At each reporting date, the Group assesses whether financial assets
carried at amortised cost are credit impaired. A financial asset is
‘credit-impaired’ when one or more events that have a detrimental
impact on the estimated future cash flows of the financial asset
have occurred. For financial assets that have been assessed as
the COVID-19 pandemic. COVID-19 economic impacts have
continued to impact the likelihood of losses due to such things as
increased unemployment and potential property price movements.
The expected credit loss (ECL) provision has therefore remained
at $3,272k for the year ended 30 June 2021 (2020: $3,272k).
Impairment charges are discussed further in Note 3(b)(ii) and Note
29 of the 2021 Annual Report.
credit impaired, a lifetime ECL is recognised as a collective or
Given the dynamic and evolving nature of COVID-19, changes to the
specific provision, and interest revenue is calculated in subsequent
estimates and outcomes that have been applied in the measurement
reporting periods by applying the effective interest rate to the
of the Group assets and liabilities may arise in the future.
amortised cost instead of the carrying amount.
In response to the current COVID-19 pandemic, the Group has
When determining whether the credit risk of a financial asset has
provided support to its customers by implementing a range of
increased significantly since initial recognition and when estimating
initiatives, such as granting deferrals of residential mortgage loan
ECLs, the Group considers reasonable and supportable information
repayments to customers.
that is relevant and available without undue cost or effort. This
includes both quantitative and qualitative information and analysis,
based on the Group’s historical experience and informed credit
assessment including forward-looking information.
52
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 A summary of the assumptions underpinning the Groups ECL model is as follows:
Category
Definition of Category
Basis for recognition of ECL provision
Performing
Customers have a low risk of default and a strong capacity to meet
contractual cash flows
12 month expected losses
Doubtful
Loans for which there is a significant increase in credit risk; as
significant increase in credit risk is presumed if interest and/or
principal repayments are 30 days past due
Lifetime expected losses
In default
Interest and/or principal repayments are 90 days past due
Lifetime expected losses
Write off
Interest and/or principal repayments are past due and there is no
reasonable expectation of recovery
Asset is written off
Given the uncertainty around further lockdowns and the flow on effect to unemployment rates, interest rates and property prices and therefore
probability of default, the final probability of default was calculated as the maximum of:
• The probability of default calculated using S&P methodology;
• The probability of default floor based on days past due; and
• The probability of default floor based on restructuring status, which takes into account any hardship arrangements.
The group assumes the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument
is determined to have a low credit risk at the reporting date. A financial instrument is determined to have a low credit risk if:
(1)
the financial instrument has a low risk of default;
(2)
the debtor has a strong capacity to meets its contractual cash flow obligation in the near term; and
(3)
adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the
borrower to fulfil its contractual cash flow obligations.
Impairment of Contract Assets and Cash and Cash Equivalents
The Group’s contract assets relate to trail commission receivable mainly from high credit quality financial institutions who are the members of
AFG’s lender panel (Refer to Note 5(a)). There have been no historical instances where a loss has been incurred, including through the global
financial crisis. Even when forward looking assumptions are considered the ECL would not be material.
Impairment of trade receivables
Trade and other receivables from other customers are rare given the nature of the Group’s business. The Group has assessed its history of
losses as well as performing a forward-looking assessment, both of which have not resulted in any historical or expected material forward
looking losses. Group does not require collateral in respect of trade and other receivable (refer to Note 5(a)).
Write off policy
The Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no
realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings. Financial
assets written off may still be subject to enforcement activities under the Groups recovery procedures, taking into account legal advice where
appropriate. Any recoveries made are recognised in profit or loss within impairment expense.
Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation
of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual
payments.
(iii) Financial Liabilities
Initial recognition and measurement
Financial liabilities within the scope of AASB 9 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 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.
53
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 Subsequent measurement
Repurchase of share capital
Subsequent to initial recognition, interest-bearing liabilities are
When share capital recognised as equity is repurchased the amount
measured at amortised cost using the effective interest rate
of consideration paid, including directly attributable costs, is
method.
Derecognition
recognised as a reduction in equity.
Dividends
A financial liability is derecognised when the obligation under the
Dividends are recognised as a liability in the period in which they are
liability is discharged or cancelled or expires. When an existing
declared.
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
(c) Cash and short-term deposits
Cash and short-term deposits in the Consolidated Statement
as the derecognition of the original liability and the recognition of
of Financial Position comprise cash at bank and on hand, short
a new liability. The difference in respect of the carrying amounts
term deposits with a maturity of three months or less from date
is recognised in the income statement. The Group considers a
of origination, as well as restricted cash such as proceeds and
modification substantial based on qualitative factors and if it results
collections in the special purpose entities’ accounts which are not
in a difference between the adjusted discounted present value and
available to the shareholders.
the original carrying amount of the financial liability of, or greater
than, ten per percent.
(iv) Amortised cost and effective
interest method
The effective interest method is a method of calculating the
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.
(d) Property, plant and equipment
amortised cost of a debt instrument and of allocating interest
(i) Recognition and measurement
income over the relevant period. For financial assets other than
purchased or originated creditimpaired financial assets (i.e. assets
Items of property, plant and equipment are measured at cost less
accumulated depreciation (see (iii) below) and impairment losses
that are creditimpaired on initial recognition), the effective interest
(see accounting policy 3(f)).
rate is the rate that exactly discounts estimated future cash receipts
(including all fees and points paid or received that form an integral
part of the effective interest rate, transaction costs and other
premiums or discounts) excluding expected credit losses, through
the expected life of the debt instrument, or, where appropriate,
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.
a shorter period, to the gross carrying amount of the debt instrument
Where parts of an item of property, plant and equipment have
on initial recognition. For purchased or originated creditimpaired
different useful lives, they are accounted for separately.
financial assets, a creditadjusted effective interest rate is calculated
by discounting the estimated future cash flows, including expected
credit losses, to the amortised cost of the debt instrument on initial
recognition.
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.
The amortised cost of a financial asset is the amount at which the
financial asset is measured at initial recognition minus the principal
(ii) Subsequent costs
repayments, plus the cumulative amortisation using the effective
interest method of any difference between that initial amount and
the maturity amount, adjusted for any loss allowance. The gross
carrying amount of a financial asset is the amortised cost of
a financial asset before adjusting for any loss allowance.
(v) Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly
attributable to the 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.
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.
54
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 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 lives and residual values are
reassessed at each reporting date.
(e) Intangibles
(i) Software development costs
Software development costs are recognised as an expense when
incurred, except to the extent that such costs, together with previous
unamortised deferred costs in relation to that project, are expected
probable, to provide future economic benefits.
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) 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.
(iii) 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
Impairment of non-financial assets
(f)
The carrying amounts of the Group’s non-financial assets, other
than 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 (except goodwill)
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.
(g) Employee benefits
(i)
Long-term employee benefits
(iv) Software-as-a-Service (SaaS) arrangements
The Group’s liability in respect of long-term employee benefits is
SaaS arrangements are arrangements in which the Group does not
currently control the underlying software used in the arrangement.
Where costs incurred to configure or customise SaaS arrangements
result in the creation of a resource which is identifiable, and where
the company has the power to obtain the future economic benefits
flowing from the underlying resource and to restrict the access of
others to those benefits, such costs are recognised as a separate
intangible software asset and amortised over the useful life of the
software on a straight-line basis. The amortisation is reviewed
at least at the end of each reporting period and any changes are
treated as changes in accounting estimates.
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 and high quality
corporate 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
Where costs incurred to configure or customise do not result in the
basis and are expensed as the related service is provided.
recognition of an intangible software asset, then those costs that
provide the Group with a distinct service (in addition to the SaaS
access) are now recognised as expenses when the supplier provides
the services. When such costs incurred do not provide a distinct
A liability is recognised for employee benefits such as wages,
salaries and annual leave if the Group has present obligations
resulting from employees’ services provided to reporting date.
service, the costs are now recognised as expenses over the duration
A provision is recognised for the amount expected to be paid under
of the SaaS contract.
short-term and long-term cash bonus or profit-sharing plans if the
55
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 Group has a present legal or constructive obligation to pay this
Under AASB 15, revenue is recognised when the Group satisfies
amount as a result of past service provided by the employee and the
performance obligations by transferring the promised services to its
obligation can be estimated reliably.
customers. Determining the timing of the transfer of control - at a
(iii) Share-based payment transactions
point in time or over time - requires judgement. Below is a summary
of the major services provided and the Group’s accounting policy on
The grant date fair value of options and shares granted to employees
recognition as a result of adopting AASB 15.
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
The Group’s significant income streams under AASB 15 include:
• Commissions – origination and trail commissions and
associated interest income to account for the time value of
money.
market conditions not being met.
• Other income – sponsorship income and fees for services.
(h) 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 Group often enters into transactions that will give rise to
different streams of revenue. In all cases, the total transaction
price for a contract is allocated amongst the various performance
obligations based on their relative stand-alone selling prices. The
transaction price for a contract excludes any amounts collected on
behalf of third parties.
Commissions – origination and trail commissions
The Group provides loan origination services and receives origination
The unwinding of the discount is recognised as a finance cost.
commission on the settlement of loans. Additionally, the lender
Provision for clawbacks on settlements within the period are raised
normally pays a trailing commission over the life of the loan.
on both commission received and commission payable. Clawbacks
Commission revenue is recognised as follows:
will be re-measured each reporting period.
(i) Revenue from contracts with Customers
The Group accounts for revenue under AASB 15 Revenue from
contracts with customers. The standard has introduced a single
principle based five step recognition measurement model for
revenue recognition:
• Origination commissions: Origination commissions on loans
other than those originated by the Group are recognised
upon the loans being settled and receipt of commission net
of clawbacks. Commissions may be clawed back by lenders
in accordance with individual contracts. These potential
clawbacks are estimated and recognised at the same time
as origination commission and included in origination
(1)
Identifying the contract with a customer;
commission revenue.
(2)
Identifying the separate performance obligations;
• Trailing commissions: The Group receives trail commissions
(3)
Determining the transaction price;
(4)
Allocating the transaction price to the performance
obligations;
(5)
Recognising revenue when or as performance
obligations are satisfied.
from lenders on settled loans over the life of the loan based
on the loan balance outstanding. The Group also makes trail
commission payments to brokers when trail commission
is received from lenders. The future trail commission
receivable is recognised upfront as a contract asset. Trailing
commissions include revenue on residential, commercial and
Revenue is recognised either at a point in time or over time, when (or
AFGHL white label trail books.
as) the Group satisfies performance obligations by transferring the
promised goods or services to its customers. The Group recognises
•
Interest income: This is the financing component of the trail
commission contract asset which brings into consideration
contract liabilities (see Note 24) for consideration received in respect
the time value of money.
of unsatisfied performance obligations and reports these amounts
as other liabilities in the statement of financial position. Similarly,
if the Group performs a performance obligation before it receives
the consideration, the Group recognises either a contract asset or
a receivable in its statement of financial position, depending on
whether something other than the passage of time is required before
the consideration is due. In relation to the Group the contract asset is
recognised to account for the revenue in relation to the satisfaction
of a performance obligation.
Trail commissions – significant estimates and judgements
The Group applies the AASB 15 variable consideration guidance to
the measurement of the contract asset.
On initial recognition, the Group recognises a contract asset which
represents management’s estimate of the variable consideration
to be received from lenders on settled loans. The Group uses the
‘expected value’ method of estimating variable consideration which
requires significant judgement. A corresponding expense and
56
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 payable is also recognised, initially measured at fair value being the net present value of expected future trailing commission payable
to brokers.
The value of trail commission receivable from lenders and the corresponding payable to brokers is determined by using a discounted cash
flow valuation to determine the expected value. These calculations require the use of assumptions which are determined by management
using a variety of inputs including external actuarial analysis of historical information. Key assumptions underlying the calculation include the
average loan life, discount rate and the percentage paid to brokers. Refer to Note 29(d) for details on these key assumptions.
Other income
Sponsorship income is the income received in advance from sponsorship payment arrangements with lenders. The income is brought to
account once the sponsored event has occurred.
Fees for services relates to providing marketing, compliance and administration services to the brokers. This revenue is recognised with
reference to the stage of completion for the contract of services.
Impact of application of AASB 15 Revenue from Contracts with Customers
Determining performance obligations are satisfied (over time or a point in time) requires judgement. The below table illustrates a summary of
the impact of AASB 15 on the Group’s significant revenue from contracts with customers.
Payment for upfront commissions and fees for services are all typically due within 30 days of satisfying performance obligations.
“Point in
time” or
“Over time”
Point in time
Types of
Service
Commissions
– origination
commissions
Nature and timing of
satisfaction of performance
obligations
At the point in time when the loan
is settled with the lender.
Revenue recognition policy under AASB 15
The Group recognises revenue at the point in time when
the loan is settled with the lender. The transaction price is
adjusted for any expected clawbacks.
Point in time
Commissions –
trail commissions
At the point in time when the loan
is settled with the lender.
The Group recognises this revenue at the point in time, when
the loan is settled with the lender.
On initial recognition a contract asset is recognised,
representing managements estimate of the variable
consideration to be received.
The Group uses the “expected value” method of estimating
the variable consideration, which includes significant financing
component, by recalculating the net present value of the
estimated future cash flows at the original effective interest
rate.
Interest income from the unwinding of the discount rate on the
trail commission contract asset is recognised over time.
Over time
Interest income –
discount unwind
on the NPV trail
commission
contract asset
Revenue arising from the
discount rate applied to the trail
commission contract asset.
Point in time
Other income
– sponsorship
income
The performance obligation
is that a sponsored event has
occurred.
Funds are received in advance and initially recognised as
contract liability (deferred income). Revenue is recognised at a
point in time when the sponsored event has occurred.
Over time
Other income –
Fees for services
The performance obligation is the
provision of services to brokers,
including marketing, compliance
and administration services.
The income is recognised
with reference to the stage of
completion for the contract of the
services.
Revenue is recognised when performance obligation is
satisfied.
57
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 (j) Leases
Recognition and measurement
incremental borrowing rate if the rate implicit in the lease
cannot be readily determined.
When a contract is entered into, the Group assesses whether
the contract contains a lease. A lease arises when the Group
(k) Finance income and expenses
Finance income comprises interest income on funds invested and
has the right to direct the use of an identified asset which is not
foreign currency gains. Interest income is recognised as it accrues,
substitutable and to obtain substantially all economic benefits
using the effective interest method.
from the use of the asset throughout the period of use. The leases
recognised by the Group relate to office space.
Finance expenses comprise interest payable on borrowings.
Right of Use assets
The Group recognises right-of-use assets at the commencement
date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised and lease
payments made at or before the commencement date less any
lease incentives received. Unless the Group is reasonably certain to
obtain ownership of the leased asset at the end of the lease term,
the recognised right-of-use assets are depreciated on a straight-line
basis over the shorter of its estimated useful life and the lease term.
Right-of-use assets are subject to impairment.
Lease Liabilities
(l) Securitisation interest income and expense
Interest income is the key component of this revenue stream and it
is recognised using the effective interest method in accordance with
AASB 9. 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 relating
to trail commission to brokers are also spread across the estimated
life of the loan using the effective interest method.
Interest income is recognised using the effective interest method for
debt instruments measured subsequently at amortised cost.
For financial assets other than purchased or originated
creditimpaired financial assets, interest income is calculated by
applying the effective interest rate to the gross carrying amount of
a financial asset, except for financial assets that have subsequently
At the commencement date of the lease, the Group recognises
become creditimpaired.
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in-substance fixed payments) less any lease
incentives receivable.
For financial assets that have subsequently become credit impaired,
interest income is recognised by applying the effective interest
rate to the amortised cost of the financial asset. If, in subsequent
reporting periods, the credit risk on the creditimpaired financial
In calculating the present value of lease payments, the Group uses
instrument improves so that the financial asset is no longer credit
the incremental borrowing rate at the lease commencement date.
impaired, interest income is recognised by applying the effective
After the commencement date, the amount of lease liabilities is
interest rate to the gross carrying amount of the financial asset.
increased to reflect the accretion of interest and reduced for the
lease payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in the
lease term, a change in the in-substance fixed lease payments or a
change in the assessment to purchase the underlying asset.
Key estimates and judgements
a) Control - Judgement is required to assess whether a
contract is or contains a lease at inception by assessing
whether the Group has the right to direct the use of the
Securitisation expense comprises interest payable on borrowings.
(m) 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
identified asset and obtain substantially all the economic
differences at the balance sheet date between the tax bases of
benefits from the use of that asset.
assets and liabilities and their carrying amounts for financial
b) Lease term - Judgement is required when assessing the
reporting purposes.
term of the lease and whether to include optional extension
and termination periods. Option periods are only included
in determining the lease term at inception when they
are reasonably certain to be exercised. Lease terms are
reassessed when a significant change in circumstances
occurs.
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
c) Discount rates - Judgement is required to determine
income tax asset to be utilised.
the discount rate, where the discount rate is the Group’s
58
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 Unrecognised deferred income tax assets are reassessed at each
Contributions to fund the current tax liabilities are payable as per the
balance sheet date and are recognised to the extent that it has
tax funding arrangement and reflect the timing of the head entity’s
become probable that future taxable profit will allow the deferred tax
obligation to make payments for tax liabilities to the relevant tax
asset to be recovered.
authorities.
Deferred income tax assets and liabilities are measured at the
The head entity in conjunction with other members of the tax-
tax rates that are expected to apply to the year when the asset is
consolidated group has also entered into a tax sharing agreement.
realised, or the liability is settled, based on tax rates (and tax laws)
The tax sharing agreement provides for the determination of the
that have been enacted or substantively enacted at the balance
allocation of income tax liabilities between the entities should the
sheet date.
Income taxes relating to items recognised directly in equity are
recognised in equity and not in the profit or loss.
(i) Tax consolidation
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.
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.
(iii) 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
Current tax expenses, deferred tax liabilities and deferred tax
acquisition of the asset or as part of the expense.
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
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.
entity and the tax values applying under tax consolidation.
Cash flows are included in the Statement of Cash Flows on a gross
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.
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.
(n) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction
or production of a qualifying asset are capitalised as part of the cost
of that asset and subsequently amortised over the life of that asset.
Borrowing costs that are not directly attributable to the acquisition,
The Company recognises deferred tax assets arising from unused
construction or production of a qualifying asset are recognised in
tax losses of the tax-consolidated group to the extent that it is
the profit or loss using the effective interest method.
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
(o) Trail commissions payable
The Group pays trail commissions to brokers. This is initially
tax losses as a result of revised assessments of the probability of
measured at expected value being the net present value of expected
recoverability is recognised by the head entity only.
future trailing commission payable to brokers.
(ii) Nature of tax funding arrangements and tax
sharing arrangements
The head entity, in conjunction with other members of the tax-
consolidated group, has entered into a tax funding arrangement
which sets out the funding obligations of members of the tax-
consolidated group in respect of tax amounts. The tax funding
arrangements require payments/(receipts) 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 intra-group receivable
(payable) equal in amount to the tax liability (asset) assumed. The
inter-entity receivables (payables) are at call.
The trail commissions payable to brokers is determined by using a
discounted cash flow valuation. These calculations require the use of
assumptions which are determined by management using a variety
of inputs including external actuarial analysis of historical runoff
information. Refer to Note 29(d) for details on the key assumptions.
(p) Reclassification of comparative numbers
The commission expense relating to AFG’s own-originated loans has
been reclassified from “commission expense” to “interest income”
as this is part of the effective interest rate on the loans and advances
$9.9M (2020: $7.2M). Comparative figures have been reclassified to
ensure consistency in presentation with current year numbers.
59
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 (q) Other assets
Other assets relates to amounts held in escrow at year end,
pertaining to an investment. Once the specified conditions are
satisfied this amount will be reclassified to Investments.
4. Determination of fair values
A number of the Group’s accounting policies and disclosures
require the determination of fair value, for both financial and non-
financial assets and liabilities. Fair values have been determined
for measurement and/or disclosure purposes based on the
following methods. Where applicable, further information about the
assumptions made in determining fair values are disclosed in the
notes specific to that asset or liability.
Contract Asset
The Group receives trail commissions from lenders on settled loans
over the life of the loan based on the loan book balance outstanding.
This is initially recognised as a contract asset and is measured
using the ‘expected value’ method under AASB 15 (refer to Note 3(i)
Revenue from Contracts with Customers).
The contract asset from lenders is determined by using a
discounted cash flow valuation. These calculations require the use
of assumptions which are determined by management using a
variety of inputs including external actuarial analysis of historical
runoff information. Refer to Note 29(d) for details on the key
assumptions.
Trade and other payables
All trade and other payables have a remaining life of less than one
year and the notional amount is deemed to reflect the fair value.
Other financial instruments
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 and Compliance 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.
(a) 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. Refer to Note 29(a) for details.
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.
Excluding financial institutions on the lender panel, trade and other
receivables from other customers are rare given the nature of the
Group’s business. The Group has assessed its history of losses as
well as performing a forward-looking assessment, both of which
have not resulted in any historical or expected material forward
looking losses. Group does not require collateral in respect of trade
The carrying amount of all other financial assets and liabilities
and other receivables.
recognised in the Statement of Financial Position approximate their
fair value, with the exception of the trail commission payables that
Contract assets
are initially recognised at fair value and subsequently measured
at amortised cost based on an actuarial assessment of future
cashflow using appropriate discount rates.
5. Financial risk management
Overview
The Group’s contract assets 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 prior to
joining the panel. The Group bears the risk of non-payment of future
trail commissions by lenders (contract assets) 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 trail commissions to brokers.
The Group has exposure to credit, liquidity and market risks from the
use of financial instruments.
Loans and advances
This note presents information about the Group’s exposure to
To mitigate exposure to credit risk on loans and advances, the
each of the below risks, the objectives, policies and processes for
Group has adopted the policy of only dealing with creditworthy
measuring and managing risk, and the management of capital.
counterparties and obtaining sufficient collateral or other security
Further quantitative disclosures are included throughout the
where appropriate.
financial report.
The Group’s loans and advances relate mainly to loans advanced
The Board of Directors has overall responsibility for the
through its residential mortgage securitisation programme. Credit
establishment and oversight of the risk management framework.
risk management is linked to the origination conditions externally
The Risk and Compliance Committee is responsible for developing
imposed on the Group by the warehouse facility provider including
and monitoring risk management policies.
geographical limitations. As a consequence, the Group has no
60
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 significant concentrations of credit risk. The Group has established
ongoing basis to ensure risk levels are maintained within established
a credit quality review process to provide early identification of
limits.
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 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
The Group’s maximum exposure is the carrying amount of the
increases in cost of funding, the Group only lends monies on variable
loans, net of any impairment losses. Subsequent to June 2014 all
interest rate term. Should there be changes in pricing the Group has
residential loans with a loan to value ratio of greater than 80% are
the option to review its position and offset those costs by passing on
subject to a lenders mortgage insurance contract.
interest rate changes to the end customer.
The Group has applied an ECL model to determine the collective
Prepayment risk
impairment provision of its loans and advances. Refer Notes 3(b)(ii))
and 29(a)(ii) for details. COVID-19 economic impacts have continued
Prepayment risk is the risk that the Group will incur a financial
loss because its customers and counterparties repay or request
to impact the likelihood of losses due to such things as increased
repayment earlier than expected.
unemployment and potential property price movements. These
factors have been included in the ECL model which has seen the
provision remain at $3,272k (2020: $3,272k).
(b) 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
The Group’s key exposure relates to the net present value of
contracts assets and future trail commissions 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.
ensure, as far as possible, that it will always have sufficient liquidity
For the loans and advances within the SPE and SPE-RMBS, the
to meet its liabilities when due, under both normal and stressed
Group minimises the prepayment risk by passing back all principal
conditions, without incurring unacceptable losses or risking damage
repayments to the warehouse facility providers and bondholders.
to the Group’s reputation.
Other market risk
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 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
reviews and reports on the credit ratings of those insurers as well as
The liquidity position is assessed and managed under a variety of
the Company’s maximum cash flow requirements should there be
scenarios, giving due consideration to stress factors relating to both
any adverse movement in those credit ratings.
the market in general and specifically to the Group.
(c) Market risk
Market risk is the risk that changes in market prices, such as foreign
(d) 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
exchange rates, interest rates and equity prices will affect the
future development of the business. The Board of Directors monitors
Group’s income or the value of its holdings of financial instruments.
the return on capital, which the Group defines as net operating
The objective of market risk management is to manage and
income divided by total shareholders’ equity and aims to maintain
control market risk exposures within acceptable parameters, while
a capital structure that ensures the lowest cost of capital available
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) and New Zealand
dollars (NZD). 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
to the Group. The Board of Directors also monitors the level of
dividends to ordinary shareholders.
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
Interest rate risk is the risk to the Group’s earnings and equity arising
the end of each reporting period. There were no breaches of the
from movements in interest rates. Positions are monitored on an
covenants or funding terms imposed by the warehouse and RMBS
61
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 transactions 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.
6. Segment information
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. All external customers are Australian entities.
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
contracted brokers 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;
• 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 contracted brokers and are generating trail income.
AFG Home Loans
AFGHL offers the Group’s branded mortgage products, funded by third party wholesale funding providers (white label products) or AFG
Securities mortgages (securitised loans issued by AFG Securities Pty Ltd) that are distributed through the Group’s distribution network.
AFGHL sits on the Group’s panel of lenders alongside the other residential 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 loans funded by its
securitisation programme. Segment results that are reported to the Board of Directors include items directly attributable to the relevant
segment as well as those that can be allocated on a reasonable basis.
Other/Unallocated
Other/unallocated items are comprised mainly of other operating activities from which the Group earns revenue 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.
62
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 Year ended 30 June 2021
In thousands of AUD
AFG Wholesale
Mortgage Broking
AFG Home Loans
Other / Unallocated
/ Eliminations
Income
Operating income
Inter-segment1
Other income
Finance income
Share of profit of an associate
614,048
37,066
2,497
-
-
131,401
-
-
49
-
1,594
(37,066)
11,926
704
4,919
Total
747,043
-
14,423
753
4,919
Total segment income
653,611
131,450
(17,923)
767,138
Timing of revenue recognition
At a point in time
Over time
Results
653,611
-
40,029
91,421
(34,768)
16,845
Segment profit before income tax
56,810
13,346
609
Income tax expense
Net profit after tax
Assets and liabilities
Total segment assets
Total segment liabilities
Other segment information
1,036,349
1,032,717
3,750,915
3,621,012
(45,679)
4,741,585
(115,125)
4,538,604
Depreciation and amortisation
(66)
(28)
(1,971)
(2,065)
Year ended 30 June 2020
In thousands of AUD
AFG Wholesale
Mortgage Broking
AFG Home Loans
Other / Unallocated
/ Eliminations
Income
Operating income
Inter-segment1
Other income
Finance income
Share of profit of an associate
551,283
34,871
1,119
-
-
122,247
-
-
105
-
1,479
(34,871)
13,369
835
2,314
Total
675,009
-
14,488
940
2,314
Total segment income
587,273
122,352
(16,874)
692,751
Timing of revenue recognition
At a point in time
Over time
Results
587,273
-
35,546
86,806
(29,789)
12,915
Segment profit/(loss) before income tax
43,980
11,430
(1,864)
658,872
108,266
70,765
(19,461)
51,304
593,030
99,721
53,546
(15,468)
38,078
971,979
946,520
3,079,982
2,967,384
37,566
(2,590)
4,089,527
3,911,314
Income tax expense
Net profit after tax
Assets and liabilities
Total segment assets
Total segment liabilities
Other segment information
Depreciation and amortisation
(87)
(22)
(2,377)
(2,486)
1 Relate to Intercompany transactions
63
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 7. Commissions and other income
In thousands of AUD
Timing of revenue recognition
At a point in time
Commissions
Securitisation transaction fees
Over time
Interest on commission income receivable
Mortgage management services
Securitisation transaction fees
Total commissions and other income
2021
2020
585,758
2,373
530,654
1,764
67,491
55,785
254
925
268
871
656,801
589,342
Commission and other income is accounted for in accordance with AASB 15 – Revenue from contracts with customers. Refer to Note 3(i) for
accounting policy.
8. Other income
In thousands of AUD
Timing of revenue recognition
At a point in time
Sponsorship and incentive income
Performance bonus income
Over time
Professional indemnity insurance(i)
Software licence fees (ii)
Fees for services
Other(iii)
Total Other income
2021
2020
1,833
390
2,580
3,104
5,923
593
2,977
512
2,358
2,925
5,114
602
14,423
14,488
i.
Professional indemnity insurance is the income generated from professional indemnity insurance cover. AFG purchases a third-party professional indemnity
insurance policy for which it pays a premium and offers AFG’s brokers the option to be included under AFG’s policy cover. If this offer is taken up, brokers will be
charged a fee. This revenue from this fee is brought to account over time.
ii. Software Licenses is the income generated from FLEX & SMART. This revenue relates to AFG software and marketing services used by brokers and is
recognised over time.
iii. Other income is accounted for in accordance with AASB 15 – Revenue from contracts with customers. Refer to Note 3(i) for accounting policy.
64
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 Note
9(b)
9. Other expenses and employee costs
(a) Other expenses
In thousands of AUD
Advertising and promotion
Consultancy and professional fees
Information technology
Occupancy costs
Employee costs
Depreciation and amortisation
(b) Employee costs
In thousands of AUD
Wages and salaries
Other associated personnel expenses
Change in liabilities for employee benefits
Share-based payment transactions
Superannuation
10. Auditors’ remuneration
Fees to Ernst & Young (Australia – Amount in AUD)
Fees for auditing the statutory financial report of the parent covering the Group and auditing
the statutory financial reports of any controlled entities
Fees for assurance services that are requires by legislation provided by the auditor – AFSL &
APRA
Fees for other services – CBA lender review program
Total fees to Ernst & Young (Australia)
Fees to other overseas member firms of Ernst & Young (Australia)
Total Fees to Ernst & Young
11. Finance income and expenses
Recognised in profit or loss
In thousands of AUD
Interest income on broker loans and receivables
Interest income on cash and cash equivalents
Finance income
Interest expense on lease liability
Finance expense
2021
1,848
3,441
4,697
431
31,693
2,065
44,175
2021
21,990
5,868
416
1,168
2,251
31,693
2020
3,588
4,244
4,993
397
30,528
2,486
46,236
2020
21,324
6,165
31
924
2,084
30,528
2021
2020
278,100
271,940
35,500
35,000
55,000
368,600
-
30,000
336,940
-
368,600
336,940
2021
273
480
753
187
187
2020
400
540
940
163
163
65
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 12. 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
Other adjustments
Deferred tax expense
Origination and reversal of temporary differences
Income tax expense reported in the statement of profit or loss
Income tax recognised in other comprehensive income
Deferred tax movements recognised in other comprehensive income
Income tax benefit arising from a previously unrecognised tax credit
Numerical reconciliation between tax expense and pre-tax accounting profit
In thousands of AUD
Profit before tax from continuing operations
Income tax using the Company’s domestic tax rate of 30% (2020: 30%)
Non-deductible expenses
Over provision in prior periods
Other adjustments
2021
2020
21,141
17,321
-
25
(1,705)
19,461
2021
(418)
(517)
2021
70,765
21,229
(1,676)
25
(117)
19,461
-
-
(1,853)
15,468
2020
-
-
2020
53,546
16,064
(596)
-
-
15,468
(b) Current tax assets and liabilities
The current tax liability for the Group of $3,260k (2020: $5,988k) represents the amount of income taxes payable in respect of current and
prior financial years.
(c) Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
2021
(447)
-
2020
(265)
2021
2020
-
-
2021
(447)
2020
(265)
-
307,497
285,195
307,497
285,195
In thousands of AUD
Property, plant and equipment and
intangibles
Contract asset
Employee benefits
Trade and other payables
(282,425)
(260,465)
Other items
(4,812)
(3,288)
(2,109)
(1,364)
-
-
-
-
-
-
(2,109)
(1,364)
(282,425)
(260,465)
(4,812)
17,704
-
(3,288)
19,813
-
Tax (assets) / liabilities
(289,793)
(265,382)
307,497
285,195
Set off of tax
289,793
265,382
(289,793)
(265,382)
Net deferred tax liabilities
-
-
17,704
19,813
17,704
19,813
66
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021
13. Cash and cash equivalents
(a) Cash and cash equivalents
In thousands of AUD
Cash at bank
Short term deposits
Unrestricted cash
Cash collections accounts1
Restricted cash2
Restricted cash
Cash and cash equivalents
Cash and cash equivalents in the Statement of Cash Flows
2021
105,700
1,230
106,930
111,500
7,618
119,118
226,048
226,048
2020
106,895
1,252
108,147
41,348
12,033
53,381
161,528
161,528
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, liquidity reserve account and cash provided in trust by the warehouse providers to fund pending
settlements
The effective interest rate on short term deposits in 2021 was 0.42% (2020: 1.30%). The deposits had an average maturity of 72 days
(2020: 68 days).
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 29.
67
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 (b) Reconciliation of cash flows from operating activities
In thousands of AUD
Cash flows from operating activities
2021
2020
Profit for the period from continuing operations
51,304
38,078
Adjustments to reconcile the profit to net cash flows:
Income tax expense from continuing operations
Depreciation and amortisation
Interest on leases
Term out cost amortisation
Net interest income from investing activities
Expense recognised in respect of equity-settled share-based payments
Share of profit in associates
Present value of future trail commission income
Present value of future trail commission expense
Other non-cash movements
Working capital adjustments:
Changes in assets and liabilities
Increase in receivables and prepayments
Increase in ECL provision
Increase in trade and other payables
Increase in contract liability
Increase/(Decrease) in employee entitlements
Increase/(Decrease) in provisions
Cash generated from operations
Income tax paid
Net cash generated by operating activities
14. Trade and other receivables
In thousands of AUD
Current
Trade and other receivables
Other receivables
Accrued income
Prepayments
68
19,461
2,065
15,468
2,486
295
343
1,055
(753)
1,032
(4,919)
(76,014)
73,559
2
67,087
(1,099)
-
11,539
2,943
1,087
408
81,965
(23,363)
58,602
2021
147
1,173
398
1,718
3,927
5,645
932
(940)
976
(2,314)
(74,872)
72,284
2
52,443
(5,717)
2,516
4,077
1,678
(41)
(342)
54,614
(14,298)
40,316
2020
214
2,031
150
2,395
3,051
5,446
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 15. Other asset
In thousands of AUD
Current
Other Asset1
2021
2020
15,000
15,000
-
-
1. Other asset relates to the investment in Volt Corporation Limited (“Volt”). As at 30 June 2021 this amount was held in escrow, with the investment subsequently
completing in July 2021 (Note 35).
16. Contract Assets
In thousands of AUD
Current
2021
2020
Net present value of future trail commissions contract asset
209,355
209,863
Non-current
Net present value of future trail commissions contract asset
841,258
1,050,613
764,736
974,599
The Group’s exposure to credit and currency risks and impairment losses related to contract assets are disclosed in Note 29.
17. Property, plant and equipment and Intangibles
Property, plant and equipment
In thousands of AUD
Consolidated
Balance at 1 July 2019
Acquisitions
Depreciation
Balance at 30 June 2020
Balance at 1 July 2020
Acquisitions
Write-offs
Depreciation
Balance at 30 June 2021
Plant and
equipment
Fixtures and
fittings
312
185
(206)
291
291
374
(26)
(178)
461
537
145
(467)
215
215
81
(17)
(47)
232
Total
849
330
(673)
506
506
455
(43)
(225)
693
69
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 Intangibles
In thousands of AUD
Consolidated
Balance at 1 July 2019
Acquisitions
Depreciation
Balance at 30 June 2020
Balance at 1 July 2020
Acquisitions1
Depreciation
Balance at 30 June 2021
1. The $6.5M acquisitions relate to work in progress as at 30 June 2021.
18. Loans and advances
In thousands of AUD
Current
Securitised assets1
Other secured loans2
Non-current
Securitised assets1
Other secured loans2
Less: Provision for expected credit loss3
$’000
812
2,726
(220)
3,318
3,318
6,541
(353)
9,506
2021
2020
841,490
1,299
842,789
457,834
1,223
459,057
2,562,041
2,462,787
1,544
(3,272)
2,201
(3,272)
2,560,313
2,461,716
3,403,102
2,920,773
1. The originated mortgage loans and 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 Brokers secured over future trail commissions’ payable to the broker and in some cases personal guarantees. Interest is charged on
average at 9.58% p.a. (2020: 9.77% p.a.).
b) Loan and advances to McCabe St Limited (related party) $230k (2020: $224k) are secured over its land and assets. Interest is charged on average at 2.45%
p.a. (2020: 2.94% p.a.).
3. Refer to Note 29(a)(ii) for a reconciliation of opening and closing expected credit losses on loans and advances including movements between credit risk stages.
At the end of the reporting period, the balance of the Group’s securitised assets includes a provision for expected credit loss of $3,272k (2020:
$3,272k).
During the financial year, new loans issued in the Group’s securitisation programme were $1,345,534k (2020: $1,354,499k).
The Group’s exposure to credit, currency and interest rate risks related to loans and advances is disclosed in Note 29.
70
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 19. Investment in associates
In thousands of AUD
Non-current
Thinktank
Cost of investment1
Contingent consideration liability
Share of post-acquisition profit
Purchase additional shares
MAB Broker Services Pty Ltd
Cost of investment2
Share of post-acquisition losses
2021
2020
12,629
-
9,297
725
22,651
3,700
(352)
3,348
11,141
1,488
4,026
379
17,034
-
-
-
Total Investment in associates
25,999
17,034
1.
Investment in Thinktank Group Pty Ltd (“Thinktank”) includes transaction costs.
2.
Investment in MAB Broker Services Pty Ltd includes transaction costs
Thinktank Investment
AFG holds a 32.29% investment in Thinktank Group Pty Ltd (“Thinktank”). Principal place of business, Sydney NSW Australia. In connection
with the investment AFG distributes a white label Commercial Property product through its network of brokers. The strategic investment in
Thinktank represents the next evolutionary step for AFG to diversify its earnings base. The ongoing success of AFGHL and the introduction
of AFG Business are important contributors to the future growth of AFG. The investment in Thinktank allows AFG to participate further in
commercial property lending - both directly through the white label opportunity and indirectly through AFG’s shareholding to generate further
earnings for AFG.
Associates are all entities over which the Group has significant influence but not control. Significant influence is the power to participate in
the financial and operating policy decisions of the investee but is not control or joint control over those policies. This investment has been
classified as an investment in an associate due to the Group’s significant involvement in the financial and operating policy decisions including
Board representation of Thinktank.
MAB Broker Services Pty Ltd Investment
On 25 September 2020, AFG, Mortgage Advice Bureau Australia (Holdings) Pty Ltd and Mortgage Advice Bureau Limited entered into a Share
Subscription Agreement. As at 30 June 2021, AFG holds a 48.05% investment in MAB Broker Services Pty Ltd (“MAB”). Principal place of
business, Sydney NSW Australia.
Associates are all entities over which the Group has significant influence but not control. Significant influence is the power to participate in
the financial and operating policy decisions of the investee but is not control or joint control over those policies. This investment has been
classified as an investment in an associate due to the Group’s significant involvement in the financial and operating policy decisions including
Board representation of MAB.
71
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 In thousands of AUD
Thinktank’s summarised financial information
Balance Sheet
Current assets
Non-current assets
Total Assets
Current liabilities
Non-current liabilities
Total Liabilities
Net assets
Income Statement
Revenue
Profit after tax
Reconciliation to carrying amounts:
Carrying amount of investment
Group’s share of profit after tax for the period
Acquisition costs
Contingent consideration liability
Purchase additional shares
MAB summarised financial information
Balance Sheet
Current assets
Non-current assets
Total Assets
Current liabilities
Non-current liabilities
Total Liabilities
Net assets
Income Statement
Revenue
Loss after tax
Reconciliation to carrying amounts:
Carrying amount of investment
Group’s share of loss after tax for the period
Acquisition costs
72
2021
2020
154,844
2,351,348
2,506,192
1,606,362
862,082
72,006
1,647,111
1,719,117
919,756
778,984
2,468,444
1,698,740
37,748
20,377
115,724
16,519
88,644
8,584
22,651
17,034
9,297
12,629
-
725
22,651
2,603
148
2,751
306
183
489
2,262
540
(632)
3,348
(352)
3,700
3,348
4,026
11,141
1,488
379
17,034
-
-
-
-
-
-
-
-
-
-
-
-
-
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 20. Trade and other payables
In thousands of AUD
Current
Note
2021
2020
Present value of future trail commissions payable
4
Other trade payables
Non-trade payables and accrued expenses
Non-current
Net present value of future trail commissions payable
187,309
77,863
5,756
270,928
765,347
765,347
187,347
65,483
6,212
259,042
691,750
691,750
1,036,275
950,792
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 29.
21. Interest-bearing liabilities
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more information about
the Group’s exposure to interest rate risk, see Note 29.
In thousands of AUD
Current
Securitisation warehouse facilities
Securitised funding facilities1
Non-current
Securitised funding facilities1
2021
2020
886,000
637,920
1,615,500
203,515
1,523,920
1,819,015
1,933,792
1,933,792
1,095,547
1,095,547
3,457,712
2,914,562
1. Securitised funding facilities include RMBS and risk retention facilities
Terms and debt repayment schedule
Terms and conditions of outstanding loans were as follows:
2021
2020
In thousands of
AUD
Weighted
Average
Effective
interest rate
Year of
maturity
Face
value
Carrying
amount
Weighted
Average
Effective
interest rate
Year of
maturity
Face
value
Carrying
amount
Warehouse facilities
1.83%
2021-2022
886,000
886,000
2.13%
2020-2021
1,615,500
1,615,500
Securitised funding
facilities
1.43%
2021-2026
2,575,245
2,571,712
2.16%
2020-2024
1,294,978
1,299,062
3,461,245
3,457,712
2,910,478
2,914,562
73
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 (a) Warehouse and Securitised funding facilities
(i) Warehouse facilities
The warehouse facilities provide funding for the financing of loans and advances to customers within the SPE and its Series.
The security for advances under these facilities is a combination of fixed and floating charges over all assets of the SPE being loans and
advances to customers. 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.
Customer loans and advances 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 80% were settled on the basis that no lenders mortgage insurance policy was required. When purchased, a lender’s
mortgage insurance contract covers 100% of the principal of the loan.
As at the reporting date the unutilised securitisation warehouse facility for all Series is $363,500k (2020: $401,000k). The interest is
recognised at an effective rate of 1.83% (2020: 2.13%).
As at the reporting date we have two securitisation warehouse facilities, expiring on the 13 December 2021 and 10 April 2022.
(ii) Securitised funding facilities
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.
Under the current trust terms, a default by the borrowing customer 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 a weighted effective rate of 1.43% (2020: 2.13%).
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 being 1% of the aggregated invested amount of all notes at that time,
• $150k Reserve Account which is an Extraordinary Expense Ledger account, and
• available income.
Additional credit support includes subordinated credit enhancement held by the Company of $13,715k (2020: $5,640k).
During the financial year there were no breaches to the terms of the SPE-RMBS that gave right to the bondholders to demand payment of the
outstanding value.
Other Securitised funding facilities
Securitised funding facilities are secured only on the assets of each of the individual securitisation trusts. As at the reporting date we have
two other securitised funding facilities, provided for the purpose of funding the purchase of Notes in our RMBS issues required to be retained
under the EU Regulations. These facilities are also supported by a guarantee provided by AFG Securities Pty Ltd. Total funding provided in
financial year ending 30 June 2021 was $109,234k (2020: $38,304k).
74
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 (b) 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
The facilities are subject to annual review.
22. 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
23. Provisions
In thousands of AUD
Provision for Clawbacks1
Provision for Contingent Payment 2
Provision for make good
Provision other
2021
200
230
430
71
230
301
129
129
2021
3,094
1,449
1,620
6,163
120
120
2020
200
252
452
38
252
290
162
162
2020
2,421
1,317
1,358
5,096
98
98
6,283
5,194
2021
1,508
-
199
1,620
3,327
2020
1,089
1,488
210
-
2,787
1. Provision for clawbacks relates to commissions that maybe clawed back by lenders in accordance with individual contracts. These potential clawbacks are
estimated, and a provision raised (see Note 3(i)).
2. Provision for contingent payment to Thinktank (see Note 19). The contingent payment referred to the contingent consideration payable (2020: $1,488k)
in relation to the Thinktank strategic investment. No longer required due to 3-year period expiring at 30 June 2021. Released to the Statement of
Comprehensive Income.
75
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 24. Contract liability
Contract Liability
In thousands of AUD
Current
Sponsorship income
Unearned income
2021
8,400
281
8,681
2020
5,287
332
5,619
25. Leases
The Group leases a number of office facilities under operating leases. The leases run for a period of up to 5 years, with an option to renew
the lease after that date. Lease payments are generally increased every year to at least reflect Consumer Price Index (CPI) movements, with
regular adjustments to reflect market rentals.
Lease Assets
In thousands of AUD
At 1 July
Additions
Depreciation
Carrying amount at 30 June
Lease Liabilities
In thousands of AUD
At 1 July
Additions
Repayments
Accretion of interest
Carrying amount at 30 June
In thousands of AUD
Current
Non-current
Carrying amount at 30 June
2021
2020
6,323
125
(1,469)
4,979
6,806
1,134
(1,617)
6,323
2021
2020
6,559
125
(1,616)
294
5,362
2021
1,298
4,064
5,362
6,806
1,134
(1,723)
342
6,559
2020
1,292
5,267
6,559
Maturity profile of lease liabilities. The table below presents the contractual discounted cash flows associated with the Group’s lease
liabilities, representing principal and interest.
Maturity profile of lease liabilities
Due for payment in:
In thousands of AUD
1 year or less
1-2 years
2-3 years
3-4 years
4-5 years
More than 5 years
76
2021
2020
1,298
1,275
1,348
1,239
202
-
5,362
1,292
1,236
1,242
1,348
1,239
202
6,559
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 26. Capital and reserves
(a) Share capital
The Company
On issue at 1 July
Issued for cash
Share issue costs
Share Capital
($’000)
Number of Ordinary shares
(’000)
2021
102,157
-
(32)
2020
43,541
60,001
(1,385)
2021
267,741
641
-
2020
214,813
52,928
-
On issue at 30 June – fully paid
102,125
102,157
268,382
267,741
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) Dividends
2021
Final 2020 ordinary
1st interim 2021 ordinary
2020
Final 2019 ordinary
1st interim 2020 ordinary
Declared but not recognised as a liability:
2021
Final 2021 ordinary
Cents per share
Total amount
($’000)
Franked /
unfranked
Date of payment
4.7
5.9
5.9
5.4
7.4
12,614
15,835
28,449
12,719
11,640
24,359
19,860
19,860
100%
100%
29/09/2020
18/03/2021
100%
100%
03/10/2019
26/03/2020
100%
23/09/2021
2021
29,550
68,950
98,500
2020
18,379
42,885
61,264
Dividends declared or paid during the year or after 30 June 2021 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
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 $98,500k (2020: $61,264k) franking credits.
77
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 27. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing the profit for the year attributable to ordinary equity holders of Australian Finance Group Limited
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 Limited 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
Profit attributable to ordinary equity holders of the Company
30 June 2021
30 June 2020
51,304
38,078
Weighted average number of ordinary shares for basic EPS (thousands)
Effect of dilution: Performance rights
Weighted average number of ordinary shares adjusted for the effect of dilution
Thousands
Thousands
268,286
3,427
271,713
220,149
2,676
222,825
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.
28. Share based payments
Executive Rights plan (Long-Term Incentive Plan)
The Group has in place an Executive Long-Term Incentive Plan (LTIP) which grants rights, settled in equity, 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 the plan are subject to instalment vesting over
a three-year period. The rights are subject to Total Shareholder Return (TSR) and Earnings Per Share (EPS) performance hurdles in addition
to continuous service vesting conditions. 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. Refer to section 3.5 of the remuneration
report for further detail.
In any event, any rights that remain unvested will lapse immediately after the end of the relevant vesting period.
The following table outlines performance rights that are conditionally issued under LTIP:
Offer Date
Vesting
date
Balance at
start of the
year
Granted
during the
year
Vested
during the
year
Expired
during the
year
Forfeited
during the
year
Balance at
end of the
year
1/07/2016
30/06/2019
-
1/07/2017
30/06/2020
593,136
1/07/2018
30/06/2021
1,257,241
593,136
695,396
752,309
1/07/2019
30/06/2022
1,363,398
1,325,215
-
-
755,176
640,635
1/07/2020
30/06/2023
1,987,804
1,349,079
746,4871
1. Number vested during the year is calculated on T1 72%, T2 150% and T3 150%.
-
-
-
-
-
-
593,196
31,291
91,953
1,257,241
1,363,398
146,753
1,987,804
99,789
2,652,246
78
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 29. Financial instruments
(a) Credit risk
Exposure to credit risk
The carrying amount of the Group’s financial assets represents the maximum credit exposure.
(i)
Contract assets
The majority of the Group’s net present value of future trail commission receivables 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. An impairment assessment using forward looking assumptions
has been undertaken refer to Note 3(b)(ii) for further information.
In thousands of AUD
Current
Non-Current
Current
Non-Current
Standard & Poor’s Credit rating
AA-
A+
A
A-
BBB+
BBB
BBB-
Not rated
(ii) Loans and advances
Exposure to credit risk
2021
145,687
28,617
2,087
3,718
6,841
7,911
2,595
11,899
209,355
2021
585,419
114,993
8,388
14,940
27,490
31,790
10,429
47,809
841,258
2020
148,402
28,519
1,673
3,421
6,820
7,098
2,452
11,479
209,864
2020
540,772
103,923
6,096
12,465
24,852
25,863
8,934
41,830
764,735
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
Mortgage Brokers
Other
Residential mortgage borrowers
Carrying amount
2021
2020
3,393,462
2,912,074
2,613
7,027
3,199
5,500
3,403,102
2,920,773
The Group minimises credit risk by obtaining security over residential mortgage property for each loan. The estimated value of collateral
held at balance date was $6,150,469k (2020: $5,145,814k). During the year ended 30 June 2021 the Group took possession of 4 residential
securities. During the financial year 2 securities were sold as mortgagee in possession, neither experienced a shortfall, as sales proceeds
exceeded the outstanding loan balance in both instances.
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.
79
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 The table below summarises the Group exposure to residential mortgage borrowers by current LVR, with the valuation used determined as at
the time of settlement of the individual loan. The ECL model considers the different risk profiles across the different loan portfolios full doc,
near prime and low doc. The assumptions applied are the same across the portfolios.
In thousands of AUD
Loan to value ratio
Greater than 95%1
Between 90%-95%1
Between 80%-90%1
Less than 80%
Carrying amount
2021
2020
395
17,417
498,752
2,876,898
3,393,462
403
37,528
421,061
2,453,082
2,912,074
1. LVR greater than 80% is required to have Lenders Mortgage Insurance (LMI), resulting in 100% of this balance being insured.
COVID-19 economic impacts have continued to impact the likelihood of losses due to such things as increased unemployment and
potential property price movements. These factors have been included in the ECL model which has seen the provision remain at $3,272k
(2020: $3,272k).
Given the dynamic and evolving nature of COVID-19 changes to the estimates and outcomes that have been applied in the measurement of
the Group assets and liabilities may arise in the future.
In response to the current COVID-19 pandemic, the Group has provided support to its customers by implementing a range of initiatives, such
as granting deferrals of residential mortgage loan repayments to customers.
A summary of the assumptions underpinning the Groups ECL model is as follows:
Category
Definition of Category
Basis for recognition of
ECL provision
Performing
Customers have a low risk of default and a strong capacity to meet contractual cash flows
12 month expected losses
Doubtful
Loans for which there is a significant increase in credit risk; as significant increase in credit
risk is presumed if interest and/or principal repayments are 30 days past due
Lifetime expected losses
In default
Interest and/or principal repayments are 90 days past due
Lifetime expected losses
Write off
Interest and/or principal repayments are past due and there is no reasonable expectation
of recovery
Asset is written off
Given the uncertainty around further lockdowns and the flow on effect to unemployment rates, interest rates and property prices and therefore
probability of default, the final probability of default was calculated as the maximum of:
• The probability of default calculated using S&P methodology;
• The probability of default floor based on days past due; and
• The probability of default floor based on restructuring status, which takes into account any hardship arrangements.
80
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 30 June 2020
ECL rate
Basis of recognition of
ECL provision
Estimated gross
carrying amount
at default
Carrying
amount (net
of impairment
provision)
Basis for calculation
of interest revenue
In thousands of AUD
Performing
0.05%
12 month expected
losses
Underperforming
0.56%
Lifetime expected losses
Non-performing
2.08%
Lifetime expected losses
-
Asset is written off
Write off
Total Loans
30 June 2021
2,638,147
2,636,820
Gross carrying amount
246,634
27,293
-
245,255
Gross Carrying amount
26,727
Amortised cost
-
None
2,912,074
2,908,802
ECL rate
Basis of recognition of
ECL provision
Estimated gross
carrying amount
at default
Carrying
amount (net
of impairment
provision)
Basis for calculation
of interest revenue
In thousands of AUD
Performing
0.09% 12 month expected losses
3,373,469
3,370,552
Gross carrying
amount
Gross Carrying
amount
8,247
11,391
Amortised cost
-
None
8,305
11,688
-
3,393,462
3,390,190
Underperforming
0.71%
Lifetime expected losses
Non-performing
2.54%
Lifetime expected losses
-
Asset is written off
Write off
Total Loans
30 June 2020
Performing
Under
performing
Non-
performing
Write off
Total
In thousands of AUD
Opening loss allowance as at 1 July 2019
449
106
202
Individual financial assets transferred to
under-performing (lifetime expected credit
losses)
Individual financial assets transferred to
non-performing (credit-impaired financial
assets)
New financial assets originated or
purchased
Write-offs
Recoveries
Other changes
Closing loss allowance as at 30 June 2020
-
-
395
-
-
482
1,326
-
-
877
-
(106)
502
1,379
-
-
359
-
(201)
207
567
-
-
-
-
-
-
-
-
757
-
-
1,631
-
(307)
1,191
3,272
81
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 30 June 2021
In thousands of AUD
Performing
Under
performing
Non-
performing
Write off
Total
Opening loss allowance as at 1 July 2020
1,326
1,379
567
Individual financial assets transferred to
under-performing (lifetime expected credit
losses)
Individual financial assets transferred to
non-performing (credit-impaired financial
assets)
New financial assets originated or
purchased
Write-offs
Recoveries
Other changes
(4)
(2)
852
-
771
(26)
Closing loss allowance as at 30 June 2021
2,917
4
(25)
-
-
(607)
(692)
59
-
27
-
-
(106)
(192)
296
-
-
-
-
-
-
-
-
3,272
-
-
852
-
58
(910)
3,272
In thousands of AUD
Performing
Underperforming
Non-performing
Loans written off
Total gross loans and advances
Less Loan loss allowance
Less Write off
Loans and advances net of ECL as at 30 June
30 June 2021
30 June 2020
3,373,469
2,638,147
8,305
11,688
-
246,634
27,293
-
3,393,462
2,912,074
(3,272)
-
(3,272)
-
3,390,190
2,908,802
The reconciliation of opening and closing expected credit losses on loans and advances are as follows:
In thousands of AUD
Stage 1
Stage 2
Stage 3
Total Provision for ECL
In thousands of AUD
Opening loss allowance as at 1 July
Stage 1
Stage 2
Stage 3
Closing loss allowance as at 30 June
82
30 June 2020
Movement
30 June 2021
1,326
1,379
567
3,272
1,591
(1,320)
(271)
-
2,917
59
296
3,272
30 June 2021
30 June 2020
3,272
1,591
(1,320)
(271)
3,272
757
877
1,273
365
3,272
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021
Securitisation assets
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 securitised loans at reporting date is the carrying amount of subordinated notes.
The SPE-RMBS loans and advances: Under the current trust terms, a default by the customers 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 with an LVR
exceeding 80% 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, which eliminate on consolidation. No impairment loss was recognised
during 2021 (2020: Nil).
Other secured loans
The Group has minimal exposure to credit risk for loans made during the year. No impairment loss was recognised during 2021 (2020: 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 rolling cash flow 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 proceeding 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.
The following are the contractual maturities of financial liabilities based on undiscounted payments, including estimated interest payments
and excluding the impact of netting agreements for the Group.
Carrying
amount
Contractual
cash flows
6 months
or less
6-12
months
1-2 years
2-5 years
More than
5 years
886,000
908,521
757,157
151,364
-
-
Secured funding facilities1
2,571,712
2,588,960
373,775
308,304
616,892
1,289,989
952,656
1,114,848
128,927
116,890
200,338
399,233
269,460
83,619
5,362
83,619
83,619
5,362
649
-
649
-
-
1,275
2,789
-
-
4,499,349
4,701,310
1,344,127
577,207
818,505
1,692,011
269,460
Carrying
amount
Contractual
cash flows
6 months
or less
6-12
months
1-2 years
2-5 years
More than
5 years
1,615,500
1,647,613
1,364,658
282,955
-
-
-
-
-
-
2021
In thousands of AUD
Securitisation warehouse
facilities
Net present value of future
trail commissions payable
Trade and other payables
Lease liability
1. Excludes set up costs amortisation
2020
In thousands of AUD
Securitisation warehouse
facilities
Secured funding facilities1
1,299,060
1,313,068
102,288
102,288
253,585
854,907
Net present value of future
trail commissions payable
Trade and other payables
Lease liability
1. Excludes set up costs amortisation
879,096
1,036,190
120,658
109,695
189,051
377,219
239,567
71,696
6,559
71,696
71,696
6,559
646
-
646
-
-
1,236
3,829
-
202
3,871,911
4,075,126
1,659,946
495,584
443,872
1,235,955
239,769
83
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 The obligation in respect of the net present value of future trail commission only arises if and when the Group receives the corresponding trail
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
Secured bond issuances are based on expected cashflows rather than contractual cashflows as each must be repaid to secured bondholders
on receipt of funds from underlying mortgage customers. The warehouse facilities are short term funding facilities that are generally
renewable bi-annually or annually. 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 and inability to fund new loans.
The expiry dates of the Group’s warehouse facilities are the 13 December 2021 and 10 April 2022. The Group has a history of successfully
renegotiating the warehouse facility agreements prior to the expiry of the facility.
Securitised funding facilities
The securities are issued by the SPE-RMBS with an expected weighted average life of 3 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 the securities 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 trail commissions payable refer to Note 20.
(c) Market risk
(i) Currency risk
Exposure to currency risk
As at reporting date the Group held cash assets denominated in NZD and USD. Fluctuations in foreign currencies are not expected to have a
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
The table below summarises the profile of the Group’s interest-bearing financial instruments and contract assets at reporting date.
In thousands of AUD
Fixed rate instruments1
Contract assets
Financial liabilities
Variable rate instruments
Cash and cash equivalents
Other secured loans
Securitised assets
Financial liabilities
Carrying amount
2021
2020
1,050,613
(952,656)
97,957
226,048
2,843
974,599
(879,096)
95,503
161,528
3,423
3,400,259
2,917,349
(3,457,712)
(2,914,562)
171,438
167,738
The Group’s main interest rate risk arises from securitised assets, cash deposits and interest-bearing facilities. All the Group’s borrowings
are issued at variable rates, however the vast majority pertains to the warehouse facility which is arranged as ‘pass through’ facilities, and
therefore the exposure to the interest rate risk is mitigated by the ability to pass any rate increases onto borrowers.
1. Discount rate for trail commission receivable and payable is fixed for the life of the loan.
84
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 Cash flow sensitivity analysis for variable rate instruments
Due to the market conditions existing at 30 June 2021, 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 remain constant. The analysis is performed on the same basis for 2020 and 2021.
Effect in thousands of AUD
100bp increase
100bp decrease
100bp increase
100bp decrease
After tax profit
After tax equity
30 June 2021
Variable rate financial assets
Variable rate financial liabilities
Cash flow sensitivity (net)
30 June 2020
Variable rate financial assets
Variable rate financial liabilities
Cash flow sensitivity (net)
(iii) Prepayment risk
25,384
(8,860)
16,524
21,538
(16,155)
5,383
(25,384)
8,860
(16,524)
(21,538)
16,155
(5,383)
25,384
(8,860)
16,524
21,538
(16,155)
5,383
(25,384)
8,860
(16,524)
(21,538)
16,155
(5,383)
Net present value of contract assets and future trail commissions 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 trail commissions contract asset and future trail
commission payables. Refer to Note 29(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 performed
on AFG’s historical loan data. 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
Securitised assets
2021
+5%
(3,091)
-5%
3,275
2020
+5%
(2,894)
-5%
3,058
The Group is exposed to prepayment risk on its securitised assets. The warehouse facilities and the securitised funding facilities 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) 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.
85
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 (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 not measured at fair value (but fair value disclosures are required)
The table below reflects the fair value of the trail commission payable, non-current loans and advances and non-current securitised funding
facilities. The carrying amount of all the other financial assets and liabilities recognised in the Statement of Financial Position approximate
their fair value due to their short-term nature.
In thousands of AUD
Carrying
amount
Fair value
Carrying
amount
Fair value
30 June 2021
30 June 2020
Financial assets
Non-current loans and advances
2,563,585
2,555,880
2,464,989
2,457,168
Financial liabilities
Future Trailing commission payable1
Non-current securitised funding facilities
952,656
1,933,792
984,195
1,863,255
879,096
1,095,547
917,984
1,086,130
1 Note 4% (2020:4%) discount rate applied to the Fair value calculations. Run off rate and pay out percentage remain consistent with the carrying
value calculation assumptions.
Loans and advances
The fair values of loans and advances are estimated using a discounted cash flow analysis, based on current lending rates for similar types of
lending arrangements ranging from 2.2% to 6.8%, (2020: 2.6% to 6.8%).
For the purpose of fair value disclosure under AASB 13 Fair Value Measurement, the loans and advances would be categorised as a level 3
asset where the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
Future Trailing commission payable
Trailing commissions are received from lenders on settled loans over the life of the loan based on the loan book balance outstanding if the
respective loans are in good order and not in default. 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. Trail
commissions are actuarially assessed on future cashflow based on a number of assumptions including estimated loan life, discount rate,
payout ratio and income rate.
The trail commission assets and liabilities at 30 June 2021 relate to the Residential, Commercial and the AFGHL white label loan books.
The movement in the future trail commission balances for the period are mostly attributable to the growth of the respective trail books over
the financial year as opposed to any significant changes in the assumptions applied.
The fair value of trailing commission contract asset 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, reviewed by
external actuaries, by reference to market observable inputs. The valuation is classified as level 3 in the fair value measurement hierarchy.
86
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 The key assumptions/inputs underlying the carrying 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
Between 3.1 and 5.0 years
Between 3.2 and 5.1 years
Discount rate per annum
Between 4% and 13.5%
Between 4% and 13.5%
Percentage paid to brokers
Between 85% and 94.3%
Between 85% and 94%
30 June 2021
30 June 2020
Securitised funding facilities
The fair values of securitised funding facilities are estimated using discounted cash flow analysis, based on current borrowing rates for
similar types of borrowing arrangements ranging from 0.9% to 1.9%.
For the purposes of fair value disclosure under AASB 13 Fair Value Measurement, the subordinated notes would be categorised as a level 3
liability where the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
30. Group entities
Parent entity
Australian Finance Group Limited
Significant subsidiaries
Australian Finance Group (Commercial) Pty Ltd
Australian Finance Group Securities Pty Ltd
AFG Securities Pty Ltd
AFG 2010-1 Trust
AFG 2016-1 Trust
AFG 2017-1 Trust
AFG 2018-1 Trust
AFG 2019-1 Trust
AFG 2019-2 Trust
AFG 2020-1 Trust2
AFG 2020-1 NC Trust2
AFG 2021-1 Trust2
AFG 2010-2 Pty Ltd
AFG 2010-3 Pty Ltd
New Zealand Finance Group Ltd1
AFG Home Loans Pty Ltd
Investment in associates
Thinktank Group Pty Ltd
MAB Broker Services Pty Ltd3
Country of
incorporation
Percentage
Ownership interest
2021
2020
Australia
100
100
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
-
-
-
100
100
100
100
Australia
Australia
32.29
48.05
32.81
-
1. New Zealand Finance Group Ltd was deregistered during the year ended 30 June 2021.
2. AFG 2020-1 Trust, AFG 2021-1 Trust and AFG 2020-1 NC Trust were incorporated during the year ended 30 June 2021.
3. The Group invested in MAB Broker Services Pty Ltd during the year ended 30 June 2021.
87
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 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 securitisation vehicles. 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 outstanding loans as at time of settlement was below 70% and as at year end, approximately
63% (2020: 63%) 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 20% (2020: 24%).
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.
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 2016-1
• AFG 2017-1
• AFG 2018-1
• AFG 2019-1
• AFG 2020-1
• AFG 2020-1 NC
2021
22,521
450
560
700
3,930
3,325
4,750
2020
32,113
450
560
700
3,930
-
-
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 or RMBS term structure 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).
88
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 31. Parent entity
Throughout the financial year ending 30 June 2021, the parent Company of the Group was Australian Finance Group Limited.
In thousands of AUD
Results of the parent entity
Profit for the period
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
2021
2020
34,139
34,139
34,992
34,992
2021
2020
261,616
265,200
1,146,199
1,068,818
225,897
1,002,851
102,125
4,423
36,800
143,348
231,929
933,048
102,157
2,504
31,109
135,770
See Notes 32 and 33 for the parent entity capital and other commitments, and contingencies.
32. Capital and other commitments
There are no capital commitments as at the reporting date.
33. Contingencies
Third Party Guarantees
Bank guarantees have been issued by third party 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.
89
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 The aggregate amounts recognised during the year relating to other related parties were as follows:
(i) Mr T. 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 $837k (2020: $1,038k). These payments
are not considered to be material to the financial results of the Group and therefore do not impact on Mr T. Gill’s independence as
a Director.
(ii)
Establish Property Group Ltd (EPG) was created as part of the demerger of the property business prior to listing on the ASX on 22
April 2015. Directors of EPG include B. McKeon, D. Bailey and L. Bevan.
The Group’s head office is located at 100 Havelock Street West Perth. The Group leases these premises at commercial arm’s
length rates from an investee of EPG, Qube Havelock Street Development Pty Ltd (Qube). AFG paid rent of $1,150k which has
been paid to Qube (2020: $1,076k). In addition to the above McCabe Street Ltd has an outstanding loan owing to AFG amounting
to $230k (2020: $224k), this loan is on commercial terms at arms-length. Directors of McCabe Street Ltd include B. McKeon,
D. Bailey and L. Bevan.
(b) Compensation of key management personnel of the Group
In thousands of AUD
Short term employment benefits
Post-employment pension and medical benefits
Share based payment transactions
Other long-term benefits
Total compensation of key management personnel of the Group
2021
2,327
100
1,002
46
3,475
2020
2,080
96
727
21
2,924
The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key management
personnel.
(c) Subsidiaries
Loans are made by the parent entity to wholly owned subsidiaries to fund working capital. 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.
(d) Associates
In thousands of AUD
Associate
Thinktank
MAB
30 June 2021
30 June 2020
Commissions
from related
parties
Commissions to
related parties
Commissions
from related
parties
Commissions to
related parties
2,370
-
-
1,383
2,248
-
-
-
The amounts disclosed in the table are the amounts recognised as commission income and commission expense during the reporting period
related to associates.
90
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 35. Subsequent events
On 12 July 2021, the Group successfully acquired an 8.04% interest in Volt Corporation Limited (“Volt”), and entered into a strategic alliance
with Australia’s first neobank.
On 23 July 2021, the Group noted the expiry date of the Connective merger. The Connective merger is unlikely to proceed due to the length of
time the Connective court case judgment has taken to date.
On 26 August 2021, the Directors recommended the payment of a dividend of 7.4 cents per fully paid ordinary share, fully franked based on
tax paid at 30%. The dividend has a record date of 7 September 2021 and a payment date of 23 September 2021. The aggregate amount of
the proposed dividend expected to be paid out of retained earnings at 30 June 2021 is $19,860k. The financial effect of this dividend has not
been brought to account in the financial statements for the year ended 30 June 2021.
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.
91
NOTES TO THE FINANCIAL STATEMENTS (continued)Annual Report 2021 Director’s 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 to the Financial Statements 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 2021 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 to the Financial Statements 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 Chief Executive Officer, and the Chief Financial Officer required by Section 295A of the
Corporations Act 2001.
On behalf of the Board
Tony Gill
Chairman
Dated at Sydney, New South Wales on 26 August 2021
92
DIRECTOR’S DECLARATIONAnnual Report 2021 Independent Audit Report
to the members of Australian Finance Group Limited
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Independent auditor's report to the members of Australian Finance Group
Limited
Report on the audit of the financial report
Opinion
We have audited the financial report of Australian Finance Group Limited (the Company) and its
subsidiaries (collectively the Group), which comprises the consolidated statement of financial position
as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income,
consolidated statement of changes in equity and consolidated statement of cash flows for the year
then ended, notes to the financial statements, including a summary of significant accounting policies,
and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
Act 2001, including:
a. giving a true and fair view of the consolidated financial position of the Group as at 30 June 2021
and of its consolidated financial performance for the year ended on that date; and
b. complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with
the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial report of the current year. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide
a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the financial report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying financial report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
FD:LC:AFG:156
93
Annual Report 2021
Page 2
Provision for expected credit loss
Why significant
How our audit addressed the key audit matter
As described in Notes 3 Significant accounting
policies, 5 Financial risk management and 29
Financial Instruments, the provision for expected
credit losses (ECL) is determined in accordance
with Australian Accounting Standards - AASB 9
Financial Instruments (AASB 9).
This was a key audit matter due to the size and
timing of the recognition of the provision, and the
degree of judgement and estimation uncertainty
associated with the calculations, including the
continued impacts of COVID 19 on the ECL.
Key areas of judgement included:
►
►
►
►
►
the application of the impairment
requirements within AASB 9, which is
reflected in the Group’s expected credit loss
model;
the identification of exposures with a
significant deterioration in credit quality;
assumptions used in the expected credit loss
model (for exposures assessed on an
individual and collective basis);
the incorporation of forward-looking
information to reflect current or future
external factors (e.g. unemployment rates,
interest rates, gross domestic product growth
rates, and property prices)
forward-looking macroeconomic factors,
including developing macroeconomic
scenarios and their associated weightings
given the wide range of potential economic
outcomes and continued impacts from COVID-
19 that may impact future expected credit
losses.
Our audit procedures included the following:
We assessed:
►
►
the alignment of the Group’s expected credit
loss model and its underlying methodology
with the requirements of AASB 9;
the approach determined by the Group for the
incorporation of forward-looking
macroeconomic factors including specifically
the consideration of the continued impacts
from COVID-19;
►
the effectiveness of relevant controls relating
to the:
►
►
capture of data used to determine the
provision for credit impairment, including
transactional data captured at loan
origination, ongoing internal credit
quality assessments, storage of data and
interfaces to the expected credit loss
model;
expected credit loss model, including
functionality, ongoing
monitoring/validation and model
governance.
We examined a sample of exposures assessed on
an individual basis to consider the reasonableness
of provisions adopted.
We assessed the significant modelling assumptions
for exposures evaluated on a collective basis and
overlays, with a focus on the:
►
►
►
basis for and data used to determine overlays;
sensitivity of the collective provisions to
changes in modelling assumptions; and
reasonableness of macroeconomic scenarios
and the continued impacts of COVID-19 at
balance date.
We have involved our Actuarial and IT specialists in
the performance of these procedures where their
specific expertise was required.
We considered the adequacy and appropriateness
of the disclosures related to credit impairment
within the Financial Report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
94
INDEPENDENT AUDIT REPORT (continued)Annual Report 2021
Page 3
Future trailing commission
Why significant
How our audit addressed the key audit matter
As described in Note 3 Significant accounting
policies, 4 Determination of fair values and 29
Financial instruments, the Group recognised a
contract asset representing the expected value of
future trailing commission receivable in
accordance with AASB 15 Revenue from Contracts
with Customers (AASB 15) and a corresponding
trailing commission payable was recognised under
AASB 9 Financial Instruments (AASB 9)
representing the net present value of future
trailing commissions payable by the Group.
This is a key audit matter due to the size of the
contract assets and trailing commission payable
and the degree of judgment and estimation
uncertainty associated with the calculations.
Key areas of judgement included:
►
►
the estimation of the discount rate;
the percentage of commissions paid to
members; and
Our audit procedures included the following:
We assessed:
►
►
►
►
the alignment of the Group’s trailing
commission model and its underlying
methodology with the requirements of AASB
15 for the contract asset and AASB 9 for the
trailing commission payable;
the effectiveness of relevant controls relating
to the approval and determination of the net
present value of the future trailing commission
receivable and payable;
the reasonableness of management’s
assumptions applied, including the discount
rate and loan run-off rates;
the historical accuracy of management’s
estimates by comparing the previously
forecast trailing commission income and
expense to the actual results.
►
loan book run-off rate assumptions.
We have tested:
►
the capture of the data used in management’s
trail commission model for completeness;
► a sample of loans from the data used in the
model to external supporting documents such
as lender commission statements for accuracy;
►
the mathematical accuracy of the models; and
►
the expected percentage to be paid to
members by recalculation based on the loan
book data and applicable remuneration
structure.
We involved our Actuarial and IT specialists in
areas that required their specific expertise.
We assessed the adequacy and appropriateness of
the disclosures related to trailing commission
within the Financial Report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
95
INDEPENDENT AUDIT REPORT (continued)Annual Report 2021
Page 4
Information other than the financial report and auditor’s report thereon
The directors are responsible for the other information. The other information comprises the
information included in the Company’s 2021 Annual Report, but does not include the financial report
and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report
and our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
►
Identify and assess the risks of material misstatement of the financial report, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
96
INDEPENDENT AUDIT REPORT (continued)Annual Report 2021
Page 5
► Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
► Conclude on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the financial report or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause the Group to
cease to continue as a going concern.
► Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events
in a manner that achieves fair presentation.
► Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, actions
taken to eliminate threats or safeguards applied.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
97
INDEPENDENT AUDIT REPORT (continued)Annual Report 2021
Page 6
Report on the audit of the remuneration report
Opinion on the remuneration report
We have audited the Remuneration Report included in pages 27 to 41 of the directors' report for the
year ended 30 June 2021.
In our opinion, the Remuneration Report of Australian Finance Group Limited for the year ended 30
June 2021, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Ernst & Young
Fiona Drummond
Partner
Perth
26 August 2021
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
98
INDEPENDENT AUDIT REPORT (continued)Annual Report 2021
Shareholder 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 30 July 2021.
(a) Number of holders of equity securities
Ordinary share capital
268,382,396 fully paid ordinary shares are held by 6,519 individual shareholders
All issued ordinary shares carry one vote per share.
(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
219,933,448
33,646,820
7,670,784
6,194,679
936,665
268,382,396
14,358
%
81.95
12.54
2.86
2.31
0.35
100
0.01
No. of holders
78
1,365
1,007
2,289
1,780
6,519
193
%
1.20
20.94
15.45
35.11
27.30
100
2.96
*An unmarketable parcel is considered to be a shareholding of 193 shares or less, being a value of $500 or less in total, based on the
Company’s last sale price on the ASX at 30 July 2021 of $2.59
(c) Substantial shareholders
The names and the number of securities held by substantial shareholders are set out below:
MSW Investments ATF The Malcolm Stephen Watkins Family Trust
MBM Investments ATF The Brett McKeon Family Trust
Banyard Holdings Pty Ltd ATF The B&K McGougan Trust
# Shares
% of issued capital
17,493,656
16,310,694
14,788,765
6.52%
6.08%
5.51%
99
SHAREHOLDER INFORMATIONAnnual Report 2021 (d) Twenty largest holders of quoted equity securities
Top holders
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
MBM INVESTMENTS PTY LTD
THE BRETT MCKEON FAMILY
BANYARD HOLDINGS PTY LTD
B & K MCGOUGAN
PERPETUAL CORPORATE TRUST LTD
<983L AC>
BNP PARIBAS NOMINEES PTY LTD
BNP PARIBAS NOMS PTY LTD
INVIA CUSTODIAN PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
ASSURED FINANCIAL SERVICES PTY LTD
ADRIEN MANN (SOUTH PACIFIC) PTY LTD
EDI NOMINEES PTY LTD
ANGELA MIDDLETON
LISA BEVAN
EGMONT PTY LTD
NOLDEX PTY LTD
NATIONAL NOMINEES LIMITED
CS FOURTH NOMINEES PTY LIMITED
Company Secretary
Ms L. Bevan
Registered Office
Level 4, 100 Havelock Street, West Perth WA 6005
Share Registry
Link Market Service - Level 12, 680 George Street, Sydney NSW 2000
# Shares
54,038,846
41,199,304
29,081,825
18,145,498
16,310,694
14,788,765
12,345,025
5,083,570
3,356,243
2,743,637
2,728,738
2,060,000
1,110,000
1,060,000
1,000,000
1,000,000
960,714
835,000
653,305
545,293
% of issues
capital
20.14
15.35
10.84
6.76
6.08
5.51
4.60
1.89
1.25
1.02
1.02
0.77
0.41
0.39
0.37
0.37
0.36
0.31
0.24
0.20
100
SHAREHOLDER INFORMATION (continued)Annual Report 2021
CORPORATE DI RECT ORY
Corporate Directory
Directors
Anthony (Tony) Gill
(Non-Executive Chairman)
Craig Carter
(Non-Executive Director)
Malcolm Watkins
(Executive Director)
Melanie Kiely
(Non-Executive Director)
Brett McKeon
(Nom-Executive Director)
Jane Muirsmith
(Non-Executive Director)
Company Secretary
Lisa Bevan
(Company Secretary)
Notice of AGM
The annual general meeting of Australian
Corporate Office
Share Registry
Australian Finance Group Limited
Link Market Services
Finance Group Limited will be held on Friday
Level 4
26 November 2021 at 9.00am WST
at Level 4, 100 Havelock Street,
West Perth WA 6005.
100 Havelock Street
West Perth WA 6005
Postal Address
PO Box 710
West Perth WA 6872
Phone
08 9420 7888
Email
Level 12
680 George Street
Sydney NSW 2000
Postal Address
Locked Bag A14
Sydney South NSW 1235
Phone
1300 554 474
Email
investors@afgonline.com.au
registrars@linkmarketservices.com.au
Website
Stock Listing
www.afgonline.com.au
Australian Finance Group Limited’s
ordinary shares are listed on the Australian
Securities Exchange (ASX code: AFG).
101
Annual Report 2021 This page is intentionally left blank.
This page is intentionally left blank.
www.afgonline.com.au
Level 4, 100 Havelock Street
West Perth WA 6005
T 08 9420 7888
Australian Finance Group Ltd.
Australian Credit Licence: 389087
ABN: 11 066 385 822
ACN: 066 385 822