More annual reports from American Financial Group:
2023 ReportANNUAL
REPORT
2022
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
12
19
42
43
44
45
46
47
95
96
103
105
“I position myself as an extension of a
broker’s business, when brokers have
a win, I have a win.
Christa - AFG Strategic Accounts
Non-Majors
47%
Majors
53%
Lender market share
47%
of flows in H2 FY22
user-plus
users
pie-chart
Current BrokerEngine subscribers
1,650+
AFG Broker numbers including Fintelligence and
non-residential brokers sit at
3,700+
AFG Home Loans Customers serviced
32,300
nationally increased from 28,500 at FY21
🏙
Individual products
Lenders
Customers
7,000+
75+ 500K+
69.5%
of Australian mortgages are
written through a broker1
FY22
FY21
69.5%
59%
1 Mortgage and Finance Association of Australia (MFAA) - March 2022 Qtr
house
1 in 10
Australian residential mortgages
are arranged by an AFG broker
Normalised NPATA up 20% to
$61.3MFY22
Reported NPATA
AFG underlying NPATA has increased to
$40MFY22
FY22 NPAT
$38.8M
$60.1M
$55.8MFY22
from $49.6M FY21
FY22 NPATA
$40.0M
$61.3M
FY21
FY20
$51.3M
$38.1M
Reported
Normalised
FY22 AFGS RMBS term transactions
$1.7B
FY22
FY21
$55.8M
$49.6M
FY20
$36.3M
AFG remains well capitalised,
with net unrestricted cash, trail book
assets, financial assets and
sub-ordinated capital totaling
$217M
warehouse
FY22 Residential Settlements of
FY22 Commercial Settlements of
$59.4B
up 36% from FY21
$3.9B
up 67% from FY21
FY22 AFGHL Settlements of
$5.6B
up 62% from FY21
truck
FY22 Leasing/Consumer
Asset Finance Settlements of
$1.5B
including Fintelligence volumes
from 1 January 2022
Thinktank profit contributions of
Thinktank settlement volumes of
$6.1M
up 16% from FY21
$239M
up 84% from FY21
We’re the MFAA
Aggregator of the
Year 2022
FY22 Residential Settlements of
FY22 Commercial Settlements of
$59.4B
up 36% from FY21
$3.9B
up 67% from FY21
FY22 AFGHL Settlements of
FY22 Leasing/Consumer
Asset Finance Settlements of
$5.6B
up 62% from FY21
$1.5B
including Fintelligence volumes
from 1 January 2022
$6.1M
up 16% from FY21
$239M
up 84% from FY21
FY22 Residential Trail Book of
FY22 Residential Trail Book of
FY22 AFG Home Loans Trail book of
FY22 AFG Home Loans Trail book of
$182.2B
$182.2B
up 9% from FY21
up 9% from FY21
FY22 Commercial Trail Book of
FY22 Commercial Trail Book of
$10.9B
$10.9B
up 19% from FY21
up 19% from FY21
FY22 AFGS Settlements
FY22 AFGS Settlements
$2.72B
$2.72B
up 102% from FY21
up 102% from FY21
$13.3B
$13.3B
up 18% from FY21
up 18% from FY21
AFG normalised return on equity
AFG normalised return on equity
has increased to
has increased to
30%
30%
AFGS Loan Book increased to
AFGS Loan Book increased to
$4.78B FY22
$4.78BFY22
up 41% from FY21
up 41% from FY21
FY22
FY22
FY21
FY21
$4.78B
$4.78B
$3.39B
$3.39B
FY22
FY22
7.0
7.0
FY21
FY21
5.9
5.9
FY20
FY20
5.4
5.4
4.7
4.7
Cents per share
Cents per share
9.6
9.6
Dividends up from FY21
Dividends up from FY21
7.4
7.4
25%
25%
Interim
Interim
Final
Final
8
LETTER FROM THE CHAIR
Letter from the Chair
On behalf of the Board and Management of AFG, I am pleased to provide the
AFG Annual Report for the financial year ended 30 June 2022. AFG delivered
another excellent operating performance on the back of strong demand for our
mortgage broking and lending services during the year, and the Company’s
ongoing diversification strategy across business lines and classes. The level of
activity in the business remained very strong throughout the year despite the RBA
commencing much anticipated interest rate increases in the second half.
Tony Gill
Chair
A Year of Continued Growth
Interest rates and unemployment levels
remained at historically low levels during
the year, supporting continued strong
demand for mortgage broking and lending
services. AFG continued to deliver growth
in profitability and shareholder returns
during the year. The combined residential
and commercial loan book increased by
10% to $193B, with our core residential
lending business delivering settlements
of $59.4B, an increase of 36% on the prior
year and another record for the company.
I again commend our management team,
staff and brokers as they delivered these
results while managing ongoing and
new challenges posed by the COVID-19
pandemic to maintain high levels of service
with minimal business disruption.
The Company has achieved a compound
annual growth rate of 18% on earnings per
share since 2015 and delivered 5-year Total
Shareholder Returns of 185%.
Despite the positive underlying operating
performance, we unfortunately had to
recognise some impairments related to our
technology investments. The withdrawal
from the market of neobank Volt
necessitated the impairment of our $15M
equity investment. We also reviewed the
development of our in-house technology
platform and will refocus our development
program to incorporate the technology
platforms from recent acquisitions
BrokerEngine and Fintelligence. This is
expected to ultimately deliver a more
cost-effective technology solution for AFG
but resulted in a partial write-down of past
capitalised expenditure of $6.3M (after tax).
The fintech space is challenging, and we
remain committed to improving technology
outcomes and seizing opportunities for
growth for our brokers and the customers
they serve.
Dividends
For the full year to 30 June 2022 the Board
resolved to pay a final ordinary dividend
of 9.6 cents per share (fully franked). This
decision, consistent with our dividend
policy of previous periods, results in a total
ordinary dividend for the year of 16.6 cents
per share, up from 13.3 cents per share in
the prior year and represents a yield of 9%.
Changing Market Conditions
The RBA commenced increasing the cash
rate in Australia in May 2022 in response
to rapidly rising inflation driven by strong
demand, continued COVID-19 related
supply disruptions, the war in Ukraine
and the unfortunate eastern states floods
putting upward pressure on food and
energy prices.
The move towards a rising interest rate
environment has impacted investor
sentiment towards the financial services
sector and contributed to Volt Bank’s
withdrawal from the market. This period
will also present opportunities and the
board will continue to look for occasion
to invest into areas which will bring
competition and customer benefits
into a marketplace which is at risk of
becoming one dimensional in terms of the
customer offering.
Notwithstanding the increasing volatility
in the market, it is important to note the
residential mortgage broking market has
historically performed strongly during
periods of rising interest rates. In addition,
broker market share now sits at around
69.5% of all residential mortgages applied
for in the country. AFG brokers write one
in ten of all residential mortgages lodged
with a financial institution in Australia.
With a compelling, full-service model of
support, we expect to continue to grow
through recruitment of new brokers to our
network, and an increasing preference for
the channel whose sole focus in on the
customer and which by law must operate in
the best interests of customers.
Sustainability
AFG remains committed to driving
shareholder value by conducting business
in a sustainable, ethically sound, and
socially responsible manner. We have
focussed on making a positive social
impact through partnerships with charities,
workplace giving and by supporting the
communities where our customers live and
work. At a national level, this has included a
renewal of our support of Foyer Foundation
as Principal Partner for a further three
years. By partnering with Foyer Foundation
we are supporting a program that helps
young people into a stable and secure
home from which they can find their feet
and take their place in the community.
We are also proud naming rights sponsor
of the AFG Interschool Numero Challenge,
a program designed to lift numeracy skills
for primary school students. In addition,
we have supported communities and
businesses affected by bushfire and
flooding natural disasters in 2022.
This will be the second year AFG has
worked with Carbon Neutral to carry out a
detailed audit of our carbon footprint and
emissions and assist us in understanding
the next steps required to ensure we are an
environmentally sustainable organisation.
You can find more information on our
ESG initiatives on our website and
in the Sustainability section of this
Annual Report.
Outlook
AFG has net cash, investments, and
financial assets of $217M. The Company
remains well positioned to continue
delivering positive shareholder returns.
What has become evident in the market is
that other asset classes are increasingly
looking towards the broker channel as a
viable, efficient, and effective method of
origination. We have already seen lenders
and customers embrace the channel for
residential mortgages to such an extent
that it is has been for some time, the
dominant channel. As a broking business
with an established footprint in these
areas we are well positioned to maximise
opportunities for growth.
This year we have been very fortunate
to welcome Greg Medcraft and Annette
King to the AFG board as non-executive
directors. Both have extensive industry
experience and Greg will be assuming the
role of Deputy Chair. I look forward to their
contributions to the board.
AFG ANNUAL REPORT 2022 LETTER FROM THE CHAIR
9
Separately I would like to acknowledge the contribution outgoing director Melanie Kiely, who will step down at the end of our Annual General
Meeting, has provided to our business. Melanie has contributed positively over two full terms as a member of our board and Chair of our
Remuneration & Nomination Committee. I wish her well in her future roles.
Finally, on behalf of the board I would like to thank AFG staff, brokers, our lender partners, and our shareholders for their continued support of
the company.
Tony Gill, Chair
“AFG has been a
consistent force in helping
my company grow into
what it is today”
Vivian Wang – AFG Broker at VMoney
AFG ANNUAL REPORT 2022 10
LETTER FROM THE CEO
Letter from the CEO
AFG has reported strong growth and continued earnings diversification in the 2022
financial year. Normalised profit before acquisition amortisation increased by 20%
to $61.3M, and EPS grew by 17% on the prior year.
David Bailey
CEO
file-invoice-dollar
AFG Home Loans’ white label
products up 36% to
$2.9B
Commercial settlements up
67% to
$3.9B
house
Residential settlements
up 36% to
$59.4B
AFG Loan book up 41% to
$4.79B
handshake
Fintelligence network brought
in an additional
350
brokers. The total number of
brokers in the AFG group has
grown to over
3,700
The positive operating performance has
been driven by strong underlying demand
for mortgages during the year, and the
company’s diversification strategy
of expanding up the value chain with
respect to lending services and products
as well as our strategic investments.
As Tony has mentioned, the impairment
of our investment in Volt Bank, and the
write down on past expenditure for parts
of the redevelopment of our technology
platform, whilst disappointing, reflect
our ongoing commitment to offer
improved digital platforms and products
for our brokers and their customers.
Our investments in BrokerEngine,
Fintelligence and Thinktank, and the
continued upgrade of our in-house
platform are highly strong evidence of
that commitment and is a strategy we
will maintain.
Our core residential business delivered
another record result with settlements up
36% to $59.4B. AFG Home Loans’ white
label products increased 36% to $2.9B and
higher margin AFG Securities products
contributed settlements of $2.7B. AFG’s
loan book grew by 41% to $4.79B as at
30 June.
AFG continues to grow its market share
in Aggregation with Australian brokers
originating 69.5% of all residential
mortgages in March 2022, up from 53.6%
in March 2017. Diversification and a profit
mix shift from aggregation to higher-
margin lending continues to drive growth,
with AFG Securities contributing around
26% of gross profit in FY2022 compared
to 4% in FY2015.
Following a period of historically low
interest rates, the RBA commenced a
program of rate increases in response
to rapidly rising inflation. COVID-19 also
remains a business disruption and health
risk despite an easing of Government
restrictions across Australia. We continue
to take the necessary precautions to
ensure the safety of our people and
continuity of our business. We recognise
the impacts COVID-19 and rising interest
rates may have on the financial wellbeing
of our customers and stand ready to
respond and provide support if necessary.
AFG Home Loans
AFG Home Loans was again a highlight in
the financial result, with a strong
performance from both AFG Securities
and white label products. The white label
loan book increased by 8% to $8.5B, and
settlements increased 36% to $2.9B. AFG
Securities settlements were up 102% to
$2.7B with the closing direct lending loan
book growing to $4.79B, up 41%. Through
the efforts of our staff in providing an
exceptional lending alternative, the AFG
Securities loan book continues to grow,
and I am pleased to observe that this
growth has not been at the expense of
credit quality with industry-leading arrears
performance continuing to be maintained.
The quality of this book is supported by
the fact that 88% of the loans in the book
have an LVR below 80% as at the time
of settlement.
Commercial
The Commercial lending market has
improved following the removal of
COVID restrictions that impacted the
FY2021 performance. AFG Business and
Commercial volumes have rebounded
as confidence in this sector returns.
Commercial settlements were up 67% to
$3.9B during FY2022.
AFG’s strategic investment in Thinktank
further increased its contribution to
earnings by 16% to be $6.1M on the back
of strong settlements across its own
distribution channels.
Investments in technology and
distribution
AFG successfully completed two
acquisitions of a controlling interest in
Fintelligence and BrokerEngine in FY2022.
These strategic investments position AFG
for future growth and provide capability to
develop new financial products.
Fintelligence has a proprietary technology
platform and significantly increased the
scale of AFG’s asset finance distribution
network through the addition of 350
brokers, bringing the total number of
brokers in the AFG group to over 3,525
at the time of acquisition. After a strong
year of recruitment across the network
that number is now more than 3,700. In
addition, Fintelligence is providing an
ever-growing in-house referral service for
AFG’s residential brokers and a direct to-
consumer web presence.
AFG ANNUAL REPORT 2022 LETTER FROM THE CEO
11
BrokerEngine is a fintech specialising in advanced automation
and the design of bespoke customer journeys- tailored at a
business level to optimise data and workflow. BrokerEngine will
integrate with AFG’s technology platform and will retain its brand
and product offering to the broader Australian broker market.
BrokerEngine currently has 1,650+ users of its platform, an
increase of 41% since 31 December 2021 when we invested in the
business.
The acquisitions of BrokerEngine and Fintelligence have provided
the opportunity to examine our technology strategy and ensure
our broadening digital ecosystem is well positioned for where
the market is headed. We are committed to remaining nimble in
an environment where the pace of technological change in the
financial sector is rapid.
Industry
The year also saw the then- Australian Government recognise
the importance of the role mortgage brokers play and the positive
impact Best Interests Duty (BID) has had by announcing that
they will no longer undertake the review they had indicated they
would conduct leading into the previous election. Subsequent to
this, ASIC also affirmed they had determined they would no longer
undertake a review of BID. With this news, on a regulatory front the
channel enters the new financial year with a degree of regulatory
clear air that it has not enjoyed for some time.
Reaffirming what has been an excellent trading year for the
business, the 2022 financial year was closed with AFG winning
the Mortgage & Finance Association of Australia’s award for best
aggregation business. Industry recognition, coupled with AFG’s
best year in over a decade in terms of recruitment of broking
groups positions the company well as we enter a different set of
economic conditions.
strong shareholder returns. We remain optimistic about the
outlook for our business. Key positive drivers include:
• Increased refinancing activity during times of change in the
market as borrowers seek to lessen the impact of rising rates
• The very high levels of fixed rate mortgages written in the past 2
years will reach term and drive future inquiry from customers for
their brokers to examine their options and find the right product
to meet their needs
• Continued diversification and growth in our securitised
lending division
• Open international and interstate borders will continue to
drive net migration and activity in the Australian residential
mortgage market
• Broker market share is expected to continue to increase as
recognition of the choice, competition, and convenience they
provide to customers continues to grow
• Ongoing recruitment of broker groups to the AFG network.
AFG’s business is capital light with a robust balance sheet
supported by strong reliable cashflow. With over 3,700 member
brokers in our network and more than 75 lenders on our panel,
we have the scale to provide competitive services to our clients,
and to continue to leverage this scale to drive positive returns
for our shareholders and competitive products and services to
our customers.
I would like to thank AFG staff across the country who remain
committed and engaged to ensure great outcomes for AFG brokers
and their customers.
Looking ahead
As we enter a new period of rising interest rates in Australia and
globally, AFG remains very well positioned to continue delivering
David Bailey, CEO
AFG ANNUAL REPORT 2022 Sustainability
at AFG
Sustainability highlights
I am pleased to deliver our second report on the company’s
Environmental, Social and Governance practices.
Tony Gill
Chair
leaf
AFG Carbon footprint
982.7 674.9
(t CO2-e) gross
(t CO2-e) net
house-heart
Foyer Foundation,
principal partner
Diversity & Inclusion % of women in positions
(as at 31 July 2022)
POLL-PEOPLE
RESTROOM
Board
37.5%
All Managers
41.07%
people-simple
BOOK-USER
Senior Managers
37%
Total Workforce
52.3%
14
OUR APPROACH
Our approach
AFG makes decisions and takes actions to ensure we maintain our
position as a successful company and a trusted business partner
and employer.
That includes taking steps to protect our business, stakeholders
and broader community from the changing climate.
During FY2022, we intensified our focus and accelerated efforts to
address this serious risk facing our planet.
We have committed to becoming carbon neutral in scope 1 and
scope 2 emissions by 2030, while continuing to drive down scope 3
emissions where possible.
To help achieve this, AFG is looking to identify and implement
measures to reduce our carbon footprint.
We are proud to have recently become a participant in the United
Nation’s Global Compact, a voluntary initiative to implement
universal sustainability principles. Our participation formalises our
alignment with the UN’s Sustainable Development Goals.
These goals will help drive sustainable business practices
across the environment, human rights, labour, and anticorruption,
supporting our mission to have a positive impact on our business,
stakeholders and the community.
AFG’s board has oversight for our ESG risks and matters. Reporting
to the board is AFG’s Management Sustainability Committee,
established in FY2021 and comprising representatives from across
the business.
The committee was formed to strengthen management’s
sustainability policies, principles and practices.
user-group Board
To help support our ESG agenda, during the year we established a
Staff Sustainability Committee, known internally as the ‘Green Team’.
The AFG Green Team comprises nine passionate individuals from
across the business, with representation from four of our state
offices.
The Green Team reports to the Management Sustainability
Committee and complements the leadership team’s efforts through a
grass roots approach.
AFG Staff Sustainability Committee/Green Team
user-group AFG Management
Sustainability Committee
users AFG Staff Sustainability Committee
Marketing, Communications, Revenue, Credit and
Operations, Partnerships, IT, AFG Securities, Credit
Assessment
AFG’s approach to the mortgage industry was recently recognised
through our winning of the Aggregator of the Year award in
the Mortgage and Finance Association of Australia’s National
Excellence Awards, held in Sydney on 17 July, 2022. The Aggregator
Award recognises excellence across broker support, professional
development, ethics, technology, lender panel value proposition,
advocacy and business results. The prestigious award is assessed
by a panel of judges including an independent audit by Hall
Chadwick.
In the same awards, AFG was a finalist in the Diversity and Inclusion
and Professional Development categories.
users AFG Management Sustainability Committee
Operations, AFG Securities, Risk, IT, Legal, HR,
Marketing, Lender & Industry Partnerships,
Finance and Communication
Our promise: We are committed to becoming carbon
neutral in scope 1 and scope 2 emissions by 2030,
while continuing to drive down scope 3 emissions
where possible.
Sustainability highlights in FY2022
Climate/Environment
Became a participant
in UN Global Compact
Diversity and Inclusion
Talent attraction,
growth and retention
Named Aggregator of
the Year in 2022 MFAA
awards and finalist in
Diversity and Inclusion
category
Finalist in 2022
MFAA Excellence
Awards, Professional
Development category
Commitment to be carbon neutral
in scope 1 and 2 emissions by
2030 and to drive down scope 3
emissions where possible
Met June 2022 target of minimum
40% women in management
positions (including KMP, senior
managers and other managers)
Launched permanent hybrid working
arrangements
Created prayer room at Perth head office,
enabling staff of all faiths to pray in private
and meet religious duties
Winner Australian Broking Awards
in Training & Education in 2021
and finalist again in 2022
Average length of service from employees -
5 years
Social
Governance
Extended partnership
with Foyer Foundation
for further three years
Continued donating to natural
disaster relief, this year focusing
on floods
Expanded number of internal mental health
first aiders and expanded Employee Assistance
Program to brokers
Expanded board
members and
increased female
representation
37.5% of directors are female (as
at 31 July 2022)
Code of conduct and full suite of governance
policies in place compliant with the 4th Edition
of the ASX Corporate Governance Council’s
Principles and Recommendations. Issued
second Modern Slavery Statement
AFG ANNUAL REPORT 2022 SUSTAINABILITY AT AFG
15
🌱︁ Environment
Our own emissions
AFG is dedicated to being part of the solution to a
changing climate.
To reduce our paper use, we have implemented access to paperless
documents across loan processing and administrative tasks.
Our recently-formed Green Team will introduce an office wide
recycling and waste reduction program in the Perth head
office and will evaluate our procurement to ensure sustainable
consumable options.
To understand our impact on the environment (our ‘climate
footprint’), our greenhouse gas (‘GHG’) emissions have been
measured by independent consultant Carbon Neutral Pty Ltd. The
FY2022 analysis marks our second year of measurement.
Scope 1, 2 and 3 GHG emissions in AFG’s operations and value
chain have been included in the analysis for the year 1 July 2021 to
30 June 2022.
This team will also support AFG’s bid to raise awareness about
sustainability and is responsible for putting in place a series of
climate-focused events, including a community tree planting day.
AFG operates out of leased offices which limits measures such
as the installation of solar panels. However, we look to ensure
our energy use is as efficient as possible with timed lights and
carefully tuned air conditioning systems.
Emissions from brokers and lenders utilising AFG products
and services are outside the boundary of the carbon footprint
assessment. Emissions associated with facilities or projects
financed by AFG are excluded.
The analysis estimated our business had gross GHG emissions of
982.7 tonnes of carbon dioxide equivalent (t CO2-e) for FY2022.
This marked an increase on our gross FY2021 GHG emissions of
880.7 t CO2-e.
Our FY2022 net GHG emissions – after allowances for the use of
carbon neutral products and services – was estimated at 674.9 t
CO2-e for the FY22 period.
Gross Emissions
Scope 1
Scope 2
Scope 3
Total
FY2021
FY2022
FY2021
t CO2-e
1.17
98.88
780.63
880.68
Staff *
224
277 *
*staff surveyed in April 2022.
FY2022
t CO2-e
0.7
97.6
884.4
982.8
Emissions per
employee (gross)
3.9t Co2-e
3.5t Co2-e
A key reason for the increased GHG emissions in FY2022 is the
resumption of travel as a consequence of transitioning back to
normal business activities following the interruptions caused by the
COVID 19 pandemic.
An increase in emissions from staff commuting also increased,
partially due to a 19 per cent increase in staff numbers between the
two measurement dates.
In FY2022 a new category of measurement also emerged –
upstream leased assets. This new category was associated with
the use of a temporary office in Victoria in April and May 2022
whilst a new Victorian office was being sourced.
AFG is actively looking to identify and reduce carbon emissions,
and during FY2022 we started taking action in this regard.
Included was the introduction of a hybrid work policy, enabling staff
to work from home for up to two days per week, depending upon
the operating model of their departments.
Our head office in Perth, where most staff are based, has
received a five-star NABERS energy rating – considered “excellent
performance”.
Our new proposed Melbourne office has also received a five-star
NABERS energy rating while our Sydney office has four stars. Our
Brisbane office is in the process of being evaluated, while our
Adelaide office is yet to be assessed.
We also focus on reducing business travel where possible through
the use of virtual meeting technology, and from FY2023 will offset
flights and hotel accommodation through a GHG offset program.
AFG will continue to look for ways to continuously reduce its
impact on the environment, considering even the smallest changes
will make a difference.
Breakdown of GHG emissions by activity (t CO2-e)
1,000
800
600
400
200
0
FY 2021
Vehicle fuel consumption
Electricity use
FY 2022
Purchased goods & services
Employee commuting
Business travel
Upstream leased assets
Waste
Indirect fuel & electricity use
AFG ANNUAL REPORT 2022 16
SUSTAINABILITY AT AFG
Impact on business
We recognise the serious threats resulting from a changing climate
and consider the risks this presents to our business.
Adverse events resulting from climate change, in particular floods,
fires and drought, affect the ability of customers to repay loans,
potentially leading to higher defaults and delinquency.
Therefore, since October 2021 we have been integrating climate
change into our risk management framework.
On a monthly basis we prepare detailed reports on climate risk,
utilising the National Disaster Risk Framework. This data forms an
important part of AFG Securities’ business credit risk metrics.
AFG has also identified 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.
We are aware there is also reputational risk to our business if we
fail to adapt to climate change.
Conversely, there are also opportunities if we proactively address
the challenges.
We will continue to highlight the sustainable partners we
are working with and will seek opportunities to partner with
organisations that are taking an active lead in addressing the
challenges of climate change.
🗪︁ Social
Partnerships and community
AFG is committed to managing social risks and contributing to the
community.
Foyer Foundation
One of the social issues close to our hearts is that of homelessness
and disadvantage. In June 2021, we became a Principal Partner of
Foyer Foundation, an independent charitable organisation that works
with young Australians at-risk of, or experiencing, homelessness.
In May 2022 AFG and Foyer Foundation agreed to extend that
partnership for a further three years.
As a result of this agreement, AFG will provide $600,000 in funding
to the Foyer Foundation over 36 months, building on our initial
$200,000 sponsorship.
A key part of our sponsorship with Foyer Foundation is the AFG
Independence Fund, enabling up to $1,000 grants to young persons
who are Foyer residents to buy much needed resources to help
their education or employment, such as laptop computers, tools or
driving lessons.
We are proud that by partnering with Foyer Foundation, we are
supporting a program that helps young people with the foundation
and security to enable meaningful study or work, and to take their
place in the community.
Community
AFG also continues to support those people, businesses and
communities affected by natural disasters. Following on from
donations made for fire relief in 2021, in 2022 AFG and its staff
members donated to help people affected by the recent floods in
Queensland and New South Wales.
As part of our commitment to our customers, we provided tailored
solutions to our AFG Securities customers experiencing hardship
due to the 2022 flooding.
Options included payment deferral or the ability to move to interest
only payments. Fortunately, only a small number of customers
needed these solutions and we are happy to provide ongoing
support.
Supporting financial literacy is also important, and AFG is now
in the 24th year of sponsoring the AFG Interschool Numero®
Challenge. Numero is an educational maths game designed to
improve mental maths, with teams of primary school students
competing against each other at an interschool level.
Helping underserved
An area of focus for our AFG Securities business is providing
access to those currently under-served in the lending market.
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.
Consequently, the self-employed, sole-traders, part-time (often
younger) workers with multiple income sources, borrowers who
have suffered a one-off life event that impacted their credit score,
and recent migrants, can be disadvantaged.
AFG Securities employs a manual, “traditional” approach to credit
assessment, focusing on the individual borrower.
By maintaining an approach that focuses on a personalised,
circumstances-sensitive assessment model, AFG Securities
supports borrowers whose needs may not be met by the broader
banking sector.
Diversity and Inclusion
AFG champions a diverse and inclusive culture, where all are
welcomed and recognised for their unique ability and identity.
We believe that when people from different backgrounds and
points of view work together, it creates and generates more
ideas and perspectives, leading to greater innovation and better
business performance.
To help frame our approach, we conduct an employee survey every
year to gather information and feedback. Diversity and Inclusion
objectives are in place to continuously improve on AFG’s work
environment - and we are making good progress against these
metrics.
Gender equality is an important driver across our business, which
operates in a traditionally male-dominated industry.
In addition to having strong female representation on our Board
(37.5 per cent of Board members are women), AFG is pleased to
report it has met its 2022 target of achieving a minimum of 40
per cent of women in management positions (figures as at 31
July, 2022).
We have now set a new target of a minimum 45 per cent women in
management positions by 2025 (including KMP, senior managers
and other managers), with increased year-on-year representation.
As part of our efforts to encourage senior female leadership, the
AFG Women in Leadership mentor program, launched March 2021,
provides positive development opportunities for both mentors and
the staff they are supporting.
AFG ANNUAL REPORT 2022 SUSTAINABILITY AT AFG
Our Industry
17
More broadly, AFG is committed to equality across the mortgage broking industry and championing the important role women play.
Our AFG Winning Women program seeks to empower female brokers to connect, grow and celebrate their achievements through initiatives,
including a scholarship, state-based events, the provision of coaching courses, and mentoring opportunities with highly successful female
brokers from the AFG network.
From this program, five women each year are awarded Winning Women Scholarships to take part in our AFG Academy program. AFG Academy,
delivered by Harvard University professors is an annual custom-designed three-day course made available to AFG’s top performing brokers, is
designed to provide best-in-class business strategies.
During 2022 we became a corporate member of Women in Technology WA (‘WiTWA’), which has the goal of creating more opportunities and
actively improving the under-representation of women in the technology sector.
Cultural Diversity
Efforts to develop cultural awareness across AFG have also proven a success, with 92 per cent of respondents agreeing in our 2022 Employee
Survey that AFG supports cultural diversity.
Whilst not subject to compulsory reporting, we conduct an ethnicity survey, to gain a better understanding of the cultural and ethnic makeup of
AFG and to provide ourselves with the insight needed to develop initiatives and policies that encourage a supportive and welcoming environment
to people coming from diverse backgrounds.
Among new initiatives to support cultural diversity, AFG has established a prayer room at head office. By converting a small meeting room for
two hours a day, employees of all faiths are able to pray in private and meet religious duties with minimal disruption to work commitments.
While we support certain events such as Pride Month in June, we make equality, diversity and inclusivity a priority year-round by encouraging
all employees to bring their whole selves to work and through supporting efforts to raise awareness for the struggles faced by the LGBTQIA+
community.
Objective
Result /status
Achieve a minimum of 40% women in management positions
(including KMP, senior managers and other managers) by 2022 with
increased year on year representation.
Continue to develop cultural awareness across AFG ensuring our
workforce reflects the diverse Australian population, demonstrated
by a positive cultural diversity score of at least 80% in our annual
employee survey.
40% target was achieved in June 2022. A new target of 45% women
by June 2025 has been set.
AFG achieved a positive score of 92% against its diversity index
(5 questions).
Maintain workplace diversity as one of the top three performing
areas of our employee pulse surveys.
The diversity index (5 questions) was the highest scoring category
in the June 2022 Employee Engagement survey.
Continue training and awareness programs to ensure employees
maintain and uphold AFG’s acceptable and expected behaviors and
diversity and inclusion values in the workplace
The Diversity and Inclusion Committee continues to deliver a
quarterly program of training and awareness initiatives. Mental
health was a key focus of the committee, in response to challenges
caused by COVID-19 and lockdowns.
Maintain no less than 30% of each gender in the composition of
AFG’s Board of Directors.
Our board comprises 37.5% female representation (as at 31 July,
2022)
We recognise the valuable role our staff play and invest in training and development. During FY2022, staff training was extended to all staff.
Healthy Workplace
Health and well being, including mental health, of our people is another priority.
Mental health has come to the forefront, particularly in light of the COVID 19 pandemic.
A survey of staff affected by prolonged lockdowns in NSW and Victoria determined they were feeling the strain, and there were potential
impacts to their mental health. As a result, AFG introduced and encouraged “mental health days” – one paid day off per month for those in
lockdown. We also introduced fortnightly virtual ‘all staff’ meetings hosted by our CEO to ensure all felt connected and had direct access to
business leaders across the country, and a weekly all staff virtual social event at the end of the week to ensure those in isolation could spend
time with their colleagues. Feedback has affirmed these initiatives are valued by staff and they have continued beyond lockdowns.
We also identified the need to increase the number of mental health first aiders – people across the business who have the skills and are
a point of contact for those experiencing mental health issues or emotional distress. We now have eight trained mental health first aiders
across the business, including four in WA and one in each office in other states.
The AFG Employee Assistance Program has operated for several years, offering staff access to a national network of professional mental
health specialists for support if required. In August 2021, the program was extended to offer support to our broker network.
AFG ANNUAL REPORT 2022 18
SUSTAINABILITY AT AFG
In addition, we are active in supporting staff against domestic
violence, appointing a support ambassador, and hosting staff
presentations on the topic by clinical psychologists.
We are 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.
A presentation, to mark White Ribbon Day in November 2021,
covered the impact of domestic abuse, what to do at high-risk
times (like Christmas and in extraordinary circumstances such as
lockdowns caused by the COVID 19 pandemic), what to look for,
and how staff can provide support to those impacted.
Other initiaties to support our staff include annual influenza
vaccination clinics and the ongoing free supply of fresh fruit.
Team buidling and social events are a regular feature on our
calendar, and we participate in community events, such as donating
towards the “It’s in the Bag” campaign, which collates essential
personal items for women at Christmas time.
We are confident that AFG provides a welcoming, engaging and
rewarding work environment. Although we have taken on many
new staff members during FY2022 and the “Great Resignation” is
making headlines – our average staff tenure is 5 years.
What our staff say
🗪︁ “Work culture, best I’ve ever experienced. AFG should be proud
at how well they treat, encourage and look after their staff.”
AFG 2022 Employee Survey
🗪︁ “AFG does well in looking after it’s people and trying to build a
diverse, inclusive environment.”
AFG 2022 Employee Survey
🗪︁ “AFG has a great acceptance and respect for employees of
different faiths and cultural backgrounds.”
AFG 2022 Employee Survey
🏛︁ Governance
The board receives regular updates on a range of ESG issues,
including climate change, covering progress against our
commitments and goals, and any concerns raised by stakeholders.
During the year we strengthened our board by appointing two new
directors: Greg Medcraft and Annette King.
The new appointments mean AFG has eight directors, all
non-executive, including three women (37.5 per cent female
representation as at 31 July 2022).
In compliance with the ASX Corporate Governance Council’s
Principles and Recommendations (4th Edition), as at 31 July
2022 the majority of our board members (75 per cent) are
independent directors.
AFG operates under a code of conduct and there is a full suite of
human resource and governance policies, consistent with ASX 300
organisations.
Relevant policies include Workplace Health and Safety,
Discrimination, Bullying and Harassment, Grievance, Anti Bribery &
Corruption, and an annual Modern Slavery Statement. All staff are
required to familiarise themselves with these at induction and on an
ongoing basis.
Privacy and Security
We are committed to protecting our customers’ privacy and
consider information security a top priority.
AFG is bound by the Commonwealth Privacy Act 1988, and
personal information that we collect will be used only for the
purpose that a person has consented to provide that information to
AFG and its related entities, or as allowed by law.
AFG is also committed to safeguarding our customers and our
brokers’ customers’ personal information that we hold from
external threats and risks.
Measures to prevent, detect and respond to any cyber threats are
embedded across all systems and processes, and are a part of
every business interaction we have.
To support this, we partner with recognised industry cyber security
experts, whose work includes conducting regular risk reviews and
penetration and vulnerability testing.
All AFG staff undertake regular compulsory cyber security
awareness training and scenario testing.
We also provide training to our extensive network of brokers
to assist them to ensure the highest standards of personal
information protection are also upheld for their customers.
AFG will continue investing in our technology and people to ensure
an ongoing, robust and multi-layered strong defence to protect the
personal information of our brokers, and all stakeholders across
our supply chain.
Our sound governance, risk and compliance practices, employee
protections, and the support provided to our brokers and customers
creates a culture across AFG that delivers value to our stakeholders
and guides our interactions with customers, the industry and wider
community. We are already contemplating the potential impact of
International Climate Disclosure Accounting Standards.
AFG ANNUAL REPORT 2022 DIRECTORS’ REPORT
19
Directors’ Report
The Directors present their report together with the financial report on the consolidated entity consisting of
Australian Finance Group Ltd (‘the Company’ or ‘AFG’), and its controlled entities (‘the Group’), for the financial
year ended 30 June 2022 and the auditor’s report thereon.
Directors
The Directors and Company Secretary of the Company at any time
during or since the end of the financial year are:
Anthony (Tony) Gill
(Independent Non-Executive Chair)
Mr Gill has been the Chair 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 35
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 Pty Ltd (EPG), a
privately-owned company specialising in debt and equity funding
solutions for property developers, property development, mortgage
fund investments and other opportunities for sophisticated and
wholesale investors.
Malcolm Watkins
(Non-Executive Director)
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 Pty Ltd, a leading commercial property lender in
which AFG holds a 32.20% 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 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 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.
Melanie Kiely
(Independent Non-Executive Director)
Ms Kiely is an experienced Executive and Company Director with
over 30 years of experience in health care, financial services and
consulting in Australia, Europe and South Africa. Ms Kiely is also
currently a Non-Executive Director of AIA Health and the National
Disability Services (NDS) Australia. She is also CEO of MSWA. Prior
to this, she has held CEO and Executive roles with Good Sammy
Enterprises, Silver Chain, HBF Health Fund, nib health funds, MBF
and was an Associate Partner at global 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 Committee,
a member of the Audit Committee and a member of the Risk and
Compliance Committee.
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, Chair and Non-Executive Director of HealthDirect
Australia, and Non-Executive Director of Gold Corporation. 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.
AFG ANNUAL REPORT 2022 20
DIRECTORS’ REPORT
Greg Medcraft
(appointed 15 September 2021)
(Independent Non-Executive Director)
The first part of Mr Medcraft’s career was spent with accounting
firm KPMG before spending 26 years with Société Générale in
Australia, Asia, Europe and the Americas, and then as CEO of the
industry group, the Australian Securitisation Forum. At Société
Générale, Mr Medcraft initially worked on corporate finance, then
capital markets, structured finance, project finance and funds
management before becoming Deputy Global Head of Financial
Engineering, and then Managing Director and Global Head of
Securitisation. When based in New York, Mr Medcraft co-founded
the industry group, the American Securitization Forum, and was
Chairman for a number of years. From 2009, Mr Medcraft served
as Commissioner for 2 years and then 7 years as Chairman of
ASIC, the corporate and market regulator. In 2017, Mr Medcraft
moved to Paris as Director of the OECD’s Directorate of Financial
and Enterprise Affairs. He also serves as a director of the
Washington-based think tank Salzburg Global Seminar Inc, the
Digital Finance Centre for Research and Co-operation and London-
based industry group GBBC Digital Finance Ltd. He is a Senior
Board Advisor to London-based LendInvest Ltd and Washington-
based Infraclear Inc. Mr Medcraft holds a Bachelor of Commerce
from the University of Melbourne.
Annette King
(appointed 1 February 2022)
(Independent Non-Executive Director)
Ms King is an experienced company director, CEO and actuary,
with over 30 years’ experience in financial services across Asia-
Pacific. Prior to becoming a non-executive director, Ms King had
a successful track record as a CEO, CFO and CMO of significant
financial institutions, as well as being a founder/entrepreneur. Ms
King has served large multi-national companies (Swiss Re, AXA,
Manulife, Mercer, MLC Super) and fintech companies (FNZ, Galileo
Platforms). Her focus is on business growth through differentiated
client experience, organizational culture and innovation via digital
and technology enablement. Ms King serves on the boards of
Swiss Re, U Ethical Investors, Galileo Platforms and is President
and chair of the Actuaries Institute. She was previously President
of the Life Insurance Association of Singapore. She is a Fellow
of the Australian Institute of Company Directors, has a Bachelor
of Economics from Macquarie University, and is a Fellow of the
Actuaries Institute of Australia.
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.
Company Secretary
Lisa Bevan (Company Secretary)
Ms Bevan joined AFG in 1998 and was appointed to the position of
Company Secretary in 2001. Ms Bevan is a Chartered Accountant,
holds a Bachelor of Commerce degree and has a Diploma of
Corporate Governance from the Governance Institute of Australia.
Ms Bevan is responsible for managing AFG’s secretariat,
governance and ASX requirements. Ms Bevan also oversees the
legal and human resources functions of the Company.
Interests in the shares and rights of the Company
As at the date of this report, the interests of the Directors in the
shares of the Group were:
Director
Tony Gill
Brett McKeon
Malcolm Watkins
Craig Carter
Melanie Kiely
Jane Muirsmith
Greg Medcraft
Annette King
Number of
ordinary shares
Number of rights
over ordinary shares
1,239,546
16,332,632
16,515,594
1,400,000
89,376
126,819
60,000
60,000
-
-
45,265
-
-
-
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.
AFG ANNUAL REPORT 2022 “I work with many brokers, some for
more than 7 years. Great customer
experience is not something that’s
delivered in one interaction, it’s built
on consistently over time.”
Melissa – AFG Revenue Team
22
Dividends
DIRECTORS’ REPORT
Total dividends paid during the financial year ended 30 June 2022 were $38,755k (2021: $28,449k), which included:
• A final fully franked ordinary dividend of $19,916k (7.4 cents per fully paid share) was declared out of profits of the Company for 2021 and
paid on 23 September 2021.
• An interim fully franked ordinary dividend of $18,839k (7.0 cents per fully paid share) was declared out of profits of the Company for 2022
and paid on 24 March 2022.
A final fully franked ordinary dividend of $25,836k (9.6 cents per fully paid share) has been declared out of profits of the Company for the
financial year ended 30 June 2022 and is to be paid on 22 September 2022.
Principal activities
The Group’s principal activities in the course of the financial year continued to be:
• Mortgage origination and management of home loans, consumer asset finance and commercial loans; and
• Distribution of own branded home loan products, funded through its established residential mortgage backed securities (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
Review of operations
Normalised net profit for the year ended 30 June 2022 after tax and before amortization and excluding significant items attributable to
equity holders was $61,310k, which is 19.5% above the prior period (2021: $51,304k). Revenue from operating activities was up 24.4% to
$928,980k (2021: $747,043k).
For the year ended 30 June 2022 the Group recorded a net profit after tax attributable to equity holders of $38,777k, which is 24.4% below
the prior period (2021: $51,304k).
The Group recognised a $6.3M (after tax) partial impairment of past capitalised expenditure relating to elements of the technology platform
and a $15M impairment from Volt Bank’s recently announced cessation of its banking licence, bringing total impairments in FY2022 to
approximately $21.3M (after tax).
The increase in profit was attributable to the following:
• AFG Securities (AFGS) loan book growing by 41% to $4.79B (2021: $3.39B);
• AFG Securities settlements increasing 102% to $2.72B (2021: $1.35B);
• Increased residential settlements of 36% to $59.39B (2021: $43.63B);
• Increased AFGHL settlements of 62% to $5.59B (2021: $3.45B);
• Increased Commercial settlements of 67% to $3.89B (2021: $2.32B); and
• Thinktank contribution to profit $6,120k up 16.1% (2021: $5,271k).
Net cashflows from operating activities decreased 11.4% to $51,903k (2021: $58,602k). This was mainly due to a tax refund due in FY23
which when received will normalise operating cashflows. Adjusting for the underlying NPATA excluding significant items converted to
operating cashflows at over 95%.
The increased AFGS loan book provides a solid platform to generate further ongoing cashflow and earnings in future years. AFG continues to
generate strong cash flows and this will provide a platform for AFG to continue to invest to generate future growth.
During the year ended 30 June 2022, AFGS (wholly owned subsidiary of Australian Finance Group Ltd ) successfully priced three Residential
Mortgage-Backed Securities (RMBS) issuances:
• A$500M RMBS issue in October 2021;
• A$450M Non-conforming RMBS issue in February 2022; and
• A$750M RMBS issue in March 2022.
The Group has considered the impact of COVID-19 and other market volatility in preparing the financial statements. The 30 June results
include a provision for Expected Credit Losses (ECL). Recoveries in COVID hardship cases, property price performances and relatively low
unemployment have been considered in the ECL model which has seen the provision reduce at 30 June 2022 to $2,877k (2021: $3,272k).
AFG ANNUAL REPORT 2022 DIRECTORS’ REPORT
23
Impairment charges are discussed further in Note 29 of the 2022 Annual Report. Changes to the estimates and outcomes that have been
applied in the measurement of the Group’s assets and liabilities may arise in the future.
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 NPATA from continuing operations
excluding significant items
Change in the carrying value of trailing
commissions contract asset and payable
Normalised NPATA from continuing operations
excluding significant items
30 June 2022
Operating
income
Profit
after tax
Operating
income
30 June 2021
Profit
after tax
832,668
55,755
671,029
49,586
96,312
5,555
76,014
1,718
928,980
61,310
747,043
51,304
The following table reconciles NPATA to the reported profit after tax for the period in accordance with Australian Accounting Standards:
In thousands of AUD
30 June 2022
30 June 2021
Net profit after tax for the period attributable to equity holders
Amortisation of acquired intangible assets
NPATA
38,777
1,181
39,958
51,304
-
51,304
“Trust, accountability and
working together with brokers
ensures that we achieve the
best outcome for Australian
homebuyers.”
Hayden – AFG Home Loans
AFG ANNUAL REPORT 2022 24
DIRECTORS’ REPORT
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.
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.
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.
Share options
There were no options issued or exercised during the financial year
(2021: Nil).
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 29 July 2022, the CBA warehouse facility capacity limit was
increased by $535M and on 1 August 2022, the ANZ warehouse
facility capacity limit was increased by $250M.
On 25 August 2022, the Directors recommended the payment of
a dividend of 9.6 cents per fully paid ordinary share, fully franked
based on tax paid at 30%. The dividend has a record date of 6
September 2022 and a payment date of 22 September 2022. The
aggregate amount of the proposed dividend expected to be paid
out of retained earnings at 30 June 2022 is $25,836k. The financial
effect of this dividend has not been brought to account in the
financial statements for the year ended 30 June 2022.
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 financial year.
“I love the diversity
this role brings. No
brokerage is identical,
and everyone is at
different stages of their
journey. It always keeps
me on my toes.”
Maria - AFG Events
AFG ANNUAL REPORT 2022 DIRECTORS’ REPORT
Directors’ meetings
25
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 12 times during the year. 11 meetings were main meetings, and 1 meeting was 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.
Director’s Board Meetings
Tony Gill
Brett McKeon
Malcolm Watkins
Craig Carter
Melanie Kiely
Jane Muirsmith
Greg Medcraft
Annette King
Committee membership
Main Meetings
Held
Main Meetings
Attended
Special Meetings
Held
Special Meetings
Attended
11
11
11
11
11
11
9
5
11
11
10
11
11
11
9
5
1
1
1
1
1
1
1
0
1
1
1
1
1
1
1
0
As at the date of this report the Company had an Audit Committee, Remuneration and Nomination Committee, a Risk and Compliance
Committee and a Technology and Data Committee.
Members acting on the Committees of the Board during the year were:
Audit
Craig Carter (C)
Melanie Kiely
Jane Muirsmith3
Greg Medcraft
Annette King
Remuneration and Nomination
Risk and Compliance
Technology and Data2
Melanie Kiely (C)
Craig Carter
Jane Muirsmith
Greg Medcraft
Annette King
Jane Muirsmith (C) 1
Craig Carter
Melanie Kiely
Greg Medcraft (c)1
Annette King
Jane Muirsmith (C)
Annette King
Malcolm Watkins
1. Jane Muirsmith was the Chair of the Risk and Compliance Committee during the period of 01 July 2021 – 31 July 2022. Greg Medcraft assumed the role of Chair
of the Risk and Compliance Committee on 1 August 2022
2. The Technology and Data Committee was established by the Board on 1 August 2022.
3. Jane Muirsmith stepped down from membership of the Audit Committee effective 1 August 2022.
Notes
(C) designates the Chair of the Committee
AFG ANNUAL REPORT 2022 26
DIRECTORS’ REPORT
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
Craig Carter
Melanie Kiely
Jane Muirsmith
Greg Medcraft
Annette King
Audit
Remuneration and Nomination
Risk and Compliance
Maximum
Possible
Meetings
Attended
Maximum
Possible
Meetings
Attended
Maximum
Possible
Meetings
Attended
5
5
5
4
2
5
5
5
4
2
5
5
5
4
3
5
5
5
4
3
5
5
5
4
2
5
5
5
4
2
The Technology and Data Committee was established by the Board on 1 August 2022. There were no meetings of this Committee held during
the year to the date of this report.
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 37 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 did
not receive or is due to receive any amounts for the provision of non-audit services.
Auditor’s independence declaration
The auditor’s independence declaration is included on page 42 of this financial report for the year ended 30 June 2022. This report is made in
accordance with a resolution of the Directors.
AFG ANNUAL REPORT 2022 DIRECTORS’ REPORT
27
Remuneration Report
Dear Shareholder,
On behalf of the Board, I am pleased to present AFG’s Remuneration Report for FY22.
In line with our approach since listing, the AFG Board remains committed to an Executive Remuneration structure that aligns performance and
key person retention with shareholder returns in the short and longer term.
Critically, good conduct, adherence to responsible lending obligations and ensuring positive customer outcomes remains a pre-condition as
an effective eligibility ‘gateway’ to any incentive payment.
In setting our remuneration structure and targets, we value and seek the feedback of our shareholders, stakeholders and proxy advisors.
Over time, we have incorporated this feedback into our revisions of the Executive Remuneration framework. Equally, we strive to adapt our
remuneration to the economic environment to ensure our executives aren’t benefiting or being disadvantaged by pressures out of their control.
This was evidenced during the last 2 years of COVID-19 related pressures.
In line with this, for FY22, we returned to a structure more aligned with pre-COVID times. The modifications made to the Group’s Short-Term
Incentive (STI) and Long-Term Incentive (LTI) structures for FY22 were as follows:
• Reverted to a STI award with 50% NPAT and 50% strategic targets. FY21 was 100% NPAT. Importantly, in FY22 NPAT remained as a gate
opener (80%) for the payment of strategic targets as did conduct.
• With respect to the LTI, due to the difficulty in forecasting longer term earnings results as a consequence of the unknown impact of
COVID-19, a greater weighting of the LTI award was allocated to Total Shareholder Return (TSR). Historically, the split of the dollar value of
an executive’s LTI award has been 65% Earnings Per Share (EPS) and 35% TSR. In FY21 this changed to 65% TSR and 35% EPS. The TSR
target continues to include a positive absolute TSR and conduct gateways for payment to occur.
For FY23, as we continue to look to align our remuneration framework with the economic outlook, shareholder expectations and the
employment market , the following modifications have been made to the remuneration structure:
• LTI targets will move to an even weighting between TSR and EPS to reflect the more stable environment.
• EPS targets will increase from 5% to 7.5% with the gateway increasing from 2.5% to 5% reflecting our outlook.
FY22 Performance & remuneration outcomes summary
Looking back over FY22, the results and the commensurate remuneration reflects a good year for shareholders:
• Excluding one-off items, the Group delivered another record result in FY22, with continued strong growth in the AFG Securities business,
residential aggregation business and contributions from our investments in Thinktank and Fintelligence. The business achieved normalised
NPATA of $61.3m, representing growth of 20% from $51.3 million in FY21 and representing EPS Compound Annual Growth Rate (CAGR) of
14% since FY19.
• Over the TSR LTI performance period of 1 July 2019 to 1 July 2022, AFG has delivered TSR performance at the 69th and 62nd percentile of
the Diversified Financials and Small Industrials Indexes respectively. It is worth noting that this was when the financial sector more broadly
and particularly non-bank lenders suffered from poor market sentiment in the second half of FY22.
• Residential volumes were up 36% to a record $59.4 billion over the year and the AFG Securities loan book grew strongly to be $4.8 billion, up
41% on 30 June 2021.
• The number of active brokers grew during the year, up from 3,525+ at 31 December to 3,700+ (including Fintelligence).
• These strong results will drive an increased final dividend of 9.6 cents per share. When combined with the interim dividend this represents
a yield of 9% (share price at 3 August 2022). A 5-year history of AFG’s NPATA, Residential, AFGHL and AFG Securities’ loan books, AFG
Securities Settlements, Return on Equity (ROE) and Dividends is provided below:
AFG ANNUAL REPORT 2022 28
DIRECTORS’ REPORT
Normalised NPATA
MILLIONS
Normalised ROE
0
$10
$20
$30
$40
$50
$60
$70
0%
5%
10%
15% 20% 25% 30% 35% 40%
FY18
FY19
FY20
FY21
FY22
FY18
FY19
FY20
FY21
FY22
Dividends (cents per share)
Residential Loan Book
BILLIONS
0
5
10
15
20
25
0
$20
$40 $60 $80 $100 $120 $140 $160 $180 $200
FY18
FY19
FY20
FY21
FY22
Interim
Final
Special
FY18
FY19
FY20
FY21
FY22
AFG Home Loans Portfolio
AFGS Home Loans Settlements
BILLIONS
$8
$6
BILLIONS
$3
$4
$5
$6
$10
$12
$14
0
$1
$2
FY18
FY19
FY20
FY21
FY22
AFG Securities Settlements
BILLIONS
$1.5
AFG Securities Loan Book
BILLIONS
$2
$2.5
$3
0
$0.5
$1.0
$1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0
FY18
FY19
FY20
FY21
FY22
0
$2
$4
FY18
FY19
FY20
FY21
FY22
0
$0.5
$1
FY18
FY19
FY20
FY21
FY22
AFG ANNUAL REPORT 2022 DIRECTORS’ REPORT
29
In line with this performance, the key remuneration outcomes as
recommended by the Board and which are detailed further in the
Remuneration Report include:
• Total FY22 STI NPAT payments made at 101%, notwithstanding
the record normalised NPATA of $61.3m which would have
resulted in a payment of 112.5%. This outcome reflects the
partial write-down of $6.35m (after tax) of core AFG technology
assets. Resulting in normalised NPATA of $61.3m being reduced
to $54.95m for assessment purposes. While further progress has
been made in the Group’s IT development programme and a clear
path forward has been established, the required targets have not
been met and as such the entire technology STI award for that
KPI (20%) has been forfeited. The amounts retained from the
COO and CEO’s FY21 award have also now been forfeited.
• It is worth noting AFG’s investment in Volt Corporation Ltd
(Volt) was fully written down following the handing back of their
banking license. The Board used its discretion to exclude the Volt
impairment from the STI assessment given that AFG had met
all due diligence and execution requirements with the end result
outside the control of our KMP’s.
• For FY22 LTI payments, the gateway was calculated using
the same rationale as for STI, with the technology write-down
included and the Volt impairment excluded. As a result:
• performance rights associated with TSR targets vested
at 88% (Diversified Financials – 69th percentile) and 74%
(Small Industrials – 62nd percentile).
• Normalised NPATA including the technology write-down but
excluding the Volt write-down (delivered an EPS CAGR of
9.9%, above the stretch target of 7.5%).
• Both of these would have resulted in shares vesting at 150% for
EPS in this scenario. However, the Board did not feel this was
appropriate given the write-downs and as such has elected to
use its discretion to reduce the overall LTI award (including TSR)
allocated to KMP by 25%.
We are pleased with the outcome for our executive team as,
notwithstanding one-off impacts to the FY22 results which have
not impacted dividend policy or growth prospects, it reflects the
excellent business performance over the past three financial years
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. It is worth
noting that in FY17 the AFG Board applied discretion in a consistent
manner, when the AFG Home Loans white label trail book was first
recognised as an asset and the large profit uplift that resulted was
excluded from the STI NPAT assessment to ensure there was not
a windfall gain from a one-off item. We will continue to ensure our
discretion aligns with the impact on shareholders and items within
the control of our executive team.
We continue to believe the Group’s remuneration structure delivers
outcomes that reflect an appropriate balance between shareholder
returns and the ability to attract, retain and incentivise a high
performing management team. We recognise that the economic
environment is continuing to change, and remuneration practices
are continually evolving and as such we will continue to review and
improve our remuneration structures into the future.
With regard to Board succession planning in line with our strategy,
we have added Greg Medcraft and Annette King to the Board, who
bring strong securitization skills and financial skills respectively
to the Board. We continue to focus on renewal for the future and
building the skills required to support the future strategy.
As I will be standing down at the 2022 AGM after over six years
chairing the Remuneration & Nomination Committee, I have been
working closely with Annette King who will take over as Chair,
to ensure a smooth handover. I look forward to seeing how the
Committee and the Board of AFG continue to evolve in line with the
strategy of the business and expectations of shareholders.
Further detail on these remuneration results is provided in section 3
of the annual report. These results, fittingly reflect the outcomes of
a very successful year for AFG and I applaud management for their
hard work and contribution.
Melanie Kiely
Chair, Remuneration & Nomination Committee
AFG ANNUAL REPORT 2022 30
DIRECTORS’ REPORT
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
Greg Medcraft
Annette King
Non-Executive Chair
Appointed 28 August 2008
14 years
Non-Executive Director
Appointed 25 March 2015
7 years
Non-Executive Director
Appointed 31 March 2016
6 years
Non-Executive Director
Appointed 31 March 2016
6 years
Non-Executive Director
Transitioned 1 July 2019
26 years
Non-Executive Director
Appointed 15 September 2021
Non-Executive Director
Appointed 1 February 2022
1 year
1 year
Malcolm Watkins5
Non-Executive Director
Transitioned 1 July 2022
25 years
Executives
David Bailey
Lisa Bevan
Ben Jenkins6
John Sanger7
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.
(5) Malcolm Watkins was appointed to the Board 8 December 1997 and transitioned to Non-Executive Director effective 1 July 2022
Other than Brett McKeon, all Non-Executive Directors listed above are Independent Directors.
The average tenure for the AFG Board is 13 years.
(6) Ben Jenkins resigned 12 August 2022.
(7) John Sanger resigned 22 December 2021.
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.
AFG ANNUAL REPORT 2022 DIRECTORS’ REPORT
31
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
Fixed annual
remuneration
(FAR)
Comprises
base salary,
superannuation
contributions and
other benefits
Key roles and responsibilities as set out in the individual’s employment
contract and position description.
Strategic objective/performance link
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
Group Financial Measures FY22:
Short-term
incentive (STI)
Paid in cash
50% allocation to NPAT, 30% to AFGS book growth and 20% to KPI’s
linked to broker technology project.
Group Financial Measures FY23:
Rewards Executives for their contribution
to achievement of Group outcome and
the achievement of strategically relevant
KPI targets in the given financial year.
50% allocation to NPAT, 25% to AFGS book growth and 25% to KPI’s
linked to broker technology project.
Long-term
incentive (LTI)
Awards are made
in the form of
performance rights
FY22 grant:
• 35% of a KMP’s entitlement allocated to a 3-year CAGR EPS target.
• 65% of a KMP’s entitlement 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.
FY23 grant:
• 50% of a KMP’s entitlement allocated to a 3-year CAGR EPS target.
• 50% of a KMP’s entitlement 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.
Ensures a strong link to the long-term
creation of shareholder value.
• CAGR EPS was chosen as a
performance hurdle as it is:
• A key indicator of the creation
and growth in shareholder value
over the long term.
• Provides a reliable measurement
of the creation of shareholder
value, and was 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.
AFG ANNUAL REPORT 2022 32
DIRECTORS’ REPORT
3.1
Executive remuneration outcomes
STI award outcomes FY22
The combined cash bonus pool available to be paid to the Executives for on target performance in the 2022 financial year was $572,890 and
the minimum is nil. For the 2022 financial year, as noted above the target STI NPAT bonus amount was measured including the impact of the
technology impairment but excluding the impact of the Volt Impairment. This resulted in an overall STI achievement by the Executives who
were employed for the full year of 82% as outlined below. In FY21, the technology measure for the Group’s COO that was deferred along with
20% of the CEO’s original STI entitlement pending completion of certain project milestones. During FY22, these amounts were forfeited.
Target
NPATA (50%)
AFGS Book Growth
Technology Measure
Total
FY21 000’s
$51,304
$3,393,462
FY22 000’s
$54,958
Growth/ Performance
7%
$4,785,983
41%
Not achieved
Payment
101%
106%
Nil
82%
Target STI
opportunity
As a % of fixed
remuneration
STI outcome
% Achieved
% Retained
% Forfeited
D. Bailey
M. Watkins
L. Bevan1
B. Jenkins
J. Sanger2
Total
$240,500
$23,000
$89,890
$105,000
$114,500
$572,890
40%
17%
33%
34%
22%
$197,488
$18,887
$73,814
$86,221
$44,822
$421,232
82%
82%
82%
82%
39%
0%
0%
0%
0%
0%
18%
18%
18%
18%
61%
1. L. Bevan is employed on a part time basis 4 days per week.
2. J. Sanger resigned 22 December 2021
LTI award outcomes FY22
For the 2022 financial year, 89% of the target LTI bonus (granted in FY20) was awarded to Executives as outlined below. This is inclusive of
the technology impairment and following the exercise of board discretion, also includes a 25% reduction in the calculated award to reflect the
impairment of Volt.
Measure
CAGR EPS
TSR Small Industrials
TRS Diversified Industrials
Performance Rights
D. Bailey
M. Watkins
L. Bevan
B. Jenkins
J. Sanger
Total
Target
7.5%
Achieved
% Achieved
9.9%
75th Percentile
95th Percentile
75th Percentile
90th Percentile
95%
74.2%
88.4%
Target LTI
opportunity
531,894
17,108
166,338
170,661
185,831
1,071,832
LTI outcome
% Achieved
% Forfeited1
473,447
15,229
148,061
151,909
133,518
922,164
89%
89%
89%
89%
72%
86%
11%
11%
11%
11%
28%
1. Forfeiture due to TSR hurdles not passing are still fully expensed as at 30 June 2022
Fixed annual remuneration
3.2
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).
AFG ANNUAL REPORT 2022 DIRECTORS’ REPORT
33
STI plan
3.3
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
The STI available to each Executive is set at a level based on role, responsibilities and market data for the
achievement of stretch targets against specific KPIs. The target STI opportunity for each Executive in FY22 is
listed in section 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.
Link between
performance and reward
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 FY23 50% of the STI target for all KMPs will be allocated to
NPAT, 25% to AFGS book growth and 25% to KPI’s linked to the broker technology project.
Assessment of
performance
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.
The Board reviews and approves the performance assessment and STI payments for the CEO and all other
Executives. The Board has a broad discretion to apply qualitative factors such as risk (including non-financial
risk), reputation, conduct, leadership kills and values to the assessment of performance achievements for an
Executive.
Payment method
STI payments are delivered as cash.
FY23 STI opportunity
3.4
Offers to participate in STI awards for the 2023 financial year 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 (25%) and to the KPI’s
linked to the broker technology project (25%) 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.
The LTI plan – 2021, 2022 and 2023 Grants
3.5
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.
Instrument
Performance rights to acquire ordinary AFG shares
Performance rights to acquire ordinary AFG shares
2021 & 2022 LTI Grant
2023 LTI Grant
Quantum
Grant date
35% of an Executive’s annual LTI entitlement weighted
to an EPS target
50% of an Executive’s annual LTI entitlement weighted
to an EPS target
65% of an Executive’s annual LTI entitlement weighted
to relative TSR targets
50% of an Executive’s annual LTI entitlement weighted
to relative TSR targets
1 July 2020 & 2021 other than those approved at the
2020 AGM and those subject to approval at the 2021
AGM.
1 July 2022 & 2021 other than those subject to
approval at the 2022 AGM.
AFG ANNUAL REPORT 2022 34
DIRECTORS’ REPORT
Grant date
fair value
Gateway
performance
measure
2021 & 2022 LTI Grant
2023 LTI Grant
TSR Small Industrials Index 2021 $1.153; 2022 $1.910.
TSR Diversified Financials Index 2021 $1.149; 2022
$1.770.
TSR Small Industrials Index 2023 $0.800.
TSR Diversified Financials Index 2023 $0.820.
EPS $2.795 (being the 20-day Volume Weighted
Average Price leading up to 30 June 2021)
EPS $1.796 (being the 20-day Volume Weighted
Average Price leading up to 30 June 2020)
EPS $1.607 (being the 20-day Volume Weighted
Average Price leading up to 30 June 2022)
TSR – Absolute TSR must be positive
TSR – Absolute TSR must be positive
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.
EPS – 5.0% CAGR EPS
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
Key performance
measure
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
5.0% CAGR – 50% vesting
7.5% CAGR – 100% vesting
7.5% CAGR – 150% vesting (stretch target)
10.0% CAGR – 150% vesting (stretch target)
Performance &
service period
Performance
assessment
1 July 2020 – 30 June 2023 (FY21 Grant)
1 July 2021 – 30 June 2024 (FY22 Grant)
1 July 2022 – 30 June 2025 (FY23 Grant)
30 June 2023 and 30 June 2024
30 June 2025
Performance period not yet complete.
Performance period not yet complete.
LTI Plan Rules & Design Considerations
TSR
Link between
performance and
reward
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.
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. The Board has a broad discretion to apply qualitative factors such as risk
(including non-financial risk), reputation, conduct, leadership kills and values to the assessment of performance
achievements for an Executive.
AFG ANNUAL REPORT 2022 DIRECTORS’ REPORT
35
LTI Plan Rules & Design Considerations
Cessation of
employment
If the participant ceases employment for cause or resigns, unless the Board determines otherwise, any unvested
Performance Rights will automatically lapse.
Generally, if the participant ceases employment for any other reason, all of their unvested Performance Rights
will remain on foot and subject to the original performance condition. However, the Board retains discretion to
determine that some of their Rights (up to a pro rata portion based on how much of the Performance Period
remains) will lapse.
Dividends & voting
The Performance Rights do not carry dividends or voting rights prior to vesting.
Clawback and
preventing
inappropriate
benefits
The Plan Rules provide the Board with broad ‘clawback’ powers if, amongst other things, the participant has acted
fraudulently or dishonestly, engaged in gross misconduct or has acted in a manner that has brought AFG or its
related bodies corporate into disrepute. 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.
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.
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.
Change of control
Restrictions on
dealing
Reconstructions,
corporate actions,
rights issues, bonus
issues, etc.
AFG ANNUAL REPORT 2022 36
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J
AFG ANNUAL REPORT 2022
DIRECTORS’ REPORT
37
5. Non-Executive Director remuneration
Remuneration policy
5.1
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. It was approved at the 2021 AGM to increase the NED fee pool from $1m to $1.25m per annum to cover the increase in relative
market pay for NED’s since that date.
Structure
5.2
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:
• Chair: $200,000 inclusive of superannuation
• Non-Executive Directors: $120,000 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 2022 and 30 June 2021:
T. Gill
B. McKeon
C. Carter
M. Kiely
J. Muirsmith
G. Medcraft1
A. King2
Total
Total
Year
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
Board and Commit-
tee Fees $
Short-term benefits
(non-monetary) $
Superannuation $
181,818
144,292
109,091
86,758
109,091
86,758
109,091
86,758
109,091
86,758
83,077
-
41,538
-
742,797
491,324
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18,182
13,708
10,909
8,242
10,909
8,242
10,909
8,242
10,909
8,242
8,308
-
4,154
-
74,280
46,676
Total $
200,000
158,000
120,000
95,000
120,000
95,000
120,000
95,000
120,000
95,000
91,385
-
45,692
-
817,077
538,000
1 Greg Medcraft commenced 15 September 2021
2 Annette King commenced 1 February 2022
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 FY20, FY21 and FY22 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.
AFG ANNUAL REPORT 2022 38
DIRECTORS’ REPORT
The 2020 plan vested on 30 June 2022 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
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
M. Watkins
2021 / T2
6,386
1-Jul-20
$1.15
30-Jun-23
2021 / T3
6,358
1-Jul-20
$1.15
30-Jun-23
2022 / T1
2,880
1-Jul-21
$2.795
30-Jun-24
2022 / T2
4,223
1-Jul-21
$1.77
30-Jun-24
2022 / T3
3,914
1-Jul-21
$1.91
30-Jun-24
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
L. Bevan
2021 / T2
62,084
1-Jul-20
$1.15
30-Jun-23
2021 / T3
61,815
1-Jul-20
$1.15
30-Jun-23
2022 / T1
28,050
1-Jul-21
$2.795
30-Jun-24
2022 / T2
41,130
1-Jul-21
$1.77
30-Jun-24
2022 / T3
38,115
1-Jul-21
$1.91
30-Jun-24
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
D. Bailey
2021 / T2
198,525
1-Jul-20
$1.15
30-Jun-23
2021 / T3
197,664
1-Jul-20
$1.15
30-Jun-23
2022 / T1
94,419
1-Jul-21
$2.795
30-Jun-24
2022 / T2
138,446
1-Jul-21
$1.77
30-Jun-24
2022 / T3
128,298
1-Jul-21
$1.91
30-Jun-24
2020 / T1
92,622
1-Jul-19
$1.58
30-Jun-22
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
B. Jenkins2
2021 / T2
63,698
1-Jul-20
$1.15
30-Jun-23
2021 / T3
63,422
1-Jul-20
$1.15
30-Jun-23
2022 / T1
30,054
1-Jul-21
$2.795
30-Jun-24
2022 / T2
44,068
1-Jul-21
$1.77
30-Jun-24
2022 / T3
40,838
1-Jul-21
$1.91
30-Jun-24
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30-Jun-22
30-Jun-22
30-Jun-22
30-Jun-23
30-Jun-23
30-Jun-23
30-Jun-24
30-Jun-24
30-Jun-24
30-Jun-22
30-Jun-22
30-Jun-22
30-Jun-23
30-Jun-23
30-Jun-23
30-Jun-24
30-Jun-24
30-Jun-24
434
467
979
-
-
-
-
-
-
8,851
3,561
2,816
-
-
-
-
-
-
4,216
4,543
9,520
86,060
34,618
27,381
-
-
-
-
-
-
-
-
-
-
-
-
30-Jun-22
13,480
275,192
30-Jun-22
14,526
110,697
30-Jun-22
30,444
87,555
30-Jun-23
30-Jun-23
30-Jun-23
30-Jun-24
30-Jun-24
30-Jun-24
30-Jun-22
30-Jun-22
30-Jun-22
-
-
-
-
-
-
-
-
-
-
-
-
4,325
4,661
9,768
88,297
35,517
28,093
30-Jun-23
43,847
30-Jun-23
63,698
30-Jun-23
63,422
30-Jun-24
30,054
30-Jun-24
44,068
30-Jun-24
40,838
-
-
-
-
-
-
AFG ANNUAL REPORT 2022 DIRECTORS’ REPORT
39
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
-
-
-
-
-
-
-
-
-
30-Jun-22
23,248
77,607
30-Jun-22
12,532
31,218
30-Jun-22
16,534
24,692
30-Jun-23
47,745
30-Jun-23
69,360
30-Jun-23
69,059
30-Jun-24
31,306
30-Jun-24
45,904
30-Jun-24
42,539
-
-
-
-
-
-
2020 / T1
100,855
1-Jul-19
$1.58
30-Jun-22
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
J. Sanger3
2021 / T2
69,360
1-Jul-20
$1.15
30-Jun-23
2021 / T3
69,059
1-Jul-20
$1.15
30-Jun-23
2022 / T1
31,306
1-Jul-21
$2.795
30-Jun-24
2022 / T2
45,904
1-Jul-21
$1.77
30-Jun-24
2022 / T3
42,539
1-Jul-21
$1.91
30-Jun-24
* 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 95%, T2 88% and T3 74%
2 FY20 plan kept on foot. FY21 and FY22 plans forfeited on resignation.
3 FY20 plan kept on foot on a pro-rata basis. FY21 and FY22 plans forfeited on resignation.
5.4 Shareholdings of KMP
Ordinary shares held in Australian Finance Group Ltd ASX:AFG
30 June 2022
Directors
T. Gill
B. McKeon
M. Watkins
C. Carter
M. Kiely
J. Muirsmith
A. King
G. Medcraft
Executives
L. Bevan
D. Bailey
B. Jenkins
J. Sanger
Balance
1 July 2021
Shares issued
on vesting of
rights
Sold during
the period
Net change
other 2
Balance
30 June 20221
Held
nominally
1,329,546
16,310,694
17,493,656
960,714
89,376
86,819
-
-
-
(90,000)
21,938
21,938
-
(1,000,000)
-
-
-
-
-
-
-
-
-
-
-
-
1,098,485
85,314
1,304,037
278,260
93,902
98,632
84,320
89,281
(80,000)
-
-
-
-
1,239,546
1,152,274
16,332,632
16,332,632
16,515,594
16,414,195
439,286
1,400,000
1,400,000
-
89,376
89,376
40,000
60,000
60,000
126,819
126,819
60,000
60,000
60,000
-
90,000
1,273,799
98,485
-
-
-
1,582,297
609,334
98,222
187,913
-
-
1 Includes shares held directly, indirectly and beneficially by the KMP
2 Direct market purchase
AFG ANNUAL REPORT 2022
40
DIRECTORS’ REPORT
30 June 2021
Directors
T. Gill
B. McKeon
M. Watkins
C. Carter
M. Kiely
J. Muirsmith
Executives
L. Bevan
D. Bailey
B. Jenkins
J. Sanger
Balance
1 July 2020
Shares issued
on vesting of
rights
Sold during
the period
Net change
other 2
Balance
30 June 20211 Held normally
1,329,546
16,289,779
17,462,284
960,714
89,376
86,819
-
20,915
31,372
-
-
-
-
-
-
-
-
-
1,280,304
81,035
(262,854)
1,198,744
265,293
(160,000)
50,403
35,081
81,999
63,551
(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
89,376
86,819
1,098,485
98,485
1,304,037
609,334
93,902
98,632
-
-
1 Includes shares held directly, indirectly and beneficially by the KMP
2 Direct market purchase
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. Jenkins1
Agreement expires
Notice of termination by Company
Employee notice
No expiry, continuous agreement
12 months (or payment in lieu of notice)
No expiry, continuous agreement
12 months (or payment in lieu of notice)
No expiry, continuous agreement
12 months (or payment in lieu of notice)
No expiry, continuous agreement
6 months (or payment in lieu of notice)
12 weeks
12 weeks
12 weeks
12 weeks
1 B. Jenkins resigned 12 August 2022
7. Remuneration governance
Remuneration and Nomination Committee
7.1
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 2022 the Committee comprised independent Non-Executive Director Melanie Kiely (Chair), and independent Non-Executive
Directors Craig Carter, Jane Muirsmith, Greg Medcraft and Annette King.
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.
AFG ANNUAL REPORT 2022 DIRECTORS’ REPORT
41
Remuneration philosophy
7.2
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; and
• 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 2022.
Policy for dealing in securities
7.4
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 (other than in limited exceptional circumstances).
7.5 Director minimum shareholding policy
AFG has 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.
Remuneration Report approval at 2021 AGM
7.6
The 30 June 2021 Remuneration Report was presented to shareholders and was approved at the 2021 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 $1,323k (2021: $837k). 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 $1,194k which has been paid to Qube (2021:
$1,150k). In addition to the above McCabe Street Ltd has paid the loan owing to AFG amounting to $232k in full during the financial year. This
loan was 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 96 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
Chair
Sydney
25 August 2022
AFG ANNUAL REPORT 2022 42
DIRECTORS’ REPORT
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 2022, 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;
b. No contraventions of any applicable code of professional conduct in relation to the audit; and
c. No non-audit services provided that contravene any applicable code of professional conduct in
relation 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
25 August 2022
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AFG ANNUAL REPORT 2022
Consolidated Statement of Profit or Loss and Other
Comprehensive Income
For the year ended 30 June 2022
43
In thousands of AUD
Commission and other income
Securitisation interest income
Operating income
Commission and other cost of sales
Securitisation interest expense
Gross profit
Other income
Impairment expenses
Administration expenses
Other expenses
Results from operating activities
Finance income
Finance expenses
Share of profit of associates
Net finance and investing income
Profit before tax from continuing operations
Income tax expense
Profit for the period
Attributable to:
Equity holders of the Company
Non-controlling interests
Note
7
8
9(a)
9(b)
10
10
18
11(a)
2022
820,133
108,847
928,980
2021
656,801
90,242
747,043
(741,032)
(598,108)
(57,722)
130,226
20,357
(23,679)
(9,008)
(62,625)
55,271
259
(1,089)
5,937
5,107
60,378
(20,666)
39,712
38,777
935
39,712
(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
Other comprehensive profit for the year, net of income tax
-
(15)
Total comprehensive income for the period attributable to:
Equity holders of the Company
Non-controlling interests
Total comprehensive income for the year
Earnings per share
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
38,777
935
39,712
14.41
14.22
51,289
-
51,289
19.12
18.88
27
27
The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the Notes to the Financial Statements.
AFG ANNUAL REPORT 2022 44
DIRECTORS’ REPORT
Consolidated Statement of Financial Position
As at 30 June 2022
In thousands of AUD
Assets
Cash unrestricted
Cash restricted
Trade and other receivables
Current tax receivable
Other asset
Contract assets
Loans and advances
Investment in associates
Property, plant and equipment
Right of use assets
Deferred tax asset
Intangible assets
Goodwill
Total assets
Liabilities
Trade and other payables
Non-interest-bearing liabilities
Employee benefits
Current tax payable
Provisions
Contract liability
Lease Liability
Interest-bearing liabilities
Deferred tax liability
Total liabilities
Net assets
Equity
Share capital
Share-based payment reserve
Retained earnings
Other capital reserves
Equity reserves
Total equity attributable to equity holders of the Company
Non-controlling interest
Total equity
Note
12(a)
12(a)
13
11(b)
14
15
17
18
19
11(c)
16
16
20
22
23
11(b)
24
25
19
21
2022
2021
84,681
183,904
11,766
1,674
-
1,146,926
4,802,575
31,421
884
5,113
32
31,945
60,748
106,930
119,118
5,645
-
15,000
1,050,613
3,403,102
25,999
693
4,979
-
9,506
-
6,361,669
4,741,585
1,138,239
1,036,275
20,180
7,203
-
2,729
6,908
5,581
-
6,283
3,260
3,327
8,681
5,362
4,949,315
3,457,712
11(c)
26,079
17,704
6,156,234
4,538,604
205,435
202,981
26(a)
102,125
6,067
96,337
(29)
(20,180)
184,320
21,115
205,435
22
30
102,125
4,572
96,313
(29)
-
202,981
-
202,981
The Consolidated Statement of Financial Position should be read in conjunction with the Notes to the Financial Statements.
AFG ANNUAL REPORT 2022 DIRECTORS’ REPORT
45
Statement of Changes in Equity
For the year ended 30 June 2022
In thousands of AUD
Share
capital
Foreign
currency
translation
reserve
Equity
reserve
Share-
based
payment
Retained
earnings
Total
equity
Non-
controlling
interest
Total
equity
Balance at 1 July 2021
102,125
(29)
Total comprehensive income for the
period
Profit
Total comprehensive income for the
period
Transactions with owners, recorded
directly in equity
Dividends to equity holders
Share-based payment transactions
Acquisition of non-controlling interest
Total transactions with owners
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(20,180)
4,572
96,313
202,981
-
202,981
-
-
38,777
38,777
935
39,712
38,777
38,777
935
39,712
-
(38,753)
(38,753)
1,495
-
-
-
1,495
(20,180)
20,180
-
-
(38,753)
1,495
-
(20,180)
1,495
(38,753)
(57,438)
20,180
(37,258)
Balance at 30 June 2022
102,125
(29)
(20,180)
6,067
96,337
184,320
21,115
205,435
In thousands of AUD
Share
capital
Foreign
currency
translation
reserve
Equity
reserve
Share-
based
payment
Retained
earnings
Total
equity
Non-
controlling
interest
Total
equity
Balance at 1 July 2020
102,157
(14)
Total comprehensive income for the
period
Movement in reserve
Profit
Total comprehensive income for the
period
Transactions with owners, recorded
directly in equity
Share issue costs
(net of tax)
Dividends to equity holders
Share-based payment transactions
Total transactions with owners
-
-
-
(32)
-
-
(32)
(15)
-
(15)
-
-
-
-
Balance at 30 June 2021
102,125
(29)
-
-
-
-
-
-
-
-
-
2,604
73,466
178,213
-
178,213
-
-
-
-
-
-
(15)
51,304
51,304
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
-
-
-
-
-
-
-
-
(15)
51,304
51,289
(40)
(28,449)
1,968
(26,521)
202,981
The Consolidated Statement of Changes in Equity should be read in conjunction with Notes to the Financial Statements.
AFG ANNUAL REPORT 2022 46
DIRECTORS’ REPORT
Note
2022
2021
Statement of Cash Flows
For the year ended 30 June 2022
In thousands of AUD
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
12(b)
Cash flows from investing activities
Net interest received
Acquisition of property, plant and equipment
Purchase of intangible assets
Dividend from Thinktank
Additional Investment in Thinktank
Acquisition of Fintelligence (net of cash acquired)
Acquisition of BrokerEngine (net of cash acquired)
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 Debt facility
Payment for acquisition of debt facility
Proceeds from issue of ordinary shares, net of issue costs
Payment of principal portion of lease liability
Dividends paid
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
30
30
26(b)
12(a)
The Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements.
734,035
(706,965)
108,847
(58,635)
(25,379)
51,903
259
(551)
(12,120)
515
-
(50,509)
(3,602)
-
-
325
(1,391,823)
(1,457,506)
2,686,044
(1,759,000)
1,565,909
(1,056,120)
52,500
(451)
-
(1,987)
(38,755)
1,448,140
42,537
226,048
268,585
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
AFG ANNUAL REPORT 2022 Notes to the Financial Statements
1.
Reporting entity
20. Trade and other payables
2.
Basis of preparation
21.
Interest-bearing liabilities
3.
Significant accounting policies
22. Non interest-bearing liabilities
4. Determination of fair values
23. Employee benefits
5.
Financial risk management
24. Provisions
6.
Segment information
25. Contract liability
7. Commissions and other income
26. Capital and reserves
8. Other income
27. Earnings per share
9. Other expenses and employee costs
28. Share based payments
10. Finance income and expenses
29. Financial instruments
11.
Income tax
30. Business combinations
12. Cash and cash equivalents
31. Group entities
13. Trade and other receivables
32. Parent entity
14. Other asset
33. Capital and other commitments
15. Contract assets
34. Contingencies
16.
Intangibles and goodwill
35. Related parties
17.
Loans and advances
36. Subsequent events
18.
Investment in associates
37. Auditors’ remuneration
19.
Leases
48
NOTES TO THE FINANCIAL STATEMENTS
Reporting entity
1.
The Consolidated Financial Statements for the financial year
ended 30 June 2022 comprise Australian Finance Group Ltd (the
‘Company’), which is a for profit entity and a Company domiciled in
Australia and its subsidiaries (together referred to as the ‘Group’)
and the Group’s interest in associates and jointly controlled entities.
The Group’s principal activities in the course of the financial
year were mortgage origination and lending. The Company’s
principal place of business is 100 Havelock Street, West Perth,
Western Australia.
2. Basis of preparation
(a) Statement of compliance
The Financial Report complies with Australian Accounting
Standards, and International Financial Reporting Standards
(‘IFRS’) as issued by the International Accounting Standards
Board (“AASB”).
The Financial Report is a general-purpose financial report, for a
‘for-profit’ entity, which has been prepared in accordance with
the requirements of the Corporations Act 2001 and Australian
Accounting Standards and other authoritative pronouncements
of the Australian Accounting Standards Board. The Financial
Report has also been prepared on a historical cost basis, except
where noted.
The Financial Statements comprise the Consolidated Financial
Statements of the 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 25 August 2022. 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:
• Payables relating to trailing commission are initially measured at
fair value and subsequently at amortised cost;
• Contract assets are measured using the expected value method
under AASB 15 “Revenue from contracts with customers”; and
• Financial instruments at fair value through profit or loss are
measured at fair value.
Functional and presentation currency
(c)
These Consolidated Financial Statements are presented in
Australian dollars (“AUD”).
The Group is of a kind referred to in ASIC Corporations Instrument
2016/191 dated 31 March 2016 and in accordance all financial
information presented in Australian dollars has been rounded to the
nearest thousand dollars unless otherwise stated.
(d) Use of estimates and judgements
The preparation of Financial Statements in conformity with
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
expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised and in any future
periods affected.
Information about critical judgements in applying accounting
policies that have the most significant effect on the amounts
recognised in the Financial Statements is included in the
following notes:
• Note 3(a)(i) – Consolidation of special purpose entities
• Note 3(b) – Expected value of trail commission income
contract assets
• Note 3(g)(ii) – Impairment of financial assets held at amortised
cost being customer loans and advances
• Note 3(i) – impairment of non-financial assets; and
• 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(b) 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 future taxable profits.
Assumptions about the generation of future taxable profits
depend on Management’s estimates of future cash flows.
These depend on estimates of future income, operating costs,
capital expenditure, dividends and other capital management
transactions. 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 of deferred tax assets and deferred
tax liabilities recognised on the Statement of Financial Position
and the amount of other tax losses and temporary differences
not yet recognised. In such circumstances, some or all of the
carrying amounts of recognised deferred tax assets and liabilities
may require adjustment, resulting in a corresponding credit or
charge to the Consolidated Statement of Profit or Loss and Other
Comprehensive Income.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
49
(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 but
do not have a material impact on the Group include:
• AASB 2020-8 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform – Phase 2;
• AASB 2021-3 Amendments to Australian Accounting Standards – COVID-19 related rent concessions beyond 30 June 2021;
• AASB 2020-7 Amendments to Australian Accounting Standards – COVID-19 Related Rent Concessions: Tier 2 Disclosures;
• AASB 2020-9 Amendments to Australian Accounting Standards – Tier 2 Disclosures: Interest Rate Benchmark Reform (Phase 2) and Other
Amendments; and
• AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018- 2020 and Other Amendments.
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 17 Insurance Contracts
Application
date*
Application date
for Group
1 January 2023
30 June 2024
AASB 2020-1 Amendments to AASs – Classification of Liabilities as Current or Non-current
1 January 2023
30 June 2024
AASB 2021-2 Amendments to AASs – Disclosure of Accounting Policies and Definition 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
AASB 2021-6 Amendments to AASs – Disclosure of Accounting Policies: Tier 2 and Other
Australian Accounting Standards
1 January 2023
30 June 2024
AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture
1 January 2025
30 June 2026
* Reporting period commences on or after the application date.
In addition, the Group has considered the tentative agenda decision of the International Accounting Standards Board (IASB) in relation to
the cash received via electronic transfers as settlement for a Financial Asset. The IASB has not yet finalise the decision in relation to this
interpretation. The Group is still currently assessing the impact of this tentative agenda decision.
AFG ANNUAL REPORT 2022 50
NOTES TO THE FINANCIAL STATEMENTS
3. Significant accounting policies
Except as expressly described in the Notes to the Financial
Statements, the accounting policies set out below have been
applied consistently to all periods presented in these Consolidated
Financial Statements and have been applied consistently by all
Group entities.
(a) Basis of consolidation
The Consolidated Financial Statements incorporate the Financial
Statements of the Company and entities (including structured
entities) controlled by the Company and its subsidiaries. Control is
achieved when the Company:
• Has power over the investee
• Is exposed, or has rights, to variable returns from its involvement
with the investee
• Has the ability to use its power to affect its returns
When the Group has less than a majority of the voting rights or
similar rights of an investee, the Group considers all relevant facts
and circumstances in assessing whether it has power over an
investee, including:
• The contractual arrangement with the other vote holders of
the investee
• Right arising from other contractual arrangements
• The Group’s voting rights and potential voting rights
Consolidation of a subsidiary begins when the Group obtains
control over the subsidiary and ceases when the Group loses
control of the subsidiary. Specifically, income and expenses of a
subsidiary acquired or disposed of during the year are included
in the Consolidated Statement of Profit or Loss and Other
Comprehensive Income from the date the Company gains control
until the date when the company ceases to control the subsidiary.
Subsidiaries are entities controlled by the Group.
When necessary, adjustments are made to the Financial
Statements of subsidiaries to bring their accounting policies in line
with the Group’s accounting policies.
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.
All intra-group balances, and any unrealised income and expenses
arising from intra-group transactions, are eliminated in preparing
the Consolidated Financial Statements. Unrealised gains arising
from transactions with equity accounted investees are eliminated
against the investment to the extent of the Group’s interest in the
investee. Unrealised losses are eliminated in the same way as
unrealised gains, but only to the extent that there is no evidence
of impairment.
Changes in the Group’s ownership interests in subsidiaries that
do not result in the Group losing control over the subsidiaries are
accounted for as equity transactions. The carrying amounts of the
Group’s interests and the non-controlling interests are adjusted
to reflect the changes in their relative interests in the subsidiaries.
Any difference between the amount by which the non-controlling
interests are adjusted and the fair values of the consideration 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
recognised in the profit or loss and is calculated as the difference
between (i) the aggregate of the fair value of the consideration
received and the fair value of any retained interest and (ii) the
previous carrying amount of the assets, and liabilities of the
subsidiary and any non-controlling interests. All the amounts
previously recognised in other comprehensive income in relation
to that subsidiary are accounted 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
the date when control is lost is regarded as the fair value on initial
recognition for subsequent accounting under AASB 9 as it becomes
a financial instrument on loss of control.
(i)
Special purpose entities
Special purpose entities (SPE) 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 and residual units in these respective special
purpose entities.
The Group has established the following special purpose
entities to support the specific funding needs of the Group’s
securitisation programme:
• AFG 2010-1 Trust and its Series (SPE) to conduct securitisation
activities funded by short term warehouse facilities provided by
warehouse and related mezzanine facility providers.
• AFG 2017-1 Trust, AFG 2018-1 Trust, AFG 2019-1 Trust, AFG
2019-2 Trust, AFG 2020-1 Trust, AFG 2020-1 NC Trust, AFG
2021-1 Trust, AFG 2021-2 Trust, AFG 2022-1NC Trust and AFG
2022-1 Trust (SPE-RMBS) to hold securitised assets and issue
Residential Mortgage-Backed Securities (RMBS).
• 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.
The elements indicating control include, but are not limited
to, below:
• The Group has existing rights that gives it the ability to direct
relevant activities that significantly affect the special purpose
entities’ returns;
• The Group is exposed, and has rights, to variable returns from its
involvement with the special purpose entities;
• The Group has all the residual interest in the special
purpose entities;
• Fees received by the Group from the special purpose entities
vary on the performance, or non-performance, of the securitised
assets; and
• The Group has the ability to direct decision making accompanied
by the objective of obtaining benefits from the special purpose
entities’ activities.
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
profit and loss.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
51
(ii)
Investments in associates
(equity accounted investee)
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating policies.
Investments in associates are accounted for using the equity
method (equity accounted investee) and are initially recognised at
cost. The cost of the investment includes transaction costs (see
Note 18).
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) 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:
(1)
Identifying the contract with a customer;
(2)
Identifying the separate performance obligations;
(3) Determining the transaction price;
(4) Allocating the transaction price to the performance
obligations; and
(5) Recognising revenue when or as performance obligations
are satisfied.
Revenue is recognised either at a point in time or over time,
when (or as) the Group satisfies performance obligations by
transferring the promised goods or services to its customers.
The Group recognises contract liabilities (see Note 25) for
consideration received in respect 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.
Under AASB 15, revenue is recognised when the Group satisfies
performance obligations by transferring the promised services to
its customers. Determining the timing of the transfer of control
- at a point in time or over time - requires judgement. Below
is a summary of the major services provided and the Group’s
accounting policy on recognition as a result of adopting AASB 15.
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.
• Other income – sponsorship income and fees for services.
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 commission on the settlement of loans. Additionally, the
lender normally pays a trailing commission over the life of the loan.
Commission revenue is recognised as follows:
• Origination commissions: Origination commissions 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 commission revenue.
• Trailing commissions: The Group receives trail commissions
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 AFGHL white
label trail books.
• Interest income: This is the financing component of the trail
commission contract asset which brings into consideration the
time value of money.
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 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.
AFG ANNUAL REPORT 2022 52
Other income
NOTES TO THE FINANCIAL STATEMENTS
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”
Types of Service
Nature and timing of satisfaction
of performance obligations
Revenue recognition policy under
AASB 15
Point in time
Commissions –
origination commissions
At the point in time when the loan is
settled with the lender.
Point in time
Commissions – trail
commissions
At the point in time when the loan is
settled with the lender.
Over time
Interest income –
discount unwind on the
NPV trail commission
contract asset
Over time
Subscription income
Revenue arising from the discount
rate applied to the trail commission
contract asset.
The performance obligation is to
provide access to the platform for
which the subscription is purchased.
The income is recognised evenly
over the service period, being the
subscription period.
Point in time
Other income –
sponsorship income
The performance obligation is that a
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.
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.
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.
Subscription income is recognised
evenly over the service period, being
the subscription period.
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.
Revenue is recognised when
performance obligation is satisfied.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
53
(c) 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 credit
impaired 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
become credit impaired.
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 credit impaired
financial instrument improves so that the financial asset is no
longer credit impaired, interest income is recognised by applying
the effective interest rate to the gross carrying amount of the
financial asset.
Securitisation expense comprises interest payable on borrowings.
Finance income and expenses
(d)
Finance income comprises interest income on funds invested and
foreign currency gains. Interest income is recognised as it accrues,
using the effective interest method.
Finance expenses comprise interest payable on borrowings.
Income tax expense
(e)
Current tax assets and liabilities for the current and prior periods
are measured at the amount expected to be recovered from or
paid to the taxation authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively
enacted by the balance sheet date.
Deferred income tax is generally provided on all temporary
differences at the balance sheet date between the tax bases of
assets and liabilities and their carrying amounts for financial
reporting purposes.
Deferred tax assets are recognised where management consider
that it is probable that future taxable profits will be available
to utilise those temporary differences. The carrying amount of
deferred income tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the
deferred income tax asset to be utilised.
Unrecognised deferred income tax assets are reassessed at each
balance sheet date and are recognised to the extent that it has
become probable that future taxable profit will allow the deferred
tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the
tax rates that are expected to apply to the year when the asset is
realised, or the liability is settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted at the balance
sheet date.
Income taxes relating to items recognised directly in equity are
recognised in equity and not in the profit or loss.
(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.
Current tax expenses, deferred tax liabilities and deferred tax
assets arising from temporary differences of the members of the
tax-consolidated group are recognised in the separate Financial
Statements of the members of the tax-consolidated group using the
‘group allocation’ approach by reference to the carrying amounts of
assets and liabilities in the separate Financial Statements of each
entity and the tax values applying under tax consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising
from unused tax losses of the subsidiaries is assumed by the head
entity in the tax-consolidated group and are recognised by the
Company as amounts payable (receivable) to (from) other entities
in the tax-consolidated group in conjunction with any tax funding
arrangement amounts (refer below). Any difference between these
amounts is recognised by the Company as an equity contribution
or distribution.
The Company recognises deferred tax assets arising from unused
tax losses of the tax-consolidated group to the extent that it is
probable that future taxable profits of the tax-consolidated group
will be available against which the asset can be utilised. Any
subsequent period adjustments to deferred tax assets arising
from unused tax losses as a result of revised assessments of the
probability of recoverability is recognised by the head entity only.
(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.
Contributions to fund the current tax liabilities are payable as
per the tax funding arrangement and reflect the timing of the
head entity’s obligation to make payments for tax liabilities to the
relevant tax authorities.
The head entity in conjunction with other members of the tax-
consolidated group has also entered into a tax sharing agreement.
The tax sharing agreement provides for the determination of the
allocation of income tax liabilities between the entities should the
head entity default on its tax payment obligations. No amounts
have been recognised in the Financial Statements in respect of
this agreement as payment of any amounts under the tax sharing
agreement is considered remote.
(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
acquisition of the asset or as part of the expense.
AFG ANNUAL REPORT 2022 54
NOTES TO THE FINANCIAL STATEMENTS
Receivables and payables are stated with the amount of GST
included. The net amount of GST recoverable from, or payable to,
the Australian Taxation Office (ATO) is included as a current asset
or liability or as part of the expense.
Cash flows are included in the Statement of Cash Flows on a gross
basis. The GST components of cash flows arising from investing
and financing activities which are recoverable from, or payable to,
the ATO are classified as cash flows from operating activities.
(f) Cash and short-term deposits
Cash and short-term deposits in the Consolidated Statement
of Financial Position comprise cash at bank and on hand, short
term deposits with a maturity of three months or less from
date of origination, as well as restricted cash such as proceeds
and collections in the SPE accounts which are not available to
the shareholders.
For the purpose of the Statement of Cash Flows, cash and cash
equivalents consist of the cash and term deposits as defined
above, net of outstanding bank overdrafts.
(g)
Financial instruments
(i)
Financial assets
Initial recognition and measurement
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(b) Revenue from contracts with customers).
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).
The amortised cost of a financial asset is:
• 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 the
maturity amount; and
• adjusted for any loss allowance.
Interest income, foreign exchange gains and losses and impairment
are recognised in profit and loss.
Derecognition of financial assets
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or when it transfers
the financial asset and substantially all the risks and rewards
of ownership of the asset to another entity. If the Group neither
transfers nor retains substantially all the risks and rewards of
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 of financial assets
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:
(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 has not increased significantly since initial
recognition (except for a purchased or originated credit-impaired
financial asset), the Group measures the loss allowance for that
financial instrument at an amount equal to a 12-month ECL.
The Group has assessed the loans and advances (securitised
assets) and recognised the ECL for these assets.
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 assets measured at amortised cost are deducted from the
gross carrying amount of the assets.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
55
Stage 2: Lifetime ECL
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
indicators. Similar to Stage 1, loss allowances for financial assets
measured at amortised cost are deducted from the gross carrying
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 credit impaired, a lifetime ECL is recognised as a
collective or specific provision, and interest revenue is calculated in
subsequent reporting periods by applying the effective interest rate
to the amortised cost instead of the carrying amount.
When determining whether the credit risk of a financial asset has
increased significantly since initial recognition and when estimating
ECLs, the Group considers reasonable and supportable information
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.
As part of the forward-looking assessment, the Group
has considered:
• actual or expected adverse changes in business, financial or
economic conditions that are expected to cause a significant
change to the borrower’s ability to meet its obligations such as
market interest rates, unemployment 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.
In addition to the above, the Group has considered the impact of
COVID-19 in preparing the ECL.
As part of this assessment, the Group has considered:
• Increased probability weightings for downside cases; and
• Staging for borrowers who have asked for a deferral of
mortgage payments.
Impairment charges are discussed further in Note 29 of the 2022
Annual Report.
Changes to the estimates and outcomes that have been applied in
the measurement of the Group assets and liabilities may arise in
the future.
AFG ANNUAL REPORT 2022 56
NOTES TO THE FINANCIAL STATEMENTS
A summary of the assumptions underpinning the Groups ECL model is as follows:
Category
Performing
Doubtful
In default
Write off
Definition of Category
Basis for recognition of ECL provision
Customers have a low risk of default and a strong capacity to
meet contractual cash flows
12 month expected losses
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
Interest and/or principal repayments are 90 days past due
Lifetime expected losses
Interest and/or principal repayments are past due and there is no
reasonable expectation of recovery
Asset is written off
Given economic uncertainty in the market 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 Group’s 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.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
57
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.
Repurchase of share capital
When share capital recognised as equity is repurchased the
amount of consideration paid, including directly attributable costs,
is recognised as a reduction in equity.
Subsequent measurement
Dividends
Subsequent to initial recognition, the interest-bearing loans and
borrowings are measured at amortised cost using the effective
interest rate method.
Dividends are recognised as a liability in the period in which they
are declared.
Subsequent to initial recognition, the put/call liability is measured at
fair value through the profit and loss.
(h)
Intangibles
Derecognition
A financial liability is derecognised when the obligation under the
liability is discharged or cancelled or expires. When an existing
financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated
as the derecognition of the original liability and the recognition of
a new liability. The difference in respect of the carrying amounts
is recognised in the income statement. The Group considers a
modification substantial based on qualitative factors and if it
results in a difference between the adjusted discounted present
value and 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
amortised cost of a debt instrument and of allocating interest
income over the relevant period. For financial assets other than
purchased or originated credit impaired financial assets (i.e.
assets that are credit impaired on initial recognition), the effective
interest 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, a shorter period, to the gross carrying amount of the
debt instrument on initial recognition. For purchased or originated
credit impaired financial assets, a credit adjusted 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.
The amortised cost of a financial asset is 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
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.
(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 and to the
extent that the Group has control over these assets.
The unamortised balance of software development costs deferred
in previous periods is reviewed regularly and at each reporting date,
to ensure the criterion for deferral continues to be met. Where such
costs are considered to no longer provide future economic benefits
they are written-off as an expense in the profit or loss.
(ii)
Customer related intangibles
Customer relationship intangibles acquired as part of a business
combination are recognised separately from goodwill. The
customer relationships are carried at fair value at the date of
acquisition less accumulated amortisation and impairment losses.
Amortisation is calculated based on the timing of projected
cashflows over their estimated useful lives of 8 years.
(iii)
Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the
future economic benefits embodied in the specific asset to which
it relates. All other expenditure is recognised in profit or loss
when incurred.
(iv)
Amortisation
Amortisation is recognised in profit or loss on a straight-line basis
over the estimated useful lives of intangible assets from the date
that they are available for use.
The estimated useful lives for the current and comparative periods
are as follows:
(i) Capitalised software development costs 2.5 - 5 years
(iv)
Software-as-a-Service (SaaS) arrangements
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.
Where costs incurred to configure or customise do not result in
the recognition of an intangible software asset, then those costs
that provide the Group with a distinct service (in addition to the
AFG ANNUAL REPORT 2022 58
NOTES TO THE FINANCIAL STATEMENTS
SaaS access) are now recognised as expenses when the supplier
provides the services. When such costs incurred do not provide a
distinct service, the costs are now recognised as expenses over
the duration of the SaaS contract.
indicators of impairment are present.
Lease Liabilities
Impairment of non-financial assets
(i)
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”).
At the commencement date of the lease, the Group recognises
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.
In calculating the present value of lease payments, the Group uses
the incremental borrowing rate at the lease commencement date.
After the commencement date, the amount of lease liabilities is
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.
An impairment loss is recognised if the carrying amount of an
asset or its cash-generating unit exceeds its recoverable amount.
Key estimates and judgements
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.
(j)
Leases
Recognition and measurement
When a contract is entered into, the Group assesses whether
the contract contains a lease. A lease arises when the Group
has the right to direct the use of an identified asset which is not
substitutable and to obtain substantially all economic benefits
from the use of the asset throughout the period of use. The leases
recognised by the Group relate to office space.
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
testing as part of the Cash Generating Unit (“CGU”) when
(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 identified asset
and obtain substantially all the economic benefits from the
use of that asset.
(b) Lease term - Judgement is required when assessing
the 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.
(c) Discount rates - Judgement is required to determine
the discount rate, where the discount rate is the Group’s
incremental borrowing rate if the rate implicit in the lease
cannot be readily determined.
(k)
Employee benefits
(i)
Long-term employee benefits
The Group’s liability in respect of long-term employee benefits is
the amount of future benefits that employees have earned in return
for their service in the current and prior periods; that benefit is
discounted to determine its present value, and the fair value of any
related assets is deducted. Consideration is given to the expected
future wage and salary levels, and periods of service. The discount
rate is the yield at the reporting date on government 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
basis and are expensed as the related service is provided.
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.
A provision is recognised for the amount expected to be paid under
short-term and long-term cash bonus or profit-sharing plans if
the Group has a present legal or constructive obligation to pay this
amount as a result of past service provided by the employee and
the obligation can be estimated reliably.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
59
(iii)
Share-based payment transactions
The grant date fair value of options and shares granted to
employees is recognised as an employee expense, with a
corresponding increase in equity over the period in which the
employees become unconditionally entitled to the options or
shares. The amount recognised as an expense is adjusted to reflect
the actual number of options or shares that vested, except for
those that fail to vest due to market conditions not being met.
Provisions
(l)
A provision is recognised if, as a result of a past event, the Group
has a present legal or constructive obligation that can be estimated
reliably, and it is probable that an outflow of economic benefits
will be required to settle the obligation. Provisions are determined
by discounting expected future cash flows at a pre-tax discount
rate that reflects current market assessments of the time value of
money and the risks specific to the liability.
The unwinding of the discount is recognised as a finance cost.
Provision for clawbacks on settlements within the period are raised
on both commission received and commission payable. Clawbacks
will be re-measured each reporting period.
(m) 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, construction or production of a qualifying asset are
recognised in the profit or loss using the effective interest method.
(n) Trail commissions payable
The Group pays trail commissions to brokers. This is initially
measured at expected value being the net present value of
expected future trailing commission payable to brokers.
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.
(o) 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.
(p) Business combinations and goodwill
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate
of the consideration transferred, which is measured at acquisition
date fair value, and the amount of any non-controlling interests
in the acquiree. For each business combination, the Group elects
whether to measure the non-controlling interests in the acquiree at
fair value or at the proportionate share of the acquiree’s identifiable
net assets. Acquisition-related costs are expensed as incurred and
included in administrative expenses.
The Group determines that it has acquired a business when
the acquired set of activities and assets include an input and a
substantive process that together significantly contribute to the
ability to create outputs. The acquired process is considered
substantive if it is critical to the ability to continue producing
outputs, and the inputs acquired include an organised workforce
with the necessary skills, knowledge, or experience to perform
that process or it significantly contributes to the ability to continue
producing outputs and is considered unique or scarce or cannot
be replaced without significant cost, effort, or delay in the ability to
continue producing outputs.
When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date.
This includes the separation of embedded derivatives in host
contracts by the acquiree.
Any contingent consideration to be transferred by the acquirer
will be recognised at fair value at the acquisition date. Contingent
consideration classified as equity is not remeasured and its
subsequent settlement is accounted for within equity. Contingent
consideration classified as an asset or liability that is a financial
instrument and within the scope of AASB 9 Financial Instruments,
is measured at fair value with the changes in fair value recognised
in the statement of profit or loss in accordance with IFRS 9. Other
contingent consideration that is not within the scope of AASB 9 is
measured at fair value at each reporting date with changes in fair
value recognised in profit or loss.
Goodwill is initially measured at cost (being the excess of the
aggregate of the consideration transferred and the amount
recognised for non-controlling interests and any previous interest
held over the net identifiable assets acquired and liabilities
assumed). If the fair value of the net assets acquired is in excess
of the aggregate consideration transferred, the Group re-assesses
whether it has correctly identified all of the assets acquired and
all of the liabilities assumed and reviews the procedures used to
measure the amounts to be recognised at the acquisition date.
If the reassessment still results in an excess of the fair value of net
assets acquired over the aggregate consideration transferred, then
the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group’s cash-generating
units that are expected to benefit from the combination, irrespective
of whether other assets or liabilities of the acquiree are assigned to
those units.
Where goodwill has been allocated to a CGU and part of the
operation within that unit is disposed of, the goodwill associated
with the disposed operation is included in the carrying amount
of the operation when determining the gain or loss on disposal.
Goodwill disposed in these circumstances is measured based on
the relative values of the disposed operation and the portion of the
cash-generating unit retained. Refer to note 30 for more details on
the Group’s business combinations.
(q) Reclassification of comparative numbers
Professional indemnity insurance, fees for services and software
licence fees have been reclassified in the segment results
from “point in time” to “over time” as the revenue recognition
is recognised over time. Refer to note 3(b) for further details.
Comparative figures have been reclassified to ensure consistency
in presentation with current year numbers. Total segment revenue
at a point in time for the financial year ended 30 June 2022 was
$742,076k (2021: $590,941k). Total segment revenue over time
for the financial year ended 30 June 2022 was $213,457k (2021:
$176,197k).
AFG ANNUAL REPORT 2022 60
NOTES TO THE FINANCIAL STATEMENTS
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(b).
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.
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
and other receivables.
Other financial instruments
Contract assets
The carrying amount of all other financial assets and liabilities
recognised in the Statement of Financial Position approximate their
fair value, with the exception of the trail commission payables that
are initially recognised at fair value and subsequently measured
at amortised cost based on an actuarial assessment of future
cashflow using appropriate discount rates, and the exception of the
put/call liability that are initially recognised at the present value of
the expected future payments and subsequently measured at fair
value through the P&L.
5. Financial risk management
Overview
The Group has exposure to credit, liquidity and market risks from
the use of financial instruments.
This note presents information about the Group’s exposure to
each of the below risks, the objectives, policies and processes for
measuring and managing risk, and the management of capital.
Further quantitative disclosures are included throughout the
financial report.
The Board of Directors has overall responsibility for the
establishment and oversight of the risk management framework.
The Risk and Compliance Committee is responsible for developing
and monitoring risk management policies.
Risk management policies are established to identify and analyse
the risks faced by the Group, to set appropriate risk limits and
controls, and to monitor risks and adherence to limits. Risk
management policies and systems are reviewed regularly to reflect
changes in market conditions and the Group’s activities. The Group,
through its training and management standards and procedures,
aims to develop a disciplined and constructive control environment
in which all employees understand their roles and obligations.
The 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.
Loans and advances
To mitigate exposure to credit risk on loans and advances, the
Group has adopted the policy of only dealing with creditworthy
counterparties and obtaining sufficient collateral or other security
where appropriate.
The Group’s loans and advances relate mainly to loans advanced
through its residential mortgage securitisation programme. Credit
risk management is linked to the origination conditions externally
imposed on the Group by the warehouse facility provider including
geographical limitations. As a consequence, the Group has no
significant concentrations of credit risk. The Group has established
a credit quality review process to provide early identification of
possible changes in credit worthiness of counterparties by the
use of internal analytics and external credit agencies, which
assigns each counterparty a risk rating. Risk ratings are subject to
regular review.
The Group’s maximum exposure is the carrying amount of the
loans, net of any impairment losses. Subsequent to June 2014 all
residential loans with a loan to value ratio of greater than 80% are
subject to a lenders mortgage insurance contract.
The Group has applied an ECL model to determine the collective
impairment provision of its loans and advances. Refer Notes
3(g)(ii)) and 29(a)(ii) for details. Reduced COVID hardship cases,
property price performances and relatively low unemployment
have been considered in the ECL model which has seen the
provision reduce at 30 June 2022 to $2,877k (2021: $3,272k).
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
61
Liquidity risk
(b)
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due or will have to do so at an
excessive cost. The Group’s approach to managing liquidity is to
ensure, as far as possible, that it will always have sufficient liquidity
to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking
damage to the Group’s reputation.
To limit this risk, the Group manages assets with liquidity in mind,
and monitors future cash flows and liquidity on a regular basis.
This incorporates an assessment of expected cash flows and the
availability of high-grade collateral which could be used to secure
additional funding if required.
The liquidity position is assessed and managed under a variety of
scenarios, giving due consideration to stress factors relating to
both the market in general and specifically to the Group.
(c) Market risk
Market risk is the risk that changes in market prices, such
as foreign exchange rates, interest rates and equity prices
will affect the Group’s income or the value of its holdings of
financial instruments.
Prepayment risk
Prepayment risk is the risk that the Group will incur a financial
loss because its customers and counterparties repay or request
repayment earlier than expected.
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.
For the loans and advances within the SPE and SPE-RMBS, the
Group minimises the prepayment risk by passing back all principal
repayments to the warehouse facility providers and bondholders.
Other market risk
The Group is exposed to an increase in the level of credit support
required within its securitisation programme arising from changes
in the credit rating of mortgage insurers used by the SPE, and the
composition of the available collateral held. The Group regularly
reviews and reports on the credit ratings of those insurers as well
as the Company’s maximum cash flow requirements should there
be any adverse movement in those credit ratings.
The objective of market risk management is to manage and
control market risk exposures within acceptable parameters, while
optimising the return.
Non market risk
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). The
Group elects not to enter into foreign exchange contracts to hedge
this exposure as the net movements would not be material. The
Group has no significant exposure to currency risk.
Interest rate risk
Interest rate risk is the risk to the Group’s earnings and equity
arising from movements in interest rates. Positions are monitored
on an ongoing basis to ensure risk levels are maintained within
established limits.
The Group’s most significant exposure to interest rate risk is on
the interest-bearing loans within the SPE which fund the residential
mortgage securitisation programme. To minimise its exposure
to increases in cost of funding, the Group only lends monies on
variable interest rate terms. Should there be changes in pricing the
Group has the option to review its position and offset those costs
by passing on interest rate changes to the end customer.
The Group is exposed to non financial risk due to the existence of a
put and call option. Refer to note 22.
(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
future development of the business. The Board of Directors
monitors the return on capital, which the Group defines as net
operating income divided by total shareholders’ equity and aims to
maintain a capital structure that ensures the lowest cost of capital
available to the Group. The Board of Directors also monitors the
level of dividends to ordinary shareholders.
The SPEs are subject to the external requirements imposed by the
warehouse facility providers. The terms of the warehouse facilities
provide a mechanism for managing the lending activities of the
SPE and ensure that all outstanding principal and interest is paid
at the end of each reporting period. Similarly, the SPE-RMBS are
subject to external requirements imposed by the bondholders and
the rating agencies. The terms of the RMBS transactions provide a
mechanism for ensuring that all outstanding principal and interest
is paid at the end of each reporting period. There were no breaches
of the covenants or funding terms imposed by the warehouse and
RMBS 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.
AFG ANNUAL REPORT 2022 62
NOTES TO THE FINANCIAL STATEMENTS
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:
Aggregation
The aggregation 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, as described below:
Upfront commissions on settled loans - Upfront commissions are received by the Group from lenders as a percentage of the total amount
borrowed. Once a loan settles, the Group receives a one-off payment linked to the total amount borrowed as an upfront commission, a large
portion of which is then paid by the Group to the originating broker.
Trail commissions on the loan book - Trail commissions are received by the Group from lenders over the life of the loan (if it is in good order
and not in default), as a percentage of the particular loan’s outstanding balance. The trail book represents the aggregate of mortgages
outstanding that have been originated by the Group’s 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) and AFG
Securities mortgages (Securitised loans issued by AFG Securities Pty Ltd) that are distributed through the Group’s broker network. AFGHL sits
on the Group’s panel of lenders alongside the other 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 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.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
Year ended 30 June 2022
In thousands of AUD
Aggregation
AFG Home Loans
Other / Unallocated
/ Eliminations
Income
Operating income
Inter-segment1
Other income
Finance income
Share of profit of an associate
764,526
51,823
7,475
-
-
162,743
-
-
8
-
1,711
(51,823)
12,882
251
5,937
63
Total
928,980
-
20,357
259
5,937
Total segment income
823,824
162,751
(31,042)
955,533
Timing of revenue recognition
At a point in time
Over time
Results
Segment results
Items not included in segment results2
Profit before tax inluding impairment
Income tax expense
Net profit after tax
Assets and liabilities
Total segment assets
Total segment liabilities
Other segment information
740,489
83,335
51,449
111,302
(49,862)
18,820
37,473
49,190
(2,211)
742,076
213,457
84,452
(24,074)
60,378
(20,666)
39,712
1,202,836
1,204,870
5,235,391
5,109,785
(76,558)
(158,421)
6,361,669
6,156,234
Depreciation and amortisation
(64)
(45)
(4,009)
(4,118)
AFG ANNUAL REPORT 2022 64
NOTES TO THE FINANCIAL STATEMENTS
Year ended 30 June 2021
In thousands of AUD
Aggregation
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
-
-
166
-
1,594
(37,066)
11,926
587
4,919
Total
747,043
-
14,423
753
4,919
Total segment income
653,611
131,567
(18,040)
767,138
Timing of revenue recognition
At a point in time
Over time
Results
Segment results
Income tax expense
Net profit after tax
Assets and liabilities
Total segment assets
Total segment liabilities
Other segment information
587,448
66,163
38,378
93,189
(34,885)
16,845
31,478
38,657
630
590,941
176,197
70,765
(19,461)
51,304
1,036,349
1,032,717
3,750,915
3,621,012
(45,679)
(115,125)
4,741,585
4,538,604
Depreciation and amortisation
(66)
(28)
(1,971)
(2,065)
1. Relate to Intercompany transactions
2. Volt and technology impairment. Refer to Note 14 & 16.
7. Commissions and other income
In thousands of AUD
Timing of revenue recognition
At a point in time
Commissions
Securitisation transaction fees
Over time
2022
2021
730,119
3,487
585,758
2,373
Interest on commission income receivable
82,219
67,491
Mortgage management services
Securitisation transaction fees
Subscription income
Other income
488
1,177
1,689
954
254
925
-
-
Total commissions and other income
820,133
656,801
Commission and other income is accounted for in accordance with AASB 15 – Revenue from contracts with customers. Refer to Note 3(b) for accounting policy.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
65
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
2022
2021
6,162
900
2,922
3,088
6,534
751
1,833
390
2,580
3,104
5,923
593
20,357
14,423
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(b) for accounting policy.
9. Other expenses and employee costs
(a)
Impairment expenses
In thousands of AUD
Impairment of Volt investment 1
Impairment of software intangibles 2
Impairment release on loans and advances
1. Refer to note 14 for further details on impairment.
2. Refer to note 16 for further details on impairment.
(b) Other expenses
In thousands of AUD
Advertising and promotion
Consultancy and professional fees
Information technology
Occupancy costs
Employee costs
Depreciation and amortisation
Note
Note
9(c)
2022
15,000
9,074
(395)
23,679
2022
4,685
5,541
6,885
450
40,946
4,118
62,625
2021
-
-
-
-
2021
1,848
3,441
4,697
431
31,693
2,065
44,175
AFG ANNUAL REPORT 2022 66
NOTES TO THE FINANCIAL STATEMENTS
(c)
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. 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 debt facility
Interest expense on lease liability
Finance expense
11.
Income tax
(a) Current tax expense
In thousands of AUD
Income tax recognised in profit or loss
Current tax expense
Current period
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% (2021: 30%)
Non-assessable income
Non deductible expenses
(Under)/over provision in prior periods
2022
28,249
7,631
702
1,360
3,004
2021
21,990
5,868
416
1,168
2,251
40,946
31,693
2022
233
26
259
913
176
1,089
2021
273
480
753
-
187
187
2022
2021
19,354
(163)
1,475
20,666
2022
(135)
-
2022
60,378
18,113
(1,498)
4,513
(163)
21,141
25
(1,705)
19,461
2021
(418)
(517)
2021
70,765
21,229
(1,676)
-
25
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
In thousands of AUD
Other adjustments
67
2021
(117)
19,461
2022
(299)
20,666
(b) Current tax assets and liabilities
The current tax asset for the Group of $1,674k (2021: current tax liability $3,260k) 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:
In thousands of AUD
Property, plant and equipment
and intangibles
Contract asset
Employee benefits
Assets
Liabilities
Net
2022
2021
2022
2021
2022
2021
(1,017)
(447)
7,007
-
5,990
(447)
-
-
335,859
307,497
335,859
307,497
Trade and other payables
(308,413)
(282,425)
Other items
(6,037)
(4,812)
(1,352)
(2,109)
-
-
-
-
-
-
Tax (assets) / liabilities
(316,819)
(289,793)
342,866
307,497
Set off of tax
316,787
289,793
(316,787)
(289,793)
(1,352)
(2,109)
(308,413)
(282,425)
(6,037)
26,047
-
(4,812)
17,704
-
Net deferred tax (assets)/liabilities
(32)
-
26,079
17,704
26,047
17,704
12. 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
2022
83,431
1,250
84,681
152,637
31,267
183,904
268,585
268,585
2021
105,700
1,230
106,930
111,500
7,618
119,118
226,048
226,048
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 2022 was 0.55% (2021: 0.42%). The deposits had an average maturity of 69 days
(2021: 72 days).
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 29.
AFG ANNUAL REPORT 2022 68
NOTES TO THE FINANCIAL STATEMENTS
(b) Reconciliation of cash flows from operating activities
In thousands of AUD
Cash flows from operating activities
2022
2021
Profit for the period from continuing operations
39,712
51,304
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
Impairment and writedown of other assets
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
Provision for ECL
Other non-cash movements
Working capital adjustments:
Changes in assets and liabilities
Increase in receivables and prepayments
Increase in trade and other payables
(Decrease)/Increase in contract liability
Increase in employee entitlements
Increase in provisions
Cash generated from operations
Income tax paid
Net cash generated by operating activities
13. Trade and other receivables
In thousands of AUD
Current
Trade and other receivables 1
Other receivables2
Accrued income
Prepayments
1. Includes Fintelligence and BrokerEngine trade and other receivables.
2. Prior period included the Thinktank contingent payment held in a term deposit $992k.
20,666
4,118
276
2,260
24,074
(259)
1,360
(5,937)
(96,313)
88,377
(395)
-
77,939
(10,425)
10,611
(1,773)
779
151
77,282
(25,379)
51,903
19,461
2,065
295
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
2022
2021
1,761
240
3,681
5,682
6,084
11,766
147
1,173
398
1,718
3,927
5,645
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
69
14. Other asset
In thousands of AUD
Current
Other Asset1
2022
2021
-
-
15,000
15,000
1. Other asset in the prior period related 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.
On 12 July 2021 AFG completed a strategic alliance with neobank, Volt, including a $15M investment providing AFG with an 7.07%
shareholding in Volt Corporation Limited (“Volt”). On 29 June 2022, Volt announced the ceasation of the business effective immediately. The
Group has recognised an impairment of $15M on the investment as at 30 June 2022.
15. Contract assets
In thousands of AUD
Current
2022
2021
Net present value of future trail commissions contract asset
231,212
209,355
Non-current
Net present value of future trail commissions contract asset
915,714
841,258
1,146,926
1,050,613
The Group’s exposure to credit and currency risks and impairment losses related to contract assets are disclosed in Note 29.
16.
Intangible assets and goodwill
Customer
related
intangibles
Software -
Internally
Generated
Software -
Acquired
Other
intangibles
Goodwill
Total
In thousands of AUD
Consolidated
Balance at 1 July 2020
Additions
Amortisation
Balance at 30 June 2021
Balance at 1 July 2021
Acquisitions
Additions
Write-offs
Amortisation
-
-
-
-
-
17,2992
-
-
(1,687)
15,612
3,242
6,5411
(353)
9,430
9,430
-
12,4751
(9,075)4
(145)
12,685
-
-
-
-
-
3,983
-
-
(399)
3,584
76
-
-
76
76
-
(12)
-
-
64
-
-
-
-
-
60,7483
-
-
-
60,748
3,318
6,541
(353)
9,506
9,506
82,030
12,463
(9,075)
(2,231)
92,693
Balance at 30 June 2022
1. The software acquisitions relate to work in progress.
2. The $17.3M acquisitions relate to broker network acquired through business combinations during the year ended 30 June 2022. Refer to Note 30.
3. The $60.7M goodwill relates to the Fintelligence and BrokerEngine acquisitions. Refer to Note 30.
4. An impairment of $9M was recognised on software intangibles where the recoverable amount was determined to be lower than its carrying amount.
The Group tests whether goodwill has suffered any impairment on an annual basis. Goodwill relates to the acquisition of Fintelligence and
BrokerEngine which occurred during the financial year, calculated as the consideration transferred and the amount recognised for non-
controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed (refer to note 30). The
Group’s accounting of the business combination for the acquisitions during the year is still provisional. It is still provisional as Goodwill
remains unallocated as the Group is yet to finalise the allocation of the Goodwill to CGU’s (Cash Generating Unit). Goodwill impairment testing
will be completed on finalisation of the provisional business combination accounting.
AFG ANNUAL REPORT 2022 70
NOTES TO THE FINANCIAL STATEMENTS
17. 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
2022
2021
1,452,527
862
1,453,389
841,490
1,299
842,789
3,350,407
2,562,041
1,656
(2,877)
1,544
(3,272)
3,349,186
2,560,313
4,802,575
3,403,102
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 9.89% p.a. (2021: 9.58% p.a.).
b) Loan and advances to McCabe St Limited (related party) was repaid during the year ended 30 June 2022 (2021: $230k).
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 $2,877k
(2021: $3,272k).
During the financial year, new loans issued in the Group’s securitisation programme were $2,719,683k (2021: $1,345,534k). The Group’s
exposure to credit, currency and interest rate risks related to loans and advances is disclosed in Note 29.
18.
Investment in associates
In thousands of AUD
Non-current
Thinktank
Cost of investment1
Share of post-acquisition profit
Dividends received
Purchase additional shares
MAB Broker Services Pty Ltd
Cost of investment2
Share of post-acquisition losses
2022
2021
12,629
15,417
(515)
725
28,256
3,700
(535)
3,165
12,629
9,297
-
725
22,651
3,700
(352)
3,348
Total Investment in associates
31,421
25,999
1. Investment in Thinktank Group Pty Ltd (“Thinktank”) includes transaction costs.
2. Investment in MAB Broker Services Pty Ltd includes transaction costs
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
71
Thinktank Investment
AFG holds a 32.20% 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
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.
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
Purchase additional shares
Dividends received
2022
2021
257,716
4,125,087
4,382,803
1,615,050
2,712,281
4,327,331
55,472
154,844
2,351,348
2,506,192
1,606,362
862,082
2,468,444
37,748
156,748
18,913
115,724
16,519
28,256
22,651
15,417
12,629
725
(515)
28,256
9,297
12,629
725
-
22,651
AFG ANNUAL REPORT 2022 72
NOTES TO THE FINANCIAL STATEMENTS
In thousands of AUD
MAB summarised financial information
2022
2021
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
2,108
75
2,183
132
193
325
1,858
758
(381)
2,603
148
2,751
306
183
489
2,262
540
(632)
3,165
3,348
(535)
3,700
3,165
(352)
3,700
3,348
19. 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
Acquisition of controlled entities
Depreciation
Carrying amount at 30 June
Lease Liabilties
In thousands of AUD
At 1 July
Additions
Acquisition of controlled entities
Repayments
Accretion of interest
Carrying amount at 30 June
2022
2021
4,979
1,367
365
(1,598)
5,113
6,323
125
-
(1,469)
4,979
2022
2021
5,362
1,367
367
(1,791)
276
5,581
6,559
125
-
(1,616)
294
5,362
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
In thousands of AUD
Current
Non-current
Carrying amount at 30 June
73
2021
1,298
4,064
5,362
2022
1,551
4,030
5,581
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
2022
2021
1,551
1,647
1,463
393
207
320
5,581
1,298
1,275
1,348
1,239
202
-
5,362
20. Trade and other payables
In thousands of AUD
Current
Note
2022
2021
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
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.
208,546
89,853
7,353
305,752
832,487
832,487
187,309
77,863
5,756
270,928
765,347
765,347
1,138,239
1,036,275
AFG ANNUAL REPORT 2022 74
NOTES TO THE FINANCIAL STATEMENTS
Interest-bearing liabilities
21.
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
Debt facility 2
Non-current
Securitisation warehouse facilities
Securitised funding facilities1
Debt facility 2
2022
2021
1,598,339
995,159
4,847
886,000
637,920
-
2,598,345
1,523,920
214,689
-
2,088,602
1,933,792
47,679
-
2,350,970
1,933,792
4,949,315
3,457,712
1. Securitised funding facilities include RMBS and risk retention facilities
2. Corporate debt facility used to fund the Fintelligence acquisition.
Terms and debt repayment schedule
Terms and conditions of outstanding loans were as follows:
2022
2021
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
1.43%
2023
1,813,028
1,813,028
1.83%
2022
886,000
886,000
Securitised funding
facilities
Debt Facility
1.42%
2023-2027
3,088,491
3,083,761
1.43%
2022-2026
2,575,245
2,571,712
2.75% +
BBSW
2023-2026
52,526
52,526
-
-
-
-
4,954,045
4,949,315
3,461,245
3,457,712
(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 lenders
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 $488,800k (2021: $363,500k). The interest is
recognised at an effective rate of 1.43% (2021: 1.83%). As at the reporting date we have three securitisation warehouse facilities, expiring on
the 12 December 2022, 11 April 2023 and 13 November 2023.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
75
(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 1.42% (2021: 1.43%).
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 $12,500k (2021: $13,715k). 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 2022 was $144,186k (2021: $109,234k).
(b) Debt facility
The Group entered into a debt facility agreement with National Australia Bank Ltd on 20 December 2021. The $52.5M facility was used to fund
the Fintelligence 70% acquisition. The loan is for a period of 5 years. The interest rate on the loan is 2.75% + BBSW.
(c) 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.
2022
300
473
773
36
473
509
264
264
2021
200
230
430
71
230
301
129
129
AFG ANNUAL REPORT 2022 76
NOTES TO THE FINANCIAL STATEMENTS
22. Non-interest-bearing liabilities
In thousands of AUD
2022
2021
Put/call liability Fintelligence
Put/call liability BrokerEngine
Fintelligence
18,200
1,980
20,180
-
-
-
On 22 December 2021, the Group acquired a 75% stake in leading asset finance aggregator, National Finance Alliance Pty Ltd, trading as
Fintelligence. AFG has an exclusive call option to acquire the remaining 25% interest in Fintelligence over the next three and a half years with
value linked to Fintelligence achieving agreed milestones. The minority shareholders also have a similar put option to require AFG to purchase
the remaining 25% interest in Fintelligence on the same terms as the call option.
The put and call option to acquire the remaining 25% of the business is exercisable evenly across FY23, FY24 and FY25 and is subject to a
valuation matrix based on profitability and broker numbers. The exercise of the FY23 and FY24 options can be deferred until FY24 and FY25 or
all until FY25 at the election of the minority shareholders. The put and call option cannot be deferred beyond FY25. The Group has recognised
a liability in relation to this option against an equity reserve. The exercise price and the timing for the exercise of the put/call options is
variable until FY25 and could result in a subsequent revision to the put/call liability recognised. Any changes to the fair value of the liability
will be subsequently measured at fair value through profit or loss. There has been no changes in the fair value of the liability during the year
ended 30 June 2022. The call or put will be settled through an EBITDA multiple when call or put is exercised, and that gives rise to potential
pricing risk.
BrokerEngine
On 12 January 2022, the Group completed the acquisition of a 70% stake in leading mortgage broker software business, BrokerEngine. The
acquisition supports AFG and BrokerEngine’s shared mission to build technology solutions to drive business growth and enhance customer
outcomes in the Australian mortgage industry. BrokerEngine is a highly successful mortgage broker workflow platform used by brokers
across the industry, including many AFG brokers. As part of the transaction, AFG has an option to increase its stake to 100% over the next
two years, subject to performance hurdles.
The put and call option to acquire the remaining 30% of the business is exercisable in FY24 (two years after completion of the transaction).
The Group has recognised a liability in relation to this option against an equity reserve. The exercise price and the timing for the exercise of
the put/call options is variable until FY24 and could result in a subsequent revision to the put/call liability recognised. Any changes to the
fair value of the liability will be subsequently measured at fair value through profit or loss. There has been no changes in the fair value of the
liability during the year ended 30 June 2022. The call or put will be settled through revenue multiple (revenue and profit gateway conditions)
when call or put is exercised, and that gives rise to potential pricing risk.
23. Employee benefits
In thousands of AUD
Current
Salaries and wages accrued
Liability for long service leave
Liability for annual leave
Non-Current
Liability for long-service leave
2022
2021
3,224
1,681
2,195
7,100
103
103
3,094
1,449
1,620
6,163
120
120
7,203
6,283
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
24. Provisions
In thousands of AUD
Provision for Clawbacks1
Provision for make good
Provision for contingent payment2
Provision other
77
2021
1,508
199
-
1,620
3,327
2022
1,627
178
924
-
2,729
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(l)).
2. Provision for contingent payment to BrokerEngine (see Note 30). The contingent payment relates to the contingent consideration payable for the remaining initial
consideration for a 70% stake in BrokerEngine payable in FY23.
25. Contract liability
Contract Liability
In thousands of AUD
Current
Sponsorship income
Unearned income
26. Capital and reserves
(a) Share capital
2022
2021
6,657
251
6,908
8,400
281
8,681
The Company
Share Capital ($’000)
Number of Ordinary shares (’000)
On issue at 1 July
Issued for cash
Share issue costs
2022
102,125
-
-
2021
102,157
-
(32)
2022
268,382
-
-
2021
267,741
641
-
On issue at 30 June – fully paid
102,125
102,125
268,382
268,382
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.
AFG ANNUAL REPORT 2022 78
NOTES TO THE FINANCIAL STATEMENTS
(b) Dividends
2022
Final 2021 ordinary
1st interim 2022 ordinary
2021
Final 2020 ordinary
1st interim 2021 ordinary
Declared but not recognised as a
liability:
2022
Final 2022 ordinary
Cents per share
Total amount
($’000)
Franked / unfranked
Date of payment
7.4
7.0
4.7
5.9
9.6
19,916
18,839
38,755
12,614
15,835
28,449
25,836
25,836
100%
100%
100%
100%
23/09/2021
24/03/2022
29/09/2020
18/03/2021
100%
22/09/2022
2022
36,969
86,260
123,229
2021
29,550
68,950
98,500
Dividends declared or paid during the year or after 30 June 2022 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 $123,229k (2021: $98,500k) franking credits.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
79
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
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
2022
38,777
2021
51,304
Thousands
Thousands
269,021
3,692
272,713
268,286
3,427
271,713
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.
The LTIP operates in accordance with the terms of the Australian Finance Group Ltd Employee Share Trust Deed, under which the trustee may
subscribe for, or acquire, deliver, allocate or hold, shares for the benefit of the participants. Participants will be able to access the relevant
taxation concessions available under the Income Tax Assessment Act 1997 (OTAA 1997).
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
1/07/2016
30/06/2019
-
1/07/2017
30/06/2020
593,136
1/07/2018
30/06/2021
1,257,241
Granted
during
the year
593,136
695,396
752,309
1/07/2019
30/06/2022
1,363,398
1,325,215
1/07/2020
30/06/2023
1,987,804
1,349,079
-
-
755,176
640,635
746,487
1/07/2021
30/06/2024
2,652,246
1,017,543
1,129,4281
1. Number vested during the year is calculated on T1 95%, T2 88% and T3 74%.
Vested
during
the year
Expired
during
the year
Forfeited
during the
year
Balance at
the end of the
year
-
-
-
-
-
-
-
593,136
31,291
91,953
1,257,241
1,363,398
146,753
1,987,804
99,789
2,652,246
792,489
2,877,300
AFG ANNUAL REPORT 2022 80
NOTES TO THE FINANCIAL STATEMENTS
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(g)(ii) for further information.
In thousands of AUD
Current
Non-Current
Current
Non-Current
Standard & Poor’s Credit rating
2022
2022
2021
2021
AA-
A+
A
A-
BBB+
BBB
BBB-
Not rated
(ii)
Loans and advances
Exposure to credit risk
109,759
434,702
145,687
585,419
71,641
283,736
28,617
114,993
4
9,341
7,777
9,772
3,383
19,535
14
36,994
30,799
38,703
13,398
77,368
2,087
3,718
6,841
7,911
2,595
11,899
8,388
14,940
27,490
31,790
10,429
47,809
231,212
915,714
209,355
841,258
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
Carrying amount
2022
2021
4,785,285
3,393,462
2,518
14,772
2,613
7,027
4,802,575
3,403,102
Residential mortgage borrowers
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 $8,804,875k (2021: $6,150,469k). During the year ended 30 June 2022 the Group took possession of 1 residential
security. During the financial year 3 securities were sold as mortgagee in possession, 1 did not experience a shortfall, as sales proceeds
exceeded the outstanding loan balance. The other 2 had a combined shortfall of $30k, both did not have Lenders Mortgage Insurance.
In monitoring the credit risk, mortgage securitisation customers are grouped according to their credit characteristics using credit risk
classification systems. This includes the use of the Loan to Value Ratio (LVR) to assess its exposure to credit risk from loans originated
through the securitisation programme.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
81
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
2022
2021
-
13,888
574,693
4,197,402
4,785,983
395
17,417
498,752
2,876,898
3,393,462
1. LVR greater than 80% is required to have Lenders Mortgage Insurance (LMI), resulting in 100% of this balance being insured.
The expected credit loss (ECL) provision has reduced to $2,877k for the year ended 30 June 2022 (2021: $3,272k). This reduction is mainly
driven from reduced COVID hardship cases and property price performances and relatively low unemployment.
A summary of the Groups ECL provision is as follows:
30 June 2021
In thousands of AUD
ECL rate
Basis of recognition
ECL provision
Estimated gross
carrying amount
at default
Carrying
amount (net
of impairment
provision)
Performing
0.09%
12 month expected losses
3,373,469
3,370,552
Basis for
calculation of
interest revenue
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 2022
In thousands of AUD
ECL rate
Basis of recognition
ECL provision
Estimated gross
carrying amount
at default
Carrying
amount (net
of impairment
provision)
Performing
0.06%
12 month expected losses
4,594,261
4,591,472
Underperforming
0.03%
Lifetime expected losses
184,700
184,637
Basis for
calculation of
interest revenue
Gross carrying
amount
Gross carrying
amount
Non-performing
0.36%
Lifetime expected losses
Write off
Total Loans
-
Asset is written off
7,022
-
6,997
Amortised cost
-
None
4,785,983
4,783,106
AFG ANNUAL REPORT 2022 82
NOTES TO THE FINANCIAL STATEMENTS
Total
3,272
-
-
852
-
58
(910)
3,272
Total
3,272
-
-
561
-
(98)
(858)
2,877
In thousands of AUD
Performing
Under
performing
Non-
performing
Write off
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
-
-
-
-
-
-
-
-
In thousands of AUD
Performing
Under
performing
Non-
performing
Write off
Opening loss allowance as at 1 July 2021
2,917
(1)
(79)
544
-
95
(658)
2,818
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 2022
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
59
1
(29)
6
-
(184)
(28)
(175)
296
-
108
11
-
(9)
(172)
234
-
-
-
-
-
-
-
-
30 June 2022
30 June 2021
4,594,261
3,373,469
184,700
7,022
-
8,305
11,688
-
4,785,983
3,393,462
(2,877)
-
(3,272)
-
4,783,106
3,390,190
In thousands of AUD
30 June 2021
Movement
30 June 2022
Stage 1
Stage 2
Stage 3
Total Provision for ECL
2,917
59
296
3,272
(99)
(234)
(62)
(395)
2,818
(175)
234
2,877
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
83
In thousands of AUD
Opening loss allowance as at 1 July
Stage 1
Stage 2
Stage 3
Closing loss allowance as at 30 June
Securitisation assets
30 June 2022
30 June 2021
3,272
(99)
(234)
(62)
2,877
3,272
1,591
(1,320)
(271)
3,272
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 2022 (2021: Nil).
Other secured loans
The Group has minimal exposure to credit risk for loans made during the year. No impairment loss was recognised during 2022 (2021: Nil).
Liquidity risk
(b)
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.
2022
In thousands of AUD
Securitisation
warehouse facilities
Secured funding
facilities1
Net present value
of future trail
commissions payable
Put/call liability2
Debt facility
Trade and other
payables
Carrying
amount
Contractual
cash flows
6 months
or less
6-12
months
1-2 years
2-5 years
More than
5 years
1,813,028
1,848,142
1,127,976
505,477
214,689
-
3,083,761
3,100,991
497,579
497,580
683,413
1,422,419
-
-
1,041,033
1,148,645
141,730
127,971
217,981
419,727
241,236
20,180
52,526
27,178
52,526
-
2,651
97,206
97,206
97,206
6,558
2,625
-
776
11,298
5,250
9,322
42,000
-
-
-
-
-
1,647
2,063
320
Lease liability
5,581
5,581
775
6,113,315
6,280,269
1,867,917
1,140,987
1,134,278
1,895,531
241,556
1.
2.
Excludes set up costs amortisation
Refer to note 22.
AFG ANNUAL REPORT 2022 84
2021
In thousands of AUD
Securitisation
warehouse facilities
Secured funding
facilities1
Net present value
of future trail
commissions payable
Trade and other
payables
NOTES TO THE FINANCIAL STATEMENTS
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
-
-
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
Lease liability
5,362
5,362
649
83,619
83,619
83,619
-
649
-
-
1,275
2,789
-
-
4,499,349
4,701,310
1,344,127
577,207
818,505
1,692,011
269,460
1. Excludes set up costs amortisation
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 12 December 2022, 11 April 2023 and 13 November 2023. 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. For terms and conditions relating to debt facilities
refer to Note 21.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
85
(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
2022
2021
1,146,926
(1,041,033)
105,893
268,585
2,518
1,050,613
(952,656)
97,957
226,048
2,843
4,800,057
3,400,259
(4,949,315)
(3,457,712)
121,845
171,438
1. Discount rate for trail commission receivable and payable is fixed for the life of the loan.
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.
Cash flow sensitivity analysis for variable rate instruments
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 2021 and 2022.
Effect in thousands of AUD
30 June 2022
Variable rate financial assets
Variable rate financial liabilities
Cash flow sensitivity (net)
30 June 2021
Variable rate financial assets
Variable rate financial liabilities
Cash flow sensitivity (net)
After tax profit
After tax equity
100bp
increase
100bp
decrease
100bp
increase
100bp
decrease
35,480
(35,480)
35,480
(35,480)
(18,105)
18,105
(18,105)
18,105
17,375
(17,375)
17,375
(17,375)
25,384
(8,860)
16,524
(25,384)
8,860
(16,524)
25,384
(8,860)
16,524
(25,384)
8,860
(16,524)
AFG ANNUAL REPORT 2022 86
NOTES TO THE FINANCIAL STATEMENTS
(iii)
Prepayment risk
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
+5%
(3,237)
2022
-5%
3,421
+5%
(3,091)
2021
-5%
3,275
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.
Other market risks
(iv)
The Group is exposed to other market risks on the credit support (securitisation loan receivable) provided by the Group in relation to the
warehouse facilities. The value of the loan is dynamic in that it can change due to circumstances including the credit ratings of mortgage
insurers. The Group has assessed that if this were to occur, it would not have a material impact on the Group’s profit after tax and equity.
(d) Accounting classifications and fair values
Fair 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
Financial assets
30 June 2022
30 June 2021
Carrying
amount
Fair value
Carrying
amount
Fair value
Non-current loans and advances
3,352,063
3,271,098
2,563,585
2,555,880
Financial liabilities
Future Trailing commission payable1
1,041,033
1,064,474
952,656
984,195
Non-current securitised funding facilities
2,307,829
2,254,921
1,933,792
1,863,255
Non-current debt facility
47,679
47,679
-
-
1 Note a 4% discount rate (2021:4%) is applied to the fair value calculations. Run off rate and pay out percentage remain consistent with the carrying value
calculation assumptions.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
87
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 2.1% to 7.1%, (2021: 2.2% 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 2022 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.
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 3.8 and 4.8 years
Between 3.1 and 5.0 years
Discount rate per annum
Between 4% and 13.5%
Between 4% and 13.5%
Percentage paid to brokers
Between 85% and 94.8%
Between 85% and 94.3%
30 June 2022
30 June 2021
Securitised funding facilities
The fair value of securitised funding facilities are estimated using discounted cash flow analysis, based on current borrowing rates for
similar types of borrowing arrangements ranging from 1.7% to 3.1% (2021: 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. Business combinations
Fintelligence
On 22 December 2021, the Group acquired a 75% stake in leading asset finance aggregator, National Finance Alliance Pty Ltd, trading as
Fintelligence. The combined group has more than 3,700 brokers and delivers combined asset finance settlements of more than $1.7B
per annum (unaudited), based on combined, proforma results. AFG has an exclusive call option to acquire the remaining 25% interest in
Fintelligence over the next three and a half years with value linked to Fintelligence achieving agreed milestones. The minority shareholders
also have a similar put option to require AFG to purchase the remaining 25% interest in Fintelligence on the same terms as the call option.
The Group paid $54.6M for the purchase of 75% of Fintelligence, funded primarily by a new corporate debt facility. The transaction is
expected to be EPS accretive (pre-synergies) in the first full year post integration and the proposed funding structure is expected to allow
the Group to maintain its dividend policy.
From the date of acquisition Fintelligence contribute $26,321k of revenue to the Group. If the combination had taken place at the beginning
of the year, revenue from continuing operations would have been $46,231k and profit before tax from continuing operations for the Group for
the year to 30 June 2022, would have been $10,652k.
AFG ANNUAL REPORT 2022 88
NOTES TO THE FINANCIAL STATEMENTS
The fair values of the identifiable assets and liabilities of Fintelligence as at the date of acquisition, based on provisional business
combination accounting were:
In thousands of AUD
Assets
Cash and cash equivalents
Trade and other receivables1
Other current assets
Property, plant and equipment
Right of use asset
Customer related intangibles (broker network)
Computer software
Fair value
recognised on
acquisition
4,090
1,605
1,443
27
332
17,299
2,314
27,110
1 The fair value of the trade receivables amounts to $1,605k. The gross amount of trade receivables is $1,605k and it is expected that the full contractual amounts
can be collected
In thousands of AUD
Liabilities
Trade and other payables
Accrued and deferred items
Provisions
Lease liabilities
Deferred tax liability
Total identifiable net assets at fair value
Goodwill arising on acquisition (provisional)*
Total identifiable net assets at fair value, including goodwill
Non Controlling Interest
Purchase consideration transferred
Fair value
recognised on
acquisition
(3,965)
(279)
(850)
(355)
(5,812)
(11,261)
15,849
56,950
72,799
(18,200)
54,599
*The valuations may need to be subsequently adjusted, prior to 31 December 2022 (one year after the transaction).
The Group has recognised a liability in relation to the option to acquire the remaining 25% interest in Fintillegence. This liability is recognised
against an equity reserve (refer to note 22).
The fair value of the non-controlling interest in Fintelligence, a non-listed company, has been determined with reference to the price paid by
AFG for 75% of the company. This has also been cross-checked by applying a discounted earnings technique. The fair value measurements
are based on significant inputs that are not observable in the market. The fair value estimate is based on:
• An assumed discount rate of 14.5%.
• Forecasted cash flows for a five year period.
• A terminal value, calculated based on long-term susbtainable growth rates for the industry of 2% which has been used to determine income
for the future years.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
In thousands of AUD
Analysis of cashflows on acquisition
Net cash acquired with the subsidiary (included in cashflows from investing activities)
Cash paid
Net cash flow on acquisition
89
Fair value
recognised on
acquisition
4,090
(54,599)
(50,509)
The Group measured the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition.
The goodwill recognised is primarily attributed to the expected synergies and other benefits from combining the assets and activities of
Fintelligence with those of the Group. The goodwill is not deductible for income tax purposes.
Transaction costs amounting to $865k have been expensed and are included in Other expenses (consultancy and professional fees) in the
statement of profit or loss and are part of operating cash flows in the statement of cash flows. Refer to note 9.
BrokerEngine
On 12 January 2022, the Group completed the acquisition of a 70% stake in leading mortgage broker software business, BrokerEngine. The
acquisition supports AFG and BrokerEngine’s shared mission to build technology solutions to drive business growth and enhance customer
outcomes in the Australian mortgage industry. BrokerEngine is a highly successful mortgage broker workflow platform used by brokers
across the industry, including many AFG brokers. As part of the transaction, AFG has an option to increase its stake to 100% over the next two
years, subject to performance hurdles.
The Group paid $3.6M for the purchase of 70% of BrokerEngine, funded through cash.
From the date of acquisition BrokerEngine contributed $1,264k of to the Group. If the combination had taken place at the beginning of the
year, revenue from continuing operations and profit before tax from continuing operations for the Group for the year to 30 June 2022, would
not have been materially different from that reported.
The fair values of the identifiable assets and liabilities of BrokerEngine as at the date of acquisition, based on provisional business
combination accounting were:
In thousands of AUD
Assets
Cash and cash equivalents
Other current assets
Intangibles
Computer software
Liabilities
Trade and other payables
Deferred tax liability
Total identifiable net assets at fair value
Goodwill arising on acquisition (provisional)*
Total identifiable net assets at fair value, including goodwill
Non Controlling Interest
Contingent payment
Purchase consideration transferred
*The valuations may need to be subsequently adjusted, prior to 1 January 2023 (one year after the transaction).
Fair value
recognised on
acquisition
93
2
3
3,983
4,081
(85)
(1,195)
(1,280)
2,801
3,798
6,599
(1,980)
(924)
3,695
AFG ANNUAL REPORT 2022 90
NOTES TO THE FINANCIAL STATEMENTS
The Group has recognised a liability in relation to the option to acquire the remaining 30% interest in BrokerEngine. This liability is recognised
against an equity reserve (refer to note 22). The Group has also recognised a provision for the contingent payment of $924k, for the remaining
initial consideration for a 70% stake in BrokerEngine payable in FY23 (refer to note 24).
The fair value of the non-controlling interest in BrokerEngine, a non-listed company, has been determined with reference to the price paid by
AFG for 70% of the company. This has also been cross-checked by applying a discounted earnings technique. The fair value measurements
are based on significant inputs that are not observable in the market. The fair value estimate is based on:
• An assumed discount rate of 14.5%.
• Revenue target per the sale agreement.
• Forecasted cash flows for a two year period.
In thousands of AUD
Analysis of cashflows on acquisition
Net cash acquired with the subsidiary (included in cashflows from investing activities)
Cash paid
Net cash flow on acquisition
Fair value
recognised on
acquisition
93
(3,695)
(3,602)
The goodwill recognised is primarily attributed to the expected synergies and other benefits from combining the assets and activities of
BrokerEngine with those of the Group. The goodwill is not deductible for income tax purposes.
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
91
31. 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 1
AFG 2017-1 Trust
AFG 2018-1 Trust
AFG 2019-1 Trust
AFG 2019-2 Trust
AFG 2020-1 Trust
AFG 2020-1 NC Trust
AFG 2021-1 Trust
AFG 2021-2 Trust
AFG 2022-1 NC Trust 2
AFG 2022-1 Trust 2
AFG 2010-2 Pty Ltd
AFG 2010-3 Pty Ltd
AFG Home Loans Pty Ltd
Australian Finance Group Ltd Employee Share Trust
National Finance Alliance Pty Ltd 3
Credit Conceirge Pty Ltd 3
Broli Finance Pty Ltd 3
Fintelligence Pty Ltd 3
Mortgage Brokers Software Pty Ltd 4
Mortgage Processing Services Pty Ltd 4
Investment in associates
Thinktank Group Pty Ltd
MAB Broker Services Pty Ltd
Country of
incorporation
interest
Percentage Ownership
2022
2021
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
-
Australia
Australia
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
75
75
75
70
70
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
-
100
100
100
100
-
-
-
-
-
32.20
48.05
32.29
48.05
1. AFG 2016-1 Trust was deregistered during the year ended 30 June 2022.
2. AFG 2021-2 Trust, AFG 2022-1 NC Trust and AFG 2022-1 Trust were incorporated during the year ended 30 June 2022.
3. The Group acquired 75% of the Fintelligence entities during the year ended 30 June 2022.
4. The Group acquired 70% of the BrokerEngine entities during the year ended 30 June 2022.
AFG ANNUAL REPORT 2022 92
NOTES TO THE FINANCIAL STATEMENTS
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
13% (2021: 20%) 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 63% (2021: 63%).
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
• AFG 2022-1 NC
2022
35,114
-
560
700
3,165
3,325
5,005
104
2021
22,521
450
560
700
3,930
3,325
4,750
-
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).
32. Parent entity
Throughout the financial year ending 30 June 2022, 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
2022
2021
31,040
31,040
34,139
34,139
2022
2021
215,628
263,404
1,245,010
1,146,688
215,634
224,678
1,128,153
1,003,340
AFG ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS
93
In thousands of AUD
Total equity of the parent entity comprising of:
Share capital
Reserves
Retained earnings
Total equity
See Notes 33 and 34 for the parent entity capital and other commitments, and contingencies.
33. Capital and other commitments
There are no capital commitments as at the reporting date.
34. Contingencies
Third Party Guarantees
2022
2021
102,125
(14,353)
29,085
116,857
102,125
4,423
36,800
143,348
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.
35. Related parties
(a) Other related parties
A number of key management personnel held positions in other entities that result in them having control over the financial or operating
policies of these entities.
A number of these entities transacted with the Group in the reporting period. The terms and conditions of the transactions with the other
related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions
to non-key management personnel related entities on an arm’s length basis.
The aggregate amounts recognised during the year relating to other related parties were as follows:
(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 $1,323k (2021: $837k). 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.
(2) 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 $1,194k which has been paid to Qube (2021:
$1,150k). In addition to the above McCabe Street Ltd repaid the loan owing to AFG amounting to $232k in full during the financial year. This
loan was 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
2022
1,920
103
915
24
2,962
2021
2,248
100
1,002
46
3,396
AFG ANNUAL REPORT 2022 94
NOTES TO THE FINANCIAL STATEMENTS
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
Commissions from
related parties
Commissions to
related parties
Commissions from
related parties
Commissions to
related parties
30 June 2022
30 June 2021
Associate
Thinktank
MAB
3,568
-
-
2,310
2,370
-
-
1,383
The amounts disclosed in the table are the amounts recognised as commission income and commission expense during the reporting period
related to associates.
36. Subsequent events
On 29 July 2022, the CBA warehouse facility capacity limit was increased by $535M and on 1 August 2022, the ANZ warehouse facility
capacity limit was increased by $250M
On 25 August 2022, the Directors recommended the payment of a dividend of 9.6 cents per fully paid ordinary share, fully franked based on
tax paid at 30%. The dividend has a record date of 6 September 2022 and a payment date of 22 September 2022. The aggregate amount of
the proposed dividend expected to be paid out of retained earnings at 30 June 2022 is $25,836k. The financial effect of this dividend has not
been brought to account in the financial statements for the year ended 30 June 2022.
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.
37. Auditors’ remuneration
Fees to Ernst & Young (Australia – Amount in AUD)
2022
2021
Fees for auditing the statutory financial report of the parent covering the Group and auditing
the statutory financial reports of any controlled entities
565,430
363,946
Fees for assurance services that are required by legislation provided by the auditor – AFSL &
APRA
Fees for other services – CBA lender review program
Fees for other services - Agreed upon procedures
Total fees to Ernst & Young (Australia)
Fees to other overseas member firms of Ernst & Young (Australia)
Total Fees to Ernst & Young
31,000
-
-
55,500
55,000
46,594
596,430
521,040
-
-
596,430
521,040
AFG ANNUAL REPORT 2022 DIRECTOR’S DECLARATION
95
Director’s Declaration
In accordance with a resolution of the Directors of Australian Finance Group Ltd, I state that:
In the opinion of the Directors:
a) The Financial Statements and Notes to the Financial Statements of Australian Finance Group Ltd 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 2022 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 required by Section 295A of the Corporations Act 2001.
On behalf of the Board
Tony Gill
Chair
Dated at Sydney, New South Wales on 25 August 2022
AFG ANNUAL REPORT 2022 96
INDEPENDENT AUDIT REPORT
Independent Audit Report
to the members of Australian Finance Group Ltd
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 2022, 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 2022
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AFG ANNUAL REPORT 2022
INDEPENDENT AUDIT REPORT
97
Page 2
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.
Provision for expected credit loss
Why significant
How our audit addressed the key audit matter
As disclosed in Note 3 Significant accounting policies,
Note 5 Financial risk management and Note 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.
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) such as the financial
condition of the counter party, expected future
cashflows, and forward-looking macroeconomic
factors (e.g. unemployment rates, interest rates,
gross domestic product growth rates, and
property prices) as disclosed in Note 3;
the incorporation of forward-looking information
to reflect current or future external factors,
specifically judgements related to the expected
ongoing impact of COVID-19, both in the
weighting determined for the downward
scenarios and the staging of counterparties who
have asked for a deferral of payments as
disclosed in Note 3.
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.
On a sample of individual exposures, we assessed 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
management overlays;
sensitivity of the collective provisions to changes
in modelling assumptions; and
reasonableness of macroeconomic scenarios at
balance date.
We also involved our Actuarial and IT specialists in the
performance of these procedures where required.
We assessed the adequacy and appropriateness of
the disclosures related to credit impairment in the
financial statements.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AFG ANNUAL REPORT 2022
98
INDEPENDENT AUDIT REPORT
Trail commission
Why significant
As disclosed in Note 3 Significant accounting policies,
Note 4 Determination of fair values and Note 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
►
loan book run-off rate assumptions.
Page 3
How our audit addressed the key audit matter
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.
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 also involved our Actuarial and IT specialists in the
performance of these procedures where required.
We assessed the adequacy and appropriateness of
the disclosures related to trailing commission in the
financial statements.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AFG ANNUAL REPORT 2022
INDEPENDENT AUDIT REPORT
99
Page 4
Accounting for the acquisitions
Why significant
How our audit addressed the key audit matter
As disclosed in Note 3 Significant accounting policies
and Note 30 Business Combinations, the Group
completed two acquisitions during the period that
resulted in the Company acquiring controlling
interests in the investees. These acquisitions were
accounted for as a business combination in
accordance with AASB 3 Business Combinations
(AASB 3) using the acquisition method where the
Group has performed a provisional purchase price
allocation (“PPA”) exercise.
This is a key audit matter due to the quantitative
materiality of the Fintelligence acquisition, the
inherent complex nature in acquisition accounting
and tax implications.
Key areas of judgement included:
►
►
►
the determination of the fair value of the
acquired identifiable assets and liabilities
assumed, including any separable intangible
assets;
allocation of purchase consideration; and
assessment of impairment for Goodwill and
intangible assets acquired.
Our audit procedures included the following:
We assessed:
►
►
the alignment of the Group’s business
combination accounting and the associated PPA
calculations with the requirements of AASB 3;
the reasonableness of management’s
methodology and assumptions applied in the
valuation of the fair value of assets and liabilities
acquired;
► management’s calculation for the value
attributable to the non-controlling interest;
► management’s calculation for the fair valuation of
the put/ call liability for the acquisition of the
remaining 25% interest in Fintelligence;
►
►
►
►
the accounting for tax on the acquired assets and
liabilities;
the competence, objectivity and independence of
management’s external specialists involved in the
valuation;
the consolidation of the acquired entity’s
balances into AFG financial reporting; and
the consolidation adjustments made at the AFG
level.
We also involved our internal valuation specialists in
the performance of these procedures where required.
We assessed the adequacy and appropriateness of
the disclosures related to the acquisitions in the
financial statements.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AFG ANNUAL REPORT 2022
100
INDEPENDENT AUDIT REPORT
Page 5
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 2022 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AFG ANNUAL REPORT 2022
INDEPENDENT AUDIT REPORT
101
Page 6
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.
► 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AFG ANNUAL REPORT 2022
102
INDEPENDENT AUDIT REPORT
Page 7
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.
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 2022.
In our opinion, the Remuneration Report of Australian Finance Group Limited for the year ended
30 June 2022, 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
25 August 2022
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AFG ANNUAL REPORT 2022
SHAREHOLDER INFORMATION
103
Shareholder Information
Additional information required by the Australian Securities Exchange Ltd (ASX) and not disclosed elsewhere in this report is set out below.
The information is current as at 29 July 2022.
(a) Number of holders of equity securities
Ordinary share capital
269,128,877 fully paid ordinary shares are held by 7,449 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
207,491,692
44,928,447
9,048,933
6,626,573
1,033,232
269,128,877
55,120
%
No. of holders
77.10
16.69
3.36
2.46
0.38
100.00
0.02
97
1,762
1,159
2,396
2,035
7,449
399
%
1.30
23.65
15.56
32.17
27.32
100.00
5.36
*An unmarketable parcel is considered to be a shareholding of 264 shares or less, being a value of $500 or less in total, based on the
Company’s last sale price on the ASX at 29 July 2022 of $1.89.
(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
Lennox Capital Partners Pty Ltd
Banyard Holdings Pty Ltd ATF The B&K McGougan Trust
# Shares % of issued capital
16,515,594
16,332,632
14,977,994
14,788,765
6.14%
6.07%
5.57%
5.50%
AFG ANNUAL REPORT 2022 104
SHAREHOLDER INFORMATION
(d) Twenty largest holders of quoted equity securities
Rank
Name
A/C designation
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>
OCEANCITY INVESTMENTS PTY LTD
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