Annual
Report
2023
Go far.
Go together.
02
AFG
Annual Report 2023
Contents
04 Year in Review
08 From the Chair
10
14
From the CEO
Sustainability at AFG
29 Director’s Report
38 Remuneration Report
59
Notes to the Financial Statements
116 Director’s Declaration
117
Independent Audit Report to the
Members of Australian Finance Group Ltd
123 Shareholder Information
125 Corporate Directory
Acknowledgment of Country
AFG acknowledges the Traditional Custodians
of the lands across Australia, and we pay our
respects to Elders past, present and emerging.
03
What gets me going
in the morning is the
knowledge that I have
a genuine partnership
with my brokers that
enables us to grow our
businesses together.
Lisa
Partnership Manager — WA
04
Year
in review
Importance of Broker
70%
of residential mortgages
written through a broker
$535B
Residential mortgage
market
FILE-SIGNATURE
1 in 5
Commercial
mortgages written
through a broker
I’m passionate about
passing on my years
of experience and
learnings to new
brokers to fast-track
their success, grow
their business
and succeed in a
competitive market.
Jia Jia
State Manager — WA
$245BCommercial finance marketAFG Annual Report 2023 Importance of AFG in providing a fairer financial future
05
9,000
Products, across
80+
Lenders, used by
3,800
Brokers
Contribution to the community through tax, employees and Foyer FoundationResidential mortgages in Australia written by an AFG brokerCustomers helped by an AFG brokerYear in ReviewAnnual Report 2023 06
AFG
Annual Report 2023
My team works across
the business to leverage
AFG’s rich history of
industry experience
and insights to help the
company make sound
commercial decisions.
Louisa
Commercial Analyst
Strength of AFG
Aggregation & Strategic Investments
$206B
Trail book
Manufacturing
$6.1M
Profit after tax
contribution
$5.6M
Profit after tax
contribution
$1B
RMBS transaction,
a record number
0
Losses for another year
due to Industry leading
credit assessment
processes
$4.5BLoan book Year in Review
Annual Report 2023
07
Proven diversification strategy
delivering solid financial outcomes
$37M
Reported NPAT attributable
to equity holders
24%
Underlying Return
on equity
Portfolio of Businesses
Year in ReviewAnnual Report 2023$202Min cash & liquid investments 08
From
the Chair
Dear Shareholder,
Despite a particularly
challenging period for
Australia’s financial services
sector, I am pleased to report
AFG demonstrated remarkable
resilience in delivering a robust
operating performance in the
2023 financial year.
Greg Medcraft
AFG Chair
Actions taken by the Company in
recent years to strengthen and
diversify the business, combined with
a strong balance sheet underpinned
by sustained fiscal, compliance and
regulatory discipline, have left AFG
well placed to meet the challenges
confronting the industry.
AFG’s proven strategy to build scale
and expand into higher margin lending
services gained momentum during the
past 12 months, providing a platform
for further growth and enabling us to
fulfil our purpose of creating a fairer
financial future.
Driving competition in the
mortgage sector
While Australia’s unemployment rate
remained low during FY23, the impact
of higher interest rates and escalating
inflation flowed through to household
budgets and the cost of living,
denting consumer confidence. In this
environment - and against a backdrop
of record successive increases in the
cash rate - the role played by mortgage
brokers is more important than ever.
Unsurprisingly, the major banks
continue to exert significant influence
over the sector, and if anything, have
increased their market power and
concentration in recent times. The irony
is that the dominance of major lenders
has been aided in part by regulatory
moves to strengthen the nation’s
financial system, including the RBA’s
Term Funding Facility (TFF) which
provided banks low-cost fixed rate
funding for 3 years until mid-2024.
While we acknowledge the TFF was an
appropriate policy response for the time
to buttress the Australian economy
during the COVID-19 pandemic, the
flow-on consequences for the financial
system in 2023 represent a material
advantage for the big players that helps
reinforce the lower capital and funding
cost structure they conventionally enjoy
through their size and scale.
In FY23, the big four banks have not
been shy in wielding this power. With
the playing field further tilted in their
favour, their funding advantages,
evidenced by the gaping divide between
the interest paid to depositors and that
charged to borrowers, together with
higher interest rates for existing home
loan customers over new, has enabled
them to offer discounts and ‘cash back’
deals to lure new customers.
AFG is proud of the longstanding role
we have played in driving competition in
Australia’s home loan market. Against
significant headwinds, we continued
that mission in FY23, with the business
active in both market and policy fronts.
In the market, our mortgage brokers
demonstrated why they are ideally
placed to help borrowers navigate the
changing market conditions. Brokers
provide greater choice, convenience
and competition, which leads to
improved loan pricing and service
across the entire market, ultimately
benefitting all Australian borrowers.
Homebuyers recognise this and are
increasingly relying on mortgage
brokers for help.
AFG Annual Report 2023 From the Chair
Annual Report 2023
In parallel, we worked to improve the
policy landscape. AFG engaged directly
with government to outline a practical
reform initiative to level the playing field
for non-major lenders and introduce
real competition to the market.
We have proposed policymakers
consider a public Residential
Mortgage-Backed Securities (RMBS)
scheme. Based on the track record of
established international programs, a
public RMBS scheme would:
• Lower the systemic risk for lenders,
government and taxpayers through
matched funding of government-
supported mortgage bonds with
zero-risk rating;
• Drive more competition and
choice in the lending market; and
• Lead to lower mortgage rates
for consumers.
We continue to advocate for this policy
through the parliamentary committee
processes and encourage AFG
shareholders to contact policymakers
about the proposal.
Business performance
and dividends
Despite the volatility in the external
environment, we were pleased to report
growth in revenue, with the strength of
our experienced broker network crucial
to our success.
Within our core aggregation business,
broker recruitment remains robust on
the back of a strong value proposition
and a reputation as the industry leader
in support for brokers.
During the year, AFG made significant
progress in our efforts to strengthen
the business for the future.
We were particularly pleased with
the outperformance of our strategic
investments in Fintelligence and
BrokerEngine. Both acquisitions
performed well, further promoting
the diversity of our earnings streams.
Similarly, our five-year partnership
with ThinkTank continued to perform
strongly, significantly increasing its
contribution to our profit.
09
It’s a privilege to work with the Board
and management team and I’m excited
about the prospects for AFG over the
longer term.
Sustainability
Guided by the United Nations
Sustainable Development Goals, AFG
remains committed to driving value for
all stakeholders through operating our
business in a sustainable and socially
responsible manner.
While we are the first to acknowledge
there is more work to be done, our
journey toward sustainability is making
good progress.
Our sustainability reporting, now in its
third year as a standalone section, is
increasingly detailed.
I would also draw your attention
to our partnership with the Foyer
Foundation, a national organisation
focused on youth homelessness and
unemployment. Now in our third year
as Principal Partner, we are excited
about the progress being made
supporting young people at risk of
homelessness into employment and
educational pathways on the back of
access to stable accommodation.
Looking ahead
We want to assure shareholders that
everyone at AFG, from the Board
down, is leaving no stone unturned
in continuing to strengthen and grow
the business.For AFG and the sector
more widely, the macroeconomic
environment will undoubtedly remain
challenging in the year ahead. Despite
the ongoing uncertainty, the Board
remainsconfident the structure of the
business, and an experienced executive
team, led by David, will hold AFG in
good stead to meet the challenges
facing the industry.
We enter FY24 confident about our
strong balance sheet and diversified
income streams, supported by a growth
strategy to build on these strengths.
On behalf of the board, I extend my
thanks to AFG employees, our network
of brokers and our lender partners
for the dedication and commitment
displayed throughout the year. And
to shareholders, thank you for your
continued support.
As the Australian economy enters
a period of population growth,
housing constraints and the need
for investment in the sector requires
the focus of government and the
private sector. AFG’s investments in
diversification and technology enables
AFG’s core distribution channel to be at
the forefront of the opportunities that
will come as the country tackles the
housing shortfall.
To allow the company to further invest
in the growth of the business, AFG
has taken the decision to temporarily
reduce our dividend payout ratio to
60 percent for FY23.
During this period of strategic
reinvestment in the business the
board has determined a fully franked
final ordinary dividend of 4.1 cents
per share, representing 60 percent of
underlying NPATA. The total ordinary
dividend for the 2023 financial year is
10.7 cents per share, compared to 16.2
cents per share last year. The full year
payout represents a yield of 6.0 percent
(share price as at 30 June 2023).
AFG has net unrestricted cash,
trail book and investments of
$202.1 million.
Board
During the year, Tony Gill, our chair
for the past 15 years, retired from
the board. Tony’s contribution to the
evolution of AFG is immeasurable.
Tony guided the business through an
extraordinary period of expansion since
2008, driving the diversification strategy
and cementing AFG as an industry
leader. Notably, he led the business
through its successful listing on the
Australian Securities Exchange in 2015.
On behalf of the board, I thank Tony
for his strong and visionary leadership,
which has helped shape the culture and
values of the business and set it up for
success over the long term. We wish
him well.
I also want to acknowledge the counsel
and support from my fellow board
members since assuming the role of
chair in April 2023.
I want to assure shareholders that they
should expect a continuation of the
sound governance processes that have
served the business so well. With my
professional background, I have a deep
understanding of the value of good
governance and strong compliance
being embedded across the business.
10
From
the CEO
AFG demonstrated the
fundamental strength of its
core distribution business in the
2023 financial year, navigating
a convergence of events that
created significant headwinds
for the industry, to record a
strong financial result.
David Bailey
CEO
In the face of the ongoing market
volatility, our strategy to diversify
income streams has allowed the
business to weather the turbulent
residential market conditions driven by
policy intervention and the structural
funding disadvantage for non-major
lenders. It has resulted in reduced
competition and fewer alternatives for
homebuyers.
While the 12 months to 30 June 2023
were tougher than expected at the
start of the financial year, AFG reported
Underlying NPATA of $48.3 million,
down from $55.8 million previously.
The strength of our balance sheet and
strong cash generation helped deliver a
TSR of 29 percent for the 3-year period
to 30 June 2023, which was 1.8 times
that of the S&P ASX Small Industrials,
while also returning $43.7 million in
dividends to shareholders in FY23.
The next 18 to 24 months of
reinvestment in diversification and
technology are setting up AFG’s
expanding network of 3800-plus
brokers for sustained success and
in turn help to underpin future growth
for AFG.
Our performance in FY23 reflects the
commitment to high levels of service
consistently offered by our brokers,
our people and the strong leadership
of the AFG management team. Our
teamwork and culture set us apart from
the market and is valued by our brokers
and customers.
Enhancing competition
and choice
The scale of AFG’s broker network
remains one of our strengths. This is
best illustrated by the fact that one
in every 10 mortgages in Australia is
secured through an AFG mortgage
broker, but given the external
landscape, margins came under
increasing pressure across the sector,
with AFG not immune from the impact.
Despite these challenges AFG reported
continued strong demand for our
mortgage broking and lending services
in 2023, helping deliver an underlying
gross profit of $122.8 million.
Having expanded our ranks of asset
finance brokers through the acquisition
of our majority stake in Fintelligence,
AFG reported $2.6 billion in asset
finance settlements in FY23, nearly
double that of last year. The combined
residential and commercial loan book
increased by seven percent to $206.5
billion, with a residential loan book of
$194.5 billion and a commercial loan
book of $12 billion.
After three consecutive quarters of falls
in volume, we reported an uplift in the
final quarter as three of the four banks
started to phase out cash back offers,
providing AFG some momentum as
FY24 unfolds.
One of AFG’s strengths continues to be
the quality of our loan book.
AFG Annual Report 2023 From the CEO
Annual Report 2023
11
AFG Securities reported a resilient
performance in a challenging year.
At the end of the year, the AFG
Securities loan book stood at
$4.5 billion, with a net interest margin
of 136 bps and while lower than this
time last year remains in line with the
average we’ve achieved since listing.
Since acquiring 75 percent of
Fintelligence in December 2021,
asset finance broker numbers have
more than doubled, and monthly
settlements increased from $68 million
to $312 million for the combined group
at the end of FY23. We have an option
to acquire the balance of the business.
While AFG Securities felt the impact of
the uneven playing field we remained
disciplined and opted to avoid writing
sub-economic home loans. The
prudence of that decision has been
supported by the winding back of that
short-term focus by the major players
in recent months.
The benefit of our unique combination
of the strength of our lending products
and our-broker network was on display
again this year with AFG Securities
once again the leading non-bank lender
on the AFG panel.
While arrears increased, no losses
were recorded in FY23, reflecting the
industry-leading position held by AFG
Securities. Out of an abundance of
caution, we increased provisioning in
recognition that some borrowers are
doing it tougher.
Investing in the business
Mortgage brokers continue to be
attracted to AFG’s value proposition.
Our focus on helping brokers
support customers through a full
service offering and providing them
with a platform for diversification
differentiates AFG.
We are particularly pleased with
our investments in BrokerEngine,
Fintelligence and Thinktank, which
have performed strongly since their
acquisition and contributed about 32
percent of our FY23 earnings.
Our Thinktank investment is now in
its fifth year and continues to go from
strength to strength. Driven by over
17 years of industry experience and
its innovation in product, delivered
settlement growth of 3 percent, with
the loan book at $5.3 billion.
We have established a spot and refer
program for AFG brokers who prefer
to focus on their residential lending
businesses and many of AFG’s
residential brokers have established
dedicated asset finance businesses
now operating under the Fintelligence
umbrella, providing important
diversification opportunities.
Similarly, the BrokerEngine business
has performed strongly in its first 18
months as part of the AFG business.
Subscribers on the platform have
grown from 1,000 to 2,300, with users
welcoming the greater functionality
built into the platform since acquisition.
Along with our strengthened digital
platforms, these acquisitions reinforce
our commitment to expand the
services available to our broker network
and their customers.
AFG is continuing to invest in the
business to expand capability and
improve efficiency to drive growth and
we can report on significant progress
made in embedding our technology
platform upgrades across the business.
While a complex and challenging area
for the business, this investment is
already increasing the options for our
community of brokers.
We successfully completed a project
initiated during the year to deliver a new
platform for AFG Securities, enabling it
to scale efficiently and helping to better
position AFG Securities for competition
and the introduction of new products.
During the year, AFG welcomed
experienced senior executives to
the leadership team, with Luca
Pietropiccolo appointed as Chief
Financial Officer and Sam McCready
joining as Chief Customer Experience
and Digital Transformation Officer. After
25 years with AFG spanning finance,
risk management, company secretariat,
legal and human resources functions,
Lisa Bevan assumed the role of Chief
Operating Officer. These appointments
represent further investment in our
strategy and our commitment to
growing the business and better
servicing brokers and customers.
Industry environment
Mortgage brokers consolidated their
standing as the dominant residential
channel, with seven out of 10 home
loans in this country secured through
the mortgage broking channel.
In the elevated interest rate landscape
of the past year, mortgage brokers
become increasingly important.
With cost-of-living pressures biting,
consumers are demanding more for
less. Our continuing investment in
our strategic investments and new
technology supports our brokers
to deliver that assistance to their
customers.
This dynamic underlines why the
strength of our knowledgeable broker
network and access to market-leading
products and services is fundamental
to our success.
With broker share of the $245
billion+ commercial market hovering
around 20 percent, there is huge
potential for growth through white
label and manufacturing products.
Our investments in Fintelligence and
Thinktank provide assured access
to this market and the opportunity to
replicate our success in the residential
channel to other asset classes.
12
AFG
Annual Report 2023
Working to support AFG’s customers
and network of brokers, our people
remain focused on our four
strategic pillars:
• consolidating and growing our
distribution network;
•
leveraging our distribution to deliver
higher margin services;
• harnessing technology to make
AFG more agile, competitive and
profitable; and
• sustaining growth and
shareholder value.
The strength of our broker network
and more than 80 lenders on our panel,
provides the scale to continue to lead
in the provision of market-leading
services to our customers. We are
continuing to invest in the business to
expand capability, improve services and
underpin future growth.
I want to thank everyone at AFG for
their dedication to our brokers and
customers. Their commitment to
strengthening the business continues
to serve the interests of shareholders.
For the second successive year, AFG
has been recognised as Australia’s
leading aggregation business by the
Mortgage & Finance Associationof
Australia. I’m delighted with the
acknowledgement for AFG as the
award reflects the views of our industry
peers. Securing the 2023 MFAA
Aggregator of the Year award once
again demonstrates that we continued
toexpand our value proposition to
brokers and their customers and what
we are offering is clearly resonating.
Looking ahead
With inflation remaining a key challenge
for the economy, the market remains
cautious that further interest rate
increases could be in store but there is
growing confidence the current interest
rate cycle remains at or near the peak.
With cyclical headwinds likely to ease,
low unemployment and migration
levels rebounding after the restrictions
in place during the pandemic, we have
confidence in the resilience of the
housing market and a transition to a
more stable outlook in FY24.
I remain confident AFG will continue
to deliver on its strategy and perform
strongly on the back of a strong
balance sheet supported by
reliable cashflow.
We are determined to deliver growth
for our shareholders and prudent
capital management.
From the CEO
Annual Report 2023
1313
Working with brokers
to better understand
their businesses and
processes is the secret
to designing better user
experiences across our
digital platforms.
Olivia
UX Designer
Year in ReviewAnnual Report 2023 14
AFG
Annual Report 2023
Sustainability
at AFG
I am pleased to deliver our
third report on the company’s
Environmental, Social and
Governance practices.
Greg Medcraft
Chair
Sustainability at AFG
Annual Report 2023
15
AFG Carbon Footprint
leaf
leaf
1,484.1
Gross tonnes of carbon dioxide
equivalent (t CO2-e)
594.8
Net tonnes of carbon dioxide
equivalent (t CO2-e)
* net footprint calculated after taking into account 399.3t (Co2-e) allowances for the use of carbon neutral products and
services and AFG’s purchase of 490 (t Co2-e) of offsets from Greenfleet Australia to cover business travel.
Principal Partner
The Foyer Foundation vision is all
young Australians experiencing
disadvantage have a pathway to
education, training and employment
that is founded on access to stable
and secure housing.
United Nations Sustainable Development Goals
16
Sustainabilty
Approach
AFG’s approach to
sustainability aligns with
our purpose of creating a
fairer financial future.
For 29 years the Group has
been on a mission to create
competition and financial
choice for Australians by
protecting, backing and
championing the broker
industry on behalf of
our brokers.
Our role in the industry has been
recognised through AFG’s winning of
the “Aggregator of the Year” title for the
second consecutive year at the 2023
Mortgage and Finance Association
of Australia (MFAA) Excellence
Awards, announced in July 2023.
These prestigious awards recognise
the “best of the best” in our industry
in areas including customer service,
professionalism, ethics, growth
and innovation.
Our success as an organisation is
underpinned by the quality of our
business strategy, strength of our
management team, knowledge,
experience and talent of our employees,
and our desire to comply with the
highest standards of corporate
conduct, ethics and governance.
To that end, AFG is committed to
operating in a sustainable manner
and we continue to strengthen our
environment, social and governance
(ESG) foundations, by embedding
the right policies and practices
across the organisation.
By doing so, AFG is striving to
achieve a fairer and more prosperous
outcome for all stakeholders, including
employees, customers, shareholders
and the community.
Our approach is guided by the United
Nations Sustainable Development
Goals. AFG has identified eight key
goals where we believe our company
can make the biggest difference.
AFG Annual Report 2023 17
Governance
Reporting to the board is the AFG
Management Sustainability Committee
which was established in 2021 to
help strengthen the organisation’s
sustainable policies and practices.
The committee updates the board on
sustainability at least once per quarter,
via the Chief Executive Officer.
To complement the Management
Sustainability Committee’s efforts is a
Staff Sustainability Committee, known
as the “Green Team”. Comprising
members from all State offices,
the Green Team takes a grassroots
approach to embedding sustainability
across the organisation.
Our Diversity, Equity and Inclusion
committee is also integral to our
sustainability approach, while our
Modern Slavery Working Group
is responsible for monitoring and
reporting on human rights practices
within our supply chain.
AFG considers good
governance to be crucial in
delivering upon our strategic
goals, which includes creating
long-term value for all
stakeholders, and becoming a
more sustainable company.
AFG Board
AFG Management
Sustainability
Committee
Staff
Sustainability
Committee
(Green Team)
Modern
Slavery
Working
Group
AFG Diversity,
Equity and Inclusion
Committee
Our practices are consistent with the
ASX Corporate Governance Council’s
Principles and Recommendations
(4th Edition) and we have a strong
framework in place to ensure all
regulatory obligations and legal
requirements are met. This includes
a full suite of policies and processes
which helps underpin our culture and
approach to how we do business.
These policies can be found on
the AFG Investor Centre:
www.afgonline.com.au/investors/
Included is the AFG Code of Conduct
which outlines the standards of
behaviours and actions expected from
our employees and is reinforced by a set
of values, namely Teamwork, Integrity,
Innovation, Growth and Customer.
All employees are expected to read
and be familiar with the Code of
Conduct and adhere to its values and
standards. Mandatory refresher training
on our Code of Conduct and other
relevant Group policies or procedures,
including compliance risk, technology
security and our whistleblower process,
is conducted annually and includes
an assessment.
AFG’s sustainability approach is
overseen by the Board. The Risk and
Compliance Committee evaluates
its adequacy and effectiveness, and
management of environmental and
social sustainability risks across
the organisation.
Sustainability at AFGAnnual Report 2023 18
Protecting customer privacy
and preventing cyber
security risks
AFG takes its responsibility to protect
customer data and privacy seriously.
We apply security and privacy controls
to our handling of personal information,
as guided by our Privacy Policy.
As part of our education and
awareness campaign, all employees
are required to undertake mandatory
training in cyber security at onboarding,
and on an ongoing basis.
AFG is also taking action to keep its
brokers safe.
During FY23 we also increased the
availability of cyber security training
to brokers.
In addition to offering on-demand cyber
security training, specialist training was
also made available through a national
webinar and by offering speaker insight
at the AFG national roadshow, held
across five States.
Human rights
AFG is committed to protecting
the human rights set out in the
International Bill of Human Rights.
We abide by the human rights related
laws of the Australian Government. This
includes the freedom of association, or
rights to join industrial associations, as
outlined in the Fair Work Act 2009.
AFG will produce its third Modern
Slavery statement this year, and during
early 2023 developed a Supplier Code
of Conduct, aimed at encouraging our
suppliers to address human rights and
modern slavery risks.
Elsewhere we focus on Diversity,
Equity and Inclusion, with measurable
objectives in place and a dedicated
committee to drive initiatives within
our workplace.
AFG Annual Report 2023 19
Social
Responsible finance
AFG is committed to acting in a
fair and responsible way. This
commitment extends to our support
of our brokers as they arrange finance
for their customers.
Our brokers operate under the
responsible lending obligations of the
National Consumer Credit Protection
Act 2009 (Cth).
In addition, our brokers are also
bound by a legal duty to act in the
best interests of their customers – a
requirement that does not apply when
consumers borrow direct from lenders.
While there is some overlap between
both requirements – particularly in
the processes about making enquiries
about a customer’s financial situation,
best interest duty obligations apply to
conduct and processes as well as the
appropriateness of the credit product
to meet the customer’s individual
requirements and objectives.
Best interest duty obligations therefore
offer a point of difference for the
customer obtaining a loan through
a broker, offering an extra layer of
security for those customers.
To support our brokers in complying
with these obligations, AFG has both
a Best Interests Duty Policy and a
Responsible Lending Policy, which set
out our expectations and the steps
required to ensure these are being met.
AFG brokers are also expected
to comply with an AFG Member
Agreement, including the AFG
Code of Conduct and Applicant
Identification Procedures.
To ensure brokers continue to adhere to
their obligations, the AFG Compliance
team conducts periodical assurance
reviews on all brokers.
Our brokers are required to complete
initial induction training and ongoing
coaching and training on all aspects
of AFG’s Responsible Lending Policy
and AFG’s Best Interests Duty Policy
to ensure they remain competent and
across any relevant legislative changes
when providing credit assistance to
their customers.
Supporting refinancers
In a rising interest rate environment,
our brokers are helping customers
navigate the changing market. In May
2023, AFG developed a new policy to
support brokers with an increasing
number of customers who could
refinance to a better rate but have
been unable to due to serviceability
rules (ie a higher serviceability buffer
for lending assessments).
The new policy enabled AFG brokers
to recommend home loans based
on lending criteria which reduced the
standard 3 percent serviceability buffer
to 1 percent – provided a customer
had met certain requirements
including good repayment history
over the previous 12 months and the
refinanced loan was for the same
amount and term. The modification of
the serviceability buffer meant brokers
could potentially recommend a cost-
saving alternative home loan for their
customers, while still meeting their
best interests duty obligations and
responsible lending criteria.
Following on from the introduction of
this policy, AFG Securities launched
its own product with a 1 percent
serviceability buffer – AFG Retro
Switch – which is available for eligible
customers looking to refinance on a
dollar-for-dollar basis.
Supporting underserved
AFG is committed to financial inclusion
by providing access to finance to those
currently under served in the Australian
mortgage market through its AFG
Securities business.
By maintaining an approach that
focuses on a personalised and
circumstances-sensitive assessment
model, AFG Securities supports
borrowers whose needs may not be
met by the broader banking sector.
Current credit scoring methodologies
can be biased against borrowers with
changeable employment profiles.
Consequently, the self-employed,
sole traders, part-time (often younger)
workers with multiple income sources,
recent migrants or borrowers who
have suffered a one-off life event
that impacted their credit score,
can be disadvantaged.
AFG Securities services this segment
by providing more accessible and
inclusive low-doc mortgages,
achieved through a manual approach
to credit assessment that focuses
on the individual borrower and their
circumstances. Our mortgages offer
flexibility, with rates and terms that are
affordable and responsible.
Sustainability at AFGAnnual Report 2023 20
Our people
People are AFG’s most important asset,
and we continue our commitment to
providing a diverse, safe, healthy and
inclusive workplace where our employees
can prosper and thrive and support the
business to deliver on its purpose.
Our people are encouraged to come
to work and genuinely get to know
each other, to recognise each other
in the work they do and see the
difference each person makes to
the bigger picture.
We see the results of our efforts in
our annual employee survey, where
94 percent of employees believe we
recognise and embrace people of diverse
cultural backgrounds; 90 percent believe
individual differences are respected
and valued; and 89 percent believe we
learn from and correct our mistakes in
a timely manner.
This safe and inclusive environment
where we adapt and learn quickly is
one of our key differentiators as
an employer, and we believe it is a
significant contributor to our diverse
and innovative culture.
Diversity initiatives at AFG are employee
led via the AFG Diversity, Equity and
Inclusion (DEI) Committee, whose
membership includes our CEO and
other Executive members, and volunteer
employees from across the business.
This committee operates with
measurable objectives, and our
progress against these are reported
in the table on the next page.
We also conduct a cyclical ethnicity
survey to understand the cultural and
ethnic composition of our people and
gain insight on impactful changes we
can make for the future.
As an example of one such change, a
meeting room in head office is available
for two hours each day as a prayer
room, enabling employees of all faiths
to observe their faith with minimal
disruption to work commitments.
Our hybrid work policy remains in place,
enabling employees to work from home
for up to two days per week. Flexible
working opportunities, including
part-time employment and, where
possible, modified working hours and
the opportunity to take unpaid leave
and career breaks, support employees
to achieve work life balance.
We continue to recognise the importance
of seeing each other face to face to
collaborate and embrace the social
component of work. AFG promotes a
varied number of events each year where
we can all get together and unwind
including family days, social events and
annual end-of-year celebrations.
AFG also offers its employees the
opportunity for participation in
community volunteering days, supporting
our sustainability efforts whilst
promoting team building.
Ensuring we provide a safe and
supportive workplace is important. This
year we have introduced measurable
Work Health and Safety (WHS) objectives
incorporating training and development,
physical workplace safety inspections
and capture any incidents relating to
WHS on the corporate risk register.
All objectives have been met, with 100
percent WHS training complete, 100
percent workplace safety inspections
complete and no WHS incidents.
Alongside ensuring we provide a safe
physical workplace we support our
team’s mental health, with qualified
mental health first-aid officers in all
our state offices.
Our Employee Assistance Program
(EAP) provides qualified psychologist
appointments both in person or online.
The physical health of our employees
is supported via programs such as free
influenza vaccinations and skin checks
in our head office. Fresh fruit and healthy
drinks are readily available in the office.
Continuing to develop our employees by
providing education assistance alongside
study and exam leave ensures our team
is well placed to meet future business
and career goals.
Quotes from annual survey
“There is a nicer feel and
vibe with AFG than you would
get at a bigger organisation,
we’re all known as individuals
and are supported to be who
we are.”
“All management will not
hesitate in treating staff from
all backgrounds and age
groups with respect and stop
to have a chat - really love
this about AFG.”
“Amazing work culture.
I don’t feel like a number
but an actual person.”
AFG Annual Report 2023 21
Sustainability at AFG
Annual Report 2023
I love providing
mortgage brokers with
the essential information
and valuable insights
they need to run and
grow their business.
Mikayla
Marketing Manager
DEI Objective
Result/status
Achieve a minimum of 45% women in management positions
(including KMP, Senior Managers and Other Managers) by 2025
with increased year on year representation.
Not met. This year we did not meet our year-on-year growth
target. We remain confident we are well placed to achieve our
2025 objective.
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.
Met. 94% of our employee survey respondents agree AFG
recognises and embraces employees of diverse cultural
backgrounds.
Maintain workplace diversity as one of the top three performing
areas of our employee pulse surveys.
Met. Workplace diversity remains the top performing area of our
employee survey for the fourth consecutive year.
Continue training and awareness programs to ensure employees
maintain and uphold AFG’s acceptable and expected behaviours
and diversity and inclusion values in the workplace.
Met. The Diversity, Equity and Inclusion Committee alongside
our Human Resource team has continued to deliver a range of
programs and initiatives to meet this objective.
Maintain no less than 30% of each gender in the composition of
AFG’s Board of Directors.
Met. This objective continues to be met with two of our six
directors (33%) being female.
1
2
3
4
6
Female representation among employees
Position
Board
Senior Executives
Senior Managers
Total workforce
(including directors)
(as at 30 June, 2023)
Total
Number of women
% of women
6
17
24
278
2
3
12
136
33%
18%
50%
49%
‘Senior Executive’ is defined as Key Management Personnel, Head of Businesses, and Other Executives/General Managers.
22
22
AFG
Annual Report 2023
It’s fulfilling to know that my
work directly contributes to
maintaining the trust and
confidence that customers
place in our brokers.
Tyler
Cyber Security Analyst
Our industry
Our mission to create a fairer financial
future starts with providing over
3,800 AFG brokers with unwavering
support, powerful tools, and
passionate expertise.
With 70 percent of all Australian
mortgages sourced via a mortgage
broker, our industry is a clear driver
of competition and choice for
Australian consumers.
Our commitment to diversity, equity
and inclusion is embedded both within
our business and across the programs
we support and champion within the
wider broking industry.
We promote gender diversity and
support women to enter and continue
their careers in mortgage broking and
finance through our AFG Women on the
Move Program.
This program aims to attract and
retain female brokers, in a heavily
male dominated industry, by providing
a safe and progressive environment
for our female brokers to develop
the personal and business skills
they need to thrive. During FY23, the
program saw 204 women, including
brokers, administration, and operations
employees within a broking business,
attend 15 events hosted across five
states.
The success of the program is evident
by the increased recruitment of female
brokers. During FY23 we recruited 4
percent more females (28 percent of
total), compared to FY22, when female
brokers represented 24 percent of our
new recruits.
Furthering our support of the
progression of women in the finance
industry, AFG committed as the Gold
sponsor of the 2022 Women in Finance
Awards - a national awards program
designed to recognise and acknowledge
the leading women influencing the
Australian finance industry.
The brokers in our network are at the
core of our business. Our relationship
is one of shared success. And this
sometimes means shared challenges.
AFG is conscious of the pressure
and challenges that steep interest
rate hikes over the past year have
created for our brokers in dealing with
financially stressed customers. In many
cases, trusted brokers have become
“accidental counsellors”, potentially
affecting their own mental health.
To provide support, AFG has continued
to offer its Employee Assistance
Program to our broker network. AFG’s
EAP program was expanded to our
brokers during the pandemic, when
our brokers were once again on the
frontline of customers facing hardship
with the prospects of job losses
and the financial stress of their own
business uncertainty looming large.
This year we also took the opportunity
to position mental health awareness as
a major topic at our annual roadshow,
held across five states and attended by
almost 1500 brokers.
Certainly, many of our brokers are
themselves having a substantial
positive impact on their own
communities. To recognise these
efforts, the AFG Broker Awards include
an “Industry and Community” Category,
recognising the exceptional work of our
brokers in this regard.
Our Community
AFG is committed to making a positive
contribution to the communities in
which we operate. Our main focus is
on the theme of homelessness - as
one of Australia’s largest mortgage
aggregators we know only too well the
importance of a place to call home.
AFG Annual Report 2023 Sustainability at AFG
Annual Report 2023
23
23
The AFG independence fund
supported me to get my car
repaired and back on the
road so I can get to and from
work comfortably, helping my
journey into independence.
Thank you to the amazing
team at AFG!
Casey
Foyer Resident
Beginning in 2021, as Principal Partner
we have committed $800,000 over
four years to the Foyer Foundation as it
strives to help young people break the
cycle of homelessness and establish
a thriving future. AFG is entering into
the third year of its partnership with the
Foyer Foundation.
Based on a globally proven model,
Foyers are integrated learning and
accommodation settings for young
people, typically aged 16-24 years,
who are at risk of, or experiencing
homelessness. Foyers provide stable
accommodation for up to two years,
enabling residents to focus on study or
work, and build life skills and confidence.
There are currently 11 accredited Youth
Foyers in Australia, with another nine
due to be accredited by the end of 2023.
The Foyer Foundation aims to have
50 accredited Foyer facilities across
Australia by 2030 – enough to provide
safe and stable homes with integrated
support to nearly 20,000 young people
over ten years.
The secure foundation of a safe place
to call home not only paves the way
for a better future for those involved,
but also delivers immense social and
economic benefits.
Research has shown eighty percent
of youth Foyer residents exit to stable
housing and 65 percent will gain secure,
decent employment. A young person
living in a Youth Foyers is 1.6 times
more likely to achieve a higher level
of education than young people using
other homelessness services.
On a per-person basis, Youth Foyers
create an average of $172,417 in
benefits for taxpayers across taxation
uplifts, and welfare and health savings.
Every dollar invested in Foyers will
deliver a $6 return on investment.
About a third of AFG’s sponsorship
dollars are directed into the AFG
Independence Fund. This fund enables
Foyer recipients to apply for one off
grants, up to $1,000, which can be
used to purchase items to support their
education, employment, wellbeing, or
transition to independent living.
In the past two years, more than
200 residents have used Independence
Fund grants to purchase important
items including laptops, tools,
driving lessons, work clothing,
and furniture as they transition
into independent accommodation.
In addition to our $800,000
commitment over four years,
AFG fund raising efforts – including
charity tennis days - have attracted
further donations from AFG brokers
into the AFG Independence Fund.
Separately, in May this year, donations
of 20 repurposed laptops from our
head office were made to Anglicare WA,
which runs Foyer Oxford in Perth. These
laptops have been made available to
Foyer Oxford residents, helping bridge
the digital divide.
AFG is proud to have partnered with the
Foyer Foundation to support its role in
changing the lives of so many young
people for the better, and in making a
positive social and economic impact in
this important area.
Thriving Futures
AFG is also naming rights
sponsor of the AFG Primary
Interschool Numero® Challenge
- a numeracy competition that
has been running across Western
Australia primary schools since
1998. Under this competition
schools compete for prizes, with
generous cash prizes awarded
to the top three schools.
$172,417
Lifetime cost savings for
Government for each resident
80%Foyer residents exiting into
stable housing
6:1Return on investment
65%Foyer residents gaining secure
and decent employment
Accenture report, commissioned by the Foyer Foundation and released in April 2023. Under One Roof –
The Foyer Foundation
24
Environment
Our climate commitment:
AFG recognises that
addressing the threat posed
by climate change requires
immediate and urgent action.
We are conscious that failing
to address these risks will
have catastrophic risks for the
environment and economy.
AFG therefore supports the
transition to net zero emissions
by 2050 in alignment with the
Paris Agreement. AFG is on
a journey to reduce its own
emissions and will work
with our employees, customers
and communities to drive
wider positive impact.
Climate risk is integrated into our risk
management framework.
Since 2021, AFG has prepared detailed
internal monthly reporting on climate
risk according to postcode, utilising the
National Disaster Risk Framework. This
data forms an important part of AFG
Securities’ business credit risk metrics.
During 2022 AFG extended its internal
climate risk reporting to include all
lenders, enabling it to segregate
portfolios into low, medium and
high risk. Reporting was also
enhanced using RCP (Representational
Concentration Pathways) data to
enable forecasting for portfolios to
2030 and 2050.
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.
AFG will continue to highlight the
sustainable partners it works with and
will seek opportunities to partner with
organisations that are taking an active
lead in addressing the challenges of
climate change.
Fossil fuels
As a servicer and manager of
residential home loans, AFG’s
securitised lending arm AFG Securities
does not lend directly to the fossil
fuels industry, including coal or coal
products, natural or derived gas,
crude oil, petroleum products and
non-renewable wastes.
Similarly, AFG Securities does not
lend directly to companies involved
with native forest logging.
AFG has an interest in securitised
lender ThinkTank Group Pty Ltd, which
also does not lend directly to these
industries.
While these companies do not lend
directly to these industries, some
of their loan customers may be
employees of such businesses,
which would not exclude them from
borrowing from these lenders.
Impact on business
The changing climate presents notable
risks 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 a
higher rate of defaults.
Additionally, there is a risk that lenders
simply exclude growing parts of the
country from accessing credit.
This would be detrimental to those
communities and the enterprises
they support. AFG believes this risk
needs to be managed alongside the
insurance industry and both state
and federal governments.
AFG Annual Report 2023 25
Our footprint
To understand our own impact on the environment
(our climate footprint), our Greenhouse gas emissions
(GHG) have been measured by an independent consultant.
The FY23 analysis marks our third year of measurement.
AFG’s GHG emissions scope and organisational boundary
have been determined in accordance with the GHG
Protocol Standard (World Business Council for Sustainable
Development, World Resources Institute, 2004).
The boundary follows the operational control model
and includes the aspects of AFG’s supply chain that the
organisation has influence over.
The company is still in the process of understanding to what
extent emissions from brokers and lenders form part of the
AFG scope 3 emissions and has therefore not been included
in the company’s assessment.
This year’s measurement determined AFG produced
1,484.1 tonnes of carbon dioxide equivalent (t Co2-e) gross
between 1 July 2022 and 30 June 2023. This was a
51 percent increase on the year before, when 982.7 t Co2-e
(gross) was produced.
Our carbon footprint has progressively increased since the
first year of measurement in FY21 – which was during the
height of the Covid-19 pandemic when travel restrictions
were in place and many employees were working from
home, resulting in lower emissions. We therefore expected
our baseline year would be significantly lower than in a
‘usual’ year.
There was also this year an increase in emissions from
employee commuting as people spend less time working
from home and start commuting back to the office.
FY23 also registered an increase in gross emissions from
purchased goods and services, predominantly a result of
increased expenditure with telecommunications companies.
However, as our telecommunication providers such as Telstra
and Microsoft Azure have carbon neutral status, the net
emissions from purchased goods and services was small.
AFG’s Gross
GHG Emissions
33%
Business Travel 489.1 + Co2e
28.5%
Purchased goods and services 422.3 + Co2e
27.3%
Employee commuting 404.7 + Co2e
9%
Electricity use 133.2 + Co2e
1.5%
Waste generated in operations 21.9 + Co2e
0.8%
Indirect fuel and energy use 11.9 + Co2e
0.1%
Vehicle fuel consumption 0.8 + Co2e
Sustainability at AFGAnnual Report 2023 26
26
AFG
Annual Report 2023
Gross GHG emissions
GHG Emission Scope
Emissions (t Co2-e)
Percentage
Scope 1
Scope 2
Scope 3
Total emissions
0.79
133.22
1,350.04
1,484.05
0.05
8.98
90.97
100
AFG’s net emissions were 594.8 (t CO2-e) net, calculated after taking into account
399.3t (Co2-e) allowances for the use of carbon neutral products and services, and
AFG’s voluntary purchase of 490 (t Co2-e) of offsets (which are different to carbon
credits) from Greenfleet Australia. The Greenfleet offsets were purchased to offset
emissions created by our business travel.
FY23 gross GHG emissions
Carbon neutral supply chain allowances
Carbon offsets (retired by Greenfleet Australia)
Net GHG emissions for FY23
T Co2-e
1,484.1
-399.3
-490
594.8
The 594.8 t Co2-e net figure represented a decrease when compared to FY22
net emissions, which were 674.9 tonnes. While our gross emissions increased,
the decrease in net emissions was a result of purchasing offsets from
Greenfleet Australia.
Addressing our emissions
AFG is constantly seeking ways to
reduce its own emissions.
One commitment was to reduce travel
where possible. This remit was led by
the AFG Board, which has agreed to
conduct four of its ten annual meetings
electronically to save emissions.
We actively aim to minimise our use
of paper and office consumables. A
move to paperless documentation
during FY22 for loan processing and
administration tasks has significantly
reduced paper usage for a second year.
A comprehensive office wide recycling
system introduced in head office
within the year is diverting a significant
amount of waste from landfill.
Timed lights and carefully tuned air
conditioning systems across all offices,
help reduce our energy requirements.
AFG continues to operate our
hybrid working policy, which is
also expected to have an impact
in reducing emissions from reduced
employee commuting.
AFG Annual Report 2023 Sustainability at AFG
Annual Report 2023
27
27
Volunteer days
AFG stepped up our corporate
volunteer days during FY23, with
the AFG Green Team focusing upon
initiatives that support the environment.
Our head office employees rolled up
their sleeves to spend an afternoon
planting trees at a nearby park and
separately spent an afternoon cleaning
up rubbish at a popular Perth beach.
AFG aims to continue to hold two
environmentally focused volunteer
events each year.
As we head in to the 2024 financial
year, we look forward to continuing our
commitment to sustainability at AFG.
Offsetting travel emissions
Although AFG is reducing travel wherever
possible, being a national business
there are still unavoidable flights and
associated accommodation which
produce greenhouse gas emissions.
Plant-a-tree program
Starting July 2022, AFG is planting
one tree for every securitised
home loan written by AFG, under
a partnership with not-for-profit
Carbon Positive Australia.
We are addressing unavoidable
emissions made during FY23 by
voluntarily purchasing carbon offsets
from environmental not-for-profit
organisation Greenfleet Australia.
AFG has purchased offsets to cover
490 tonnes of greenhouse gas
emissions produced through our flights
and accommodation during FY23.
This includes travel associated with
the events we hold to support our
brokers across Australia.
Greenfleet will use the funds received
from these offsets to plant native trees
in its biodiverse forests across Australia
and New Zealand. Legally protected for
up to 100 years, these forests absorb
carbon from the atmosphere, improve
soil and water quality and restore
critical ecosystems by providing vital
habitat for native wildlife.
Greenfleet has a robust verification
process in place for its carbon
offsetting projects. The Full Carbon
Accounting Model (FullCAM),
developed by CSIRO and approved
by the Australian Department of the
Environment is used to measure each
forest planted by Greenfleet. EY verifies
each Greenfleet carbon estate annually
and Pitcher Partners independently
audits Greenfleet’s work.
The native species trees are
being planted on degraded sites -
predominantly in Western Australia
and New South Wales - providing
corridors for native fauna
and supporting biodiversity and
ecosystem restoration.
Green Team
In 2022 AFG established its Green
Team, comprising passionate
employees from across the business to
support the organisation’s sustainability
initiatives with a grass roots approach.
This group has been responsible
for organising our community
volunteer days, raising awareness
across the business through various
smaller events, and implementing an
office wide recycling process in our
head office.
As part of our recycling initiative, the
Green Team recycles its head office
containers through the Containers for
Change program, saving thousands
of containers from landfill and raising
funds for the Kaarakin Black Cockatoo
Conservation Centre.
Sustainability at AFGAnnual Report 2023 28
We aim to make every
interaction count. They
add up in a business
where your customers
often stay with you for
the entire life of their
business.
Darryl
Operations Manager
AFG Annual Report 2023 Directors’ Report
Annual Report 2023
29
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 2023
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:
Greg Medcraft
(Independent Non-Executive Chair)
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 Digital Finance Centre for
Research and Co-operation and London based industry group
GBBC Digital Finance Ltd. He is a Senior Board Advisor to
Paris-based MNK Capital and Washington based Infraclear
Inc. Mr Medcraft holds a Bachelor of Commerce from the
University of Melbourne and Doctorate (honoris causa) of
Business from RMIT University. Mr Medcraft was appointed
as an independent non-executive director of AFG on
15 September 2021, the Deputy Chair on 29 July 2022,
and was appointed to the role of Chair on 1 April 2023.
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 Greenlane Group Pty Ltd, 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 28 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 32.08% stake.
He is tasked with overseeing the opportunity to blend
Thinktank’s commercial property lending expertise with AFG’s
broad distribution 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).
Directors’ ReportAnnual Report 2023 30
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, including 15 years at Macquarie
Group, 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. Mr Carter is
the Vice President of the AFL Fremantle Football Club where
he Chairs the Finance and Audit Committee, and is on Bank
of America’s Australian Advisory Board. This experience
and reputation provides a platform of financial experience,
integrity, and strong governance.
Jane Muirsmith
(Independent Non-Executive Director)
Ms Muirsmith is an accomplished digital and marketing
strategist, having held several executive positions in Sydney,
Melbourne, Singapore and New York. Ms Muirsmith is
Managing Director of Lenox Hill, a digital strategy and
advisory firm and is a Non-Executive Director of Cedar
Woods Properties Ltd, the Telethon Kids Institute and the
Non Executive Chair of HealthDirect Australia. She is a
Graduate of the Australian Institute of Company Directors,
a Fellow of Chartered Accountants Australia and New
Zealand and 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 Technology and
Data Committee, a member of the Risk and Compliance
Committee and a member of the Remuneration and
Nomination Committee.
Annette King
(Independent Non-Executive Director)
Ms King is an experienced company director, former 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 HCF, Swiss Re,
and U Ethical Investors. She was previously President and Chair
of the Actuaries Institute and 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, is a Fellow of the Actuaries Institute
of Australia and a member of Chief Executive Women.
Anthony (Tony) Gill
(Retired 1 April 2023)
(Independent Non-Executive Chair)
Mr Gill held the position of Chair of the Board from 2008
until his retirement in April 2023. 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
Pinchgut Opera, and is a former member of the Board of
Genworth Mortgage Insurance Limited (GMA.AX), a former
member of ASIC’s External Advisory Panel, and former
member of the Board of the Butterfly Foundation for Eating
Disorders. Mr Gill holds a Bachelor of Commerce and is a
Chartered Accountant (retired).
Melanie Kiely
(Retired 25 November 2022)
(Independent Non-Executive Director)
Ms Kiely joined the AFG Board as a Non-Executive Director
in March 2016 and retired in November 2022. 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 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.
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.
Michelle Palethorpe
(Appointed 22 June 2023)
(Company Secretary)
Ms Palethorpe joined AFG in 2018 and was appointed
to the position of Company Secretary in June 2023. Ms
Palethorpe is also the General Counsel of the Company
and holds a Bachelor of Laws degree and a Bachelor of
Business Administration (Economics and Finance) degree.
Ms Palethorpe is responsible for managing AFG’s secretariat,
governance and ASX requirements in addition to the legal
functions of the Company.
AFG Annual Report 2023 31
Lisa Bevan
(Retired 22 June 2023)
(Company Secretary)
(Appointed Chief Operating Officer June 2023)
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. In June 2023, Ms Bevan
was appointed as AFG’s Chief Operating Officer and retired
from her position as Company Secretary.
Interests in the shares and rights
of the Company
As at 31July 2023, the interests of the Directors in the shares of
the Group were:
Director
Number of
ordinary shares
Number of
rights over
ordinary shares
Dividends
Total dividends paid during the financial year ended 30 June
2023 were $43,782k (2022: $38,755k), which included:
• A final fully franked ordinary dividend of $25,945k
(9.6 cents per fully paid share) was declared out of profits
of the Company for 2022 and paid on 23 September 2022.
• An interim fully franked ordinary dividend of $17,837k
(6.6 cents per fully paid share) was declared out of profits
of the Company for 2023 and paid on 23 March 2023.
• A final fully franked ordinary dividend of $11,078k (4.1
cents per fully paid share) has been declared out of profits
of the Company for the financial year ended 30 June
2023 and is to be paid on 22 September 2023.
Principal activities
• The Group’s principal activities in the course of the
financial year continued to be:
• Mortgage origination of home loans, consumer asset
finance and commercial loans; and
Brett McKeon
16,332,632
-
• 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
Malcolm Watkins
16,130,824
28,157
Craig Carter
Jane Muirsmith
Greg Medcraft
Annette King
Tony Gill1
Melanie Kiely2
1,400,000
126,819
60,000
60,000
1,239,546
89,376
-
-
-
-
1 Tony Gill retired from the Board on 1 April 2023.
2 Melanie Kiely retired from the Board on 25 November 2022.
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.
Directors’ ReportAnnual Report 2023 32
Review of operations
For the year ended 30 June 2023 the Group recorded a net
profit after tax attributable to equity holders of $37,312k,
which is 3.8% below the prior comparative period
(2022: $38,777k). Underlying NPATA from continuing
operations of $48,313k (2022: $55,755k). Revenue
from operating activities was up 8.0% to $1,002,836k
(2022: $928,980k).
The Underlying NPATA result was underpinned by lower gross
profit due to:
• Reduction in Residential settlements of $5.8b to $53.6b
(2022: $59.4b) and continued increase in the upfront
payout ratio from 95.0% to 95.6% (2022: 94.6% to 95.0%).
The lower Residential settlements followed a slowing
of Australian credit growth to more normalised levels
following a period of consistent interest rates rapidly rising
to a 13 year high during the year.
• Securitisation loan book decreasing 6.5% to $4.5b
(2022: $4.8b) and net interest income down 1.2% at
$62.7m (2022: $63.5m). The result of intense competition
from major banks who received the funding advantage
through the TFF and low deposit rates despite the
increase in the cash rate.
• Non cash trail book adjustment of $17.7m, as required by
Australian Accounting Standards. Reflecting the impact
of lower volumes as well as higher runoff, driven by the
elevated level of refinance activity in the market. These
are primarily driven by cash backs which have begun to be
withdrawn from the market.
Operating costs increased year on year by $13.5m (excluding
the costs associated with Fintelligence and BrokerEngine,
which were not included in the comparative period).
The higher operating costs were seen in the following areas:
• $5.0m employee costs:
• AFG Securities driven by book size & activity,
as well as loan origination project activity to deliver
a scalable platform.
•
IT to support higher levels of project activity, expected
to continue in FY24.
• $3.0m additional spend on advertising with higher
conference expense following removal of COVID
restriction allowing a return to in person broker events.
• $3.0m depreciation & amortisation primarily relating
to Fintelligence acquisition.
• $2.5m information technology costs with continued
transition to the cloud, development of new broker facing
technology & ongoing investment in cyber security.
AFG’s most recent strategic investments, Fintelligence and
BrokerEngine, have outperformed internal expectations.
Consequently, the option liability value increased
by $1.8m to $22.0m, which is a non-cash expense.
The performance of AFG’s strategic investments (ThinkTank,
Fintelligence and BrokerEngine) remained strong and
combined, contributed $11.5m to earnings.
Net cashflows from operating activities were comparable at
0.4% to $52.1m (2022: $51.9m) and reflected a 108% cash
conversion ratio.
At balance date, net cash, liquid assets, and other high
performing investments totalled $202.1m (2022: $217.4m).
In September 2022, AFG issued a record $1b RMBS
demonstrating the strength of the program & support from
both domestic & international investors.
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
Net profit after tax for the period attributable to
equity holders
Change in the carrying value of trailing
commissions contract asset and payable2
Net change of fair value put/call liability for
BrokerEngine and Fintelligence
Amortisation of intangibles
Significant items1
30 June 2023
30 June 2022
Operating
income
Profit
after tax
Operating
income
Profit
after tax
1,002,836
37,312
928,980
38,777
7,443
6,819
(96,312)
(5,555)
-
-
-
1,820
2,362
-
-
-
-
-
1,181
21,352
55,755
Underlying NPATA from continuing operations
1,010,279
48,313
832,668
1 Technology impairment and Volt impairment in 30 June 2022. Refer to note 9(a) and 15 for further details on impairment.
2 Lower trail book income adjustment reflects lower settlement volumes in FY23 as well as impact of higher run-off on the future cash flows.
AFG Annual Report 2023 33
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 2023
30 June 2022
Net profit after tax for the period attributable to equity holders
Amortisation of acquired intangible assets
NPATA
37,312
2,362
39,674
38,777
1,181
39,958
Likely developments and expected results
The Group will continue to provide choice and lead the
market by building on the strengths by continuing to invest
our traditional wholesale mortgage broking business while
building on our significant distribution network to access
other areas of the finance market.
Further information about likely developments in the
operations and the expected results of those operations in
future financial years have not been included in this report
because disclosure of the information would, in the opinion
of the Directors, be likely to result in unreasonable prejudice
to the Group.
Environmental regulation
The Group is not subject to any significant environmental
regulation under a law of the Commonwealth or of a State
or Territory in respect of its activities.
Subsequent events
Given the strength and strategic importance of Broker
Engine on 27 July 2023, BrokerEngine and AFG agreed
on a variation and payment agreement, which resulted in
AFG agreeing to buyout the remaining 30% shareholding in
BrokerEngine, bringing AFG to 100% ownership. AFG has
agreed to pay $3m to the 30% shareholders of BrokerEngine
on 31 August 2023.
On 24 August 2023, the Directors recommended the payment
of a dividend of 4.1cents per fully paid ordinary share,
fully franked based on tax paid at 30%. The dividend has a
record date of 5 September 2023 and a payment date of 22
September 2023. The aggregate amount of the proposed
dividend expected to be paid out of retained earnings at 30
June 2023 is $11,078k. The financial effect of this dividend
has not been brought to account in the financial statements
for the year ended 30 June 2023.
There has not been any matter or circumstance, other than
that referred to in the financial statements or notes thereto,
that has arisen since the end of the financial year, that
has significantly affected, or may significantly affect, the
operations of the Group, the results of those operations, or
the state of affairs of the Group in future financial years.
Share options
There were no options issued or exercised during the
financial year (2022: Nil).
Indemnification of insurance of directors
and officers
During the financial year, the Group paid a premium in respect
of a contract insuring the Directors of the Group (as named
above) against a liability incurred as a Director to the extent
permitted by the Corporations Act 2001. The contract of
insurance prohibits disclosure of the nature of the liability
and the amount of the premium.
Indemnification of auditors
To the extent permitted by law, the Company has agreed to
indemnify its auditors, Ernst & Young Australia, as part of the
terms of its audit engagement agreement against claims
by third parties arising from the audit (for an unspecified
amount). No payment has been made to indemnify Ernst &
Young Australia during or since the financial year.
Directors’ meetings
The number of Directors’ meetings (excluding circulatory
resolutions) held during the year and each Director’s
attendance at those meetings is set out in the table on
the next page.
The Directors met as a Board 12 times during the year and
were all main meetings, 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. No Special
Meetings were held during the year. Apologies were received
from Directors in all instances where they were unable to
attend a meeting.
Directors’ ReportAnnual Report 2023 34 AFG
Annual Report 2023
Directors’ Board
Meetings
Main Meetings
Held
Main Meetings
Attended
Special Meetings
Held
Special
Meetings
Attended
Tony Gill1
Brett McKeon
Malcolm Watkins
Craig Carter
Melanie Kiely2
Jane Muirsmith
Greg Medcraft
Annette King
9
12
12
12
6
12
12
12
8
11
10
10
5
12
12
12
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1. Tony Gill retired from the Board on 1 April 2023.
2. Melanie Kiely retired from the Board on 25 November 2022.
Committee membership
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 4
Remuneration and
Nomination
Risk and Compliance
Technology
and Data 2
Melanie Kiely (C) 4
Jane Muirsmith (C) 1
Jane Muirsmith (C)
Annette King (C) 5
Greg Medcraft (C) 1
Annette King
Jane Muirsmith 3
Jane Muirsmith
Melanie Kiely 4
Malcolm Watkins
Greg Medcraft
Annette King
Greg Medcraft
Craig Carter
Craig Carter
Annette King
1. Jane Muirsmith was the Chair of the Risk and Compliance Committee during the period of 1 July 2022 – 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.
4. Melanie Kiely was Chair of the Remuneration and Nomination Committee during the period 01 July 2022 – 25 November 2022 and retired from the AFG Board
on 25 November 2022.
5. Annette King was appointed Chair of the Remuneration and Nomination Committee on 26 November 2022.
Notes
(C) designates the Chair of the Committee
35
The following table sets out the number of meetings of the Committees of the Board and the number of meetings attended by
each Director who is/was a member of that Committee:
Committee Meetings
Directors
Audit
Remuneration and
Nomination
Risk and
Compliance
Technology
and Data1
Maximum
Possible
Meetings
Attended
Maximum
Possible
Meetings
Attended
Maximum
Possible
Meetings
Attended
Maximum
Possible
Meetings
Attended
Craig Carter
Melanie Kiely2
Jane Muirsmith
Greg Medcraft
Annette King
Malcolm Watkins
4
2
-
4
4
-
4
2
-
4
4
-
8
4
8
8
8
-
7
4
8
8
8
-
4
2
4
4
4
-
3
2
4
4
4
-
-
-
9
-
9
9
-
-
9
-
9
8
1 The Technology and Data Committee was established by the Board on 1 August 2022.
2 Melanie Kiely retired from the Board on 25 November 2022.
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
Non-audit services were provided by the entity’s auditor,
Ernst & Young as disclosed in Note 36 to the Financial
Statements. 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 36 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 36 of this financial report for the year ended
30 June 2023. This report is made in accordance with
a resolution of the Directors.
Directors’ ReportAnnual Report 2023 36
Independence declaration under section 307C of
the Corporations Act 2001 Report
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 2023, I declare to the best of my knowledge and belief, there have been:
a.
b.
c.
No contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit;
No contraventions of any applicable code of professional conduct in relation to the audit; and
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
24 August 2023
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AFG Annual Report 2023
Remuneration Report
Annual Report 2023
37
Our events serve a
lot of purposes, but
always have a focus on
helping brokers make
meaningful connections
across the AFG broker
community.
Bonnie
Events Manager
38
Remuneration
Report
Dear Shareholder,
On behalf of the Board of Australian Finance Group Ltd
(AFG or the Company), I am pleased to present our
2023 Remuneration Report and my first as Chair of the
Remuneration and Nomination Committee.
AFG Board’s approach since listing has been, and continues
to be, focused on an Executive remuneration structure that
aligns performance and key talent retention and motivation,
with shareholder returns in the short and longer term.
In setting our remuneration structure and targets, we take into
account industry best practice, and we value 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 are
always mindful of the economic and employment market
environment, and we strive to ensure appropriate and fair
outcomes for our people, in alignment with shareholder,
customer and other stakeholder outcomes.
In FY23, we returned to align our Executive remuneration
framework with the post-COVID economic outlook,
shareholder expectations and the employment market.
We made the following changes:
•
•
Long term incentive (LTI) targets were moved to an even
50/50 weighting between earnings per share (EPS) and
total shareholder return (TSR), to reflect a more stable
economic environment.
EPS targets increased from 5% to 7.5%, with the gateway
increasing from 2.5% to 5%.
For FY24:
•
Short term incentives (STI) targets are weighted 50%
net profit after tax, adjusted to exclude the non-cash
tax-effected amortisation of intangibles and significant
non-operating items (NPATA) and 50% strategic targets.
NPATA remains as a gate opener (80%) for the payment
of STI for Executives who are Key Management Personnel
(KMP) and other Executives. There will be conduct and
behaviours modifier, which can reduce STI awards by up
to 20% if the individual is not embodying the Company’s
values. Further details on this modifier are set out below.
•
LTI targets continue to be weighted 50% on EPS and 50% on
TSR. EPS gateway is a minimum of 5% and target of 7.5%.
The Board at all times retains discretion on incentive payments.
FY23 Performance and Executive Remuneration
Outcomes Summary
AFG’s FY23 business performance results and the
commensurate Executive remuneration reflects a
difficult year.
Despite a challenging year in the residential mortgage
markets, our people, under the guidance and leadership of our
Executive team, provided resilient returns for shareholders and
maintained excellent service to our brokers and customers.
Beginning in May 2022, many of our brokers and their
customers were impacted by an unprecedented eleven
increases to the official cash rate by the Reserve Bank of
Australia (RBA), raising the rate by 4% from the record lows
of 0.1%.
Whilst all banks passed these interest rate rises onto their
borrowers, many banks did not pass on the full effect of
these rises to their deposit holders, and this strategy along
with the ‘free kick’ obtained through the RBA’s low cost 3
year Term Funding Facility in 2020 and 2021, which was only
offered to authorised deposit holding institutions, allowed
the major banks to offer new or refinanced borrowers cash
back incentives in an attempt to win market share, despite it
detrimentally impacting their own return on capital.
This intense level of competition meant that our
manufacturing business needed to decide whether to preserve
benchmark returns on capital or continue to compete for
market share, despite the return on such new lending being
sub-economic. The business made what we believe is the
right decision to maintain returns on capital and, as such,
this impacted the earnings capability of AFG’s manufacturing
business, AFG Securities. It also had an impact on our AFG
Home Loans white label program, which was not able to
compete as effectively without a cash back offer from our
white label funding partners. The Board considers that the
decision to maintain profitability and not compete
head-to-head with the banks offering these cash back
incentives was the correct decision and in the long term
interests of shareholders. In addition, the level of competition
and cashback in the market combined with a wave of fixed
rate mortgage expiry reduced the average loan life to levels
not previously seen. The shorter loan life reduced the carrying
value of the net loan book and Reported NPAT.
AFG Annual Report 2023 Remuneration
Report
39
The Board considers the STI and LTI outcomes set out above
are appropriate for the following reasons:
•
Despite the unforeseen economic challenges, and
off the back of a record year in FY22, AFG’s earnings
performance reduced in FY23 year overall in a difficult
market, with NPAT of $37.3m (FY22: $38.8m) and
Underlying NPATA of $48.3m (FY22: $55.8m).
• Management took appropriate long-term decisions to
manage risk and protect capital and profitability, for the
long-term benefit of the Company and its shareholders.
•
•
•
Notwithstanding the factors which have affected the
residential mortgage market, AFG’s share price in FY23
has performed well compared to peers and the S&P/
ASX300 Index (Index) with AFG share price increasing
18.5% vs Index of 9.37% as at 30 June 2023. AFG’s FY23
total shareholder return of 29.3% outperformed its listed
peers Pepper Money Limited, Liberty Financial Group Ltd,
Resimac Group Ltd and MA Financial Group Ltd over the
same period.
AFG paid an interim dividend of 6.6 cents per share to
shareholders and will pay a final dividend of 4.1 cents
per share resulting in a dividend yield of 6.0% (share
price as at 30 June 2023).
In a tight labour market, continuity of AFG’s key staff
is a priority to ensure AFG’s strategic objectives
are achieved. The Board considers the retention of
Executives is integral to implementing the new 5-year
strategic plan and awarding a portion of STI and LTI
was fair and necessary in the circumstances. The STI
awards recognise Executive achievement over the year
whilst the LTI provides a retention mechanism to ensure
progression of the key strategic pillars over the following
3 years.
The Board has previously exercised downward discretion
on STI in FY17 (when the white label trail book was first
recognised as an asset) and FY22 (to reflect write-downs of
technology and investment assets). STI and LTI outcomes
were reduced in these circumstances where the maximum
award was achieved however the Board considered that
these other factors were relevant. Given the relative share
price performance and dividend yield over FY23, the AFG
Board considers the exercise of this discretion in FY23
aligns with the impact on shareholders and the levers in
the control of the Executive team, and serves the long-term
interests of shareholders.
The rising interest rate environment also led to lower
volumes of lodgements in the first 3 quarters of FY23 in
the mortgage aggregation business. Whilst there were
promising signs in the final quarter with lodgements up
15.6% on the previous quarter, we believe it is too early to
determine if this represents an ongoing and consistent
change to market conditions.
These factors had a direct impact on NPAT and EPS,
consequently negatively impacting the STI and LTI
target measures.
As noted earlier in the FY23 Annual Report, the acquisitions
of majority interests in the Fintelligence and BrokerEngine
businesses made by the Company in December 2021 and
January 2022 respectively, have had a positive impact on
the Company and the services offered to brokers. In FY24,
management are planning the continued integration of
these businesses to maximise the benefits of this
diversification strategy.
Pleasingly, in FY23 AFG’s employee engagement scores in the
areas of diversity and inclusion continued to increase reflecting
the important work the Company has done on recognising and
embracing people of diverse backgrounds and ensuring all
employees feel respected and valued. Further information is
set out in the Sustainability section of the 2023 Annual Report.
The effect of the tumultuous market over the past year
has reduced the FY23 NPAT from the prior year’s record
amount. It meant that the FY23 STI NPAT gate opener for
relevant Executives was not achieved. Despite this, the Board
recognises that management actively worked to manage risk
on behalf of shareholders and maintain margins rather than
lend at rates below the cost of capital. Given AFG’s strategic
growth plans and the tight employment market, the Board
carefully considered the long-term business needs including
the appropriate risk and long-term profitability decisions
made by management, and the importance of retaining
and motivating key talent. As such, the Board has used
its discretion on STI on the basis that key risks have been
managed in a difficult economic environment and that it is in
the long-term interests of the Company, its shareholders and
other stakeholders that a limited STI award is warranted in
FY23 for some of the Executives.
Executive Key Management Personnel reporting to the CEO
have been awarded 30% of target STI opportunity. The CEO
will not receive any STI award in FY23.
The LTI performance over the period 1 July 2020 to 1 July
2023 was 51.9%. This is based on TSR performance at
the 58th and 62nd percentile of Diversified Financials and
Small Industrials Indexes respectively; representing 67% and
73% vesting of the TSR component of LTI (which represents
74.4% of overall LTI rights allocation). For FY23, EPS vesting
targets were not met (representing 35% weighting) in the
FY21 LTI Grant.
Remuneration ReportAnnual Report 2023 40
A 5-year history of AFG’s normalised NPATA, Residential Loan Book, AFG Home Loan’s (AFGHL) Loan Book and Settlements,
AFG Securities’ Loan Book and Settlements, Return on Equity (ROE) and Dividends is provided below:
Underlying NPATA
MIllions
Underlying ROE
Dividends (cents per share)
$0
$10
$20
$30
$40
$50
$60
$70
0%
5%
10% 15% 20% 25% 30% 35% 40%
0
5
10
15
20
FY19
FY20
FY21
FY22
FY23
FY19
FY20
FY21
FY22
FY23
(1)
FY19
FY20
FY21
FY22
FY23
(1)
Final
Interim
Residential Loan Book
Billions
$0
$100
$50
$150
FY19
FY20
FY21
FY22
FY23
AFG Securities Settlements
Billions
$0
$2.5
$0.5
$1.5
$2
$1
$200
$3
AFG Home Loans Loan Book
Billions
$0
$10
$5
FY19
FY20
FY21
FY22
FY23
AFG Securities Loan Book
Billions
$0
$1
$4
$2
$3
$5
AFG Home Loans Settlements
Billions
$0
$3
$1
$2
$5
$4
$6
FY19
FY20
FY21
FY22
FY23
$15
$6
FY19
FY20
FY21
FY22
FY23
FY19
FY20
FY21
FY22
FY23
(1) Adjusted for technology and Volt impairment in FY22 ($21,352k).
As noted above, the Board intends to keep a similar Executive
remuneration structure in FY24 however will introduce a
conduct and behaviour overlay to STI grants for certain
Executives to ensure continued alignment with industry best
practice. The purpose of this overlay is to drive accountability
and will allow the Board to apply a minus 20% modifier at its
discretion based on transparent indicators and scorecards
where individual Executive behaviour is not at a level that is
expected. This replaces the current STI gateway on conduct.
Notwithstanding this change, the Board retains full discretion
at all times on STI and LTI payments.
During the year, Tony Gill retired from the Board after
12 years as Chair. Deputy Chair Greg Medcraft stepped into
the role as Chair of the Board in April 2023 bringing a strong
governance and securitisation background to the role.
Non-Executive Director and former Chair of the Remuneration
and Nomination Committee, Melanie Kiely also retired from
the Board following the AGM in November 2022. We thank
them both for their significant service and contributions.
I look forward to continuing to work with the Board and
management as we drive forward AFG’s strategic objectives
in FY24 following the challenging environment in FY23.
We look forward to feedback from shareholders on this
2023 Remuneration Report.
Annette King
Chair, Remuneration and Nomination Committee
AFG Annual Report 2023 41
Introduction
1.
The Remuneration Report outlines AFG’s remuneration
philosophy, framework and outcomes for all
Non-Executive Directors and other Key Management
Personnel (collectively KMP). The report is written in
accordance with the requirements of the Corporations
Act 2001 (Cth) (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
Role
Date Appointed
Tenure
Anthony Gill
Craig Carter1
Melanie Kiely3
Non-Executive Chair
Appointed 28 August 2008; Retired 31 March 2023
15 years
Non-Executive Director
Appointed 25 March 2015
8 years
Non-Executive Director
Appointed 31 March 2016; Retired 25 November 2022
6 years
Jane Muirsmith2
Non-Executive Director
Appointed 31 March 2016
7 years
Brett McKeon3
Greg Medcraft4
Annette King5
Non-Executive Director
Transitioned 1 July 2019
27 years
Non-Executive Chair
Appointed 15 September 2021
Non-Executive Director
Appointed 1 February 2022
2 year
1 year
Malcolm Watkins6
Non-Executive Director
Transitioned 1 July 2022
26 years
Executives
David Bailey
Lisa Bevan7
Chief Executive Officer
Chief Operating Officer
Transitioned 16 June 2017
19 years
Transitioned 22 June 2023
25 years
Luca Pietropiccolo
Chief Financial Officer
Appointed 31 October 2022
1 year
Ben Jenkins
Chief Financial Officer
Appointed 14 December 2015; Resigned 12 August 2022
-
(1) Craig Carter is Chair of the Audit Committee.
(2) Jane Muirsmith is Chair of the Technology and Data Committee.
(3) Brett McKeon was appointed to the Board 19 June 1996 and transitioned to Non-Executive Director effective 1 July 2019.
(4) Greg Medcraft transitioned to Chair of the Board effective 1 April 2023 and is Chair of the Risk and Compliance Committee.
(5) Annette King is Chair of the Remuneration and Nomination Committee.
(6) Malcolm Watkins was appointed to the Board 8 December 1997 and transitioned to Non-Executive Director effective 1 July 2022
(7) Lisa Bevan was appointed as Company Secretary 9 March 1998 and transitioned to Chief Operating Officer effective 22 June 2023.
Other than Brett McKeon and Malcolm Watkins, all Non-Executive Directors listed above are Independent Directors.
The average tenure for the AFG Board as at 30 June 2023, is 13 years.
Remuneration ReportAnnual Report 2023 42
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. In FY24, the Group has introduced a conduct and behaviours modifier, which can
reduce STI awards by up to 20% if the individual is not embodying the Company’s values.
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 measureperformance link
Strategic objective/performance link
Fixed annual remuneration
(FAR)
Key roles and responsibilities as set out in
the individual’s employment contract and
position description.
To provide competitive fixed remuneration set with
reference to role, market and experience in order to attract,
retain and engage key talent.
Comprises base
salary, superannuation
contributions and
other benefits
Short-term incentive (STI)
Paid in cash
Group Financial Measures FY23:
50% allocation to NPAT, 25% to AFGS
book growth and 25% to KPI’s linked to
broker technology project.
Group Financial Measures FY24:
50% allocation to NPATA, and 50% to
Strategic Initiatives (specifically 25% to
AFGS book growth and 25% to IT data
transformation projects).
Considerations:
• Role and responsibility
• External benchmarking
• Contribution, competencies and capabilities
• Company size and performance
Rewards Executives for their contribution to achievement
of Group outcome and the achievement of strategically
relevant KPI targets in the given financial year.
Long-term incentive (LTI)
FY23 and FY24 grant:
Ensures a strong link to the long-term creation of
shareholder value.
Awards are made in the form
of performance rights
• 50% of a KMP’s entitlement allocated
to a 3-year CAGR EPS target.
• CAGR EPS was chosen as a performance hurdle as it is:
• 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.
• 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 givento 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 2023 43
3.1 Executive remuneration outcomes
STI award outcomes FY23
The combined cash bonus pool available to be paid to the KMP Executives for on target performance in FY23 was $416,377
and the minimum was nil. For FY23, the target STI measures were not achieved and the Board exercised its discretion to
award 30% to KMP Executives (other than the CEO who was awarded 0%) as outlined below.
Target
NPATA (50%)
FY22
000’s
$54,9581
FY23
000’s
$39,674
AFGS Book Growth
$4,785,983
$4,474,615
Technology Measure
Total Payment
Total Payment after exercise
of Board discretion
1. Excluded impact of Volt impairment.
Growth/
Performance
(28%)
(7%)
Not achieved
Payment (%)
0%
0%
0%
0%
0-30%
Target STI
opportunity
As a % of fixed
remuneration
STI outcome
% Achieved % Retained
% Forfeited
D. Bailey (CEO)
L. Bevan2 (COO)
L. Pietropiccolo3 (CFO)
Total
$240,500
$93,000
$82,877
$416,377
39%
30%
30%
$0
$27,900
$24,863
$52,763
0%
30%
30%
0%
0%
0%
100%
70%
70%
2. L. Bevan is employed on a part time basis 4 days per week. L. Bevan was appointed as Company Secretary 9 March 1998 and transitioned to Chief Operating
Officer effective 22 June 2023.
3. L. Pietropiccolo was appointed CFO on 31 October 2022.
LTI award outcomes FY23
For the 2023 financial year, 52% of the target LTI bonus (granted in FY21) was awarded to Executives as outlined below.
Measure
CAGR EPS
TSR Small Industrials
TRS Diversified Industrials
Target
7.5%
Achieved
% Achieved
(5.3%)
75th Percentile
62nd Percentile
75th Percentile
58th Percentile
0%
73.0%
66.6%
Performance Rights
Target LTI opportunity
(FY21 Grant)
LTI outcome
% Achieved
% Forfeited1
D. Bailey
M. Watkins2
L. Bevan
Total
532,847
17,140
166,636
716,623
276,512
8,894
86,473
371,879
52%
52%
52%
52%
48%
48%
48%
48%
1. Forfeiture due to TSR hurdles not passing are still fully expensed as at 30 June 2023.
2. Malcolm Watkins transitioned to Non-Executive Director effective 1 July 2022.
Remuneration ReportAnnual Report 2023 44
3.2 Fixed annual remuneration
3.3 STI plan
No significant changes to the remuneration structure were
required during the financial year. The targeted remuneration
mix for:
• The CEO is 39% fixed and 61% variable (at risk): and
• Other members of the Executive team are in the range
of 52% to 63% fixed and 37% to 48% variable (at risk).
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 and approved by the Board
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
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 FY23 is listed
in section 3.1 as an absolute dollar amount and as a percentage of the Executive’s fixed base.
Performance period
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 FY24 50% of the STI target for KMP Executives will be
allocated to NPATA, and 50% to Strategic Initiatives (specifically 25% to AFGS book growth and 25% to IT data
transformation projects).
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. A conduct and behaviours modifier, which can reduce STI awards by up to 20% if
culture or conduct which is contrary to the Company’s values is evident is also applied to the STI award.
Assessment of
performance
The Board reviews and approves the performance assessment and STI payments for the CEO and all other KMP
Executives. The Board has a broad discretion to apply qualitative factors such as risk (including non-financial risk),
reputation, conduct, leadership skills and values to the assessment of performance achievements for an Executive.
Payment method
STI payments are delivered as cash.
AFG Annual Report 2023 45
3.4 FY24 STI opportunity
3.5 The LTI plan – 2022, 2023 and 2024 Grants
Offers to participate in STI awards for the 2024 financial year
were made to KMP 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 NPATA (50%),
AFGS book growth (25%) and to the KPI’s linked to IT and
data transformation projects (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 an NPATA target.
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.
2022 LTI Grant
2023 & 2024 LTI Grant
Instrument
Performance rights to acquire ordinary AFG shares
Performance rights to acquire ordinary AFG shares
Quantum
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
Grant date
1 July 2021 other than those approved at the 2021
AGM.
1 July 2022 & 2023.
Grant date fair value
TSR Small Industrials Index 2022 $1.910.
TSR Diversified Financials Index 2022 $1.770.
EPS $2.795 (being the 20-day Volume Weighted
Average Price leading up to 30 June 2021, adjusted
for any potential dividends)
TSR Small Industrials Index 2023 $0.800; 2024
$1.148
TSR Diversified Financials Index 2023 $0.820; 2024
$1.118
EPS $1.713 (being the 20-day Volume Weighted
Average Price leading up to 30 June 2023, adjusted
for any potential dividends)
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
Gateway performance
measure
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
Remuneration ReportAnnual Report 2023 46
2022 LTI Grant
TSR
2023 & 2024 LTI Grant
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
Key performance
measure
50th Percentile – 50% vesting
75th Percentile – 100% vesting
50th Percentile – 50% vesting
75th Percentile – 100% vesting
85th Percentile – 125% vesting (stretch target)
90th Percentile – 150% vesting (stretch target
85th Percentile – 125% vesting (stretch target)
90th Percentile – 150% vesting (stretch target)
EPS accretion
2.5% CAGR – 50% vesting
EPS accretion
5.0% CAGR – 50% vesting
5% CAGR – 100% vesting
7.5% CAGR – 100% vesting
Performance
& service period
Performance
assessment
7.5% CAGR – 150% vesting (stretch target)
10.0% CAGR – 150% vesting (stretch target)
1 July 2021 – 30 June 2024 (2022 Grant)
1 July 2022 - 30 June 2025 (2023 Grant)
1 July 2023 - 30 June 2026 (2024 Grant)
30 June 2024
Performance period not yet complete.
30 June 2025 and 30 June 2026
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 skills and values to the assessment of performance achievements
for an Executive.
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 conditions. 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.
AFG Annual Report 2023 47
LTI Plan Rules & Design Considerations
Dividends
& voting
Clawback and
preventing
inappropriate
benefits
Change of
control
Restrictions
on dealing
Reconstructions,
corporate
actions, rights
issues, bonus
issues, etc.
The Performance Rights do not carry dividends or voting rights prior to vesting.
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.
Remuneration ReportAnnual Report 2023 $
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49
5. Non-Executive Director remuneration
5.1 Remuneration policy
The Board seeks to set aggregate remuneration at a level that
provides the Company with the ability to attract and retain
Directors of the highest calibre, whilst incurring a cost that is
acceptable to shareholders and in line with the market. The
amount of aggregate remuneration sought to be approved
by shareholders and the fee structure is reviewed annually
against fees paid to NEDs of comparable companies. The
Board may consider advice from external consultants when
undertaking the annual review process as appropriate.
The Company’s constitution and the ASX listing rules specify
that the NED fee pool shall be determined from time to time
by a general meeting. The current NED fee pool is $1.25m
per annum.
5.2 Structure
The remuneration of NEDs consists of Directors’ fees, which
is inclusive of statutory superannuation and Committee fees
(if any). The below summarises the NED fees:
• 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 2023 and 30 June 2022:
Year
Board and Committee Fees
$
Short-term
benefits (non-
monetary) $
Superannuation
$
Total $
A. Gill1
B. McKeon
C. Carter
M. Kiely2
J. Muirsmith
G. Medcraft3
A. King4
M. Watkins5
Total
Total
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
135,871
181,818
108,597
109,091
108,597
109,091
44,034
109,091
108,597
109,091
126,647
83,077
108,597
41,538
108,597
-
849,537
742,797
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,266
18,182
11,403
10,909
11,403
10,909
4,624
10,909
11,403
10,909
13,298
8,308
150,137
200,000
120,000
120,000
120,000
120,000
48,658
120,000
120,000
120,000
139,945
91,385
11,403
120,000
4,154
45,692
11,403
120,000
-
89,203
74,280
-
938,740
817,077
1.
Anthony Gill retired from the Board on 31 March 2023
2. Melanie Kiely retired from the Board on 25 November 2022
3.
4.
Greg Medcraft commenced as a Non-Executive Director on 15 September 2021 and was appointed Chair of the Board on 1 April 2023
Annette King commenced as a Non-Executive Director on 1 February 2022
5. Malcolm Watkins transitioned to a Non-Executive Director on 1 July 2022
Remuneration ReportAnnual Report 2023 50
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 FY21, FY22 and FY23 as well
as the number of rights that vested, lapsed or forfeited during the year. Rights do not carry any voting or dividend rights and
shares can be allocated once the vesting conditions have been met until their expiry date.
The 2021 plan vested on 30 June 2023 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
M. Watkins
2021 / T1
4,396
1-Jul-20
$1.80
30-Jun-23
2021 / T2
6,386
1-Jul-20
$1.15
30-Jun-23
2021 / T3
6,358
1-Jul-20
$1.15
30-Jun-23
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
2021 / T1
42,737
1-Jul-20
$1.80
30-Jun-23
2021 / T2
62,084
1-Jul-20
$1.15
30-Jun-23
2021 / T3
61,815
1-Jul-20
$1.15
30-Jun-23
2022 / T1
28,050
1-Jul-21
$2.795
30-Jun-24
L. Bevan
2022 / T2
41,130
1-Jul-21
$1.77
30-Jun-24
2022 / T3
38,115
1-Jul-21
$1.91
30-Jun-24
2023 / T1
64,717
1-Jul-22
$1.61
30-Jun-25
2023 / T2
63,415
1-Jul-22
$0.82
30-Jun-25
2023 / T3
65,000
1-Jul-22
$0.80
30-Jun-25
2021 / T1
136,658
1-Jul-20
$1.80
30-Jun-23
2021 / T2
198,525
1-Jul-20
$1.15
30-Jun-23
2021 / T3
197,664
1-Jul-20
$1.15
30-Jun-23
2022 / T1
94,419
1-Jul-21
$2.795
30-Jun-24
D. Bailey
2022 / T2
138,446
1-Jul-21
$1.77
30-Jun-24
2022 / T3
128,298
1-Jul-21
$1.91
30-Jun-24
2023 / T1
234,599
1-Jul-22
$1.61
30-Jun-25
2023 / T2
229,878
1-Jul-22
$0.82
30-Jun-25
2023 / T3
235,625
1-Jul-22
$0.80
30-Jun-25
2023 / T1
37,493
1-Jul-22
$1.67
30-Jun-25
L. Pietropiccolo
2023 / T2
29,819
1-Jul-22
$1.05
30-Jun-25
2023 / T3
27,778
1-Jul-22
$1.13
30-Jun-25
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30-Jun-23
4,396
-
30-Jun-23
2,133
4,253
30-Jun-23
1,717
4,641
30-Jun-24
30-Jun-24
30-Jun-24
-
-
-
30-Jun-23
42,737
-
-
-
-
30-Jun-23
20,736
41,348
30-Jun-23
16,690
45,125
30-Jun-24
30-Jun-24
30-Jun-24
30-Jun-25
30-Jun-25
30-Jun-25
-
-
-
-
-
-
30-Jun-23
136,658
-
-
-
-
-
-
-
30-Jun-23
66,307
132,218
30-Jun-23
53,370
144,294
30-Jun-24
30-Jun-24
30-Jun-24
30-Jun-25
30-Jun-25
30-Jun-25
30-Jun-25
30-Jun-25
30-Jun-25
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
T1 – Earnings Per Share allocation
1. Number vested during the year is calculated on T1 0%, T2 67% and T3 73%
T2 – TSR (Diversified Financials) allocation
T3 – TSR (Small Industrials) allocation
AFG Annual Report 2023 51
5.4 Shareholdings of KMP
Ordinary shares held in Australian Finance Group Ltd ASX:AFG
Balance
1 July 2022
Shares issued
on vesting of
rights
Sold during
the period
Net change
other 2
Balance
30 June 20231
Held
nominally3
30 June 2023
Directors
T. Gill4
1,239,546
B. McKeon
16,332,632
-
-
-
-
M. Watkins
16,515,594
15,230
(400,000)
C. Carter
M. Kiely5
J. Muirsmith
A. King
G. Medcraft
Executives
D. Bailey
L. Bevan
B. Jenkins6
L. Pietropiccolo7
1,400,000
89,376
126,819
60,000
60,000
1,582,297
1,273,799
98,222
-
-
-
-
-
-
473,447
148,061
-
-
-
-
-
-
-
--
-
-
-
(1,239,546)
-
-
-
-
-
16,332,632
16,332,632
16,130,824
16,014,195
1,400,000
1,400,000
(89,376)
-
-
-
-
-
-
126,819
60,000
60,000
-
126,819
60,000
-
2,055,744
609,334
1,421,860
98,485
(98,222)
-
-
-
-
-
1 Includes shares held directly, indirectly and beneficially by the KMP.
5 M. Kiely retired from the Board on 25 November 2022.
2 Relates to the derecognition of holding on ceasing to be a KMP.
6 B. Jenkins resigned as CFO on 12 August 2022.
3 Relates to shares held within a superannuation fund.
7 L. Pietropiccolo was appointed as CFO on 31 October 2022.
4 T. Gill retired from the Board on 31 March 2023.
All Directors are required to hold a minimum shareholding in alignment with the Company’s policy. All Directors meet
that requirement.
Remuneration ReportAnnual Report 2023 52
30 June 2022
Directors
T. Gill
Balance
1 July 2021
Shares issued
on vesting of
rights
Sold during
the period
Net change
other 2
Balance
30 June 20221
Held
nominally3
1,329,546
-
(90,000)
B. McKeon
16,310,694
21,938
-
M. Watkins
17,493,656
21,938
(1,000,000)
-
-
-
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
C. Carter
M. Kiely
J. Muirsmith
A. King
G. Medcraft
Executives
D. Bailey
L. Bevan
B. Jenkins4
J. Sanger5
960,714
89,376
86,819
-
-
-
-
-
-
-
1,304,037
278,260
1,098,485
93,902
98,632
85,314
84,320
89,281
-
-
-
-
-
-
-
-
40,000
60,000
60,000
89,376
126,819
60,000
60,000
-
1,582,297
90,000
1,273,799
(80,000)
-
98,222
-
(187,913)
-
89,376
126,819
60,000
-
609,334
98,485
-
-
1 Includes shares held directly, indirectly and beneficially by the KMP.
4 B. Jenkins resigned as CFO on 12 August 2022.
2 Relates to derecognition of holding on ceasing to be a KMP.
5 J. Sanger resigned as COO on 22 December 2021.
3 Relates to shares held within a superannuation fund.
AFG Annual Report 2023 53
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
D. Bailey
L. Bevan
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)
12 weeks
12 weeks
24 weeks
L. Pietropiccolo1
No expiry, continuous agreement
6 months (or payment in lieu of notice)
1. L.Pietropiccolo was appointed as CFO on 31 October 2022.
7. Remuneration governance
7.1 Remuneration and Nomination Committee
7.3 Use of independent consultants
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 2023 the Committee comprised independent
Non-Executive Director Annette King (Chair), and independent
Non-Executive Directors Craig Carter, Jane Muirsmith and
Greg Medcraft.
Further information on the role of the Remuneration and
Nomination Committee is set out in the Committee’s
Charter available at www. afgonline.com.au and in the
Corporate Governance Statement also available on the
Company’s website.
7.2 Remuneration philosophy
The performance of the Company depends upon the quality
of its Directors and Executives. To prosper, the Company
must attract, motivate and retain highly skilled Directors
and Executives.
The Board embodies the following principles in its
remuneration framework:
• Remuneration levels for KMP are set to attract and
retain appropriately qualified and experienced
Directors and Executives;
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 recommendations (as defined in the
Corporations Act) from remuneration consultants was
received during the financial period ended 30 June 2023.
7.4 Policy for dealing in securities
AFG has a policy for dealing in securities to establish
best practice procedures that protect AFG, Directors and
employees against the misuse of unpublished information
that could materially affect the value of AFG securities.
Directors, Executives and their connected persons are
restricted by trading windows (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.
• Alignment of Executive reward with shareholder
7.6 Remuneration Report approval at 2022 AGM
interest and strategy; and
• The relationship between performance, conduct and
remuneration of Executives is clear and transparent.
The 30 June 2022 Remuneration Report was presented
to shareholders and was approved at the 2022 Annual
General Meeting.
Remuneration ReportAnnual Report 2023 54
8. Other Transactions and Balances with KMP
9.
Independent Audit of Remuneration Report
The Remuneration Report has been audited by Ernst &
Young. Please see page 117 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.
Greg Medcraft
Chair
Perth, Western Australia
24 August 2023
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 for the AFG Securities business. 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 $959k (2022: $1,323k).
These payments are not considered to be material to
the financial results of the Group and therefore did not
impact on Mr T. Gill’s independence as a Director while
he was appointed.
ii. Greenlane Group Pty Ltd (formerly Establish Property
Group Ltd) (Greenlane) was created as part of the
demerger of AFG’s property business prior to listing on
the ASX on 22 April 2015. Directors of Greenlane include
B. McKeon, D. Bailey and L. Bevan.
AFG’s head office is located at 100 Havelock Street West
Perth. AFG leases these premises at commercial arm’s
length rates from an investee of Greenlane, Qube Havelock
Street Development Pty Ltd (Qube). AFG paid rent of
$1,218k to Qube (2022: $1,194k) for the head office lease.
These payments are not considered to be material to the
financial results of the Group and therefore do did not
impact on Mr B. McKeon’s independence as a Director.
End of Audited Remuneration Report
AFG Annual Report 2023 AFG Report
Annual Report 2023
55
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the year ended 30 June 2023
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
Net change in fair value of financial assets and liabilities at fair value through
profit and loss
Share of profit of associates
Profit before tax from continuing operations
Income tax expense
Profit for the period
Attributable to:
Equity holders of the Company
Non-controlling interests
Other comprehensive profit for the year, net of income tax
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)
Note
7
8
9(a)
9(b)
10
10
21
2023
742,834
260,002
1,002,836
2022
820,133
108,847
928,980
(679,142)
(741,032)
(210,627)
113,067
21,852
(57,722)
130,226
20,357
-
(24,074)
(10,805)
(77,759)
46,355
6,170
(3,128)
(1,820)
6,059
53,636
(9,008)
(62,230)
55,271
259
(1,089)
-
5,937
60,378
11(a)
(14,527)
(20,666)
39,109
39,712
37,312
1,797
39,109
-
37,312
1,797
39,109
13.81
13.61
38,777
935
39,712
-
38,777
935
39,712
14.41
14.22
26
26
The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the Notes to the Financial Statements.
56
Consolidated Statement of Financial Position
As at 30 June 2023
In thousands of AUD
Assets
Cash unrestricted
Cash restricted
Trade and other receivables
Current tax receivable
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
2023
2022
12(a)
12(a)
13
11(b)
14
16
17
18
11(c)
15
15
19
21
22
11(b)
23
24
18
20
60,031
162,211
15,098
-
84,681
183,904
11,766
1,674
1,139,483
1,146,926
4,487,966
4,802,575
37,480
31,421
704
6,498
148
34,166
61,082
884
5,113
32
31,945
60,748
6,004,867
6,361,669
1,145,223
1,138,239
22,000
6,391
3,188
1,850
5,715
7,037
20,180
7,203
-
2,729
6,908
5,581
4,590,914
4,949,315
11(c)
22,777
26,079
5,805,095
6,156,234
199,772
205,435
25(a)
102,125
102,125
7,278
89,867
(29)
(20,180)
179,061
20,711
6,067
96,337
(29)
(20,180)
184,320
21,115
199,772
205,435
29
The Consolidated Statement of Financial Position should be read in conjunction with the Notes to the Financial Statements.
AFG Annual Report 2023 AFG Report
Annual Report 2023
57
Statement of Changes in Equity
For the year ended 30 June 2023
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 2022
102,125
(29)
(20,180)
6,067
96,337
184,320
21,115
205,435
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
Balance at
30 June 2023
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37,312
37,312
1,797
39,109
37,312
37,312
1,797
39,109
(43,782)
(43,782)
(2,201)
(45,983)
1,211
-
-
-
1,211
-
-
-
1,211
-
1,211
(43,782)
(42,571)
(2,201)
(44,772)
102,125
(29)
(20,180)
7,278
89,867
179,061
20,711
199,772
In thousands of AUD
Share
capital
Foreign
currency
translation
reserve
Balance at 1 July 2021
102,125
(29)
Equity
reserve
Share-
based
payment
Retained
earnings
Total
equity
Non-
controlling
interest
Total
equity
4,572
96,313
202,981
-
202,981
-
-
-
-
-
-
-
-
1,495
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
Balance at
30 June 2022
-
-
-
-
-
-
-
-
-
-
-
-
38,777
38,777
935
39,712
38,777
38,777
935
39,712
(38,753)
(38,753)
1,495
-
-
-
-
(38,753)
1,495
(20,180)
-
(20,180)
20,180
-
(20,180)
1,495
(38,753)
(57,438)
20,180
(37,258)
102,125
(29)
(20,180)
6,067
96,337
184,320
21,115
205,435
The Consolidated Statement of Changes in Equity should be read in conjunction with Notes to the Financial Statements.
58
Statement of Cash Flows
For the year ended 30 June 2023
In thousands of AUD
Note
2023
2022
Cash flows from/(used in) 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)
29
29
767,700
734,035
(749,533)
(706,965)
260,002
(213,521)
(12,559)
52,089
6,173
(291)
108,847
(58,635)
(25,379)
51,903
259
(551)
(6,741)
(12,120)
-
-
(924)
754
515
(50,509)
(3,602)
325
310,669
(1,391,823)
309,640
(1,457,506)
1,367,672
2,686,044
(1,083,000)
(1,759,000)
697,771
1,565,909
(1,333,736)
(1,056,120)
-
-
(8,353)
(2,443)
52,500
(451)
-
(1,987)
Cash flows from/(used in) investing activities
Net interest received
Acquisition of property, plant and equipment
Purchase of intangible assets
Dividend from Thinktank
Acquisition of Fintelligence (net of cash acquired)
Acquisition of BrokerEngine (net of cash acquired)
Proceeds in broker loans and advances
Net loans and advances to borrowers
Net cash from/(used in) investing activities
Cash flows from/(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
Repayment of debt facility
Payment of principal portion of lease liability
Dividends paid
Dividends paid to non-controlling interest
25(b)
25(b)
(43,782)
(38,755)
(2,201)
-
Net cash (used in)/from financing activities
(408,072)
1,448,140
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 July
(46,343)
268,585
Cash and cash equivalents at 30 June
12(a)
222,242
42,537
226,048
268,585
The Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements.
AFG Annual Report 2023 59
Notes to the Financial
Statements
• Reporting entity
• Basis of preparation
• Trade and other payables
•
Interest-bearing liabilities
• Significant accounting policies
• Non interest-bearing liabilities
• Determination of fair values
• Employee benefits
• Financial risk management
• Provisions
• Segment information
• Contract liability
• Commissions and other income
• Capital and reserves
• Other income
• Earnings per share
• Other expenses and employee costs
• Share based payments
• Finance income and expenses
• Financial instruments
•
Income tax
• Business combinations
• Cash and cash equivalents
• Trade and other receivables
• Contract assets
•
Intangibles and goodwill
• Loans and advances
• Group entities
• Parent entity
• Capital and other commitments
• Contingencies
• Related parties
•
Investment in associates
• Subsequent events
• Leases
• Auditors’ remuneration
1. Reporting entity
The Consolidated Financial Statements
for the financial year ended 30 June
2023 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
Australian 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.
Notes to the Financial StatementsAnnual Report 2023 60
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 24 August 2023. 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
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
commission are initially measured
at fair value and subsequently at
amortised cost;
• 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 28(d)
- Determination of assumptions
used in forecasting and discounting
future trail commissions
• Note 21 - Put/Call valuations
• Note 27 - Measurement of
share-based payments
• Note 28 - Valuation of contract
assets and expected credit losses
• 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.
c. Functional and presentation currency
These Consolidated Financial
Statements are presented in
Australian dollars (“AUD”).
The Group is of a kind referred to
in ASIC 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.
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
unutilised 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 2023 61
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 2020-3 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 (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
1 July 2024
AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities
as Current or Non-current
1 January 2023
1 July 2024
AASB 2021-2 Amendments to Australian Accounting Standards – Disclosure of Accounting
Policies and Definition of Accounting Estimates
1 January 2023
1 July 2024
AASB 2021-5 Amendments to Australian Accounting Standards – Deferred Tax related to
Assets and Liabilities arising from a single transaction
1 January 2023
1 July 2024
AASB 2021-6 Amendments to Australian Accounting Standards – Disclosure of Accounting
Policies: Tier 2 and Other Australian Accounting Standards
1 January 2023
1 July 2024
AASB 2022-1 Amendments to Australian Accounting Standards - Initial Application of AASB 17
and AASB 9 – Comparative Information
1 January 2023
1 July 2024
AASB 2022-6 Amendments to Australian Accounting Standards – Non-current Liabilities
with Covenants
1 January 2023
1 July 2024
AASB 2022-7 Editorial Corrections to Australian Accounting Standards and Repeal of
Superseded and Redundant Standards
1 January 2023
1 July 2024
AASB 2022-8 Amendments to Australian Accounting Standards – Insurance Contracts:
Consequential Amendments
1 January 2023
1 July 2024
AASB 2022-5 Amendments to Australian Accounting Standards – Lease Liability in a Sale and
Leaseback
1 January 2024
1 July 2025
AASB 2022-10 Amendments to Australian Accounting Standards – Fair Value Measurement
of Non-financial assets of not-for-profit Public Sector Entities
1 January 2024
1 July 2025
AASB 2023-1 Amendments to Australian Accounting Standards – AASB 107 and AASB 7 –
Disclosure of Supplier Finance Arrangements
1 January 2024
1 July 2025
AASB 2023-3 Amendments to Australian Accounting Standards – Disclosure of Non-current
liabilities with Covenants – Tier 2
1 January 2024
1 July 2025
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
1 July 2026
AASB 2022-9 Amendments to Australian Accounting Standards – Insurance Contracts in the
Public Sector
1 July 2026
1 July 2026
* Reporting period commences on or after the application date.
Notes to the Financial StatementsAnnual Report 2023 62
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 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, AFG
2022-1 Trust and AFG 2022-2 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.
AFG Annual Report 2023 63
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.
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 17).
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’s significant income streams
under AASB 15 include:
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 24) 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.
• 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.
Notes to the Financial StatementsAnnual Report 2023 64
•
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, it is highly probable that
there is no significant reversal.
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 and subsequently
measured at amortised cost.
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 28 (d) for details on
these key assumptions.
Other income
Sponsorship income is the income
received in advance from sponsorship
payment arrangements with lenders.
The income is brought to account once
the sponsored event has occurred.
Fees for services relates to
providing marketing, compliance and
administration services to the brokers.
This revenue is recognised with
reference to the stage of completion
for the contract of services.
Impact of application of AASB
15 Revenue from Contracts
with Customers
Determining performance obligations
are satisfied (over time or a point in
time) requires judgement. The below
table illustrates a summary of the
impact of AASB 15 on the Group’s
significant revenue from contracts
with customers.
Payment for upfront commissions
and fees for services are all typically
due within 30 days of satisfying
performance obligations.
“Point in time”
or “Over time”
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.
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.
Over time
Interest income
– discount unwind
on the NPV trail
commission
contract asset
Revenue arising from the discount
rate applied to the trail commission
contract asset.
Interest income from the unwinding of
the discount rate on the trail commission
contract asset is recognised over time.
AFG Annual Report 2023 65
“Point in time”
or “Over time”
Types of Service
Nature and timing of satisfaction
of performance obligations
Revenue recognition policy
under AASB 15
Over time
Subscription
income
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.
Subscription 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.
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.
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.
d. Finance income and expenses
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.
Over time
Other income –
Fees for services
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.
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.
e. Income tax expense
Current tax assets and liabilities for the
current and prior periods are measured
at the amount expected to be recovered
from or paid to the taxation authorities.
The tax rates and tax laws used to
compute the amount are those that are
enacted or substantively enacted by the
balance sheet date.
Deferred income tax is generally
provided on all temporary differences
at the balance sheet date between the
tax bases of assets and liabilities and
their carrying amounts for financial
reporting purposes.
Deferred tax assets are recognised
where management consider that it is
probable that future taxable profits will
be available to utilise those temporary
differences. The carrying amount of
deferred income tax assets is reviewed
at each balance sheet date and
reduced to the extent that it is no
longer probable that sufficient taxable
profit will be available to allow all or
part of the deferred income tax asset
to be utilised.
Notes to the Financial StatementsAnnual Report 2023 66
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.
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.
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.
AFG Annual Report 2023 67
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.
g. Financial instruments
i. Financial assets
Interest income, foreign exchange
gains and losses and impairment are
recognised in profit and loss.
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.
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;
Notes to the Financial StatementsAnnual Report 2023 68
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.
• Significant changes in the quality
of the underwriter;
• S&P assumptions such as
first home buyer, occupancy,
employment type, geographical
concentration, principal and
interest and interest only.
In addition to the above, the Group
has considered the impact of interest
rates, property price performances
and unemployment rates in preparing
the ECL.
As part of the forward-looking
assessment, the Group has considered:
As part of this 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;
•
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 28 of the 2023
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 2023
69
A summary of the assumptions underpinning the Groups ECL model is as follows:
Category
Definition of Category
Basis for recognition of ECL provision
Performing
Doubtful
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
In default
Interest and/or principal repayments are 90 days past due
Lifetime expected losses
Write off
Interest and/or principal repayments are past due and
there is no reasonable expectation of recovery
Asset is written off
Given 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.
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.
Notes to the Financial StatementsAnnual Report 2023 70
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:
• Capitalised software development
costs 2.5 - 5 years
Subsequent measurement
Subsequent to initial recognition, the
interest-bearing loans and borrowings
are measured at amortised cost using
the effective interest rate method.
Subsequent to initial recognition, the
put/call liability is measured at fair
value through the profit and loss.
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.
Repurchase of share capital
When share capital recognised as
equity is repurchased the amount of
consideration paid, including directly
attributable costs, is recognised as a
reduction in equity.
Dividends
Dividends are recognised as a liability in
the period in which they are declared.
h. Intangibles
i. Software development costs
Software development costs are
recognised as an expense when
incurred, except to the extent that
such costs, together with previous
unamortised deferred costs in relation
to that project, are expected probable,
to provide future economic benefits
and to the extent that the Group has
control over these assets.
AFG Annual Report 2023 71
v. 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 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.
i. Impairment of non-financial assets
The carrying amounts of the Group’s
non-financial assets, other than
deferred tax assets, are reviewed
at each reporting date to determine
whether there is any indication of
impairment. If any such indication
exists then the asset’s recoverable
amount is estimated.
For the purpose of impairment testing,
assets are grouped together into the
smallest group of assets that generates
cash inflows from continuing use that
are largely independent of the cash
inflows of other assets or groups of
assets (the “cash-generating unit”).
An impairment loss is recognised if
the carrying amount of an asset or
its cash-generating unit exceeds its
recoverable amount.
A cash-generating unit is the smallest
identifiable asset group that generates
cash flows that largely are independent
from other assets and groups.
The recoverable amount of an asset or
cash-generating unit is the greater of its
value in use and its fair value less costs
to sell.
In assessing value in use, the estimated
future cash flows are discounted to
their present value using a pre-tax
discount rate that reflects current
market assessments of the time
value of money and the risks specific
to the asset.
Impairment losses recognised in prior
periods are assessed at each reporting
date for any indications that the loss
has decreased or no longer exists. An
impairment loss is reversed (except
goodwill) if there has been a change in
the estimates that have been used to
determine the recoverable amount. An
impairment loss is reversed only to the
extent that the assets carrying amount
does not exceed the carrying amount
that would have been determined, net
of depreciation or amortisation, if no
impairment loss has been recognised.
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 indicators
of impairment are present.
Lease Liabilities
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.
Notes to the Financial StatementsAnnual Report 2023 72
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 28(d) for
details on the key assumptions.
Key estimates and judgements
ii. Short-term benefits
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.
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.
c. Discount rates - Judgement is
iii. Share-based payment transactions
required to determine the discount
rate, where the discount rate is
the Group’s
d. 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.
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.
l. Provisions
A provision is recognised if, as a result
of a past event, the Group has a present
legal or constructive obligation that
can be estimated reliably, and it is
probable that an outflow of economic
benefits will be required to settle the
obligation. Provisions are determined
by discounting expected future cash
flows at a pre-tax discount rate that
reflects current market assessments
of the time value of money and the
risks specific to the liability.
AFG Annual Report 2023 73
o. 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 29 for more details on
the Group’s business combinations.
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 which is then adjusted
to reflect the constraining requirement
under AASB 15. 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 28(d) for
details on the key assumptions.
Notes to the Financial StatementsAnnual Report 2023 74
Trade and other payables
All trade and other payables have a
remaining life of less than one year
and the notional amount is deemed to
reflect the fair value.
Other financial instruments
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.
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.
Contract assets
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. All residential loans
with a loan to value ratio of greater than
80% are subject to a lenders mortgage
insurance contract.
Risk management policies are
established to identify and analyse
the risks faced by the Group, to set
appropriate risk limits and controls,
and to monitor risks and adherence
to limits. Risk management policies
and systems are reviewed regularly to
reflect changes in market conditions
and the Group’s activities. The Group,
through its training and management
standards and procedures, aims to
develop a disciplined and constructive
control environment in which all
employees understand their roles
and obligations.
The Risk and Compliance Committee
oversees how management monitors
compliance with the Group’s risk
management policies and procedures
and reviews the adequacy of the risk
management framework in relation
to the risks faced by the Company
and the Group.
a. Credit risk
Credit risk is the risk of financial loss to
the Group if a customer or counterparty
to a financial instrument fails to meet
its contractual obligations and arises
principally from the Group’s receivables
from customers. Refer to Note 28(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.
AFG Annual Report 2023 75
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.
Non market risk
The Group is exposed to non-financial
risk due to the existence of a put and
call option. Refer to note 21.
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 Group has applied an ECL model
to determine the collective impairment
provision of its loans and advances.
Refer Notes 3(g)(ii)) and 28(a)(ii) for
details. Interest rates, property price
performances and unemployment
rates have been considered in the ECL
model which has seen the provision
increase at 30 June 2023 to $3,269k
(2022: $2,877k).
b. Liquidity risk
Liquidity risk is the risk that the
Group will not be able to meet its
financial obligations as they fall due
or will have to do so at an excessive
cost. The Group’s approach to
managing liquidity is to 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.
The objective of market risk
management is to manage and
control market risk exposures
within acceptable parameters, while
optimising the return.
Currency risk
The Group is exposed to foreign
currency risk on cash assets that
are denominated in a currency other
than AUD. The currencies giving rise
to this risk are denominated in US
dollars (USD). 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.
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.
Notes to the Financial StatementsAnnual Report 2023 76
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.
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 do not 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 2023 77
Year ended 30 June 2023
In thousands of AUD
Aggregation
AFG Home Loans
Other /
Unallocated/
Eliminations
Total
Income
Operating income
Inter-segment1
Other income
Finance income
Share of profit of an associate
704,507
296,434
1,895
1,002,836
39,258
8,843
-
-
-
-
-
-
(39,258)
13,009
6,170
6,059
-
21,852
6,170
6,059
Total segment income
752,608
296,434
(12,125)
1,036,917
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
666,655
85,953
33,663
262,771
(31,190)
19,065
21,516
34,654
(2,534)
669,128
367,789
53,636
(14,527)
39,109
1,205,172
4,856,698
(57,003)
6,004,867
Total segment liabilities
1,195,161
4,749,667
(139,733)
5,805,095
Other segment information
Depreciation and amortisation
(55)
(69)
(6,880)
(7,004)
Notes to the Financial StatementsAnnual Report 2023 78
Year ended 30 June 2023
In thousands of AUD
Aggregation
AFG Home Loans
Income
Operating income
Inter-segment1
Other income
Finance income
Share of profit of an associate
764,526
162,743
51,823
7,475
-
-
-
-
8
-
Other /
Unallocated/
Eliminations
1,711
(51,823)
12,882
251
5,937
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 including impairment
Income tax expense
Net profit after tax
Assets and liabilities
Total segment assets
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
5,235,391
(76,558)
6,361,669
Total segment liabilities
1,204,870
5,109,785
(158,421)
6,156,234
Other segment information
Depreciation and amortisation
(64)
(45)
(4,009)
(4,118)
1. Relate to Intercompany transactions
2. Volt and technology impairment. Refer to Note 9(a) and 15.
AFG Annual Report 2023 7. Commissions and other income
In thousands of AUD
Timing of revenue recognition
At a point in time
Commissions
Securitisation transaction fees
Over time
Interest on commission income receivable
Mortgage management services
Securitisation transaction fees
Subscription income
Other income
79
2023
2022
650,240
3,087
82,345
304
1,353
3,594
1,911
730,119
3,487
82,219
488
1,177
1,689
954
Total commissions and other income
742,834
820,133
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.
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
2023
2022
6,505
759
2,991
2,694
6,766
2,137
6,162
900
2,922
3,088
6,534
751
21,852
20,357
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.
Notes to the Financial StatementsAnnual Report 2023 80
9. Other expenses and employee costs
a. Impairment expenses
In thousands of AUD
Impairment of Volt investment
Impairment of software intangibles1
1. Refer to note 15 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
Impairment loss/(release) on loans and advances1
1. Relates to Expected Credit Loss (ECL) provision for loans and advances.
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
Note
2023
-
-
-
2023
6,824
5,499
8,065
441
49,531
7,004
395
Note
9(c)
2022
15,000
9,074
24,074
2022
4,685
5,541
6,885
450
40,946
4,118
(395)
77,759
62,230
2023
35,605
8,721
295
1,108
3,802
2022
28,249
7,631
702
1,360
3,004
49,531
40,946
AFG Annual Report 2023 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
Adjustments for deferred tax of prior periods
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
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% (2022: 30%)
Non-assessable income
Non deductible expenses
Over/(under) provision in prior periods
Other adjustments
81
2022
233
26
259
913
176
1,089
2023
245
5,925
6,170
2,895
233
3,128
2023
2022
17,465
163
(3,047)
(54)
14,527
2023
-
2023
53,636
16,091
(1,674)
-
109
-
19,354
(163)
1,475
-
20,666
2022
(135)
2022
60,378
18,113
(1,498)
4,513
(163)
(299)
14,526
20,666
Notes to the Financial StatementsAnnual Report 2023 82
b. Current tax assets and liabilities
The current tax liability for the Group of $3,188k (2022: current tax asset $1,674k) 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
2023
2022
2023
2022
2023
2022
Assets
Liabilities
Net
Property, plant and equipment
and intangibles
Contract asset
Employee benefits
(2,977)
(1,017)
7,007
7,007
4,030
5,990
-
-
333,232
335,859
333,232
335,859
(2,111)
(1,352)
Trade and other payables
(309,105)
(308,413)
Lease liability
Other items
(162)
-
(3,255)
(6,037)
-
-
-
-
-
-
-
-
(2,111)
(1,352)
(309,105)
(308,413)
(162)
-
(3,255)
(6,037)
Tax (assets) / liabilities
(317,610)
(316,819)
340,239
342,866
22,629
26,047
Set off of tax
317,462
316,787
(317,462)
(316,787)
-
-
Net deferred tax (assets)/liabilities
(148)
(32)
22,777
26,079
22,629
26,047
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
2023
58,781
1,250
60,031
148,943
13,268
2022
83,431
1,250
84,681
152,637
31,267
162,211
183,904
222,242
222,242
268,585
268,585
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 2023 was 3.40% (2022: 0.55%). The deposits had an average maturity of
76 days (2022: 69 days).
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 28.
AFG Annual Report 2023 b. Reconciliation of cash flows from operating activities
In thousands of AUD
Cash flows from operating activities
83
2023
2022
Profit for the period from continuing operations
39,109
39,712
Adjustments to reconcile the profit to net cash flows:
Income tax expense from continuing operations
14,527
20,666
Depreciation and amortisation
Interest on leases
Term out cost amortisation
Impairment and write-down 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
Change in fair value of non-interest-bearing liabilities
Working capital adjustments:
Changes in assets and liabilities
Decrease/(Increase) in receivables and prepayments
Increase in trade and other payables
(Decrease) in contract liability
(Decrease)/Increase in employee entitlements
(Decrease)/Increase in provisions
Cash generated from operations
Income tax paid
Net cash generated by operating activities
7,004
380
1,116
-
(6,173)
1,108
(6,059)
7,442
2,299
392
1,820
4,118
276
2,260
24,074
(259)
1,360
(5,937)
(96,313)
88,377
(395)
-
62,965
77,939
388
3,499
(1,193)
(812)
(199)
(10,425)
10,611
(1,773)
779
151
64,648
77,282
(12,559)
(25,379)
52,089
51,903
Notes to the Financial StatementsAnnual Report 2023 84
13. Trade and other receivables
In thousands of AUD
Current
Trade and other receivables
Other receivables
Accrued income
Prepayments
14. Contract assets
In thousands of AUD
Current
2023
2022
3,211
1,035
4,623
8,869
6,229
1,761
240
3,681
5,682
6,084
15,098
11,766
2023
2022
Net present value of future trail commissions contract asset
243,103
231,212
Non-current
Net present value of future trail commissions contract asset
896,380
915,714
1,139,483
1,146,926
The Group’s exposure to credit and currency risks and impairment losses related to contract assets are disclosed in Note 28.
AFG Annual Report 2023 85
15. Intangible assets and goodwill
In thousands of AUD
Consolidated
Customer
related
intangibles
Software -
Internally
Generated
Software -
Acquired
Other
intangibles
Goodwill
Total
Balance at 1 July 2021
-
9,430
-
17,2992
-
3,983
Acquisitions
Additions
Impairment
Amortisation
Balance at 30 June 2022
-
-
(1,687)
15,612
12,4751
(9,075)4
(145)
12,685
Balance at 1 July 2022
15,612
12,685
Acquisitions
Additions
Impairment
Amortisation
Balance at 30 June 2023
1. The software acquisitions relate to work in progress.
-
-
-
(2,162)
13,450
-
5,8511
-
(1,544)
16,992
76
-
(12)
-
-
-
60,7483
-
-
-
9,506
82,030
12,463
(9,075)
(2,231)
64
60,748
92,693
64
-
(1)
-
-
60,748
92,693
3345
-
-
-
1,224
5,850
-
(4,519)
95,248
63
61,082
-
-
(399)
3,584
3,584
890
-
-
(813)
3,661
2. The $17.3M acquisitions relate to broker network acquired through business combinations during the prior year ended 30 June 2022. Refer to Note 29.
3. The $60.7M goodwill relates to the Fintelligence and BrokerEngine acquisitions. Refer to Note 29.
4. An impairment of $9M was recognised on software intangibles where the recoverable amount was determined to be lower than its carrying amount.
5. Some valuations were subsequently adjusted prior to 1 January 2023 (one year after the transaction). Refer to Note 29.
The Group tests whether goodwill has suffered any impairment on an annual basis. Goodwill relates to the acquisition
of Fintelligence and BrokerEngine which occurred in FY22, 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 29). The Group’s accounting of the business combination for the acquisitions were provisional at
31 December 2021, but at 31 December 2022 was finalised.
The carrying amount has been assessed against the recoverable amount of the Aggregation Cash Generating Unit (CGU).
The acquisition of both Fintelligence and Broker Engine are critical parts of the AFG broker proposition. This is the segment
that these businesses align with from an operational point of view being same distribution channels.
The recoverable amount has been determined based on a value in use calculation using 5-year financial forecasts presented
to the Board in April 2023. A post tax discount rate applied to cash flow projections and cash flows beyond the five-year period
are extrapolated using a 2.0% growth rate. It was concluded that the carrying value did not exceed the value in
use. As a result of this analysis, no impairment for the year ended 30 June 2023.
Key assumptions used in the value in use calculations and sensitivity to changes in assumptions.
The calculation of value in use is most sensitive to the following assumptions:
• Discount rates
• Forecast cash flows
• Growth rates to used to extrapolate cash flows beyond the forecast period.
Notes to the Financial StatementsAnnual Report 2023 86
16. 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
2023
2022
1,692,099
1,452,527
780
862
1,692,879
1,453,389
2,797,371
3,350,407
985
(3,269)
1,656
(2,877)
2,795,087
3,349,186
4,487,966
4,802,575
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 12.08% p.a. (2022: 9.89% p.a.).
b) Loan and advances to McCabe St Limited (related party) was repaid during the prior year ended 30 June 2022.
3. Refer to Note 28(a)(ii) for a reconciliation of opening and closing expected credit losses on loans and advances including movements between credit
risk stages.
At the end of the reporting period, the balance of the Group’s securitised assets includes a provision for expected credit loss of
$3,269k (2022: $2,877k). During the financial year, new loans issued in the Group’s securitisation programme were $1,580,847k
(2022: $2,719,683k). The Group’s exposure to credit, currency and interest rate risks related to loans and advances is disclosed
in Note 28.
17. 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
2023
2022
12,629
21,491
(515)
725
12,629
15,417
(515)
725
34,330
28,256
3,700
(550)
3,150
3,700
(535)
3,165
Total Investment in associates
37,480
31,421
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 2023
87
Thinktank Investment
AFG holds a 32.08% 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 an opportunity for AFG
to diversify its earnings base. The
ongoing success of AFGHL 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
2023
2022
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
311,308
257,716
5,217,451
4,125,087
5,528,759
4,382,803
33,174
1,615,050
5,420,652
2,712,281
5,453,826
4,327,331
74,933
55,472
351,387
156,748
18,908
18,913
Reconciliation to carrying amounts:
Carrying amount of investment
34,330
28,256
Group’s share of profit after tax
Acquisition costs
Purchase additional shares
Dividends received
MAB summarised financial information
Balance Sheet
Current assets
Non-current assets
Total Assets
Current liabilities
Non-current liabilities
Total Liabilities
Net assets
21,491
12,629
725
(515)
15,417
12,629
725
(515)
34,330
28,256
2,158
63
2,221
161
207
368
2,108
75
2,183
132
193
325
1,853
1,858
Notes to the Financial StatementsAnnual Report 2023 88
In thousands of AUD
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
2023
2022
714
(8)
758
(381)
3,150
3,165
(550)
3,700
3,150
(535)
3,700
3,165
18. 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.
Right of use assets
In thousands of AUD
At 1 July
Additions
Acquisition of controlled entities
Depreciation
Carrying amount at 30 June
Lease liability
In thousands of AUD
At 1 July
Additions
Acquisition of controlled entities
Repayments
Accretion of interest
Carrying amount at 30 June
In thousands of AUD
Current
Non-current
Carrying amount at 30 June
2023
5,113
3,397
-
(2,012)
6,498
2023
5,581
3,397
-
2022
4,979
1,367
365
(1,598)
5,113
2022
5,362
1,367
367
(2,321)
(1,791)
380
7,037
2023
2,123
4,914
7,037
276
5,581
2022
1,551
4,030
5,581
AFG Annual Report 2023 89
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
19. Trade and other payables
In thousands of AUD
Current
2023
2,123
1,927
854
696
742
695
2022
1,551
1,647
1,463
393
207
320
7,037
5,581
Note
2023
2022
Present value of future trail commissions payable
4
221,333
208,546
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 28.
90,080
11,810
89,853
7,353
323,223
305,752
821,999
821,999
832,487
832,487
1,145,222
1,138,239
Notes to the Financial StatementsAnnual Report 2023 90
20. Interest-bearing liabilities
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more
information about the Group’s exposure to interest rate risk, see Note 28.
In thousands of AUD
Current
Securitisation warehouse facilities
Securitised funding facilities1
Debt facility2
Non-current
Securitisation warehouse facilities
Securitised funding facilities1
Debt facility2
2023
2022
1,652,283
1,598,339
926,462
995,159
4,928
4,847
2,583,673
2,598,345
445,416
214,689
1,522,450
2,088,602
39,375
47,679
2,007,241
2,350,970
4,590,914
4,949,315
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:
In thousands
of AUD
Warehouse
facilities
Securitised
funding facilities
Debt Facility
2023
2022
Weighted
Average
Effective
interest
rate
Year of
maturity
Face
value
Carrying
amount
Weighted
Average
Effective
interest
rate
Year of
maturity
Face
value
Carrying
amount
4.56%
2024
2,097,700
2,097,699
1.43%
2023
1,813,028
1,813,028
4.43%
2024-2027
2,451,530
2,448,912
1.42%
2023-2027
3,088,491
3,083,761
2.75% +
BBSW
2024-2026
44,303
44,303
2.75% +
BBSW
2023-2026
52,526
52,526
4,593,533
4,950,914
4,954,045
4,949,315
AFG Annual Report 2023 91
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 $454,300k (2022: $488,800k).
The interest is recognised at an effective rate of 4.56% (2022: 1.43%). As at the reporting date we have three securitisation
warehouse facilities, expiring on 13 November 2023, 10 May 2024 and 13 May 2024.
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 4.43%
(2022: 1.42%).
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 $11,303k (2022: $12,500k).
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 2023 was $122,008k (2022: $144,186k).
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.
Notes to the Financial StatementsAnnual Report 2023 92
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.
21. Non-interest bearing liabilities
2023
300
473
773
122
473
595
178
178
2022
300
473
773
36
473
509
264
264
In thousands of AUD
2023
2022
Put/call liability Fintelligence
Put/call liability BrokerEngine
19,000
3,000
22,000
18,200
1,980
20,180
Fintelligence
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
two 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.
The fair value of the liability was assessed at 30 June 2023. The Forecasted cashflows were updated with the latest forecast
and the discount rate was reassessed and risk adjusted where necessary. As a result of this assessment the put/call liability
for Fintelligence has increased by $0.8m to $19.0m.
AFG Annual Report 2023 93
BrokerEngine
On 12 January 2022, the Group acquired 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.
The fair value of the non-controlling interest in BrokerEngine, a non-listed company, has been determined with reference to the
final agreed price to be paid by AFG for the remaining 30%. As a result of this assessment the put/call liability for BrokerEngine
has increased by $1.0m to $3.0m.
22. Employee benefits
In thousands of AUD
Current
Salaries and wages accrued
Liability for long service leave
Liability for annual leave
Non-Current
Liability for long-service leave
23. Provisions
In thousands of AUD
Provision for Clawbacks1
Provision for make good
Provision for contingent payment2
Provision other3
2023
2022
2,077
1,987
2,235
6,299
92
92
6,391
2023
1,470
178
-
202
3,224
1,681
2,195
7,100
103
103
7,203
2022
1,627
178
924
-
1. Provision for clawbacks relates to commissions that maybe clawed back by lenders in accordance with individual contracts. These potential clawbacks are
estimated, and a provision raised (see Note 3(l)).
2. Provision for contingent payment to BrokerEngine (see Note 29). The contingent payment related to the contingent consideration paid in FY23 for the remaining
initial consideration for a 70% stake in BrokerEngine.
3. Provision other relates to restructuring provisions to occur in FY24.
1,850
2,729
Notes to the Financial StatementsAnnual Report 2023 94
24. Contract liability
Contract Liability
In thousands of AUD
Current
Sponsorship income
Unearned income
25. Capital and reserves
a. Share capital
The Company
On issue at 1 July
Issued for cash
Share issue costs
2023
2022
5,326
389
5,715
6,657
251
6,908
Share Capital ($’000)
Number of Ordinary shares
(’000)
2023
102,125
-
-
2022
102,125
-
-
2023
269,129
1,129
-
2022
268,382
747
-
On issue at 30 June – fully paid
102,125
102,125
270,258
269,129
The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid and
rank equally with regard to the Company’s residual assets.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per
share at meetings of the Company.
b. Dividends
2023
Final 2022 ordinary
1st interim 2023 ordinary
Dividend paid to non-controlling interest
2022
Final 2021 ordinary
1st interim 2022 ordinary
Cents per
share
Total amount
($’000)
Franked /
unfranked
Date of
payment
9.6
6.6
7.4
7.0
25,945
17,837
43,782
2,201
19,916
18,839
38,755
100%
100%
100%
100%
100%
23/09/2022
23/03/2023
23/09/2021
24/03/2022
AFG Annual Report 2023 95
Declared but not recognised as a liability:
2023
Final 2023 ordinary
Cents per
share
Total amount
($’000)
Franked /
unfranked
Date of
payment
4.1
11,078
11,078
100%
22/09/2023
Dividends declared or paid during the year or after 30 June 2023 were franked at the rate of 30%.
In thousands of AUD
Dividend franking account
30 percent franking credits available to shareholders of Australian Finance Group Limited for
subsequent financial years
2023
27,282
63,657
2022
36,969
86,260
90,939
123,229
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 $90,939k (2022: $123,229k) franking credits.
26. 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
2023
37,312
2022
38,777
Thousands
Thousands
Weighted average number of ordinary shares for basic EPS (thousands)
270,098
269,021
Effect of dilution: Performance rights
4,021
3,692
Weighted average number of ordinary shares adjusted for the effect of dilution
274,119
272,713
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.
Notes to the Financial StatementsAnnual Report 2023 96
27. 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 (ITAA 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
Granted
during the
year
Vested
during the
year
Expired
during the
year
Forfeited
during the
year
Balance at
the end of
the year
1/07/2020
30/06/2023
1,987,804
1,349,079
746,481
1/07/2021
30/06/2024
2,652,246
1,017,543
1,129,435
1/07/2022
30/06/2025
1,747,865
1,700,501
510,733
-
-
-
99,789
2,652,246
792,489
1,747,865
519,890
2,417,743
Number vested during the year is calculated on T1 0%, T2 67% and T3 73%.
AFG Annual Report 2023 97
28. 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
AA-
A+
A
A-
BBB+
BBB
BBB-
Not rated
ii. Loans and advances
Exposure to credit risk
2023
115,035
77,789
-
8,589
12,471
11,138
2,546
15,535
2023
424,162
286,826
-
31,669
45,985
41,070
9,389
57,279
2022
109,759
71,641
4
9,341
7,777
9,772
3,383
19,535
2022
434,702
283,736
14
36,994
30,799
38,703
13,398
77,368
243,103
896,380
231,212
915,714
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
2023
2022
4,474,615
4,785,285
1,764
11,587
2,518
14,772
4,487,966
4,802,575
Notes to the Financial StatementsAnnual Report 2023 98
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 $8,481,206k (2022: $8,804,875k). During the year ended 30 June 2023 the Group took
possession of 5 residential securities, 1 of which was sold during the financial year. No shortfall was recoded on the sale, as
sales proceeds exceeded the outstanding loan balance.
In monitoring the credit risk, mortgage securitisation customers are grouped according to their credit characteristics using
credit risk classification systems. This includes the use of the Loan to Value Ratio (LVR) to assess its exposure to credit risk
from loans originated through the securitisation programme.
The table below summarises the Group exposure to residential mortgage borrowers by 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
2023
2022
871
21,809
524,170
-
13,888
574,693
3,927,765
4,197,402
4,474,615
4,785,983
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 increased to $3,269k for the year ended 30 June 2023 (2022: $2,877k). The ECL
model considers interest rates, property price performances and unemployment rates. Proactive management has resulted
in arrears remaining low. The loan book is 100% variable interest rate, this allows for a quick response to changing market
conditions & no exposure to the rate increase confronting customers as they reach the end of their fixed term loans. All loans
originated above 80% LVR require individual LMI policies, with LMI underwritten on a per loan basis by the LMI insurer. There
were no losses incurred in the reporting period. Given market volatility, changes may arise to the estimates and outcomes that
have been applied in the measurement of the Group assets and liabilities in the future.
AFG Annual Report 2023 99
A summary of the Groups’ ECL provision is as follows:
30 June 2022
In thousands of
AUD
Performing
Underperforming
Non-performing
Write off
Total Loans
30 June 2023
In thousands of
AUD
Performing
Underperforming
Non-performing
Write off
Total Loans
ECL rate
Basis of
recognition ECL
provision
Estimated gross
carrying amount
at default
Carrying
amount (net
of impairment
provision)
Basis for
calculation of
interest revenue
0.06%
0.03%
0.36%
12 month
expected losses
Lifetime
expected losses
Lifetime
expected losses
-
Asset is written off
4,594,261
4,591,472
184,700
184,637
Gross carrying
amount
Gross carrying
amount
7,022
-
6,997
Amortised cost
-
None
4,785,983
4,783,106
ECL rate
Basis of
recognition ECL
provision
Estimated gross
carrying amount
at default
Carrying
amount (net
of impairment
provision)
Basis for
calculation of
interest revenue
0.06%
0.08%
1.49%
12 month
expected losses
Lifetime
expected losses
Lifetime
expected losses
4,283,261
4,280,772
146,748
146,634
Gross carrying
amount
Gross carrying
amount
44,606
43,940
Amortised cost
-
Asset is written off
-
-
None
4,474,615
4,471,346
Notes to the Financial StatementsAnnual Report 2023 100
In thousands of AUD
Performing
Under
performing
Non-
performing
Write-offs
Opening loss allowance as at 1 July 2021
2,917
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
(1)
(79)
544
-
95
(658)
2,818
59
1
(29)
6
-
(184)
(28)
(175)
296
-
108
11
-
(9)
(172)
234
-
-
-
-
-
-
-
-
In thousands of AUD
Performing
Under
performing
Non-
performing
Write-offs
Opening loss allowance as at 1 July 2022
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 2023
2,818
(40)
(496)
888
-
1
(681)
2,490
(175)
40
(3)
46
-
(1)
207
114
234
-
499
58
-
-
(126)
665
-
-
-
-
-
-
-
-
Total
3,272
-
-
561
-
(98)
(858)
2,877
Total
2,877
-
-
992
-
-
(600)
3,269
In thousands of AUD
Performing
Underperforming
Non-performing
Loans written off
Total gross loans and advances
Less Loan loss allowance
Less Write-offs
Loans and advances net of ECL as at 30 June
30 June 2023
30 June 2022
4,283,261
4,594,261
146,748
44,606
-
184,700
7,022
-
4,474,615
4,785,983
(3,269)
(2,877)
-
-
4,471,346
4,783,106
AFG Annual Report 2023 101
In thousands of AUD
30 June 2022
Movement
30 June 2023
Stage 1
Stage 2
Stage 3
Total Provision for ECL
In thousands of AUD
Opening loss allowance as at 1 July
Stage 1
Stage 2
Stage 3
Closing loss allowance as at 30 June
2,818
(175)
234
2,877
(328)
289
431
392
2,490
114
665
3,269
Movement
30 June 2023
2,877
(328)
289
431
3,269
3,272
(99)
(234)
(62)
2,877
Securitisation assets
Loans and advances of SPEs: The Group is required to provide the warehouse facility provider with a level of subordination or
Credit Support. The Group’s maximum exposure to credit risk on securitised loans at reporting date is the carrying amount of
subordinated notes.
The SPE-RMBS loans and advances: Under the current trust terms, a default by the customers will not result in the bond
holders having a right of recourse against the Group (as Originator, Trust Manager or Servicer). Importantly, all residential
mortgages under SPE-RMBS with an LVR exceeding 80% are insured by a lender’s mortgage insurance contract which covers
100% of the principal. The Group’s maximum exposure is the loss of future interest income on its Class C notes investment,
which eliminate on consolidation. No impairment loss was recognised during 2023 relating to securitization assets (2022: Nil).
Other secured loans
The Group has minimal exposure to credit risk for other secured loans made during the year. No impairment loss was
recognised during 2023 for other secured loans (2022: Nil).
b. Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as
possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Group’s reputation. The Board of Directors reviews the rolling
cash flow forecast on a monthly basis to ensure that the level of its cash and cash equivalents is at an amount in excess
of expected cash outflows over the proceeding months. Excess funds are generally invested in at call bank accounts with
maturities of less than 90 days. Within the special purpose entities, the Group also maintains sufficient cash reserves to fund
redraws and additional advances on existing loans.
Notes to the Financial StatementsAnnual Report 2023 102
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.
2023
In thousands
of AUD
Securitisation
ware house facilities
Secured funding
facilities
Net present value
of future trail
commissions payable
Put/call liability1
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
2,097,699
2,139,103
1,222,593
471,093
445,417
-
2,448,912
2,462,903
463,231
463,231
577,958
958,483
-
1,043,332
1,132,086
144,415
129,587
218,461
407,332
232,291
22,000
44,303
25,397
44,303
10,133
2,278
-
2,650
7,043
5,250
8,222
34,125
101,891
101,891
101,891
-
-
-
-
-
Lease liability
7,037
7,037
1,061
1,061
1,927
2,293
695
5,765,174
5,912,721
1,945,602
1,067,622
1,256,056
1,410,455
232,986
1. Refer to note 21.
2022
In thousands of
AUD
Securitisation
warehouse facilities
Secured funding
facilities
Net present value
of future trail
commissions payable
Put/call liability1
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
9,322
5,250
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. Refer to note 21.
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.
AFG Annual Report 2023 103
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 the net interest margin, being the difference between the mortgage
rate and the underlying cost of funds and inability to fund new loans.
The expiry dates of the Group’s warehouse facilities are 13 November 2023, 10 May 2024 and 13 May 2024. 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 19. For terms and conditions
relating to debt facilities refer to Note 20.
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
1. Discount rate for trail commission receivable and payable is fixed for the life of the loan.
Carrying amount
2023
2022
1,139,483
1,146,926
(1,043,332)
(1,041,033)
96,151
105,893
222,242
268,585
1,765
2,518
4,486,201
4,800,057
(4,590,914)
(4,949,315)
119,294
121,845
Notes to the Financial StatementsAnnual Report 2023 104
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 2022 and 2023
Effect in thousands of AUD
30 June 2023
After tax profit
Carrying amount
100bp
increase
100bp
decrease
100bp
increase
100bp
decrease
Variable rate financial assets
32,971
(32,971)
32,971
(32,971)
Variable rate financial liabilities
(20,977)
20,977
(20,977)
20,977
Cash flow sensitivity (net)
11,994
(11,994)
11,994
(11,994)
30 June 2022
Variable rate financial assets
35,480
(35,480)
35,480
(35,480)
Variable rate financial liabilities
(18,105)
18,105
(18,105)
18,105
Cash flow sensitivity (net)
17,375
(17,375)
17,375
(17,375)
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 28(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 10% positive or 10% 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
2023
-10%
6,959
+5%
(3,237)
2022
-5%
3,421
+10%
(6,169)
AFG Annual Report 2023 105
Securitised assets
The Group is exposed to prepayment risk on its securitised assets. The warehouse facilities and the securitised funding
facilities funding the securitisation operations are pass through funding facilities in nature. All principal amounts prepaid
by residential mortgage borrowers are passed through to the warehouse facility provider or the bond holders as part of the
monthly payment terms. Consequently, the Group has no material exposure to prepayment risk on its securitised assets.
iv. Other market risks
The Group is exposed to other market risks on the credit support (securitisation loan receivable) provided by the Group in
relation to the warehouse facilities. The value of the loan is dynamic in that it can change due to circumstances including the
credit ratings of mortgage insurers. The Group has assessed that if this were to occur, it would not have a material impact on
the Group’s profit after tax and equity.
c. 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 2023
30 June 2022
Carrying
amount
Fair value
Carrying
amount
Fair value
Non-current loans and advances
2,795,087
2,508,023
3,352,063
3,271,098
Financial liabilities
Future Trailing commission payable1
1,043,332
1,034,331
1,041,033
1,064,474
Non-current securitised funding facilities
1,967,867
1,762,058
2,307,829
2,254,921
Non-current debt facility
39,375
33,744
47,679
47,679
1. Note a 5% discount rate (2022:4%) is applied to the fair value calculations. Run off rate and pay out percentage remain consistent with the carrying value
calculation assumptions.
Notes to the Financial StatementsAnnual Report 2023 106
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 5.2% to 10.6%, (2022: 2.1% to 7.1%).
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 2023 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:
30 June 2023
30 June 2022 value
Average loan life
Between 3.6 and 4.5 years
Between 3.8 and 4.8 years
Discount rate per annum
Between 4% and 13.5%
Between 4% and 13.5%
Percentage paid to brokers
Between 85% and 95.5%
Between 85% and 94.8%
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 4.89% to 6.35% (2022: 1.7% to 3.1%).
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.
AFG Annual Report 2023 107
29. Business combinations
Fintelligence
In the previous financial year, 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 two 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 fair values of the identifiable assets and liabilities of Fintelligence as at the date of acquisition, based on business
combination accounting were finalised as at 31 December 2022, 12 months post-acquisition date:
In thousands of AUD
Assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Property, plant and equipment
Right of use asset
Customer related intangibles (broker network)
Computer software
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
Total identifiable net assets at fair value, including goodwill
Non-Controlling Interest
Purchase consideration transferred
Fair value recognised
on acquisition (Final)
4,090
1,605
1,443
27
332
17,299
2,314
27,110
(3,965)
(279)
(850)
(355)
(5,812)
(11,261)
15,849
56,950
72,799
(18,200)
54,599
Notes to the Financial StatementsAnnual Report 2023 108
The Group has recognised a liability in relation to the option to acquire the remaining 25% interest in Fintelligence. This liability
is recognised against an equity reserve (refer to note 21).
The fair value at acquisition date 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 15.2%.
• Forecasted cash flows for a 2-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
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.
The goodwill balances have been finalised.
AFG Annual Report 2023 109
BrokerEngine
In the previous financial year, 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.
The fair values of the identifiable assets and liabilities of BrokerEngine as at the date of acquisition, based on business
combination accounting finalised as at 31 December 2022, 12 months post-acquisition date were:
In thousands of AUD
Assets
Cash and cash equivalents
Other current assets
Intangibles
Computer software
Liabilities
Trade and other payables
Deferred revenue1
Deferred tax liability
Total identifiable net assets at fair value
Goodwill arising on acquisition
Total identifiable net assets at fair value, including goodwill
Non Controlling Interest
Purchase consideration transferred
Fair value recognised
on acquisition (Final)
93
2
3
3,983
4,081
(85)
(354)
(1,195)
(1,634)
2,447
4,152
6,599
(1,980)
4,619
1 The valuations were subsequently adjusted, prior to 1 January 2023 (one year after the transaction), resulting in an increase in goodwill.
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 21).
The fair value of the non-controlling interest in BrokerEngine, a non-listed company, has been determined with reference
to the final agreed price to be paid by AFG for 70% of the company.
Notes to the Financial StatementsAnnual Report 2023 110
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
(4,619)
(4,526)
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.
30. Group entities
Parent entity
Australian Finance Group Limited
Significant subsidiaries
Australian Finance Group (Commercial) Pty Ltd
Australian Finance Group Securities Pty Ltd
AFG Securities Pty Ltd
AFG 2010-1 Trust
AFG 2017-1 Trust 1
AFG 2018-1 Trust 1
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
AFG 2022-1 Trust
AFG 2022-2 Trust 2
AFG 2010-2 Pty Ltd
AFG 2010-3 Pty Ltd
AFG Home Loans Pty Ltd
Percentage Ownership
2023
2022
Country of
incorporation
interest
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
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
AFG Annual Report 2023 111
Percentage Ownership
2023
100
75
75
75
75
70
70
32.08
48.05
2022
100
75
75
75
75
70
70
32.20
48.05
Country of
incorporation
interest
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australian Finance Group Ltd Employee Share Trust
National Finance Alliance Pty Ltd 3
Credit Concierge 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
1. AFG 2017-1 Trust and AFG 2018-1 Trust were deregistered during the year ended 30 June 2023.
2. AFG 2022-2 Trust was incorporated during the year ended 30 June 2023.
3. The Group acquired 75% of the Fintelligence entities during the prior year ended 30 June 2022.
4. The Group acquired 70% of the BrokerEngine entities during the prior year ended 30 June 2022.
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 11% (2022: 13%) 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% (2022: 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.
Notes to the Financial StatementsAnnual Report 2023 112
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 2017-1
• AFG 2018-1
• AFG 2019-1
• AFG 2020-1
• AFG 2020-1 NC
• AFG 2022-1 NC
• AFG 2022-1
2023
41,403
-
-
2,541
3,325
5,092
-
415
2022
35,114
560
700
3,165
3,325
5,005
104
-
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).
AFG Annual Report 2023 113
31. Parent entity
Throughout the financial year ending 30 June 2023, 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
2023
2022
38,419
38,419
31,040
31,040
In thousands of AUD
2023
2022
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
155,916
215,628
1,183,822
1,245,010
177,591
215,634
1,071,260
1,128,153
In thousands of AUD
2023
2022
Total equity of the parent entity comprising of:
Share capital
Reserves
Retained earnings
Total equity
102,125
(13,285)
23,722
102,125
(14,353)
29,085
112,562
116,857
See Notes 32 and 33 for the parent entity capital and other commitments, and contingencies.
Notes to the Financial StatementsAnnual Report 2023 114
32. Capital and other commitments
There are no capital commitments as at the reporting date.
33. Contingencies
Third Party Guarantees
Bank guarantees have been issued by third party financial institutions on behalf of the Group and its subsidiaries for items in
the normal course of business such as operating lease contracts. The amounts involved are not considered to be material to
the Group.
Other than above, no material claims against these warranties have been received by the Group at the date of this report, and
the Directors are of the opinion that no material loss will be incurred.
34. Related parties
a. Other related parties
A number of key management personnel held positions in other entities that result in them having control over the financial or
operating policies of these entities.
A number of these entities transacted with the Group in the reporting period. The terms and conditions of the transactions with
the other related parties were no more favourable than those available, or which might reasonably be expected to be available,
on similar transactions to non-key management personnel related entities on an arm’s length basis.
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
for the AFG Securities business. 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 $959k (2022: $1,323k). These payments are not considered to be material to the financial results of the
Group and therefore did not impact on Mr T. Gill’s independence as a Director while he was appointed.
ii. Greenlane Group Pty Ltd (formerly Establish Property Group Ltd) (Greenlane) was created as part of the de-merger of
AFG’s property business prior to listing on the ASX on 22 April 2015. Directors of Greenlane include B. McKeon, D. Bailey
and L. Bevan.
AFG’s head office is located at 100 Havelock Street West Perth. AFG leases these premises at commercial arm’s length
rates from an investee of Greenlane, Qube Havelock Street Development Pty Ltd (Qube). AFG paid rent of $1,218k
to Qube (2022: $1,194k) for the head office lease. These payments are not considered to be material to the financial
results of the Group and therefore do did not impact on Mr B. McKeon’s independence as a Director.
b. Compensation of key management personnel of the Group
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
2023
1,264
71
661
17
2,013
2022
1,920
103
915
24
2,962
The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key
management personnel.
AFG Annual Report 2023 115
c. Subsidiaries
Loans are made by the parent entity to wholly owned subsidiaries to fund working capital. Loans outstanding between the
Company and its subsidiaries are unsecured, have no fixed date of repayment and are non-interest bearing. Interest-free loans
made by the parent entity to all its subsidiaries are payable on demand.
d. Associates
In thousands of AUD
Associate
Thinktank
MAB
30 June 2023
30 June 2022
Commissions
from related
parties
Commissions
to related
parties
Commissions
from related
parties
Commissions
to related
parties
3,935
-
-
2,341
3,568
-
-
2,310
The amounts disclosed in the table are the amounts recognised as commission income and commission expense during the
reporting period related to associates.
35. Subsequent events
Given the strength and strategic importance of BrokerEngine on 27 July 2023, BrokerEngine and AFG agreed on a variation and
payment agreement, which resulted in AFG agreeing to buyout the remaining 30% shareholding in BrokerEngine, bringing AFG
to 100% ownership. AFG has agreed to pay $3m to the 30% shareholders of BrokerEngine on 31 August 2023.
On 24 August 2023, the Directors recommended the payment of a dividend of 4.1 cents per fully paid ordinary share,
fully franked based on tax paid at 30%. The dividend has a record date of 5 September 2023 and a payment date of
22 September 2023. The aggregate amount of the proposed dividend expected to be paid out of retained earnings at
30 June 2023 is $11,078k. The financial effect of this dividend has not been brought to account in the financial statements
for the year ended 30 June 2023.
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.
36. Auditors’ remuneration
Fees to Ernst & Young (Australia – Amount in AUD)
Fees for auditing the statutory financial report of the parent covering the Group and auditing the
statutory financial reports of any controlled entities
Fees for assurance services that are required by legislation provided by the auditor – AFSL & APRA
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
2023
2022
546,144
556,930
60,115
37,500
55,000
-
643,759
611,930
-
-
643,759
611,930
Notes to the Financial StatementsAnnual Report 2023 116
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 2023 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
Greg Medcraft
Chair
Dated at Perth, Western Australia on 24 August 2023
AFG Annual Report 2023 Independent Audit Report
Annual Report 2023
117
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 2023, 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.
b.
giving a true and fair view of the consolidated financial position of the Group as at 30 June
2023 and of its consolidated financial performance for the year ended on that date; and
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
118
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 28
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:
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;
the effectiveness of relevant controls relating to
the:
►
►
►
►
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 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 as disclosed in
Note 3.
►
►
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 measurement of the
expected credit loss provision 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 2023
Independent Audit Report
Annual Report 2023
119
Trail commission
Why significant
As disclosed in Note 3 Significant accounting policies,
Note 4 Determination of fair values and Note 28
Financial instruments, the Group recognised a
contract assets 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
120
Page 4
Information other than the financial report and auditor’s report thereon
The directors are responsible for the other information. The other information comprises the
information included in the Company’s 2023 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 2023
Independent Audit Report
Annual Report 2023
121
Page 5
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
122
Page 6
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 41 to 54 of the directors' report for the
year ended 30 June 2023.
In our opinion, the Remuneration Report of Australian Finance Group Limited for the year ended
30 June 2023, 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
24 August 2023
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AFG Annual Report 2023
Shareholder Information
Annual Report 2023
123
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 2 August 2023.
a. Number of holders of equity securities
Ordinary share capital
270,258,312 fully paid ordinary shares are held by 8,019 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
Securities
100,001 and Over
200,556,295
10,001 to 100,000
51,831,031
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
9,698,055
7,072,903
1,100,028
%
74.21
19.18
3.59
2.62
0.41
No. of
holders
111
1,934
1,254
2,560
2,160
%
1.38
24.12
15.64
31.92
26.94
270,258,312
100.00
8,019
100.00
Unmarketable Parcels1
53,784
0.02
388
4.84
1 An unmarketable parcel is considered to be a shareholding of 274 shares or less, being a value of $500 or
less in total, based on the Company’s last sale price on the ASX at 2 August 2023 of $1.82.
c. Substantial shareholders
The names and the number of shares held by substantial shareholders are set
out below:
MBM Investments ATF The Brett McKeon
Family Trust
# Shares
% of issued
capital
16,332,632
6.04%
MSW Investments ATF The Malcolm Stephen
Watkins Family Trust
16,130,824
5.97%
Banyard Holdings Pty Ltd ATF The B&K
McGougan Trust
14,788,765
5.47%
124
d. Twenty largest holders of quoted equity securities
The number of shareholders by size of holding is set out below:
Rank
Name
A/C designation
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
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
BNP PARIBAS NOMINEES PTY LTD
INVIA CUSTODIAN PTY LIMITED
DAVID BAILEY
ASSURED FINANCIAL SERVICES PTY LTD
ADRIEN MANN (SOUTH PACIFIC) PTY LTD
PRECISION OPPORTUNITIES FUND LTD
INVESTMENT A/C
LISA BEVAN
EGMONT PTY LTD
BNP PARIBAS NOMS PTY LTD
HUB24 CUSTODIAL SERV LTD DRP
BNP PARIBAS NOMS PTY LTD
EDI NOMINEES PTY LTD
ANGELA MIDDLETON
2 August
2023
% of issued
capital
44,115,387
16.32
25,614,439
24,559,952
18,130,843
16,332,632
14,788,765
12,345,025
7,570,000
5,022,821
2,243,637
2,055,744
2,050,000
1,510,000
1,500,000
1,421,860
1,400,000
1,249,570
1,211,684
1,060,000
1,000,000
9.48
9.09
6.71
6.04
5.47
4.57
2.80
1.86
0.83
0.76
0.76
0.56
0.56
0.53
0.51
0.46
0.45
0.39
0.37
Company Secretary
Ms M. Palethorpe
Registered Office
Share Registry
Level 4, 100 Havelock Street,
West Perth WA 6005
Link Market Service - Level 12, 680
George Street, Sydney NSW 2000
AFG Annual Report 2023 Corporate Directory
Annual Report 2023
125
Corporate
Directory
Notice of AGM
Corporate Office
Directors
The annual general meeting of
Australian Finance Group Ltd will
be held on Friday 24 November 2023
at 9.00am WST at Level 4, 100
Havelock Street, West Perth WA
6005 and through an online platform
that allows shareholders to view
proceedings of the meeting, submit
questions and vote.
Australian Finance Group Ltd
Level 4
100 Havelock Street
West Perth WA 6005
Postal Address
PO Box 710
West Perth WA 6872
Phone
08 9420 7888
Email
investors@afgonline.com.au
Website
www.afgonline.com.au
Greg Medcraft
(Non-Executive Chair)
Malcolm Watkins
(Non-Executive Director)
Brett McKeon
(Non-Executive Director)
Craig Carter
(Non-Executive Director)
Jane Muirsmith
(Non-Executive Director)
Annette King
(Non-Executive Director)
Share Registry
Company Secretary
Michelle Palethorpe
(Company Secretary)
Link Market Services
Level 12
680 George Street
Sydney NSW 2000
Postal Address
Locked Bag A14
Sydney South NSW 1235
Phone
1300 554 474
Email
registrars@linkmarketservices.com.au
Stock Listing
Australian Finance Group Ltd’s ordinary
shares are listed on the Australian
Securities Exchange (ASX code: AFG).
afgonline.com.au
Level 4, 100 Havelock Street
West Perth WA 6005
08 9420 7888
Australian Finance Group Ltd.
Australian Credit Licence: 389087
ABN: 11 066 385 822
ACN: 066 385 822