FSA Group Limited Annual Report 2010 Growing with FSA Group too much debt juggling credit cards too much interest behind in repayments avoiding phone calls need to reduce repayments need to consolidate behind in home loan FSA Group Limited ABN 98 093 855 791 Contents 2 Our Business Model 4 Lending Services 6 Financial Performance 8 Chairman’s Letter 9 Executive Director’s Review 15 Directors and Secretaries 16 Financial Statements Australia’s largest provider of debt solutions Since 2000 FSA Group has helped thousands of Australians take control of their debt. Our large and experienced team of 165 professionals offer a range of debt solutions, which we tailor to suit individual circumstances and to achieve successful outcomes for our clients. Our vision is to expand our range of debt solutions, extending our services and introducing new products to meet the demand of our growing pool of clients. 1 Growing by leveraging a proven business model… Our Business Model FSA Group has grown and evolved with the changing needs of our clients and market forces and, working closely with our clients, we have added products and services in direct response to client demands. We grow our client base through customised marketing and word of mouth and we support our clients through a sophisticated operating platform. This allows us to process and support large volumes at low transaction cost while also fostering positive client relationships. Critically our operating platform underpins and reinforces our risk management and compliance capabilities. CLIENT CONTACTS FSA GROUP CLIENTS USE INCOME TO REPAY DEBT OVER TIME CLIENTS USE EQUITY IN HOME TO CONSOLIDATE DEBT SERVICES (cid:129) Informal Arrangement (cid:129) Debt Agreement (cid:129) Personal Insolvency Agreement (cid:129) Bankruptcy (cid:129) Other solutions HOME LOAN BROKING HOME LOAN LENDING Our services FSA Group offers a range of simple and convenient services to assist clients wishing to enter into a payment arrangement with their creditors. These services include informal arrangements, debt agreements, personal insolvency agreements, bankruptcy assistance and other solutions. We presently manage over $240 million of unsecured debt under debt agreements. Our products FSA Group offers a range of simple and convenient products to assist clients with property wishing to consolidate their debt. FSA Group offers solutions both as a broker and lender of non-conforming home loans. We presently manage a high quality loan pool of over $200 million which is outperforming those of our competitors. 2 FSA Group Ltd ... in growth markets with high barriers to entry. Services Market Home Loan Market 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Home Loan Market Estimated at over $200 billion p.a. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Bankruptcies Personal Insolvency Agreements Debt Agreements Non-Conforming Home Loan Market Estimated at $2-4 billion p.a. Source: Insolvency and Trustee Service Australia Source: Datamonitor FSA Group has 51% market share for debt agreements. FSA Group is one of the few remaining non-conforming lenders. The services market consists of individuals who rely upon a debt agreement or a personal insolvency agreement or bankruptcy to address their unmanageable debt. Debt agreements are an alternative to bankruptcy. In July 2007 the Bankruptcy Act 1966 was amended, changing the way fees could be charged and collected for debt agreements. The result has been to further increase the barriers to entry into the market as administrators require a substantial capital base to operate. The non-conforming home loan market consists of lenders who provide loan products to an individual who is unlikely to “conform” to the lending criteria of the banks. Prior to the Global Financial Crisis, the market was characterised by a high number of competitors. Today the market is signifi cantly altered. Fewer competitors exist with increased levels of capital now required to operate a home loan lending business. The result has been to further increase the barriers to entry into the market. 3 Growing by expanding our lending services… Lending Services Home Loan Lending s n o i l l i M $ 200 180 160 140 120 100 80 60 40 20 Loan Pool Size August 08: Westpac $210m facility renewed June 09: Westpac $210m facility renewed June 07: Westpac $210m facility secured May 10: Westpac facility renewed and increased to $235m Loan pool of over $200 million 0 Jun 07 Aug 07 Oct 07 Dec 07 Feb 08 Apr 08 Jun 08 Aug 08 Oct 08 Dec 08 Feb 09 Apr 09 Jun 09 Aug 09 Oct 09 Dec 09 Feb 10 Apr 10 Jun 10 At the start of the 2008 fi nancial year, FSA Group commenced its non-conforming home loan lending division with Westpac Banking Corporation committing non-recourse funding of $210 million. This facility was increased to $235 million and renewed for a further term during the 2010 fi nancial year. Through home loan lending FSA Group is better positioned to assist more clients, capture greater margin and most importantly secure annuity income. FSA Group has fi rmly established a track record in home loan lending. It has originated a high quality loan pool of over $200 million which is outperforming those of its competitors. The exiting from the industry of a number of lenders has opened up an opportunity for FSA Group to expand its home loan lending division. FSA Group is aiming to grow its loan pool to $600 million by 2013. 4 FSA Group Ltd ... to assist more clients, capture greater margin and secure annuity income. Factoring Finance Loan Pool Size December 09: Westpac facility increased to $15m June 10: Westpac facility increased to $25m October 08: Westpac $10m facility secured Internally funded Loan pool of over $10 million s n o i l l i M $ 12 11 10 9 8 7 6 5 4 3 2 1 0 Jun 07 Aug 07 Oct 07 Dec 07 Feb 08 Apr 08 Jun 08 Aug 08 Oct 08 Dec 08 Feb 09 Apr 09 Jun 09 Aug 09 Oct 09 Dec 09 Feb 10 Apr 10 Jun 10 FSA Group also provides a range of debt solutions to small businesses including the provision of factoring fi nance. In 2008 FSA Group commenced its factoring fi nance division with Westpac Banking Corporation committing limited-recourse funding of $10 million. This facility was increased to $25 million and renewed for a further term during the 2010 fi nancial year. FSA Group has fi rmly established a track record in factoring fi nance. It has originated a high quality loan pool of over $10 million. FSA Group is experiencing high quality demand for factoring fi nance because the availability of credit for small businesses continues to remain tight. FSA Group is aiming to grow its loan pool to around $20 million to $25 million by 2011. 5 Growing by delivering a track record of strong financial performance… Financial Performance Revenue Net Assets $60m $50m $40m $30m $20m $10m $0m CAGR = 29% 50.1 50.8 36.3 33.6 21.8 14.2 2005 2006 2007 2008 2009 2010 $48m $36m $24m $12m $0m CAGR = 58% 44.8 32.1 22.6 18.9 11.9 4.6 2005 2006 2007 2008 2009 2010 Profi t After Tax (Attributable to Members) Basic Earnings Per Share $12m $9m $6m $3m $0m 8.8 7.5 CAGR = 44% 6.5 * 2.7 2.5 1.2 2005 2006 2007 2008 2009 2010 10c 8c 6c 4c 2c 0c CAGR = 33% 7.66 6.24 5.82 2.85 * 2.37 1.38 2005 2006 2007 2008 2009 2010 *Transitioned to home long lending – once off downward pressure on profi t. 6 FSA Group Ltd ... and building a range of solutions that support our clients throughout their entire fi nancial lifecycle. DEBT SOLUTIONS REHABILITATION PERIOD BUILDING WEALTH Our vision is to expand our range of debt solutions, extending our services and introducing new products to meet the demand of our growing pool of clients. 7 Chairman’s Letter Dear Shareholders, Unusual macro economic conditions during the year impacted our business. Despite this we have successfully navigated this period of historically low interest rates, followed by rising interest rates combined with the effect of the Government stimulus package, which temporarily slowed demand for our products and services. FSA Group generated $50.78 million in revenue, achieved a profi t after tax attributable to members of $7.52 million for the 2010 fi nancial year and is in a strong fi nancial position. FSA Group has retained its position as the largest provider of debt solutions to individuals. Our market share for debt agreements is 51%. We manage over $240 million of unsecured debt under debt agreements and during the year paid $55.6 million in dividends to creditors. We are one of the largest registered trustees and the largest broker of non-conforming home loans in the country. FSA Group has fi rmly established a track record in non-conforming home loan lending. We have originated a high quality loan pool of over $200 million which is outperforming those of our competitors. This was achieved through a disciplined approach to origination and exceptional arrears management. During the year our facility was increased to $235 million and renewed for a further term by Westpac Banking Corporation. In addition, we successfully raised $5 million in capital to support the future growth of this division. FSA Group is aiming to grow its loan pool to $600 million by 2013. FSA Group also provides a range of debt solutions to small businesses including the provision of factoring fi nance. FSA Group has originated a high quality loan pool of over $10 million. During the year our facility was increased to $25 million and renewed for a further term by Westpac Banking Corporation. FSA Group is aiming to grow its loan pool to around $20 million to $25 million by 2011. The Directors have committed to continuing the current policy of reinvesting earnings into high growth divisions particularly home loan lending and factoring fi nance. Through home loan lending and factoring fi nance FSA Group is better positioned to assist more clients, capture greater margin and most importantly secure annuity income. The Directors therefore have not recommended a dividend for the 2010 fi nancial year. High levels of consumer debt together with a higher interest rate environment should continue to drive demand for our products and services which we expect will increase considerably in 2011 and 2012. Demand for our home loan lending and factoring fi nance remains strong. We will continue to source additional funding capacity to support the growth of high quality loan pools and to achieve our long term targets. I am confi dent of continued substantial growth for FSA Group in the years ahead. I would like to thank my fellow directors, all our executives and staff for their contribution to the successes of the current year. Yours sincerely, Sam Doumany Chairman 8 FSA Group Ltd Executive Director’s Review Dear Shareholders, The 2010 fi nancial year has been very successful for FSA Group considering the unusual macro economic conditions which impacted our business. In the fi rst half of the year we experienced an historically low interest rate environment combined with the effect of the Government stimulus package which temporarily slowed demand for our products and services. In the second half we experienced a rising interest rate environment, in which the RBA increased the cash rate by 150bps which had a short term impact on the profi tability of our home loan lending division. There has been no better environment to test our business model than the 2010 fi nancial year. During the year demand for our debt solutions underpinned revenues of $50.78 million (2009: $50.07 million) and helped to deliver a profi t after tax attributable to members of $7.52 million (2009: $8.84 million). Financial Overview Revenue and Income Profi t Before Tax Profi t After Tax (Attributable to Members) Net Assets NTA backing/share EPS basic FY2009 $50.07m $13.93m $8.84m $32.07m 24.2¢ 7.66¢ FY2010 % Change $50.78m $12.87m $7.52m $44.75m 29.9 ¢ 5.82¢ ▲ 1% ▼ 8% ▼ 15% ▲ 40% ▲ 24% ▼ 24 % Our business operates across the following key segments, Services, Home Loan Broking and Home Loan Lending. FSA Group also provides a range of debt solutions to small businesses including the provision of Factoring Finance. I will now provide more detail around the operational performance of each division. Now, I’m no longer avoiding phone calls Now, I’m on top of my repayments 9 Executive Director’s Review Operational Performance Services The Services division offers a range of simple and convenient solutions to assist clients wishing to enter into a payment arrangement with their creditors. These include informal arrangements, debt agreements, personal insolvency agreements, bankruptcy assistance and other solutions. FSA Group is the largest provider of debt agreements and one of the largest registered trustees for personal insolvency agreements and bankruptcies in Australia. During 2009 the Services division assisted a record number of clients. There was a 37% increase in debt agreement client numbers and a 22% increase in personal insolvency agreement and bankruptcy clients numbers when compared to 2008. In the fi rst half of 2010, our Services division was affected by an historically low interest rate environment together with the effect of the Government stimulus package. This temporarily slowed demand for our services, as shown in the table below, and resulted in lower than expected client numbers for the sector as a whole. Notwithstanding, FSA Group was able to maintain its market share for debt agreements of 51% and remains the clear market leader. FY2009 Up 37% Up 22% FY2010 Down 6% Up 2% Client Numbers Debt Agreements Personal Insolvency Agreements and Bankruptcies FSA Group has 51% market share for debt agreements. Now, my debts are under control 10 FSA Group Ltd FSA Group manages over $240 million of unsecured debt under debt agreements. The strength of FSA Group’s arrears and risk management capabilities is evidenced by the dividends paid to creditors. During 2010 FSA Group paid $55.6 million in dividends to creditors which was an increase of 33% compared with the $41.7 million paid in 2009. In July 2007 the Bankruptcy Act 1966 was amended, changing the way fees could be charged and collected. The result has been to further increase the barriers to entry into the market as debt agreement administrators require a substantial capital base to operate. FSA Group’s competitors in this market include 35 administrators which combined, make up market share balance of around 49%. Dividend Distributions to Creditors CAGR = 33% s n o i l l i M $ 60 50 40 30 20 10 0 2004 2005 2006 2007 2008 2009 2010 Now, I can afford my repayments WHAT IS A DEBT AGREEMENT? A debt agreement, which was introduced into the Bankruptcy Act in 1996, is a simple way for an indebted individual to come to a payment arrangement with their creditors and yield superior returns to creditors when compared with bankruptcy. FSA Group manages over $240 million of unsecured debt under debt agreements. 11 Executive Director’s Review continued Home Loan Broking and Home Loan Lending The Home Loan Broking and Home Loan Lending divisions offer a range of simple and convenient solutions to assist clients with property wishing to consolidate their debt. FSA Group offers solutions both as a broker and a lender of non-conforming home loans. The non-conforming home loan market consists of lenders who provide loan products to an individual who is unlikely to “conform” to the lending criteria of the banks. FSA Group is the largest broker of non-conforming home loans in the country. During 2009, the high interest rate environment and tighter credit conditions impacted client numbers. There was an 18% fall in the number of home loan approvals when compared to 2008. During 2010, the lower interest rate environment, the improvement in availability of credit and the property market resulted in the number of home loan approvals increasing by 41% when compared to 2009. During the period, approximately 59% of FSA Group’s home loan approvals were brokered to third party lenders with the balance assisted by FSA Group’s Home Loan Lending division. FSA Group has fi rmly established a track record in non-conforming home loan lending. We have originated a high quality loan pool of over $200 million which is outperforming those of our competitors. In the fi rst half of 2010 the loan pool grew by $15 million and as demand recovered in the second half the loan pool increased by a further $35 million. During the year our facility was increased to $235 million and renewed for a further term by Westpac Banking Corporation. Home Loan Lending Loan Pool Size Security Type Average Loan Size Average Weighted LVR % Full Doc Borrowers % Variable Rate Borrowers Geographical Spread >30 day arrears* Loss of Capital since inception Target 2013 $200m 1st Mortgage $203,000 67% 97% 100% Australia Wide 3.89% $76,000 $600m * By comparison our competitors >30 day arrears as measured by the Standard & Poors Index was 12.01% as at May 2010 The exiting from the industry of a number of lenders has opened up an opportunity for FSA Group to expand its home loan lending division. FSA Group is aiming to grow its loan pool to $600 million by 2013. 12 FSA Group Ltd Debt solutions for small businesses FSA Group continues to grow its small business division which offers a range of debt solutions including the provision of factoring fi nance. Factoring fi nance assists small businesses with cash fl ow management. FSA Group has fi rmly established a track record in factoring fi nance. We have originated a high quality loan pool of over $10 million. During the year our facility was increased to $25 million and renewed for a further term by Westpac Banking Corporation. Factoring Finance Loan Pool Size Security Type Average Loan Size Average Weighted LVR % Variable Rate Borrowers Geographical Spread > 90 day arrears Asset Insured Loss of Capital since inception $10m Assigned Receivables $172,000 Ranges 55%-65% 100% Australia Wide 5.42% Yes Nil Target 2011 $20m – 25m FSA Group is experiencing high quality demand for factoring fi nance because the availability of credit for small businesses continues to remain tight. FSA Group is aiming to grow its loan pool to $20 million to $25 million by 2011. Now, my business has the cashfl ow to grow 13 Executive Director’s Review continued Strategy and Outlook High levels of consumer debt together with a higher interest rate environment should continue to drive demand for our products and services which we expect will increase considerably in 2011 and 2012. Through home loan lending and factoring fi nance FSA Group is better positioned to assist more clients, capture greater margin and most importantly secure annuity income. The exiting from the industry of a number of lenders has opened up an opportunity for FSA Group to expand its home loan lending division. FSA Group is aiming to grow its loan pool to $600 million by 2013. FSA Group is experiencing high quality demand for factoring fi nance because the availability of credit for small businesses continues to reman tight. FSA Group is aiming to grow its loan pool to around $20 million to $25 million by 2011. We will continue to source additional funding capacity to support the growth of high quality loan pools and to achieve our long term targets. Our longer term vision is to build a range of accessible solutions that support our clients throughout their entire fi nancial lifecycle. To achieve this we will continue to invest in expanding FSA Group’s products and services. We believe this will enable us to both leverage our existing client base and grow the pool of clients we can assist going forward. Our People FSA Group recognises that the productivity, performance and reputation of the organisation ultimately depends on the quality, knowledge and skills of its’ people. We therefore invest in our people and are committed to providing the appropriate training and development opportunities they require to excel at their role. We have created a culture founded on discipline, ethics and fairness with a focus on continuous improvement. I thank and acknowledge the commitment and effort of our team and I thank the Board for their support and guidance. Yours sincerely, Tim Odillo Maher Executive Director 14 FSA Group Ltd Directors and Secretaries (Below from left) Stan Kalinko, Hugh Parsons, Sam Doumany, Tim Odillo Maher, Deborah Southon, Anthony Carius and Duncan Cornish. 15 Financial Statements Contents 17 Directors’ Report 29 Auditor’s Independence Declaration 30 Corporate Governance Statement 34 Statements of Comprehensive Income 35 Statements of Financial Position 36 Statements of Changes in Equity 37 Statements of Cash Flows 38 Notes to the Financial Statements 70 Directors’ Declaration 71 73 Shareholder Information 77 Corporate Information Independent Auditor’s Report 16 FSA Group Ltd Directors’ Report for the year ended 30 June 2010 Your Directors present their report for the year ended 30 June 2010. Other current (listed company) directorships Lindsay Australia Limited Directors Former (listed company) directorships in last 3 years The Directors of the Company at any time during or since the end of the fi nancial year are: Nil Sam Doumany Tim Odillo Maher Deborah Southon Hugh Parsons Stan Kalinko The Directors have been in offi ce since the start of the fi nancial year to the date of this report. Sam Doumany (Non-Executive Chairman) Experience and Expertise Mr Doumany was appointed as a Non-Executive Director on 18 December 2002 and was appointed Chairman on 30 June 2003. Mr Doumany commenced his career in economic research, agribusiness and marketing before embarking on a distinguished political career as a member of parliament in Queensland in 1974. Between 1974 and 1983 Mr Doumany served on several parliamentary committees, the Liberal Party’s State and Federal Rural Policy Committees and the Queensland Liberal Party State Executive. Elevated to the Cabinet in 1978, Mr Doumany served fi rstly as Minister for Welfare and Corrective Services before serving as Minister for Justice, Queensland Attorney-General and the Deputy Leader of the Liberal Parliamentary Party until late 1983. Special responsibilities Member of the Company’s Audit and Risk Management Committee Interest in shares and options Ordinary Shares 1,040,541 Tim Odillo Maher (Executive Director) Experience and Expertise Mr Odillo Maher was appointed on 30 July 2002. Mr Odillo Maher’s background has been in banking and fi nance, before concentrating on insolvency and corporate fi nance assignments. He has worked at ANZ Banking Corporation and Star Dean Wilcocks Chartered Accountants. Mr Odillo Maher holds a Bachelor of Business Degree (majoring in Accounting and Finance) from Australian Catholic University and is a Certifi ed Practising Accountant. His work experience has included special reviews of companies experiencing fi nancial diffi culties, the rationalisation and re-organisation of businesses, and the implementation of turnaround and exit strategies for businesses, including support plans and asset disposal programmes. Other current (listed company) directorships Nil Former (listed company) directorships in last 3 years Throughout his parliamentary and ministerial career Mr Doumany worked closely, at a senior level, with a wide range of key professional, industry and community organisations. Nil Special responsibilities Nil Since 1983 Mr Doumany has operated a consultancy practice providing services in government relations, corporate strategy and market development. Mr Doumany was also retained by Ernst & Young in an executive consultancy role between 1991 and 2002. Signifi cant assignments for Ernst & Young include the Coutts and Bartlett Receiverships as well as major submissions to the Federal Government. He has also held numerous executive and non-executive board positions, many as Chairman, for private and public companies, industry authorities/associations and review committees. Mr Doumany holds a Bachelor of Science (Agriculture) from the University of Sydney and is a member of the Australian Institute of Company Directors. Interest in shares and options Ordinary Shares 48,809,231 Deborah Southon (Executive Director) Experience and Expertise Ms Southon was appointed on 30 July 2002. Ms Southon has attained a wealth of experience in the government and community services sectors having worked for the Commonwealth Department of Health and Family Services, the former Department of Community Services, and the Smith Family. Ms Southon has successfully managed a programme and administration budget exceeding $150 million and was part of a management team which 17 Directors’ Report continued for the year ended 30 June 2010 oversaw a signifi cant growth in client numbers and service delivery which stemmed from the implementation of fresh legislation. Special responsibilities Chairman of the Company’s Audit and Risk Management Committee Ms Southon has an Executive Certifi cate in Leadership & Management (University of Technology, Sydney) and a Bachelor of Arts Degree (Sydney University). She also has qualifi cations in Speech and Drama (AMEB) and has undertaken post graduate management studies at the Australian Graduate School of Management. Other current (listed company) directorships Nil Former (listed company) directorships in last 3 years Nil Special responsibilities Nil Interest in shares and options Ordinary Shares 12,960,047 Hugh Parsons (Non-Executive Director) Experience and Expertise Mr Parsons was appointed on 1 August 2006. Mr Parsons commenced his career in 1969 working for Coopers & Lybrand in London and overseas. Between 1972 and 1985 he worked for Binder Hamlyn & Co (in Audit and Banking), became a Partner in 1975 and Sydney Managing Partner and National Executive between 1983 and 1985. Binder Hamlyn & Co merged with Ernst & Whinney in 1985, subsequently Ernst & Young, where he specialised in insurance and banking. Mr Parsons became the Finance Director of Schroders Australia Group between 1987 to 1992 and between 1992 to 1996 acted as a consultant to Price Waterhouse (in Process Re-Engineering, Banking), including 10 months in Bangkok with Commercial Bank of Siam. Between 1997 and July 2006 he was the Executive Director of the Insolvency Practitioners Association. In the same period he was a Director of a major overseas corporation. Mr Parsons holds the following qualifi cations/memberships: FCA, SA Fin., MAICD. Other current (listed company) directorships Nil Former (listed company) directorships in last 3 years Nil 18 FSA Group Ltd Interest in shares and options Nil Stan Kalinko (Non-Executive Director) Experience and Expertise Mr Kalinko was appointed on 9 May 2007. Mr Kalinko commenced his career in South Africa and spent 20 years as a practising solicitor. In late 1983, he migrated to Australia and spent 1 year as an associate at Stephen Jaques Stone James, now Mallesons Stephen Jaques. Between 1985 and 1989 he worked as a merchant banker for Kleinwort Benson Australia (“KBA”), a subsidiary of the largest merchant bank in the United Kingdom at the time, until KBA was sold to Security Pacifi c Ltd. Mr Kalinko continued to work there until 1991. For 16 years prior to joining the Board of FSA Group, Mr Kalinko was a partner at Deacons, (now Norton Rose) a national and international law fi rm. He specialised primarily in corporate and commercial law, focussing on mergers and acquisitions, management buy-outs and joint ventures, and advising company directors and underwriters on capital raisings. He spent 8 years on the board of Deacons in Sydney, 3 years on their national board, 10 years as the business unit leader of their Banking and Finance Practice Group and 3 years as Chairman of the Sydney offi ce. Mr Kalinko retired from Deacons on 30 June 2007. Mr Kalinko is a Fellow of the Australian Institute of Company Directors and has a Bachelor of Commerce, a Bachelor of Law and a Higher Diploma in Tax. He is also an accredited mediator. Other current (listed company) directorships Nil Former (listed company) directorships in last 3 years Nil Special responsibilities Member of the Company’s Audit and Risk Management Committee Interest in shares and options Ordinary Shares 15,406 Directors’ Report continued for the year ended 30 June 2010 Secretaries Review of operations Mr Duncan Cornish and Mr Anthony Carius were joint secretaries of the Company during the year and until the date of this report. Detailed comments on operations up to the date of this report are included separately in the Annual Report in the Executive Director’s review. Duncan Cornish Mr Cornish has more than fi fteen years experience in the accountancy profession both in England and Australia, mainly with the accountancy fi rms Ernst & Young and PriceWaterhouseCoopers. He has extensive experience in all aspects of company fi nancial reporting, corporate regulatory and governance areas, business acquisition and disposal due diligence, capital raising and company listings and company secretarial responsibilities. Mr Cornish holds a Bachelor of Business (Accounting) and is a member of the Australian Institute of Chartered Accountants. He is also the Company Secretary of several other ASX listed companies. Mr Cornish is also the joint secretary of the Company’s Audit and Risk Management Committee. Anthony Carius Mr Carius has worked for ten years in accounting, primarily with accounting fi rm PKF International in both Australia and England. His experience consists of providing mainly assurance and corporate services to a range of listed and non-listed companies across various industries. He holds a Bachelor of Business degree and a Graduate Diploma from the Institute of Chartered Accountants in Australia. He is also a member of the Institute of Chartered Accountants in Australia. Mr Carius serves as the Company’s Chief Financial Offi cer and is also the joint secretary of the Company’s Audit and Risk Management Committee. Principal activities The principal activities of the Consolidated Entity during the year were providing debt solutions and direct lending services to individuals and businesses. Operating results The consolidated profi t from ordinary activities for the Consolidated Entity after providing for income tax and eliminating Non-Controlling interests was $7,520,564 (2009: $8,837,172). Dividends paid or recommended There were no dividends paid or recommended to be paid during or since the fi nancial year. Review of fi nancial condition Capital structure There have been no changes to the Company’s capital structure during or since the end of the fi nancial year except as follows: (cid:129) On 7 October 2009, a placement to Institutional and Sophisticated Investors for 11.35 million shares at 37 cents per share was undertaken; (cid:129) On 6 November 2009, a Share Purchase Plan to Shareholders at 37 cents per share was undertaken which issued 2,964,932 ordinary shares; (cid:129) On 27 January 2010, 500,000 ordinary shares were issued on exercise of 500,000 $0.25 options; (cid:129) On 1 February 2010, 8 convertible redeemable preference shares (“CPRS”) were converted to 8,000,000 ordinary shares pursuant to the terms of the purchase agreement of 180 Group, acquired on 21 April 2006, upon 180 Group meeting its cumulative profi t target to 30 June 2008. The remaining 8 CRPS were redeemed at this time due to 180 Group not meeting its profi t target for 30 June 2009; and (cid:129) On 2 July 2010, 1,050,000 options exercisable at $0.50 on or before 2 July 2013 were issued as part of Executive remuneration. Financial position The net assets of the Consolidated Entity have increased by $12,681,024 from that at 30 June 2009 to $44,749,490 at 30 June 2010. The Consolidated Entity’s working capital, being current assets less current liabilities has improved from $19,965,584 in 2009 to $22,875,268 in 2010. Treasury policy The Consolidated Entity does not have a formally established treasury function. The Board is responsible for managing the Consolidated Entity’s currency risks and fi nance facilities. The Consolidated Entity does not currently undertake hedging of any kind. Liquidity and funding The Consolidated Entity has suffi cient funds to fi nance its operations, and to allow the Consolidated Entity to take advantage of favourable business opportunities, not specifi cally budgeted for, or to fund unforeseen expenditure. 19 Directors’ Report continued for the year ended 30 June 2010 Signifi cant changes in the state of affairs There were no signifi cant changes in the state of affairs of the Consolidated Entity in the fi nancial year. After reporting date events There have been no events since the end of the fi nancial year that impact upon the fi nancial statements as at 30 June 2010 except as follows: (cid:129) On 2 July 2010, 1,050,000 options exercisable at $0.50 on or before 2 July 2013 were granted as part of Executive remuneration. Future developments Likely developments in the operations of the Consolidated Entity and the expected results of those operations in subsequent fi nancial years have been discussed where appropriate in the Annual Report in the Executive Director’s review. There are no further developments that the Directors are aware of which could be expected to affect the results of the Consolidated Entity’s operations in subsequent fi nancial years other than the information contained in the Executive Director’s review and besides any other information which the Directors believe comment on or disclosure of would prejudice the interests of the Consolidated Entity. Environmental issues There are no matters that have arisen in relation to environmental issues up to the date of this report. Share options As at 30 June 2010 there were no unissued ordinary shares under options. Subsequent to year end 1,050,000 options for unissued ordinary shares in FSA Group Ltd were granted. Indemnifi cation and insurance of directors and offi cers Each of the Directors and the Secretaries of the Company have entered a Deed with the Company whereby the Company has provided certain contractual rights of access to books and records of the Company to those Directors and Secretaries; and indemnifi es those Directors and Secretaries against liabilities suffered in the discharge of their duties as Directors or Secretaries of the Company. 20 FSA Group Ltd The Company has insured all of the Directors of FSA Group Ltd. The contract of insurance prohibits the disclosure of the nature of the liabilities covered and amount of the premium paid. The Corporations Act 2001 does not require disclosure of the information in these circumstances. Remuneration Report (Audited) This report outlines the remuneration arrangements in place for Directors and Executives of FSA Group Ltd (the Company). Remuneration policy The performance of the Company depends upon the quality of its Directors, Executives and Senior Management. To prosper, the Company must attract, motivate and retain highly skilled Directors, Executives and Senior Management. The Board does not presently have a Remuneration and Nomination Committee. The Directors consider that the Company is not of a size, nor are its affairs of such complexity, as to justify the formation of a separate committee. All matters which might be dealt with by such a committee are reviewed by the Directors in meeting as a board. The Board, in carrying out the functions of the Remuneration and Nomination Committee, are responsible for determining and reviewing compensation arrangements for the Directors, Executives and Senior Management. The Board, in carrying out the functions of the Remuneration and Nomination Committee, assess the appropriateness of the nature and amount of emoluments of such offi cers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum shareholder benefi t from the retention of a high quality board and Executive team. Such offi cers are given the opportunity to receive their base emolument in a variety of forms including cash and fringe benefi ts. It is intended that the manner of payments chosen will be optimal for the recipient without creating undue cost for the Company. The Company aims to reward the Directors, Executives and Senior Management with a level and mix of remuneration commensurate with their position and responsibilities within the Company. The Board’s policy is to align Director, Executive and Senior Management objectives with shareholder and business objectives by providing a fi xed remuneration component and offering short and long-term incentives. In accordance with best practice corporate governance, the structure of Non-Executive Director, Executive Director, Executives and Senior Management remuneration is separate and distinct. Directors’ Report continued for the year ended 30 June 2010 Non-Executive Director Remuneration The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. The Constitution of the Company and the ASX Listing Rules specify that the Non-Executive Directors are entitled to remuneration as determined by the Company in General Meeting. The total aggregate annual remuneration payable to Non-Executive Directors of the Company is currently determined to be a maximum aggregate of $250,000 excluding the value of share options expensed as calculated by the Black-Scholes method (to be divided between Non-Executive Directors as the Board determines). Additionally, Non-Executive Directors will be entitled to be reimbursed for properly incurred expenses. If a Non-Executive Director performs extra services, which in the opinion of the Directors are outside the scope of the ordinary duties of the Director, the Company may remunerate that Director by payment of a fi xed sum determined by the Directors in addition to or instead of the remuneration referred to above. A Non-Executive Director is entitled to be paid travel and other expenses properly incurred by them in attending Directors’ or General Meetings of the Company or otherwise in connection with the business of the Company. The remuneration of Non-Executive Directors for the year ending 30 June 2010 is detailed in Table 1 of this Remuneration Report. Executive Directors and Senior Management Remuneration The Company aims to reward the Executive Directors and Senior Management with a level and mix of remuneration commensurate with their position and responsibilities within the Company and so as to: (cid:129) reward Executives for company and individual performance against targets set by reference to appropriate benchmarks; (cid:129) align the interests of Executives with those of shareholders; (cid:129) link reward with the strategic goals and performance of the Company; and (cid:129) ensure total remuneration is competitive by market standards. The remuneration of the Executive Directors and Senior Management may from time to time be fi xed by the Board. The remuneration will comprise a fi xed remuneration component and also may include offering specifi c short and long-term incentives, in the form of: 1. performance based salary increases and/or bonuses; and/or 2. share-based payments. Performance based salary increases and bonuses are assessed on a discretionary basis by the Board. No formal performance conditions or earnings milestones have been set for the granting of salary increases and bonuses. This allows the Board to retain fl exibility around granting of salary increases and bonuses if the Company is affected by adverse economic conditions, and the payment of these salary increases and bonuses is not in the best interests of shareholders. A review of bonuses paid to the Executive Directors over the previous 5 years is consistent with the operational performance of the Group in those periods. All executives and employees have the opportunity to qualify for participation in the FSA Group Ltd Employee Share Option Plan (“ESOP”). The remuneration of the Executive Directors and Senior Management for the year ended 30 June 2010 is detailed in Table 1 of this Remuneration Report. An employee share incentive scheme has been established where executives and certain members of staff of FSA Group Ltd are issued with options over the ordinary shares of FSA Group Ltd. The options, issued for nil consideration, are issued in accordance with performance guidelines established by the Directors of FSA Group Ltd. The options cannot be transferred and will not be quoted on the ASX. The total number of shares in respect of which options may be granted under the scheme to employees and which have not been exercised or lapsed shall not at any time exceed fi ve percent (5%) of the Company’s total issued share capital. There are no such restrictions as to the number of shares in respect of which options may be granted under the scheme to executives. The exercise price of an option and the exercise period is determined by the Board in accordance with Listing Rules. No formal policy has been adopted regarding employees and directors hedging exposure to holdings of the Company’s securities. No employees or directors have hedged their exposures. 21 Directors’ Report continued for the year ended 30 June 2010 Employment contracts It is the Board’s policy that employment agreements are entered into with all Executive Directors, Executives and employees. An employment agreement has also been entered into with Mr Hugh Parsons, a Non-Executive Director. Executive Directors The Executive Directors, Mr Tim Odillo Maher and Ms Deborah Southon are employed under Executive Service Contracts. Under the terms of the contracts: (cid:129) Both FSA Group Ltd and the Executive Directors are entitled to terminate the contract upon giving three (3) months written notice. (cid:129) FSA Group Ltd is entitled to terminate the agreements upon the happening of various events or other conduct or if Mr Odillo Maher or Ms Southon cease to be Directors of FSA Group Ltd. (cid:129) The contracts provide for annual reviews of performance by FSA Group Ltd. (cid:129) There are no early termination clauses. Non-Executive Directors Mr Hugh Parsons Mr Hugh Parsons has been engaged under an Employment Agreement and a Letter of Appointment of Non-Executive Director. The key terms of Mr Parsons’ Letter of Appointment as Non-Executive Director are: (cid:129) Annual fee of $64,438 (exclusive of superannuation). The key terms of Mr Parsons’ Employment Agreement are: (cid:129) To serve as the Company’s Compliance Offi cer when required. (cid:129) Three year term, plus an option by both parties for a further three year term. The Redundancy Payment is payable in lieu of the Notice Period in the following circumstances: – The Company terminates the Employment Agreement. – The Company does not renew the Employment Agreement for a further fi xed term of three years. – Mr Parsons is not re-elected as a Director by the members of the Company. – Mr Parsons is removed as a Director by members of the Company. The Redundancy Payment is not payable in the following circumstances: – Mr Parsons terminates the Employment Agreement. – The Company terminates the Employment Agreement in the event of bankruptcy or misconduct (as defi ned in the Employment Agreement). Mr Stan Kalinko Mr Stan Kalinko has been engaged under a Letter of Appointment of Non-Executive Director. The key terms of Mr Kalinko’s Letter of Appointment as Non-Executive Director are: (cid:129) Annual fee of $49,995 (exclusive of Superannuation). Senior Management Employment contracts entered into with senior management contain the following key terms: Event Performance based salary increases and/or bonuses Short and long-term incentives, such as options and shares Resignation/notice period Serious misconduct Company Policy board discretion board discretion 1-3 month Company may terminate at any time None (cid:129) Remuneration of $125 per hour. (cid:129) Redundancy Payment as follows: Termination after 12 months after commencement Payouts upon resignation or termination, outside industrial regulations (i.e. ‘golden handshakes’) $100,000 22 FSA Group Ltd Directors’ Report continued for the year ended 30 June 2010 (a) Details of Directors and Key Management Personnel (i) Directors Sam Doumany Tim Odillo Maher Deborah Southon Hugh Parsons Stan Kalinko Non-Executive Chairman Executive Director Executive Director Non-Executive Director Non-Executive Director (ii) Key Management Personnel Duncan Cornish Anthony Carius Fred El Tahche Goran Turner Nino Eid Joint Company Secretary Chief Financial Offi cer and Joint Company Secretary Chief Information Offi cer (appointed 27 April 2009) Chief Executive – Fox Symes Home Loans Manager – Refi nance. (b) Remuneration of Directors and Key Management Personnel The Key Management Personnel of the Group include Duncan Cornish, Anthony Carius and Fred El Tahche, being the only executive offi cers of the Group’s parent company, FSA Group Ltd. Table 1 Directors Sam Doumany 2010 2009 Tim Odillo Maher 2010 2009 Deborah Southon 2010 2009 Hugh Parsons 2010 2009 Stan Kalinko 2010 2009 Total Remuneration 2010 2009 Short-term Long-term Employment Post- Share-based Payment Performance based Total Salary & Fees $ Cash Bonus $ Non-cash benefi ts $ Non-cash benefi ts $ Super- annuation $ 88,879 80,000 – – 218,000 195,333 125,000 30,000 – – – – 2,946 6,097 7,999 7,200 – – – – 209,230 192,342 123,462 29,318 3,846 8,081 5,247 16,202 14,461 14,326 $ – – – – – – $ 99,824 93,297 343,000 225,333 356,246 260,269 57,937 71,230 48,307 – – – – – – – – – – – – – 12,299 8,591 – 26,802 70,236 106,623 6,187 49,050 – 67,233 54,494 116,283 622,353 538,905 248,462 59,318 3,846 8,081 8,193 22,299 40,946 79,167 – 94,035 923,800 801,805 % – – 36% 13% 35% 11% – – – – Executive Director bonuses totalling $250,000 ($60,000: 2009) inclusive of statutory payroll entitlements (representing 100% of the total bonuses to be paid) were paid on 4 February 2010 and were approved by the Board. The Executive Directors abstained from the vote. 23 Directors’ Report continued for the year ended 30 June 2010 Short-term Long-term Employment Post- Share-based Payment Performance based Total Salary & Fees $ Cash Bonus $ Non-cash benefi ts $ Non-cash benefi ts $ Super- annuation $ Key Management Personnel Duncan Cornish 2010 2009 40,000 35,000 Anthony Carius 2010 2009 Fred El Tahche 2010 2009 Goran Turner 2010 2009 Nino Eid 2010 2009 – – – – – – 13,824 17,928 172,815 131,175 182,000 28,000 *30,000 – 12,839 1,614 246,140 – 247,491 **175,000 4,028 11,563 149,368 136,247 – – – 5,871 Previously designated as Key Management Personnel Pierre-Alain De Villecourt 2009 205,977 ***22,936 – Total Remuneration 2010 2009 790,323 783,890 30,000 197,936 30,691 36,976 – – – – – – – – – – – – – $ – – $ 40,000 35,000 – – 14,292 11,550 7,647 26,809 208,578 187,462 17,161 2,520 18,000 18,000 13,443 12,260 – – – – 242,000 32,134 268,168 452,054 2,832 5,618 165,643 159,996 % – – – – 12% – – 39% 33% 32% 13,802 – 242,715 9% 62,896 58,132 10,479 32,427 924,389 1,109,361 * Bonus (representing 100% of the total bonus to be paid) was paid on 11 November 2009. The bonus was approved by the Board as part of discretionary performance based remuneration. ** Bonus (representing 100% of the total bonus to be paid) was paid on 12 June 2009. The bonus was approved by the Board as part of discretionary performance based remuneration. *** Bonus (representing 100% of the total bonus to be paid) was paid on 15 October 2008. The bonus was as part of discretionary performance based remuneration. Fair value of options granted as part of remuneration are estimates only. The estimates are based on the use of the Black Scholes option pricing model. This model takes account of factors such as the option exercise price, the current level and volatility of the underlying share price and the time to maturity of the options. Option % of total remuneration 2009 2010 Option % of total remuneration 2009 2010 Directors Hugh Parsons Stan Kalinko Key Management Personnel – – 25% 58% Anthony Carius Nino Eid 4% 2% 14% 4% Consolidated Entity’s earnings and movement in shareholders wealth for the last fi ve years is as follows: Revenue and Income (Net) 50,780,366 50,073,622 36,288,711 33,655,696 21,737,977 30 June 2010 30 June 2009 30 June 2008 30 June 2007 30 June 2006 Net profi t before tax Net profi t after tax Share price at the start of the year Share price at the end of the year Basic EPS (cents) Diluted EPS (cents) 12,868,122 13,939,337 4,737,736 9,695,906 4,066,570 9,177,212 10,021,632 3,203,924 6,821,586 2,583,294 $0.38 $0.36 5.82 5.82 $0.16 $0.38 7.66 7.15 $0.88 $0.16 2.37 2.21 $0.24 $0.88 6.24 5.76 $0.07 $0.24 2.85 2.77 A review of discretionary performance bonuses over the previous fi ve years is consistent with growth in Basic and Diluted Earnings per Share. Salaries and Fees, as determined by the Board are consistent with the levels required to attract and retain Directors and Key Management Personnel in companies of a comparable size. 24 FSA Group Ltd Directors’ Report continued for the year ended 30 June 2010 (c) Options issued as part of remuneration for the year ended 30 June 2010 There were no options issued as part of remuneration in the year ended 30 June 2010. (d) Shares issued on exercise of remuneration options On 27 January 2010, 500,000 ordinary shares were issued on exercise of options previously granted to Hugh Parsons. The options were transferred to and exercised by an unrelated third party. (e) Option holdings of Directors and Key Management Personnel Balance at Granted as 1 July 2009 remuneration Exercised Options Net Change Other 30 June 2010 Vested at Balance at 30 June remuneration 2010 after year end Granted as Balance at the date of this report ESOP Options Directors Key Management Personnel Anthony Carius Fred El Tahche Nino Eid n/a 450,000 – 50,000 Total ESOP Options 500,000 Unlisted Options ($0.25 @ 31-Jan-10) Directors Hugh Parsons 500,000 Key Management Personnel n/a Unlisted Options ($0.98 @ 31-Jan-10) Directors Stan Kalinko 250,000 Key Management Personnel n/a Unlisted Options ($0.60 @ 31-Jan-10) Directors Stan Kalinko 250,000 Key Management Personnel n/a Total Unlisted Options 1,000,000 1,500,000 Total Options – – – – – – – (450,000) – (50,000) (500,000) – – – – – – – – 550,000 500,000 – 550,000 500,000 – 1,050,000 1,050,000 – – (500,000) – – – – (250,000) – – – – – – (250,000) – (1,000,000) – (1,500,000) – – – – – – – – – – – – – – 1,050,000 1,050,000 All options vest to Directors or other employees if they are employed with the Group at vesting date. The exercise price refl ects the closing share price of FSA Group Ltd on the trading day preceding the grant plus a premium specifi c to each grant contract to ensure benefi ts are linked to the future growth in share price of the Company. All options issued prior to 30 June 2010, expired on 31 January 2010 without being exercised with the exception of Hugh Parsons’ 500,000 options exercisable at $0.25 which were sold and transferred. 25 Directors’ Report continued for the year ended 30 June 2010 The terms and conditions of each grant of options affecting remuneration in the previous, this or future reporting periods are as follows: Terms & Conditions for Each Grant Grant Date 21-Nov-2006 01-Feb-2007 01-Feb-2007 01-Feb-2007 19-Feb-2007 29-Jun-2007 Grant Number 500,000 150,000 150,000 150,000 640,000 250,000 Vest Date 20-Nov-2008 31-Dec-2007 31-Dec-2008 31-Dec-2009 31-Dec-2009 28-Jun-2009 Fair Value per option at grant date ($) $0.2736 $0.2948 $0.2948 $0.2948 $0.3220 $0.4014 14-Mar-2008 250,000 28-Jun-2009 $0.0980 02-Jul-2010 02-Jul-2010 225,000 275,000 30-Apr 2011 30-Apr 2012 02-Jul-2010 550,000 30-Apr-2013 $0.1000 $0.1000 $0.1000 Exercise Price Expected Volatility Dividend Yield Risk-free rate $0.250 $0.655 $0.655 $0.655 $0.600 $0.980 $0.600 $0.500 $0.500 $0.500 70.58% 70.58% 70.58% 70.58% 70.58% 70.58% 60.57% 52.96% 52.96% 52.96% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 6.06% 6.06% 6.06% 6.06% 6.06% 6.06% 6.63% 4.69% 4.69% 4.69% Inputs into the Black Scholes option pricing model were determined by independent external advisors and were based on the historical performance of the underlying equities under option. There were no vesting conditions associated with these options other than the continued employment of the Individual at vesting date. (f) Shareholdings of Directors and Key Management Personnel Shares held in FSA Group Ltd, Including CRPS (number) Balance Granted as 1 July 2009 Remuneration Options Exercised Net Change Balance Other 30 June 2010 Directors Sam Doumany Tim Odillo Maher Deborah Southon Stan Kalinko Key Management Personnel Duncan Cornish Anthony Carius Nino Eid Total 1,000,000 40,795,733 12,946,533 10,000 1,683,271 26,158 100,000 56,561,695 – – – – – – – – – – – – – – – – 40,541 1,040,541 8,013,498 48,809,231 13,514 12,960,047 5,406 15,406 81,082 40,541 – 1,764,353 66,699 100,000 8,194,582 64,756,277 (g) Loans to Directors and Key Management Personnel There were no loans to Directors or Key Management Personnel during the year. (h) Other transactions to Directors and Key Management Personnel Convertible Redeemable Preference Shares (CRPS) Background to the transaction Part of the consideration for the acquisition of 180 Group Holdings Pty Ltd (acquired 21 April 2006) was paid by FSA Group by the issue of the CRPS. In summary, the terms of the CRPS are as follows: (cid:129) a total of 32 one dollar ($1) CRPS were issued to Capital Management Corporation Pty Ltd (a company associated with Tim Odillo Maher), the Vendor; 26 FSA Group Ltd Directors’ Report continued for the year ended 30 June 2010 (cid:129) each CRPS will be convertible, subject to certain performance parameters being achieved in the 180 Group, into 1,000,000 ordinary fully paid FSA Group shares (such that if all of the CRPS are converted, a total of 32,000,000 FSA Group shares will be issued); and (cid:129) CRPS are able to be converted into ordinary FSA Group shares under one of three scenarios (or “Phases”) based on the fi nancial performance of the 180 Group. These Phases were set out fully in the Notice of Meeting and Explanatory Memorandum distributed to shareholders on 17 March 2006. (cid:129) As at 30 June 2009, 16 CRPS had been converted into 16,000,000 Ordinary shares, pursuant to the terms of the purchase agreement on successfully meeting cumulative profi t target up until 30 June 2007. On 1 February 2010, 8 convertible redeemable preference shares (“CPRS”) were converted into 8,000,000 ordinary shares pursuant to the terms of the purchase agreement of 180 Group, upon 180 Group meeting its cumulative profi t target to 30 June 2008. The remaining 8 CRPS were redeemed at this time due to 180 Group not meeting its profi t target for 30 June 2009. There were no other transactions or balances with Directors or Key Management Personnel during the year. Directors’ Meetings The number of meetings of Directors held during the year and the number of meetings attended by each Director are as follows: Sam Doumany Tim Odillo Maher Deborah Southon Hugh Parsons Stan Kalinko Number of meetings held while in offi ce 11 11 11 11 11 Total number of meetings held during the fi nancial year – 11 Audit and Risk Management Committee Meetings Meetings attended 10 11 10 11 11 The number of meetings of the Audit and Risk Management Committee held during the year and the number of meetings attended by each member of the Audit and Risk Management Committee are as follows: Hugh Parsons Sam Doumany Stan Kalinko Number of meetings held while in offi ce 4 4 4 Total number of meetings held during the fi nancial year – 4 Tax Consolidation Meetings attended 4 4 4 FSA Group Ltd and its 100% owned subsidiaries have formed a tax consolidated group and have entered tax sharing and tax funding arrangements. 180 Group Pty Ltd (controlled by FSA Group Ltd) and its 100% owned subsidiaries have formed a tax consolidated group and have entered tax sharing and tax funding arrangements. Fox Symes Home Loans Pty Ltd (controlled by FSA Group Ltd) and its 100% owned subsidiaries have formed a tax consolidated group and have entered tax sharing and tax funding arrangements. 27 Directors’ Report continued for the year ended 30 June 2010 Non-Audit Services The Board of Directors, in accordance with advice from the Audit and Risk Management Committee, is satisfi ed that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfi ed that the services disclosed below did not compromise the external auditor’s independence for the following reasons: (cid:129) all non-audit services are reviewed and approved by the Audit and Risk Management Committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and (cid:129) the nature of the services provided do not compromise the general principles relating to auditor independence as set out in the Institute of Chartered Accountants in Australia and CPA Australia’s Professional Statement F1: Professional Independence; (cid:129) all non-audit services are performed by persons not involved in the audit. The following fees for non-audit services were paid/payable to the external auditors during the year ended 30 June 2010: Tax consulting services $55,897 Auditor’s Independence Declaration The Auditor’s Independence Declaration forms part of the Directors Report and can be found on page 29. Auditor Details PKF continues in offi ce in accordance with section 327 of the Corporations Act 2001. Corporate Governance In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of FSA Group Ltd support and have adhered to the principles of corporate governance. The Company’s Corporate Governance Statement is separately contained in the Annual Report. Signed in accordance with a resolution of the directors. Tim Odillo Maher Director Sydney 31 August 2010 28 FSA Group Ltd Auditor’s Independence Declaration Auditor’s Independence Declaration (cid:36)(cid:86)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:54)(cid:36)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:47)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:22)(cid:19)(cid:3)(cid:45)(cid:88)(cid:81)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:19)(cid:15)(cid:3)(cid:44)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:15)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) 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The Board guides and monitors the business and affairs of FSA Group Ltd on behalf of the shareholders by whom they are elected and to whom they are accountable. Principle 3 Promote ethical and responsible decision making Principle 4 Safeguard integrity in fi nancial reporting Principle 5 Make timely and balanced disclosure FSA Group Ltd’s Corporate Governance Statement is now structured with reference to the Australian Securities Exchange Corporate Governance Council’s (the “Council”) Corporate Governance Principles and Recommendations, 2nd Edition, which are as follows: Principle 1 Lay solid foundations for management and oversight Principle 2 Structure the board to add value Principle 6 Respect the rights of shareholders Principle 7 Recognise and manage risk Principle 8 Remunerate fairly and responsibly A copy of the eight Corporate Governance Principles and Recommendations can be found on the ASX’s website at www.asx.com.au. The Board is of the view that with the exception of the departures from the ASX Guidelines as set out below, it otherwise complies with all of the ASX Guidelines. ASX Principles and Recommendations Principle 1 – Lay solid foundations for management and oversight Recommendation 1.3 – The Board should evaluate the performance of Directors and Senior Executives in accordance with its documented process Summary of the Company’s Position No formal performance evaluation of the Directors or Senior Management was undertaken by the Board during the year ended 30 June 2010, though this was considered informally by the Board at its regular meetings. Principle 2 – Structure the Board to add value Recommendation 2.4 – The Board should establish a nomination committee Principle 7 – Recognise and manage risk Recommendation 7.2 – The Board should require management to design and implement a risk management and internal control system to manage the Company’s material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that Management has reported to it the effectiveness of the Company’s management of its material risks Principle 8 – Remunerate fairly and responsibly Recommendation 8.1 – The Board should establish a remuneration committee FSA Group Ltd does not have a separately established nomination committee. The Board currently performs the functions of a nomination committee and where necessary will seek advice of external advisors in relation to this role. The Board does not believe that any marked effi ciencies or enhancements would be achieved by the creation of a separate nomination committee. While the design and implementation of a basic risk management and internal control system is in place, a formal report as to the effectiveness of the management of the Company’s material business risks has not been provided to the Board. The Company is currently reviewing and updating its risk management systems and procedures and adherence to providing formal reports is under review. Nonetheless, the Board is otherwise satisfi ed that adequate operational risk management procedures and reporting exists at the business unit level and certain compliance reports are reviewed by the Board monthly in lieu of a formal board report. FSA Group Ltd does not have a separately established remuneration committee. The Board currently performs the functions of a remuneration committee. For further details regarding remuneration please refer to the Remuneration Report included in the Directors’ Report. 30 FSA Group Ltd Corporate Governance Statement continued for the year ended 30 June 2010 Role of the Board The role of the Board is to exercise its management responsibilities in the wider interests of the Company’s shareholders. The Board charter and functions reserved for the Board (and senior executives) have been established and can be viewed in the Company’s corporate governance practices and policies, publicly available on the Company’s web site, www.fsagroup.com.au Structure of the Board The skills, experience and expertise relevant to the position of Director held by each Director in offi ce at the date of the Annual Report is included in the Director’s Report. Corporate Governance Council Recommendation 2.1 requires a majority of the Board to be independent directors. The Corporate Governance Council defi nes independence as being free from any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with – the exercise of their unfettered and independent judgement. In the context of Director independence, “materiality” is considered from both the Company and the individual Director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be quantitatively immaterial if it is equal to or less than 10% of the appropriate base amount. It is presumed to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10% of the appropriate base amount. Qualitative factors considered included whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other factors which point to the actual ability of the Director in question to shape the direction of the Company’s loyalty. In accordance with the Council’s defi nition of independence above, and the materiality thresholds set, the following Directors are not considered to be independent: Name Position Mr Tim Odillo Maher Executive Director Ms Deborah Southon Executive Director Reason for non-compliance Mr Odillo Maher is employed by the Company in an executive capacity and is a substantial shareholder. Ms Southon is employed by the Company in an executive capacity and is a substantial shareholder. The majority of FSA Group Ltd’s Board is independent. FSA Group Ltd considers industry experience and specifi c expertise, as well as general corporate experience, to be important attributes of its Board members. The members of the Board have been brought together to provide a blend of qualifi cations, considerable industry skills and national and international experience required for managing a company operating within the fi nancial services and debt management industry. There are procedures in place, agreed by the Board, to enable the Directors, in furtherance of their duties, to seek independent professional advice at the Company’s expense. The term in offi ce held by each Director in offi ce at the date of this report is as follows: Name Sam Doumany Tim Odillo Maher Deborah Southon Hugh Parsons Stan Kalinko Term in offi ce 7 years 8 months 8 years 1 month 8 years 1 month 4 years 1 month 3 years 4 months In accordance with the Council’s defi nition of independence above, and the materiality thresholds set, the following Directors are considered to be independent: Nomination and Remuneration Committees Name Mr Sam Doumany Mr Hugh Parsons Mr Stan Kalinko Position Non-Executive Chairman Non-Executive Director Non-Executive Director Recommendations 2.4 and 8.1 require listed entities to establish nomination and remuneration committees. During the year ended 30 June 2010, FSA Group Ltd did not have separately established nomination or remuneration committees. The full Board shall for the time being carry out the functions of remuneration & nomination committees performing this function at its regular meetings. The Board does not believe that any marked effi ciencies or enhancements would be achieved by the creation of separate remuneration or nomination committees. 31 Corporate Governance Statement continued for the year ended 30 June 2010 Audit and Risk Management Committee The Board has established an Audit and Risk Management Committee, which operates under a charter approved by the Board. It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls to deal with both the effectiveness and effi ciency of signifi cant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of fi nancial information as well as non-fi nancial considerations such as the benchmarking of operational key performance indicators. The Board has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the management of the Consolidated Entity to the Audit and Risk Management Committee. The Audit and Risk Management Committee also provides the Board with additional assurance regarding the reliability of fi nancial information for inclusion in the fi nancial statements. All members of the Audit and Risk Management Committee are Non-Executive Directors. The members of the Audit and Risk Management Committee during the period 1 July 2009 to 30 June 2010 were: (cid:129) Sam Doumany BSc. (Agric.) – Independent Director (cid:129) Hugh Parsons – Independent Director (Chairman – Audit and Risk Management Committee) (cid:129) Stan Kalinko BCom LLB. – Independent Director For additional details of Directors’ attendance at Audit and Risk Management Committee meetings and to review the qualifi cations of the members of the Audit and Risk Management Committee, please refer to the Directors’ Report. The Audit and Risk Management Committee met four times throughout the year. The Audit and Risk Management Charter, contained in the Company’s corporate governance charter has been made publicly available on the Company’s website www.fsagroup.com.au. This also contains the Committee’s procedures for the selection and appointment of external auditors and the rotation of external audit engagement partners. Recommendation 7.2 requires that the Board disclose that management has reported to it as to the effectiveness of the Company’s management of its material business risks. Business risks are considered regularly by the Board and Management. 32 FSA Group Ltd As required by Recommendation 7.3, the Board has received written assurances from the Executive Directors and Chief Financial Offi cer that to the best of their knowledge and belief, the declaration provided by them in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that their system is operating effectively in all material respects in relation to fi nancial reporting risks. Performance evaluation The full Board, in carrying out the functions of the Remuneration and Nomination Committee, considers remuneration and nomination issues annually and otherwise as required in conjunction with the regular meetings of the Board. The performance of the individual members of the Board, the Audit and Risk Management Committee and Senior Executives is considered at the regular meetings of the Board. No formal performance evaluation of the Directors or Senior Management was undertaken by the Board during the year ended 30 June 2010. Remuneration It is the Company’s objective to provide maximum stakeholder benefi t from the retention of a high quality Board and Executive team by remunerating Directors and Key Executives fairly and appropriately with reference to relevant employment market conditions. To assist in achieving this objective, the Board links the nature and amount of Executive Director’s and Offi cer’s emoluments to the Company’s fi nancial and operations performance. The expected outcomes of the remuneration structure are: (cid:129) Retention and motivation of Key Executives (cid:129) Attraction of quality management to the Company (cid:129) Performance incentives which allow Executives to share the rewards of the success of FSA Group Ltd For details on the amount of remuneration and all monetary and non-monetary components for each of the Key Management Personnel during the year, and for all directors, please refer to the Remuneration Report within the Directors’ Report. In relation to the payment of bonuses, options and other incentive payments, discretion is exercised by the Board, having regard to the overall performance of FSA Group Ltd and the performance of the individual during the year. The Board is responsible for determining and reviewing compensation arrangements for the Directors themselves and the executive team. As noted above, no separate remuneration committee has been created. Corporate Governance Statement continued for the year ended 30 June 2010 Trading Policy The Board has adopted a policy and procedure on dealing in the Company’s securities by Directors, Offi cers and Employees which prohibits dealing in the Company’s securities when those persons possess inside information, until it has been released to the market and adequate time has passed for this to be refl ected in the security’s prices, and during certain pre-determined windows. Code of Conduct The Company seeks to actively promote appropriate standards of ethics and integrity in carrying out their duties for the Company. To this end the Company requires that its Directors and Employees: Disclose any actual or perceived confl icts of interest of a direct or indirect nature of which they become aware and which they believe could compromise in any way the reputation or performance of the Company; Respect confi dentiality of all information of a confi dential nature which is acquired in the course of the Company’s business and not disclose or make improper use of such confi dential information to any person unless specifi c authorisation is given for disclosure or disclosure is legally mandated; Deal with the Company’s customers, suppliers, competitors and each other with the highest level of honesty, fairness and integrity and to observe the rule and spirit of the legal and regulatory environment in which the Company operates; Protect the assets of the Company to ensure availability for legitimate business purposes and ensure all corporate opportunities are enjoyed by the Company and that no property, information or position belonging to the Company or opportunity arising from these are used for personal gain or to compete with the Company; Provide a workplace that is free of harassment and discrimination and observe the rule and spirit of the legal and regulatory environment in which the Company operates; and Report any breach of this code of conduct to Management, who will treat reports made in good faith of such violations with respect and in confi dence. Continuous disclosure and compliance The Company’s policies for ensuring compliance with ASX listing rule and continuous disclosure is located in the Company’s corporate governance charter which may be viewed on the Company’s website www.fsagroup.com.au. Communications policy The Company has adopted a Communications Policy aimed at promoting effective communication with shareholders and encouraging shareholder participation at general shareholder meetings. A copy of the policy can be located in the Company’s corporate governance charter which may be viewed on the Company’s website www.fsagroup.com.au. In addition to the corporate information generally available on the Company’s website, the following information is made available: (cid:129) ASX announcements (cid:129) Presentations (cid:129) Annual and Periodic Reports (cid:129) Press releases (cid:129) Investor relations contacts Risk Management The Company has developed an informal framework for risk management and internal compliance and control systems which cover organisational, fi nancial, and operational aspects of the Company’s affairs. Further detail on the Company’s risk management policies can be found within the Audit and Risk Managements Committee Charter which may be viewed on the Company’s website www.fsagroup.com.au. FSA Group Ltd is currently updating its risk management system. Management has undertaken to monitor and review the code periodically and report to the Board. The full code of conduct is available in the Company’s corporate governance charter which may be viewed on the Company’s website www.fsagroup.com.au Other Information Further information relating to the Company’s corporate governance practices and policies has been made publicly available on the Company’s web site. 33 Statements of Comprehensive Income for the year ended 30 June 2010 Revenue and other income Fees from Services Finance income Finance expense Net fi nance income Other income Total revenue and other income net of fi nance expense Share of profi ts of an associate using the equity accounting method Expenses from continuing activities Profi t/(loss) before income tax Income tax (expense)/benefi t Profi t after income tax Consolidated Entity Parent Entity Notes 2010 $ 2009 $ 2010 $ 2009 $ 2 2 2 2 2 38,473,602 38,830,270 – 22,250,254 20,163,442 87,548 (10,848,977) (8,959,124) – 11,401,277 11,204,318 87,548 – 9,157 – 9,157 905,487 39,034 – 100,041 50,780,366 50,073,622 87,548 109,198 28 18,528 126,323 – – 3 (37,930,772) (36,260,608) (53,070) (249,220) 12,868,122 13,939,337 34,478 (140,022) 4 (3,690,910) (3,917,705) (28,200) 9,177,212 10,021,632 6,278 163,373 23,351 – – Other Comprehensive Income Share of Other Comprehensive income of Associates – – – – – – Total Comprehensive income for the year 9,177,212 10,021,632 6,278 23,351 Total Comprehensive income for the year attributable to: Non-Controlling Interests Owners of the parent Earnings per share 1,656,648 1,184,460 – – 7,520,564 8,837,172 6,278 23,351 Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 6 6 5.82 5.82 7.66 7.15 The Statements of Comprehensive Income should be read in conjunction with the Notes to the Financial Statements. 34 FSA Group Ltd Statements of Financial Position as at 30 June 2010 Current Assets Cash and cash equivalents Trade and other receivables Current tax assets Other assets Total Current Assets Non-Current Assets Trade and other receivables Investments in associates Plant and equipment Investment property Other assets Other fi nancial assets Deferred tax assets Intangible assets Consolidated Entity Parent Entity Notes 2010 $ 2009 $ 2010 $ 2009 $ 7 8 9 8 28 13 14 9 10 4c 15 7,394,759 11,648,184 1,637,606 32,564,893 22,177,467 – – 245,697 745,292 24,820 112,758 9,000 626,350 50,000 – – 40,205,349 34,570,943 1,784,184 676,350 24,508,906 17,489,641 47,188 450,003 313,051 – 898,050 40,788 2,843 719,308 321,686 – – 227,498 3,413,633 4,104,948 – – – – – – – – 10,426,990 11,046,302 – – – – – – Total Non-Current Assets 29,671,619 22,865,924 10,426,990 11,046,302 Assets fi nanced by non-recourse fi nancial liabilities Cash and cash equivalents Trade and other receivables Mortgage fi nance assets 7 8 6,605,211 8,043,786 – 12,576 11 200,434,621 145,319,192 Total assets fi nanced by non-recourse fi nancial liabilities 207,039,832 153,375,554 – – – – – – – – Total Assets Current Liabilities Trade and other payables Current tax liabilities Borrowings Provisions Total Current Liabilities Non-Current Liabilities Borrowings Provisions Deferred tax liabilities Total Non-Current Liabilities Non-Recourse Financial Liabilities Borrowings 276,916,800 210,812,421 12,211,174 11,722,652 16 12,750,551 11,774,359 745,186 4,650,668 629,453 363,828 3,361,542 1,989,773 588,535 477,399 – – – 219,861 – – 17,330,081 14,605,359 745,186 4,870,529 17 18 17 18 4d 11,893,779 9,807,001 251,012 158,819 8,150,799 5,592,589 20,295,590 15,558,409 17 194,541,639 148,580,187 – – – – – – – – – – – – Total Non-Recourse Financial Liabilities 194,541,639 148,580,187 Total Liabilities Net Assets Equity Share capital Reserves 232,167,310 178,743,955 745,186 4,870,529 44,749,490 32,068,466 11,465,988 6,852,123 19 20 11,692,255 7,137,472 11,692,255 7,137,472 664,374 611,570 664,374 611,570 Retained earnings/(Accumulated losses) 30,289,397 22,768,833 (890,641) (896,919) Non-Controlling interest Total Equity 2,103,464 1,550,591 – – 44,749,490 32,068,466 11,465,988 6,852,123 The Statements of Financial Position should be read in conjunction with the Notes to the Financial Statements. 35 Statements of Changes in Equity for the year ended 30 June 2010 Consolidated Entity Balance at 1 July 2008 7,137,472 402,605 13,931,661 1,091,113 22,562,851 Share Capital $ Reserves $ Retained Non-Controlling Interest Earnings $ $ Total $ Total Comprehensive Income for the year attributable to members of the parent Total Comprehensive Income for the year attributable to Non-Controlling interests Share-based payments expense Acquisition of Non-Controlling interests Distribution to unit-holders – – – – – – – 208,965 – – 8,837,172 – 8,837,172 – – – – 1,184,460 1,184,460 – (89,387) 208,965 (89,387) (635,595) (635,595) Balance at 30 June 2009/1 July 2009 7,137,472 611,570 22,768,833 1,550,591 32,068,466 Total Comprehensive Income for the year attributable to members of the parent Total Comprehensive Income for the year attributable to Non-Controlling interests Shares issued Issues costs Redemption of Convertible Redeemable Preference Shares Share-based payment expense Distribution to Non-Controlling interests – – 5,422,000 (247,905) (619,312) – – – – – – – 52,804 – 7,520,564 – 7,520,564 – – – – – – 1,656,648 1,656,648 – – – – 5,422,000 (247,905) (619,312) 52,804 (1,103,775) (1,103,775) Balance at 30 June 2010 11,692,255 664,374 30,289,397 2,103,464 44,749,490 Parent Entity Balance at 1 July 2008 7,137,472 402,605 (920,270) 6,619,807 Share Capital $ Reserves $ (Accumulated Losses) $ Total $ Total Comprehensive Income for the year Share-based payments expense Balance at 30 June 2009/1 July 2009 Shares issued Issues costs Total Comprehensive Income for the year – – 7,137,472 5,422,000 (247,905) – Redemption of Convertible Redeemable Preference Shares (619,312) 208,965 611,570 – – – – – 23,351 23,351 208,965 – (896,919) 6,852,123 – – 5,422,000 (247,905) 6,278 6,278 – – (619,312) 52,804 Share-based payment expense Balance at 30 June 2010 – 52,804 11,692,255 664,374 (890,641) 11,465,988 The Statements of Changes in Equity should be read in conjunction with the Notes to the Financial Statements. 36 FSA Group Ltd Statements of Cash Flows for the year ended 30 June 2010 Consolidated Entity Parent Entity Notes 2010 $ 2009 $ 2010 $ 2009 $ Infl ows/ (Outfl ows) Infl ows/ (Outfl ows) Infl ows/ (Outfl ows) Infl ows/ (Outfl ows) Cash fl ows from operating activities Receipts from customers and debtors Payments to suppliers and employees Interest received 19,021,929 27,316,140 – (27,418,416) (32,724,955) (34,073) 22,178,148 15,592,111 87,548 Interest and other costs of fi nance paid (8,520,112) (9,124,209) – Cash Flows from operations Net cash receipts/(payments) for institutional creditor distributions Income tax paid 5,261,549 1,059,087 53,475 (2,128,935) 1,424,924 – (674,804) 399,887 (360,832) Net cash infl ow/(outfl ow) from operating activities 21 2,457,810 2,883,898 (307,357) Cash fl ows from investing activities Acquisition of property, plant and equipment Acquisition of Intangibles Acquisition of subsidiaries net of cash acquired Proceeds from disposal of property, plant and equipment Proceeds from disposal of subsidiaries Net (Increase) in Mortgage fi nance assets Net (Increase) in Bridging fi nance assets Net (Increase) in Factoring fi nance assets Investment in Associate (207,814) (295,299) (279,394) (429,374) – (100,000) 25,502 – – 50,000 (53,971,177) (54,319,699) 1,557,558 1,017,664 (6,707,823) (905,664) – 147,696 Net cash outfl ow from investing activities (59,583,148) (54,834,676) Cash fl ows from fi nancing activities – – – – – – – – – – – – 9,157 (40,000) (30,843) – 296,263 265,420 – – – – – – – – – – Net proceeds from/(repayment of) borrowings 47,122,882 53,569,850 (3,855,482) 199,474 Payment of distributions to Non-Controlling interests (863,639) (240,914) – Share issue expenses Proceeds from share issues Repayment of Unsecured notes (47,905) 5,222,000 – – (47,905) 5,222,000 – (550,000) – Net cash infl ow from fi nancing activities 51,433,338 52,778,936 1,318,613 – – – (95,000) 104,474 Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the fi nancial year Cash and cash equivalents at the end of the fi nancial year (5,692,000) 828,158 1,011,256 369,894 19,691,970 18,863,812 626,350 256,456 7 13,999,970 19,691,970 1,637,606 626,350 The Statements of Cash Flows should be read in conjunction with the Notes to the Financial Statements. 37 Notes to the Financial Statements for the year ended 30 June 2010 Note 1. Summary of signifi cant accounting policies The fi nancial statements include the fi nancial statements of FSA Group Ltd (“the Parent Entity” or “the Company”) and the Consolidated Entity (or “the Group”) consisting of FSA Group Ltd and its controlled entities. FSA Group Ltd is a listed public company, incorporated and domiciled in Australia. The fi nancial statements are general purpose fi nancial statements that have been prepared in accordance with Australian Accounting Standards, including Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The consolidated fi nancial statements of the Group and the fi nancial statements of the Company comply with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB). The following is a summary of the material accounting policies adopted in the preparation of the fi nancial statements. The accounting policies have been consistently applied, unless otherwise stated. Basis of preparation The fi nancial statements are presented in Australian dollars. Reporting basis and conventions The fi nancial statements have been prepared on an accruals basis and are based on historical costs modifi ed by the revaluation of selected non-current assets, and fi nancial assets and fi nancial liabilities for which the fair value basis of accounting has been applied. The Consolidated Entity has applied ASIC class order 10/654 dated 26 July 2010 which allows companies presenting consolidated fi nancial statements to also present the parent entity fi nancial statements. Accounting Policies (a) Principles of Consolidation A controlled entity is any entity FSA Group Ltd has the power to control the fi nancial and operating policies so as to obtain benefi ts from its activities. A list of controlled entities is contained in Note 12 to the fi nancial statements. All inter-company balances and transactions between entities in the Group, including any unrealised profi ts or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those policies applied by the Parent Entity. Where controlled entities have entered or left the Group during the year, their operating results have been included from the date control was obtained or until the date control ceased. 38 FSA Group Ltd Non-Controlling interests in equity and results of the entities controlled are shown as separate items in the consolidated fi nancial statements. (b) Income Tax The charge for current income tax expense is based on the profi t for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the reporting date. Deferred tax is accounted for using the “balance sheet” liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the fi nancial statements. No deferred income tax is recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profi t or loss. Deferred tax is calculated at the tax rates expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the Statement of Comprehensive Income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profi ts will be available against which deductible temporary differences and unused tax losses can be utilised. The amount of benefi ts brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the Group will derive suffi cient future assessable income to enable the benefi t to be realised and comply with the conditions of deductibility imposed by the law. Tax consolidation FSA Group Ltd and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the Tax Consolidation Regime. Additionally, 180 Group Pty Ltd and its wholly-owned Australian subsidiaries and Fox Symes Home Loans Pty Ltd and its wholly-owned Australian subsidiaries have also formed income tax consolidated groups under the Tax Consolidation Regime. FSA Group Ltd, 180 Group Pty Ltd and Fox Symes Home Loans Pty Ltd as head entities of their respective tax consolidated groups and the controlled entities in each group continue to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right. Notes to the Financial Statements continued for the year ended 30 June 2010 Note 1. Summary of signifi cant accounting policies continued In addition to its own current and deferred tax amounts, the head entity of each tax consolidated group also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. The respective tax consolidated groups have entered into tax sharing agreements whereby each company in the group contributes to the income tax payable of the consolidated group. (c) Financial Instruments Non-derivative fi nancial instruments Non-derivative fi nancial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables. Non-derivative fi nancial instruments are recognised initially at fair value plus, for instruments not at fair value through profi t and loss, any directly attributable transaction costs, except as described below. Subsequent to initial recognition, non-derivative fi nancial instruments are measured as described below. A fi nancial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are de-recognised if the Group’s contractual rights to cashfl ows from the fi nancial assets expire or the Group transfers the fi nancial asset to another party without retaining control or substantially all the risks and rewards of the asset. Regular way purchases and sales of fi nancial assets are accounted for at trade date i.e. the date the Group commits itself to purchase or sell an asset. Financial liabilities are de-recognised if the Group’s obligations specifi ed in the contract expire, are discharged or cancelled. Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purposes of the Statement of Cash Flows. Ordinary Share Capital Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity net of any related income tax benefi t. Held-to-maturity investments If the Group has the positive intent and ability to hold debt securities to maturity, then they are classifi ed as held-to-maturity. Held-to-maturity investments are measured at amortised cost using the effective interest method, less any impairment losses. Available-for-sale fi nancial assets The Group’s investments in equity securities and certain debt securities are classifi ed as available-for-sale fi nancial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign exchange gains and losses on available-for-sale monetary items are recognised as a separate component of equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profi t or loss. Investments at fair value through profi t or loss An instrument is classifi ed as at fair value through profi t or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profi t or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Upon initial recognition, attributable transaction costs are recognised in profi t or loss when incurred. Financial instruments at fair value through profi t or loss are measured at fair value, and changes therein are recognised in profi t or loss. Loans and Receivables Loans and receivables are held at amortised cost. Loan assets held at amortised cost are non derivative fi nancial instruments with fi xed or determinable payments that are not quoted in an active market. They arise when a mortgage loan is originated in the Group’s Statement of Financial Position. These are accounted for at amortised cost using the effective interest method. (d) Property, Plant and Equipment Property, Plant and Equipment Property, plant and equipment are measured on the cost basis less accumulated depreciation and accumulated impairment losses. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefi ts associated with the item will fl ow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Statement of Comprehensive Income during the fi nancial year in which they are incurred. 39 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 1. Summary of signifi cant accounting policies continued (d) Property, Plant and Equipment continued Depreciation Property, plant and equipment are depreciated over their useful lives to the Group commencing from the time the asset is held ready for use. Leasehold improvements are amortised over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The useful lives used for each class of asset are: Class of Asset Plant and equipment Computers and Offi ce Equipment Leasehold improvements Furniture and Fitting Motor Vehicles Useful life 2 to 5 years 2 to 5 years 5 years 2 to 5 years 5 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the assets carrying amount is greater than its estimated recoverable amount. Gains and losses on disposal are determined by comparing proceeds with the carrying amount. These gains or losses are included in the Statement of Comprehensive Income. (e) Investment properties Investment property is property held either to earn rental income or for capital appreciation or both. Investment properties are measured at cost less accumulated depreciation. The carrying amount of an asset in this class is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Investment properties have a useful life of 40 years. (f) Leases Leases of property plant and equipment where the Group, as lessee, has substantially all the risks and benefi ts incidental to the ownership of the asset are classifi ed as fi nance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the year. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. 40 FSA Group Ltd Lease payments for operating leases, where substantially all the risks and benefi ts remain with the lessor are charged to the Statement of Comprehensive Income on a straight line basis over the period of the lease. (g) Impairment of assets At each reporting date, the Group reviews the carrying values of its assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the Statement of Comprehensive Income. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. (h) Employee benefi ts Provision is made for the Group’s liability for employee benefi ts arising from services rendered by employees to reporting date. Employee benefi ts that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefi ts payable later than one year have been measured at the present value of the estimated future cash outfl ows to be made for those benefi ts. Equity settled compensation Share based compensation benefi ts are provided to employees via the FSA Group Ltd Employee Share Option Plan (“ESOP”). Information relating to the ESOP is set out in the Remuneration Report, contained within the Directors’ report. The fair value of options granted under the ESOP is recognised as an employee benefi t expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The fair value of the options granted is adjusted to refl ect market vesting conditions, but excludes the impact of any non-market vesting conditions (for example, profi tability and sales growth targets). Non-market vesting conditions Notes to the Financial Statements continued for the year ended 30 June 2010 Note 1. Summary of signifi cant accounting policies continued Trustee Fees Bankruptcy and Personal Insolvency Agreements are included in assumptions about the number of options that are expected to become exercisable. At each reporting date, the Group revises its estimate of the number of options that are expected to become exercisable. The employee benefi t expense recognised each period takes into account the most recent estimate. Upon the exercise of options, the balance of the share- based payments reserve relating to those options is transferred to share capital and the proceeds received, net of any directly attributable transaction costs, are credited to share capital. Under the employee share scheme, shares issued to employees for no cash consideration vest immediately on grant date. On this date, the market value of the shares issued is recognised as an employee benefi ts expense with a corresponding increase in equity. Bonuses and profi t sharing arrangements A provision is recognised for the amount expected to be paid under short term cash bonus or profi t-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. (i) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outfl ow of economic benefi ts will result and that outfl ow can be reliably measured. (j) Revenue recognition Revenue is recognised when it is probable that the economic benefi ts will fl ow to the entity and the revenue can be reliably measured. The following specifi c recognition criteria must also be met before revenue is recognised: Rendering of Services – Personal Insolvency When the outcome of a contract to provide services under the Bankruptcy Act can be estimated reliably, revenue is recognised by reference to the right to be compensated for services and where the stage of completion of the service can be reliably estimated, specifi cally: Debt Agreement Application Fees Upon the completion of preparing the Debt Agreement proposal for consideration by the creditors and the Insolvency and Trustee Service of Australia (ITSA). Debt Agreement Fees At the date of approval of the Debt Agreement proposal by a majority of the vote value of creditors. Trustee Fees are recognised as work in progress and time billed. Fee income is only recognised to the extent fees have been approved by creditors. Rendering of Services – Recruitment Fees Recruitment Fees are recognised upon commencement of employment under the agreed contact terms for that placement. Under the contract terms the outcome of the transaction cannot be measured reliably until such time as the candidate has commenced employment. Refi nance Fees When the outcome of a contract to provide services can be estimated reliably, either upon receipt of upfront fee and subsequent turbo or trail commission, in the case of non- conforming lending, or in the case of conforming lending, trail commission revenue and receivables are recognised at fair-value being the future trail commission receivable discounted to their net present value. Interest Interest income is recognised in the Statement of Comprehensive Income using the effective interest method. The effective interest method is the method of calculating the amortised cost of a fi nancial asset or fi nancial liability and allocating the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts the estimated future cash receipts or payments over the expected life of the fi nancial instrument to the net carrying amount of the fi nancial asset or fi nancial liability (which includes, where applicable, the unamortised balance of transaction costs). Finance fee income Finance fee income is recognised in either of two ways, either upfront where the fee represents a recovery of costs or a charge for services provided to customers (e.g. application fees and risk assessment fees) or, where income relates to loan origination, income is deferred and amortised over the effective life of the loan using the effective interest method. Deferred establishment fees are establishment fees which the borrower is contracted to pay but payment is deferred until such time as they repay the outstanding loan balance. These fees are waived if the loan is repaid after the qualifying period. These fees are recognised at the commencement of the contract and are amortised over the current average life of the loan. (k) Goods & Services Tax (GST) Revenue, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Offi ce. 41 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 1. Summary of signifi cant accounting policies continued (k) Goods & Services Tax (GST) continued In these circumstances GST is recognised as part of the acquisition of the asset or as part of the expense. Receivables and payables in the Statement of Financial Position are shown inclusive of GST. accumulated impairment losses. Gains and losses on the disposal of a subsidiary include the carrying amount of goodwill relating to the subsidiary sold. Software is measured on the cost basis less accumulated amortisation and accumulated impairment losses. Software is amortised over its useful life of 2 years. (o) Trade and other payables Cash fl ows are presented in the Statement of Cash Flows on a gross basis, except for the GST component of fi nancing and investing activities, which are disclosed as operating cash fl ows. Trade payables and other amounts are carried at amortised cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group. (l) Comparative fi gures Where required by Australian Accounting Standards, comparative fi gures have been adjusted to conform to changes in presentation for the current fi nancial year. In the prior year, trade payables included amounts payable on invoices legally assigned but not approved for factoring fi nance. The balance is now shown on a net basis to refl ect the substance of what is ultimately owed to the client on their undrawn facility limit. This affects the trade and other receivables in Note 8 and factoring client payables in Note 16. The comparatives have been restated to refl ect this treatment resulting in both the gross trade receivable and gross factoring client payables in the prior year being offset by $2.37m. This restatement has had no effect on the working capital ratio, net assets of the group, profi t before tax and total comprehensive income in the prior or current year. (m) Investments in Subsidiaries Investments are brought to account on the cost basis in the Parent Entity’s fi nancial statements and using the acquisition method, after initially being recognised at costs in the Consolidated Entity’s fi nancial statements. The carrying amount of investments is reviewed annually by Directors to ensure it is not in excess of the recoverable amount of these investments. The recoverable amount is assessed from the shares’ current market value or the underlying net assets in the particular entities. The expected net cash fl ow from investments has not been discounted to their present value in determining the recoverable amounts, except where stated. (n) Intangibles Goodwill on consolidation is initially recorded at the amount by which the purchase price for a business or for an ownership interest in a controlled entity exceeds the fair value attributed to its net assets at date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less 42 FSA Group Ltd Monies received (and not yet distributed pursuant to the Debt Agreements) on behalf of institutional creditors are recorded as current liabilities. (p) Provision for Institutional Creditor Payments Dividends payable to Institutional Creditors are provided for in the fi nancial statements in accordance with the respective Debt Agreement Proposals accepted by the offi cial receiver for processing prior to 1 July 2007 and are classifi ed as current provisions unless all of the Debt Agreement fee has been received, in which case they are classifi ed as a current payable. (q) Signifi cant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions about future events. The key estimates and assumptions that have a signifi cant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities in the next annual reporting period are: Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the goodwill is allocated (refer to Note 15 in the fi nancial statements). Impairment of receivables Debt agreement receivables Impairment of debt agreement receivables is assessed on a collective basis based on historical collections data. Considering the length of time it takes to collect debts in administration and the inherent uncertainty over the collection of these amounts this method represents management’s “best estimate” of the recoverability of debtors in the debt agreement business. Impairment is provided for and recorded in a separate Allowance account. Amounts are written off against this account as bad when debt agreements are terminated by creditors. The evaluation process is subject to a series of estimates and judgments. The frequency of default, loss history, and current economic conditions are considered. Notes to the Financial Statements continued for the year ended 30 June 2010 Note 1. Summary of signifi cant accounting policies continued Changes in these estimates could have a direct impact on the level of provision determined (refer to Note 8 in the fi nancial statements). Other loans and advances For other loans and advances individually assessed provisions are raised where there is objective evidence of impairment and full recovery of the principal is considered doubtful. Provisions are established after considering the estimates of the fair value of the collateral taken and recorded in a separate Allowance account. Amounts are written off against the account as bad after management establishes amounts which will not be recovered from available evidence. (r) Associates Associates are those entities in which the Group has signifi cant infl uence, but not control, over the fi nancial and operating policies. Associates are accounted for using the equity method (equity accounted investees). The consolidated fi nancial statements include the Group’s share of the income and expenses of the equity accounted investees, after adjustments to align the accounting policies with those of the Group, from that date the signifi cant infl uence commences until the date where signifi cant infl uence ceases. When the Group’s share of the loss extends its interest in the equity accounted investee, the carrying amount of that interest (including any long term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. (s) Finance Income and Costs Finance Income is measured and recognised as per (j) Revenue recognition above. Finance costs comprise interest expense on borrowings, unwinding of discount on provisions, dividends on preference shares classifi ed as liabilities, foreign currency losses, changes in fair value of fi nancial assets at fair value through profi t or loss, impairment losses recognised on fi nancial assets and losses on hedging instruments that are recognised in profi t or loss. All fi nance costs are recognised in profi t or loss using the effective interest method. (t) Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profi t or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting profi t or loss attributable to the ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares. (u) Operating segments An operating segment is a component of an entity that engages in business activities from which it may earn revenue and incur expenses (including revenues and expenses relating to transactions with other components of the same entity); whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and for which discrete fi nancial information is available. Operating segments are distinguished and presented based on the differences in providing services and providing fi nance products. (v) Financial Guarantee Contracts Financial guarantee contracts are recognised as a fi nancial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation, where appropriate. (w) New standards and interpretations issued not yet effective or adopted Certain new accounting standards, amendments to standards and interpretations have been published that are not mandatory for the 30 June 2010 reporting period. The Consolidated Entity and the Parent Entity’s assessment of the impact of these new standards, amendments to standards and interpretations in the period of initial application is set out below. (i) AASB 2009-5 Further amendments to Australian Accounting Standards arising from the annual improvements process [AASB 5, 8, 101, 107, 117, 118, 136 & 139] This affects the above mentioned standard resulting in minor changes for presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory in the Company’s 30 June 2011 fi nancial statements, are not expected to have a material impact to the fi nancial statements. (ii) AASB 2010-3 Further amendments to Australian Accounting Standards arising from the annual improvements process [AASB 3, AASB 7, AASB 121, AASB 128, AASB 131, AASB 132 & AASB 139] This affects the above mentioned standard resulting in minor changes for presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory in the Company’s 30 June 2011 fi nancial statements, are not expected to have a material impact to the fi nancial statements. 43 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 1. Summary of signifi cant accounting policies continued (w) New standards and interpretations issued not yet effective or adopted continued (iii) AASB 2010-4 Further amendments to Australian Accounting Standards arising from the annual improvements process [AASB 1, AASB 7, AASB 101 & AASB 134 and Interpretation 13] This affects the above mentioned standard resulting in minor changes for presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory in the Company’s 30 June 2011 fi nancial statements, are not expected to have a material impact to the fi nancial statements. (iv) AASB 9 Financial Instruments AASB 9 includes requirements for the classifi cation and measurement of fi nancial assets resulting from Phase 1 of the project to replace AASB 139 Financial Instruments: Recognition and Measurement. Retrospective application is generally required, although there are exceptions, particularly if the entity adopts the standard for the year ended 30 June 2012 or earlier. The Company has not yet determined the potential effect of the standard on its fi nancial statements (v) AASB 124 Related Party Disclosures Revised in December 2009, the amendments simplify and clarify the intended meaning of the defi nition of a “related party” and provide partial exemption from the disclosure requirements for government related entities. These amendments which become mandatory for the 30 June 2012 fi nancial year are not anticipated to have any impact on the Company’s fi nancial statements. (x) New, revised or amending Standards and Interpretations The Consolidated Entity has adopted all of the new, revised or amending Standards and Interpretations issued by the Australian Accounting Standards Board that are relevant in the current period. Any signifi cant impact on the accounting policies of the Consolidated Entity on adoption of these accounting standards and interpretations is disclosed in the relevant accounting policy. The adoption of these standards did not have any impact on the fi nancial performance or position of the Consolidated Entity. The following standards and interpretations are most relevant to the Consolidated Entity: (i) AASB 101 Presentation of Financial Statements The Consolidated Entity has applied the revised AASB 101 from 1 July 2009 and now presents a statement of comprehensive income, which incorporates the income statement and all non-owner changes in equity. As a result the Consolidated Entity now presents all owner changes in the Statement of Changes in Equity. The Balance Sheet is now referred to as the Statement of Financial Position. There is a requirement to present a third Statement of Financial Position if there is a restatement of comparatives through either a correction of an error, change in accounting policy or a reclassifi cation. The Cashfl ow Statement is now referred to as a Statement of Cash Flows. (ii) AASB 3 Business Combinations The Consolidated Entity has applied the revised AASB 3 for all new business combinations acquired on or after 1 July 2009. As well as the expensing of transaction costs and minority interest now being referred to as non-controlling interests, there are a number of signifi cant changes which do not impact on the Consolidated Entity’s fi nancial position in this or the prior year. (iii) AASB 127 Consolidated and Separate Financial Statements The Consolidated Entity has applied the revised AASB 127 from 1 July 2009. The revised standard requires changes in ownership interest of a subsidiary without a change in control to be accounted for as a transaction with owners in their capacity as owners. It also changes the accounting for losses incurred by a partially owned subsidiary as well as loss of control of a subsidiary. The changes do not impact on the Consolidated Entity’s fi nancial position in this year. (iv) AASB 2008-7 Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate The amended standard is applicable from 1 July 2009 and removes references to the cost method. The distinction between pre and post acquisition profits is no longer relevant as all dividends are now recognised in profi t or loss. (v) AASB 7 Financial Instruments – Disclosure The amended standard is applicable from 1 July 2009 and requires additional disclosure about the fair value measurement of fi nancial instruments, using a three level fair value hierarchy. The amendments also clarify the disclosure requirements about liquidity risks for derivative transactions and assets used for liquidity management. 44 FSA Group Ltd – – – – – – – – – – – – – – – – – – – – – – 87,548 87,548 9,157 9,157 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 2. Revenue and other income net of fi nance expense Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ Fees from Services – Personal Insolvency – Refi nance – Corporate – Recruitment – Other services Finance Income 33,331,572 31,420,122 1,978,488 2,303,300 2,927,259 1,854,269 – 2,911,737 236,283 340,842 38,473,602 38,830,270 – Interest income – bridging fi nance 232,696 2,813,254 – Interest income – mortgage fi nance assets 16,644,392 13,799,540 – Upfront Fee income – bridging fi nance – Upfront Fee income – mortgage fi nance assets – Factoring income – Other interest income Finance Expense – Interest expense – Warehouse facilities – Interest expense – Other lending facilities Net Finance income Other Income 158,883 580,379 1,930,346 1,259,055 2,794,919 1,096,400 489,018 614,814 22,250,254 20,163,442 (9,950,609) (8,277,149) (898,368) (681,975) (10,848,977) (8,959,124) – – – – – – 11,401,277 11,204,318 87,548 9,157 Gain on Option Valuation – fair value through profi t and loss 898,050 Gain on Disposal of Plant and Equipment Gain on disposal of subsidiary 7,437 – 905,487 – – 39,034 39,034 – – – – – 100,041 100,041 45 Notes to the Financial Statements continued for the year ended 30 June 2010 Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ Note 3. Profi t/(loss) for the year Expenses Expenses from continuing activities excluding fi nance costs, classifi ed by function: Impairment in value – trade receivables 8,729,201 8,706,343 Reversal of impairment in value – trade receivables (1,469,504) (1,973,479) Net Impairment – trade receivables 7,259,697 6,732,864 Marketing expenses Administrative expenses Operating expenses Depreciation on plant and equipment Depreciation on investment properties Amortisation of software Impairment in value – Goodwill Rental expense on operating lease – minimum lease payment Employee benefi ts expenses Share-based payments expense Legal and consultancy Note 4. Income Tax (a) Income tax expense Current tax expense Deferred tax expense (Over)/under provision in a prior period Deferred income tax expense included in income tax expense comprises: Increase in deferred tax assets Increase in deferred tax liabilities 6,546,096 5,824,243 – 9,919,351 8,321,966 52,804 21,465,325 22,114,399 266 37,930,772 36,260,608 53,070 – 208,965 40,255 249,220 459,053 8,635 302,134 769,822 49,263 546,150 12,236 165,874 724,260 – – – – – – – – – – – – – – – – – – – – – 1,210,894 1,113,427 15,641,548 16,066,365 52,804 705,920 208,965 380,010 52,804 208,965 – – 943,964 929,616 26,185 20,683 2,722,269 3,088,395 24,677 (100,306) 3,690,910 3,917,705 – 2,015 28,200 – (184,056) (163,373) (582,134) (509,595) 3,304,903 3,597,990 2,722,769 3,088,395 – – – – – – (b) Numerical reconciliation of income tax expense to prima facie tax payable Profi t/(Loss) before income tax 12,868,122 13,939,337 Tax at the Australian tax rate of 30% (2009: 30%) 3,860,437 4,181,801 34,478 10,344 (140,022) (42,006) Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Entertainment Non-assessable income Other Non-deductible employee costs (Over)/under provision in the prior year Income tax expense/(benefi t) 46 FSA Group Ltd 17,810 24,399 (242,716) (269,300) 14,861 15,841 18,422 62,689 3,666,233 4,018,011 24,677 (100,306) 3,690,910 3,917,705 – – – 15,841 26,185 2,015 28,200 – – – 62,689 20,683 (184,056) (163,373) Notes to the Financial Statements continued for the year ended 30 June 2010 Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ – – – – – – – – – – – – – – – – – Note 4. Income Tax continued (c) Deferred tax assets Provisions Capital legal expenses Accrued expenditure Current year tax losses carried forward Other 1,439,782 156,461 130,931 453,714 272,180 922,943 193,850 144,724 323,923 82,278 2,453,068 1,667,718 Deferred tax liability offset on tax consolidation (2,412,280) (1,440,220) Total deferred tax assets (d) Deferred tax liabilities 40,788 227,498 Temporary difference on assessable income 10,563,079 7,031,864 Other – 945 10,563,079 7,032,809 Deferred tax liability offset on tax consolidation (2,412,280) (1,440,220) Total deferred tax liabilities 8,150,799 5,592,589 Note 5. Auditors’ Remuneration Amounts received or due and receivable by PKF (East Coast Practice): Audit and review of fi nancial statements Other services – assurance Other services – taxation 191,750 158,600 – 55,897 247,647 8,000 56,450 223,050 Consolidated Entity 2010 $ 2009 $ Note 6. Earnings Per Share (a) Reconciliation of earnings used to calculated basic and dilutive earnings per share Total Comprehensive income for the year ($) 7,520,564 8,837,172 Basic earning per share (cents) Diluted earning per share (cents) 5.82 5.82 7.66 7.15 2010 Number 2009 Number (b) Weighted average number of ordinary shares outstanding during the year 129,141,305 115,437,513 Dilution effect of options Dilution effect of preference shares – – 170,584 8,000,000 Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS 129,141,305 123,608,097 – – – – – – – – – – – – – – – – – 47 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 7. Cash and Cash Equivalents Current Cash on hand and at bank Assets fi nanced by Non-Recourse Financial Liabilities Cash on hand and at bank Note 8. Trade and Other Receivables Current Trade receivables Provision for impairment Sundry receivables Non-current Trade receivables Provision for impairment Assets fi nanced by Non-Recourse Financial Liabilities Other receivables Ageing Analysis Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 7,394,759 11,648,184 1,637,606 626,350 6,605,211 8,043,786 – – 13,999,970 19,691,970 1,637,606 626,350 40,324,302 27,145,390 (7,867,793) (5,223,592) 32,456,509 21,921,798 108,384 255,669 32,564,893 22,177,467 – – – – – – 24,820 24,820 50,000 50,000 30,636,133 22,626,477 (6,127,227) (5,136,836) 24,508,906 17,489,641 – 12,576 – – – – – – – – Consolidated Entity 2010 2009 Gross $ Allowance $ Net $ Gross $ Allowance $ Net $ Trade and Other Receivables Not past due Past due 0-30 Days Past due 31-60 Days Past due 61-90 Days Past 90 Days Total 61,011,953 (12,193,181) 48,818,772 42,600,548 (8,483,364) 34,117,184 2,901,117 1,928,708 (28,935) 2,872,182 (32,196) 1,896,512 352,569 (33,609) 318,960 613,375 249,181 188,563 (366,651) (198,318) (148,472) 246,724 50,863 40,091 4,874,472 (1,707,099) 3,167,373 6,388,445 (1,163,623) 5,224,822 71,068,819 (13,995,020) 57,073,799 50,040,112 (10,360,428) 39,679,684 The movement in the provision for impairment Opening Balance Additional provision Reversal of provision Bad debts Closing balance Consolidated Entity 2010 $ 2009 $ 10,360,428 6,662,902 7,919,422 7,613,886 (1,469,504) (2,170,828) (2,815,326) (1,745,532) 13,995,020 10,360,428 Some amounts have been written off as Bad debts during the year, as incurred and were not provided for. These are included in Bad and doubtful debts in the Statement of Comprehensive Income. The additional provision amount in this reconciliation will therefore not agree to the Bad and doubtful debts amount disclosed in Note 3. 48 FSA Group Ltd Notes to the Financial Statements continued for the year ended 30 June 2010 Note 8. Trade and Other Receivables continued Debt Agreement receivables Debt agreement receivables are collected on 2 bases: 1. For all debt agreements accepted by ITSA for processing prior to 1 July 2007, debt agreement fees are receipted in priority to other parties to the debt agreement, and in accordance with work performed to date; and 2. For all debt agreements accepted by ITSA for processing after 1 July 2007, debt agreement fees are receipted on a pro rata basis, in parity with other parties to the debt agreement. These debtors are assessed as being in arrears where they do not make their periodic payments as required by their debt agreements and where the terms of this payment have not been re-negotiated and approved by creditors to the debt agreement. This is monitored continuously by the Company’s internal collection department. Impairment of debt agreement receivables is assessed on a collective (portfolio) basis based on historical collections data. Considering the length of time it takes to collect debts in administration and the inherent uncertainty over the collection of these amounts this method represents management’s “best estimate” of the recoverability of debtors in the debt agreement business. Amounts are written off against this account as bad when debt agreements are terminated by creditors. Bridging and factoring fi nance receivables Bridging fi nance receivables are generally on 90 day terms and factoring fi nance receivables are generally on 14 to 60 day terms. Impairment of bridging fi nance receivables and factoring fi nance receivables is assessed primarily by the equity in their underlying mortgage security (collateral), any fi xed and fl oating charges over the borrower’s business assets, the credit quality of the debtor, payment history and any other information available. Factoring fi nance receivables are credit insured up to 90c in every dollar of approved receivables. These debtors are assessed as being in arrears where they do not make their payment obligations as required by their loan contracts and where the terms of this payment have not been re-negotiated. This is monitored monthly by management. At reporting date there are certain bridging fi nance receivables that were past due and are not impaired. Management has reviewed these receivables, their underlying mortgage security (collateral) and other information available, and have considered these to be recoverable. Of the $4,874,472 of receivables which are past 90 days in arrears, $1,885,734 represents bridging fi nance receivables which are have underlying collateral and security as mentioned above. Other trade and sundry receivables Other trade and sundry receivables are generally on 14 to 30 day terms. Impairment of other trade and sundry receivables is assessed on an individual basis with regard to the credit quality of the debtor, payment history and any other information available. These debtors are assessed as being in arrears where they do not pay on their invoice terms and where the terms of this payment have not been re-negotiated. This is monitored monthly by management. At reporting date there are certain other trade and sundry receivables that were past due and are not impaired. Management has reviewed these receivables, their payment history and other information available, and have considered these to be recoverable. 49 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 9. Other Assets Current Prepayments Security bonds Other Non-current Investments in controlled entities (Refer Note 12) Movements during year (Investments) Beginning of the year Additions Redemption of CRPS Disposals Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 242,122 593,361 3,497 78 245,697 3,512 148,419 745,292 – – 9,000 9,000 – – – – – – – – – – – – – – – – – – 10,426,990 11,046,302 10,426,990 11,046,302 11,046,302 6,546,397 – 4,500,000 (619,312) – – (95) 10,426,990 11,046,302 On 1 February 2010, the remaining unconverted convertible redeemable preference shares (“CRPS”) were redeemed pursuant to the terms of the purchase agreement of 180 Group, acquired on 21 April 2006. (2009) During the year the Parent Entity converted $4,500,000 of receivables from Fox Symes Home Loans Pty Ltd to equity pursuant to Fox Symes Home Loans Pty Ltd’s shareholders’ deed. The Consolidated Entity’s shareholding as a percentage of the overall shareholding did not change as a result of this conversion. Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ Note 10. Other Financial Assets Investments – fair value though profi t and loss Movements during year (Investments) Beginning of the year Additions Disposals Note 11. Mortgage Finance Assets Non-securitised mortgage assets Provision for impairment 898,050 – 898,050 – 898,050 – – – – – 200,654,826 145,494,523 (220,205) (175,331) 200,434,621 145,319,192 Maturity Analysis Amounts to be received in less than 1 year 2,199,038 2,363,121 Amounts to be received in greater than 1 year 198,455,788 143,131,402 200,654,826 145,494,523 – – – – – – – – – – – – – – – – – – – – – – 50 FSA Group Ltd Notes to the Financial Statements continued for the year ended 30 June 2010 Note 11. Mortgage Finance Assets continued Impairment An impairment loss is recognised if the total expected recoveries in regard to an individual loan do not exceed the mortgage balance. In the event that actual or expected sales proceeds do not exceed the mortgage loan balance, this difference and any realisation costs would equal the impairment loss. Total recoveries include expected or actual net sales proceeds resulting from enforced sale of property security. Impairment has been assessed on an individual basis with primary regard to the underlying equity in mortgage security (collateral) for each of the loans receivable and also with regard to the credit quality of the debtor, payment history and any other information available. A mortgage loan is classifi ed as being in arrears at the reporting date on the basis of “past due” amounts. Any loan with an amount that is past due (either instalment arrears or total arrears comprising of any instalments arrears plus any other charges) is classifi ed as being in arrears and the total amount of the loan is recorded as in arrears. Ageing of arrears is determined by dividing total arrears over instalment amount and multiplying this by the instalment frequency (i.e. weekly, fortnightly, and monthly). At reporting date, the Group had registered mortgages over real property (comprising of residential land and buildings) for each of the mortgage loan receivables. The assessed fair value of the underlying real property securities at reporting date were $485,571,000 (2009: $241,822,500). The valuations of the underlying property securities have been performed at the later of the original loan application or subsequent loan variation date and do not take into account any other realisation costs. Ageing Analysis Not past due Past due 0-30 Days Past due 31-60 Days Past due 61-90 Days Past 90 Days Total Consolidated Entity 2010 2009 Gross $ Allowance $ Net $ Gross $ Allowance $ Net $ 172,434,715 18,242,207 2,586,980 2,057,086 – 172,434,715 122,675,020 18,242,207 15,073,706 2,586,980 3,107,604 – – – 5,333,838 (220,205) 5,113,633 3,237,378 (162,747) 3,074,631 200,654,826 (220,205) 200,434,621 145,494,523 (175,331) 145,319,192 2,057,086 1,400,815 (12,584) 1,388,231 – 122,675,020 – – 15,073,706 3,107,604 The movement in the provision for impairment Opening Balance Additional provision Bad debts Closing balance Consolidated Entity 2010 $ 175,331 400,932 (356,058) 2009 $ – 175,331 – 220,205 175,331 51 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 12. Controlled Entities Name Prospex Profi le Pty Ltd (2) FSA Australia Pty Ltd (2) Fox Symes Financial Pty Ltd (1) Fox Symes & Associates Pty Ltd (1) Fox Symes Debt Relief Services Pty Ltd (1) Fox Symes Home Loans Pty Ltd (2) 180 Group Holdings Pty Ltd (2) Aravanis Insolvency Pty Ltd (1) Fox Symes Business Services Pty Ltd (1) 180 Group Pty Ltd (3) (1) Investment held by FSA Australia Pty Ltd (2) Investment held by FSA Group Ltd (3) Investment held by 180 Group Holdings Pty Ltd Country of Incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia The following entities are subsidiaries of 180 Group Pty Ltd Name Country of Incorporation 180 Capital Finance Pty Ltd 180 Corporate Pty Ltd 180 Property Holdings Pty Ltd 180 Equity Partners Pty Ltd 180 Capital Funding Pty Ltd One Financial Pty Ltd Australia Australia Australia Australia Australia Australia The following entities are subsidiaries of Fox Symes Home Loans Pty Ltd Name Country of Incorporation Fox Symes Home Loans (Services) Pty Ltd Fox Symes Home Loans (Management) Pty Ltd Fox Symes Home Loans Warehouse Trust No.1 Australia Australia Australia Ultimate Parent Entity FSA Group Ltd is the Ultimate Parent Entity. 52 FSA Group Ltd Percentage of equity interest held by the Consolidated Entity 2010 % 100 100 100 100 100 90 100 65 75 70 2009 % 100 100 100 100 100 90 100 65 75 70 Percentage of equity interest held by the Consolidated Entity 2010 % 100 100 100 100 100 100 2009 % 100 100 100 100 100 100 Percentage of equity interest held by the Consolidated Entity 2010 % 100 100 85 2009 % 100 100 85 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 13. Plant and Equipment Computer equipment at cost Accumulated depreciation Net carrying amount Offi ce equipment at cost Accumulated depreciation Net carrying amount Furniture and fi ttings at cost Accumulated depreciation Net carrying amount Motor vehicles at cost Accumulated depreciation Net carrying amount Total plant and equipment at cost Accumulated depreciation Net carrying amount Consolidated Movements Balance at 1 July 2008 Additions Disposals Depreciation Balance at 30 June 2009/1 July 2009 Additions Disposals Depreciation Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 1,718,175 1,695,455 (1,446,325) (1,215,698) 271,850 331,817 479,757 369,378 (259,242) (250,975) 72,575 246,350 118,403 234,866 (184,812) (139,891) 61,538 47,372 (3,332) 44,040 94,975 65,973 (39,800) 26,173 2,343,714 2,365,672 (1,893,711) (1,646,364) 450,003 719,308 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Computer Equipment $ Offi ce Equipment $ Furniture & Fittings $ Motor Vehicles $ Total $ 750,947 193,525 (25,082) (439,633) 479,757 136,933 98,359 89,960 (19,012) (50,904) 118,403 15,518 142,860 ^^37,123 1,029,289 8,320 (11,542) (44,663) 94,975 11,485 3,494 (3,494) 295,299 (59,130) (10,950) (546,150) 26,173 43,878 719,308 207,814 (497) (1,840) – (15,729) (18,066) (344,343) (59,506) (44,922) (10,282) (459,053) Balance at 30 June 2010 271,850 72,575 61,538 44,040 450,003 ^^ – (2009) Included in this amount are Motor Vehicles which have a fi xed charge relating to a Hire Purchase Liability. The Hire Purchase Liability is secured by the underlying asset. Refer Note 17 for further information 53 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 14. Investment Property Investment property At cost Accumulated depreciation Movements during year: Beginning of the year Additions Disposals Depreciation Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 362,339 362,339 (49,288) (40,653) 313,051 321,686 321,686 333,922 – – – – (8,635) (12,236) 313,051 321,686 – – – – – – – – – – – – – – – – There is a fi rst mortgage registered over the Investment Property (refer Note 17), and is leased on a “month to month” basis. The fair value of the Investment Property at 30 June 2010 was $350,000 (independently valued using current market data). Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ Note 15. Intangible Assets Goodwill Recognised on consolidation Accumulated impairment Software at cost Accumulated amortisation Movements during year (Goodwill): Beginning of the year Additions Impairment Reduction in value* Movements during year (Software): Beginning of the year Additions Amortisation 3,222,136 3,841,448 (49,263) – 3,172,873 3,841,448 708,768 429,374 (468,008) (165,874) 240,760 263,500 3,413,633 4,104,948 3,841,448 3,830,835 – 10,613 (49,263) (619,312) – – 3,172,873 3,841,448 263,500 279,394 – 429,374 (302,134) (165,874) 240,760 263,500 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – * Reduction in value relates to the redemption of 8 Convertible Redeemable Preference Shares which have been credited against Goodwill. Please refer to Note 19(b) for further commentary. Included in the carrying amount of Goodwill is an amount of $2,827,749 which relates to the Goodwill acquired on acquisition of 180 Group Holdings Pty Ltd and its controlled entities, and $345,124 which relates to the original investment by the parent company in FSA Australia Pty Ltd and its controlled entities. The 180 Group represents a separate cash generating unit (CGU). 54 FSA Group Ltd Notes to the Financial Statements continued for the year ended 30 June 2010 Note 15. Intangible Assets continued Impairment The recoverable amount of goodwill attributable to the 180 Group CGU, is determined based on “value in use” calculations, by estimating the future cash infl ows and outfl ows to be derived by the CGU and applying an appropriate discount rate to those future cashfl ows. The major key assumption relating to the forecast information is the continued growth of the factoring fi nance division and the utilisation of its funding lines. The cashfl ows have been projected over a 2 year period with a growth rate of 3% each year. The cashfl ows beyond the two year period are extrapolated using a constant growth rate of 3%, which does not exceed the long-term average growth rate for the industry. An average pre-tax discount rate of 18.5% has been applied to the net cashfl ows. Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ Note 16. Trade and Other Payables Current Unsecured Trade payables Factoring client payables Institutional creditors Sundry payables and accruals Intercompany loan – controlled entities Factoring client payables in 2009 have been restated per Note 1(l). Note 17. Borrowings Current Unsecured Other loans Secured Mortgage Bank loan – Other lending facilities Hire Purchase Liability Non-current Secured Hire purchase liability Mortgage Bank loan – Other lending facilities Non-Recourse Financial Liabilities Secured Warehouse facilities 965,940 2,396,313 829,759 896,328 3,212,578 5,993,872 6,175,720 4,054,400 – – – – – – – – – – 745,186 4,650,668 12,750,551 11,774,359 745,186 4,650,668 527,151 209,613 3,728 272,000 2,830,663 1,500,000 – 8,160 2,834,391 1,780,160 3,361,542 1,989,773 – 19,217 268,272 – 11,625,507 9,787,784 11,893,779 9,807,001 194,541,639 148,580,187 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 55 (a) Total Current, Non-Current and Non-Recourse secured liabilities: Hire Purchase Liability Mortgage Bank loans – Other lending facilities Warehouse facilities – 272,000 27,377 272,000 14,456,170 11,287,784 194,541,639 148,580,187 209,269,809 160,167,348 Notes to the Financial Statements continued for the year ended 30 June 2010 Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ Note 17. Borrowings continued (b) The carrying amounts of non-current assets pledged as security are: Fixed charge over assets Motor vehicles Investment properties Loan and other assets in the Fox Symes Home Loans Warehouse Trust No. 1 – 313,051 13,353 321,686 207,039,832 153,375,554 207,352,883 153,710,593 – – – – – – – – Bank loan – Other lending facilities consist of two funding facilities: i) A full recourse lending facility to support bridging fi nance operations which is secured by a fl oating charge over the remaining assets of the 180 Group Pty Ltd and controlled entities and the other wholly-owned subsidiaries of FSA Group Ltd. Excluded from this charge are cash assets held on behalf of Institutional and other creditors to Debt Agreements administered by the Group; and ii) A limited recourse factoring fi nance facility, where the funder may at its election, enforce a “fi rst-loss” liability on factored receivables of 10% of the outstanding facility balance, up to a maximum of $1 million, unless there has been an event of default or breach of borrowing covenants. There have been no breaches of borrowing covenants on either agreement during the year. (c) Warehouse facility Warehouse facilities are used to fund mortgages prior to securitisation and include revolving Senior and Mezzanine Note facilities (the facilities). The drawdown limit under the Senior and Mezzanine Note facilities is $225 million and $10 million respectively and at reporting date $183,908,000 and $7,996,000 respectively had been drawn down. The Warehouse facilities are 364 day facilities that are renewable annually. The facility is currently due to expire on 15 July 2011. Interest is payable at the applicable BBSW rate plus a margin of 2.05% for the Senior Notes and a margin of 9% for the Mezzanine Notes. The interest rate at 30 June 2010 for the Senior and Mezzanine Notes is 6.89% and 13.75% respectively. The facilities are secured against current and future mortgage fi nance assets (refer Note 11). All borrowing covenants were met during the year. Note 18. Provisions Current Provision for Institutional Creditor Payments Employee benefi ts Non-current Employee benefi ts Analysis of provisions Institutional Creditor Payments Balance at 1 July 2009 Additional provisions Creditor payments reversal Balance at 30 June 2010 56 FSA Group Ltd Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ – 588,535 588,535 – 477,399 477,399 251,012 158,819 – – – – 1,413,615 – (1,413,615) – – – – – – – – – – – – – – – – – Notes to the Financial Statements continued for the year ended 30 June 2010 Note 18. Provisions continued Provision for employee benefi ts A provision has been recognised for employee benefi ts relating to annual leave and long service leave. The measurement and recognition criteria relating to employee benefi ts have been included in Note 1 to this report. As at 30 June 2010, the Consolidated Entity employed 162 full-time equivalent employees (2009: 144) plus a further 5 independent contractors (2009: 4). Note 19. Share Capital 138,253,785 (2009: 115,437,513) Fully Paid Ordinary Shares Nil (2009: 16) Convertible Redeemable Preference Shares (CRPS) (a) Ordinary shares Balance 1 July – 7 October 2009 – 6 November 2009 – 27 January 2010 – 1 February 2010 Balance 30 June 2010 Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 11,692,255 5,898,848 11,692,255 5,898,848 – 1,238,624 – 1,238,624 11,692,255 7,137,472 11,692,255 7,137,472 2010 Number 2009 Number 2010 Number 2009 Number 115,437,513 115,437,513 115,437,513 115,437,513 11,351,340 2,964,932 500,000 8,000,000 – – – – 11,351,340 2,964,932 500,000 8,000,000 – – – – 138,253,785 115,437,513 138,253,785 115,437,513 On 7 October 2009, a placement to Institutional and Sophisticated Investors for 11.35 million shares at 37 cents per share was undertaken. The shares were fully paid and have no par value. On 6 November 2009, a Share Purchase Plan to Shareholders at 37 cents per share was undertaken which issued 2,964,932 ordinary shares. The shares were fully paid and have no par value. On 27 January 2010, 500,000 ordinary shares were issued on exercise of 500,000 $0.25 options. On 1 February 2010, 8 convertible redeemable preference shares (“CRPS”) were converted pursuant to the terms of the purchase agreement of 180 Group, acquired on 21 April 2006, upon 180 Group meeting its cumulative profi t target to 30 June 2008. The remaining 8 CRPS were redeemed at this time due to 180 Group not meeting its profi t target for 30 June 2009. 2009 Nil. 57 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 19. Share Capital continued (b) Convertible Redeemable Preference Shares (CRPS) On 21 April 2006, 32 CRPS were issued relating to the acquisition of 180 Group Holdings Pty Ltd, pursuant to resolutions passed by the shareholders at general meeting. In summary, the terms of the CRPS are as follows: (cid:129) each CRPS will be convertible, subject to certain performance parameters being achieved in the 180 Group, into 1,000,000 ordinary fully paid FSA Group shares (such that if all of the CRPS are converted, a total of 32,000,000 FSA Group shares will be issued); and (cid:129) CRPS are able to be converted into ordinary FSA Group shares under one of three scenarios (or “Phases”) based on the fi nancial performance of the 180 Group. These Phases were set out fully in the Notice of Meeting and Explanatory Memorandum distributed to shareholders on 17 March 2006. (cid:129) As at 30 June 2009, 16 CRPS had been converted into 16,000,000 Ordinary shares, pursuant to the terms of the purchase agreement on successfully meeting cumulative profi t target up until 30 June 2007. On 1 February 2010, 8 convertible redeemable preference shares (“CRPS”) were converted pursuant to the terms of the purchase agreement of 180 Group upon 180 Group meeting its cumulative profi t target to 30 June 2008. The remaining 8 CRPS were redeemed at this time due to 180 Group not meeting its profi t target for 30 June 2009. There are no Convertible Redeemable Preference Shares remaining outstanding and unconverted at 30 June 2010. (c) Options On 31 January 2010 1,590,000 unexercised options to acquire Ordinary shares in FSA Group Ltd, issued as part of the Company’s ESOP, Executive remuneration and Director’s remuneration lapsed. Note 20. Reserves Option Reserve The option reserve records items recognised as expenses on valuation of employee share options. Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ Note 21. Cash Flow Information Reconciliation of cash fl ows from operations to Profi t after tax Profi t after tax Non-cash fl ows in profi t/(loss): Depreciation Amortisation – Intangibles Impairment – Intangibles Gain on sale of Subsidiaries Gain on fi nancial asset at FVTPL Loss/(Gain) on disposal of plant & equipment Changes in assets and liabilities: 9,177,212 10,021,632 6,278 23,351 467,688 302,134 49,263 558,386 165,874 – – (50,000) (898,050) – (7,437) 59,131 – – – – – – – – – – – – – – – – – Increase in trade and other receivables (17,887,059) (13,028,192) (9,000) Decrease in other non-current assets – 3,901 (Increase)/decrease in other current assets 499,593 (304,696) – – (Decrease)/increase in trade and other payables 6,155,280 2,509,933 (24,822) Increase in employee entitlements (Decrease)/increase in other liabilities Cash Flows from operating activities 58 FSA Group Ltd 203,329 88,724 – 4,395,857 2,859,205 (279,813) 2,457,810 2,883,898 (307,357) 242,069 265,420 Notes to the Financial Statements continued for the year ended 30 June 2010 Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ Note 22. Commitments (i) Operating leases (non-cancellable): Minimum lease payments – not later than one year – later than one year and not later than fi ve years 899,075 1,211,431 4,091,910 – 4,990,985 1,211,431 – – – Operating leases relate to the lease of the Consolidated Entity’s business premises, and printing equipment rental. (ii) Hire purchase liability: – not later than one year – later than one year and not later than fi ve years – later than fi ve years Total minimum hire purchase payments – future fi nance charges Hire purchase liability – current liability (Note 17) – non-current liability (Note 17) – – – – – – – – – 9,928 19,664 – 29,592 (2,215) 27,377 8,160 19,217 27,377 – – – – – – – – – – – – – – – – – – – – – Note 23. Key Management Personnel Disclosures (a) Details of Directors and Key Management Personnel (i) Directors Sam Doumany Tim Odillo Maher Deborah Southon Hugh Parsons Stan Kalinko Non-Executive Chairman Executive Director Executive Director Non-Executive Director Non-Executive Director (ii) Key Management Personnel of the Consolidated Entity Duncan Cornish Anthony Carius Fred El Tahche Goran Turner Nino Eid Joint Company Secretary Chief Financial Offi cer and Joint Company Secretary Chief Information Offi cer Chief Executive – Fox Symes Home Loans Manager – Refi nance (b) Remuneration of Directors and Key Management Personnel Short-term employee benefi ts Long-term employee benefi ts Post-employment benefi ts Share-based payments Consolidated Entity Parent Entity 2010 $ 2009 $ 1,725,675 1,625,106 8,193 103,842 10,479 22,299 137,299 126,462 1,848,189 1,911,166 2010 $ – – – 2009 $ – – – 10,479 10,479 126,462 126,462 59 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 23. Key Management Personnel Disclosures continued (b) Remuneration of Directors and Key Management Personnel continued Fair value of options granted as part of remuneration are estimates only. The estimates are based on the use of the Black Scholes option pricing model. This model takes account of factors such as the option exercise price, the current level and volatility of the underlying share price and the time to maturity of the options. Information about the remuneration of Directors and Key Management Personnel which is currently required under Section 300A of the Corporations Act and under Accounting Standard AASB 124 “Related Party Disclosures” is included in the Remuneration Report within the Directors’ Report on pages 20 to 27. (c) Options issued as part of remuneration for the year ended 30 June 2010 There were no other transactions or balances with Directors or Key Management Personnel during the year. (d) Shares issued on exercise of remuneration options On 27 January 2010, 500,000 ordinary shares were issued on exercise of options previously granted to Hugh Parsons. The options were transferred to and exercised by an unrelated third party. (e) Option holdings of Directors and Key Management Personnel Balance at Granted as 1 July 2009 remuneration Options Exercised Net Change Balance at Other 30 June 2010 Vested at 30 June 2010 Not Total Exercisable Exercisable ESOP Options Directors Key Management Personnel Anthony Carius Nino Eid Total ESOP Options Unlisted Options ($0.25 @ 31-Jan-10) Directors Hugh Parsons n/a 450,000 50,000 500,000 500,000 Key Management Personnel n/a – – – – – – – (450,000) (50,000) (500,000) – (500,000) – – – – – – – – – – – – Unlisted Options ($0.98 @ 31-Jan-10) Directors Stan Kalinko 250,000 – – (250,000) – – – Key Management Personnel n/a Unlisted Options ($0.60 @ 31-Jan-10) Directors Stan Kalinko 250,000 Key Management Personnel n/a Total Unlisted Options 1,000,000 Total Options 1,500,000 – – – – (250,000) – (1,000,000) – (1,500,000) – – – – – – – – – All options expired on 31 January 2010 without being exercised with the exception of Hugh Parsons’ 500,000 options exercisable at $0.25 which were sold and transferred. – – – – – – – – 60 FSA Group Ltd Notes to the Financial Statements continued for the year ended 30 June 2010 Note 23. Key Management Personnel Disclosures continued (f) Shareholdings of Directors and Key Management Personnel Shares held in FSA Group Ltd, Including CRPS (number) Balance Granted as 1 July 2009 Remuneration Options Exercised Net Change Balance Other 30 June 2010 Directors Sam Doumany Tim Odillo Maher Deborah Southon Stan Kalinko Key Management Personnel Duncan Cornish Anthony Carius Nino Eid Total 1,000,000 40,795,733 12,946,533 10,000 1,683,271 26,158 100,000 56,561,695 – – – – – – – – – – – – – – – – 40,541 1,040,541 8,013,498 48,809,231 13,514 12,960,047 5,406 15,406 81,082 40,541 – 1,764,353 66,699 100,000 8,194,582 64,756,277 (g) Loans to Directors and Key Management Personnel There were no loans to Directors or Key Management Personnel during the year. (h) Other transactions to Directors and Key Management Personnel Convertible Redeemable Preference Shares (CRPS) Part of the consideration for the acquisition of 180 Group Holdings Pty Ltd (acquired on 21 April 2006) was paid by FSA Group Ltd by the issue of the CRPS. In summary, the terms of the CRPS are as follows: (cid:129) a total of 32 one dollar ($1) CRPS were issued to Capital Management Corporation Pty Ltd (a company associated with Tim Odillo Maher), the Vendor; (cid:129) each CRPS will be convertible, subject to certain performance parameters being achieved in the 180 Group Pty Ltd, into 1,000,000 ordinary fully paid FSA Group Ltd shares (such that if all of the CRPS are converted, a total of 32,000,000 FSA Group shares will be issued); and (cid:129) CRPS are able to be converted into ordinary FSA Group Ltd shares under one of three scenarios (or “Phases”) based on the fi nancial performance of the 180 Group Pty Ltd. These Phases were set out fully in the Notice of Meeting and Explanatory Memorandum distributed to shareholders on 17 March 2006. (cid:129) As at 30 June 2009, 16 CRPS had been converted into 16,000,000 Ordinary shares, pursuant to the terms of the purchase agreement on successfully meeting cumulative profi t target up until 30 June 2007. On 1 February 2010, 8 convertible redeemable preference shares (“CRPS”) were converted pursuant to the terms of the purchase agreement of 180 Group, acquired on 21 April 2006, upon 180 Group meeting its cumulative profi t target to 30 June 2008. The remaining 8 CRPS were redeemed at this time due to 180 Group not meeting its profi t target for 30 June 2009. Other transactions with Directors and Key Management Personnel and related parties During the year, the Consolidated Entity provided factoring fi nance to Skin Patrol Pty Ltd, a company which is associated with Mr Tim Odillo Maher. The total of all factoring fees received was $24,036 for the year ended 30 June 2010, (2009: $31,352). The fi nance facility and factoring fees charged were provided on normal commercial terms. During the year the Consolidated Entity purchased supplies from the Ethan Group Pty Ltd, a company which is associated with Mr Tim Odillo Maher. The total amount purchased was $20,276 (2009: $17,600). The supplies were purchased on normal commercial terms. 61 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 24. Events Occurring After Reporting date There have been no events since the end of the fi nancial year that impact upon the fi nancial statements as at 30 June 2010 except as follows: On 2 July 2010, 1,050,000 options exercisable at $0.50 on or before 2 July 2013 were issued as part of Executive remuneration. Note 25. Related Party Disclosures (a) Key management personnel Disclosures relating to key management personnel are set out in Note 23. (b) Subsidiaries Interests in subsidiaries are set out in notes 9 and 12. (c) Transactions with related parties Transactions with related parties of Directors or Key Management Personnel are as disclosed in Note 23 (h). Details of other related party transactions are as follows: Tax Consolidation legislation Current tax payable/(receivable) assumed from wholly-owned tax consolidated entities Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ – – (112,758) 219,861 (d) Outstanding related party balances arising from sales/purchase of goods or services Consolidated Entity Parent Entity Current factoring receivables – Other related parties Current factoring payables – Other related parties (e) Loans from related parties Current loans from subsidiaries Beginning of the year Advances received Repayments made (including liabilities from the tax consolidated group) Balance at the end of the year Intercompany loans are unsecured and repayable at call. 2010 $ 81,361 – – – – – 2009 $ 83,102 5,456 2010 $ – – 2009 $ – – – – – – 4,650,668 509,998 888,518 4,852,308 (4,794,000) (711,638) 745,186 4,650,668 62 FSA Group Ltd Notes to the Financial Statements continued for the year ended 30 June 2010 Note 26. Segment Information Operating Segments Services Home Loan Lending Business Services and Lending Other/ Unallocated 2010 $ 2009 $ 2010 $ 2009 $ 2010 $ 2009 $ 2010 $ 2009 $ Consolidated Total 2010 $ 2009 $ Revenue and Income External sales Finance Income Finance expense 35,310,060 33,723,422 – – 2,927,259 1,854,269 236,283 3,252,579 38,473,602 38,830,270 96,936 215,320 18,836,585 15,416,147 3,228,220 4,518,623 88,513 13,352 22,250,254 20,163,442 (2,817) (2,412) (10,055,162) (8,212,462) (768,874) (681,975) (22,124) (62,275) (10,848,977) (8,959,124) Net Finance Income 94,119 212,908 8,781,423 7,203,685 2,459,346 3,836,648 66,389 (48,923) 11,401,277 11,204,318 Other Income – – – – 898,050 Internal sales and income 2,083,968 1,761,311 192,799 361,723 – – – 7,437 39,034 905,487 39,034 – 174,801 2,276,767 2,297,835 Eliminations Total Revenue and Income Results 37,488,147 35,697,641 8,974,222 7,565,408 6,284,655 5,690,917 310,109 3,417,491 50,780,366 50,073,622 (2,276,767) (2,297,835) Segment profi t before tax 8,585,062 10,272,597 3,432,350 3,070,485 865,005 544,214 (14,295) 52,041 12,868,122 13,939,337 Income tax (expense)/benefi t (2,583,557) (3,204,115) (814,693) (648,885) (263,518) (166,285) (29,142) 101,580 (3,690,910) (3,917,705) Profi t for the year 6,001,505 7,068,482 2,617,657 2,421,600 601,487 377,929 (43,437) 153,621 9,177,212 10,021,632 Items included in Profi t for the year Share of the profi ts of an associate using the Equity Accounting Method Depreciation and amortisation Impairment in value – Goodwill Impairment in value – trade receivables Reversal of impairment in value – trade receivables Rental expense on operating lease – minimum lease payment – – – – – – 18,528 126,323 18,528 126,323 717,090 644,504 30,894 30,460 12,835 15,858 9,003 33,438 769,822 724,260 – – – – – – 49,263 – 49,263 – 6,426,423 6,566,465 400,932 182,086 1,892,662 1,922,531 9,184 35,261 8,729,201 8,706,343 (1,469,504) (1,973,479) 1,210,894 1,112,977 – – – – – – – – – – – (1,469,504) (1,973,479) 450 1,210,894 1,113,427 Employee benefi ts expense 12,940,696 11,894,047 882,960 920,739 1,681,716 1,338,562 136,176 1,913,017 15,641,548 16,066,365 Share based payments expense – – – – – – 52,804 208,965 52,804 208,965 Legal and consultancy 93,381 24,136 351,857 72,530 260,083 273,019 599 10,325 705,920 380,010 Segment assets 66,599,281 55,469,009 207,459,549 154,169,189 22,884,380 17,495,193 15,938,870 16,398,165 312,882,080 243,531,556 Eliminations Total assets Included in Segment assets (35,965,280) (32,719,135) 276,916,800 210,812,421 Investment in associate – – – – – – 47,188 2,843 47,188 2,843 Segment liabilities 34,743,152 29,208,386 202,029,679 150,547,925 20,002,106 14,998,584 1,524,207 5,235,455 258,299,144 199,990,350 Eliminations Total liabilities (26,131,834) (21,246,395) 232,167,310 178,743,955 63 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 26. Segment Information continued Information about operating segments Identifi cation of reportable segments The Consolidated Entity’s Chief Operating Decision Maker has identifi ed three reportable segments based on the differences in providing services and providing fi nance products. These three segments are subject to different regulatory environments and legislation. The three identifi ed reportable segments are: Services; Home Loan Lending; and Business Services and Lending. Services include debt agreement proposal preparation and administration, refi nance broking, trustee services and other related services. Home Loan Lending includes the provision of mortgage fi nance. Business Services and Lending includes corporate insolvency consultancy services and the provision of bridging fi nance and factoring fi nance. The Consolidated Entity operates in one geographic region – Australia. Measurement Each identifi ed reportable segment accounts for transactions consistently with the Accounting policies mentioned in Note 1 to these fi nancial statements. Inter-segment transactions are highlighted as eliminated to reconcile to the profi t, total assets and liabilities amounts of the Consolidated Entity, with the exception of internal refi nance broking fees which have not been eliminated in the segment profi t of Home Loan Lending. The Consolidated Entity’s Chief Operating Decision Maker, has specifi cally elected to do this so that the Home Loan Lending division can be read as a standalone entity and have its cost structure benchmarked against other similar market lenders. Centrally incurred costs for shared services are allocated between segments based employee numbers as a percentage of the total head count. Note 27. Financial Instruments Financial and Capital Risk Management The Group undertakes transactions in a range of fi nancial instruments including: (cid:129) Cash and cash equivalents (cid:129) Trade and other receivables (cid:129) Mortgage Finance Assets (Mortgage receivables) (cid:129) Other Financial Assets (cid:129) Payables (including Institutional creditor liabilities) (cid:129) Interest Bearing Liabilities including 364 day rolling Note Facility funding, Bank loans, Mortgage Loans and Hire Purchase Liabilities 64 FSA Group Ltd Notes to the Financial Statements continued for the year ended 30 June 2010 Note 27. Financial Instruments continued Financial and Capital Risk Management continued These fi nancial instruments represented in the Statements of Financial Position are categorised under AASB 139 Financial Instruments: Recognition and Measurement as follows: Financial Assets Cash and Cash Equivalents Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 13,999,970 19,691,970 1,637,606 626,350 Financial assets at fair value through profi t and loss 898,050 – – – Loans and Receivables at amortised cost 257,508,420 184,998,876 137,578 50,000 Financial Liabilities Payables at amortised cost 223,176,964 172,515,148 745,186 4,870,529 The Consolidated Entity has exposure to the following risks from these fi nancial Instruments: (cid:129) credit risk (cid:129) liquidity risk (cid:129) market (interest) risk The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework through the work of the Audit and Risk Management Committee. The Audit and Risk Management Committee is responsible for developing and monitoring risk management policies. The Chairman of the Audit and Risk Management Committee reports to the Board of Directors on its activities. Risk management procedures are established by the Audit and Risk Management Committee and carried out by management to identify and analyse the risks faced by the Consolidated Entity and to set controls and monitor risks. These are discussed individually below. Capital Management The Consolidated Entity’s objectives in managing its capital is the safeguard of the Consolidated Entity’s ability to continue as a going concern, maintain the support of its Investors and other business partners, support the future growth initiatives of the Consolidated Entity and maintain an optimal capital structure to reduce the costs of capital. The Consolidated Entity’s current capital maintenance policy as opposed to a dividend policy is consistent with its Capital Management objectives. These objectives are reviewed periodically by the Board. The Consolidated Entity assesses the adequacy of its capital requirements, cost of capital and gearing (i.e. debt/equity mix) in line with these objectives. Gearing is used to monitor levels of debt capital used by the Consolidated Entity to fund its operations. The ratio is calculated as Net Interest Bearing Liabilities divided by Tangible Assets (less Cash Assets). The gearing ratio at 30 June 2010, excluding the Consolidated Entity’s special purpose entity Fox Symes Home Loans Warehouse Trust #1, whose liabilities are non-recourse to the Consolidated Entity, was 25.6% (2009: 26.8%). It was the policy of the Consolidated Entity during the 2010 fi nancial year to maintain a gearing ratio, excluding the Consolidated Entity’s special purpose entity Fox Symes Home Loans Warehouse Trust #1 of less than 50% (2009: 50%) The Consolidated Entity defi nes capital as total equity reported in the Statement of Financial Position. 65 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 27. Financial Instruments continued Fair values of fi nancial instruments The carrying values of the Consolidated Entity’s fi nancial assets and liabilities approximate their fair values. Fair value measurements recognised in the Statements of Financial Position The Consolidated Entity has only one fi nancial asset measured at fair value through profi t or loss, being an option to acquire shares in an unlisted proprietary company. The value has been determined by independent external experts using inputs which have been derived from observable market data. The fair value of this option as at 30 June 2010 was $898,050. This represents a “tier 2” fair value measurement as per AASB 7 Financial Instruments. Credit Risk Credit risk is the risk of fi nancial loss to the Consolidated Entity if a customer or counterparty to a fi nancial instrument fails to meet its contractual obligations. The Consolidated Entity does not have any material credit risk exposure to any single debtor or group of debtors under fi nancial instruments entered into by the Consolidated Entity. Credit risk is concentrated in two categories of fi nancial instruments: (cid:129) Trade and other receivables, including bridging fi nance receivables and factoring fi nance receivables; and (cid:129) Mortgage Finance Assets (Residential mortgage secured loans receivable) Credit and lending policies have been established for all lending operations whereby each new borrower is analysed individually for creditworthiness and serviceability prior to the Consolidated Entity doing business with them. This includes where applicable credit history checks and affordability assessment and, in the case of lending activities, confi rming the existence and title of the property security, and assessing the value of the security provided. These are monitored by the Audit and Risk Management Committee though the management of the Consolidated Entity. Mortgage Finance Assets are secured by fi rst mortgage security over real property. Bridging fi nance and factoring fi nance receivables are secured by fi rst or second mortgage security, and where applicable, fi xed and fl oating charges over business assets. The Consolidated Entity retains the mortgages over the secured real property (consisting of land and buildings) until the loans are repaid. The Consolidated Entity is entitled to take possession of and enforce the sale of the secured real property in the event that the borrower defaults under the terms of their mortgage. Personal Insolvency (debt agreement and personal insolvency agreements under the Bankruptcy Act) receivables are unsecured, though debtors are assessed for serviceability and affordability prior to inception of each agreement. The above minimises the Consolidated Entity’s credit risk exposure to acceptable levels. The Audit and Risk Management Committee also establishes the Consolidated Entity’s allowance for impairment policy which is discussed in notes 8 and 11. Liquidity Risk Liquidity risk is the risk that Consolidated Entity will not be able to meet its fi nancial obligations as they fall due. The Consolidated Entity’s approach in managing liquidity is to ensure that it will always have suffi cient liquidity to meet its liabilities when due without incurring unacceptable losses or risking damage to the Consolidated Entity’s reputation. The Consolidated Entity’s liquidity risk management policies include cashfl ow forecasting, which is reviewed and monitored monthly by management as part of the Consolidated Entity’s master budget and having access to funding through credit facilities. 66 FSA Group Ltd Notes to the Financial Statements continued for the year ended 30 June 2010 Note 27. Financial Instruments continued Liquidity Risk continued The contractual maturity of the Consolidated Entity’s fi xed and fl oating rate fi nancial liabilities are as follows. The amounts represent the future undiscounted principal and interest cashfl ows. Consolidated Entity 30 June 2010 Carrying Contractual Cashfl ows amount $ $ 6 months or less $ 6-12 months $ 1 to 2 years $ 2 to 5 years $ 5-25 years $ Trade and Other Payables 3,362,253 3,362,253 3,362,253 Institutional creditors 3,212,578 3,212,578 3,212,578 Other payables 6,175,720 6,175,720 6,175,720 Other Short term loans 527,151 527,151 527,151 – – – – – – – – 14,456,170 16,267,646 3,377,166 405,045 12,485,435 – – – – – – – – – – 272,000 608,062 13,029 13,029 26,059 78,179 477,766 Bank Loans Mortgage Loans Warehouse Facilities 194,541,639 203,783,550 5,988,595 5,890,955 191,904,000 – – Consolidated Entity 30 June 2009 Carrying amount $ Contractual Cashfl ows $ 6 months or less $ Trade and Other Payables 1,726,087 1,726,087 1,726,087 Institutional creditors 5,993,872 5,993,872 5,993,872 Other payables 4,054,400 4,054,400 4,054,400 Hire Purchase Liabilities Other Short term loans 27,377 209,613 29,622 209,613 Bank Loans 11,287,784 12,356,910 Mortgage Loans 272,000 279,425 4,963 209,613 366,258 279,425 6–12 months $ – – – 4,963 – 1 to 2 years $ – – – 19,696 – 1,866,258 10,124,394 – – Warehouse Facilities 148,580,187 157,686,341 4,553,077 4,553,077 148,580,187 2 to 5 years $ – – – – – – – – The Parent Entity has trade and other payables amounting to $745,146 (2009: $4,650,668). These relate to loans with its Subsidiaries. There is no contractual maturity on these balances. FSA Group Ltd has a secured note facility comprising of senior and mezzanine debt through a special purpose entity, the Fox Symes Home Loans Warehouse Trust No.1. The facility has a combined drawdown limit of $235,000,000. This facility is secured against the book of loan assets created by the trust. As at 30 June 2010 the Consolidated Entity had withdrawn $191,904,000 from this facility. It had unused credit at the end of the year of $43,096,000. FSA Group Ltd’s subsidiary 180 Group Pty Ltd has two secured loan facilities supporting its lending activities. The bridging fi nance and factoring fi nance facilities have drawdown limits of $7,000,000 and $25,000,000 respectively. As at 30 June 2010, the Company had withdrawn $2,850,000 from the bridging fi nance facility and it had unused credit at the end of the year of $4,150,000 on this facility. As at 30 June 2010, the Company had withdrawn $11,668,631 from the factoring fi nance facility and it had unused credit at the end of the year of $13,331,369 on this facility. 67 Notes to the Financial Statements continued for the year ended 30 June 2010 Note 27. Financial Instruments continued Warehouse facilities The Consolidated Entity is reliant on the renewal of existing warehouse facilities, the negotiation of new warehouse facilities, or the issuance of residential mortgage backed securities. Each warehouse facility is structured so that if it is not renewed or otherwise defaults there is only limited recourse to the Consolidated Entity. If a warehouse facility is not renewed or otherwise defaults and its assets are liquidated, the primary impact to the Consolidated Entity would be the loss of future income streams from excess spread, being the difference between our mortgage rate and the cost of funds, fee income and the write off of any unamortised balance of deferred transaction costs. The Directors are satisfi ed that any sale of mortgages in repayment of warehouse facilities or an event of default in relation to the Consolidated Entity’s warehouse facilities will not affect the Consolidated Entity’s ability to continue as a going concern. Market Risk Market risk is the risk that changes in market prices will affect the Consolidated Entity’s income or the value of holdings in its fi nancial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Market risk of the Consolidated Entity is concentrated in interest rate risk. Mortgage Finance Assets are lent on variable interest rates and are fi nanced by variable rate borrowings, which mitigate the Consolidated Entity’s exposure to interest rate risk on these borrowings to an acceptable level. These borrowings are provided to the Consolidated Entity on a 364 day rolling facility and are non-recourse to the Consolidated Entity unless there is material event of default or breach of borrowing covenants. Bridging fi nance assets and factoring fi nance assets are provided to borrowers on fi xed and variable rate terms. These are fi nanced by variable rate borrowings. The returns on the products are suffi cient to mitigate adverse interest rate movements on the borrowings. As such the risk does not warrant the cost of purchasing derivative fi nancial instruments to mitigate this risk completely. The Board and Management are satisfi ed that this policy is appropriate for the Consolidated Entity at this time. These assets are fi nanced by a long term debt facility. All other sources of fi nance are immaterial to the Consolidated Entity in amount and exposure. Interest rate sensitivity analysis The tables below show the effect on fi nance costs and profi t after tax if interest rates had been 25 basis points (bps) higher or lower at reporting date on the Consolidated Entity’s fl oating rate fi nancial instruments (2009:50 bps). A 25 bps sensitivity is considered reasonable given the current level of both short-term and long-term Australian interest rates. This would represent approximately 1 rate increase/decrease. The Reserve Bank of Australia in its commentary has noted that interest rates have returned from emergency levels required to stimulate the economy through the Global Economic Crisis and as such have not moved the offi cial cash rate since May 2010. In the current economic environment, where infl ation remains low and unemployment stable, it is unlikely that the Reserve Bank of Australia will commence a sharp upwards movement in the interest rate cycle over the next 12 months. The analysis is based on interest rate risk exposures at reporting date on both fi nancial assets and liabilities. If interest rates increased by 25bps (2009: 50bps) – Increase/(decrease) If interest rates decreased by 25bps (2009: 50bps) – increase/(decrease) If interest rates increased by 25bps (2009: 50bps) – increase/(decrease) If interest rates decreased by 25bps (2009: 50bps) – increase/(decrease) 68 FSA Group Ltd Consolidated Entity Profi t after tax 2010 $ 8,778 (8,778) 2010 $ 2,866 (2,866) 2009 $ 17,052 (17,052) Parent Entity Profi t after tax 2009 $ 2,192 (2,192) Notes to the Financial Statements continued for the year ended 30 June 2010 Note 28. Investments in Associates Equity accounted investments in associates Purchase consideration Inter-entity loan Share of associates retained earnings Consolidated Entity Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 7,963 7,963 (366,322) (397,697) 405,547 47,188 392,577 2,843 – – – – – – – – The Consolidated Entity has one investment in an associate which it accounts for using the equity accounting method. The associate, Huntingdale Smythe Lawyers Pty Ltd is a company incorporated in Australia and provides legal services. The Consolidated Entity has 50% ownership and 50% of the voting power in the entity. Information about the Associate is as follows: Consolidated Entity’s share of: Revenue Profi t before tax Income tax expense Profi t for the year Assets Liabilities Net assets 2010 $ 107,811 18,528 (5,558) 132,970 107,608 1,444 106,164 2009 $ 501,528 126,323 (37,897) 88,426 103,080 9,886 93,194 Note 29. Contingent Liabilities There were no contingent liabilities relating to the Group at reporting date except the following: 2010 Mortgage loans At reporting date loan applications that had been accepted by the Group but not yet settled amount to $9,537,900 Mortgages are usually settled within 4 weeks of acceptance. 2009 Mortgage loans At reporting date loan applications that had been accepted by the Group but not yet settled amount to $503,950. Mortgages are usually settled within 4 weeks of acceptance. 69 Directors’ Declaration The Directors of FSA Group Ltd declare that: (a) in the Directors’ opinion the fi nancial statements and notes, and the Remuneration report in the Directors’ report, set out on pages 17 to 69 are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company’s and the Consolidated Entity’s fi nancial position as at 30 June 2010 and of their performance, for the fi nancial year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and Corporations Regulations 2001. (b) the fi nancial statements also comply with International Financial Reporting Standards as disclosed in Note 1; and (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 Offi cer and Chief Financial Offi cer for the fi nancial year ended 30 June 2010, required by Section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the Directors Tim Odillo Maher Director Sydney 31 August 2010 70 FSA Group Ltd Independent Auditor’s Report To the members of FSA Group Ltd INDEPENDENT AUDITOR’S REPORT (cid:55)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:54)(cid:36)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:47)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:3) Report on the Financial Report (cid:58)(cid:72)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:41)(cid:54)(cid:36)(cid:3) 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(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3) (cid:70)(cid:82)(cid:81)(cid:71)(cid:88)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:36)(cid:88)(cid:86)(cid:87)(cid:85)(cid:68)(cid:79)(cid:76)(cid:68)(cid:81)(cid:3)(cid:36)(cid:88)(cid:71)(cid:76)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:17)(cid:3) Auditor’s Opinion (cid:44)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:80)(cid:88)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:54)(cid:36)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:47)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:22)(cid:19)(cid:3)(cid:45)(cid:88)(cid:81)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:19)(cid:15)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:72)(cid:86)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:22)(cid:19)(cid:19)(cid:36)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)Corporations Acts 2001(cid:17)(cid:3) (cid:3) (cid:3) (cid:3) PKF (cid:3) (cid:3) (cid:3) (cid:36)(cid:85)(cid:87)(cid:75)(cid:88)(cid:85)(cid:3)(cid:48)(cid:76)(cid:79)(cid:81)(cid:72)(cid:85)(cid:3) Partner (cid:22)(cid:20)(cid:3)(cid:36)(cid:88)(cid:74)(cid:88)(cid:86)(cid:87)(cid:3)(cid:21)(cid:19)(cid:20)(cid:19)(cid:3)(cid:3) (cid:3) (cid:3) 72 FSA Group Ltd (cid:3) Shareholder Information for the year ended 30 June 2010 Additional information required by the Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 19 August 2010. (a) Distribution of equity securities The number of holders, by size of holding, in each class of security are: 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Quoted Ordinary shares Number of holders Number of holders 115 297 234 374 116 1,136 21,327 941,697 2,037,700 13,003,567 122,249,494 138,253,785 The number of shareholders holding less than a marketable parcel of shares (1,471) are 146 (holding a total of 59,613 ordinary shares). Unquoted $0.50 options exercisable on or before 2 July 2013 Number of holders Number of options 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total – – – – 2 2 – – – – 1,050,000 1,050,000 (b) Twenty largest holders The names of the twenty largest holders, in each class of quoted security are: Ordinary shares: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Capital Management Corporation Pty Ltd Mazamand Group Pty Ltd ADST Pty Ltd BJR Investment Holdings Pty Ltd Investment Custodial Services Ltd ABN AMRO Clearing Sydney Ruminator Pty Ltd Citicorp Nominees Pty Ltd Berne No 132 Nominees Pty Ltd Ms Danita Rae Lowes ANZ Nominees Limited Perpetual Trustees Limited Sareena Enterprises Pty Limited Mr Costa Emil Vrisakis and Mrs Despina Vrisakis Bulwarra Holdings Pty Ltd Maramindi Pty Ltd James Dundas Ritchie Miss Xin Zhang Atkone Pty Ltd Aftron Pty Ltd Top 20 Total 32,000,000 16,809,231 12,960,047 11,000,000 3,772,216 2,615,076 2,350,174 2,100,000 1,949,193 1,590,552 1,581,500 1,557,212 1,356,667 1,200,000 1,113,150 1,040,541 1,000,000 911,000 888,516 792,000 98,587,075 138,253,785 23.1% 12.2% 9.4% 8.0% 2.7% 1.9% 1.7% 1.5% 1.4% 1.2% 1.1% 1.1% 1.0% 0.9% 0.8% 0.8% 0.7% 0.7% 0.6% 0.6% 71.3% 100.0% 73 Shareholder Information continued for the year ended 30 June 2010 (c) Substantial shareholders The names of substantial shareholders who have notifi ed the Company in accordance with section 671B of the Corporations Act 2001 are: Number of shares Mazamand Group Pty Ltd ADST Pty Ltd BJR Investment Holdings Pty Ltd (d) Voting rights All ordinary shares carry one vote per share without restriction. (e) Restricted securities 16,809,231 12,960,047 11,000,000 As at the date of this report there were no ordinary shares subject to voluntary restriction agreements. (f) Business objectives The entity has used its cash and assets that are readily convertible to cash in a way consistent with its business objectives. 74 FSA Group Ltd this page has been left blank intentionally 75 this page has been left blank intentionally 76 FSA Group Ltd Corporate Information Directors Sam Doumany – Non-Executive Chairman Tim Odillo Maher – Executive Director Deborah Southon – Executive Director Hugh Parsons – Non-Executive Director Stan Kalinko – Non-Executive Director Company Secretaries Duncan Cornish Anthony Carius Registered Offi ce and Corporate Offi ce Level 5 10 Market Street Brisbane QLD 4000 Phone: + 61 (07) 3212 6299 Fax: + 61 (07) 3212 6250 Solicitors Hopgood Ganim Level 8, Waterfront Place 1 Eagle Street Brisbane QLD 4000 Share Register Link Market Services Ltd Level 19, 324 Queen Street Brisbane QLD 4000 Phone: +61 (02) 8280 7454 Auditors PKF Level 10 1 Margaret Street Sydney New South Wales 2000 Principal Business Offi ce Country of Incorporation Level 3 70 Phillip Street Sydney NSW 2000 Phone: +61 (02) 8985 5565 Fax: +61 (02) 8985 5290 Australia Securities Exchange Listing Australian Securities Exchange Ltd ASX Code: FSA Internet Address www.fsagroup.com.au Australian Business Number ABN 98 093 855 791 DESIGN: COLLIER & ASSOCIATES THE STRATEGIC DESIGN COMPANY #14860 This report was printed on Neo Satin which is FSC (COC) Mixed Sources accredited. All fi bre used in the production of NEO is purchased from sources approved by FSC, PEFC or CSA and operating under the framework of ISO1400 environmental standards. 77 www.fsagroup.com.au