FSA Group Limited Annual Report 2020 Challenges and opportunity. Our plan Home Loans Earnings Capital Management Services Personal Loans Opportunity Contents 1 Cautionary Statements and Disclaimer Regarding Forward-Looking Information 2 Our Business 3 Chairman’s Letter 4 Executive Directors’ Review 9 Financial Statements FSA Group Limited Annual Report 2020 1 For over 20 years, FSA Group has helped thousands of Australians take control of their debt. Our large and experienced team of professionals offers a range of debt solutions and direct lending services, which we tailor to suit individual circumstances and to achieve successful outcomes for our clients. Cautionary Statements and Disclaimer Regarding Forward-Looking Information This Annual Report may contain forward- looking statements, including statements about FSA Group Limited’s (Company) financial condition, results of operations, earnings outlook and prospects. Forward- looking statements are typically identified by words such as “plan,” “aim”, “focus”, “target”, “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project” and other similar words and expressions. The forward-looking statements contained in this Annual Report are predictive in character and not guarantees or assurances of future performance. These forward-looking statements involve and are subject to known and unknown risks and uncertainties many of which are beyond the control of the Company. Our ability to predict results or the actual effects of our plans and strategies is subject to inherent uncertainty. Factors that may cause actual results or earnings to differ materially from these forward-looking statements include general economic conditions in Australia, interest rates, competition in the markets in which the Company does and will operate, and the inherent regulatory risks in the businesses of the Company, along with the credit, liquidity and market risks affecting the Company’s financial instruments described in the Annual Report. Forward-looking statements are based on assumptions regarding the Company’s financial position, business strategies, plans and objectives of management for future operations and development and the environment in which the Company will operate. Those assumptions may not be correct or exhaustive. Because these forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements are based on current views, expectations and beliefs as at the date they are expressed. The Company disclaims any responsibility to and undertakes no obligation to update or revise any forward-looking statement to reflect any change in the Company’s circumstances or the circumstances on which a statement is based, except as required by law. The Company disclaims any responsibility for the accuracy or completeness of any forward-looking statement to the extent permitted by law. Unless otherwise stated, the projections or forecasts included in this Annual Report have not been audited, examined or otherwise reviewed by the independent auditors of the Company. This Annual Report is not an offer or invitation for subscription or purchase of, or a recommendation of securities. 2 Our Business Services FSA Group offers a range of services to assist clients wishing to enter into a payment arrangement with their creditors. These services include informal arrangements, debt agreements, personal insolvency agreements and bankruptcy. Consumer Lending FSA Group offers home loans to assist clients with property who wish to consolidate their debt and personal loans to assist clients who wish to purchase a motor vehicle. FSA Group Limited Annual Report 2020 3 Chairman’s Letter Dear Shareholders, The 2020 financial year has been a year of challenges and has also presented opportunity. The Services segment offers a range of services to assist clients wishing to enter into a payment arrangement with their creditors. These include informal arrangements, debt agreements, personal insolvency agreements and bankruptcy. FSA Group is the largest provider of these services in Australia. During the 2020 financial year we experienced a number of challenges. We launched our new service, an informal arrangement to assist non-home owners with their debt. And then COVID-19 led to a reduction in the number of new callers seeking our assistance. We believe demand for our services will start to increase in the months leading up to the withdrawal of both Government and Bank support packages. Despite these challenges we have successfully navigated this period. During the 2020 financial year new client numbers for informal arrangements and debt agreements decreased by 5% and for personal insolvency agreements and bankruptcy decreased by 20% compared to the previous corresponding period. During the year informal arrangement and debt agreement clients under administration decreased to 19,736, down 9% and for personal insolvency agreements and bankruptcy increased to 1,304, up 1%. FSA Group manages $353 million of unsecured debt under informal arrangements and debt agreements and during the 2020 financial year paid $89 million in dividends to creditors. The Consumer Lending segment offers home loans and personal loans to assist clients wishing to consolidate their debt or to purchase a motor vehicle. During the 2020 financial year our home loan and personal loan pools continued to grow, growing from $441 million to $457 million, a 4% increase. On 18 December 2019, we announced our inaugural $200 million issue of non-conforming residential mortgage backed securities via sole arranger and manager Westpac. Accessing the debt capital markets is a key step in our strategy of diversifying our funding and de-risking the business. More importantly, it provides us with fresh funding capacity to pursue our home loan growth strategy. In the first half of the 2021 financial year we plan to rebrand our Consumer Lending segment “Azora”. Azora will be led by one of the most experienced management teams in the non-bank sector. For the 2020 financial year, FSA Group generated $68.2 million in operating income, a 2% decrease, and a profit after tax attributable to members of $16.3 million, a 13% increase compared to the results of 2019. Our net cash inflow from operating activities was $19.4 million, a 14% increase. I advise that the Directors have declared a fully franked final dividend of 3.00 cents per share for the 2020 financial year. This brings the full year dividend to 6.00 cents per share. Our focus for the 2021 financial year is outlined in the Executive Directors’ Review under “Strategy and Outlook”. Finally I would like to announce my retirement. I have served as your Chairman for 17 years. I am proud of what we have achieved and have enjoyed every minute. I will be retiring on 2 September 2020 which will be my 83rd birthday. I would like to thank my fellow Directors, all our executives and staff for their contribution to the successes of the current year and wish them well for the future. Yours sincerely, Sam Doumany Chairman 4 Executive Directors’ Review Dear Shareholders, The 2020 financial year has been a year of challenges and has also presented opportunity. For the 2020 financial year, FSA Group generated $68.2 million in operating income, a 2% decrease, and a profit after tax attributable to members of $16.3 million, a 13% increase compared to the results of 2019. Our net cash inflow from operating activities was $19.4 million, a 14% increase. We advise that the Directors have declared a fully franked final dividend of 3.00 cents per share for the 2020 financial year. This brings the full year dividend to 6.00 cents per share. The Financial Overview below summarises our performance. Financial Overview Operating income Profit before tax Profit after tax attributable to members EPS basic Net cash inflow from operating activities Dividend/share Shareholder equity attributable to members Return on equity FY2019 FY2020 % Change $69.7m $22.2m $14.4m 11.52c $17.1m 5.00c $51.0m 30% $68.2m $24.8m $16.3m 13.05c $19.4m 6.00c $59.4m 30% 2% 12% 13% 13% 14% 20% 17% Operational Performance Our business operates across the following key segments, Services and Consumer Lending. The operating income and profitability of each segment is as follows: Operating income by segment Services Consumer Lending Home Loans Personal Loans Other/unallocated operating income FY2019 $46.8m $11.2m $11.7m $0.1m FY2020 % Change $41.1m 12% $13.7m $13.3m $0.1m 23% 14% $69.7m $68.2m 2% FSA Group Limited Annual Report 2020 5 Profit before tax by segment Services Consumer Lending Home Loans Personal Loans Other/unallocated profit before tax FY2019 $11.6m FY2020 % Change $11.7m 1% $5.9m $5.3m ($0.7m) $7.4m $5.2m $0.4m 26% 3% $22.2m $24.8m 12% Services The Services segment offers a range of services to assist clients wishing to enter into a payment arrangement with their creditors. These include informal arrangements, debt agreements, personal insolvency agreements and bankruptcy. FSA Group is the largest provider of these services in Australia. During the 2020 financial year we experienced a number of challenges. In response to the amendments to the Bankruptcy Act 1966 which took effect from 27 June 2019, we launched our new service, an informal arrangement to assist non-home owners with their debt. The launch of our informal arrangements has been successful with positive feedback from clients and creditors. COVID-19 led to a reduction in the number of new callers seeking our assistance. In response to this reduction we have restructured parts of our business to reduce costs. We believe demand for our services will start to increase in the months leading up to the withdrawal of both Government and Bank support packages. Despite these challenges we have successfully navigated this period. During the 2020 financial year new client numbers for informal arrangements and debt agreements decreased by 5% and for personal insolvency agreements and bankruptcy decreased by 20% compared to the previous corresponding period. During the year informal arrangement and debt agreement clients under administration decreased to 19,736, down 9% and for personal insolvency agreements and bankruptcy increased to 1,304, up 1%. FSA Group manages $353 million of unsecured debt under informal arrangements and debt agreements and during the 2020 financial year paid $89 million in dividends to creditors. Informals and Debt Agreements FY2018 FY2019 FY2020 % Change New Clients Clients under administration Debt managed Dividends paid 5,797 21,885 $398m $82m 4,573 21,725 $379m $88m 4,327 19,736 $353m $89m 5% 9% 7% 1% PIA’s and Bankruptcy FY2018 FY2019 FY2020 % Change New Clients Clients under administration 415 1,253 436 1,290 347 20% 1,304 1% The Services segment achieved a profit before tax of $11.7 million, a 1% increase. 6 Consumer Lending The Consumer Lending segment offers home loans and personal loans to assist clients wishing to consolidate their debt or to purchase a motor vehicle. During the 2020 financial year our home loan and personal loan pools continued to grow, growing from $441 million to $457 million, an 4% increase. Loan Pool Data Weighted average loan size Security type Weighted average loan to valuation ratio Variable or fixed rate Geographical spread Loan Pools Home Loans Personal Loans total Arrears > 30 day Home Loans Personal Loans Losses Home Loans Personal Loans Home Loans $356,157 Residential home 67% Variable All states Personal Loans $20,656 Motor vehicle 85% Fixed All states FY2018 FY2019 FY2020 % Change $360m $48m $408m $382m $59m $441m $394m $63m $457m 3% 6% 4% FY2018 FY2019 FY2020 1.40% 1.55% 1.42% 3.36% 2.55% 2.41% FY2018 FY2019 FY2020 $501,494 $278,405 $171,265 $263,251 $564,022 *$1,155,536 * The loss of $1,155,536 is distorted by a loss of $371,350 from the discontinued pilot product offering which we ran during the 2018 calendar year. As our loan pools grow we expect to increase and renew our facilities as required and periodically utilise the debt capital markets. On 18 December 2019, we announced our inaugural $200 million issue of non-conforming residential mortgage backed securities via sole arranger and manager Westpac. Accessing the debt capital markets is a key step in our strategy of diversifying our funding and de-risking the business. More importantly, it provides us with fresh funding capacity to pursue our home loan growth strategy. Borrowings Facility type Provider Limit Maturity date Home Loans Non-recourse warehouse Westpac Non-recourse warehouse Institutional Securitised Institutional Personal Loans Limited recourse warehouse Westpac Corporate Westpac $350m $20m $75m $15m Oct 2021 Oct 2021 Mar 2051 Apr 2023 Mar 2021 Drawn $198m $15m $178m $42m $5m FSA Group Limited Annual Report 2020 7 In the first half of the 2021 financial year, we plan to rebrand our Consumer Lending segment “Azora”. Azora will be led by one of the most experienced management teams in the non-bank sector with a proven track record in product design, credit policy development, responsible lending, loan underwriting, post-settlement servicing, and in managing warehouse funding, trust management and securitisation programs. The Consumer Lending segment achieved a profit before tax of $12.6 million, a 12% increase. Net cash inflow from operating activities During the 2020 financial year, FSA Group maintained strong net cash inflow driven by long term annuity income from its clients. Net cash inflow from operating activities was $19.4 million, a 14% increase. Net cash inflow from operating activities FY2018 $14.5m FY2019 $17.1m FY2020 % Change $19.4m 14% Services Informals/Debt Agreements Consumer Lending PIA/Bankruptcy Home Loans Personal Loans No of clients/loan pool size 19,736 1,304 $394m $63m Average client life in years 4.5 to 5.5 3 3 to 4 4 to 5 COVID-19 We are very conscious of the impact COVID-19 has had and continues to have on our staff and clients. We acted promptly to ensure we provided a safe working environment for our people and implemented flexible work arrangements including working from home. We worked closely with clients affected by COVID-19 to ensure we achieved positive outcomes and we will continue with this strategy. Arrears > 30 Day Home Loans Personal Loans Hardships Home Loans Personal Loans 31 Dec 2019 22 May 2020 20 Jul 2020 11 Aug 2020 1.76% 3.48% 3.04% 4.43% 2.13% 3.16% 1.33% 1.74% 31 Dec 2019 22 May 2020 20 Jul 2020 11 Aug 2020 2.66% 1.09% 6.54% 4.05% 4.07% 2.04% 3.47% 1.29% A noticeable impact of COVID-19 has been a reduction in the number of new callers seeking our assistance. We believe consumers are understandably more concerned about their health and job security and less concerned with their debt. In response to this reduction we have restructured parts of our business to reduce costs. COVID-19 continues to impact the number of new callers seeking our assistance. We believe demand for our services will start to increase in the months leading up to the withdrawal of both Government and Bank support packages. 8 Strategy and Outlook Our focus over the 2021 financial year will be as follows: Services Maintain our leading position in a niche market and improve our informal arrangement offering, based on client and creditor feedback. Consumer Lending Rebrand “Azora” and focus on growing our home loan and personal loan pools. earnings Earning guidance will be provided during the 2021 financial year. Capital management Due to our strong net cash inflow driven by long term annuity income from our clients, we expect our full year dividend to be between 6 cents to 7 cents per share with the balance of earnings to be re-invested to support the growing loan pools. preparing our business for the future Continuing with the offshoring to our Philippine (50 staff) and Indian (14 staff) offices a number of administrative tasks and automating others. Our People Our work environment fosters diversity, equal employment opportunities, fairness and embraces and supports personal growth, continuous learning and training opportunities for all our team. We invest in our team to ensure that they have the skills, competencies, and knowledge they need to deliver excellent and ethical customer service and support. Our people are our greatest asset and we acknowledge and we thank them for their efforts during a challenging year. We also thank the Board for their guidance and support. Yours sincerely, Tim Odillo Maher executive director Deborah Southon executive director FSA Group Limited Annual Report 2020 9 Financial Statements for the year ended 30 June 2020 10 Directors’ Report 22 Auditor’s Independence Declaration 23 Statement of Profit or Loss and Other Comprehensive Income 24 Statement of Financial Position 25 Statement of Changes in Equity 26 Statement of Cash Flows 27 General Information 28 Notes to the Financial Statements 53 Directors’ Declaration 54 Independent Auditor’s Report 57 Shareholder Information 59 Corporate Information 10 Directors’ Report For the year ended 30 June 2020 The Directors present their report, together with the Financial Statements, on the Consolidated Entity consisting of FSA Group Limited (“Company” or “parent entity”) and the entities controlled and its interests in associates at the end of, and during, the year ended 30 June 2020. Directors The Directors of the Company at any time during or since the end of the financial year are: Sam Doumany Tim Odillo Maher Deborah Southon Stan Kalinko (retired 22 November 2019) David Bower Information on Directors Sam Doumany (Non‑Executive Chairman) experience and expertise Mr Doumany was appointed 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 Queensland Parliament 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 firstly 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. Since 1983 Mr Doumany has operated a consultancy practice providing services in government relations, corporate strategy and market development. Mr Doumany was retained by Ernst & Young in an executive consultancy role between 1991 and 2002. 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. Other current (listed company) directorships Nil Former (listed company) directorships in the last 3 years Nil Special responsibilities Member of the Audit & Risk Management Committee and Chairperson of the Remuneration Committee. Interest in shares and options Ordinary shares 1,100,000 Tim Odillo Maher (Executive Director) experience and expertise Mr Odillo Maher was appointed on 30 July 2002. Mr Odillo Maher holds a Bachelor of Business Degree (majoring in Accounting and Finance) from Australian Catholic University and is a Certified Practising Accountant. Other current (listed company) directorships Nil FSA Group Limited Annual Report 2020 11 Former (listed company) directorships in last 3 years Nil Special responsibilities Nil Interest in shares and options Ordinary shares 42,809,231 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 an Executive Certificate in Leadership & Management (University of Technology, Sydney) and a Bachelor of Arts Degree (Sydney University). 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 Stan Kalinko (Non‑Executive Director) – retired 22 November 2019 experience and expertise Mr Kalinko was appointed on 9 May 2007. Mr Kalinko retired on 22 November 2019. David Bower (Non‑Executive Director) experience and expertise Mr David Bower was appointed on 23 April 2015. Mr Bower has over 30 years of executive experience in financial services in Australia. He spent 26 years with Westpac Banking Corporation running business units in Corporate Banking, Commercial Bank, Retail Bank and Financial Markets. He also worked with ANZ and St George Bank. He is a graduate of the Australian Institute of Company Directors and holds a Bachelor of Economics degree. Other current (listed company) directorships Nil Former (listed company) directorships in last 3 years Nil Special Responsibilities Chairperson of the Audit & Risk Management Committee and Member of the Remuneration Committee. Interest in shares and options Ordinary shares 90,800 12 Directors’ Report (continued) For the year ended 30 June 2020 Company Secretary Cellina Z Chen Mrs Cellina Z Chen was appointed joint Company Secretary on 23 April 2015 and subsequently appointed as Company Secretary on 1 July 2015. Mrs Chen holds a Master of Commerce degree (major in accounting and finance) from the University of Sydney and is a Certified Practising Accountant. Mrs Chen has also completed the Australian Institute of Company Directors courses and holds a Graduate Diploma of Applied Corporate Governance from the Governance Institute of Australia. Mrs Chen joined the Company in 2001 and is the Chief Financial Officer. Principal activities The Consolidated Entity provides debt solutions and direct lending services to individuals. Operating results Total profit for the year and total comprehensive income for the year for the Consolidated Entity after providing for income tax and eliminating non‑controlling interests was $16,315,947 (2019: $14,411,166). Dividends declared and paid during the year • On 13 September 2019, a fully franked final dividend relating to the year ended 30 June 2019 of $3,752,778 was paid at 3.00c per share; and • On 13 March 2020, a fully franked interim dividend of $3,751,703 was paid at 3.00c per share. Dividends declared after the end of year • On 14 August 2020, the Directors declared a 3.00 cent fully franked final dividend to shareholders to be paid on 11 September 2020 with a record date of 21 August 2020. Operating and Financial Review Detailed comments on operations are included separately in the Executive Directors’ Review, on pages 4 to 8 of the Annual Report. Review of financial condition Capital structure There have been no changes to the Company’s share structure during or since the end of the financial year except as follows: • During the 2020 financial year, the Company bought back 330,930 shares under an on market share buy‑back. Financial position The net assets of the Consolidated Entity, which includes amounts attributable to non‑controlling interests, have increased from $54,112,380 at 30 June 2019 to $62,857,375 at 30 June 2020. Treasury policy The Consolidated Entity does not have a formally established treasury function. The Board is responsible for managing the Consolidated Entity’s finance facilities. FSA Group Limited Annual Report 2020 13 Liquidity and funding The Consolidated Entity has sufficient funds to finance its operations, and also to allow the Consolidated Entity to take advantage of favourable business opportunities. Further details of the Consolidated Entities’ access to facilities are included in Note 12 of the Financial Statements. Significant changes in the state of affairs There were no significant changes in the state of affairs of the Consolidated Entity during the financial year. Matters subsequent to the end of the financial year There have been no events since the end of the financial year that impact upon the financial performance or position of the Consolidated Entity as at 30 June 2020 except as follows: • On 14 August 2020, the Directors declared a 3.00 cent fully franked final dividend to shareholders to be paid on 11 September 2020 with a record date of 21 August 2020. Likely developments and expected results of operations Likely developments in the operations of the Consolidated Entity and the expected results of those operations in subsequent financial years have been discussed where appropriate in the Annual Report in the Executive Directors’ 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 financial years other than the information contained in the Executive Directors’ Review. Environmental regulations There are no matters that have arisen in relation to environmental issues up to the date of this report. The operations of the Consolidated Entity are not subject to any significant environmental regulation under a law of the Commonwealth or of a State or Territory. Share options As at 30 June 2020 there were no options on issue and no shares were issued during the year. Indemnification and insurance of directors and officers Each of the Directors and the Officers of the Company has entered into an agreement with the Company whereby the Company has provided certain contractual rights of access to books and records of the Company to those Directors and Officers; and indemnifies those Directors and Officers against liabilities suffered in the discharge of their duties as Directors or Officers of the Company. The Company has also insured all of the Directors and Officers of FSA Group Limited. 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. Indemnity and insurance of auditor The Company has not, during or since the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. 14 Directors’ Report (continued) For the year ended 30 June 2020 Remuneration Report (Audited) This Remuneration Report sets out the remuneration information, pertaining to the Directors and the Senior Executive. The Directors and the Senior Executive comprise the Key Management Personnel of the Consolidated Entity for the purposes of the Corporations Act 2001 for the year ended 30 June 2020. Key Management Personnel have the authority and responsibility for planning, directing and controlling the activities of the Consolidated Entity directly or indirectly. Remuneration policy The performance of the Consolidated Entity depends upon the quality of its personnel. To prosper, the Consolidated Entity must attract, motivate and retain highly skilled people. To that end, the Consolidated Entity embodies the following principles in its remuneration framework: • provide competitive rewards to attract high calibre executives; • focus on creating sustained shareholder value; • significant portion of executive remuneration at risk, and aligned with shareholder interests; and • differentiation of individual rewards commensurate with contribution to overall results and according to individual accountability, performance and potential. The Company has a Remuneration Committee but does not have a Nominations 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 Nominations Committee. All matters which might be dealt with by that Committee are reviewed by the Directors in meetings as a Board. The Remuneration Committee is responsible for determining and reviewing compensation arrangements for the Directors and the Senior Executive. The Remuneration Committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum shareholder benefit from the retention of highly skilled people. Non‑Executive Director Remuneration Non‑executive directors Sam Doumany David Bower Non‑Executive Chairman Non‑Executive Director The Board seeks to set aggregate remuneration at a level which provides the Consolidated Entity 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 was determined at the Annual General Meeting held on 18 November 2010 to be no more than $500,000. 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 Non‑Executive Director, the Company may remunerate that Non‑Executive Director by payment of a fixed sum determined by the Directors in addition to 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 Consolidated Entity. The remuneration of Non‑Executive Directors for the year ended 30 June 2020 is detailed in Table 1 of this Remuneration Report. Executive Directors and Senior Executive Remuneration executive director Deborah Southon Senior Executive Cellina Chen Executive Director Chief Financial Officer/Company Secretary FSA Group Limited Annual Report 2020 15 The Company aims to reward the Executive Director and Senior Executive with a level and mix of remuneration commensurate with their position and responsibilities within the Consolidated Entity and so as to: • reward Executives for company and individual performance against targets set by reference to appropriate benchmarks; • align the interests of Executives with those of shareholders; • link reward with the strategic goals and performance of the Consolidated Entity; and • ensure total remuneration is competitive by market standards. The remuneration of the Executive Director and Senior Executive is agreed by the Remuneration Committee. The remuneration will comprise a fixed remuneration component and also may include offering specific short and long‑term incentives, in the form of: • base pay and non‑monetary benefits; • short‑term performance incentives; • long‑term performance incentives; and • other remuneration such as superannuation and long service leave. Fixed remuneration, consisting of base salary, superannuation and non‑monetary benefits are reviewed annually by the Remuneration Committee, based on individual and business unit performance, the overall performance of the Consolidated Entity and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits where it does not create any additional costs to the Consolidated Entity and provides additional value to the executive. The short‑term incentives program (“STI”) has been set to align the targets of the operating segments with the targets of the responsible executives. STI payments are granted to Executives based on specific annual targets and key performance indicators (‘KPI’s’) being achieved. KPI’s include profit contribution, customer satisfaction, leadership contribution and portfolio management. The long‑term incentives programme (“LTI”) has been set to align the targets of the Consolidated Entity’s five‑year plan with the targets of the responsible Executives. LTI payments will be granted to the Senior Executive based on specific 5 year targets being achieved. Those targets include earnings growth rate; the services division market share, arrears and termination rates; home loan and personal loan portfolio growth, arrears and bad debts; client complaint levels and employee satisfaction levels. Subject to the Board being reasonably satisfied that the above indicators have been achieved, the Senior Executive will be eligible for a payment of up to $500,000. The remuneration of the Executive Director and Senior Executive for the year ended 30 June 2020 is detailed in Table 1 of this Remuneration Report. Executive Director Tim Odillo Maher Executive Director The Consolidated Entity has entered into a consultancy agreement with ATMR Corporation Pty Ltd. Tim Odillo Maher is one of the key personnel of ATMR Corporation Pty Ltd. The remuneration paid to ATMR Corporation Pty Ltd for the year ended 30 June 2020 is detailed in Table 2 of this Remuneration Report. A Securities Trading Policy has been adopted for Directors’ and employees’ dealings in the Company’s securities. Employment contracts and consultancy agreement It is the Board’s policy that employment agreements are entered into with the Executive Directors (with the exception of Tim Odillo Maher), Senior Executive and employees. The Consolidated Entity has entered into a consultancy agreement with ATMR Corporation Pty Ltd. Tim Odillo Maher is one of the key personnel of ATMR Corporation Pty Ltd. Employment contracts and the consultancy agreement are for no specific fixed term unless otherwise stated. 16 Directors’ Report (continued) For the year ended 30 June 2020 Remuneration Report (Audited) (continued) Executive Directors and Senior Executive The employment contracts entered into with the Executive Director and Senior Executive contain the following key terms: Event Company Policy Performance based salary increases and/or bonuses Board assessment based on KPI achievement Short‑term incentives Long‑term incentives Resignation/notice period Serious misconduct Board assessment based on KPI achievement Board assessment based on 5 year plan achievement Three months Company may terminate at any time Payouts upon resignation or termination, outside industrial regulations (i.e. ‘golden handshakes’) Board discretion The consultancy agreement entered into with ATMR Corporation Pty Ltd of which Tim Odillo Maher is one of the key personnel contain the following key terms: Event Success fee Material breaches period Company Policy Board assessment based on outcomes Company may terminate at any time Termination for convenience period Three months (a) Details of Directors and Key Management Personnel (i) Non‑Executive Directors Sam Doumany Non‑Executive Chairman David Bower Stan Kalinko Non‑Executive Director Non‑Executive Director (retired on 22 November 2019) (ii) Executive Directors Tim Odillo Maher Executive Director Deborah Southon Executive Director (iii) Senior Executive Cellina Chen Chief Financial Officer/Company Secretary The Directors and the Senior Executive comprise the Key Management Personnel of the Consolidated Entity. FSA Group Limited Annual Report 2020 17 Perfor‑ mance based Total Post‑ Employ‑ ment Super‑ annuation and other benefits $ $ % (b) Remuneration of Directors and Key Management Personnel Table 1 Short‑term Long‑term Salary & Fees Cash Bonus Non‑cash benefits Non‑cash benefits – – – – – – 19% 37% 27% 31% $ – – – – – – $ – – – – – – $ – – – – – – 13,469 155,244 13,787 158,912 3,673 8,680 6,984 7,149 42,331 100,055 80,497 82,398 $ Non‑executive directors Sam Doumany 141,775 145,125 38,658 91,375 73,513 75,249 2020 2019 Stan Kalinko – retired 2020 2019 David Bower 2020 2019 executive director Deborah Southon 2020 2019 Senior executive Cellina Chen 514,461 *125,000 **3,794 **(18,906) 25,000 649,349 522,500 325,000 32,264 8,732 25,000 913,496 2020 2019 224,162 ^100,000 **26,799 **4,167 227,842 130,000 33,171 4,179 21,002 20,531 376,130 415,723 Total Remuneration 2020 2019 992,569 225,000 1,062,091 455,000 30,593 65,435 (14,739) 70,128 1,303,551 12,911 75,147 1,670,584 * Bonus was paid to Deborah Southon in relation to the performance during financial year 2019. The bonus was approved by the Board as part of discretionary performance based remuneration. The Executive Director abstained from the vote. ^ Bonus was paid to Cellina Chen in relation to the performance during financial year 2019. The bonus was approved by the Board as part of discretionary performance based remuneration. ** Annual leave and long service leave accrual movement has been included in the non‑cash benefits above. Bonus in relation to current financial year performance will be paid in the subsequent financial year with an estimated range of: Executive Director: Deborah Southon: Nil Senior Executive: Cellina Chen: $75,000 – $150,000 The long‑term incentive bonus will be paid in the subsequent financial year estimated at: Senior Executive: Cellina Chen: Up to $250,000 18 Directors’ Report (continued) For the year ended 30 June 2020 Remuneration Report (Audited) (continued) Consultancy fees excluding GST paid to ATMR Corporation Pty Ltd of which Tim Odillo Maher is one of the key personnel. Table 2 executive director Tim Odillo Maher 2020 2019 Fees $ Success Fees $ Total Fees $ 538,375 ^^125,000 663,375 547,500 325,000 872,500 ^^ Success fees paid to ATMR Corporation Pty Ltd in relation to the performance during financial year 2019. The success fee was approved by the Board as part of discretionary performance based assessment. The Executive Director abstained from the vote. Success fees in relation to current financial year performance will be paid in the subsequent financial year with an estimated range of: $Nil. Consolidated Entity’s earnings and movement in shareholder’s wealth for the last five years is as follows: 30 June 2020 30 June 2019 30 June 2018 30 June 2017 30 June 2016 Operating income prior to adoption of AASB 15 Operating income after adoption of new AASB 15 Net profit before tax prior to adoption of AASB 15 Net profit before tax after adoption of new AASB 15 Net profit and other comprehensive income after tax attributable to members prior to adoption of AASB 15 Net profit and other comprehensive income after tax attributable to members after adoption of new AASB 15 Share price at the start of the year Share price at the end of the year Dividends declared for the year Basic EPS (cents) prior to adoption of AASB 15 Basic EPS (cents) after adoption of new AASB 15 Diluted EPS (cents) prior to adoption of AASB 15 Diluted EPS (cents) – – – $70,630,226 $62,078,752 $68,180,292 $69,742,110 $66,155,145 – – – – – $23,492,625 $16,842,459 $24,750,627 $22,164,979 $19,670,917 – – – – – $15,116,886 $13,478,685 $16,315,946 $14,411,166 $12,606,598 $1.02 $0.865 6.00c – 13.05 – 13.05 $1.40 $1.02 5.00c – 11.52 – 11.52 $1.36 $1.40 7.00c – 10.08 – 10.08 – $1.01 $1.36 7.00c 12.08 – 12.08 – – $1.27 $1.01 7.00c 10.78 – 10.78 – FSA Group Limited Annual Report 2020 19 A review of bonuses paid to the Executive Director and Senior Executive, and the success fee paid to ATMR Corporation Pty Ltd of which Tim Odillo Maher is one of the key personnel, over the previous five years is consistent with the operational performance of the Consolidated Entity in those periods. (c) Options issued as part of remuneration for the year ended 30 June 2020 There were no options issued as part of remuneration during or since the end of the financial year. (d) Shares issued on exercise of remuneration options There were no shares issued on the exercise of remuneration options during or since the end of the financial year. (e) Option holdings of Directors and Key Management Personnel There were no options held by Directors or Key Management Personnel. (f) Shareholdings of Directors and Key Management Personnel Shares held in FSA Group Ltd Balance 1 July 2019 Purchased on market Other Changes Balance 30 June 2020 directors Sam Doumany Tim Odillo Maher Deborah Southon David Bower Senior executive Cellina Chen total 1,100,000 42,809,231 12,960,047 90,800 – 56,960,078 – – – – – – – – – – – – 1,100,000 42,809,231 12,960,047 90,800 – 56,960,078 (g) Loans to Directors and Key Management Personnel There were no loans to Directors or Key Management Personnel during the year. (h) Other transactions with Directors and Key Management Personnel and related parties 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 $Nil (2019: $7,320). The supplies were purchased on normal commercial terms. (i) Voting and comments made at the Company’s 2019 Annual General Meeting (“AGM”) At the 2019 AGM, 98.88% of the votes received supported the adoption of the Remuneration Report for the year ended 30 June 2019. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. This concludes the Remuneration Report which has been audited. 20 Directors’ Report (continued) For the year ended 30 June 2020 Directors’ Meetings The number of meetings held and attended by each Director during the year is as follows: Sam Doumany Tim Odillo Maher Deborah Southon Stan Kalinko (retired) David Bower Total number of meetings held during the financial year Number of meetings held while in office Meetings attended 10 10 10 5 10 10 10 10 10 3 10 Audit & Risk Management Committee Meetings The number of meetings held and attended by each member during the year is as follows: Sam Doumany Stan Kalinko (retired) David Bower Total number of meetings held during the financial year Number of meetings held while in office Meetings attended 2 1 2 2 2 1 2 Remuneration Committee Meetings The number of meetings held and attended by each member during the year is as follows: Sam Doumany Stan Kalinko (retired) David Bower Total number of meetings held during the financial year Number of meetings held while in office Meetings attended 2 1 2 2 2 ‑ 2 Proceedings on behalf of the Company No proceedings have been brought, or intervened in, on behalf of FSA Group Limited, nor has any application for leave been made in respect of FSA Group Limited under section 237 of the Corporations Act 2001. FSA Group Limited Annual Report 2020 21 Auditor’s Independence Declaration The Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 forms part of the Directors Report and can be found on page 22. Corporate Governance In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of FSA Group Limited are committed to achieving and demonstrating the highest standards of corporate governance. The Board endorses the 4th edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX Principles). The Company’s Corporate Governance Charter and a statement of Corporate Governance are available on the Company website www.fsagroup.com.au. This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. Signed in accordance with a resolution of the Directors. tim odillo maher Executive Director Sydney 14 August 2020 22 Auditor’s Independence Declaration FSA Group Limited Annual Report 2020 23 Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2020 revenue and other income Fees from services Finance income Finance expense Net finance income total operating income Employee benefit expense Marketing expense Operating expenses Impairment expenses Office facility expenses Depreciation and amortisation expense Unrealised gains or (loss) on fair value movement of derivatives total expenses profit before income tax Income tax expense profit after income tax other comprehensive income, net of tax total comprehensive income for the year total profit and comprehensive income for the year attributable to: Non‑controlling interests Members of the parent Net profit for the year earnings per share Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Consolidated Entity Notes 2020 $ 2019 $ 2 2 2 2 41,746,293 47,489,297 40,778,763 39,466,776 (14,344,764) (17,213,963) 26,433,999 22,252,813 68,180,292 69,742,110 (23,846,974) (26,535,088) (7,585,677) (9,466,078) (5,519,160) (5,390,074) (4,765,349) (3,329,637) (2,017,928) (1,843,197) (643,546) 948,969 (386,572) (626,485) (43,429,665) (47,577,131) 24,750,627 22,164,979 17 (7,419,410) (6,707,505) 17,331,217 15,457,474 – – 17,331,217 15,457,474 1,015,271 1,046,308 16,315,946 14,411,166 17,331,217 15,457,474 3 3 13.05 13.05 11.52 11.52 The Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the Notes to the Financial Statements. 24 Statement of Financial Position as at 30 June 2020 Current Assets Cash and cash equivalents Trade and other receivables Other assets total Current Assets Non‑Current Assets Trade and other receivables Right of use assets Investments Plant and equipment Intangible assets Deferred tax assets total Non‑Current Assets Financing Assets Personal loan cash and cash equivalents Home loan cash and cash equivalents Personal loan assets Home loan assets total Financing Assets total Assets Current Liabilities Trade and other payables Contract liabilities Lease liability Provisions Current tax liabilities Borrowings Derivatives total Current Liabilities Non‑Current Liabilities Contract liabilities Lease liability Provisions Deferred tax liabilities Derivatives total Non‑Current Liabilities Financing Liabilities Borrowings to finance personal loan assets Limited‑recourse borrowings to finance personal loan assets Non‑recourse borrowings to finance home loan assets total Financing Liabilities total Liabilities Net Assets equity Share capital Retained earnings total equity attributable to members of the parent Non‑controlling interests total equity Consolidated Entity Notes 2020 $ 2019 $ 4 4 8 6 17 5 5 7 2 8 9 12 2 8 9 17 12 12 12 10 7,980,442 19,399,262 1,320,277 28,699,981 7,555,304 11,451,345 385 1,491,367 2,653,447 742,248 23,894,096 3,303,166 22,077,714 665,635 26,046,515 8,771,602 – 385 529,440 2,689,888 958,720 12,950,035 4,010,137 27,915,984 63,159,110 393,815,196 488,900,427 541,494,504 2,414,087 6,356,612 59,402,449 381,636,117 449,809,265 488,805,815 5,847,151 405,745 723,960 2,426,822 1,290,118 447,547 401,134 11,542,477 822,782 10,647,457 432,259 2,962,275 – 14,864,773 5,010,874 42,393,650 404,825,356 452,229,880 478,637,130 62,857,375 6,360,492 53,059,345 59,419,837 3,437,538 62,857,375 6,504,759 490,481 – 2,293,985 2,129,633 1,024,869 630,827 13,074,554 790,427 – 443,859 2,676,565 716,326 4,627,177 8,057,675 37,861,944 371,072,085 416,991,704 434,693,435 54,112,380 6,707,233 44,247,880 50,955,113 3,157,267 54,112,380 The Statement of Financial Position should be read in conjunction with the Notes to the Financial Statements. FSA Group Limited Annual Report 2020 25 Statement of Changes in Equity For the year ended 30 June 2020 Share capital $ Retained earnings $ Non‑ controlling interests $ Total $ Balance at 30 June 2018 6,707,233 37,342,271 2,740,959 46,790,463 Profit after income tax for the year Other comprehensive income for the year, net of tax total comprehensive income for the year Transactions with owners in their capacity as owners: Dividends paid Distributions to non‑controlling interests – – – – – 14,411,166 1,046,308 15,457,474 – – – 14,411,166 1,046,308 15,457,474 (7,505,557) – (7,505,557) – (630,000) (630,000) Balance at 30 June 2019 6,707,233 44,247,880 3,157,267 54,112,380 Profit after income tax for the year Other comprehensive income for the year, net of tax total comprehensive income for the year Transactions with owners in their capacity as owners: Dividends paid Distributions to non‑controlling interests Share buy‑back Balance at 30 June 2020 – – – – – (346,741) 16,315,946 1,015,271 17,331,217 – – – 16,315,946 1,015,271 17,331,217 (7,504,481) – (7,504,481) – – (735,000) (735,000) – (346,741) 6,360,492 53,059,345 3,437,538 62,857,375 The Statement of Changes in Equity should be read in conjunction with the Notes to the Financial Statements. 26 Statement of Cash Flows For the year ended 30 June 2020 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Finance income received Finance cost paid Income tax paid Consolidated Entity 2020 $ 2019 $ Notes Inflows/ (Outflows) Inflows/ (Outflows) 41,863,283 41,461,781 (38,769,660) (40,995,382) 40,796,691 39,322,444 (16,700,370) (17,204,093) (7,756,743) (5,504,295) Net cash inflow from operating activities 16 19,433,201 17,080,455 Cash flows from investing activities Acquisition of property, plant and equipment Acquisition of intangibles Acquisition of right of use assets Net increase in home loan assets Net increase in personal loan assets Net decrease in other loans Net cash outflow from investing activities Cash flows from financing activities Net receipt of borrowings Payment of lease liability Payment of distributions to non‑controlling interests Share buy‑back Dividends paid to the Company’s shareholders Net cash inflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year 6 10 (1,298,915) (270,116) (21,069) (89,008) (570,534) – (12,730,099) (21,748,188) (5,963,910) (12,916,270) 312,226 7,500 (19,971,883) (35,316,500) 37,016,461 28,646,152 (58,859) (735,000) (346,741) (630,000) – (7,504,481) (7,505,557) 28,371,380 20,510,595 27,832,698 12,073,865 2,274,550 9,799,315 Cash and cash equivalents at the end of the financial year 39,906,563 12,073,865 The Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements. FSA Group Limited Annual Report 2020 27 General Information For the year ended 30 June 2020 Consolidated entity FSA Group Limited is a for‑profit listed public company (ASX: FSA), incorporated and domiciled in Australia. The consolidated Financial Statements incorporate the financial information of FSA Group Limited (“Company” or “parent entity’) and the entities controlled and its interests in associates together referred to as the “Consolidated Entity”. Principal activities The Consolidated Entity provides debt solutions and direct lending services to individuals. Basis of preparation The Financial Statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards, including Australian Accounting Interpretations other authoritative pronouncements of the Australian Accounting Standards Board (“accounting standards”), and the Corporations Act 2001. The Financial Statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss, financial assets at fair value through other comprehensive income, certain classes of property, plant and equipment and derivative financial instruments. The Financial Statements are presented in Australian dollars and rounded to the nearest dollar. Judgements and estimates In the process of applying the Consolidated Entity’s accounting policies, management have made a number of judgements and applied estimates of future events. Accounting policy – depreciation Plant and equipment are depreciated on a straight‑line basis over their useful lives. The useful lives used for each class of asset are: Class of Asset Plant and equipment Computers and office equipment Furniture and fittings Useful life 2 to 5 years 2 to 5 years 2 to 5 years Judgements and estimates that are material to the Financial Statements are disclosed in the following Notes: Page 30 Note 2 Revenue and income Page 40 Note 13 Financial instruments Page 33 Note 4 Trade and other receivables Page 41 Note 14 Financial risk management Page 34 Note 5 Financing assets New and amending accounting standards The Consolidated Entity adopted AASB 16 Leases on 1 July 2019. No material adjustment arose from the adoption of this accounting standard on that date. New and amending accounting standard that are not yet mandatory have not been early adopted. Other than for the adoption of AASB 16, the accounting policies of the Consolidated Entity have been consistently applied. Enhanced communication The Financial Statements have been prepared using principles of enhanced communication, including using simple descriptions and sentence structures, avoiding the use of boilerplate narratives, ranking information that highlights its importance, and presenting information in a suitable format to make it easier to understand. Authorisation The Financial Statements are authorised for issue by the Directors on 14 August 2020. 28 Notes to the Financial Statements For the year ended 30 June 2020 The Notes to the Financial Statements are arranged in five sections: 29 PERFORMANCE 29 Note 1. Segment information 30 Note 2. Revenue and income 32 Note 3. Earnings per share 33 FINANCIAL ASSETS 33 Note 4. Trade and other receivables 34 Note 5. Financing assets 35 Note 6. Intangible assets 36 FINANCIAL LIABILITIES 36 Note 7. Trade and other payables 36 Note 8. Leases 37 Note 9. Provisions 38 EQUITY AND BORROWINGS 38 Note 10. Share capital 38 Note 11. Dividends 39 Note 12. Borrowings 40 Note 13. Financial instruments 41 Note 14. Financial risk management 44 Note 15. Fair value measurement 45 OTHER 45 Note 16. Cash flow information 45 Note 17. Income tax 47 Note 18. Auditor’s remuneration 47 Note 19. Key Management Personnel disclosures 47 Note 20. Interests in subsidiaries 50 Note 21. Parent entity information 50 Note 22. Deed of cross guarantee 52 Note 23. Contingent liabilities 52 Note 24. Events occurring after reporting date FSA Group Limited Annual Report 2020 29 PERFORMANCE This section focuses on the Consolidated Entity’s performance and returns to shareholders for the year ended 30 June 2020. Note 1. Segment information Reportable segments The Consolidated Entity’s operating segments are distinguished and presented based on the differences in providing services and providing finance products. From this information, the Consolidated Entity’s chief operating decision makers have identified reportable segments that are subject to different regulatory environments and legislation: Reportable segment Description Services Consumer Lending other/unallocated Offering a range of services to assist clients wishing to enter into a payment arrangement with their creditors, including informal arrangements, debt agreements, personal insolvency agreements and bankruptcy. Offering non‑conforming home loans and personal loans to assist clients wishing to consolidate their debt or to purchase a motor vehicle. Including unrealised gain or loss on fair value movement of derivatives, parent entity services and intercompany investments, balances and transactions, which are eliminated upon consolidation. Segment information The results of the reportable segments are reconciled to the Consolidated Entity’s financial information as follows: Services Consumer Lending Other/Unallocated Consolidated Total 2020 $ 2019 $ 2020 $ 2019 $ 2020 $ 2019 $ 2020 $ 2019 $ Operating Segments revenue and income: Fees from services 41,170,187 46,821,496 528,359 620,059 1,934 11,064 40,761,038 39,437,525 (333) (14,312,496) (17,213,630) (32,291) (30,357) 10,731 26,448,542 22,223,895 15,814 18,187 26,433,999 22,252,813 47,747 15,791 23 47,583 41,746,293 47,489,138 18,187 40,778,763 39,466,776 – (14,344,764) (17,213,963) 41,139,830 46,832,227 26,976,901 22,843,954 63,561 65,770 68,180,292 69,741,951 Finance Income Finance expense Net finance income Total revenue and income net of finance expenses Results: Segment profit before tax 11,728,057 11,616,192 12,617,442 11,233,659 405,128 (684,872) 24,750,627 22,164,979 Income tax (expense)/benefit (3,549,882) (3,508,230) (3,757,432) (3,243,187) (112,096) 43,912 (7,419,410) (6,707,505) profit for the year 8,178,175 8,107,962 8,860,010 7,990,472 293,032 (640,960) 17,331,217 15,457,474 Segment assets Reclassification total Assets 49,428,767 36,666,098 493,066,826 453,498,016 26,476,146 22,195,397 568,971,739 512,359,511 (27,477,234) (23,553,696) 541,494,505 488,805,815 Each reportable segment accounts for transactions consistently with the Consolidated Entity’s accounting policies. Centrally incurred costs for shared services are allocated between segments based on employee numbers as a percentage of the total head count. 30 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Note 2. Revenue and income Fees from services Fees from services comprise fees from contracts with customers for personal insolvency services. Revenue is recognised at an amount that reflects the consideration to which the Consolidated Entity is expected to be entitled (“the transaction price”) in exchange for transferring distinct performance obligations to clients as follows: Service Fees Performance obligations Revenue recognition debt agreements and informal arrangements Application fees and administration fees Performance obligations comprises two distinct services: Revenue is recognised as follows: (1) Initial service to prepare debt proposal for consideration by the creditors and the Australia Financial Security Authority, and (1) The initial service at a point in time when the debt proposal is completed, and (2) Monthly or periodic activities that include setting up the debt agreement or informal arrangement, managing and collecting debtor payments and agreement variations, calculating and distributing dividends to creditors and periodic reporting to creditors and the Australian Financial Security Authority. Trustee fees Estate administration Bankruptcy and personal insolvency agreements (2) Over time when the monthly or periodic activities are delivered. The total consideration in the contract is collected over the contract term. Recognised over time as work progresses and time is billed. Application of accounting policy For each contract with a customer, the Consolidated Entity identifies the contract with a customer, identifies the performance obligations in the contract, determines the transaction price including an estimate of any variable consideration, allocates the transaction price to the separate performance obligations on the basis of the relative stand‑alone selling price of each distinct service to be delivered, and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the services promised. Judgements When applying the revenue recognition accounting policy to debt agreements and informal arrangements, management have determined that: • The stand‑alone selling price of the initial service is based on the Consolidated Entity’s set up costs using a gross‑plus margin approach. • The monthly or periodic activities represent a series of distinct services that are substantially the same – revenue is recognised using an output method based on the numbers of time periods (e.g. months) to be provided over the term of the contract. Revenue for these services is recognised substantially in line with the pattern of collection of cash from the debtor’s monthly or periodic cash payments. Goods & Services Tax (GST) The Consolidated Entity is liable for GST when the consideration for the application and administration service provided is received, and recognises the GST liability at this point. FSA Group Limited Annual Report 2020 31 Unsatisfied performance obligations The aggregate amount of the transaction price allocated to debt agreement and informal arrangement administration services that are unsatisfied at the end of the reporting period is $61,108,522 as at 30 June 2020 ($78,625,610 as at 30 June 2019) and is expected to be recognised as revenue in future periods as follows: Within 12 months 12 to 24 months 24 to 36 months 36 to 60 month Consolidated Entity 2020 $ 2019 $ 24,714,263 27,973,338 19,396,213 22,343,432 11,655,095 15,940,148 5,342,951 12,368,692 61,108,522 78,625,610 Unrecoverable payments When a debtor is behind in their monthly or periodic payments, the Consolidated Entity continues to recognise the revenue that it is entitled to collect for services transferred, but that may not be recoverable. Impairment is assessed as outlined in Note 4. Contract liability When a debtor pays in advance of their monthly payment, the Consolidated Entity recognises a Contract Liability in the Statement of Financial Position to recognise the collection of an amount that represents the obligation to provide the future services associated with the advance collection. Current contract liability Non‑current contract liability Reconciliation of the carrying amount: Opening balance Payments received in advance Transfer to revenue – included in the opening balance Transfer to revenue – other balances Consolidated Entity 2020 $ 405,745 822,782 2019 $ 490,481 790,427 1,228,527 1,280,908 1,280,908 1,849,949 689,740 (742,121) – 366,354 (940,033) 4,638 1,228,527 1,280,908 Net finance income Finance income comprises interest income and finance fee income: • Interest income is recognised using the effective interest method. • 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 or, where income relates to loan origination, income is deferred and amortised over the effective life of the loan using the effective interest method. Net finance income is presented net of finance costs, which comprise interest expense on borrowings using the effective interest method. 32 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Note 2: Revenue and income (continued) Disaggregation of revenue Fees from services – Personal insolvency – Refinance broking – Other services total revenue Finance income – Home loan assets – Personal loan assets – Other interest income Finance expense – Interest expense – home loan facilities – Interest expense – personal loan facilities – Interest expense – other lending facilities Net finance income Consolidated Entity 2020 $ 2019 $ 41,170,186 46,213,759 528,282 47,825 661,841 613,697 41,746,293 47,489,297 25,844,528 26,485,647 14,916,509 12,874,562 17,726 106,567 40,778,763 39,466,776 (12,666,597) (16,155,143) (1,645,899) (1,058,487) (32,268) (333) (14,344,764) (17,213,963) 26,433,999 22,252,813 total revenue and other comprehensive income net of finance expense 68,180,292 69,742,110 Note 3. Earnings per share The Consolidated Entity calculated basic and diluted earnings per share as follows: Total profit attributable to the members of the parent for the year 16,315,946 14,411,166 Consolidated Entity 2020 $ 2019 $ Weighted average number of ordinary shares used in calculating basic earnings per share Weighted average number of ordinary shares used in calculating diluted earnings per share Basic earnings per share (cents) Diluted earnings per share (cents) Number Number 124,987,712 125,092,610 124,987,712 125,092,610 13.05 13.05 11.52 11.52 FSA Group Limited Annual Report 2020 33 FINANCIAL ASSETS This section focuses on the financial assets that the Consolidated Entity requires to operate its business. Note 4. Trade and other receivables Receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for impairment using the expected credit loss method. Trade and other receivables comprise: Receivable type Description Approach to impairment debt agreement and informal arrangement receivables Receivables are receipted on a pro rata basis, in parity with other parties to the debt proposal throughout the debt proposal administration period (contract term), which is generally 2 to 5 years. Bankruptcy and personal insolvency agreement receivables Receivables are receipted on a pro rata basis, in accordance with statutory approval of trustee remuneration, throughout the administration period, which is generally 3 years. Sundry receivables Other receivables Debts which are known to be uncollectable are written off by reducing the carrying amount directly. Impairment allowances are estimated through an assessment of the receivables on a collective (portfolio) basis based on historical collections data and losses incurred. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. Impairment allowances are estimated through an assessment of the receivables on both collective (portfolio) basis based on historical loss incurred, and also adjusted by individual matter assessment on an ongoing basis. 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. Current Trade receivables Provision for impairment Non‑current Trade receivables Provision for impairment total the movement in the provision for impairment Opening balance Provision for impairment recognised Unused provision reversed Bad debts Closing balance Consolidated Entity 2020 $ 2019 $ 20,873,323 23,979,666 (1,474,061) (1,901,952) 19,399,262 22,077,714 7,738,441 8,958,179 (183,137) (186,577) 7,555,304 8,771,602 26,954,566 30,849,316 2,088,529 761,923 (174,914) 2,264,131 1,172,532 (77,347) (1,018,340) (1,270,787) 1,657,198 2,088,529 34 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Note 4. Trade and other receivables (continued) Credit risk Details of the Consolidated Entity’s credit risk is included in Note 14. The ageing profile of trade and other receivables is as follows: Aging analysis – trade and other receivables Not past due Past due total Consolidated Entity 2020 $ 2019 $ 19,150,187 25,864,506 9,461,577 7,073,339 28,611,764 32,937,845 Note 5. Financing assets Receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for impairment using the expected credit loss method. Financing assets comprise: Loan type Description Type Term Approach to impairment Home loan assets personal loan assets Loans secured against residential property. Loans secured against motor vehicles. Secured 3‑4 years Secured 4‑5 years An impairment loss on an individual basis is recognised if the total expected or actual sale proceeds, resulting from enforced sale of security, in regard to an individual loan do not exceed the loan balance. In the event that expected or actual sales proceeds do not exceed the loan balance, this difference and any realisation costs would equal the impairment loss. An impairment allowance on a collective basis is recognised with regard to the underlying equity in the security or risk grade of the debtor for the loans receivable and also with regard to the payment history and any other information available, such as forward looking information that is available without undue cost of effort. FSA Group Limited Annual Report 2020 35 Consolidated Entity Consolidated Entity Home loan assets Personal loan assets 2020 $ 2019 $ 2020 $ 2019 $ Non‑securitised financing assets 217,836,666 381,953,238 65,673,999 60,808,327 Securitised financing assets 176,622,537 – – Total financing assets Provision for impairment Security 394,459,203 381,953,238 65,673,999 60,808,327 (644,007) (317,121) (2,514,889) (1,405,878) 393,815,196 381,636,117 63,159,110 59,402,449 Weighted average loan to valuation ratio 67% 67% Variable Variable 85% Fixed 91% Fixed interest rate type Aging analysis Not past due Past due 0 – 30 days Past due 30 days total maturity analysis 357,759,181 345,852,009 61,033,969 55,892,504 26,683,392 30,687,965 3,056,345 2,875,080 10,016,630 5,413,264 1,583,685 2,040,743 394,459,203 381,953,238 65,673,999 60,808,327 Amounts to be received in less than 1 year 7,885,901 7,022,503 15,449,970 12,386,996 Amounts to be received in greater than 1 year 386,573,302 374,930,735 50,224,029 48,421,331 394,459,203 381,953,238 65,673,999 60,808,327 the movement in the provision for impairment Opening balance Increase/(decrease) in provision Bad debts Closing balance Note 6. Intangible assets 317,121 498,151 169,462 426,130 1,405,878 732,737 2,215,805 1,220,288 (171,265) (278,471) (1,106,794) (547,147) 644,007 317,121 2,514,889 1,405,878 Intangible assets Goodwill Software Intangible assets recognition Life Impairment Goodwill comprises an amount of $345,124 that is the amount by which the purchase price for the business of FSA Australia Pty Ltd and its controlled entities exceeded the fair value attributed to its net assets at date of acquisition by the parent company. Software is measured on the basis of the cost of acquisition or development of software less subsequent accumulated amortisation and accumulated impairment losses Indefinite Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. 2 – 5 years Software is tested for impairment only if there is an indication that the carrying amount of the software may be impaired. 36 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Note 6. Intangible assets (continued) Goodwill Recognised on consolidation Software Software at cost Accumulated amortisation total intangible assets movements during year (Software): Beginning of the year Additions Amortisation Consolidated Entity 2020 $ 345,124 345,124 2019 $ 345,124 345,124 4,903,771 4,633,654 (2,595,448) (2,288,890) 2,308,323 2,653,447 2,344,764 2,689,888 2,344,764 1,863,535 270,116 (306,557) 570,534 (89,305) 2,308,323 2,344,764 FINANCIAL LIABILITIES This section focuses on the Consolidated Entity’s financial liabilities. Note 7. Trade and other payables Trade payables and other payables 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 Consolidated Entity. Current Unsecured trade payables Employee benefits payables and accruals Sundry payables and accruals Consolidated Entity 2020 $ 2019 $ 1,484,908 4,101,672 260,571 5,847,151 1,840,130 4,292,150 372,479 6,504,759 Note 8. Leases The Consolidated Entity leases its office premises. The Consolidated Entity adopted AASB 16 Leases on 1 July 2019. On that date, the existing lease of the Company’s office premises had a remaining lease term of 12 months and all other operating leases were short term or low value. The Company entered into a new lease of office premises on 17 February 2020 and the lease has been capitalised as a right of use asset addition during the current year. The lease liability on initial recognition is measured at the present value of the contractual payments due to the lessor over the lease term of 10 years, with the discount rate determined at the Consolidated Entity’s incremental borrowing rate on the commencement of the lease. The right of use asset is depreciated over the lease term. The lease liability is accounted for using an effective interest method. FSA Group Limited Annual Report 2020 37 Consolidated Entity 2020 $ 2019 $ 11,451,345 723,960 10,647,457 11,371,417 96,230 32,291 498,338 1,188,374 1,815,233 – – – 475,718 1,139,040 1,614,758 right‑of‑use assets Property Lease liabilities Current Non‑current Additions of the right‑of‑use assets during the year ended 30 June 2020 were $11,547,575 Amounts recognised in profit or loss Depreciation charge of right‑of‑use‑assets Interest expense (included in finance cost) Operating rental expense Rental on previous office premises (short term) Note 9. Provisions Provisions are recognised when the Consolidated Entity has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Employee benefits A provision has been recognised for employee benefits relating to annual leave and long service leave. As at 30 June 2020, the Consolidated Entity employed 127 full‑time equivalent employees (2019: 164) plus a further 2 independent contractors (2019: 4). Short‑term employee benefits Liabilities for wages and salaries, including non‑monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Long‑term employee benefits The liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. Current Employee benefits Non‑current Employee benefits Consolidated Entity 2020 $ 2019 $ 2,426,822 2,293,985 432,259 443,859 38 Notes to the Financial Statements (continued) For the year ended 30 June 2020 EQUITY AND BORROWINGS This section focuses on the Consolidated Entity’s capital structure and borrowing activities. Note 10. Share capital Share capital comprises: 124,761,680 (2019: 125,092,610) Fully paid ordinary shares 6,360,492 6,707,233 Consolidated Entity 2020 $ 2019 $ Ordinary shares Balance 1 July Less shares bought back during year Balance 30 June Number Number 125,092,610 125,092,610 (330,930) – 124,761,680 125,092,610 On 22 November 2019, the Company announced an on market buy‑back in line with its capital management strategy. Note 11. Dividends Dividends are recognised when declared during the financial year and at the discretion of the Company. Dividends recognised in the current financial period by FSA Group Limited are: Financial Year 2020 Final – ordinary Interim – ordinary Financial Year 2019 Final – ordinary Interim – ordinary Value per share $ Total Amount Franked 0.03 0.03 $3,752,778 $3,751,703 100% 100% Value per share $ Total Amount Franked 0.04 0.03 $5,003,704 $2,501,853 100% 100% Date of Payment 13‑Sep‑19 13‑Mar‑20 Date of Payment 27‑Sep‑18 28‑Mar‑19 On 14 August 2020, the Directors declared a fully franked final dividend for the year ended 30 June 2020 of 3.00 cents per ordinary share. This brings the full year dividend to 6.00 cents per year. Consolidated Entity 2020 $ 2019 $ Franking credits Franking credits available at the reporting date based on a tax rate of 30% 20,865,090 16,020,026 Franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date based on a tax rate of 30% Franking credits available for subsequent financial years based on a tax rate of 30% 1,290,118 2,129,633 22,155,208 18,149,659 FSA Group Limited Annual Report 2020 39 Note 12. Borrowings Borrowings comprise: Borrowings Facility type Provider Limit Maturity date Drawn Security Westpac $350m Oct‑21 Non‑recourse warehouse Home loans Institutional $20m Oct‑21 $197,536,443 This facility is secured against current and future home loan assets of Fox Symes Home Loans Warehouse Trust 1. $15,363,947 Securitised Institutional Mar‑51 $178,490,083 Limited recourse warehouse personal loans Westpac $75m Apr‑23 $42,350,000 Corporate Westpac $15m Mar‑21 $5,007,558 Current – unsecured Credit cards Financing Liabilities – secured Bank loan to finance personal loan assets Limited recourse borrowings to finance personal loan assets Non‑recourse borrowings to finance home loan assets the carrying amounts of assets pledged as security are: Personal loan assets Home loan assets This facility is secured against current and future home loan assets of the Fox Symes Home Loans 2019‑1 PP Trust. This facility is secured against current and future personal loan assets of the Fox Symes Personal Loans Warehouse Trust 1. This facility is secured by a fixed and floating charge over the assets of FSA Group Limited and its controlled entities. Consolidated Entity 2020 $ 2019 $ 447,547 1,024,869 5,010,874 8,057,675 42,393,650 37,861,944 404,825,356 371,072,085 452,229,880 416,991,704 67,169,247 61,816,536 421,731,180 387,992,729 488,900,427 449,809,265 40 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Note 13. Financial instruments The Consolidated Entity undertakes transactions in a range of financial instruments, the risks associated with those financial instrument and recognition as follows: Financial instrument Type of instruments Risks Recognition Non‑derivative financial instruments Trade and other receivables Home loan assets Credit risk & Market risk Personal loan assets Cash and cash equivalents Other financial assets Trade and other payables Lease liabilities Short term loans Bank loans Warehouse facilities Securtised facilities Interest rate swap contracts derivative financial instruments Non‑derivative financial instruments (other than lease liabilities reported in Note 8) are recognised initially at fair value plus adjusted for any directly attributable transaction costs. Subsequent to initial recognition, non‑derivative financial instruments are measured at amortised cost using the effective interest rate method. Financial assets are reduced by the estimated of expected credit losses. Liquidity risk & Market risk Market risk Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re‑measured to their fair value at each reporting date. These financial instruments represented in the Statement of Financial Position are categorised under AASB 139 Financial Instruments: Recognition and Measurement as follows: Financial Assets Cash and cash equivalents Trade and other receivables Financing assets Assets and receivables at amortised cost Financial Liabilities Payables at amortised cost Financing liabilities payables at amortised cost Consolidated Entity 2020 $ 2019 $ 7,980,442 3,303,166 26,954,566 30,849,316 488,900,427 449,809,265 523,835,435 483,961,747 6,294,698 7,529,628 452,229,880 416,991,704 458,524,578 424,521,332 Assets and liabilities measured at fair value through profit and loss: derivatives – interest rate swap contracts (401,134) (1,347,153) FSA Group Limited Annual Report 2020 41 Note 14. Financial risk management The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework through the work of the Audit & Risk Management Committee. The Audit & Risk Management Committee is responsible for developing and monitoring risk management policies. The Chairman of the Audit & Risk Management Committee reports to the Board of Directors on its activities. Risk management procedures are established by the Audit & 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. Credit risk Credit risk is the risk of financial loss to the Consolidated Entity if a customer or counterparty to a financial 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 financial instruments entered into by the Consolidated Entity. Security Risk Management Impairment Assessment Unsecured Debtors are assessed for serviceability and affordability prior to inception of each agreement Type of instruments personal insolvency receivables (debt agreements, informal arrangements, personal insolvency agreements and bankruptcy) Home loan assets 1st registered mortgage over residential property 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, confirming the existence and title of the security, and assessing the value of the security provided. personal loan asset Motor vehicle Debts which are known to be uncollectable are written off by reducing the carrying amount directly. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments are considered indicators that the trade receivable may be impaired. A loan is classified as being in arrears at the reporting date on the basis of “past due” amounts. Any loan with an amount that is past due is classified 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). A loan is classified as being in hardship when a hardship application has been submitted and accepted. 42 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Note 14. Financial risk management (continued) Liquidity risk Liquidity risk is the risk that the Consolidated Entity will not be able to meet its financial obligations as they fall due. Type of instruments trade and other payables Lease liabilities Short term loans Bank loans Warehouse facilities Securitised facilities Risk Management Assessment The Consolidated Entity’s approach in managing liquidity is to ensure that it will always have sufficient 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 cash flow forecasting, which is reviewed and monitored monthly by management as part of the Consolidated Entity’s master budget and having access to funding through facilities. The Consolidated Entity is reliant on the renewal of existing facilities, the negotiation of new facilities, or the issuance of residential mortgage backed securities. Each facility is structured so that if it is not renewed or otherwise defaults there is only limited recourse to the Consolidated Entity. The Directors are satisfied that The Consolidated Entity will be able to meet its financial obligations as they fall due. The Directors are satisfied that an event of default in relation to the Consolidated Entity’s home loan or personal loan facilities will not affect the Consolidated Entity’s ability to continue as a going concern. The contractual maturity of the Consolidated Entity’s fixed and floating rate financial liabilities are as follows. The amounts represent the future undiscounted principal and interest cash flows. Consolidated Entity 30 June 2020 Carrying amount $ Contractual Cash flows $ 12 months or less $ 1 to 2 years $ 2 to 5 years $ 5‑10 years $ Trade and other payables 5,847,151 5,847,151 5,847,151 – – – Leases 11,371,417 13,579,770 1,098,341 1,153,015 3,809,396 7,519,018 Other short term loans Bank loans Warehouse facilities Securitised facilities total 447,547 447,547 447,547 5,010,874 5,062,658 5,062,658 – – – – 268,553,016 281,685,344 22,226,681 216,407,846 43,050,817 – – – 178,665,990 283,104,146 1,084,097 3,243,404 10,441,097 268,335,548 469,895,995 589,726,616 35,766,475 220,804,265 57,301,310 275,854,566 FSA Group Limited Annual Report 2020 43 Consolidated Entity 30 June 2019 Carrying amount $ Contractual Cash flows $ 12 months or less $ 1 to 2 years $ 2 to 5 years $ 5‑25 years $ 6,504,759 6,504,759 6,504,759 1,024,869 1,024,870 1,024,870 – – 8,057,675 8,698,330 376,297 8,322,033 – – – 408,934,029 447,906,189 14,750,987 15,313,630 417,841,572 424,521,332 464,134,147 27,321,542 23,635,663 417,841,572 – – – – – Trade and other payables Other short term loans Bank loans Warehouse facilities total 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 financial 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. Type of instruments Home loans personal loans interest rate swap contracts Risk Management Assessment The Consolidated Entity performs interest rate sensitivity analysis to assess the effect on profit after tax if interest rates had been 50 basis points (bps) higher or lower at reporting date on the Consolidated Entity’s floating rate financial instruments and interest rate swap agreement. The first interest rate swap contract expired in June 2020 and the second interest swap contract will expire in November 2020, it is unlikely there will be sharp movements in the interest rate cycle within the next six months therefore the impact to the profit after tax is immaterial. Home loan assets are lent on variable interest rates and are financed 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 on a non‑recourse basis to the Consolidated Entity. Personal loan assets are lent on fixed interest rates and are financed by variable rate borrowings. Personal loan terms average around 4 to 5 years which mitigate the Consolidated Entity’s exposure to interest rate risk on these borrowings. These borrowings are on a limited‑recourse basis to the Consolidated Entity. The Board and Management have previously adopted the policy of fixing approximate $80 – $100 million of borrowings to mitigate the risk of future interest rate movements. Capital management The Consolidated Entity’s objectives in managing its capital is the safeguard of the Consolidated Entity’s ability to continue as a going concern, maintain the support of its investors and other business partners, support the future growth initiatives of the Consolidated Entity and maintain an optimal capital structure to reduce the costs of capital. These objectives are reviewed periodically by the Board. 44 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Note 15. Fair value measurement Fair value measurement hierarchy The Consolidated Entity is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3: Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair value and therefore which category the asset or liability is placed in can be subjective. (a) The Consolidated Entity measures and recognises the interest rate swap financial instrument at fair value on a recurring basis after initial recognition. Derivative financial instruments have been valued using quoted market rates. This valuation technique maximises the use of observable market data where it is available and relies as little as possible on entity specific estimates. Valuation techniques and inputs used to measure Level 2 Fair Values: Description Financial liability: Fair Value at 30 June 2020 ($) Interest rate swap 401,134 Valuation Technique(s) Inputs Used Income approach using discounted cash flow methodology and the funding valuation adjustment framework Overnight Index Swap rate (b) The fair value of assets and liabilities classified as Level 3 is determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs. Except as detailed in the following table, the Directors consider that due to their short‑term nature the carrying amounts of financial assets and financial liabilities, which include cash, current trade receivables, current payables and current borrowings, are assumed to approximate their fair values. For the majority of the borrowings, the fair values are not materially different to their carrying amounts, since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short‑term nature. Financial assets Current receivables net of deferred tax Non‑current receivables net of deferred tax Financing assets Personal loan assets Home loan assets Jun‑20 Book value $ Jun‑20 Fair value $ 5,711,053 7,060,838 5,711,053 6,971,579 63,159,110 69,678,202 393,815,196 413,131,099 OTHER Note 16. Cash flow information reconciliation of cash flows from operations to profit after tax Profit after tax Non‑cash flows in profit/(loss): Depreciation and amortisation Unrealised (gain)/loss on derivatives Loss on write off investments Increase/decrease in assets and liabilities: Trade and other receivables Other current assets Tax assets/liabilities Trade and other payables Provisions FSA Group Limited Annual Report 2020 45 Consolidated Entity 2020 $ 2019 $ 17,331,217 15,457,474 643,546 (948,969) 1,278,059 386,572 626,485 816,109 5,065,686 (1,911,788) (706,355) (337,334) (3,013,885) 121,236 (154,136) 953,030 921,097 (14,388) Cash flows from operating activities 19,433,201 17,080,455 Note 17. Income tax Income tax The Consolidated Entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Consolidated Entity recognises liabilities for anticipated tax audit issues based on the consolidated entity’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. The charge for current income tax expense is based on the profit for the year adjusted for any non‑assessable or non‑deductible items. It is calculated using the tax rates that have been enacted or are substantially enacted by the reporting date. Tax consolidation FSA Group Limited and its wholly‑owned Australian subsidiaries have formed an income tax consolidated group under the Tax Consolidation Regime. As the head entity of the consolidated group and the controlled entities, FSA Group Limited continues to account for their own current and deferred tax amounts. The tax consolidated group has applied the ‘separate taxpayer within group’ approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. The tax consolidated group has entered into a tax sharing agreement whereby each company in the group contributes to the income tax payable of the consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries, nor a distribution by the subsidiaries to the head entity. 46 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Note 17. Income tax (continued) (a) income tax expense Current tax expense Deferred tax expense Over provision for current tax payable in a prior period Deferred income tax expense included in income tax expense comprises: Decrease in deferred tax assets Increase in deferred tax liabilities (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit before income tax Tax at the Australian tax rate of 30% (2019: 30%) Tax effect of amounts which are not deductible/(taxable) in calculating taxable income Non‑deductible expenses Adjustment for overseas tax rates Under provision in the prior year Tax Offsets Income tax expense (c) deferred tax assets Provisions Capital legal expenses Accrued expenditure Lease liability Tax losses carried forward Other Deferred tax liability offset on tax consolidation Total deferred tax assets (d) deferred tax liabilities Temporary difference on assessable income Temporary difference on lease Deferred tax liability offset on tax consolidation Total deferred tax liabilities Consolidated Entity 2020 $ 2019 $ 6,921,216 6,274,363 502,182 (3,988) 460,137 (26,995) 7,419,410 6,707,505 (2,893,685) (699,158) 3,395,867 502,182 1,140,898 441,740 24,750,627 22,164,979 7,425,188 6,649,494 38,297 (1,286) 44,882 (2,779) 7,462,199 6,691,597 69,578 (112,367) 166,763 (150,855) 7,419,410 6,707,505 2,173,736 1,838,376 25,140 764,137 3,411,425 – 23,563 1,596,581 – 227 84,592 106,598 6,459,030 3,565,345 (5,716,782) (2,606,625) 742,248 958,720 5,243,653 3,435,404 5,283,190 – (5,716,782) (2,606,625) 2,962,275 2,676,565 Note 18. Auditor’s remuneration Auditors of the Consolidated Entity – BDO* and related network firms Audit and review of financial statements Consolidated Entity Controlled entities and joint operations total audit and review of financial statements other statutory assurance services Non‑audit services Taxation compliance services Taxation advice and consulting Other training and consulting total non‑audit services total services provided by Bdo FSA Group Limited Annual Report 2020 47 Consolidated Entity 2020 $ 2019 $ 159,000 28,500 187,500 9,000 63,280 76,405 4,000 143,685 340,185 182,806 39,500 222,356 11,650 69,975 43,955 8,960 122,890 356,896 * The BDO entity performing the audit of the Consolidated Entity transitioned from BDO East Coast Partnership to BDO Audit Pty Ltd on 1 August 2020. The disclosures includes amounts received or due and receivable by BDO East Coast Partnership, BDO Audit Pty Ltd and their respective related entities. Note 19. Key Management Personnel disclosures Remuneration of Directors and Key Management Personnel Short‑term employee benefits Long‑term employee benefits Post‑employment benefits Consolidated Entity 2020 $ 2019 $ 1,911,537 2,455,026 (14,739) 70,128 12,911 75,147 1,966,926 2,543,084 Note 20. Interests in subsidiaries Investments in subsidiaries Investments are brought to account on the cost basis in the parent entity’s Financial 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 flow from investments has not been discounted to their present value in determining the recoverable amounts, except where stated. Name FSA Australia Pty Ltd (2) Fox Symes & Associates Pty Ltd (1) Fox Symes Debt Relief Services Pty Ltd (1) Fox Symes Home Loans Pty Ltd (2) Fox Symes Personal Loans Pty Ltd (3) Easy Bill Pay Pty Ltd (1) 104 880 088 Group Holdings Pty Ltd (2) Aravanis Insolvency Pty Ltd (1) Fox Symes Business Services Pty Ltd (1) Country of Incorporation Percentage of equity interest held by the Consolidated Entity 2020 % 2019 % Australia Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 100 100 100 65 75 100 100 100 100 – 100 100 65 75 (1) Investment held by FSA Australia Pty Ltd (2) Investment held by FSA Group Limited (3) Investment was previously held by Fox Symes Home Loans Pty Ltd, now held by FSA Group Limited 48 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Note 20. Interests in subsidiaries (continued) The following entities are subsidiaries of Fox Symes Home Loans Pty Ltd Name Percentage of equity interest held by the Consolidated Entity Country of Incorporation 2020 % 2019 % Fox Symes Home Loans (Services) Pty Ltd Fox Symes Home Loans (Management) Pty Ltd Fox Symes Home Loans (Mortgage Management) Pty Ltd Fox Symes Financial Pty Ltd Fox Symes Personal Loans Pty Ltd Fox Symes Home Loans Warehouse Trust No.1 FSHL Prime Warehouse Trust 1 Fox Symes Home Loans 2019‑1 PP Trust Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 – 100 100 100 100 100 100 100 100 100 100 – The following entities are subsidiaries of Fox Symes Personal Loans Pty Ltd Name Country of Incorporation Fox Symes Personal Loans Warehouse Trust 1 Australia Percentage of equity interest held by the Consolidated Entity 2020 % 100 2019 % 100 The following entities are subsidiaries of 104 880 088 Group Holdings Pty Limited Name 110 294 767 Capital Finance Pty Limited 102 333 111 Corporate Pty Limited 111 044 510 Equity Partners Pty Limited One Financial Corporation Pty Ltd Country of Incorporation Australia Australia Australia Australia Percentage of equity interest held by the Consolidated Entity 2020 % 100 100 100 100 2019 % 100 100 100 100 The following entities are subsidiary of Aravanis Insolvency Pty Limited Name Aravanis Advisory Limited Country of Incorporation India Percentage of equity interest held by the Consolidated Entity 2020 % 99.99 2019 % – FSA Group Limited Annual Report 2020 49 The consolidated Financial Statements incorporate the assets, liabilities and results of the following subsidiaries with non‑controlling interests in accordance with the accounting policy described in Note 1 of the Financial Statements: Name Principal place of business/ Country of incorporation Aravanis Insolvency Pty Limited Australia Principal activities Personal insolvency agreements and Bankruptcies Parent Non‑controlling interests Ownership interest 2020 Ownership interest 2019 Ownership interest 2020 Ownership interest 2019 65% 65% 35% 35% Fox Symes Business Services Pty Limited Australia Accounting and taxation 75% 75% 25% 25% Summarised Statement of Financial position Current assets Non‑current assets total assets Current liabilities Non‑current liabilities total liabilities Net assets Summarised Statement of profit or Loss and other Comprehensive income Revenue Expenses profit before income tax expense Income tax expense profit after income tax expense other comprehensive income total comprehensive income Summarised Statement of Cash Flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase/(decrease) in cash and cash equivalents other financial information profit attributable to non‑controlling interests Accumulated non‑controlling interests at the end of reporting period Aravanis Insolvency Pty Limited 2020 $ 2019 $ 13,500,429 12,662,482 413,900 440,631 13,914,329 13,103,113 825,804 3,375,664 4,201,468 9,712,861 1,130,514 3,059,857 4,190,371 8,912,742 9,800,157 10,535,724 (5,651,347) (6,264,141) 4,148,810 4,271,583 (1,248,691) (1,283,891) 2,900,119 2,987,692 – – 2,900,119 2,987,692 3,038,354 1,279,556 (20,410) 94,295 (2,099,382) (1,795,839) 918,562 (421,988) 1,015,044 3,429,362 1,045,692 3,149,317 The non‑controlling interest of Fox Symes Business Services Pty Limited was insignificant and therefore information has not been provided. 50 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Note 21. Parent entity information The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the same as those applied in the consolidated Financial Statements. Refer to Note 1 and other relevant notes within these Financial Statements for a summary of the significant accounting policies relating to the Consolidated Entity. Financial position Total current assets Total non‑current assets total assets Total current liabilities total liabilities Net assets equity Share capital Dividends to shareholders Accumulated profit/(loss) total equity Financial performance Profit after income tax Other comprehensive Income total Comprehensive income/(loss)for the year 2020 $ 2019 $ 13,008,119 12,911,310 8,465,084 8,465,084 21,473,203 21,376,394 1,596,886 1,596,886 2,230,050 2,230,050 19,876,317 19,146,344 6,360,492 6,707,233 (7,504,481) (7,505,557) 21,020,306 19,944,668 19,876,317 19,146,344 8,603,876 9,961,016 – – 8,603,876 9,961,016 During the financial year, the parent entity received distribution income from its subsidiaries. Guarantees entered into by the parent entity relation to the debts of its subsidiaries FSA Group Limited has entered into a deed of cross guarantee with two of its wholly owned subsidiaries, FSA Australia Pty Ltd and Fox Symes Debt Relief Services Pty Ltd. Refer to Note 22 for further details. There are no contingent liabilities or commitments in the parent entity (2019: $Nil). Note 22. Deed of cross guarantee The following entities are party to a deed of cross guarantee under which each company guarantees the debts of the others: FSA Group Limited, FSA Australia Pty Ltd and Fox Symes Debt Relief Services Pty Ltd By entering into the deed, the wholly‑owned entities have been relieved from the requirement to prepare a financial report and directors’ report under ASIC Corporation (Wholly owned companies) Instrument 2017/785 (as amended) issued by the Australian Securities and Investments Commission (‘ASIC’). The above companies represent a ‘Closed Group’ for the purposes of the Class Order, and as there are no other parties to the Deed of Cross Guarantee that are controlled by FSA Group Limited, they also represent the ‘Extended Closed Group’. Set out below is a consolidated Statement of Profit or Loss and Other Comprehensive Income and Statement of Financial Position of the ‘Closed Group’. FSA Group Limited Annual Report 2020 51 2020 $ 2019 $ 26,389,609 29,364,105 15,756 23 15,779 19,269 (293) 18,976 26,405,388 29,383,081 (492,235) (557,919) 25,913,153 28,825,162 (8,049,194) (8,639,638) 17,863,959 20,185,524 – – 17,863,959 20,185,524 4,528,647 2,615,988 2 580,675 3,603,743 2 7,144,637 4,184,420 205,817,821 190,674,945 8,465,084 8,465,084 214,282,905 199,140,029 221,427,542 203,324,449 210,547 405,745 1,607,155 2,223,447 822,782 1,279,263 2,102,045 4,325,492 1,466,207 490,481 2,343,500 4,300,188 790,428 1,142,257 1,932,685 6,232,873 217,102,050 197,091,576 6,360,496 6,707,237 210,741,554 190,384,339 217,102,050 197,091,576 Statement of profit or Loss and other Comprehensive income revenue and other income Fees from services Finance income Finance expense Net finance income total revenue and other income net of finance expense Total expense profit before income tax Income tax expense profit after income tax Other Comprehensive Income total Comprehensive income for the year Statement of Financial position Current Assets Cash and cash equivalents Trade and other receivables Other assets total Current Assets Non‑Current Assets Trade and other receivables Investments total Non‑Current Assets total Assets Current Liabilities Trade and other payables Contract liability Tax Liabilities total Current Liabilities Non‑Current Liabilities Contract liability Deferred tax liabilities total Non‑Current Liabilities total Liabilities Net Assets equity Share capital Retained earnings total equity 52 Notes to the Financial Statements (continued) For the year ended 30 June 2020 Note 23. Contingent liabilities There were no contingent liabilities relating to the Consolidated Entity at reporting date except the following: Home loans At reporting date, home loan applications that had been accepted by the Consolidated Entity but not yet settled amount to $8,188,250 (2019: $6,397,932). Home loans are usually settled within 4 weeks of acceptance. Personal loans At reporting date, all personal loan applications that had been accepted by the Consolidated Entity were settled. Personal loans are usually settled within one week of acceptance. Note 24. Events occurring after reporting date There have been no events since the end of the financial year that impact upon the financial performance or position of the Consolidated Entity as at 30 June 2020 except as follows: • On 14 August 2020, Directors declared a 3.00 cent fully franked final dividend to shareholders to be paid on 11 September 2020 with a record date of 21 August 2020. This brings the full year dividend to 6.00 cents per share. FSA Group Limited Annual Report 2020 53 Directors’ Declaration In the Directors’ opinion: • The Financial Statements, comprising the Statement of Profit or Loss and Other Comprehensive Income, Statement of Financial Position, Statement of Cash Flows, Statement of Changes in Equity, accompanying Notes, are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards and the Corporations Regulations 2001 and other mandatory professional reporting requirements; and b. give a true and fair view of the Consolidated Entity’s financial position as at 30 June 2020 and of its performance for the year ended on that date. • The Company has included in the Notes to the Financial Statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. • In the Directors’ opinion, 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 Executive Directors and Chief Financial Officer required by Section 295A of the Corporations Act 2001. FSA Group Limited, FSA Australia Pty Ltd and Fox Symes Debt Relief Services Pty Ltd identified in Note 22 are parties to the deed of cross guarantee under which each company guarantees the debts of the others. At the date of this declaration there are reasonable grounds to believe that the companies which are parties to this deed of cross guarantee will as a Consolidated Entity be able to meet any obligations or liabilities to which they are, or may become, subject to, by virtue of the deed of cross guarantee described in Note 22. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the Directors by: tim odillo maher Executive Director Sydney 14 August 2020 deborah Southon Executive Director Sydney 14 August 2020 54 Independent Auditor’s Report To the members of FSA Group Limited FSA Group Limited Annual Report 2020 55 56 Independent Auditor’s Report (continued) To the members of FSA Group Limited FSA Group Limited Annual Report 2020 57 Shareholder Information 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 3 August 2020. (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 shares 310 442 260 353 78 120,092 1,391,479 2,222,588 10,090,780 110,936,041 1,443 124,761,680 The number of security investors holding less than a marketable parcel of 538 securities ($0.930 on 03/08/2020) is 196 and they hold 22,589 securities. (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 (investor group) ADST Pty Ltd (investor group) BJR Investment Holdings Pty Ltd J P Morgan Nominees Australia Limited UBS Nominees Pty Ltd Ruminator Pty Limited Contemplator Pty Limited Bulwarra Pty Ltd Dundas Ritchie Investments Pty Ltd Investment Custodial Services Limited Microequities Asset Management Pty Ltd HSBC Custody Nominees (Australia) Limited Samuel Doumany (investor group) Karia Investment Pty Ltd (investor group) National Nominees Limited Fernane Pty Ltd Harold Cripps Holdings Pty Ltd Garrett Smythe Ltd Gattenside Pty Ltd top 20 total 26,000,000 16,809,231 12,960,047 11,111,111 8,159,004 4,451,848 3,491,440 2,597,622 1,773,775 1,500,000 1,364,904 1,154,557 1,100,387 1,100,000 966,666 880,000 877,168 700,541 684,710 590,541 20.84% 13.47% 10.39% 8.91% 6.54% 3.57% 2.80% 2.08% 1.42% 1.20% 1.09% 0.93% 0.88% 0.88% 0.77% 0.71% 0.70% 0.56% 0.55% 0.47% 98,273,552 124,761,680 78.77% 100% 58 Shareholder Information (continued) (c) Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: 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. Number of shares 16,809,231 12,960,047 11,111,111 (e) Restricted securities As at the date of this report there were no ordinary shares subject to voluntary restriction agreements. (f) Business objectives The Consolidated Entity has used its cash and assets that are readily convertible to cash in a way consistent with its business objectives. FSA Group Limited Annual Report 2020 59 Corporate Information Directors Sam doumany – Non‑Executive Chairman tim odillo maher – Executive Director deborah Southon – Executive Director david Bower – Non‑Executive Director Chief Financial Officer Cellina Chen Company Secretary Cellina Chen Registered Office and Corporate Office Level 13 1 Oxford Street Darlinghurst NSW 2010 Phone: +61 (02) 8985 5565 Fax: +61 (02) 8985 5358 Solicitors Hopgood Ganim Level 8, Waterfront Place 1 Eagle Street Brisbane QLD 4000 Share Register Link Market Services Ltd Locked Bag A14 Sydney South, NSW 1235 Phone: +61 (02) 8280 7454 Auditors BDO Audit Pty Ltd Level 11 1 Margaret Street Sydney NSW 2000 Country of Incorporation 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 60 This page has been left blank intentionally. www.colliercreative.com.au #FSA0015 www.fsagroup.com.au