FSA Group Limited / Annual Report 2022 F S A G r o u p L i m i t e d | A n n u a l R e p o r t 2 0 2 2 C H A L L E NG E S A N D P RO G R E S S FSA Group has helped thousands of Australians for more than 20 years. Our large and experienced team of professionals offer a range of lending products and debt solutions, which we tailor to suit individual circumstances to achieve successful outcomes for our clients. Contents 1 Cautionary Statements 3 Our Plan and Disclaimer Regarding Forward‑Looking Information 2 Our Business 4 Chairman’s Letter 5 Executive Directors’ Review 9 Financial Statements FSA GROuP LImItED Annual Report 2022 1 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 Lending Home Loans Personal Loans Asset Finance FSA Group offers home loans to assist clients wishing to purchase a property or consolidate their debt. FSA Group offers personal loans to assist clients wishing to purchase a motor vehicle. FSA Group offers asset finance to assist SMEs wishing to purchase a vehicle and business‑critical equipment. 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. FSA GROuP LImItED Annual Report 2022 3 Our Plan Over the next 3 to 5 years Our focus in on our Lending segment, developing a broker channel and growing our loan pools. COVID‑19 continues to impact the number of new callers seeking our assistance for our Services segment. We expect demand will start to return during the 2023 financial year. Home Loans Personal Loans Asset Finance • Develop a broker channel • Develop a broker channel • Develop a broker channel • Increase new origination to around $40m per month • Expand our product offering to include personal loans to consolidate debt • Increase new origination to around $12m per month • Increase new origination to around $7m per month Grow our loan pool to around Grow our loan pool to around Grow our loan pool to around $1.2b $200m $300m Services Regrow as demand returns 4 Chairman’s Letter Dear Shareholders, The 2022 financial year has been a year of challenges and progress. During the year, FSA Group acquired an asset finance lending business. The Lending segment offers home loans to assist clients wishing to purchase a property or consolidate their debt, personal loans to assist clients wishing to purchase a motor vehicle and asset finance to assist SMEs wishing to purchase a vehicle and business‑critical equipment. During the year our loan pools increased from $447m to $541m, a 21% increase. Historically our Lending segment operated as a direct‑to‑consumer business. Going forward our focus will be on developing a broker channel and growing our loan pools. The addition of a broker channel will significantly enhance our Lending segment. Our plan for our Lending segment, over the next 3 to 5 years is outlined in the section titled “Our Plan”. 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. COVID‑19 continues to impact the number of new callers seeking our assistance for our Services segment. During the year new client numbers for informal arrangements and debt agreements decreased by 58% and for personal insolvency agreements and bankruptcy increased by 9% compared to the previous corresponding period. We expect demand will start to return during the 2023 financial year. For the 2022 financial year, FSA Group generated $58.3m in operating income, a 5% decrease, and a profit after tax attributable to members of $17.2m, a 14% decrease compared to the results of 2021. Our net cash inflow from operating activities was $26.2m, an 11% decrease. I advise that the Directors have declared a fully franked final dividend of 3.50 cents per share for the 2022 financial year. This brings the full year dividend to 7.00 cents per share. Our focus for the 2023 financial year is outlined in the Executive Directors’ Review under “Strategy and Outlook”. I would like to thank my fellow Directors, all our executives and staff for their contribution. I am proud of their commitment to our business and look forward to being a part of our continued growth. Yours sincerely, David Bower Chairman Profit after tax attributable to members Net cash inflow from operating activities $17.2m $26.2m Dividend per share 7.0c FSA GROuP LImItED Annual Report 2022 5 Executive Directors’ Review Dear Shareholders, The 2022 financial year has been a year of challenges and progress. Our focus is on our Lending segment, developing a broker channel and growing our loan pools. COVID‑19 continues to impact the number of new callers seeking our assistance for our Services segment. We expect demand will start to return during the 2023 financial year. For the 2022 financial year, FSA Group generated $58.3m in operating income, a 5% decrease, and a profit after tax attributable to members of $17.2m, a 14% decrease compared to the results of 2021. Our net cash inflow from operating activities was $26.2m, an 11% decrease. We advise that the Directors have declared a fully franked final dividend of 3.50 cents per share for the 2022 financial year. This brings the full year dividend to 7.00 cents per share. Financial Overview 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 FY2020 FY2021 FY2022 % Change $68.2m $24.8m $16.3m 13.05c $19.4m 6.00c $59.4m 30% $61.4m $29.7m $20.1m 16.12c $29.5m 6.00c $72.0m 31% $58.3m $26.9m $17.2m 13.72c $26.2m 7.00c $84.4m 22% 5% 9% 14% 15% 11% 17% 17% Operational Performance Our business operates across the following key segments, Lending and Services. The operating income and profitability of each segment is as follows: Operating income by segment FY2020 FY2021 FY2022 % Change Lending Home loans and Asset finance Personal loans Services Other/unallocated Operating income $13.7m $13.3m $41.1m $0.1m $68.2m $16.1m $14.4m $30.9m $0.1m $61.4m $20.5m $16.3m $21.5m $0.1m $58.3m 27% 13% 30% 5% Profit before tax by segment FY2020 FY2021 FY2022 % Change Lending Home loans and Asset finance Personal loans Services Other/unallocated Profit before tax $7.4m $5.2m $11.7m $0.4m $24.8m $9.7m $7.5m $12.1m $0.4m $29.7m $10.0m $9.9m $7.3m ($0.2m) $26.9m 3% 32% 39% 9% 6 6 Executive Directors’ Review Continued Lending During the year, FSA Group acquired an asset finance lending business. The Lending segment offers home loans to assist clients wishing to purchase a property or consolidate their debt, personal loans to assist clients wishing to purchase a motor vehicle and asset finance to assist SMEs wishing to purchase a vehicle and business‑critical equipment. Loan Pool Data Weighted average loan size Security type Weighted average loan to valuation ratio Variable or fixed rate Geographical spread Historically our Lending segment operated as a direct‑to‑consumer business. Going forward our focus will be on developing a broker channel and growing our loan pools. The addition of a broker channel will significantly enhance our Lending segment. Our plan for our Lending segment, over the next 3 to 5 years is as follows: Home loans • Increase new origination to around $40m per month. • Grow our loan pool to around $1.2b. Personal loans • Increase new origination to around $7m per month. • Grow our loan pool to around $200m. Asset finance • Increase new origination to around $12m per month. • Grow our loan pool around $300m. Home loans Personal loans Asset finance $402,732 Residential home 67% Variable All states $22,494 Motor vehicle 100%+ on settlement $28,473 Vehicles and equipment 100%+ on settlement Fixed Fixed All states All states New Origination 250m 200m 150m 100m 50m 0m 64m 34m 128m 6m 28m 92m 31m 32m 88m FY2020 FY2021 FY2022 Home loans Personal loans Asset finance * Asset Finance was acquired on the 1 September 2021. During the year our loan pools increased from $447m to $541m, a 21% increase. Loan Pools Home loans Personal loans Asset finance total FY2020 FY2021 FY2022 % Change $394m $63m $382m $65m $389m $72m $81m 2% 11% $457m $447m $541m 21% * Asset Finance was acquired on the 1 September 2021 with a loan pool of $43m. Asset Finance’s loan pool at 30 June 2021 was $37m. FSA GROuP LImItED Annual Report 2022 7 Arrears > 30 day FY2020 FY2021 FY2022 Home loans Personal loans Asset finance Losses Home loans Personal loans Asset finance 2.55% 2.41% 1.04% 1.82% 1.95% 1.91% 2.55% FY2020 FY2021 FY2022 $171,265 $384,098 $198,805 $1,155,536 $679,495 $587,802 $580,009 * 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. * Asset Finance losses are for the entire 12 month period. Borrowings Facility type Home loans Non‑recourse warehouse Non‑recourse warehouse Securitised Personal loans Limited recourse warehouse Corporate Asset finance Non‑recourse warehouse Non‑recourse warehouse Non‑recourse warehouse Provider Westpac Institutional Institutional Westpac Westpac Bendigo Institutional Institutional Limit $350m maturity date Oct 2023 $20m Oct 2023 – Mar 2051 $75m $15m $68m $3.5m $6m Apr 2026 Mar 2024 Jul 2022 Jan 2023 Jun 2023 Drawn $272m $20m $90m $44m – $62.5m $3.5m $6m * On 30 June 2022 an Australian “big four” bank approved a $100m non‑recourse warehouse asset finance facility. This senior facility will replace the Bendigo facility. The senior facility is supported by a non‑recourse mezzanine facilities provided by institutional fund managers. The Lending segment achieved a profit before tax of $19.8m, a 15% increase. Profitability was positively impacted by an increase in the loan pools. 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. COVID‑19 impacted and continues to impact the number of new callers seeking our assistance for our Services segment. We expect demand will start to return during the 2023 financial year. During the year new client numbers for informal arrangements and debt agreements decreased by 58% and for personal insolvency agreements and bankruptcy increased by 9% compared to the previous corresponding period. During the year informal arrangement and debt agreement clients under administration decreased to 11,252, down 29% and for personal insolvency agreements and bankruptcy decreased to 844, down 18%. FSA Group manages $109m of unsecured debt under informal arrangements and debt agreements and during the 2022 financial year paid $65m in dividends to creditors. 8 8 Executive Directors’ Review Continued Informals and Debt Agreements FY2020 FY2021 FY2022 % Change New clients Clients under administration Debt managed Dividends paid PIA’s and Bankruptcy New clients Clients under administration 4,327 19,736 $353m $89m 1,463 15,780 $209m $85m 620 11,252 $109m $65m 58% 29% 48% 24% FY2020 FY2021 FY2022 % Change 347 1,304 89 1,025 97 844 9% 18% The Services segment achieved a profit before tax of $7.3m, a 39% decrease. COVID‑19 will continue to negatively impact our Services earnings during the 2023 financial year. We expect this to be offset by increasing Lending earnings. Net cash inflow from operating activities During the 2022 financial year, FSA Group maintained strong net cash inflow driven by long term annuity income from its clients. However, net cash inflow was negatively impacted by a decrease in the number of clients under administration in the Services segment. Net cash inflow from operating activities was $26.2m, an 11% decrease. Net cash inflow from operating activities $19.4m $29.5m $26.2m 11% FY2020 FY2021 FY2022 % Change Strategy and Outlook Our focus over the 2023 financial year will be as follows: Lending Services Earnings Capital management Develop a broker channel and grow our loan pools. Regrow as demand returns. Earning guidance will be provided during the 2023 financial year. Expect our full year dividend to be 7 to 8 cents per share with the balance of earnings to be re‑invested to support the growing loan pools. We plan to continue with our on market share buy‑back as opportunities arise. Our People Our team continues to perform strongly in an uncertain and challenging environment. They are committed to working with and helping our customers in a work environment that fosters diversity, equal employment opportunities, fairness and embraces and supports personal growth, continuous learning and training opportunities. We acknowledge their efforts during the year. We also thank the Board for their guidance and support. Tim Odillo Maher Executive Director Deborah Southon Executive Director FSA Group Limited Annual Report 2022 9 Financial Statements for the year ended 30 June 2022 directors’ report Auditor’s independence declaration Statement of profit or Loss and other Comprehensive income Statement of Financial position Statement of Changes in equity Statement of Cash Flows General information Notes to the Financial Statements directors’ declaration independent Auditor’s report Shareholder information Corporate information 10 22 23 24 26 27 28 30 63 64 68 70 10 Directors’ Report For the year ended 30 June 2022 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 2022. directors The Directors of the Company at any time during or since the end of the financial year are: David Bower Tim Odillo Maher Deborah Southon information on directors david Bower (Non‑executive Chairman) experience and expertise Mr David Bower was appointed on 23 April 2015 and was appointed Chairman on 2 September 2020. 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 the Remuneration Committee. interest in shares and options 160,800 Ordinary shares Directors’ Report continued FSA Group Limited Annual Report 2022 11 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 Former (listed company) directorships in last 3 years Nil Special responsibilities Member of the Audit & Risk Management Committee and the Remuneration Committee. 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 Member of the Audit & Risk Management Committee and the Remuneration Committee. interest in shares and options Ordinary shares 12,960,047 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 (majoring in Accounting and Finance) from the University of Sydney and is a Fellow of CPA Australia. 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. 12 Directors’ Report continued principal activities The Consolidated Entity provides debt solutions and direct lending services to individuals and businesses. 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 $17,219,773 (2021: $20,108,514). dividends declared and paid during the year – On 31 August 2021, a fully franked final dividend relating to the year ended 30 June 2021 of $3,742,850 was paid at 3.00 cents per share; and – On 10 March 2022, a fully franked interim dividend of $4,434,911 was paid at 3.50 cents per share. dividends declared after the end of year On 11 August 2022, the Directors declared a 3.50 cent fully franked final dividend to shareholders to be paid on 30 August 2022 with a record date of 18 August 2022. operating and Financial review Detailed comments on operations are included separately in the Executive Directors’ Review, on pages 5 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: – Buy back of 4,374,856 shares under an on market share buy‑back; – Issue of 1,950,000 shares under the Long Term Incentive Plan. Financial position The net assets of the Consolidated Entity, which includes amounts attributable to non‑controlling interests, have increased from $75,652,996 at 30 June 2021 to $96,077,968 at 30 June 2022. treasury policy The Consolidated Entity does not have a formally established treasury function. The Board is responsible for managing the Consolidated Entity’s treasury function. 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 13 of the Financial Statements. Directors’ Report continued FSA Group Limited Annual Report 2022 13 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 2022 except as follows: – On 30 June 2022 an Australian “big four” bank approved a $100m non‑recourse warehouse asset finance facility. This senior facility will replace the Bendigo facility. The senior facility is supported by a non‑recourse mezzanine facilities provided by institutional fund managers. These facilities settled in July 2022; – On 11 August 2022, the Directors declared a 3.50 cent fully franked final dividend to shareholders to be paid on 30 August 2022 with a record date of 18 August 2022. 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 2022 there were no options on issue. 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. indemnity and insurance of auditor The Company has not, during or since the financial year, indemnified or agreed to indemnify the auditor of the Consolidated Entity or any related entity against a liability incurred by the auditor. During the financial year, the Consolidated Entity has not paid a premium in respect of a contract to insure the auditor of the Consolidated Entity or any related entity. 14 Directors’ Report continued 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 Company for the purposes of the Corporations Act 2001 for the year ended 30 June 2022. Key Management Personnel have the authority and responsibility for planning, directing and controlling the activities of the Company 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 and retaining 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 Consolidated Entity 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 director david Bower Non‑Executive Chairman 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 25 November 2021 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 the Non‑Executive Director for the year ended 30 June 2022 is detailed in Table 1 of this Remuneration Report. Directors’ Report continued FSA Group Limited Annual Report 2022 15 executive director and Senior executive remuneration executive director deborah Southon Executive Director Senior executive Cellina Chen Chief Financial Officer/Company Secretary 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 program (“LTI”) has been set to attract, motivate and retain eligible participants and to provide them with an incentive to deliver growth and value to all shareholders. LTI will also be used to attract and retain Non‑Executive Directors and Executives in a market place that is experiencing increased competition for talented personnel who bring value to the Board and the Company. The LTI allows for the issue of performance rights, options or shares in the Company (each a type of Incentive Security), or potentially a combination of each of them. The Board proposes to issue Incentive Securities as determined by the Board from time to time under the LTI. Under the LTI, the Board may offer eligible participants the opportunity to subscribe for such number of Incentive Securities in the Company as the Board may decide, on the terms and conditions set out in the rules of the Long Term Incentive Plan. The Company may make an advance to an eligible participant to assist in the acquisition of Incentive Securities. Further details of the Long Term Incentive Plan, which was approved at the AGM on 25 November 2021, are set out in Note 20 to the Financial Statements 16 Directors’ Report continued The remuneration of the Executive Director and Senior Executive for the year ended 30 June 2022 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 Ventures Pty Ltd. Tim Odillo Maher is one of the key personnel of ATMR Ventures Pty Ltd. The remuneration paid to ATMR Ventures Pty Ltd for the year ended 30 June 2022 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 Ventures Pty Ltd. Tim Odillo Maher is one of the key personnel of ATMR Ventures Pty Ltd. Employment contracts and the consultancy agreement are for no specific fixed term unless otherwise stated. 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 Board assessment based on KPI achievement Long‑term incentives Resignation/notice period Serious misconduct Board assessment based on Long Term Incentive Plan terms and conditions Three months Company may terminate at any time Payouts upon resignation or termination, outside industrial regulations Board discretion The consultancy agreement entered into with ATMR Ventures 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 Directors’ Report continued FSA Group Limited Annual Report 2022 17 (a) details of directors and Key management personnel (i) Non‑executive director David Bower, Non‑Executive Chairman (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. (b) remuneration of directors and Key management personnel table 1 Short‑term Long‑term Salary & Fees $ Cash Bonus $ Non‑cash benefits $ Cash Bonus $ Non‑cash benefits $ post‑ employ‑ ment Super‑ annuation and other benefits perfor‑ mance based total $ % Non‑executive director David Bower 2022 2021 executive director Deborah Southon 2022 2021 Senior executive Cellina Chen 2022 2021 52,675 52,675 406,596 422,823 275,883 212,740 total remuneration – – – – – – *4,142 4,735 150,000 *36,600 – – – – – – 41,439 250,000 – – 5,268 5,004 57,943 57,679 *1,612 6,967 40,000 25,000 452,350 459,525 – – – – *29,319 4,167 23,568 21,694 515,370 530,040 29% 47% 2022 2021 735,154 150,000 40,742 – 30,931 68,836 1,025,663 688,238 – 46,174 250,000 11,134 51,698 1,047,244 * Annual leave, long service leave accrual movement, together with Long Term Incentive Plan share benefit 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: Senior Executive: Deborah Southon: Cellina Chen: $200,000 – $350,000 $100,000 – $140,000 18 Directors’ Report continued table 2 Consultancy fees excluding GST paid to ATMR Ventures Pty Ltd of which Tim Odillo Maher is one of the key personnel. executive director Tim Odillo Maher 2022 2021 Fees $ Success Fees $ total Fees $ 438,000 438,000 – – 438,000 438,000 No success fees paid to ATMR Ventures Pty Ltd in relation to the performance during financial year 2021 and 2022. Success fees in relation to current financial year performance will be paid in the subsequent financial year with an estimated range of: $200,000 – $350,000 Consolidated Entity’s earnings and movement in shareholder’s wealth for the last five years is as follows: Operating income Net profit before tax Net profit and other comprehensive income after tax attributable to members Share price at the start of the year Share price at the end of the year Dividends declared for the year Basic EPS (cents) Diluted EPS (cents) 30 June 2022 30 June 2021 30 June 2020 30 June 2019 30 June 2018 58,250,636 61,434,416 $68,180,292 $69,742,110 $66,155,145 26,944,113 29,712,695 $24,750,627 $22,164,979 $19,670,917 17,219,773 20,108,514 16,315,946 $14,411,166 $12,606,598 $1.04 $1.14 7.00c 13.72 13.72 $0.87 $1.04 6.00c 16.12 16.12 $1.02 $0.87 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 A review of bonuses paid to the Executive Director and Senior Executive, and the success fee paid to ATMR Ventures 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 2022 There were no options issued as part of remuneration during or since the end of the financial year. (d) Shares issued as part of the Long term incentive plan for the year ended 30 June 2022 On 3 December 2021, 1,250,000 shares were issued under the Long Term Incentive Plan to the Senior Executive at a price of $1.04 per share with a transactional value of $1,300,000. The shares were issued through a limited recourse loan arrangement whereby the holder has the option to repay the loan or sell the shares at agreed dates: at 3 years 50% (625,000 shares), at 4 years 25% (312,500 shares) and at 5 years 25% (312,500 shares). If the option to sell the shares is taken at any point, the loan is only repayable to the value reimbursed through that sale. This arrangement has resulted in a share‑based payment being recorded, with $16,403 expensed in the financial year. The fair value of the share‑based payment was 11.3 cents. Directors’ Report continued FSA Group Limited Annual Report 2022 19 (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 2021 purchased on market other Changes Balance 30 June 2022 directors Tim Odillo Maher Deborah Southon David Bower Senior executive Cellina Chen total 42,809,231 12,960,047 160,800 – 55,930,078 – – – – – – – – 42,809,231 12,960,047 160,800 1,250,000 1,250,000 1,250,000 57,180,078 (g) Loans to directors and Key management personnel Senior executive Cellina Chen 2022 2021 Lti shares acquired during the year number opening loan balance $ Loans made $ Loans repaid $ Closing loan balance $ 1,250,000 110,000 1,300,000 (110,000) 1,300,000 – – 110,000 – 110,000 (h) other transactions with directors and Key management personnel and related parties There were no transactions with Directors and Key Management Personnel and related parties. (i) Voting and comments made at the Company’s 2021 Annual General meeting (“AGm”) At the 2021 AGM, 98.18% of the votes received supported the adoption of the Remuneration Report for the year ended 30 June 2021. 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 directors’ meetings The number of meetings held and attended by each Director during the year is as follows: David Bower Tim Odillo Maher Deborah Southon Total number of meetings held during the financial year Number of meetings held while in office meetings attended 7 7 7 7 7 7 7 Audit & risk management Committee meetings The number of meetings held and attended by each member during the year is as follows: David Bower Tim Odillo Maher Deborah Southon Total number of meetings held during the financial year remuneration Committee meetings The number of meetings held and attended by each member during the year is as follows: David Bower Tim Odillo Maher Deborah Southon Total number of meetings held during the financial year Number of meetings held while in office meetings attended 3 3 3 3 3 3 3 Number of meetings held while in office meetings attended 2 2 2 2 2 2 2 Directors’ Report continued FSA Group Limited Annual Report 2022 21 proceedings on behalf of the Company No proceedings have been brought, or intervened in, on behalf of the Company, nor has any application for leave been made in respect of the Company under section 237 of the Corporations Act 2001. 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 the Company 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 11 August 2022 22 Auditor’s Independence Declaration Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret St Sydney NSW 2000 Australia DECLARATION OF INDEPENDENCE BY RYAN POLLETT TO THE DIRECTORS OF FSA GROUP LIMITED As lead auditor of FSA Group Limited for the year ended 30 June 2022, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of FSA Group Limited and the entities it controlled during the period. Ryan Pollett Director BDO Audit Pty Ltd Sydney, 11 August 2022 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. FSA Group Limited Annual Report 2022 23 Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2022 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 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 2022 $ 2021 $ 2 2 2 2 22,195,338 31,677,359 48,056,917 39,941,645 (12,001,619) (10,184,588) 36,055,298 58,250,636 29,757,057 61,434,416 (18,752,840) (16,401,277) (3,419,977) (5,819,002) (5,325,005) (4,776,001) (903,609) (2,318,376) (1,651,781) (1,821,808) (1,253,311) – (943,783) 358,526 (31,306,523) (31,721,721) 26,944,113 29,712,695 18 (8,220,582) (8,941,373) 18,723,531 20,771,322 – – 18,723,531 20,771,322 1,503,758 662,808 17,219,773 20,108,514 18,723,531 20,771,322 3 3 13.72 13.72 16.12 16.12 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 2022 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 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 Asset finance cash and cash equivalents Personal loan assets Home loan assets Asset finance assets total Financing Assets total Assets Current Liabilities Trade and other payables Contract liabilities Lease liability Provisions Current tax liabilities Borrowings total Current Liabilities Non‑Current Liabilities Contract liabilities Lease liability Provisions Deferred tax liabilities total Non‑Current Liabilities Consolidated entity Notes 2022 $ 2021 $ 4 4 8 6 18 5 5 5 7 2 8 9 13 2 8 9 18 16,587,684 15,727,586 621,349 18,930,111 18,361,210 988,573 32,936,619 38,279,894 1,668,786 9,241,234 1,917,121 14,279,844 1,576,521 4,313,128 10,317,800 2,101,974 2,169,178 1,187,557 28,683,506 20,089,637 6,720,693 3,837,569 10,112,665 12,332,930 2,503,571 – 71,826,827 64,930,182 388,872,159 382,471,633 80,787,180 – 560,823,095 463,572,314 622,443,220 521,941,845 3,519,804 4,745,599 466,700 948,179 2,531,627 4,153,626 300,247 458,909 813,489 2,229,326 3,588,265 306,647 11,920,183 12,142,235 206,607 8,923,238 422,997 3,454,183 496,315 9,789,398 357,167 3,155,508 13,007,025 13,798,388 Statement of Financial Position continued FSA Group Limited Annual Report 2022 25 Financing Liabilities Other borrowings Limited‑recourse borrowings to finance personal loan assets Non‑recourse borrowings to finance home loan assets Non‑recourse borrowings to finance asset finance assets total Financing Liabilities total Liabilities Net Assets equity Share capital Reserves Retained earnings total equity attributable to members of the parent Non‑controlling interests total equity 13 13 13 13 10 11 Consolidated entity Notes 2022 $ 2021 $ – 3,219,860 43,804,531 42,384,982 382,388,979 377,963,244 72,024,674 – 501,438,044 420,348,226 526,365,252 446,288,849 96,077,968 75,652,996 3,502,630 8,477,064 6,360,492 – 72,384,411 65,682,158 84,364,105 72,042,650 11,713,863 3,610,346 96,077,968 75,652,996 The Statement of Financial Position should be read in conjunction with the Notes to the Financial Statements. 26 Statement of Changes in Equity For the year ended 30 June 2022 Notes Share capital reserves Balance at 30 June 2020 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 $ 6,360,492 – – – – – – Balance at 30 June 2021 6,360,492 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 Long term incentive plan Business combination Class shares 10 10, 11 11, 21 11, 23 – – – – – (4,885,862) retained earnings Non‑control‑ ling interests $ $ total $ 53,059,345 3,437,538 62,857,375 20,108,514 662,808 20,771,322 – – – 20,108,514 662,808 20,771,322 (7,485,701) – (7,485,701) – – (490,000) (490,000) – – 65,682,158 3,610,346 75,652,996 17,219,773 1,503,758 18,723,531 – – – 17,219,773 1,503,758 18,723,531 (8,177,761) – (8,177,761) – – – (420,000) (420,000) – – (4,885,862) 26,080 $ – – – – – – – – – – – – – – 2,028,000 (2,001,920) – – 10,320,000 (2,339,759) 7,019,759 15,000,000 158,984 – – 158,984 Balance at 30 June 2022 3,502,630 8,477,064 72,384,411 11,713,863 96,077,968 The Statement of Changes in Equity should be read in conjunction with the Notes to the Financial Statements. Statement of Cash Flows For the year ended 30 June 2022 FSA Group Limited Annual Report 2022 27 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Finance income received Finance cost paid Income tax paid Net cash inflow from operating activities Cash flows from investing activities Cash and cash equivalent from acquisition Acquisition of property, plant and equipment Acquisition of intangibles Net (increase)/decrease in home loan assets Net increase in personal loan assets Net increase in asset finance assets Net decrease in other loans Net cash (outflow)/inflow from investing activities Cash flows from financing activities Net receipt/(repayment) 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/(outflow) from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Consolidated entity Notes 2022 $ 2021 $ Inflows/ (Outflows) Inflows/ (Outflows) 25,723,989 34,590,161 (27,559,864) (27,854,078) 47,959,056 39,987,087 (11,740,940) (10,316,724) (8,190,122) (6,895,302) 26,192,119 29,511,144 2,355,482 (68,567) (356,668) – (986,534) (83,588) (6,337,249) 10,520,328 (6,315,178) (3,111,442) (39,545,524) 17,500 – – (50,250,204) 6,338,764 39,199,071 (31,890,418) (833,360) (420,000) (4,885,862) (789,742) (490,000) – (8,177,761) (7,485,701) 24,882,088 (40,655,861) 824,003 (4,805,953) 35,100,610 39,906,563 35,924,613 35,100,610 21 10 12 The Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements. 28 General information For the year ended 30 June 2022 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 and businesses. 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: Note 2 Note 4 Note 5 Note 6 Note 14 Note 15 Note 21 Note 23 Revenue and income Trade and other receivables Financing assets Intangible assets Financial instruments Financial risk management Business combination Share‑based compensation General information continued FSA Group Limited Annual Report 2022 29 New and amending accounting standards The Consolidated Entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. New and amending accounting standards that are not yet mandatory have not been early adopted. 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 11 August 2022. 30 Notes to the Financial Statements For the year ended 30 June 2022 The Notes to the Financial Statements are arranged in five sections: perFormANCe Note 1: Segment information Note 2: Revenue and income Note 3. Earnings per share ASSetS Note 4. Trade and other receivables Note 5. Financing assets Note 6. Intangible assets LiABiLitieS Note 7. Trade and other payables Note 8. Leases Note 9. Provisions eQuitY ANd BorroWiNGS Note 10. Share capital Note 11. Reserves Note 12. Dividends Note 13. Borrowings Note 14. Financial instruments Note 15. Financial risk management Note 16. Fair value measurements otHer Note 17. Cash flow information Note 18. Income tax Note 19. Auditor’s remuneration Note 20. Key Management Personnel disclosures Note 21. Business combination Note 22. Interests in subsidiaries Note 23. Share‑based compensation Note 24. Parent entity information Note 25. Deed of cross guarantee Note 26. Contingent liabilities Note 27. Events occurring after reporting date 31 31 32 35 35 35 37 39 41 41 41 42 43 43 44 44 45 46 47 50 51 51 51 53 53 54 55 58 60 60 62 62 Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 31 perFormANCe This section focuses on the Consolidated Entity’s performance and returns to shareholders for the year ended 30 June 2022. 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 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 home loans and personal loans to assist clients wishing to purchase a property or consolidate their debt or to purchase a motor vehicle and asset finance to SMEs wishing to purchase a vehicle and business‑critical equipment. 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: operating Segment Revenue and Income: Fees from services Finance income Finance expense Net finance income Total operating income Results: Segment profit before tax Income tax (expense)/benefit profit for the year Segment assets Reclassification total Assets Services Lending other/unallocated Consolidated total 2022 $ 2021 $ 2022 $ 2021 $ 2022 $ 2021 $ 2022 $ 2021 $ 21,845,648 3,956 (347,116) (343,160) 324,894 31,268,536 48,046,510 1,829 (11,538,199) (404,945) (403,116) 36,508,311 378,081 39,936,122 (9,779,643) 30,156,479 24,796 6,451 (116,304) (109,853) 30,742 22,195,338 48,056,917 3,694 – (12,001,619) 3,694 36,055,298 31,677,359 39,941,645 (10,184,588) 29,757,057 21,502,488 30,865,420 36,833,205 30,534,560 (85,057) 34,436 58,250,636 61,434,416 7,331,520 12,088,836 19,834,377 17,196,011 (221,784) 427,848 26,944,113 29,712,695 (2,209,747) 5,121,773 37,411,345 68,954 (6,079,789) (3,968,278) 8,120,558 13,754,588 (152,830) 44,642,125 580,596,599 469,847,265 22,644,849 (5,162,329) 12,033,682 189,234 617,082 (8,220,582) (8,941,373) 18,723,531 20,771,322 26,475,871 640,652,793 540,965,261 (18,209,573) (19,023,416) 622,443,220 521,941,845 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. 32 Notes to the Financial Statements continued 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 Revenue is recognised as follows: (1) The initial service at a point in time when the debt proposal is completed, and (2) Over time when the monthly or periodic activities are delivered. The total consideration in the contract is collected over the contract term. Application fees and administration fees Performance obligations comprises two distinct services: (1) Initial service to prepare debt proposal for consideration by the creditors and the Australia Financial Security Authority, 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. Bankruptcy and personal insolvency agreements Trustee fees Estate administration 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; and – 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. Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 33 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. unsatisfied performance obligations The aggregate amount of the transaction price allocated to debt agreement and informal arrangement administration services that are unsatisfied is $19,640,318 as at 30 June 2022 ($40,780,997 as at 30 June 2021) 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 2022 $ 2021 $ 7,095,762 19,844,620 6,258,090 13,251,252 3,182,056 3,104,410 5,640,169 2,044,956 19,640,318 40,780,997 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 Consolidated entity 2022 $ 466,700 206,607 673,307 955,224 169,957 (451,874) 673,307 2021 $ 458,909 496,315 955,224 1,228,527 350,687 (623,990) 955,224 34 Notes to the Financial Statements continued Net finance income Finance income comprises interest income and finance fee income: – Interest income is recognised using the effective interest method; and – 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. JobKeeper income JobKeeper income was received by two subsidiaries within the Consolidation Entity during 2021. It was netted against Employee costs in the Statement of Profit or Loss and Other Comprehensive Income. The JobKeeper received was Nil for 2022 (2021: $2,003,600). disaggregation of revenue Fees from services – Personal insolvency – Refinance broking – Other services total revenue Finance income – Home loan assets – Personal loan assets – Asset finance assets – Other interest income Finance expense – Interest expense – home loan facilities – Interest expense – personal loan facilities – Interest expense – asset finance facilities – Interest expense – other lending facilities Net finance income total operating income Consolidated entity 2022 $ 2021 $ 21,845,648 31,268,536 324,894 24,796 378,081 30,742 22,195,338 31,677,359 23,439,480 24,471,194 17,310,191 15,464,928 7,296,840 10,406 – 5,523 48,056,917 39,941,645 (8,180,629) (8,648,430) (1,056,320) (1,131,213) (2,301,251) – (463,419) (404,945) (12,001,619) (10,184,588) 36,055,298 58,250,636 29,757,057 61,434,416 Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 35 Note 3. earnings per share The Consolidated Entity calculated basic and diluted earnings per share as follows: Consolidated entity 2022 $ 2021 $ Total profit attributable to the members of the parent for the year ($) 17,219,773 20,108,514 Weighted average number of ordinary shares used in calculating basic earnings per share 125,483,612 124,761,680 Weighted average number of ordinary shares used in calculating diluted earnings per share 125,483,612 124,761,680 Basic earnings per share (cents) Diluted earnings per share (cents) 13.72 13.72 16.12 16.12 Number Number 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. 36 Notes to the Financial Statements continued 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 Credit risk Details of the Consolidated Entity’s credit risk is included in Note 15. 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 2022 $ 2021 $ 16,731,674 19,409,823 (1,004,088) (1,048,613) 15,727,586 18,361,210 1,815,394 4,459,305 (146,608) (146,177) 1,668,786 4,313,128 17,396,372 22,674,338 1,194,790 1,657,198 803,219 (438,590) (408,723) 327,109 (178,106) (611,411) 1,150,696 1,194,790 Consolidated entity 2022 $ 2021 $ 12,681,862 16,060,095 5,865,206 7,809,033 18,547,068 23,869,128 Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 37 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 Secured 3‑4 years Secured 4‑5 years Secured 3‑5 years Home loan assets personal loan assets Asset finance assets Loans secured against residential property. Loans secured against motor vehicles. Loans secured against vehicles and business‑ critical equipment. 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. An impairment allowance on a collective basis is recognised with regard to the underlying equity in the security 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. An impairment loss on an individual basis is recognised if the total expected or actual sale proceeds, resulting from enforced sale of security do not exceed the loan balance. 38 Notes to the Financial Statements continued Consolidated entity Consolidated entity Consolidated entity Home loan assets personal loan assets Asset finance assets 2022 $ 2021 $ 2022 $ 2021 $ 2022 $ 2021 $ Non‑securitised financing assets Securitised financing assets 296,205,553 250,920,262 73,963,022 68,153,032 82,164,180 93,465,210 132,667,518 – – – Total financing assets 389,670,763 383,587,780 73,963,022 68,153,032 82,164,180 Provision for impairment (798,604) (1,116,147) (2,136,195) (3,222,850) (1,377,000) 388,872,159 382,471,633 71,826,827 64,930,182 80,787,180 Security Weighted average loan to valuation ratio 65% 67% interest rate type Variable Variable n/a Fixed n/a Fixed n/a Fixed Aging analysis Not past due 355,816,411 344,608,219 65,496,372 62,337,388 75,882,787 Past due 0 – 30 days 26,270,308 34,995,922 7,151,429 Past due 30 days 7,584,044 3,983,639 1,315,221 4,584,214 1,231,430 4,060,705 2,220,688 total 389,670,763 383,587,780 73,963,022 68,153,032 82,164,180 maturity analysis Amounts to be received in less than 1 year Amounts to be received in greater than 1 year the movement in the provision for impairment Opening balance Increase in provision Bad debts Closing balance 8,123,901 8,178,008 18,900,838 17,222,100 21,275,647 381,546,862 375,409,772 55,062,184 50,930,932 60,888,533 389,670,763 383,587,780 73,963,022 68,153,032 82,164,180 1,116,147 (118,739) (198,804) 798,604 644,007 856,238 (384,098) 3,222,850 (535,824) (550,831) 2,514,889 1,364,925 634,914 1,314,619 (656,964) (572,533) 1,116,147 2,136,195 3,222,850 1,377,000 – – – – – n/a n/a – – – – – – – – – – – Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 39 Note 6. intangible assets Goodwill 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. Goodwill comprises an amount of $10,421,199 that is the amount by which the purchase price for the business of Azora Finance Pty Ltd and its controlled entities exceeded the fair value attributed to its net assets and separately identifiable intangible assets at date of acquisition by Azora Finance Group Pty Ltd. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Goodwill has indefinite life therefore no amortisation was recorded. Software Software is measured on the basis of the cost of acquisition or development of software less subsequent accumulated amortisation and accumulated impairment losses. Software is tested for impairment only if there is an indication that the carrying amount of the software may be impaired. Software is amortised over 2 – 5 years depends on the effective life of the software. Broker network Broker network were recognised for the future economic benefits expected from the use of the broker network in the operation of the asset finance business. Broker network are measured by using the multi period excess earnings methodology from the loans that are expected to be referred by the broker network. Broker network are amortised over 6 years. Customer relationships Customer relationships were recognised for the future economic benefits expected from the use of existing customers through the operation of the wholesale rental finance business. Customer relationships are measured by using the multi period excess earnings methodology from the cash flow that can be generated by the existing customer relationships, less subsequent accumulated amortisation and accumulated impairment losses. Customer relationships are tested for impairment annually and carried at fair value less accumulated amortisation and impairment losses. Customer relationships are amortised over 5 years in accordance with the business strategy. Goodwill Less: Impairment Software at cost Less: Accumulated amortisation Customer relationships – at cost Less: Accumulated amortisation Broker network – at cost Less: Accumulated amortisation Consolidated entity 2022 $ 2021 $ 10,766,323 345,124 – 10,766,323 5,344,027 – 345,124 4,987,359 (3,941,256) (3,163,305) 1,402,771 1,824,054 366,000 (61,000) 305,000 2,097,000 (291,250) 1,805,750 – – – – – – 14,279,844 2,169,178 40 Notes to the Financial Statements continued reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at cost Amortisation expense Balance at 1 July 2021 Additions Additions through business combination (Note 21) Impairment of assets Amortisation expense Goodwill Software 345,124 4,987,359 – (3,163,305) 345,124 1,824,054 – 356,668 Customer relationships Broker network – – – – – – – – total 5,332,483 (3,163,305) 2,169,178 356,668 10,421,199 – – – – 366,000 2,097,000 12,884,199 – – – (777,951) (61,000) (291,250) (1,130,201) Balance at 30 June 2022 10,766,323 1,402,771 305,000 1,805,750 14,279,844 impairment testing Goodwill acquired through business combinations have been allocated to the following cash‑generating units: FSA Australia Pty Ltd Azora Finance Pty Ltd Consolidated entity 2022 $ 2021 $ 345,124 345,124 10,421,199 10,766,323 – 345,124 The recoverable amount of goodwill attributable to the Azora Finance CGU, is determined based on a value‑in‑use calculations, by estimating the future cash inflows and outflows to be derived by the CGU and applying an appropriate discount rate to those future cash flows. The major key assumption relating to the forecast information is the continued growth of the new origination from the asset finance division and the utilisation of its funding lines. The cash flows have been projected over a three year period using average historical earnings margins and then adjusted for non‑cash items. The cash flows beyond the three year period are extrapolated using a steady rate, together with a terminal value. An average after‑tax discount rate of 7.1% has been applied to the net cash flows. The Directors have assessed that, the carrying value of goodwill attributable to the original investment by the parent company in FSA Australia CGU and its controlled entities does not exceed the recoverable amount of this balance at reporting date. The Directors have determined that there are no reasonable changes in the key assumptions on which the recoverable amounts of goodwill are based, for either Azora Finance CGU or FSA Australia CGU, which would cause the carrying amount to exceed the recoverable amount. No impairment was identified in either CGU. Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 41 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 2022 $ 2021 $ 809,414 2,536,027 174,363 3,519,804 754,889 3,702,625 288,085 4,745,599 Note 8. Leases The Consolidated Entity leases its office premises. Additional office premises was acquired through the Azora Finance business combination. The right‑of‑use asset is depreciated over the lease term. The lease liability is accounted for using an effective interest method. right‑of‑use assets Property Accumulated amortisation Lease liabilities Current Non‑current Additions of the right‑of‑use assets during the year ended 30 June 2022 were $101,890. 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) Consolidated entity 2022 $ 2021 $ 11,574,448 11,472,558 (2,333,214) (1,154,758) 9,241,234 10,317,800 948,179 8,923,238 813,489 9,789,398 9,871,417 10,602,887 1,178,457 1,154,758 350,751 328,506 33,198 404,520 393,316 49,237 1,890,912 2,001,831 42 Notes to the Financial Statements continued 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 2022, the Consolidated Entity employed 104 full‑time equivalent employees (2021:89) plus a further 6 independent contractors (2021: 2). Short‑term employee benefits Liabilities for wages and salaries, including non‑monetary benefits, annual leave and long service leave with no rights to defer settlements within 12 months of the reporting date are recognised in current liabilities. Long‑term employee benefits The amount presented as non‑current liabilities have an unconditional right to defer settlement. For amounts due more than 12 months after the reporting date; these 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 2022 $ 2021 $ 2,531,627 2,229,326 422,997 357,167 Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 43 eQuitY ANd BorroWiNGS This section focuses on the Consolidated Entity’s capital structure and borrowing activities. Note 10. Share capital Share capital Balance 1 July Add shares issued during year Less shares bought back during year Balance 30 June ordinary shares Balance 1 July Add shares issued during year Less shares bought back during year Balance 30 June Consolidated entity 2022 $ 2021 $ 6,360,492 2,028,000 (4,885,862) 6,360,492 – – 3,502,630 6,360,492 Number Number 124,761,680 124,761,680 1,950,000 (4,374,856) – – 122,336,824 124,761,680 On 3 December 2021, the Company issued 1,950,000 shares under the Long Term Incentive Plan. On 9 December 2021, the Company announced an on market buy‑back in line with its capital management strategy. 44 Notes to the Financial Statements continued Note 11. reserves Business combination reserve Class share reserve Long Term Incentive Plan share reserve Long Term Incentive Plan share valuation reserve Balance 30 June Consolidated entity 2022 $ 2021 $ 10,320,000 158,984 (2,028,000) 26,080 8,477,064 ‑ ‑ ‑ ‑ ‑ Note 12. 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 2022 Final – ordinary Interim – ordinary Financial Year 2021 Final – ordinary Interim – ordinary Value per share $ total Amount 0.03 0.035 $3,742,850 $4,434,911 Value per share $ total Amount 0.03 0.03 $3,742,850 $3,742,850 Franked 100% 100% Franked 100% 100% date of payment 31‑Aug‑21 10‑Mar‑22 date of payment 11‑Sep‑20 23‑Feb‑21 On 11 August 2022, the Directors declared a fully franked final dividend for the year ended 30 June 2022 of 3.50 cents per ordinary share. This brings the full year dividend to 7.00 cents per ordinary share. Franking credits Franking credits available at the reporting date based on a tax rate of 30% 26,973,557 24,684,000 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% 1,374,029 3,378,857 Franking credits available for subsequent financial years based on a tax rate of 30% 28,347,586 28,062,857 Consolidated entity 2022 $ 2021 $ Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 45 Note 13. Borrowings Borrowings comprise: Borrowings Facility type provider Limit maturity date drawn Security Home loans Non‑recourse Westpac warehouse Institutional $350m $20m Oct‑23 $272,109,997 Oct‑23 $20,000,000 Securitised Institutional Mar‑51 $89,790,438 personal loans Limited recourse warehouse Westpac $75m Apr‑26 $43,750,000 Corporate Westpac $15m Mar‑24 $– Asset Finance Non‑recourse warehouse Bendigo Institutional Institutional $67.5m $3.5m $6m Jul‑22 $62,485,357 Jan‑23 Jun‑23 $3,500,000 $6,000,000 This facility is secured against current and future home loan assets of Azora Home Loans Warehouse Trust 1. 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 Azora 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. This facility is secured against current and future asset finance assets of the Wholesale Rental Finance Warehouse Trust No. 1. The Bendigo facility has been refinanced with another bank subsequent to the year end, refer to Note 27 Events occurring after reporting period. 46 Notes to the Financial Statements continued Current – unsecured Credit cards Financing Liabilities – secured Limited recourse borrowings to finance personal loan assets Non‑recourse borrowings to finance home loan assets Non‑recourse borrowings to finance asset finance assets Other loan the carrying amounts of assets pledged as security are: Personal loan assets Home loan assets Asset finance assets Consolidated entity 2022 $ 2021 $ 300,247 306,647 43,804,531 42,384,982 382,388,979 377,963,244 72,024,674 3,219,860 – – 501,438,044 420,348,226 78,547,520 68,767,751 398,984,824 394,804,563 83,290,750 – 560,823,094 463,572,314 Note 14. 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 Asset finance assets Personal loan assets Cash and cash equivalents Other financial assets Trade and other payables Lease liabilities Short‑term loans Bank loans Warehouse facilities Securitised facilities Credit risk & Market risk Liquidity risk & Market risk 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. Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 47 These financial instruments represented in the Statement of Financial Position are categorised under AASB9 Financial Instruments 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 2022 $ 2021 $ 16,587,684 18,930,111 17,396,372 22,674,338 560,823,095 463,572,314 594,807,151 505,176,763 3,820,051 5,052,246 501,438,044 420,348,226 505,258,095 425,400,472 The Consolidated Entity retains substantially all the risks and rewards of ownership of the securitised home loan assets. Note 15. 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. type of instruments Security risk management impairment Assessment Unsecured Debtors are assessed for serviceability and affordability prior to inception of each agreement. Personal insolvency receivables (debt agreements, informal arrangements, personal insolvency agreements and bankruptcy) 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. 48 Notes to the Financial Statements continued type of instruments Security risk management impairment Assessment Home loan assets Asset finance assets Residential property Vehicle and business‑ critical equipment Personal loan assets Motor vehicle 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. 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. A loan is classified as being in hardship when a hardship application has been submitted and accepted. 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 risk management Assessment Trade and other payables Lease liabilities Short term loans Bank loans Warehouse facilities Securitised facilities 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, personal loan or asset finance facilities will not affect the Consolidated Entity’s ability to continue as a going concern. Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 49 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 2022 Carrying amount $ Contractual Cash flows $ 12 months or less $ Trade and other payables 3,519,804 3,519,804 3,519,804 1 to 2 years $ – 2 to 5 years $ – 5 to 10 years $ – Leases 9,871,418 11,441,191 1,265,780 1,277,233 4,210,639 4,687,539 Other short term loans 3,520,106 3,520,106 3,520,106 – – Warehouse facilities 408,313,592 432,960,366 80,342,615 305,401,627 47,216,124 – – Securitised facilities 89,904,592 97,021,241 21,740,277 17,059,801 32,108,611 26,112,551 total 515,129,512 548,462,708 110,388,582 323,738,661 83,535,375 30,800,090 Consolidated entity 30 June 2021 Trade and other payables 4,745,599 4,745,599 Leases 10,602,887 12,506,039 Other short term loans 306,647 306,647 4,745,599 1,155,775 306,647 – – – 1,212,635 4,002,272 6,135,357 – – Warehouse facilities 290,178,549 306,545,814 5,132,668 6,383,897 295,029,249 – – Securitised facilities 130,169,677 138,609,121 30,699,261 24,202,916 45,936,542 37,770,402 total 436,003,359 462,713,220 42,039,950 31,799,448 344,968,063 43,905,759 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 risk management Assessment Home loans Asset finance Personal loans 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. Asset finance assets are lent on fixed interest rates and are financed by variable rate borrowings. Asset finance terms average around 3 to 5 years which mitigate the Consolidated Entity’s exposure to interest rate risk on there borrowings. 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 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. The impact of the interest rate movement by 50 basis points were immaterial. 50 Notes to the Financial Statements continued 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. Note 16. Fair value measurements 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. 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 Asset finance assets Financial assets Current receivables net of deferred tax Non‑current receivables net of deferred tax Financing assets Personal loan assets Home loan assets Asset finance assets Jun‑22 Jun‑22 Book value $ Fair value $ 3,841,055 1,602,904 3,841,055 1,591,838 71,826,827 83,938,317 388,872,159 407,876,761 80,787,180 86,541,796 Jun‑21 Jun‑21 Book value $ Fair value $ 4,924,871 3,918,453 4,924,871 3,883,165 64,930,182 76,064,981 382,471,633 406,696,899 – – Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 51 otHer Note 17. 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 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 Cash flows from operating activities Note 18. income tax income tax Consolidated entity 2022 $ 2021 $ 18,723,531 20,771,322 2,431,767 2,098,541 – (401,134) 749,635 1,041,447 4,818,726 5,402,771 85,509 30,461 58,401 2,046,071 (873,680) (1,233,689) 226,170 (272,586) 26,192,119 29,511,144 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. 52 Notes to the Financial Statements 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% (2021: 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 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 Temporary difference on intangibles Deferred tax liability offset on tax consolidation total deferred tax liabilities Consolidated entity 2022 $ 2021 $ 8,716,951 9,504,511 (472,654) (23,715) (252,075) (311,063) 8,220,582 8,941,373 585,905 (1,058,560) (472,655) 28,391 (280,466) (252,075) 26,944,113 29,712,695 8,083,234 8,913,808 162,004 (4,331) 31,856 (3,597) 8,240,907 8,942,067 (20,325) – 15,630 (16,324) 8,220,582 8,941,373 2,525,136 2,317,659 80,287 567,576 38,644 873,462 2,961,425 3,180,866 62,760 20,008 6,201,271 6,430,639 (4,624,750) (5,243,082) 1,576,521 1,187,557 4,567,661 2,772,371 738,900 5,303,251 3,095,340 – (4,624,749) (5,243,083) 3,454,183 3,155,508 Notes to the Financial Statements continued Note 19. 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 2022 53 Consolidated entity 2022 $ 2021 $ 156,000 34,400 190,400 29,000 57,700 42,330 4,000 104,030 294,430 144,000 25,950 169,950 4,500 91,594 15,662 3,650 110,906 280,856 Note 20. Key management personnel disclosures On 3 December 2021, 1,250,000 shares were issued under the Long Term Incentive Plan to the Senior Executive at a price of $1.04 per share with a transactional value of $1,300,000. The shares were issued through a limited recourse loan arrangement whereby the holder has the option to repay the loan or sell the shares at agreed dates: at 3 years 50% (625,000 shares), at 4 years 25% (312,500 shares) and at 5 years 25% (312,500 shares). If the option to sell the shares is taken at any point, the loan is only repayable to the value reimbursed through that sale. This arrangement has resulted in a share‑based payment being recorded, with $16,403 expensed in the financial year. The fair value of the share based payment was 18.9 cents. Set out below is a summary of the shares issued and the limited recourse loan balance: Senior executive Cellina Chen 2022 2021 Lti shares acquired during the year opening loan balance Number $ Loans made $ Loans repaid Closing loan balance $ $ 1,250,000 110,000 1,300,000 (110,000) 1,300,000 – – 110,000 – 110,000 remuneration of directors and Key management personnel Short‑term employee benefits Long‑term employee benefits Post‑employment benefits Consultancy fees 925,896 30,931 68,836 438,000 754,339 261,134 53,591 438,000 1,463,663 1,507,064 54 Notes to the Financial Statements continued Note 21. Business combination On 1 September 2021, Azora Finance Group Pty Limited (AFG), a subsidiary of the Company, acquired 100% of the ordinary shares from the shareholders of Azora Finance Pty Limited (AF) in exchange for the issue of new AFG ordinary shares. Following completion, the former shareholders of AF now hold 24% of the ordinary shares in AFG. AF operates an asset finance lending business which lends to SMEs for vehicles and business‑critical equipment. The goodwill of $10,421,200 represents the expected synergies from merging AF with the AFG home loan lending division. AFG will specialise in residential home loans to self‑employed borrowers and asset finance for vehicles and business‑critical equipment. It will distribute products through direct, broker and other third‑party intermediary channels. Its focus will be on providing tailored solutions, fast turnaround and first class customer service. The application and approval process will be simple and be driven by smart technology and proprietary loan portals. The intangible assets of $12,145,299 represented by customer relationships from the wholesale rental finance, broker networks the business established and goodwill as referred to Note 6. The acquired business contributed revenues of $7,296,840 and profit after tax of $277,977 to the Consolidated Entity for the period from 1 September 2021 to 30 June 2022. Details of the acquisition are as follows: Cash and cash equivalents Trade and other receivables Other assets Plant and equipment Deferred tax asset Asset finance assets Trade and other payables Provisions Current tax liabilities Financing Liabilities Net assets acquired Customer relationships – Wholesale rental finance Broker network Deferred tax liability Goodwill excess of purchase price over net assets Acquisition‑date fair value of the total consideration transferred 2,355,482 49,745 200 72,099 352,439 41,921,339 (46,746) (168,041) (58,151) (41,623,666) 2,854,700 366,000 2,097,000 (738,900) 10,421,200 12,145,300 15,000,000 Representing: Fair value of the shares issued to the shareholders of AF 15,000,000 Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 55 Note 22. 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 Country of Incorporation the following entities are subsidiaries of FSA Group Limited FSA Australia Pty Ltd Azora Finance Group Pty Ltd Azora Personal Loans Pty Ltd 104 880 088 Group Holdings Pty Ltd Australia Australia Australia Australia the following entities are subsidiaries of FSA Australia pty Ltd Fox Symes & Associates Pty Ltd Fox Symes Debt Relief Services Pty Ltd EBP Money Pty Ltd (formerly Easy Bill Pay Pty Ltd) Aravanis Insolvency Pty Ltd Fox Symes Business Services Pty Ltd Australia Australia Australia Australia Australia the following entities are subsidiaries of Azora Finance Group pty Ltd Azora Finance (Services) Pty Ltd Azora Finance (Management) Pty Ltd Fox Symes Home Loans (Mortgage Management) Pty Ltd Azora Direct Pty Ltd Azora Home Loans Warehouse Trust 1 Fox Symes Home Loans 2019‑1 PP Trust Azora Finance Pty Ltd Azora Asset Finance Pty Ltd Wholesale Rental Finance Trust No.1 Azora Warehouse Trust No.1 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia the following entity is a subsidiary of Azora personal Loans pty Ltd Azora Personal Loans Warehouse Trust 1 Australia the following entities are subsidiaries of 104 880 088 Group Holdings pty Limited 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 Australia Australia Australia Australia percentage of equity interest held 2022 % 2021 % 100 76 100 100 100 100 100 65 75 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 65 75 100 100 100 100 100 100 – – – – 100 100 100 100 100 the following entity is a subsidiary of Aravanis insolvency pty Limited Aravanis Advisory Limited India 99.99 99.99 56 Notes to the Financial Statements continued 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: principal place of business/Country of incorporation Name Aravanis Insolvency Pty Limited Australia principal activities parent Non‑controlling interests Ownership interest 2022 Ownership interest 2021 Ownership interest 2022 Ownership interest 2021 Personal insolvency agreements and Bankruptcies Accounting and taxation Australia Fox Symes Business Services Pty Limited Azora Finance Group Pty Limited Australia Lending 65% 75% 76% 65% 75% 100% 35% 25% 24% 35% 25% 0% 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 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 2022 $ 2021 $ 12,939,435 14,462,535 423,963 317,046 13,363,398 14,779,581 874,233 3,144,906 4,019,139 1,157,635 3,503,153 4,660,788 9,344,259 10,118,793 4,862,883 6,628,712 (4,398,487) (3,900,802) 464,396 (123,430) 2,727,910 (837,478) 340,966 1,890,432 – – 340,966 1,890,432 1,272,526 2,198,232 15,855 (9,706) (1,165,459) (1,403,120) 122,922 785,406 119,340 3,300,356 661,653 3,601,015 Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 57 Summarised Statement of Financial position Current assets Non‑current assets Financing assets total assets Current liabilities Non‑current liabilities Financing 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 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 Azora Finance Group pty Limited 2022 $ 2021 $ 5,059,665 4,405,421 13,793,104 657,913 482,275,575 394,804,563 501,128,344 399,867,897 7,464,945 8,653,586 844,311 67,523 457,633,513 377,963,244 465,942,769 386,684,353 35,185,575 13,183,544 30,982,624 24,762,864 (21,021,395) (15,068,558) 9,961,229 9,694,306 (3,118,180) (2,911,884) 6,843,049 6,782,422 – – 6,843,049 6,782,422 11,176,562 7,485,093 (46,144,140) 10,520,328 33,685,168 (31,372,151) (1,282,410) (13,366,730) 1,386,623 5,456,425 – 6,782,422 The non‑controlling interest of Fox Symes Business Services Pty Limited was insignificant and therefore information has not been provided. 58 Notes to the Financial Statements continued Note 23. Share‑based compensation issue of Class Shares On 31 August 2021, Azora Finance Group Pty Limited (AFG), a subsidiary of the Company, issued 12,000,000 Class B shares and 12,000,000 Class C shares (Class Shares) to the shareholders of Azora Finance Pty Ltd (”AF”) and its controlled entities. The maximum conversion of Class Shares into ordinary shares is 12,000,000. On 1 September 2021, AFG acquired 100% of the ordinary shares from the shareholders of AF in exchange for the issue of new AFG ordinary shares. Following completion, the former shareholders of AF now hold 24% of the ordinary shares in AFG. If all Class Shares convert into ordinary shares, the former shareholders of AF will own 32% of the ordinary shares of AFG. The former shareholders of AF are not classified as Key Management Personnel of the Company. Conversion of Class Shares Details of the terms and conditions of the conversion of the Class Shares are set out below: FY2024 pBt outcome Class B Share Conversion PBT >= $30m 12m Class B shares convert, 12m Class C shares are forfeited $15m <= PBT < $30m Proportionate number of Class B shares convert, balance are forfeited PBT < $15m Nil Class B shares convert, 12m Class B shares are forfeited. FY2026 pBt outcome Class C Share Conversion PBT >= $30m 12m Class C shares (less any Class B shares already converted) convert, balance are forfeited $15m <= PBT < $30m Proportionate number of Class C shares (less any Class B shares already converted) convert, balance are forfeited PBT < $15m Nil Class C shares convert, 12m Class C shares are forfeited PBT means profit before tax of AFG, as determined in accordance with the Accounting Standards. The conversion will occur 10 days after the audited PBT outcome is determined. Each Class Share in AFG will confer the following rights and privileges and have been issued subject to the following conditions: repayment of capital and surplus assets and profits Class Shares will rank equally with each ordinary share, in terms of the entitlement to: (a) any repayment of capital, whether in a winding up, upon a reduction of capital or otherwise; and (b) participate in any surplus assets or profits of AFG upon a winding up. dividends Class Shares will not confer any right to any dividends. Voting Class Shares will not confer any right to cast any vote at any meeting of the members of AFG. transfer Class Shares are not transferrable. participation in new issues Class Shares will not confer any right to participate in new issues of securities. Notes to the Financial Statements continued FSA Group Limited Annual Report 2022 59 Conversion Class Shares will convert to an ordinary share on the earlier of the following events: (a) on the occurrence of an Acceleration Event; or (b) as described above. Upon the conversion into an ordinary share that share will have the same rights as, and rank pari passu with, all other ordinary shares. Acceleration Event means a change in control event or insolvency event occurs in relation to AFG or the Company. Value of Class Shares The Class Shares were valued by using the capitalisation of future maintainable earnings method. The valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date 31/08/2021 Fair value per AFG shares minority interest discount Liquidity discount Fair value at the grant date probability of conversion 0.53 25% 15% $0.32 25% The expense recognised for the Class Shares during the year was $158,984. Additional information The earnings of AFG for the years to 30 June 2022 are summarised below: Profit before tax AFG FY2022 $ FY2021 $ 9,961,229 9,694,306 issue of ordinary Shares under the Long term incentive plan On 3 December 2021, 1,950,000 shares were issued under the Long Term Incentive Plan to the eligible participants at a price of $1.04 per share with a transactional value of $2,028,000. Value of shares under Long term incentive plan with limited recourse loans The Company treated the shares issued under the Long Term Incentive Plan through a limited recourse loan arrangement as share‑based compensation. The share‑based compensation to the eligible participants was valued at $219,328 by utilising the Black‑Scholes model. The valuation model inputs used to determine the value are as follows: Grant date 3/12/2021 expiry date 2/12/2026 underlying price exercise price Volatility risk free rate dividend yield Fair value at the grant date 1.04 1.04 25% 1.31% 5.65% $0.11 The expense recognised for the Long Term Incentive Plan during the year was $26,080. 60 Notes to the Financial Statements continued Note 24. 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 Retained earnings total equity Financial performance profit after income tax Other comprehensive Income total Comprehensive income/(loss)for the year 2022 $ 2021 $ 17,877,055 23,046,698 8,465,084 26,342,139 1,378,185 1,378,185 8,465,084 31,511,782 3,344,977 3,344,977 24,963,954 28,166,805 3,502,630 6,360,492 21,461,324 21,806,313 24,963,954 28,166,805 9,834,692 15,776,188 – – 9,834,692 15,776,188 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 25 for further details. There are no contingent liabilities or commitments in the parent entity (2021: $Nil). Note 25. 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’. Notes to the Financial Statements continued Statement of profit or Loss and other Comprehensive income revenue and other income Fees from services Finance income Finance expense Net finance income Other 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 FSA Group Limited Annual Report 2022 61 2022 $ 2021 $ 15,455,939 22,256,808 212,997 (320,548) (107,551) 8,120 (4,851) 3,269 10,780,000 26,128,388 16,535,242 38,795,319 30,895 (336,245) 26,159,283 38,459,074 (4,611,366) (6,367,120) 21,547,917 32,091,954 – – 21,547,917 32,091,954 9,229,529 11,370,956 6,487 12,777,758 13,136,401 6,433 20,606,972 25,920,592 708,301 8,465,084 9,173,385 1,315,585 8,465,084 9,780,669 29,780,357 35,701,261 124,923 466,700 1,374,029 1,965,652 206,607 936,172 1,142,779 3,108,431 120,171 458,909 3,378,857 3,957,937 496,315 1,148,910 1,645,225 5,603,162 26,671,926 30,098,099 3,502,634 23,169,292 6,360,496 23,737,603 26,671,926 30,098,099 62 Notes to the Financial Statements continued Note 26. 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 $12,481,675 (2021: $11,589,250). Home loans are usually settled within 4 weeks of acceptance. personal loans At reporting date, personal loan applications that had been accepted by the Consolidated Entity but not yet settled amount to $43,640 (2021:Nil). Personal loans are usually settled within one week of acceptance. Note 27. 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 2022 except as follows: – On 30 June 2022 an Australian “big four” bank approved a $100m non‑recourse warehouse asset finance facility. This senior facility will replace the Bendigo facility. The senior facility is supported by a non‑recourse mezzanine facilities provided by institutional fund managers. These facilities settled in July 2022; and – 11 August 2022, Directors declared a 3.50 cent fully franked final dividend to shareholders to be paid on 30 August 2022 with a record date of 18 August 2022. Directors’ Declaration FSA Group Limited Annual Report 2022 63 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 Australian 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 2022 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 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 25. 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 11 August 2022 deborah Southon Executive Director Sydney 11 August 2022 64 Independent Auditor’s Report To the members of FSA Group Limited Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret Street Sydney NSW 2000 Australia INDEPENDENT AUDITOR'S REPORT To the members of FSA Group Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of FSA Group Limited (the Company) and its subsidiaries (the Group), which comprises the statement of financial position as at 30 June 2022, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2022 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Independent Auditor’s Report continued FSA Group Limited Annual Report 2022 65 Recoverability of receivables balances Key audit matter How the matter was addressed in our audit As disclosed in the Statement of Profit or Loss and Our audit procedures included, among others; Other Comprehensive Income, impairment expenses of $903,609 relating to the Group’s trade and other receivables and financing assets which have been • Review of the provisioning methodology applied, ensuring compliance with AASB 9 Financial Instruments through comparison to historical cash recognised as at 30 June 2022. The Group summarises the trade and other collections data and historical loss ratios and consideration of trends into the future; receivables and financing assets balances and the • Verification of key inputs to supporting data and re- provision applied in notes 4 and 5 of the financial computation of the balance date doubtful debt statements. provisions to ensure mathematical accuracy; Given the quantum of the assets and the judgement exercised by the Group in determining the recoverable amount of each of the classes of • Ensured the impact of forecasted market movements of property valuations and interest rates have been considered in the forward-looking estimates; and asset and calculating the expected credit losses • Review of the disclosures relating to the provisioning (impairment charges), we considered this area to methodology to ensure appropriate and complete be significant for our audit. disclosures are presented in the financial report in accordance with Australian Accounting Standards. Accounting for business combinations Key audit matter How the matter was addressed in our audit As disclosed in Note 21, Azora Finance Pty Ltd Our audit procedures included, among others; (‘AF’) was acquired on 1 September 2021 by Azora Finance Group Pty Limited (‘AFG’) via a share-for- • Reviewing the purchase contract to understand the entities being acquired and the consideration payable share exchange. for the acquisition; The accounting for business combinations was a key • Assessing the valuation of AFG shares issued as audit matter given the AF acquisition was material consideration including assessing the Group's to the Group and involved significant judgements forecasting accuracy by comparing past forecasts with made by the Group, including: actual performance and developing an understanding • Determination of the fair value of the consideration paid, being the shares in AFG, which are not traded on the open market; and of the causes of differences; • Obtaining a copy of the external valuation report to critically assess the determination of the fair values of the identifiable intangible assets associated with • Determination of the fair value of identifiable the acquisition; intangible assets. • Using an internal valuation expert to critically assess methodology applied and the key judgemental inputs used; and • Considering the adequacy of the business combination disclosures in light of the requirements of Australian Accounting Standards. 66 Independent Auditor’s Report continued Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2022 but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our auditor’s report. Independent Auditor’s Report continued FSA Group Limited Annual Report 2022 67 Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included on pages 14 to 19 of the Directors’ Report for the year ended 30 June 2022. In our opinion, the Remuneration Report of FSA Group Limited, for the year ended 30 June 2022, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit Pty Ltd Ryan Pollett Director Sydney, 11 August 2022 68 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 2022. 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 287 383 219 332 83 93,007 1,209,683 1,867,620 10,592,334 108,574,180 1,304 122,336,824 The number of security investors holding less than a marketable parcel of 435 securities ($1.15 on 3 August 2022) is 176 and they hold 7,983 securities. twenty largest holders The names of the twenty largest holders, in each class of quoted security are (ordinary shares): 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Capital Management Corporation Pty Ltd Mazamand Group Pty Ltd ADST Pty Ltd BJR Investment Holdings Pty Ltd J P Morgan Nominees Australia Pty Limited UBS Nominees Pty Ltd Ruminator Pty Limited Contemplator Pty Limited Dundas Ritchie Investments Pty Ltd Wycl Holdings Pty Ltd Hsbc Custody Nominees (Australia) Limited Microequities Asset Management Pty Ltd Karia Investment Pty Ltd Garrett Smythe Ltd Maramindi Pty Ltd Fernane Pty Ltd Harold Cripps Holdings Pty Ltd Taurus Sun Trading Pty Ltd Vanward Investments Limited Gattenside Pty Ltd top 20 total 26,000,000 16,659,231 12,960,047 11,111,111 5,678,777 4,529,075 3,491,440 2,597,622 1,500,000 1,250,000 1,182,170 1,160,207 966,666 942,978 900,000 877,168 700,541 700,000 632,583 590,541 94,430,157 122,336,824 21.25% 13.62% 10.59% 9.08% 4.64% 3.70% 2.85% 2.12% 1.23% 1.02% 0.97% 0.95% 0.79% 0.77% 0.74% 0.72% 0.57% 0.57% 0.52% 0.48% 77.19% 100% Shareholder Information continued FSA Group Limited Annual Report 2022 69 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 Voting rights All ordinary shares carry one vote per share without restriction. Number of shares 16,559,026 11,888,514 11,111,111 restricted securities As at the date of this report there were 1,950,000 ordinary shares subject to restrictions under the Long Term Incentive Plan terms and conditions. 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. 70 Corporate Information directors David Bower – Non‑Executive Chairman Tim Odillo Maher – Executive Director Deborah Southon – 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 Automic Level 5, 126 Phillip Street Sydney NSW 2000 GPO Box 5193 Sydney NSW 2001 Auditors Bdo Audit pty Ltd Level 11, 1 Margaret Street Sydney New South Wales 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 www.colliercreative.com.au #FSA0017 F S A G r o u p L i m i t e d | A n n u a l R e p o r t 2 0 2 2 www.fsagroup.com.au