PROGRESS, AUTOMATION AND GROWTH FSA Group Limited Annual Report 2023 Contents 2023 At a Glance 02 Our Business 03 Chairman’s Letter 04 Executive Director’s Review 09 Cautionary Statements and Disclaimer Regarding Forward‑Looking Information 10 Financial Statements 73 Shareholder Information 76 Corporate Directory Developed and enhanced our broker channels New origination increased to $314m, a 38% increase FSA GROUP LIMITED Annual Report 2023 01 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. Loan pools increased to $639m, an 18% increase Increase and renewed warehouse facilities Invested in our systems, developed end‑to‑end automation Moved Services out of “hibernation” 02 Our Business Lending Home Loans FSA Group offers home loans to assist clients wishing to purchase a property or consolidate their debt. Personal Loans FSA Group offers secured personal loans to assist clients wishing to purchase a motor vehicle and unsecured personal loans for any approved purpose. Asset Finance 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 2023 03 Chairman’s Letter The long tail of COVID‑19 continued to impact the number of individuals seeking assistance through our Services segment. Over the last year, financial institutions and government entities gradually eased COVID‑19 related measures. These changes, coupled with growing consumer stress due to cost of living pressures and increasing interest rates, resulted in an increase in Services enquiries. We moved Services out of “hibernation” in June 2023. The last few years we experienced headwinds across certain parts of our business. With the tightening of monetary policy, we are seeing tailwinds emerge. I would like to thank our team for their continued commitment and contribution. Collectively we will continue to deliver progress, automation and growth. Yours sincerely, Tim Odillo Maher Chairman Dear Shareholders, It gives me great pleasure to present my first Chairman’s report. The 2023 financial year has been a year of progress, automation and growth. We made significant progress in our Lending segment. We developed and enhanced our broker channels and the benefits are evident. For 2023, annual new origination increased to $314m, a 38% increase, and our loan pools increased to $639m, an 18% increase compared to the results of 2022. System automation, coupled with our proven credit and arrears management expertise, is critical to delivering and ensuring low cost, profitable growth. Over the past 2 years, we invested in our systems and we developed end‑to‑end automation. We commenced the roll out of these systems only recently, and therefore the real benefits will be realised in future years. We have two Australian banks providing warehousing facilities. As our loan pools grow, we expect to increase and renew these facilities. In addition, we plan to use the debt capital markets, as we did in 2019, to diversify our funding from time to time. Our focus is to double annual new origination, through our broker channels, from our current $300m to over $600m per annum. This will see our loan pools grow to around $1.5b. This forecast is dependant on broker take up of our product offering and funding, both of which are potential risks. We believe we have the skills, experience and now the systems to achieve this outcome. As we grow our loan pools, our business will benefit from higher incremental margins due to operating leverage. Subject to the cash interest rate, which materially impacted our margin on our fixed rate lending products during 2023, we will start to see this positively impact profit during the 2024 financial year. During the year we restructured our funding facilities to provide greater access to liquidity. This will allow us to execute our capital management strategy. Firstly, to invest in the growth of our loan pools where we see the highest risk adjusted return on capital. Secondly, to return capital to shareholders in the form of an on market buy‑back when price to value opportunities arise. Thirdly, subject to business performance, a minimum annual dividend of 7c to 8c per share. We expect our dividend to grow in line with growing profits. 04 Executive Directors’ Review Dear Shareholders, The 2023 financial year has been a year of progress, automation and growth. For the 2023 financial year, FSA Group generated $54.6m in operating income, a 2% decrease, and a profit after tax attributable to members of $13.0m, a 25% decrease compared to the results of 2022. Our net cash inflow from operating activities was $22.3m, a 15% decrease. We advise that the Directors have declared a fully franked final dividend of 3.50 cents per share for the 2023 financial year. This brings the full year dividend to 7.00 cents per share. 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 FY2021 FY2022 FY2023 % Change $61.4m $29.7m $20.1m 16.12c $29.5m 6.00c $72.0m 31% $55.6m $26.9m $17.2m 13.72c $26.2m 7.00c $84.4m 22% $54.6m $21.0m $13.0m 10.63c $22.3m 7.00c $88.0m 15% 2% 22% 25% 23% 15% 4% 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 FY2021 FY2022 FY2023 % Change Lending Home loans and Asset finance Personal loans Services Other/unallocated Operating income $16.1m $14.4m $30.9m $0.1m $61.4m $18.6m $15.4m $21.5m $0.1m $55.6m $21.9m $16.7m $16.3m ($0.3m) $54.6m 17% 9% 24% 2% Profit before tax by segment FY2021 FY2022 FY2023 % Change Lending Home loans and Asset finance Personal loans Services Other/unallocated Profit before tax $9.7m $7.5m $12.1m $0.4m $29.7m $10.0m $9.9m $7.3m ($0.2m) $26.9m $9.2m $9.0m $2.8m ($0.1m) $21.0m 7% 5% 64% 22% FSA GROUP LIMITED FSA GROUP LIMITED Annual Report 2023 05 Annual Report 2023 05 Lending The Lending segment offers home loans to purchase a property or consolidate debt, secured personal loans to purchase a motor vehicle, unsecured personal loans for any approved purpose and asset finance to SMEs 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 Home loans $440,068 Residential home 65% Variable Personal loans secured Personal loans unsecured Asset finance $26,928 Motor vehicle 100%+ on settlement $15,347 $28,473 Unsecured Unsecured Vehicles and equipment 100%+ on settlement Fixed Fixed Fixed All states All states All states All states We made significant progress in our Lending segment. We developed and enhanced our broker channels and the benefits are evident. For 2023, annual new origination increased to $314m, a 38% increase, and our loan pools increased to $639m, an 18% increase compared to the results of 2022. System automation coupled with our proven credit and arrears management expertise, is critical to delivering and ensuring low cost, profitable growth. Over the past 2 years, we invested in our systems and we developed end‑to‑end automation. We commenced the roll out of these systems only recently, and therefore the real benefits will be realised in future years. We have two Australian banks providing warehousing facilities. As our loan pools grow, we expect to increase and renew these facilities. In addition, we plan to use the debt capital markets, as we did in 2019, to diversify our funding from time to time. Our focus is to double annual new origination, through our broker channels, from our current $300m to over $600m per annum. This will see our loan pools grow to around $1.5b. This forecast is dependent on broker take up of our product offering and funding, both of which are potential risks. We believe we have the skills, experience and now the systems to achieve this outcome. As we grow our loan pools, our business will benefit from higher incremental margins due to operating leverage. Subject to the cash interest rate, which materially impacted our margin on our fixed rate lending products during 2023, we will start to see this positively impact profit during the 2024 financial year. New Origination and Loan Pools 400m 300m 200m 100m 0m 639m 314m 541m 227m 457m 447m 127m 151m FY2020 FY2021 FY2022 FY2023 700m 600m 500m 400m 300m 200m 100m 0m Origination Loan pools 0606 Executive Directors’ Review Continued Loan Pools Home loans Personal loans secured Personal loans unsecured Asset finance Total Arrears > 30 day Home loans Personal loans secured Personal loans unsecured Asset finance Losses Home loans Personal loans secured Personal loans unsecured Asset finance FY2021 FY2022 FY2023 % Change $382m $64m $1m $389m $68m $4m $81m $447m $541m $377m $98m $6m $158m $639m 3% 44% 42% 95% 18% FY2021 FY2022 FY2023 1.04% 1.82% 0.00% 1.95% 1.91% 0.25% 2.55% 3.66% 2.94% 6.92% 2.62% FY2021 FY2022 FY2023 $384,098 $656,964 $22,531 $198,805 $550,831 $36,971 $190,021 $887,205 $171,054 $580,009 $1,810,167 During the year we restructured our funding facilities to provide greater access to liquidity. This will allow us to execute our capital management strategy. Firstly, to invest in the growth of our loan pools where we see the highest risk adjusted return on capital. Secondly, to return capital to shareholders in the form of an on market buy‑back when price to value opportunities arise. Thirdly, subject to business performance, a minimum annual dividend of 7c to 8c per share. We expect our dividend to grow in line with growing profits. Borrowings Facility type Home loans Non‑recourse warehouse Securitised Personal loans Limited recourse warehouse Corporate Asset finance Non‑recourse warehouse Provider Westpac Institutional Westpac Westpac Bank Limit $350m – $75m $15m $200m Maturity date Oct‑24 Mar‑51 Apr‑26 Mar‑24 May‑24 Drawn $293m $57m $54m – $116m * This senior non‑recourse and limited recourse warehouse and securitised facilities are supported by mezzanine non‑recourse facilities provided by institutional fund managers. The Lending segment achieved a profit before tax of $18.2m, a 6% decrease. The upfront investment required to grow our loan pools and the increase in the cost of funding materially impacted the margin on our fixed rate lending products during 2023. This has resulted in a decline in earnings for this segment. As we grow our loan pools, our business will benefit from higher incremental margins due to operating leverage. Subject to the cash interest rate, we will start to see this positive impact to profit during the 2024 financial year. FSA GROUP LIMITED FSA GROUP LIMITED Annual Report 2023 07 Annual Report 2023 07 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. The long tail of COVID‑19 continued to impact the number of individuals seeking assistance through our Services segment. Over the last year, financial institutions and government entities gradually eased COVID‑19 related measures. These changes, coupled with growing consumer stress due to cost of living pressures and increasing interest rates, resulted in an increase in Services enquiries. We moved Services out of “hibernation” in June 2023. Informal and Debt agreements FY2021 FY2022 FY2023 % Change New clients Clients under administration Debt managed Dividends paid PIA’s and Bankruptcy New clients Clients under administration 1,463 15,780 $209m $85m 620 11,252 $109m $65m 568 6,316 $52m $41m 8% 44% 52% 36% FY2021 FY2022 FY2023 % Change 89 1,025 97 844 100 633 3% 24% The Services segment achieved a profit before tax of $2.8m, a 64% decrease. The decrease in the number of clients under administration has resulted in a decline in earnings for this segment. Net cash inflow from operating activities During the 2023 financial year, FSA Group maintained steady cash inflow driven by long term annuity income from clients. Net cash inflow was negatively impacted by the upfront investment required to grow our loan pools, an increase in the cost of funding which materially impacted our margin on our fixed rate lending products and, a decrease in the number of clients under administration in the Services segment. Net cash inflow from operating activities $22.3m, a 15% decrease. Net cash inflow from operating activities $29.5m $26.2m $22.3m 15% FY2021 FY2022 FY2023 % Change 0808 Executive Directors’ Review Continued Environmental, social, and governance Environmental We deliberately and consciously foster and encourage good environmental practices. We do this by reflecting on the way we operate, the equipment we use to run the business, the type of products and services we source, where we source them from and the impact these have on the environment. We understand the importance of our team being aware of how we impact the environment. We want our team to actively participate in identifying ways we can further improve our environmental footprint and to actively embrace environmental awareness. Social We encourage and support diversity in the workplace and celebrate its value. We have an Employee Code of Conduct which critiques how we aim to manage workplace relations and behaviours. We regularly run training sessions to explore and educate our team on key subjects such as cultural diversity, dealing with vulnerability and self-care. We engage in ongoing productive relationships with key stakeholders, consumer advocates and consumers groups in which we share critical information while improving our working relationship with key customer representatives. We learn from these engagements and use the knowledge to identify social risks while improving the financial well-being of our customers. Governance We are committed to ensuring our corporate governance practices are aligned with our business and customer needs. We have policies and procedures in place which enable us to meet our staff, customer and stakeholder needs and objectives. However we recognise that we operate in a constantly changing environment and as such, we continually review and reflect on our policies and practices to ensure they remain relevant. Strategy and Outlook The last few years we experienced headwinds across certain parts of our business. With the tightening of monetary policy we are seeing a number of tailwinds emerge. Our focus over the 2024 financial year will be as follows: Lending Services Earnings Capital Management Grow new origination and our loan pools. Regrow as demand returns. Earning guidance will be provided during the 2024 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 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 Chairman Deborah Southon Executive Director FSA GROUP LIMITED FSA GROUP LIMITED Annual Report 2023 09 Annual Report 2023 09 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. 10 Financial Statements For the year ended 30 June 2023 Directors’ Report Remuneration Report (Audited) 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 Directory 11 16 24 25 26 27 28 29 31 68 69 73 76 FSA GROuP LIMITED Annual Report 2023 11 Directors’ Report For the year ended 30 June 2023 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 2023. Directors The Directors of the Company at any time during or since the end of the financial year are: Tim Odillo Maher Deborah Southon Cellina Chen (appointed 24 November 2022) David Bower (retired 24 November 2022) Information on Directors Tim Odillo Maher (Executive Chairman) Experience and Expertise Mr Odillo Maher was appointed on 30 July 2002 and was appointed Chairman on 24 November 2022. 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 12 Directors’ Report Continued 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 Cellina Chen (Executive Director) Experience and Expertise Mrs Cellina Chen was appointed on 24 November 2022. 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 Company Secretary and Chief Financial Officer. 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 1,250,000 FSA GROuP LIMITED Annual Report 2023 13 David Bower (Non‑Executive Chairman) – retired 24 November 2022 Experience and Expertise Mr David Bower was appointed on 23 April 2015 and was appointed Chairman on 2 September 2020. Mr Bower retired on 24 November 2022. Mr Bower has over 30 years of executive experience in financial services in Australia. He spent 26 years with Westpac Banking Corporation running business units in Corporate Banking, Commercial Bank, Retail Bank and Financial Markets. He also worked with ANZ and St George Bank. He is a graduate of the Australian Institute of Company Directors and holds a Bachelor of Economics degree. Other current (listed company) directorships Nil Former (listed company) directorships in last 3 years Nil Special Responsibilities Chairperson of the Audit & Risk Management Committee and Member of the Remuneration Committee. Interest in shares and options Ordinary shares 160,800 Principal activities The Consolidated Entity provides direct lending services and debt solutions 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 $12,996,146 (2022: $17,219,773). Dividends declared and paid during the year • On 30 August 2022, a fully franked final dividend relating to the year ended 30 June 2022 of $4,281,791 was paid at 3.50 cents per share; and • On 9 March 2023, a fully franked interim dividend of $4,281,791 was paid at 3.50 cents per share. Dividends declared after the end of year On 17 August 2023, the Directors declared a 3.50 cent fully franked final dividend to shareholders to be paid on 31 August 2023 with a record date of 24 August 2023. Operating and Financial Review Detailed comments on operations are included separately in the Executive Directors’ Review, on pages 04 to 08 of the Annual Report. 14 Directors’ Report Continued 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 991,236 shares under an on market share buy‑back. Financial position The net assets of the Consolidated Entity, which includes amounts attributable to non‑controlling interests, have increased from $96,077,968 at 30 June 2022 to $101,303,886 at 30 June 2023. 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. 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 2023 except as follows: • On 17 August 2023, the Directors declared a 3.50 cent fully franked final dividend to shareholders to be paid on 31 August 2023 with a record date of 24 August 2023. 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. FSA GROuP LIMITED Annual Report 2023 15 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 2023 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. 16 Remuneration Report (Audited) For the year ended 30 June 2023 This Remuneration Report sets out the remuneration information, pertaining to the Directors. The Directors comprise the Key Management Personnel of the Company for the purposes of the Corporations Act 2001 for the year ended 30 June 2023. 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. 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 – retired on 24 November 2022 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 24 November 2022 to be no more than $500,000. If a Non‑Executive Director performs extra services, which in the opinion of the Directors are outside the scope of the ordinary duties of the Non‑Executive Director, the Company may remunerate that Non‑Executive Director by payment of a fixed sum determined by the Directors in addition to the remuneration referred to above. A Non‑Executive Director is entitled to be paid travel and other expenses properly incurred by them in attending Directors’ or General Meetings of the Company or otherwise in connection with the business of the Consolidated Entity. The remuneration of Non‑Executive Director for the year ended 30 June 2023 is detailed in Table 1 of this Remuneration Report. FSA GROuP LIMITED Annual Report 2023 17 Executive Directors Remuneration Executive Directors Deborah Southon Executive Director Cellina Chen Executive Director The Company aims to reward the Executive Directors 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 Directors 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 payment 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. The remuneration of the Executive Directors for the year ended 30 June 2023 is detailed in Table 1 of this Remuneration Report. 18 Remuneration Report (Audited) Continued Executive Chairman Tim Odillo Maher Executive Chairman 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 2023 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) 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 agreements and the consultancy agreement are for no specific fixed term unless otherwise stated. Executive Directors The employment contracts entered into with the Executive Directors contain the following key terms: Event Company Policy Performance based salary increases and/or bonuses Board assessment based on KPI achievement Short‑term incentives Long‑term incentives Resignation/notice period Serious misconduct Payouts upon resignation or termination, outside industrial regulations Board assessment based on KPI achievement Board assessment based on Long Term Incentive Plan terms and conditions Three months Company may terminate at any time 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 FSA GROuP LIMITED Annual Report 2023 19 (a) Details of Directors and Key Management Personnel (i) Non‑Executive Director David Bower, Non‑Executive Chairman (retired on 24 November 2022) (ii) Executive Directors Tim Odillo Maher, Executive Chairman Deborah Southon, Executive Director Cellina Chen, Executive Director The Directors 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‑ Employment Superannua‑ tion and other benefits $ Perfor‑ mance based Total $ % Non‑Executive Director David Bower – retired 2023 2022 Executive Director Deborah Southon 2023 2022 Executive Director Cellina Chen 2023 2022 Total Remuneration 22,691 52,675 – – – – – – – – – – 401,414 200,000 *26,154 406,596 – – – – – 4,142 – – 345,619 140,000 *9,317 275,883 150,000 36,600 2023 2022 769,724 340,000 35,471 735,154 150,000 40,742 – – – – – – – – – – – – – – – – *6,667 1,612 – – 2,383 25,074 5,268 57,943 – – – – 40,000 674,235 40,000 452,350 30% – – – *21,522 23,568 540,026 29,319 23,568 515,370 26% 29% 28,189 30,931 65,951 1,239,335 68,836 1,025,663 * Annual leave, long service leave accrual movement, together with LTIP 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 – Deborah Southon: $200,000 – $350,000 Executive Director – Cellina Chen: $120,000 – $160,000 20 Remuneration Report (Audited) 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 Chairman Tim Odillo Maher 2023 2022 Fees $ Success fees $ Total Fees $ 438,000 ^200,000 438,000 – 638,000 438,000 ^ 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 2023 30 June 2022 30 June 2021 30 June 2020 30 June 2019 54,620,505 55,587,051 61,434,416 68,180,292 69,742,110 20,976,145 26,944,113 29,712,695 24,750,627 22,164,979 12,996,146 17,219,773 20,108,514 16,315,946 14,411,166 $1.14 $0.99 7.00c 10.63 10.63 $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 A review of bonuses paid to the Executive Directors, 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 2023 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 2023 There were no shares issued as part of the Long Term Incentive Plan during or since the end of the financial year. FSA GROuP LIMITED Annual Report 2023 21 (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 2022 Purchased on market Other Changes Balance 30 June 2023 Directors Tim Odillo Maher Deborah Southon Cellina Chen Total 42,809,231 12,960,047 1,250,000 57,019,278 – – – – – – – 42,809,231 12,960,047 1,250,000 – 57,019,278 (g) Loans to Directors and Key Management Personnel Executive Director Cellina Chen 2023 2022 LTI shares acquired during the year number Opening loan balance $ Loans made $ Loans repaid $ Closing loan balance $ – 1,300,000 – – 1,300,000 1,250,000 110,000 1,300,000 (110,000) 1,300,000 (h) Other transactions with Directors and Key Management Personnel and related parties There were no other transactions with Directors and Key Management Personnel and related parties. (i) Voting and comments made at the Company’s 2022 Annual General Meeting (“AGM”) At the 2022 AGM, 99.41% of the votes received supported the adoption of the Remuneration Report for the year ended 30 June 2022. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. This concludes the Remuneration Report which has been audited. 22 Directors’ Report Continued Directors’ Meetings The number of meetings held and attended by each Director during the year is as follows: David Bower – retired on 24 November 2022 Tim Odillo Maher Deborah Southon Cellina Chen – appointed on 24 November 2022 Total number of meetings held during the financial year Number of meetings held while in office Meetings attended 4 7 7 4 7 4 7 7 4 Audit & Risk Management Committee Meetings The number of meetings held and attended by each member during the year is as follows: David Bower – retired on 24 November 2022 Tim Odillo Maher Deborah Southon Cellina Chen – appointed on 24 November 2022 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 – retired on 24 November 2022 Tim Odillo Maher Deborah Southon Cellina Chen – appointed on 24 November 2022 Total number of meetings held during the financial year Number of meetings held while in office Meetings attended 1 2 2 1 2 1 2 2 1 Number of meetings held while in office Meetings attended 1 2 2 1 2 1 2 2 1 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. FSA GROuP LIMITED Annual Report 2023 23 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 24. Non‑audit services Details of the amounts paid or payable to the auditor for non‑audit services provided during the financial year by the auditor are outlined in Note 19 to the financial statements. The Directors are satisfied that the provision of non‑audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services as disclosed in Note 19 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non‑audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision‑making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. 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 Chairman Sydney 17 August 2023 24 Auditor’s Independence Declaration Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret Street 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 2023, 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 17 August 2023 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 2023 25 Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2023 Revenue and other income Fees from services Finance income Finance expense Net finance income Other income/(losses) Total operating income Employee benefit expense Marketing expense Operating expenses Impairment expenses Office facility expenses Depreciation and amortisation expense 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 2023 $ 2022 $ 2 2 2 2 2 16,434,486 22,195,338 67,399,058 45,393,332 (29,116,567) (12,001,619) 38,282,491 33,391,713 (96,472) – 54,620,505 55,587,051 (20,595,792) (18,752,840) (3,491,292) (3,419,977) (2,939,320) (2,661,420) (3,653,757) (903,609) (1,715,231) (1,651,781) (1,248,968) (1,253,311) (33,644,360) (28,642,938) 20,976,145 26,944,113 18 (6,170,306) (8,220,582) 14,805,839 18,723,531 – – 14,805,839 18,723,531 1,809,693 1,503,758 3 12,996,146 17,219,773 14,805,839 18,723,531 3 3 10.63 10.63 13.72 13.72 The Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the Notes to the Financial Statements. 26 Statement of Financial Position AS at 30 June 2023 Assets Cash and cash equivalents Restricted cash Trade and other receivables Loans and advances Other assets Right of use assets Plant and equipment Intangible assets Deferred tax assets Total Assets Liabilities Trade and other payables Current tax liabilities Financing liabilities Lease liabilities Contract liabilities Provisions Deferred tax liabilities Total Liabilities Net Assets Equity Share capital Reserves Retained earnings Total equity attributable to members of the parent Non‑controlling interests Total Equity Notes 2023 $ 2022 $ 14 14 16,404,282 16,587,684 20,045,421 19,336,929 4, 14 14,769,434 17,396,372 5, 14, 15 638,697,386 541,486,166 8 6 18 319,634 8,176,043 1,795,058 621,349 9,241,234 1,917,121 14,601,068 14,279,844 2,410,202 1,576,521 717,218,528 622,443,220 7 3,708,800 5,382,588 3,519,804 4,153,626 13 591,018,637 501,738,291 8 2 9 18 9,065,182 286,197 3,218,683 3,234,555 9,871,417 673,307 2,954,624 3,454,183 615,914,642 526,365,252 101,303,886 96,077,968 10 11 2,493,454 8,707,901 3,502,630 8,477,064 76,816,975 72,384,411 88,018,330 84,364,105 13,285,556 11,713,863 101,303,886 96,077,968 The Statement of Financial Position should be read in conjunction with the Notes to the Financial Statements. Refer to Note 1 for the change to liquidity base presentation of the Statement of Financial Position. FSA GROuP LIMITED Annual Report 2023 27 Statement of Changes in Equity For the year ended 30 June 2023 Balance at 30 June 2021 6,360,492 Note Share capital $ Reserves $ 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 – – – – – (4,885,862) Retained earnings $ Non‑ controlling interests $ Total $ 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 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 Class shares 10 11 11, 22 – – – – – (1,009,176) – – – – – – – – 40,059 190,778 12,996,146 1,809,693 14,805,839 – – – 12,996,146 1,809,693 14,805,839 (8,563,582) – (8,563,582) – – – – (238,000) (238,000) – – – (1,009,176) 40,059 190,778 Balance at 30 June 2023 2,493,454 8,707,901 76,816,975 13,285,556 101,303,886 The Statement of Changes in Equity should be read in conjunction with the Notes to the Financial Statements. 28 Statement of Cash Flows For the year ended 30 June 2023 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Finance income received Finance cost paid Income tax paid Consolidated Entity Notes 2023 $ 2022 $ Inflows/ (Outflows) Inflows/ (Outflows) 15,371,250 25,723,989 (28,308,061) (27,559,864) 69,476,459 47,959,056 (28,222,304) (11,740,940) (5,994,653) (8,190,122) Net cash inflow from operating activities 17 22,322,691 26,192,119 Cash flows from investing activities Cash and cash equivalent from acquisition Acquisition of property, plant and equipment Acquisition of intangibles Net decrease/(increase) in home loan assets Net increase in personal loan assets Net increase in asset finance assets Net decrease in other loans Net cash outflow from investing activities Cash flows from financing activities Net receipt of borrowings Payment of lease liability Payment of distributions to non‑controlling interests Share buy‑back Dividends paid to the Company’s shareholders Net cash inflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period – 2,355,482 (175,880) (1,272,250) (68,567) (356,668) 11,715,589 (6,337,249) (31,869,701) (6,315,178) (78,191,689) (39,545,524) 28,000 17,500 (99,765,931) (50,250,204) 88,748,924 39,199,071 (969,836) (238,000) (833,360) (420,000) 10 12 (1,009,176) (4,885,862) (8,563,582) (8,177,761) 77,968,330 24,882,088 525,090 824,003 35,924,613 35,100,610 Cash and cash equivalents at the end of the period 17 36,449,703 35,924,613 The Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements. FSA GROuP LIMITED Annual Report 2023 29 General Information For the year ended 30 June 2023 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 direct lending services and debt solutions 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 Statement of Financial Position is presented on a liquidity basis. The Financial Statements are presented in Australian dollars and rounded to the nearest dollar. The Consolidated Entity has restated its 30 June 2022 consolidated statement of profit and loss. This is in accordance with AASB 9 which requires all fees and transaction costs, which are integral to the creation of a loan, to be included in the effective interest rate calculation. The Consolidated Entity has previously amortised any integral transactions costs through the operating expenses these have been reclassified to interest income in the consolidated statement of profit and loss. The change to the consolidated statement of profit and loss is a reclassification between revenue and cost and does not change the overall profitability of the Consolidated Entity in the prior year. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of FSA Group Limited (“Company” or “parent entity”) as at 30 June 2023 and the results of all subsidiaries for the year then ended. FSA Group Limited and its subsidiaries together are referred to in these financial statements as the “Consolidated Entity”. Subsidiaries are all those entities over which the Consolidated Entity has control. The Consolidated Entity controls an entity when the Consolidated Entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Consolidated Entity. They are de‑consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Consolidated Entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Consolidated Entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non‑controlling interest acquired is recognised directly in equity attributable to the parent. Non‑controlling interest in the results and equity of subsidiaries are shown separately in the Statement of Profit or Loss and Other Comprehensive Income, Statement of Financial Position and Statement of Changes in Equity of the Consolidated Entity. 30 General Information Continued 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 22 Revenue and income Trade and other receivables Loans and advances Intangible assets Financial instruments Financial risk management Share‑based compensation 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 17 August 2023. FSA GROuP LIMITED Annual Report 2023 31 Notes to the Financial Statements For the year ended 30 June 2023 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. Loans and advances 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. Interests in subsidiaries Note 22. Share‑based compensation Note 23. Parent entity information Note 24. Deed of cross guarantee Note 25. Contingent liabilities Note 26. Events occurring after reporting date Note 27. Related party disclosures 32 32 33 36 36 36 38 39 41 41 42 43 44 44 44 45 46 47 48 55 56 56 56 58 58 59 63 65 65 67 67 67 32 Notes to the Financial Statements Continued PERFORMANCE This section focuses on the Consolidated Entity’s performance and returns to shareholders for the year ended 30 June 2023. 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 2023 $ 2022 $ 2023 $ 2022 $ 2023 $ 2022 $ 2023 $ 2022 $ 16,159,182 21,845,648 502,082 324,894 (323,250) 24,796 16,434,486 22,195,338 132,705 32,067 164,772 3,956 67,117,400 45,382,925 148,953 6,451 67,399,058 45,393,332 (347,116) (29,053,428) (11,538,199) (95,206) (116,304) (29,116,567) (12,001,619) (343,160) 38,063,972 33,844,726 53,747 (109,853) 38,282,491 33,391,713 16,323,954 21,502,488 38,566,054 34,169,620 (269,503) (85,057) 54,620,505 55,587,051 2,820,900 7,331,520 18,207,469 19,834,377 (52,224) (221,784) 20,976,145 26,944,113 (893,620) (2,209,747) (5,376,754) (6,079,789) 100,068 68,954 (6,170,306) (8,220,582) 1,927,280 5,121,773 12,830,715 13,754,588 47,844 (152,830) 14,805,839 18,723,531 31,456,488 37,411,345 681,861,229 580,596,599 20,816,079 22,644,849 734,133,796 640,652,793 (16,915,268)* (18,209,573)* 717,218,528 622,443,220 *Eliminations are related to intercompany balances. 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 operating income. FSA GROuP LIMITED Annual Report 2023 33 Note 2: Revenue and income Fees from services Fees from services comprise fees from contracts with customers for personal insolvency services. Revenue is recognised at an amount that reflects the consideration to which the Consolidated Entity is expected to be entitled (“the transaction price”) in exchange for transferring distinct performance obligations to clients as follows: Service Fees Performance obligations Revenue recognition Debt agreements and informal arrangements Application fees and administration fees Performance obligations comprises two distinct services: (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. 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. 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. • 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. 34 Notes to the Financial Statements Continued 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. Fees from services continue unsatisfied performance obligations The aggregate amount of the transaction price allocated to debt agreement and informal arrangement administration services that are unsatisfied is $8,684,911 as at 30 June 2023 ($19,640,318 as at 30 June 2022) 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 months unrecoverable payments Consolidated Entity 2023 $ 2022 $ 3,029,752 2,381,313 891,861 2,381,985 7,095,762 6,258,090 3,182,056 3,104,410 8,684,911 19,640,318 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 Contract liability Reconciliation of the carrying amount: Opening balance Payments received in advance Transfer to revenue – included in the opening balance Consolidated Entity 2023 $ 242,973 43,224 286,197 673,307 (40,899) (346,211) 286,197 2022 $ 466,700 206,607 673,307 955,224 169,957 (451,874) 673,307 FSA GROuP LIMITED Annual Report 2023 35 Net finance income Finance income comprises interest income and finance fee income: • Interest income is recognised using the effective interest method over the life of the loan, taking into account all income and expenditure directly attributable to the origination of the loan. • Finance fee income include fees other than those that are an integral part of effective interest method and include loan fees paid by the customer such as application fee, settlement fee, discharge fee and post‑settlement fees. The performance obligation for these fees is met at a point in time when the fee is charged to the customer and revenue is recognised. Net finance income is presented net of finance costs, which comprise interest expense on borrowings using the effective interest method. 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 Other income/(loss) – Profit/(Loss) on impairment of intangible assets Total operating income Consolidated Entity 2023 $ 2022 $ 16,230,009 21,845,648 527,727 (323,250) 324,894 24,796 16,434,486 22,195,338 29,850,855 22,082,322 19,963,161 16,377,813 17,303,385 6,922,791 281,657 10,406 67,399,058 45,393,332 (18,395,562) (8,180,629) (3,282,140) (1,056,320) (7,375,727) (2,301,251) (63,138) (463,419) (29,116,567) (12,001,619) 38,282,491 33,391,713 (96,472) – 54,620,505 55,587,051 36 Notes to the Financial Statements Continued Note 3. Earnings per share The Consolidated Entity calculated basic and diluted earnings per share as follows: Consolidated Entity 2023 $ 2022 $ Total profit attributable to the members of the parent for the year ($) 12,996,146 17,219,773 Weighted average number of ordinary shares used in calculating basic earnings per share 122,300,942 125,483,612 Weighted average number of ordinary shares used in calculating diluted earnings per share 122,300,942 125,483,612 Number Number Basic earnings per share (cents) Diluted earnings per share (cents) 10.63 10.63 13.72 13.72 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. Details of the Consolidated Entity’s credit risk is included in Note 15. 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. FSA GROuP LIMITED Annual Report 2023 37 Consolidated Entity 2023 $ 2022 $ 15,415,386 16,731,674 (1,317,953) (1,004,088) 14,097,433 15,727,586 751,950 (79,949) 672,001 1,815,394 (146,608) 1,668,786 14,769,434 17,396,372 1,150,696 1,194,790 674,796 (195,210) (232,380) 803,219 (438,590) (408,723) 1,397,902 1,150,696 11,941,426 12,681,862 4,225,910 5,865,206 16,167,336 18,547,068 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 Aging analysis – Trade and other receivables Not past due Past due Total 38 Notes to the Financial Statements Continued Note 5. Loans and advances Receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the statement of profit and loss and other comprehensive income when the loans and advances are derecognised or impaired. The Company has adopted AASB 9 and adopted a forward looking “expected credit loss (ECL)” model to determine the potential future impairment of loans and advances. Impairment policy of loans and advances are included in Note 15. Loans and advances comprise: Consolidated Entity Home loan assets Personal loan assets Asset finance assets Total 2023 $ 2022 $ 2023 $ 2022 $ 2023 $ 2022 $ 2023 $ 2022 $ 317,986,348 296,205,553 105,020,530 73,963,022 160,648,188 82,164,180 583,655,066 452,332,755 60,123,016 93,465,210 – – – – 60,123,016 93,465,210 378,109,364 389,670,763 105,020,530 73,963,022 160,648,188 82,164,180 643,778,082 545,797,965 (872,840) (798,604) (1,505,397) (2,136,195) (2,702,459) (1,377,000) (5,080,696) (4,311,799) 377,236,524 388,872,159 103,515,133 71,826,827 157,945,729 80,787,180 638,697,386 541,486,166 Non‑securitised financing assets Securitised financing assets Total financing assets Provision for impairment Security Weighted average loan to valuation ratio Interest rate type Variable Variable Aging analysis 65% 65% n/a Fixed n/a Fixed n/a Fixed n/a Fixed Not past due 322,224,293 355,816,411 93,434,475 65,496,372 149,763,958 75,882,787 565,422,726 497,195,570 Past due 0 – 30 days 42,114,125 26,270,308 8,286,112 7,151,429 6,732,262 4,060,705 57,132,499 37,482,442 Past due 30 days 13,770,946 7,584,044 3,299,943 1,315,221 5,151,968 2,220,688 21,222,857 11,119,953 Total 378,109,364 389,670,763 105,020,530 73,963,022 160,648,188 82,164,180 643,778,082 545,797,965 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 5,987,514 8,123,901 23,450,722 18,900,838 39,108,062 21,275,647 68,546,298 48,300,386 372,121,850 381,546,862 81,569,808 55,062,184 121,540,126 60,888,533 575,231,784 497,497,579 378,109,364 389,670,763 105,020,530 73,963,022 160,648,188 82,164,180 643,778,082 545,797,965 Opening balance 798,604 1,116,147 2,136,195 3,222,850 1,377,000 634,914 4,311,799 4,973,911 Increase in provision 264,257 (118,739) 256,408 (535,824) 3,135,626 1,314,619 3,656,291 660,056 Bad debts (190,021) (198,804) (887,206) (550,831) (1,810,167) (572,533) (2,887,394) (1,322,168) Closing balance 872,840 798,604 1,505,397 2,136,195 2,702,459 1,377,000 5,080,696 4,311,799 FSA GROuP LIMITED Annual Report 2023 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 in accordance with the effective life of the software. 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. 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. 40 Notes to the Financial Statements Continued Goodwill Less: Impairment Software at cost Less: Accumulated impairment losses Less: Accumulated amortisation Customer relationships at cost Less: Accumulated amortisation Broker network at cost Less: Accumulated amortisation Reconciliations Consolidated Entity 2023 $ 2022 $ 10,766,323 10,766,323 – – 10,766,323 10,766,323 6,712,749 5,344,027 (96,472) – (4,469,582) (3,941,256) 2,146,695 1,402,771 366,000 (134,200) 231,800 366,000 (61,000) 305,000 2,097,000 2,097,000 (640,750) (291,250) 1,456,250 1,805,750 14,601,068 14,279,844 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 2022 Additions Impairment of assets Amortisation expense Goodwill Software Customer relationships Broker network Total 10,766,323 5,344,027 366,000 2,097,000 18,573,350 – (3,941,256) (61,000) (291,250) (4,293,506) 10,766,323 1,402,771 305,000 1,805,750 14,279,844 – – – 1,368,722 (96,472) (528,326) – – – – (73,200) (349,500) 1,368,722 (96,472) (951,026) Balance at 30 June 2023 10,766,323 2,146,695 231,800 1,456,250 14,601,068 FSA GROuP LIMITED Annual Report 2023 41 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 2023 $ 2022 $ 345,124 345,124 10,421,199 10,421,199 10,766,323 10,766,323 The recoverable amount of goodwill attributable to the Asset Finance CGU, is determined based on a value‑in‑use calculation using a discounted cash flow modal, based on a 2 year projection period approved by management and extrapolated for a further 3 years using a steady rate, together with a terminal value. Key assumptions are those to which the recoverable amount of CGU is most sensitive. The following key assumptions were used in the discounted cash flow model for the Asset Finance CGU: • 12% (2022: 8%) after‑tax discount rate; • 6% (2022: 6%) per annum projected revenue growth rate; and • 3% (2022: 3%) per annum increase in operating costs and overheads. The discount rate of 12% pre‑tax reflects management’s estimate of the time value of money and the Consolidated Entity’s weighted average cost of capital adjusted for the Asset Finance division, the risk free rate and the volatility of the share price relative to market movements. Management believes the projected 6% revenue growth rate is prudent and justified, based on the growth of the asset finance market. 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 Asset Finance CGU or FSA Australia CGU, which would cause the carrying amount to exceed the recoverable amount. 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. Unsecured trade payables Employee benefits payables and accruals Sundry payables and accruals Consolidated Entity 2023 $ 2022 $ 644,434 809,414 2,755,846 2,536,027 308,520 3,708,800 174,363 3,519,804 42 Notes to the Financial Statements Continued Note 8. Leases The Consolidated Entity leases its office premises. The Consolidated Entity adopted AASB 16 Leases on 1 July 2019. The Company entered into a new lease of office premises on 17 February 2020 and the lease has been capitalised as a right of use asset addition during the current year. The lease liability on initial recognition is measured at the present value of the contractual payments due to the lessor over the lease term of 10 years, with the discount rate determined at the Consolidated Entity’s incremental borrowing rate on the commencement of the lease. The right‑of‑use asset is depreciated over the lease term. The lease liability is accounted for using an effective interest method. 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 2023 were $163,601. 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 2023 $ 2022 $ 11,738,049 11,574,448 (3,562,006) (2,333,214) 8,176,043 9,241,234 1,041,212 8,023,970 9,065,182 948,179 8,923,238 9,871,417 Consolidated Entity 2023 $ 2022 $ 1,228,793 1,178,457 329,876 326,623 19,055 350,751 328,506 33,198 1,904,347 1,890,912 FSA GROuP LIMITED Annual Report 2023 43 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 2023, the Consolidated Entity employed 106 full‑time equivalent employees (2022: 104) plus a further 6 independent contractors (2022: 6). 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. Employee benefits – current Employee benefits – non‑current Total Consolidated Entity 2023 $ 2,831,750 386,933 2022 $ 2,531,627 422,997 3,218,683 2,954,624 44 Notes to the Financial Statements Continued 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 Note 11. Reserves Other reserve – business combination Class share reserve Long Term Incentive Plan share reserve Long Term Incentive Plan share valuation reserve Balance 30 June Consolidated Entity 2023 $ 2022 $ 3,502,630 – 6,360,492 2,028,000 (1,009,176) (4,885,862) 2,493,454 3,502,630 Number Number 122,336,824 124,761,680 1,950,000 (991,236) (4,374,856) 121,345,588 122,336,824 Consolidated Entity 2023 $ 2022 $ 10,320,000 10,320,000 349,762 158,984 (2,028,000) (2,028,000) 66,139 26,080 8,707,901 8,477,064 FSA GROuP LIMITED Annual Report 2023 45 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 2023 Final – ordinary Interim – ordinary Financial Year 2022 Final – ordinary Interim – ordinary Value per share $ Total Amount 0.035 0.035 $4,281,791 $4,281,791 Value per share $ Total Amount 0.03 0.035 $3,742,850 $4,434,911 Franked 100% 100% Franked 100% 100% Date of Payment 30‑Aug‑22 9‑Mar‑23 Date of Payment 31‑Aug‑21 10‑Mar‑22 On 17 August 2023, the Directors declared a fully franked final dividend for the year ended 30 June 2023 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% 28,570,451 26,973,557 Franking credits that will arise from the (expected refund)/payment of the amount of the provision for income tax at the reporting date based on a tax rate of 30% (107,031) 1,374,029 Franking credits available for subsequent financial years based on a tax rate of 30% 28,463,420 28,347,586 Consolidated Entity 2023 $ 2022 $ 46 Notes to the Financial Statements Continued Note 13. Borrowings Borrowings comprise: Borrowings Facility type Provider Limit Maturity date Drawn Security Home loans Non‑recourse warehouse Westpac Institutional $350m $27m Oct‑24 Oct‑24 $293m This facility is secured $22m against current and future home loan assets of Azora Home Loans Warehouse Trust 1. Securitised Institutional Mar‑51 $57m This facility is secured Personal loans Limited recourse warehouse Westpac Institutional $75m $21m Apr‑26 Apr‑26 Corporate Westpac $15m Mar‑24 against current and future home loan assets of the Fox Symes Home Loans 2019‑1 PP Trust. $54m This facility is secured $11m against current and future personal loan assets of the Azora Personal Loans Warehouse Trust 1. $0m This facility is secured by a fixed and floating charge over the assets of FSA Group Limited and its controlled entities Asset Finance Non‑recourse warehouse Australian Bank Institutional $200m May‑24 $116m This facility is secured May‑24 $36m against current and future asset finance assets of the Azora Warehouse Trust No. 1. FSA GROuP LIMITED Annual Report 2023 47 Consolidated Entity 2023 $ 2022 $ 348,211 300,247 65,887,477 43,804,531 372,832,754 382,388,979 151,950,195 72,024,674 – 3,219,860 590,670,426 501,438,044 591,018,637 501,738,291 102,696,219 78,547,520 390,893,300 398,984,824 162,487,526 83,290,750 656,077,045 560,823,094 unsecured Credit cards 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 including restricted cash pledged as security are: Personal loan assets Home loan assets Asset finance assets Note 14. Financial instruments The Consolidated Entity undertakes transactions in a range of financial instruments, the risks associated with those financial instruments and recognition are as follows: Financial instrument Non‑derivative financial instruments Type of instruments Risks Recognition Cash and cash equivalents Trade and other receivables Credit risk & Market risk Loans and advances Other financial assets Trade and other payables Lease liabilities Short‑term loans Bank loans Warehouse facilities Securitised facilities 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. 48 Notes to the Financial Statements Continued These financial instruments represented in the Statement of Financial Position are categorised under AASB 9 Financial Instruments: Recognition and Measurement as follows: Financial Assets Cash and cash equivalents Restricted cash Trade and other receivables Loans and advances Assets and receivables at amortised cost Financial Liabilities Payables at amortised cost Financing liabilities Payables at amortised cost Consolidated Entity 2023 $ 2022 $ 16,404,282 16,587,684 20,045,421 19,336,929 14,769,434 17,396,372 638,697,386 541,486,166 689,916,523 594,807,151 3,708,800 3,820,051 591,018,637 501,438,044 594,727,437 505,258,095 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 Personal insolvency receivables Unsecured Personal loan assets Unsecured Motor vehicle Home loan assets Residential property Asset finance assets Vehicle and business equipment Debtors are assessed for serviceability and affordability prior to inception of each agreement 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. FSA GROuP LIMITED Annual Report 2023 49 Impairment of financial assets The Consolidated Entity adopted a “expected credit loss (ECL)” model to determine the potential future impairment of loans and advances. The Consolidated entity’s credit risk assessment process is designed to be dynamic and responsive, adjusting ECL estimates to reflect shifts in the economic environment, credit policy modifications, and recovery processes. The ECL model for loans and advances measured at amortised cost is determined with reference to three stages of the assets: Asset Stage Method Staging criteria Stage 1 Collective In order or less than 30 days past due Stage 2 Collective Stage 3 Collective Stage 3 Specific 30 days past due 90 days past due Formal recovery Impairment assessment No increase in credit risk Increase in credit risk Credit impaired Credit impaired Impairment recognition 12 months ECL Life time ECL Life time ECL Life time ECL ECLs are a probability‑weighted estimate of credit losses. The key inputs used in measuring the ECL include: a) Probability of default is the likelihood of default, applied to each underlying exposure; b) Expected loss is the cumulative loss with reference to the historical loss performance of the loans and advances, overlaid by the Consolidated Entity’s assessment of current macro‑economic factors, historical experience and informed credit assessment. 50 Notes to the Financial Statements Continued The following table summarises the loans and advances and the expected credit loss by stage and risk category: Stage 1 Collective Stage 2 Collective Stage 3 Collective Stage 3 Specific Total Maximum exposure to credit risk Balance as at 30 June 2023 Loans and advances Home loan lending Personal loan lending Asset finance lending Total Balance as at 30 June 2022 Loans and advances Home loan lending Personal loan lending Asset finance lending Total Expected credit loss Balance as at 30 June 2023 Loans and advances Home loan lending Personal loan lending Asset finance lending Total Balance as at 30 June 2022 Loans and advances Home loan lending Personal loan lending Asset finance lending Total 362,521,478 10,716,097 4,775,068 96,721 378,109,364 101,868,847 2,325,357 628,106 198,220 105,020,530 154,707,554 3,248,771 631,659 2,060,204 160,648,188 619,097,879 16,290,225 6,034,833 2,355,145 643,778,082 384,615,132 3,317,014 1,738,617 – 389,670,763 72,138,435 1,398,275 79,924,800 1,340,394 128,412 401,907 297,900 73,963,022 497,079 82,164,180 536,678,367 6,055,683 2,268,936 794,979 545,797,965 736,677 96,983 39,180 – 872,840 725,334 407,366 219,268 153,429 1,505,397 1,078,682 85,564 188,462 1,349,751 2,702,459 2,540,693 589,913 446,910 1,503,180 5,080,696 757,098 2,001,110 1,159,687 27,290 41,948 15,407 14,216 29,754 1,906 – 798,604 63,383 2,136,195 200,000 1,377,000 3,917,895 84,645 45,876 263,383 4,311,799 FSA GROuP LIMITED Annual Report 2023 51 Credit risk concentration The following table summarises the credit risk concentration on loans and advances across the different states: Concentration by region Loan balances New South Wales Victoria Queensland Western Australia South Australia Tasmania Northern Territory ACT Total Concentration by region Expected credit loss New South Wales Victoria Queensland Western Australia South Australia Tasmania Northern Territory ACT Total 2023 $ 190,677,578 157,585,596 163,456,721 62,537,864 38,623,241 13,434,093 4,059,144 13,403,845 2022 $ 167,395,670 140,898,548 135,254,147 43,829,815 28,123,007 13,659,384 5,868,817 10,768,577 % 29.6% 24.5% 25.4% 9.7% 6.0% 2.1% 0.6% 2.1% % 30.7% 25.8% 24.8% 8.0% 5.2% 2.5% 1.0% 2.0% 643,778,082 100% 545,797,965 100.0% 2023 $ 1,821,102 1,266,463 1,117,938 502,636 186,203 64,944 13,729 107,681 % 35.8% 24.8% 21.9% 9.8% 3.6% 1.3% 0.3% 2.1% 2022 $ 1,274,849 974,471 1,200,120 444,955 206,440 101,343 47,447 62,174 % 29.6% 22.6% 27.8% 10.3% 4.8% 2.4% 1.1% 1.4% 5,080,696 100% 4,311,799 100.0% The Consolidated Entity monitors the collection and performance of the loans and advances closely. The Consolidated Entity adopted the AASB 9 presumption that there is significant increase in credit risk when contractual payments are more than 30 days past due, and a receivable is credit impaired when contractual payments are more than 90 days past due. 52 Notes to the Financial Statements Continued The loans and advances balances under each past due status is illustrated below: Analysis of loans and advances by past due date Loan and advance balances Loans 0 day and less than 30 days in arrears Loans 30 days and less than 90 days in arrears Loans great than 90 days in arrears Total Expected credit loss Loans 0 day and less than 30 days in arrears Loans 30 days and less than 90 days in arrears Loans great than 90 days in arrears Total Consolidated Entity 2023 $ 2022 $ 622,555,225 536,459,466 14,168,518 6,289,686 7,054,339 643,778,082 3,048,813 545,797,965 2,530,831 675,490 1,874,375 5,080,696 3,858,113 161,305 292,381 4,311,799 Movement in credit exposures and provision for impairment Provision for impairment losses Balance as at 1 July 2022 Transfer to stage 1 Transfer to stage 2 Transfer to stage 3 Transfer to stage 3 specific Net transfer between stages Net re‑measurement on transfer between stages Impact from net repayment & interest for the period New loans originated Impact from financial assets that have been de‑recognised during the period Balance as at 30 June 2023 Credit exposure Stage 1 Collective $ 3,917,895 128,472 (91,243) (25,970) (18,105) (6,846) Stage 2 Collective $ Stage 3 Collective $ Stage 3 Specific $ Total $ 84,645 (52,234) 97,514 (1,824) (2,749) 40,707 45,876 263,383 4,311,799 (517) (137) 27,794 (4,466) 22,674 (75,721) (6,134) 0 25,320 (56,535) – – – – – (176,667) 254,938 304,051 915,104 1,297,426 (1,948,248) 1,567,366 18,828 211,252 197 27,760 (1,901,463) 110,789 500,467 2,389,874 (812,807) 2,540,693 (20,457) 589,913 (36,677) (146,999) (1,016,940) 446,910 1,503,180 5,080,696 Balance as at 1 July 2022 536,678,367 6,055,683 2,268,936 794,979 545,797,965 Net receivables transfer between stages (14,127,176) 7,220,126 4,645,850 1,179,338 (1,081,862) Net repayments & interest for the period (28,973,325) (83,678) New loans originated 281,612,078 4,396,478 16,144 778,063 3,854 (29,037,005) 760,829 287,547,448 Financial assets that have been de‑recognised during the period (156,092,065) (1,298,384) (1,674,160) (383,855) (159,448,464) Balance as at 30 June 2023 619,097,879 16,290,225 6,034,833 2,355,145 643,778,082 FSA GROuP LIMITED Annual Report 2023 53 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 facilities will not affect the Consolidated Entity’s ability to continue as a going concern. The contractual maturity of the Consolidated Entity’s fixed and floating rate financial liabilities are as follows. The amounts represent the future undiscounted principal and interest cash flows. Consolidated Entity 30 June 2023 Carrying amount $ Contractual Cash flows $ 12 months or less $ Trade and other payables 3,708,800 3,708,800 3,708,800 1 to 2 years $ – 2 to 5 years $ – 5 to 10 years $ – Leases 9,065,182 10,336,881 1,333,768 1,396,487 4,440,695 3,165,932 Other short‑term loans 348,211 348,211 348,211 – – Warehouse facilities 533,263,082 581,014,615 187,838,876 323,973,592 69,202,147 – – Securitised facilities 57,407,344 70,629,095 16,243,579 12,692,116 23,661,042 18,032,358 Total 603,792,619 1,006,403,612 230,215,387 657,686,053 97,303,884 21,198,290 30 June 2022 Trade and other payables 3,519,804 3,519,804 3,519,804 – – – 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 54 Notes to the Financial Statements Continued 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. Interest rate sensitivity analysis The tables below show 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 (2022: 50 bps). A 50 bps sensitivity is considered reasonable given the current level of both short‑term and long‑term Australian interest rates. This would represent approximately two rate increases/decreases. The analysis is based on interest rate risk exposures at reporting date on both financial assets and liabilities. If interate rates increased by 50bps (2022: 50bps) If interate rates decreased by 50bps (2022: 50bps) Capital management Consolidated Entity Profit after tax 2023 $ 761,873 (761,873) 2022 $ 405,074 (405,074) 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. FSA GROuP LIMITED Annual Report 2023 55 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 Loans and advances Personal loan assets Home loan assets Asset finance assets Financial assets Receivables net of deferred tax Loans and advances Personal loan assets Home loan assets Asset finance assets Jun‑23 Jun‑23 Book value $ Fair value $ 2,903,965 2,897,255 103,515,133 117,428,247 377,236,524 388,815,728 157,945,729 165,273,000 Jun‑22 Jun‑22 Book value $ Fair value $ 5,443,959 5,432,893 71,826,827 83,938,317 388,872,159 407,876,761 80,787,180 86,541,796 56 Notes to the Financial Statements Continued OTHER Note 17. Cash flow information Cash and cash equivalents Restricted cash Cash and cash equivalents at the end of the period Reconciliation of cash flows from operations to profit after tax Profit after tax Non‑cash flows in profit/(loss): Depreciation and amortisation 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 2023 $ 2022 $ 16,404,282 16,587,684 20,045,421 19,336,929 36,449,703 35,924,613 14,805,839 18,723,531 2,477,761 1,077,226 2,431,767 749,635 2,347,828 4,818,726 (85,397) 175,653 1,219,664 304,117 85,509 30,461 (873,680) 226,170 22,322,691 26,192,119 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. FSA GROuP LIMITED Annual Report 2023 57 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. (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: (Increase)/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% (2022: 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 2023 $ 2022 $ 7,174,503 8,716,951 (1,053,307) 49,110 (472,654) (23,715) 6,170,306 8,220,582 (141,230) 585,905 (912,077) (1,058,560) (1,053,307) (472,655) 20,976,145 26,944,113 6,292,844 8,083,234 236,358 4,597 162,004 (4,331) 6,533,799 8,240,907 (363,493) (20,325) – – 6,170,306 8,220,582 2,909,184 2,525,136 98,015 579,133 80,287 567,576 2,719,555 2,961,425 36,613 66,847 6,342,500 6,201,271 (3,932,298) (4,624,750) 2,410,202 1,576,521 4,207,626 2,452,813 4,567,661 2,772,371 506,415 738,900 (3,932,299) (4,624,749) 3,234,555 3,454,183 58 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 Consolidated Entity 2023 $ 2022 $ 173,500 36,450 209,950 30,250 67,375 36,123 3,336 106,834 316,784 156,000 34,400 190,400 29,000 57,700 42,330 4,000 104,030 294,430 Note 20. Key Management Personnel disclosures On 3 December 2021, 1,250,000 shares were issued under the Long Term Incentive Plan to Cellina Chen 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 $27,803 (2022: $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: Executive Director Cellina Chen 2023 2022 LTI shares acquired during the year number Opening loan balance $ Loans made $ Loans repaid $ Closing loan balance $ – 1,300,000 – – 1,300,000 1,250,000 110,000 1,300,000 (110,000) 1,300,000 Remuneration of Directors and Key Management Personnel Short‑term employee benefits Long‑term employee benefits Post‑employment benefits Consultancy fees $ 1,145,195 28,189 65,951 638,000 1,877,335 $ 925,896 30,931 68,836 438,000 1,463,663 FSA GROuP LIMITED Annual Report 2023 59 Note 21. 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. Country of Incorporation Percentage of equity interest held 2023 % 2022 % Name 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 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 Aravanis Insolvency Pty Ltd Fox Symes Business Services Pty Ltd Australia Australia Australia Australia 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 The following entity is a subsidiary of Azora Personal Loans Pty Ltd Azora Personal Loans Warehouse Trust 1 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 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 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 76 100 100 100 100 100 65 75 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 60 Notes to the Financial Statements Continued The following entity is a subsidiary of Aravanis Insolvency Pty Limited. Name Aravanis Advisory Limited Percentage of equity interest held Country of Incorporation India 2023 % 99.99 2022 % 99.99 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 2023 Ownership interest 2022 Ownership interest 2023 Ownership interest 2022 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% 76% 35% 25% 24% 35% 25% 24% FSA GROuP LIMITED Annual Report 2023 61 Aravanis Insolvency Pty Limited 2023 $ 2022 $ 12,665,584 12,939,435 523,911 423,963 13,189,495 13,363,398 589,270 3,254,544 3,843,814 9,345,681 874,233 3,144,906 4,019,139 9,344,259 5,817,912 4,862,883 (4,178,740) (4,398,487) 1,639,172 (314,843) 1,324,329 – 464,396 (123,430) 340,966 – 1,324,329 340,966 43,245 19,308 (583,470) (520,917) 1,272,526 15,855 (1,165,459) 122,922 238,499 119,340 3,300,856 3,300,356 Summarised Statement of Financial Position Current assets Non‑current assets Total assets Current liabilities Non‑current liabilities Total liabilities Net assets Summarised Statement of Profit or Loss and Other Comprehensive Income Revenue Expenses Profit before income tax expense Income tax expense Profit after income tax expense Other comprehensive income Total comprehensive income Summarised Statement of Cash Flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Other financial information Profit attributable to non‑controlling interests Accumulated non‑controlling interests at the end of reporting period 62 Notes to the Financial Statements Continued 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 2023 $ 2022 $ 6,107,827 5,059,665 15,040,077 13,793,104 553,931,640 482,275,575 575,079,544 501,128,344 7,665,108 703,680 7,464,945 844,311 524,782,950 457,633,513 533,151,738 465,942,769 41,927,806 35,185,575 49,585,336 30,982,624 (39,353,874) (21,021,395) 10,231,462 9,961,229 (2,684,273) (3,118,180) 7,547,189 6,843,049 – – 7,547,189 6,843,049 11,900,583 11,176,562 (46,856,143) (46,144,140) 33,685,168 33,685,168 (1,270,392) (1,282,410) 1,572,349 4,979,105 1,386,623 5,456,425 The non‑controlling interest of Fox Symes Business Services Pty Limited was insignificant and therefore information has not been provided. FSA GROuP LIMITED Annual Report 2023 63 Note 22. 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 former 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 former shareholders of AF in exchange for the issue of new AFG ordinary shares. Following completion, the previous 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 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 transferable; 64 Notes to the Financial Statements Continued Participation in new issues Class Shares will not confer any right to participate in new issues of securities; and 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 at $953,904 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 Additional information 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 Class shares arrangement has resulted in a share‑based payment being recorded, with $190,778 (2022: $158,984) expensed in the financial year. The earnings of AFG for the years to 30 June 2023 are summarised below: Profit before tax Azora Finance Group consolidated FY2023 $ FY2022 $ 9,235,727 9,961,229 Issue of Ordinary Shares under the Long Term Incentive Plan On 3 December 2021, the Company issued 1,950,000 ordinary shares under the Long Term Incentive Plan with limited recourse loans provided to the eligible participants. This arrangement has resulted in a share‑based payment being recorded, with $27,803 (2022: $16,403) expensed in the financial year. Value of shares under Long Term Incentive Plan with limited recourse loans The Company treated the ordinary shares issued under the LTI with limited recourse loans 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 of the LTI are as follows: Grant date Expiry Date price Exercise price Volatility Risk free rate Dividend yield underlying Fair value at the grant date 3/12/2021 2/12/2026 1.04 1.04 25% 1.31% 5.65% $0.11 FSA GROuP LIMITED Annual Report 2023 65 Note 23. 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 2023 $ 2022 $ 15,600,265 8,516,182 17,877,055 8,465,084 24,116,447 26,342,139 5,286 1,378,185 5,286 1,378,185 24,111,161 24,963,954 2,493,454 3,502,630 21,617,707 21,461,324 24,111,161 24,963,954 8,679,905 9,834,692 – – 8,679,905 9,834,692 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 24 for further details. There are no contingent liabilities or commitments in the parent entity (2022: $Nil). Note 24. 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’. 66 Notes to the Financial Statements Continued Set out below is a consolidated Statement of Profit or Loss and Other Comprehensive Income and Statement of Financial Position of the ‘Closed Group’. 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 2023 $ 2022 $ 9,201,611 15,455,939 363,702 (235,183) 128,519 212,997 (320,548) (107,551) 10,784,000 10,780,000 20,114,130 26,128,388 (288,742) 30,895 19,825,388 26,159,283 (2,628,016) 17,197,372 – (4,611,366) 21,547,917 – 17,197,372 21,547,917 8,031,304 9,305,212 162,573 9,229,529 11,370,956 6,487 17,499,089 20,606,972 266,577 8,465,084 8,731,661 708,301 8,465,084 9,173,385 26,230,750 29,780,357 109,973 242,973 – 352,946 43,224 593,834 637,058 990,004 124,923 466,700 1,374,029 1,965,652 206,607 936,172 1,142,779 3,108,431 25,240,746 26,671,926 2,493,458 22,747,288 25,240,746 3,502,634 23,169,292 26,671,926 FSA GROuP LIMITED Annual Report 2023 67 Note 25. Contingent liabilities There were no contingent liabilities relating to the Consolidated Entity at reporting date except those incurred in the ordinary course of business as follows: Home loans At reporting date, home loan applications that had been accepted by the Consolidated Entity but not yet settled amount to $8,293,100 (2022: $12,481,675). 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 $366,757 (2022: $43,640). Personal loans are usually settled within one week of acceptance. Asset finance At reporting date, asset finance applications that had been accepted by the Consolidated Entity but not yet settled amount to $5,102,562. Asset finance are usually settled within one week of acceptance. Note 26. 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 2023 except as follows: • On 17 August 2023, Directors declared a 3.50 cent fully franked final dividend to shareholders to be paid on 31 August 2023 with a record date of 24 August 2023. Note 27. Related party disclosures (a) Key Management Personnel Disclosures relating to Key Management Personnel are set out in the Remuneration Report. (b) Subsidiaries Interests in subsidiaries are set out in Note 21 of the Financial Statements. (c) Transactions with related parties Transactions with related parties of Directors or Key Management Personnel are as disclosed in the Remuneration Report. 68 Directors’ Declaration In the Directors’ opinion: • The Financial Statements, comprising the Statement of Profit or Loss and Other Comprehensive Income, Statement of Financial Position, Statement of Cash Flows, Statement of Changes in Equity, accompanying Notes, are in accordance with the Corporations Act 2001 and: a. comply with 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 2023 and of its performance for the year ended on that date. • The Company has included in the Notes to the Financial Statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. • In the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. • The Directors have been given the declarations by the Executive Directors and Chief Financial Officer required by Section 295A of the Corporations Act 2001. FSA Group Limited, FSA Australia Pty Ltd and Fox Symes Debt Relief Services Pty Ltd identified 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 24. 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 Chairman Sydney 17 August 2023 Deborah Southon Executive Director Sydney 17 August 2023 FSA GROuP LIMITED Annual Report 2023 69 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 consolidated statement of financial position as at 30 June 2023, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated 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 2023 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. 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. 70 Independent Auditor’s Report Continued 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. Key audit matter How the matter was addressed in our audit Expected credit loss provisioning: The Group’s accounting policies are disclosed in notes 4, 5 and 15. The Group has disclosed expected credit loss provisions of $5,080,695 (2022: $4,311,799) against loans and advances and $1,397,902 (2022: $1,150,696) against trade receivables. The Group has recognised total impairment expenses of $3,653,757 (2022: $903,609) in the Statement of Profit or Loss and Other Comprehensive Income. Commensurate with the activities of the Group, the total expected credit loss provision is a material balance subject to management judgement and estimation. Key judgements and estimates in respect of the timing and measurement of expected credit losses include: - Determination of the appropriate methodology and determination of what constitutes a Significant Increase in Credit Risk (SICR). Our audit procedures included, but where not limited to: • We assessed the provisioning methodology applied, evaluating compliance with AASB 9 Financial Instruments. • We evaluated the Group’s determination of what constitutes a SICR and staging allocations with reference to requirements of applicable accounting standards and industry practices. We then verified a sample of the Group’s loans, to determine if staging and SICR assessment has been applied in line with the Group’s methodology. • We assessed the completeness and accuracy of data and key model inputs feeding into the Expected credit loss models through reconciliation to underlying record and verification of key inputs to supporting data. • We performed sensitivity analysis over key assumptions. - The incorporation of forward-looking • We evaluated management key assumptions into the models. Expected credit loss provisioning was considered a key audit matter due to the potential for management bias in key judgements, estimates, modelling assumptions and accounting interpretations applied. assumptions applied in the models through comparison to historical loss data and consideration of forward- looking expectations. • We reviewed the disclosures relating to the provisioning methodology to ensure appropriate and complete disclosures are presented in the financial report in accordance with Australian Accounting Standards. FSA GROuP LIMITED Annual Report 2023 71 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 2023, 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. 72 Independent Auditor’s Report Continued Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 16 to 21 of the directors’ report for the year ended 30 June 2023. In our opinion, the Remuneration Report of FSA Group Limited, for the year ended 30 June 2023, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit Pty Ltd Ryan Pollett Director Sydney, 17 August 2023 FSA GROuP LIMITED Annual Report 2023 73 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 2023. 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 290 369 213 315 81 88,848 1,188,946 1,851,439 10,002,640 108,213,715 1,268 121,345,588 The number of security investors holding less than a marketable parcel ($1.00 on 3 August 2023) is 190 and they hold 11,330 securities. 74 Shareholder Information Continued Twenty largest holders The names of the twenty largest holders, in each class of quoted security are (ordinary shares): 1 Capital Management Corporation Pty Ltd 2 Mazamand Group Pty Ltd 3 4 5 6 7 8 9 ADST PTY LTD BJR Investment Holdings Pty Ltd Anacacia Pty Ltd UBS Nominees Pty Ltd Ruminator Pty Limited Contemplator Pty Limited Dundas Ritchie Investments Pty Ltd 10 Wycl Holdings Pty Ltd 11 Hsbc Custody Nominees (Australia) Limited 12 Karia Investment Pty Ltd 13 Garrett Smythe Ltd 14 Vanward Investments Limited 15 Fernane Pty Ltd 16 Maramindi Pty Ltd 17 Microequities Asset Management Pty Ltd 18 Harold Cripps Holdings Pty Ltd 19 Taurus Sun Trading Pty Ltd 20 Gattenside Pty Ltd Top 20 Total 26,000,000 16,809,231 12,960,047 11,111,111 5,585,283 4,797,363 3,591,440 2,597,622 1,500,000 1,250,000 1,172,703 966,666 942,978 932,583 877,168 875,000 706,062 700,541 700,000 590,541 21.43% 13.85% 10.68% 9.16% 4.60% 3.95% 2.96% 2.14% 1.24% 1.03% 0.97% 0.80% 0.78% 0.77% 0.72% 0.72% 0.58% 0.58% 0.58% 0.49% 94,666,339 121,345,588 77.89% 100% FSA GROuP LIMITED Annual Report 2023 75 Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: Number of shares Mazamand Group Pty Ltd ADST Pty Ltd BJR Investment Holdings Pty Ltd Voting rights All ordinary shares carry one vote per share without restriction. 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. 76 Corporate Directory Directors Tim Odillo Maher – Executive Chairman Deborah Southon – Executive Director Cellina Chen – 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 NSW 2000 Country of Incorporation Australia Securities Exchange Listing Australian Securities Exchange Ltd ASX Code: FSA Internet Address www.fsagroup.com.au Australian Business Number ABN 98 093 855 791 colliercreative.com.au #FSA0018 www.fsagroup.com.au