Prospa Annual Report 2020

FY2020 Annual Report · Prospa

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Annual
Report
2020

Prospa Group Limited
Prospa Group Limited
ACN 625 648 722
ACN 625 648 722

Prospa Group Limited ACN 625 648 722

Prospa Annual Report 2020 1

Small businesses are the
backbone of the economy

Australian small businesses operate across a
wide range of industries and are concentrated in
New South Wales, Victoria and Queensland and
throughout Australia roughly in line with population.

2.4 m

small businesses
in Australia1

44%

of jobs2

35%

of GDP2

>$20b

FY20 $451m
<2% penetrated

1.
2.

ABS 8165 (Counts of Australian Businesses including Entries and Exits) June 2019 (released in February 2020).
Small Business Sector Contribution to the Australian Economy, Parliament of Australia, Department of Parliamentary Services, October 2018.

All references to dollars in this document are in Australian $ unless otherwise indicated.

2 Prospa Annual Report 2020

Small businesses are the
backbone of the economy

2.4 m

530,000

small businesses
in New Zealand3

29%

of jobs3

28%

of GDP3

>$4b4

FY20 $47m4
<1% penetrated

3. Small Business in New Zealand, Ministry of Business, Innovation & Employment, June 2017.
4. New Zealand Dollars.

Prospa Annual Report 2020 3

They need
access to
finance
to keep
operating
and grow

Small businesses need a fast
convenient way to access finance
because they’re time poor1.

26% 24%

work 50 hours
a week or more

work 7 days
a week

4 Prospa Annual Report 2020

They need

access to

finance

to keep

operating

and grow

Small businesses seek
finance for a number of
business activities2

Keeping the business operating

Maintaining short-term
cash flow or liquidity

Replacing, upgrading or purchasing
additional equipment or machinery

Introducing new or improved goods,
services or processes

Pursuing expansion opportunities

YouGov survey for Prospa of small business owners who work full time in their business, November 2018. YouGov is an
independent, publicly listed global consumer insight company.
Small businesses defined as having less than 20 employees, including non-employing businesses; ABS 8167 (Selected
Characteristics of Australian Business), June 2018 - 2019 (released in August 2020).

Prospa Annual Report 2020 5

The challenge
of accessing
finance

Small businesses in Australia can find it difficult to
access business loans from traditional lenders due
to a number of factors.

Prospa’s solutions are addressing a significant
and growing market opportunity which has been
under-served by incumbents.

6 Prospa Annual Report 2020

The traditional
bank model

Banks

Retail products
(cards & mortgages)

Small
business

Corporate
(larger loans)

Why not?

Structural challenges
(regulatory capital)

Higher information
requirements

Products not well suited
to small business

Risk appetite and ROI

Prospa Annual Report 2020 7

We can help small
business owners
recover and get
back to business

Prospa
lending
can be a
significant
economic
enabler.

Prior research has
shown every

$1m

of Prospa lending
resulted in

$4m

in Australian GDP1

Full time jobs annually1

The Economic Impact of Prospa Lending to Small Business, RFi Group and The Centre for International Economics, January 2019.

8 Prospa Annual Report 2020

Potential economic
impact of Prospa
lending

While the economy is
shrinking now, we
believe our lending can
play a role in supporting
the recovery.

Salaries

Small
Business

Output

Economic
Growth

Funds used
to purchase
production uplift

Goods and
Services
Market

Salaries

Consumption

Households

Prospa Annual Report 2020 9

With a cohesive
customer-focused
platform

We build cash flow products and services that allow small
businesses to GROW and RUN their business and help them
PAY for goods and services.

Small Business Loan from $5k to $300k
with terms up to 36 months

A revolving Line of Credit facility up to $100k,
with a renewable 12 month term

Government Guaranteed Small Business Loan from $5k
to $250k with terms up to 36 months, available until
30 September 2020

Government Guaranteed revolving Line of Credit facility
up to $100k, with terms up to 36 months, available until
30 September 2020

Mobile App with Pay Anyone functionality

Small Business Loan from NZ$5k to NZ$300k
with terms up to 24 months

10 Prospa Annual Report 2020

ActivityDirect Debit - Your scheduled weekly payment23Jan$360.00Direct Debit - Your scheduled weekly repayment 20Jan$360.00Direct Debit - Your scheduled weekly payment16Jan$360.00Next payment$360.00Amount dueRecurring weeklyTue, 28 JanDue dateIn 4 daysSupport(Mon - Fri 8:30am-7pm AEST)1300 882 867help@prospa.com48%RepaidSEE MORE2020

Prospa Annual Report 2020 11

With a strong cash position and supportive funding platform,
we are well positioned to provide proactive flexible COVID-19
relief with product solutions and deferred repayment options.

COVID-19-related loan deferrals in Australia1 (000's)

2.6

2.3

3.0

0.9

0.9
0.9

Peak

30 Jun 20

31 Aug 20

• Full deferrals 7.7% of
accounts down from
17.9% at 15th May (peak)

• Part deferrals 7.6% of
accounts down from
20.1% at 15th May (peak)

COVID-19-related loan deferrals in NZ2 (000's)

0.3

0.1

0.1
0.1

Peak

30 Jun 20

31 Aug 20

Proportion of unique active customer accounts in Australia only
remaining on Full Deferral or Part Deferrals as at 31 August 2020.
Proportion of unique active customer accounts in New Zealand only
remaining on Full Deferral or Part Deferrals as at 31 August 2020.

12 Prospa Annual Report 2020

• Full deferrals 8.6% of
accounts down from
22.9% at 15th May (peak)

• Part deferrals 5.2% of
accounts down from
22.3% at 15th May (peak)

Part Deferred

Full Deferred

“Prospa’s support during the
pandemic was just great, and better
than my bank. My jewellery store
is inside a hotel, which has been
closed since April. Prospa put me
on a reduced repayment plan, which
was very helpful. I’m still able to do
business with my customers but not
face to face like I normally would.”

Maria, South Australia, Australia

“Prospa really, really helped. It has
gone a long way to helping us survive
those hard days, especially when
the revenue dropped to 0% just like
that. The support from Prospa was
way better than what my bank offered
even though I had all my property
fully mortgaged to them.”

Shariff, Hawke’s Bay, New Zealand

Prospa Annual Report 2020 13

“You want someone to have a look at your
business and say I think we can do it or I
don’t think we can do it. I couldn’t believe
how quick the turnaround was. I was really
impressed.”

Andrew
Victoria, Australia

Contents

Performance Highlights
Chairman’s Letter
Chief Executive’s Report
Board of Directors
Executive Leadership
Directors’ Report
Review of Operations
Remuneration Report
Corporate Governance

Auditor’s Independence Declaration
Financial Statements
Auditor’s Report
Shareholders’ Information
Corporate Information

16
18
22
26
30
32
39
43
57

64
66
116
122
126

Prospa Annual Report 2020 15
Prospa Annual Report 2019 15

Performance
Highlights

$1.6b Originations since

inception1

77+ NPS World class net

promoter score2

#1 Non-bank financial services provider in

Australia & New Zealand3

National winner
Fintech Lender of the Year
NSW, QLD, SA/NT, VIC/TAS & WA
MFAA Excellence Awards 2020

2.
3.

Originations from all sources, including Small Business Loan, Line of Credit (including undrawn amounts), Back to Business Loan, Back to Business Line (including
undrawn amounts) and ProspaPay; and all geographies including Australia and New Zealand.
Net Promoter Score was in excess of +77 for the period 1 July 2019 to 30 June 2020.
Prospa is ranked #1 in Australia in the Non-bank Financial Services category on independent review site TrustPilot with a TrustScore of 4.9 and over 5,584 reviews
as at 15 September 2020. Prospa is ranked #1 in New Zealand in the Non-bank Financial Services category on independent review site TrustPilot with a TrustScore
of 4.9 and over 592 reviews as at 15 September 2020.
Cash flow is prior to loan write-offs.

16 Prospa Performance Highlights

Originations1
$450.9m -10.1%

Q1-3 $429.0m +31.6%

Revenue
$142.1m +4.2%

Statutory EBITDA
($19.5m)
Excl. forward looking COVID-19
provision & loan receivable adj.

$4.0m

Avg. Gross Loans
$433.3m +35.7%

Operating Cash Flow4
$33.8m +100.4%

Unrestricted Cash
$55.3m +90.7%

Funding Facilities
$442.9m at 30 June

Unused Facilities
$114.1m at 30 June

Prospa Annual Report 2020 17

Chairman’s
Letter

18 Prospa Chairman's Letter
18 Prospa Annual Report 2020

The economic
outlook for FY21
remains uncertain,
but we believe
Prospa is now in
a strong position
to navigate any
further economic
disruptions.

Gail Pemberton AO

Prospa Annual Report 2020 19

Chairman’s Letter

Dear Shareholder,

Looking back to the beginning of FY20, our first year as a listed company, we could never have
envisaged the extent of the challenge and disruption that has impacted the global economy in the
second half of the financial year.

The COVID-19 pandemic hit many of our small business clients very hard, particularly coming on
the heels of drought and the summer bushfires in Australia. These were the worst bushfires this
country had experienced for 30 years, bringing tragedy and financial loss for many of our regional
small business customers. Just as tourism and hospitality began to recover from the bushfires, the
emergence of the COVID-19 pandemic in Australia and New Zealand and the ensuing lockdowns
added to the financial stress of all businesses but especially the small business sector. The impact of
the lockdowns and uncertainty about the future has had a significant effect on our performance in the
last quarter of FY20, principally in the volume of originations, revenue and loan impairment provisions.

Strength through adversity

I’m very proud of the way management and the Board have navigated through the pandemic. Without
certainty about the duration of the crisis, we took swift and decisive action to preserve cash, reduce
our risk appetite, the level of originations and our expense base, in order to be able to support our
clients and reposition the business for a return to growth again when the economy started to improve.

We redeployed much of our customer acquisition team to focus on providing fast personalised relief
packages and restructuring of customer commitments. The actions we took have borne fruit, and we
are very encouraged with an increasingly larger proportion of clients returning to full payments, month
on month since the end of May.

Throughout this time, our Capital Management team worked closely with our funding partners,
successfully revising some of the terms and conditions of our warehouses to better enable us to
support our customers through the period of restructuring and return to business. Using the daily
operational business data of our customers, and harnessing the power of sophisticated analytics, our
Credit Risk team worked with our Finance team to determine a forward-looking additional provision for
potential credit losses to take into account the impact of COVID-19.

Business performance

For the first nine months of the FY20 financial year, we were very pleased to achieve a 31.6% growth
in originations compared to the same nine month period in FY19, and we were confident we were on
track to meet all our performance targets.

The continued growth of our New Zealand business, at an average originations growth rate of 4.1%
per month, made a strong contribution to the overall results. We have a highly motivated team on
the ground in New Zealand who’ve helped Prospa achieve the #1 position in the non bank financial
services category for New Zealand on independent review site TrustPilot in just over a year from a
standing start.

We also took on board the lessons learned from missing our revenue target in the 2019 Prospectus
and have focused on uplifting overall team depth and capability, particularly in the areas of product
design, analytics, risk and yield management.

Throughout the year, the Management team has continued to deliver our strategic priorities, with a
focus on providing the best possible borrowing experience for small business owners. We have made
good progress on technology and platform improvements which meant we were able to deliver two
new credit products to market in a short space of time under the Federal Government’s SME Loan
Guarantee Scheme.

20 Prospa Chairman's Letter

Looking ahead

The economic outlook for FY21 remains uncertain but we believe Prospa is now in a strong position
to navigate any further economic disruptions. And it isn’t all doom and gloom, we are seeing some
encouraging green shoots emerging. Indeed, some of our customers’ businesses performed well or
even better during the pandemic and others are now rapidly returning to pre COVID-19 levels. As we’ve
entered FY21, we are prudently and steadily increasing our risk appetite and are seeing increased
demand and originations flow through as a result. We are also taking the time to refine and extend our
strategic vision and offerings for the small business sector which we continue to believe is critical to
the economies of Australia and New Zealand.

Finally, I can’t offer enough thanks to the terrific management and staff at Prospa whose energy and
enthusiasm about the business and its customers has not diminished during this once in a lifetime
challenge. My fellow Board members have also been unflagging in their efforts. I’d also like to thank
our shareholders and funding partners for their ongoing support.

Sincerely,

Gail Pemberton AO
Chairman
Prospa Group Limited

Prospa Annual Report 2020 21

Chief Executive’s
Report

22 Prospa Chief Executive's Report
22 Prospa Annual Report 2020

Prospa’s business
model has proven to
be resilient against
the most difficult of
backdrops with the
flexibility to adapt
quickly and a deep
understanding of
small business.

Greg Moshal

Prospa Annual Report 2020 23

Chief Executive’s Report

Over the past several months, Prospa has experienced the toughest market conditions we are ever likely to
come up against. The small business community we serve has faced a year of unprecedented challenges,
first the devastating bushfire season and more recently, the COVID-19 pandemic and restrictions.

While performance has been impacted by the difficult economic conditions, the business model has
shown to be resilient with the flexibility to adapt to the current environment.

We saw solid growth in the first three quarters, which was offset by a restrained Q4. Total originations for
the year were $450.9 million, a 10.1% decline on FY19 as originations in the fourth quarter 2020 were
materially impacted by COVID-19 pressures on small businesses. Total revenue grew to $142.1 million
(up 4.2% on FY19) and operating cash flow grew to $33.8 million (up 100.4% on FY19). Cash and cash
equivalents grew to $110.3 million and unused funding facilities totalled $114.1 million as at 30 June.

We enter FY21 with a strong balance sheet and committed funding lines, ready to continue
supporting small business customers across Australia and New Zealand and to leverage future growth
opportunities.

Adapting quickly to the operating environment

Our priorities have been to sustain the business, support our people and continue to do the right thing
by our customers. Small business owners and the communities they serve drive the economy, and our
ability to deliver essential working capital enables them to keep moving and to grow and prosper.

We commend the speed and breadth of support from the Australian Federal Government, who have
delivered innovative programs like the SME Coronavirus Loan Guarantee Scheme, under which Prospa
was allocated up to $223 million, as well as the Structured Finance Support Fund, through which the
Australian Office of Financial Management approved an investment of up to $90 million in a Prospa
warehouse.

We adapted quickly to the changing environment and used our strengths in technology, data, and
customer service to engage with our customers and provide the support they needed to navigate
through this prolonged period of economic uncertainty.

For small businesses experiencing hardship, we responded with customised relief packages, including
partial and full deferrals of repayments. We continue to provide funding to support cash flow and help
small businesses manage the impact of COVID-19 restrictions.

We prudently applied a forward-looking provision of $18 million to take into account the impact of the
COVID-19 pandemic and this provision has resulted in an EBITDA loss of $19.5 million. Underlying EBITDA
excluding this provision and a one-off loan receivable adjustment of $5.5 million was $4.0 million.

Leveraging the tenacity of our team

With the health and safety of our team and the wider community in mind, we activated our Business
Continuity Plan in March and staff have been working remotely since then with no operational
interruptions to the business. For example, on the first day we activated our Business Continuity Plan,
86% of calls were answered within 20 seconds and when we surveyed our team in July, 99% of people
felt the business had adapted well to hybrid working. These results reflect our company values and
culture as a dynamic, fast-moving organisation.

We have used the past six months to focus on preserving our capital, improving our products and
processes, and ensuring we have the right foundations in place. The Board and management made
tough but swift decisions early on and these actions have resulted in a sustainable business with
tighter cost controls. Even with continued uncertainty, we are seeing increased activity from small
business across all sectors and we’re in a strong position to provide them with timely access to the
right-sized capital to make this happen. We continue to proactively identify risk and make smart,
targeted decisions so that we can support thousands more businesses not just to survive, but to
prosper, as they emerge from Government restrictions.

24 Prospa Chief Executive's Report

Acknowledgement and thanks

I would like to acknowledge the dedication of the entire Prospa team, and their commitment to
providing the highest level of support to our customers and partners during COVID-19, while also
dealing with the impacts on their own lives. I believe our customer relationships have only been
strengthened during this challenging time, reinforcing our brand and position as an industry leader.

I would also like to take this opportunity to express my appreciation to the Board for their strategic
direction, continued support, and valuable counsel. I thank our shareholders as they continue to
believe in our mission.

Prospa’s business model has proven to be resilient against the most difficult of backdrops with the
flexibility to adapt quickly and a deep understanding of small business developed over eight years
of specialist lending. Our guiding principles remain the same, and we continue to strive to exceed
customer expectations and deliver for all our stakeholders.

Sincerely,

Greg Moshal
Chief Executive Officer

Prospa Annual Report 2020 25

26 Prospa Annual Report 2020

Board of
Directors

Prospa Annual Report 2020 27

Board of Directors

Gail has been a Director of Prospa Advance Pty Ltd since February 2018 and a Director of the
Company since May 2018. Gail has been Chairman of Prospa since February 2019.

Gail has more than 35 years’ experience in banking and wealth management and is a specialist in
technology and operations.

Prior to taking up a Non-Executive Director career, Gail was COO, UK at BNP Paribas and CEO
and Managing Director, BNP Paribas, Australia and New Zealand. She was previously Group Chief
Information Officer and Financial Services Group COO at Macquarie Bank.

Gail is currently a Non-Executive Director of Eclipx Group (ASX:ECX), Land Services WA and Sydney
Metro.

Gail has previously served on the Boards of ARQ Group (ASX:ARQ), OneVue (ASX:OVH), SIRCA and
RoZetta Technology and Onthehouse (ASX:OTH) as independent Chair, and as a Non-Executive
Director on PayPal Australia, QIC, UXC (ASX:UXC).

Gail has an MA from UTS, and a Graduate Certificate in Finance from Griffith University. She is also a
Fellow of the Australian Institute of Company Directors.

In January 2018 Gail was awarded an Order of Australia for distinguished service to the finance
and banking industry, to business through a range of roles, as an advocate for technology and as a
mentor to women.

Gail is a member of the Audit and Risk Committee and a member of the Remuneration, People and
Nomination Committee.

Greg has been a Director of Prospa Advance Pty Ltd since October 2015 and a Director of the
Company since April 2018.

Greg has more than 30 years’ experience in private equity and operations management and
specialises in investment strategy, business development and mergers & acquisitions.

Greg is a founder and Joint Chief Executive Officer of Ironbridge where he co-leads Investment and
Portfolio Management activities. Since 2003 Greg has led many of its successful financial services
investments including Prospa, Judo Capital, Eclipx Group and Stardex Insurance. Greg also led and
served on the Boards of Easternwell, Super A-mart, BBQs Galore, Tandem Group, and AOS.

Prior to this role, Greg spent 7 years with leading Australian industrial group Wesfarmers in
mergers and acquisitions and 5 years with Gresham Partners and Gresham Private Equity where
he led the development of financial services payments provider Cashcard Australia. Greg also
spent 5 years with diversified listed company Avatar Limited, where he was Finance Director and
Managing Director of one of its major subsidiaries.

Greg is currently a Director of Ironbridge Capital Holdings Pty Ltd, Judo Capital Limited, Workclub
Australia Pty Ltd and AOS Pty Ltd.

Greg is a qualified accountant and holds a Bachelor of Commerce degree from the University
of Western Australia and post graduate qualifications from the Financial Services Institute of
Australasia and the Australian Society of Accountants.

Greg is the Chair of the Remuneration, People and Nomination Committee and a member of the
Audit and Risk Committee.

Fiona has been a Director of Prospa Advance Pty Ltd since March 2018 and a Director of the
Company since May 2018.

Since September 2015, Fiona has served as an Independent Non-Executive Director of Link
Administration Holdings (ASX:LNK) where she is also Chair of the Audit Committee. She is currently
an Independent Non-Executive Director at Perpetual Limited (ASX:PPT), of the Victorian Funds
Management Corporation (VFMC) and a member of the Investment Committee for the Walter and
Eliza Hall Institute.

Fiona was previously an Investment Director at Frontier Advisors, where she was a member of the
firm’s Investment Committee and Governance Advisory team. She was the inaugural Managing
Director at Frontier Advisors and played a critical role in growing the firm. Fiona has more than 25
years’ experience advising institutional asset owners and investors on investment and governance-
related issues.

Fiona holds a B.Ec. (Hons) from James Cook University and a Master of Finance from RMIT
University. She is also a graduate of the Australian Institute of Company Directors.

In 2013, Fiona was awarded inaugural Woman of the Year in the Money Management/Super Review
of Women in Financial Services Awards and was ranked one of the top 10 global Asset Consultants
from 2013 to 2016, and again in 2019. In 2016, Fiona was announced as a winner in The Australian
Financial Review and Westpac 100 Women of Influence Awards in the Board/Management
category.

Fiona is the Chair of the Audit and Risk Committee and a member of the Remuneration, People
and Nomination Committee.

Gail Pemberton, AO
Independent
Non-Executive
Chairman

Greg Ruddock
Independent
Non-Executive
Director

Fiona Trafford-Walker
Independent
Non-Executive
Director

28 Prospa Board of Directors

Avi Eyal
Non-Executive
Director

Avi has been a Director of Prospa Advance Pty Ltd since its incorporation in 2012 and has been
instrumental to the development of Prospa. Avi has been a Director of the Company since May 2018.

Avi has almost 25 years’ experience in founding, scaling and running global technology and finance
companies.

Avi is the co-founder and Managing Partner of Entrée Capital which led Prospa’s seed and series
A funding and has participated or led in each funding round. Avi brings extensive finance and
technology, governance, risk and compliance (GRC) knowledge to Prospa. In 2004 he co-founded
Cura Software Solutions which sold GRC software to Global 1000 companies and served as CEO
until 2009 when it was sold to a global public technology company.

Avi is a current Board Director of monday.com, BreezoMeter, BW Robotics, Torii, Broadlume, Niio,
Shopic, thumbzup and other technology companies in the UK, EU, USA and Israel. Avi has previously
served as Board Director for Riskified, Gastrofix (TSE:LSPD), HouseParty (Epic Games), Flyt (LSE:JE),
Scan Inc. (NYSE:SNAP), Cura Software Solutions (NSE:CURATECH), and Datatec Limited / Insight
Technologies (JSE:DTC) and others.

Avi has a BSc in Electronic and Computer Engineering from the University of Natal in South Africa.
In 2010 Avi received the Johnnie Walker Entrepreneur of the Year Award and in 2018 and 2019 was
listed by Forbes Inc as one of the Top 25 European venture Capitalists (Midas List).

Avi is a member of the Audit and Risk committee and a member of the Remuneration, People and
Nomination Committee.

Greg is a Co-Founder of Prospa and has been an Executive Director of Prospa Advance Pty Ltd since
2011 and a Director of the Company since April 2018. Greg been instrumental to the establishment
of Prospa.

Greg has eight years’ experience in financial services with Prospa and prior to this had eight years’
experience in creating and scaling start-ups, with two previous successful exits.

Prior to founding Prospa, Greg was involved in the start and scaling of a consumer service chain
and an international consumer product franchise, and successfully exited both.

Greg is passionate about product, design and technology and developing cash flow products and
services that help small businesses to prosper.

In 2017 Greg was jointly awarded Fintech Leader of the Year by Fintech Australia and was jointly
awarded the NSW Pearcey Tech Entrepreneur of the Year Special Recognition award.

Greg Moshal
Chief Executive Officer
& Executive Director

Greg has a BCom in Accounting from Monash University.

Beau is a Co-Founder of Prospa and has been an Executive Director of Prospa Advance Pty Ltd
since 2014 and a Director of the Company since April 2018. Beau has been instrumental to the
establishment of Prospa.

Beau has 16 years’ experience in financial services and has founded a technology start-up and
managed a consumer product retailer.

Beau is passionate about building and growing high performing teams and creating cash flow
products and services that keep small business moving. He is responsible for Prospa’s Go To Market
capability and strategies to deliver revenue for the Group.

In 2017 Beau was jointly awarded Fintech Leader of the Year by Fintech Australia and was jointly
awarded the NSW Pearcey Tech Entrepreneur of the Year Special Recognition award.

Prior to co-founding Prospa, Beau held senior positions including National Sales Manager at
financial services company FlexiGroup (ASX:FXL).

Beau has a BCom in Economics and Finance from Sydney University.

Beau Bertoli
Chief Revenue Officer
& Executive Director

Prospa Annual Report 2020 29

Executive
Leadership

Greg Moshal
Chief Executive Officer

Peter Loosmore
Interim Chief
Financial Officer

Peter Loosmore was appointed interim Chief Financial Officer in January
2020. He has responsibility for financial control, financial planning and
analysis, yield management and treasury.

Peter has over 25 years’ experience as a senior finance executive in some
of Australia’s leading financial organisations. Past executive roles have
included CFO of St George’s Retail Bank, CFO of Suncorp Life and as
Director of Finance for Rothschild Australia.

Peter currently focuses on providing services as an Interim CFO and
consultant, advising and supporting financial management teams during
periods of complex change.

Peter has a Bachelor of Business from the University of Tasmania and is a
Chartered Accountant.

Ben Lamb
Chief Commercial Officer

Ben joined Prospa in April 2016. He has responsibility for operations
including customer acquisition, retention and collections.

Ben has 13 years’ experience in financial services including
product development, customer experience, operations,
procurement and establishing offshore operations.

Prior to joining Prospa, Ben was Head of Product & Customer
Solutions at ASX-listed financial services company Eclipx Group;
and Head of Customer Experience and Operations at ASX-listed
financial services company FlexiGroup.

Beau Bertoli
Chief Revenue Officer

30 Prospa Executive Leadership

Simon Griffin
Chief Operating Officer

Damon Pezaro
Chief Product Officer

Simon joined Prospa in July 2019. He is responsible for strategy and
planning across Prospa and manages enterprise risk, procurement,
corporate affairs and corporate governance.

Simon has more than 16 years’ experience in customer focused, high-
growth businesses including more than ten years in the fintech sector.

Prior to joining Prospa, Simon was the CEO of XE.com. Prior to that he
was a member of the OFX Executive team and has held senior roles at
Macquarie Bank, Vodafone and Gemini Consulting.

Simon has a BA in Economics from the University of Nottingham.

Damon joined Prospa in June 2017. He has responsibility for product
development and management including design, data and analytics.

Damon has more than 20 years’ experience in digital focused
businesses working across online and technical environments, having
held key product and operational roles in several successful start-ups
and large corporates.

Prior to joining Prospa, Damon was Chief Product Officer at ASX200-
listed Domain Group, Head of Operations at OurDeal.com.au (acquired
by Groupon), and Senior Manager – Product & Technology at News
Digital Media (NewsCorp).

Shai Haim
Chief Technology Officer

Elise Ward
Chief People Officer

Shai joined Prospa in July 2019. He has responsibility for delivery of Prospa’s
technology platform and cyber security.

Elise joined Prospa in December 2018. She has responsibility for the
design and delivery of our people strategy.

Shai has over 20 years’ experience in the technology sector.

Prior to joining Prospa, Shai has scaled technology teams in Asia, Europe,
America and Australia and has been based in Silicon Valley where he was
VP of Engineering at Brigade, and also Engineering Manager at Twitter. Most
recently, he was Chief Technology Officer at Campaign Monitor where he
delivered major initiatives around technology, operations and M&A.

Elise has more than ten years’ experience in delivering progressive
people and culture strategies across start-ups and multinational
organisations.

Prior to joining Prospa, Elise led the People & Culture team for Canadian-
based technology company Elastic Path Software and has held senior
HR roles at Samsung and Tabcorp.

Shai has a BCompSc from IDC Herzliya in Israel and a PhD in Computer
Science (AI) from UNSW.

Elise has a Bachelor of HR Management from Macquarie University and a
Graduate Certificate in Change Management from AGSM at UNSW.

Prospa Annual Report 2020 31

Directors’
Report

“We didn’t want to lose the momentum that we had in the business, so a short turnaround time and quick access to cash gave us the chance to grow and not miss out... We were able to get our nurses on the road to help treat our patients.”Lorna,Western Australia, AustraliaThe Directors present their report, together with the financial statements, on the consolidated entity
(referred to hereafter as the “Group”) consisting of Prospa Group Limited (“Prospa” or the “Company”)
and the entities it controlled at the end of, or during, the year ended 30 June 2020.

— Directors

The following persons were Directors of Prospa Group Limited during the whole of the financial year and up
to the date of this report, unless otherwise stated. Also included are their interests in shares, options and
rights as applicable at 30 June 2020.

Gail Pemberton
Chairman
227,102 ordinary shares and 120,556 options in Prospa Group Limited.

Gregory Moshal
24,772,428 ordinary shares and 1,286,640 options in Prospa Group Limited.

Beaumont Bertoli
9,745,636 ordinary shares and 1,286,640 options in Prospa Group Limited.

Aviad Eyal
2,748,466 ordinary shares and 92,592 options in Prospa Group Limited.

Gregory Ruddock
Chairman of the Remuneration, People and Nomination Committee
1,133,611 ordinary shares and 25,000 options in Prospa Group Limited.

Fiona Trafford-Walker
Chairman of the Audit and Risk Committee
33,079 ordinary shares and 120,556 options in Prospa Group Limited.

— Principal activities

During the financial year, the principal activities of the Group continued to be the provision of finance to
small businesses. This activity has not changed during the year.

Dividends

There were no dividends paid, recommended or declared during the current or previous financial year.

Review of operations

The loss for the Group after providing for income tax amounted to $24.9 million (30 June 2019: loss of
$24.7 million).

The Review of Operations on pages 39 to 42 forms part of this Directors’ Report and sets out:

– A review of operations during the year and the results of those operations;

– The strategic highlights of the Group; and

– Comments on the financial position.

Future developments

Our vision is to build cash flow products and services that allow small businesses to grow and prosper.
To achieve this we intend to invest in improving and growing our platform, further developing our operating
leverage, and continuing to assess opportunities that arise where we consider them to be complementary
to our business model and can enhance value for our shareholders.

Significant changes in the state of affairs

There were no significant changes in the state of affairs of the Group during the financial year.

Prospa Annual Report 2020 33

Environmental regulation

The Group is not subject to any significant environmental regulation under Australian Commonwealth or
State or Territory law.

Company secretary

Ms Nicole Johnschwager was appointed to the position of Company Secretary and General Counsel of
the Group in April 2018. She is admitted to the Supreme Court of New South Wales and is a member of the
Association of Corporate Counsel Australia and the Australian Institute of Company Directors.

Ms Johnschwager has over 20 years’ experience as a solicitor and company secretary.

Meetings of Directors

The number of meetings of the Company’s Board of Directors (the “Board”) and of each Board committee
held during the year ended 30 June 2020, and the number of meetings attended by each Director were:

Board

Board
COVID-19

Remuneration,
People and
Nomination
Committee

Audit and Risk
Committee

Attended

Held Attended

Held

Gail Pemberton

Fiona Trafford-Walker

Greg Ruddock

Avi Eyal

Greg Moshal

Beau Bertoli

In addition to the scheduled meetings, the Board held additional meetings to address the Company’s
response to COVID-19.

Held: represents the number of meetings held during the time the Director held office or was a member of
the relevant committee.

Committee Membership

As at the date of this report, the Group has an Audit and Risk Committee and a Remuneration, People and
Nomination Committee. The members of each committee are as follows.

Audit and Risk Committee

Remuneration, People and Nomination Committee

Fiona Trafford-Walker – Chairman

Greg Ruddock – Chairman

Greg Ruddock

Avi Eyal

Gail Pemberton

Avi Eyal

Fiona Trafford-Walker

34 Prospa Annual Report 2020

Shares under option

Unissued ordinary shares of Prospa Group Limited under option at the date of this report are as follows.

Grant date

17/02/2016

07/10/2016

27/02/2017

28/04/2017

17/11/2017

11/01/2018

13/02/2018

30/03/2018

30/04/2018

30/11/2018

01/12/2018

25/01/2019

01/04/2019

10/04/2019

14/05/2019

11/06/2019

14/04/2020

Expiry date

17/02/2021

07/10/2021

27/02/2022

28/04/2022

17/11/2022

11/01/2023

13/02/2023

30/03/2023

30/04/2023

30/11/2023

01/12/2023

25/01/2024

01/04/2024

10/04/2024

14/05/2024

11/06/2024

14/04/2024

Exercise
price

Number
under option

$0.49

339,681

$0.67

45,549

212,968

$1.56

195,000

$1.56

1,157,262

$1.56

558,000

$1.56

150,000

60,000

$2.00

832,500

$3.64

2,095,995

$3.64

$4.19

92,592

191,112

$3.64

294,000

$3.64

72,501

$3.33

1,086,246

$3.64

615,555

$3.78

1,487,034

$4.35

75,000

$0.88

2,332,500

$0.95

2,332,500

As at 30 June 2020, 14,343,495 options were outstanding, of which 5,368,749 were vested and exercisable.
No person entitled to exercise the options had or has any right by virtue of the option to participate in any
share issue of the Company or of any other body corporate.

Shares under rights

Unissued ordinary shares of Prospa Group Limited under performance rights at the date of this report are
as follows.

Expiry date

Exercise price

Grant date

12/08/2019

13/01/2020

13/04/2020

13/07/2020

n/a

Number
under rights

248,943

177,339

$0.00

1,309,000

$0.00

180,341

Prospa Annual Report 2020 35

As at 30 June 2020, 1,827,396 rights were outstanding, of which Nil were vested and exercisable. No person
entitled to exercise the rights had or has any right by virtue of the right to participate in any share issue of
the Company or of any other body corporate.

Shares issued on the exercise of options

The following ordinary shares of Prospa Group Limited were issued during the year ended 30 June 2020
and up to the date of this report on the exercise of options granted.

Date options granted

17/02/2016

7/10/2016

27/02/2017

17/11/2017

30/04/2018

30/11/2018

Exercise
price

Number of
shares issued

$0.49

391,158

$0.67

129,996

$0.49

$0.67

$1.56

$2.00

$3.64

60,000

86,274

123,982

59,327

4,998

Shares issued on the exercise of rights

During the year ended 30 June 2020 and up to the date of this report, no shares were issued on the
exercise of performance rights.

The following ordinary shares of Prospa Group Limited were issued during the year ended 30 June 2020
and up to the date of this report on the vesting of salary sacrifice rights granted to Non-Executive Directors.

Date salary sacrifice rights granted

14/06/2019

Exercise
price

Number of
shares issued

n/a

25,463

These shares are subject to dealing restrictions until the earlier of 28 February 2022 or the date on which
the director ceases to hold office as a Director.

Remuneration Report

The Remuneration Report set out on pages 43 to 56 forms part of this Directors’ Report.

Indemnity and insurance of officers

The Company has indemnified the Directors and executives of the Company for costs incurred, in their
capacity as a director or executive, for which they may be held personally liable, except where there is a
lack of good faith.

During the financial year, the Company paid a premium in respect of a contract to insure the Directors
and executives of the Company against a liability to the extent permitted by the Corporations Act 2001.
The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.

Indemnity and insurance of auditor

The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the
auditor of the Company or any related entity against a liability incurred by the auditor.

During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor
of the Company or any related entity.

36 Prospa Annual Report 2020

Proceedings on behalf of the Company

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring
proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party
for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings.

Post balance date events

On 6 July 2020, due to its limitations in funding new products such as Line of Credit or Government
Guarantee Scheme Loans and Lines, the Group ended the Prospa Trust Series 2018-1 substitution period
and no new loans are being sold into this Securitisation Trust. Principal collected from loans in this
Securitisation Trust will progressively reduce the aggregate outstanding balance of loans remaining in
the Trust.

Prospa is already an approved Participating Lender under the current Coronavirus SME Guarantee
Scheme which was originally due to end on 30 September 2020. On 20 July 2020, the Federal Treasurer
announced that the Scheme would be enhanced and extended to 30 June 2021 to support continued small
business recovery. The final terms of the extension are not yet finalised, and the Group is in the process of
considering whether it will apply to be a Participating Lender under the extended Scheme.

On 24 July 2020, the Group announced amendments to the warehouse facilities that fund the Group’s small
business loans and lines of credit had been completed. This confirmed the ongoing support of our funding
partners and enhanced the Group’s ability to provide its customers with appropriate assistance during the
impact of COVID-19.

On 6 August 2020, Prospa allocated $63 million of the AOFM’s $90 million maximum investment to support
the growth in its Line of Credit, and the “Back to Business” Small Business Loan and “Back to Business”
Line of Credit products, with the remainder to be allocated over FY21.

On 17 September 2020 the Group announced the appointment of Ross Aucutt as Chief Financial Officer.
Ross replaces Peter Loosmore, Prospa’s interim CFO since 28 January 2020.

No other matter or circumstance has arisen since 30 June 2020 that has significantly affected, or may
significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in
future financial years.

Non-audit services

During the year, Deloitte Touche Tohmatsu (“Deloitte”), the Group’s external auditor, performed certain
other services in addition to the audit of the financial statements. Details of the amounts paid or payable
to Deloitte for non-audit services provided during the financial year are outlined in Note 22 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) was 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 22 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.

Officers of the Company who are former partners of Deloitte

There are no officers of the Company who are former partners of Deloitte.

Prospa Annual Report 2020 37

Rounding of amounts

The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian
Securities and Investments Commission, relating to “rounding-off”. Amounts in this report have been
rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain
cases, the nearest dollar.

Auditor’s independence declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act
2001 is set out immediately after this Directors’ report.

Auditor

Deloitte continues in office in accordance with section 327 of the Corporations Act 2001.

This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the
Corporations Act 2001.

On behalf of the Directors

Greg Moshal
Director and Chief Executive Officer

Gail Pemberton
Independent Director and Chairman

24 September 2020

Sydney

38 Prospa Annual Report 2020

Review of
Operations

“The finance that Prospa provided helped us take on more staff so we could manage the growth, take on more therapists and spread our brand a bit wider around New Zealand.”Susie,Auckland, New Zealand — Review of operations

We are an Australian fintech company that has grown to become Australia and New Zealand’s #1 online
lender to small businesses1.

Continued investment in our cloud-based, data rich and API-enabled technologies has enabled us to
deliver seamless customer experiences to small business owners across Australia from 2012, and in
New Zealand from 2018. Small businesses are the engine room of these economies and we are proud to
promote and support them by:

– Delivering over $1.6 billion2 in loans to small businesses since our launch in 2012;

– Having served more than 28,7503 unique small business customers since inception that have

historically been poorly supported by traditional banks and lenders; and

– Facilitating referrals from our network of more than 10,000 distribution partners including brokers,

aggregators and accountants.

Our product suite includes a Small Business Loan, a Line of Credit and a B2B Trade Payments solution called
Prospa Pay. In the last quarter of FY20 we launched two new products, a “Back to Business” Small Business
Loan and a “Back to Business” Line of Credit, to fit the parameters of the Federal Government’s Coronavirus
SME Guarantee Scheme (“Scheme”).

Our Credit Decision Engine (“CDE”) has been purpose-built to quickly assess small business credit
applications using proprietary technology and analytics to deliver customised decisions. We adopt a risk-
based pricing approach, where the interest rate associated with a facility is determined based on our credit
risk assessment for that small business customer.

Prospa’s CDE and regular data capture allows the business to quickly and proactively evaluate areas of
both opportunity and potential stress across our portfolio. During the Q4 period, we made pre-emptive
adjustments to our underwriting parameters and credit assessment model to reflect the macroeconomic
environment as well as sensitivities in industry-specific small business trading models.

During the Q4 period, we also used our data to develop insights into different industry sectors and
geographies to provide COVID-19 related relief packages to our customers in Australia and New Zealand.

Our Net Promoter Score for the FY20 period was in excess of 774 and we are ranked #1 in the Non-bank
Financial Services category in both Australia and New Zealand on independent review site TrustPilot1.
In September 2019 Prospa was recognised as a Great Place to in Work Australia5.

Prospa activated its Business Continuity Plan in early March and since then the majority of our people have
been working remotely without any operational interruptions to the business. We have a phased voluntary
return to office program in place, guided by employee feedback and Government restrictions, with the
flexibility to respond to changing scenarios.

Prospa is continuing a strategic review of its portfolio and capabilities through customer research, close
monitoring of the competitive environment and microeconomic and macroeconomic trends in local and
global markets. We continue to support small businesses seeking to rebuild and invest for the future.

Financial Overview

Strong growth in the first three quarters of the year for Australia and New Zealand saw the Group’s
originations increase to $429.0 million for the nine months to March 2020. This was an increase of 32%
on the prior corresponding nine-month period to March 2019. The growth in the first three quarters was
offset by a deliberately restrained risk appetite in the fourth quarter as result of COVID-19 with $21.9 million
originated in the final three months of the year, a decline of 88% compared to the corresponding three
month period in FY19. Loan originations in April and May 2020 were materially impacted by COVID-19
pressures on small businesses, however the Group saw a meaningful increase in loan originations in
June 2020 compared to the previous two months. Total originations for the year were $450.9 million,
a 10.1% decline on FY19.

1 Prospa is ranked #1 in Australia in the Non-bank Financial Services category on independent review site TrustPilot with a TrustScore of 4.9 and over

5,584 reviews as at 15 September 2020. Prospa is ranked #1 in New Zealand in the Non-bank Financial Services category on independent review site
TrustPilot with a TrustScore of 4.9 and over 592 reviews as at 15 September 2020.

2 Total amount of fresh capital originated since inception in 2012 across Australia and New Zealand, as at 30 June 2020.
3 Total unique customers since inception across Australia and New Zealand as at 30 June 2020.
4 Average for the period 1 July 2019 to 30 June 2020.
5 Recognised by global business management consultancy Great Place to Work Australia Pty Ltd.

40 Prospa Annual Report 2020

Total revenue grew to $142.1 million, an increase of 4.2% on FY19. The year’s revenue result was impacted
by lower revenue in the fourth quarter due to lower originations, extended repayment terms for COVID-19
affected customers and lower fees charged.

Net loss after tax was $24.9 million (FY19 loss: $24.7 million). This result includes an impairment expense of
$18.0 million as a forward-looking provision to take into account the impact of the COVID-19 pandemic.

Cash and Funding

Net cash from operating activities grew to $33.8 million in FY20, compared to net cash of $16.9 million in
FY19. This excludes the impact of bad debts written off during FY20 of $30.3 million (2019: $24.6 million)
which is included in the net movement in receivables.

Cash and cash equivalents6 grew to $110.3 million at 30 June 2020 (FY19: $69.8 million), an increase of
58% from the prior year. This includes unrestricted cash of $55.3 million (FY19: $29.0 million), an increase
of $26.3 million or 91% on the prior year.

As at 30 June 2020, we had $442.9 million in available third-party facilities including unused facilities of
$114.1 million.

Funding costs increased to $20.4 million in FY20, an increase of 1.4% on prior corresponding period due
to higher average drawn notes over the period. This was offset by a lower weighted average funding rate
of 5.7% compared to 7.5% in FY19. The lower funding rate was largely driven by an increased weighting of
tier 1 bank facilities drawn in our funding mix.

Loan Impairment and Operating Expenses

Loan impairment expense grew to $52.9 million, an increase of 73.1% on the prior period and includes
the additional $18.0 million forward-looking provision to take into account the impact of the COVID-19
pandemic using a range of future macroeconomic scenarios. These scenarios were considered sufficient
to incorporate the restrictions on movements in Victoria and New Zealand announced in July and
August 2020.

As part of the Group’s response to the COVID-19 pandemic, over the period between 13 March and
30 June 2020, a total of 5,540 customer accounts in Australia and 779 in New Zealand were supported
with a relief package, typically a full or partial deferral with interest capitalised. Customers requiring relief
fell significantly towards year end, with only 7.5% (1,001) of active customer accounts remaining on a full
deferral as at 30 June 2020.

The total coverage for expected credit losses as a percentage of receivables was increased to 11.1% at
30 June 2020 (30 June 2019: 6.1%).

During the financial year, a comprehensive review was undertaken of the Group’s existing loan receivable
balances which resulted in a non-cash adjustment of $5.5 million (refer Note 1 to the consolidated financial
statements). This is included in the overall $52.9 million impairment result for the year.

Operating expenses excluding funding costs and loan impairment expense, were $79.1 million for the
year, an increase of 1.4% from FY19. Included in the result was a $1.4 million benefit from the Australian
Government JobKeeper Payment subsidy which was offset by $1.5 million of one-off restructuring costs
incurred as part of cost reduction initiatives undertaken in April 2020. As a result of adopting AASB 16
Leases from 1 July 2019, the Group has recorded $1.9 million of depreciation expense and $0.5 million of
interest expense in FY20 which was reported in operating expenses up to and including FY19.

Refer Note 1 to the consolidated financial statements for further information on JobKeeper and Leases.

Includes cash and cash equivalents as reflected in our consolidated balance sheet in accordance with applicable accounting standards, and includes
cash held in securitisation trusts. This applies to all references to cash and cash equivalents in this document.

Prospa Annual Report 2020 41

Capital Management

In August 2019, we established our first warehouse facility specifically to fund New Zealand Small Business
Loans. The facility is NZ$45 million with a three-year term, designed to scale with our funding needs
over time.

From March 2020, we actively engaged with our funding partners to secure the required flexibility to enable
us to provide our customers with appropriate COVID-19 relief, including reduced payments, revised payment
schedules and deferrals.

In April 2020, we received an allocation of up to $223 million under the Federal Government’s Coronavirus
SME Guarantee Scheme to help small businesses deal with the impact of COVID-19. The Scheme provides
selected lenders like Prospa with a Government-backed guarantee of 50% against the outstanding facility
balance of eligible products.

In May 2020, the Group decided the Prospa Trust Series 2018-2 Security Trust would not be extended
beyond June 2020 and all notes were fully repaid on 15 May 2020.

Funding activity has been supported by Federal Government initiatives. On 11 June 2020, the Australian
Office of Financial Management approved a maximum investment of $90 million into a Prospa warehouse
trust through the Structured Finance Support Fund under the Structured Finance Support (Coronavirus
Economic Response Package) Act 2020.

42 Prospa Annual Report 2020

Remuneration
Report

“I phoned my broker and said we don’t want to deal with a traditional bank, they just drag things on and on… They said Prospa might be able to help us out, and within two days we had the funds in our account.”Bradley,Western Australia, Australia — 1. Remuneration Report

Letter from the Chairman of Remuneration, People and Nomination Committee

Dear Shareholders,

I am pleased to present Prospa Group Limited’s (“Prospa”, the “Group” or the “Company”) Remuneration
Report for FY20. The Remuneration Report covers remuneration arrangements and outcomes for the FY20
period together with highlights of our remuneration arrangements for FY21.

As Gail outlined in her letter, our first year as a listed company has seen significant disruption for small
business in Australia and New Zealand and commensurately for Prospa. During FY20, we have proactively
managed the operational performance of our business, our priority being the safety of our people and
the responsible support of our small business customers. In line with this, our Remuneration, People and
Nomination Committee has established a remuneration framework that is fit for purpose and allows us the
agility and flexibility to ensure we can adjust remuneration outcomes in line with the performance of the
business and our goal to continue to build a long-term sustainable business.

Leadership changes

During FY20, in order to ensure greater clarity and focus, we restructured the Joint CEO roles for Greg
Moshal and Beau Bertoli. Greg Moshal became sole Chief Executive Officer and Beau Bertoli moved into the
newly created role of Chief Revenue Officer, with Beau’s primary focus being to capitalise on new revenue
opportunities, a role very much in line with his experience. As Co-Founders and significant shareholders
in Prospa, both Greg and Beau retained their Board positions and remain aligned with and committed to
delivering Prospa’s long term vision and strategy.

In FY20, Prospa commenced its search for a Chief Financial Officer following Edoardo Bigazzi’s departure
from the role in February. The impact of COVID-19 saw us temporarily pause our search to focus on the
operational resilience of our business, and we appointed Peter Loosmore as our Interim Chief Financial
Officer. Peter has deep financial portfolio and listed company experience and together with the Executive
team is responsible for financial control, financial planning and analysis, yield management and treasury.

On 17 September 2020, we announced the appointment of Ross Aucutt as our new CFO. Ross was
previously the CFO of FlexiGroup Limited for almost four years. He has a strong background in non-bank
disruptive finance models and in driving growth while significantly increasing the efficiency of the business
and the balance sheet. Ross’ previous experience of listed lending businesses, his passion for fintech and
his skills and experience will add considerable value to the Prospa team.

COVID-19 response

With uncertainty around the spread and duration of COVID-19 and the consequent economic impacts on
the small business economy, Prospa quickly took steps to manage the health and safety of our people and
transitioned seamlessly to a remote operating model ensuring full business continuity and uninterrupted
support for small businesses. We saw the benefit of our strong culture as we focused on helping our
customers with deferral and part payment programs whilst ensuring the business effectively managed its
credit and cash position.

As was prudent, cost management initiatives were implemented. These included voluntary salary or fee
reductions by management, employees and the Board, along with a review of our operating model for
efficiencies. These measures are detailed below.

As a result of the external disruptions from COVID-19, the targets for the FY20 incentive programs were
not met by the Executive Key Management Personnel (“KMP”) or the senior management team. However,
on 20 April 2020, the Board approved an incentive program, with an issue of share rights to those staff
who took voluntary income reductions and the issue of share options to non-KMP Executives. This was
implemented as a combined retention program and in lieu of the FY21 incentive scheme. The Board
believes these two initiatives are critical to ensuring our team remained stable and our people remained
focused during this very disruptive period.

44 Prospa Annual Report 2020

It’s important to note that during FY20 Greg Moshal and Beau Bertoli elected not to receive their approved
FY19 short term incentive payments and not to participate in the above mentioned programs. This was
done in response to the poor performance of the business since listing and to ensure there was sufficient
capacity for the rest of the team who had voluntarily sacrificed income during this time. The Board sees
this as a mature and shareholder focused approach from Greg and Beau, who as founders and significant
shareholders, remain strongly aligned to the long-term performance of Prospa.

Looking Forward

During these uncertain times, we have continued our focus on keeping our people safe and helping
maintain their physical and mental wellbeing whilst we ensure we help our customers and keep the
Company in a strong position. We believe Prospa and its shareholders will greatly benefit from any recovery
in the small business sector and we have provided the team with balanced financial incentives for the
medium to long term so our people can participate alongside our shareholders in any recovery.

We invite you to read the full Remuneration Report and look forward to the opportunity to answer any
questions from shareholders at the upcoming Annual General Meeting on 24 November 2020.

Yours sincerely,

Greg Ruddock
Chairman
Remuneration, People and Nomination Committee

Prospa Annual Report 2020 45

1. Key Management Personnel

The Committee presents the Remuneration Report of the Group for the period 1 July 2019 to 30 June 2020.
This Report forms part of the Directors’ Report and has been audited in accordance with section 300A of
the Corporations Act 2001.

The Remuneration Report details the remuneration arrangements for Prospa’s KMP. KMP are those persons
having authority and responsibility for planning, directing, and controlling the activities of the entity, directly
or indirectly, including all Directors. Table 1 outlines the KMP of the Group during FY20.

Table 1. Prospa KMP

Name

Executive KMP

Position

Term as KMP

Greg Moshal

Executive Director and CEO

Full year

Beau Bertoli

Executive Director and Chief Revenue Officer

Full year1

Former Executives

Ed Bigazzi

Chief Financial Officer

Ceased employment
on 27 March 2020

Non-Executive Directors

Gail Pemberton

Independent Non-Executive Chairman

Full year

Greg Ruddock

Independent Non-Executive Director and
Chairman of the Remuneration, People and
Nomination Committee

Fiona Trafford-Walker

Independent Non-Executive Director and
Chairman of the Audit and Risk Committee

Avi Eyal

Non-Executive Director

Full year

1 Mr Bertoli was joint CEO until 26 February, at which point he was appointed Chief Revenue Officer.

2. Remuneration framework and governance

Remuneration framework

Our remuneration framework enables us to adjust remuneration outcomes in line with the performance of
the business and broader economic conditions as they evolve. It aims to reward Executives with a level
and mix of fixed and variable remuneration appropriate to their position, responsibilities and performance,
in a way that aligns with the Company’s strategy, culture and values and is underpinned by remuneration
principles that are fit for purpose.

The following diagram illustrates the link between the Group’s strategy, culture, values, remuneration
principles and Executive remuneration arrangements. The diagram also outlines the purpose and operation
of each component of the Executive remuneration framework.

46 Prospa Annual Report 2020

Our Strategy

Continue to invest in the customer experience, technology and people in order to build products
and services that allow small businesses to prosper.

Culture and values

Our culture is demonstrated by our core values that drive the behaviour of our organisation
and contribute to our ability to deliver excellent customer experiences.

Obsess about
customers

Be bold, open
and real

Day 1

Deliver
value fast

Simplicity

One team

Remuneration principles

Reward financial and non financial performance that creates success
for Prospa over the short and long term.

Attract, motivate and retain high calibre talent.

Drive the right behaviours and compliance.

Be fit for purpose for the business we are now and aspire to be.

Everyone in the business should share in wealth creation.

Short term incentives truly vary with business performance.

Be fair and transparent.

Performance management process

Remuneration outcomes are delivered with reference to performance outcomes.

Performance evaluation is based on a mix of “what” people are delivering and “how” they are delivering it.

Demonstration of Company values is a gate to achieving a performance
rating as we expect all Prospa people to live the values.

Fixed Remuneration

Variable Remuneration

Purpose: Attracts high quality personnel and rewards
capability and experience.

Base salary, superannuation and
non-monetary benefits.

Reviewed annually by the Committee based on
individual, business unit and Group performance and
comparable market remuneration for like roles in the
technology and finance industry, and companies of a
similar size to Prospa.

Executives may receive their fixed remuneration in
the form of cash or other fringe benefits (for example
motor vehicle benefits) where it does not create any
additional costs to the Group.

Purpose: Motivates high performance and retains high
quality personnel through providing competitive and
appropriate reward for the achievement of strategic
objectives and creation of value for shareholders.

Delivery of variable remuneration is subject to the
achievement of shared performance measures that
have been chosen given our focus on growing the
business in a profitable way.

Delivered as cash and equity.

Malus and clawback provisions ensure leaders
demonstrate the right behaviours.

Prospa Annual Report 2020 47

Remuneration governance

The following diagram represents the Group’s remuneration oversight and decision-making framework.

The Board

Reviews, challenges and, as appropriate, approves the Committee’s remuneration
recommendations regarding Non-Executive Directors and Executives.
The Board has overall discretion to reduce, cancel or clawback any remuneration

The Remuneration, People and Nomination
Committee

Reviews and recommends to the Board
remuneration arrangements for its Non-executive
Director and Executives.

In particular, the Committee is responsible for:

– Determining Non-Executive Director and

Executive remuneration outcomes;

– Determining participation in and performance

targets for incentive plans, including
employee equity plans;

– Approving major changes to company

remuneration policies and arrangements; and

– Recommending whether offers are to be
made under any or all of the Company’s
employee equity incentive plans.

Members

The Committee comprises of four Non-Executive
Directors, three of which are independent Directors:

– Greg Ruddock (Chairman)

– Gail Pemberton

– Fiona Trafford-Walker

– Avi Eyal

The Audit and Risk Committee

Advises the Committee of material
risk matters which may impact
remuneration outcomes, and matters
relevant to financial outcomes
that warrant consideration when
determining variable remuneration
award outcomes for Executives.

External consultants

During the 2020 financial year, the
Board engaged Ernst & Young to
review remuneration policies. No
remuneration recommendations, as
defined in the Corporations Act 2001,
were provided by Ernst & Young or
any other advisor during the year.

48 Prospa Annual Report 2020

3. Contractual Arrangements

Remuneration and other terms of employment for Executives are formalised in service agreements. Details
of these agreements are outlined in Table 2.

Table 2. Executive contractual arrangements

Greg Moshal
CEO

Beau Bertoli
Chief Revenue
Officer

Ed Bigazzi
CFO

Contract type

Ongoing

Ongoing but ceased employment
on 27 March 2020

Fixed remuneration

$475,000

6 months

$375,000

6 months

Termination notice
by either party

Termination notice
with cause

Post-employment
restraints

Immediate

Restrictions operate for up to
12 months post-employment and
include:
– Non-competition restraints,

some of which purport to operate
across Australia only;

Restrictions operate for up to
12 months post-employment and
include:
– Non-competition restraints,
some of which purport to
operate across Australia only;

– Restrictions against

contacting Prospa Advance
customers; and

– Restrictions against

influencing employees to
resign from Prospa Advance.

– Restrictions against soliciting
certain Group clients and
customers and from providing
certain services to those clients
or customers;

– Restrictions against inducing

suppliers of the Group to cease
supply to Prospa Advance; and

– Restrictions against soliciting the
Group’s employees, contractors
or Directors.

Sign-on or termination
payments

N/A

Prospa Annual Report 2020 49

4. FY20 Remuneration Arrangements

As a result of both early underperformance in revenue against forecast and then the external disruptions
from the devastating summer bushfires and more recently the COVID-19 pandemic, the Executive KMP and
the other members of the Executive team did not achieve the targets required to be eligible for the Executive
Incentive Plan (“EIP”) or the Employee Equity Plan (“EEP”). The EIP is designed to align Executives with the
Company’s strategy, culture, values and ultimately shareholder interest through ongoing alignment with the
Company’s share price. There were no awards made under the EIP in the current or previous financial year.

In addition, our Executive KMP voluntarily elected not to receive the short-term incentive payments they
were eligible for from FY19.

In response to COVID-19, the Executive KMP reduced their base salary by 50% for a three-month period.
In addition, members of the Executive team reduced their base salary by 25% and employees and Non-
Executive Directors by 20% for a three-month period.

Details of the FY20 remuneration expense recognised for the Group’s Executive KMP for the reporting
period measured in accordance with Australian Accounting Standards (“AAS”) for Executive KMP are set
out in Tables 3 and 4.

Executive KMP remuneration outcomes are determined by the Board. The Remuneration, People and
Nomination Committee reviews and recommends Executive remuneration outcomes to the Board with
reference to capability, experience, market movements, the remuneration principles and individual,
business unit and Group performance.

Table 3. Executive KMP Cash and Variable Remuneration Outcomes in FY20

KMP

G. Moshal

B. Bertoli

Fixed Remuneration2

Cash Variable Remuneration
paid during FY

Variable Equity Remuneration
received during FY1

429,327

Nil

745,628

1 This represents the share-based payment expense for options granted to KMP prior to IPO as part of their remuneration. The value is calculated as

at the grant date. The amounts disclosed as part of remuneration for the financial year have been determined by amortising the grant date value on a
straight-line basis over the period from grant date to vesting date.

2 Fixed remuneration is presented after taking into account the base salary reduction noted above.

Table 4. Statutory Executive KMP remuneration outcomes in FY20

Short-term employee benefits

Post-
employment
benefits

Other
long term
benefits

Share based
payments1

Name

Year

Salary and
fees2

Cash
bonus3,4

Other
benefits

Super-
annuation

Long
service
leave

Options,
rights, loan
shares

Total
remun-
eration

Perform-
ance
related

G. Moshal

2020

429,327

–

2019

459,615

150,000

B. Bertoli

2020

429,327

–

2019

459,615

150,000

–

24,474

16,530

745,628

1,215,959

20,531

19,291

58,460

707,897

24,474

12,450

745,628

1,211,879

20,531

11,090

58,460

699,696

E. Bigazzi

2020

346,720

–

900

19,188

–

15,316

382,124

61%

29%

62%

30%

2019

363,662

150,000

1,200

20,531

4,340

168,743

708,476

45%

1 This represents the share-based payment expense for options granted to Executive KMP prior to IPO as part of their remuneration. The value of the
options is calculated as at the grant date. The amounts disclosed as part of remuneration for the financial year have been determined by amortising
the grant date value on a straight-line basis over the period from grant date to vesting date. No options or rights have been granted to Executive KMP
during the year ended 30 June 2020.

2 Salary and fees excludes the movement in the annual leave provision. For the year ended 30 June 2020 the provision movement for G. Moshal was

an increase of $2,091 (2019: increase of $39,187), for B. Bertoli an increase of $6,353 (2019: increase of $23,907) and for E. Bigazzi a decrease of
$31,428 (2019: increase of $17,301).

3 Short-term employee benefits for the year ended 30 June 2019 included a cash bonus accrual of $150,000 for each KMP. This bonus was forfeited in
full during the current financial year and no cash bonus was paid. 100% of the possible cash bonus in relation to the year ended 30 June 2020 has
also been forfeited.

4 The minimum possible value of cash bonus payable to each KMP is $nil. The maximum possible value is determined by the Board, who have overall

discretion to reduce, cancel or clawback any remuneration.

50 Prospa Annual Report 2020

5. FY21 KMP Remuneration Changes

On 20 April 2020, the Board approved a new incentive program for staff who sacrificed salary and for
senior management as a combined retention incentive and a bring forward of the FY21 incentive program.
This resulted in an issue of:

– 1,372,000 share rights vesting on 13 April 2021 issued to staff who sacrificed salary;

– 2,347,500 share options exercisable at $0.88 per option, expiring on 14 April 2024: and

– 2,347,500 share options exercisable at $0.95 per option, expiring on 14 April 2024.

Please refer to Note 32 to the consolidated financial statements for further details on these share-based
payments. The Executive KMP elected not to participate in the rights or options issued.

We believe these initiatives ensured our team remained stable and focused during this very disruptive
period and aligned to the long-term interests of our shareholders.

Executive KMP fixed remuneration in FY21

There will be no increases to the fixed remuneration of Executive KMP In FY21 in line with our focus on
prudent cost management and affordability.

Executive KMP variable remuneration in FY21

Greg Moshal and Beau Bertoli have voluntarily declined to participate in an incentive plan for FY21 to
support the recovery of the business.

The Board is satisfied the Executive KMP remain strongly aligned to shareholders, with Greg Moshal
being the second largest shareholder in the business with a 15% equity holding, and Beau Bertoli, the 3rd
largest shareholder in the business with a 6% equity holding, as outlined in the shareholders table of this
Annual Report.

6. Prospa performance and shareholder return

As shown below in Table 5, Prospa has achieved year on year growth in revenue with a 56% compound
annual growth rate (“CAGR”) over the period FY17 to FY19, and was on track to deliver strong revenue
growth in FY20 until the impact of COVID-19 in Q4.

Over the same period, the CAGR for originations was 52% and for total customers since inception across
Australia and New Zealand the CAGR was 80%.

Despite strong originations growth, revenue growth slowed in H1FY20 resulting in the Company issuing an
earnings downgrade on 18 November 2019. This resulted in a marked decline in the share price, which was
$3.63 on the last day of trading for FY19 (28 June 2019) and $1.93 on 31 December 2019. As a result, the
Executive team adopted a tighter focus on yield management, and this remained a priority for the business
whilst it continued to execute on growth initiatives in line with strategy.

Table 5 summarises the statutory earnings of the Group for the last four financial years.

Table 5. Group statutory earnings

$ million

Total revenue before transaction costs

Adjusted EBITDA1

NPAT

Statutory
FY20

Statutory
FY19

142.1

(19.5)

(24.9)

136.4

(0.8)

(24.7)

Statutory
FY18

104.0

7.4

2.1

Statutory
FY17

56.3

3.1

0.7

1 Adjusted EBITDA = Earnings Before Corporate Interest, Tax, Depreciation and Amortisation, and Fair Value movements.

The H1FY20 results announced in February 2020 showed early signs of the benefits of that increased focus
on yield, with H1FY20 EBITDA at $4.3 million, 7% ahead of the revised guidance provided by the Company
on 18 November 2019. In addition, customer numbers1 were up 45%, average gross loans were up 46% and
originations were up 37% – all on the prior corresponding period of H1FY19. The New Zealand business
was exceeding expectations, with over 1,400 customers and NZ$52.8 million in loans originated since
operations in that country commenced (during August 2018)2.

1 Total unique customers in Australia and New Zealand since inception, as at 31 December 2019.
2 NZ$ Originations from inception to 31 December 2019, and total unique customers in New Zealand since inception as at 31 December 2019.

Prospa Annual Report 2020 51

The Group’s originations grew to $429.0 million for the nine months to March 2020. This was an increase of
32% on the prior year corresponding period. Momentum from this growth in originations resulted in revenue
growing to $113.0 million, a 12.1% increase on the prior corresponding period.

The COVID-19 pandemic, which began impacting small businesses in Australia and New Zealand in
March 2020 through restrictions on movement and trading conditions, resulted in a further significant
reduction in the share price, which dropped to $0.47 on 31 March 2020 and closed at $0.96 on 30 June
2020. COVID-19 has continued to challenge the small business economy, with additional lockdowns in
Victoria and New Zealand during August 2020 impacting consumer and business sentiment and outcomes.

In Q4, revenue was significantly impacted by dramatically reduced originations and extended repayment
terms for COVID-19 affected customers. This resulted in an overall increase in Group total revenue to
$142.1 million for FY20, an increase of 4.2% on the prior year (FY19: $136.4 million).

Realised portfolio yield, which measures reported total revenue as a percentage of Average Gross Loans,
was 32.8% for the twelve months to June 2020, a decline of 9.9% on FY19. There was a marginal decline
in yield in Q4 as a result of extended repayment terms due to COVID-19 and Scheme-supported products.
Prospa continues to actively manage yield across the portfolio relative to credit risk and repayment terms.

As noted above, as a result of the below target performance, the Executive were not eligible for the EIP or
EEP. In addition, our Executive KMP voluntarily elected not to receive the short-term incentive payments
that they were eligible for from FY19.

However, a new incentive plan was implemented in April 2020 and this is outlined in section 5 of the
Remuneration Report.

7. Non-Executive Director remuneration

Fees

Prospa’s Non-Executive Director fee policy is designed to attract and retain high calibre directors and
recognise their contribution to the work of the Board and associated Committees. Table 6 outlines the
annual base fees paid by the Company to Non-Executive Directors (which may be awarded in cash or
equity). All Non-Executive Director fees are inclusive of statutory superannuation contributions. Non-
Executive Directors in any financial year must not exceed a fee pool of $900,000, as approved by
Shareholders at the Company’s 2019 General Meeting.

wDuring FY20, Prospa’s Non-Executive Directors reduced salaries by 20% for a three month period to
support the Company’s COVID-19-related cost management Initiatives.

Table 6. Non-Executive Director fees

Board and Committee fees ($ incl super)

Board

Audit and Risk Committee

Remuneration, People and Nomination Committee

Chair

Member

175,000

100,000

10,000

Nil

Directors are entitled to the reimbursement of travel and other expenses incurred directly relating to their
Board role.

Any Director who performs extra services, makes any special exertions for the benefit of the Company or
who otherwise performs services which, in the opinion of the Board, are outside the scope of the ordinary
duties of a Non-Executive Director, may be remunerated for the services (as determined by the Board) out
of the funds of the Company. No additional fees were paid to the Non-Executive Directors in FY20.

Prospa does not pay benefits (other than statutory entitlements) on retirement to Non-Executive Directors.

52 Prospa Annual Report 2020

Non-Executive Director Equity Plan (“NEDEP”)

In line with Prospa’s ownership culture, the Company had a plan which allowed Non-Executive Directors to
acquire rights that convert to restricted shares, in lieu of some or all of their cash Board fees. The NEDEP is
not subject to any performance or service conditions and the rights have an exercise price of $nil. There
was a grant made to the Non-Executive Directors under the NEDEP on 14 June 2019 for FY20. Table 7 details
the number of rights granted to each Non-Executive Director under the initial FY20 offer.

Table 7. FY20 Non-Executive Director rights granted

Name

G. Pemberton

G. Ruddock

F. Trafford-Walker

A. Eyal

Number of rights granted

23,148

nil

14,550

13,228

On 28 February 2020, the day following the release of the HY20 financial results, 50% of the Rights granted
on 14 June 2019 vested. The shares allocated to the Directors on vesting of the rights are held subject to
dealing restrictions until the earlier of two years or the date on which the Director ceases to hold office as a
Director. The remaining 50% of the salary sacrifice Rights were forfeited by each Director on 21 April 2020.
The Directors were paid cash Board fees for the remainder of the financial year.

Non-Executive Director statutory remuneration

Table 8 outlines statutory remuneration paid to Non-Executive Directors in FY20 in accordance with AAS.

Table 8. Non-Executive Director statutory remuneration

Name

G. Pemberton

G. Ruddock

Year

2020

2019

2020

2019

F. Trafford-Walker1

2020

A. Eyal2

2019

2020

2019

Fees
$

113,716

130,124

96,593

83,070

78,833

110,000

71,667

32,375

Superannuation
benefits
$

Share-based
payments3
$

Total4
$

10,803

84,314

208,833

12,362

15,191

157,677

9,176

7,702

11,006

116,775

–

90,772

–

68,063

146,896

15,191

125,191

32,563

104,230

15,663

48,038

1 Fees relating to Fiona Trafford-Walker are paid to Abeille Advisory Pty Ltd, a personal services company of which Fiona Trafford-Walker is the sole

Director, in return for it arranging for the provision of her services to the Company.

2 Avi Eyal is based overseas and all fees are paid in Australian Dollars.

3 All remuneration relating to share-based payments is with respect to grants made prior to IPO - no options or rights were granted to KMP including
Non-Executive Directors during the year ended 30 June 2020. The value of the options and rights granted to key management personnel as part of
their remuneration is calculated as at the grant date. The amounts disclosed as part of remuneration for the financial year have been determined by
allocating the grant date value on a straight-line basis over the period from grant date to vesting date.

4 Non-Executive Director remuneration reflects participation in the NEDEP by Gail Pemberton, Fiona Trafford-Walker and Avi Eyal in FY20 as well as the

20% reduction in fees by all Non-Executive Directors.

Prospa Annual Report 2020 53

The terms and conditions of each pre IPO grant of options affecting remuneration of Non-Executive
Directors in the current financial year are detailed in Table 9.

Table 9. Terms and conditions of Non-Executive Director options granted

Name

Number of
options
granted Grant date

Vesting date and
exercisable date1

Expiry date

Exercise
price

Fair value
per option
at grant
date

G. Pemberton

95,556 25/01/2019

Jul-19 to Jan-22

25/01/2024

$4.19

$2.09

25,000 14/06/2019

Dec-19 to Jun22

14/06/2024

$4.35

$2.28

G. Ruddock

25,000 14/06/2019

Dec-19 to Jun22

14/06/2024

$4.35

$2.28

F. Trafford-Walker

95,556 25/01/2019

Jul-19 to Jan-22

25/01/2024

$4.19

$2.09

25,000 14/06/2019

Dec-19 to Jun22

14/06/2024

$4.35

$2.28

A. Eyal

92,592 01/12/2018

Dec-18 to Aug-19 01/12/2023

$3.64

$0.75

1 These options vest subject to continued employment until vesting date.

8. Additional statutory disclosures

The information in the following section has been prepared in accordance with statutory requirements and AAS.

Legacy Equity Plan

The Group has a legacy long-term incentive (“LTI”) plan under which KMP hold equity as part of their
incentive arrangements.

Prior to IPO, Executives were granted options under an LTI Plan which vest relative to the satisfaction of
revenue, earnings before interest, taxes, depreciation and amortisation (“EBITDA”) and originations targets.
Options were also subject to a target of no material compliance breaches. The financial and non-financial
performance conditions were chosen so as to drive Prospa’s ownership culture and align Executive and
shareholder interests. The amount of equity which was initially awarded and subsequently vested was
determined by Board discretion. The Board has not used its discretion to amend the conditions of these
options during the current or previous financial year.

Unless the Board determines otherwise, if a participant ceases employment before the applicable vesting
date, all unvested options will lapse. If a participant ceases employment for cause after the applicable
vesting date, all vested options will lapse. If a participant ceases employment for any other reason after
the applicable vesting data, vested options must be exercised within 90 days of cessation.

Details relating to each grant held by Executives are set out in Table 10.

Table 10. Terms and conditions of Executive options

Name

Number of
options
granted Grant date

Vesting date and
exercisable date

Expiry date

Exercise
price

Fair value
per option
at grant
date

G. Moshal

543,123 14/05/2019

Nov-19 to May-22

14/05/2024

$3.33

$3.42

743,517

14/05/2019

Nov-19 to May-22

14/05/2024

$3.78

$2.85

B. Bertoli

543,123 14/05/2019

Nov-19 to May-22

14/05/2024

$3.33

$3.42

743,517

14/05/2019

Nov-19 to May-22

14/05/2024

$3.78

$2.85

E. Bigazzi1

600,000 30/11/2018

May-19 to Nov-21

30/11/2023

$3.64

$2.85

1 Ceased employment on 27 March 2020, at which point 400,002 unvested options were forfeited.

54 Prospa Annual Report 2020

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Prospa Annual Report 2020 55

Table 12. KMP equity holdings

KMP

G. Moshal

B. Bertoli

E. Bigazzi3

Balance at
1/7/2019

24,701,240

9,701,240

30,0001

Received on
exercise of
rights, options,
loan shares

Purchased/
Acquired

Disposed

–

71,188

44,396

–

G. Pemberton

152,036

11,5742

63,492

G. Ruddock

1,033,611

–

100,000

F. Trafford-Walker

13,228

7,2752

12,576

A. Eyal

2,419,280

6,6142

322,572

Balance at
30/6/2020

24,772,428

9,745,636

30,0001

227,102

1,133,611

33,079

2,748,466

–

1 Shares are subject to dealing restrictions until 4:15pm on the date of release of the FY20 results.

2 Shares are subject to dealing restrictions until the earlier of 28 February 2022 or the date on which the director ceases to hold office as a Director.

These rights were acquired by each Director by way of salary sacrifice in lieu of cash Board fees.

3 Ceased employment on 27 March 2020.

Loans and other transactions

No loans have been granted to any KMP. There were no transactions involving equity instruments, other
than those outlined in Table 7, with KMP or related parties.

Securities Dealing Policy

The Company has adopted a Securities Dealing Policy, which provides that Directors and employees
must not deal in the Company’s securities when they are aware of inside information. Directors and
certain restricted employees must not deal in the Company’s securities during any of the following
blackout periods:

– The period from the close of trading on the ASX on 30 June each year until the day following the

announcement to ASX of the full-year results;

– The period from the close of trading on the ASX on 31 December each year until the day following

the announcement to ASX of the half-year results; and

– Any other period that the Board specifies from time to time.

Directors and restricted employees must receive prior approval for any proposed dealing in the Company’s
securities outside of the above blackout periods (including any proposed dealing by one of their connected
persons). In accordance with Corporations Act obligations, Prospa’s Securities Dealing Policy prohibits
key management personnel and Directors from entering into hedging arrangements in relation to Prospa
securities including unvested awards in the EIP. In addition, the EIP Plan Rules restrict employees from
entering into hedging arrangement in relation to unvested awards under the EIP. Any attempt to hedge
awards in contravention of the Securities Dealing Policy or EIP Plan Rules will result in forfeiture and the
Board may consider disciplinary action.

56 Prospa Annual Report 2020

Corporate
Governance

“It was part of the 10-year plan to add the retail side, but the opportunity came much sooner than that... There were only two or three weeks between making that call to Prospa, getting the warehouse space, doing the full fit-out and opening shop. Without Prospa there’s no way we would have been in a position to expand our business like we have.”Nadine,Queensland, Australia — Corporate Governance

Prospa has reviewed its current corporate governance policies and practices against the Australian
Securities Exchange (“ASX”) Corporate Governance Council’s (“CGC”) Corporate Governance Principles
and Recommendations 4th Edition (Recommendations) in respect of the year ended 30 June 2020.
As recommended by the ASX CGC, further information in relation to corporate governance practices is
set out in the Corporate Governance Statement, which is publicly available on our website prospa.com.

This corporate governance statement is current as at 31 August 2020 and has been approved by the Board
of Directors (“Board”).

Our Code of Conduct

In conducting its business activities, Prospa is committed to maintaining the highest ethical standards.
Prospa’s success is dependent on the knowledge, experience and talent of our employees, the strength
of our management team, the quality of our business strategy and our compliance with high standards
of corporate conduct, ethics and governance. We are constantly working to reinforce and communicate
our values to our employees, shareholders, customers, suppliers and the broader community. The Board
believes it is important to provide a clear set of values that emphasise a culture encompassing strong
corporate governance, sound business practices and good ethical conduct.

Our Code of Conduct has been prepared for the guidance and benefit of all people employed, contracted by,
associated with, or acting on behalf of the Prospa and its related bodies corporate (the Group). The Code
of Conduct also extends to all Directors. The Code of Conduct expresses the core values that drive our
behaviour and aspirations as follows.

– our actions must be governed by high standards of integrity and fairness;

– our decisions must be made in accordance with the spirit and letter of applicable law; and

– our business must be conducted honestly and ethically, with our best skills and judgement, and for

the benefit of customers, employees, shareholders and the Group alike.

Our Code of Conduct applies to all Directors, officers, employees, contractors, consultants and associates.
It outlines how we expect our representatives to behave and conduct business in the workplace. By doing
so we can be proud of our individual and collective achievements and ensure that the Group maintains
a reputation for high standards of business conduct, professionalism and integrity, values and ethical
standards that are reflected in our day-to-day operations.

Supplier Code of conduct

Our Supplier Code of Conduct has been prepared for the guidance and benefit of our suppliers, who we
expect to support us in our commitments, abide by these principles and operate in full compliance with
all applicable laws, rules and regulations. By suppliers, we mean any organisation that provides goods
or services to Prospa. Our suppliers must review this Code and ensure that their organisations and their
suppliers, service providers, contractors and sub-contractors (collectively, their “Supply Chain”) comply.

The Supplier Code of Conduct outlines our expectations around:

– Human Rights and Labour;

– Diversity, Equal Employment Opportunity and Anti-Discrimination;

– Work Health & Safety;

– Ethical Business Practices;

– Management Systems; and

– Environment.

58 Prospa Annual Report 2020

Our core values

Our 210 employees strive to solve our customers’ problems by making complex financing solutions simple
for the everyday small business owner. Our culture is demonstrated by our core values that drive the
behaviour of our organisation and contribute to our ability to deliver excellent customer experiences.

Prospa’s core values

Obsess about
customers

Be bold, open
and real

Day 1

Don’t just listen,
hear what’s important

Take smart risks, be
transparent and true

Keep our start-up
mentality

Deliver value fast

Simplicity

One team

Celebrate outcomes,
not processes

Make the complex simple

We work as one

In FY20, Prospa developed a Key Capability Framework to take our values a step further and to articulate
the key capabilities and behaviours that enable us to win. As a business, we are continually shifting what
“good” looks like, raising the bar to get to “better” faster. These capabilities enable us to get there and are
built into employee Performance & Growth plans.

Prospa Annual Report 2020 59

Prospa’s Key Capabilities

Create value at every
opportunity

Solve prolems for
your customers

Navigate change and
ambiguity

Champion curiosity

Demonstrate
ownership

Communicate and
collaborate effectively

Diversity and inclusion

We are committed to building and maintaining a diverse and inclusive team, enhancing our capability and
reputation and allowing us to attract, engage and retain talented people.

We are committed to the principles of equal employment opportunity. We embrace strength-based
leadership, and seek to recruit, promote and remunerate based on performance, capabilities and
behaviours. We ensure our partner agencies are aware of our diversity agenda when recruiting on our
behalf. We seek to achieve greater gender diversity by setting measurable objectives and broadening
the field of potential candidates and Board appointments.

Our gender targets for FY20 for all employees were 45% women and 55% men; and for the Leadership
Team 33% women and 67% men. Members of the Leadership Team are the Executives and other senior
managers who are in a position to influence, motivate and enable others to contribute to the Company’s
success. As at the end of FY20, we employed 42% women and 58% men (all employees) and our
Leadership Team comprised 29% women and 71% men. We acknowledge we did not meet our gender
targets for FY20 and we intend to increase our focus on improving gender diversity in FY21.

Our Executive Team is comprised of 12.5% women and 87.5% men. Executives are the most senior
executive managers who sit on our Executive Team and determine the strategic direction of the business.
The Board is comprised of 33% women and 67% men.

Prospa was compliant with the Workplace Gender Equality Act 2012 in FY20.

To further support our gender diversity goals, Prospa partnered with The Dream Collective in FY20 to deliver
a diversity and inclusion program. This included the rollout of a new flexible working policy with supporting
toolkits and training, unconscious bias training for all leaders, and emerging leader training for nominated
women. Our approach to flexible working ensured employees were well positioned to adapt to remote
working when COVID-19 required us to close the office. An ambassador group consisting of seventeen
employees from across the business are now working together to define our next evolution of flexibility,
further embedding hybrid working at Prospa to support the diverse needs of our employees.

60 Prospa Annual Report 2020

Other initiatives to promote workplace diversity include a recently increased paid parental leave policy,
a wheelchair accessible office space, as well as a multi-purpose room to provide an inclusive and
private space for anyone who wishes to practise a religious ritual or meditation. Prospa further invests
in the development of its people managers by nurturing inclusive leadership skills through our bespoke
leadership development program (RISE) for new people managers.

Prospa surveys its employees bi-monthly with a “Pulse Check” to monitor team engagement at both
the company-wide and individual team level. Insights and actions are shared by Executives at monthly
company updates while people managers are supported by the People & Culture team to commit to team-
based action plans. Prospa also participates in an annual engagement survey and received Great Place to
Work Certification in September 2019. Assessment is based on an independent benchmark of our policies,
practices, and programs; together with feedback from our people obtained through a Trust Index© employee
survey.

Community initiatives

The Group is a responsible corporate citizen and actively supports the communities in which we live and
work. Each employee is expected to uphold the Group’s commitment to pursue good corporate citizenship
while engaging in its corporate activity.

Prospa offers its employees paid volunteer leave to give back to the community through the donation of
time and skills, either individually or as a team, to help those in need.

In FY20, Prospa hosted a bushfire relief fundraiser to support impacted rural and regional communities
in Australia, where employee donations were matched by the Company. A team of employees was
taken to drought-affected regional NSW to support small businesses as part of the #BuyFromTheBush
campaign and Prospa also donated to Rural Aid, which provides tangible resources to drought, flood, and
fire-affected communities and farmers. Prospa employees were once again sponsored to participate in
Sydney’s City2Surf community fun run and various in-house celebrations were held to mark key cultural
events, including Sydney’s Mardi Gras and Diwali festival, through which local suppliers and performers
were supported.

Economic

In 2019, Prospa invested in testing our purpose and commissioned independent research by RFi Group
and the Centre for International Economics into the economic impact of our small business lending.
The research found that every $1 million Prospa lends to small business results in $4 million to Australian
GDP and support 57 FTE jobs.

Environmental

The Group is committed to doing business in an environmentally responsible manner and identifying
environmental risks that may arise out of its operations.

Prospa has a small direct environmental impact, but endeavours to incorporate sustainable measures
into our workplace culture, such as recycling initiatives for all material, including batteries. Our automated
software to manage printing options prevents excess use of paper and ink. Prospa donates excess and old
hardware and furniture to charity and excess food and beverage to Oz Harvest. Prospa uses water saver
showers and low energy light globes where possible.

Governance and Risk Management

Management of risks is underpinned by a robust governance structure. The Audit and Risk Committee
meets at a minimum once a quarter and reviews and addresses risks, compliance, controls and financial
reporting impacting the Group.

Prospa Annual Report 2020 61

Board Risk Appetite Statement and Enterprise Risk Management Framework

The Board sets the Risk Appetite Statement with clear tolerances for each risk pillar. The Group’s CEO and
COO are then responsible for the Enterprise Risk Management Framework and the appointment of a team
of senior management personnel and subject matter experts to develop and implement policies, controls,
processes and procedures that identify and manage risk in all of the Group’s activities.

The Enterprise Risk Management Framework establishes strategies and processes to identify and manage
risk commensurate with the Group’s risk profile. Efficient and effective identification and management of
risks, especially credit, liquidity and market risk, is a key capability at Prospa and we continue to expand on
this. The Board and management are focused on ensuring a strong risk culture exists within the Group.

The establishment, maintenance and updates to the risk policies, procedures, predictive models, rules
and documentation are governed by a senior management Risk Steering Committee. The risk framework
is designed in such a way that it allows for adequacy of lending controls and commercial flexibility in a
closed feedback and communication loop; as such, the risk framework is designed to remain relevant and
responsive to the evolving external conditions.

Credit Risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument
fails to meet its contractual obligations. Credit risk for the Group is concentrated in loan receivables.

The Group has exposure to credit risk on all its term loans and revolving facilities. To manage and mitigate
credit risk, the Group has developed a comprehensive credit risk framework. The credit risk framework
includes the credit policy, credit procedures, probability of default (PD) based Application Scorecards and
advanced analytical models that construct a financial cash flow and determine the loan affordability and
specific rules to mitigate fraud.

All components of the framework are embedded in our proprietary Credit Decision Engine (CDE) which
enables us to scale whilst delivering consistent and accurate credit decisions. The credit risk assessments
derived from the CDE are supported by an independent review from the experienced and trained credit
staff. All credit risk assessments are screened through the KYC and AML rules in accordance with our AML/
CTF Program. In addition to AML, the credit risk assessments go through a thorough fraud check at various
stages of the credit decision process.

The quality of data facilitated by our in-house built Credit Risk DataMart enables a dedicated team
to perform timely and pro-active portfolio management. Key trends in the credit portfolio along with
concentration risk relative to the risk appetite are monitored frequently and reported to management
on a monthly basis. The overall credit risk framework is also supported by a robust Expected Credit Loss
Model (ECL) which is statistically based on the PD, Exposure at Default (EAD) and Loss Given Default (LGD)
components to forecast losses and guide provisioning decisions. The core ECL model is complemented
by an Economic Stress Testing Model which factors in internal and macro circumstances to produce an
economic overlay of losses on top of baseline losses.

Due to our data, decision engine and decision algorithms, we were able to make specific underwriting
amendments in response to the nationwide or isolated lock-downs caused by the COVID-19 pandemic, and
continue to write business within our risk appetite.

Liquidity and Market Risk

Liquidity risk is the risk of the Group not meeting its financial liabilities in a timely manner. Maintaining
continuous access to funds is the responsibility of the Group Capital Management (GCM) function within
Prospa. GCM utilises a number of strategies to enable liquidity including operating a funding platform with a
diversified source of funding that incorporates securitisation warehouse facilities, group equity and balance
sheet cash. In addition, securitisation facilities are funded through multiple domestic and global funders.

Market risks, specifically interest rate and foreign exchange risk, can lead to an adverse impact on the
Group’s earnings particularly as the Group offers fixed rate loans to its customers and borrows to fund these
customers using a mix of fixed and floating rates from funders. The Group hedges these interest rate risks in
accordance with the Board approved Financial Risk Management policy and using cost-effective hedging
strategies such as interest rate caps contracts.

With the expansion into the New Zealand market, the Group is now exposed to foreign exchange translation
and transaction risk. To minimise this risk, the Group has undertaken funding of its New Zealand operations
in local currency restricting the exchange rate translation and transaction risk to the Group’s equity
invested in the New Zealand operations.

62 Prospa Annual Report 2020

Operational Risk & Compliance

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people
and systems or from external events – either intentional or accidental. The extent and rigour with which
operational risk is managed has an impact on the Group’s customers, employees, financial performance
and reputation.

Compliance risk is the risk of regulatory action or policy change which may negatively affect the Group’s
financial position or reputation resulting from a failure to abide by compliance obligations.

The Group’s Operational Risk and Compliance Frameworks allow for the identification, assessment,
management, monitoring and reporting of operational risks and compliance obligations. These frameworks
set out the methodology to build and update the Group’s risk profile and help establish and define policies,
techniques and controls used to manage and mitigate operational risks and obligations.

The Group’s Operational Risk and Compliance Frameworks are positioned around the eight pillars of risk
internally (Strategic, Financial & Funding, Credit, People & Culture, Customer & Conduct, Legal, Regulatory,
Compliance & Fraud, Cyber & IT Security and Technology and Operational). A consolidated internal
reporting process captures incidents in a Risk Incident register which collects valuable data, adding
context and enabling quantifiable loss to be attributed to each incident, allowing prioritisation of efforts
across operational risk and compliance. The Operational Risk and Compliance Frameworks are revised and
enhanced through feedback from management and the Audit and Risk Committee.

The Group continues to invest in operational risk capabilities to ensure we meet the evolving needs in a
changing operating environment which now includes multiple products and geographies.

Prospa Annual Report 2020 63

Auditor’s
Independence
Declaration

“Prospa has been a valuable partner to my company over the years. I will continue to partner with Prospa once this dreadful virus is under control and for many years to come.”Steve,Western Australia, Australia — Auditor’s Independence Declaration

Deloitte Touche Tohmatsu
A.C.N. 74 490 121 060

Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1217 Australia

Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001

The Board of Directors
Prospa Group Limited
Level 1, 4 – 12 Yurong Street
Sydney NSW 2000

24 September 2020

Dear Board Members

Prospa Group Limited

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the
following declaration of independence to the directors of Prospa Group Limited.

As lead audit partner for the audit of the financial statements of Prospa Group Limited for the
financial year ended 30 June 2020, I declare that to the best of my knowledge and belief, there
have been no contraventions of:

the auditor independence requirements of the Corporations Act 2001 in relation
to the audit; and

ii)

any applicable code of professional conduct in relation to the audit.

Yours sincerely

DELOITTE TOUCHE TOHMATSU

Mark Lumsden
Partner
Chartered Accountants

Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.

Prospa Annual Report 2020 65

Financial
Statements

FY20FY20 — 1.

Financial Statements

General information

The financial statements cover Prospa Group Limited as a group consisting of Prospa Group Limited and the
entities it controlled at the end of, or during, the financial year. The financial statements are presented in
Australian dollars, which is Prospa Group Limited’s functional and presentation currency.

Prospa Group Limited is a listed public company limited by shares, incorporated and domiciled in Australia.
Its registered office and principal place of business is:

Level 1
4-16 Yurong Street
Sydney NSW 2000

A description of the nature of the Group’s operations and its principal activities are included in the
Directors’ Report, which is not part of the financial statements.

The financial statements were authorised for issue, in accordance with a resolution of Directors, on
24 September 2020. The Directors have the power to amend and reissue the financial statements.

68 Prospa Annual Report 2020

— Consolidated statement of profit or loss
and other comprehensive income

For the year ended 30 June 2020

Interest income

Other income

Total revenue before transaction costs

Transaction costs

Net revenue

Operating expenses

Funding costs

Sales and marketing expense

Product development expense

General and administration expense

Loan impairment expense

Total operating expense

Earnings before corporate interest, fair value movements,
income tax, depreciation and amortisation

Depreciation

Amortisation

Corporate interest

Fair value (loss)/gain on financial instruments

Fair value (loss)/gain on embedded derivative

Loss before income tax benefit/(expense)

Income tax benefit/(expense)

Loss after income tax benefit/(expense) for the year
attributable to the owners of Prospa Group Limited

Other comprehensive income

Items that may be reclassified subsequently to profit or loss

Fair value changes in cash flow hedges

Foreign currency translation

Other comprehensive income for the year, net of tax

Total comprehensive loss for the year attributable to the
owners of Prospa Group Limited

Basic earnings per share

Diluted earnings per share

Consolidated

Note

30 June 2020
$’000

30 June 2019
$’000

131,441

10,646

142,087

(9,256)

124,987

11,436

136,423

(8,536)

132,831

127,887

(20,356)

(20,070)

(30,407)

(10,748)

(37,962)

(52,881)

(27,127)

(9,408)

(41,498)

(30,550)

(152,354)

(128,653)

(19,523)

(3,106)

(3,084)

(535)

(129)

–

(26,377)

1,444

(766)

(955)

(2,684)

(2,103)

(12,439)

(4,357)

(23,304)

(1,417)

(24,933)

(24,721)

–

(191)

104

118

(25,124)

(24,603)

Cents

(15.48)

Cents

(21.55)

The above consolidated statement of profit or loss and other comprehensive income should be read in
conjunction with the accompanying notes.

Prospa Annual Report 2020 69

— Consolidated statement of financial position

As at 30 June 2020

Assets

Current assets

Cash and cash equivalents

Loan receivables

Bank deposits

Income tax

Prepayments and other assets

Total current assets

Non-current assets

Loan receivables

Property, plant and equipment

Right-of-use assets

Intangible assets

Deferred tax assets

Total non-current assets

Total assets

Liabilities

Current liabilities

Trade and other payables

Borrowings

Lease liabilities

Employee benefits

Total current liabilities

Non-current liabilities

Borrowings

Lease liabilities

Employee benefits

Total non-current liabilities

Total liabilities

Net assets

Equity

Issued capital

Reserves

Accumulated losses

Total equity

Consolidated

Note

30 June 2020
$’000

30 June 2019
$’000

110,319

225,984

1,091

637

1,947

69,839

235,120

1,098

447

3,301

339,978

309,805

106,254

1,510

6,796

7,826

10,854

133,240

144,733

2,354

–

6,577

8,814

162,478

473,218

472,283

6,108

9,580

1,992

2,236

19,916

6,687

14,974

–

3,792

25,453

317,209

296,548

6,666

404

–

262

324,279

296,810

344,195

322,263

129,023

150,020

610,651

(427,193)

609,975

(431,412)

(54,435)

(28,543)

129,023

150,020

The above consolidated statement of financial position should be read in conjunction with the
accompanying notes.

70 Prospa Annual Report 2020

— Consolidated statement of changes in equity

For the year ended 30 June 2020

Consolidated

Balance at 1 July 2018

Loss after income tax expense
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:

Share-based payments (Note 32)

Conversion of options
and performance shares

Capital buy-back

Conversion of financial instruments

Shares issued, net of transaction costs

Issued capital
(Note 15)
$’000

Reserves
(Note 16)
$’000

Accumulated
losses
(Note 17)
$’000

Total equity
$’000

36,149

1,096

(3,822)

33,423

–

600

–

80,999

58,833

–

118

1,626

–

(1,284)

–

(24,721)

–

118

(24,721)

(24,603)

–

1,626

600

(1,284)

80,999

58,833

–

426

Group re-organisation on IPO

432,968

(432,968)

Proceeds from loan shares

426

–

Balance at 30 June 2019

609,975

(431,412)

(28,543)

150,020

Consolidated

Balance at 1 July 2019

Adjustment on adoption of AASB 16
(Note 1)

Issued capital
(Note 15)
$’000

Reserves
(Note 16)
$’000

Accumulated
losses
(Note 17)
$’000

Total equity
$’000

609,975

(431,412)

(28,543)

150,020

–

(959)

Balance at 1 July 2019 – restated

609,975

(431,412)

(29,502)

149,061

Loss after income tax benefit
for the year

Other comprehensive loss
for the year, net of tax

Total comprehensive loss for the year

Transactions with owners in their
capacity as owners:

Share-based payments (Note 32)

Tax benefit on re-organisation (Note 7)

Exercise of options

Share repurchase

–

694

(18)

–

(24,933)

(191)

–

(191)

(24,933)

(25,124)

3,686

724

–

3,686

724

694

(18)

Balance at 30 June 2020

610,651

(427,193)

(54,435)

129,023

The above consolidated statement of changes in equity should be read in conjunction with the
accompanying notes.

Prospa Annual Report 2020 71

— Consolidated statement of cash flows

For the year ended 30 June 2020

Cash flows from operating activities

Finance income received

Other income received

Interest and other finance costs paid

Payments to suppliers and employees

Income tax refunded/(paid)

JobKeeper payments received

Consolidated

Note

30 June 2020
$’000

30 June 2019
$’000

131,154

9,113

(21,928)

(86,020)

348

1,122

124,921

7,405

(23,306)

(83,545)

(8,613)

–

Net cash from operating activities

33,789

16,862

Cash flows from investing activities

Net increase in loans advanced to customers

Payments for property, plant and equipment

Payments for intangibles

Other investing cash flows

Net cash used in investing activities

Cash flows from financing activities

Proceeds from borrowings

Repayment of borrowings

Principal repayment of lease liabilities

Payments for capital buy-backs

Proceeds from conversion of warrant

Proceeds from issue of shares net of transaction costs

Proceeds from exercise of share options

Net cash from financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the
financial year

(3,258)

(151,800)

(321)

(4,330)

–

(1,775)

(3,578)

(302)

(7,909)

(157,455)

105,794

(90,420)

(1,449)

–

675

179,141

(61,051)

–

(1,718)

2,000

57,586

14,600

176,035

40,480

35,442

69,839

34,397

Cash and cash equivalents at the end of the financial year

110,319

69,839

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

72 Prospa Annual Report 2020

— Notes to the consolidated financial statements

For the year ended 30 June 2020

Significant accounting policies

The principal accounting policies adopted in the preparation of the financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.

Basis of preparation

These general purpose financial statements have been prepared in accordance with Australian Accounting
Standards and Interpretations issued by the Australian Accounting Standards Board (“AASB”) and the
Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also
comply with International Financial Reporting Standards as issued by the International Accounting
Standards Board (“IASB”).

Historical cost convention

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 and loans and other receivables which are
measured at amortised cost.

Critical accounting estimates

The preparation of the financial statements requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group’s accounting policies.
The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates
are significant to the financial statements, are disclosed in Note 2.

Going concern

The financial statements of the Group have been prepared on a going concern basis. The Board of Directors
has made an assessment of the Group’s ability to continue as a going concern and are satisfied the Group
has the resources to continue for the foreseeable future and pay debts as they fall due.

In making this assessment, the Group has considered the following key factors:

– Budget and cash flow forecasts have been prepared which extend to 30 September 2021.

These demonstrate the Group will have access to sufficient liquid resources to meet forecast
operational expenditure and loan originations over that period;

– The Group has access to unrestricted cash of $57.2 million as at 15 September 2020 (30 June 2020:

$55.3 million);

– The Group has $441.8 million in available third party facilities as at 15 September 2020 (30 June 2020:
$442.9 million and 30 June 2019: $389.5 million) including unused facilities of $194.6 million (30 June
2020: $114.1 million and 30 June 2019: $76.7 million);

– The Australian Office of Financial Management has approved a maximum investment of $90 million
into a Group warehouse trust through the Structured Finance Support Fund (announced to the ASX
on 11 June 2020);

– Amendments to the Group’s Australian warehouse facilities have been completed (announced to the

ASX on 24 July 2020) and the Group continues to have the support of our funding partners; and

– Prospa is an approved Participating Lender under the current Coronavirus SME Guarantee Scheme
which was originally due to end 30 September 2020. The Federal Treasurer recently announced
that the Coronavirus SME Guarantee Scheme would be enhanced and extended to 30 June 2021 to
support continued small business recovery. The final terms of the extension are not yet finalised, and
the Group is in the process of considering whether it will apply to be a Participating Lender under the
extended Scheme.

In addition to the forward looking information noted above, a number of steps have been taken during the
year ended 30 June 2020 in response to COVID-19 so as to limit the impact on the Group. These include:

Prospa Annual Report 2020 73

– A step down in operating expenses for Q4 FY20, driven by a reduction in headcount and renegotiation
of key supplier terms. The reduced expenses included one off cost savings but also on-going cost
reductions that will benefit FY21;

– Prospa activated its Business Continuity Plan in early March and people have been working remotely

since then without any operational interruptions to the business, with the majority still working
remotely; and

– A deliberately restrained risk appetite in the fourth quarter resulting in a reduction in loans originated
in the final three months of the year, compared to the corresponding three-month period in FY19.

Management and the Board are therefore satisfied the Group will continue as a going concern.
This conclusion is based on the items described above which include sufficient cash headroom, the ongoing
support of our funding partners and the actions taken in March 2020 to reduce operating expenses.

Impact of COVID-19

The emergence of the COVID-19 pandemic during the current financial year has had a significant economic
impact as considerable restrictions were imposed on both individuals and businesses in an attempt to limit
the spread of the virus. The ongoing pandemic has also increased the level of estimation uncertainty in the
preparation of these financial statements.

The estimation uncertainty is associated with:

(i)

(ii)

the extent and duration of the disruption to businesses arising from the actions by Governments,
businesses and consumers to contain the spread of the virus;

the extent and duration of the expected economic downturn. This includes the disruption to capital
markets, deteriorating availability of credit, liquidity concerns, increasing unemployment, declines
in consumer discretionary spending, reductions in production because of decreased demand, and
other restructuring activities; and

(iii)

the effectiveness of Government and central bank measures that have been, and will be, put in
place to support businesses and consumers through this disruption and economic downturn

The combination of these factors has had an impact on the Group, such as on the recoverability of the loans
and receivables, and new lending volumes. Whilst the specific areas of judgement noted under critical
accounting estimates in Note 2 will not change, the impact of COVID-19 has resulted in the application of
further judgement within some of the areas identified. The Group has assessed the impact of COVID-19 in
preparing its financial statements and sets out the key financial statement areas impacted below.

Expected credit loss (“ECL”)

The Group undertook a detailed review of its existing Loan Receivables portfolio to determine an
appropriate ECL in light of COVID-19. This review included detailed consideration of the industry in which
each customer operates, customer credit quality, the existence of deferred repayment periods and the
macroeconomic outlook.

There is a considerable degree of judgement involved in preparing and analysing this data. The underlying
assumptions are subject to uncertainties which are often outside the control of the Group. Accordingly,
actual economic conditions may differ from those forecast by the Group and the effect of those differences
could materially impact the accounting estimates included in these financial statements.

The impact of the COVID-19 pandemic on the Group’s expected credit loss estimates is disclosed and
further explained in Note 19.

Impairment of non-financial assets

Consistent with the Group’s accounting policies, and in accordance with relevant Australian Accounting
Standards, the Group has considered indicators of impairment arising as at 30 June 2020. The economic
impact of COVID-19 was assessed as a potential indicator of impairment. Accordingly, the Group conducted
impairment testing to support the carrying amount of its non-financial assets. This included consideration of:

– Intangible assets;

– Property, plant and equipment;

– Right-of-use assets; and

– Deferred tax assets.

74 Prospa Annual Report 2020

Non-financial assets other than goodwill and other indefinite life intangible assets are reviewed for
indicators of impairment in accordance with AASB 136 Impairment of Assets. If such an indicator exists, the
carrying amount of the asset is compared to the estimated recoverable amount. Where the carrying amount
is found to be higher, the asset is written down to its estimated recoverable amount.

Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use.
The value-in-use is the present value of the estimated future cash flows relating to the asset using a
pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs.

It was determined no material impairment was required as a result of this assessment.

Loan receivables review

During the year ended 30 June 2020, the Group introduced a new reconciliation process in relation to its
loan receivable balance. The new process is more sophisticated than previously used and gives better
visibility to the Group by allowing a clear three-way match to be performed between cash transactions,
the loan management system and the accounting books and records of the Group.

As part of implementing this new process, the Group conducted a comprehensive review of its existing
loan receivables balance and in doing so, identified that an adjustment of $5.5 million was required.
This adjustment relates solely to non-cash items and therefore has no impact to the overall cashflows of the
Group. The adjustment had the impact of reducing gross loan receivables by $5.5 million at 30 June 2020
and increasing loan impairment expense by the same amount for the year ended 30 June 2020 (refer to
Note 19). Basic and diluted loss per share increased by 3.41 cents as a result (Note 31). This is expected to
be a one-off adjustment.

The adjustment has been recorded in full during the financial year ended 30 June 2020 on the basis that,
due to the typically short-term nature of the Group’s loan receivables, the loan book will effectively refinance
in full during the course of the financial year. Furthermore, due to the non-cash nature of the adjustment
required along with the volume and nature of the transactions, it is impracticable to recreate the information
required in order to determine the quantum of the adjustment, if any, which relates to prior periods.

AASB 120 Accounting for Government Grants and Disclosure of Government
Assistance

JobKeeper Payment

In March 2020 the Government announced a temporary wage subsidy program to support businesses
affected by COVID-19. This subsidy provides $1,500 before tax per fortnight for eligible employees and
is initially offered over a six month period from 30 March 2020 to 27 September 2020. Employers are
eligible to participate in the subsidy during this period if the turnover tests specified by the Government
are met. The Group is an eligible recipient of JobKeeper and received the subsidy during the year ended
30 June 2020 from 30 March 2020 onwards.

The subsidy has been recognised in profit or loss by reducing employee expenses (Note 6) and by
reducing capital expenditure where eligible employee expenses are treated as an addition to software
development (Note 11) in accordance with AASB 120 Accounting for Government Grants and Disclosure of
Government Assistance.

Coronavirus SME Guarantee Scheme

The Group is an approved Participating Lender to the current Coronavirus SME Guarantee Scheme.
Under this scheme, the Group has a Government-backed guarantee of 50% against the outstanding
balance on eligible products. ECLs in relation to eligible products are calculated in accordance with the
methodology outlined in Note 19 and where appropriate, are reduced by 50% to reflect the component
covered by this Guarantee.

Parent entity information

In accordance with the Corporations Act 2001, these financial statements present the results of the Group
only. Supplementary information about the parent entity is disclosed in Note 26.

Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Prospa
Group Limited (“Company” or “parent entity”) as at 30 June 2020 and the results of all subsidiaries and
trusts for the year then ended. Prospa Group Limited and its subsidiaries and trusts together are referred to
in these financial statements as the “Group”.

Prospa Annual Report 2020 75

Subsidiaries and trusts are all those entities over which the Group has control. The Group controls an entity
when the Group 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 and trusts
are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated
from the date that control ceases.

Intercompany transactions, balances and unrealised gains on transactions between entities in the Group
are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the
impairment of the asset transferred. Accounting policies of subsidiaries and trusts have been changed
where necessary to ensure consistency with the policies adopted by the Group.

Foreign currency translation

The financial statements are presented in Australian dollars, which is the Group’s functional and
presentation currency.

Foreign currency transactions

Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in profit or loss.

Foreign operations

The assets and liabilities of foreign operations are translated into Australian dollars using the exchange
rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian
dollars using the average exchange rates, which approximate the rates at the dates of the transactions,
for the period. All resulting foreign exchange differences are recognised in other comprehensive income
through the foreign currency reserve in equity.

The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment
is disposed of.

New or amended Accounting Standards and Interpretations adopted

The Group 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.

Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been
early adopted.

The details of the new significant accounting policies and the nature of the changes to previous accounting
policies in relation to the Group are set out below.

AASB 16 Leases

The Group has adopted AASB 16 Leases retrospectively from 1 July 2019 but has not restated comparatives
for the prior reporting period, as permitted under the specific transition provisions in the standard.
The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in
the opening balance sheet on 1 July 2019.

On adoption of AASB 16, the Group recognised lease liabilities in relation to leases which had previously
been classified as “operating leases” under the principles of AASB 117 Leases. These liabilities were
measured at the present value of the remaining lease payments, discounted using the lessee’s incremental
borrowing rate as of 1 July 2019. The weighted average lessee’s incremental borrowing rate applied to the
lease liabilities on 1 July 2019 was 6.0%.

In applying AASB 16 for the first time, the Group has used the following practical expedients permitted by
the standard:

– applying a single incremental borrowing rate to a portfolio of leases with reasonably similar characteristics;

– accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019

as short-term leases;

– accounting for leases with a remaining value of less than $10,000 as at 1 July 2019 as low value leases; and

– using hindsight in determining the lease term where the contract contains options to extend or

terminate the lease.

76 Prospa Annual Report 2020

Impact of adoption

AASB 16 was adopted using the modified retrospective approach and as such the comparatives have not
been restated. The Group elected to apply this approach by measuring the right-of-use asset as if AASB 16
had been applied from lease commencement. The difference between the asset and liability recognised on
adoption has been reflected in opening accumulated loses.

The impact of adoption on opening accumulated losses as at 1 July 2019 was as follows.

Operating lease commitments disclosed as at 30 June 2019

Discount based on the incremental borrowing rate at the date of initial application

Discounted amount of low-value and short term leases not recognised as a
right-of-use asset

Adjustment as a result of a different treatment of extension and termination options

Lease liabilities recognised as at 1 July 2019

Lease liabilities at 1 July 2019 (AASB 16)

Right-of-use assets at 1 July 2019 (AASB 16)

Tax effect on the above adjustments

Increase in opening accumulated losses as at 1 July 2019

6,192

(409)

(601)

4,662

9,844

(9,844)

8,474

411

(959)

The extension option on the premises leased by the Group is for two years. For the purpose of the
calculation above, the Group assumes the extension options will be exercised.

AASB Interpretation 23 Uncertainty over Income Tax Treatment

The Group has adopted Interpretation 23 for the first time in the current year. Interpretation 23 sets out
how to determine the accounting tax position when there is uncertainty over income tax treatments.
The Interpretation requires the Group to:

– Determine whether uncertain tax positions are assessed separately or as a group;

– Assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or

proposed to be used, by an entity in its income tax filings;

– If yes, the Group should determine its accounting tax position consistently with the tax treatment

used or planned to be used in its income tax filings; or

– If no, the Group should reflect the effect of uncertainty in determining its accounting tax position

using either the most likely amount or the expected value method.

The Group’s existing accounting policies are aligned with the requirements of Interpretation 23 and the
Group considers there to be no uncertain tax treatments used in income tax filings. As such, no transition
adjustment to retained earnings was required on adoption.

Revenue recognition

The Group provides financing to small businesses and derives the majority of its revenue from loans and
receivables which are accounted for under AASB 9 Financial Instruments.

Revenue is recognised for key items as follows.

Interest income

Interest income includes interest and loan origination fees. Interest income is recognised using the
effective interest method in accordance with AASB 9.

Effective interest method

The effective interest method is used for the recognition of interest on loans and loan origination
fees reported together within interest income, and transaction costs and broker commissions directly
attributable to the origination of a loan reported within transaction costs. Interest income and transaction
costs together comprise the complete effective interest yield of the loan book. This is a method of
calculating the amortised cost of a financial asset, and allocating the interest income over the relevant
period using the effective interest rate, which is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

Prospa Annual Report 2020 77

Transaction costs

Transaction costs and broker commissions directly attributable to the origination of loans are recognised
using the effective interest method in accordance with AASB 9. These are included as part of the initial
measurement of the related loan receivable and are therefore recognised as part of the effective interest
rate of the underlying financial asset.

Other income

Other income includes fees not directly attributable to the origination of loans and interest on cash deposits.

Fee income is recognised at a point in time when the performance obligation has been satisfied, at the
transaction price determined in the loan contract.

AASB 15 Revenue from Contracts with Customers requires the use of a principle-based five step
recognition and measurement model. The five steps are:

1. Identify the contract with a customer;

2. Identify the separate performance obligations;

3. Determine the transaction price;

4. Allocate the transaction price to each performance obligation identified in Step 2; and

5. Recognise revenue when a performance obligation is satisfied.

Where there is variable consideration in calculating a transaction price, revenue will only be recognised
if it is highly probable that a significant revenue reversal will not subsequently occur. AASB 15 applies to
contracts with customers except for revenue arising from items such as financial instruments.

Interest earned on cash deposits and is recognised using the effective interest method in accordance
with AASB 9.

Interest expense

The Group’s operations are funded by a combination of securitisation trust warehouse facilities, term
facilities and cash held on balance sheet. Interest expense is recognised as it accrues using the effective
interest rate method. Interest on the Group’s securitisation trust warehouse facilities are disclosed as
funding costs.

Income tax

The income tax expense or benefit for the period is the tax payable on that period’s taxable income based
on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and
liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior
periods, where applicable.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.

The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting
date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future
taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred
tax assets are recognised to the extent that it is probable that there are future taxable profits available to
recover the asset.

Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current
tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they
relate to the same taxable authority on either the same taxable entity or different taxable entities which
intend to settle simultaneously.

Tax consolidation legislation

Prospa Group Limited and its wholly-owned Australian controlled entities have implemented the tax
consolidation legislation. As a consequence, these entities are taxed as a single entity and the deferred tax
assets and liabilities of these entities are set-off in the consolidated financial statements.

The head entity, Prospa Group Limited, and the controlled entities in the Tax Consolidated Group account
for their own current and deferred tax accounts. These tax amounts are measured as if each entity was a

78 Prospa Annual Report 2020

stand-alone taxpayer in its own right. In addition to its own current and deferred tax amounts, Prospa Group
Limited also recognises the current tax liabilities (assets) and the deferred tax assets arising from unused
tax losses and unused tax credits assumed from controlled entities in the Tax Consolidated Group.

Assets or liabilities arising under the Tax Funding Agreement with the members of the Tax Consolidated
Group are recognised as amounts receivable from or payable to other entities in the Group. Any difference
between the amounts assumed and amounts receivable or payable under the Tax Funding Agreement are
recognised as a contribution to (or distribution from) members of the Tax Consolidated Group.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other
short-term, highly liquid investments with original maturities of three months or less that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Financial assets

The Group has applied the following policies for the classification categories under AASB 9.

Amortised cost

A financial asset will be measured at amortised cost if both of the following conditions are met.

– The financial asset is held within a business model whose objective is to hold financial assets in order

to collect contractual cash flows; and

– The contractual terms of the financial asset give rise on specified dates to cash flows that are solely

payments of principal and interest on the principal outstanding.

Loans and receivables are measured at amortised cost.

Fair value through profit or loss (“FVTPL”)

All financial assets that are not measured at amortised cost are measured at FVTPL. All financial assets
that are equity instruments will be measured at FVTPL unless the Group irrevocably elects to present
subsequent changes in the fair value in other comprehensive income. The Group does not expect to make
this election.

Loans and other receivables

Loan receivables are initially recognised at fair value and subsequently measured at amortised cost using
the effective interest method, less any allowance for expected credit losses. The initial fair value of loan
receivables includes capitalised origination fees net of capitalised transaction costs.

Other receivables are recognised at amortised cost, less any allowance for expected credit losses.

Refer to Note 19 for further detail.

Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment.
Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to the
Group and the cost of the item can be measured reliably.

Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant
and equipment (excluding land) over their expected useful lives as follows.

Plant and equipment

3-5 years

The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at
each reporting date.

Leasehold improvements are depreciated over the unexpired period of the lease or the estimated useful life
of the assets, whichever is shorter.

Prospa Annual Report 2020 79

Right-of-use assets

A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is
measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any
lease payments made at or before the commencement date net of any lease incentives received, any initial
direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected
to be incurred for dismantling and removing the underlying asset, and restoring the site or asset.

Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the
estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of
the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use
assets are subject to impairment and adjusted for any remeasurement of lease liabilities.

The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term
leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are
expensed to profit or loss.

Intangible assets

Intangible assets acquired are initially recognised at cost. Finite life intangible assets are subsequently
measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss
arising from the derecognition of intangible assets are measured as the difference between net disposal
proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life
intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are
accounted for prospectively by changing the amortisation method or period.

Software & Website

Expenditure on acquiring and developing software and eligible website development costs are recognised
as intangible assets when it is probable that the asset will be a success considering its commercial and
technical feasibility and its costs can be measured reliably. The expenditure capitalised comprises all
directly attributable costs, including direct labour. Other development expenditures that do not meet
these criteria are recognised as an expense as incurred. Capitalised software and website costs are
amortised on a straight-line basis over the period of their expected benefit, when the asset is ready for use.
The intangible assets are amortised over their useful lives as follows.

Website

Software (acquired)

3 years

5 years

Software development (in-house)

5 years

Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of the
financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost
and are not discounted. The amounts are unsecured. They are recognised initially at their fair value and
subsequently measured at amortised cost using the effective interest method

Lease liabilities

A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised
at the present value of the lease payments to be made over the term of the lease, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental
borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable
lease payments that depend on an index or a rate, amounts expected to be paid under residual value
guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to
occur, and any anticipated termination penalties. The variable lease payments that do not depend on an
index or a rate are expensed in the period in which they are incurred.

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or
loss over the lease period using the effective interest method.

The Group remeasures the lease liability whenever the lease term has changed, when there is a change
in the assessment of exercise of a purchase option and when the future lease payments change due to
changes in an index or rate or a change in expected payment under guaranteed residual value. When a
lease liability is remeasured, an adjustment is made to the corresponding right-of-use asset, or to profit or
loss if the carrying amount of the right-of-use asset is $nil.

80 Prospa Annual Report 2020

Borrowings

Borrowings are initially recognised at the fair value of the consideration received, net of transaction costs.
They are subsequently measured at amortised cost using the effective interest method.

Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the actual
draw-down of the facility, are recognised as prepayments and amortised on a straight-line basis over the
term of the facility.

Borrowings are removed from the Statement of Financial Position when the obligation specified in the
contract is discharged, cancelled or expired. The difference between the carrying amount of a financial
liability that has been extinguished or transferred to another party and the consideration paid, including any
non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses.

Other financial instruments

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual
provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value.
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial
liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Finance costs

Finance costs attributable to qualifying assets are capitalised as part of the asset and amortised using the
effective interest method. All other finance costs are expensed in the period in which they are incurred.

Employee benefits

Short-term employee benefits

Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave
expected to be settled wholly within 12 months of the reporting date are measured at the amounts
expected to be paid when the liabilities are settled.

Other long-term employee benefits

The liability for annual leave and long service leave not expected to be settled within 12 months of the
reporting date are measured at the present value of expected future payments to be made in respect
of services provided by employees up to the reporting date using the projected unit credit method.
Consideration is given to expected future wage and salary levels, experience of employee departures and
periods of service. Expected future payments are discounted using market yields at the reporting date on
high quality corporate bonds with terms to maturity that match the estimated future cash outflows.

Share-based payments

Equity-settled share-based compensation benefits are provided to employees.

Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in
exchange for the rendering of services.

The cost of equity-settled transactions is measured at fair value on grant date. Fair value is independently
determined using either the Binomial or Black-Scholes option pricing model that takes into account the
exercise price, the term of the option, the impact of dilution, the share price at grant date and expected
price volatility of the underlying share, the expected dividend yield and the risk free interest rate for
the term of the option. Judgements are also applied in relation to estimations of the number of options
which are expected to vest, by reference to historic attrition rates and expected outcomes under relevant
performance conditions.

The cost of equity-settled transactions is recognised as an expense with a corresponding increase in
equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date
fair value of the award, the best estimate of the number of awards that are likely to vest and the expired
portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative
amount calculated at each reporting date less amounts already recognised in previous periods.

Market conditions are taken into consideration in determining fair value. Therefore any awards subject to
market conditions are considered to vest irrespective of whether or not that market condition has been
met, provided all other conditions are satisfied.

Prospa Annual Report 2020 81

Financial instruments measured at fair value

When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure
purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date; and assumes that
the transaction will take place either: in the principal market; or in the absence of a principal market, in the
most advantageous market.

Fair value is measured using the assumptions that market participants would use when pricing the asset
or liability, assuming they act in their economic best interests. For non-financial assets, the fair value
measurement is based on its highest and best use. Valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to measure fair value, are used, maximising the
use of relevant observable inputs and minimising the use of unobservable inputs.

Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that
reflects the significance of the inputs used in making the measurements. Classifications are reviewed at
each reporting date and transfers between levels are determined based on a reassessment of the lowest
level of input that is significant to the fair value measurement.

For recurring and non-recurring fair value measurements, external valuers may be used when internal
expertise is either not available or when the valuation is deemed to be significant. External valuers are
selected based on market knowledge and reputation. Where there is a significant change in fair value of an
asset or liability from one period to another, an analysis is undertaken, which includes a verification of the
major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data.

Issued capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.

Treasury shares

Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from
equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the
Group’s own equity instruments.

Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to the owners of Prospa Group
Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average
number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary
shares issued during the financial year.

Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to
take into account the after income tax effect of interest and other financing costs associated with dilutive
potential ordinary shares and the weighted average number of shares assumed to have been issued for no
consideration in relation to dilutive potential ordinary shares.

Goods and Services Tax (“GST”) and other similar taxes

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST
incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the
acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount
of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in
the statement of financial position.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to,
the tax authority.

82 Prospa Annual Report 2020

Reclassification

Comparatives have been realigned to the current year presentation. There is no net effect on profit and net
assets for the comparative period.

Rounding of amounts

New Accounting Standards and Interpretations not yet mandatory or early adopted

Australian Accounting Standards and Interpretations that have recently been issued or amended but
are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended
30 June 2020. These are not expected to have a significant impact on the Group’s financial statements.

Critical accounting judgements, estimates and assumptions

The preparation of the financial statements requires judgements, estimates and assumptions, which, by
definition, will seldom equal the actual results.

Estimates, assumptions and judgements are continually evaluated. They are based on historical experience
and on other various factors, including expectations of future events, that are believed to be reasonable
under the circumstances.

The judgements estimates and assumptions that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year
are discussed below.

Revenue recognition

The Group recognises revenue on loan receivables using the effective interest rate method (in accordance
with AASB 9), based on estimated future cash receipts over the expected life of the financial asset.
In making its judgement of the timing and amount of estimated future cashflows and expected life of the
loan receivables balance, the Group has considered the historical repayment pattern of the loan receivables
on a portfolio basis.

These estimates require judgement and will be reviewed on an ongoing basis. Where required appropriate
adjustments to recognition of revenue will be made in future reporting periods.

Allowance for expected credit losses

The allowance for expected credit losses (“ECL”) assessment requires a degree of estimation and
judgement and is modelled using assumptions in relation to the ECL, including the assessment of
significant increases in credit risk since initial recognition, recent loss experience, historical collection
rates and forward-looking information and assessment of default. During the current period, the Group has
also considered the impact of the COVID-19 in measuring ECL. The actual credit losses in future years may
be higher or lower.

Allowance for expected credit losses are further discussed in Note 19.

Impairment of non-financial assets

The Group reviews non-financial assets for indicators of impairment at least annually in accordance with
AASB 136. If such an indicator exists, the carrying amount of the asset is compared to the estimated
recoverable amount. Where the carrying amount is found to be higher, the asset is written down to its
estimated recoverable amount.

Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The Group
typically determines recoverable amount by calculating the present value of the estimated future cash
flows relating to the asset over a five-year period, at which point terminal value is assessed. Cash flows
are then discounted to present value by applying a pre-tax discount rate specific to the asset or cash-
generating unit to which the asset belongs.

Prospa Annual Report 2020 83

Income tax

The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is
required in determining the provision for income tax. 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.

Income tax is disclosed in Note 7.

Recovery of deferred tax assets

Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
The extent to which deferred tax assets will be recoverable in the short term is assessed by the Group by
comparing forecast taxable profits to existing deferred tax assets and unused tax losses.

Deferred tax is disclosed in Note 12.

Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value
of the equity instruments at the date at which they are granted, the probability of non-market conditions
being met and the likelihood of employees meeting tenure conditions.

The fair value is determined by using the Black-Scholes model taking into account the terms and conditions
upon which the instruments were granted. The accounting estimates and assumptions relating to equity-
settled share-based payments would have no impact on the carrying amounts of assets and liabilities
within the next annual reporting period but may impact profit or loss and equity.

Share-based payments are further discussed in Note 32.

Operating segments

The Group’s operations consist primarily of the provision of loans to small businesses in Australia and
New Zealand. The Group has considered the requirements of AASB 8 Operating Segments and assessed
that the Group has one operating segment, representing the consolidated results, as this is the only
segment which meets the requirements of AASB 8.

Other income

Fee income

Bank interest

Consolidated

30 June 2020
$’000

30 June 2019
$’000

10,267

379

10,672

764

10,646

11,436

Fee income is comprised of servicing fees and late fees.

Interest expense

The total interest expense, as calculated using the effective interest rate method, is set out below.

Funding costs

Corporate interest

Financial instruments: Unwind of embedded derivative

Consolidated

30 June 2020
$’000

30 June 2019
$’000

20,356

20,070

535

–

2,103

4,357

20,891

26,530

Included in corporate interest for the current year is $0.5 million (30 June 2019: $nil) in relation to interest
on finance leases which has been recognised in accordance with AASB 16 (Note 14).

84 Prospa Annual Report 2020

Operating expenses

Operating expenses for the year were $152.4 million (June 2019: $128.7 million). Included within operating
expenses are employee expenses of $44.8 million (June 2019: $40.0 million). In the statement of profit
or loss and other comprehensive income, employee expenses are allocated to the line items to which
they relate by function, and form part of sales and marketing expense, product development expense and
general and administration expense. For the year ended 30 June 2020, employee expenses include a
$1.4 million benefit in relation to JobKeeper payments (Note 1).

Income tax

Amounts recognised in profit or loss

Current tax

Current year

Adjustment recognised for prior periods

Deferred tax

Origination and reversal of temporary differences

Adjustment recognised for prior periods

Aggregate income tax (benefit)/expense

Numerical reconciliation of income tax (benefit)/expense
and tax at the statutory rate

Loss before income tax (benefit)/expense

Tax at the statutory tax rate of 30%

Tax effect amounts which are not deductible/(taxable)
in calculating taxable income:

Entertainment expenses

Share-based payments

Movement on financial instruments

Other non-deductible items

Effect of tax rates in foreign jurisdictions

Initial public offering costs

Research and development accounting

Deferred tax assets not brought to account – temporary differences
(Note 12)

Deferred tax assets not brought to account – unused losses (Note 12)

Adjustment recognised for prior periods

Income tax (benefit)/expense

Amounts credited directly to equity

Deferred tax assets

Consolidated

30 June 2020
$’000

30 June 2019
$’000

526

(1,065)

(539)

869

(1,774)

(905)

(1,444)

3,563

3,569

(2,152)

–

(2,152)

1,417

(26,377)

(23,304)

(7,913)

(6,991)

1,106

258

–

5,521

2,328

1,395

(2,839)

(1,444)

991

5,039

1,531

705

–

1,411

1,417

(1,135)

(1,398)

Prospa Annual Report 2020 85

During the year ended 30 June 2019, the Group incurred significant expenditure in relation to Initial Public
Offering (“IPO”) costs. Due to the complexity of the tax treatment of these costs coupled with the Group
re-organisation which took place on IPO, the Group opted to take a conservative approach and did not
recognise a deferred tax asset in relation to these costs. The tax treatment for these items was resolved
on finalisation of the Group’s income tax return during the current financial year. As a result, a deferred tax
asset of $2.5 million was booked in relation to the prior period, of which $0.7 million is credited directly to
equity. The remaining $1.8 million appears within the line item “adjustment recognised for prior periods”
with respect to the deferred tax expense.

Deferred tax assets credited directly to equity include the $0.7 million in relation to IPO costs and
$0.4 million in relation to the adoption of AASB 16 as described in Note 1.

Current assets – cash and cash equivalents

Cash and cash equivalents – unrestricted

Cash and cash equivalents – restricted

Consolidated

30 June 2020
$’000

30 June 2019
$’000

55,304

55,015

29,032

40,807

110,319

69,839

Restricted cash is held by the Securitisation Trusts and whilst the cash held in the Securitisation Trust is
not available to settle the liabilities of the Group. It is available to:

– Purchase further receivables originated by the Group at any time (i.e. recycle cash); and

– Pay down the warehouse facility in the relevant trust; or

– Distribute each month any excess income to Group entities after paying interest expenses.

Loan receivables

Current

Loan receivables

Less: Allowance for expected credit losses (Note 19)

Non-current

Loan receivables

Less: Allowance for expected credit losses (Note 19)

Total

Loan receivables

Less: Allowance for expected credit losses (Note 19)

Consolidated

30 June 2020
$’000

30 June 2019
$’000

254,174

(28,190)

225,984

119,508

(13,254)

106,254

373,682

(41,444)

332,238

250,260

(15,140)

235,120

154,053

(9,320)

144,733

404,313

(24,460)

379,853

86 Prospa Annual Report 2020

Non-current assets – property, plant and equipment

Plant and equipment – at cost

Less: Accumulated depreciation

Non-current assets – intangible assets

Website – at cost

Less: Accumulated amortisation

Software acquired – at cost

Less: Accumulated amortisation

Software development (in-house) – at cost

Less: Accumulated amortisation

Non-current assets – deferred tax assets

Deferred taxes comprise temporary differences attributable to the following.

Deferred tax assets

Employee benefits

Provision for impairment of loan receivables

Property, plant and equipment, right-of-use asset and intangibles

Blackhole expenditure booked in relation to IPO

Deferred tax assets not brought to account

Difference on foreign exchange

Net deferred tax assets

Consolidated

30 June 2020
$’000

30 June 2019
$’000

4,457

(2,947)

1,510

4,136

(1,782)

2,354

Consolidated

30 June 2020
$’000

30 June 2019
$’000

820

(751)

394

(322)

14,045

(6,360)

7,685

820

(615)

205

394

(252)

142

10,207

(3,977)

6,230

7,826

6,577

Consolidated

30 June 2020
$’000

30 June 2019
$’000

1,083

12,433

1,090

1,807

(5,521)

(38)

1,158

7,318

338

–

10,854

8,814

Prospa Annual Report 2020 87

Deferred tax assets relating to unused losses and temporary differences are recognised only to the extent
that it is probable that future taxable profit will be available against which the benefits of the deferred tax
asset can be utilised.

The Group has a long history of generating taxable profits. Whilst a tax loss has been incurred for the year
ended 30 June 2020, based on forecasts prepared for future periods the Group expects to return to a tax
payable position. Deferred tax assets in relation to deductible temporary differences will therefore not be
fully derecognised. The Group has however considered the extent to which deferred tax assets will be
recoverable in the short term. As a result, the Group has deductible temporary differences of $5.5 million as
at 30 June 2020 (30 June 2019: Nil) for which no deferred tax asset has been recognised.

On the same basis, the Group has determined that no deferred tax asset shall be recognised in relation to
unused tax losses. As at 30 June 2020 the Group had unused tax losses of $8.1 million (30 June 2019: Nil)
which equates to a future tax benefit of $2.4 million.

Borrowings

The Group’s business operations are funded by a combination of securitisation trust notes (warehouse
facilities and term facilities), cash and contributed equity.

Current

Securitisation trust notes

Add: interest payable on trusts

Less: unamortised transaction costs on trusts

Non-current

Securitisation trust notes

Less: unamortised transaction costs on trusts

Total borrowings

Consolidated

30 June 2020
$’000

30 June 2019
$’000

10,451

(921)

9,580

14,852

746

(624)

14,974

318,394

297,923

(1,185)

(1,375)

317,209

296,548

326,789

311,522

The movement in the Group’s borrowings during the year is further analysed below.

Securitisation trust notes

Add: interest payable on trusts

Less: unamortised transaction costs
on trusts

30 June 2019

Cash flows

movements 30 June 2020

Non-cash

312,775

746

16,070

(696)

(1,999)

(1,038)

311,522

14,336

–

931

328,845

(2,106)

326,789

Non-cash movements relate to the amortisation of transaction costs on trusts. The cash flow in relation
to the initial expenditure is captured within interest and other finance costs paid within the statement of
cash flows.

The amounts due and payable on the secured debt facilities within the next 12 months are disclosed as
current based on the amortisation profile of the underlying loan receivables.

88 Prospa Annual Report 2020

Securitisation trust notes

As at 30 June 2020, the Group had five securitisation warehouses in place as a part of its asset backed
securitisation program. The Group regularly sells its loan receivables to these securitisation trust
warehouses. The trusts are consolidated as the Group:

(a)

(b)

(c)

Is exposed to, or has rights to, variable equity returns in its capacity as the residual unit holder
(or beneficiary as the case maybe) of these trusts;

In its capacity as the originator of loan receivables and the servicer of these loans on behalf of the
trusts, has the ability to impact the variable equity returns; and

Is the sole subscriber to the Seller Notes issued by the trusts. These Seller Notes go towards
maintaining the minimum equity contribution subordination buffer and funding non-conforming
receivables. In addition to the Seller Notes, the Group’s asset backed securitisation program includes
multiple classes of Notes including Class A, Class B and Class C Notes which carry a floating interest
rate. The facilities under the program have different expiry dates ranging from April 2021 to May 2022.

Key events which took place in relation to the Group’s borrowings during the year ended 30 June 2020 are
outlined below.

– In August 2019, the Group established its first New Zealand warehouse funding facility. The 3-year
committed facility will have an initial capacity of up to NZ$45 million and has been designed with a
similar structure to the Group’s Australian funding platform.

– In December 2019, the Group announced the introduction of a new funding partner into one of its

Australian warehouse facilities. The funding partner has subscribed to Class B Notes in the warehouse
facility with an initial capacity of $20.0 million.

– In February 2020, the Group announced the introduction of an additional new funding partner into
one of its Australian warehouse facilities. The funding partner subscribed to Class B Notes in the
warehouse facility with an initial capacity of $32.5 million over a 4-year term.

– During the year ended 30 June 2020, the Group decided the Prospa Trust Series 2018-2 Security Trust
would not be extended beyond June 2020. The Trust progressively paid down all third party notes
during the year, with these being fully repaid on 15 May 2020. Formal closure of the Trust was effected
on 25 June 2020.

– In June 2020, the Australian Office of Financial Management (“AOFM”) approved a maximum

investment of $90 million into the Group’s warehouse trusts through the Structured Finance Support
Fund. The $90 million is the maximum investment amount approved by the Delegate under the
Structured Finance Support (Coronavirus Economic Response Package) Act 2020.

Assets pledged as security

The carrying amounts of assets pledged as security for current and non-current borrowings in relation to
the securitisation warehouses is summarised below.

Loan receivables1

Consolidated

30 June 2020
$’000

30 June 2019
$’000

354,710

381,129

1 The amount recognised above represents the carrying value of loan receivables held by the Group’s Securitisation Trusts. This excludes loan

receivables totalling $18.9 million held by Prospa Advance Pty Ltd as at 30 June 2020 (30 June 2019: $23.2 million).

For the year ended 30 June 2020 this amount has been presented on a gross loan receivables basis.
For the year ended 30 June 2019 the amount was rather presented net of expected credit losses and
unearned future income ($356.9 million). The comparative has been updated to align with the current year
presentation.

Prospa Annual Report 2020 89

Financing arrangements

Unrestricted access was available at the reporting date to the following third-party facilities.

Total facilities

Securitisation trusts

Used at 30 June

Securitisation trusts

Unused at 30 June

Securitisation trusts

Funding costs

Consolidated

30 June 2020
$’000

30 June 2019
$’000

442,936

389,470

328,845

312,775

114,091

76,695

The borrowings related to trusts are linked to floating interest rates. The weighted average funding cost for
the year ended 30 June 2020 was 5.7% (30 June 2019: 7.5%).

Interest rate cap

To reduce the risk of changing interest rates associated with the borrowings, the Group holds interest
rate cap contracts with other independent financial institutions with a credit rating of A3 or higher.
These contracts had a fair value as at 30 June 2020 of less than $0.01 million (30 June 2019: $0.13 million).
The details of the contracts are outlined below.

Contract

Start Date

End Date

Principal

Risk being hedged

Interest rate cap 1

15/05/2019

15/04/2021

2,502,000

Interest rate cap 2

15/02/2019

15/01/2021

75,000,000

Interest rate cap 3

15/05/2019

17/05/2021

50,000,000

Changes in fair value are recognised in profit or loss.

Hedging movement in cash
flow due to movement in Base
interest rate above 2.40%.

Hedging movement in cash
flow due to movement in Base
interest rate above 1.83%.

Hedging movement in cash
flow due to movement in Base
interest rate above 1.33%.

90 Prospa Annual Report 2020

Leases

Amounts recognised in the statement of financial position

The statement of financial position shows the following amounts relating to leases.

Right-of-use assets

At cost

Less: Accumulated depreciation

Lease liabilities

Current

Non-current

Consolidated

30 June 2020
$’000

30 June 2019
$’000

8,737

(1,941)

6,796

1,992

6,666

8,658

–

The Group has adopted AASB 16 from 1 July 2019. In doing so, the Group has taken advantage of certain
practical expedients permitted by the standard and as such, comparatives have not been restated.

The financial impact to the Group from adopting AASB 16 is detailed in Note 1.

Amounts recognised in profit or loss

The statement of profit or loss and other comprehensive income includes the following amounts relating
to leases.

Depreciation

Right-of-use assets

Interest expense (included in corporate interest)

Lease liabilities

Equity – issued capital

Consolidated

30 June 2020
$’000

30 June 2019
$’000

1,941

543

–

30 June 2020
Shares

30 June 2019
Shares

30 June 2020
$’000

30 June 2019
$’000

Consolidated

Ordinary shares – fully paid

161,348,899

160,514,164

610,651

609,975

Treasury shares – fully paid

1,538

836,273

–

161,350,437

610,651

609,975

Prospa Annual Report 2020 91

Movements in ordinary share capital

Details

Balance

Date

1 July 2018

Conversion of options and performance shares

Conversion of financial instruments

Conversion of preference shares

Conversion of treasury shares

Proceeds from loan shares

Share split

Shares issued, net of transaction costs

Share capital restructure on IPO

21,712,630

1,567,060

7,437,196

15,645,067

1,769,464

–

96,135,380

16,247,367

–

$’000

–

600

80,999

36,149

–

426

–

58,833

432,968

Balance

Exercise of options

Share repurchase

Balance

30 June 2019

160,514,164

609,975

850,735

(16,000)

694

(18)

30 June 2020

161,348,899

610,651

Movements in treasury share capital

Details

Balance

Date

1 July 2018

Conversion of options and performance shares

December 2018

Management buy-back

Issuance of treasury shares

Conversion of treasury shares

Share split

Balance

Exercise of options

Share repurchase

Balance

Ordinary shares

December 2018

June 2019

30 June 2019

30 June 2020

$’000

2,099,707

(60,394)

(130,243)

100,000

(1,772,797)

600,000

836,273

(850,735)

16,000

1,538

–

Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the
Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares
have no par value and the Company does not have a limited amount of authorised capital.

Every member present at a meeting in person or by proxy shall have one vote and upon a poll each share
shall have one vote.

Treasury shares

The treasury shares mentioned above reflect shares that were issued in relation to the employee share
option scheme.

92 Prospa Annual Report 2020

Equity – reserves

Foreign currency reserve

Share option reserve

Re-organisation reserve

Consolidated

30 June 2020
$’000

30 June 2019
$’000

(177)

5,228

1,542

(432,244)

(432,968)

(427,193)

(431,412)

Foreign currency reserve

The reserve is used to recognise exchange differences arising from the translation of the financial
statements of foreign operations to Australian dollars. It is also used to recognise gains and losses on
hedges of the net investments in foreign operations.

Share option reserve

The reserve is used to recognise the value of equity benefits provided to employees and directors as part of
their remuneration, and other parties as part of their compensation for services.

Re-organisation reserve

During the year ended 30 June 2019, the Group undertook an IPO and group re-organisation, which was
accounted for by applying the reverse acquisition accounting principles of AASB 3 Business Combinations.
The re-organisation reserve was created to align total equity with the net asset position of the Group.

Consolidated

Balance at 1 July 2018

Foreign currency translation

Share-based payments

Capital buy-back

Expiry of interest rate cap

Group re-organisation on IPO

Balance at 30 June 2019

Foreign currency translation

Share-based payments

Tax benefit on
re-organisation (Note 7)

Balance at
30 June 2020

Foreign
currency
translation
reserve
$’000

Re-
organisation
reserve
$’000

Cash flow
hedge
reserve
$’000

Share
option
reserve
$’000

(104)

1,200

–

(191)

–

(432,968)

–

724

(177)

(432,244)

Total
$’000

1,096

1,626

(1,284)

104

(432,968)

–

1,626

(1,284)

–

1,542

(431,412)

–

3,686

(191)

3,686

–

724

5,228

(427,193)

–

104

–

Prospa Annual Report 2020 93

Equity – accumulated losses

Accumulated losses at the beginning of the financial year

Adjustment on adoption of AASB 16

Accumulated losses at the beginning of the financial year – restated

Loss after income tax benefit/(expense) for the year

Consolidated

30 June 2020
$’000

30 June 2019
$’000

(28,543)

(3,822)

(959)

–

(29,502)

(24,933)

(3,822)

(24,721)

Accumulated losses at the end of the financial year

(54,435)

(28,543)

Equity – dividends

The Group has not paid, and does not propose to pay dividends for the year ended 30 June 2020
(30 June 2019: $nil).

Financial risk management

Financial risk management objectives

The Group’s activities expose it to a variety of financial risks, primarily credit risk, market risk (including
price risk, foreign currency risk and interest rate risk) and liquidity risk. The Group’s risk management
program focuses on understanding drivers of financial risk and seeks to minimise potential adverse effects
on financial performance of the Group. The Group does not enter into or trade financial instruments,
including derivative financial instruments, for speculative purposes.

Management has responsibility for the establishment and operation of the Group’s enterprise risk
management framework, the initial identification and analysis of risks faced by the Group and for
developing procedures in response to these risks in accordance with the Board approved Risk Appetite
Statement. The Board has responsibility for monitoring these risks and for the continued oversight of the
risk management policies and procedures in place.

These are discussed individually below.

Credit risk

The Group provides short term loans to companies in the small business sector and has a framework
and supporting policies for managing credit risk associated with its lending activities. The framework
and policies encompass all stages of the credit cycle – origination, evaluation, approval, documentation,
settlement, ongoing administration and problem loan management. The Group has established criteria for
making lending decisions, which can vary by industry segment, past credit performance and loan purpose.
In this area, the focus is on the performance of key financial risk ratios, including interest coverage, debt
serviceability and balance sheet structure.

When providing finance, the Group obtains security by way of personal guarantees from the directors of the
borrower. If the loan is greater than $100,000, the Group will also obtain a general security agreement over
the assets of the business to further mitigate credit risk. The collateral held is generally in relation to land and
buildings. Where the underlying financial asset falls into default, a caveat will be lodged against the guarantor.
Loans under caveat are assessed on an ongoing basis to determine whether the value of the assets
pledged as security is sufficient to recover the balance outstanding. Where this is no longer considered
to be the case, the loan receivable is written off. As at 30 June 2020, the Group had loan receivables of
$3.4 million which are credit impaired but have not been fully written off by virtue of collateral held.

The Group is an approved Participating Lender to the current Coronavirus SME Guarantee Scheme.
Under this scheme, the Group has a Government-backed guarantee of 50% against the outstanding
balance of eligible products. As at 30 June 2020 none of the loan receivables under the scheme were
credit impaired.

94 Prospa Annual Report 2020

The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying
amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial
position and notes to the financial statements. The Group has credit commitments of $28.9 million as at
30 June 2020 in relation to undrawn Line of Credit facilities (30 June 2019: $1.3 million).

The Group’s customers are grouped into categories of similar risk using two proprietary categories of
Premium and Non-premium. These categories are created by analysing similar risk characteristics that have
historically predicted when an account is likely to go into default. Customers grouped according to these
predictive characteristics are assigned a Probability of Default (“PD”) and a Loss Given Default (“LGD”)
relative to their category. The credit quality of these categories is based on a combination of behavioural
factors, delinquency trends and PD estimates.

Model stages

Under AASB 9, a three-stage approach is applied to measuring expected credit losses based on credit
migration between the stages as follows.

Stage 1

Financial assets that have not had a significant increase in credit risk since initial
recognition. For these assets, 12 months expected credit losses are recognised. There is a
rebuttable presumption that Stage 1 assets comprise loans less than or equal to 30 days past due.

Stage 2

Financial assets that have experienced a significant increase in credit risk since initial
recognition but do not have objective evidence of impairment. For these assets, lifetime
expected credit losses are recognised. There is a rebuttable presumption that Stage 2 assets
comprise of loans less than or equal to 90 days past due.

Stage 3

Financial assets that have objective evidence of impairment. For these assets, lifetime expected
credit losses are recognised.

The following table summarises loan receivables by stage and by risk category.

Premium - 30 June 2020

Loan receivables

Allowance for expected credit losses

Non-premium - 30 June 2020

Loan receivables

Allowance for expected credit losses

Total - 30 June 2020

Loan receivables

Allowance for expected credit losses

Total - 30 June 2019

Loan receivables

Allowance for expected credit losses

Stage 1
$’000

Stage 2
$’000

Stage 3
$’000

Total
$’000

158,183

(8,353)

149,830

7,318

(1,737)

5,581

7,011

(4,430)

172,512

(14,520)

2,581

157,992

160,486

(11,047)

16,466

(4,409)

24,218

(11,468)

201,170

(26,924)

149,439

12,057

12,750

174,246

318,669

(19,400)

23,784

(6,146)

31,229

(15,898)

373,682

(41,444)

299,269

17,638

15,331

332,238

373,290

(7,878)

9,694

(4,663)

21,329

(11,919)

404,313

(24,460)

365,412

5,031

9,410

379,853

Of the amount included in Stage 3, $8.3 million relates to loan receivables against which specific provision
has been made (30 June 2019: $6.2 million).

Prospa Annual Report 2020 95

The loan receivables of the Group are short term in nature and have an average contractual life of less than
12 months. As such, the loan receivables outstanding as at 30 June 2019 will largely have been repaid,
refinanced or written off during the course of the current financial year. The movement in loan receivables
during the year ended 30 June 2020 is summarised below.

Opening balance

Repayments made

Loans originated

Net movement in accrued interest and fees

Receivables written-off during the year as bad debts

Adjustment in relation to loan receivables review

Consolidated

30 June 2020
$’000

404,313

(434,199)

448,173

(2,080)

(36,990)

(5,535)

373,682

The portfolio of receivables to which the Group is exposed is well diversified across industries, geographies
and customers and therefore, the Group does not have any material credit risk exposure to any single
debtor or group of debtors under the financial instrument contracts entered into by the Group.

The following table provides an analysis of the Group’s loan receivables by Prospa defined industry
classification.

Consolidated

30 June 2020
$’000

30 June 2019
$’000

8,535

72,400

10,672

13,164

10,490

63,560

23,680

69,290

62,734

10,044

26,219

2,894

8,036

73,634

13,446

12,847

11,725

71,519

25,992

72,832

70,036

11,549

29,345

3,352

373,682

404,313

Art and Lifestyle

Building and Trade

Financial Services

Hair and Beauty

Health

Hospitality

Manufacturing

Professional Services

Retail

Transport

Wholesaling

Other

96 Prospa Annual Report 2020

The Group’s loan receivables can also be analysed by geography as follows.

Australian Capital Territory

New South Wales

Northern Territory

Queensland

South Australia

Tasmania

Victoria

Western Australia

New Zealand

Consolidated

30 June 2020
$’000

30 June 2019
$’000

5,080

107,699

2,888

70,945

24,694

4,783

93,334

34,591

29,668

5,471

122,277

2,928

84,850

25,788

5,764

100,710

39,190

17,335

373,682

404,313

With respect to credit risk arising from the financial assets of the Group, comprised of cash and cash
equivalents and loan receivables, the Group’s maximum exposure to credit risk, excluding the value of any
collateral or other security at balance sheet date is the carrying amount as disclosed in the statement of
financial position and notes to the financial statements. The Group’s credit risk on liquid funds is limited as
the counterparties are major Australian banks with favourable credit ratings assigned by international credit
rating agencies.

Loan receivable balances and portfolio performance are monitored on an ongoing basis. The Group
establishes an allowance for loan impairment that represents its estimate of expected future losses in
respect of loan receivables.

The following table summarises movements in the allowance for expected credit losses during the period.

Opening balance

Provisions recognised during the year in the profit or loss

Receivables written-off during the year as bad debts

Adjustment in relation to loan receivables review

Recoveries from debt sales

Recoveries

Difference due to exchange rate variance

Consolidated

30 June 2020
$’000

30 June 2019
$’000

24,460

52,881

18,516

30,550

(36,990)

(26,678)

(5,535)

5,892

772

(36)

–

2,060

41,444

24,460

The allowance for expected credit losses for loan receivables as a percentage of receivables has increased
from 6.1% of the gross receivables balance as at 30 June 2019 to 11.1% as at 30 June 2020. The basis of
calculation is described in more detail below.

The allowance of 11.1% is comprised of 10.9% in relation to loan receivables and 0.2% for undrawn Line of
Credit balances (30 June 2019: 6.1% and nil respectively).

Prospa Annual Report 2020 97

Measurement of Expected Credit Loss

The Group uses a three-stage approach ECL model to calculate expected credit losses for loan receivables.
The ECL is measured on the basis of the probability weighted estimates of cash shortfalls over the
expected life of the instrument.

The expected credit loss model considers three main parameters, which are:

– Probability of default: the likelihood that a customer will default;

– Loss given default: the magnitude of the expected credit loss in the event of default; and

– Exposure at default (“EAD”) the estimated amount of credit exposure at the time of default.

Internally developed statistical models are applied to derive these parameters, based on historical portfolio
information. Customers are grouped together for the purposes of ECL assessment based on similar credit
risk characteristics, such as product type and the customer credit score.

The measurement of expected credit losses under the standard modelled provision is a function of the
probability of default, the loss given default (i.e. the magnitude of the loss if there is a default) and the
exposure at default. PD is calculated by assessing the probability of loan receivables progressing through
successive stages of delinquency through to write-off.

The LGD is estimated using historical loss rates across a three-year observation window as adjusted for
relevant and supportable factors for individual exposures, such as collateral held and the credit rating of the
customer. EAD is calculated based on the anticipated gross loan receivable outstanding at the expected
time of default.

Various other factors and forward-looking information are considered when calculating PD, LGD and EAD.
Considerations include the potential for default due to economic conditions (for example, in relation to
COVID-19), the credit quality of the loan receivable and the mitigating benefit of any collateral held as security.

The modelled performance of these receivables is likely to evolve as more performance data is available
to model loss implications from the COVID-19 pandemic and incorporating mitigating factors from the
government stimulus and other associated measures.

Expected life

In considering the lifetime time frame for expected credit losses in stages 2 and 3, the standard generally
requires use of the remaining contractual life adjusted where appropriate for prepayments, extension
and other options. For revolving lines of credit which include both a drawn and undrawn component, the
Group’s contractual ability to demand repayment and cancel the undrawn commitment does not limit our
exposure to credit losses to the contractual notice period. For these facilities, estimated lifetime is based
on historical behaviour.

Significant Increase in Credit Risk (“SICR”)

The Group considers a financial instrument to have experienced a significant increase in credit risk based
on quantitative information to identify this on an asset level. Each financial asset will be assessed at the
reporting date for significant deterioration where the financial asset is more than 30 days past due.

The Group has made an additional assessment of assets that are not 30 days past due but have likely
experienced a SICR. In particular, as part of the Group’s response to the COVID-19 pandemic, as at 30 June
2020, 5,540 customers across Australia had been provided with a COVID-19 related relief package, typically
a full deferral of 6 weeks or a partial deferral of 50% of the contractual repayment amount for 12 weeks. In
New Zealand, we provided a total of 779 customers with COVID-19 relief packages, typically full deferrals of
3-4 weeks’ duration or partial deferrals of up to 50% of the typical repayment for 9 weeks.

A specific review of these customers was undertaken as part of our assessment of expected credit losses
to determine where a significant increase in credit risk arose. This assessment considered, amongst other
factors, industry classification, Equifax Individual Report scores and repayment history prior to deferral.
Towards the financial year end, the Group observed a significant reduction in customers requiring this
assistance, with only 7.5% (1,001) of customers remaining on a full deferral as at 30 June 2020.

98 Prospa Annual Report 2020

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit
impaired. A financial asset is credit impaired when one or more events that have a detrimental impact on
the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit impaired includes the following observable data.

– A breach of contract, such as default or being more than 90 days past due;

– Significant financial difficulty of the customer; or

– It is probable that the customer will enter bankruptcy, liquidation or other financial re-organisation.

A metric used by the Group when assessing the performance of loan receivables and overall portfolio health
is their ageing, split by those aged 0 to 30 days, 31 to 90 days and those aged 90+ days. The following table
illustrates loan receivables by age.

Loan receivables aged 0 to 30 days

Loan receivables aged 31 to 90 days

Loan receivables aged over 90 days

Consolidated

30 June 2020
$’000

30 June 2019
$’000

326,798

373,290

17,192

29,692

10,992

20,031

373,682

404,313

Macroeconomic scenarios

Expected credit losses are a probability-weighted estimate of credit losses over the expected life of the
financial instrument. The Group has a process for incorporating forward looking economic scenarios and
determining the probability weightings assigned to each scenario in determining the overall ECL. The Group
prepared a base, downturn and severe downturn scenario based on economic variables relevant to the
respective jurisdictions of the customer, either Australia or New Zealand. Further information on each of
these scenarios is described below. The Group has incorporated this into the overall allowance for expected
credit losses by use of an economic overlay, which is described in more detail below.

The economic overlay is a forward looking provision in addition to the standard modelled provision.

Economic overlay

As at 30 June 2020, the Group expects there to be further impacts as a result of the COVID-19 pandemic,
including anticipated increases in delinquencies, as Government stimulus and other measures are
progressively removed and we potentially see continued outbreaks of the virus leading to Government
mandated restrictions on activity. These impacts would flow through to the modelled expected loss
provision, but currently due to the evolving economic impact of the pandemic, may not be fully captured in
the modelled outcome. In addition, the Group has specifically considered the likely exposures in different
industry and geography segments through an economic overlay. Over time, it is anticipated the economic
overlay will reduce as additional factors are embedded into the base case of the modelled provision.

The economic environment remains challenging for small businesses and as a result, in addition to the
standard modelled provision as at 30 June 2020 of 6.3% (30 June 2019: 5.5%) we have set aside a further
provision of 4.8% (30 June 2019: 0.6%) as forward looking provision to arrive at a total expected credit loss
as a percentage of receivables of 11.1% (30 June 2019: 6.1%).

The total forward looking provision required under this approach is determined by performing economic
stress testing on the Group’s customer base. In making this assessment, the loan receivables portfolio was
segmented into a number of different risk and industry categories against which the customer’s capacity to
pay as well as the expected recovery period could be assessed.

Prospa Annual Report 2020 99

In addition to the PD, LGD and EAD inputs described above, a range of other observable data points
including but not limited to credit risk grade, recent dishonours, days past due, total arrears, Equifax
Individual Report score and industry classification were captured in the Group’s assessment. The observed
default data was then multiplied by scalar factors to reflect the difference between economic conditions
over the period of historic observation, current economic conditions and the Group’s view of economic
conditions over the expected lives of the receivables.

The resulting model provides an analysis of expected credit losses under three alternative macroeconomic
scenarios. In arriving at the reported economic overlay, a probability weighted outcome of each
macroeconomic scenario was considered by the Group. The following table provides an overview of the
scenarios considered.

Scenario

Weighting

Expectation

Base

60%

Downside

20%

Severe
downside

20%

Write-offs

This scenario is considered the most likely macroeconomic outcome.
This contemplates a deterioration in economic activity and the business
environment in the short to medium term with subsequent recovery.

This scenario is set relative to the assumptions applied in the base scenario.
Higher expected credit losses are assumed in the downside scenario driven
by a sharper decline in economic activity and a slower economic recovery.

This scenario is the most conservative and is included to consider the
impact of less likely but more severe negative macroeconomic conditions.
This contemplates a more prolonged economic downturn with a sustainable
recovery delayed beyond 12 months from the current financial year end.

The Group writes off loan receivables in whole or in part, when the loan is more than 180 days past due
and 30 consecutive days of non-payment, the Group has exhausted all practical recovery efforts and
has concluded there is no reasonable expectation of recovery. Indicators that there is no reasonable
expectation of recovery include: (i) ceasing enforcement activity, and (ii) where the Group’s recovery
method is foreclosing on collateral and the value of the collateral is such that there is no reasonable
expectation of full recovery. There are no loan receivables written off during the year ended 30 June 2020
that remain subject to enforcement activity by the Group.

Modification of financial assets

The Group sometimes modifies the contractual agreement in respect of loan receivables provided to
customers due to commercial renegotiations, or for financially distressed customers, with a view to
maximising recovery. Such restructuring activities include extended payment term arrangements, payment
holidays and payment forgiveness. Restructuring policies and practices are based on indicators or criteria
which, in the judgement of management, indicate that payment will most likely continue. In particular, the
Group has assessed loans deferred during the period as part of our response to COVID-19 and determined
that no material modification gain or loss arose.

Market risk

Market risk is the risk that changes in market prices such as interest rates will affect the Group’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 returns.

Interest rate risk

The Group is exposed to interest rate risk because the Group borrows funds at both fixed and floating
interest rates. The interest payable under the Trusts is linked to variable Benchmark Rates (in Australia,
either BBSW or BBSY and in New Zealand the Bank Bill Market (“BKBM”) rate). The risk is managed by
the Group by the use of an interest rate cap contract. Hedging activities are evaluated regularly to align
with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies
are applied. The fair value of the interest rate cap was determined as at 30 June 2020 by an independent
valuation specialist. This was calculated to be less than $0.01 million and has been assessed by the Group
as immaterial.

Details of the Group’s borrowing facilities are set out in Note 13.

100 Prospa Annual Report 2020

Interest rate sensitivity analysis

As at 30 June 2020, the borrowings of the Group were linked wholly to variable interest rates and we
have conducted sensitivity analysis based on the exposure to interest rates for both derivatives and
non-derivative instruments at the end of the reporting period. For floating rate liabilities, the sensitivity
is prepared assuming the amount of the liability outstanding at the end of the reporting period was
outstanding for the whole year. A 0.25% increase or decrease is used when reporting interest rate risk
internally to key management personnel and represents management’s assessment of the reasonably
possible change in interest rates.

If interest rates had been 0.25% higher/lower and all other variables were held constant, the Group’s
profit for the year ended 30 June 2020 would decrease/increase by $0.8 million (30 June 2019: decrease/
increase by $0.8 million). This is attributable to the Group’s exposure to interest rates on its variable rate
borrowings.

Foreign currency risk

The Group pays certain overseas suppliers in foreign currency and is exposed to foreign currency risk
through foreign exchange rate fluctuations. However, payments made in foreign currency are not of a
significant value to have a material impact on the Group’s result. Borrowings and loans receivables in
relation to the Group’s foreign operations are denominated in New Zealand Dollars, which is the functional
currency of these subsidiaries. As such there is no material foreign currency risk to local operations.

Capital management

For the purpose of the Group’s capital management, capital includes issued capital and all other equity
reserves attributable to the equity holder of the parent. The Group’s objective is to maintain a strong capital
base so as to foster the support of its investors, funders and other business partners, and enable the future
growth initiatives of the Group. The Board reviews these objectives periodically. There were no changes to
the Group’s approach to capital management in the period.

Liquidity risk

Liquidity risk is the risk the Group will not be able to meet its financial obligations as they fall due. The Group
has a diversified funding model and currently comprises of a mix of securitisation warehouse facilities,
equity and balance sheet cash.

The Group manages operational liquidity risk by maintaining cash reserves and available borrowing facilities
and by continuously monitoring actual and forecast cash flows. The Group seeks to have sufficient liquidity
to meet its liabilities when due, under both normal and stressed conditions.

Remaining contractual maturities

The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities.
The tables have been compiled based on the undiscounted cash flows of financial liabilities based on the
earliest date on which the financial liabilities are required to be paid. The tables include both interest and
principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ
from their carrying amount in the statement of financial position.

Consolidated – 30 June 2020

Non-derivatives

Non-interest bearing

1 year
or less
$’000

Between 1
and 3 years
$’000

More than
3 years
$’000

Remaining
contractual
maturities
$’000

Trade and other payables

6,108

–

6,108

Interest-bearing

Lease liability

Borrowings

Total non-derivatives

2,458

9,580

18,146

5,541

317,209

322,750

1,683

–

1,683

9,682

326,789

342,579

Prospa Annual Report 2020 101

Consolidated – 30 June 2019

Non-derivatives

Non-interest bearing

1 year
or less
$’000

Between 1
and 3 years
$’000

More than
3 years
$’000

Remaining
contractual
maturities
$’000

Trade and other payables

6,687

–

Interest-bearing

Borrowings

Total non-derivatives

Covenants

14,975

21,662

296,547

–

6,687

311,522

318,209

The Group has various financial and non-financial covenants under its Securitisation Trust financing
facilities that can affect matters such as funding availability, repayments and the liabilities of the Group.
Receivables funded within the Securitisation Trust facilities are tested at each drawdown for compliance
with these covenants. If the Group’s operating results deteriorate, including incurring significant losses,
the Group may be unable to meet the covenants governing its indebtedness, which may require the Group
to seek amendments, waivers of covenant compliance or alternative borrowing arrangements, or to reduce
debt or raise additional equity.

Fair value measurement

Fair value hierarchy

Where applicable, the Group’s assets and liabilities are 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

– Level 3: Unobservable inputs for the asset or liability

There were no transfers between levels during the financial year.

The Group has considered all financial assets and liabilities to determine whether the carrying value is an
accurate reflection of fair value. In all cases, the carrying amount of financial assets and financial liabilities,
which include cash, loan receivables, payables and borrowings, are considered to be a reasonable
approximation of their fair values.

Interest rate cap

These derivative financial instruments are measured initially at fair value and carried subsequently at fair
value through profit or loss. The fair value as at 30 June 2020 was less than $0.01 million (30 June 2019:
$0.13 million) and was determined using the regression valuation approach. Refer to Note 13
for further detail.

102 Prospa Annual Report 2020

Level 3 assets and liabilities

Movements in level 3 assets and liabilities during the current and previous financial year are set out below.

Consolidated

Balance at 1 July 2018

Additions – on issuance of convertible notes

Disposals – convertible note was settled with the issue
of 6,505,580 shares in Prospa Advance Pty Limited

Warrants
$’000

1,744

–

Embedded
derivative
$’000

440

7,773

Total
$’000

2,184

7,773

(8,213)

Disposals – warrant was settled with the issue of 372,648
preference shares in Prospa Advance Pty Limited

(1,744)

Balance at 30 June 2019

Balance at 30 June 2020

–

(1,744)

–

Key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing
and controlling the activities of the entity, directly or indirectly, including any director (whether executive
or otherwise) of that entity.

The remuneration of Directors and other members of key management during the year were as follows.

Salaries and other short-term employee benefits

Termination benefits

Post-employment benefits

Other long-term benefits

Share-based payment

Consolidated

30 June 2020
$’000

30 June 2019
$’000

1,567

2,089

–

1,703

3,387

–

332

2,538

Prospa Annual Report 2020 103

Remuneration of auditors

During the financial year the following fees were paid or payable for services provided by Deloitte, the
auditor of the Company, its network firms and unrelated firms.

Deloitte and related network firms1

Audit or review of financial reports

– Group

– Subsidiaries and joint operations

Statutory assurance services required by legislation
to be provided by the auditor

Other services

– Tax compliance services

– IPO due diligence and tax restructuring

Total paid or payable to Deloitte and related network firms

Other Auditors and their related network firms

Audit or review of financial reports:

Subsidiaries and joint operations

Consolidated

30 June 2020
$’000

30 June 2019
$’000

471,350

11,000

482,350

16,500

398,573

10,000

408,573

–

211,747

56,100

267,847

766,697

75,290

759,880

835,170

1,243,743

56,595

36,080

56,595

36,080

1 The auditor of the Group is Deloitte Touche Tohmatsu.

Contingent liabilities

The Group had no contingent liabilities as at 30 June 2020 and 30 June 2019.

104 Prospa Annual Report 2020

Commitments

The following table summarises the operating lease commitments of the Group.

Operating lease commitments – land and buildings

Committed at the reporting date but not recognised as liabilities, payable:

Within one year

One to five years

Total minimum lease payments – land & buildings

Committed at the reporting date and recognised as liabilities, payable:

Within one year

One to five years

Total minimum lease payments – computer equipment

Consolidated

30 June 2020
$’000

30 June 2019
$’000

–

196

274

–

274

2,248

3,301

5,549

338

305

643

–

643

The Group has adopted AASB 16 Leases from 1 July 2019. The standard replaces AASB 117 Leases and for
lessees eliminates the classifications of operating leases and finance leases. Except for short-term leases
and leases of low-value assets, right-of-use assets and corresponding lease liabilities are now recognised
in the statement of financial position and not as an operating lease commitment.

The amounts included in operating lease commitments for the year ended 30 June 2020 represent short
term leases and leases assessed as low value by the Group. The assessment of “low value” and short term
leases is consistent with AASB 16.

AASB 16 was adopted using the modified retrospective approach and as such the comparatives have not
been restated.

For further detail on the impact of adoption and a reconciliation between previously reported operating
lease commitments and lease liabilities, refer to Note 1.

Prospa Annual Report 2020 105

Related party transactions

Parent entity

Prospa Group Limited is the parent entity.

Subsidiaries

Interests in subsidiaries are set out in Note 27.

Key management personnel

Disclosures relating to key management personnel are set out in Note 21.

Transactions with related parties

There were no transactions with related parties during the year ended 30 June 2020.

During the year ended 30 June 2019 the following transactions with related parties took place.

– Some of the directors had participated in the $20 million corporate debt facility that was held by

Prospa Advance Pty Ltd. These were repaid with the proceeds from the IPO. The total exposure of this
participation was $2.2 million of the $20 million provided that had been provided to the company.
The terms of the participation were on an arm’s length basis and consistent with other investors in the
facility.

– Attached to the corporate debt facility outlined above was a $2 million warrant that some of the

directors had participated in. This was also repaid with the proceeds from the IPO. The total exposure
of the participation was $215,000. The terms of this participation were on an arm’s length basis and
consistent with other investors in the facility.

– Pre-initial public offering there was a $15.3 million convertible note that some of the directors of
the Group had participated in that was held by Prospa Advance Pty Ltd. The total exposure of this
participation was $650,000 of the $15.3 million provided to the company.

– A second convertible note was issued in October 2018 for $43.3 million that one of the directors
of the Group had participated in also held by Prospa Advance Pty Ltd. The total exposure of this
participation was $150,000 of the $43.3 million provided to the company.

The terms of these participations were on an arm’s length basis and consistent with other investors in the

facility. These were repaid with the proceeds from the IPO.

Receivable from and payable to related parties

There were no trade receivables from or trade payables to related parties at the current and previous
reporting date.

Loans to/from related parties

There were no loans to or from related parties at the current and previous reporting date.

Terms and conditions

All transactions were made on normal commercial terms and conditions and at market rates.

106 Prospa Annual Report 2020

Parent entity information

Set out below is the supplementary information about the parent entity.

Statement of profit or loss and other comprehensive income

Profit/(loss) after income tax

Total comprehensive income

Statement of financial position

Total current assets

Total assets

Total current liabilities

Total liabilities

Equity

Issued capital

Re-organisation reserve

Retained profits/(accumulated losses)

Total equity

Contingent liabilities

Parent

30 June 2020
$’000

30 June 2019
$’000

(629)

(4,169)

Parent

30 June 2020
$’000

30 June 2019
$’000

173,145

170,964

174,952

173,562

1,343

724

610,651

609,975

(432,244)

(432,968)

(4,798)

(4,169)

173,609

172,838

The parent entity had no contingent liabilities as at 30 June 2020 and 30 June 2019.

Capital commitments - Property, plant and equipment

The parent entity had no capital commitments for property, plant and equipment as at 30 June 2020 and
30 June 2019.

Significant accounting policies

The accounting policies of the parent entity are consistent with those of the Group, as disclosed in Note 1.

Prospa Annual Report 2020 107

Interests in subsidiaries and trusts

The consolidated financial statements incorporate the assets, liabilities and results of the following
subsidiaries and trusts in accordance with the accounting policy described in Note 1.

Name

Principal place of
business/Country
of incorporation

Ownership interest

30 June 2020
%

30 June 2019
%

Prospa Advance Pty Ltd

Australia

100%

Prospa Trust Series 2015-1 Security Trust1

Australia

100%

Prospa Trust Series 2018-1 Security Trust1

Australia

100%

Prospa Trust Series 2018-2 Security Trust1

Australia

–

100%

Prospa Trust Series Pioneer Security Trust1

Australia

100%

Prospa Trust Series Prosparity Security Trust1

Australia

100%

Prospa Finance Pty Ltd

Prospa Innovations Pty Ltd2

Prospatarian Pty Ltd2

Prospa NZ Limited2

Australia

100%

New Zealand

100%

Prospa Kea Trust Series-12

New Zealand

100%

–

1 Ownership is through Prospa Advance Pty Ltd, which is both the Participation Unitholder and Residual Unitholder of the trusts.

2 Ownership is through Prospa Advance Pty Ltd.

On 8 August 2019, the Group announced the establishment of a New Zealand funding structure, the Prospa
Kea Trust Series-1, to fund the ongoing growth of the New Zealand portfolio. Prospa Group Limited has a
100% interest in the Prospa Kea Trust Series-1.

During the year ended 30 June 2020, the Group took the decision that the Prospa Trust Series 2018-2
Security Trust would not be extended beyond June 2020. The Trust progressively paid down all third-
party notes during the year, with these being fully repaid on 15 May 2020. Formal closure of the Trust was
effected on 25 June 2020.

Deed of cross guarantee

The parent entity, Prospa Group Limited and the subsidiaries set out below are party to a deed of cross
guarantee under which each Company guarantees the debts of the others:

Prospa Advance Pty Ltd

Prospa Innovations Pty Ltd

Prospa Finance Pty Ltd

Prospatarian Pty Ltd

By entering into the deed, the wholly-owned subsidiaries have been relieved from the requirement to
prepare financial statements and directors’ report under Corporations Instrument 2016/785 issued by the
Australian Securities and Investments Commission.

The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the
event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001.

The above companies represent a Closed Group for the purposes of the Corporations Instrument. Set out
below is a consolidated statement of profit or loss and other comprehensive income and statement of
financial position of the Closed Group.

108 Prospa Annual Report 2020

Statement of profit or loss and other comprehensive income

Interest income

Other income

Total revenue before transaction costs

Transaction costs

Net revenue

Operating expenses

Funding costs

Sales and marketing expense

Product development expense

General and administration expense

Loan impairment expense

Total operating expense

Earnings before corporate interest, fair value movements,
income tax, depreciation and amortisation

Depreciation

Amortisation

Corporate interest

Fair value (loss)/gain on financial instruments

Fair value (loss)/gain on embedded derivative

Loss before income tax benefit/(expense)

Income tax benefit/(expense)

Loss after income tax benefit/(expense)

Other comprehensive income for the year, net of tax

Total comprehensive loss for the year

Equity - accumulated losses

Accumulated losses at the beginning of the financial year

Adjustment on adoption of AASB 16

Loss after income tax benefit/(expense)

Fair value change in cash flow hedge

30 June 2020
$’000

30 June 2019
$’000

119,178

13,841

133,019

122,353

13,022

135,375

(8,509)

(8,438)

124,510

126,937

(18,809)

(29,111)

(10,610)

(36,295)

(49,208)

(20,070)

(26,713)

(9,784)

(41,303)

(29,465)

(144,033)

(127,335)

(19,523)

(398)

(3,106)

(3,083)

(535)

(129)

(955)

(2,684)

(2,103)

(12,439)

(3,486)

(26,378)

(22,065)

1,868

(1,761)

(24,508)

(23,826)

104

(24,508)

(23,722)

30 June 2020
$’000

30 June 2019
$’000

(27,650)

(3,928)

(959)

(24,510)

(23,826)

104

Accumulated losses at the end of the financial year

(53,117)

(27,650)

Prospa Annual Report 2020 109

Statement of financial position

30 June 2020
$’000

30 June 2019
$’000

Assets

Current assets

Cash and cash equivalents

Loan receivables

Intercompany loan receivables

Bank deposits

Income tax

Prepayments and other assets

Non-current assets

Loan receivables

Investment in subsidiary

Property, plant and equipment

Right-of-use assets

Intangible assets

Deferred tax assets

Total assets

Liabilities

Current liabilities

Trade and other payables

Borrowings

Lease liabilities

Employee benefits

Non-current liabilities

Borrowings

Lease liabilities

Employee benefits

Total liabilities

Net assets

Equity

Issued capital

Reserves

Accumulated losses

Total equity

110 Prospa Annual Report 2020

60,114

204,829

12,210

1,091

1,169

1,936

28,099

225,539

10,451

1,098

391

3,257

281,349

268,835

100,731

138,836

7,149

1,510

6,796

7,823

10,343

134,352

7,149

2,354

–

6,577

8,526

163,442

415,701

432,277

6,026

9,580

1,992

2,236

19,834

6,610

14,974

–

3,792

25,376

258,279

255,740

6,666

404

–

262

265,349

256,002

285,183

281,378

130,518

150,899

610,651

609,975

(427,016)

(431,426)

(53,117)

(27,650)

130,518

150,899

Events after the reporting period

On 6 July 2020, due to its limitations in funding new products such as Line of Credit or Government
Guarantee Scheme Loans and Lines, the Group ended the Prospa Trust Series 2018-1 substitution period and
no new loans are being sold into this Securitisation Trust. Principal collected from loans in this Securitisation
Trust will progressively reduce the aggregate outstanding balance of loans remaining in the Trust.

Prospa is already an approved Participating Lender under the current Coronavirus SME Guarantee
Scheme which was originally due to end on 30 September 2020. On 20 July 2020 the Federal Treasurer
announced that the Scheme would be enhanced and extended to 30 June 2021 to support continued small
business recovery. The final terms of the extension are not yet finalised, and the Group is in the process of
considering whether it will apply to be a Participating Lender under the extended Scheme.

On 17 September 2020 the Group announced the appointment of Ross Aucutt as CFO. Ross replaces
Peter Loosmore, Prospa’s interim CFO since 28 January 2020.

Reconciliation of loss after income tax to net cash from operating activities

Loss after income tax benefit/(expense) for the year

(24,933)

(24,721)

Consolidated

30 June 2020
$’000

30 June 2019
$’000

Adjustments for:

Depreciation and amortisation

Share-based payments

Foreign exchange differences

Origination fees

Purchase of options

Loan impairment expense

Promotion interest adjustment

Amortisation of borrowing costs

Outstanding late fees

Net interest income accrual

Financial instruments: Fair value loss

Change in operating assets and liabilities:

Decrease/(increase) in prepayments and other assets

Increase in deferred tax assets (Note 7)

Decrease in trade and other payables

(Decrease)/increase in employee benefits

Decrease in current tax liability

Increase in current tax asset

6,190

3,686

–

(2,086)

–

52,881

3,845

(108)

(1,544)

(2,040)

129

953

(905)

(675)

(1,414)

–

(190)

3,639

2,869

2,644

434

30,550

(2,756)

3,225

(4,075)

–

12,439

(517)

(2,152)

(1,492)

1,886

(5,137)

–

Net cash from operating activities

33,789

16,862

Prospa Annual Report 2020 111

Earnings per share

Loss after income tax attributable to the owners of
Prospa Group Limited

Weighted average number of ordinary shares used in calculating basic
earnings per share

Consolidated

30 June 2020
$’000

30 June 2019
$’000

(24,933)

(24,721)

Number

161,105,944

114,727,396

Weighted average number of ordinary shares used in calculating
diluted earnings per share

161,105,944

114,727,396

Basic earnings per share

Diluted earnings per share

Share-based payments

Share options

Cents

(15.48)

Cents

(21.55)

The employee long-term incentive plan (“Plan”) enables the Group to offer eligible employees options
to subscribe for shares or loan shares in the Company. Loan shares involve the purchase of shares
in the Company by certain employees, funded by loans from the Company. The Plan is designed to
incentivise performance.

The Plan requires the holder to satisfy certain vesting conditions, which may cover key performance
indicators including both financial and non-financial measures.

During the year ended 30 June 2020:

– 4,695,000 options were granted with an exercise price ranging from $0.88 to $0.95;

– 1,759,937 options were cancelled or forfeited; and

– 850,735 options were exercised and converted to shares for consideration of $0.7 million.

Total expense arising from share-based payment transactions for the year ended 30 June 2020 was
$3.7 million (30 June 2019: $1.6 million).

The table below shows the number and weighted average exercise price (“WAEP”) of, and movement in,
share options during the year:

2020
Number

2020
WAEP (cent)

2019
Number

2019
WAEP (cent)

Outstanding at 1 July

Granted during the year

12,259,167

4,695,000

Forfeited or cancelled during the year

(1,759,937)

Exercised during the year

Outstanding at 30 June

Exercisable at 30 June

(850,735)

14,343,495

5,368,749

277

338

220

–

5,659,906

7,584,039

(911,052)

(73,726)

12,259,167

2,363,750

138

364

134

104

277

–

112 Prospa Annual Report 2020

The weighted average share price during the year ended 30 June 2020 was $2.47 (30 June 2019: $3.72,
measured from IPO on 11 June 2019 to 30 June 2019).

The remaining contractual life of share options outstanding as at 30 June 2020 was 4 years (30 June 2019:
4 years).

The exercise price of the share options is generally equal to the volume-weighted average price of
the underlying shares immediately prior to the date of grant. The range of exercise prices for options
outstanding at the financial year end was $0.49 to $4.35 (30 June 2019: $0.49 to $4.35).

The contractual term of share options ranges from 4 to 5 years.

For the options granted during the current and previous financial year, the valuation model inputs used to
determine the fair value at the grant date, are as follows.

Grant date

Expiry date

30/11/2018

30/11/2023

01/12/2018

01/12/2023

25/01/2019

25/01/2024

01/04/2019

01/04/2024

10/04/2019

10/04/2024

14/05/2019

14/05/2024

14/05/2019

14/05/2024

14/05/2019

14/05/2024

11/06/2019

11/06/2024

14/04/2020

14/04/2024

14/04/2020

14/04/2024

Share price
at grant
date

Exercise
price

Expected
volatility

Dividend
yield

Risk-free
interest
rate

Fair value
at grant
date

$3.09

$4.19

$3.64

$3.78

$1.011

$3.64

$4.19

$3.64

$3.33

$3.64

$3.78

$4.35

64.30%

46.30%

46.08%

47.49%

$0.88

52.60%

$0.95

52.60%

–

1.93%

1.69%

1.39%

1.10%

0.14%

$2.260

$0.753

$2.089

$2.380

$3.420

$3.014

$2.849

$2.277

$0.371

$0.373

1 The exercise price for these share options was determined with reference to the Group’s 10 day volume weighted average share price (“VWAP”).

This was $0.60 for the 10 business days prior to grant date.

The expected life of the share options is based on historical data and current expectations and is not
necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption
that the historical volatility over a period similar to the life of the options is indicative of future trends, which
may not necessarily be the actual outcome.

The fair value of the options is calculated at the date of grant using the Black Scholes option-pricing model
and allocated to each reporting period evenly over the period from grant date to vesting date. The value
disclosed is the portion of the fair value of the options recognised as an expense in each reporting period.

Performance rights

In June 2019, Prospa established an Executive Incentive Plan (“EIP”), an Employee Equity Plan (“EEP”) and a
Non-Executive Director Equity Plan (“NEDEP”).

Executive Incentive Plan (“EIP”)

The EIP was created to assist in the motivation, reward and retention of senior management and has been
designed to align the interests of senior management with the interests of Shareholders by providing an
opportunity for eligible employees to receive a cash incentive and an equity interest in the Group subject
to the satisfaction of certain performance conditions.

No rights were granted, exercised or forfeited under the EIP during the year ended 30 June 2020.
Given business uncertainty and our focus on prudent cost management, Prospa has elected to suspend
the EIP for FY21.

Prospa Annual Report 2020 113

Non-Executive Director Equity Plan (“NEDEP”)

The NEDEP allows non-executive directors to acquire rights, in lieu of some of their cash Board fees.
The NEDEP is not subject to any performance or service conditions and the rights have an exercise price
of $nil. The rights in relation to the current financial year were granted under the NEDEP on 14 June 2019.

50% of these Rights vested on 28 February 2020, the day following the release of the HY20 financial
results. The shares allocated to the Directors on vesting of the rights are held subject to dealing restrictions
until the earlier of two years or the date on which the Director ceases to hold office as a Director.
The remaining 50% of the Rights were forfeited on 21 April 2020.

No rights were granted under the NEDEP during the year ended 30 June 2020 (30 June 2019: 50,926).

Employee Equity Plan (“EEP”)

The EEP was created to assist in the motivation, reward and retention of employees who do not participate
in the EIP.

Performance conditions in relation to these Rights are tested over a one-year performance period which is
linked to the Company’s annual and half-yearly reporting periods.

Following testing of the performance conditions at the end of the performance period, any Rights that
remain on foot will vest as follows:

– 50% after one year on the day following the release of the Company’s full year audited results (or the

day falling 6 months after, as applicable) for the relevant financial year; and

– 50% on the day following the release of the Company’s full year audited results (or the day falling

6 months after, as applicable) for the subsequent financial year. Vesting is also subject to continued
employment until vesting date.

As a worked example, for the rights issued on 12 August 2020:

– Performance period is from 1 July 2019 to 30 June 2020.

– To the extent performance conditions are achieved, 50% vest after the release of the Group’s FY21

results; and

– 50% vest after the release of the Group’s FY22 results.

Rights under the EEP are issued for nil consideration and have no exercise price.

During the year ended 30 June 2020 506,932 rights were granted under the EEP (30 June 2019: Nil).

One-off employee rights

On 13 April 2020 a one-off grant of 1,372,000 share rights was awarded to employees with a one year
vesting period. Provided the employee remains employed by the Group at the end of the vesting period,
100% of these rights will vest on 13 April 2021.

Details of rights granted during the year ended 30 June 2020 are outlined below.

Grant date

12/08/2019

13/01/2020

13/4/2020

Expiry
date

Exercise
price

Balance at
the start of
the period

Granted

Exercised

n/a

–

287,213

219,719

1,372,000

–

Expired/
forfeited/
other

Balance at
the end of
the period

(25,040)

262,173

(26,496)

193,223

–

1,372,000

The fair value of performance rights and one off rights has been determined as follows.

Grant date

12/08/2019

13/01/2020

13/04/2020

Expiry
date

Share price
at grant
date

Exercise
price

Expected
volatility

Dividend
yield

Risk-free
interest rate

n/a

$4.30

$2.08

$0.75

$0.00

–

Fair value
at grant
date

$4.30

$2.08

$0.75

114 Prospa Annual Report 2020

— Directors’ declaration

In the Directors’ opinion:

– the attached financial statements and notes comply with the Corporations Act 2001, the Accounting

Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements;

– the attached financial statements and notes comply with International Financial Reporting Standards
as issued by the International Accounting Standards Board as described in Note 1 to the financial
statements;

– the attached financial statements and notes give a true and fair view of the Group’s financial position

as at 30 June 2020 and of its performance for the financial year ended on that date;

– there are reasonable grounds to believe that the Company will be able to pay its debts as and when

they become due and payable; and

– at the date of this declaration, there are reasonable grounds to believe that the members of the

Extended Closed Group will be able to meet any obligations or liabilities to which they are, or may
become, subject by virtue of the deed of cross guarantee described in Note 28 to the financial
statements.

The Directors have been given the declarations required by section 295A of the Corporations Act 2001.

Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations
Act 2001.

On behalf of the Directors

Greg Moshal
Director and Chief Executive Officer

Gail Pemberton
Independent Director and Chairman

24 September 2020

Sydney

Prospa Group Limited Annual Report 2020 115

Auditor’s
Report

“The salon was closed for just three days at the start of COVID restrictions and by the time we opened back up again, we had all done COVID-safe training and implemented new sanitation procedures in the salon. We’ve been busy. We’re using our Prospa loan to expand to a new location and expand our services.”Peter & Amanda,Queensland, Australia — Auditor’s Report

Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia

Phone: +61 2 9322 7000
www.deloitte.com.au

Independent Auditor’s Report to the
Members of Prospa Group Limited

Report on the Audit of the Financial Report

Opinion

We have audited the financial report of Prospa Group Limited (the “Company”) and its subsidiaries
(the “Group”), which comprises the consolidated statement of financial position as at 30 June 2020,
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 statements, including a summary of significant accounting policies, and
the directors’ declaration.

In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
Act 2001, including:

(i)

giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its
financial performance for the year then ended; 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 auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.

We confirm that the independence declaration required by the Corporations Act 2001, which has
been given to the directors of the Company, would be in the same terms if given to the directors as
at the time of this auditor’s report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial report for 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.

Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network

Prospa Annual Report 2020 117

Key Audit Matter

Expected credit loss provisioning

As at 30 June 2020, the Group recognised
$41.4m of expected credit losses (ECL)
provisions in accordance with AASB 9
Financial Instruments as disclosed in Note 9
and Note 19 of the annual report. The
impairment of
Group’s disclosure over
financial assets is disclosed in Note 1 of the
annual report.

The expected credit loss models developed
by management to determine expected
credit losses require significant judgement
and
to be made by
assumptions
management, including:

• Selection of criteria for identifying a
significant increase in credit risk,
including when payment holidays
are provided to customers;

•

• Selection of parameters input into
the models in relation to probability
of default, loss given default and
exposure at default; and
Forward looking economic scenarios
that
impact on
expected credit losses of potential
macro-economic events, including
the impact of COVID-19 related
economic downturn.

consider

the

How the scope of our audit responded to the
Key Audit Matter
Our procedures in conjunction with our specialists
included, but were not limited to:

•

• Obtaining an understanding of

the
judgements made within the expected
credit loss models;
Testing the design and implementation of
relevant controls relating to customer loan
approval process and identification of
overdue amounts;
Testing the data inputs in calculating the
probability of default and loss given
default, as well as agreeing a sample of
loan information to source documentation;
• Assessing the provisioning methodology
with reference to relevant accounting
standards and market practices;
of
Evaluating
the
management’s
and
judgments in relation to the selection of
parameters and criteria input into the
expected credit loss models in relation to
the calculation of probability of default,
loss given default, exposure at default,
significant
risk,
macroeconomic forecasts and scenarios;
and

reasonability

assumptions

increase

credit

•

• Challenging management’s judgements in
respect to the macroeconomic factors and
judgemental overlays in response to the
current macroeconomic environment.

We have also assessed the appropriateness of the
disclosures in Note 1, 9 and 19 to the financial
statements.

Effective Interest Rate

Our procedures included, but were not limited to:

• Assessing the Group’s accounting policy for
revenue recognition with reference to the
relevant accounting standards including
the appropriateness of the inclusion of fees
received and
transaction costs paid
between parties to the loan contract in the
determination of the EIR;
Evaluating the design and implementation
of controls relating to the calculation of the
EIR;

•

• Challenging management’s assumptions
used in the EIR model, including estimated
future cash flows, historical repayment
patterns and the behavioural life of each
lending product;

• Agreeing a sample of data inputs used in
calculating the EIR to underlying source
data such as signed loan agreements and
bank statements;
Testing on a sample basis the cash and
non-cash loan book reconciliation items to
underlying supporting documents such as
signed
loan agreements and bank
statements; and

•

The Group reported interest income of
$131.4m in the year to 30 June 2020 and
net loans receivable were $332.2m as at 30
June 2020. Interest income received from
loan receivables is determined using the
effective interest rate (EIR) method in
accordance with AASB
Financial
instruments. The loan receivable balance is
measured and presented at amortised cost
using the effective interest rate method. In
implemented and
addition,
enhanced loan reconciliation process which
resulted in a $5.5m one-off adjustment,
reducing gross loan receivables as disclosed
in Note 1. This adjustment relates solely to
non-cash items and therefore has no impact
to the overall cashflows of the Group.

the Group

The Group’s disclosure over the effective
interest rate is disclosed in Note 1 of the
annual report.

118 Prospa Annual Report 2020

Significant management
required in calculating the EIR, including:

judgement

• Assessing the accuracy and completeness
of interest income by recalculating interest
income under the EIR method.

•

Identifying the fees received and
transaction costs paid between
parties to the loan contract which
need
the
in
determination of the EIR; and
• Determining the period over which
expected cash flows are estimated
to be received.

included

to be

We have also assessed the appropriateness of the
disclosures in Note 1 to the financial statements.

Other Information

The directors are responsible for the other information. The other information comprises the
information included in the Group’s annual report for the year ended 30 June 2020, but does not
include the financial report and our auditor’s report thereon.

Our opinion on the financial report does not cover the other information and 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.

As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:

•

Identify and assess the risks of material misstatement of the financial report, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as
intentional omissions,
involve collusion,
fraud may
misrepresentations, or the override of internal control.

forgery,

• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Group’s internal control.

Prospa Annual Report 2020 119

•

Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.

• Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the financial
report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to continue as a going concern.

•

Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and
events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the financial report.
We are responsible for the direction, supervision and performance of the Group’s audit. We
remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, actions
taken to eliminate threats or safeguards applied.

From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.

120 Prospa Annual Report 2020

Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report included in pages 44 to 56 of the Directors’ Report for
the year ended 30 June 2020.

In our opinion, the Remuneration Report of Prospa Group Limited, for the year ended 30 June 2020,
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.

DELOITTE TOUCHE TOHMATSU

Mark Lumsden
Partner
Chartered Accountants
Sydney, 24 September 2020

Prospa Annual Report 2020 121

— Shareholders’ Information

In accordance with ASX Listing Rule 4.10, the Company provides the following information to shareholders
not elsewhere disclosed in this Annual Report. The information provided is current as at 31 August 2020
(Reporting Date).

Corporate Governance Statement

The Company’s Corporate Governance Statement, together with the ASX Appendix 4G, have been lodged
with the ASX and are available at https://investor.prospa.com/investor-centre/.

The Company is committed to conducting business to the highest standard of corporate governance.
The Board regularly reviews its corporate governance policies and processes to ensure they are appropriate
and meet requisite standards. The Company’s corporate governance policies and charters are all available
at https://investor.prospa.com/investor-centre/.

Substantial holders

As at the Reporting Date, the names of the substantial holders of the Company and the number of equity
securities in which those substantial holders and their associates have a relevant interest, as disclosed in
substantial holding notice given to the Company, are as follows:

Holder

Class of Equity Securities

CURFORE PTY LTD

ORDINARY SHARES

Number of Equity
Securities Held

% of Total Issued
Securities Capital in
Relevant Class

ORDINARY SHARES

SPINOZA INVESTMENTS
PTY LTD

INTERNATIONAL GROUP OF
COMPANIES PTY LTD

HSBC CUSTODY NOMINEES
(AUSTRALIA) LIMITED

AIRTREE VENTURES
OPPORTUNITY FUND
TRUSCO PTY LTD

J P MORGAN NOMINEES
AUSTRALIA PTY LIMITED

Number of holders

ORDINARY SHARES

9,333,473

52,092,763

24,701,240

9,701,240

9,579,138

9,487,236

As at the Reporting Date, the number of holders in each class of equity securities as follows:

Class of Equity Securities

FULLY PAID ORDINARY SHARES

OPTIONS TO ACQUIRE ORDINARY SHARES

RIGHTS TO ACQUIRE ORDINARY SHARES

Less than marketable parcels of ordinary shares (UMP Shares)

The number of holders of less than a marketable parcel of ordinary shares based on the closing market
price at the Reporting Date is as follows:

UMP Shares

160,100

122 Prospa Shareholder Information

UMP Holders

% of Issued Shares
held by UMP Holders

481

0.13

32.19

15.26

5.99

5.92

5.86

5.77

Number of
Holders

2041

110

210

Voting rights of Equity Securities

The only class of equity securities on issue in the Company that carries voting rights is fully paid ordinary shares.

As at the Reporting Date, there were 2,041 holders of a total of 161,850,437 ordinary shares of the Company.

At a general meeting of the Company, every holder of ordinary shares present in person or by proxy, attorney
or representative has one vote on a show of hands and on a poll, one vote for each ordinary share held.
On a poll, every member (or his or her proxy, attorney or representative) is entitled to vote for each fully paid
share held.

Distribution of holders of equity securities

The distribution of holders of equity securities on issue in the Company as at the Reporting Date is as follows:

Distribution of ordinary shareholders

Holdings Range

100,001 and Over

10,001 to 100,000

5,001 to 10,000

1,001 to 5,000

1 to 1,000

Total

Distribution of option holders

Holdings Range

100,001 and Over

10,001 to 100,000

5,001 to 10,000

1,001 to 5,000

1 to 1,000

Total

Distribution of holders of rights

Holdings Range

100,001 and Over

10,001 to 100,000

5,001 to 10,000

1,001 to 5,000

1 to 1,000

Total

Holders

Total Units

% of Issued
Capital

283

246

740

733

150,134,393

92.76

7,455,236

1,957,310

1,912,455

391,043

4.61

1.21

1.18

0.24

2,041

161,850,437

100.00

Holders

Total Units

12,147,777

1,825,722

250,000

4,998

85.38

12.83

1.76

0.04

110

14,228,497

100.00

Holders

Total Units

135

210

877,736

1,091,820

11,376

6,513

–

44.16

54.94

0.57

0.33

1,987,445

100.00

Prospa Group Limited Annual Report 2020 123

Twenty largest shareholders

The Company only has one class of quoted securities, being ordinary shares. The names of the 20 largest
shareholders of ordinary shares, and the number of ordinary shares and percentage of capital held by each
holder, is as follows:

Rank Holder Name

CURFORE PTY LTD

SPINOZA INVESTMENTS PTY LTD

INTERNATIONAL GROUP OF COMPANIES PTY LTD

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

AIRTREE VENTURES OPPORTUNITY FUND TRUSCO PTY LTD

J P MORGAN NOMINEES AUSTRALIA PTY LIMITED

SQUARE PEG GLOBAL FUND 2015 PTY LTD

AIRTREE VENTURES GP PTY LTD

PACIFIC CUSTODIANS PTY LIMITED

DANITA LOWES

NATIONAL NOMINEES LIMITED

EUCLID CAPITAL PARTNERS LLC

AVIAD EYAL

CS THIRD NOMINEES PTY LIMITED

PARTNERS FOR GROWTH IV LP

TUBBIN INVESTMENTS PTY LTD

AMUR INVESTMENTS LIMITED

SUNTRACK INVESTMENTS (BEVILLE) PTY LTD

PROSPATARIAN PTY LTD

CITICORP NOMINEES PTY LIMITED

Total number of Shares of Top 20 Holders

Total Remaining Holders’ Balance

Grand total

Balance as at
Reporting Date

52,092,763

24,701,240

9,701,240

9,579,138

9,487,236

9,333,473

5,809,758

5,117,949

5,093,401

2,826,246

2,605,129

2,566,437

2,419,280

1,318,713

1,189,186

1,033,611

777,717

527,256

476,075

322,255

32.19

15.26

5.99

5.92

5.86

5.77

3.59

3.16

3.15

1.75

1.61

1.59

1.49

0.81

0.73

0.64

0.48

0.33

0.29

0.20

146,978,103

14,872,334

90.81

9.19

161,850,437

100.00

124 Prospa Shareholder Information

Escrow

Class of Restricted Securities

Type of Restriction

Number of
Securities

End date of Escrow Period

ORDINARY SHARES

VOLUNTARY ESCROW

34,402,480

31 December 2020

Unquoted equity securities

As at the Reporting Date, the number of each class of unquoted securities on issue, and the number of
holders in each class are as follows:

Class of Equity Securities

OPTIONS TO ACQUIRE ORDINARY SHARES

RIGHTS TO ACQUIRE ORDINARY SHARES

Number of
Securities

Number of
Holders

14,228,497

1,987,445

110

210

No person holds 20% or more of any class of unquoted equity securities on issue.

Securities purchased on-market

The following securities were purchased on-market during the reporting period under or for the purposes
of an employee incentive scheme or to satisfy the entitlements of the holders of options or other rights to
acquire securities granted under an employee incentive scheme:

Total number of
securities purchased during
the reporting period

Average price per security
at which the securities
were purchased during
the reporting period

16,000

$1.0950

Class of Equity Securities

FULLY PAID ORDINARY SHARES

Other Information

The Company is not currently conducting an on-market buy-back.

There are no issues of securities approved for the purposes of item 7 of section 611 of the Corporations Act
that have not yet been completed.

Prospa Group Limited Annual Report 2020 125

Corporate
Information

Company SecretaryMs Nicole JohnschwagerRegistered OfficeLevel 1 4-16 Yurong StreetSYDNEY NSW 2000Telephone: 1300 882 867Share RegistryLink Market Services LimitedLevel 12680 George StreetSYDNEY NSW 2000Telephone: 1300 554 474Stock Exchange ListingThe Company’s ordinary shares are quoted on the Australian Stock Exchange (ASX). The Company was admitted to the official list of the ASX on 11 June 2019 (ASX: PGL).AuditorDeloitte Touche TohmatsuGrosvenor Place225 George StSydney NSW 2000SolicitorsHerbert Smith Freehills161 Castlereagh StSydney NSW 2000Websitewww.prospa.comDue to COVID-19 travel and on-site photography restrictions,
customer stock images are in use.