Rémy Cointreau Annual Report 2020

Plain-text annual report

annualreport2019Resimac Group Ltd ABN 55 095 034 003 Australian Credit Licence 247829 ASX: RMC Contents Who We Are Message from the Chairman Message from the CEO Board of Directors Directors’ Report Remuneration Report Financial Statements / 4 / 6 / 8 / 11 / 12 / 22 / 36 Notes to the Consolidated Financial Statements / 42 Directors’ Declaration Independent Auditor's Declaration Independent Auditor's Report Environment, Social & Governance Shareholder Information Managing Your Shareholding Corporate Information / 131 / 132 / 133 / 138 / 142 / 144 / 145 4 2020 ANNUAL REPORT 5 5 Who We Are Resimac Group Ltd is one of Australia and New Zealand’s most established non- bank lenders. With 35 years experience in delivering home finance solutions, we’re proud to be servicing over 50,000 current customers. As a pioneer of the Residential Mortgage- Backed Securities (RMBS) industry we have one of Australia’s most respected securitisation programs, having issued in excess of A$30b in domestic and global markets since 1987. We have distribution to over 85% of mortgage brokers, as well as our products being available to consumers via our direct channels. Resimac is a profitable organisation with diverse income streams - net interest margin on principally funded loans, annuity trail income on non-principally funded loans and other fee income. We operate a proprietary servicing platform and have been issued a Standard & Poor’s (‘S&P’) “STRONG” Servicer Ranking, which was reaffirmed in February 2019. Assets Under Management of almost $15b Our Service Proposition ORIGINATION Wholesale, 3rd Party, Direct & White Label distribution channels SERVICING Underwriting, loan management, arrears management OPERATIONS FUNDING Support functions, geographies Warehouse and a global capital markets programme       A full range of home loans from Prime Lending and Specialist Lending products Strong funding capabilities - long standing warehouse relationships for short-term funding Diversified long-term funding platform with global multi-currency issuance programmes Well established white label arrangement with leading domestic banks Assets Under Management of almost $15 billion Diversified distribution platform originating $4 billion+ p.a. Our Brand Ambassador In FY20, we appointed Adam Gilchrist as an ambassador to represent our corporate brand. Adam is also the face of our homeloans.com.au launch campaign. ADAM GILCHRIST & SCOTT MCWILLIAM RESIMAC GROUP LTD2020 ANNUAL REPORTWe understand the requirements of our customers, employees and stakeholders, and are building a best-in-class business that delivers against those requirements. 6 6 RESIMAC GROUP LTD 2020 ANNUAL REPORT 7 7 Message from the Chairman WARREN MCLELAND Chairman Cost to Income Ratio 70.0% 65.0% 60.0% 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 68.2% 61.7% 56.6% FY17 FY18 FY19 FY20 37.9% Dear Shareholders, As shareholders are acutely aware, FY20 was Against this backdrop, Directors’ and management’s Most importantly, our consistency and innovative Management contribution unique. The first half featured an increasingly ambition is to continue to grow our home loan philosophy is providing us with a competitive severe competitive business environment, and the portfolio above system, while simultaneously advantage compared to narrow based non-banks. The second was dominated by the ramifications from the maximise our NIM, maintain our emphasis on low number, size and variety of bond issues successfully bushfires and the COVID-19 pandemic. Management’s costs, embrace full digitalisation and build a significant completed in FY20 was a major contributor to ability to respond, adapt and resolve has enabled asset financing business by 30 June 2023. Resimac to weather this extraordinary array of challenges, which is an incredible achievement. Attaining that goal as a non-bank financial institution will necessitate a paradigm shift in our market Notwithstanding the myriad of complexities, Resimac position. During this period, Resimac’s strategic Group reported record financial results. direction and focus will remain unchanged. At The Board is continuing to be prudent in planning for the next three to five years. Overall, we remain positive in our outlook. We are expecting the emergence of a recovery in calendar year 2021, and a further upward move in economic activity as measured by GDP, low interest rates, housing construction and the consequent flow- on of demand for home finance in 2022. core is an incessant focus on organic growth in mortgage lending, encapsulating a two-year strategic acceleration of capital investment in automation/ digitalisation and our direct to borrower channel, and incremental investment in our broker origination channels. Our ambition cannot be fulfilled without parallel developments in our Treasury activities. Resimac’s pedigree and leadership in domestic and international funding and capital markets capabilities is as well- known as it is established. On behalf of my Director colleagues, it is with a real sense of pride and pleasure that I extend my congratulations to all our employees. The loyalty, flexibility and adaptability of the Resimac team in what has been the most demanding of years has been exemplary. Resimac’s success. Our depth and diversity with investors globally is paramount and will be a never ending development and growth objective for our world-class team. Our historically long and enduring In particular, I express our gratitude to our Chief Australian bank funder partnerships continue to be Executive Officer, Scott McWilliam, for his endurance, pivotal in our success. Board movements calm and energy in providing clear leadership to our team. Scott’s executive management team has embraced the diverse scope of their responsibilities As announced at the 2019 AGM, Chum Darvall AM within and externally to customer and stakeholders. resigned from the Resimac Group Board on 28 Resimac’s collegiate culture has proven its value in February 2020. Chum served as Director from 2017 FY20! and was Chairman from 13 November 2017. On behalf of the Board and Resimac Group, I extend my sincere thanks to Chum for his substantial Warren McLeland contributions. Chairman RESIMAC GROUP LTD2020 ANNUAL REPORT8 8 RESIMAC GROUP LTD 9 Message from the CEO Resilience. Agility. Transformation. The effects of COVID-19 globally over the last 12 within 24 hours - months have been highly visible. The impact on speaks to the incredible our business has been multi-faceted, affecting agility and resilience of our our teams across multiple jurisdictions, our broker organisation. network and our customer base of more than 50,000 borrowers. It has, however, confirmed our agility and adaptability in such uncertain and unprecedented times. Resimac Group’s prudent response to the pandemic is another point of pride. Whilst no material changes were made to our credit policies, we swiftly implemented additional support for Amidst the turbulence, it was both encouraging financial hardship applications. By the end of July and promising to see how quickly our staff 2020, only 7% of our customers were in active transitioned to a working-from-home model. The payment deferrals, and this number is expected to speed at which we were able to effect this material materially decrease in the coming months. change - running at better than 95% efficiency $56.0m $55.7m $188.6m 37.9% STATUTORY NPAT  19% NORMALISED NPAT NET INTEREST INCOME COST TO INCOME RATIO (NORMALISED)  79%  60%  1,870bps $4.7b $12.4b $14.9b HOME LOAN SETTLEMENTS HOME LOAN AUM  30%  21% TOTAL AUM  11% 1.8c FY20 TOTAL DIVIDEND OF 3.0c* FINAL DIVIDEND  *20% SCOTT MCWILLIAM CEO The support we’ve provided to our network of more than 12,000 brokers, including paying trail commissions for loans on payment deferrals and further digitisation of the loan origination process, also recognises the continued importance this channel holds for our business. Record profits Despite the macroeconomic challenges posed by the pandemic, we are proud of the financial results achieved. Our normalised NPAT increased by 79% vs FY19 to $55.7 million. We achieved 30% growth in settlements year-on-year, with our total Assets Under Management (AUM) up by 11% to $14.9 billion. Our strong AUM growth also drove a 60% increase to our net interest income. Profit growth was driven by strong home loan portfolio growth of 21% to $12.4 billion and higher margins across the portfolio. This is despite system growth only being circa 3%. The higher net interest income combined with our continued cost discipline resulted in a significantly lower cost-to-income ratio of 37.9%, down from 56.6% in FY19. The growth in our portfolio is a testament to our focus on consistent and timely credit decisioning, with our overall service offering resonating well with brokers and consumers alike. Diversification of funding Throughout FY20, Resimac Group continued to bolster its funding capabilities through successful diversification of banking and warehouse facilities. In 2H20, we increased and extended more than $2 billion of warehouse facilities. Additionally, we issued two benchmark-sized and oversubscribed RMBS deals in June and July. The success of our funding program is underpinned by our long-standing and diversified panel of warehouse facilities, our multi- jurisdiction investor and distribution platform, and the performance of our portfolio over many years. Executing on long-term vision Our investment in digital transformation continues. We have partnered with some of the most respected and proven digital solution and system providers to create a platform for sustainable and scalable growth. Using automation, digitisation and AI, the simple and easy-to-use technology-based solutions will positively transform the Resimac consumer and broker experience. RESIMAC GROUP LTD2020 ANNUAL REPORT2020 ANNUAL REPORT 11 11 10 Message from the CEO Resilience. Agility. Transformation. Building a Digital Non-Bank Resimac's 'CUSTOMER FIRST' Digital Strategy Board of Directors Collaboration Partnering with industry leading technology and data providers Automation Utilise modern technologies and platforms to automate and build scale End-to-end Digitalisation Re-designed processes for online convenience Customer Centric Technology-based solutions to deliver a seamless digital experience Engineer for the Future Modern, sustainable and secure cloud-based platforms Our customers are already benefiting from our digital transformation. During Q4 of FY20, our end-to-end digital loan origination process enabled brokers to continue doing business remotely. Rebuilding our online application and user experience has also enabled us to launch a new direct-to-customer online channel, homeloans.com.au. This new brand will enable Resimac Group to access a growing segment of borrowers who prefer to self-service their home loans online. Thanks to our Team A special thanks to Resimac Group’s management team and staff for the invaluable role they have played in the success of our business. I would also like to extend my sincere thanks to our Board for their service and support over the last 12 months. FY20 has allowed us to demonstrate both the strength and resilience of our business to the market. These characteristics will help to ensure our continued growth and success as we move into FY21. Scott McWilliam Chief Executive Officer Warren McLeland Chairman Non-Executive Director Duncan Saville Non-Executive Director Susan Hansen Independent Non-Executive Director Wayne Spanner Independent Non-Executive Director RESIMAC GROUP LTD2020 ANNUAL REPORT12 12 RESIMAC GROUP LTD 13 Directors’ Report Resimac Group Ltd and its Controlled Entities The Directors of Resimac Group Ltd (“Resimac” or “the Company”) and its controlled entities ("the Group") submit herewith the financial report for the financial year ended 30 June 2020. In order to comply with the provisions of the Corporations Act 2001, the Directors’ Report as follows: Information about the Directors The names and particulars of the Directors of the Company during or since the end of the financial year are: Mr Warren McLeland Chairman since 28 February 2020 Non-Executive Director Mrs Susan Hansen Independent Non-Executive Director since October 2016 Warren is a former stockbroker and investment banker Susan is a Chartered Accountant and holds a Bachelor with over 35 years of experience in domestic and of Commerce degree and an MBA from the University international financial services. In addition, Warren of Cape Town. Susan has 35 years of experience acts as an adviser in funds management and business including a Big Four Accounting firm and an investment strategy to companies operating in the Asia Pacific bank (financial analysis and risk assessment). Susan is region. Warren is the former Executive Chairman of a Principal of a financial training organisation based in Resimac Limited. New Zealand. Other listed directorships (last three years): Other listed directorships (last three years): § Interim Chairman of Thorn Group Limited § Non-Executive director of Utilico Emerging Markets (appointed Director August 2019) Limited (since 2013) § Chairman of Somers Limited incorporated in Bermuda (since 2010) Special responsibilities: § Non-executive director of UIL Limited (resigned § Chair of the Audit Committee (since November Mr Wayne Spanner Independent Non-Executive Director since 28 February 2020 Mr Duncan Saville Non-Executive Director since November 2017 Wayne is currently a Partner and the former Managing Duncan is a Chartered Accountant and an experienced Partner (2012-2020) of Norton Rose Fulbright non-executive director and currently chairman of ICM Australia. Wayne has extensive experience in Limited, an international fund manager. He is a fellow executive management and corporate governance of the Institute of Chartered Accountants Australia at Board level. Wayne is currently a Board member and New Zealand, the Australian Institute of Company and former Chairman of the University of Cape Town Directors and the Financial Services Institute of Trust Australia, a Board member of the Asia Society Australasia. Australia, a member of the Business Council of Australia and a Councillor of the Australian British Other listed directorships (last three years): Chamber of Commerce. § Non-Executive director of West Hamilton Holdings, Other listed directorships (last three years): § Nil Special responsibilities: § Chair of the Remuneration and Nomination Committee (appointed February 2020) incorporated in Bermuda (since 2012) § Former Non-Executive director of Somers Limited (retired 5 September 2018), incorporated in Bermuda § Former Non-Executive director of Cue Energy Resources Limited and New Zealand Oil and Gas Limited, incorporated in New Zealand (resigned § Member of the Risk and Compliance Committee from both on 14 December 2017) (appointed July 2020) § Member of the Remuneration and Nomination Committee (appointed July 2020) Special responsibilities: § Member of the Remuneration and Nomination Committee (appointed 21 February 2018; stepped down on 29 January 2020) Company Secretary Mr Peter Fitzpatrick since October 2016 Peter is a Chartered Accountant who worked for a chartered accounting firm and oil explorer prior to joining Resimac Limited in 1987. Peter is a member of the Governance Institute of Australia and the Financial Services Institute of Australasia. The abovenamed directors held office during the financial year or date of appointment except for: § Mr Cholmondelay (Chum) Darvall - resigned 28 February 2020 § Mr Michael Jefferies - resigned 26 November 2019 September 2019) Special responsibilities: § Chairman of Resimac Group Ltd (appointed 28 February 2020) § Chair of the Risk and Compliance Committee (since February 2017) § Member of the Remuneration and Nomination Committee (since November 2016) § Member of the Audit Committee (since August 2017) 2016) § Member of the Remuneration and Nomination Committee (since November 2016) § Member of the Risk and Compliance Committee (since November 2016) § Chair of Resimac NZ Home Loans Limited Resimac is one of Australia and New Zealand’s premier non-bank home loan lenders. RESIMAC GROUP LTD2020 ANNUAL REPORT14 14 RESIMAC GROUP LTD 15 Directors’ shareholdings Shares options or rights granted to Directors & Senior Management The following table sets out each director’s relevant An aggregate of 3,900,000 share options (900,000 allocated to CEO and 375,000 for each eligible Executive), and a cash interest in shares and rights of the Company or in a component of up to $2.4m were granted on 15 August 2019. related body corporate as at 30 June 2020: Directors Susan Hansen Fully paid ordinary shares 199,941 Wayne Spanner - Warren McLeland 12,159,222 Duncan Saville 254,468,487 Number of rights over ordinary shares Nil Nil Nil Nil Remuneration of Key Management Personnel Information about the remuneration of Key Management Personnel (KMP) is set out in the Remuneration Report section of this Directors’ Report. The term ‘KMP’ refers to those persons having authority and responsibility for planning, directing and controlling the activities of the Company and its controlled entities or indirectly, including any director whether executive or otherwise of the consolidated entity. Directors’ Meetings The following table sets out the number of Directors’ meetings (including meetings of committees of Directors) held during the financial year and the number of meetings attended by each director (while they were a director or committee member). During the year, 9 Board meetings, 3 Audit, 4 Risk and Compliance and 5 Remuneration and Nomination Committee meetings were held. Committees Board Meetings Audit Risk & Compliance Remuneration & Nomination (A) (B) (A) (B) (A) (B) (A) (B) Chum Darvall1 Susan Hansen Michael Jefferies2 Warren McLeland Duncan Saville Wayne Spanner3 6 9 4 9 9 3 6 9 4 9 9 3 - 3 2 3 - - - 3 2 3 - - 2 4 - 4 - - 2 4 - 4 - - 3 5 2 5 3 2 3 5 2 5 3 2 (A) Number of meetings eligible to attend. (B) Number of meetings attended. 1 Resigned as chairman on 28 February 2020 2 Resigned as Independent Non-Executive Director on 26 November 2019 3 Appointed Independent Non-Executive Director on 28 February 2020 RESIMAC GROUP LTD2020 ANNUAL REPORT16 2020 ANNUAL REPORT 17 17 Results & Dividends Principal Activities Debt Funding The information appearing on pages 16 to 21 forms part of the Directors’ Report for the financial year ended 30 June The Group is a residential mortgage lender and multi- The Group maintains access to a diversified 2020 and is to be read in conjunction with the following information: channel distribution business specialising in Prime and funding platform supported by established funding Specialist lending. The Group operates in targeted relationships and the Board approved funding strategy. Profit Profit attributable to ordinary equity holders of the parent Dividends The following dividends have been paid by the Company or declared by the Directors since the commencement of the financial year ended 30 June 2020: (a) out of the profits for the year ended 30 June 2019 and retained earnings on the fully-paid ordinary shares: FY20 $’000 FY19 $’000 55,908 47,185 § fully franked final dividend of 1.00 cents (FY18: 0.90 cents) per share paid on 30 6,087 3,594 September 2019. (b) out of the profits for the half-year ended 31 December 2019 and retained earnings on the fully-paid ordinary shares: § fully franked interim dividend of 1.20 cents (HY19: 1.00 cents) per share paid on 27 4,879 4,001 March 2020. (c) out of the profits for the full year ended 30 June 2020 and retained earnings on the fully- 7,334 6,087 paid ordinary shares: § fully franked final dividend of 1.8 cents (FY19: 1.00 cents) per share declared on 25 August 2020. § fully franked one off special dividend of nil cents (FY19: 0.50 cents) per share. The Company’s Dividend Reinvestment Plan (DRP) was applied to the interim and final dividend. market segments and asset classes in Australia and New Zealand. As a non-bank financial institution, the Group has developed a high quality lending portfolio, loan servicing capability, and funding platform through a combination of organic growth and the Resimac/ Homeloans merger in 2016. The Group’s core capabilities include: § Product manufacturing: Expertise in residential mortgages gives the Group flexibility in providing a range of products with attractive risk-return profiles in Australia and New Zealand. The Group applies its detailed knowledge of borrowers to develop new products that address untapped demand; § Distribution: Distributing loans in Australia and New Zealand through relationships with accredited brokers and wholesale partners, and a direct-to- customer channel; § Treasury and funding expertise: Strong long-term relationships with global funding partners, the Group is an experienced issuer in the global and domestic term securitisation markets; The following funding channels are used to support the Group’s lending activities: § Corporate debt facility: Utilised for investment in business growth; § Warehouse facilities: Third-party funders provide limited-recourse financing to special purpose vehicles established by the Group. At 30 June 2020, the Group had four onshore and four offshore warehouse funders; § Term securitisations: Loans that are initially funded via a warehouse facility, are pooled and refinanced by being sold to new funding vehicles that issue limited-recourse independently rated asset-backed securities to institutional investors in multiple jurisdictions; and § Wholesale funding partners: Provide white-label funding with the Group receiving net interest margin. Principal Risks The Group’s key risks include, but are not limited to: § Risk management: Operating with a holistic enterprise risk management and governance framework utilising the three lines of defence model; and § Funding risk: The funding platform currently comprises a mix of warehouse facilities, term securitisations and corporate debt. The Group depends on these sources to fund mortgage originations; § Collections management: Specialised collections § Capital and liquidity requirements: The Group is processes based on deep experience, analytical capabilities and a solution-based approach to customer management. required to maintain sufficient liquidity levels under Australian Financial Services Licence requirements; A risk exists that the Group could be required to contribute additional ‘first loss’ equity capital to support the credit position of senior ranking note holders in the warehouse facilities and term securitisations which could impact the Group’s profitability, ability to grow and/or could force it to raise additional capital; RESIMAC GROUP LTD2020 ANNUAL REPORT18 18 RESIMAC GROUP LTD 2020 ANNUAL REPORT 19 19 § Regulatory and licence compliance: The Group The Group is focused on a number of growth The Group generated a net profit after tax (NPAT) Total home loan settlements across the Group’s direct is subject to extensive regulation in each of the strategies to continue to drive revenue and of $56,007,000 for the year ended 30 June 2020. To and third party distribution channels were $4.7 billion, up jurisdictions in which it conducts its business. The profitability. reflect the Group’s normalised earnings the NPAT has 30% on prior year. Business Strategy Review of Operations Group holds seven Australian Credit Licences. Changes in laws or regulations in a market in which the Group operates could impact the business. The Group is licensed and/or registered to operate a number of its services across a range of jurisdictions. Changes to these licensing regimes, the revocation of existing licences, an inability to renew or receive necessary licences or a change in capital requirements could have a material adverse effect on the Group’s business, operating and financial performance; and 1. Organic lending growth The Group is well-positioned to continue to build upon strong volume growth, driven by: § Capitalising on the Group’s unique position as a non-bank lender with customers favourably viewing the Group as an alternative to the major lenders; § Opportunity to grow volume in the Specialist and Prime segments of the residential mortgages been adjusted to separate one-off items. Management believe the disclosure of the normalised NPAT provides additional insight into the underlying performance for the year, by excluding one off, non-recurring revenue items The following table reconciles the unaudited normalised earnings to the statutory NPAT for the year in accordance with International Financial Reporting Standards (IFRS). § Macroeconomic environment: A material downturn, market; a sustained outbreak of higher inflation, shocks to the § Launch of the new direct to consumer digital Unaudited non-IFRS information financial system, a material increase in unemployment, channel homeloans.com.au; Statutory NPAT decreases in house prices, higher interest rates, general reduction in demand for credit and/or a reduction in borrowers’ ability to service their debt (credit risk). § COVID-19: The extent of the economic impact of the pandemic is unclear however is certain to have significant impact on the macroeconomic environment in the foreseeable future. An effective risk management framework prior to COVID-19 has assisted the Group § Continuing development Broker and Wholesale relationships; § Further investment in the Group's brand positioning; § Pursuing diversification opportunities in Australia and New Zealand. Non-recurring other income - rebate1 Tax effect of normalised items Normalised NPAT 2. Growth through acquisition Total interest and other income of $471,303,000 increased 1% on prior year. FY20 $’000 56,007 (385) 116 55,738 manage the current uncertainty through a stable funding § Management has demonstrated an ability to program, conservative credit policies and low arrears identify and execute profit accretive acquisitions rates. The Group will continue to monitor the effects of in targeted markets consistent with the Group’s COVID-19 on business performance and take action as strategy; required. § Bushfires: In December 2019, parts of Australia were impacted by bushfires. The Group included a collective provision for potential economic loss as a result of this event in the half year accounts. The impacted customers will be provided ongoing assistance where required, however a loss provision related directly to bushfire impacted customers is not required at 30 June. § On 1 January 2020 Resimac acquired 60% of International Acceptance Investment Pty Ltd and its controlled entities (“IA Group”), a Operating expenses of $62,244,000 increased 1% on prior year. Loan impairment expense increased to $22,012,000, finance company participating in both secured driven by management overlay for potential future commercial and consumer lending. The economic loss from the impact of COVID-19. investment aligns with Resimac’s diversification strategy and facilitates expansion into new secured asset classes. Net interest income of $188,625,000 increased 60% on COVID-19 poses. prior year. The Group’s assets under management at 30 June 2020 comprise: § On balance sheet home loans and advances to customers of $12.4 billion2, up 21% compared to 30 June 2019; and § White label portfolio of $2.5 billion, down 23% compared to 30 June 2019 in line with the Group’s strategy to cease originating white label loans; § Combined these make up the total assets under management of $14.9 billion. The Group’s net assets increased 23% from 30 June 2019, driven by growth in our assets under management. COVID-19 The ongoing impact of COVID-19 continues to present challenges to the Group’s customers and the workforce globally. Resimac’s conservative approach to credit risk and strong funding relationships have insulated the impacts of COVID-19. Resimac’s key priority remains the safety of employees, and supporting customers and the broader community through the ongoing challenges Resimac implemented a companywide work from home environment from March 2020, supported by remote working capabilities. The Group’s ongoing investment in IT infrastructure enabled seamless continuity of operations and high-quality customer service was maintained. As employees transition to an office working environment, a broad range of measures to protect the health and wellbeing of the individuals have been considered. These include staged returns by groups, regular office deep cleaning and strict social distancing protocols. The Group also offers employees confidential access to an employee assistance program (EAP). 1 RMBS Rebate Singapore MSA Grant Scheme 2 On balance sheet home loans AUM excludes c$100m of Non Core loans held at 30 June 2020, which are included in the consolidated financial statements RESIMAC GROUP LTD2020 ANNUAL REPORT20 20 RESIMAC GROUP LTD 21 Resimac will continue to support customers throughout their home loan journey, particularly during this unprecedented period. Resimac provided financial assistance to customers impacted by COVID-19 in the form of hardship payment moratoriums and repayment flexibility. During the year, the Group utilised the following Federal/State tax concessions: 1. Delayed PAYG Company Tax Instalments for FY20 until 1st December 2020: $12.2m 2. Victorian Payroll Tax relief: $0.07m Funding Programmes § The RESIMAC Premier Series 2019-2 transaction was settled on 29 August 2019 and is a multi- currency prime issue with a total issuance size of $1 billion equivalent. § The RESIMAC Bastille Series 2019-1 NC transaction was settled on 24 October 2019 and is a multi- currency non-conforming issue with a total issuance size of $1 billion equivalent. § The Avoca Series 2019-1 transaction was settled on 15 November 2019 and is a domestic prime issue with a total issuance size of $472.5 million. § The RESIMAC Triomphe Trust – Warehouse Series No.8 was settled on 20 February 2020 and is a domestic prime warehouse with a total facility size of $500 million. § The RESIMAC Premier Series 2020-2 transaction was settled on 3 June 2020 and is a domestic prime issue with a total issuance size of $500 million. Indemnification of Officers & Auditors During the financial year, the Company paid a premium in respect of a contract insuring the Directors of the Company, the Company Secretary and all executive officers of the Company against a liability incurred as such a Director, Secretary or executive officer 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. The Company has not otherwise, during or since the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company against a liability incurred. Subsequent Events Final Dividend Declared The Board of Resimac Group Ltd has declared a fully franked final dividend of $0.018 per share. The Record Date is 28 August 2020. The payment date will be 25 September 2020. The dividend has not been provided for in this financial report. Non-Audit Services Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in Note 28 to the financial report. The Directors are satisfied that the provision of non-audit services during the year, by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services as disclosed in Note 28 to the financial report do not compromise the external auditor’s independence, based on advice received from the Audit Committee, 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 auditors; and § None of the services undermine the general principles as set out in APES 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. Auditor's Independence Declaration The auditor's independence declaration is included on page 132 of this financial report. The Group’s net assets Rounding Off of Amounts increased by 23% from 30 June 2019, driven by growth in our assets under management. Unless otherwise indicated, the Company has rounded off amounts in this Directors’ Report and the accompanying financial statements to the nearest thousand dollars in accordance with ASIC Corporations Instrument 2016/191. RESIMAC GROUP LTD2020 ANNUAL REPORT22 22 RESIMAC GROUP LTD 23 Remuneration Report 2020 (Audited) CONTENTS Section Details 1 2 3 4 5 6 7 8 9 Executive Summary Remuneration Principles Remuneration Activities Key Management Personnel KMP Remuneration Policy Long-Term & Short-Term Incentive Plans FY20 Outcomes Statutory Remuneration Non-Executive Director Remuneration 10 Other Remuneration Information 1. Executive Summary This Remuneration Report sets out the remuneration strategy and framework that applies to Resimac KMPs, Directors and employees for the year ended 30 June 2020. Resimac’s mission is to be Australia’s leading non-bank lender. This mission is facilitated by promoting a culture of transparency and establishing a responsible remuneration framework that provides positive outcomes for our customers, shareholders and employees. To ensure Resimac operates within industry best practice. The Board’s remuneration strategy is aligned to the following objectives: § To attract and retain talented employees; § To provide fair and equitable remuneration to all employees in line with the Company’s Diversity & Inclusion Policy; § To promote and reward behaviours within the business that are in the interest of customers and shareholders; § To reinforce a culture of continual employee development; § To ensure Resimac operates within industry best practice. 2. Remuneration Principles The following principles provide the basis of the remuneration framework at Resimac: § Total remuneration for KMP is achieved by a balance of fixed and variable components § Key Performance measures for Resimac management are linked to both financial and non-financial measures, and designed to be in the best interest of customers and shareholders § Fixed and variable remuneration for KMP are periodically benchmarked to ensure remuneration is in line with the external market § Fair and equitable remuneration is applied to all employees regardless of gender, sexual identity, age, religion, ethnicity or disability. 3. Remuneration Activities A number of activities were carried out during FY20 to ensure KMPs and employees’ remuneration were in line with the Board’s remuneration strategy and the external market. These activities included: § Employee Diversity & Inclusion survey and analysis § Pay parity reporting and analysis § Introduction of a new LTI plan, established for KMPs and Executives § Fixed remuneration review which resulted in a freeze for Directors and all employees in response to the COVID-19 pandemic. Page 23 23 23 24 25 25 27 28 30 32 RESIMAC GROUP LTD2020 ANNUAL REPORT24 2020 ANNUAL REPORT 2525 4. Key Management Personnel 5. KMP Remuneration Policy The KMP are the people who have the authority and responsibility for planning, directing, implementing and controlling The total remuneration of the KMP comprise a fixed 5.3. Long-Term Incentives (LTI) the activities of the Resimac business. The KMP are: Name Current Position Term as KMP Scott McWilliam Chief Executive Officer (CEO) Jason Azzopardi Chief Financial Officer (CFO) Andrew Marsden General Manager Treasury and Securitisation Full Term Full Term Full Term component and an at-risk variable component. The at-risk variable component is comprised of a short- term incentive and a long-term incentive. Remuneration is based on the: § role in which they are performing (i.e. The LTI is a combination of an equity arrangement of options over ordinary shares and a cash component (pursuant to the Resimac Group Ltd Employee Share Option and Rights Plan Rules) where an allocation is considered each year. accountability, responsibility, qualifications, skill The aim of the LTI is: and experience required); and § market benchmarking. The KMP remuneration arrangements are as follows: Name Current Position Term as KMP period (i.e. 1 July to 30 June). Performance is § Granted 900,000 Options pursuant to the Resimac measured against predetermined Key Performance Group Employee Share Options and Rights Plan; Danielle Corcoran General Manager Governance, Change and Culture Full Term 5.1. Fixed Remuneration Former Mary Ploughman Joint Chief Executive Officer (Joint CEO) Ceased 17 July 20191 1 Mary Ploughman ceased being Joint CEO on 18 January 2019, however remained employed until 17 July 2019. The Directors classified as KMP and required to be disclosed as part of this report are: The fixed component includes base salary and superannuation and is known as Total Fixed Remuneration (TFR). This amount is subject to an annual review by the Remuneration and Nomination Committee. 5.2. Short-Term Incentive (STI) The STI is assessed by way of financial and non- financial measures at the end of each performance Warren McLeland Chairman, Non-Executive Director Susan Hansen Independent Non-Executive Director Duncan Saville Non-Executive Director Full Term Full Term Full Term Wayne Spanner Independent Non-Executive Director Appointed 28 February 2020 Former Indicators (KPIs) set by the Remuneration and Nomination Committee at the beginning of the performance period. KPIs include: § Strategic; § Financial metrics; § Innovation and technology initiatives and enhancements to allow for scale and digitalisation; § Operational efficiency and effectiveness; § People and culture; and Chum Darvall Chairman, Independent Non-Executive Director Ceased 28 February 2020 § Risk and compliance ensuring appropriate controls, attestations and obligations adherence. Michael Jefferies Independent Non-Executive Director Ceased 26 November 2019 § to retain key senior talent; § to align long term Company performance with shareholders expectations; and § to ensure continual regulatory and compliance adherence. 6. Long-Term & Short-Term Incentive Plans 6.1. Long-Term Incentive Plan (LTI) FY18 LTI Plan: CEO The CEO, Scott McWilliam, was offered an LTI in FY18. The details of the offer are as follows: § Grant Date 18 August 2017; § Exercise price of $0.55 per option; § Options vest in equal tranches of 300,000 on each anniversary of the Grant Date; » First tranche of 300,000 vested on 1 July 2018 and is exercisable, » Second tranche of 300,000 vested on 1 July 2019 and is exercisable, » Third tranche of 300.000 vested on 1 July 2020 and is exercisable, § Exercise period is 3 years for every tranche vesting; § Vesting condition is 100% tenure. RESIMAC GROUP LTD2020 ANNUAL REPORT26 26 RESIMAC GROUP LTD 27 FY20 LTI Plan: KMPs and Executives Effective 1 July 2018 Mr McWilliam became eligible Remuneration for KMPs is benchmarked against both the external market and internal relativities. The Remuneration and 7. FY20 Outcomes Pursuant to the Resimac Group Limited Employee Share Option & Rights Plan Rules the CEO, CFO and eligible Executives received options over ordinary shares, and a combined total cash component of up to $2.4m was offered. 3,900,000 options were granted on 15 August 2019 (900,000 allocated to the CEO and 375,000 for each eligible Executive). for a STI up to 75% of their TFR. Mr McWilliam’s performance against predetermined KPIs will be assessed by the Remuneration and Nomination Committee at the end of each performance period. Any STI awarded will be paid in cash; 66.7% at the end of the performance period with the remaining 33.3% in cash deferred for 12 months subject to a look back being undertaken by the Remuneration and The vesting date for all options is 31 August 2022, Nominations Committee. Nominations Committee have determined that KMPs will not receive an increase in fixed remuneration for FY21 however will remain eligible to participate in the short-term incentive plan for FY20 and FY21. The long-term incentive plan granted to eligible executives remains in place. 4.1. Overview of Company Performance The table below summarises details of Resimac’s performance for key financial measures over the past four financial years post merger between Resimac and Homeloans. Mr Azzopardi, Mr Marsden and Ms Corcoran are eligible to be awarded a STI and his performance against predetermined KPIs is assessed by the CEO and the Remuneration and Nomination Committee at the end of each performance period. Any STI awarded will be paid 100% in cash at the end of the performance period. In determining the STI payable to the KMP for FY20, the Remuneration and Nomination Committee undertook a review of each person’s performance against their individual KPIs for the FY20 performance period in July 2020. KPIs and relevant measurements will be set at the commencement of the performance period and will be assessed by the Remuneration and Nomination Committee at the end of each performance period. Financial year ended 30 June FY20 FY19 FY18 FY17 NPAT ($’000) 56,007 47,185 25,332 15,780 Total dividends per share (cents) Dividend payout ratio (%) Closing share price (cents as at 30 June) Basic earnings per share (cents) Return on equity (ROE) (%)3 Return on assets (%)1 2.70 19.6 101.0 13.75 25.5 4.3 1.90 16.1 64.0 1.65 2.752 25.9 62.6 57.0 43.0 11.75 6.37 4.39 17.3 4.4 17.2 11.2 2.8 2.3 subject to the Group achieving Net Profit After Tax (NPAT) performance hurdles, digital transformation hurdles, compliance hurdles and remaining employed with the Group until the vesting date. 6.2. Short-Term Incentive Plan (STI) Both executive KMPs have a contractual short-term incentive (STI) whereby they have an opportunity to earn up to a capped percentage of their TFR. The Group applies its detailed knowledge of borrowers to develop new products that address untapped demand. 1 ROA based on statutory NPAT and total assets. As a result of the requirement under AASB 10 – Consolidated Financial Statements, the parent Company exercises control over the Special Purpose Vehicles (SPVs) and securitisation trusts, therefore significant assets have been added to the consolidated statement of financial position without any appreciable increase in net profit. 2 In October 2016, the Board of Resimac Group Ltd (formerly Homeloans Ltd) paid a final dividend of 2.0 cents per share to existing Homeloans Ltd shareholders prior to the completion of the merger with Resimac Limited. 3 ROE based on normalised NPAT and average shareholders’ equity per consolidated statement of financial position. RESIMAC GROUP LTD2020 ANNUAL REPORT28 . 0 2 0 2 e n u J 0 3 d e d n e r a e y l l u f e h t f o t c e p s e r n i P M K o t d e d r a w a n o i t a r e n u m e r l a u t c a e h t i f o y r a m m u s a s e d v o r p w o e b t u o t e s e b a t e h T l l n o i t a r e n u m e R y r o t u t a t S . 8 ) % ( 7 . 4 1 5 2 . - 7 . 0 1 - 8 . 0 1 - 5 . 9 e g a t n e c r e P e g a t n e c r e P l d e t a e R s t h g R i l d e t a e R s t h g R i 2020 ANNUAL REPORT 29 29 ) % ( - 4 2 . e g a t n e c r e P e c n a m r o f r e P ) % ( 6 d e t a e R l ) $ ( l a t o T ) $ ( n o i t p O s t h g R i 5 s t n e m y a P d e s a B - e r a h S ) $ ( s t fi e n e B n o i t a n m r e T i ) $ ( 4 e v a e L ) $ ( ) $ ( n o i t a u n n a r e p u S s t fi e n e B ) $ ( d e d r a w A ) $ ( y r a a S l y r a t e n o M - n o N I T S s t fi e n e B m r e T - g n o L - t s o P s t fi e n e B t n e m y o p m E l s t fi e n e B m r e T - t r o h S 2 . 5 3 . 2 7 3 6 . 3 2 . 9 3 2 8 . 5 2 . 3 0 1 3 . 4 2 . 1 7 2 8 7 8 , 4 6 1 , 1 3 2 0 , 1 7 1 6 0 8 9 9 8 , 1 4 4 2 2 , 4 9 3 8 1 4 , - 1 5 7 , 9 4 5 5 3 6 , 8 5 2 0 0 0 4 3 , - 1 0 6 , 2 4 5 5 3 6 , 8 5 8 8 4 2 5 5 , - 1 4 3 , 7 1 6 5 3 6 , 8 5 - - - - - - - - 6 1 1 , 6 4 6 7 4 , 6 9 3 , 5 6 1 3 7 , 6 8 7 , 6 9 0 5 6 , 7 6 1 , 9 0 0 0 , 5 2 3 4 4 7 3 , 0 0 0 5 2 , 0 0 0 , 5 2 0 0 0 5 2 , - - - - 8 8 6 , 9 0 4 0 0 0 , 0 5 5 8 6 1 5 3 3 , 4 5 7 9 7 4 , 0 2 Y F 9 1 Y F 0 0 0 , 0 3 1 0 0 0 , 0 3 3 0 0 0 0 0 1 , 0 3 6 8 8 2 , 0 2 Y F 1 9 1 Y F . y a p t u o h t i w e v a e l f o d o i r e p a s e d u c n l i 9 1 Y F 1 i d r a p o z z A n o s a J P M K T N E R R U C m a i l l i W c M t t o c S 0 0 0 , 5 2 0 0 0 , 0 1 0 0 0 , 0 4 1 0 7 5 , 3 0 3 0 0 0 5 2 , 0 0 0 0 1 , 0 0 0 5 3 , 6 8 6 2 6 2 , n e d s r a M w e r d n A 2 0 2 Y F 2 9 1 Y F 0 0 0 , 5 2 0 0 0 5 2 , - - 0 0 0 , 0 5 1 0 2 9 , 6 7 3 0 0 0 0 5 1 , 9 7 9 0 7 3 , 3 0 2 Y F 3 9 1 Y F . y a p t u o h t i w e v a e l f o d o i r e p a s e d u c n l I 3 . y a p t u o h t i w e v a e l f o d o i r e p a s e d u c n l I 2 n a r o c r o C e l l i e n a D e g a t n e c r e P e c n a m r o f r e P ) % ( 6 d e t a e R l ) $ ( l a t o T ) $ ( n o i t p O s t h g R i 5 s t n e m y a P d e s a B - e r a h S ) $ ( s t fi e n e B n o i t a n m r e T i ) $ ( 4 e v a e L ) $ ( ) $ ( n o i t a u n n a r e p u S s t fi e n e B ) $ ( d e d r a w A ) $ ( y r a a S l y r a t e n o M - n o N I T S s t fi e n e B m r e T - g n o L - t s o P s t fi e n e B t n e m y o p m E l s t fi e n e B m r e T - t r o h S l ) 9 1 0 2 y u J 7 1 n o P M K s a d e s a e c ( n a m h g u o P y r a M l P M K R E M R O F - . 8 1 1 1 8 1 , 7 0 3 - - 0 3 1 , 3 8 2 7 8 0 , 2 9 5 8 2 3 9 , 1 4 4 2 2 , 8 5 0 2 0 3 , 5 9 4 5 3 , 8 3 1 7 2 , - - - 4 6 9 , 1 2 0 0 0 0 1 1 , 7 2 7 5 3 4 , 2 5 7 , 1 8 1 , 3 8 2 9 , 6 4 3 - 5 9 5 , 0 1 3 7 8 0 , 2 0 1 0 0 0 , 0 1 8 8 6 , 9 2 8 4 5 4 , 2 8 5 , 1 , 9 4 5 3 4 1 3 , 2 8 8 4 4 , 8 5 0 2 0 3 , 7 2 5 1 9 , 8 3 1 7 2 1 , 0 0 0 0 1 , 8 6 1 0 3 7 , , 6 7 7 7 3 8 1 , 0 2 Y F 9 1 Y F L A T O T 0 2 Y F 9 1 Y F . i g n d a o l e v a e L e c i v r e S g n o L d n a e v a e L l a u n n A e d u c n l i l i n a m h g u o P y r a M o t d a p s t i f e n e b m r e t - g n o L 0 2 Y F . r a e y e h t g n i r u d d e u r c c a e v a e l e c i v r e s g n o l l o t e t a e r s t i f e n e b m r e t - g n o L . 9 1 0 2 t s u g u A 5 1 d n a 7 1 0 2 t s u g u A 8 1 n o P M K o t d e t n a r g s n o i t p o o t d e t a e r e s n e p x e t n e m y a p d e s a b e r a h S l . r a e y e h t r o f k s i r t a n o i t a r e n u m e r f o e g a t n e c r e p l a u t c a e h t g n i t c e l f e r , n o i t a r e n u m e r l a t o t e h t y b d e d v d i i I T S e h t s i l l n m u o c d e t a e r e c n a m r o f r e p e g a t n e c r e p e h T 4 5 6 RESIMAC GROUP LTD2020 ANNUAL REPORT 30 30 RESIMAC GROUP LTD 31 9. Non-Executive Director Remuneration 9.1. Overview of Non-Executive Directors' Remuneration Arrangements 9.1.1. Policy Objectives and the Board is not intending to increase this pool at the § To be market competitive: aim to set Directors’ fees competitive with Non-Executive Directors in comparable companies; § To ensure complementary skills: aim to ensure that the mix of Directors at any one time is diverse and adequate to carry out the objectives of the business; and AGM to be held in November 2020. 9.1.3. Regular Reviews of Directors’ Fees The Board reviews the level of Directors’ fees annually to ensure the fees are in line with market and are suitable for the level of skill and expertise required to carry out the duties of directors in a listed environment and with an Australian Financial Services Licence and several § To safeguard independence: to exclude any Australian Credit Licences. performance related element in order to preserve the independence of the Non-Executive Directors. The agreed fee structure is that a fee is paid to reflect the Chairman’s responsibilities. Each Director receives 9.1.2. Aggregate Fees Approved by Shareholders a base fee and if a Director chairs a Board committee, At the Annual General Meeting (AGM) of shareholders held on 25 November 2016, the shareholders approved the maximum aggregate fee pool per annum for non- an additional fee is applied. Superannuation is payable in addition to the base fee where a Director is paid via the Resimac employee payroll system. No fee is paid for executives of $550,000. This amount is the current pool committee membership. In June 2020 the Remuneration and Nominations Committee assessed the current level of fees paid to Directors and resolved not to increase fees. The 2020 fee levels inclusive of superannuation where applicable were as follows: Name Position Warren McLeland1 Chairman and Risk and Compliance Chair Maximum Fee ($) 131,400 p.a. Susan Hansen Independent Non-Executive Director, Audit Chair and New Zealand Chair 135,131 p.a. Wayne Spanner2 Independent Non-Executive Director and Remuneration and Nomination Chair 82,125 p.a. Duncan Saville3 Non-Executive Director 70,000 p.a. 1 Warren McLeland’s FY20 fee reflects the going forward increased fee of additional $45,000 from 28 February 2020 (appointed Chairman). 2 Wayne Spanner’s commenced on 28 February 2020. 3 Duncan Saville’s fee is exclusive of superannuation. 9.1.4. Board Skills & Performance Review The Board undertakes from time to time a review of the skills that each director holds and is then summarised in a skills matrix. In addition, the Board carries out an assessment of the performance of the Board as a whole and of each committee. The last review was conducted in March 2018. These assessments are conducted in-house however, if any Board member wishes to have an independent review, the appropriate consultant will be appointed. 9.1.5. Non-Executive Director Remuneration The fees paid or payable to the Non-Executive Directors in relation to the 2020 financial year are set out below: Short-Term Benefits Post-Employment Benefits Fees Superannuation1 Current ($) Warren McLeland2 FY20 FY19 Susan Hansen FY20 FY19 Wayne Spanner3 FY20 FY19 Duncan Saville FY20 FY19 90,000 75,000 127,056 112,399 25,288 - 70,000 70,000 ($) 8,550 7,125 8,075 9,342 Total ($) 98,550 82,125 135,131 121,741 2,283 27,571 - - - - 70,000 70,000 Proportion performance related (%) - - - - - - - - Former ($) ($) ($) (%) Chum Darvall4 FY20 FY19 Michael Jefferies5 FY20 FY19 Total Remuneration FY20 FY19 80,000 131,400 28,359 70,000 420,703 458,799 7,600 5,700 2,694 6,650 87,600 137,100 31,053 76,650 29,202 28,817 449,905 487,616 - - - - - - 1 Australian superannuation is paid where applicable. New Zealand Kiwisaver is not paid. 2 Appointed Chairman on 28 February 2020, fee reflects a prorated increase received from this date. 3 Appointed Independent Non-Executive Director on 28 February 2020, FY20 fee is prorated. 4 Resigned as Chairman on 28 February 2020. 5 Resigned as Independent Non-Executive Director on 26 November 2019. RESIMAC GROUP LTD2020 ANNUAL REPORT32 32 RESIMAC GROUP LTD 33 10. Other Remuneration Information 10.1.4. KMP Share Ownership 10.1. Remuneration Governance 10.1.2. Remuneration & Nomination Committee The table below sets out the number of shares held directly, indirectly or beneficially by the current and former KMP 10.1.1. Remuneration Governance & Responsibility The Resimac Board of Directors has responsibility for setting and overseeing the Company’s remuneration policies, practices and structure. The Board considers recommendations made by the Remuneration and Nomination Committee. The remuneration framework and matters considered by the Remuneration and Nomination Committee and the Board include: § Review of Board size and composition (mix of skills, qualifications, experience and other competencies); § Identification and recommendation of candidates to the Board for nomination as members of the Board or its Committees; § Development and implementation process for induction and orientation of new Directors; § Review and approval of Company objectives and appropriate KPIs relevant to the KMP annual short-term incentive arrangement, and evaluate KMP performance in light of those KPIs; § Review and approval of the remuneration of KMP, Directors and senior management (including total fixed remuneration, short-term incentives and long-term incentives); § Approval of executive recruitment practices; § Succession planning; and § Diversity and inclusion in the workplace. The Board has established a Remuneration and Nomination Committee. This Committee has a formal charter and is available on the Company’s website www.resimac.com.au. The Remuneration and Nomination Committee members are: § Wayne Spanner – Chair; and § Susan Hansen § Warren McLeland Committee changes: § Chum Darvall resigned 28 February 2020, § Duncan Saville stepped down 29 January 2020 and; § Michael Jefferies resigned 26 November 2019 as members. The Remuneration and Nomination Committee reviews and makes recommendations to the Board on remuneration governance, policies, practices and structure which will apply to the KMP, senior management and the non- executive directors. The Committee also makes recommendations to the Board on the Company’s overall remuneration framework. The Remuneration and Nomination Committee receives regular reports from Human Resources and ensures it is abreast of all regulatory change. The Committee meets at least 4 times per year. 10.1.3. Services From Remuneration Consultants The Remuneration and Nomination Committee may request advice from independent external consultants where appropriate. These consultants will be engaged directly by the Remuneration and Nomination Committee. The Company did not engage any remuneration consultants during the year. (including their related parties): Non-Executive Directors Warren McLeland Susan Hansen Wayne Spanner Duncan Saville Senior Executives Scott McWilliam Jason Azzopardi Andrew Marsden Danielle Corcoran Former Chum Darvall1 Michael Jefferies2 Mary Ploughman3 Held at 1 July 2019 11,996,695 107,023 - Net change 162,527 92,918 - Held at 30 June 2020 12,159,222 199,941 - 253,913,646 554,841 254,468,487 266,017,364 810,286 266,827,650 1,001,600 - 1,001,600 25,000 165,000 190,000 - 8,152 - - 82,199 90,351 1,034,752 247,199 1,281,951 1,787,078 1,714,691 N/A 3,501,769 N/A N/A N/A N/A N/A N/A N/A N/A 270,553,885 1,057,485 268,109,601 1 Resigned as Chairman on 28 February 2020. 2 Resigned as Independent Non-Executive Director on 26 November 2019. 3 Ceased as KMP on 17 July 2019. RESIMAC GROUP LTD2020 ANNUAL REPORT34 34 RESIMAC GROUP LTD 35 10.1.5. Share Trading Restrictions Set out below are the notice periods for each KMP. Details regarding loans outstanding at the reporting date to KMP and their related parties, where the aggregate loan Resimac Securities Trading Policy reflects the Corporations Act 2001 prohibition on KMP and their closely related parties entering into any arrangement that would have the effect of Scott McWilliam Notice Period / Termination Payment: § Six months’ notice (or payment in lieu) balance exceeded $100,000 at any time during the reporting period, are outlined below. Name Balance 1 July 2019 Balance 30 June 2020 Interest payable for the year1 Highest balance during the year limiting the KMP’s exposure to risk relating to § May be terminated immediately for serious Non-Executive Director ($) ($) ($) ($) an element of their remuneration that remains misconduct subject to restrictions on disposal. Resimac Directors, management team, and certain members of their immediate family and controlled entities are also required to obtain consent and clearance in writing for security trading during trading windows from the Chairman or another Director. All other employees must adhere to the Securities Trading Policy and are restricted from trading within the blackout periods. The policy is available on the Corporate Governance section of the Company’s website at www.resimac.com.au. Breaches of the policy are subject to disciplinary action, which may include termination of employment. Jason Azzopardi Notice Period / Termination Payment: § Three months’ notice (or payment in lieu) § May be terminated immediately for serious misconduct Andrew Marsden Notice Period / Termination Payment: § Three months’ notice (or payment in lieu) § May be terminated immediately for serious misconduct Danielle Corcoran Notice Period / Termination Payment: § Three months’ notice (or payment in lieu) § May be terminated immediately for serious 10.1.6. Further Information on Remuneration misconduct 10.1.6.1. Service Agreements Each KMP has entered into an employment contract with the Company. These contracts have unlimited duration however may be terminated with relevant notice. All KMPs are entitled to receive payment in lieu of notice of any accrued statutory entitlement (i.e. annual and long service leave) on cessation of their employment. 10.1.7. Related Party Transactions Loans to KMP and their related parties are secured residential mortgage loans provided in the ordinary course of the Resimac Group Ltd mortgage lending business. All loans have normal commercial terms. No amounts have been written down or recorded as specific provisions as the balances are considered fully collectable. Duncan Saville 5,211,424 9,548,343 257,496 9,759,652 Executive Director Scott McWilliam2 Jason Azzopardi2 Danielle Corcoran 1 Interest charged on an arm’s-length basis. 2 Loan originated during FY20. ($) - - ($) ($) ($) 1,500,000 3,494 1,503,375 1,577,079 37,403 1,652,412 398,897 379,201 13,850 400,119 5,610,321 13,004,623 312,243 13,315,558 10.1.7.1. Other Transactions & Balances With KMP From time to time, Directors of the Company or its controlled entities, or their Director-related entities, may purchase goods or services from the Group. These purchases are on the same terms and conditions as those entered into by other Group employees or customers and are trivial or domestic in nature. This Directors’ report, including the remuneration report, is signed in accordance with a resolution of the Directors made pursuant to s.298 (2) of the Corporations Act 2001. On behalf of the Directors of Resimac Group Ltd. Warren McLeland Chairman Sydney 25 August 2020 RESIMAC GROUP LTD2020 ANNUAL REPORT 36 36 RESIMAC GROUP LTD 37 Financial Statements Consolidated Statement of Profit or Loss for the year ended 30 June 2020 Interest income Interest expense Net interest income Fee and commission income Fee and commission expense De-recognition of investment in Associate (Finsure) Gain on disposal of subsidiary (Paywise) Other income Employee benefits expense Other expenses Loan impairment expense Profit before tax Income tax expense PROFIT AFTER TAX Attributable to: Owners of the parent Non-controlling interest Consolidated Statement of Comprehensive Income for the year ended 30 June 2020 Note FY20 $’000 FY19 $’000 56,007 47,185 - (39) (657) (2,065) 522 (3,995) (157) (508) (800) 1,199 669 (4,231) Note FY20 $’000 FY19 $’000 1 459,305 445,233 2 (270,680) (327,380) PROFIT AFTER TAX Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss: Reversal of prior year reserve on trust wind up Fair value movement on investment in BNK Banking Corporation Limited (“BNK”) through OCI, net of tax 188,625 117,853 Items that may be reclassified subsequently to profit or loss: 1 2 1 2 2 2 11,340 18,982 (36,088) (31,515) - - 5,810 13,104 658 4,540 (35,886) (37,658) (26,358) (24,208) (22,012) (2,966) 80,279 63,942 3 (24,272) (16,757) 56,007 47,185 55,908 47,185 99 - 56,007 47,185 Changes in fair value of cash flow hedges Tax effect Currency translation differences Other comprehensive income, net of tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR 55,207 42,954 Attributable to: Owners of the parent Non-controlling interest Earnings per share Basic Diluted 55,112 42,954 95 - 55,207 42,954 FY20 cents per share FY19 cents per share 21 21 13.75 13.72 11.75 11.75 Notes to the consolidated financial statements are included on pages 42 to 130. RESIMAC GROUP LTD2020 ANNUAL REPORT38 2020 ANNUAL REPORT 39 39 Consolidated Statement of Financial Position as at 30 June 2020 l a t o T 0 0 0 $ ’ ) 9 3 3 ( 4 2 1 , 6 9 1 5 8 7 , 5 9 1 7 0 0 , 6 5 ) 0 0 8 ( 7 0 2 , 5 5 9 9 ) 8 8 1 ( 7 1 0 , 1 0 3 3 - 2 0 4 ) 6 6 9 , 0 1 ( ASSETS Cash and cash equivalents Trade and other receivables Loans and advances Contract assets Other financial assets Derivative financial assets Other assets Plant and equipment Right-of-use assets Goodwill and intangible assets LIABILITIES Trade and other payables Current tax payable Provisions Interest-bearing liabilities Lease liabilities Other financial liabilities Derivative financial liabilities Other liabilities Deferred tax liabilities NET ASSETS EQUITY Share capital Reverse acquisition reserve Total issued capital Reserves Retained earnings Equity attributable to owners of the parent Non-controlling interest Notes to the consolidated financial statements are included on pages 42 to 130. Note 4 5 FY20 $’000 FY19 $’000 365,987 224,790 5,974 10,699 6 12,506,012 10,341,913 1 7 23 10 9 8 11 12 3 17 41,954 48,648 7,181 5,120 52,592 56,575 3,627 2,192 12,279 28,893 3,145 2,110 - 23,457 13,026,691 10,716,457 25,891 24,293 4,630 25,294 6,690 4,050 13 12,685,616 10,450,621 14 15 23 16 3 20 20 20 20 20 13,622 20,797 3,277 3,339 3,540 - 22,901 1,565 2,907 6,305 12,785,005 10,520,333 241,686 196,124 181,895 180,548 (61,541) (61,541) 120,354 119,007 (7,556) 128,694 (7,197) 84,314 241,492 196,124 194 - 241,686 196,124 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ - n o N t s e r e t n i g n i l l o r t n o c t n e r a p e h t l e b a t u b i r t t A f o s r e n w o o t d e n i a t e R i s g n n r a e 2 s e v r e s e R l a t i p a c d e u s s i l a t o T e s r e v e R 1 e v r e s e r n o i t i s i u q c a e r a h S l a t i p a c 0 0 0 $ ’ y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C 0 2 0 2 e n u J 0 3 d e d n e r a e y e h t r o f - - - 9 9 ) 4 ( 5 9 9 9 - - - - - 4 2 1 , 6 9 1 4 1 3 , 4 8 ) 7 9 1 , 7 ( 7 0 0 , 9 1 1 ) 1 4 5 , 1 6 ( 8 4 5 , 0 8 1 l 9 1 0 2 y u J 1 t a e c n a a B l ) 9 3 3 ( ) 9 3 3 ( - - - - x a t e m o c n i f o t e n , 6 1 B S A A f o n o i t p o d A 8 0 9 , 5 5 8 0 9 , 5 5 - ) 6 9 7 ( - 2 1 1 , 5 5 8 0 9 , 5 5 - ) 8 8 1 ( 7 1 0 , 1 0 3 3 - - - - - 2 0 4 - ) 3 2 2 ( ) 6 6 9 , 0 1 ( ) 6 6 9 , 0 1 ( ) 6 9 7 ( ) 6 9 7 ( - ) 8 8 1 ( - - - 2 0 4 3 2 2 - - - - - - - - 0 3 3 7 1 0 , 1 - - - - - - - - - - - - - - - - - - 0 3 3 7 1 0 , 1 5 8 7 , 5 9 1 5 7 9 , 3 8 ) 7 9 1 , 7 ( 7 0 0 , 9 1 1 ) 1 4 5 , 1 6 ( 8 4 5 , 0 8 1 s r e n w o s a y t i c a p a c r i e h t n i s r e n w o h t i w s n o i t c a s n a r T t s e r e t n i g n i l l o r t n o c - n o n f o n o i t i s u q c A i x a t e m o c n i f o t e n , e m o c n i i e v s n e h e r p m o c r e h t O r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T r a e y e h t r o f t fi o r P l 9 1 0 2 y u J 1 t a s a e c n a a B d e t s u d A j l i i y r a d s b u s f o s e r a h s e h t e r i u q c a o t n o i t p O l i i i n a P t n e m t s e v n e R d n e d v D e h t r e d n u s e r a h s f o e u s s I s n o i t p o e r a h s f o e s c r e x E i s t n e m y a p d e s a b - e r a h S n o i t a c o l l a e R i i s d n e d v d y t i u q E 6 8 6 , 1 4 2 4 9 1 2 9 4 , 1 4 2 4 9 6 , 8 2 1 ) 6 5 5 , 7 ( 4 5 3 , 0 2 1 ) 1 4 5 , 1 6 ( 5 9 8 , 1 8 1 0 2 0 2 e n u J 0 3 t a e c n a a B l e v r e s e r n o i t i s i u q c a e s r e v e R e h T . l a t i p a c e r a h s o t e r u t a n n i r a l i i m s s i ’ e v r e s e r n o i t i s i u q c a e s r e v e R ‘ d e l l a c t n u o c c a s i h T . y t i u q e f o t n e n o p m o c a s a d e t a e r c s a w t n u o c c a y t i u q e n a , g n i t n u o c c a n o i t i s i u q c a e s r e v e r f o t l u s e r a s A 1 . l i a t e d e r o m r o f 0 2 e t o N o t r e f e R . e v r e s e r r e h t o d n a e v r e s e r t n e m y a p d e s a b - e r a h s , e v r e s e r e u a v r i l a f , e v r e s e r n o i t a l s n a r t y c n e r r u c n g e r o f i , e v r e s e r e g d e h w o l f h s a c s e s i r p m o C 2 . n o i t u b i r t s d r o f e b a i l l i a v a t o n s i RESIMAC GROUP LTD2020 ANNUAL REPORT 40 40 RESIMAC GROUP LTD 41 l a t o T 0 0 0 $ ’ 5 2 7 2 6 1 , ) 3 1 2 5 ( , 2 1 2 7 5 1 , 5 8 1 7 4 , ) 1 3 2 4 ( , 4 5 9 2 4 , 5 4 8 0 2 3 , ) 5 9 5 7 ( , 4 2 1 6 9 1 , 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ - n o N t s e r e t n i g n i l l o r t n o c t n e r a p e h t l e b a t u b i r t t A f o s r e n w o o t d e n i a t e R i s g n n r a e 2 s e v r e s e R l a t i p a c d e u s s i l a t o T e s r e v e R 1 e v r e s e r n o i t i s i u q c a e r a h S l a t i p a c 0 0 0 $ ’ y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C 0 2 0 2 e n u J 0 3 d e d n e r a e y e h t r o f - - - - - - - - - - 5 2 7 2 6 1 , 7 3 9 9 4 , ) 1 1 0 3 ( , 9 9 7 5 1 1 , ) 1 4 5 1 6 ( , 0 4 3 7 7 1 , l 8 1 0 2 y u J 1 t a e c n a a B l ) 3 1 2 5 ( , ) 3 1 2 5 ( , - - - - x a t e m o c n i f o t e n , 9 B S A A f o n o i t p o d A 5 8 1 7 4 , ) 1 3 2 4 ( , 4 5 9 2 4 , 5 8 1 7 4 , - - 5 8 1 7 4 , ) 1 3 2 4 ( , ) 1 3 2 4 ( , - - - 8 0 2 3 , - 5 4 - ) 5 9 5 7 ( , ) 5 9 5 7 ( , - - 5 4 - - 8 0 2 3 , - - - - - - - - - - - 8 0 2 3 , 2 1 5 7 5 1 , 4 2 7 4 4 , ) 1 1 0 3 ( , 9 9 7 5 1 1 , ) 1 4 5 1 6 ( , 0 4 3 7 7 1 , 4 2 1 6 9 1 , 4 1 3 4 8 , ) 7 9 1 7 ( , 7 0 0 9 1 1 , ) 1 4 5 1 6 ( , 8 4 5 0 8 1 , s r e n w o s a y t i c a p a c r i e h t n i s r e n w o h t i w s n o i t c a s n a r T r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T x a t f o t e n , e m o c n i i e v s n e h e r p m o c r e h t O r a e y e h t r o f t fi o r P l 8 1 0 2 y u J 1 t a s a e c n a a b d e t s u d A j l l i i i n a P t n e m t s e v n e R d n e d v D e h t r e d n u s e r a h s f o e u s s I 9 1 0 2 e n u J 0 3 t a e c n a a B l s t n e m y a p d e s a b - e r a h S i i s d n e d v d y t i u q E e v r e s e r n o i t i s i u q c a e s r e v e R e h T . l a t i p a c e r a h s o t e r u t a n n i r a l i i m s s i ’ e v r e s e r n o i t i s i u q c a e s r e v e R ‘ d e l l a c t n u o c c a s i h T . y t i u q e f o t n e n o p m o c a s a d e t a e r c s a w t n u o c c a y t i u q e n a , g n i t n u o c c a n o i t i s i u q c a e s r e v e r f o t l u s e r a s A 1 Consolidated Statement of Cash Flows for the year ended 30 June 2020 Cash flows from operating activities Interest received Interest paid Receipts from loan fees and other income Payments to suppliers and employees Payments of net loans to borrowers Income tax paid Net cash used in operating activities Cash flows from investing activities Payment for plant, equipment and intangible assets Repayment of loans to related parties Payments for new investments Acquisition of subsidiary (IA Group) Cash acquired on acquisition of subsidiary (IA Group) Proceeds on disposal of Paywise Cash on disposal of Paywise Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Proceeds of loans sold to external party (Athena) Proceeds from exercise of options Payment of lease liabilities Swap payments Payment of dividends Payment of finance lease . 0 3 1 o t 2 4 s e g a p n o d e d u c n l i e r a s t n e m e t a t s Note FY20 $’000 FY19 $’000 471,027 452,335 (263,991) (318,583) 46,728 51,674 (154,961) (150,270) (3,573,593) (1,713,838) (9,079) (9,736) 4 (3,483,869) (1,688,418) (279) (2,456) (2,408) (3,000) (6,000) 1,087 250 - (10,350) (6) (2,000) - - 12,000 (9,994) (2,456) 9,560,872 8,748,825 (7,364,980) (7,027,463) 1,453,212 330 (1,671) (2,090) (9,949) - - - - (949) (4,387) (252) l i a c n a n fi d e t a d i l o s n o c e h t o t s e t o N Net cash provided by financing activities 3,635,724 1,715,774 Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year (1 July) Effects of exchange rate changes on cash balances held in foreign currencies 141,505 24,900 224,790 198,905 (308) 985 Cash and cash equivalents at end of year 4 365,987 224,790 Notes to the consolidated financial statements are included on pages 42 to 130. . l i a t e d e r o m r o f 0 2 e t o N o t r e f e R . e v r e s e r r e h t o d n a e v r e s e r t n e m y a p d e s a b - e r a h s , e v r e s e r e u a v r i l a f , e v r e s e r n o i t a l s n a r t y c n e r r u c n g e r o f i , e v r e s e r e g d e h w o l f h s a c s e s i r p m o C 2 . n o i t u b i r t s d r o f e b a i l l i a v a t o n s i RESIMAC GROUP LTD2020 ANNUAL REPORT 42 2020 ANNUAL REPORT 43 43 Notes to the Consolidated Financial Statements About This Report for the year ended 30 June 2020 About This Report Resimac Group Ltd (“Resimac” or “the Company”) is a § is presented in Australian dollars with all values for-profit company limited by shares incorporated and rounded to the nearest thousand dollars ($’000) domiciled in Australia whose shares are publicly traded unless otherwise stated, in accordance with ASIC on the Australian Securities Exchange. The nature of Corporations (Rounding in Financial/Directors’ the operations and principal activities of Resimac and its Reports) Instrument 2016/191; entities that it controls (referred to as “the Group”) are described in the segment information. § presents reclassified comparative information where required for consistency with the current year’s The consolidated general purpose financial report of the presentation; Group for the year ended 30 June 2020 was authorised for issue in accordance with a resolution of the Directors on 25 August 2020. The Directors have the power to amend and reissue the financial report. § adopts all new and amended Accounting Standards and Interpretations issued by the AASB that are relevant to the Group and effective for reporting periods beginning on or before 1 July 2019. Refer to Note 32 The financial report is a general purpose financial report for further details. which: § has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards (AAS) and other Key Judgements & Estimates authoritative pronouncements of the Australian In the application of the Group’s accounting policies, the Accounting Standards Board (AASB) and International Directors are required to make judgements, estimates Financial Reporting Standards (IFRS) as issued by the and assumptions about the carrying value of assets International Accounting Standards Board (IASB); and liabilities that are not readily apparent from other § has been prepared on a historical cost basis, except for investments held by associates and certain financial instruments which have been measured at sources. The estimates and associated assumptions are based on historical experience and various other factors that are fair value. The carrying values of recognised assets and believed to be reasonable under the circumstances, the liabilities that are the hedged items in fair value hedge results of which form the basis of making judgements. relationships, which are otherwise carried at amortised Actual results may differ from these estimates. cost, are adjusted to record changes in the fair values attributable to the risks that are being hedged; Judgements and estimates which are material to the financial report are found in the following notes: Note Relates to 1 Recognition of revenue from contracts with customers 1 & 15 Net present value (“NPV”) of future trail commission: recognition of future commissions receivable and payable 7 11 17 Impairment of other financial assets Goodwill impairment Provisions – long service leave 22 & 23 Impairment of financial assets Basis of Consolidation The consolidated financial statements comprise the financial statements of the Group. A list of controlled entities (subsidiaries) at year end is contained in Note 24. The financial statements of subsidiaries are prepared for the same reporting period as the parent Company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. Subsidiaries are consolidated from the date on which control is obtained to the date on which control is disposed. The Group controls an investee if and only if the Group has: § power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); § exposure, or rights, to variable returns from its involvement with the investee; and § the ability to use its power over the investee to affect its return. In preparing the consolidated financial statements, all inter-company balances and transactions, income and expenses and profits and losses resulting from intra-Group transactions have been eliminated. The acquisition of subsidiaries is accounted for using the acquisition method. Refer to Note 24 for detail on the consolidation of special purpose vehicles. RESIMAC GROUP LTD2020 ANNUAL REPORT44 44 RESIMAC GROUP LTD 2020 ANNUAL REPORT 45 45 Foreign Currency The Notes to the Financial Statements As at the reporting date, assets and liabilities The notes include information required to understand of overseas subsidiaries are translated into the financial statements and is material and relevant Loans and advances: The Group granted COVID-19 hardship payment moratoriums to 10% of home loan customers. In line with regulatory guidance, these loans were not deemed in arrears during the moratorium period. Therefore, management have raised a COVID-19 overlay based on forward looking macroeconomic Australian dollars at the rate of exchange at the balance sheet date and the income statements are translated at the average exchange rates for the year. The exchange differences arising on the retranslation are taken directly to a separate component of environment. This provision is in addition to the AASB equity. to the operations, financial position and performance of the Group. Information is considered material and relevant if, for example: § the amount in question is significant because of its size or nature; § it is important for understanding the results of the Group; Notes to the Consolidated Financial Statements About this Report (for the year ended 30 June 2020) COVID-19 COVID-19 has significantly impacted equity, debt, Key statements of financial position items and related commodity markets and the overall global economy. The disclosures impacted by COVID-19 were: Group has considered the impact of COVID-19 and other market volatility in preparing its financial statements. While the specific areas of judgement as noted on the previous page remain unchanged, COVID-19 resulted in the application of further judgement within those identified areas. Given the rapidly evolving nature of COVID-19 and the subsequent economic impact, changes to the estimates and outcomes applied in the measurement of the Group’s assets and liabilities may arise in the future. Other than adjusting events that provide evidence of provisions that existed at the end of the reporting period, the impact of events that arise after the reporting period will be accounted for in future reporting periods. As a consequence of COVID-19 and in preparing financial statements, management: § Considered the financial impact on the Group and areas of the financial statements affected to determine the disclosures required, and evaluate if any additional areas of judgement or estimation uncertainty beyond what has been disclosed existed; § Updated forward-looking information (including macroeconomic information) when measuring expected credit losses to assess any significant increase in credit risk, and for the impairment analysis of financial and non-financial asset classes and disclosures; 9 Expected Credit Loss (ECL) model provision at each reporting period. Refer to note 6 and note 23. Intangible assets: The Group conducted impairment testing on goodwill at the reporting date to assess whether the impact of COVID-19 has led to an asset impairment. This testing requires an estimation of the recoverable amount of the affected cash generating unit to which the goodwill is allocated using a value in use discounted cash flow methodology. Refer to note 11. Property, plant and equipment and right-of-use assets: Property, plant and equipment and right-of-use assets were subject to impairment testing. Management concluded no impairment was required. Derivative assets and liabilities: Given recent market volatility, the Group reviewed the appropriateness of credit valuation adjustment to its valuations. The impact of changes of inputs to the valuations is also considered in terms of the classification of exposures in the fair value hierarchy and transfers within the fair value hierarchy. § Assessed the measurement of assets and liabilities and Hedge accounting: An assessment considering if determined the impact thereon as a result of market forecasted cash flows in cash flow hedge relationships inputs and variables impacted by COVID-19; remain highly probable at the reporting date. At 30 § Evaluated information available after the reporting date but before the issuance of the financial statements (e.g. decisions regarding COVID-19) and June 2020, the modelling of the hedged future cash flows determined cash flow hedge relationships remained highly probable and hedge accounting remains updated the disclosures in the financial statements; appropriate. § Reviewed external market communications to identify other COVID-19 related impacts; Investment in other financial assets: When assessing the fair value of equity investments at 30 June 2020, § Reviewed public forecasts and experience from the impact of COVID-19 on each of the investments previous downturns. operating model was considered. Transactions in foreign currencies are § it helps to explain the impact of significant changes initially recorded in the functional currency in the Group’s business – for example, acquisitions at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Exchange differences arising from the application of these procedures are taken to the income statement, with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity, which are taken directly to equity until and impairment write-downs; or § it relates to an aspect of the Group’s operations that is important to its future performance. The notes are organised into the following sections: Key numbers: provides a breakdown of individual line items in the financial statements that the Directors consider most relevant and summarises the accounting policies, judgements and estimates relevant to understanding these line items; the disposal of the net investment, and then Capital: provides information about the capital recognised in the income statement. Tax management practices of the Group and shareholder charges and credits attributable to exchange returns for the year; differences on those borrowings are also recognised in equity. Other Accounting Policies Significant and other accounting policies that summarise the measurement basis relevant to an understanding of the financial statements are provided throughout the notes to the financial statements. Risk: details the Group’s exposure to various financial risks, explains how these affect the Group’s financial position and performance, and what the Group does to manage these risks; Group structure: explains the Group structure and how changes have affected the financial position and performance of the Group; Unrecognised items: provides information regarding items not recognised in the financial statements but could potentially have an impact on the Group’s financial position and performance; and Other: provides information on items which require disclosure to comply with AAS and other regulatory pronouncements however, are not considered critical in understanding the financial performance or position of the Group. RESIMAC GROUP LTD2020 ANNUAL REPORT46 2020 ANNUAL REPORT 47 47 Notes to the Consolidated Financial Statements Segment Information for the year ended 30 June 2020 Segment Information AASB 8 Operating Segments requires operating and expenses of IA Group from 1 January 2020 to 30 segments to be identified on the basis of internal reports June 2020 are included in the FY20 consolidated financial about components of the Group that are regularly statements. reviewed by the Board and executive management team (the chief operating decision makers (CODM)) in order to allocate resources to the segment and to assess its performance. Management have assessed the impact of IA Group on its Group results as not material, and therefore does not represent a reportable segment for the year ended 30 June 2020, notwithstanding IA Group is considered an The Group has identified three reportable segments operating segment. based on the nature of the products and services provided, the type of customers for those products and services, the geographies where the business operates and the existence of discrete and separate reporting and management teams. The following summary describes the operations in each of the Group’s reportable segments. The Group’s reportable segments under AASB 8 are: 1. Australian Lending Business 2. New Zealand Lending Business Whilst the nature of the customers and products are similar to the Australian Lending segment, given the different jurisdiction and market conditions, management believe it is appropriate to distinguish the result of New Zealand from Australia. Separating the Australian and New Zealand trading business is supported by the operation of a dedicated NZ board, NZ segment monthly management reporting, Represents the distribution and lending businesses separate regulatory requirements/oversight, and currently captured under the Resimac and State employees solely accountable for the NZ business Custodians brands. including a locally based Head of NZ. The segment contains the bulk of the Australian based 3. Paywise Business income and expense. It incorporates the new business settled through the Australian distribution channels, the margin net of funding costs of the on-balance sheet home loan portfolios, and the upfront and trail commission on the white label loan portfolio. On 1 January 2020, Resimac purchased a controlling stake in IA Group who specialise in both Australian based secured commercial and consumer lending. The income On 24 May 2019, the Group sold its 100% equity stake in its wholly owned subsidiary Paywise Pty Limited for total cash consideration of $14 million in a management buyout agreement. The economic effective date of this transaction is 30 April 2019. The income and expenses of Paywise up to 30 April 2019 are included in the comparative column below. Information regarding these segments is presented below. The accounting policies of the reportable segments are the same as the Group’s accounting policies. The following is an analysis of the Group’s revenue and results by reportable operating segments: Australian Lending New Zealand Lending Paywise1 Consolidated FY20 $’000 FY19 $’000 FY20 $’000 FY19 $’000 FY20 $’000 FY19 $’000 FY20 $’000 FY19 $’000 Revenue from external customers 447,982 439,646 23,321 22,056 Total segment revenue 447,982 439,646 23,321 22,056 Segment results before tax, depreciation, amortisation, finance costs and impairment 106,740 69,498 3,227 2,834 Depreciation and amortisation (1,021) (1,090) Loan impairment (21,653) (3,041) Finance costs (6,283) (4,334) (11) (359) (361) (11) 75 (263) Segment results before income tax 77,783 61,033 2,496 2,635 Income tax expense2 PROFIT AFTER TAX - - - - - - - 7,053 471,303 468,755 7,053 471,303 468,755 432 109,967 72,764 (158) (1,032) (1,259) - - (22,012) (2,966) (6,644) (4,597) 274 80,279 63,942 (24,272) (16,757) 56,007 47,185 1 FY19 includes Paywise segment for the period from 1 July 2018 to 30 April 2019. 2 Income tax expense is grouped on a consolidated basis, not by reportable operating segment. RESIMAC GROUP LTD2020 ANNUAL REPORT48 48 RESIMAC GROUP LTD 49 Notes to the Consolidated Financial Statements Segment Information (for the year ended 30 June 2020) The following is an analysis of the Group’s assets and liabilities by reportable operating segment: Australian Lending New Zealand Lending Paywise Consolidated FY20 $’000 FY19 $’000 FY20 $’000 FY19 $’000 FY20 $’000 FY19 $’000 FY20 $’000 FY19 $’000 Notes to the Consolidated Financial Statements Key Numbers for the year ended 30 June 2020 Segment assets 12,444,285 10,210,822 582,406 505,635 12,444,285 10,210,822 582,406 505,635 Segment liabilities (12,201,825) (10,019,239) (555,347) (488,099) Net assets excl. tax 242,460 191,583 27,059 17,536 - - - - - - - - Tax liabilities3 NET ASSETS 3 Tax liabilities are grouped on a consolidated basis, not by reportable operating segment. 13,026,691 10,716,457 1. Revenue 13,026,691 10,716,457 1.1. Revenue Streams The Group generates revenue primarily from net interest margin on principally funded loans, annuity trail income on non- principally funded loans and other fee income. (12,757,172) (10,507,338) 269,519 209,119 (27,833) (12,995) 241,686 196,124 Revenue from contracts with customers Interest income Loans and advances Bank deposits Discount unwind on NPV of trail commission Other income Total revenue Recognition & Measurement Interest Income - Loans & Advances FY20 $’000 FY19 $’000 11,340 18,982 454,962 438,895 1,625 2,718 3,152 3,186 459,305 445,233 658 4,540 471,303 468,755 Revenue arising from issuing residential loans are initially which revenue is recognised is referred to as the effective recognised at the fair value of the consideration received interest rate and is equivalent to the rate that effectively or receivable when it is probable that future economic discounts estimated future cash flows throughout the benefits will flow to the Group and these benefits can be estimated life of the net carrying value of the loan. measured reliably. Acquisition costs are also spread across the estimated Loans and advances are initially recognised at fair value. life of the loan. Subsequent to initial recognition, the loans are measured Loans and advances in arrears or under a COVID-19 at amortised cost using the effective interest method hardship payment moratorium at 30 June 2020 do not over the estimated actual (but not contractual) life of impact interest income. Interest income continues to the mortgage loan, taking into account all income and accrue on loans in arrears or under hardship payment expenditure directly attributable to the loan. moratoriums. Consideration for potential future credit Interest income on loans and advances is recognised as it accrues using the effective interest method. The rate at losses on loans in arrears or under hardship payment moratoriums is reflected in Note 23. RESIMAC GROUP LTD2020 ANNUAL REPORT 50 2020 ANNUAL REPORT 5151 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) Interest Income - Bank Deposits This comprises interest income on funds invested. Interest income is recognised as it accrues, using the effective interest method. Other Incomes Other income includes various items including but not limited to: § changes in fair value of interest rate swaps through profit or loss; and § payment received under operating leases as income on a straight-line basis over the lease (office sub-lease). Revenue From Contracts with Customers Revenue is based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a good or service to a customer. The following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies. Resimac Group Ltd is a for-profit Company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange. CLASSIFICATION & MEASUREMENT OF REVENUE Timing Type of service Nature, timing of satisfaction of performance obligations, significant payment terms, significant judgements used Revenue Recognition Policy under AASB 15 At a point in Mortgage Commission from originating white label Once the Group has referred a time origination loans. revenue The performance obligations are satisfied at the point in time the loan is settled. Non-ongoing performance conditions are attached to the upfront fee. successful loan application to the lender, its performance obligations have been met. As such, revenue is recognised at the point in time the loan is settled. The expected value is estimated based on historic experience. Provisions for clawback of the upfront fee are recognised within a period of time post-settlement and is a variable consideration. At a point in Loan Trail commission income on white label loans, Revenue is recognised at the point time management based on the individual monthly loan balance in time the loan is being settled and revenue outstanding each month. Trail ceases once performance obligations are satisfied the loan is discharged. according to the contracts with the The contracts with the funders include funders. performance obligations which must be The present value of the trailing satisfied in order to be paid trail commission commission receivable is recognised (e.g. the loan not being in arrears). as a contract asset and measured using the expected value method with variable consideration at a point in time. At a point in Net loan fees Loan fees paid by the borrower such as Revenue is recognised when the time application, discharge, settlement fees etc. transaction is completed and the The performance obligation for these fees is performance obligations are met. met at a point in time (settlement, discharge etc) when the fee is charged to the borrower. 1.2. Disaggregation of Revenue From Contracts with Customers In the following table, revenue from contracts with customers is disaggregated by primary geographical market, major service lines and timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue with the Group’s reportable segments (See “Segment Information” on page 47). RESIMAC GROUP LTD2020 ANNUAL REPORT52 52 RESIMAC GROUP LTD 2020 ANNUAL REPORT 53 53 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) Australian Lending New Zealand Lending Paywise Consolidated FY20 $’000 FY19 $’000 FY20 $’000 FY19 $’000 FY20 $’000 FY19 $’000 FY20 $’000 FY19 $’000 - - - - - - - - - - - - - - Primary geographical markets Australia New Zealand Major service lines Mortgage origination Loan management Salary packaging Vehicle financing commission Net loan fees 10,934 13,130 - - 10,934 13,130 - 7,307 - - 2,532 7,150 - - 3,627 3,448 10,934 13,130 Timing of revenue recognition Service transferred at a point in time 10,934 13,130 Revenue from contracts with customers 10,934 13,130 - 406 406 - - - - 406 406 406 406 - 295 295 - - - - 295 295 295 295 Interest income Other income External revenue as reported in segment information 434,497 422,305 24,808 22,756 2,551 4,211 (1,893) (995) 447,982 439,646 23,321 22,056 Recognition & Measurement 1.3. Assets Related to Contract with Customers The Group has recognised the following assets related to contracts with customers. Contract assets - present value of future trail commission receivable Current Non-current 5,557 10,934 18,687 - 406 295 5,557 11,340 18,982 - - 2,679 2,878 - 7,307 - - - 4,033 2,532 7,150 2,679 2,878 3,743 5,557 11,340 18,982 5,557 11,340 18,982 5,557 11,340 18,982 172 459,305 445,233 1,324 658 4,540 FY20 $’000 11,587 30,367 41,954 FY19 $’000 14,940 33,708 48,648 7,053 471,303 468,755 date. Initial Recognition Key Judgements Expected value of future trail commission receivable is recognised on the origination of white label settlements. This represents the NPV of the expected future trail commission receivable under the origination and management agreement, less ongoing servicing costs not covered by transaction fees. The initial expected value of trail commission receivable is determined by using the discounted cash flow valuation technique. Subsequent Measurement Subsequent to initial recognition, the future trail commission receivable is measured at expected value. The carrying amounts of the trail commissions receivable are adjusted to reflect actual and revised estimated cash flows by recalculating the carrying amount through computing the present value of estimated future cash flows at the effective interest rates. The resulting adjustment is recognised as income or expense in the statement of comprehensive income. A remeasurement of the underlying cash flows relating to the trail commission receivable occurs at each reporting Key Estimates & Assumptions The key estimates and assumptions underlying the remeasurement of the estimated future cash flows include the: § prepayment rate; and § discount rate. The recognition of the future trail commission receivable and payable (and resulting revenue/ expense) is an area of management judgement due to the different recognition criteria existing within the accounting standards. Decisions around key inputs potentially have a material impact on the balances. Management judgement is required with respect to the determination of: § Prepayment rate Of all the key inputs for NPV modelling, it is prepayment or run-off rates to which the model is most sensitive. In observing prior years’ actual run-off performance, there can be variations over time of up to 25% on individual seasoning bands and variations of over 10% for year-on-year overall run-off. In order to manage both volatility of rates over time and the uncertainty associated with this modelling, a conservative run-off buffer of 25% is included in the valuation by management. § Discount rates For the purposes of the valuation technique required by the standard, the discount rate is set each year and remains unchanged for that tranche of loans for the remainder of the loan’s life. The discount rate is currently set at 6%, incorporating risk free rates and estimates of the credit risk associated with the counterparties FY20 FY19 providing the trail income, and remains unchanged Weighted average loan life (years) Discount rate 3.5 6% 3.1 6% compared with FY19. Given trail income receivables are due from strongly rated major financial institutions, this credit risk is Contract Assets - Present Value of Future Trail Commission Receivable Weighted average loan life. regarded as appropriate. The contract assets primarily relate to the Group’s rights to consideration for trail commission. The Group receives trail commissions from lenders on white label settled loans over the life of the loan based on the loan balance outstanding. The contract assets are transferred to receivables when the rights become unconditional. The methodology in calculating the weighted average loan life uses the commonly accepted Standard and Poor’s definition. RESIMAC GROUP LTD2020 ANNUAL REPORT54 2020 ANNUAL REPORT 55 55 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) 2. Expenses Interest Bond and warehouse facilities Amortisation – bond issue costs Discount unwind on NPV of trail commission Corporate facility Interest on lease liabilities Fee and commission Mortgage origination Loan management Borrowing costs Other financing costs Employee benefits Remuneration, bonuses, superannuation and on-costs Share-based payments Other Marketing IT Audit and other professional fees Rent and occupancy costs Insurance Depreciation and amortisation Depreciation charge of right-of-use assets Other Loan impairment Recognition & Measurement 2.1. Interest Bond & Warehouse Facilities 2.2. Fee & Commission Mortgage Origination Borrowing costs are recognised in the profit or loss in Upfront commission payments for white label home FY20 $’000 FY19 $’000 259,467 317,198 8,517 1,311 767 618 6,987 1,525 1,670 - 270,680 327,380 434 1,788 22,898 19,353 6,730 6,026 5,777 4,597 the period in which they are incurred. Borrowing costs include: § interest on deposits; § coupon payments on notes issued; and § other interest paid on non-securitised funding facilities and are recognised under the effective interest rate method. See further detail under Note 1. Deferred Costs Transaction costs representing mortgage insurance premiums and upfront broker commissions related to originating on balance sheet loans are capitalised on the statement of financial position of the Group. These costs are amortised to the statement of profit or loss over the period over which the Group is expected to 36,088 31,515 receive interest income. 35,305 37,614 581 44 35,886 37,658 3,277 6,561 5,719 1,395 1,369 1,032 1,920 5,085 3,570 4,826 3,745 4,011 1,017 1,259 - 5,780 26,358 24,208 22,012 2,966 391,024 423,727 The amortisation rate closely aligns with the rate of reduction of the underlying mortgage portfolio. The rate of reduction of the outstanding mortgage portfolio is calculated based on the historical behaviour of the portfolio over the past 10 years. On a consolidated basis these transaction costs are included as part of the amortised cost of the loans per Note 6. Amortisation – Bond Issue Costs Transaction costs incurred by the Group in facilitating the issue of debt securities by the special purpose vehicles, are capitalised on the statement of financial position of the parent entity as bond issue costs. These costs are amortised to the statement of profit or loss over the average expected life of the debt securities using the effective interest method. On a consolidated basis, these costs are included as part of the amortised cost of the debt securities. loans to mortgage originators, are recognised at settlement as the services performed by the originator are principally performed upfront. Loan Management For white label home loans, trail commission payments to brokers and commissioned staff based on the loan book balance outstanding. Borrowing Costs Fees directly related to public RMBS deals. Other Financing Costs Other financing costs include trustee and servicer fees, liquidity fees, rating agency fees, and other financing related fees. 2.3. Employee Benefits Employee benefits expense includes remuneration, bonuses, superannuation, and associated on-costs as incurred. The policy relating to share-based payments is set out in Note 31. 2.4. Other This mainly comprises bank fees, general administration expenses and unrecoverable GST. These items are expensed when incurred. 2.5. Loan Impairment Loan impairment expenses relates to the movement in the: § specific provision; § collective provision movements for loan impairment; and § direct loan write-offs recognised during the year. See Note 6 for detail on impairment of loans and advances. RESIMAC GROUP LTD2020 ANNUAL REPORT56 56 RESIMAC GROUP LTD 57 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) 3. Income Tax 3.1. Income tax recognised in profit or loss Current tax In respect of the current year In respect of prior years Translation loss on foreign currency assets and liabilities Deferred tax In respect of the current year In respect of prior years FY20 $’000 FY19 $’000 26,754 15,368 35 22 (175) (14) 26,811 15,179 (2,494) (45) (2,539) 2,368 (790) 1,578 Total income tax expense recognised in the current year 24,272 16,757 The income tax expense for the year can be reconciled to the accounting profit as follows: Profit before tax Income tax expense calculated at 30% (FY19: 30%) Effect of expenses that are not deductible in determining taxable profit Effect of different tax rates of subsidiaries operating in other jurisdictions Share-based payments Difference in tax and accounting treatment of Paywise disposal Other items Adjustments recognised in the current year in relation to the deferred tax of prior years Adjustments recognised in the current year in relation to the current tax of prior years Income tax expense recognised in profit or loss 80,279 63,942 24,084 19,183 344 1 (54) - (93) 98 (8) - (1,609) 58 24,282 17,722 (45) 35 (790) (175) 24,272 16,757 The tax rate used for FY20 and FY19 reconciliations above is the corporate tax rate of 30% payable by corporate entities in Australia on taxable profits under tax law in that jurisdiction. 3.2. Current tax assets and liabilities Current tax payable FY20 $’000 FY19 $’000 (24,293) (6,690) (24,293) (6,690) 3.3. Deferred Tax Balances The following is the analysis of deferred tax assets (DTA) and deferred tax liabilities (DTL) presented in the consolidated FY20 $’000 FY19 $’000 20,989 15,615 (24,529) (21,920) (3,540) (6,305) Current year recognised in profit or loss $’000 Opening balance $’000 Previously unrecognised in profit or loss $’000 Recognised directly in equity $’000 Recoup tax loss against tax liability $’000 Acquisition of IA Group $’000 Closing balance $’000 statement of financial position: Deferred tax assets Deferred tax liabilities FY20 DT in relation to: Doubtful debts Plant, equipment and software Deferred mortgage insurance Employee entitlements Net provision for lease make good Other accrued expenses Blackhole expenditure Discount on loan Tax losses carried forward 4,111 82 358 1,069 60 2,142 437 (1) 103 5,330 (49) (106) 39 - (164) (203) - 77 Trail commission payable 7,091 (799) Lease liability Shares Share-based payments Lease incentives DT in relation to: Capitalised incentive commission Loans and advances Deferred bond issue cost Derivatives Unpaid superannuation 92 41 - 30 40 - 173 - 15,615 4,338 10,513 (4,219) 2,736 (1,663) (40) 1,942 1,743 (116) 170 (7) Trail commission receivable 14,594 (2,001) Accrued income and other (1) 21,920 (6,305) 113 1,844 2,494 - - - (1) - - - - - 25 7 - 13 - 44 (1) - - - - - - (1) 45 (8) - - - - - - - - - 145 282 157 - 576 (13) - (3) 156 - - - 140 436 - - - - - - - - (106) - - - - - 149 (31) - 23 - 4 - - 342 - 35 - - - 9,582 2 252 1,130 60 1,982 234 (1) 416 6,317 319 323 343 30 (106) 522 20,989 - - - - - - - - - - - - (3) - 629 626 12,441 (2,476) 2,617 (1,337) (50) 12,593 741 24,529 (106) (104) (3,540) RESIMAC GROUP LTD2020 ANNUAL REPORT58 2020 ANNUAL REPORT 59 59 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) Current year recognised in profit or loss $’000 Opening balance $’000 Previously unrecognised in profit or loss $’000 Recognised directly in equity $’000 Recoup tax loss against tax liability $’000 Disposal of Paywise $’000 Closing balance $’000 3.5. Deferred Tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit. The measurement of DTLs and DTAs reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax liabilities (DTLs) are generally recognised 3.6. Current and Deferred Tax for the Year FY19 DT in relation to: Doubtful debts Plant, equipment and software Deferred mortgage insurance Employee entitlements Net provision for lease make good Other accrued expenses Blackhole expenditure Discount on loan Tax losses carried forward 1,199 2,170 374 1,461 446 1,173 60 2,405 701 - 964 368 (171) (88) 27 - (28) (264) 3 - (1,196) - (3) - (166) - (4) - Trail commission payable 11,356 (1,598) (2,667) Lease Liability Derivatives Shares Lease incentives 28 (5) - 30 64 5 (1,743) - - - 899 - - - - - - - - - (861) - - - - - - (12) - 4,111 82 358 (128) 1,069 - (69) - - - - - - - - 60 2,142 437 (1) 103 7,091 92 - 41 30 - - - - - - - - - - - 885 - 18,993 (3,425) (1,938) 3,055 (861) (209) 15,615 DT in relation to: Capitalised incentive commission Loans and advances Deferred bond issue cost Derivatives Unpaid superannuation 11,915 (3,339) 2,277 (1,176) - 1,368 (880) 455 712 (40) Trail commission receivable 17,266 (2,672) (2,790) - - - - - Accrued income and other (63) - 62 20 - 4 (1,199) - - - 26,880 (1,057) (2,728) (1,175) - - - - - - - - - - - - - - - - 10,513 (4,219) 2,736 (1,663) (40) 14,594 (1) 21,920 (7,887) (2,368) 790 4,230 (861) (209) (6,305) Recognition & Measurement Income tax expense represents the sum of the tax currently payable and deferred tax. 3.4. Current Tax Tax payable is based on taxable profit for the year. Taxable profit differs from ‘profit before tax’ as reported in the consolidated statement of profit or loss and other comprehensive income due to a mix of timing and non-assessable items. The Group's current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. for all taxable temporary differences. Deferred tax assets (DTAs) are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such DTAs and DTLs are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, DTLs are not recognised if the temporary difference arises from the initial recognition of goodwill. DTLs are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. DTAs arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of DTAs is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. DTLs and DTAs are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Current and deferred tax are recognised in the statement of comprehensive income, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. 3.7. Tax Effect Accounting by Members of the Tax Consolidated Group Resimac Group Ltd and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity Resimac Group Ltd, and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112 Income Taxes. In addition to its own current and deferred tax amounts, the head entity also recognised current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the Resimac tax consolidated group. RESIMAC GROUP LTD2020 ANNUAL REPORT60 60 RESIMAC GROUP LTD 61 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) 3.8. Nature of the Tax Funding Agreement Members of the Group have entered into a tax funding agreement. Under the funding agreement the allocation of tax within the Group is based on a group allocation. The tax funding agreement requires payments to/from the head entity to be recognised via an inter-entity receivable (payable) which is at call. The allocation of taxes under the tax funding agreement is recognised as an increase or decrease in the subsidiaries’ intercompany accounts with the tax consolidated group head company, Resimac Group Ltd. The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practical after the end of each financial year. Key Judgement The Group’s accounting for taxation requires management’s judgement in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the statement of financial position. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These depend on estimates of future income, operating costs, capital expenditure, dividends and other capital management transactions. Judgements and assumptions are also required about the application of income tax legislation. These judgements and assumptions are subject to risk uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the statement of financial position and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the consolidated statement of profit or loss and other comprehensive income. 3.9. COVID-19 Tax Relief During the year, the Group utilised the following Federal/State COVID-19 tax concessions: 1. Delayed PAYG Company Tax Instalments for FY20 until 1st December 2020: $12.2m 2. Victorian Payroll Tax relief: $0.07m 4. Cash & Cash Equivalents Cash at bank and on hand Cash collections account1 Restricted cash2 Reconciliation of profit after tax to the net cash flows from operating activities Profit after tax Non-cash items Depreciation and amortisation Depreciation charge of right-of-use assets Amortisation of bond issue costs Gain on derecognition of investment in Finsure, net of tax Gain on disposal of Paywise Fair value movement on interest rate swaps Loan impairment movement Net loss on disposal of non-current assets Present value of future trail commission income Present value of future trail commission expense Share-based payments expense Discount on mortgage (Increase)/decrease in assets Trade and other receivables Loans and advances Other assets Impairment allowance account Increase/(decrease) in liabilities Trade and other payables Current tax payable Interest-bearing liabilities Provisions Deferred tax liabilities Note FY20 $’000 FY19 $’000 27,757 10,566 336,730 212,723 1,500 1,501 22 365,987 224,790 56,007 47,185 2 2 2 2 2 1,032 1,920 8,517 - - 3,271 22,012 - 6,694 (2,104) 581 (442) 1,259 - 6,987 (4,067) (13,104) (419) 2,966 59 8,939 (4,924) 44 - 2,147 (3,389) (3,583,219) (1,718,453) 23 (2,254) (176) (537) (380) (7,126) 19,522 4,133 (13,007) (9,218) 168 (4,357) 20 1,403 Net cash flows used in operating activities (3,483,869) (1,688,418) 1 Cash collections account includes monies in the Special Purpose Vehicles and securitisation trusts on behalf of members in those Trusts and various clearing accounts. These funds are not available for operational use. 2 Cash held in trust as collateral. RESIMAC GROUP LTD2020 ANNUAL REPORT 62 2020 ANNUAL REPORT 63 63 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) Recognition & Measurement Cash comprises cash on hand and demand deposits. Cash Cash at bank earns interest at floating rates based on equivalents are short-term, liquid investments readily daily bank deposit rates. Short-term deposits are made convertible to known amounts of cash, not subject to for varying periods of between one day and three months, significant risk of changes in value, and have a maturity of depending on the immediate cash requirements of the three months or less at the date of acquisition. Group, and earn interest at the respective short-term deposit rates. 5. Trade & Other Receivables Current Fee and commission receivable Prepayments GST receivable Deferred consideration for sale of Paywise Sundry receivable Non-current Deferred consideration for sale of Paywise Recognition & Measurement Note 22 22 FY20 $’000 1,050 2,088 641 750 445 4,974 FY19 $’000 2,493 2,029 1,153 1,000 3,024 9,699 1,000 1,000 All receivables are derived from the normal course of Deferred consideration for sale of Paywise business. No maturity dates are specified as they are normally settled within twelve months. There are no long term outstanding receivables as at the reporting date. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment. Trade receivables are due from Australian financial institutions and management believe no risk exists to its collectability. Fee & Commission Receivable Under the terms of the sale of Paywise to Howjack Holdings Pty Ltd in April 2019, deferred consideration of two $1m instalments were payable in April 2020 and April 2021. Due to cashflow impacts resulting from COVID-19, the acquirer Howjack Holdings Pty Ltd requested the $1m instalment payable in April 2020 be delayed into quarterly $250,000 instalments. This deferred arrangement was granted on the condition no repayments would be made to secured lenders prior to all deferred consideration instalments are paid to the Group. The 1st instalment of $250,000 was received during the year. Upfront and trail commission have settlement terms of 30 days. This is initially recognised at the fair value of the Management believe the deferred consideration remains fully collectable at 30 June 2020. consideration receivable. Sundry Receivable This relates to amounts received within the SPV’s on the last day of the reporting period. 6. Loans & Advances Gross loans and advances Loans and advances Capitalised incentive costs Capitalised mortgage insurance costs Deferred mortgage fee Loans from related parties Less: allowance for impairment Current Non-current Impairment allowances Collective allowance Specific allowance Movement in impairment allowances Balance at 1 July Adoption of AASB 9 Acquisition of IA Group Provided for during the year § Specific § Collective Written off Balance at 30 June Note FY20 $’000 FY19 $’000 12,518,394 10,337,020 41,624 35,263 94 214 (17,400) (14,137) (2) (2) 12,542,710 10,358,358 (36,698) (16,445) 22 12,506,012 10,341,913 2,884,823 2,382,422 9,657,887 7,975,936 12,542,710 10,358,358 30,641 10,869 6,057 5,576 36,698 16,445 16,445 - 495 1,891 20,121 (2,254) 6,594 7,422 - 2,511 455 (537) 36,698 16,445 RESIMAC GROUP LTD2020 ANNUAL REPORT64 64 RESIMAC GROUP LTD 65 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) Recognition & Measurement All loans and advances are initially recognised at fair value plus directly attributable transaction costs, and subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any fees paid or received between parties to the contract that are an integral part of the effective interest rate, transactions costs, and all other premiums or discounts on acquisition, over the period to maturity. Gains and losses are recognised in the statement of comprehensive income when the loans and advances are derecognised or impaired, as well as through the amortisation process. Loans Past Due but Not Impaired Payment terms of these loans have not been renegotiated, however no further advances are provided until payment is made. The Group is in direct contact with relevant borrowers to enter into payment arrangements which will bring the account fully up to date within an acceptable period. For Prime Insured loans expected recoverable amounts are adjusted to reflect lower than 100% Lenders Mortgage Insurance (LMI) recovery where applicable e.g. due to costs associated with maintaining the security value within the terms of the LMI agreement (i.e. other than fair wear and tear). They are also reduced by the amount of higher rate (penalty) interest and fees related to loans in arrears which are not covered by LMI. Loans with payments outstanding less than one month are generally rectified by the borrower within a short period of time, i.e. within the same month. Loans in this category are less likely to be representative of loans with underlying repayment problems. Impairment & Provisioning AASB 9 requires an Expected Credit Loss model (ECL) at each reporting date to reflect changes in credit risk since initial recognition of the trade receivables. Impairment policy of loans and advances is included in Note 22. COVID-19 The long-term impact to the mortgage portfolio of the The COVID-19 provision overlay is based on the following COVID-19 pandemic remains difficult to forecast. The portfolio analysis: timeframe for the economy to return to pre pandemic levels is unknown, driving a sustained period of higher unemployment and lower GDP, which may impact property prices. § Segment the portfolio by Australia and NZ § Segment the portfolios by Prime and Specialist § Segment the Prime book by LMI and Non LMI loans § Segment Prime and Specialist portfolios by Dynamic The Group discloses expected future credit losses using LVR an expected credit loss (ECL) model, in line with AASB 9 requirements. The ECL model includes a base case macroeconomic forecast assuming the following: § A contraction in Australian GDP of 5-6% in 2020, with GDP growth of 4-5% in 2021, in line with April and June IMF forecasts § A decline of 10% in property prices in FY21, stabilising in FY22 and beyond The COVID-19 overlay was derived by analysing the hardship portfolio with three sequential steps: 1. Exclude mortgage insured (LMI) prime loans Prime loans originated at LVR 80% and above, are fully mortgage insured against default by the borrower. Mortgage insured loans who have applied for COVID-19 hardship payment moratoriums were excluded from § Unemployment rate to stabilise at c10-11% by Dec 2020. overlay calculations as the credit risk to the Group is Whilst the ECL model forecasts expected credit loss incorporating macroeconomic forecasts and portfolio performance over the previous 48 months, the ECL model does not include expected delinquencies from customers on COVID-19 hardship payment moratoriums. Regulatory guidance for lenders outlines customers under COVID-19 payment moratoriums were not considered in arrears during the moratorium. Due to payment moratoriums being applied to a wide range of customers and it was not linked specifically to credit assessments, these moratoriums are not indicators of a significant increase in credit risk in isolation. Consequently, the Group had to apply overlays separately for the purposes of determining whether a significant increase in credit risk has happened. minimal. 2. Stressing underlying security values by 10-20% Given the uncertainty of the impact of the pandemic on future property prices, the Group believe it is appropriate to incorporate potential future decline in property prices. Security stress bands were determined with the assistance of the Corelogic Hedonic Tiered Home Value Index (HVI). The HVI provides 12 month rolling average of historical price movements in Australian housing based on the 25%, 50%, and 75% quartile. The HVI indicates the 75% quartile (top 25% of house values) historically realise the largest swings in property values during periods of property value growth or decline. The bands used for stressing underlying security values are outlined The Group believe it prudent to raise a COVID-19 overlay in Note 23. given the ECL model does not fully capture credit risk of loans currently in hardship payment moratoriums related to the pandemic. The overlay at 30 June 2020 is $16.4m and is included as part of the Collective Provision in FY20. 3. Assume 33% of customers in hardship default For the purposes of the COVID-19 overlay, under a stressed property price scenario, the Group has assumed 33% of customers under a hardship payment moratorium at 30 June 2020 will default at some time in the future. The disclosure of COVID-19 overlay details are included in Note 23. RESIMAC GROUP LTD2020 ANNUAL REPORT66 2020 ANNUAL REPORT 67 67 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) Security Properties Repossessed As at 30 June 2020, the Group had exercised their right to liquidate 41 residential properties (FY19: 46) being the security for securitised loans. The Group intends to sell these properties with the proceeds to go towards clearing the Balance at the beginning of the period 8. Non-Current Assets: Right-of-Use Assets Additions1 Acquisition of IA Group Depreciation Foreign exchange Balance at 30 June 2020 Right-of-use assets at cost Less: accumulated depreciation Total right-of-use assets FY20 $’000 - 14,015 191 (1,920) (7) 12,279 14,256 (1,977) 12,279 FY19 $’000 - - - - - - - 1 Includes the right-of-use assets on transition to AASB 16 Leases as at 1 July 2019 and the additions during the year. Right-of-Use Assets Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The right-of-use assets are presented as a separate line in the consolidated statement of financial position. The Group applies AASB 136 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in Note 9. outstanding balance of the underlying loans. It is expected that the outstanding balance will be recovered in full (unless a Stage 3 specific provision has been raised against the specific loan). 7. Other Financial Assets Listed shares – BNK Banking Corporation Limited (ASX: BBC) Unlisted shares – Athena Unlisted shares – Positive Group Short-term investment Current Non-current Note 22 22 22 22 FY20 $’000 1,921 2,000 3,000 260 7,181 260 6,921 7,181 FY19 $’000 2,860 2,000 - 260 5,120 260 4,860 5,120 Listed Shares Unlisted Shares BNK represents an investment the Group intends to hold Investments that are not traded in an active market, for long term strategic purposes. As permitted by AASB however classified as fair value through profit or loss 9, the Group designated this investment at the date of (FVTPL) and disclosed at fair value at the end of each initial application as measured at fair value through other reporting period. comprehensive income. The accumulated fair value reserve related to this investment will not be reclassified to profit or loss. Dividends from this investment continue to be recognised in profit or loss as other income when the Group’s right to receive payment is established. At 30 June 2020, the Group held 4,468,902 shares in BNK at a share price of $0.43. The fair value testing conducted on the unlisted shares, included assessing the impact of COVID-19 on the current business models, and potential future impacts. The fair value assessments included comparisons against forecasted operating performance at time of investment. Short-Term Investment Term deposit with fixed or determinable payments and fixed maturity date which the Group has the intent and ability to hold to maturity. RESIMAC GROUP LTD2020 ANNUAL REPORT68 2020 ANNUAL REPORT 6969 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) 9. Plant & Equipment Carrying amounts of: Plant and equipment Balance at 1 July 2019 Additions Acquisition of IA Group Depreciation expense Foreign exchange Balance at 30 June 2020 Balance at 1 July 2018 Additions Disposals and write-offs Disposal of Paywise Depreciation expense Foreign exchange Balance at 30 June 2019 FY20 $’000 2,192 2,192 Plant and equipment at cost $’000 2,110 211 494 (622) (1) 2,192 FY19 $’000 2,110 2,110 Total $’000 2,110 211 494 (622) (1) 2,192 2,625 2,625 588 (56) (164) (884) 588 (56) (164) (884) 1 1 2,110 2,110 Recognition & Measurement Plant and equipment stated at cost less accumulated depreciation and impairment losses. Depreciation & Amortisation Depreciation is recognised to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The following useful lives are used in the calculation of depreciation: Leasehold improvement and office furniture Office machines and computer equipment Years 5 3-5 Derecognition Impairment An item of plant and equipment is At each reporting date, the Group reviews derecognised upon disposal or when no the carrying amounts of plant and equipment future economic benefits are expected to to determine whether there is any arise from the continued use of the asset. indication that those assets have suffered Any gain or loss arising on the disposal or an impairment loss. If any such indication retirement of an item of plant and equipment exists, the recoverable amount of the asset is determined as the difference between the is estimated to determine the extent of the sale proceeds and the carrying amount of the impairment loss (if any). asset and is recognised in profit or loss. 10. Other Assets Reinsurance claim receivable Other Current Non-current Recognition & Measurement Reinsurance Claim Receivable FY20 $’000 3,339 288 3,627 288 3,339 3,627 FY19 $’000 2,907 238 3,145 238 2,907 3,145 Prime Insurance Group Ltd was purchased as part of the RHG Mortgage Corporation Limited (RHG) acquisition in 2014. Its sole purpose is to provide insurance service and re-insurance facilities for the RHG mortgage assets and process any shortfall claims received. The reinsurance claim receivable is available to utilise against the reinsurance claim reserve amount in Note 16. RESIMAC GROUP LTD2020 ANNUAL REPORT70 70 RESIMAC GROUP LTD 2020 ANNUAL REPORT 71 71 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) 11. Goodwill & Intangible Assets Goodwill Balance at 1 July FY20 $’000 FY19 $’000 21,766 21,766 Additional amounts recognised from business combinations occurring in the current year 5,664 - Balance at 30 June Other intangible assets Balance at 1 July Additions Disposals and write offs Acquisition of IA Group Disposal of Paywise Amortisation for the year Balance at 30 June 27,430 21,766 1,691 68 - 114 - (410) 1,463 332 1,868 (2) - (132) (375) 1,691 Indicators of Impairment The minimum indicators of impairment have been considered by management. These include both Key Judgements & Assumptions The key assumptions used for assessing the recoverable amount of the Australian Lending Business internal and external sources of information such as: CGU are set out below: § significant changes (historical and future) in the market, economic, legal or technological environment which would have an adverse impact on the Group; § interest rate changes which impact the discount rate used in modelling; § evidence of a worsening financial position; § plans to discontinue operations; and § economic conditions as a result of COVID-19. Management have assessed that there are no such indicators which would impair the goodwill balance as at 30 June 2020. Inputs to Impairment Calculations Cash Flow Projections Growth rate for 4 year forecast period (p.a) FY20 FY19 5.3% 10.0% Discount rate (post-tax) 11.0% 11.0% Terminal growth rate 2.0% 2.0% The post-tax discount rate of 11% has been determined by estimating the cost of equity that applies to the Australian lending segment, and the terminal growth rate of 2% reflects management’s assumption of growth in profit before tax after four years. Management conducted the following when testing the impairment of goodwill: § considered the macroeconomic impact of COVID-19, For VIU calculations, cash flow projections are based and considered outcomes where future cash flows are on corporate plans and business forecasts prepared reduced or operating costs increase; by management and approved by the Board. Cash flow § the assumptions and cash flow forecasts used to test for Total goodwill and other intangible assets 28,893 23,457 projections are for four years and a terminal growth impairment include the potential impact of COVID-19; rate beyond this has been applied. § budgets, forecasts and other assumptions from 11.1. Goodwill Recoverable Amount of the Asset Goodwill arising on an acquisition of a business is carried at The recoverable amount is equal to the greater of: cost as established at the date of acquisition of the business (less accumulated impairment losses, if any). § fair value less costs to sell; and § value in use (‘VIU’). Impairment Testing It is not always necessary to determine both the fair value For the purposes of impairment testing, goodwill is allocated less cost to sell and its VIU. If either of these amounts exceed to each of the Group's cash-generating units (CGU’s or the carrying amount of the CGU, there is no impairment of groups of CGU’s) that is expected to benefit from the the goodwill and it is not necessary to estimate the other synergies of the combination. amount. A CGU to which goodwill has been allocated is tested for As a result, the VIU methodology is considered to be most impairment annually, or more frequently when there is an appropriate as there is no readily available market outside Impairment Assessment In assessing VIU, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the CGU. Goodwill arising from the business combination in the prior period of $21.7m has been allocated for impairment testing purposes to the Australian Lending Business segment. This segment is considered to be the CGU that is expected to benefit from the synergies of the business combination. The IA Group goodwill of $5.7m is considered a separate CGU, and the indication that the unit may be impaired. If the recoverable specific business sales of an equivalent sized business to the associated goodwill has been tested for impairment amount of the CGU is less than its carrying amount, the Australian Lending business segment. accordingly. impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. The VIU calculation requires management to estimate future Furthermore, each unit or group of units to which the cash flows expected to arrive from the CGU and a suitable goodwill is allocated shall: discount rate in order to calculate present value. For IA Group, management have determined that the fair value § represent the lowest level at which the goodwill is monitored for internal management purposes; and less cost to sell (FV) is considered most appropriate, as the § not exceed the operating segments. controlling interest was purchased at arms-length in the current financial year. The allocation of goodwill to these CGU’s is considered appropriate. previous impairment testing have been revised to reflect the economic conditions at the balance date, especially to address increased risk and uncertainty. In assessing the VIU for goodwill impairment assessment, the potential impact of COVID-19 on cash flows and profit growth have been considered under different scenarios: 1) Base case: Current management view of macroeconomic environment 2) Stress scenario: Assumes severe macroeconomic downturn, resulting in a sustained downturn in Resimac profitability of -5% CAGR over next 4 years. The stress scenario indicated sufficient headroom remains for goodwill impairment purposes. The volatility in the current financial markets due to COVID-19 introduces challenges as discount rates become more unpredictable. Discount rates ranging from 10-20% were applied on the base case and stress scenarios. RESIMAC GROUP LTD2020 ANNUAL REPORT72 2020 ANNUAL REPORT 73 73 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) Management note on the stress scenario and applied a 11.2. Other intangible assets discount rate of 20%, the recoverable amount of the CGU exceeded the recorded carrying value for the Australian Lending Business segment. For IA Group, using the Calibration methodology within the FV concept, management believe there are no indicators of impairment mainly due to the following: Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are § IA Group have outperformed initial NPAT expectations; reviewed at the end of each reporting period, with the and § robust portfolio management and cost controls are embedded to protect the business in the current COVID-19 macroeconomic environment. effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. Therefore, management believe potential impacts of COVID-19 have been adequately considered for goodwill Intellectual property impairment testing purposes at 30 June 2020. Impairment charge Based upon the impairment testing performed, there is no impairment charge for FY20 (FY19: nil). Software IA brand name Useful life 7 years 3-5 years 2 years 12. Trade & Other Payables Revenue collected in advance Collections owed to trusts Other creditors and accruals Commissions Note FY20 $’000 326 7,900 FY19 $’000 462 8,043 13,371 11,769 4,294 5,020 22 25,891 25,294 Current 25,891 25,294 Recognition & Measurement Trade creditors and other payables, are generally settled to the Group prior to the end of the financial year, are within 30 day terms and are unsecured. Trade creditors unpaid, and arise when the Group becomes obliged to and other payables are carried at amortised cost and make future payments in respect of the purchase of represent liabilities for goods and services provided these goods and services. Collections owed to trusts Other creditors and accruals Relates to loan repayments received from borrowers that Other creditors and accruals are unsecured payables reside in clearing accounts not yet allocated to a trust at relating to expenses arising in the ordinary course balance date. of business. They are usually paid within 30 days of recognition 13. Interest Bearing Liabilities Debt securities on issue Corporate debt facility Issuance facilities Debt securities on issue - related parties Current Non-current Note FY20 $’000 FY19 $’000 12,421,861 10,232,170 5,000 30,000 258,755 186,051 - 2,400 20 12,685,616 10,450,621 2,917,692 2,403,643 9,767,924 8,046,978 12,685,616 10,450,621 Recognition & Measurement All borrowings are initially recognised at fair value of the 13.1. Debt Securities on Issue consideration received less direct transaction costs, and subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts on acquisition, over the period to maturity. Gains or losses are recognised in the statement of profit or loss when the liabilities are derecognised and also through the amortisation process. For further detail on the amortised cost basis of accounting see Note 1 and 2. Details of the Group’s interest-bearing liabilities are set out in Note 22. Warehouse Facilities The warehouse facilities provide funding for the initial financing of loans and advances to customers within the warehouse Special Purpose Vehicles (SPV). Refer to Note 24 for the consolidation of the SPVs. The security for advances under these facilities is a combination of fixed and floating charges over all assets of the warehouse SPVs. If the warehouse facility is not renewed or should there be a default under the existing terms and conditions, the warehouse facility funder will not have a right of recourse against the remainder of the Group. Warehouse facilities are secured against the underlying mortgages only. During the financial year there were no breaches to the warehouse agreements. All warehouse facilities were renewed, at equal or higher limits, on or before their maturity date. RESIMAC GROUP LTD2020 ANNUAL REPORT74 74 RESIMAC GROUP LTD Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) Bonds RMBS provide duration funding for loans and advances (securitised assets) originated by the Group. The RMBS notes generally have a legal final maturity of 31.5 years from issue, and a weighted average life of up to 6 years. The RMBS SPV security is a combination of fixed and floating charges over all assets of the RMBS SPV. Credit losses arising from securitised assets will not result in the bondholders having a right of recourse against the Group (as Originator, Manager or Servicer). During the year ended 30 June 2020, AUD $3.47 billion of new Residential Mortgage Backed Securities (RMBS) and Medium Term Notes (MTNS) were issued (FY19: AUD $3.35 billion and NZD $250 million). These RMBS issuance paid down warehouse facilities creating capacity to underwrite new mortgages. During the financial year, there were no breaches to the terms of the RMBS. Collateral Certain RMBS and warehouse SPV’s are supported by cash collateral reserves. 13.2. Corporate Debt Facility As at 30 June 2020, the Company had a $30 million corporate facility with National Australia Bank maturing in September 2021. The Group had an undrawn balance of $25 million at 30 June 2020 (FY19: $10 million). In accordance with the terms of the Group’s corporate debt facilities, the Group is required to comply with certain covenants. During the period and as at 30 June 2020, the Group was compliant with these covenants. The corporate debt facility is secured by a first-ranking charge over the trust assets of the Group. See Note 23.7 for further detail. 13.3. Issuance Facilities The Group maintains a series of subsidiary SPV’s for the purpose of raising financing for its RMBS-related credit risk retention (“CRR”) obligations. CRR is a mandatory requirement for the Group’s RMBS issuance activities in the U.S., European, Japanese and U.K. jurisdictions where, in general, the Group is required to hold an economic interest of at least 5% in value of an RMBS issuance. The subsidiary SPV’s hold a 5% vertical strip of bonds of an individual RMBS issuance and raises secured financing from banks and credit investors. 13.4. Debt Securities on Issue - Related Parties In line with its ordinary course of business, the Group issues debt securities to related party investors. A performance guarantee in respect to timely payment of interest and principal on these debt securities is provided. Subordinated notes in one controlled entity (SPV), which were held by a related party is nil as at 30 June 2020 (FY19: $2,400,000). 75 FY19 $’000 - - - - - - - - - - - - - FY20 $’000 - 14,803 497 618 (2,289) (7) 13,622 1,566 12,056 13,622 1,920 618 (2,289) 2,224 10,322 3,688 16,234 14. Lease Liabilities Lease liabilities included in the Statement of Financial Position Balance as at 1 July 2019 Addition1 Acquisition of IA Group Interest incurred Payment of lease liabilities Foreign exchange Balance as at 30 June 2020 1 Includes the lease liabilities on transition to AASB 16 Leases as at 1 July 2019 and the additions during the year. Current Non-current Amounts recognised in Statement of Comprehensive Income Depreciation charge of right-of-use assets Interest expense on lease liabilities Amounts recognised in Statement of Cash Flows Total cash outflows for leases Maturity analysis – contractual undiscounted cashflows Less than one year One to five years More than five years Total undiscounted lease liabilities as at 30 June 2020 RESIMAC GROUP LTD2020 ANNUAL REPORT76 2020 ANNUAL REPORT 77 77 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) 14.1. Leases The lease liability is subsequently measured by increasing Policies applicable prior to 1 July 2019 The Group has applied AASB 16 using the cumulative catch-up approach and therefore comparative information has not been restated and is presented under AASB 117. The details of accounting policies under both AASB 117 and AASB 16 are presented separately below. Policies applicable from 1 July 2019 The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group recognises the the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability and makes a corresponding adjustment to the related right-of-use asset whenever: Leases are classified as finance leases whenever the terms Minimum lease payments made under finance leases of the lease transfer substantially all the risks and rewards are apportioned between the finance expense and the of ownership to the lessee. All other leases are classified as reduction of the outstanding liability. The finance expense operating lease. Payments made under operating leases are recognised in the profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. § The lease term has changed or there is a significant integral part of the total lease expense, over the term of event or change in circumstances resulting in a change the lease. in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. 15. Other Financial Liabilities lease payments as an operating expense on a straight- § The lease payments change due to changes in an line basis over the term of the lease unless another index or rate or a change in expected payment under systematic basis is more representative of the time a guaranteed residual value, in which cases the lease Present value of future trail commission payable pattern in which economic benefits from the leased liability is remeasured by discounting the revised lease assets are consumed. payments using an unchanged discount rate The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If the rate cannot be readily determined, the lessee uses its incremental borrowing rate. § A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification. The Group did not make any such adjustments during the Lease payments included in the measurement of the year presented. lease liability comprise: § Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable; § Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date § The amount expected to be payable by the lessee under residual value guarantees; § The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and § Payments to penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease The lease liability is presented as a separate line in the consolidated statement of financial position. Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in “Other expenses” in profit or loss (see note 2). The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised. Note FY20 $’000 FY19 $’000 20,797 22,901 22 20,797 22,901 5,750 7,032 15,047 15,869 20,797 22,901 Current Non-current Recognition & Measurement The Group makes trail commission payments to mortgage originators based on monthly loan balances outstanding. Initial Recognition Fair value of future trail commission payable is recognised on the origination of white label loans. This represents the NPV of the expected future trail commission payable under the origination and management agreement, less ongoing servicing costs not covered by transaction fees. Subsequent Payment Subsequent to initial recognition, the future trail commission payable is measured at amortised cost. The carrying amounts of the trail commissions payable are adjusted to reflect actual and revised estimated cash flows by recalculating the carrying amount through computing the present value of estimated future cash flows at the effective interest rates. The resulting adjustment is recognised as income or expense in the statement of comprehensive income. A remeasurement of the underlying cash flows relating to the trail commission payable occurs at each reporting date. Key Estimates & Assumptions Refer to Note 1 for the key estimates and judgements underlying the remeasurement of the estimated future cash flows. RESIMAC GROUP LTD2020 ANNUAL REPORT78 2020 ANNUAL REPORT 7979 Notes to the Consolidated Financial Statements Key Numbers (for the year ended 30 June 2020) 16. Other Liabilities Reinsurance claim reserve Non-Current The reinsurance claim reserve offsets with the reinsurance claim receivable amount in Note 10. 17. Provisions Employee benefits Make good Other Current Non-current Employee benefits $'000 Make good $'000 Balance at 1 July 2019 Additional provisions recognised 3,571 1,859 Reductions resulting from remeasurement or settlement without cost (1,389) Acquisition of IA Group Balance at 30 June 2020 75 4,116 414 100 - - 514 FY20 $’000 3,339 3,339 FY19 $’000 2,907 2,907 3,339 2,907 FY20 $’000 4,116 514 - FY19 $’000 3,571 414 65 4,630 4,050 3,902 728 4,630 Other $'000 65 - 3,305 745 4,050 Total $’000 4,050 1,959 (65) (1,454) - - 75 4,630 Recognition & Measurement Provisions are recognised when: § the Group has a present obligation (legal or constructive) as a result of a past event; § it is probable that the Group will be required to settle the obligation; and Liabilities recognised in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of employee § a reliable estimate can be made of the amount of benefits which are not expected to settle within 12 the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the months are measured at the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to the reporting date. reporting period, taking into account the risks The liability for long service leave is recognised in and uncertainties surrounding the obligation. the provision for employee benefits. It is measured When a provision is measured using the cash flows as the present value of expected future payments estimated to settle the present obligation, its for the services provided by employees up to the carrying amount is the present value of those cash reporting date. flows (when the effect of the time value of money is material). 17.1. Employee Benefits A liability is recognised for benefits accruing to employees in respect of: § wages and salaries; § annual leave; § long service leave; and § on-costs relating to the above where the liability can be measured reliably and payment is probable. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows. 17.2. Make Good Where a condition of the Group’s lease premises is to return the property in its original condition at the end of a lease term. The Group recognises a provision for the make good as the expected cost of the refurbishment at the end of the lease. RESIMAC GROUP LTD2020 ANNUAL REPORT80 80 RESIMAC GROUP LTD 81 Notes to the Consolidated Financial Statements Capital for the year ended 30 June 2020 18. Capital Management The Group’s Capital Management Objectives The Group manages its capital to ensure that entities The capital structure of the Group consists of net debt 19. Dividends Declared and paid during the period (fully franked at 30 percent) Final dividend for FY19: $0.010 (FY18: $0.009) Special dividend for FY19: $0.005 (FY18: Nil) Interim dividend for HY20: $0.012 (Interim FY19: $0.01) Proposed and unrecognised as a liability (fully franked at 30 percent) Final dividend for FY20: $0.018 (FY19: $0.01) in the Group will be able to continue as a going concern (borrowings as detailed in Note 13 offset by cash and Special dividend for FY20: Nil (FY19: $0.005) while maximising the return to stakeholders through the bank balances) and equity of the Group (comprising optimisation of the debt and equity balance. issued capital, reserves, retained earnings and non- controlling interests as detailed in Note 20). Franking credit balance The Group operates a warehouse to securitisation funding model for its lending business and as such makes The Group is not subject to any externally imposed decisions on the amount of capital invested in the notes capital requirements. or warehouses based on alternate sources of funding and the expected return on amounts invested and with regard to the Company's cost of capital. The Board is responsible for monitoring and approving the capital management framework within which management operates. The purpose of the framework is to prudently manage capital whilst optimising the debt and equity structure. Franking credits available for future years at 30% adjusted for the payment of income tax and dividends receivable or payable Impact on the franking account of dividends proposed before the financial report was issued but not recognised as a distribution to equity holders during the period. Issued capital Reserves Retained earnings The Group manages its capital through various means, including: § adjusting the amount of ordinary dividends paid to shareholders; § maintaining a dividend reinvestment plan; § raising or repaying capital; and § reinvesting profits. Note 20 20 20 FY20 $’000 FY19 $’000 120,354 119,007 (7,556) (7,197) 128,694 84,314 241,492 196,124 20. Issued Capital & Reserves Share capital Reverse acquisition reserve1 1 As a result of reverse acquisition accounting, an equity account was created as a component of equity. This account called ‘Reverse acquisition reserve’ is similar in nature to share capital. The Reverse acquisition reserve is not available for distribution. Issued capital as at 30 June 2020 was $181,895,006 (407,449,337 ordinary shares). During the period, the Company issued 1,059,184 shares for $1,017,019 in respect of the Resimac Dividend Reinvestment Plan (DRP), and 600,000 shares for $510,000 to satisfy exercise of employee share options. FY20 $’000 FY19 $’000 4,058 3,594 2,029 - 4,879 4,001 10,966 7,595 7,334 - 7,334 4,058 2,029 6,087 19,170 17,312 (3,143) (2,609) FY20 $’000 FY19 $’000 181,895 180,548 (61,541) (61,541) 120,354 119,007 RESIMAC GROUP LTD2020 ANNUAL REPORT82 2020 ANNUAL REPORT 8383 Notes to the Consolidated Financial Statements Capital (for the year ended 30 June 2020) 20.1. Fully Paid Ordinary Shares 20.2. Reserves (Net of Income Tax) and Retained Earnings Balance at 1 July 2018 Issue of shares under a dividend reinvestment plan Balance at 30 June 2019 and 1 July 2019 Issue of shares under the DRP: § FY19 Dividend on 30 September 2019 § HY20 Dividend on 27 March 2020 Exercise of options – proceeds received No. of shares – Thousands $’000 399,348 177,340 6,442 3,208 405,790 180,548 789 270 600 693 324 330 Balance at 30 June 2020 407,449 181,895 Fully paid ordinary shares, which have no par value, carry one vote per share and carry a right to dividends. Treasury shares Treasury shares held in Resimac Group Ltd by Resimac EST Pty Ltd as Trustee for the Resimac Group Limited Employee Share Trust, are for the benefit of eligible employees of the Resimac Group Employee Share Option and Rights Plan. Shares issued to employees are recognised on a first-in-first-out basis. Balance at 30 June 2019 and 1 July 2019 Subscription of shares by the Trust (average price: $0.85 per share) Allocation of shares under LTI#1 Balance at 30 June 2020 No. of shares – Thousands - 600 $’000 - 510 (600) (510) - - Reserves Cash flow hedge reserve $'000 Foreign currency translation reserve $'000 Retained earnings $'000 Fair value reserve $'000 Share- based payment reserve $'000 Other reserve $'000 Non- controlling interest $'000 Balance at 1 July 2018 49,937 (3,041) Adoption of AASB 9, net of income tax (5,213) - Adjusted balance as at 1 July 2018 44,724 (3,041) Profit after tax 47,185 - Changes in fair value of cash flow hedges, net of tax Currency translation differences Fair value movement on investment through OCI, net of tax Equity dividends Share-based payments - - - (7,595) - (2,835) - - - - (13) - (13) - - 669 - - - - - - - - - (2,065) - - Balance at 30 June 2019 84,314 (5,876) 656 (2,065) Balance at 1 July 2019 84,314 (5,876) 656 (2,065) Adoption of AASB 16, net of income tax (339) - - - Adjusted balance as at 1 July 2019 83,975 (5,876) 656 (2,065) Profit after tax 55,908 Acquisition of non-controlling interest Changes in fair value of cash flow hedges, net of tax Currency translation differences Fair value movement on investment through OCI, net of tax Equity dividends Share-based payments Option to acquire shares of subsidiary Reallocation - - - - (10,966) - - (223) - - 365 - - - - - - - - - (504) - - - - - - - - - (657) - - - 223 43 - 43 - - - - - 45 88 88 - 88 - - - - - - 402 - - - - - - - - - - - - - - - - - - - - - - (188) - - - - - - - - - - - - - - 99 99 - (4) - - - - - Balance at 30 June 2020 128,694 (5,511) 152 (2,499) 490 (188) 194 RESIMAC GROUP LTD2020 ANNUAL REPORT84 84 RESIMAC GROUP LTD 85 Notes to the Consolidated Financial Statements Capital (for the year ended 30 June 2020) 20.3. Nature & Purpose of Reserves of the Group's New Zealand operations Calculation of Earnings Per Share from its functional currency to the Group's presentation currency are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. Share-based payment reserve The share-based payments reserve is used to recognise the value of equity- settled share-based payments provided to employees, including KMP, as part of their remuneration. Refer to Note 31 for further details of these plans. 20.4. Retained earnings See Note 19 in respect of payment of dividends. Cash flow hedge reserve The cash flow hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash flow hedges. The cumulative gain or loss arising on changes in fair value of the hedging instruments will be reclassified to profit or loss only when the hedged transaction affects the profit or loss, or included as a basis adjustment to the non- financial hedged item, consistent with the Group’s accounting policy. Foreign currency translation reserve Exchange differences relating to the translation of the results and net assets 21. Earnings Per Share FY20 $’000 FY19 $’000 Profit attributable to ordinary equity holders of the parent ($'000) 55,908 47,185 WANOS1 used in the calculation of basic EPS (shares, thousands) 406,536 401,433 Dilutive effect of shares options 1,100 241 WANOS1 used in the calculation of diluted EPS (shares, thousands) 407,636 401,674 Earnings per share Basic (cents per share) Diluted (cents per share) 1 Weighted average number of shares 21.1. Basic Earnings Per Share § From 27 March 2020 to 11 May 2020 (51,134,070) Basic earnings per share is calculated as net profit attributable to the ordinary equity holders of the parent, adjusted to exclude any costs of servicing w The number of Resimac shares on issue (406,578,693) at 26 March 2020; plus w Additional shares issued on 27 March 2020 under equity (other than dividends), divided by the WANOS the DRP (270,644) adjusted for any bonus element. 21.2. Diluted Earnings Per Share Diluted earnings per share is calculated by: § dividing the net profit attributable to ordinary equity holders of the parent; by the: multiplied by the ratio of days outstanding (46/366). § From 12 May 2020 to 30 June 2020 (55,662,478) w The number of Resimac shares on issue (406,849,337) at 11 May 2020; plus w Additional shares issued on 27 March 2020 under § WANOS outstanding during the year, plus the LTI (600,000) § the WANOS that would be issued on the multiplied by the ratio of days outstanding conversion of all the dilutive potential ordinary (50/366). options or rights into ordinary shares. 21.3. Calculation of WANOS Twelve months to 30 June 2020 Twelve months to 30 June 2019 The number of Resimac shares issued: § From 1 July 2018 to 11 October 2018 (112,692,648) The number of Resimac Group shares issued: The number of Resimac ordinary shares on issue § From 1 July 2019 to 29 September 2019 (100,893,180) The number of Resimac ordinary shares on issue of 405,790,153 multiplied by the ratio of days outstanding (91/366); plus § From 30 September 2019 to 26 March 2020 (198,845,864) w The number of Resimac shares on issue (405,790,153) at 29 September 2019; plus of 399,347,732 multiplied by the ratio of days outstanding (103/365); plus § From 12 October 2018 to 24 March 2019 (179,788,553) w The number of Resimac shares on issue (399,347,732) at 11 October 2018; plus w Shares issued on 12 October 2018 under the DRP (791,425) multiplied by the ratio of days outstanding w Additional shares issued on 30 September 2019 (164/365). 13.75 13.72 11.75 11.75 under the DRP (788,540) multiplied by the ratio of days outstanding (179/366). § From 25 March 2019 to 30 June 2019 (108,951,877) w The number of Resimac shares on issue (400,139,157) at 24 March 2019; plus w Additional shares issued on 25 March 2019 under the DRP (5,650,996) multiplied by the ratio of days outstanding (98/365). RESIMAC GROUP LTD2020 ANNUAL REPORT86 2020 ANNUAL REPORT 8787 Notes to the Consolidated Financial Statements Risk for the year ended 30 June 2020 22. Financial Assets & Financial Liabilities The Group holds the following financial instruments: Financial assets Cash and cash equivalents Trade and other receivables Loans and advances Short-term investment Investment securities – BNK FVOCI-equity instrument Investment securities – Athena Investment securities – Positive Group Derivative financial assets FVTPL FVTPL FVTPL Basis of measurement Amortised cost Amortised cost Note 4 5 FY20 $’000 FY19 $’000 365,987 224,790 5,974 10,699 Amortised cost 6 12,506,012 10,341,913 Amortised cost 7 7 7 7 260 1,921 2,000 3,000 260 2,860 2,000 23 52,592 56,575 12,937,746 10,639,097 Financial liabilities Trade and other payables Interest-bearing liabilities Amortised cost 12 25,891 25,294 Amortised cost 13 12,685,616 10,450,621 Present value of trail commission payable Amortised cost Derivative financial liabilities FVTPL 15 23 20,797 22,901 3,277 1,565 12,735,581 10,500,381 22.1. Fair Values Measurements & Valuation Processes 22.1.1. Fair Value Hierarchy The different levels have been defined as follows: § Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; § Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and § Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The following assets and liabilities are measured at fair value by the Group for financial reporting purposes: Financial assets Listed shares - BNK Banking Corporation Limited (ASX: BBC) Unlisted shares - Athena Unlisted shares - Positive Interest rate swaps Cross currency swaps Financial liabilities Interest rate swaps Fair value hierarchy Level 1 Level 3 Valuation technique(s) and key input(s) Most recent traded price and other available market information Recent acquisition value, recent transactions and other available information FY20 $’000 1,921 FY19 $’000 2,860 2,000 2,000 Level 3 Acquisition value within 12 months of year end and other available information 3,000 - Level 2 Level 2 Discounted cash flow Forward interest rates, contract interest rates Discounted cash flow Forward interest rates, contract interest rates 3,330 2,775 49,262 53,800 Level 2 Discounted cash flow Forward interest rates, contract interest rates 3,277 1,565 In the year to 30 June 2020 there has been no change 22.2. Financial assets and liabilities in the fair value hierarchy or the valuation techniques 22.2.1. Recognition and initial measurement applied to any of the balances above. For further information on the use of derivatives refer to Note 23 Financial risk management. 22.1.2. Fair value of financial assets and liabilities that are not measured at fair value (but fair value disclosures are required) With the exception of the future trail commission payable that is initially recognised at fair value and subsequently carried at amortised cost, management consider that the carrying amounts of financial assets and liabilities recognised in the consolidated financial statements approximate their fair values. Loans and advances and receivables (including trade and other receivables, bank balances and cash) are non- derivative financial assets with fixed or determinable payments that are not quoted in an active market which are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or finance liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. RESIMAC GROUP LTD2020 ANNUAL REPORT88 2020 ANNUAL REPORT 89 89 Notes to the Consolidated Financial Statements Risk (for the year ended 30 June 2020) 22.2.2. Classification & Subsequent Measurement All financial assets not classified as measured at In assessing whether the contractual cash 22.2.2.4. Financial Assets – Subsequent measurement 22.2.2.1. Financial assets On initial recognition, a financial asset is classified as measured at: § amortised cost § fair value through other comprehensive income (FVOCI) – debt instrument § fair value through other comprehensive income (FVOCI) – equity instrument § fair value through profit or loss (FVTPL) Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day amortised cost or FVOCI as described above are measured as FVTPL. This includes all derivative financial assets and investment securities. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or subsequently reduces an accounting mismatch that would otherwise arise. 22.2.2.2 Financial assets – Business model assessment The Group determines the business model at the level that reflects how groups of financial assets are managed. In determining the business model, all relevant evidence that is available at date of assessment is used including: of the first reporting period following the change in the § how the performance of the financial assets held within business model. that business model are evaluated and reported to the Group’s KMP § the risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way in which those risks are managed; and flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amounts of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers: § contingent events that would change the amount or timing of cash flows; § terms that may adjust the contractual coupon rate, including variable-rate features; § prepayment and extension features; and § terms that limit the Group’s claim to cash flows from specified assets (e.g. non- recourse features). A prepayment feature is consistent with the solely payments of principal and A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: § it is held within a business model whose objective is to hold assets to collect contractual cash flows; and § its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: § it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and § its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by- investment basis. § how managers of the business are compensated (for interest criterion if the prepayment amount example, whether compensation is based on the fair value of the assets managed or on the contractual cash flows collected). Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL. 22.2.2.3. Financial assets – Assessment whether contractual cash flows are solely payments of principal and interest For the purpose of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin. substantially represent unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition. and gains and losses Financial assets at FVTPL Financial assets at amortised cost Debt investments at FVOCI Equity investments at FVOCI These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. However, see Note 23.3 for derivatives designated as hedging instruments. These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment loss. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. These assets are subsequently measured at fair value. Interest income is calculated using the effective interest method. Other net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. These assets are subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss. RESIMAC GROUP LTD2020 ANNUAL REPORT90 90 RESIMAC GROUP LTD 91 Notes to the Consolidated Financial Statements Risk (for the year ended 30 June 2020) 22.2.2.5. Financial liabilities – Classification, accordance with the Group’s documented subsequent measurement and gains and risk management or investment strategy, losses Financial liabilities are classified as either and information about the grouping is provided internally on that basis; or financial liabilities at FVPTL or other financial § it forms part of a contract containing one liabilities. Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL or more embedded derivatives, and AASB 9 permits the entire combined contract to be designated as at FVTPL. where the liability is either held for trading or Financial liabilities at FVTPL are stated at designated at fair value through profit or loss. fair value with any gains or losses arising on A financial liability is held for trading if: remeasurement recognised in profit or loss. The net gain or loss recognised in profit or § it has been incurred principally for the loss incorporates any interest paid on the purpose of repurchasing it in the near term; financial liability and is included in the ‘other or gains and losses' line item. § on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit- taking; or § it is a derivative that is not designated and effective as a hedging instrument. A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if: § such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or § the financial liability forms part of a group of financial assets or financial liabilities or Other financial liabilities Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter both, which is managed and its performance period, to the net carrying amount on initial evaluated on a fair value basis, in recognition. 22.2.3. Derecognition 22.2.3.1. Financial assets The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantively all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. The Group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised. 22.2.3.2. Financial liabilities 22.2.4. Offsetting Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. 22.2.5. Impairment of financial assets The Group recognises loss allowances for expected credit loss (ECL) on: § Financial assets measured at amortised cost § Contract assets § Lease receivable The Group measures loss allowances for a financial instrument at an amount equal to the lifetime ECL for stage 2 or stage 3 assets if the credit risk on that financial instrument has increased significantly since recognition, or if the financial instrument is a The Group derecognises a financial liability purchased or originated credit-impaired financial when its contractual obligations are discharged asset. If the credit risk on a financial instrument has or cancelled, or expire. The Group also not increased significantly since initial recognition derecognises a financial liability when its terms (except for a purchased or originated credit- are modified and the cash flows of the modified impaired financial asset), the Group measures liability are substantially different, in which case the loss allowance for that financial instrument a new financial liability based on the modified at an amount equal to a 12 month ECL for stage 1 terms is recognised at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss. assets. The Group applies a simplified approach for measuring the loss allowance at an amount equal to lifetime ECL for trade receivables, contract assets and lease receivable in certain circumstances. RESIMAC GROUP LTD2020 ANNUAL REPORT92 2020 ANNUAL REPORT 93 93 Notes to the Consolidated Financial Statements Risk (for the year ended 30 June 2020) Significant increase in credit risk § observable changes in national or local An asset moves to stage 2 when its credit risk has increased significantly since initial recognition. When determining whether the credit risk of a financial asset has increased significantly since the initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information. As part of the forward-looking assessment, the Group has considered factors including macro-economic forecast and outlook, GDP growth, unemployment rates and interest rates. Credit-impaired financial assets The movement between stage 2 and 3 will be based on whether financial assets are credit- impaired at the reporting date. 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 assets have occurred. Evidence that a financial asset is credit-impaired includes the following observable data: § significant financial difficulty of the borrower; or § breach of contract, such us a default or delinquency in interest or principal payments; or § it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or § past experience of collecting payments; or § an increase in the number of delayed payments in the portfolio past the average credit period; or economic conditions that correlate with default on receivables. Definition of default The Group considers that default has occurred at 90 days past due. Measurement of ECLs ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). The key inputs used in measuring ECL include: a) probability of default: the PD is the likelihood of default, applied to each underlying exposure b) loss given default: the LGD is the magnitude of the expected credit loss in the event of default, taking into consideration the mitigating effect of collateral assets and time value of money c) exposure at default: the EAD represents the estimated exposure in the event of a default The ECL is determined with reference to the following stages: Stage 1: 12 month ECL At initial recognition, for financial assets without a significant increase in credit risk (SICR), or for financial assets where an increase in credit risk is considered to be low, ECL is determined based on PD over the next 12 months, adjusted for forward looking estimates (FLE). Stage 2: Lifetime ECL not credit impaired Where there has been a SICR, the ECL is determined with reference to the financial asset’s lifetime PD and the lifetime losses associated with that PD, adjusted for FLE. The Group assesses whether there has been a SICR since initial recognition based on qualitative, quantitative, and reasonable and supportable FLE that includes management judgement. Use of more alternative criteria could result in significant changes to the timing and amount of ECL to be recognised. Lifetime ECL is generally determined based on the average maturity of the financial asset. Stage 3: Lifetime ECL credit impaired Financial assets are classified as stage 3 where they are determined to be credit impaired, which generally matches the Group’s definition of default which includes exposures that are at least 90 days past due, and where the obligor is unlikely to pay without recourse against available collateral. The ECL for credit impaired financial assets is generally measured as the difference between the discounted contractual and discounted expected cash flows from the individual exposure. For credit impaired exposure that are modelled collectively, ECL is measured as the product of the lifetime PD, LGD, and EAD, adjusted for FLE. Interest income is determined with reference to the financial asset’s amortised cost carrying value, being the financial asset’s net carrying value after the ECL provision. Stage 3: Impaired Assets Outside of the ECL, where assets are more than 90 days past due and a shortfall between the loan balance and the underlying security has been identified, a specific provision is raised for the shortfall. RESIMAC GROUP LTD2020 ANNUAL REPORT94 94 RESIMAC GROUP LTD 95 Notes to the Consolidated Financial Statements Risk (for the year ended 30 June 2020) 23. Financial Risk Management 23.1. Financial Risk Management Objectives The Group's Corporate Treasury function: § implements and executes treasury and funding strategy; § co-ordinates access to domestic and international financial markets; and § monitors and manages the financial risks relating to the operations of the Group through internal monitoring tools which analyse exposures by degree and magnitude of risks. These risks include: § market risk (including currency risk and interest rate risk); § economic risk; § interest rate risk; § credit risk; and § liquidity risk. 23.2. Derivative Financial Instruments The Group seeks to minimise the effects of currency and interest rate risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives is governed by the Group's Interest Rate Risk Management Policy approved by the board of directors, which provide written principles on: § foreign exchange risk; § interest rate risk; § credit risk; § the use of financial derivatives and non-derivative financial instruments; and § the investment of excess liquidity. Compliance with policies and exposure limits is reviewed by the Board on a continuous basis. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative or proprietary purposes. The table below summarises the Group’s exposure to financial risks and how these risks are managed. Risk Exposure arising from Measurement Management Market risk - currency Recognised financial assets and liabilities not denominated in Australian dollars Cash flow forecasting Cross currency interest rate swaps Foreign currency denominated profit or losses Sensitivity analysis Cash flow management and matching Market risk - interest rate Mismatch in interest rates between assets and liabilities Investments in equity securities Sensitivity analysis Sensitivity analysis Interest rate swaps Equity investments not held for trading Market risk – equity investment valuation Credit risk Mortgage portfolio and funding SPV-level exposures, counterparty risk Credit risk analysis Liquidity risk Borrowings, derivative financial liabilities Rating agency criteria and analyses Rolling cash flow forecasts Diversification, adaptive capital structures, strong collections/portfolio management, rating agency provisions in transactions documents Availability of committed credit lines and borrowing facilities, securitisation, capital relief transactions, structuring terms of obligations Recognition & Measurement Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. RESIMAC GROUP LTD2020 ANNUAL REPORT96 2020 ANNUAL REPORT 97 97 Notes to the Consolidated Financial Statements Risk (for the year ended 30 June 2020) 23.3. Hedge Accounting 23.3.1. Cash Flow Hedges 23.4. Market Risk The Group designates certain hedging instruments, The effective portion of changes in the fair value of Market risk is the risk of an adverse impact on the Group’s which includes derivatives in respect of foreign currency derivatives that are designated and qualify as cash flow earnings resulting from changes in market factors, such risk, as cash flow hedges. hedges is recognised in other comprehensive income as interest rates and foreign exchange rates. At the inception of the hedge relationship the Group documents the relationship between the hedging instrument and hedged item, along with its risk management objectives and its strategy for undertaking and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective 23.4.1. Interest Rate Risk portion is recognised immediately in profit or loss and is Interest rate risk is the risk that the Group will experience included in the other expenses or other income line item. deterioration in its financial position as interest rates below. change over time. principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the cash flow exposures on the issued variable rate debt. The fair value of interest rate swaps at the end of the reporting period is determined by discounting the future cash flows using the curves at the end of the reporting period and the credit risk inherent in the contract, and is disclosed various hedge transactions. Amounts previously recognised in other comprehensive Furthermore, at the inception of the hedge and on profit or loss, in the same line as the recognised hedged mismatches between assets and liabilities (i.e. borrowing Derivative financial liabilities income and accumulated in equity are reclassified to Interest rate exposure is driven by interest rate Fair value liability FY20 $’000 3,277 FY19 $’000 1,565 an ongoing basis, the Group documents whether the item. hedging instrument that is used in a hedging relationship is effective in offsetting changes in fair values or cash Hedge accounting is discontinued when: at floating interest rates and lending with fixed interest rates). Interest rate risk is managed by entering into The following table details the notional principal amounts interest rate swaps subject to the Group’s hedging and outstanding at the end of the reporting period: § the Group revokes the hedging relationship; derivatives policies. flows of the hedged item attributable to the hedged risk, which is when the hedging relationships meet all of the following hedge effectiveness requirements: § there is an economic relationship between the hedged item and the hedging instrument; § the hedging instrument expires or is sold, terminated, or exercised; or § the Group no longer qualifies for hedge accounting. § the effect of credit risk does not dominate the value Any cumulative gain or loss recognised in other changes that result from that economic relationship; comprehensive income and accumulated in equity at and § the hedge value is largely reflective of the hedged item. that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is Note 22.1 sets out the details of the fair values of the recognised immediately in profit or loss. derivative instruments used for hedging purposes. 23.3.2. Derivative Financial Assets & Liabilities The carrying values are as follows: Derivative financial assets Cross currency swaps Interest rate swaps Derivative financial liabilities Interest rate swaps FY20 $’000 FY19 $’000 49,262 53,800 3,330 2,775 52,592 56,575 3,277 3,277 1,565 1,565 23.4.2. Interest Rate Risk – Sensitivity Analysis Notional principal value The majority of the Group’s liabilities are issued through Less than 1 year warehouse facilities and term securitisations in special purpose and bankruptcy-remote entities. Under such arrangements, the repayment profile of the bonds is matched to the repayments collected from the loan 1 to 2 years 2 to 5 years assets. FY20 $’000 - FY19 $’000 633 24,280 33,096 503,503 390,498 527,783 424,227 The Group has calculated the impact of a potential increase or decrease in borrowing costs in limited recourse entities for the year in the event of a +/- 10bps change in interest rates as shown in the table below: 10bps +/- FY20 $’000 FY19 $’000 Borrowing costs 12,669 10,402 23.4.3. Interest Rate Swap Contracts The interest rate swaps settle and reset on a monthly basis. The floating rate on the interest rate swaps is the Bank Bill Swap Rate (BBSW) local interbank rate. The Group will settle the difference between the fixed and floating interest rate on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges. The interest rate swaps and the interest payments on the loan occur simultaneously and the amount accumulated in equity Under interest rate swap contracts, the Group agrees is reclassified to profit or loss over the period that the to exchange the difference between fixed and floating floating interest rate payments on debt affect profit or rate interest amounts calculated on agreed notional loss. RESIMAC GROUP LTD2020 ANNUAL REPORT98 98 RESIMAC GROUP LTD 2020 ANNUAL REPORT 99 99 Notes to the Consolidated Financial Statements Risk (for the year ended 30 June 2020) 23.4.4. Corporate Interest – Sensitivity Analysis 23.6. Credit Risk Management The remainder of the Group’s loan portfolio and liabilities are held in corporate entities. The impact of a potential +/- The Group’s primary credit risk exposures relate 10bps change in interest rates on interest revenue and borrowing costs on balances held by the Group for the year is set to its lending activities in its principally-funded The Group’s approach to credit management utilises a credit risk framework to ensure that the following principals are adhered to: out in the table below: 10bps +/- Impact on corporate interest revenue Interest rate + 10bps Interest rate - 10bps Impact on corporate funding costs Interest rate + 10bps Interest rate - 10bps FY20 $’000 366 (366) (5) 5 FY19 $’000 225 (225) (30) 30 23.4.5. Equity Price Risk 23.5. Foreign Currency Risk Equity investments in listed and unlisted shares are held 23.5.1. Accounting Translation for strategic rather than trading purposes. The Group does not actively trade these investments. As at reporting date the Group held cash assets denominated in New Zealand dollars (NZD). 23.4.6. Equity Investment Valuation Risk – Sensitivity Analysis Fluctuations in the NZD are not expected to have material impact on the consolidated statement of profit If equity prices had been 10% higher / lower: or loss or the consolidated statement of comprehensive § Net profit for the year ended 30 June 2020 would increase / decrease by $500,000 as a result of the changes in fair value of the investments in unlisted shares (FY19: $200,000); and 23.5.2. Market Risk – Foreign Exchange on Monetary Items The Group obtains funding denominated in foreign § Other comprehensive income would increase / currencies, consequently, exposures to exchange rate decrease by $192,000 as a result of the changes in fair fluctuations arise. These currencies include USD. The value of investments in listed shares (FY 19: $286,000). Group manages foreign currency risk through the use of currency derivatives. The carrying amounts of the Group’s foreign currency denominated assets and liabilities are as follows: Assets FY20 $’000 FY19 $’000 USD liabilities (disclosed in AUD) 49,262 53,800 mortgage portfolio. The Group’s primary lending § independence from risk originators; activities are concentrated in the Australian and New Zealand residential mortgage market. The underlying credit risk in the Group’s lending activities is commensurate with a geographically- diverse residential mortgage portfolio. The Board of Directors is responsible for determining the Group’s overall appetite for credit § recognition of the different risks in the various Group businesses; § credit exposures are systematically controlled and monitored; § credit exposures are regularly reviewed in accordance with current up-to-date credit procedures; and risk and monitoring the quality and performance § credit exposures include such exposures arising of the mortgage portfolio. The credit risk from derivative transactions. management operational framework and policy is governed and managed by the Credit Committee. Each of the divisions are responsible for managing credit risks that arise in their own The Group does not have any direct counterparty areas with oversight from a centralised credit risk credit exposure arising from its asset financing management team. It is the policy of the Group to and securitisation activities. Counterparty risk is monitor the policies of all divisions to ensure that governed, and mitigated where required, by ratings the risk of the Group is monitored. agency criteria within the bankruptcy-remote funding SPVs and trusts including exposures to 23.6.2 Exposure to credit risk banks, lender’s mortgage insurance providers and Loans and advances consist of a large number of derivative counterparties. customers, spread across diverse demographic and geographical areas. Ongoing credit evaluation is performed on the financial condition of loans and The Group has established lending policies and advances and accounts receivable. procedures to manage the credit risk inherent in lending. The extent of credit risk in the Group’s lending activities is managed within its two origination and funding programmes, being ‘Prime’ and ‘Specialist Lending’. The Group maintains separate credit policies for each programme and regularly reviews and amends policies in line with economic, operating and funding conditions. There is no significant concentration of risk to any single counterparty. The credit risk on wholesale funding and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. income and equity of the Group. 23.6.1. Credit Risk in Lending RESIMAC GROUP LTD2020 ANNUAL REPORT100 2020 ANNUAL REPORT 101 101 Notes to the Consolidated Financial Statements Risk (for the year ended 30 June 2020) 23.6.3. Maximum Exposure to Credit Risk 23.6.5. Credit Risk Management The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s exposure to The following table summarises the movement in expected credit loss for loans and advances for the reporting period: Note FY20 $’000 FY19 $’000 Maximum exposure to credit risk 4 365,987 224,790 Balance as at 30 June 2020 Stage 1 - Collective $'000 Stage 2 - Collective $'000 Stage 3 - Collective $'000 Stage 3 - Impaired $'000 Total $’000 credit risk at the reporting date was: Cash and cash equivalents Trade and other receivables Short-term investment Derivative financial assets 5 7 5,974 10,699 260 260 23 52,592 56,575 424,813 292,324 Loans and advances at amortised cost – balances subject to credit risk 6 12,518,394 10,337,020 12,943,207 10,629,344 As at 30 June 2020, 100% of the Group’s cash and cash equivalents are held with banks or financial institutions with a credit rating of AA- or better (FY19: 100%). 23.6.3.1. Residential Mortgage Borrowers due from borrowers until securities are enforced or The Group manages credit risk by obtaining security over residential mortgage property for each loan. an insurance claim has been paid and to purchase the mortgage from the lender if the Group is in default. The Group’s risk in this area is mitigated by insurance policies In monitoring the credit risk, loans are grouped and a rigorous credit assessment process. according to their credit characteristics using credit risk classification systems. This includes the use of the 23.6.4. Financial Guarantees Loan to Value Ratio (LVR) to assess its exposure to credit The Group is exposed to credit risk in relation to financial risk from loans originated through the securitisation guarantees given to banks. The Group's maximum programme. For white label loans, some agreements with lenders exposure in this respect is the maximum amount the Group could have to pay if the guarantees are called on. The Group does not have any financial guarantees as at contain provisions requiring the Group to pay instalments 30 June 2020 (FY19: $nil). Loans and advances § Mortgage lending § Commercial lending Total Balance as at 1 July 2019 Loans and advances § Mortgage lending § Commercial lending Total Expected credit loss Balance as at 30 June 2020 Loans and advances § Mortgage lending § Commercial lending Total Balance as at 1 July 2019 Loans and advances § Mortgage lending § Commercial lending Total 12,433,112 45,248 22,826 16,571 12,517,757 637 - - - 637 12,433,749 45,248 22,826 16,571 12,518,394 10,237,618 50,406 24,334 23,170 10,335,528 676 - - 816 1,492 10,238,294 50,406 24,334 23,986 10,337,020 25,864 2,441 2,335 6,057 36,697 1 - - - 1 25,865 2,441 2,335 6,057 36,698 7,016 1,750 2,103 - - - 7,016 1,750 2,103 5,122 454 5,576 15,991 454 16,445 RESIMAC GROUP LTD2020 ANNUAL REPORT102 102 RESIMAC GROUP LTD 2020 ANNUAL REPORT 103 103 Notes to the Consolidated Financial Statements Risk (for the year ended 30 June 2020) In line with regulatory guidance, loans on a COVID-19 hardship payment moratorium at 30 June 2020 are not deemed in 23.6.7. Analysis of Loans & Advances by Past Due Status arrears. This includes loans in arrears prior to the commencement of payment moratoriums. For Collective Provision ECL purposes, arrears position at 31st March 2020 were used for loans in COVID-19 hardship payment moratoriums. Collateral Held The value of the collateral held as security for loans in Loans are secured by the Group by having the property stage 2 and stage 3 collective at 30 June 2020 is $94.5 titles registered as a financial interest that provide the million (The value of collateral held as security for loans Group first priority over any proceeds becoming available Under the Group’s monitoring procedures, a significant increase in credit risk is identified before the exposure has defaulted and at the latest when exposure becomes 30 days past due. The table below provides an analysis of the gross carrying amount of loans and advances by past due status that are over 30 days past due. past due but not impaired at 30 Jun 2019: $102.4 million). from the sale of the property. For Prime insured loans, Loans and advances at amortised cost1 The value of the collateral held as security for loans in stage 3 specific loans at 30 June 2020 is $12.0 million (The value of collateral held as security for impaired loans at 30 Jun 2019: $19.8 million). LMI policies exist to cover 100% of the principal amount at default plus interest. 23.6.6. Credit Risk Concentrations An analysis of the Group’s credit risk concentrations on loans and advances is provided in the following table. The amounts in the table represent gross carrying amounts: Loans and advances at amortised cost Concentration by region New South Wales Victoria Queensland Western Australia South Australia Tasmania Northern Territory New Zealand Total FY20 $’000 FY19 $’000 4,673,307 3,995,742 3,584,565 2,854,342 2,064,167 1,669,597 918,803 775,892 609,674 455,629 90,275 74,682 48,984 40,030 528,619 471,106 12,518,394 10,337,020 FY20 $’000 FY19 $’000 0 days and less than 30 days 12,438,670 10,242,482 30 days and less than 60 days 35,313 39,805 60 days and less than 90 days 10,038 11,995 90 days and less than 180 days 14,487 14,151 180 days and less than 270 days 270 days and less than 365 days 4,746 2,145 6,538 3,983 365 days and over 12,995 18,066 Total 12,518,394 10,337,020 1 Includes loans that are collectively and specifically provided for RESIMAC GROUP LTD2020 ANNUAL REPORT104 2020 ANNUAL REPORT 105 105 Notes to the Consolidated Financial Statements Risk (for the year ended 30 June 2020) 23.6.8. Movement in Credit Exposures Provision for impairment losses Balance as at 1 July 2019 Net transfer between stages Net re-measurement of opening balance net of transfers Impact of transfers between stages and re-measurement Net financial assets originated Acquisition of IA Group Movements in existing individually assessed provisions and write-backs Write-offs COVID-19 overlay Discharges/Other Balance as at 30 June 2020 Credit exposure Stage 1 - Collective $'000 Stage 2 - Collective $'000 Stage 3 - Collective $'000 Stage 3 - Impaired $'000 Total $’000 7,016 1,143 1,750 (958) 2,103 (699) 5,576 16,445 514 - (563) 1,342 1,465 1,470 3,714 580 384 766 1,984 3,714 2,789 200 - - 15,882 (602) 25,865 112 44 - - - 475 (280) 2,441 - - - 23 (601) 2,335 - 295 384 2,945 495 384 (2,254) (2,254) - 72 16,380 (1,411) 6,057 36,698 Balance as at 1 July 2019 10,238,294 50,406 24,334 23,986 10,337,020 Net transfers between stages and financial assets originated 2,195,455 (5,158) (1,508) (5,161) 2,183,628 Write-offs - - - (2,254) (2,254) Balance as at 30 June 2020 12,433,749 45,248 22,826 16,571 12,518,394 COVID-19 Overlay Refer to note 6 for COVID-19 overlay methodology driving calculations in the following tables. Table 1: CoreLogic stratified hedonic index (lower quartile, middle and upper quartile values and value movements by capital city) HVI Bandings ($) Change in value1, 12 months ending April 2019 (%) Lower Mid Upper Lower Mid Upper Sydney Melbourne Brisbane Adelaide Perth Hobart $664,872 $545,552 $379,042 $336,170 $344,977 $381,910 $885,158 $686,798 $508,386 $441,184 $443,669 $486,056 $1,345,850 $959,515 $681,657 $584,972 $598,483 $628,860 (9%) (11%) (12%) (4%) (8%) (14%) (2%) (2%) (2%) 1% 1% 0% (9%) (8%) (8%) 8% 5% 1% 1 Canberra and Darwin change in value data not available in CoreLogic Hedonic Index. Table 2: Resimac COVID-19 underlying security stress bands (by HVI Banding and State) HVI Bandings ($) Forecast increase (%) Lower Mid Upper Lower Mid Upper NSW VIC QLD SA WA TAS NT ACT $664,872 $545,552 $379,042 $336,170 $344,977 $381,910 $283,314 $518,631 $885,158 $686,798 $508,386 $441,184 $443,669 $486,056 $393,939 $637,279 $1,345,850 $959,515 $681,657 $584,972 $598,483 $628,860 $505,513 $791,254 (10%) (10%) (10%) (10%) (10%) (10%) (10%) (10%) (15%) (15%) (15%) (15%) (15%) (15%) (15%) (15%) (20%) (20%) (20%) (20%) (20%) (20%) (20%) (20%) Table 3: Resimac Loans in COVID-19 hardship payment moratoriums – Stressed Security Values (by LVR) Hardship Loans - Dynamic LVR (Stressed ) ($'000) LVR Banding <60% 60% - 70% 70% - 80% 80% - 90% 90% - 95% 95% - 100% 100% + Total Prime LMI 17,838 14,441 13,290 26,244 20,243 29,327 90,763 Prime No LMI 54,758 39,974 86,153 Specialist LMI Specialist No LMI 7,924 3,169 1,514 71,038 61,043 116,071 114,942 590 175,555 49,256 33,004 74,521 - - 99,684 82,032 2,737 191,351 NZ2 11,242 18,102 48,408 23,157 1,078 - - Legacy LMI Total 32,138 194,938 5,133 5,401 3,311 2,541 1,677 9,328 141,862 270,837 343,799 172,802 146,040 368,700 212,146 452,608 15,934 796,774 101,987 59,529 1,638,978 2 NZ LVRs based on most recent valuation, NZ securities were not stressed for the purpose of the COVID overlay. RESIMAC GROUP LTD2020 ANNUAL REPORT106 106 RESIMAC GROUP LTD 107 Notes to the Consolidated Financial Statements Risk (for the year ended 30 June 2020) Table 4: Resimac COVID-19 Provision Overlay – assuming 33% of loans with Stressed LVR >100% default COVID-19 Overlay - By State and HVI Band ($'000) Upper No Banding State NSW VIC QLD WA SA NT ACT TAS New Zealand Total Lower 449 130 51 82 - - 28 - - Mid 2,931 1,587 700 573 163 45 - 28 - 1,517 2,411 2,962 1,388 924 131 - - - 740 6,027 9,333 - - - - - - - - 280 280 Total 4,897 4,128 3,713 2,043 1,087 176 28 28 280 16,380 Table 5: Resimac Loans in Hardship vs Overall Portfolio Prime - LMI Prime – No LMI Specialist - LMI Specialist – No LMI NZ / Legacy / Other Overall Portfolio ($'000) AUM Hardship 1,964,590 6,333,512 72,791 2,967,961 1,179,539 212,146 452,608 15,934 796,774 161,516 Total 12,518,394 1,638,978 % 11% 7% 22% 27% 14% 13% The Group analysed the industry type of the primary borrower of loans in COVID-19 hardship moratoriums. A lack of concentration risk exists in the portfolio industry type. Furthermore, it is difficult to predict probability of defaults for each particular industry. Therefore, the Group has not segmented the book by industry type for the purpose of the COVID-19 overlay. The industry type of the primary borrower segmented by Prime and Specialist loans are detailed in table 6. Table 6: Resimac COVID-19 Hardship Loans - Employment Industry Type (Primary Borrower) Air Building & Construction Hospitality Not identified Legal, Projects, IT & Communications Marketing, Media & Sales Transport & Safety Other professional services Health, Medicine, Science & Research Engineering, Plumbing & Electrical Financial Services Social Services Agriculture, Mining, Machinery, Manufacturing Leisure – Beauty, Events, Tourism, Arts Other Real Estate & Property Retail, Textiles Prime LMI 1% 9% 4% 12% 16% 6% 6% 8% 7% 4% 5% 6% 5% 3% 3% 3% 2% Prime No LMI Specialist LMI Specialist No LMI 2% 8% 4% 3% 16% 11% 6% 8% 10% 4% 7% 6% 2% 3% 6% 2% 2% 1% 21% 7% 8% 13% 7% 7% 5% 4% 5% 4% 2% 2% 6% 3% 3% 2% 0% 17% 9% 7% 18% 6% 6% 4% 6% 4% 4% 2% 1% 7% 5% 2% 2% 100% 100% 100% 100% 23.7. Liquidity Risk Management Ultimate responsibility for liquidity risk management The majority of the Group’s liabilities represent bonds rests with the Board of Directors, which has established issued by special purpose trusts through warehouse an appropriate liquidity risk management framework for facilities and term securitisation transactions. Under the management of the Group's short, medium and long- such arrangements, bondholder recourse is limited to term funding and liquidity management requirements. the assets of the relevant special purpose trust to which The Group’s funding platform currently comprises a mix of: § warehouse facilities; § term securitisation; § a secured corporate debt facility; and § cash. the liability relates and the repayment profile of the bonds is matched to the repayments collected from the loan assets. Given the limited recourse nature of these borrowings, $12.42 billion at 30 June 2020 (FY19: $10.23 billion), they have not all been included in the table below. RESIMAC GROUP LTD2020 ANNUAL REPORT108 2020 ANNUAL REPORT 109 109 Notes to the Consolidated Financial Statements Risk (for the year ended 30 June 2020) The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Note 23.7.2 below sets out details of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk. 23.7.1. Liquidity Risk Tables The following table shows the Group's remaining expected maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay and hence will not necessarily reconcile with the amounts disclosed in the statement of financial position. The tables include both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which the Group may be required to pay. <6 months or on demand $'000 6-12 months $'000 1-3 years $'000 3-5 years $'000 >5 years $'000 Total cash flows $'000 Carrying amount $'000 Financial liabilities FY20 Non-derivatives Trade and other payables 25,891 Interest-bearing liabilities § Corporate debt facility § Issuance facilities Present value of future trail commissions payable 3,115 2,635 7,053 3,671 4,323 20,797 20,797 29,034 2,635 12,053 262,426 4,323 310,471 310,443 Derivatives 3,277 - - - - 3,277 3,277 32,311 2,635 12,053 262,426 4,323 313,748 313,720 <6 months or on demand $'000 6-12 months $'000 1-3 years $'000 3-5 years $'000 >5 years $'000 Total cash flows $'000 Carrying amount $'000 FY19 Non-derivatives Trade and other payables 25,294 - Interest-bearing liabilities § Corporate debt facility § Issuance facilities § Loans from related parties Present value of future trail commissions payable - - - - - - 186,051 - - - - - 25,294 25,294 30,086 30,000 186,051 186,051 2,400 2,400 86 30,000 - - - 2,400 3,806 3,043 8,277 3,951 3,824 22,901 22,901 29,186 35,443 8,277 190,002 3,824 266,732 266,646 Derivatives 1,565 - - - - 1,565 1,565 30,751 35,443 8,277 190,002 3,824 268,297 268,211 - - - - 5,000 - - - 258,755 - - - 25,891 25,891 5,028 5,000 258,755 258,755 23.7.2. Financing Facilities Secured corporate debt facility which may be extended by mutual agreement § Amount used § Amount unused 28 - FY20 $’000 5,000 FY19 $’000 30,000 25,000 10,000 30,000 40,000 RESIMAC GROUP LTD2020 ANNUAL REPORT110 110 RESIMAC GROUP LTD Notes to the Consolidated Financial Statements Group Structure for the year ended 30 June 2020 24. Subsidiaries Details of the Group’s subsidiaries at the end of the reporting period are as follows: Proportion of ownership interest held and voting power held by the Group Place of incorporation and operation FY20 % FY19 % Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 99.9 100 100 100 100 100 100 100 100 100 100 100 60 60 60 100 100 100 100 99.9 100 100 100 100 100 - - 100 100 100 100 - - - Name of subsidiary Controlled Companies Access Network Management Pty Ltd Auspack Financial Services Pty Ltd Principal activity Mortgage manager Mortgage broker Barnes Mortgage Management Pty Ltd Mortgage originator and manager Clarence Street Finance Pty Ltd Holder of commission agreements Clarence Street Funding No.1 Pty Ltd Clarence Street Funding No.2 Pty Ltd Clarence Street Funding No.3 Pty Ltd Clarence Street Funding No.4 Pty Ltd Clarence Street Funding No.6 Pty Ltd Clarence Street Funding No.7 Pty Ltd Clarence Street Funding No.8 Pty Ltd1 Clarence Street Funding No.9 Pty Ltd2 FAI First Mortgage Pty Ltd Homeloans Pty Ltd Housing Financial Services Pty Ltd Independent Mortgage Corporation Pty Ltd International Acceptance Investment Pty Limited3 International Acceptance Holdings Pty Limited3 Special purpose vehicle Participation unit holder Special purpose vehicle Special purpose vehicle Special purpose vehicle Special purpose vehicle Special purpose vehicle Special purpose vehicle Trust manager and servicer Mortgage lender Mortgage originator Mortgage broker Holding company Holding company International Acceptance Pty Limited3 Financial service management 1 Incorporated 21 August 2019. 2 Incorporated 18 October 2019. 3 Acquired 1 January 2020, Refer to Note 25. 111 Proportion of ownership interest held and voting power held by the Group Place of incorporation and operation FY20 % FY19 % Name of subsidiary (continued) Principal activity Controlled Companies Evergreen Finance Company Pty Limited3 Financial service management IA Structured Finance Pty Limited3 Consumer and commercial lending Australia Australia International Acceptance (NZ) Limited3 Consumer and commercial lending New Zealand IASF (NZ) Limited3 Consumer and commercial lending New Zealand Parnell Road Funding No.1 Limited Special purpose vehicle New Zealand Parnell Road Funding No.2 Limited Special purpose vehicle New Zealand Prime Insurance Group Limited RESIMAC Capital Markets Pty Ltd LMI captive insurer Trust manager Bermuda Australia RESIMAC Financial Services Limited NZ Holding company New Zealand RESIMAC Financial Securities Limited NZ Trust manager and servicer New Zealand RESIMAC Home Loans Ltd NZ Lender of record and trustee New Zealand RESIMAC Limited Non-bank lender Australia RESIMAC NZ Home Loans Ltd NZ Holding company New Zealand Unit Holder Lender of record Mortgage trustee Trust servicer Initial Trustee Australia Australia Australia Australia Australia Dormant New Zealand Dormant New Zealand Dormant Dormant Dormant Dormant Dormant Dormant Australia Australia Australia Australia Australia Australia Dormant New Zealand Dormant Dormant Australia Australia Dormant United Kingdom Resimac Premier Warehouse No.1 Pty LTD4 RHG Mortgage Corporation Ltd4 RHG Mortgage Securities Pty Ltd (RMS)4 The Servicing Company Pty Ltd RESIMAC EST PTY LTD5 0508 Home Loans Ltd 0800 Home Loans Ltd Access Home Loans Pty Ltd Clarence St Funding No.5 Pty Ltd Fiduciary Services Pty Ltd HLL Pty Ltd6 Loan Packaging Australia Pty Ltd National Mutual Pty Ltd RESIMAC Financial Securitisation Ltd RESIMAC Financial Services Pty Ltd RESIMAC Leasing Pty Ltd RESIMAC (UK) Ltd7 3 Acquired 1 January 2020, Refer to Note 25. 4 Ownership interest is 0% but Board control. 5 Incorporated 12 February 2020. 6 Deregistered 17 November 2019. 7 Deregistered 17 September 2019. 60 60 60 60 100 100 100 100 100 100 100 100 100 - - - 100 100 100 100 100 99.9 100 - 100 100 100 100 100 - - - - - 100 100 100 100 100 100 100 100 100 - - - 100 - 100 100 100 99.9 100 100 100 100 100 100 100 100 RESIMAC GROUP LTD2020 ANNUAL REPORT112 2020 ANNUAL REPORT 113 113 Notes to the Consolidated Financial Statements Group Structure (for the year ended 30 June 2020) Name of subsidiary (continued) Principal activity Place of incorporation and operation FY20 % FY19 % Controlled Trusts Avoca Master Trust Issuer of RMBS Australia NZF Mortgages Warehouse A Trust Warehouse mortgages New Zealand RESIMAC Bastille Master Trust8 RESIMAC Triomphe Master Trust8 RESIMAC Versailles Master Trust RESIMAC Victoire Trust RHG Mortgage Securities Trust RMT Warehouse Trust No.2 RMT Securitisation Trust No.78 Issuer of RMBS Issuer of RMBS Australia Australia Issuer of RMBS New Zealand Warehouse mortgages New Zealand Issuer of RMBS Warehouse mortgages Issuer of RMBS Australia Australia Australia Australia International Acceptance Trust11 Consumer and commercial lending The Trustee for the Resimac Group Limited Employee Share Trust9 Employee share trust Australia RESIMAC NIM Master Trust10 Dormant Australia 8 This does not represent holding in capital units, percentage ownership represents control of these Trusts. 9 Incorporated 24 February 2020. Ownership interest is 0% however the Group have Board control. 10 Deregistered 21 November 2019. 11 Acquired 1 January 2020, Refer to Note 25. 100 100 100 100 100 100 100 100 100 60 - 100 100 100 100 100 100 100 100 100 100 - - 100 Special purpose entities – securitised trusts and funding warehouses Special purpose entities are those entities over which § conduct securitisation activities funded by short term the Group has no ownership interest but in effect the warehouse facilities provided by reputable lenders; and substance of the relationship is such that the Group controls the entity so as to obtain the majority of the benefits from its operation. The Group has established special purpose entities to support the specific funding needs of the Group’s securitisation programme with the aim to: § hold securitised assets and issue Residential Mortgage Backed Securities. The special purpose entities meet the criteria of being controlled entities under AASB 10 – Consolidated Financial Statements. 25. Acquisition of Subsidiary 25.1. Accounting for Business Combinations The Group accounts for business combinations using the acquisition method when control is transferred to the The fair value of the purchase consideration is $6.0m which resulted in the acquisition of two instruments: Group. The consideration transferred in the acquisition § 60% interest in the equity interest in the IA is generally measured at fair value, as are the identifiable Group; and § An option to acquire the remaining 40% for additional consideration of $8.0m Purchase Consideration Base equity value for 60% of issued shares Option to acquire remaining 40% Consideration paid for shares and option $'000 5,812 188 6,000 Consideration for Option The option that entitles Resimac to acquire 40% for $8.0m is recognised within equity at the fair value of the option in the consolidated financial statements. The option does not give rise to deferred or contingent consideration. Refer to note 20.2 for further details. net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on bargain purchase is recognised in profit or loss immediately. Transaction costs incurred in connection with a business combination are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. 25.2. Details of Acquisition On 1 January 2020 Resimac acquired 60% of the issued share capital of IA Group for $6.0m, with an option to acquire the remaining 40% for $8.0m expiring on 31 December 2021. IA Group is a finance company participating in both secured commercial and consumer lending. IA Group has an on balance sheet portfolio of over $50 million and is involved in all aspects of the lending cycle including origination, underwriting, servicing, treasury and collections. The investment is in line with Resimac’s diversification strategy and facilitates expansion into new secured asset classes. RESIMAC GROUP LTD2020 ANNUAL REPORT114 114 RESIMAC GROUP LTD 115 Notes to the Consolidated Financial Statements Group Structure (for the year ended 30 June 2020) The assets and liabilities recognised as a result of the acquisition Acquired loans receivable are as follows: Assets Cash at bank Trade and other receivables Loans and advances Other assets Plant and equipment Right-of-use assets Intangible assets Total assets Liabilities Trade and other payables Provisions Interest-bearing liabilities Lease liability Deferred tax liability Total liabilities Fair value of identified net assets Less: Non-controlling interest Add: goodwill Cash consideration Fair value $'000 1,087 175 54,085 73 494 191 114 56,219 (1,295) (75) (54,001) (497) (104) (55,972) 247 (99) 5,664 5,812 Subsequent to the acquisition accounting, goodwill becomes subject to impairment tests which are undertaken at least annually, or if and when there are indicators that goodwill maybe impaired. The fair value of acquired loans receivables is $54,085,000. The gross contractual amount for loans receivable due is $54,580,000, with a loan loss provision of $495,000 recognised on acquisition. Accounting policy choice for non- controlling interests The Group recognises non-controlling interests in an acquired entity either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. This decision is made on an acquisition-by-acquisition basis. For the non-controlling interests in IA Group, the Group elected to recognise the non-controlling interests at its proportionate share of the acquired net identifiable assets. Revenue and profit contribution IA Group contributed revenue of $3,096,837 and net profit of $247,940 to the Group for the period from 1 January to 30 June 2020. If the acquisition had occurred on 1 July 2019, consolidated pro-forma revenue and profit for the year ended 30 June 2020 would have been $6,242,015 and $747,263 respectively. Acquisition-related costs Acquisition-related costs of $134,975 not directly attributable to the acquisition are included in other expenses in the statement of profit or loss, and in operating cash flows in the statement of cash flows. Notes to the Consolidated Financial Statements Unrecognised Items for the year ended 30 June 2020 26. Commitments & Contingencies Group as lessor Operating and finance lease commitments Within one year Greater than one year but not more than five years FY20 $’000 393 388 781 FY19 $’000 622 725 1,347 Recognition & Measurement 26.1. Capital Commitments 26.2. Contingent Liabilities The Directors were not aware of any capital Lease Guarantees commitments as at the end of the financial year or arising since balance date. The Group has provided guarantees in respect of the leases over its premises of $1,415,351 (FY19: $931,921). The Directors were not aware of any other contingent liabilities as at the end of the financial year or arising since balance date. RESIMAC GROUP LTD2020 ANNUAL REPORT116 2020 ANNUAL REPORT 117 117 Notes to the Consolidated Financial Statements Unrecognised Items (for the year ended 30 June 2020) 27. Subsequent Events 27.1. Final Dividend Declared The Board of Resimac Group Ltd declared a fully franked final dividend of $0.018 per share. The Record Date is 28 August 2020. The payment date will be 25 September 2020. The dividend has not been provided for in this financial report. Other than the above, there have been no circumstances arising since 30 June 2020 that have significantly affected or may significantly affect: a) The operations b) The results of those operations, or c) The state of affairs of Group in future financial years. 27.2. Funding Programmes The RESIMAC Bastille 2020-1NC transaction was settled on 30 July 2020 and is a domestic non-conforming issue with a total issuance size of $1 billion equivalent. Notes to the Consolidated Financial Statements Other for the year ended 30 June 2020 28. Auditor’s Remuneration Fees of the auditors of the Company for: Deloitte Touche Tohmatsu Audit or review of the financial statements FY20 $ FY19 $ 915,864 995,729 Statutory assurance services required by legislation to be provided by the auditor AFSL audit 13,650 7,350 Other assurance and agreed-upon procedures under other legislation or contractual arrangements RMBS issuance services Other services Other advisory services 275,608 227,000 174,704 30,000 Total remuneration of Deloitte Touche Tohmatsu 1,379,826 1,260,079 Non Deloitte Touche Tohmatsu audit firms Audit of the financial statements Tax compliance Other advisory services Total remuneration of Non Deloitte Touche Tohmatsu audit firms 10,000 - 177,648 265,200 94,500 - 282,148 265,200 28.1. Non-Audit Services The auditor of the Group is Deloitte Touche Tohmatsu The total non-audit services fees of $450,312 represents (Deloitte). It is the Group’s policy to employ Deloitte 32.6% of the total fees paid or payable to Deloitte and on assignments additional to its statutory audit duties, related practices for the year ended 30 June 2020 (FY19: in compliance with the Group’s independence policies, $257,000). where Deloitte’s expertise and experience with the Group are important. RESIMAC GROUP LTD2020 ANNUAL REPORT118 118 RESIMAC GROUP LTD 119 Notes to the Consolidated Financial Statements Other (for the year ended 30 June 2020) 29. Related Party Transactions Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. Trading Transactions During the year, Group entities entered into the following trading transactions with related parties that are not members of the Group: Associates of Resimac Group Ltd1 Amounts incurred to Director's related entities2 Revenue received Expenses paid FY20 $'000 - - - FY19 $'000 - - - FY20 $'000 FY19 $'000 - (2,836) (123) (123) (267) (3,103) 1 Broker commission and sponsorship fees paid to Finsure Group, who ceased as an associate of the Group effective 17 September 2018. 2 Includes interest paid on debt securities on issue to Bermuda Commercial Bank Limited. This interest rate is charged at market related terms. Sales to related parties occur at arm’s length on commercial terms in the ordinary course of business in accordance with the terms and conditions outlined in the relevant commercial agreements with each party. The following balances were outstanding at the end of the reporting period: Other related parties of Resimac Group Ltd1 Amounts owing to Director's related entities2 Amounts owed by related parties Amounts owed to related parties FY20 $'000 13,176 - FY19 $'000 5,780 - 13,176 5,780 FY20 $'000 - - - FY19 $'000 - 2,400 2,400 1 Includes residential mortgages to KMP or related parties lent in ordinary course of business at arm’s lengths. 2 Debt securities on issue to Bermuda Commercial Bank Limited. Terms on this instrument are market related. Amounts owed by related parties are secured and will be settled in cash. No guarantees have been given or received. No expense has been recognised in the current or prior years for bad or doubtful debts in respect of the amount owed by related parties. Compensation of KMP The remuneration disclosures of directors and other members of KMP during the year are provided in sections one to nine of the remuneration report on pages 12 to 23 of this financial report designated as audited and forming part of the directors’ report. The remuneration disclosures is for Resimac KMP only as presented in the Remuneration report. KMP compensation FY20 $'000 FY19 $'000 Short-term benefits 2,422,142 2,577,944 Post-employment benefits 102,087 127,138 Long-term benefits 310,595 91,527 Termination benefits - 302,058 Share-based payments 346,928 44,882 3,181,752 3,143,549 The remuneration of directors and KMP is determined by the Remuneration and Nomination Committee having regard to the performance of individuals and market trends. RESIMAC GROUP LTD2020 ANNUAL REPORT120 2020 ANNUAL REPORT 121121 Notes to the Consolidated Financial Statements Other (for the year ended 30 June 2020) 30. Parent Disclosures 31. Share-Based Payments The parent Company of the Group, as at and throughout the financial year ended 30 June 2020, was Resimac Group Ltd. 31.1. Employee Share Option Plan of the Company Presented below is supplementary information about the parent entity. Statement of Financial Position Assets Current Non-current Liabilities Current Non-current Net Assets Equity Issued capital Reserves Accumulated losses Attributable to members of the parent Profit after tax Total comprehensive income for the period FY20 $’000 FY19 $’000 39,745 28,175 201,385 188,475 241,130 216,650 34,946 13,841 65,876 47,462 100,822 61,303 140,308 155,347 182,072 180,545 485 88 (42,249) (25,286) 140,308 155,347 (5,659) (5,659) 6,797 6,797 30.1. Guarantees, Contingent Liabilities & Contingent Assets At 30 June 2020, there are no financial guarantees, contingent assets or contingent liabilities (FY19: nil). 30.2. Accounting Policies The accounting policies of the parent entity, which have been applied in determining the financial information shown above, are the same as those applied in the consolidated financial statements except as set out above. The significant accounting policies relating to the Group are used throughout this financial report. The Company has a share option scheme (pursuant to the The options were granted on 15 August 2019 and the Resimac Group Employee Share Option and Rights Plan) vesting date for all options is 31 August 2022, subject for senior employees of the Company. In accordance with to the Group achieving Net Profit After Tax (NPAT) the terms of the Plan, as approved by shareholders at the performance hurdles, digital transformation hurdles, 2017 Annual General Meeting, senior employees may be compliance hurdles and remaining employed with the granted options to purchase ordinary shares. Group until the vesting date. Each employee share option converts into one ordinary Since the current reporting period, the LTI#1 and LTI#2 share of the Company on exercise. No amounts are paid are administrated by The Trustee for the Resimac Group or payable by the recipient on receipt of the option. Limited Employee Share Trust. The trust is consolidated The options carry neither rights to dividends nor voting in accordance with note 24. The trustee subscribes for rights. Options may be exercised at any time from the the shares issued by the Group and allocates to the date of vesting to the date of their expiry. employees on exercise of options. Shares held by the Long-Term Incentive (LTI#1) Share Options - CEOs trust and not yet allocated to employees at the end of the reporting period are shown as treasury shares in the Resimac offered the joint CEOs Scott McWilliam and Mary financial statements. No treasury shares were held at 30 Ploughman (ceased employment on 17 July 2019) the June 2020. opportunity to purchase 1,800,000 share options vesting in three equal tranches on each anniversary of the grant date. The options were granted on 18 August 2017 and all options vest within 12 months, 24 months and 36 months of respective grant date associated with each tranche. The options expire within 36 months of their vesting, or one month after resignation, whichever is the earlier. The sole vesting condition of the options is the employees remain employed with the Company to the respective vesting date associated with each tranche. The fair value of share options under LTI#1 and LTI#2 is recognised as an employee benefits expense with a corresponding increase in equity. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting and service conditions. It recognises the impact of the revision to original estimates, if any, in the consolidated statement The tranche 3 shares for Mary Ploughman expired due to of profit or loss with a corresponding adjustment to her cessation of employment on 17 July 2019. The expiry equity. dates of her tranche 1 and 2 were revised to 17 July 2020 by the Board. The fair value of the amounts payable to CEO and GMs in respect of cash component is recognised as an expense Long-Term Incentive (LTI#2) Share Options – CEO and with a corresponding increase in liabilities, over the GMs Under the Group’s LTI share options and rights plan, the CEO and GMs receive options over ordinary shares and a potential cash component of $2.4m. vesting period. The liabilities are remeasured to fair value at each reporting date and are presented as employee benefit obligations in the consolidated statement of financial position. RESIMAC GROUP LTD2020 ANNUAL REPORT122 122 RESIMAC GROUP LTD 2020 ANNUAL REPORT 123 123 0 2 0 2 r e b m u N d e t s e v n u s n o i t p o f o e n u J 0 3 t a - - 0 0 0 0 0 3 , - - - 0 0 0 0 0 3 , 0 0 0 0 0 3 , 0 0 0 0 0 3 , 0 0 0 5 7 8 , 0 0 0 5 7 8 , 0 0 0 5 7 8 , 0 2 0 2 e n u J 0 2 0 2 0 3 t a d e t s e v e n u J 0 3 t a r e b m u N s n o i t p o f o f o r e b m u N l d e h s n o i t p o 0 0 0 0 0 3 , 0 0 0 0 0 3 , 0 0 0 0 0 3 , 0 0 0 0 0 3 , - - - - - - - - - - - - - 0 0 0 0 0 3 , 0 0 0 0 0 3 , 0 0 0 0 0 3 , 0 0 0 0 0 3 , 0 0 0 5 7 8 , 0 0 0 5 7 8 , 0 0 0 5 7 8 , s n o i t p O d e s i c r e x e s n o i t p O d e t i e f r o f e t a d y r i p x E e t a d g n i t s e V ) $ ( n o i t p o ) $ ( e t a d t n a r G e h c n a r T f o e c i r p e s i c r e x E e t a d t n a r g l t a e u a v r i a F s n o i t p o f o r e b m u N y b d e r i u q c A - - - ) 0 0 0 0 0 3 ( , ) 0 0 0 0 0 3 ( , - - - - - 1 2 0 2 - 6 - 0 3 8 1 0 2 - 7 - 1 5 5 0 . 2 2 0 2 - 6 - 0 3 9 1 0 2 - 7 - 1 5 5 0 . 3 2 0 2 - 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k c a B e h t s l i s n o i t a u a v e h t l i r o f d e r e d s n o c e v a h e w h c a o r p p a n o i t a u a v y r a m l i r p e h T d e u s s I s n o i t p o 0 0 0 0 0 6 , 0 0 0 0 0 6 , 0 0 0 0 0 6 , 0 0 0 0 0 3 , 0 0 0 0 0 3 , 0 0 0 0 0 3 , , 0 0 0 0 0 0 1 , , 0 0 0 0 0 0 1 , , 0 0 0 0 0 0 1 , e u a v l n o i t p o l l a C . 8 0 0 $ - 6 0 0 $ . . 9 0 0 $ - 7 0 0 $ . . 0 1 0 $ - 8 0 0 $ . . 1 2 0 $ - 8 1 0 $ . . 1 2 0 $ - 8 1 0 $ . . 1 2 0 $ - 8 1 0 $ . . 1 2 0 $ - 8 1 0 $ . . 1 2 0 $ - 8 1 0 $ . . 1 2 0 $ - 8 1 0 $ . l d e y i d n e d v D i i % 3 2 3 . % 3 2 3 . % 3 2 3 . % 2 % 2 % 2 % 2 % 2 % 2 % 0 0 2 . % 5 1 2 . % 6 2 2 . % 5 7 0 . % 5 7 0 . % 5 7 0 . % 5 7 0 . % 5 7 0 . % 5 7 0 . e e r f - k s i R e t a r t s e r e t n i l a u n n A y t i l i t a o v l % 5 3 - 0 3 % 5 3 - 0 3 % 5 3 - 0 3 % 0 3 - 5 2 % 0 3 - 5 2 % 0 3 - 5 2 % 0 3 - 5 2 % 0 3 - 5 2 % 0 3 - 5 2 m r e T ) s r a e y ( e s i c r e x E ) $ ( e c i r p e t a d t n a r G ) $ ( e c i r p e r a h s e h c n a r T e t a d t n a r G 9 3 . 9 4 . 9 5 . 9 5 . 9 5 . 9 5 . 9 5 . 9 5 . 9 5 . 5 5 0 . 5 5 0 . 5 5 0 . 5 6 0 . 5 6 0 . 5 6 0 . 5 6 0 . 5 6 0 . 5 6 0 . 7 4 0 . 7 4 0 . 7 4 0 . 6 7 0 . 6 7 0 . 6 7 0 . 6 7 0 . 6 7 0 . 6 7 0 . 1 e h c n a r T 2 e h c n a r T 3 e h c n a r T 1 e h c n a r T 2 e h c n a r T 3 e h c n a r T 1 e h c n a r T 2 e h c n a r T 3 e h c n a r T 7 1 0 2 - 8 - 8 1 7 1 0 2 - 8 - 8 1 7 1 0 2 - 8 - 8 1 9 1 0 2 - 8 - 5 1 9 1 0 2 - 8 - 5 1 9 1 0 2 - 8 - 5 1 9 1 0 2 - 8 - 5 1 9 1 0 2 - 8 - 5 1 9 1 0 2 - 8 - 5 1 : d e s u l e d o m e h t o t s t u p n i e h t s t s i l l e b a t g n w o i l l o f e h T RESIMAC GROUP LTD2020 ANNUAL REPORT 124 2020 ANNUAL REPORT 125 125 Notes to the Consolidated Financial Statements Other (for the year ended 30 June 2020) 31.3. Movements in Share Options During the Period The following reconciles the share options outstanding at the beginning and the end of the period: 32. Other Accounting Policies 32.1. Application of New & Revised Accounting Standards Number of LTI options LTI#1 Number of LTI options LTI#2 Number of LTI options Total Weighted average fair value $ LTI#1 Weighted average fair value $ LTI#2 Unvested options at 1 July 2019 1,200,000 Vested options at 1 July 2019 600,000 Options held at 1 July 2019 1,800,000 - - - 1,200,000 600,000 1,800,000 Granted during the year - 3,900,000 3,900,000 Exercised during the year (600,000) - (600,000) Forfeited during the year (300,000) (375,000) (675,000) Unvested options at 30 June 2020 300,000 3,525,000 3,825,000 Vested options at 30 June 2020 600,000 - 600,000 Options held at 30 June 2020 900,000 3,525,000 4,425,000 0.09 0.07 0.08 - 0.55 0.09 0.09 0.08 0.08 - - - 0.20 - - 0.20 - 0.20 31.4. Share Options Exercised During the Period The Trustee for the Resimac Group Limited Employee Share Trust subscribed for 600,000 fully paid ordinary shares issued by the Group at a subscription price of $0.85 per share, being the volume weighted average price of shares at the close of trading over a 5 day trading period up to and including 11 May. Shares held by the trustee were allocated to Mary Ploughman on her exercise of tranche 1 and tranche 2 share options on 13 May 2020. a) New and amended standards adopted by the Group On 1 July 2019 (the date of initial application of AASB (i) AASB 16 Leases In the current year, the Group has applied AASB 16 Leases (AASB 16) that is effective for annual periods that begin on or after 1 July 2019. AASB 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to the lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of a right-of-use asset and a lease liability at the lease commencement for all leases, except for short-term leases and leases of low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. Details of these requirements and the impact of the adoption of AASB 16 on the Group’s consolidated financial statements are described below. 16), the Group has applied AASB 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. Accordingly, the comparative information presented for 2019 has not been restated i.e. it is presented as previously reported, under AASB 117 and related Interpretations. The details of the changes in accounting policies are disclosed below: Impact on lessee accounting AASB 16 changes how the Group accounts for leases previously classified as operating leases under AASB 117, which were off balance sheet. Applying AASB 16, for all leases, the Group: § Recognise right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of the future Impact of the new definition of a lease lease payments; The Group has made use of the practical expedient § Recognise depreciation of right-of-use assets available on transition of AASB 16 not to reassess and interest on lease liabilities in the consolidated whether a contract is or contains a lease. Accordingly, statement of profit or loss; the definition of a lease in accordance with AASB 117 and IFRIC 4 will continue to be applied to leases entered into or modified before 1 July 2019. The change in definition of a lease mainly relates to § Separate the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated cash flow statement. the concept of control. AASB 16 determines whether Lease incentives (e.g. rent-free period) will be recognised a contract contains a lease on the basis of whether the as part of the measurement of the right-of-use assets customer has the right to control the use of an identified and lease liabilities whereas under AASB 117 they asset for a period of time in exchange for consideration. resulted in the recognition of a lease liability incentive, amortised as a reduction of rental expenses on a The Group applies the definition of a lease and related straight-line basis. guidance set out in AASB 16 to all lease contracts entered into or modified on or after 1 July 2019. The Under AASB 16, right-of-use assets are tested for Group notes that the new definition in AASB 16 will not impairment in accordance with AASB 136. This replaces change significantly the scope of contracts that meet the the previous requirements to recognise a provision for definition of a lease for the Group. onerous lease contracts. RESIMAC GROUP LTD2020 ANNUAL REPORT126 2020 ANNUAL REPORT 2020 ANNUAL REPORT 127 127127 Notes to the Consolidated Financial Statements Other (for the year ended 30 June 2020) For short-term leases (lease term of 12 months or less) The weighted average borrowing rate applied is 4%. The The Group did not need to make any adjustments § assess whether it is probable that a tax authority and leases of low-value assets, the Group has opted to Group has applied the approach of measuring right- to the accounting for assets held as lessor under will accept an uncertain tax treatment used, or recognise a lease expense on a straight-line basis as of-use assets at an amount equal to the lease liability, operating leases as a result of the adoption of AASB proposed to be used, by an entity in its income tax permitted by AASB 16. adjusted by the amount of any prepaid or accrued lease 16. filings: The right-of-use assets recognised under AASB 16 is an In the current year, the Group has applied a intangible asset, and hence excluded from the Group’s The Group used the following practical expedients when number of amendments to AASB Standards and net tangible assets, despite the related lease liability applying AASB 16 to leases previously classified as Interpretations issued by the AASB that are payments. being included as reduction in the net tangible assets operating leases under AASB 117. calculation. Transition § Excluded initial direct costs from measuring the right- of-use asset at the date of initial application The Group leases offices previously classified as § Used hindsight when determining the lease term if the operating leases under AASB 117. The lease term is contract contains options to extend or terminate the between 3 to 8 years with, in some cases, options to lease extend. This has been accounted for in determining the minimum lease payments. The Group’s obligations are secured by the lessor’s title to the leased assets for such § Not to separate non-lease components from lease components and instead account for each component and any associated non-lease components as a single leases. lease component At transition, for leases previously classified as operating leases under AASB 117, lease liabilities were measured at present value of the remaining lease payments, § Applied a single discount rate to a portfolio of leases with reasonably similar characteristics Below is the financial impact on transition to AASB 16 as discounted at the Group’s incremental borrowing rate as at 1 July 2019: at 1 July 2019. Right-of-use assets Lease liabilities* Tax effect of the above Adjustment to opening retained earnings *The 30 June 2019 lease liability is within trade and other payables. Under ASSB 17 $'000 Under AASB 16 $'000 Financial impact $'000 - (276) - 13,230 (13,990) 145 13,230 (13,714) 145 (339) Impact on lessor accounting AASB 16 does not change substantially how a lessor The intermediate lessor is required to classify the accounts for leases. Under AASB 16, a lessor continues to sublease as a finance or operating lease by reference to classify leases as either finance leases or operating leases the right-of-use asset arising from the head lease (and and account for those two types of leases differently. not by reference to the underlying asset as was the case Under AASB 16, an intermediate lessor accounts for the head lease and the sublease as two separate contracts. under AASB 117). effective for an annual period that begins on or after 1 July 2019. Their adoption has not had any material impact on the disclosures or on the amount reported in these financial statements. AASB 2017-6 Amendments to Australian Accounting Standards - Prepayment Features with Negative Compensation The Group has adopted the amendments to AASB 9 for the first time in the current year. The amendments to AASB 9 clarify that for the purpose of assessing whether a prepayment feature meets the ‘solely payments of principal and interest’ (SPPI) condition, the party exercising the option may pay or receive reasonable compensation for the prepayment irrespective of the reason for prepayment. In other words, financial assets with prepayment features with negative compensation do not automatically fail SPPI. Interpretation 23 Uncertainty over Income Tax Treatments The Group has adopted IFRIC 23 for the first time in the current year. IFRIC 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; and w If yes, the Group should determine its accounting tax position consistently with the tax treatment used, or proposed to be used, by an entity in its income tax filings. w If no, the entity should reflect the effect of uncertainty in determining its accounting tax position using either the most likely amount or the expected value method. AASB 2018-1 Amendments to Australian Accounting standards – Annual Improvements 2015 – 2017 Cycle AASB 112 Income Taxes The amendments clarify that an entity should recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised the transactions that generated the distributable profits. AASB 123 Borrowing Costs The amendment clarifies that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowing. This is the case irrespective of whether different tax rates apply to distributed and undistributed profits. RESIMAC GROUP LTD2020 ANNUAL REPORT128 128 RESIMAC GROUP LTD 129 Notes to the Consolidated Financial Statements Other (for the year ended 30 June 2020) b) New and revised accounting standards and interpretations on issue but not yet effective Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2020 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations are set out below. These standards are not expected to have a material impact on the financial statements of the Group in future periods. Standard/amendment AASB 2018-6 Amendments to Australian Accounting Standards – Definition of a Business AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material AASB 2019-1 Amendments to Australian Accounting Standards – References to the Conceptual Framework AASB 17 Insurance contracts Effective for annual reporting periods beginning on or after 1 January 2020 1 January 2020 1 January 2020 1 January 2021 (likely to be extended to 1 January 2022) AASB 2018-6 Amendments to Australian Accounting § Add guidance and illustrative examples to help entities Standards – Definition of a Business assess whether a substantive process has been Amends AASB 3 Business Combinations to clarify the acquired. definition of a business, with the objective of assisting § Narrow the definitions of a business and outputs by AASB 2018-7 Amendments to Australian This amending Standard applies to for-profit sector Accounting Standards – Definition of Material entities that have public accountability and are Make amendments intended to address concerns that the wording in the definition of ‘material’ was different in the Conceptual Framework for Financial Reporting, AASB 101 Presentation of Financial Statements and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. The amendments address these concerns by: § Replacing the term ‘could influence’ with ‘could reasonably be expected to influence’. § Including the concept of ‘obscuring information’ alongside the concepts of ‘omitting’ and ‘misstating’ information in the definition of material. § Clarifying that the users to which the definition refers are the primary users of general purpose financial statements referred to in the Conceptual Framework § Aligning the definition of material across Australian Accounting Standards and other publications. required by legislation to comply with Australian Accounting Standards and other for-profit entities that elect to apply the Conceptual Framework. The amendments are effective for annual periods beginning on or after 1 January 2020 with early application permitted. AASB 17 Insurance Contracts AASB 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts and supersedes AASB 4 Insurance contracts. AASB 17 outlines a general model, which is modified for insurance contracts with direct participation features described as the variable fee approach. The general model is simplified if certain criteria are met by measuring the liability for remaining coverage using the premium allocation approach. The general model uses current assumptions to estimate the amount, timing and uncertainty of future cash flows and it explicitly measures the cost entities to determine whether a transaction should be focusing on goods and services provided to customers The amendments are applied prospectively for of that uncertainty. It takes into account market accounted for as a business combination or as an asset and by removing the reference to an ability to reduce annual periods beginning or after 1 January 2020, interest rates and the impact of policyholder’s costs. with earlier application permitted. options and guarantees. acquisition. The amendments: § Clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, § Add an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. an input and a substantive process that together The amendments are applied prospectively to all business significantly contribute to the ability to create outputs. combinations and asset acquisitions for which the § Remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs. acquisition date is on or after the first annual reporting Conceptual Framework for Financial Reporting. period beginning on or after 1 January 2020, with early This Standard updates references to, or quotations application permitted. from, previous versions of the Framework contained in many Accounting Standards. AASB 2019-1 Amendment to Australian The Standard is effective for annual reporting Accounting Standards – References to the periods beginning or after 1 January 2021, with early Conceptual Framework Makes amendments to various Accounting Standards to reflect the issue of the revised application permitted. It is applied retrospectively unless impracticable, in which case the modified retrospective approach or the fair value approach is applied. An exposure draft Amendments to AASB 17 addresses concerns and implementation challenges that were identified after AASB 17 was published. One of the main changes proposed is the deferral of the date of initial application of AASB 17 by one year to annual periods beginning or after 1 January 2022. The impact of the new standard on the Group’s financial statements has not yet been determined. RESIMAC GROUP LTD2020 ANNUAL REPORT130 130 RESIMAC GROUP LTD 131 Notes to the Consolidated Financial Statements Other (for the year ended 30 June 2020) 32.2. Goods & Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: § where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the costs of acquisition of the asset or as part of the expense item as applicable; and § receivables and payables which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. Directors' Declaration Resimac Group Ltd and its Controlled Entities The directors declare that: a. in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable b. in the directors’ opinion, the attached financial statements are in compliance with Australian Accounting Standards as stated in the financial statements; c. in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity and the Company; and d. the directors have been given the declarations required by s295.A of the Corporations Act 2001. Signed in accordance with a resolution of the directors pursuant to s295(5) of the Corporations Act 2001. On behalf of the Directors Warren McLeland Chairman Sydney 25 August 2020 RESIMAC GROUP LTD2020 ANNUAL REPORT132 2020 ANNUAL REPORT 133 133 Independent Auditor's Declaration Resimac Group Ltd and its Controlled Entities Independent Auditor's Report Resimac Group Ltd and its Controlled Entities Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia Tel: +61 2 9322 7000 Fax: +61 2 9322 7001 www.deloitte.com.au The Board of Directors Delarey Nell Partner Chartered Accountants 25 August 2020 Dear Board Members Auditor’s Independence Declaration to Resimac 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 Resimac Group Limited and its controlled entities. As lead audit partner for the audit of the financial report of Resimac for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) 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 faithfully DELOITTE TOUCHE TOHMATSU Delarey Nell Partner Chartered Accountants Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organisation”). DTTL (also referred to as “Deloitte Global”) and each of its member fir ms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more. Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. Our global network of member firms and related entities in more than 150 countries and territories (collectively, the “Deloitte organisation” serves four out of five Fortune Global 500® companies. Learn how Deloitte’s approximately 312,000 people make an impact that matters at www.deloitte.com. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Deloitte Touche Tohmatsu ABN 74 490 121 060 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Grosvenor Place Sydney NSW 2000 225 George Street PO Box N250 Grosvenor Place Sydney NSW 2000 Sydney NSW 1220 Australia PO Box N250 Grosvenor Place Sydney NSW 1220 Australia Tel: +61 2 9322 7000 Fax: +61 2 9322 7001 Tel: +61 2 9322 7000 www.deloitte.com.au Fax: +61 2 9322 7001 www.deloitte.com.au The Board of Directors Delarey Nell Partner Chartered Accountants Independent Auditor’s Report to the Members of Resimac Group Limited Report on the Audit of the Financial Report 25 August 2020 Opinion Dear Board Members Auditor’s Independence Declaration to Resimac Group Limited We have audited the financial report of Resimac Group Limited (the “Entity”) 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, the consolidated statement of 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 information, and the directors’ declaration. accounting policies and other explanatory In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Resimac Group Limited and its controlled entities. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: As lead audit partner for the audit of the financial report of Resimac for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: giving a true and fair view of the Group’s financial position as at 30 June 2020 and of their financial performance for the year then ended; and (i) (i) the auditor independence requirements of the Corporations Act 2001 in relation (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Basis for Opinion Yours faithfully 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. DELOITTE TOUCHE TOHMATSU 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. Delarey Nell Partner Chartered Accountants 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. Key Audit Matter How the scope of our audit responded to the Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related Key Audit Matter entities (collectively, the “Deloitte organisation”). DTTL (also referred to as “Deloitte Global”) and each of its member fir ms and Our procedures in conjunction with our specialists related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. included, but were not limited to: DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more. Loan Loss Provisioning under AASB 9 Financial Instruments As at 30 June 2020 the Group has recognised provisions amounting to $36.7m loans and for - Assessing whether the model adequately Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. addresses the requirements of the relevant Our global network of member firms and related entities in more than 150 countries and territories (collectively, the “Deloitte organisation” serves four out of five Fortune Global 500® companies. Learn how Deloitte’s approximately 312,000 people make an accounting standard; impact that matters at www.deloitte.com. impairment losses on Liability limited by a scheme approved under Professional Standards Legislation. Liability Limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. RESIMAC GROUP LTD2020 ANNUAL REPORT 134 134 RESIMAC GROUP LTD 135 Independent Auditor's Report Independent Auditor's Report Deloitte Touche Tohmatsu ABN 74 490 121 060 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia advances held at amortised cost in accordance with the Expected Credit Loss (ECL) model as disclosed in note 6. Significant management judgement was The Board of Directors Delarey Nell necessary in determining expected credit Partner losses, including: Chartered Accountants 25 August 2020 Dear Board Members - Assumptions used in the ECL model such as the identification of exposures with a significant movement in credit quality to determine whether 12-month or lifetime ECL should be recognised, probability of default, loss given default and other macroeconomic factors disclosed in Note 22 and 23; and The application of the requirements of AASB 9 as reflected in the Group’s ECL model particularly in light of the current economic environment following the outbreak of COVID-19. to the audit; and - In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Resimac Group Limited and its controlled entities. As lead audit partner for the audit of the financial report of Resimac for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation - - Evaluating management’s assessment of the Tel: +61 2 9322 7000 impact of COVID-19 on the loan portfolio and Fax: +61 2 9322 7001 hence the estimate of ECL; www.deloitte.com.au Testing, on a sample basis, individual exposures to determine if they are classified into appropriate default stages and aging buckets for the purpose of determining impairment loss provision; Independently develop a model, using inputs and assumptions applied by management, to assess the reasonableness of assumptions driving probabilities of default (PD), Loss Given Default (LGD) and Exposure at Default (EAD); and - - Assessing reasonableness of management overlays to the modelled collective provision by taking recent history and performance of the relevant portfolios. into account We also assessed the appropriateness of the disclosures within notes 6, 22 and 23 of the financial statements. (ii) any applicable code of professional conduct in relation to the audit. Auditor’s Independence Declaration to Resimac Group Limited Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia order to test the integrity and mathematical accuracy of management’s model; Tel: +61 2 9322 7000 Fax: +61 2 9322 7001 www.deloitte.com.au We also assessed the appropriateness of the notes 1 and 15 of the financial statements trailing commissions of required management to exercise judgement with regard to the selection of the discount rate, run off rates applied to the model. The Board of Directors Delarey Nell Partner Chartered Accountants Other Information 25 August 2020 Dear Board Members Auditor’s Independence Declaration to Resimac Group Limited 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. In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Resimac Group Limited and its controlled entities. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. As lead audit partner for the audit of the financial report of Resimac for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation 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. (ii) any applicable code of professional conduct in relation to the audit. to the audit; and In conjunction with our valuation specialists, our procedures included, but were not limited to: Responsibilities of the Directors for the Financial Report Yours faithfully Goodwill Impairment Assessment Yours faithfully As at 30 June 2020, the group has a goodwill balance of $27.4 million as disclosed in note 11. DELOITTE TOUCHE TOHMATSU Delarey Nell Partner Chartered Accountants In accordance with AASB 136 Impairment of Non-Current Assets, cash-generating units (CGU) to which goodwill is allocated are required to be tested for impairment at least annually by comparing the CGU’s carrying value with its recoverable amount. Significant management is required in determining recoverable amount of the CGU including, but not limited to the: judgement - Evaluating the appropriateness of management’s identification of the Group’s CGUs and testing of key controls over the impairment assessment process, including the identification of indicators of impairment such as the carrying value exceeding the market capitalisation; - Assessing appropriateness of the valuation the in determining methodology applied recoverable amount of the CGU; - Identification of appropriate Cash Generating Units (CGU) to which goodwill is allocated for the purpose of impairment testing; Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organisation”). DTTL (also referred to as “Deloitte Global”) and each of its member fir ms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more. - Assessing the reasonableness of the key assumptions used by management in the impairment model and whether they are suitably adjusted the current economic environment especially in light of COVID-19; and Testing the mathematical accuracy of the Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. methodology; and Our global network of member firms and related entities in more than 150 countries and territories (collectively, the “Deloitte impairment model. organisation” serves four out of five Fortune Global 500® companies. Learn how Deloitte’s approximately 312,000 people make an impact that matters at www.deloitte.com. - Selection of appropriate valuation to reflect - Member of Deloitte Asia Pacific Limited and the Deloitte organisation. - Determination of assumptions and estimates in the valuation methodology, Liability limited by a scheme approved under Professional Standards Legislation. in particular those affected by current economic conditions the outbreak of COVID-19 such as control premium and price-earnings multiples. following We also assessed the appropriateness of the disclosures in note 11 in the financial statements. Future trailing commissions Our procedures included, but were not limited to: As at 30 June 2020, the net present value of future trailing commissions receivable (contract asset) and payable by the Group is $41.9 million and $20.8 million respectively as disclosed in Note 1 and 15. - The determination of the net present value - Challenging the reasonableness of management’s assumptions applied, including discount rate and the run-off; and Independently recalculating the NPV model using the inputs and assumptions applied by management, to recalculate the valuation of trail commission receivable and payable. This was compared to management’s valuation, in DELOITTE TOUCHE TOHMATSU 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. Delarey Nell Partner Chartered Accountants 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 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organisation”). DTTL (also referred to as “Deloitte Global”) and each of its member fir ms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more. 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 Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. material if, individually or in the aggregate, they could reasonably be expected to influence the Our global network of member firms and related entities in more than 150 countries and territories (collectively, the “Deloitte organisation” serves four out of five Fortune Global 500® companies. Learn how Deloitte’s approximately 312,000 people make an economic decisions of users taken on the basis of this financial report. impact that matters at www.deloitte.com. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 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. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. RESIMAC GROUP LTD2020 ANNUAL REPORT 136 2020 ANNUAL REPORT 137137 Independent Auditor's Report Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia • 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. Tel: +61 2 9322 7000 Fax: +61 2 9322 7001 www.deloitte.com.au The Board of Directors Delarey Nell Partner Chartered Accountants 25 August 2020 • Dear Board Members 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. Auditor’s Independence Declaration to Resimac Group Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the • Obtain sufficient appropriate audit evidence regarding the financial information of the following declaration of independence to the directors of Resimac Group Limited and its controlled entities. 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. As lead audit partner for the audit of the financial report of Resimac for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation 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. (ii) any applicable code of professional conduct in relation to the audit. to the audit; and Yours faithfully 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. DELOITTE TOUCHE TOHMATSU 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. Delarey Nell Partner Chartered Accountants Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 12 to 24 of the Directors’ Report for the year ended 30 June 2020. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organisation”). DTTL (also referred to as “Deloitte Global”) and each of its member fir ms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more. In our opinion, the Remuneration Report of the Resimac Group Limited, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. Our global network of member firms and related entities in more than 150 countries and territories (collectively, the “Deloitte organisation” serves four out of five Fortune Global 500® companies. Learn how Deloitte’s approximately 312,000 people make an impact that matters at www.deloitte.com. Responsibilities Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 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 Delarey Nell Partner Chartered Accountants Sydney, 25 August 2020 RESIMAC GROUP LTD2020 ANNUAL REPORTResimac has both independent internal and external audit functions to ensure the governance framework we are working towards is being followed. The Board has adopted a Risk Appetite Statement and operational risk register with key risk metrics to ensure appropriate controls are in place. 138 2020 ANNUAL REPORT 139 139 Environment, Social & Governance Policies & Activities Resimac acknowledges that its approach to its Environmental, Social and Governance responsibilities is a key factor for many customers, investors and our employees. As a business, we are and will continue to incorporate ESG into our culture and our strategy; we will work together to enhance our effectiveness; we will provide appropriate disclosures and we will report our activities and progress. Further details of our ESG practices can be found in our Corporate Governance Statement and the Environmental, Social and Governance Statement located on our website. Environment As a leading mortgage provider, we understand the importance of supporting the environment and are committed to this by:  Being Carbon Conscious. For every loan settled, Resimac plants a Mallee Eucalypt tree. Since 2010 Resimac has planted over 35,000 trees, contributing to a more sustainable environment.  Using a digital and paperless loan origination process for customers.  Reducing the number of printers and continually reducing the need for paper and printable matter.  Recycling consumables and equipment in the office, complemented by recycling facilities for employees. This Annual Report has been printed on recycled paper.  Installing sensor lights and LED lighting within the office to reduce power consumption. Social Our social responsibilities extend across a range of groups, including our employees, customers, investors and the community. It is paramount to the future of our business that our employees conduct themselves in a way which allows us to deliver great service to our customers and business partners, while displaying the Company’s values of quality, passion, agility, respect, accountability, professionalism and integrity. At Resimac, we recognise that an engaged team supports a successful business. We encourage work/life balance and offer a number of benefits such as: study support, a flexible day, “wellness” hours, an Employee Assistance Program, salary continuance insurance, and a paid Community Day that enables employees to participate in community activities with a charity of their choice. With our customers, we strive to provide superior service throughout their journey with Resimac. As an entity that holds six credit licences and an Australian Financial Services Licence, we must ensure we comply with the Responsible Lending Conduct obligations, which we do through our Credit Committee, Board Risk and Compliance Committee, our Compliance Program, and Quality Assurance. Who we partner with at Resimac is also key to our sustainability performance. Our responsible approach to procurement of suppliers allows us to manage and mitigate risk. Supporting charities that closely align with our values is important to Resimac. We are proud to support multiple charities and community initiatives including: § The Station § Food Ladder § Local support within the Philippines RESIMAC GROUP LTD2020 ANNUAL REPORTSince 2010, Resimac has planted over 35,000 trees, contributing to a more sustainable environment.140 140 RESIMAC GROUP LTD 141 Food Ladder Resimac is proud to support Food Ladder, a not-for-profit and global pioneer in the use of environmentally sustainable technologies to create food and economic security for remote communities. Food Ladder not only addresses food security, but it also creates employment and training opportunities for adults and education outcomes for children. Food Ladder systems have benefited 31,500 individuals, with 6,000 getting a consistent, significant part of their diet from Food Ladder. Furthermore, it has created 600 jobs. Resimac offers both financial support and assistance with promoting awareness for the organisation. Additionally, we have launched a new charity ambassador program, whereby two employees will work closely with Food Ladder over 12 months to raise awareness and engagement internally and throughout the broader community. The Station Ltd The Station is a not-for-profit drop-in centre established in 1978, located in the heart of the Sydney CBD. Its mission is to provide a range of services to adults having difficulty obtaining and sustaining accommodation as well as providing food. Resimac has a team of volunteers who help with food service regularly, and we have a highly successful annual collection of personal and hygiene products. We have also supplied both dryers and washing machines. Due to restrictions imposed by COVID-19, we have been unable to assist with food service since February 2020. Philippines Resimac, via a hosting company, employs 75 Governance The Board, Risk Management and Compliance Framework employees in Manila. We have undertaken various Resimac has a strong governance framework in place to community-focussed activities in recent years to ensure all regulatory obligations are adhered to in line engage with employees and support them being active with our licence requirements and our position as an ASX in their local communities. In 2020, we purchased Listed entity. masks, face shields and COVID-19 related matters. Over the past few years, we have also participated in a number of programs, including: § Operation Smile – a foundation that helps those born with a cleft palate. Our support allowed for two missions and 189 patients to be screened and treated. There are a number of committees, policies and procedures in place to complement this framework including: § Risk and Compliance Committee § Audit Committee § Assets and Liability Committee § Pricing Committee § Credit Committee § Christmas baskets – we prepared Christmas baskets § WHS Committee containing rice, canned goods and groceries to help § AML Program support the displaced Aetas indigenous tribe. § Compliance Framework § Gentle Hands & St Rita – our employees volunteered their time to visit the orphanages, purchase food on behalf of Resimac, provide educational materials and organise activities with the children. Our approach to sustainability commences with the servicing of our customers front of mind. § Enterprise Risk Framework § Quality Assurance Program Each Committee has a charter that sets out its responsibility and accountability and this charter is reviewed annually. Resimac has both independent internal and external audit functions to ensure the governance framework we are working towards is being followed. The Board has adopted a Risk Appetite Statement and operational risk register with key risk metrics to ensure appropriate controls are in place. In addition, Quality Assurance Reviews are undertaken on lending approvals by a team independent of the creditor assessors, with control testing and quarterly obligation attestations required by each department. Tax Obligations We are committed to ensuring we meet our multi tax obligations which include income, fringe benefit, goods and services, payroll, stamp duty, etc, and have established a Board-approved Tax Risk Management Policy. Best tax practice, tax risk appetite metrics have been adopted. RESIMAC GROUP LTD2020 ANNUAL REPORT142 142 RESIMAC GROUP LTD 143 Shareholder Information Additional information required by the ASX and not disclosed elsewhere in this report is set out below. The information is current as at 24 September 2020. a) Number of Holders of Equity Securities Ordinary Share Capital: 407,449,337 paid ordinary shares are held by 1,563 individual shareholders. b) Voting Rights All issued ordinary shares carry one vote for each member present at the meeting on a show of hands and on a poll each member is entitled to one vote for every ordinary share held. c) Distribution of Members & their Holdings The number of equity securities by size of holding is set out below: Range 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total Total Holders 349 550 202 363 99 Units 192,780 1,502,535 1,605,458 12,339,848 391,808,716 1,563 407,449,337 Unmarketable Parcel Minimum Parcel Size Holders Minimum $500.00 parcel at $1.3700 per unit 365 100 % Units 0.05 0.37 0.39 3.03 96.16 100.00 Units 6,962 d) Substantial Shareholders The names of the substantial shareholders of the Company and the number of equity securities in which they have a relevant interest as disclosed in substantial shareholding notices given to the Company are set out below: Size of Holdings Somers Limited, ICM Limited, UIL Limited, Permanent Investments Limited, Somers Isles Private Trustee Company Limited, and each other entity controlled by Duncan Saville No. of Shares 246,757,304 % 61.91 e) Twenty Largest Shareholders The 20 largest shareholders of ordinary shares on the Company’s register at 24 September 2020 were: Size of Holdings J P Morgan Nominees Australia Pty Limited HSBC Custody Nominees (Australia) Limited National Nominees Limited Motrose Pty Ltd Warren John McLeland Redbrook Nominees Pty Ltd Hartley Phillips Securities Pty Ltd (Hartley Phillips Inv Tst A/C) Moat Investments Pty Ltd (Moat Investment A/C) National Nominees Limited (DB A/C) Westpac Banking Corporation Citicorp Nominees Pty Limited Peterlyn Pty Ltd (Salmon Family A/C) Tico Pty Ltd (TA Holmes Family Fund A/C) Torryburn Pty Ltd (Torryburn Super Fund A/C) Redbrook Nominees Pty Ltd RSJSDS Pty Ltd (Salmon Super Fund A/C) Redbrook Nominees Pty Ltd High Pass Holdings Pty Ltd (High Pass Hldgs P/L Sup A/C) Mast Financial Pty Ltd (A to Z Investment A/C) Michael Jefferies & Julie Jefferies (The Jefferies Super Fund A/C) No. of Shares 154,206,997 125,891,131 14,793,724 14,700,000 11,958,122 10,463,499 5,031,373 4,048,624 3,522,285 2,493,130 2,462,439 2,068,000 1,623,944 1,612,119 1,539,183 1,385,100 1,258,355 1,191,687 1,068,558 1,055,667 % 37.85 30.90 3.63 3.61 2.93 2.57 1.23 0.99 0.86 0.61 0.60 0.51 0.40 0.40 0.38 0.34 0.31 0.29 0.26 0.26 Total 362,373,937 88.94 RESIMAC GROUP LTD2020 ANNUAL REPORT144 144 RESIMAC GROUP LTD 2020 ANNUAL REPORT 145 145 Managing Your Shareholding The Company’s share registry is managed by Securityholder Reference Number (SRN) or Holder Computershare Investor Services Pty Limited Identification Number (HIN) as shown on your (Computershare). Issuer Sponsored / CHESS statements. The Investor Centre website is the fastest, easiest You can also contact Computershare by: and most convenient way to view and manage your shareholding. Investor Centre enables a shareholder to:  view the Company share price;  change your banking details;  change your address (for non-CHESS sponsored holdings);  update your dividend instruction;  update your Tax File Number (TFN), Australian Business Number (ABN) or exemption;  select your email and communication preferences; and  view your transaction history. When communicating with Computershare or accessing your holding online you will need your Address Level 3, 60 Carrington Street Sydney NSW 2000 p f e +61 2 8234 5000 +61 2 8234 5050 web.queries@computershare.com.au w investorcentre.com.au Tax File Number While it is not compulsory to provide a Tax File Number (‘TFN’), if shareholders have not provided a TFN and Resimac pays an unfranked or partly franked dividend, the Company will be required to deduct tax from the unfranked portion of the dividend at the top marginal rate plus the Medicare Levy. Information on Resimac Group Resimac Group Website Securities Exchange Listing Up-to-date information on the Company can be The Company’s shares are listed on the Australian obtained from the Company’s website: resimac.com.au Securities Exchange (ASX) and the Home Exchange is Sydney. Ordinary shares are traded under the code, ASX: RMC. Share prices can be accessed from major Australian newspapers, the Resimac Group website or at: asx.com.au Corporate Information Registered Office & Corporate Office Level 9, 45 Clarence Street Sydney NSW 2000 p f +61 2 9248 0300 +61 2 9248 2304 e info@resimac.com.au w resimac.com.au Customer enquiries: 13 38 39 Non-Executive Directors Warren McLeland, Chairman Susan Hansen Duncan Saville Wayne Spanner Company Secretary Peter Fitzpatrick Share Registry Computershare Investor Services Pty Limited To view the 2020 annual report, shareholder and Company information, new announcements, background information on Resimac Group businesses and historical information, visit the Resimac website at resimac.com.au RESIMAC GROUP LTD2020 ANNUAL REPORTResimac Group Ltd Level 9, 45 Clarence Street Sydney NSW 2000 p e +61 2 9248 0300 info@resimac.com.au w resimac.com.au ABN 55 095 034 003 Australian Credit Licence 247829 ASX: RMC

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