Rémy Cointreau Annual Report 2023

Plain-text annual report

RESIMAC GROUP LTD 2023 Annual Report. We announced another year of strong shareholder returns. Over the last 12 months, we’ve made significant progress on our strategic objectives amidst an extremely challenging macroeconomic environment. The resilience of the business throughout these cyclical challenges is testament to the strength of the Resimac brand in home loans and capital markets. Strategically, we continue to deliver on our diversification agenda for Resimac Asset Finance, continue to lay the foundation for scale on several fronts. Firstly, our cloud-based origination system recently went live giving us the ability to expand our broker reach with a market-leading application process. We’ve materially increased our funding capacity with a global bank, adding to our extensive list of incumbent banking partners. And finally, we created an asset finance back office team in Manila to drive cost efficiency as we scale originations and AUM. We are encouraged by the growing demand for our commercial auto and equipment and secured business loans as we head into FY24.  Scott McWilliam TABLE OF CONTENTS 1 2 3 4 5 6 7 8 9 About Resimac Chairman’s message CEO’s message Board of Directors Sustainability report Directors' report Remuneration report Financial statements Notes to the consolidated financial statements 10 Directors' declaration 11 12 13 14 15 Independent auditor’s declaration Independent auditor’s report Shareholder information Managing your shareholding Corporate information 4 6 8 10 12 18 26 40 46 122 123 124 130 132 133 Welcome!Welcome!About Resimac. Est. 1985 Resimac Group Ltd ('Resimac Group') is a leading non-bank lender and multi-channel distribution business. Its fully integrated business model comprises originating, servicing and funding prime, non- conforming residential mortgages and asset finance products in Australia and New Zealand. With a history dating back to 1985, Resimac Group has a proven track record of growth and stability. We are pleased to service over 55,000 customers with a portfolio of home loans on balance sheet of over $13 billion, an asset finance portfolio of over $600 million, and total assets under management of over $14 billion. 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 $45 billion in domestic and global markets since 1987. Resimac Group has access to a diversified funding platform with multiple warehouse lines provided by domestic and offshore banks for short-term funding in addition to a global securitisation program to fund its assets longer term. Thanks to our flexible global capital markets programme, we provide solutions to a wide range of customers including the self-employed and contractors, as well as customers with previous credit impairments through our network of over 12,000 broker partners. Resimac Group 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 hold a Standard & Poor's ('S&P') "STRONG" Servicer Ranking, which was reaffirmed in October 2022. Over $13b Assets Under Management Issued in excess of $45b RMBS in Domestic and Global markets Home Loan settlements $3.7b Asset Finance settlements $0.5b Our purpose. Our vision. Our service proposition. To provide Australians and New Zealanders with better lending solutions, because we believe everyone deserves an opportunity to achieve their dreams and attain their ambitions. To be a customer- obsessed company, making home ownership, financial freedom and business success more accessible to everyone.  Origination: Wholesale, Third Party, Direct and White Label distribution channels.  Servicing: Underwriting, Loan Management, Arrears Management.  Funding: Global capital markets programme. Our values. 2021 2022 INSURANCE AUSTRALIAN MORTGAGE BUSINESS AWARDS AWARDS E X C E L L ENCE AWARDEE Quality Passion Professionalism & Integrity Respect Agility Accountability O W N E R O C C (cid:31)(cid:30)(cid:31)(cid:31) U PIER HO M E E L B A RI N - VA A O L 4 | | 5 2023 ANNUAL REPORTRESIMAC GROUP LTD Chairman’s message. Warren McLeland In the financial year ended 30 June 2022, we reported outstanding financial results of a normalised net profit after tax of $104.4 million. This was approximately 5% lower than FY 2021. In FY23, things look different. We are reporting normalised net profit after tax of $73.7 million (excl. the impact of FV gains/losses on derivatives), or 29% lower than FY22. For both years, our annual fully franked dividend to shareholders has been 8.0 cents per share. How do we explain the difference in earnings? FY23 was dominated by our macro-operating conditions; namely inflation, rising interest rates against a backdrop of near to full national employment. Business and investment confidence was at best subdued, and supply problems continued across many sections of the economy. Much the same scenario applied to the free world’s economies, especially our major trading partners. The flow on impact on the Australian housing industry was profound. Housing construction figures were low, the demand for housing finance across all states was less than historical longer-term averages, and for most of the Australian community, affordability remained unreachable. If anything, it was worsening in impact over the year to become a major constraint on activity, requiring Government intervention. For effectively the last 20 years, conflation from these economic and market features was manifest in the most aggressive price competition between the major banks and the non-banks. This was mirrored between banks as each fought vigorously to achieve an incremental uplift in market share, exacerbating an already intense price situation. Refinancing loans as a proportion of total new business loans expanded to unseen levels, eliminating effectively all profitability in writing new prime loans for all non-banks, and by mid financial year, essentially all banks, too. Hope is on the horizon. A modicum of common sense may finally be returning by the end of fourth quarter of FY23. But there is still a long way to go before full pricing rationality is restored. Again, the pendulum is shifting. We are slowly and somewhat tentatively re-entering the prime loan segment, but on very specific criteria. Disappointingly, the Australian Government and the RBA’s exclusive focus on providing funding assistance to the banking sector during the Covid-19 crisis essentially amounted to creating an anti-competitive market by discriminating against the non-bank segment of the home lending market. Non-banks “punch well above their weight”, especially during tougher economic conditions, and to ignore the non-banks again worked to the disadvantage of the total market and to the economy. Normalised NPAT (excl. the impact of FV gains/losses on derivatives) $73.7m Contrary to our lending activities in prime lending, our business activity progressed handsomely in higher risk lending products such as our specialist and non- conforming loans. In particular, our asset financing activity is growing well above system. Measuring and monitoring our implementation of strategy is a regular and priority item of discussion and debate at Board and executive management meetings. This also necessitates us to keep abreast of technology and systems developments such as AI. Notwithstanding the scale and severe impact the macro-environment has placed on Resimac this year, and the short-term outlook for an improvement is still very clouded, your Board and executive management team continue to have confidence in the future of our industry, and in particular, your company and its position in the industry. We constantly review our medium-term business strategy and acknowledge the prevailing very difficult conditions, but at the core, our strategy remains the same. In an attempt to “right size” for immediate, day to day business conditions, we have implemented a wide-ranging series of expense reductions, including strengthening our Manila operations to assist in balancing our overheads and to simultaneously gain more operating leverage. I emphasise to shareholders and investors that our dedication to all dimensions of enterprise risk and controls remains paramount, as is our conservative philosophy to credit risk and proactive asset management. Resimac maintains a capital light business model and is therefore incessantly seeking improvements in capital efficiency and incremental changes to uplift our productivity. To that end, our underlying strategy, about which I have briefly mentioned and detailed in more depth last year, is intact. However, we are prudently and regularly making small changes to ensure strategy is aligned, not just with the huge changes we have been required to make in light of the economic and industry, but also with careful respect to the obvious extensions in time frames we have adopted to reach specific objectives. It is becoming an increasing and difficult challenge to balance an incessant demand for systems improvements to “stay in the game”, so to speak, let alone attempt to maintain a superior level of customer demand with respect to product and service deliverability. Technology “eats” capital and seems to possess an insatiable and irrepressible appetite! Our workplace environment faces a huge task in managing complexities and simultaneously minimising, if not eliminating, vulnerabilities such as cybercrime. But overarching every challenge is a level of excitement as we achieve the small wins that ladder up to bigger achievements. I acknowledge again the sustained commitment and contributions made daily throughout FY23 by my Director colleagues and by our team of professionals at Resimac, and especially the loyalty and hard work invested each day by our senior leadership team under the leadership of our CEO, Scott McWilliam. Resimac emerged from the Covid-19 lockdowns in remarkably good shape. Our long-standing banking partners are continuing to admirably support us across the globe, and we strive to never diminish our efforts to sustain their confidence in our organisation. We are delighted to receive their support as our business diversification expands commensurately with our capital and funding requirements. Our confidence in asset finance business is high, and we expect the activity to contribute significantly to group profitability in the coming three years and of course beyond. Warren J McLeland Chairman Our long-standing banking partners are continuing to admirably support us across the globe, and we strive to never diminish our efforts to sustain their confidence in our organisation. 6 | | 7 2023 ANNUAL REPORTRESIMAC GROUP LTDCEO’s message. Scott McWilliam Resimac rose to the challenge of a subdued lending market in FY23. An aggressive tightening of monetary policy (12 cash rate increases in 13 months) was the dominant force in the macro environment. Higher rates naturally impacted credit demand and had consequences for lending activity. As the home loan market softened, competition for existing borrowers became fierce. The banks were aggressive in the refinance market, offering upfront cashbacks and discounting to entice borrowers. Yet our people were able to identify opportunities and use our strengths to find and serve borrowers who needed help. I am proud of the results we delivered during this difficult time. In FY23, the business recorded a normalised NPAT of $73.7 million (excluding the impact of FV gains/losses on derivatives). I am equally pleased we were able to deliver strong returns. Our shareholders will receive a fully franked final dividend of 4.0 cents per ordinary share. The full year dividend is 8.0 cents per ordinary share. The economic environment remains challenging for household budgets. Inflation and borrowing costs have increased financial pressures on many. We continue to work with customers who need assistance and offer hardship measures. Our people closely monitor the progress of customers and I can report that arrears stabilised in the second half of FY23. Our loan book is robust and we remain conservatively provisioned to guard against the possibility of any losses. In FY24, our priorities are to continue growing the asset finance business, improve mortgage originations and AUM, and the ongoing digitalisation of Resimac Group. We see growth opportunities in targeting segments of Prime, self-employed and investor borrowers across home loans and asset finance. Our strong broker relationships and diverse range of products will be valuable in exploiting these opportunities. The asset finance business keeps thriving after full-year settlements rose to $482 million in FY23. We are steadily growing our portfolio and market reach as there is plenty of appetite for our car and equipment loans. A new origination platform is in place and is helping brokers do business with us more easily. We have all the building blocks in place and look forward to material growth in originations in FY24. Progress across the group will be aided by key technology platforms delivered in FY23. A new loan management platform for customers, a new mortgage origination platform and a new asset finance origination platform all improve operational efficiency and customer experience. These platforms are important pillars of our digital operating model. We are continuing to refine these platforms and know they will deliver greater benefit to customers and brokers in future. While investing in technology and our people has been beneficial, we do so within a strong cost discipline. We are targeting lower operating expenditure in FY24 and any future investment proposals will be assessed against stringent criteria. Underpinning all of our activity has been our global funding program. Our funding activities in domestic and offshore markets have provided the company with a pleasing amount of capacity for our growth aspirations. Assets Under Management $13.8b FY23 Dividend Fully Franked 8.0c FY23 Settlements $4.2b The asset finance business keeps thriving after full- year settlements rose to $482m in FY23. We have brought in new banking partners to support our home loan and asset businesses. I am confident that our funding capabilities will remain strong in FY24. To conclude, I want to express my gratitude to the executive leadership team and general management group for their dedication during this past year. I am thankful for their ongoing support. I pay tribute to our people throughout Australia, New Zealand and the Philippines, whose hard work makes the company what it is. We are indebted to the efforts of our broker and business partners who help us provide competitive and flexible lending solutions to Australian and New Zealand borrowers. We are grateful to our customers for choosing us to help them achieve their dream of home ownership. Thank you, as well, to our board members whose commitment and expertise has been of immense benefit. Scott McWilliam CEO 8 | | 9 2023 ANNUAL REPORTRESIMAC GROUP LTDBoard of Directors. Resimac Group Ltd Warren McLeland Susan Hansen Wayne Spanner Duncan Saville Caroline Waldron Peter Fitzpatrick Chairman Non-Executive Director Warren is a former stockbroker and investment banker with over 35 years of experience in domestic and international financial services. In addition, Warren acts as an adviser in funds management and business strategy to companies operating in the Asia Pacific region. Warren is the former Executive Chairman of Resimac Limited. Independent Non-Executive Director Susan is a Chartered Accountant and holds a Bachelor of Commerce degree and an MBA from University of Cape Town. Susan has 40 years of experience including a Big Four Accounting firm and an investment bank (financial analysis and risk assessment). Susan is a Principal of a financial training organisation based in New Zealand. Independent Non-Executive Director Wayne holds a Bachelor of Commerce and Law degree from The University of Cape Town and a Masters of Science degree from Oxford University. Wayne has over 30 years experience as a lawyer and over 15 years senior executive experience in an international law firm. He was previously the Managing Partner of an international law firm in Australia from 2012 to 2020. Wayne has extensive experience in executive management and corporate governance at Board level. Non-Executive Director Duncan is a Chartered Accountant and an experienced non-executive Director. He is chairman of ICM Limited, an international fund manager. Duncan is a fellow of the Institute of Chartered Accountants Australia and New Zealand, the Australian Institute of Company Directors and the Financial Services Institute of Australasia. Independent Non-Executive Director Caroline is a Non-Executive Director and cross border advisor with over 30+ years’ experience in regulated consumer sectors such as technology, retail and health. Caroline brings to Resimac commercial and governance experience in many areas including technology rollouts and complex transactions. Caroline holds an LLB Hons (London), and has been admitted to the Bars of England and Wales, Malaysia, Australia and New Zealand. Company Secretary Peter is a Chartered Accountant who joined Resimac Limited in 1987 and is responsible for the Group’s company secretarial function. He is a member of the Governance Institute of Australia and the Financial Services Institute of Australasia. 10 | 10 | | 11 | 11 2023 ANNUAL REPORTRESIMAC GROUP LTD2023 ANNUAL REPORT Sustainability report. This report should be read in conjunction with the Corporate Governance Statement located on Resimac’s website resimac.com.au and the Remuneration Report set out on pages 26 to 39 in this Annual Report. Our ESG strategy supports our ability to achieve our overarching business strategy in a manner that is sustainable and accountable. At Resimac, we believe it is important that our people have ownership of our ESG initiatives. This is why we have a people-run Environmental, Social and Governance Committee with representation from every team in the business that reports to the CEO and Resimac Board. Resimac’s overarching Environmental, Social and Governance (ESG) purpose is: Passion: We understand that it is our duty to incorporate sustainability into the fabric of our organisation, ensuring we can drive action that benefits our people, customers, business partners, investors, shareholders, the community. Inclusion: Everyone must play their part, however small, to achieve meaningful change in our communities, countries and within our global network. Accountability: It is our responsibility to ensure that the services we deliver are ethical and sustainable. Our core values of quality, passion, agility, respect, accountability, professionalism, and integrity serve as the foundation upon which our ESG purpose is built. Incorporating core values into our ESG initiatives strengthens our commitment to responsible business practices, sustainability, and positive social impact. They serve as the baseline for our journey towards a more sustainable and equitable future for all. Stakeholder engagement & consultation. Understanding the priorities and passions of our various stakeholders helps us align our ESG initiatives accordingly. We do this by: Customers: Communities: Our regulators:  Customer care services  Surveys  Social media  Volunteering  Partnerships  Fund raising / donations  Industry forums / briefings  Policy review and analysis  Regulatory meetings Business partners: Employees: Shareholders:  Surveys  Industry research  Face to face discussions / presentations  Engagement survey  Surveys  ESG workshop  DEI committee  Investor meetings  Regular financial reporting  Market disclosures  Social media OFFERINGS Delivering lending solutions that are diverse, flexible and technology-enabled, with a service experience that is continually improving and evolving to benefit our customers and brokers. PEOPLE Via our people, who cultivate a sense of purpose in delivering better outcomes for customers and for each other. CHANNELS Using efficient and effective distribution to chosen segments, at scale. OPERATING MODEL Supported by a fit-for-purpose and technology-enabled operating model/s. CAPITAL With access to sufficient, diversified and efficient funding and capital base. STAKEHOLDER VALUE Ultimately producing superior, sustainable returns with a 'capital light' model. 12 | | 13 2023 ANNUAL REPORTRESIMAC GROUP LTD| SUSTAINABILITY REPORT | SUSTAINABILITY REPORT Environmental. We understand the importance of supporting the environment. We are committed to this by: Offering our customers a green loan product. Our green loan product was developed to encourage our customers to join the movement towards a cleaner and more sustainable future. The Green Loan can be used to purchase and install energy- efficient items for household improvements such as battery packs and storage, electrical energy storage, hot water heat pump or solar hot water system, insulation and/or double-glazed windows and solar panels. Partnering with Carbon Positive Australia, which conducts and funds biodiverse community reforestation projects to assist with carbon setting. For every settled loan, our customers have the opportunity to select one of three community projects that they would like to support on its Plant Trees Australia funding platform. We then contribute to that project on their behalf. The projects are: 1. 'Pocket forest' in schools and communities across Australia. This project funds compressed forests in schools and community parks. For schoolchildren, it offers multiple learning opportunities and practical action against climate change. 2. Biodiversity and ecosystem restoration in VIC and WA. These projects engage with rural and metro communities across Victoria and Western Australia to restore degraded land and increase biodiversity in agricultural landscapes. 3. Indigenous-led projects in WA and central Australia. These projects focus on bringing the community together, with initiatives that support tree nursery establishment, seed collection and tree planting. Our focus. The United Nations has embraced 17 Sustainable Development Goals (SDGs), and Resimac supports all of these objectives. In alignment with the strategic direction set by the Resimac Board and management in 2022, our SDGs of focus are: As part of our commitment to promote Good-Health and Well- Being, we partner with Run-Rocket- Run, an initiative focused on mental and physical resilience through endurance running. All funds raised by Run-Rocket-Run go to support Invictus Australia. In addition, we partner with The Station, a not-for-profit drop-in centre in Sydney that helps adults having difficulty obtaining and sustaining accommodation with a range of services, including a warm meal for lunch and dinner every day of the year. To help The Station, we have a team of volunteers who assist with food service twice a week, and we have an annual collection of personal and hygiene products. We believe quality education should be accessible to everyone. In line with this SDG, we have connected with the GO Foundation who support Aboriginal and Torres Strait Islander students through their scholarship program, promoting social inclusion through the provision of essential items. Moving forward, we look to deepen our connection by providing our support to the Foundation. In addition, we are looking to develop an internal graduate program to support members of the younger generation in gaining invaluable insight and work experience in the financial industry – an initiative that could help propel their careers. Resimac is a proud partner of Plant Trees Australia, an online platform run by Carbon Conscious Australia that helps fund community tree-planting projects. As part of the loan settlements process, our customers have an opportunity to select a community tree- planting project they would like to support, and we contribute funds to those projects on their behalf. Under our previously held decade-long partnership with Carbon Conscious, we planted over 46,000 trees, which offset nearly 5 million kilograms of carbon from the Earth’s atmosphere over their lifetime. OVER 46,000 TREES 14 | | 15 2023 ANNUAL REPORTRESIMAC GROUP LTDSocial. As a leading non-bank lender, we embrace the social responsibilities that impact our diverse range of stakeholders, including our customers, employees, investors, and the broader community. Our people are all passionate about assisting and supporting the community by way of volunteering; donations; and educating and building awareness. Some of the community initiatives we support are: Food Ladder Sanctuary Housing Run Rocket Run We firmly believe that the success of our business is propelled by the quality care our people provide to our customers, business partners, and wider community. To support this, we provide an array of employee benefits, including study support, flexible work hours, wellness programs, an employee assistance program, salary continuance insurance, options for purchased leave, a paid community day and access to hybrid working arrangements promote a healthy work/life balance. Additionally, in a bid to foster an inclusive and diverse workforce, we have recently launched a Women and Leadership program. This initiative is dedicated to empowering women within our organisation, cultivating their professional growth, and supporting the development of female leadership. Looking ahead, we are dedicated to further expanding our ESG financing capabilities, encompassing green and sustainable funding initiatives, to meet the evolving demands of our investors. RESIMAC GROUP LTD In 2021 we funded our first co-branded hydroponic greenhouse in a Brisbane primary school, and since then, we have funded another two greenhouse builds in Sydney and Adelaide. | SUSTAINABILITY REPORT Governance. Resimac has a strong governance framework in place. This ensures all regulatory obligations are adhered to in line with our Australian Financial Services, our Australian Credit Licence requirements, and as an ASX-listed entity. We have several committees, policies, and procedures in place to complement this framework. These committees include: • Risk & Compliance; • Audit; • Remuneration & Nominations; • Asset & Liability; • Credit; • Technology, Digital & Innovation; and • Diversity, Equity & Inclusion. The policies we have in place to uphold the ethical conduct of our people include but are not limited to: Code of Ethics; Modern Slavery Statement; Conflicts of Interest; Securities Trading Policy; Breach & Incident Policy & Reporting; Anti-Bribery & Corruption Policy; Anti-Money Laundering Program; and Whistleblower Policy. In addition, our people undergo regular training in compliance, risk and cyber security to ensure we remain vigilant against emerging threats that may be detrimental to our business. Food Ladder. Resimac is a proud sponsor of 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, it also creates employment and training opportunities for adults and education outcomes for children. Food Ladder systems have benefited over 31,500 individuals, with 6,000 getting a consistent, significant part of their diet from Food Ladder. Furthermore, it has created 600 jobs. In 2021 we funded our first co- branded hydroponic greenhouse in a Brisbane primary school, and since then, we have funded another two greenhouse builds in Sydney and Adelaide. Philippines. Each year, we partner with our staff in Manila to support a community charity for their annual outreach program. This year, the Resimac team chose the Dumagat tribe in Tanay, Rizal Province. The tribespeople are the original inhabitants of the forest, and rely on the natural environment to help their livelihood. While they have preserved their culture, they have faced several challenges – one being access to education. To assist the Dumagat people, the Resimac team donated school supplies, learning materials, a printer, shirts, slippers, toiletries, a fan and mattress. The visit was a great lesson for the Resimac team on the benefit of social responsibility. 16 | | 17 2023 ANNUAL REPORTRESIMAC GROUP LTD| DIRECTORS' REPORT | DIRECTORS' REPORT 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 2023. In order to comply with the provisions of the Corporations Act 2001, the Directors’ Report is as follows: Information about the Directors Names and particulars of the Directors of the Company during or since the end of the financial year are: Mr Warren McLeland Non-Executive Director and Chairman since February 2020 Mrs Susan Hansen Independent Non-Executive Director since October 2016 Warren is a former stockbroker and investment banker with over 35 years of experience in domestic and international financial services. In addition, Warren acts as an adviser in funds management and business strategy to companies operating in the Asia Pacific region. Warren is the former Executive Chairman of Resimac Limited. Susan is a Chartered Accountant and holds a Bachelor of Commerce degree and an MBA from University of Cape Town. Susan has 40 years of experience including a Big Four Accounting firm and an investment bank (financial analysis and risk assessment). Susan is a Principal of a financial training organisation based in New Zealand. Other listed Directorships (last three years): Other listed Directorships (last three years): • Chairman of Thorn Group Limited (since October 2019, Director since August 2019). • Non-Executive Director of Utilico Emerging Markets Limited (since September 2013). in Bermuda (resigned February 2021). Limited (resigned July 2022). • Former non-executive Director of UIL Limited (resigned September 2019). Special responsibilities: • Chair of the Audit Committee (since November Special responsibilities: 2016). • Chairman of Resimac Group Ltd (since February • Member of the Remuneration and Nomination 2020). Committee (since November 2016). • Chairman of the Risk and Compliance Committee • Member of the Risk and Compliance Committee (since February 2017). (since November 2016). • Member of the Remuneration and Nomination • Member of the Technology, Digital and Innovation Committee (since November 2016). Committee (since April 2021). • Member of the Audit Committee (since August • Chair of Resimac NZ Home Loans Limited (since 2017). May 2012). 18 | Mr Wayne Spanner Independent Non-Executive Director since February 2020 Wayne holds a Bachelor of Commerce and Law degree from The University of Cape Town and a Masters of Science degree from Oxford University. Wayne has over 30 years experience as a lawyer and over 15 years senior executive experience in an international law firm. He was previously the Managing Partner of an international law firm in Australian from 2012 to 2020. Wayne has extensive experience in executive management and corporate governance at Board level. Other listed Directorships (last three years): • Nil. Special responsibilities: • Chair of the Remuneration and Nomination Committee (since February 2020). technology rollouts and complex transactions. Caroline holds an LLB Hons (London), and has been admitted to the Bars of England and Wales, Malaysia, Australia and New Zealand. Other listed Directorships (last three years): • Non-executive Director of AMA Group Limited (since March 2022). • Non-executive Director of Genetic Signatures Limited (since May 2022). Special responsibilities: • Chair of the Technology, Digital and Innovation Committee (since April 2021). • Member of the Remuneration and Nomination Committee (since January 2021). • Member of the Risk and Compliance Committee (since February 2022). • Member of the Risk and Compliance Committee Company Secretary (since July 2020). • Member of the Audit Committee (since July 2020). Mr Peter Fitzpatrick Since November 2016 Mr Duncan Saville Non-Executive Director since November 2017 Duncan is a Chartered Accountant and an experienced non-executive Director. He is chairman of ICM Limited, an international fund manager. Duncan is a fellow of the Institute of Chartered Accountants Australia and New Zealand, the Australian Institute of Company Directors and the Financial Services Institute of Australasia. Other listed Directorships (last three years): Limited (since 2012). Special responsibilities: Peter is a Chartered Accountant who joined Resimac Limited in 1987 and is responsible for the Group’s company secretarial function. He is a member of the Governance Institute of Australia and the Financial Services Institute of Australasia. The abovenamed Directors and officer held office during the financial year and since the end of the previous financial year. Directors’ shareholdings The following table sets out each Director’s relevant interest in shares and rights of the company or in a related body corporate as at 30 June 2023: • Member of the Technology Digital and Innovation Committee (since April 2021). DIRECTOR Fully paid ordinary shares Number of rights over ordinary shares Mrs Caroline Waldron Independent Non-Executive Director since November 2020 Caroline is a non-executive Director and cross border advisor with over 30+ years’ experience in regulated consumer sectors such as technology, retail and health. Caroline brings to Resimac commercial and governance experience in many areas including Warren McLeland 12,130,165 Susan Hansen 212,738 Wayne Spanner 15,732 Duncan Saville 254,586,353 Caroline Waldron Nil Nil Nil Nil Nil Nil | 19 • Former Chairman of Somers Limited incorporated • Former non-Executive Director of Go2 People • Non-executive Director of West Hamilton Holdings 2023 ANNUAL REPORTRESIMAC GROUP LTD| DIRECTORS' REPORT | DIRECTORS' REPORT 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. Share options or rights granted to Directors and senior management An aggregate of 1,284,875 shares were granted/exercised: Results and dividends The information appearing on pages 18 to 24 forms part of the Directors’ Report for the financial year ended 30 June 2023 and is to be read in conjunction with the following information: PROFIT FY23 $’000 FY22 $’000 Profit attributable to ordinary equity holders of the parent 66,446 102,147 • 199,875 shares granted under the Employee Share Plan on 10 October 2022; DIVIDENDS • 785,000 options exercised by senior management on 6 September 2022 in relation to the FY20 Long Term Incentive Plan; and • 300,000 options exercised by Scott McWilliam on 16 June 2023 in relation to Tranche 3 of the FY18 Long Term Incentive Plan. Further details included in the Remuneration report. 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). The following dividends have been paid by the Company or declared by the Directors since the commencement of the financial year ended 30 June 2023: (a) out of the profits for the year ended 30 June 2022 and retained earnings on the fully-paid ordinary shares: • fully-franked final dividend of 4.00 cents (FY21: 4.00 cents) per share paid on 23 September 2022. 16,1161 16,336 (b) out of the profits for the half-year ended 31 December 2022 and retained earnings on the fully-paid ordinary shares: • fully-franked interim dividend of 4.00 cents (HY22: 4.00 cents) per share paid on 24 March 2023. 16,0572 16,343 Board meetings Audit Risk and compliance Remuneration and nomination Technology, digital and innovation • fully-franked final dividend of 4.00 cents (FY22: 4.00 cents) per share declared on 28 August 2023. 16,065 16,277 COMMITTEES (c) out of the profits for the full year ended 30 June 2023 and retained earnings on the fully-paid ordinary shares: DIRECTOR (A) (B) (A) (B) (A) (B) (A) (B) (A) (B) 1 The final FY22 dividend paid is net of dividend paid to treasury shares held by the Group ($122,286), eliminated on consolidation. 2 The interim FY23 dividend paid is net of dividend paid to treasury shares held by the Group ($110,864), eliminated on consolidation. Warren McLeland Susan Hansen Wayne Spanner Duncan Saville Caroline Waldron 12 12 12 12 12 12 12 12 12 11 4 4 4 - - 4 4 4 - - 5 5 5 - 5 5 5 4 - 5 5 5 5 - 5 5 5 5 - 5 - 4 - 4 4 - 4 - 3 4 (A) Number of meetings eligible to attend. (B) Number of meetings attended. Operating and Financial Review Principal activities The Group is a leading residential mortgage and asset finance lending business, distributing Prime and Specialist products through various channels in Australia and New Zealand. The Group focuses on originating and servicing a high-quality loan portfolio, supported by a global funding program. The Group’s core capabilities include: • Lending products: Leveraging the Group’s deep understanding of the Australian and New Zealand markets to offer products that address consumer and SME customer demands, with attractive risk and return profiles; • Distribution: Distributing loans in Australia and New Zealand through partnerships with accredited brokers and wholesale channels, ensuring effective reach and market presence; • Treasury and funding expertise: Maintaining strong, long-term relationships with onshore and offshore banking and funding partners. The Group has extensive experience in issuing securities in global and domestic term securitisation markets, bolstering the Group’s financial position; and • Risk management: Operating a comprehensive enterprise risk management and governance framework, following the three lines of defence model. This enables the Group to proactively identify, assess, and mitigate risks, safeguarding the interests of all stakeholders. As part of the Group’s commitment to transparency and responsible reporting, this information is presented in the Group’s annual report to the shareholders. These activities drive sustainable growth and enhance value for the Group’s shareholders. 20 | | 21 2023 ANNUAL REPORTRESIMAC GROUP LTD| DIRECTORS' REPORT | DIRECTORS' REPORT Debt funding The Group maintains access to a diversified funding platform supported by established funding relationships and the Board approved funding strategy. The following funding channels are used to support the Group’s lending activities: • Corporate debt facility & NIM bond: Utilised for investment in business growth; • Securitisation trusts: Loans that are initially funded via a warehouse facility, are pooled and refinanced by being sold to new funding Special Purpose Vehicles (SPV) that issue limited-recourse independently rated Bonds, such as Residential Mortgage-Backed Securities (RMBS) and Asset- Backed Securities (ABS) to institutional investors in multiple jurisdictions; and • Warehouse facilities: Third-party funders provide limited-recourse financing to SPVs established by the Group. At 30 June 2023, the Group had three domestic and seven foreign offshore bank warehouse providers. Principal risks The Group’s key risks include but are not limited to: • Funding risk: The Group relies on a mix of warehouse facilities, securitisation trusts, and corporate debt to fund mortgage originations; • Capital and liquidity requirements: To meet the Australian Financial Services Licence requirements, the Group must maintain sufficient liquidity levels. There’s a potential risk of needing to provide additional ‘first loss’ equity capital to support senior ranking note holders, impacting profitability, growth, and potentially requiring raising additional capital; • Regulatory and licence compliance: Operating in highly regulated markets, changes in laws or regulations could significantly impact the Group’s business. Possessing multiple Australian Credit Licences, any alterations to licensing regimes, license revocations, or failure to obtain necessary licenses could have a material adverse effect on the Group’s business, operational, and financial performance; • Macroeconomic factors: An economic downturn leading to materially higher unemployment could lead to customer difficulty in maintaining loan serviceability, posing credit risk; • Interest rates: RBA cash rate increases have materially increased loan servicing for customers. Increased loan repayments combined with the higher cost of living from inflationary pressures, have impacted our customers as evidenced with arrears increasing during the year; • Climate and extreme weather events: Australia and New Zealand have a track record of extreme events including bushfires and floods, which could impact the underlying security of our loans and advances where customers are impacted by these events. Business strategy The Group is focused on a number of growth strategies to continue to drive revenue and profitability. 1. Organic lending growth The Group is well-positioned to grow volume driven by: • 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 market; • Opportunity to grow volume in the asset finance segment under the Resimac Asset Finance brand and materially scale this segment over the next 3 years; • Launch of our new digital customer banking environment; and • Continued investment in modernising core banking platforms to optimise loan servicing capabilities and operational efficiency. 2. Growth through acquisition • Management has demonstrated an ability to identify and execute profit accretive acquisitions in targeted markets consistent with the Group’s strategy; • On 1 August 2022 Resimac exercised the option to acquire a controlling stake in 23 Degrees Capital Partners Pty Ltd (operating as Sonder), increasing Resimac’s interest in 23 Degrees Capital Partners Pty Ltd from 15% to 51%. Sonder is a commercial asset finance wholesaler; • On 20 June 2023 Resimac entered in a sale and purchase agreement to purchase a $150 million portfolio of asset finance loan receivables from Thorn Group Limited (ASX: TGA). The purchase is subject to Thorn Group Limited shareholder approval and is expected to complete in September 2023. Resimac and Thorn are related parties as both are controlled by a common shareholder; and • The Group continues to evaluate M&A opportunities in both the home loan and asset finance segments in Australia and New Zealand. Review of operations The Group generated a statutory net profit after tax (NPAT) of $66,459,000 for the year ended 30 June 2023. To reflect the Group’s normalised earnings the NPAT has been adjusted to remove non-recurring costs and one-off gains/losses. Management believe the disclosure of the normalised NPAT provides additional insight into the underlying performance for the year, by excluding one off, non-recurring items. The following table reconciles the unaudited normalised earnings to the statutory NPAT for the year in accordance with International Financial Reporting Standards (IFRS). UNAUDITED NON-IFRS INFORMATION Statutory NPAT Dividend income from listed equity investment Fair value write-down on unlisted equity investment FY23 $’000 66,459 (5,401) 3,600 Customer fee remediation program (529) Customer compensation provision Tax effect of normalised items Normalised NPAT 450 564 65,143 FY23 normalised NPAT excluding fair value losses on derivatives (net of tax) is $73,722,000. Net interest income of $222,507,000 decreased 7% on prior year driven by the decrease in the Group’s assets under management. Operating expenses of $83,857,000 increased 6% on prior year driven by higher employment costs, and costs associated with an organisational restructure. Loan impairment expense decreased 80% to $2,240,000. The Collective Provision was increased in FY22 to increase coverage for potential macroeconomic headwinds. Group’s total home loan settlements were $3.7 billion, down 41% on prior year. Settlements were impacted by lower system activity and aggressive ADI cashback offers, particularly in the Prime segment. The Group’s assets under management at 30 June 2023 comprise: • On balance sheet home loans and advances to customers of $13.1 billion, down 14% compared to 30 June 2022; • On balance sheet asset finance loans of $0.6 billion, up 60% compared to 30 June 2022; • White label portfolio of $0.8 billion, down 30% compared to 30 June 2022 in line with the Group’s strategy to cease originating white label loans; and • Combined these make up the total assets under management of $14.5 billion. Political donations In the year ended 30 June 2023, the Group’s political contributions were Nil (FY22: Nil). Funding programmes During the year ended 30 June 2023, the following new Residential Mortgage Backed Securities (RMBS) and Asset Backed Securities (ABS) were issued to facilitate assets under management, optimise term duration and funding costs: • The RESIMAC Asset Finance Trust – Warehouse Series No.1 was settled on 31 August 2022 and is a domestic asset financing warehouse with an initial facility limit of $516 million. • The RESIMAC Triomphe Trust - Premier Series 2022-2 transaction was settled on 28 September 2022 and is a domestic prime issue with a total issuance size of $500 million. • The RESIMAC Bastille Series 2022-2NC transaction was settled on 15 December 2022 and is a domestic non-conforming issue with a total issuance of $500 million. 22 | | 23 2023 ANNUAL REPORTRESIMAC GROUP LTDThe 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 123 of this financial report. Rounding off amounts 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. | DIRECTORS' REPORT • The RESIMAC Versailles Series 2022-1 transaction was settled on 22 December 2022 and is a New Zealand prime issue with a total issuance size of NZD$200 million. • The RESIMAC RAF Trust – Warehouse Series No.2 transaction was settled on 2 February 2023 and is a domestic asset financing warehouse with an initial facility limit of $180 million. • The RESIMAC Bastille Series 2023-1NC transaction was settled on 20 April 2023 and is a domestic non-conforming issue with a total issuance size of $1 billion. • The RESIMAC Versailles Series 2023-1 transaction was settled on 29 June 2023 and is a New Zealand prime issue with a total issuance size of NZD$250 million. Indemnification of officers and auditors During the financial year, the Company paid a premium to a related party 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 $0.04 per share. The record date will be 8 September 2023. The payment date will be 20 September 2023. 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 Group generated a statutory net profit after tax (NPAT) of $66,459,000 for the year ended 30 June 2023. 24 | | 25 2023 ANNUAL REPORTRESIMAC GROUP LTDRemuneration report. 2023 (Audited) Contents 1 2 3 4 5 6 7 8 9 Summary Remuneration objectives, strategy and principles Remuneration and cultural activities Key management personnel KMP remuneration approach (excl. Non-Executive Directors) Short-term and long-term incentive plans Overview of company performance Statutory remuneration Non-Executive Director remuneration 10 Other remuneration information 27 27 27 28 28 29 32 33 34 36 | REMUNERATION REPORT 1. Summary This Remuneration Report provides shareholders with an overview of Resimac Group’s (the Group) remuneration strategy and framework that applies to the Group’s Directors, Key Management Personnel (KMP), Executive Management and employees (referred to collectively as Employees) for the year ended 30 June 2023. Resimac’s vision is to be a customer focused company, making home ownership, financial freedom and business success more accessible to everyone by leveraging technology and data driven insights. This vision is facilitated by promoting a culture of transparency that is diverse, inclusive and impactful and by a remuneration framework that provides positive outcomes for our customers, shareholders and employees. 2. Remuneration objectives, strategy and principles The Group’s commitment is to reward its employees with a level of remuneration and benefits that is commensurate with their individual responsibilities and position within the business, recognising that an engaged workforce is a requisite for the achievement of Resimac’s strategic objectives. The Board’s remuneration strategy is aligned to the following objectives: • To attract, motivate and retain high calibre employees; • To provide fair and equitable remuneration to all employees in line with the Group’s Diversity, Equity & Inclusion Policy; • To promote and reward behaviours within the business that are in the interest of all stakeholders which includes customers and shareholders; • To align effective risk management and demonstration of appropriate behaviours, values and ethics; • To reinforce a culture of continuous employee growth and knowledge; and • To ensure the Group’s Governance framework operates within and above industry best practice. The following principles provide the basis of the remuneration framework at Resimac: • Resimac remunerates its employees in a manner that is market competitive whilst being acceptable to its shareholders; • 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 all stakeholders including customers and shareholders; • Fixed and variable remuneration for KMP are periodically benchmarked to ensure remuneration is in line with the external market; and • Pay parity is paramount. Fair and equitable remuneration is applied to all employees regardless of gender, sexual identity, age, religion, ethnicity or disability. 3. Remuneration and cultural activities Continuous review and assessment of our remuneration and benefits continued throughout FY23 with a number of initiatives being included as part of the Remuneration and Culture Activities plan. These activities included: • Implementation of a new Human Resources Information System; • Diversity celebrations including NAIDOC week, International Womens Day, International Mens Day and International Guide Dogs Day; • Community outreach programs; • Senior leadership health assessments; • Wellbeing Program: Run Club, JP Morgan Challenge, Resilience workshops; • Opportunities for individual leadership and coaching programs; • Expansion of Parental Leave program to provide extra benefits including the recognition of prenatal leave, fertility leave, and miscarriage/stillbirth leave; • Introduction of Sabbatical Leave; • Continuation of Remote Working Policy; • Salary Continuance Insurance; • Secondment and on the job learning opportunities. | 27 2023 ANNUAL REPORTRemuneration.Remuneration.| REMUNERATION REPORT | REMUNERATION REPORT 4. Key Management Personnel The KMP are the people who have the authority and responsibility for planning, directing, implementing and controlling 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 Chief Treasury Officer (CTO) Majid Muhammad Chief Information Officer (CIO) Full Term Full Term Full Term Full Term Danielle Corcoran Chief Operating Officer (COO) Resigned on 6 April 2023 The Directors classified as KMP and required to be disclosed as part of this report are: Name CURRENT Position Term as KMP Warren McLeland Chairman, Non-Executive Director Susan Hansen Independent Non-Executive Director Duncan Saville Non-Executive Director Wayne Spanner Independent Non-Executive Director Caroline Waldron Independent Non-Executive Director Full Term Full Term Full Term Full Term Full Term 5. KMP remuneration approach (excl. Non-Executive Directors) Resimac’s remuneration strategy for KMP focuses on both financial and non-financial measures and the Board’s Remuneration & Nomination Committee assist with reviewing and recommending remuneration arrangements for KMP that is both consistent and competitive within the market. The total remuneration of the KMP comprise a fixed component and an at-risk variable component. The FY23 at-risk variable component is comprised of a short-term incentive. Remuneration is based on: • role in which the person is performing (i.e. accountability, responsibility, qualifications, skills and experience required); • market benchmarking; • performance against set Key Performance Indicators (KPIs); • achievement of performance hurdles which includes tenure; • regulatory compliance; and • company performance. 5.1. KMP fixed remuneration (excl. Non-Executive Directors) The fixed component of the KMP remuneration includes base salary plus any other fixed elements such as superannuation, salary sacrifice and benefits and is known as Total Fixed Remuneration (TFR). Annually the TFR for the role in which the KMPs are performing is considered by the Remuneration and Nomination Committee which then makes final recommendations to the Board. 5.2. KMP variable remuneration framework (excl. Non-Executive Directors) Variable remuneration is a means to provide at- risk remuneration to reward executives for their performance against set criteria. The objectives and criteria are designed to align with near term, mid term and long term strategy, ensuring value creation for shareholders. 5.3. Non-KMP remuneration approach For Senior Management that report directly to the CEO and are not classified as KMP, the same remuneration approach will apply to that of the KMP approach to ensure all Senior Management are aligned with the strategic objectives, behaviours and standards of Resimac. 6. Short-term and long-term incentive plans 6.1. Short-term incentive plan (STI Plan) Chief Executive Officer STI Plan and KPI metrics CEO, Scott McWilliam is eligible for a STI up to a cap of 100% of his TFR. CEO’s performance is assessed against predetermined KPIs by the Remuneration and Nomination Committee at the end of each performance period. Any STI awarded is 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 Nominations Committee. CEO KPI components for FY23 are: • Financial Performance: Cost Management, Interest Margin Management, Asset Finance settlement growth, Asset Under Management, Arrears rates; • Technology & Digital Strategy: Infrastructure and application technologies; • Market Opportunities; • Regulatory obligations; and • Leadership, People & Culture KMP STI Plan and KPI metrics The performance of KMPs is measured against predetermined KPIs assessed by the CEO at the end of each performance period and the Remuneration and Nomination Committee are responsible for reviewing and approving any awarded STI which will be paid 100% in cash at the end of the performance period (i.e. 1 July to 30 June). KPIs and relevant measurements will be set at the commencement of the performance period. KMPs participate in the annual STI plan whereby they have an opportunity to earn a percentage of their TFR. The performance of KMPs is measured against predetermined KPIs set by the CEO at the commencement of the performance period. The Remuneration & Nominations Committee measures KMP performance against the set KPI objectives and approves any STI awarded at the end of each performance period. The amount of an STI award will depend on whether and to what extent those objectives are achieved. The STI assessment is undertaken in July of each year and any award is payable in September of the same year. KPIs include: • Corporate strategy initiatives • Financial metrics including NPAT growth, cost to income ratio and demonstrated innovative cost initiatives; • Innovation and technology initiatives and enhancements to allow for simplification, scale and digitalisation; • Operational efficiency and effectiveness; • People, strategic leadership and culture; • Environmental, Social and Governance (ESG); and • Governance through Resimac’s Risk and Compliance frameworks which focuses on adherence to obligations, reduction of customer complaints, incidents and breaches. 28 | | 29 2023 ANNUAL REPORTRESIMAC GROUP LTD | REMUNERATION REPORT | REMUNERATION REPORT 6.2. Long-term incentive plan (LTI Plan) FY18 LTI Plan - CEO The vested options are required to be exercised no later than 30 June 2025. The CEO, Scott McWilliam, was offered a LTI in FY18. The details of the offer were: During FY23, cash component of $1,710,000 was paid and 785,000 options were exercised. • Granted 900,000 Options pursuant to the Resimac Group Employee Share Options and Rights Plan; • 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 was exercised on 26 April 2021,  Second tranche of 300,000 vested on 1 July 2019 and was exercised on 16 September 2021,  Third tranche of 300,000 vested on 1 July 2020 and was exercised on 16 June 2023. • Exercise period was 3 years for every tranche vesting; and • Vesting condition was 100% tenure. FY20 LTI Plan - KMPs and Executives In 2019 the Board established a LTI Plan for the CEO, KMPs and eligible executives pursuant to the Resimac Group Ltd Employee Share Option & Rights Plan Rules. The CEO, KMPs and eligible executives were offered options over ordinary shares, and a combined total cash component of up to $2.4m. 3,900,000 options were granted on 15 August 2019 (900,000 allocated to the CEO and 375,000 for each eligible executive). All options vested on 31 August 2022 after the Group achieved the following conditions: • Net Profit After Tax (NPAT) growth hurdles; • Digital transformation; • Compliance hurdles; and • Participant remaining employed with the Group until the vesting date. 30 | The graphs below set out the relative mix of TFR, STI and LTI for: • Scott McWilliam, CEO • Other KMP 14% CEO 56% 30% TFR STI LTI 12% 17% OTHER KMP 71% TFR STI LTI : l n a P e v i t n e c n I m r e T - g n o L e h t r e d n u d e u s s i s n o i t p o f o s l i a t e d e h t l i s e d v o r p w o e b e b a t e h T l r e b m u N s n o i t p o f o 3 2 0 2 / 6 / 0 3 t a d e t s e v n u r e b m u N s n o i t p o f o t a d e t s e v 3 2 0 2 / 6 / 0 3 t a d e h l r e b m u N s n o i t p o f o 3 2 0 2 / 6 / 0 3 s n o i t p O i d e s c r e x e g n i r u d r a e y e h t r e b m u N s n o i t p o f o t a d e h l 2 2 0 2 / 7 / 1 s n o i t p O / d e t i e f r o f i d e s c r e x e o t r o i r p 2 2 0 2 / 7 / 1 e t a d y r i p x E e t a d g n i t s e V i e s c r e x E f o e c i r p ) $ ( n o i t p o t n a r g t a ) $ ( e t a d l e u a v r i a F e t a d t n a r G e h c n a r T s n o i t p o f o r e b m u N - - - - - - - - - - - - - - - - - - - - 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 0 0 3 - - - , 0 0 0 0 0 3 , 0 0 0 0 0 3 , 0 0 0 0 0 3 1 ) 0 0 0 0 0 3 ( , 1 2 0 2 / 6 / 0 3 8 1 0 2 / 7 / 1 5 5 0 . 7 0 0 . 7 1 0 2 / 8 / 8 1 1 e h c n a r T , 0 0 0 0 0 3 2 ) 0 0 0 0 0 3 ( , 2 2 0 2 / 6 / 0 3 9 1 0 2 / 7 / 1 5 5 0 . 8 0 0 . 7 1 0 2 / 8 / 8 1 2 e h c n a r T , 0 0 0 0 0 3 - - - - 3 2 0 2 / 6 / 0 3 0 2 0 2 / 7 / 1 5 5 0 . 9 0 0 . 7 1 0 2 / 8 / 8 1 3 e h c n a r T , 0 0 0 0 0 3 5 2 0 2 / 6 / 0 3 2 2 0 2 / 8 / 1 3 5 6 0 . 0 2 0 . 9 1 0 2 / 8 / 5 1 1 e h c n a r T , 0 0 0 0 0 3 5 2 0 2 / 6 / 0 3 2 2 0 2 / 8 / 1 3 5 6 0 . 0 2 0 . 9 1 0 2 / 8 / 5 1 2 e h c n a r T , 0 0 0 0 0 3 5 2 0 2 / 6 / 0 3 2 2 0 2 / 8 / 1 3 5 6 0 . 0 2 0 . 9 1 0 2 / 8 / 5 1 3 e h c n a r T , 0 0 0 0 0 3 O T D E T N A R G O E C O E C O E C O E C O E C O E C 0 0 0 0 9 5 , 0 0 0 0 9 5 , 4 ) 0 0 0 5 8 2 ( , 0 0 0 5 7 8 , ) 0 0 0 5 2 1 ( , 5 2 0 2 / 6 / 0 3 2 2 0 2 / 8 / 1 3 5 6 0 . 0 2 0 . 9 1 0 2 / 8 / 5 1 1 e h c n a r T , 0 0 0 0 0 0 , 1 s P M K r e h t O 0 0 0 5 2 6 , 0 0 0 5 2 6 , 4 ) 0 0 0 0 5 2 ( , 0 0 0 5 7 8 , ) 0 0 0 5 2 1 ( , 5 2 0 2 / 6 / 0 3 2 2 0 2 / 8 / 1 3 5 6 0 . 0 2 0 . 9 1 0 2 / 8 / 5 1 2 e h c n a r T , 0 0 0 0 0 0 , 1 s P M K r e h t O 0 0 0 5 2 6 , 0 0 0 5 2 6 , 4 ) 0 0 0 0 5 2 ( , 0 0 0 5 7 8 , ) 0 0 0 5 2 1 ( , 5 2 0 2 / 6 / 0 3 2 2 0 2 / 8 / 1 3 5 6 0 . 0 2 0 . 9 1 0 2 / 8 / 5 1 3 e h c n a r T , 0 0 0 0 0 0 , 1 s P M K r e h t O , 0 0 0 0 4 7 , 2 , 0 0 0 0 4 7 , 2 , ) 0 0 0 5 8 0 , 1 ( , 0 0 0 5 2 8 3 , ) 0 0 0 5 7 9 ( , , 0 0 0 0 0 8 4 , 2 2 0 2 r e b m e t p e S 5 n o s n o i t p o 0 0 0 5 7 3 f o e s c r e x e e h t , i r o f d a m m a h u M d i j i a M y b d a p s a w 0 5 7 3 4 2 $ , , 2 2 0 2 r e b m e t p e S 5 n o s n o i t p o 0 0 0 5 3 f o e s c r e x e e h t , i r o f n a r o c r o C e l l i i e n a D y b d a p s a w 0 5 7 2 2 $ , . 3 2 0 2 e n u J 0 3 t a d e s c r e x e t o n t u b d e t s e v i , s n o i t p o 0 0 0 0 4 3 r e h t r u f a s a h n a r o c r o C e l l i e n a D . 2 2 0 2 r e b m e t p e S 6 n o s n o i t p o 0 0 0 5 7 3 f o e s c r e x e e h t , i i r o f e v i t u c e x e n a y b d a p s a w 0 5 7 3 4 2 $ d n a , . 2 e h c n a r T o t n o i t a e r n l i i d a p n u g n n a m e r i i s t n u o m a o n e r a e r e h T . 1 2 0 2 r e b m e t p e S 6 1 n o s n o i t p o 0 0 0 0 0 3 f o e s c r e x e e h t , i . 1 e h c n a r T o t n o i t a e r n l i i d a p n u g n n a m e r i i s t n u o m a o n e r a e r e h T . 1 2 0 2 l i r p A 6 2 n o s n o i t p o 0 0 0 0 0 3 f o e s c r e x e e h t , i . 3 e h c n a r T o t n o i t a e r n l i i d a p n u g n n a m e r i i s t n u o m a o n e r a e r e h T . 3 2 0 2 e n u J 6 1 n o s n o i t p o 0 0 0 0 0 3 f o e s c r e x e e h t , i r o f m a i l l i W c M r o f m a i l l i W c M r o f m a i l l i W c M i t t o c S y b d a p s a w 0 0 0 5 6 1 $ , i t t o c S y b d a p s a w 0 0 0 5 6 1 $ , i t t o c S y b d a p s a w 0 0 0 5 6 1 $ , 1 2 3 4 | 31 2023 ANNUAL REPORTRESIMAC GROUP LTD | REMUNERATION REPORT | REMUNERATION REPORT 7. Overview of company performance The table below summarises details of Resimac’s performance for key financial measures over the past four financial years. Note the Group undertook a buyback programme and cancelled 5,290,163 shares in FY23 (FY22: 2,482,741 shares). FINANCIAL YEAR ENDED 30 JUNE FY23 FY22 FY21 FY20 Statutory NPAT ($’000)1 66,446 102,147 107,557 55,908 Total dividends per share (cents)2 Dividend payout ratio (%)2 8.00 48.4 8.00 32.0 4.20 15.9 2.70 19.6 Basic earnings per share (cents) 16.52 25.05 26.37 13.75 Return on equity (ROE) (%)3 Return on assets (%)4 Share price at 30 June ($) 16.4 4.4 0.92 29.9 6.1 1.15 36.9 7.3 2.46 25.5 4.3 1.01 1 NPAT excludes non-controlling interest (FY23: 13k, FY22: Nil). 2 Dividends per share and dividend payout ratio are calculated on dividends paid during the financial year. 3 ROE based on normalised NPAT and average shareholders’ equity per consolidated statement of financial position. 4 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. . 3 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 32 | n o i t a r e n u m e r y r o t u t a t S . 8 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 L A T O T 4 S T N E M Y A P D E S A B - E R A H S I S T F E N E B M R E T - G N O L - T S O P I S T F E N E B T N E M Y O L P M E I S T F E N E B M R E T - T R O H S ) % ( e g a t n e c r e P l d e t a e r s t h g i r e g a t n e c r e P ) % ( 5 d e t a e r l e c n a m r o f r e p ) $ ( ) $ ( s t h g i r n o i t p O ) $ ( 3 s t i f e n e b n o i t a n m r e T i y r a t e n o m - n o N ) $ ( 2 e v a e L ) $ ( ) $ ( 1 n o i t a u n n a r e p u S s t i f e n e b ) $ ( d e d r a w a I T S ) $ ( y r a a S l P M K t n e r r u C . 2 4 1 . 3 2 1 4 . 1 1 . 2 0 1 . 9 0 1 . 0 0 1 7 . 0 1 1 . 0 1 . 5 4 1 2 9 . 1 . 0 3 . 5 4 3 7 . 8 1 . 5 5 2 0 . 1 2 1 . 5 2 . 2 2 2 . 3 5 2 0 0 . . 6 4 2 , 5 2 6 6 8 1 , 1 0 5 7 , 8 6 1 9 6 6 , 1 8 2 , 1 5 7 3 7 5 1 , , 4 7 6 9 8 5 0 0 5 , 7 6 2 4 5 7 2 6 , 6 6 9 3 6 , 7 0 9 , 7 1 6 , 8 5 2 8 3 6 0 0 5 , 7 6 6 6 9 3 6 , 5 6 2 9 2 6 , 0 0 5 , 7 6 7 3 2 , 1 3 6 6 6 9 3 6 , - - - - - - - - 5 7 3 0 1 , 4 9 2 2 3 , 2 8 0 0 1 , 6 7 5 3 1 , 4 9 8 , 7 8 1 3 8 , 5 6 7 , 7 1 7 2 7 , , 1 6 5 5 6 4 0 0 5 , 7 6 7 6 7 , 0 2 - , 7 0 2 2 9 6 6 6 9 3 6 , - 5 5 1 , 0 1 0 0 5 , 7 2 0 0 5 7 2 , 0 0 5 , 7 2 0 0 5 7 2 , 0 0 5 , 7 2 0 0 5 7 2 , 0 0 5 , 7 2 0 0 5 7 2 , 2 9 3 4 2 , 0 0 5 7 2 , - - 0 0 5 , 7 5 3 0 0 5 2 2 6 , , 0 0 0 2 4 4 0 0 5 2 2 6 , 0 0 0 0 1 , 0 0 0 0 1 , 0 0 0 0 1 1 , , 2 9 5 4 6 3 0 0 0 0 6 1 , , 0 0 5 2 5 3 - - - - - - 0 0 0 0 3 1 , , 3 1 0 5 8 3 0 0 0 0 6 1 , 4 7 4 8 7 3 , 0 0 0 0 4 1 , 0 0 5 6 8 3 , 0 0 0 0 6 1 , 0 0 5 2 7 3 , - 2 0 9 2 5 3 , 0 0 0 0 7 1 , , 6 8 5 0 2 4 , 2 3 0 9 8 4 3 , , 3 1 9 0 7 8 3 , 9 3 2 3 1 4 , - 0 5 7 , 8 3 4 7 6 7 , 0 2 6 1 1 , 6 3 4 1 6 , 1 7 2 9 3 4 3 1 , 0 0 0 0 1 , 0 0 5 , 7 3 7 7 0 5 , 1 1 1 , 2 0 0 5 7 3 1 , 0 0 0 0 1 , , 0 0 0 2 9 0 , 1 , 0 6 5 6 4 1 , 2 n e d s r a M w e r d n A 3 2 Y F 2 2 Y F 6 i d r a p o z z A n o s a J 3 2 Y F 2 2 Y F d a m m a h u M d i j a M 3 2 Y F 2 2 Y F 3 2 Y F 2 2 Y F 7 n a r o c r o C e l l i e n a D 3 2 Y F 2 2 Y F L A T O T 3 2 Y F 2 2 Y F 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 . 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 y r a a s l s ’ i d r a p o z z A n o s a J . 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 . 3 2 0 2 l i r p A 6 m o r f t c e f f e h t i i w d e n g s e r n a r o c r o C e l l i e n a D 5 6 7 g n i r u d P M K o t d a p n a P i l . i i n o i t a n m r e t n o d a p s t n e m e l t i t n e e v a e l l a u n n a t c e l f e r s t i f e n e b n o i t a n m r e T i I T L 0 2 Y F e h t l f o t n e n o p m o c h s a c 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 . 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 i e c v r e s g n o l o t e t a e r l s t i f e n e b m r e t - g n o L , 0 0 5 7 2 $ o t j t c e b u s s a w p a c s n o i t u b i r t n o c l i a n o s s e c n o c n o i t a u n n a r e p u S 1 2 3 4 . r a e y e h t | 33 n a i l l i W c M t t o c S 2023 ANNUAL REPORTRESIMAC GROUP LTD | REMUNERATION REPORT | REMUNERATION REPORT 9. Non-Executive Director remuneration 9.1. Overview of Non-Executive Directors’ remuneration arrangements NAME Position Maximum fee ($) 9.1.1. Policy objectives • To be market competitive: aim to set Directors’ fees competitive with Non-Executive Directors in comparable businesses with respect to product mix, market capitalisation, geographical market and employee size; • 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 • To safeguard independence: to exclude any performance related element in order to preserve the independence of the Non-Executive Directors. 9.1.2. Aggregate fees approved by shareholders At the Annual General Meeting (AGM) of shareholders held on 16 November 2021, the shareholders approved an increase to the maximum aggregate fee pool per annum for non-executives to $800,000. 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 in conjunction with holding an Australian Financial Services Licence and several Australian Credit Licences. The agreed fee structure is that a fee is paid to reflect the Chairman’s responsibilities. Each Director receives a base fee and if a Director chairs a Board committee, 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. The Remuneration & Nominations Committee met in June 2023 to review the Directors fees and resolved to not increase fees in FY24. The FY23 fee levels inclusive of superannuation where applicable were as follows: Warren McLeland Chairman and Risk & Compliance Chair 141,303 p.a. Susan Hansen Wayne Spanner Duncan Saville1 Caroline Waldron Independent Non- Executive Director, Audit Chair & Resimac New Zealand Chair Independent Non- Executive Director & Remuneration and Nomination Chair 141,628 p.a. 93,925 p.a. Non-Executive Director 74,900 p.a. Independent Non- Executive Director & Technology, Digital and Innovation Chair 116,897 p.a. 1 Exclusive of superannuation. 9.1.4. Board skills and behaviours A key objective for Resimac is to ensure that we have a diverse Board of Directors. The Board undertakes an assessment of the skills that each Director holds biennially which is summarised in a skills matrix. The skills matrix was last completed by the board in March 2023. Although it is not expected that all Directors will have the same skills and behaviours, the purpose of the matrix is to ensure there is a balance within the Board to ensure we have diversity of thought. The matrix skills and behaviours include: • Strategy, planning, monitoring and policy development • ASX experience • Governance • Regulatory and stakeholder relations • Risk and compliance management • Relevant technical and industry knowledge • Sustainability • Finance and audit • Capital management • People, culture & remuneration • Health, safety & environment • Marketing and business development • Technology, digital and innovation 9.1.5. Board evaluation reporting The Board is committed to transparency in determining Board membership and in assessing the performance of Directors. The Board undertook performance reviews in 2018 and 2020. At the conclusion of the last full evaluation in 2020 the Board determined to undertake more frequent assessments which resulted in an assessment of their effectiveness at the conclusion of each Board meeting. By rotation a Director is responsible for collation of feedback and any change recommendations. The purpose of this is to assess the performance of the Board as a whole with respect to time keeping, relevance, preparation and outcomes. The performance of Directors is assessed against a range of criteria including contribution at meetings, understanding the major risks affecting the Group, contributing to the development of the strategy, committing the time required to fulfill the role and perform their responsibilities effectively, listening and respecting the ideas of fellow Directors and management and consistently taking the perspective of creating shareholder value. The Board with the assistance of the Remuneration and Nominations Committee conducts a review of the performance of each Director seeking re-election at the Annual General Meeting. 9.1.6. Non-Executive Director remuneration The fees paid or payable to the Non-Executive Directors in relation to FY23 are set out below: CURRENT Warren McLeland FY23 FY22 Susan Hansen2 FY23 FY22 Wayne Spanner FY23 FY22 Duncan Saville FY23 FY22 Caroline Waldron2 FY23 FY22 TOTAL REMUNERATION FY23 FY22 SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS Fees ($) Superannuation1 ($) Total ($) 127,876 127,876 132,099 131,334 85,000 85,000 74,900 74,975 107,972 103,211 527,847 522,396 13,427 12,788 9,529 9,075 8,925 8,500 - - 8,925 8,500 40,806 38,863 141,303 140,664 141,628 140,409 93,925 93,500 74,900 74,975 116,897 111,711 568,653 561,259 The assessment of skills and behaviours ties into Board succession and selection of Directors. 1 Australian superannuation is paid where applicable. New Zealand Kiwisaver is not paid. 2 A portion of remuneration is paid in NZD. 34 | | 35 2023 ANNUAL REPORTRESIMAC GROUP LTD| REMUNERATION REPORT | REMUNERATION REPORT 10. Other remuneration information 10.1. Remuneration governance 10.1.1. Remuneration governance and 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, independence, diversity 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 talent management; and • Diversity, equity and inclusion in the workplace. 10.1.2. Remuneration and nomination committee 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 • Caroline Waldron 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 Company engaged Godfrey Remuneration Group and Colvin Consulting Group to provide advice on a revised equity plan and Long Term Variable Remuneration (LTVR) design. Fees payable for FY23 were $17,000 excluding GST (FY22: $20,000). 10.1.4. KMP share ownership The table below sets out the number of shares held directly, indirectly or beneficially by the current and former KMP (including their related parties): NON-EXECUTIVE DIRECTORS Warren McLeland Susan Hansen Wayne Spanner Duncan Saville Caroline Waldron SENIOR EXECUTIVES Scott McWilliam Jason Azzopardi Andrew Marsden Danielle Corcoran1 Majid Muhammad Held at 1 July 2022 Net change Held at 30 June 2023 12,130,165 212,738 15,732 254,586,353 - 266,944,988 - - - - - - 12,130,165 212,738 15,732 254,586,353 - 266,944,988 1,450,000 46,831 1,496,831 50,000 - - - 50,000 - 96,738 (4,835) 91,903 - 375,000 375,000 1,596,738 416,996 2,013,734 Total 268,541,726 416,996 268,958,722 1 Danielle Corcoran resigned with effect from 6 April 2023. 36 | | 37 2023 ANNUAL REPORTRESIMAC GROUP LTD| REMUNERATION REPORT | REMUNERATION REPORT 10.1.5. Share trading restrictions 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 limiting the KMP’s exposure to risk relating to an element of their remuneration that remains subject to restrictions on disposal. Resimac Directors, management team, and members of their immediate family and controlled entities are also required to obtain written consent and clearance for security trading during trading windows from the Chairman. 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. 10.1.6. Further information on remuneration 10.1.6.1. Service agreements Each KMP has entered into an employment contract with the Company (Resimac Limited). These contracts have unlimited duration however may be terminated with relevant notice as set out below unless in the case of serious misconduct in which the KMP may be terminated immediately. 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. Notice period / termination payment NAME Details regarding loans outstanding to KMP and their related parties during the reporting period, are outlined below. Balance 1 July 2022 Balance 30 June 2023 Interest payable for the year2 Highest balance during the year Scott McWilliam • Six months’ notice (or NON-EXECUTIVE DIRECTORS ($) ($) ($) ($) payment in lieu) • May be terminated immediately for serious misconduct Duncan Saville 15,449,316 13,558,651 859,407 15,478,864 Jason Azzopardi • Three months’ notice (or SENIOR EXECUTIVES payment in lieu) • May be terminated immediately for serious misconduct Andrew Marsden • Three months’ notice (or payment in lieu) • May be terminated immediately for serious misconduct Danielle Corcoran1 • Three months’ notice (or payment in lieu) • May be terminated immediately for serious misconduct Majid Muhammad • Three months’ notice (or payment in lieu) • May be terminated immediately for serious misconduct 1 Danielle Corcoran resigned with effect from 6 April 2023. 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 Group’s 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. Scott McWilliam 2,000,000 2,000,000 Danielle Corcoran 356,412 346,393 76,237 18,354 2,008,455 373,048 17,805,728 15,905,044 953,998 17,860,367 2 Interest is charged on an arm’s-length basis. 10.1.7.1. Other transactions and balances with KMP From time to time, Directors of the Company or its controlled entities, or their Director-related entities may obtain loans or ad hoc services from the Group, on the same terms and conditions as those entered into by other group employees or customers. In FY23, a Director-related entity of Duncan Saville obtained a short term loan on market terms from the Group and the amount outstanding at 30 June 2023 is $8,000,000 (FY22: Nil). The loan has a contractually obliged repayment date of 30 September 2023. 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 28 August 2023 38 | | 39 2023 ANNUAL REPORTRESIMAC GROUP LTD| CONSOLIDATED STATEMENT OF PROFIT OR LOSS | CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Financial statements. Consolidated statements for the year ended 30 June 2023 Interest income Interest expense Net interest income Fee and commission income Fee and commission expense Fair value (losses)/gains on derivatives Fair value write-down on unlisted equity investment 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 NOTE FY23 $'000 FY22 $'000 1 2 1 2 1/2 2 1 2 2 2 3 902,131 490,695 (679,624) (252,617) 222,507 238,078 2,670 8,178 (34,055) (40,477) (12,255) 26,082 (3,600) - 6,215 2,480 (51,226) (45,267) (32,631) (34,168) (2,240) (11,446) 95,385 143,460 (28,926) (41,313) 66,459 102,147 66,446 102,147 13 - 66,459 102,147 NOTE FY23 $'000 FY22 $'000 PROFIT AFTER TAX 66,459 102,147 Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss: Fair value movement on equity investment in listed companies through OCI, net of tax (1,614) (1,683) Items that may be reclassified subsequently to profit or loss: Changes in fair value of cash flow hedges Tax effect Currency translation differences Other comprehensive income, net of tax 11,618 (3,877) (3,477) 1,163 789 7,316 (1,236) (5,633) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 73,775 96,514 Attributable to: Owners of the parent Non-controlling interest EARNINGS PER SHARE Basic Diluted 73,762 96,514 13 - 73,775 96,514 FY23 FY22 cents per share cents per share 21 21 16.52 16.48 25.05 24.90 40 | | 41 Notes to the consolidated financial statements are included on pages 46 to 121. 2023 ANNUAL REPORTRESIMAC GROUP LTD| CONSOLIDATED STATEMENT OF FINANCIAL POSITION | CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ASSETS Cash and cash equivalents Trade and other receivables Current tax receivable Loans and advances Contract assets Other financial assets Derivative financial assets Right-of-use assets Plant and equipment Other assets Deferred tax assets NOTE FY23 $'000 FY22 $'000 4 5 3 6 1 7 23 8 9 10 3 1,085,417 932,781 3,472 8,115 5,661 - 13,735,635 15,669,860 13,877 28,587 25,196 7,323 1,320 4,683 34 24,077 23,483 39,220 8,959 1,928 3,707 - Goodwill and intangible assets 11 28,379 27,496 14,942,038 16,737,172 LIABILITIES Trade and other payables 12 27,146 Current tax payable Interest-bearing liabilities Lease liabilities Other financial liabilities Derivative financial liabilities Other liabilities Provisions 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 46 to 121. 42 | 3 13 14 15 23 16 17 3 20 20 20 20.3 20.3 30,062 1,464 - 14,471,070 16,288,455 9,369 6,850 426 4,455 7,339 - 11,097 11,750 235 3,476 10,449 2,116 14,526,655 16,359,104 415,383 378,068 173,531 (61,541) 111,990 176,476 (61,541) 114,935 (19,589) (25,466) 322,872 288,599 415,273 378,068 110 - 415,383 378,068 9 5 4 6 6 , 6 1 3 , 7 5 7 7 , 3 7 3 1 - 3 1 6 4 4 6 6 , 6 4 4 6 6 , - 6 1 3 , 7 - 6 1 3 , 7 2 6 7 , 3 7 6 4 4 6 6 , 6 1 3 , 7 l a t o T - 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 i d e n a t e R i s g n n r a e 2 s e v r e s e R l a t o T d e u s s i l a t i p a c e s r e v e R 1 e v r e s e r n o i t i s u q c a i l a t i p a c e r a h S 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 8 6 0 8 7 3 , - 8 6 0 8 7 3 , 9 9 5 8 8 2 , ) 6 6 4 5 2 ( , 5 3 9 4 1 1 , ) 1 4 5 , 1 6 ( 6 7 4 6 7 1 , ) 2 9 1 , 5 ( ) 3 7 1 , 2 3 ( 7 4 2 2 , ) 9 3 4 , 1 ( - - - - 7 9 7 9 - ) 2 9 1 , 5 ( - - 7 4 2 2 , ) 9 3 4 , 1 ( - - ) 3 7 1 , 2 3 ( ) 3 7 1 , 2 3 ( - - - - ) 9 3 4 , 1 ( - - - - - ) 2 9 1 , 5 ( - 7 4 2 2 , - - - - - - - - - - - - ) 2 9 1 , 5 ( - - 7 4 2 2 , 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 i e v 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 i f o r P 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 k c a b y u b e r a h S l 2 2 0 2 y u J 1 t a s 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 s e r a h s y r u s a e r T i i s d n e d v d y t i u q E 3 8 3 5 1 4 , 0 1 1 3 7 2 5 1 4 , , 2 7 8 2 2 3 ) 9 8 5 9 1 ( , 0 9 9 , 1 1 1 ) 1 4 5 , 1 6 ( 1 3 5 3 7 1 , 3 2 0 2 e n u J 0 3 t a e c n a a B l e s r e v e R ‘ d e l l a c t n u o c c a s h T i . 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 i l , r e g r e m s n a o e m o H / c a m s e R e h t n o g n i t n u o c c a n o i t i s u q c a e s r e v e r i 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 l r i a f , e v r e s e r n o i t a s n a r t l 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 | 43 . i n o i t u b i r t s d r o f e b a l l i a v a t o n s i i e v r e s e r n o i t i s 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 m s i s i ’ e v r e s e r n o i t i s u q c a i 2023 ANNUAL REPORTRESIMAC GROUP LTD | CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | CONSOLIDATED STATEMENT OF CASH FLOWS l a t o T - 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 i d e n a t e R i s g n n r a e 2 s e v r e s e R l a t o T d e u s s i l a t i p a c e s r e v e R 1 e v r e s e r n o i t i s u q c a i l a t i p a c e r a h S 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 9 3 1 , 1 2 3 7 4 1 , 2 0 1 ) 3 3 6 5 ( , 4 1 5 6 9 , 4 9 7 , 1 ) 7 0 8 3 ( , ) 9 7 6 2 3 ( , ) 6 8 1 , 3 ( ) 7 0 7 , 1 ( 8 6 0 8 7 3 , - - - - - - - - - - 9 3 1 , 1 2 3 1 3 1 , 9 1 2 ) 6 2 1 , 8 1 ( 4 3 1 , 0 2 1 ) 1 4 5 , 1 6 ( 5 7 6 , 1 8 1 7 4 1 , 2 0 1 7 4 1 , 2 0 1 - ) 3 3 6 5 ( , - ) 3 3 6 5 ( , 4 1 5 6 9 , 7 4 1 , 2 0 1 ) 3 3 6 5 ( , - - - 4 9 7 , 1 ) 7 0 8 3 ( , - - ) 6 8 1 , 3 ( ) 7 0 7 , 1 ( - - ) 9 7 6 2 3 ( , ) 9 7 6 2 3 ( , - - - - 4 9 7 , 1 ) 7 0 8 3 ( , - ) 6 8 1 , 3 ( ) 7 0 7 , 1 ( - - - - - - - - - - - - 4 9 7 , 1 ) 7 0 8 3 ( , - - ) 6 8 1 , 3 ( 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 i e v 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 i f o r P 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 l 1 2 0 2 y u J 1 t a s a e c n a a B l l i n a P t n e m t s e v n e R d n e d v D e h t i i r e d n u s e r a h s f o e u s s I k c a b y u b e r a h S i i s d n e d v d y t i u q E s t n e m y a p d e s a b - e r a h S s e r a h s y r u s a e r T 8 6 0 8 7 3 , 9 9 5 8 8 2 , ) 6 6 4 5 2 ( , 5 3 9 4 1 1 , ) 1 4 5 , 1 6 ( 6 7 4 6 7 1 , 2 2 0 2 e n u J 0 3 t a e c n a a B l CASH FLOWS FROM OPERATING ACTIVITIES Interest received Interest paid Receipts from loan fees and other income Payments to suppliers and employees Receipts/(payments) of net loans from/to borrowers Income tax paid NOTE FY23 $'000 FY22 $'000 900,834 500,523 (658,365) (227,173) 28,918 38,934 (160,918) (180,708) 1,948,495 (1,660,033) (41,596) (56,977) Net cash from / (used in) operating activities 4 2,017,368 (1,585,434) CASH FLOWS FROM INVESTING ACTIVITIES Payment for plant and equipment Payment for acquisition of subsidiary Cash acquired on acquisition of subsidiary Payments for new investments Proceeds on disposal of investments Payment for acquisition of residential loan book (Volt Bank) Proceeds on disposal of white label loan tranche Return of capital from listed equity investment Dividend income from listed equity investments Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings Repayment of borrowings Proceeds from exercise of options Payment of lease liabilities Swap receipts/(payments) Payment of dividends Net loan to related party Payment for acquisition of treasury shares Payment for share buybacks (176) (900) 220 (533) - - (5,000) (20,696) 260 9,891 - - 1,581 3,780 (235) (83,594) 1,756 - 800 (92,376) 7,839,034 14,597,019 (9,670,882) (12,561,948) 675 (1,753) 13,588 165 (1,629) (3,489) (32,173) (30,886) (8,000) - (5,192) - (4,118) (3,807) Net cash (used in) / provided by financing activities (1,864,703) 1,991,307 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 152,430 932,781 206 313,497 619,809 (525) Cash and cash equivalents at end of year 4 1,085,417 932,781 Notes to the consolidated financial statements are included on pages 46 to 121. . 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 l r i a f , e v r e s e r n o i t a s n a r t l 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 . i n o i t u b i r t s d r o f e b a l l i a v a t o n s i i e v r e s e r n o i t i s 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 m s i s i ’ e v r e s e r n o i t i s u q c a i e s r e v e R ‘ d e l l a c t n u o c c a s h T i . 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 i l , r e g r e m s n a o e m o H / c a m s e R e h t n o g n i t n u o c c a n o i t i s u q c a e s r e v e r i f o t l u s e r a s A 1 . 1 2 1 o t 6 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 l i a c n a n i f d e t a d i l o s n o c e h t o t s e t o N 44 | | 45 2023 ANNUAL REPORTRESIMAC GROUP LTD Notes to the consolidated financial statements. For the year ended 30 June 2023 About this report Segment information Key numbers and policies Capital Risk Group structure Unrecognised items Other 47 50 52 78 84 108 112 113 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ABOUT THIS REPORT About this report. For the year ended 30 June 2023 Resimac Group Ltd (“Resimac” or “the Company”) is a for-profit company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of Resimac and entities that it controls (referred to as “the Group”) are described in the segment information. The consolidated general purpose financial report of the Group for the year ended 30 June 2023 was authorised for issue in accordance with a resolution of the Directors on 28 August 2023. The Directors have the power to amend and reissue the financial report. The financial report is a general purpose financial report which: • has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards (AAS) and other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB); • has been prepared on a historical cost basis, and with certain financial instruments measured at fair value. The carrying values of recognised assets and liabilities that are the hedged items in fair value hedge relationships, which are otherwise carried at amortised cost, are adjusted to record changes in the fair values attributable to the risks that are being hedged; • is presented in Australian dollars with all values rounded to the nearest thousand dollars ($’000) unless otherwise stated, in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191; and • 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 2022. Refer to Note 32 for further details. Key judgements and estimates In the application of the Group’s accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying value of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements. Actual results may differ from these estimates. Judgements and estimates which are material to the financial report are found in the following notes: NOTE Relates to 11 Goodwill impairment 22 & 23 Impairment of financial assets 46 | | 47 2023 ANNUAL REPORTRESIMAC GROUP LTDNotes to the consolidatedfinancial statements.Notes to the consolidatedfinancial statements.| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ABOUT THIS REPORT 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. 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. Foreign currency As at the reporting date, assets and liabilities of overseas subsidiaries are translated into Australian dollars at the rate of exchange at the balance sheet date and the income statements are translated at the average exchange rate for the year. The exchange differences arising on the retranslation are taken directly to a separate component of equity. Transactions in foreign currencies are initially recorded in the functional currency 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 the disposal of the net investment, and then recognised in the income statement. Tax charges and credits attributable to exchange differences on those borrowings are also recognised in equity. Other accounting policies Significant and other accounting policies that summarise the recognition and measurement bases relevant to an understanding of the financial statements are provided throughout the notes to the financial statements. The notes to the financial statements The notes include information required to understand the financial statements and is material and relevant 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; • it helps to explain the impact of significant changes in the Group’s business – for example, acquisitions 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; Capital: provides information about the capital management practices of the Group and shareholder returns for the year; 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 Resimac's mission is to be a customer focused organisation, leveraging technology and data analytics coupled with expansion of our sustainability and Environmental, Social and Governance (ESG) footprint. 48 | | 49 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SEGMENT INFORMATION | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SEGMENT INFORMATION Segment information. For the year ended 30 June 2023 The Group has identified two reportable segments 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 internal reports of the reportable segments are regularly reviewed by the Board and executive management team (the Chief Operating Decision makers) in order to allocate resources to the segment and to assess its performance. The following is an analysis of the Group’s revenue and results by reportable operating segments: AUSTRALIAN LENDING NEW ZEALAND LENDING CONSOLIDATED FY23 $'000 FY22 $'000 FY23 $'000 FY22 $'000 FY23 $'000 FY22 $'000 Revenue from external customers 860,250 489,688 50,766 37,747 911,016 527,435 Total segment revenue 860,250 489,688 50,766 37,747 911,016 527,435 Segment results before fair value (losses)/gains on derivatives, interest, tax, depreciation, amortisation, finance costs and impairment 762,109 374,045 44,530 23,489 806,639 397,534 Fair value (losses)/gains on derivatives (8,824) 17,836 (3,431) 8,246 (12,255) 26,082 Interest expense (637,203) (231,773) (42,421) (20,844) (679,624) (252,617) The Group’s reportable segments under AASB 8 Operating Segments are therefore as follows: Depreciation and amortisation (2,337) (2,374) 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, separate regulatory requirements/oversight, and staff solely accountable for the NZ business including a locally based Head of NZ. Represents the distribution and lending businesses currently captured under the Resimac, Resimac Asset Finance and homeloans.com.au brands. The segment contains the bulk of the Australian based 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 from funders on the non-principally funded loans (white label loan portfolio). The Group’s fully owned subsidiary Resimac Asset Finance (RAF) specialises in Australian based secured commercial lending. Management have assessed the impact of the RAF business on its Group results as not material, and therefore does not represent a reportable segment for the year ended 30 June 2023, notwithstanding RAF is considered a separate operating segment by Management. Loan impairment Financing costs (2,155) (11,426) (86) (85) (86) (20) (2,423) (2,460) (2,240) (11,446) (13,953) (12,883) (759) (750) (14,712) (13,633) Segment results before income tax 97,637 133,425 (2,252) 10,035 95,385 143,460 Income tax expense1 PROFIT AFTER TAX (28,926) (41,313) 66,459 102,147 The following is an analysis of the Group’s assets and liabilities by reportable operating segment: AUSTRALIAN LENDING NEW ZEALAND LENDING CONSOLIDATED FY23 $'000 FY22 $'000 FY23 $'000 FY22 $'000 FY23 $'000 FY22 $'000 Segment assets excl. tax 14,094,234 15,889,429 839,655 847,743 14,933,889 16,737,172 14,094,234 15,889,429 839,655 847,743 14,933,889 16,737,172 Segment liabilities excl. tax (13,736,229) (15,548,901) (790,426) (806,623) (14,526,655) (16,355,524) Net assets excl. tax 358,005 340,528 49,229 41,120 407,234 381,648 Tax assets2 Tax liabilities2 NET ASSETS 8,149 - - (3,580) 415,383 378,068 1 Income tax expense is disclosed on a consolidated basis, not by reportable operating segment. 2 Tax assets and liabilities are disclosed on a consolidated basis, not by reportable operating segment. 50 | | 51 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES Key numbers & policies. For the year ended 30 June 2023 1. Revenue 1.1. Revenue streams The Group generates revenue primarily from interest income, annuity trail commission income on white label loans and other fee income. INTEREST INCOME Loans and advances Bank deposits Discount unwind on NPV of trail commission FY23 $'000 FY22 $'000 881,006 488,570 19,994 1,131 450 1,675 902,131 490,695 Fee and commission income (Revenue from contracts with customers) 2,670 8,178 FAIR VALUE GAINS ON DERIVATIVES Fair value gains on interest rate swaps Fair value gains on overnight index swaps OTHER INCOME Dividend income Other - - - 5,401 814 6,215 25,749 333 26,082 800 1,680 2,480 Total revenue 911,016 527,435 RECOGNITION & MEASUREMENT Interest income - loans and advances Loans and advances are initially recognised at fair value. Subsequent to initial recognition, the loans are measured at amortised cost using the effective interest method over the estimated actual (but not contractual) life of the mortgage, taking into account all income and expenditure directly attributable to the loan. Interest income on loans and advances is recognised as it accrues using the effective interest rate method. The rate at which revenue is recognised is referred to as the effective interest rate and is equivalent to the rate that effectively discounts estimated future cash flows throughout the estimated life. Acquisition costs representing mortgage insurance premiums and upfront broker commissions related to originating loans and advances are capitalised on the statement of financial position of the Group. These costs are amortised to the statement of profit or loss across the expected life of the loan in interest income as part of the effective interest rate. Loans and advances in arrears or hardship at 30 June 2023 continue to accrue interest income. Consideration for potential future credit losses on loans in arrears or hardship is reflected in Note 23. Interest income - bank deposits This comprises interest income on cash held with Australian ADIs predominantly in securitisation trusts. Interest income is recognised as it accrues, using the effective interest method. Fee and commission income 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. Fee and commission income include fees other than those that are an integral part of loans and advances measured using effective interest rate method, and which are accounted for in accordance with AASB 15 Revenue from contracts with customers. The following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, and the related revenue recognition policies. Classification and measurement of revenue TIMING At a point in time Type of service Mortgage origination revenue Nature, timing of satisfaction of performance obligations Revenue recognition policy under AASB 15 Commission from originating white label loans. The performance obligations are satisfied at the point in time the loan is settled. Non-ongoing performance conditions are attached to the upfront fee. Once the Group has referred a 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 time Loan management revenue Trail commission income on white label loans, based on the individual monthly loan balance outstanding each month. Trail ceases once the loan is discharged. Revenue is recognised at the point in time the loan is being settled and performance obligations are satisfied according to the contracts with the funders. The contracts with the originators include performance obligations which must be satisfied in order to be paid trail commission (e.g. the loan not being in arrears). The present value of the trailing commission receivable is recognised as a contract asset and measured using the expected value method with variable consideration at a point in time. At a point in time Lending fee income Loan fees paid by the borrower such as application, discharge, settlement fees, dishonour fee, etc. The performance obligation for these fees is met at a point in time (settlement, discharge etc) when the fee is charged to the borrower. Revenue is recognised when the transaction is completed and the performance obligations are met. 52 | | 53 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES Fair value gains on derivatives Other income 1.3. Assets related to contract with customers The Group’s funding structures contractually require the Group to enter into interest rate swaps on the origination of fixed rate loans to customers, to ensure the Group’s special purpose vehicles maintain sufficient cash flows by eliminating interest rate risk exposure. At 30 June 2023, the fair value of future cash flows of each swap that was not designated and qualified as a cash flow hedge was determined in line with AASB 9 Financial Instruments, and the resulting gain or loss is recognised in the statement of profit or loss. During the year, the 2-3 year curve flattened resulting in a material decrease in the fair value of the Group’s portfolio of interest rate swaps. Dividend income is recognised when the right to receive the payment is established. Other income includes dividend income and various items including but not limited to payments received under operating leases as income on a straight-line basis over the lease (office sub-lease). 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 50). AUSTRALIAN LENDING NEW ZEALAND LENDING CONSOLIDATED FEE AND COMMISSION INCOME FY23 $'000 FY22 $'000 FY23 $'000 FY22 $'000 FY23 $'000 FY22 $'000 Mortgage origination 145 1,564 Loan management Lending fee income (4,531) 78 5,491 5,380 1,105 7,022 - - 1,565 1,565 - - 1,156 1,156 145 1,564 (4,531) 78 7,056 6,536 2,670 8,178 TIMING OF REVENUE RECOGNITION Service transferred at a point in time 1,105 7,022 1,565 1,156 2,670 8,178 Revenue from contracts with customers 1,105 7,022 1,565 1,156 2,670 8,178 Interest income 853,136 462,442 48,995 28,253 902,131 490,695 The Group has recognised the following assets related to contracts with customers. CONTRACT ASSETS – PRESENT VALUE OF FUTURE TRAIL COMMISSION RECEIVABLE Current Non-current FY23 $'000 FY22 $'000 4,724 9,153 7,763 16,314 13,877 24,077 RECOGNITION & MEASUREMENT Contract assets - present value of future trail commission receivable The contract assets primarily relate to the Group’s rights to receive trail commissions from lenders on white label settled loans, over the life of the loan based on the monthly loan balance outstanding. The contract assets are transferred to receivables when the rights become unconditional. White label loans ceased origination in FY19, and the portfolio is in runoff. Initial recognition Expected value of future trail commission receivable were 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 was determined by using the discounted cash flow valuation technique. income or expense in the statement of comprehensive income (disclosed as loan management under fee and commission income in Note 1.2). A remeasurement of the underlying cash flows relating to the trail commission receivable occurs at each reporting date. The key estimates and assumptions underlying the remeasurement of the estimated future cash flows include the: FY23 FY22 Annualised run-off 22.5% 22.9% Prepayment rate (run-off buffer) 25% 25% Annualised run-off Run-off is a combination of discharges, prepayments and scheduled loan repayments. A three year rolling average is used in the valuation as the Group’s best estimate of future run-off to avoid potential year-on- year volatility in run-off. Prepayment rate In order to manage the uncertainty associated with this modelling, a conservative run-off buffer of 25% is included in the valuation by management, and remains unchanged compared with FY22. Fair value gains on derivatives - 17,836 - 8,246 - 26,082 Subsequent measurement Other income 6,009 2,388 206 92 6,215 2,480 External revenue as reported in segment information 860,250 489,688 50,766 37,747 911,016 527,435 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 computing the present value of estimated future cash flows at the effective interest rates. The resulting adjustment is recognised as 54 | | 55 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES 2. Expenses INTEREST Bond and warehouse facilities Amortisation – facility issuance costs Discount unwind on NPV of trail commission Corporate facility Interest on lease liabilities FEE & COMMISSION Loan management Borrowing commitment costs RMBS costs Discharge fee refund provision (release)/charge1 EMPLOYEE BENEFITS Remuneration, superannuation and on-costs Share-based payments FAIR VALUE LOSSES ON DERIVATIVES Fair value losses on interest rate swaps Fair value losses on overnight index swaps Fair value write-down on unlisted equity investment OTHER Marketing Technology expenses2 Audit and other professional fees Rent and occupancy costs Insurance Depreciation and amortisation Depreciation of right-of-use assets Unrecoverable GST Other Loan impairment expense (see Note 6) 1 See Note 17 for details of the discharge fee refund provision (release)/charge. 2 Includes core banking IT project costs (FY23: $2.0 million; FY22: $5.1 million). 56 | FY23 $'000 FY22 $'000 662,613 10,583 558 5,459 411 237,975 11,524 826 1,832 460 679,624 252,617 19,872 22,904 5,801 8,911 (529) 5,184 8,449 3,940 34,055 40,477 50,394 832 51,226 11,829 426 12,255 3,600 5,036 12,762 2,640 1,154 2,562 780 1,643 2,469 3,585 44,477 790 45,267 - - - - 6,477 14,629 2,500 961 2,291 791 1,669 2,740 2,110 32,631 34,168 2,240 11,446 815,631 383,975 RECOGNITION & MEASUREMENT 2.1. Interest Bond and warehouse facilities Recognised in the profit or loss as its accrues using the effective interest rate method. Bond and warehouse facilities interest expense include coupon payments on notes issued, and interest paid on non- securitised funding facilities. Amortisation - bond issue costs Transaction costs incurred by the Group incremental to the issue of debt securities by the securitisation trusts, 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 rate method. 2.2. Fee and commission Loan management Includes monthly trail commission and service provider fee payments to brokers for originating on balance sheet and white label loans based on individual loan balances outstanding and the loan continuing to perform. fees, liquidity fees, rating agency fees, and other fees related to the ongoing operation of the bond and warehouse facilities. 2.3. Employee benefits Employee benefits expense includes fixed and variable remuneration, superannuation, and associated on- costs. The policy relating to share-based payments is set out in Note 31. 2.4. Fair value losses on derivatives The policy relating to fair value losses on derivatives is set out in Note 1.1. 2.5. Other This mainly comprises bank and regulatory fees, and general administration expenses. These items are expensed when incurred. 2.6. Loan impairment Loan impairment expenses relates to the movement in the: • specific and collective provisions; Borrowing commitment costs • direct loan write-offs recognised during the year; Commitment fees directly related to the Group’s global funding program. RMBS costs Other financing costs include trustee and servicer and • recoveries of previously impaired loans. See Note 6 for detail on impairment of loans and advances. | 57 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES 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 Total income tax expense recognised in the current year FY23 $'000 FY22 $'000 34,228 38,033 71 3 (9) - 34,302 38,024 (5,380) 4 (5,376) 28,926 4,333 (1,044) 3,289 41,313 3.3. Deferred tax balances The following is the analysis of deferred tax assets (DTA) and deferred tax liabilities (DTL) presented in the consolidated statement of financial position: Deferred tax assets Deferred tax liabilities Deferred tax assets/(liabilities) FY23 Deferred tax assets/(liabilities) FY23 $'000 FY22 $'000 34 - 34 - (2,116) (2,116) Opening balance $'000 Current year recognised in profit or loss Previously unrecognised in profit or loss Recognised directly in equity $'000 $'000 $'000 Closing balance $'000 The income tax expense for the year can be reconciled to the accounting profit as follows: Plant, equipment and software 3,236 (1,860) Profit before tax Income tax expense calculated at 30% (FY22: 30%) Effect of expenses that are not deductible in determining taxable profit Effect of different tax rates of subsidiaries operating in other jurisdictions Employee share scheme Other items 95,385 143,460 28,616 43,038 110 122 63 (60) 28 (144) (342) (214) Deferred mortgage insurance Employee entitlements Net provision for lease make good Provision for discharge fee refund Other accrued expenses Blackhole expenditure 91 1,649 59 1,182 3,410 - (54) (100) - - (796) 13 28,851 42,366 Trail commission payable 3,613 1,564 Provision for expected credit loss 12,488 253 Lease liability Financial assets Shares Share-based payments 592 380 (439) (111) Capitalised incentive commission (16,319) Loans and advances Deferred bond issue cost 476 (4,580) 35 (48) 1,080 (143) 1,302 (361) 1,374 Derivatives (614) 2,648 Trail commission receivable Tax losses carried forward (7,229) - - 473 (2,116) 5,380 (4) (3,226) - - - (4) - - - - - - - - - - - - - - - 8 - - 1 - - 1 19 - - (421) 692 (35) (14) - (2) 12,749 1,376 37 1,546 59 1,182 2,615 32 5,177 627 (89) 1,333 (289) (15,031) 115 (3,208) (3,475) (1,441) - - (7,229) 473 34 | 59 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 4 71 (1,044) (9) Income tax expense recognised in profit or loss 28,926 41,313 The tax rate used for FY23 and FY22 reconciliations is the corporate tax rate of 30% payable by corporate entities in Australia, and 28% in New Zealand. RECOGNITION & MEASUREMENT Income tax expense represents the sum of the tax currently payable and deferred tax. 3.2. Current tax balances Current tax receivable Current tax payable 58 | FY23 $'000 8,115 - 8,115 FY22 $'000 - (1,464) (1,464) 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES Opening balance $'000 Current year recognised in profit or loss Previously unrecognised in profit or loss Recognised directly in equity $'000 $'000 $'000 Closing balance $'000 FY22 Deferred tax assets/(liabilities) Provision for expected credit loss Plant, equipment and software Deferred mortgage insurance Employee entitlements Net provision for lease make good Provision for discharge fee refund Other accrued expenses Blackhole expenditure 9,903 3,351 163 1,268 59 - 2,165 8 2,598 (113) (72) 387 - 1,182 1,253 (7) (680) 1,060 Trail commission payable 4,897 (1,284) Lease liability Financial assets Shares Share-based payments Accrued income and other 516 - (1,627) 1,802 70 76 - (626) (70) Capitalised incentive commission (13,483) (2,861) Loans and advances Deferred bond issue cost Derivatives 1,206 (3,786) (730) (802) 3,574 (5,351) Trail commission receivable (9,996) 2,767 - (2) - (5) - - (8) (1) - - - - - - - - - - (13) 12,488 - - (1) - - - - - - - 1,188 (1,287) - 25 - 8 3,236 91 1,649 59 1,182 3,410 - 3,613 592 380 (439) (111) - (16,319) 476 (4,580) 1,163 (614) - (7,229) 90 (4,333) 1,044 1,083 (2,116) 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. 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. Deferred tax liabilities (DTLs) are generally recognised 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. 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. 3.6. Current and deferred tax for the year 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 consolidation and 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. Unused tax losses at 30 June 2023 is $0.9 million (FY22: $0.9 million). 3.8. Nature of the tax funding agreement Members of the Group have entered into a tax funding agreement. 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. 60 | | 61 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES 4. Cash and cash equivalents Reconciliation of liabilities arising from financing activities Cash at bank and on hand Cash collections accounts1 Restricted cash2 NOTE FY23 $'000 22,732 1,062,685 - FY22 $'000 18,996 912,283 1,502 Issued capital Share-based payment reserve Interest- bearing liabilities Lease liabilities $'000 $'000 $'000 $'000 Total $'000 Balance at 1 July 2022 176,476 494 16,288,455 11,097 16,476,522 22 1,085,417 932,781 Operating cashflows - - 17,665 - 17,665 Financing cashflows (5,192) 675 (1,831,849) (1,753) (1,838,119) Non-cash movements 2,247 (2,114) (3,200) 25 (3,042) Balance at 30 June 2023 173,531 (945) 14,471,070 9,369 14,653,026 Balance at 1 July 2021 181,675 2,201 14,701,651 12,482 14,367,009 Operating cashflows - - (4,343) - (4,343) Financing cashflows (6,132) 165 2,034,839 (1,629) 2,027,243 Non-cash movements 933 (1,872) 87,308 244 86,613 Balance at 30 June 2022 176,476 494 16,288,455 11,097 16,476,522 RECOGNITION & MEASUREMENT Cash comprises cash deposits and cash equivalents that are short-term, liquid investments readily convertible to known amounts of cash, not subject to significant risk of changes in value, and have a maturity of three months or less. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. Reconciliation of profit after tax to the net cash flows from operating activities Profit after tax ADJUSTMENTS FOR Depreciation and amortisation Depreciation charge of right-of-use assets Amortisation of bond issue costs Fair value write-down on financial assets Fair value movement on swaps Loan impairment expense Net (profit)/loss on disposal of non-current assets Movement in present value of future trail commission income Movement in present value of future trail commission expense Share-based payments expense Discount on mortgage Dividend income from listed equity investments 2 2 2 2 2 (INCREASE)/DECREASE IN ASSETS Trade and other receivables Loans and advances Other assets Impairment allowance account Current tax receivable Deferred tax assets INCREASE/(DECREASE) IN LIABILITIES Trade and other payables Current tax payable Interest-bearing liabilities Provisions Deferred tax liabilities 66,459 102,147 780 1,643 10,583 3,600 (1,333) 2,240 48 10,200 (4,900) 832 - (3,780) 791 1,669 11,524 - (22,593) 11,446 (272) 7,949 (4,039) 790 (232) (800) 2,191 (1,112) 1,935,471 (1,682,234) 3 (3,437) (11,499) (2,791) (3) (1,970) - - (2,946) 6,658 - (12,693) 17,665 (3,661) - (4,343) 4,853 (2,970) Net cash from / (used in) operating activities 2,017,368 (1,585,434) 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. 62 | | 63 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES 5. Trade and other receivables CURRENT Fee and commission receivable Prepayments GST receivable Sundry receivables NOTE FY23 $'000 FY22 $'000 425 2,377 447 223 3,472 604 2,531 960 1,566 5,661 6. Loans and advances GROSS LOANS & ADVANCES Loans and advances Capitalised upfront commissions Deferred mortgage fees Unallocated customer repayments NOTE FY23 $'000 FY22 $'000 13,750,051 15,684,500 50,238 54,564 (5,740) (10,107) (13,070) (12,056) 13,781,479 15,716,901 RECOGNITION & MEASUREMENT Less: allowance for impairment (45,844) (47,041) All receivables are derived in the ordinary course of 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 and no material impairment recognised. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment. The credit risk of trade receivables is considered immaterial as they are due from Australian financial institutions with high credit ratings. Fee and commission receivable Comprises trail commission receivables on settlement terms of 30 days. This is initially recognised at the fair value of the consideration receivable. Prepayments Prepayments are recognised when the costs are incurred and amortised over the period in which the economic benefits from these assets are received. Sundry receivables Sundry receivables are receivables arising from various immaterial transactions in the ordinary course of business. The Group has assessed these receivables as fully recoverable at balance date. The FY22 comparative amount included receivables from Volt Bank for amounts collected on behalf of the Group. Current Non-current IMPAIRMENT ALLOWANCES Collective allowance Specific allowance 22 13,735,635 15,669,860 4,341,166 4,557,901 9,440,313 11,159,000 13,781,479 15,716,901 43,294 42,692 2,550 4,349 45,844 47,041 MOVEMENT IN IMPAIRMENT ALLOWANCES Balance at 1 July 47,041 37,565 Provided for during the year: • Specific • Collective Write-offs Balance at 30 June 1,660 580 (3,437) 45,844 842 10,604 (1,970) 47,041 64 | | 65 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES Impairment and provisioning Equity in Unlisted Companies Loan to related entity 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 rate method. The effective interest rate is the rate that discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the loans and advances. Gains and losses are recognised in the statement of comprehensive income when the loans and advances are derecognised or impaired. Unallocated customer repayments Relates to loan repayments received from borrowers that reside in clearing accounts not yet allocated to a trust at balance date. 7. Other financial assets Equity in ASX Listed Companies Equity in Unlisted Companies Loan to related entity Short-term investment Current Non-current AASB 9 requires an Expected Credit Loss model (ECL) at each reporting date to reflect changes in credit risk since initial recognition of the loans and advances. Impairment policy of loans and advances are included in Note 22. Security properties repossessed As at 30 June 2023, the Group had exercised their right to foreclose on 13 residential properties (FY22: 13) being the security for loans and advances. These loans and advances are security for the funding provided by warehouse facilities and securitisation trusts. The Group intends to sell these properties with the proceeds to go towards clearing the outstanding balance of the underlying loans. Mortgages in possession are held as part of loans and advances, until sold. NOTE FY23 $'000 FY22 $'000 22 22 22 22 17,077 3,510 8,000 - 15,963 7,260 - 260 28,587 23,483 8,000 20,587 28,587 260 23,223 23,483 Equity in ASX Listed Companies Equity investments in ASX listed companies are investments the Group intends to hold for long term strategic purposes. As permitted by AASB 9, the Group designated these investments at the date of initial application as measured at fair value through other comprehensive income. The accumulated fair value reserve related to these investments will not be reclassified to profit or loss. Dividends will be recognised in profit or loss as other income when the Group’s right to receive payment is established. Investments that are not traded in an active market, however classified as fair value through profit or loss (FVTPL) are disclosed at fair value at the end of each reporting period. The fair value assessment conducted on the unlisted shares, included assessing other market conditions on the current and future operating models. The fair value assessments include comparisons against forecasted operating performance at time of investment. The valuation methodology for these investments is disclosed in Note 22. Resimac provided a short-term interest bearing loan to a related party. Interest is charged on arm’s length terms. Interest income of $0.8 million for the year ended 30 June 2023 was fully received and is presented within interest income on loans and advances in Note 1. 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. 8. Right-of-use assets LEASE - BUILDINGS Balance at 1 July Additions Depreciation Foreign exchange Balance at 30 June LEASE - BUILDINGS Right-of-use assets at cost Less: accumulated depreciation Total right-of-use assets NOTE FY23 $'000 FY22 $'000 8,959 10,638 - - (1,643) (1,669) 7 7,323 14,244 (6,921) 7,323 (10) 8,959 14,234 (5,275) 8,959 Right-of-use assets The Group lease offices with lease terms between 3 to 8 years. Right-of-use assets are initially measured at cost and comprise the following: • the amount of the initial measurement of lease liability; • any lease payments made at or before the commencement date less any lease incentives received; • any initial direct costs; and • restoration costs. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right- of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. Depreciation of right-of-use asset is recognised in the consolidated statement of profit or loss. 66 | | 67 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES 9. Plant and equipment 10. Other assets CARRYING AMOUNTS OF $'000 $'000 $'000 $'000 Computer equipment Office furniture Operating lease equipment Leasehold improvement Total $'000 701 1,928 Balance at 1 July 2022 Additions Disposals Depreciation expense Foreign exchange Balance at 30 June 2023 Balance at 1 July 2021 Additions Disposals Depreciation expense Foreign exchange Balance at 30 June 2022 715 173 (24) (285) (18) 561 457 543 (15) (267) (3) 715 77 2 (2) (17) - 60 122 2 (30) (17) - 77 435 13 - - - (190) (260) - 258 359 251 - - 441 981 - (20) (175) (260) - 435 - 701 188 (26) (752) (18) 1,320 1,919 796 (65) (719) (3) 1,928 RECOGNITION & MEASUREMENT Plant and equipment stated at cost less accumulated depreciation and impairment losses. Depreciation and amortisation Derecognition 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: Computer equipment Office furniture Operating lease equipment Years 3-4 10 3-7 Leasehold improvement For life of the lease An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit or loss. Impairment At each reporting date, the Group reviews the carrying amounts of plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). 68 | Reinsurance claim receivable Other Current Non-current FY23 $'000 FY22 $'000 4,455 228 4,683 228 4,455 4,683 3,476 231 3,707 231 3,476 3,707 Reinsurance claim receivable Prime Insurance Group Limited was purchased as part of the RHG Mortgage Corporation Limited (RHG) acquisition in 2014. Its sole purpose is to provide mortgage insurance and reinsurance facilities for the RHG mortgage assets and process any shortfall claims received. RHG loans ceased origination in FY14, and the portfolio is in run-off. The reinsurance claim receivable is available to utilise against the reinsurance claim reserve amount in Note 16. 11. Goodwill and intangible assets GOODWILL Balance at 1 July FY23 $'000 FY22 $'000 27,430 27,430 Additional amount recognised from business combination (see Note 25) 949 - Balance at 30 June 28,379 27,430 OTHER INTANGIBLE ASSETS $'000 $'000 Software Brand name Total Balance at 1 July 2022 Amortisation for the year Write-off during the year Balance at 30 June 2023 Balance at 1 July 2021 Amortisation for the year Balance at 30 June 2022 66 (28) (38) - 110 (44) 66 - - - - 26 (26) - 66 (28) (38) - 136 (70) 66 | 69 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES 11.1. Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (less accumulated impairment losses, if any). Impairment testing At 30 June 2023, the Group has performed goodwill impairment testing, which included consideration of the impact of the macroeconomic environment. Goodwill of $21.7 million has been allocated for impairment assessment purposes to the Australian Lending Business (ALB) segment. This segment is considered to be the group of cash-generating units (CGU) that are expected to benefit from the synergies of the business combination to which that goodwill relates and is the lowest level at which goodwill is allocated. RAF goodwill of $6.7 million, including the goodwill recognised from RAF’s investment in 23 Degrees Capital Partners Pty Ltd, is considered a separate CGU and has been separately assessed for impairment testing. A CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the 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. Recoverable amount of the asset The recoverable amount is equal to the greater of: • fair value less costs to sell; and • value in use (‘VIU’). It is not always necessary to determine both the fair value less cost to sell and its VIU. If either of these amounts exceed the carrying amount of the CGU, there is no impairment of the goodwill and it is not necessary to estimate the other amount. As a result, the VIU methodology is considered to be most appropriate as there is no readily available market outside specific business sales of an equivalent sized business to the ALB and RAF CGUs. The VIU calculation requires management to estimate future cash flows expected to arrive from the CGU and a suitable discount rate in order to calculate present value. Key judgements and assumptions The key assumptions used for assessing the recoverable amount of the CGUs are as below: Indicators of impairment The minimum indicators of impairment have been considered by management. These include both internal and external sources of information such as: • significant changes (historical and future) in the market, economic, legal or technological environment which would have an adverse impact on the Group; • decline in market capitalisation below the carrying value of net assets; • interest rate changes which impact the discount rate used in modelling; • evidence of a worsening financial position; • plans to discontinue operations; and • macro economic conditions. Management have assessed at 30 June 2023, the market capitalisation of the Group was lower than the carrying amount of the Group’s net assets. Whilst this is considered an indicator of impairment, the impairment assessment performed by management indicates the recoverable amount of the CGU remains higher than the carrying amount resulting in no impairment in FY23. There were no other indicators of impairment as at 30 June 2023. Inputs to impairment calculations Cash flow projections For VIU calculations, cash flow projections are based on strategic objectives and business forecasts prepared by management and approved by the Board. Cash flow projections are four years in length and a terminal growth rate beyond this has been applied. 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. Furthermore, each unit or group of units to which the goodwill is allocated shall: • represent the lowest level at which the goodwill is monitored for internal management purposes; and • not exceed the operating segments. The allocation of goodwill to these CGU’s is considered appropriate. FY23 FY22 ALB RAF ALB RAF Growth rate for 4-year forecast period (p.a.) 2.5% 10-25% Discount rate (post-tax) Terminal growth rate 11.5% 2.0% 11.5% 2.0% 2.5% 11.5% 2.0% n/a1 n/a1 n/a1 1 VIU methodology was used for the RAF CGU with effect from FY23. In FY22, the fair value less cost to sell methodology was used. The post-tax discount rate of 11.5% has been determined by estimating the cost of equity that applies to the ALB and RAF CGUs. Management conducted the following when testing the impairment of goodwill: • revised budgets, forecasts and other assumptions from previous impairment testing to reflect the economic conditions at the balance date, especially to address increased risk and uncertainty; The volatility in financial markets and the current macro economic environment introduces challenges to impairment testing. A second layer of stress testing was added with discount rates ranging from 11-15% which were applied to the base case and stress scenarios. Management tested the stress scenario and applied a discount rate of 15%, the recoverable amount of the CGU exceeded the recorded carrying value for the ALB and RAF CGUs. The full sensitivity range is outlined as follows: ALB Headroom ($ millions) • considered the impact of macroeconomic DISCOUNT RATE 11.0% 11.5% 12.0% 15.0% conditions and considered outcomes where future cash flows are reduced or operating costs increase (including interest rate risk and loan book growth). In assessing the VIU for goodwill impairment assessment, the potential impact of macroeconomic conditions including rising interest rates and inflation on cash flows and profit growth have been considered under different scenarios: 1) Base case: Current management view of macroeconomic environment: • Loan volume: Growth trajectory in line with current market conditions • Margins: Conservative view declining to flat margin scenario • Costs: Growth based on CPI assumptions and investments required to support organic growth of the business 2) Stress scenario: Assumes severe macroeconomic downturn resulting in a sustained downturn in Resimac profitability of no growth over a 4 year period. The stress scenario indicated sufficient headroom remains for goodwill impairment purposes. Base Case 145 Stress Test Case 94 117 70 93 48 (14) (47) DISCOUNT RATE 11.0% 11.5% 12.0% 15.0% RAF Headroom ($ millions) Base Case Stress Test Case 24 8 22 7 21 7 14 3 The recoverable amount of the CGU would not be less than its carrying value in any scenario. Resimac management do not believe there are any other assumptions based on internal or external sources whereby the quantum of the change will eliminate the available headroom. Impairment charge Management believe potential impacts of the change in economic environment have been adequately considered for goodwill impairment testing purposes at 30 June 2023. Based upon the impairment testing performed, there is no impairment charge for FY23 (FY22: Nil). 70 | | 71 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES 11.2. Other intangible assets 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. Recognise as an operating expense over the term of the service contract: • Fee for use of application software Recognise as an operating expense as the service is received: Software-as-a-Service (SaaS) arrangements SaaS arrangements are service contracts providing the Group with the right to access the cloud provider’s application software over the contract period. As such, the Group does not recognise a software intangible asset at the contract commencement date. The following outlines the accounting treatment of costs incurred in relation to SaaS arrangements: • Customisation costs • Configuration costs • Data conversion and migration costs • Testing costs • Training costs Costs incurred for the development of software code that enhances or modifies, or creates additional capability, to existing on-premise systems and meets the definition of and recognition criteria for an intangible asset are recognised as intangible software assets. 13. Interest-bearing liabilities Debt securities on issue Corporate debt facilities Issuance facilities Current Non-current NOTE FY23 $'000 FY22 $'000 14,125,154 15,840,773 50,000 70,000 295,916 377,682 22 14,471,070 16,288,455 4,558,387 4,723,652 9,912,683 11,564,803 14,471,070 16,288,455 12. Trade and other payables CURRENT Revenue collected in advance Commissions payable Accruals Other creditors NOTE FY23 $'000 FY22 $'000 2,234 644 14,594 9,674 27,146 1,179 5,267 13,433 10,183 30,062 22 RECOGNITION & MEASUREMENT Trade creditors and other payables are generally settled within 30 day terms and are unsecured. Trade creditors and other payables are carried at amortised cost and represent liabilities for goods and services provided to the Group prior to the end of the financial year, are unpaid, and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. Revenue collected in advance Relates to interest income on loans and advances. Commissions payable Relates to upfront and trail commission payable to aggregators and brokers. Accruals and other creditors Accruals and other creditors are accrued fees and expenses and unsecured payables relating to expenses arising in the ordinary course of business. RECOGNITION & MEASUREMENT All borrowings are initially recognised at fair value of the consideration received less 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, 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. 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. 13.1. Debt securities on issue Warehouse facilities The warehouse facilities in Special Purpose Vehicles (SPVs) provide the initial duration financing of loans and advances to customers. The security for advances under these facilities is a combination of fixed and floating charges over all assets of the warehouse SPVs, including the mortgage security. 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. The total capacity for the 14 warehouse facilities at 30 June 2023 was AUD 8.3 billion (equivalent) (FY22: 13 warehouse facilities; AUD 8.2 billion (equivalent)). During the financial year there were no material breaches to the warehouse agreements. All warehouse facilities were renewed, on or before their maturity date. Bonds (RMBS and ABS) Bonds issued by the securitisation trusts provide duration funding for loans and advances originated by the Group. The bond notes generally have a legal final maturity of 31 years from issue, and a call option of up to 5 years post issuance. The bond holders security is a combination of fixed and floating charges over all assets of the securitisation trust. Credit losses arising from the bonds 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 2023, AUD 2.5 billion (equivalent) of new bonds were issued (FY22: AUD 5.8 billion (equivalent)). These bond issuances paid down warehouse facilities creating capacity to fund new mortgages. During the financial year, there were no breaches to the terms of the bonds. 72 | | 73 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES 13.2. Corporate debt facility As at 30 June 2023, the Company had a $30 million corporate facility maturing in September 2023. The Group had an undrawn balance of $30 million at 30 June 2023 (FY22: $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 entire year and as at 30 June 2023, the Group was compliant with these covenants. At 30 June 2023, the Group had $50 million in corporate debt securities (Secured Capital Note) with a 3 year tenor. The $50 million liability is disclosed under corporate debt facilities. The corporate debt facilities are secured by a first- ranking charge over the beneficial rights to the trust’s residual income 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. 14. Lease liabilities Lease liabilities included in the Statement of Financial Position Balance at 1 July Addition Interest incurred Payment of lease liabilities Foreign exchange Balance at 30 June 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 Interest paid Payment of lease liabilities FY23 $'000 FY22 $'000 11,097 12,482 12 411 251 460 (2,164) (2,089) 13 (7) 9,369 11,097 1,703 7,666 9,369 1,643 411 1,700 9,397 11,097 1,669 460 (411) (1,753) (460) (1,629) 14.1. Leases 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 lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. 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. Lease payments included in the measurement of the 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. The lease liability is subsequently measured by increasing 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: • The lease term has changed or there is a significant event or change in circumstances resulting in a change 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. • The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount 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 year presented. 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. 74 | | 75 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS KEY NUMBERS & POLICIES 15. Other financial liabilities 16. Other liabilities NOTE FY23 $'000 FY22 $'000 NON-CURRENT FY23 $'000 FY22 $'000 Present value of future trail commission payable 6,850 11,750 Reinsurance claim reserve 4,455 3,476 22 6,850 11,750 4,455 3,476 Current Non-current 2,267 3,847 4,583 7,903 6,850 11,750 The reinsurance claim reserve offsets with the reinsurance claim receivable amount in Note 10. 17. Provisions RECOGNITION & MEASUREMENT The Group makes trail commission payments to mortgage originators based on monthly loan balances outstanding. No new originations are occurring and this portfolio is in run off. FY23 $'000 FY22 $'000 Employee benefits 4,647 6,062 Initial Recognition Office make good 447 447 Discharge fee refund 1,695 3,940 Fair value of future trail commission payable was 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. Other Subsequent payment Subsequent to initial recognition, the future trail commission payable is measured at amortised cost. Current Non-current The carrying amounts of the trail commissions payable are adjusted to reflect actual and revised estimated cash flows by calculating the present value of estimated future cash flows at the effective interest rates at each reporting date. The resulting adjustment is recognised as income or expense in the statement of comprehensive income. Refer to Note 1.3 for the key estimates and judgements underlying the remeasurement of the estimated future cash flows. 550 - 7,339 10,449 6,415 9,493 924 956 Employee benefits $'000 Make good $'000 Discharge fee refund $'000 Other $'000 Total $'000 Balance at 1 July 2022 Provision recognised/(released) Provision utilised 6,062 2,532 (3,947) 447 - - 3,940 (629) (1,616) - 10,449 550 2,453 (5,563) Balance at 30 June 2023 4,647 447 1,695 550 7,339 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 • a reliable estimate can be made of the amount of 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 reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material). 7,339 10,449 17.1. Employee benefits A liability is recognised for benefits accruing to employees where the liability can be measured reliably and payment is probable, in respect of: • wages and salaries; • annual leave; • long service leave; and • on-costs relating to the above. 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 benefits which are not expected to settle within 12 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. The liability for long service leave is recognised in the provision for employee benefits. It is measured as the present value of expected future payments for the services provided by employees up to the reporting date. 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. Office 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 expected cost of the refurbishment at the end of the lease. 17.3. Discharge fee refund The Group conducted a governance review of loan agreements during FY22, where the Group identified it had potentially overcharged a segment of customers discharge fees from 2006 to 2017. A liability was recognised for the likely economic outflow to refund these discharge fees, accrued interest and associated cost involved in processing the refunds to the affected customers. Refunds to customers have occurred throughout FY23. 76 | | 77 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CAPITAL | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CAPITAL Capital. For the year ended 30 June 2023 18. Capital management The Group’s capital management objectives The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group operates a warehouse for securitisation funding model for its lending business and as such makes decisions on the amount of capital invested in the notes 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 capital structure of the Group consists of net debt (borrowings net of cash balances) and equity of the Group (comprising issued capital, reserves and retained earnings). The Group is not subject to any externally imposed capital requirements. 19. Dividends Declared and paid during the period (fully-franked at 30 percent) FY23 $'000 FY22 $'000 Final dividend for FY22: $0.04 (FY21: $0.04) 16,1161 16,336 Interim dividend for FY23: $0.04 (Interim FY22: $0.04) 16,0572 16,352 Proposed and unrecognised as a liability (fully-franked at 30 percent) Final dividend for FY23: $0.04 (FY22: $0.04) 32,173 32,679 16,065 16,065 16,277 16,277 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 credit balance EQUITY Issued capital Reserves Retained earnings NOTE FY23 $'000 FY22 $'000 20 20 20 111,990 114,935 (19,589) (25,466) 322,872 288,599 415,273 378,068 Franking credits available for future years at 30% adjusted for the payment of income tax and dividends receivable or payable 118,068 95,073 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. (6,885) (6,976) 1 The final FY22 dividend paid is net of dividend paid to treasury shares held by the Group ($122,286), eliminated on consolidation. 2 The interim FY23 dividend paid is net of dividend paid to treasury shares held by the Group ($110,864), eliminated on consolidation. 78 | | 79 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CAPITAL | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CAPITAL 20. Issued capital and reserves 20.2. 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. Issued capital Treasury shares Share capital Reverse acquisition reserve1 Balance at 30 June FY23 $'000 FY22 $'000 175,806 180,998 (2,275) (4,522) 173,531 176,476 (61,541) (61,541) 111,990 114,935 1 As a result of reverse acquisition accounting in the Resimac/Homeloans merger, an 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. Balance at 1 July 2021 Allocation of shares under LTI#1 (Tranche 2) Allocation of shares under Employee Share Plan Acquisition of shares (average price: $1.48 per share) Issued capital as at 30 June 2023 was $175,805,688 (401,622,340 ordinary shares). Balance at 30 June 2022 Allocation of shares under LTI#2 Allocation of shares under Employee Share Plan Allocation of shares under LTI#1 Tranche 3 Balance at 30 June 2023 Movements in issued capital during the year relate to the acquisition of 5,290,163 shares for $5,192,468 (average price of $0.98 per share) under the Group’s on market share buyback scheme. These shares were cancelled prior to 30 June 2023. 20.1. Issued capital No. of shares - Thousands $'000 Balance at 1 July 2021 408,404 183,011 Issue of shares under the DRP: • FY21 Dividend on 21 September 2021 • HY22 Dividend on 24 March 2022 388 603 837 957 Share buyback cancelled shares (average price: $1.53 per share) (2,483) (3,807) Balance at 30 June 2022 406,912 180,998 Share buyback cancelled shares (average price: $0.98 per share) (5,290) (5,192) Balance at 30 June 2023 401,622 175,806 Fully paid ordinary shares, which have no par value, carry one vote per share and carry a right to dividends. No. of shares - Thousands $'000 540 (300) (100) 2,785 2,925 (785) (200) (300) 1,640 1,336 (740) (192) 4,118 4,522 (1,485) (305) (457) 2,275 80 | | 81 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CAPITAL | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CAPITAL 20.3. Reserves (net of income tax) and retained earnings RESERVES Retained earnings Cash flow hedge reserve Foreign currency translation reserve Fair value reserve Share- based payment reserve Other reserve Non- controlling interest $'000 $'000 $'000 $'000 $'000 $'000 $'000 Balance at 1 July 2021 219,131 (9,917) (55) (2,373) 2,201 (7,982) Profit after tax 102,147 - 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 - - - (32,679) - (2,714) - - - - - - (1,236) - - - - - - (1,683) - - - - - - - (1,707) - - - - - - Balance at 30 June 2022 288,599 (12,631) (1,291) (4,056) 494 (7,982) Balance at 1 July 2022 288,599 (12,631) (1,291) (4,056) 494 (7,982) Acquisition of non-controlling interest - Profit after tax 66,446 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 - - - (32,173) - - - 8,1411 - - - - - - - 789 - - - - - - - (1,614) - - - - - - - - (1,439) - - - - - - - - - - - - - - - - 97 13 - - - - - 20.4. Nature and purpose of reserves 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 of the Group's New Zealand operations 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. Other reserve Other reserves represent the recognition made directly in equity for the difference between the amount by which the Non-Controlling Interest (NCI) was adjusted, and the fair value of consideration paid on Resimac’s acquisition of the remaining 40% shares of RAF on 1 February 2021. 21. Earnings per share FY23 FY22 Profit attributable to ordinary equity holders of the parent ($'000) 66,446 102,147 WANOS1 used in the calculation of basic EPS (shares, thousands) 402,215 407,743 Dilutive effect of share options 1,054 2,498 WANOS1 used in the calculation of diluted EPS (shares, thousands) 403,269 410,241 EARNINGS PER SHARE Basic (cents per share) Diluted (cents per share) 1 Weighted average number of shares. Calculation of earnings per share 16.52 16.48 25.05 24.90 Balance at 30 June 2023 322,872 (4,490) (502) (5,670) (945) (7,982) 110 21.1. Basic earnings per share 21.2. Diluted earnings per share 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 equity (other than dividends), divided by the WANOS adjusted for any bonus element. Diluted earnings per share is calculated by: • dividing the net profit attributable to ordinary equity holders of the parent; by the • WANOS outstanding during the year; plus • the WANOS that would be issued on the conversion of all the dilutive potential ordinary options or rights into ordinary shares. 1 The change in fair value of cash flow hedges (net of tax) includes: a) gross change in fair value of $69,421,000 b) reclassification from cash flow hedge reserve to profit or loss of $(57,803,000) and c) tax impact of $(3,477,000). 82 | | 83 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK Risk. For the year ended 30 June 2023 22. Financial assets and financial liabilities The Group holds the following financial instruments: Basis of measurement NOTE FINANCIAL ASSETS Cash and cash equivalents Amortised cost Trade and other receivables (excluding prepayments) Amortised cost Loans and advances Short-term investment Equity in ASX Listed Companies Equity in Unlisted Companies Amortised cost Amortised cost FVOCI FVTPL Loans to related party Amortised cost Derivative financial assets – Cross currency swaps Derivative financial assets – Interest rate swaps Derivative financial assets – Interest rate swaps Derivative financial assets – Overnight index swaps FVCHR FVCHR FVTPL FVTPL FINANCIAL LIABILITIES Trade and other payables Interest-bearing liabilities Lease liabilities Amortised cost Amortised cost Amortised cost Present value of trail commission payable Amortised cost Derivative financial Liabilities – Overnight index swaps FVTPL 4 5 6 7 7 7 7 23 23 23 23 12 13 14 15 23 22.1. Fair values measurements and 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 Equity in ASX Listed Companies Equity in Unlisted Companies Fair value hierarchy Valuation technique(s) and key input(s) Level 1 Level 3 Most recent traded price and other available market information. Acquisition value, financial performance since acquisition. Subsequent capital raise since acquisition adjusted for changes in market and macroeconomic factors. FY23 $'000 FY22 $'000 17,077 15,963 3,510 7,260 Interest rate swaps Level 2 Discounted cash flow. Forward interest rates, contract interest rates. 20,722 27,252 Cross currency swaps Level 2 Discounted cash flow. Forward interest rates, contract interest rates. 4,474 11,400 Overnight index swaps Level 2 Discounted cash flow. Forward interest rates, contract interest rates. - 568 FY23 $'000 FY22 $'000 1,085,417 932,781 1,095 3,130 13,735,635 15,669,860 - 17,077 3,510 8,000 4,474 4,760 260 15,963 7,260 - 11,400 - 15,962 27,252 FINANCIAL LIABILITIES - 568 14,875,930 16,668,474 27,146 30,062 14,471,070 16,288,455 9,369 6,850 426 11,097 11,750 235 14,514,861 16,341,599 Overnight index swaps Level 2 Discounted cash flow. Forward interest rates, contract interest rates. 426 235 In the year to 30 June 2023 there has been no change in the fair value hierarchy or the valuation techniques applied to any of the balances above. For further information on the use of derivatives refer to Note 23 Financial risk management. 84 | | 85 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK 22.1.2. Fair value of financial assets and liabilities that are not measured at fair value (but fair value disclosures are required) • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. With the exception of the future trail commission receivable and payable that are 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. 22.2. Financial assets and liabilities 22.2.1. Recognition and initial measurement All 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. 22.2.2. Classification and 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 cash flow hedge reserve (FVCHR) – cash flow hedges • 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 of the first reporting period following the change in the business model. 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 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. See Note 23.3 for recognition and measurement of derivatives designated as cash flow hedges. All financial assets not classified as measured at amortised cost or FVOCI or FVCHR as described above are measured as FVTPL. This includes the Group’s overnight index swaps and majority of interest rate swaps 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 or at FVCHR 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: • how the performance of the financial assets held within 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 • how managers of the business are compensated (for 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. In assessing whether the contractual cash 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 interest criterion if the prepayment amount substantially represents 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. 22.2.2.4. Financial assets – Subsequent measurement 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. These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by expected 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. In disposal or derecognition of investment the cumulative gain or loss is not reclassified to profit or loss, instead it is transferred to retained earnings. Derivatives at FVCHR See Note 23.3 for derivatives designated as cash flow hedges. 86 | | 87 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK 22.2.2.5. Financial liabilities – Classification, subsequent measurement and gains and losses Financial liabilities are classified as either financial liabilities at FVPTL or other financial liabilities. Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL where the liability is either held for trading or designated at fair value through profit or loss. A financial liability is held for trading if: • it has been incurred principally for the purpose of repurchasing it in the near term; or • 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 both, which is managed and its performance evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or • it forms part of a contract containing one or more embedded derivatives, and AASB 9 permits the entire combined contract to be designated as at FVTPL. Financial liabilities at FVTPL are stated at fair value with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the ‘other gains and losses' line item. 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 period, to the net carrying amount on initial 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 The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified 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 22.2.4. Modification of financial instruments A financial instrument is modified when its original contractual cash flows are renegotiated or modified. A financial asset that is renegotiated is derecognised if the rights to receive cash flows from the existing agreement have expired, either through replacement by a new agreement or the existing terms are modified to that effect. A financial liability that is renegotiated is derecognised if the existing agreement is cancelled and a new agreement is made on substantially different terms or if that existing terms are modified such that the renegotiated financial instrument is a substantially different financial instrument. Where the modification results in derecognition of the original financial instrument, the new financial instrument is recorded initially at its fair value and the resulting difference is recognised in profit or loss in accordance with the nature of the financial instrument as described in the derecognition of financial assets and liabilities policy. For financial instruments measured at amortised cost, and for debt financial assets measured at FVOCI, when modification does not result in derecognition, a gain or loss is recognised in profit or loss in accordance with the nature of the financial instrument as described in the derecognition of financial assets and liabilities policy. The gain or loss is measured as the adjustment of the gross carrying amount to reflect the renegotiated or modified contractual cash flows, discounted at the instrument’s original effective interest rate. 22.2.5. Impairment of financial assets The Group recognises loss allowances for expected credit loss (ECL) on: • Trade and other receivables • Loans and advances measured at amortised cost • Contract assets • Lease receivables The Group applies the following approach for measuring credit provisions: • Specific Provisions (Stage 3); • ECL modelled Collective Provision in line with AASB 9 requirements; and • Post model overlays including macroeconomic, model and management overlays. ECL’s are monitored regularly in conjunction with monthly hardship and arrears metrics provided to the Group’s Asset and Liabilities Committee (ALCO). The Group takes a tailored loan by loan approach to managing credit risk. 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 individual underlying exposure (b) loss given default: the LGD is an estimate of the severity of loss following a default event, taking into consideration the mitigating effect of mortgage insurance if applicable, collateral and time value of money. Mortgage insurance is reflected indirectly in the LGD, as mortgage insured loans are not expected to incur loss following default. (c) exposure at default: the EAD represents the estimated exposure in the event of a default (d) Significant increase in credit risk: An asset moves to stage 2 when its credit risk has increased significantly since initial recognition. A significant increase in credit risk is identified before the exposure has defaulted and at the latest when exposure becomes 31 days past due. 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 readily available, including both quantitative and qualitative information and analysis, based on the Group’s historical experience. (e) Post model overlays: Management apply various overlays to ensure the Group has sufficient Balance Sheet coverage for known and potential credit risk factors that are not modelled in the above assumptions including: Model risk overlay – applied by management to the base ECL model for potential errors in development and implementation of any of the quantitative elements underpinning the model. Model risk overlay is applied at 20% of modelled ECL (base ECL and macroeconomic model overlay). Macroeconomic overlay – overlaid to the base ECL model to provide for potential macroeconomic factors not considered in the ECL model output (e.g. rising unemployment, house price decline, low wage growth). As part of the forward-looking assessment, the Group has considered factors including macro- economic forecast and outlook, housing price index, GDP growth, unemployment rates and interest rates. Management overlay – applied by management where higher Balance Sheet provision coverage is deemed appropriate. 88 | | 89 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK The collective provision coverage of the Group has been increased by modelling three hypothetical downside macroeconomic scenarios. These scenarios allow the Group to increase coverage for potential scenarios that may occur in the future, in addition to the base ECL model which uses the preceding 48 months of arrears and loss history. The macroeconomic scenarios are based on the following key levers: • Property prices – underlying securities are stressed by percentages based on their ranking on the CoreLogic Hedonic Index property value bands. These stress tests allow the Group to assess underlying credit risk on a loan by loan basis in each of the downside scenarios. • Probability of default – stress each borrower with a multiple of their actual PD. The PD stress multiple increases as the underlying security stress increases, factoring in the likely macroeconomic impacts that would be experienced in a declining property market scenario (e.g. higher unemployment, lower GDP). The table below summarises the macroeconomic assumptions used for each of the scenarios. Each scenario is applied a weighting to aggregate a macroeconomic overlay for inclusion in the Group’s total collective provision. HOUSE PRICE IMPACT Lower Mid Upper PROBABILITY OF DEFAULT IMPACT Prime Near Prime Specialist PROBABILITY OF DEFAULT Prime Near Prime Specialist Scenario 1 2 3 -5.00% -10.00% -15.00% -7.50% -15.00% -20.00% -10.00% -20.00% -25.00% 2.5 2.5 2.5 4.0 4.0 4.0 6.0 6.0 6.0 2.58% 4.28% 4.14% 6.84% 6.20% 10.27% 13.42% 21.48% 32.22% PROBABILITY WEIGHTING 35.0% 35.0% 30.0% The Group measures loss allowances 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 (stage 2), or are credit impaired (stage 3), or if the financial instrument is a purchased or originated credit- impaired financial asset (stage 3). If the credit risk on a financial instrument has not increased significantly since initial recognition (except for a purchased or originated credit-impaired financial asset), the Group measures the loss allowance for that financial instrument at an amount equal to a 12 month ECL for stage 1 assets. 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 observable data about the following events: • significant financial difficulty of the borrower; or • breach of contract, such as a default or delinquency in interest or principal payments; or • becoming apparent 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 • observable changes in national or local economic conditions that correlate with default on receivables. See Note 23.6 for further details on credit-impaired financial assets. Definition of default The Group considers that default has occurred at 90 days past due. The Group aligns its approach to credit risk in line with the segmentation of AASB 9. As such, the ECL for financial assets measured at amortised cost 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 and the LGD, 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, the lifetime losses associated with that PD and LGD, 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. The Group also classifies certain loans that have a resolved hardship status as stage 2 for an observation period after the cessation of the hardship arrangement. 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 (specific) 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. 90 | | 91 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK 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. Foreign currency denominated profit or losses. Cash flow forecasting Sensitivity analysis Cross currency interest rate swaps. 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 and overnight index swaps. Equity investments not held for trading. Market risk - equity investment valuation Credit risk Loan portfolio and bond exposures, counterparty risk. Credit risk analysis Rating agency criteria and analyses Diversification, adaptive capital structures, strong collections/ portfolio management, rating agency provisions in transactions documents. Liquidity risk Borrowings, derivative financial liabilities. Rolling cash flow forecasts Availability of committed credit lines and borrowing facilities, securitisation, capital relief transactions, structuring terms of obligations, diversification of funders. 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. 23.3. Hedge accounting Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is effective in offsetting changes in fair values or cash 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 Group designates certain hedging instruments, which includes derivatives in respect of foreign currency and interest rate risks, as cash flow hedges. • the effect of credit risk does not dominate the value changes that result from that economic relationship; and 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 various hedge transactions. • the hedge value is largely reflective of the hedged item. 92 | | 93 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK 23.3.1. Cash flow hedges Hedge accounting is discontinued when: • the Group revokes the hedging relationship; 30 JUNE 2022 (DISCLOSED IN AUD) The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss, in the same line as the recognised hedged item. The majority of the Group’s interest rate swaps are not designated as hedging instruments for accounting purposes, the changes in the fair value are recognised immediately in profit or loss for these interest rate swaps. • the hedging instrument expires or is sold, terminated, or exercised; or • the Group no longer qualifies for hedge accounting. Any cumulative gain or loss recognised in other comprehensive income and accumulated in equity at 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 recognised immediately in profit or loss. The following table details the amounts relating to items designated as cash flow hedges: 30 JUNE 2023 (DISCLOSED IN AUD) USD CCS JPY CCS IRS $'000 $'000 $'000 Notional amount 1,052,035 450,000 536,432 Average fixed contract rate (FX rate per AUD) 0.72 77.22 - Average fixed interest rate Carrying amount of the hedging instrument • Assets • Liabilities - 102,769 - - 3.95% 4,760 - (98,295) - Total carrying amount of the hedging instrument 102,769 (98,295) 4,760 Change in value of hedging instrument 3,400 (10,326) 4,760 Change in value of hedged item 6,187 7,596 (4,760) Change in value of hedging instrument recognised in cash flow hedge reserve 9,587 (2,730) 4,760 Hedge ineffectiveness recognised in profit or loss - - Amount reclassified from hedge reserve to profit or loss due to: • FX spot movement 103,264 (87,719) - - • Hedging gain/loss recognised on settlement (55,688) (17,362) (299) Notional amount Average fixed contract rate (FX rate per AUD) Carrying amount of the hedging instrument • Assets • Liabilities USD CCS JPY CCS $'000 $'000 1,794,825 450,000 0.73 77.22 99,369 - - (87,969) Total carrying amount of the hedging instrument 99,369 (87,969) Change in value of hedging instrument Change in value of hedged item 145,107 (73,202) (131,617) 55,835 Change in value of hedging instrument recognised in cash flow hedge reserve 13,490 (17,367) Hedge ineffectiveness recognised in profit or loss - - Amount reclassified from hedge reserve to profit or loss 109,451 (80,122) 23.3.2. Derivative financial assets and liabilities The carrying values are as follows: DERIVATIVE FINANCIAL ASSETS Cross currency swaps Interest rate swaps Overnight index swaps DERIVATIVE FINANCIAL LIABILITIES Overnight index swaps FY23 $'000 FY22 $'000 4,474 11,400 20,722 27,252 - 568 25,196 39,220 426 426 235 235 94 | | 95 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK The Group seeks to minimise the effects of foreign currency and some interest rate exposures by using derivative instruments to hedge these positions. Derivatives are initially recognised at fair value at the date derivative contracts are entered into, and subsequently measured at their fair value at each reporting period. During the period, currency movements drove changes in valuation of the Groups’ cross currency swaps hedged to the Group’s US RMBS bonds. These movements in the derivative balances are matched with the USD bond liabilities, with the profit/(loss) on swaps recognised in Other Comprehensive Income. 23.4. Market risk Market risk is the risk of an adverse impact on the Group’s earnings resulting from changes in market factors, such as interest rates, equity prices and foreign exchange rates. 10bps +/- Cross currency swaps Interest rate swaps 23.4.1. Interest rate risk Interest rate risk is the risk that the Group will experience deterioration in its financial position as interest rates change over time. Interest rate exposure is driven by interest rate mismatches between assets and liabilities (i.e. borrowing at floating interest rates and lending with fixed interest rates). Interest rate risk is managed by entering into interest rate and overnight index swaps subject to the Group’s hedging and derivatives policies. 23.4.2. Interest rate risk – Sensitivity analysis The majority of the Group’s liabilities are issued through warehouse facilities and securitisation trusts. Under such arrangements, the repayment profile of the bonds is matched to the repayments collected from the loan assets. 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: FY23 $'000 FY22 $'000 13,737 15,672 14,375 16,190 In relation to the Group’s interest rate swaps, if interest rates had been 10bps higher/lower and all other variables were held constant, the Groups: • profit for the year ended 30 June 2023 would decrease/increase by $0.4 million (FY22: $1.3 million) • cash flow hedge reserves would decrease/increase by $1.0 million (FY22: Nil). 23.4.3. Interest rate swap contracts Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional 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 below: FAIR VALUE ASSET Derivative financial assets FY23 $'000 FY22 $'000 20,722 27,252 The following table details the notional principal amounts outstanding at the end of the reporting period: NOTIONAL PRINCIPAL VALUE Less than 1 year 1 to 2 years 2 to 5 years FY23 $'000 FY22 $'000 113,962 114,574 229,379 237,079 813,565 788,335 1,156,906 1,139,988 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. 23.4.4. Overnight index swap contracts Under overnight index swap contracts, the Group agrees to exchange the difference between the overnight cash rate plus a margin and 1 month BBSW on agreed notional principal amounts. Such contracts enable the Group to mitigate the exposure of basis differentials in an increasing rates environment, of its loan and funding book. The fair value of overnight index 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 below. FAIR VALUE ASSET Derivative financial assets FAIR VALUE LIABILITY Derivative financial liabilities FY23 $'000 FY22 $'000 - 568 426 235 96 | | 97 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK The following table details the notional principal amounts outstanding at the end of the reporting period: NOTIONAL PRINCIPAL VALUE Less than 1 year 1 to 2 years 2 to 5 years FY23 $'000 FY22 $'000 4,000,000 1,000,000 - - 2,000,000 - 4,000,000 3,000,000 23.4.5. Corporate interest – Sensitivity analysis The remainder of the Group’s loan portfolio and liabilities are held in corporate entities. The impact of a potential +/- 10bps change in interest rates on interest revenue and borrowing costs on balances held by the Group for the year is set 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 FY23 $'000 FY22 $'000 1,085 (1,085) (50) 50 933 (933) (70) 70 23.4.6. Equity price risk Equity investments in listed and unlisted shares are held for strategic rather than trading purposes. The Group does not actively trade these investments. 23.4.7. Equity investment valuation risk - sensitivity analysis If equity prices on listed shares had been 10% higher / lower: • Other comprehensive income would increase/ decrease by $1,708,000 as a result of the changes in fair value of investments in listed shares (FY22: $1,596,000). If fair value assessments on unlisted shares had been 10% higher / lower: • Net profit for the year ended 30 June 2023 would increase/decrease by $351,000 as a result of the changes in fair value of the investments in unlisted shares (FY22: $726,000); and 23.5. Foreign currency risk 23.5.1. Accounting translation As at reporting date the Group held cash assets and loans denominated in New Zealand dollars (NZD). Fluctuations in the NZD are not expected to have a material impact on the consolidated statement of profit or loss or the consolidated statement of comprehensive income and equity of the Group. 23.5.2. Market risk - foreign exchange on monetary items The Group obtains funding denominated in foreign currencies, consequently, exposure to exchange rate fluctuations arise. These currencies include USD and JPY. The Group manages foreign currency risk through the use of currency derivatives. The carrying amounts of the Group’s foreign currency denominated assets and liabilities and notional principal amounts outstanding at the end of the reporting period are set out in Note 23.3.1. activities is managed within its origination and funding programmes. The Group maintains separate credit policies for each programme and regularly reviews and amends policies in line with economic, operating and funding conditions. The Group’s approach to credit management utilises a conservative credit risk framework to ensure that the following principles are adhered to: • independence from brokers; • recognition of the different risks in the various Group businesses; 23.6. Credit risk management • credit exposures are systematically controlled and Credit risk is the risk that a counterparty will fail to complete its contractual obligations when they fall due. The consequential loss is the amount of the financial obligation not paid back, or the loss incurred in replicating a trading contract with a new counterparty. The Group’s primary credit risk exposures relate to its lending activities in its principally funded mortgage portfolio and asset finance portfolio. The Group’s primary lending activities are concentrated in the Australian and New Zealand market. The underlying credit risk in the Group’s lending activities is commensurate with a geographically-diverse residential mortgage portfolio and asset finance portfolio. The Board of Directors is responsible for determining the Group’s overall appetite for credit risk and monitoring the quality and performance of the mortgage portfolio. The credit risk management operational framework and policy is governed and managed by the Credit Committee. The Group does not have any direct counterparty credit exposure arising from its financing and securitisation activities. Counterparty risk is governed, and mitigated where required, by ratings agency criteria within the securitisation trusts including exposures to banks, lender’s mortgage insurance providers and derivative counterparties. 23.6.1. Credit risk in lending The Group has established lending policies and procedures to manage the credit risk inherent in lending. The extent of credit risk in the Group’s lending monitored; • credit exposures are regularly reviewed in accordance with up-to-date credit procedures; and • credit exposures include such exposures arising from derivative transactions. Each of the Group’s business units are responsible for managing credit risks that arise in their own areas with oversight from a Group Credit Committee. It is the Credit Committee policy to monitor the policies of all divisions to ensure that the risk of the Group is monitored appropriately. The Group Credit Committee will continually monitor the credit policy taking into account internal and external factors, to ensure credit policy aligns with the risk appetite of the Group. 23.6.2. Exposure to credit risk Loans and advances consist of a large number of customers, spread across diverse demographic and geographical areas. Ongoing credit evaluation is performed on the financial condition of loans and advances, accounts receivable and other financial assets. There is no significant concentration of risk to any single counterparty. The credit risk on derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit- rating agencies. 98 | | 99 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK 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 credit risk at the reporting date was: The following table summarises the loans and advances and the expected credit loss by stage and risk category: NOTE FY23 $'000 FY22 $'000 MAXIMUM EXPOSURE TO CREDIT RISK $'000 $'000 $'000 Stage 1 Collective Stage 2 Collective Stage 3 Collective Stage 3 Specific $'000 Total $'000 1,085,417 932,781 Balance as at 30 June 2023 Cash and cash equivalents Trade and other receivables (excluding prepayments) Contract assets Other financial assets 4 5 1 7 1,095 3,130 13,877 24,077 28,587 23,483 Derivative financial assets 23 25,196 39,220 1,154,172 1,022,691 Loans and advances at amortised cost (subject to credit risk) 6 13,736,981 15,672,444 14,891,153 16,695,135 As at 30 June 2023, 100% of the Group’s cash and cash equivalents are held with banks or financial institutions with a credit rating of AA- or better (FY22: 100%). 23.6.3.1. Loan borrowers The Group manages credit risk by obtaining security over the loan asset and mortgage insurance for loans, where required. In monitoring the credit risk, loans are grouped according to their credit characteristics using credit risk classification systems. This includes the use of the Loan to Value Ratio (LVR) to assess its exposure to credit risk from loans originated through the securitisation programme. 23.6.4. Financial guarantees The Group is exposed to credit risk in relation to financial guarantees given to banks. The Group's maximum exposure in this respect is the maximum amount the Group could have to pay if the guarantees are called on. Refer to Note 26.2 for the guarantees in respect of the leases. Loans and advances • Mortgage lending 12,614,816 365,141 126,574 6,084 13,112,615 • Asset finance lending 629,738 6,106 • Commercial lending 265 - 99 - 1,228 637,171 - 265 Total 13,244,819 371,247 126,673 7,312 13,750,051 Balance as at 30 June 2022 Loans and advances • Mortgage lending 14,923,300 318,070 39,547 6,000 15,286,917 • Asset finance lending 395,159 1,435 • Commercial lending 556 - 129 - 303 397,027 - 556 Total 15,319,015 319,505 39,676 6,304 15,684,500 EXPECTED CREDIT LOSS Balance as at 30 June 2023 Loans and advances • Mortgage lending • Asset finance lending • Commercial lending 15,448 13,244 11,937 1,837 42,466 1,846 - 763 - 57 - 712 - 3,378 - Total 17,294 14,007 11,994 2,549 45,844 Balance as at 30 June 2022 Loans and advances • Mortgage lending • Asset finance lending • Commercial lending 23,023 12,720 4,844 4,171 44,757 1,969 1 81 - 55 - 178 - 2,283 1 Total 24,992 12,801 4,899 4,349 47,041 100 | | 101 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK (30 June 2022: $2.2 million). 23.6.7. Analysis of loans and advances by past due status The majority of the Group’s exposure to loans and advances is limited, as they are legally owned by securitisation trusts with limited recourse to the Group. Losses on mortgage loans in these entities are therefore limited to the Group’s investment in notes in these trusts and the residual income rights of trusts. The trust structures are designed such that losses are covered by the income generated from the assets within the trust before the investment notes are impaired. Collateral held The value of the collateral held as security for loans in stage 2 and stage 3 collective at 30 June 2023 is $726.4 million (30 June 2022: $522.8 million). The value of the collateral held as security for loans in stage 3 specific loans at 30 June 2023 is $5.1 million Loans are secured by the Group by having the property titles registered as a financial interest that provide the Group first priority over any proceeds becoming available from the sale of the property. For Prime insured loans, LMI policies exist to cover 100% of the principal amount at default plus interest. At 30 June 2023, 97% of the Australian mortgage lending portfolio is either mortgage insured or originated at an LVR of below 80%. 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 & ADVANCES AT AMORTISED COST FY23 FY22 Concentration by region $'000 %1 $'000 %1 New South Wales Victoria Queensland Western Australia South Australia Tasmania Northern Territory New Zealand Total EXPECTED CREDIT LOSS Concentration by region New South Wales Victoria Queensland Western Australia South Australia Tasmania Northern Territory New Zealand Total 1 Rounded to nearest 100bps. 102 | 4,985,022 3,567,529 2,470,642 922,251 894,862 92,180 59,912 757,653 36% 26% 18% 7% 7% 1% 0% 5% 5,781,932 4,069,813 2,844,067 1,101,971 948,254 103,147 61,760 773,556 37% 26% 18% 7% 6% 1% 0% 5% 13,750,051 100% 15,684,500 100% $'000 %1 $'000 %1 16,374 13,141 7,797 4,059 2,085 232 827 1,329 45,844 36% 29% 17% 9% 5% 0% 1% 3% 15,173 11,202 9,728 5,811 2,856 243 1,410 618 32% 24% 21% 12% 6% 1% 3% 1% 100% 47,041 100% Under the Group’s monitoring procedures, a significant increase in credit risk is identified 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. LOANS & ADVANCES AT AMORTISED COST1 0 days and less than 30 days 30 days and less than 60 days 60 days and less than 90 days 90 days and less than 180 days 180 days and less than 270 days 270 days and less than 365 days 365 days and over Total 1 Includes loans that are collectively and specifically provided for. EXPECTED CREDIT LOSS 0 days and less than 30 days 30 days and less than 60 days 60 days and less than 90 days 90 days and less than 180 days 180 days and less than 270 days 270 days and less than 365 days 365 days and over Total FY23 $'000 FY22 $'000 13,428,879 15,592,251 125,826 41,460 63,915 9,024 77,987 23,364 35,959 9,873 7,612 6,885 4,081 7,435 13,750,051 15,684,500 FY23 $'000 FY22 $'000 25,896 39,206 3,526 3,046 7,742 3,237 1,148 1,249 1,101 558 3,041 802 501 1,832 45,844 47,041 | 103 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK 23.6.8. Movement in credit exposures PROVISION FOR IMPAIRMENT LOSSES $'000 $'000 $'000 Stage 1 Collective Stage 2 Collective Stage 3 Collective Stage 3 Specific $'000 Total $'000 PROVISION FOR IMPAIRMENT LOSSES $'000 $'000 $'000 Stage 1 Collective Stage 2 Collective Stage 3 Collective Stage 3 Specific $'000 Total $'000 Balance as at 30 June 2022 24,992 12,801 4,899 4,349 47,041 Balance as at 30 June 2021 13,800 14,016 4,310 5,439 37,565 Net transfer between stages 7,252 (5,137) (978) (1,137) - Net transfer between stages 5,783 (4,188) - (5,125) (1,410) (7,252) Stage 1 - Collective - (4,414) Stage 1 - Collective Stage 2 - Collective Stage 3 - Collective Stage 3 - Impaired (717) (116) - - 116 (128) (145) 5,125 717 1,410 128 145 - 5,137 978 1,137 Net re-measurement on transfers between stages Impact of transfers between stages and re-measurement (20,204) 6,800 7,745 1,949 (3,710) 12,040 14,464 11,666 5,161 43,331 Stage 2 - Collective Stage 3 - Collective Stage 3 - Impaired Net re-measurement on transfers between stages Impact of transfers between stages and re-measurement 4,414 441 927 - 178 48 (7,822) 2,608 11,761 12,436 4,627 4,215 33,039 (371) (441) (178) (1,224) - (927) (5,782) (48) 4,188 - (248) 248 688 - - 371 1,223 (4,526) Net Financial Assets Originated 8,061 1,362 1,418 203 11,044 Net Financial Assets Originated 12,698 363 273 131 13,465 Movements in existing individually assessed provisions and write-backs Write-offs - - - - - - (49) (49) Movements in existing individually assessed provisions and write-backs (3,437) (3,437) Write-offs Discharges/Other (2,807) (1,819) (1,091) 672 (5,045) Discharges/Other - - 533 - - 2 - - (1) 1,815 1,815 (1,970) (1,970) 158 692 Balance as at 30 June 2023 17,294 14,007 11,993 2,550 45,844 Balance as at 30 June 2022 24,992 12,801 4,899 4,349 47,041 CREDIT EXPOSURE CREDIT EXPOSURE Balance as at 1 July 2022 15,319,015 319,505 39,676 6,304 15,684,500 Balance as at 1 July 2021 13,453,842 431,457 36,947 12,194 13,934,440 Net transfers between stages and financial assets originated (2,074,196) 51,742 86,997 4,445 (1,931,012) Net transfers between stages and financial assets originated 1,865,173 (111,952) 2,729 (5,890) 1,750,060 Write-offs - - - (3,437) (3,437) Write-offs - - - (1,970) (1,970) Balance as at 30 June 2023 13,244,819 371,247 126,673 7,312 13,750,051 Balance as at 30 June 2022 15,319,015 319,505 39,676 6,304 15,684,500 104 | | 105 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RISK 23.7. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. The Group’s funding platform currently comprises a mix of: • warehouse facilities; • securitisation trusts; • secured corporate debt facilities; and • cash. The majority of the Group’s liabilities represent bonds issued by SPVs through warehouse facilities and securitisation trusts. Under such arrangements, bondholder recourse is limited to the assets of the relevant SPVs to which 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, $14.1 billion at 30 June 2023 (FY22: $15.8 billion), they have not all been included in the table below. 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. FINANCIAL LIABILITIES $'000 $'000 $'000 $'000 $'000 $'000 $'000 <6 months or on demand 6-12 months 1-3 years 3-5 years >5 years Total cash flows Carrying amount FY23 Non-derivatives Trade and other payables 27,146 Interest-bearing liabilities • Issuance facilities • Corporate debt 21,110 50,000 - - - - - 143,289 131,517 - - - - - 27,146 27,146 295,916 295,916 50,000 50,000 Present value of future trail commissions payable 1,227 1,032 2,677 1,373 1,377 7,686 6,850 Lease liabilities 1,087 1,089 4,482 3,886 - 10,544 9,369 100,570 2,121 150,448 136,776 1,377 391,292 389,281 Derivatives 426 - - - - 426 426 100,996 2,121 150,448 136,776 1,377 391,718 389,707 FY22 Non-derivatives Trade and other payables 30,062 - - - Interest-bearing liabilities • Issuance facilities 9,466 26,216 93,728 248,272 • Corporate debt - - 70,000 - - - - 30,062 30,062 377,682 377,682 70,000 70,000 Present value of future trail commissions payable 2,126 1,721 4,240 1,917 1,746 11,750 11,750 Lease liabilities 1,083 1,105 4,326 4,665 1,535 12,714 11,097 42,737 29,042 172,294 254,854 3,281 502,208 500,591 Derivatives 235 - - - - 235 235 42,972 29,042 172,294 254,854 3,281 502,443 500,826 23.7.2. Financing facilities Secured corporate debt facility which may be extended by mutual agreement Amount used Amount unused FY23 $'000 FY22 $'000 - 30,000 30,000 20,000 10,000 30,000 106 | | 107 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS GROUP STRUCTURE | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS GROUP STRUCTURE Group structure. For the year ended 30 June 2023 24. Subsidiaries Details of the Group’s subsidiaries at the end of the reporting period are as follows: Name of subsidiary Principal activity CONTROLLED COMPANIES Access Network Management Pty Ltd Mortgage manager Auspak Financial Services Pty Ltd Mortgage broker Place of incorporation and operation Australia Australia Clarence Street Finance Pty Ltd Holder of commission agreements Australia Clarence Street Funding No.1 Pty Ltd Special purpose vehicle Clarence Street Funding No.2 Pty Ltd Participation unit holder Clarence Street Funding No.3 Pty Ltd Special purpose vehicle Clarence Street Funding No.4 Pty Ltd Special purpose vehicle Clarence Street Funding No.6 Pty Ltd Special purpose vehicle Clarence Street Funding No.7 Pty Ltd Special purpose vehicle Clarence Street Funding No.8 Pty Ltd Special purpose vehicle Clarence Street Funding No.9 Pty Ltd Special purpose vehicle Clarence Street Funding No.10 Pty Ltd Special purpose vehicle Clarence Street Funding No.11 Pty Ltd1 Special purpose vehicle FAI First Mortgage Pty Ltd Trust manager and servicer Homeloans.com.au Pty Ltd Mortgage lender Housing Financial Services Pty Ltd Mortgage originator Independent Mortgage Corporation Pty Ltd Mortgage broker Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Resimac Asset Finance Pty Ltd Asset finance originator and manager Australia PROPORTION OF OWNERSHIP INTEREST HELD & VOTING POWER HELD BY THE GROUP FY23 FY22 % % 100 100 100 100 100 100 99.9 99.9 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 1 Incorporated on 1 November 2022. 108 | PROPORTION OF OWNERSHIP INTEREST HELD & VOTING POWER HELD BY THE GROUP FY23 FY22 % % Place of incorporation and operation Name of subsidiary Principal activity CONTROLLED COMPANIES Evergreen Finance Company Pty Ltd2 Lender of record Australia - 100 RAF Structured Finance Pty Ltd Consumer and commercial lending Australia 100 100 SF Mortgage Pty Ltd Lender of record Australia 100 100 Parnell Road Funding No.1 Limited Special purpose vehicle New Zealand 100 100 Parnell Road Funding No.2 Limited Special purpose vehicle New Zealand 100 100 Prime Insurance Group Limited LMI captive insurer Bermuda 100 100 RESIMAC Capital Markets Pty Ltd Trust manager Australia 100 100 RESIMAC Financial Services Limited NZ Holding company New Zealand 100 100 RESIMAC Financial Securities Limited NZ Trust manager and servicer New Zealand 100 100 RESIMAC Home Loans Limited NZ Lender of record and trustee New Zealand 100 100 RESIMAC Limited Non-bank lender Australia 100 100 RESIMAC NZ Home Loans Limited NZ Holding company New Zealand 100 100 RESIMAC Premier Warehouse No.1 Pty Ltd3 Unit Holder RMC Fiduciary Services Pty Ltd4 Mortgage trustee RHG Mortgage Corporation Pty Ltd3 Lender of record RHG Mortgage Securities Pty Ltd3 Mortgage trustee RHG Home Loan Pty Ltd Mortgage Originator The Servicing Company Pty Ltd Trust servicer RESIMAC EST PTY LTD Initial Trustee 23 Degrees Capital Partners Pty Ltd5 Asset finance wholesaler 0508 Home Loans Limited 0800 Home Loans Limited Clarence Street Funding No.5 Pty Ltd Fiduciary Services Pty Ltd National Mutual Pty Ltd Dormant Dormant Dormant Dormant Dormant Australia Australia Australia Australia Australia Australia Australia Australia - - - - - - - - 100 100 100 100 100 100 51 15 New Zealand 100 100 New Zealand 100 100 Australia 99.9 99.9 Australia Australia 100 100 100 100 RESIMAC Financial Securitisation Limited Dormant New Zealand 100 100 RESIMAC Financial Services Pty Ltd Dormant Australia 100 100 2 Deregistered on 27 November 2022. 3 Ownership interest is 0% however the Group have Board control. 4 Incorporated on 8 June 2022. Ownership interest is 0% however the Group have Board control. 5 Ownership increased to 51% on 1 August 2022. | 109 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS GROUP STRUCTURE Name of subsidiary Principal activity CONTROLLED COMPANIES RESIMAC Leasing Pty Ltd Homeloans Pty Ltd CONTROLLED TRUSTS Dormant Dormant PROPORTION OF OWNERSHIP INTEREST HELD & VOTING POWER HELD BY THE GROUP FY23 FY22 % % 100 100 100 100 Place of incorporation and operation Australia Australia Avoca Master Trust Issuer of RMBS Australia 100 100 NZF Mortgages Warehouse A Trust Warehouse mortgages New Zealand 100 100 RESIMAC Bastille Master Trust6 Issuer of RMBS RESIMAC Triomphe Master Trust6 Issuer of RMBS Australia Australia 100 100 100 100 RESIMAC Versailles Master Trust Issuer of RMBS New Zealand 100 100 RESIMAC Victoire Trust Warehouse mortgages New Zealand 100 100 RESIMAC Premier Series 2021-2 Issuer of RMBS New Zealand 100 100 RMT Warehouse Trust No.26 Warehouse mortgages RMT Securitisation Trust No.76 Issuer of RMBS RMC Enhanced Income Fund7 Managed Investment Trust Australia Australia Australia 100 100 100 100 100 100 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS GROUP STRUCTURE 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 Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. 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. RAF Trust8 Consumer and commercial lending Australia 100 100 25.2. Non-controlling interests (NCI) International Acceptance Trust Consumer and commercial lending Australia 100 100 Resimac Group Limited Employee Share Trust9 Employee share trust Australia - - 6 This does not represent holding in capital units, percentage ownership represents control of these Trusts. 7 Incorporated on 30 March 2022 8 Incorporated on 8 June 2022. 9 Ownership interest is 0% however a 100% owned subsidiary (RESIMAC EST PTY LTD) acts as trustee. Special purpose entities - securitised trusts and funding warehouses The Group has established special purpose entities to support the specific funding needs of the Group’s securitisation programme with the aim to: • conduct securitisation activities funded by short term warehouse facilities provided by reputable lenders; and • hold securitised assets and issue bonds. The special purpose entities meet the criteria of being controlled entities under AASB 10 – Consolidated Financial Statements. 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 23 Degrees Capital Partners Pty Ltd, the Group elected to recognise the non-controlling interests at its proportionate share of the acquired net identifiable assets. 25.3. Details of acquisition On 1 August 2022 Resimac exercised the option to acquire a controlling stake in 23 Degrees Capital Partners Pty Ltd (operating as Sonder) for a purchase consideration of $0.9 million, increasing Resimac’s interest in 23 Degrees Capital Partners Pty Ltd from 15% to 51%. The total fair value of the purchase consideration for the 51% ownership in 23 Degrees Capital Partners Pty Ltd consists of the following: • $150,000 paid for the acquisition of 15% on 10 August 2021; and • $900,000 paid for the acquisition of an additional 36% on 1 August 2022. The assets and liabilities recognised as a result of the acquisition are as follows: ASSETS Cash and cash equivalents Other assets Total assets LIABILITIES Other liabilities Total liabilities Fair value of identified net assets Less: Non-controlling interest Add: Goodwill (Refer to Note 11) Purchase consideration Fair value $'000 220 8 228 (29) (29) 199 (98) 949 1,050 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. 110 | | 111 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNRECOGNISED ITEMS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OTHER Unrecognised items. For the year ended 30 June 2023 26. Commitments and contingencies 26.1. Commitments On 20 June 2023 Resimac entered in a sale and purchase agreement to purchase a $150 million portfolio of commercial asset finance loan receivable from Thorn Group Limited (ASX: TGA). The purchase is subject to Thorn Group Limited shareholder approval and is expected to complete in September 2023. The Directors were not aware of any other commitments (including capital commitments) as at the end of the financial year or arising since balance date. 26.2. Contingent liabilities Lease guarantees The Group has provided guarantees in respect of the leases over its premises of $992,600 (FY22: $992,600). The Directors were not aware of any other contingent liabilities as at the end of the financial year or arising since balance date. 27. Subsequent events 27.1. Final dividend declared The Board of Resimac Group Ltd declared a fully-franked final dividend of $0.04 per share. The record date will be 8 September 2023. The payment date will be 20 September 2023. The dividend has not been provided for in this financial report. 27.2. Acquisition of Thorn Group Limited’s asset finance portfolio Other than the sale and purchase commitment disclosed in Note 26.1, there have been no circumstances arising since 30 June 2023 that have significantly affected or may significantly affect: (a) The operations; (b) The results of those operations; or (c) The state of affairs of the Group in future financial years. Other. For the year ended 30 June 2023 28. Auditor’s remuneration DELOITTE TOUCHE TOHMATSU Audit or review of financial reports • Group • Subsidiaries FY23 $'000 FY22 $'000 366,033 307,757 708,267 705,219 1,074,300 1,012,976 Statutory assurance services required by legislation to be provided by the auditor 95,498 95,120 Other assurance and agreed-upon procedures under other legislation or contractual arrangements 153,347 218,246 Other services - Tax consulting services - 3,990 Total remuneration of Deloitte Touche Tohmatsu 1,323,145 1,330,332 NON DELOITTE TOUCHE TOHMATSU AUDIT FIRMS Other services • Tax compliance services • Tax consulting services 118,616 172,452 - 44,246 Total remuneration of Non Deloitte Touche Tohmatsu audit firms 118,616 216,698 112 | | 113 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OTHER | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OTHER 28.1. Non-audit services The auditor of the Group is Deloitte Touche Tohmatsu (Deloitte). It is the Group’s policy to employ Deloitte on assignments additional to its statutory audit duties, in compliance with the Group’s independence policies, where Deloitte’s expertise and experience with the Group are important. The total non-audit services fees of $153,347 represents 11.6% of the total fees paid or payable to Deloitte and related practices for the year ended 30 June 2023 (FY22: $222,236). 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. During the year, the Group entered into the following transaction with a related party that is not a member of the Group: INCOME RECEIVED EXPENSES PAID Director’s related entity FY23 $'000 FY22 $'000 FY23 $'000 FY22 $'000 7601 760 - - 2,0002 2,000 2,000 2,000 1 Interest received on related party loan to Somers Limited. 2 Professional Indemnity and Directors & Officers Liability insurance premiums paid to General Provincial Insurance Ltd. This insurance policy was entered into at commercial arms length 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: AMOUNTS OWED BY RELATED PARTIES AMOUNTS OWED TO RELATED PARTIES FY23 $'000 FY22 $'000 FY23 $'000 FY22 $'000 Director’s related entity3 8,000 - Other related parties of Resimac Group Ltd4 15,905 17,806 23,905 17,806 - - - - - - 3 Short-term interest bearing loan provided to Somers Limited. Interest is charged on arm’s length terms. 4 Includes residential mortgages to KMP or related parties lent in ordinary course of business at arm’s lengths. 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 1 to 10 of the remuneration report on pages 26 to 39 of this financial report designated as audited and forming part of the Directors’ report. The remuneration disclosures are for Resimac KMP only as presented in the Remuneration report. KMP COMPENSATION $'000 FY23 FY22 $'000 Short-term benefits 2,859,007 3,248,560 Post-employment benefits 134,392 137,500 Long-term benefits 36,116 71,614 Termination benefits Share-based payments 20,767 - 438,750 413,239 3,489,032 3,870,913 The remuneration of Directors and KMP is determined by the Remuneration and Nomination Committee having regard to the performance of individuals and market trends. 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. 114 | | 115 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OTHER | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OTHER 30. Parent disclosures The parent company of the Group, as at and throughout the financial year ended 30 June 2023, was Resimac Group Ltd. 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: (Loss)/Profit after tax Total comprehensive income for the period FY23 $'000 FY22 $'000 18,333 14,837 416,330 456,856 434,663 471,693 14,510 9,027 31,169 37,309 45,679 46,336 388,984 425,357 185,646 185,646 2,214 1,347 201,124 238,364 388,984 425,357 (4,834) 180,658 (4,834) 180,658 30.1. Guarantees, contingent liabilities and contingent assets At 30 June 2023, there are no financial guarantees, contingent assets or contingent liabilities with respect to the parent company. (FY22: 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. 31. Share-based payments 31.1. Employee share option plan of the Company The Company has a share option scheme (pursuant to the Resimac Group Ltd Employee Share Option and Rights Plan) for senior employees of the Company. In accordance with the terms of the Plan, as approved by shareholders at the 2017 Annual General Meeting, senior employees may be granted options to purchase ordinary shares. Each employee share option converts into one ordinary share of the Company on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. Long-Term Incentive (LTI#1) Share Options - CEOs Resimac offered the CEO Scott McWilliam the opportunity to purchase 900,000 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 to remain employed with the Company to the respective vesting date associated with each tranche. Tranche 1 and 2 of the share options were exercised in FY21 and FY22, respectively, and Tranche 3 was exercised in June 2023. Long-Term Incentive (LTI#2) Share Options – CEO and General Managers (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 $2.4 million. The options were granted on 15 August 2019 and the vesting date for all options is 31 August 2022, subject to the Group achieving Net Profit After Tax (NPAT) growth hurdles, digital transformation hurdles, compliance hurdles and remaining employed with the Group until the vesting date. The LTI#1 and LTI#2 are administered by The Trustee for the Resimac Group Limited Employee Share Trust. The trust is consolidated in accordance with Note 24. The trustee subscribes for the shares issued by the Group and allocates to the employees on exercise of options. Shares held by the trust and not yet allocated to employees at the end of the reporting period are shown as treasury shares in the financial statements. The fair value of share options under LTI#1 and LTI#2 was recognised as an employee benefits expense with a corresponding increase in equity. The total expense was recognised over the vesting period, which was the period over which all of the specified vesting conditions were 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 of profit or loss with a corresponding adjustment to equity. The fair value of the amounts payable to the CEO and GMs in respect of cash component is recognised as an expense with a corresponding increase in liabilities, over the 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. A cash component LTI of $1.7 million was paid to the CEO and senior management in September 2022. Furthermore 785,000 share options were exercised in September 2022. Employee Share Plan (ESP) The Group commenced the Resimac Group Employee Share Scheme (ESS) in March 2021 whereby eligible employees are offered up to $1,000 worth of fully paid Resimac ordinary shares for no cash consideration. Shares allocated under the ESS cannot be sold until the earlier of three years after allocation or the time when the participant is no longer employed by the Group. The ESS offer for FY23 was made on 10 October 2022. A total of 195 (FY22: 190) staff participated in this offer. The participants were each allocated 1,025 (FY22: 524) fully allocated shares based on the offer amount of $1,000 and the 5 day volume weighted average price (VWAP) of $0.9754 (FY22: $1.9065), resulting in a total of 199,875 (FY22: 99,560) shares being allocated. The shares were allocated to staff for no cash consideration. For the financial year ended 30 June 2023, share-based payment expense relating to the ESS totalled $191,880 (FY22: $183,190). 116 | | 117 2023 ANNUAL REPORTRESIMAC GROUP LTD| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OTHER | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OTHER 3 2 0 2 r e b m u N s n o i t p o f o d e t s e v n u 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 3 2 0 2 e n u J 3 2 0 2 0 3 t a d e t s e v e n u J 0 3 t a s n o i t p O i d e s 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 i e s c r e x E f o e c i r p t n a r g t a ) $ ( e t a d l e u a v r i a F e t a d d n a r G e h c n a r T s n o i t p o f o r e b m u N d e u s s i s n o i t p o f o s l i a t e d e h t l i s e d v o r p w o e b e b a t e h T l - - - - - - - - - - - - - , 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 0 0 3 ( - 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- - - - - ) 8 7 4 7 8 ( , ) 0 6 5 9 9 ( , ) 5 7 8 9 9 1 ( , - - - 1 2 0 2 / 4 / 2 1 1 2 0 2 / 4 / 2 1 A N 4 1 . 2 1 2 0 2 / 4 / 2 1 A N 8 7 4 7 8 , 1 2 0 2 / 0 1 / 2 2 1 2 0 2 / 0 1 / 2 2 A N 4 8 . 1 1 2 0 2 / 0 1 / 2 2 A N 0 6 5 9 9 , 2 2 0 2 / 0 1 / 0 1 2 2 0 2 / 0 1 / 0 1 A N 6 9 0 . 2 2 0 2 / 0 1 / 0 1 A N 5 7 8 9 9 1 , , 0 0 0 0 4 7 , 2 , 0 0 0 0 4 7 , 2 ) 3 1 9 , 1 7 0 2 ( , ) 0 0 0 5 7 3 ( , , 3 1 9 6 8 1 , 5 l n a P e r a h S e e y o p m E l l n a P e r a h S e e y o p m E l l n a P e r a h S e e y o p m E l e h t l f o e u a v e h t i f o n o i t a n m r e t e d e h t s l i a t n e h c h w i , l d o h t e m s e o h c S - k c a B e h t l s 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 l y r a m i r p e h T s n o i t p o f o e u a v r i a F l . 2 . 1 3 y t i l i b a b o r p d n a l a c i t s i t a t s f o r e b m u n a , s n o i t p o e r a h s e h t f o h c a e f o e u a v l i r i a f e h t g n n m r e t e d n i I . n o i t a m r o f n i l l i t n e a v u q e t e k r a m e b a r a p m o c g n s u s n o i t p o i . i d e r e d s n o c n e e b e v a h s n o i t a u c a c d e s a b l l d e u s s I s n o i t p o e u a v l n o i t p o l l a C l d e y i d n e d v D i i e e r f - k s R i 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 m r e T ) s r a e y ( i e s c r e x E ) $ ( e c i r p e t a d d n a r G ) $ ( e c i r p e r a h s e h c n a r T : 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 0 0 0 0 0 6 , 0 0 0 0 0 6 , . 8 0 0 $ - 6 0 0 $ . . 9 0 0 $ - 7 0 0 $ . % 3 2 3 . % 0 0 2 . % 5 3 - 0 3 % 3 2 3 . % 5 1 . 2 % 5 3 - 0 3 0 0 0 0 0 6 , 0 1 . 0 $ - 8 0 0 $ . % 3 2 3 . % 6 2 2 . % 5 3 - 0 3 0 0 0 0 0 3 , . 1 2 0 $ - 8 1 . 0 $ 0 0 0 0 0 3 , . 1 2 0 $ - 8 1 . 0 $ 0 0 0 0 0 3 , . 1 2 0 $ - 8 1 . 0 $ , 0 0 0 0 0 0 , 1 . 1 2 0 $ - 8 1 . 0 $ , 0 0 0 0 0 0 , 1 . 1 2 0 $ - 8 1 . 0 $ , 0 0 0 0 0 0 , 1 . 1 2 0 $ - 8 1 . 0 $ % 2 % 2 % 2 % 2 % 2 % 2 % 5 7 0 . % 5 7 0 . % 5 7 0 . % 5 7 0 . % 5 7 0 . % 5 7 0 . % 0 3 - 5 2 % 0 3 - 5 2 % 0 3 - 5 2 % 0 3 - 5 2 % 0 3 - 5 2 % 0 3 - 5 2 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 7 1 0 2 t s u g u A 8 1 2 e h c n a r T 7 1 0 2 t s u g u A 8 1 3 e h c n a r T 7 1 0 2 t s u g u A 8 1 1 e h c n a r T 9 1 0 2 t s u g u A 5 1 2 e h c n a r T 9 1 0 2 t s u g u A 5 1 3 e h c n a r T 9 1 0 2 t s u g u A 5 1 1 e h c n a r T 9 1 0 2 t s u g u A 5 1 2 e h c n a r T 9 1 0 2 t s u g u A 5 1 3 e h c n a r T 9 1 0 2 t s u g u A 5 1 E T A D T N A R G 118 | | 119 2023 ANNUAL REPORTRESIMAC GROUP LTD | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OTHER | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OTHER 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: Number of LTI options Number of LTI options Number of ESP options Number of options total Weighted average fair value ($) Weighted average fair value ($) Weighted average fair value ($) LTI #1 LTI #2 LTI #1 LTI #2 ESP Unvested options at 1 July 2022 - 3,525,000 - 3,525,000 - 0.20 Vested options at 1 July 2022 300,000 - - 300,000 0.09 - Options held at 1 July 2022 300,000 3,525,000 - 3,825,000 0.09 0.20 - - - Granted during the year - - 199,875 199,875 Exercised during the year (300,000) (785,000) (199,875) (1,284,875) Unvested options at 30 June 2023 Vested options at 30 June 2023 - - - 2,740,000 - - - 2,740,000 Options held at 30 June 2023 - 2,740,000 - 2,740,000 - - - - - - 1.27 0.96 0.96 - - - 0.20 0.20 31.4. Share options exercised during the period The Trustee for the Resimac Group Limited Employee Share Trust allocated 785,000 treasury shares to GMs and 300,000 treasury shares to the CEO on their exercise of LTI#2 and LTI#1 share options on 6 September 2022 and 16 June 2023, respectively. 199,875 shares are held in the Trust on behalf of the employees under the ESP. 32. Other accounting policies 32.1. Application of new and revised accounting standards 32.2. New and revised accounting standards and interpretations on issue but not yet effective The Group has applied the required amendments to Standards and Interpretations that are relevant to its operations and mandatorily effective for the first time for the financial year commencing 1 July 2022. These amendments did not have any material impact on the disclosures or on the amounts recognised in the consolidated financial statements. Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2023 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is 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 2021-2 Amendments to Australian Accounting Standards – Disclosure of Accounting Policies and Definition of Accounting Estimates AASB 2021-5 Amendments to Australian Accounting Standards – Deferred Tax related to Assets and Liabilities arising from a Single Transaction AASB 2022-1 Amendments to Australian Accounting Standards – Initial Application of AASB 9 Financial Instruments – Comparative Information AASB 17 Insurance Contracts AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-current; AASB 2020-6 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-current – Deferral of effective date; and IASB Amendment Non-current Liabilities with Covenants Effective for annual reporting periods beginning on or after: 1 July 2023 1 July 2023 1 July 2023 1 July 2023 1 July 2024 The standards and interpretations listed above are not expected to have a material impact on financial results or financial position on adoption. 32.3. Goods and 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. 120 | | 121 2023 ANNUAL REPORTRESIMAC GROUP LTD| DIRECTORS' DECLARATION | INDEPENDENT AUDITOR'S DECLARATION Directors' declaration. Resimac Group Ltd and its controlled entities The Directors declare that: Deloitte Touche Tohmatsu ABN 74 490 121 060 Quay Quarter Tower Level 46, 50 Bridge St Sydney, NSW Australia, 2000 Tel: +61 2 9322 7000 Fax: +61 2 9322 7001 www.deloitte.com.au 28th August 2023 The Board of Directors Resimac Group Limited Level 9, 45 Clarence Street Sydney, NSW, 2000 Dear Board Members (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 AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo RReessiimmaacc GGrroouupp LLiimmiitteedd 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 Group Limited for the year ended 30 June 2023, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) (ii) The auditor independence requirements of the Corporations Act 2001 in relation to the audit; and Any applicable code of professional conduct in relation to the audit. (d) the Directors have been given the declarations required by s295.A of the Corporations Act 2001. Yours faithfully 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 28 August 2023 DELOITTE TOUCHE TOHMATSU Heather Baister Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 122 | | 123 2023 ANNUAL REPORTRESIMAC GROUP LTD | INDEPENDENT AUDITOR'S REPORT | INDEPENDENT AUDITOR'S REPORT Deloitte Touche Tohmatsu ABN 74 490 121 060 Quay Quarter Tower Level 46, 50 Bridge St Sydney, NSW Australia, 2000 Tel: +61 2 9322 7000 Fax: +61 2 9322 7001 www.deloitte.com.au IInnddeeppeennddeenntt AAuuddiittoorr’’ss RReeppoorrtt ttoo tthhee MMeemmbbeerrss ooff RReessiimmaacc GGrroouupp LLiimmiitteedd RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrtt Opinion We have audited the financial report of Resimac Group Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30 June 2023, the consolidated statement of profit or loss, 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 accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: • Giving a true and fair view of the Group’s financial position as at 30 June 2023 and of their financial performance for the year then ended; and • Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. KKeeyy AAuuddiitt MMaatttteerr IImmppaaiirrmmeenntt ooff llooaannss aanndd aaddvvaanncceess As at 30 June 2023, the Group has recognised provisions amounting to $45.8m for impairment losses on loans and advances held at amortised cost in accordance with the Expected Credit Loss (ECL) approach required under AASB 9 Financial Instruments as disclosed in Notes 6, 22 and 23. Loans and advances subject to provisioning using the ECL model include the residential lending portfolio, asset loans approved but not yet advanced. finance portfolio and HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr Our audit procedures performed in conjunction with our specialists included, but were not limited to: Testing the design and implementation of relevant controls over the impairment provision including: • • • The accuracy of data inputs used in the ECL calculation; The selection and application of assumptions used in the model; and The ongoing monitoring and identification of loans displaying indicators of impairment and whether they are migrating on a timely basis to appropriate stages in accordance with AASB 9. Significant management judgement was necessary in determining expected credit losses, including: AAsssseessssiinngg iimmppaaiirrmmeenntt mmooddeell aaddeeqquuaaccyy • The application of the requirements of the Australian Accounting Standards as reflected in the Group’s ECL model particularly in light of the current economic environment and the impacts of increased interest rates on the variable loan portfolio; • The identification of exposures with a significant movement in credit quality to determine whether a 12-month or lifetime ECL should be recognised; and • Assumptions used in the ECL model such as the financial condition of the counterparty, repayment capacity and forward-looking macroeconomic factors as disclosed in Notes 6, 22 and 23. We assessed the adequacy and completeness of management’s in determining loss provision. Our procedures included, but were not limited to: developed model impairment internally the • • • • • • Assessing whether management’s model adequately addresses the requirements of the Australian Accounting Standards; Evaluating management’s assessment of the impact of the changing economic environment on the loan portfolio and as a result, the ECL; Testing on a sample basis, individual exposures to assess if they are classified into appropriate default stages and aging buckets for the purpose of determining the impairment loss provision; Assessing assumptions driving Probabilities of Default (PD), Loss Given Default (LGD) and Exposure at Default (EAD); Assessing management overlays to the modelled collective provision by the coverage provided by the collective impairment provision (including overlays) to the loan book, taking into account recent history, performance and a range of economic factors that could impact the relevant portfolios; and Assessing the completeness of the credit loss provision. recalculating We also assessed appropriateness of the disclosures in Notes 6,22 and 23 to the financial statements 124 | | 125 2023 ANNUAL REPORTRESIMAC GROUP LTD | INDEPENDENT AUDITOR'S REPORT | INDEPENDENT AUDITOR'S REPORT KKeeyy AAuuddiitt MMaatttteerr Reliance on automated processes and controls – system implementation and migration. The Group utilises loan management Information Technology (IT) infrastructure for the recording, processing, and presentation of loan level information for a high volume of transactions. The Group’s financial reporting is reliant upon the information within this IT infrastructure and the IT controls over business process which support financial reporting. We considered this to be a key audit matter due to data migration initiatives undertaken during the financial year between loan management systems which impact the resultant loan level information presented in the financial report. HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr Our audit procedures performed in conjunction with our specialists included, but were not limited to: • • • Assessing the governance and Group level controls across the IT environment and assessing the design and testing the implementation and operating effectiveness of controls across: o o o The User Access Management Lifecycle, including how users are on-boarded, reviewed, and removed on a timely basis for critical IT applications and supporting infrastructure; Change Management including how changes are initiated, documented, approved, tested, and authorised; and Automated business process controls including those relating to enforcing segregation of duties. Assessing the completeness and accuracy of the data transferred as part of the system migration. Assessing the consistency of the configuration related to reports and automated controls between the previous system and the new system including the calculation of interest. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2023 but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • 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 internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 126 | | 127 2023 ANNUAL REPORTRESIMAC GROUP LTD | INDEPENDENT AUDITOR'S REPORT We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. RReeppoorrtt oonn tthhee RReemmuunneerraattiioonn RReeppoorrtt Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 12 to 28 of the Directors’ Report for the year ended 30 June 2023.. In our opinion, the Remuneration Report of Resimac Group Limited, for the year ended 30 June 2023, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Heather Baister Partner Chartered Accountants Sydney, 28th August 2023 128 | | 129 2023 ANNUAL REPORTRESIMAC GROUP LTDShareholder information. Additional information required by the ASX and not disclosed elsewhere in this report is set out below. The information is current as at 19 September 2023. a) Number of holders of equity securities Ordinary share capital: 401,622,340 paid ordinary shares are held by 2,770 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 and their holdings The number of equity securities by size of holding is set out below: Total holders Units % Units 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 729 964 350 611 116 378,229 2,559,768 2,729,348 19,646,818 376,308,177 2,770 401,622,340 0.09 0.64 0.68 4.89 93.70 100.00 Units 117,600 UNMARKETABLE PARCELS Minimum parcel size Holders Minimum $500.00 parcel at $0.9500 per unit 527 421 130 | 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: SHAREHOLDER 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 254,468,487 % 62.48 e) Twenty largest shareholders The 20 largest shareholders of ordinary shares on the Company's register at 19 September 2023 were: SHAREHOLDER JP Morgan Nominees Australia Pty Limited HSBC Custody Nominees (Australia) Limited Redbrook Nominees Pty Ltd Motrose Pty Ltd Warren John McLeland National Nominees Limited Hartley Phillips Securities Pty Ltd (Hartley Phillips Inv Tst A/C) Moat Investments Pty Ltd (Moat Investment A/C) Westpac Banking Corporation Citicorp Nominees Pty Limited Scanlon Capital Investments Pty Ltd Acres Holdings Pty Ltd Mr Scott Bruce Charles McWilliam RSJSDS Pty Ltd (Salmon Super Fund A/C) Resimac EST Pty Ltd (Resimac Group EST A/C) High Pass Holdings Pty Ltd (High Pass Hldgs P/L Sup A/C) Ralph Lauren 57 Pty Ltd (John James No 2 A/C) Esselmont Pty Ltd (The Esselmont A/C) Torryburn Pty Ltd (Torryburn Super Fund A/C) TICO Pty Ltd TOTAL No. of shares 188,364,267 83,708,354 15,793,019 14,500,000 11,920,138 9,657,767 5,031,373 3,427,545 2,493,130 1,893,492 1,791,131 1,496,881 1,446,831 1,323,500 1,265,125 1,191,687 1,073,600 989,749 982,619 903,960 % 46.90 20.84 3.93 3.61 2.97 2.40 1.25 0.85 0.62 0.47 0.45 0.37 0.36 0.33 0.32 0.30 0.27 0.25 0.24 0.23 349,254,168 86.96 | 131 2023 ANNUAL REPORTRESIMAC GROUP LTD2023 ANNUAL REPORT Managing your shareholding. The Company's share registry is managed by Computershare Investor Services Pty Limited (Computershare). The Investor Centre website is the fastest, easiest 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; When communicating with Computershare or accessing your holding online you will need your Securityholder Reference Number (SRN) or Holder Identification Number (HIN) as shown on your Issuer Sponsored / CHESS statements. You can also contact Computershare by: Address Level 3, 60 Carrington Street, Sydney NSW 2000 P. 1300 850 505  Change your address (for non-CHESS sponsored E. web.queries@computershare.com.au 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. 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 and 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 Up to date information on the Company can be obtained from the Company's website: resimac.com.au Securities exchange listing The Company's shares are listed on the Australian 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 and Corporate office Level 9, 45 Clarence Street, Sydney NSW 2000 P. +61 2 9248 0300 E. info@resimac.com.au W. resimac.com.au Customer enquiries: 13 38 39 ABN 55 095 034 003 Australian Credit Licence 247829 ASX:RMC Share registry Computershare Investor Services Pty Limited Non-Executive Directors Warren McLeland, Chairman Susan Hansen Duncan Saville Wayne Spanner Caroline Waldron Company Secretary Peter Fitzpatrick 132 | | 133 | 133 To view the 2023 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 2023 ANNUAL REPORTRESIMAC GROUP LTDRESIMAC GROUP LTD 2023 ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2023 Level 9, 45 Clarence Street Sydney NSW 2000 Australia

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