Announcement PDF PROSPECTUS ACN 066 385 822 Australian Finance Group Ltd initial public offering of ordinary shares. LEAD MANAGER contents 8 1. Investment Overview 96 7. Details Of The Offer 20 2. Industry Overview 108 8. Investigating Accountant’s Report 30 3. Business Overview 116 9. Additional Information 48 4. Financial Information 72 5. Risks 78 6. Key People, Interests And Benefits APPENDIX 126 A. Significant Accounting Policies 133 B. Glossary 140 C. Corporate Directory AFG Important Information Offer This Prospectus is issued by Australian Finance Group Ltd (ACN 066 385 822) (“AFG”) and AFG Saleco Pty Ltd (ACN 605 518 090) (“SaleCo”) for the purpose of Chapter 6D of the Corporations Act. The Offer contained in this Prospectus is an invitation to apply for fully paid ordinary shares in AFG (“Shares”) that will be in part issued by AFG and in part sold by SaleCo. Refer to Section 7 of this Prospectus for further information. Lodgement and listing This Prospectus is dated 4 May 2015 and was lodged with ASIC on that date. Neither ASIC nor ASX take any responsibility for the contents of this Prospectus or the merits of the investment to which this Prospectus relates. AFG will apply within seven days after the date of this Prospectus to ASX for admission of AFG to the official list of ASX and quotation of the Shares on ASX. Expiry date This Prospectus expires on 4 June 2016, which is 13 months after the date of this Prospectus and no Shares will be issued or transferred on the basis of this Prospectus after the Expiry Date. Note to Applicants The information contained in this Prospectus is not financial product advice and does not take into account the investment objectives, financial situation or particular needs (including financial and tax issues) of any prospective investor. It is important that you read this Prospectus carefully and in full before deciding whether to invest in AFG. In particular, in considering the prospects of AFG, you should consider best estimate assumptions underlying the Forecast Financial Information (as defined in Section 4.12), sensitivities associated with that information set out in Section 4.13 and the risks that could affect the business, financial performance or results of operations of AFG. You should carefully consider these risks in light of your investment objectives, financial situation and particular needs (including financial and taxation issues) and seek professional advice from your accountant, financial adviser, stockbroker, lawyer or other professional adviser before deciding whether to invest in AFG. Some of the risks that should be considered by prospective investors are set out in Section 5. There may be risks in addition to the risks set out in Section 5 that should be considered in light of your personal circumstances. No person named in this Prospectus, nor any other person, guarantees the performance of AFG, the repayment of capital by AFG or the payment of a dividend or other distribution on the Shares. No person is authorised to give any information or make any representation in connection with the Offer which is not contained in this Prospectus. Any information or representation not so contained may not be relied on as having been authorised by AFG or SaleCo’s directors or any other person in connection with the Offer. You should rely only on information in this Prospectus. Disclosing entity Once admitted to the official list of the ASX, AFG will be a disclosing entity for the purpose of the Corporations Act and as such will be subject to regular reporting and disclosure obligations under the Corporations Act and the ASX Listing Rules. Refer to Sections 6.5 and 7 for further information. Exposure period The Corporations Act prohibits AFG and SaleCo from processing Applications to subscribe for Shares under this Prospectus in the Exposure Period, being the seven day period after lodgement 2 AFG Prospectus 2015 with ASIC. The Exposure Period may be extended by ASIC by up to a further seven days. The Exposure Period is to enable this Prospectus to be examined by market participants prior to the raising of funds. The examination may result in the identification of deficiencies in this Prospectus, in which case any Application may need to be dealt with in accordance with section 724 of the Corporations Act. Applications received during the Exposure Period will not be processed until after the expiry of that period. No preference will be conferred on Applications received during the Exposure Period. During the Exposure Period, this Prospectus will be made available to Australian residents, without the Application Forms, at AFG’s website (http://www.afgonline.com.au). Disclaimer and forward-looking statements No person is authorised to give any information or make any representation in connection with the Offer which is not contained in this Prospectus. Any information or representation not so contained may not be relied on as having been authorised by AFG, SaleCo, the Directors (or the directors of SaleCo), the Lead Manager (or the Lead Manager’s affiliates, officers or employees) or any other person in connection with the Offer. You should rely only on information contained in this Prospectus. Except to the extent required by law, neither AFG nor any other person warrants or guarantees the future performance of AFG, the repayment of capital by AFG or any return on any investment made pursuant to this Prospectus. The Lead Manager has not authorised, permitted or caused the issue or lodgement, submission, dispatch or provision of this Prospectus and there is no statement in this Prospectus which is based on any statement made by it or by any of its affiliates, officers or employees. This Prospectus contains forward-looking statements, which are statements that may be identified by words such as ‘may’, ‘could’, ‘believes’, ‘estimates’, ‘expects’, ‘intends’ and other similar words, that involve risks and uncertainties. Certain statements, beliefs and opinions contained in this Prospectus, particularly those regarding the possible or assumed future financial or other performance of AFG, industry growth or other trend projections are or may be forward-looking statements. In addition, consistent with customary market practice in securities offerings in Australia, Forecast Financial Information has been prepared and included in this Prospectus in Section 4. These statements are based on an assessment of present economic and operating conditions, and on a number of assumptions regarding future events and actions that, at the date of this Prospectus, are expected to take place (including the assumptions set out in Section 4.12). Such forward-looking statements are not guarantees of future performance and involve uncertainties, assumptions and known and unknown risks, including the risks set out in Section 5, many of which are beyond the control of AFG, SaleCo, the Directors and Management. The Forecast Financial Information and the forwardlooking statements should therefore be read in conjunction with, and are qualified by reference to, Sections 4.3 and 4.12 and the other information in this Prospectus. The Directors and directors of SaleCo cannot and do not give any assurance that the results, performance or achievements expressed or implied by the forward-looking statements contained in this Prospectus will actually occur and investors are cautioned not to place undue reliance on these forward looking statements. Except to the extent required by law, AFG and SaleCo have no intention of updating or revising forward-looking statements, or publishing prospective financial information in the future, regardless of whether new information, future events or any other factors affect the information contained in this Prospectus. As set out in Section 7.10.3, it is expected that the Shares will be quoted on ASX, initially on a deferred settlement basis. To the extent permitted by law, each of AFG, SaleCo, Share Registry and the Lead Manager disclaim all liability, whether in negligence or otherwise, to persons who trade Shares before receiving their holding statements, whether on the basis of a confirmation of allocation provided by any of them, by a Broker or otherwise. Statements of past performance This Prospectus includes information regarding the past performance of AFG. Investors should be aware that past performance should not be relied upon as being indicative of future performance. Financial information presentation All references to FY2012, FY2013, FY2014, FY2015 and FY2016 appearing in this Prospectus are to the historical financial years ended 30 June 2012, 30 June 2013 and 30 June 2014 and the forecast financial years ending 30 June 2015 and 30 June 2016, respectively, unless otherwise indicated. All references to 1HFY2015 appearing in this Prospectus are to the six months ending 31 December 2015. All financial amounts contained in this Prospectus are expressed in Australian currency unless otherwise stated. Any discrepancies between totals and sums and components in tables, figures and diagrams contained in this Prospectus are due to rounding. Section 4 sets out the Financial Information referred to in this Prospectus. The basis of preparation of the Financial Information is also set out in Section 4. The Pro Forma Historical Financial Information and the Forecast Financial Information in this Prospectus should be read in conjunction with, and are qualified by reference to, the information contained in Sections 2, 3 and 5. The Financial Information has been prepared and presented in accordance with the recognition and measurement principles of Australian Accounting Standards issued by the Australian Accounting Standards Board, which are consistent with International Financial Reporting Standards and interpretations issued by the International Accounting Standards Board. This Prospectus includes Forecast Financial Information based on the best estimate assumptions of the Directors. The Forecast Financial Information presented in this Prospectus is unaudited. The basis of preparation and presentation of the Forecast Financial Information, to the extent applicable, is consistent with the basis of preparation and presentation for the Pro Forma Historical Financial Information (as defined in Section 4.1). The Financial Information is presented in an abbreviated form insofar as it does not include all of the presentation and disclosures required by Australian Accounting Standards and other mandatory professional reporting requirements applicable to general purpose financial reports prepared in accordance with the Corporations Act. The Financial Information in this Prospectus should be read in conjunction with, and is qualified by reference to, the information contained in Section 4. Unless otherwise stated or implied, all pro forma data in this Prospectus gives effect to the pro forma adjustments referred to in Section 4.2.2. Readers should be aware that certain financial data included in this Prospectus is ‘non-AAS financial information’ under Regulatory Guide 230 ‘Disclosing non-IFRS financial information’ published by ASIC. For the purpose of this Prospectus, non-AAS financial information is the equivalent of non-IFRS financial information. AFG believes this non-AAS financial information provides useful information to users in measuring the financial performance and condition of AFG. The non-AAS financial information does not have standardised meanings prescribed by Australian Accounting Standards and, therefore, may not be comparable to similarly titled measures presented by other entities, nor should it be construed as an alternative to other financial information determined in accordance with Australian Accounting Standards. Readers are cautioned, therefore, not to place undue reliance on any nonAAS financial information or ratios included in this Prospectus. Market and Industry Information This Prospectus contains statistics, data and other information relating to mortgage brokers’ market share of the overall Australian mortgage market, AFG’s relative market positioning within and market share of this market and other industry data pertaining to AFG’s business and markets. The Chairman’s Letter and Sections 1, 2, 3, and 4 of this Prospectus contain information sourced from the MFAA Mortgage Broker Market Survey, as well as AFG’s analysis of such information. The information contained in the MFAA Mortgage Broker Market Survey has been accurately reproduced and, as far as AFG is aware, no facts have been omitted which would render the information provided inaccurate or misleading. Data for the MFAA Mortgage Broker Market Survey was sourced by Comparator from Australia’s leading mortgage brokers and aggregators at the invitation of the MFAA. Each broker group consented to the provision of their data to Comparator voluntarily. The MFAA Mortgage Broker Market Survey derives its content from data provided by broker groups who responded to the MFAA Mortgage Broker Market Survey and has not been subject to any change, manipulation or adjustment by Comparator. AFG has not independently verified, and cannot give any assurances as to the accuracy and completeness of the market and industry data contained in this Prospectus that has been extracted or derived from the MFAA Mortgage Broker Market Survey or other publically available statistics. Accordingly, the accuracy and completeness of such information is not guaranteed. Investors should note that market data and statistics are inherently predictive and subject to uncertainty and not necessarily reflective of actual market conditions. Obtaining a copy of this Prospectus A hard copy of this Prospectus is available free of charge to any Applicant in Australia by calling the AFG Offer Information Line on 1800 129 431 (within Australia) or +61 1800 129 431 (outside Australia) from 8.30am to 5.30pm (Perth Time) Monday to Friday. This Prospectus is also available in electronic form to Australian residents on AFG’s website (http://www.afgonline.com.au). The Offer constituted by this Prospectus in electronic form is available only to Australian residents accessing the website within Australia. During the Exposure Period, this Prospectus will be made available to Australian residents, without the Application Forms, at AFG’s website (http://www.afgonline.com.au). Hard copy and electronic versions of this Prospectus are generally not available to persons in other jurisdictions. No cooling off rights Cooling off rights do not apply to an investment in Shares issued under this Prospectus. This means that, in most circumstances, you cannot withdraw your Application once it has been accepted. Applications Applications for Shares may only be made during the Offer period on the Application Form included in, or accompanying, this Prospectus in its hard copy form, or in its soft copy form which must be downloaded in its entirety from http://www.afgonline.com.au together with an electronic copy of this Prospectus. Applicants under the Priority Offer must apply electronically at https://events.miraqle.com/afg-ipo/. By making an Application, you declare that you were given access to this Prospectus, together with an Application Form. The Corporations Act prohibits any person from passing the Application Form on to another person unless it is included in, or accompanied by, this Prospectus in its paper copy form or the complete and unaltered electronic version of this Prospectus. Refer to Section 7 for further information. AFG Prospectus 2015 3 Photographs and diagrams Photographs and diagrams used in this Prospectus that do not have descriptions are for illustration only and should not be interpreted to mean that any person shown in them endorses this Prospectus or its contents or that the assets shown in them are owned by AFG. Diagrams and maps used in this Prospectus are illustrative only and may not be drawn to scale. Unless otherwise stated, all data contained in charts, graphs and tables is based on information available as at the date of this Prospectus. AFG website Any references to documents included on AFG’s website are provided for convenience only, and none of the documents or other information on AFG’s website (except for AFG’s statutory accounts for FY2012, FY2013 and FY2014 which are incorporated by reference into this Prospectus (see Section 9.12)), or any other website referred to in the sources contained in this Prospectus, is incorporated in this Prospectus by reference. Defined terms and abbreviations Defined terms and abbreviations used in this Prospectus, unless specified otherwise, have the meanings defined in the Glossary set out in Appendix B. Unless otherwise stated or implied, references to times in this Prospectus are to the time in Perth, Australia. Unless otherwise stated or implied, references to dates or years are calendar year references. Selling restrictions This Prospectus does not constitute an offer or invitation to subscribe for Shares in any jurisdiction in which, or to any person to whom, it would not be lawful to make such an offer or invitation. No action has been taken to register or qualify the Shares or the Offer, or to otherwise permit a public offering of Shares, in any jurisdiction outside Australia. The distribution of this Prospectus outside Australia may be restricted by law and persons who come into possession of this Prospectus outside Australia should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. This Prospectus may not be distributed to, or relied upon by, persons in the United States or US Persons. The Shares have not been, and will not be, registered under the US Securities Act or the securities laws of any state or other jurisdiction of the United States and may not be offered or sold, directly or indirectly, in the United States or to, or for the account or benefit of, US Persons, unless the Shares are registered under the US Securities Act, or an exemption from the registration requirements of the US Securities Act and any other applicable securities laws is available. The Shares are being offered and sold only outside the United States in offshore transactions (as defined in Regulation S) in accordance with Regulation S under the US Securities Act. See Section 7.12 for more detail on selling restrictions that apply to the offer and sale of Shares in jurisdictions outside of Australia. Once you become a Shareholder, the Corporations Act and Australian taxation legislation require information about you (including your name, address and details of the Shares you hold) to be included in the Share register. In accordance with the requirements of the Corporations Act, information on the Share register will be accessible by members of the public. The information must continue to be included in the Share register if you cease to be a Shareholder. AFG and the Share Registry may disclose your personal information for purposes related to your investment to their agents and service providers including those listed below or as otherwise authorised under the Privacy Act 1998 (Cth): ■■ the Share Registry for ongoing administration of the Shareholder register; ■■ the Lead Manager in order to assess your Application; ■■ printers and other companies for the purpose of preparation and distribution of statements and for handling mail; ■■ market research companies for the purpose of analysing the Shareholder base and for product development and planning; and ■■ legal and accounting firms, auditors, contractors, consultants and other advisers for the purpose of administering, and advising on, the Shares and for associated actions. AFG’s agents and service providers of AFG may be located outside Australia where your personal information may not receive the same level of protection as that afforded under Australian law. You may request access to your personal information held by or on behalf of AFG. You may be required to pay a reasonable charge to the Share Registry in order to access your personal information. You can request access to your personal information by writing to or telephoning the Share Registry as follows. Telephone (within Australia): 1300 554 474 Telephone (outside Australia): +61 1300 554 474 Email: registrars@linkmarketservices.com.au Address: Locked Bag A14, Sydney South New South Wales 1235 AFG aims to ensure that the personal information it retains about you is accurate, complete and up-to-date. To assist with this, contact AFG or the Share Registry if any of the details you have provided change. Offer management The Offer is being arranged and managed by Macquarie. Investigating Accountant’s Report on Financial Information and financial services guide The provider of the Investigating Accountant’s Report is required to provide Australian retail clients with a financial services guide in relation to the review under the Corporations Act. The Investigating Accountant’s Report and accompanying financial services guide is provided in Section 8. Privacy Questions By completing an Application Form, you are providing personal information to AFG through the Share Registry, which is contracted by AFG to manage Applications. AFG, and the Share Registry on its behalf, may collect, hold and use that personal information in order to process your Application, service your needs as a Shareholder, provide facilities and services that you request and administer AFG. If you have any questions about how to apply for Shares, please call 1800 129 431 (within Australia) or +61 1800 129 431 (outside Australia) from 8.30am to 5.30pm (Perth Time) Monday to Friday. If you have any questions about whether to invest in AFG you should seek professional advice from your accountant, financial adviser, stockbroker, lawyer or other professional adviser before deciding whether to invest in AFG. If you do not provide the information requested in the Application Form, AFG and the Share Registry may not be able to process or accept your Application. This Prospectus is important and should be read in its entirety. 4 AFG Prospectus 2015 AFG IS ONE OF AUSTRALIA'S LARGEST MORTGAGE * BROKING GROUPS * By value of the AFG Loan Book and by market share of residential mortgage originations in CY2014. AFG Prospectus 2015 5 Chairman’s Letter 4 May 2015 Dear Investor, On behalf of the Board, it is my pleasure to invite you to become a shareholder in Australian Finance Group Ltd. AFG was founded in 1994 and has grown to become one of Australia’s largest mortgage broking groups1. AFG has in excess of 2,300 AFG Brokers who help their customers to obtain residential and commercial mortgages and other loan products. AFG is currently originating approximately 9,500 applications for approximately $4.4 billion in loan finance per month. AFG accounted for around one in every twelve mortgages in Australia in CY20142 and is expecting settlements of almost $33.0 billion in FY20153. AFG provides its AFG Brokers with access to over 1,400 loan products from a panel of over 30 lenders. The AFG Loan Book surpassed $100 billion in December 2014. AFG, through its AFG Brokers, provides benefits for both borrowers and lenders. AFG is of the view that it provides a low-cost distribution network for its lenders, generating significant volume and access to new customers. Further, we believe that AFG facilitates superior outcomes for Australian residential borrowers and AFG Brokers by: ■■ Helping borrowers access a range of loan products from Australia’s leading lending and financial services institutions; ■■ Offering one point of contact in the loan origination process, saving time and reducing the administrative burden on the residential borrower; ■■ Providing a customised approach to each individual borrower’s needs; ■■ Offering flexibility and convenience for the borrower in being able to talk to a mortgage broker outside bank opening hours; ■■ Offering attractive pricing, commissions and contract terms to our AFG Brokers; ■■ Helping AFG Brokers focus on customer service by providing marketing, training and technology platforms for the on-going management of borrowers and their loans; and ■■ Facilitating competition amongst institutional lenders for the benefit of the Australian residential home borrower. The Australian housing sector continues to demonstrate robust growth supported by a combination of favourable macro-economic conditions, low interest rates, sustained population growth, and increased investor and foreign investment. Although rates of growth have moderated in recent years, AFG expects the total value of residential mortgage loans outstanding to grow by 5% in FY2015 and mortgage brokers’ share of this market to continue to grow beyond the level of 50.4% recorded in CY2014. With AFG’s market leading position, AFG expects the AFG Loan Book to grow by 12% CAGR between FY2014 and FY2016 year ends, respectively3. With continued strong demand for the loan products available through AFG Brokers, the Directors are forecasting pro forma NPAT to grow 10.6% in FY2015 to $17.8 million and by a further 10.3% in FY2016 to $19.7 million3. AFG is also progressively introducing its own branded mortgages and new product lines through its extensive distribution network of AFG Brokers, which provides further growth potential at improved margins for the business. The Offer The Offer will raise up to $140.1 million which will be used to purchase the equity of certain Existing Shareholders, provide sufficient working capital for the business and pay for the costs of the Offer. Importantly, following the Offer, the Existing Shareholders will continue to own at least 52.7% of AFG. Of this, 27.5% will be held by the Founding Shareholders. The Founding Shareholders and certain other Existing Shareholders who will hold 48.9% of AFG will be escrowed through to the release of the FY2016 financial results. This Prospectus contains detailed information about AFG and the risks and potential returns of an investment in AFG. I encourage you to read it carefully and in its entirety before making an investment decision. We are proud of the position AFG has established in the Australian financial market, and the benefits it delivers to the Australian borrower. On behalf of the Board of AFG, I look forward to welcoming you as a shareholder. Yours sincerely, Tony Gill Chairman 1 By value of the AFG Loan Book and by market share of residential mortgage originations in CY2014. 2 According to the MFAA Mortgage Broker Market Survey. 3 The Forecast Financial Information is based on assumptions and accounting policies set out in Section 4 and Appendix A, and is subject to the key risks set out in Section 5. 6 AFG Prospectus 2015 Important dates Prospectus lodgement date 4 May 2015 Broker Firm Offer and Priority Offer period opens 9:00am (Perth time) 12 May 2015 Broker Firm Offer and Priority Offer period closes 3:00pm (Perth time) 18 May 2015 Institutional Bookbuild to determine Final Price 19 May 2015 Final Price announced to the market 19 May 2015 Settlement of the Offer 21 May 2015 Completion of the Offer (Shares acquired by successful Applicants) Expected commencement of trading of Shares on the ASX on a deferred settlement basis 22 May 2015 Expected dispatch of holding statements 25 May 2015 Expected commencement of trading of Shares on the ASX on a normal settlement basis 26 May 2015 Note: This timetable is indicative only and may change. Unless otherwise indicated, all times are stated in Perth time. AFG and SaleCo reserve the right to vary any and all of the above dates and times without notice (including, subject to the ASX Listing Rules and the Corporations Act, to close the Offer early, to extend the Closing Date, or to accept late Applications or bids, either generally or in particular cases, or to cancel or withdraw the Offer before Settlement, in each case without notifying any recipient of this Prospectus or Applicants). If the Offer is cancelled or withdrawn before the allocation of Shares, then all Application Monies will be refunded in full (without interest) as soon as possible in accordance with the requirements of the Corporations Act. Investors are encouraged to submit their Applications as soon as possible after the Offer opens. No cooling-off rights apply to the Offer. The admission of AFG to the official list of ASX and the commencement of quotation of the Shares are subject to confirmation from ASX. Key offer statistics4 Indicative Price Range5 $1.20 – $1.38 per Share Shares available under the Offer 101,500,096 Total cash to be raised under the Offer6 $121.8 million – $140.1 million Shares retained by Existing Shareholders upon completion of the Offer Total issued Shares on completion of the Offer Indicative market capitalisation7 113,312,575 214,812,671 $257.8 million – $296.4 million Pro forma Net Debt/(Cash)8 ($40.2) million Indicative enterprise value9 $217.6 million – $256.3 million FY2014 pro forma NPAT $16.1 million FY2015 forecast pro forma NPAT $17.8 million FY2016 forecast pro forma NPAT $19.7 million Indicative Price Range/Pro forma FY2015 forecast NPAT per Share (times) 14.4x – 16.6x Indicative Price Range/Pro forma FY2016 forecast NPAT per Share (times) 13.1x – 15.1x Indicative FY2016 forecast dividend yield 10 4.6% – 5.3% Questions Please call the AFG Offer Information Line on 1800 129 431 (within Australia) or +61 1800 129 431 (outside Australia) from 8.30am until 5.30pm (Perth Time) Monday to Friday. If you are unclear in relation to any matter or are uncertain as to whether AFG is a suitable investment for you, you should seek professional guidance from your solicitor, stockbroker, accountant or other independent and qualified professional adviser