DRIVER AUSTRALIA MASTER TRUST — Annual Report 2019

Apr 20, 2020

Driver Australia Master Trust (ABN 62 902 670 567)

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Special Purpose Financial Report

31 December 2019

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Annual Report 2013 | Trust Manager’s Report

Annual report – 31 December 2019

of the Driver Australia Master Trust

Contents

Contents
Trust Manager‘s Report	3
Financial Report – 31 December 2019	4
Trust Manager’s Declaration	22
Trustee’s Report	23

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Trust Manager’s Report

3

Trust Manager ’ s Report

of the Driver Australia Master Trust

The Trust manager presents its report together with this financial report (referred to hereafter as the Financial Report) for the year ended 31 December 2019. The Financial Report covers the Driver Australia Master Trust (referred to hereafter as the Trust). The Financial Report was authorised for issue by Perpetual Nominees Limited in its capacity as Trust manager on 17 April 2020. The Trustee of the Trust is Perpetual Corporate Trust Limited (ABN 99 000 341 533).

Principal activities

The Trust was established on 28 June 2016 for the Driver Australia Master Asset Backed Securitisation deal. Since 2016, the Trust has acquired receivables from Volkswagen Financial Services Australia Pty Ltd (referred to hereafter as the Originator) on a regular basis through an equitable entitlement. The Trust has completed three term take-outs, whereby equitable entitlements to receivables were sold into Driver Australia Four Trust, Driver Australia Five Trust and Driver Australia Six Trust.

Driver Australia Master Trust is a trust domiciled in Australia. Its principal place of business and registered office are:

Driver Australia Master Trust Level 1, 24 Muir Road Chullora NSW 2190

Review and results of operations

The operating profit for the Trust for the year from 1 January 2019 to 31 December 2019 was $2,746,159 (2018: $773,198). The Trust is part of the consolidated tax group of Volkswagen Financial Services Australia Pty Ltd.

Matters subsequent to the end of the reporting period

A widespread public health issue, or fear of such an event, may result in a deterioration of households and business economic conditions and could therefore have a material adverse impact on the Trust's operating results.

In December 2019, a novel strain of coronavirus ("COVID-19") was reported in Wuhan, China. The World Health Organisation has declared COVID-19 to constitute a global pandemic and the Australian Government has implemented measures to contain the spread of the virus. The extent of the impact of these measures and the resulting economic slowdown on the Trust’s financial performance will depend on future developments, including the duration and spread of the outbreak, which are highly uncertain and cannot be predicted. The Trust is continuously monitoring the situation and assessing the potential impact on its business, in particular a potential reduction of the monthly cash flows passed on to the Trust by the Servicer resulting from borrowers reducing their repayment amounts. While the financial impact on consumer and commercial borrowers from the economic slowdown is estimated to significant, it is expected that the measures announced by the Australian Federal and State Governments with regard to economic stimulus and support will soften the impact on the Australian economy, including the borrowers’ ability to repay their loans.

At the date of signing these financial statements, the potential financial effect of any of these events on the Trust cannot be reliably estimated.

Likely developments and expected results of operations

Information on likely developments in the Trust’s operations and the expected results of operations have not been included in this report because the managers believe it would be likely to result in unreasonable prejudice to the Trust.

Rounding of amounts

Amounts in the Trust report have been rounded off to the nearest thousand dollars, or in certain cases, to the nearest dollar.

This report is made in accordance with a resolution of the Trust manager.

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Financial Report – 31 December 2019

4

Financial Report – 31 December 2019

of the Driver Australia Master Trust

Contents

Contents
Statement of Comprehensive Income	5
Statement of Financial Position	6
Statement of Changes in Equity	7
Statement of Cash Flows	8
Notes to the financial statements	9

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Statement of Comprehensive Income

5

Statement of Comprehensive Income

of the Driver Australia Master Trust

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$'000 Note 2019 2018
Interest and similar income 2 54,779 41,797
Interest expense and similar charges 2 (39,157) (26,239)
Net interest and similar income 15,622 15,558
Gains/(loss) on financial instruments at fair value 2,680 (5,065)
Total income from operations 18,302 10,493
Other expenses from ordinary activities 3 (15,555) (9,720)
Profit before income tax 2,747 773
Income tax expense - -
Finance (income)/ costs attributable to unitholders/ (decrease)/ increase in net liabilities to unitholders - -
Profit for the financial period 2,747 773
Other comprehensive income - -
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The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Statement of Financial Position

6

Statement of Financial Position

of the Driver Australia Master Trust

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$'000 Note 31.12.2019 31.12.2018
ASSETS
Current
Cash and cash equivalents 4 12,599 53,112
Deemed loan to Originator 5 180,388 227,434
Other financial assets 6 35,072 27,729
Other assets 7 120 85
Non-current
Deemed loan to Originator 5 803,852 1,045,778
TOTAL ASSETS 1,032,031 1,354,138
LIABILITIES
Current
Debt securities in issue 8 189,756 237,583
Derivative financial instruments 1,970 4,692
Other financial liabilities 9 883 24,910
Other liabilities 10 331 679
Non-current
Debt securities in issue 8 827,531 1,077,461
TOTAL LIABILITIES (excluding net liabilities attributable to unitholders) 1,020,471 1,345,325
NET ASSETS / (LIABILITIES) ATTRIBUTABLE TO UNITHOLDERS 11,560 8,813
NET ASSETS 11,560 8,813
EQUITY 11,560 8,813
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The above Statement of Financial Position should be read in conjunction with the accompanying notes.

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Statement of Changes in Equity

7

Statement of Changes in Equity

of the Driver Australia Master Trust

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CONTRIBUTED OTHER RETAINED TOTAL
$'000
EQUITY RESERVES EARNINGS EQUITY
Balance at 1 January 2018 - - 8,040 8,040
Profit after tax for the period 2018 - - 773 773
Other comprehensive income - - - -
Total comprehensive income for the year - - 773 773
Balance at 31 December 2018 - - 8,813 8,813
Profit after tax for the period 2019 - - 2,747 2,747
Other comprehensive income - - - -
Total comprehensive income for the year - - 2,747 2,746
Balance at 31 December 2019 - - 11,560 11,560
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The Trust has $1 as contributed equity.

The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Statement of Cash Flows

8

Statement of Cash Flows

of the Driver Australia Master Trust

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$'000 2019 2018
Cash flow from operating activities
Net payment to Originator (29,978) (5,352)
Net swap interest (2,445) (1,456)
Service fees (15,786) (9,033)
Other operating cash flows (158) 3,697
Net cash inflow/(outflow) from operating activities (48,367) (12,144)
Cash flows from investing activities
Payment to Originator (1,183,789) (1,423,400)
Receipts from Originator (principal) 1,476,443 560,705
Receipts from Originator (interest) 56,174 42,504
Net cash inflow/(outflow) from investing activities 348,828 (820,191)
Cash flows from financing activities
Proceeds from securitisation transactions (Note A & B) 693,140 1,544,640
Repayments of securitisation transactions (Note A & B) (978,350) (733,940)
Interest on securitisation transactions (Note A & B) (33,178) (21,143)
Proceeds from subordinated loan 72,105 170,838
Repayments of subordinated loan (84,652) (96,683)
Interest on subordinated loan (6,357) (4,589)
Proceeds from cash collateral loan (3,682) 9,536
Net cash inflow/(outflow) from financing activities (340,974) 868,659
Net increase/(decrease) in cash held (40,513) 36,324
Cash at the beginning of the financial year 53,112 16,788
Cash at the end of the financial year 12,599 53,112
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The above Statement of Cash Flows should be read in conjunction with the accompanying notes.

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Notes to the financial statements

9

Notes to the financial statements

of the Driver Australia Master Trust

Contents

GENERAL
1
NOTES TO THE STATEMENT OF COMPREHENSIVE INCOME
2
3
NOTES TO THE STATEMENT OF FINANCIAL POSITION
4
5
6
7
8
9
10
NOTES TO THE FINANCIAL INSTRUMENTS
11
OTHER NOTES
12
13
14
15
16
to net cash outflow from operating activities ........................................................ 21

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Notes to the financial statements

10

Notes to the financial statements

of the Driver Australia Master Trust

GENERAL

1 | Summary of significant accounting policies

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

A. BASIS OF PREPARATION

The Trust is not a reporting entity because there are no users dependent on general purpose financial reports. This is a special purpose financial report that has been prepared for the sole purpose of complying with the Trust Deed.

The financial report has been prepared in accordance with the recognition and measurement principles of all applicable Australian Accounting Standards and Interpretations issued by the Australian Accounting Standard Board. It contains only those disclosures considered necessary by the Trust Manager to meet the needs of the users. Driver Australia Master Trust is a for-profit entity for the purpose of preparing the financial statements.

New and amended standards adopted by the Trust

The effect of the adoption of new standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 January 2019 is described in Note 1M.

Historical cost convention

These financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain financial assets and liabilities (including derivative instruments) at fair value through profit or loss.

Critical Accounting Estimates

There are no critical accounting estimates in preparation of the financial statements.

Foreign currency translation

- Functional and presentation currency:

Items included in these financial statements are measured using the currency of the primary economic environment in which the Group operates (‘the functional currency'). The financial statements are presented in Australian dollars, which is the Group’s functional and presentation currency.

- Transactions and balances:

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.

Foreign exchange gains and losses are presented in the income statement on a net basis within non-interest revenue or other expenses from ordinary activities. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Notes to the financial statements

11

Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.

B. REVENUE AND EXPENSE RECOGNITION

Interest and similar income is recognised using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial liability. When calculating the effective interest rate, the Trust estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points 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. There is a presumption that the cash flows and the expected life of similar financial instruments can be estimated reliably.

C. INCOME TAX

The Trust is part of the tax consolidated group of Volkswagen Financial Services Australia Pty Ltd.

D. GOODS AND SERVICES TAX (GST)

The Trust is part of the tax consolidated group of Volkswagen Financial Services Australia Pty Ltd. Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.

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

E. FINANCIAL ASSETS

Recognition and de-recognition

The Trust recognises a financial asset when it becomes party to the contractual provisions of the instrument. It derecognises a financial asset when the contractual rights to the cash flows expire or when it transfers the financial asset.

Classification and measurement

The Trust classifies its financial assets into the following categories:

• financial assets at fair value through profit or loss and

• financial assets at amortised cost.

The classification depends on the Trust’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset.

Financial assets at amortised cost

The Trust classifies financial assets at amortised cost if they meet the following criteria:

• The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and

• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Based on the above criteria, the Trust classifies the following items as financial assets at amortised cost:

• Cash and cash equivalents

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Notes to the financial statements

12

• Deemed loan to Originator

• Other financial assets

Financial assets at amortised cost are initially measured at their fair value plus or minus transaction costs that are directly attributable to the acquisition or issue of the financial asset. They are subsequently measured at amortised cost.

Financial assets at fair value through profit or loss

The Trust classifies financial assets at fair value through profit or loss in accordance with AASB 9 if they are not required to be measured at either amortised cost or fair value through other comprehensive income.

The Trust classifies its derivatives as financial assets at fair value through profit or loss.

Financial assets at fair value through profit or loss are initially and subsequently measured at their fair value.

Refer to Note 1J for further details on the Trust’s accounting policy for derivatives.

F. DEEMED LOAN TO ORIGINATOR

Under Australian Accounting Standards, if a transferor retains substantially all the risks and rewards associated with the transferred assets, the transaction is accounted for as a financing transaction, notwithstanding that it is a sale transaction from a legal perspective. The Trust Manager has concluded that the Originator has retained substantially all the risk and rewards of the pool of loan receivables and as a consequence, the Trust does not recognise the loan receivables on its balance sheet but rather a deemed loan to the Originator. The initial amount of the deemed loan from the Trust corresponds to the purchase price paid by the Trust for the receivables less the value of the over-collateralisation via collateral loan.

The initial measurement is at fair value with subsequent measurement being at amortised cost under the effective interest method.

G. IMPAIRMENT OF FINANCIAL ASSETS

The Trust applies a three-stage approach to measuring expected credit losses (“ECL”) on debt instruments accounted for at amortised cost. Assets migrate through the following three stages based on the change in credit quality since initial recognition:

• Stage 1, 12-month ECL: For exposures where there has not been a significant increase in credit risk since initial recognition and that are not credit impaired upon origination, the portion of the lifetime ECL associated with the probability of default events occurring within the next 12 months is recognised.

• Stage 2, lifetime ECL, not credit impaired: For credit exposures where there has been a significant increase in credit risk since initial recognition but that are not credit impaired, a lifetime ECL is recognised.

• Stage 3, lifetime ECL, credit impaired: Financial assets demonstrating objective indications of impairment are allocated to Stage 3. In Stage 3, an expected credit loss is calculated for the entire remaining maturity of the asset.

At each reporting date, the Trust assesses whether there has been a significant increase in credit risk for financial assets since initial recognition by comparing the risk of default occurring over the expected life between the reporting date and the date of initial recognition.

In determining whether credit risk has increased significantly since initial recognition, the Trust uses its internal credit risk scoring and grading systems, arrears status and forecast information to assess deterioration in credit quality of a financial asset. If a contract is more than 30 days past due, the contract is classified as a significant increase in credit risk but not impaired (stage 2).

The amount of credit risk exposure is measured as the unbiased and probability-weighted present value of all cash shortfalls over the expected life of the financial asset discounted at its original effective interest rate. The cash shortfall is the difference between all contractual cash flows that are due to the Trust and all the cash flows

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Notes to the financial statements

13

that the Trust expects to receive. The amount of the loss is recognised using a provision for doubtful debts account.

The Trust considers its historical loss experience and adjusts this for current observable data. In addition, the Trust uses reasonable and supportable forecasts of future economic conditions including experienced judgement to estimate the amount of an expected impairment loss. Incorporating forward looking information increases the level of judgement as to how changes in these macroeconomic factors will affect ECL. The methodology and assumptions including any outlook of future economic conditions are reviewed regularly.

The Trust shows as an asset (“Deemed loan to Originator”) its entitlement to the cash flows from retail loan contracts that were originated by Volkswagen Financial Services Australia Pty Ltd and subsequently sold to the Trust. As part of the transfer of these contracts, VWFSA provides overcollateralisation in the form of additional retail contracts to the Trust which has the purpose of absorbing credit losses up to a certain level. As of the balance date, actual credit losses incurred and the expected future credit losses on the Trust portfolio of retail loan cash flows are lower than the pro-rated amount of overcollateralisation. On this basis, no separate credit risk provision under AASB 9 has been recognised.

H. PROVISIONS

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.

I. FINANCIAL LIABILITIES

Recognition and de-recognition

The Trust recognises a financial liability when it becomes party to the contractual provisions of the instrument. It derecognises a financial liability when the liability is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expires.

Classification and measurement

• The Trust classifies its financial assets into the following categories:

• financial liabilities at fair value through profit or loss and

• financial liabilities at amortised cost.

Financial liabilities at amortised cost

Financial liabilities measured at amortised cost using the effective interest method relate to debt securities in issue and other liabilities. Gains or losses resulting from changes in amortised cost, including the effects of changes in exchange rates are recognized through profit or loss.

Based on the above criteria, the Trust classifies the following items as financial liabilities at amortised cost:

• Debt securities in issue

• Other financial liabilities

Debt securities in issue

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Notes to the financial statements

14

Issued debt securities are initially recognised at fair value, net of transaction costs incurred. They are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the debt securities using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs on the loan to the extent that is probable that some or all of the facility will be drawn down. Debt securities are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or expenses, or as finance costs. Interest-bearing liabilities are classified as current liabilities unless the Trust has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

Other financial liabilities

These amounts represent liabilities for goods and services provided to the Trust prior to the end of financial year which are unpaid. Other liabilities are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

Financial liabilities at fair value through profit or loss

The Trust classifies its derivatives as financial liabilities at fair value through profit or loss.

Financial liabilities at fair value through profit or loss are initially and subsequently measured at their fair value.

Refer to Note 1J for further details on the Trust’s accounting policy for derivatives.

J. DERIVATIVES AND HEDGING ACTIVITIES

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Trust designates certain derivatives as either:

• hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges) or

• hedges of the cash flows of recognised liabilities and highly probable forecast transactions (cash flow hedges).

The Trust documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Trust also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in cash flows or fair values of hedged items.

Cash flow hedge

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 equity in the cash flow hedge reserve. The gain or loss relating to the ineffective portion is recognised immediately in the profit or loss.

Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item will affect profit or loss. The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the profit or loss within finance costs.

When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the profit or loss and when a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or loss.

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Notes to the financial statements

15

Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement.

K. NET ASSETS / LIABILITIES ATTRIBUTABLE TO UNITHOLDERS

The residual income unit holder is entitled to the net income of the Trust following payment of Trust expenses, fees, payments to swap providers and interest expenses of the Trust. This net income payment may further be subordinated to make any principal shortfalls. Following all payments being made under the waterfall, the residual income unitholder is entitled to any residual. As a result, the units are classified as financial liabilities. Income not distributed is included in “net liabilities attributable to unitholders”. Movement in net assets attributable to unitholders are recognised in the Statement of Comprehensive Income as finance costs.

L. ROUNDING

The company and its controlled entities are of a kind referred to in ASIC Legislative Instrument 2016/191, relating to “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with the instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. New accounting standards and interpretations

M. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS

New standards adopted by the Trust for the first time in the year ended 31 December 2019

AASB 16 Leases

Effective date: 1 January 2019

The Australian Accounting Standards Board (AASB) issued AASB 16 Leases in January 2016. AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’).

The initial application of AASB 16 does not have any material impact on the financial position or income and expenses of the Trust.

New standards not yet adopted by the Trust

There are no new standards not yet adopted by the Trust that are expected to have a material impact on the financial position or income and expenses of the Trust.

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Notes to the financial statements

16

NOTES TO THE STATEMENT OF COMPREHENSIVE INCOME

2 | Interest and similar income and interest expense and similar charges

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2019 2018
INTEREST AND SIMILAR INCOME
Interest on deemed loan to Originator 56,171 42,500
Net swap interest (2,402) (1,535)
Bank interest 1,010 832
Total interest and similar income 54,779 41,797
$'000 2019 2018
INTEREST EXPENSE AND SIMILAR CHARGES
Interest expenses Note A 28,230 18,279
Interest expenses Note B 4,690 3,221
Interest expenses subordinated loan 6,237 4,739
Total interest expense and similar charges 39,157 26,239
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3 | Other expenses from ordinary activities

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$'000 2019 2018
Service fee expenses 15,082 9,374
Other expenses 375 247
Trust manager fee 98 99
Total other expenses 15,555 9,720
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Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Notes to the financial statements

17

NOTES TO THE STATEMENT OF FINANCIAL POSITION

4 | Cash and cash equivalents

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$'000 31.12.2019 31.12.2018
Cash at bank 12,599 53,112
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5 | Deemed loan to Originator

Since 2016, the Trust has acquired receivables from Volkswagen Financial Services Australia Pty Ltd (referred to hereafter as the Originator) on a regular basis through an equitable entitlement. The Trust funded this acquisition by issuing class A notes, class B notes and a subordinated loan. A deemed loan has been recognised representing the consideration paid by the Trust.

The Originator undertakes the role as servicer for the receivables, transferring all collections of the receivables to the Trust. The Originator has provided the Trust with a $9,953,160 of cash collateral and $12,545,602 by way of additional loan receivables as overcollateralisation.

The first loss on the receivables is borne by the Originator to the extent of overcollateral provided to the Trust. The accumulated losses incurred and booked against the cash collateral and overcollateral provided to the Trust as at the year ended 31 December 2019 amounted to $15,033,559 (2018: $4,290,681). As the overcollateralisation exceeds the expected credit loss under AASB 9, hence no provision recognised. The underlying provisions for the receivables are booked by the Originator in its financial statements.

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$'000 31.12.2019 31.12.2018
Maturity analysis
No longer than 3 months (2,698) (1,251)
Longer than 3 months, not longer than 1 year 183,086 228,685
Longer than 1 year, not longer than 5 years 803,852 1,045,778
Total 984,240 1,273,212
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6 | Other financial assets

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$'000 31.12.2019 31.12.2018
Receivable for collection instalment 39,743 32,538
Bank interest 12 88
Buffer Release Clearing Account (4,683) (4,897)
Total other assets 35,072 27,729
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7 | Other assets

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$'000 31.12.2019 31.12.2018
GST receivable 120 85
Total other assets 120 85
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Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Notes to the financial statements

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8 | Debt securities in issue

The debt securities in issue at 31 December 2019 represent the notes in respect of a securitisation transaction that the Trust entered into and a subordinated loan provided from Volkswagen Financial Services Australia Pty Ltd. with an average interest rate of 4.71% (2018: 5.16%).

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$'000 31.12.2019 31.12.2018
SECURED
Note A 783,900 1,054,500
Note B 133,360 147,971
Subordinated loan 100,027 112,573
Total 1,017,287 1,315,044
Maturity analysis
No longer than 3 months 1,155 -
Longer than 3 months not longer than 12 months 188,601 237,583
Longer than 1 year not longer than 5 years 827,531 1,077,461
Longer than 5 years - -
Total 1,017,287 1,315,044
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9 | Other financial liabilities

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$'000 31.12.2019 31.12.2018
Amounts owing to Originator 883 24,910
Total other financial liabilities 883 24,910
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10 | Other liabilities

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$'000 31.12.2019 31.12.2018
Other creditors 331 679
Total other liabilities 331 679
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Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Notes to the financial statements

19

NOTES TO THE FINANCIAL INSTRUMENTS

11 | Financial instruments

A. INSTRUMENT USED BY THE TRUST

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$'000 31.12.2019 31.12.2018
ASSETS
Interest rate swap contracts - -
Total derivative financial instrument assets - -
LIABILITIES
Interest rate swap contracts 1,970 4,692
Total derivative financial instrument liabilities 1,970 4,692
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The Trust is a party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest rates in accordance with the Trust’s financial risk management policies.

Interest rate swap contract

The Trust has entered into swap contracts under which it receives interest at variable rates and pays interest at fixed rates; fixed interest rates in the reporting period ranged between 2.05% and 2.60% (2018: 2.87% and 3.66% respectively).

The notional principal amounts and the remaining terms of back to back contracts outstanding at the reporting date are:

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31.12.2019 31.12.2018
$'000
Notional Notional
Maturity analysis
No longer than 3 months - -
Longer than 3 months, not longer than 1year 188,601 237,583
Longer than 1 year, not longer than 5 years 728,659 964,888
Total 917,260 1,202,471
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Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Notes to the financial statements

20

OTHER NOTES

12 | Remuneration of auditors

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$’000 2019 2018
Remuneration for audit of the financial reports of the Trust
Auditor of the Trust - PricewaterhouseCoopers 11 10
Remuneration for other services
Auditor of the Trust - PricewaterhouseCoopers
Taxation - -
Other assurance services - -
Total remuneration 11 10
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13 | Events occurring after balance sheet date

A widespread public health issue, or fear of such an event, may result in a deterioration of households and business economic conditions and could therefore have a material adverse impact on the Trust's operating results.

In December 2019, a novel strain of coronavirus ("COVID-19") was reported in Wuhan, China. The World Health Organisation has declared COVID-19 to constitute a global pandemic and the Australian Government has implemented measures to contain the spread of the virus. The extent of the impact of these measures and the resulting economic slowdown on the Trust’s financial performance will depend on future developments, including the duration and spread of the outbreak, which are highly uncertain and cannot be predicted. The Trust is continuously monitoring the situation and assessing the potential impact on its business, in particular a potential reduction of the monthly cash flows passed on to the Trust by the Servicer resulting from borrowers reducing their repayment amounts. While the financial impact on consumer and commercial borrowers from the economic slowdown is estimated to significant, it is expected that the measures announced by the Australian Federal and State Governments with regard to economic stimulus and support will soften the impact on the Australian economy, including the borrowers’ ability to repay their loans.

At the date of signing these financial statements, the potential financial effect of any of these events on the Trust cannot be reliably estimated.At the date of signing these financial statements, the potential financial effect of any of these events on the Trust cannot be reliably estimated.

14 | Contingent liabilities

There are no contingent liabilities as at 31 December 2019.

15 | Related party disclosure

The Trust has issued 1 unit for $1 to Driver Australia Master Pty Ltd.

Transactions with Originator

Assets include a deemed loan to the Originator of $984,240,339 (2018: $1,273,212,378.82) (refer note 5). The total interest income during the year from the deemed loan to the Originator is $56,170,902 (2018: $42,500,152). A cash collateral loan of $9,953,160 (2018: $13,635,480) is offset against the deemed loan to Originator.

Other financial assets include a receivable for collection instalment of $39,742,348 (2018: $32,538,494).

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Notes to the financial statements

21

Other financial liabilities include amounts owing to Originator of $882,759 (2018: $24,909,623). During the year the Trust recognised $15,081,709 (2018:$ 9,374,956.40) of service fees for securitisation in other expenses from ordinary activities, of which $882,759 (2018: $1,125,506) remains outstanding at the end of the period.

• 16 | Reconciliation of Profit from continuing operations after income tax to net cash outflow from operating activities

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2019 2018
Profit from continuing operations after income tax 2,746 773
Interest paid on issued liabilities 39,157 26,239
Accrued interest on deemed loan to Originator (56,174) (42,504)
Fair value (gain) / loss on derivatives (2,722) 5,143
(Increase) / decrease in assets (139) 3,456
Increase / (decrease) in liabilities (31,235) (5,251)
Net cash inflow/(outflow) from operating activities (48,367) (12,144)
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Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Trust Manager’s Declaration

22

Trust Manager’s Declaration

As detailed in note 1 to the financial statements, the Trust is not a reporting entity because in the opinion of the Trust Manager, there are unlikely to exist users of the financial report who are unable to command the preparation of reports tailored so as to satisfy specifically all of their information needs. Accordingly this Financial Report has been prepared to satisfy the Manager's reporting requirements under the Trust Deed.

The Trust Manager declares that:

• a) the attached financial statements and notes thereto comply with Australian Accounting Standards to the extent described in note 1 to the financial statements;

• b) the attached financial statements and notes give a true and fair view of the financial position and performance of the Trust; and

• c) in the opinion of the Trust Manager there are reasonable grounds to believe that the Trust will be able to pay its debts as and when they become due and payable; and

• d) in the opinion of the Trust Manager, the attached financial statements and notes thereto are in accordance with the requirements outlined in note 1 of the financial statements.

On behalf of the Trust Manager:

Andrew Romano

Sydney 17 April 2020

Driver Australia Master Trust | ABN 62 902 670 567

Annual Report 2019 | Trustee’s Report

23

Trustee’s Report

The Trustee is not aware of any material matters that require disclosure and have not been disclosed. The Trustee is not aware of any material matters which have occurred since the date of the financial statements that require disclosure and that have not been disclosed.

Based on our ongoing program of monitoring the Trust, the Trust Manager and our review of the financial statements, we believe that:

(i) the Trust has been conducted in accordance with the Trust Deed ; and

(ii) the financial statements have been appropriately prepared and contain all relevant and required disclosures.

Signed for and on behalf of the Trustee,

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Sydney 17 April 2020

Driver Australia Master Trust | ABN 62 902 670 567

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Independent auditor’s report

To the unitholders of Driver Australia Master Trust

Our opinion

In our opinion the accompanying financial report gives a true and fair view of the financial position of Driver Australia Master Trust (the Trust) as at 31 December 2019 and of its financial performance and its cash flows for the year then ended in accordance with Australian Accounting Standards to the extent described in Note 1 of the financial report.

What we have audited

The financial report comprises:

• the statement of financial position as at 31 December 2019

• the statement of comprehensive income for the year then ended

• the statement of changes in equity for the year then ended

• the statement of cash flows for the year then ended

• the notes to the financial statements, which include a summary of significant accounting policies

• the declaration of the Trust Manager.

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

Independence

We are independent of the Trust in accordance with the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

Emphasis of matter - basis of accounting and restriction on distribution and use

We draw attention to Note 1 in the financial report, which describes the basis of accounting. The financial report has been prepared to assist the Trust in complying with the financial reporting provisions of the Trust Deed. As a result, the financial report may not be suitable for another purpose. Our report is intended solely for Driver Australia Master Trust and its unitholders and should not be distributed to or used by parties other than Driver Australia Master Trust and its unitholders. Our opinion is not modified in respect of this matter.

PricewaterhouseCoopers, ABN 52 780 433 757

One International Towers Sydney, Watermans Quay, Barangaroo NSW 2000, GPO BOX 2650 Sydney NSW 2001 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

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Other information

The Trust Manager is responsible for the other information. The other information comprises the information included in the annual report for the year ended 31 December 2019, 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 accordingly 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 on the other information that we obtained prior to the date of this auditor’s report, 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 Trust Manager for the financial report

The Trust Manager of the Trust is responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards to the extent described in Note 1 of the financial report, and for such internal control as the Trust Manager determines is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the Trust Manager is responsible for assessing the ability of the Trust to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Trust Manager either intends to liquidate the Trust 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 the 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 an error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

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• 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 Trust's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Trust Manager.

• Conclude on the appropriateness of the Trust Manager's 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 Trust'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 Trust 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.

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

We also provide the Trust Manager with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at:

http://www.auasb.gov.au/auditors_responsibilities/ar4.pdf. This description forms part of our auditor's report.

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PricewaterhouseCoopers

David R Cox Partner

Sydney 17 April 2020