- Underlying NPATA: 18%
- Return on Equity: 18%
- Profit Before Tax: $22.6 million
- Unrestricted Cash: $66 million
- Investments in Liquid Assets: $187 million
- Total Shareholder Return: 15%
- Dividends Paid: $11.1 million
- Dividend Payout Ratio: 60% of cash earnings
- Broker Network Growth: 14% increase in settlements, 87 new broker groups recruited
- Investment in Technology: $9 million
- Manufacturing Book: $4.1 billion
- RMBS Issuance: $750 million
- NPAT for the Half: $14.5 million, down 34%
- Distribution Segment Profit Before Tax: $27 million, up 7%
- Manufacturing Segment Earnings: Down $12 million
- Operating Expenditure Reduction: $1.2 million
- Declared Dividend: $0.04 per share
- Gross Profit: $62 million, down $9.7 million
- Net Interest Margin (NIM): 116 basis points
- Cash and Liquid Assets: $187 million
- Cash Conversion Ratio: 80%
- CapEx on Technology: $10.3 million
- Investment in Fintelligence and BrokerEngine: $10 million
Release Date: February 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lodgement activity for the white label business has increased year-on-year, and AFG Securities volumes have doubled compared to the same period last year.
- The AFG Securities book has stabilized, shifting focus from NIM protection to book retention and growth.
- The distribution business segment is experiencing growth across all focused asset classes.
- The broker network has grown, with a 14% increase in settlements and 87 new broker groups recruited.
- Investments in technology, compliance, product diversification, and people are creating a stronger business foundation.
Negative Points
- NPAT for the half was $14.5 million, down 34% or $7.4 million from the previous period.
- The manufacturing segment's earnings were significantly down, contributing to a $12 million decline for the half.
- The white label business had a soft start to the year, with first-quarter volumes down 30%.
- Operating expenditure for the half recorded a reduction of only $1.2 million, indicating ongoing cost pressures.
- The NIM rate was 116 basis points, reflecting higher funding costs and competitive pressures.
Q & A Highlights
Q: In the distribution segment growth, can you help us understand the dynamics, especially with residential being broadly flat and high margin white label down materially?
A: The primary driver of growth in the distribution segment is the investment in Fintelligence and BrokerEngine. We've also seen a reduction in OpEx. However, the residential business is down by 1.3%. The reallocation of shared costs to the central services pillar also impacts the headline number.
Q: Can you quantify the reallocation of shared costs and confirm if the growth is an apples-to-apples comparison?
A: The central services pillar, reported at negative $13 million, largely represents what was stripped out of the distribution. On a like-for-like basis, the distribution business would have held fairly steady.
Q: Regarding services charged outside the segment, have any of those income lines been moved?
A: Those income lines were always in the aggregation services segment. The gross profit from broker services was slightly down year-on-year at $10.5 million versus $10.9 million. Adjusting for event timing noise, we would have seen a 9% increase in those revenue streams.
Q: Can you provide a sense of the total investment spend in the reinvestment program and how quickly it will amortize through the P&L?
A: We spent $10 million in the half and expect to spend a similar amount in the second half, bleeding into FY '25. The core work will then move to BAU technology spend. The amortization period will depend on the technology components but typically ranges from 5 to 8 years.
Q: How confident are you in getting a return on the reinvestment spend? Will it come through other income lines in Fintelligence and BrokerEngine?
A: The return will come through both recruitment acceleration into the network and increased fees and services for technology use.
Q: Regarding the NIM outlook, is 111 basis points a reasonable base given current funding and competition?
A: Yes, 111 basis points is a reasonable base. Funding costs are largely done for the year, with the next market entry in May. The big unknown is competition, but we are finding niches to expand NIM.
Q: Can you elaborate on the growth niches and their impact on NIM?
A: We are seeing good flow into the self-managed super fund model product and Retro Switch for dollar-for-dollar refinancing. Investment loans for investment properties are also contributing to growth.
Q: With NIM at 111 basis points and the loan life you've got, how are the economics of the securitization segment?
A: The economics are still generating a return on equity. We've invested in the technology platform to reduce processing costs, and we see upside in our securitization business despite the competitive environment.
Q: How quickly will the reinvestment spend amortize through the P&L?
A: The amortization period will depend on the technology components but typically ranges from 5 to 8 years.
Q: How confident are you in getting a return on the reinvestment spend?
A: The return will come through both recruitment acceleration into the network and increased fees and services for technology use.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
