Release Date: February 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Resimac Group Ltd (ASX:RMC, Financial) reported a normalized net profit after tax of $26 million for the half-year ended 31 December 2023.
- The asset finance book grew by 52% over the 6-month period, reaching a milestone of $1 billion in assets under management (AUM).
- Operating expenditure was reduced by 10.5% compared to the first half of 2023, driven by technology investments and operational efficiencies.
- The volume of home loan applications increased by 65% compared to the prior 6 months, indicating a healthy pipeline for future growth.
- Resimac Group Ltd (ASX:RMC) has made significant progress in its digital transformation, including the rollout of a new treasury management system and enhanced online banking capabilities.
Negative Points
- The cost-to-income ratio increased to 48.8%, primarily due to net interest income headwinds from lower AUM and tighter margins.
- Loan impairment expenses rose to $3 million, reflecting the rapid growth of the asset finance portfolio.
- Return on equity for the half was 12.5%, lower than previous periods due to falling net interest income.
- Arrears across home loans and asset finance are trending upwards, although in line with industry standards.
- Net interest margin (NIM) for home loans decreased by 14 basis points, driven by higher cost of funds and lower replacement new business margin.
Q & A Highlights
Highlights of Resimac Group Ltd (ASX:RMC) Half-Year 2024 Earnings Call
Q: Firstly, just want to ask about the growth initiatives that you deployed in the second quarter. If I look at these results, I can see the marketing spends and employee costs down year-on-year, yet you've expanded your distribution and active brokers. I was just wondering if you could, I guess, elaborate more on what those initiatives are and how you're going about it?
A: Yes. Sure. And thanks for your question, Tom. So part of it, Tom, to be perfectly honest, is the environment actually allowing us to be more active. Yes, I'd like to give us all the credits whilst we should, where we've executed well on the strategy is sitting and looking at an environment that allows us to compete was imperative for us to then start growing again. And obviously, we could see those signs probably midway through last calendar year as banks were clearly pulling back and there was obviously a lot of pressure on them to justify offering loans below cost of capital. So, one was the environment. The second one was we really just targeted specific areas. We didn't focus on those areas where clearly the banks were very aggressive. So, i.e., mum and dad's principal interest less than 70% LVR, metro areas where everyone's just jumping all over themselves to write those assets at very, very thin margins. We really focused around investor and interest only in the prime market and we very much simplified our offering in the near prime and specialist market just to make it a little bit easier for our brokers, especially with our wide BDM team reengaging in the market as we switch from a NIM bias to an AUM bias strategy.
Q: Just a second question, if I can, just around the volatility from the fair value losses and gains on derivatives. I mean, they're quite sizable relative to the NPAT in this result. Can you just comment on what's driving those gains and losses? Is it sort of hedging or otherwise? And what should we expect going forward?
A: Sure. Tom, it's Santo. Santo Ahmed, the Financial Controller. So, I'm assuming you're referring to Page 21 with the financial position where we've got the derivative financial liabilities?
Q: I'm talking about the charge taken through the statutory profit to the $8 million, that result.
A: Yes. So, part of that is due to 2 things that we've got flowing through there. So, we've got the interest rate swaps policy, any of the interest rate swap gains and losses that goes through the OCI. And on top of that, we've also got cross currency swaps that we have in place and any gains and losses that are going through that OCI as well. So, overall, that number, that normalized figure that we put in there, includes $5.4 million in changing fair value. And then once we've tax affected that, that is the [$2.5 million] that's going through the OCI.
Q: A question on asset finance. So, now that you sort of delivered the $1 billion target early on, I mean, how should we think about the next phase of growth over the next 1 to 3 years and how you're looking to sort of manage the margin volume trade off?
A: Yes. Thanks for your question, Jeff. So, we're coming off a low base. So, we should be thinking about growth significantly above system as we come off a low base. So whilst we're growing kind of doubling settlements to a forecast double settlement in FY '24 compared to '23, and obviously significantly growing our book, as you're coming off the low base, those targets will remain quite aggressive going forward until it gets to a size where it's close to the system. So in growing our asset finance book is a strategic priority and our investment in technology is helping us do that. Whilst we've actually just rolled out an originations platform, that's definitely helped us pick up business from brokers, which is around obviously a stronger experience, faster turnaround times, greater automation. We'll continue to make further investments and also we'll continue to roll out new products. Asset finance is quite a broad segment. At the moment, we're predominantly playing in commercial, auto and equipment. In time, we will step into -- and likely before the end of this calendar year, we'll step into the consumer market, but we'll also look at other assets that broadly sit underneath that umbrella. So, our growth aspirations for that book are significantly different to how we think about the more mature home loans book.
Q: And then a question of margins on Slide 14. The funding margin is still a bit of a headwind for this half. Given your expectations and what you're seeing in terms of the debt market spreads becoming more tighter, should we expect that funding margin piece to be a tailwind for next half?
A: Look, I think -- no, I think the way that we look at it and the way that we're forecasting is, it feels like your exit of, let's call it, end of June of this year is going to be pretty close to what your second half average will be. So it feels like we're close to NIM then stabilizing and probably 2 different stories between home loans and asset finance. Asset finance NIM, despite the comment that I made to that question in relation to AUM growth, we're quite comfortable that we can maintain that NIM going forward with asset finance. When we think about home loans, home loans NIM is likely to kind of stabilize, I'd say around that 155, 150 level before potentially starting to grow again.
Q: Can you elaborate on the digital transformation initiatives and their impact on operational efficiency?
A: Yes, certainly. Our digital transformation roadmap has been a significant focus, and we've rolled out several digital initiatives over the past year. This includes a new treasury management system, which is the first of its kind in the Australian market, supporting further scale in the group's funding program and driving efficiencies in our investor and markets reporting functions. For our broker partners, we've made it quicker and easier to submit loan applications, providing faster turnaround times for approvals. In asset finance, we've launched a new origination platform that gives brokers a better experience, including real-time deal tracking and faster decisioning. For our home loan customers, we are enabling them to do more, as well as offering additional product features like multi offset accounts. We have enhanced our online banking capabilities and will be introducing a mobile app over the coming weeks.
Q: How are you managing credit risk and provisioning given the current economic environment?
A: We continue to manage credit risk prudently, with a resilient portfolio where the average loan-to-value ratio is less than 65%, and importantly, more than 1/3 of our customers are more than 12 months ahead of their repayments. Arrears across home loans and
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
