Australian Finance Group Ltd. · ASX:AFG
Australian Finance — FY2023 Earnings Presentation
41 slides from Australian Finance's earnings presentation, Aug 25, 2023
Slide 1: FY23 Results Presentation
FY23 Results Presentation 12 months to 30 June 2023
Slide 2: Presentation Outline
Presentation Outline Item Presenter Pages Performance overview David Bailey 3–7 Market & operations update David Bailey 8 – 17 Financial performance Luca Pietropiccolo 18 – 24 Outlook David Bailey 25 – 27 Q&A Appendices 28 – 41 2
Slide 3: Portfolio of Businesses
Portfolio of Businesses @ A 70% $535B $245B Thinktank. of residential mortgages Residential mortgage Commercial finance written through a broker market market tell igence o.90 ro — BrokerEngine lin 10 500K Residential mortgages Customers helped by in Australia written by an AFG broker HOME LOANS an
Slide 4: AFG Business model
AFG Business model Operating in AUSTRALIAN deep FINANCE MARKET Residential Commercial Equipment and Personal markets… Mortgages Mortgages Asset Finance Loans … with a range Aggregation Services Loan Distribution Loan Manufacturing of financial Broker-originated loans generate annuity-style earnings
Slide 5: AFG's proven blueprint
AFG’s proven blueprint Provides scale & Leverage scale – Leverage scale – platform to diversify partner with expand into into new markets lenders higher margin lending Aggregation Loan Loan Services Distribution Manufacturing Broker Share AFG Share Markets Residential Mortgages AFG $195B Loan book A
Slide 6: FY23 Highlights
FY23 Highlights Strong balance sheet & Earnings diversification Investing for growth cash flow generation Delivers resilience & strong Well placed to execute new Uplift to capability & efficiency to platform for growth opportunities deliver through the cycle 65+% underlying earnings from Record $1b
Slide 7: FY23 Financial Summary
FY23 Financial Summary Competitive advantage from Strong cash flow generation, with Quality & diversified earnings Capital-light business model, Strong history of delivering being a leading aggregator with trail book delivering annuity-style underpin earnings with strong balance sheet shareholder va
Slide 8: Market & operations update
FULL YEAR RESULTS Market & operations update
Slide 9: The impact of our diversification strategy
The impact of our diversification strategy 1 1,2 Broker Numbers 1 Settlements Gross Profit 70 140 4,000 60 120 3,500 3,000 50 100 Billions ($) Millions ($) 2,500 40 80 2,000 30 60 1,500 20 40 1,000 500 10 20 - - - At Listing Pre-Covid Peak- Stimulus Current At Listing Pre-Covid Peak-Stimulus Current
Slide 10: Over 65% of our earnings have a recurring profile
Over 65% of our earnings have a recurring profile Aggregation Gross Profit1, 2 AFG Home Loans Gross Profit2 FY19 FY20 FY21 FY22 FY23 FY19 FY20 FY21 FY22 FY23 Services Trail Upfront AFG Securities AFGHL Trail AFGHL Upfront Aggregation includes upfront & trail commission as well as broker Majority of
Slide 11: Challenging conditions are expected to stabilise
Challenging conditions are expected to stabilise, with the housing market proving resilient RBA Cash Rate Housing Market 5.0% 0.08% 8% 4.0% 0.06% 6% 0.04% 4% 3.0% 0.02% 2% 2.0% - - (2%) (0.02%) 1.0% (4%) (0.04%) - (6%) (0.06%) FY19 FY15 FY17 FY21 FY23 FY15 FY17 FY19 FY21 FY23 1 10-Year Average (Prio
Slide 12: Competition set to return as ADI's cheap funding cost increases
Competition set to return as ADI’s cheap funding cost are expected to increase Banks' Deposit Margin compared to BBSW1 Major Banks Funding Composition Non-Banks Market Share 1.0% 30% Record interest rate increases commence 8% 25% 0.5% Cash-backs introduced 12% to the market for ADIs 20% Cash-backs -
Slide 13: Aggregation
Aggregation Services Aggregation Broker Market Share3 Broker is the dominant residential channel. We 90% are investing & growing the Residential offering, 80% 70% 70% & capturing new opportunities in Commercial 60% 50% • Residential broker market share at 70% – delivering 40% 30% competition & choic
Slide 14: AFG Home Loans
Loan Loan Distribution Manufacturing AFG Home Loans 1 AFGHL Settlements Strong competition from the ADIs funding 9 12% advantage, however AFG remains the number 8 AFG enters near prime products 10% one non-bank on panel 7 Billions ($) 6 8% 5 • AFG Home Loans remains the largest non-bank lender at #6
Slide 15: AFG Securities funding
Loan Loan Distribution Manufacturing AFG Securities funding AFGS Loan Book History of issuing through the cycle, with 6 adequate warehouse capacity for growth in FY24 5 Billions ($) 4 3 • AFG Securities loan book at $4.5bn reducing in FY23 following higher run-off 40% (FY21: 30%). 2 1 • Book growth
Slide 16: AFG Securities book quality
Loan Loan Distribution Manufacturing AFG Securities book quality AFGS Prime Arrears Well provisioned, with proven history of 1.4% disciplined risk management 1.2% 1.0% 0.8% • Established credit assessment process leverages insights 0.6% from over 25 years of extensive industry experience 0.4% 0.2% •
Slide 17: Strategic Investments adding revenue & profit
Strategic Investments adding revenue & profit by dovetailing AFG’s extensive broker network Aggregation Services Loan Distribution Loan Manufacturing Mortgage broking software designed Asset Finance aggregation platform, Commercial, residential & SMSF lender, for high-growth broker groups with white
Slide 18: Financial update
FULL YEAR RESULTS Financial update
Slide 19: Financial Results
Financial Results • Record revenue of $1,037m, up 9% with higher book Units FY23 FY22 FY23 v FY22 growth resulting in increased securitisation income Total Revenue $m 1,036.9 955.5 9% • Gross profit down 13% affected by non-cash trail book Gross Profit $m 113.1 130.2 (13)% value reduction ($18m) & l
Slide 20: Profit before tax
Profit before tax Our earnings diversity is a key element of our Variance financial strength, supported by annuity style Strategic ex Strat $m FY23 FY22 Variance cash flows investments investments Gross profit1 144.7 142.6 2.1 8.8 (6.8) Gross profit1 of $145m Trail book adjustment (9.7) 7.9 (17.7) 0
Slide 21: Gross profit
Gross profit Gross profit increased in FY23 supported by $m (unless otherwise stated) FY23 FY22 Var $ Var % new earnings streams, with 75% coming Gross profit1 144.7 142.6 2.1 1% from our lower risk Distribution channel Distribution 108.4 101.8 6.6 6% Distribution: Lower capital requirement – withou
Slide 22: Opex investment to support key business initiatives
Opex investment to support key business initiatives Operating efficiencies delivered in the final quarter, partially offset by ongoing technology 50 investment 45 Underlying CTI was 61%, normalising for lower NIM was 55% 40 Operating costs up $13.5m1 year on year, driven by: 35 • Employee costs ($5m
Slide 23: Strategic Investments
Strategic Investments Investment Date April 2018 December 2021 January 2022 FY23 NPAT contribution $6.1m $5.6m $(0.1)m1 Carrying value at 30 June $34.3m $54.6m $4.6m 70% Current AFG Ownership 32% 75% Agreement to acquire 100% in July 2023 Commercial / Residential Asset Finance Broker Services Primar
Slide 24: Annuity style earnings provides strong cash conversion & generation
Annuity style earnings provides strong cash conversion & generation Strong Cash Generation Cash & restricted cash 70 200 60 50 150 Millions ($) Millions ($) 40 100 30 20 50 Conservatively leveraged, with 10 30 June 2023 at 22% - - FY20 FY21 FY22 FY23 FY20 FY21 FY22 FY23 NPATA Underlying Operating Ca
Slide 25: Outlook
FULL YEAR RESULTS Outlook
Slide 26: Investing in key growth initiatives
Investing in key growth initiatives Continue momentum of Maintain balance sheet strength Digital technology delivering a our investments & grow our to diversify income streams & step change for AFG brokers deliver higher margin distribution network Platform Services Broker Engine Funding loan manufa
Slide 27: Challenging conditions are stabilising, as AFG enters its next growth phase
Challenging conditions are stabilising, as AFG enters its next growth phase Industry transition allowing Brokers provide Record refinance activity & AFG to grow its broker competition & choice in migration underpins broker & network differentiating by all rate environments settlement activity its te
Slide 28: Appendices
FULL YEAR RESULTS Appendices
Slide 29: July 2023 Trading
July 2023 Trading Comparison of July Lodgements • The end of cash-backs for several lenders brought forward July activity into June 2023. • The last major bank offering cash-backs appears to now be transitioning away from cash-backs • Residential lodgements of $6.2b were below July 2022, affected by
Slide 30: Settlements & Loan Book
Settlements & Loan Book Settlements ($000’s) FY23 FY22 FY21 FY23 v FY22 FY23 v FY21 Residential 53,630 59,393 43,632 (10)% 23% AFGHL 3,604 5,586 3,450 (35)% 4% White Label1 2,023 2,866 2,105 (29)% (4)% AFG Securities1 1,581 2,720 1,346 (42)% 17% Commercial 3,783 3,887 2,322 (3)% 63% AFG Business 153
Slide 31: Key metrics
Key metrics Units 2H23 1H23 2H22 2H23 v 1H23 2H23 v 2H22 Key movements Income Operating Income – Aggregation $m 321.4 383.1 373.3 (16)% (14)% • Aggregation operating income (14)% compared to H2 FY22, driven primarily by Operating Income – AFGHL $m 155.3 141.2 85.1 10% 83% lower Residential Settlemen
Slide 32: Summary P&L
Summary P&L $m FY23 FY22 FY23 v FY22 Key movements Commissions 650.2 730.1 (79.9) Interest on trail commission income receivable 82.3 82.2 0.1 • Revenue increased to a record $1b in FY23, Mortgage management services 0.3 0.5 (0.2) with higher AFG Securities average book & inclusion of Strategic Inve
Slide 33: Reported NPAT to Underlying NPATA reconciliation
Reported NPAT to Underlying NPATA reconciliation Key movements $m FY23 FY22 FY23 v FY22 • The trail commission adjustment represents the non-cash change in the carrying value of Reported NPAT 37.3 38.8 (1.5) the trailing commissions contract assets & Amortisation of intangibles acquired 2.4 1.2 1.2
Slide 34: AFG holds $202m in liquid assets & high performing investments
AFG holds $202m in liquid assets & high performing investments Key movements $m Jun 2023 Jun 2022 FY23 v FY22 • Net unrestricted cash of $16m Unrestricted cash 60.0 84.7 (24.6) • Trail book net asset at $96m Debt facility (44.3) (52.5) 8.2 • High performing, valuable investments in Net unrestricted
Slide 35: Trail book asset
Trail book asset The table below outlines key assumptions used to value trail commissions Key movements • Trailing commissions are received from lenders Key Assumptions Jun 2023 Jun 2022 on settled loans over the life of the loan based on the outstanding loan book balance Average loan life Between 3
Slide 36: Summary Balance Sheet
Summary Balance Sheet $m Jun 2023 Jun 2022 FY23 v FY22 Key movements Assets Unrestricted Cash 60.0 84.7 (24.6) • Unrestricted cash, which consists of cash at bank Restricted Cash 162.2 183.9 (21.7) & short term deposits, decreased to $60m Trade and other receivables 15.1 13.4 1.7 • Restricted cash,
Slide 37: Summary Cashflow
Summary Cashflow $m FY23 FY22 FY23 v FY22 Key movements Cash receipts from customers 767.7 734.0 33.7 • Operating cashflow was $52.1m an increase Cash paid to suppliers and employees (749.5) (707.0) (42.5) against FY22 reflecting the strong cash flow Net Interest received 46.5 50.2 (3.7) generation
Slide 38: Expected credit loss provisions
Expected credit loss provisions • AFG has a strong history of low credit losses, as a result of insights from over 25 years of data & extensive industry experience AFG Securities LVR over time • Arrears have historically outperformed the Australian non-bank sector of the 100% S&P Global Ratings Mort
Slide 39: AFG Securities – Loan quality
AFG Securities – Loan quality LVR Loan Balance Geographic distribution 0.2% 3% 7% 16% 9% 10% 7% 32% 14% 34% 36% 55% 22% 28% 27% <$250k $250k - $500k VIC NSW LVR <70% LVR 70%-80% $500k - $750k $750k - $1m QLD WA LVR 80%-90% LVR >90% >$1m SA ACT/TAS/NT 39
Slide 40: Driving sustainable outcomes for our stakeholders
Driving sustainable outcomes for our stakeholders Creating a fairer financial future Environment Social Governance FY23 Highlights FY23 Highlights FY23 Highlights • Purchased first voluntary carbon offsets (490t Co2-e), • 2nd year as Principal Partner of Foyer Foundation • Developed supplier code of
Slide 41: Important Disclaimer
Important Disclaimer This presentation contains general information which is current as at 24 August 2023. The information is intended to be a summary of Australian Finance Group Ltd (AFG) and its activities as at 30 June 2023, and does not purport to be complete in any respect. The information in t
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