Australian Finance Group Ltd. · ASX:AFG
Australian Finance — FY2024 Earnings Presentation
47 slides from Australian Finance's earnings presentation, Aug 30, 2024
Slide 1: Full Year Results Presentation
Full Year Results Presentation 12 months to 30 June 2024
Slide 2: Presentation Outline
Presentation Outline Item Presenter Pages FY24 Highlights David Bailey 5-7 Strategy & market update David Bailey 8-13 Operations update David Bailey 14-22 Financial update Luca Pietropiccolo 23-30 Outlook David Bailey 31-34 Q&A Appendices 2
Slide 3: Portfolio of investments
Portfolio of investments 30 years 4,000+ $800B+ Investments across the value chain AFG Experience in financial AFG Group brokers across Residential & Commercial – providing growth options services. Proven through Australia – our core asset mortgage market. Resilient with market cycles strong economi
Slide 4: AFG's strategy – to be the aggregator of choice
AFG’s strategy – to be the aggregator of choice, delivering higher margin products through its national network Our purpose... Fairer financial future for all Delivered through our competitive 4,000+ active brokers advantage… Creating… Competition and choice for brokers, customers and lenders With g
Slide 5: FY24 Highlights
FY24 RESULTS FY24 Highlights
Slide 6: AFG operating highlights – FY24
AFG operating highlights – FY24 30 years of industry experience and a market leader - AFG is positioned to deliver earnings growth, benefiting from the continual building of demand for brokers in the growing Australian finance market • Australian housing market - $536b settlements per annum. Propert
Slide 7: AFG financial highlights – FY24
AFG financial highlights – FY24 Distribution earnings grew 20%. Manufacturing negatively affected by market cycle, which is turning. AFG’s proven cash generation and market share positions it well to execute its growth strategy creating continued shareholder value. Total revenue Annuity style earnin
Slide 8: Strategy & market update
FY24 RESULTS Strategy & market update
Slide 9: Delivering against our strategic pillars
Delivering against our strategic pillars Provide market leading Deliver higher margin through Grow our broker network technology broker proposition our distribution network Delivering a growing broker network for A differentiated offer meeting customer Delivering additional products and further AFG
Slide 10: Resilience of the Australian market
Economic conditions: Resilience of the Australian market Inflation continues to impact cost of living Unemployment increasing, however well While some uncertainty remains, cash rate but is trending down below the long-term average reductions are expected in 2025 Headline Inflation Unemployment Rate
Slide 11: Return to growth – with a positive outlook
Finance markets: Return to growth – with a positive outlook Confidence in the House prices have seen growth Resulting in strong credit growth across ADI housing funding market is growing advantage is for the past 6 months both Residential and Commercial New Loan Commitments ($B) Annual House Price G
Slide 12: Proven channel of choice for customers & lenders
Broker market share: Proven channel of choice for customers & lenders Broker share1 continues to grow, expected to increase above 80% The preferred distribution channel in the residential market Broker Market Share • AFG continues to embed itself as provider of crucial services in Australia’s financ
Slide 13: Market conditions deliver rebound in non-bank share
Non-bank market share: Market conditions deliver rebound in non-bank share Non-bank lender share of market is back to 2 year high Benefiting from improved funding market conditions Non-Banks Market Share • TFF1 delivered a funding advantage to ADI’s2 . All TFF repaid by June 24 20% • Front book, bac
Slide 14: Operations update
FY24 RESULTS Operations update
Slide 15: Growing our broker network through recent investments
Distribution Growing our broker network through recent investments AFG’s service offering delivers value to growth focused broker groups BrokerEngine ‘Direct Lodgement’ further enhances our differentiated proposition, which will deliver market share growth AFG total broker number reaches record high
Slide 16: While increasing average earnings per broker
Distribution While increasing average earnings per broker Our 4,000+ brokers are at the core of our business model – a quality distribution network delivering 1 in 10 mortgages Product diversification has driven Generating $36k gross profit per AFG broker in FY24 growth in AFG’s gross profit (9% pa1
Slide 17: Residential volumes showing solid momentum
Distribution Residential volumes showing solid momentum FY25 settlements will benefit from strong Q4 lodgements, and recruited broker groups building volumes Loan book now at $200bn Growth in residential lodgements Large groups generate significant scale A stable annuity revenue stream AFG residenti
Slide 18: Higher margin and other products continue to grow
Distribution Higher margin and other products continue to grow 50% of all AFG brokers generate earnings from more than one asset class AFG Home Loans Asset Finance Commercial Higher margin residential products Leading technology and significant scale Growing market is an opportunity for brokers • AF
Slide 19: Digital strategy – provide market leading technology
Digital strategy – provide market leading technology Significant technology improvements have been delivered through the year with ongoing focus on delivering differentiated broker experience that meets customer demand for a more efficient digital performance Platform • Modern API services Services
Slide 20: AFG Securities more than doubled market share
Manufacturing AFG Securities more than doubled market share , 1 footprint begins to build once more Record cash rate AFGS lodgements AFG Securities (AFGS) 2 tightening cycle 1.5 6% commences • A return to more stablised market conditions has seen non-banks Billions ($) 4.34% 5% able to become more c
Slide 21: AFG Securities: quality loan book performance
Manufacturing AFG Securities: quality loan book performance As anticipated, arrears have begun reducing from their peak. Half of AFGS Home Loans have an offset balance No losses currently expected, reflecting a disciplined approach 50 to risk. Average offset balance ($k) 40 30 Portfolio characterist
Slide 22: AFG Securities: funding costs showing positive signs
Manufacturing AFG Securities: funding costs showing positive signs Returned to book growth, with warehouse capacity and AFGS Closing Book 6.0 established RMBS program to fund growth 5.0 Billions ($) 4.0 AFG Securities loan book at $4.4bn 3.0 • Run-off was 35% in H2 FY24 a reduction from H1 42% (10-y
Slide 23: Financial update
FY24 RESULTS Financial update
Slide 24: Financial results
Financial results $m FY24 FY23 Variance Gross profit 1 129.5 144.7 (10%) • Reported NPAT of $29.0m, down 22% Trail book adjustment (5.6) (9.7) (42%) • Gross profit1 $15m lower, with Manufacturing down $16m, Operating expenses (86.0) (88.6) 3% following lower NIM, down to 113bps from 136bps Net finan
Slide 25: Distribution provides earnings growth, with higher margins from Manufacturing
Distribution provides earnings growth, with higher margins from Manufacturing when market economics make sense Distribution Manufacturing Central services Profit before tax FY24 $54 M +20% on FY23 $15 M (53)% on FY23 -$26 M (6)% on FY23 Underlying ROE Underlying ROE 38% 12% • Largest segment represe
Slide 26: Distribution represents 82% of gross profit
Distribution represents 82% of gross profit Subscription income & investments delivered 12% growth Distribution: Growth in volumes and subscriptions with H2 up 4% $m (unless otherwise stated) FY24 FY23 Var $ Var % Gross profit2 129.5 144.7 (15.1) (10%) • Residential upfront lower ($0.8m) with increa
Slide 27: OpEx reduced 3%, while still investing
OpEx reduced 3%, while still investing to deliver key business initiatives Operating costs improved $2.6m year on year driven by: 50 • Lower discretionary spend ($2.1m) primarily associated with lower advertising, and lower conference expenses offset by 45 lower sponsorship income 40 • Depreciation
Slide 28: Strong balance sheet and cash generating assets
Strong balance sheet and cash generating assets deliver capacity to fund growth Conservatively geared with a Cash flow generation underpinned growing net cash position by annuity-style income streams Cash & restricted cash 200 150 Millions ($) 100 50 - FY21 FY22 FY23 FY24 Cash Unrestricted Cash Rest
Slide 29: Invested in FY24 to deliver shareholder returns
Invested in FY24 to deliver shareholder returns AFG takes a disciplined through Capital invested inthe cycle investment Distribution – approach Capital invested in Distribution – segment with highest return to create segmentsustainable shareholder with highest return value Tech investment peaked and
Slide 30: A portfolio of growth options
A portfolio of growth options Industry trend Strategic fit FY25 impact Digital business, provides brokers efficient processes to scale and diversify income. Strengthens AFG’s Asset Finance presence, reaching brokers beyond AFG network. Grow commission Fintelligence income Optionality to distribute h
Slide 31: Outlook
FY24 RESULTS Outlook
Slide 32: Strong volume momentum continuing in FY25
Strong volume momentum continuing in FY25 Market conditions and confidence driving strong volume momentum across Distribution and Manufacturing segments Comparison of July lodgements Distribution July 2024 change on July 2023 • Residential lodgements up 29% on July 2023 with settlements at their hig
Slide 33: AFG plays a vital role in the financial system
AFG plays a vital role in the financial system AFG brokers write 1 in 10 residential mortgages in Australia, connecting with 500k customers. Annuity style cash flow create capacity to capitalise on emerging industry trends, generating sustainable shareholder returns. Bigger and Consolidation Technol
Slide 34: Strategically positioned to deliver earnings growth
Strategically positioned to deliver earnings growth AFG is well positioned, with upward momentum Supported by a strategy to increase shareholder returns evident across our business segments Credit market conditions improving Expected sustained growth in housing and finance markets Growth strategy ba
Slide 35: Appendices
FY24 RESULTS Appendices
Slide 36: Settlements and Loan Book
Settlements and Loan Book FY24 v FY23 v Settlements ($m) FY24 FY23 FY22 FY23 FY22 Residential 55,181 53,630 59,393 3% (7%) AFGHL 3,564 3,604 5,586 (1%) (36%) White Label1 1,927 2,023 2,866 (5%) (33%) AFG Securities1 1,637 1,581 2,720 4% (40%) Commercial 4,453 3,783 3,887 18% 15% Thinktank 133 370 23
Slide 37: Key metrics
Key metrics $m (unless otherwise stated) Units 2H24 1H24 2H23 2H24 v 2H24 v 1H24 2H23 Operating income Distribution 383.7 428.2 343.7 (10%) 12% Key movements Manufacturing 142.2 141.6 142.4 0% (0%) • Distribution operating income up 12% on H2 Central (11.7) (8.7) (8.4) (35%) (39%) FY23, driven by a
Slide 38: Summary P&L
Summary P&L $m FY24 FY23 FY24 v FY23 Commissions 704.1 650.2 53.9 Interest on trail commission income receivable 80.8 82.3 (1.5) Mortgage management services 0.3 0.3 - Key movements Securitisation transaction fees 5.1 4.4 0.7 • Total revenue is up 7% to a record result of Securitisation interest inc
Slide 39: Strategic Investments
Strategic Investments Investment Date April 2018 December 2021 January 2022 FY24 NPAT contribution $2.1m $6.2m $0.5m Carrying value at 30 Jun $36.4m $61.8m $7.6m Current AFG Ownership 32% 83% 100% Commercial / Residential Asset Finance Broker Services Primary income type Net interest on securitisati
Slide 40: Reported NPAT to Underlying NPATA reconciliation
Reported NPAT to Underlying NPATA reconciliation Key movements $m FY24 FY23 FY24 v FY23 Reported NPAT 29.0 37.3 (8.3) • The trail commission adjustment represents the non-cash change in the carrying value of the Amortisation of acquired intangible assets 2.4 2.4 - trailing commissions contract asset
Slide 41: AFG holds $190m in liquid assets
AFG holds $190m in liquid assets and high performing investments Key movements $m Jun 2024 Jun 2023 FY24 v FY23 • Net unrestricted cash of $21m, up from $17m at Unrestricted cash 67.4 60.0 7.4 December 2023, resulting from strong cash Debt facility (46.7) (44.3) (2.4) generation in H2 Net unrestrict
Slide 42: Trail book asset
Trail book asset The table below outlines key assumptions used to value trail commissions Key movements Key Assumptions Jun 2024 Jun 2023 • Trailing commissions are received from lenders on Average loan life Between 3.5 and 4.3 years Between 3.6 and 4.5 years settled loans over the life of the loan
Slide 43: Summary Balance Sheet
Summary Balance Sheet $m Assets Jun 2024 Jun 2023 FY24 v FY23 Unrestricted cash 67.4 60.0 7.4 Restricted cash 154.2 162.2 (8.0) Key movements Trade and other receivables 13.1 15.1 (2.0) Other assets 5.4 7.3 (1.9) • Unrestricted cash, which consists of cash at bank Contract assets 1,137.3 1,139.5 (2.
Slide 44: Summary Cashflow
Summary Cashflow $m Cash receipts from customers FY24 820.7 FY23 767.7 FY24 v FY23 53.0 Cash paid to suppliers and employees (794.6) (749.5) (45.1) Key movements Net Interest received 28.4 46.5 (18.1) • Lower Net interest received reflect lower AFG Income taxes paid (15.7) (12.6) (3.1) Securities bo
Slide 45: Expected credit loss provisions
Expected credit loss provisions • AFG has a strong history of low credit losses, as a result of insights from almost 30 years of data and extensive industry experience • Arrears have historically outperformed the Australian non-bank sector of the AFG Securities LVR over time S&P Global Ratings Mortg
Slide 46: AFG Securities – Loan quality
AFG Securities – Loan quality LVR Loan balance Geographic distribution 1% 3% 7% 14% 17% 10% 9% 29% 14% 33% 53% 32% 24% 26% 28% <$250k $250k - $500k VIC NSW LVR <70% LVR 70%-80% $500k - $750k $750k - $1m QLD WA LVR 80%-90% LVR >90% SA ACT/TAS/NT >$1m 46
Slide 47: Important Disclaimer
Important Disclaimer This presentation contains general information which is current as at 29 August 2024. The information is intended to be a summary of Australian Finance Group Ltd (AFG) and its activities as at 30 June 2024 and does not purport to be complete in any respect. The information in th
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