Australian Finance Group Ltd. · ASX:AFG
Australian Finance — Investor Presentation (February 2024)
44 slides from Australian Finance's investor presentation, Feb 29, 2024
Slide 1: Half Year Results Presentation
Half Year Results Presentation 6 months to 31 December 2023
Slide 2: Presentation Outline
Presentation Outline Item Presenter Pages Performance overview David Bailey 3-6 Market update David Bailey 7-10 David Bailey Operations update 11-18 Financial performance Luca Pietropiccolo 19-26 Outlook David Bailey 27-31 Q&A Appendices 2
Slide 3: Performance overview
1. ABS data 12 months to October 2023 3
Slide 4: AFG's growth is centered on being the aggregator of choice
AFG’s growth is centered on being the aggregator of choice, delivering higher margin products through its national network Our purpose... Fairer financial future for all Delivered through our competitive 3,850+ active brokers advantage… Creating… Competition and choice for brokers, customers and len
Slide 5: Strategic priorities progressing
Strategic priorities progressing Provide market leading Leverage our distribution Grow our broker network technology delivering higher margin Delivering a broader broker network for A differentiated offer meeting customer Uplift capability and efficiency delivering AFG to provide financial products
Slide 6: HY24 Financial Summary
HY24 Financial Summary Quality cash generation and Diversified business model History of delivering strong balance sheet provide provides growth options shareholder value stability to fund growth Underlying NPATA1 Profit before tax Total Shareholder Return3 Operating Cash Flow Underlying ROE1 $17.9m
Slide 7: Market update
HALF YEAR RESULTS Market update
Slide 8: Economic conditions deliver sustained housing market credit growth
Economic conditions deliver sustained housing market credit growth Following record increases, cash rate Unemployment remains well Housing market returned to growth in is forecast to be at the peak 1 below long-term average H1, growing at 0.7x 10 year average RBA Cash Rate Unemployment Rate Housing
Slide 9: Non-banks beginning to regain share
Non-banks beginning to regain share Brokers well placed to continue to grow share TFF funding advantage ending in FY24 Driving non-bank market share rebound, Bank branches close at record pace, Funding mix willadvantage ADI funding become more is expensive which has begun in Q2 enhancing the role of
Slide 10: Growing AFG's broker network as the industry transitions
Growing AFG’s broker network as the industry transitions Broker numbers - Industry 20 AFG’s technology and compliance investment will see it 18 16 take share of active brokers who prioritise growth. 14 Our largest market share is with large groups1 Thousands 12 10 8 6 4 • Broker channel reached reco
Slide 11: Operations update
HALF YEAR RESULTS Operations update
Slide 12: The power of our core asset – our broker network
The power of our core asset – our broker network Our 3,850+ brokers are our competitive advantage, providing access to +500k Australians to distribute higher margin products. Delivering 9% average earnings growth over 6 years through our diversified products Underlying Gross Profit 9% CAGR >75% earn
Slide 13: Delivering services and value through our investments
Distribution Delivering services and value through our investments Investments in Fintelligence and BrokerEngine delivering 250 growth in subscriber numbers in HY24 Technology investment further expanding our broker services – delivering market leading broker proposition • Market share increasing to
Slide 14: Distribution grew earnings by 7% in HY24
Distribution Distribution grew earnings by 7% in HY24 further growth anticipated as market conditions improve Residential Asset Finance Commercial Market has returned to growth Leading technology and significant scale Large market an opportunity for brokers ✓ Residential settlements in Q2 up 5.3% on
Slide 15: AFG #1 Non-bank lender, book returns to growth
Manufacturing AFG #1 Non-bank lender , book returns to growth 1 Despite strong competition from major banks, AFG grew AFGS Lodgements Q2 settlements by 34% 1.5 6% Record cash rate tightening cycle commences 5% AFG Securities (AFGS)2 Billions ($) 1.0 Removal of 4% cash-backs • AFGS maintained its pri
Slide 16: AFG Securities: funding costs reducing from peak
Manufacturing AFG Securities: funding costs reducing from peak Proven history of issuing term outs through the cycle. AFGS Closing Book 6 Structure allowing for growth and optimisation 5 Billions ($) 4 AFG Securities loan book at $4.1bn 3 • Run-off remained elevated at 42% (10 year average 29%) 2 •
Slide 17: AFG Securities: loan book quality maintained
Manufacturing AFG Securities: loan book quality maintained Well provisioned, with proven history of disciplined risk management Half of AFGS customers have an offset sub-account Only $30k losses on $10b settled since 2015 with growing balances Average offset balance ($k) 50 40 Well balanced portfoli
Slide 18: Market leading technology
Market leading technology Technology improvements focused on delivering a differentiated broker experience that meets customer demand for a more efficient digital experience Refreshed technology stack Enhanced digital trust Progressing to direct lodgment Modern API services Multi-factor authenticati
Slide 19: Financial update
HALF YEAR RESULTS Financial update
Slide 20: Financial Results
Financial Results $m HY24 HY23 Variance • Reported NPAT of $14.5m, down 34% Gross profit 1 66.2 76.0 (13)% Trail book adjustment (2.0) (2.4) 19% • Distribution earnings increased $2m, up 7% Operating expenses (45.2) (45.9) 2% • AFG Securities loan book and lower net interest margin Fintelligence put
Slide 21: 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 HY24 $27 M 7% on pcp Underlying ROE 41.2%1 $9 M (54)% on pcp Underlying ROE 12.4%1 -$13 M (3)% on pcp • AFG’s largest segment,
Slide 22: Strategic investments delivered 20% growth
Strategic investments delivered 20% growth $m (unless otherwise stated) HY24 HY23 Var $ Var % Distribution: Growth from diversified products and supported by residential trail book growth Gross profit2 66.2 76.0 (9.7) (13)% • Residential upfront down $0.9m from higher average payout ratio. This incr
Slide 23: Opex investment to support key business initiatives
Opex investment to support key business initiatives Operating efficiencies delivered partially offset by ongoing technology investment Operating costs improved $0.7m year on year, driven by: 50 • Employee costs improved $0.9m following the efficiency benefits of projects delivered 45 • Other opex im
Slide 24: Strong balance sheet and cash generating assets
Strong balance sheet and cash generating assets… Cash flow generation underpinned Conservatively geared by annuity-style income streams Cash & restricted cash Cash flow generation 250 40 200 30 Millions ($) Millions ($) 150 20 100 10 50 - - 2H22 1H23 2H23 1H24 2H22 1H23 2H23 1H24 Cash Unrestricted C
Slide 25: Provides capacity to invest to enhance shareholder returns
… provides capacity to invest to enhance shareholder returns AFG takes a disciplined through the cycle investment approach Cash re-invested into high returning distribution business. to create sustainable shareholder value Further growth of capital investments or inorganic opportunities HY24 Capex L
Slide 26: AFG's investments create a portfolio of growth options
AFG’s investments create a portfolio of growth options Industry Trend Strategic Fit Digital business, provides brokers efficient processes to scale and diversify income Fintelligence Strengthens AFG’s Asset Finance presence, reaching brokers beyond AFG network Optionality to distribute higher margin
Slide 27: Outlook
HALF YEAR RESULTS Outlook
Slide 28: Residential market back to growth
Residential market back to growth Distribution Near term trends January trading update1 • AFG continues to embed itself as providing a crucial service in Residential Lodgements +12% Australia’s financial system: AFG Home Loans white label +109% • Bank branches continue to close at record rates • Dig
Slide 29: With the return of non-bank competition
With the return of non-bank competition Manufacturing Near term trends January trading update1 • After a period of cycling, stimulus induced comparatives, we see AFG Securities Lodgements +98% our market returning to growth Thinktank volumes2 +95% • AFG Securities will benefit from improved funding
Slide 30: 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. Its annuity style cash flows create capacity to capitalise on emerging industry trends generating sustainable shareholder returns. Bigger and Consolidation Tec
Slide 31: Strategically positioned for market recovery and growth
Strategically positioned for market recovery and growth AFG is well positioned, with upward trends Supported by a strategy to increase shareholder returns evident across our business segments Economic conditions improving Growth strategy based on 3 strategic pillars Expected sustained growth in hous
Slide 32: Appendices
HALF YEAR RESULTS Appendices
Slide 33: Settlements and Loan Book
Settlements Settlements $m 1H24 2H23 1H23 1H24 v 2H23 1H24 v 1H23 and Loan Book Residential 28,200 25,031 28,598 13% (1)% AFGHL 1,462 1,272 2,332 15% (37)% White Label1 881 757 1,267 16% (30)% AFG Securities1 582 516 1,065 13% (45)% Commercial 2,389 1,766 2,017 35% 18% AFG Business 28 52 101 (46)% (
Slide 34: Key metrics
Key metrics $m (unless otherwise stated) Units 1H24 2H23 1H23 1H24 v 2H23 1H24 v 1H23 Operating income Operating Income – Distribution 428.2 343.7 416.6 25% 3% Key movements Operating Income – Manufacturing 133.0 134.0 108.6 (1)% 22% • Distribution operating income up 3% on H1 Total Operating Income
Slide 35: Summary P&L
Summary P&L $m 1H24 2H23 1H23 1H24 v 2H23 1H24 v 1H23 Commissions 375.7 291.8 358.5 83.9 17.2 Interest on trail commission income receivable 40.6 40.5 41.9 0.1 (1.3) Key movements Mortgage management services 0.1 0.1 0.2 - (0.1) Securitisation transaction fees 2.3 2.1 2.3 0.2 - • Revenue increased t
Slide 36: Strategic Investments
Strategic Investments Investment Date April 2018 December 2021 January 2022 HY24 NPAT contribution $1.3m $3.1m $0.2m Carrying value at 31 Dec $35.6m $61.8m $7.6m Current AFG Ownership 32% 83% 100% Commercial / Residential Asset Finance Broker Services Primary income type Net interest on securitisati
Slide 37: Reported NPAT to Underlying NPATA reconciliation
Reported NPAT to Underlying NPATA reconciliation Key movements $m 1H24 1H23 Variance Reported NPAT 14.5 21.9 (7.4) • The trail commission adjustment represents the non-cash change in the carrying value of Amortisation of intangibles acquired 1.2 1.2 0.1 the trailing commissions contract assets and T
Slide 38: AFG holds $187m in liquid assets and high performing investments
AFG holds $187m in liquid assets and high performing investments Key movements $m Dec 2023 Dec 2022 Variance Unrestricted cash 65.9 65.3 0.6 • Net unrestricted cash of $16.7m Debt facility (49.2) (46.9) (2.3) • Trail book net asset at $94.2m Net unrestricted cash 16.7 18.4 (1.7) • High performing, v
Slide 39: Trail book asset
Trail book asset The table below outlines key assumptions used to value trail commissions Key movements Key Assumptions Dec 2023 Dec 2022 • Trailing commissions are received from lenders on settled loans over the life of the Average loan life Between 3.5 and 4.4 years Between 3.7 and 4.6 years loan
Slide 40: Summary Balance Sheet
Summary Balance Sheet $m Dec 2023 Dec 2022 Variance Assets Unrestricted Cash 65.9 65.3 0.6 Restricted Cash 144.7 206.9 (62.2) Key movements Trade and other receivables 12.9 12.4 0.5 • Unrestricted cash, which consists of cash at bank Other Assets 9.5 9.0 0.5 and short term deposits, increased to $66
Slide 41: Summary Cashflow
Summary Cashflow $m 1H24 1H23 Variance Cash receipts from customers 412.0 389.0 23.0 Cash paid to suppliers and employees (401.2) (384.0) (17.1) Key movements Net Interest received 14.6 25.8 (11.2) Income taxes paid (11.2) (6.1) (5.1) • Lower Net interest received reflect lower AFG Securities book a
Slide 42: 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 43: AFG Securities – Loan quality
AFG Securities – Loan quality LVR Loan Balance Geographic distribution 1% 3% 8% 12% 16% 10% 8% 31% 14% 34% 55% 32% 22% 28% 26% <$250k $250k - $500k LVR <70% LVR 70%-80% $500k - $750k $750k - $1m VIC NSW LVR 80%-90% LVR >90% >$1m QLD WA SA ACT/TAS/NT 43
Slide 44: Important Disclaimer
Important Disclaimer This presentation contains general information which is current as at 28 February 2024. The information is intended to be a summary of Australian Finance Group Ltd (AFG) and its activities as at 31 December 2023, and does not purport to be complete in any respect. The informatio
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