Good day and welcome to the investor briefing for AFG 2024 half-year results announcement. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press * followed by the number one on your telephone keypad. If you would like to withdraw your question, press the * one again. For operator assistance throughout the call, please press star zero . And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome David Bailey, CEO, to begin the conference. David, over to you.
Thanks very much. And thanks, thanks everyone. I appreciate you joining Luca and myself as we walk through the half-year results. As some opening comments, I'd like to say that after three reporting periods of results impacted by knock-ons of the pandemic, be they TFF, cashbacks, and deposit arbitrage for our lending business, as we round the half and enter the 2024 calendar year, we're seeing signs of optimism. Lodgement and activity for our white-label business have increased year on year on year, and importantly, our AFG Securities volumes are running at double what that was experienced in the same time last year.
Our AFG Securities Book has stabilized, and we've moved our focus from NIM protection against a backdrop of sub-economic new business rates and cashbacks to one of book retention and growth, albeit at the expense of some NIM. While competition remains strong for customers, we have found niches returning that allow us to compete more robustly. At the same time, we're experiencing growth in our distribution business segment with all the asset classes we have focused on. The background thematics for broking remain very strong. Australian customers continue to seek the advice, choice, and convenience of brokers, and as a consequence, broker market share continues to build. Last year, APRA statistics highlighted 424 branch closures to 30 June 2023. During this time, the need for choice and advice for the majority of Australians whose most important financial decision is buying a house increased.
Our business model is built on good brokers becoming busier, and on the back of this, our shared outcomes model is proving sustainable in the marketplace with good recruitment activity ongoing into calendar 2024. We are investing in technology, compliance, product diversification, and our people to create a stronger business in readiness for what we expect will be a transition in the industry. As with the residential market, brokers are growing their footprint in the commercial and asset finance market, and our strategy of supporting brokers into these new areas is driving new volumes. With all this in mind, we are mindful of the ongoing strength in the Australian economy, and as such, continuing to diversify our earnings base remains a key plank of our strategy.
So if I might just go straight to the investor presentation, and I'll open the batting on page 3. You can see there our portfolio of businesses is not just AFG, but it's Thinktank, it's Fintelligence, BrokerEngine, and of course, AFG Home Loans. So the Australian mortgage market, 72% of all residential mortgages in Australia are written through a broker. AFG represents 1 in 10 of all mortgages written in Australia are written by an AFG broker, and 500,000 customers are helped by an AFG broker. So our business is supported by a AUD 209 billion trail book, which spins off strong annuity cash flows. Our interim underlying NPATA for the half was 18%, which drove an underlying return on equity of 18%. AFG's growth is centered on being the aggregator of choice, delivering higher margin products through its national network.
Our purpose is to find a fairer financial future for all, and it's delivered through over 3,850 active brokers. We're creating competition and choice for brokers, customers, and lenders. The three pillars that we build our business around is growing our broker network, providing market-leading technology, and leveraging our distribution to deliver higher margin products within that distribution through our segments of distribution and manufacturing. There's more disclosure, which Luca will talk about, in the accounts around those two, two business segments. Our strategic priorities are progressing. We're growing our broker network, a 14% increase in settlements with 87 new broker groups recruited. Half of these are expected to be larger groups. As I referenced the trail book before, so 65% of our underlying earnings come from annuity-style income streams.
We've increased during the period our investment in Fintelligence and included an additional AUD 3 million in compliance and data security. The products we provide market-leading technology, through our own proprietary technology as well as our BrokerEngine technologies. We've had an increase of 408 subscribers to recurring revenue streams. We've progressed direct lodgment delivered through new broker functionality and invested AUD 9 million in enhancing our technology platform, which is adaptable to evolving broker needs. Our managed manufacturing book sits at AUD 4.1 billion. During the period, we had a AUD 750 million RMBS issuance. There continue to be no losses incurred by AFG Securities on the book, and we've delivered a new flexible lending platform to drive efficiencies and opportunities to create products more flexibly at a faster rate.
Our profit before tax for the first half of the 2024 financial year was AUD 22.6 million. Our balance sheet discloses AUD 66 million worth of unrestricted cash, and our investments in liquid assets sit at AUD 187 million. Our total shareholder return for the period is 15%, and we have paid in the half AUD 11.1 million in dividends, and our dividend payout ratio sits at the higher end of our interim revised number at 60% of underlying cash earnings. If I jump to page 8, we can talk a little bit about the economic conditions. These are all well documented throughout the market. Obviously, we've seen the cash rate jump over a period of time, but it seems to have stabilized at the moment. That stabilization is driving more inquiry with our brokers.
Unemployment, which is a key statistic not just for customers' moods, but their ability to pay home loans and service home loans, remains well below the long-term average. And importantly, the housing market has returned to growth, and is above the 10-year average. What all this transpires to mean is that we're seeing non-banks become more competitive in the marketplace, and we're gaining some of the share they lost during the pandemic and liquidity-infused period, which drove some unusual market dynamics. So we've seen predominantly most of the cashbacks withdrawn from the marketplace. And again, as I highlighted previously, the overriding thematic is bank branches are closing at a record pace, which is enhancing the role of the broker channel. The market share has jumped 4%-72%, which is in line with a historic high.
The rate of change in the market and price competition, which still exists, supports the broker proposition of providing guidance and choice to customers. A little bit on page 10 around our broker network. We talked about that 72% inactive brokers indicate coming consolidation into the marketplace. So that chart on the right-hand side. We measure our activity of our brokers, our numbers of brokers by activity in terms of they've actually got to be active in the marketplace. Importantly, we have 24% of all large broker businesses. And what that means is effectively it supports our proposition that good brokers will become busier. The inactive brokers will ultimately move out of the marketplace.
And so the build of a technology and services, to provide that tools to our brokers to become those enable those brokers to become more efficient and meet changing customer digital demands, is underlined. We've invested AUD 3 million, as I said, in compliance and data security, recognizing the important role our brokers play, sitting between ourselves, the customers, and our financial institution partners. Just jumping to page 12, we talk about the power of our core asset, which is our broker network. It's delivering a 9% average earnings growth over the six years through our diversified products. 75% of our earnings now are coming from diversified products. We have our AUD 4.1 billion loan book, which has stabilized and is beginning to turn to look towards growth. There's no losses incurred on that book.
And then we've got our Distribution Business, which is obviously our AUD 209 billion trail book, of which a subset is our AUD 13 billion white-label business. During the year, the full year to 31 December 2023, we achieved AUD 3 billion in asset finance through our existing AFG broking, as well as our Fintelligence business, and the broker service margin sat at around about AUD 21 million. We're delivering services and value through our investments. Our market share is increasing to 21.1% with net broker growth of 50 in the first half of 2024. We have dedicated programs to support our brokers and create pathways. The charts on the right identify the improvement and growth in our BrokerEngine and our Fintelligence broker businesses. And that sort of underpins some of our growth strategies moving forward. 30% of BrokerEngine subscribers are non-AFG.
As we build and prove up our technology through our own network, they become opportunities for future recruitment and, and obviously, additional subscription revenue. Turning to page 14, distribution grew earnings by 7% in the half, which is further growth and further growth is anticipated as market conditions improve. These market conditions we are seeing in January and in February. We've embedded within residential, we've embedded a new AFG Home Loan product in Brighton, and AFG Home Loans white label has grown its market share in the second half of FY24, and that momentum is built into the third quarter of this financial year. Our asset finance business, which is supported by, Fintelligence, obviously, and also our existing business, but it is still growing and achieving significant scale.
Fintelligence settlements grew over 10% in the second half, leveraging the market-leading technology and investing in our sales force. We've also introduced a spot and refer model, which is moving out of pilot mode, and is achieving great levels of initial success with brokers who would prefer to refer asset finance deals to a trusted partner as opposed to a third party. Commercial's also an important area of growth, and we've introduced. You can see the level of activity that she's building. So if 72% of originations are in residential via broker, we think it's around 20%-30%. But as you can see, we've grown our settlements by 35%, within the commercial sector, which is also including the Thinktank white label business.
We've also launched Partner Connect, which is a spot and refer program for our brokers who don't want to write a commercial deal but are happy to refer similar to the asset finance spot and refer business, happy to refer that deal to a trusted partner. In terms of AFG Home Loans, and sorry, AFG Securities on page 15, there's some commentary there. It's the book's returning to growth. AFG maintained its price discipline and focus on high quality, which is being seen in our risk statistics now. But the end result was we became less competitive in as the banks capitalized on their funding advantage. That removal of sub-economic cashbacks has started to see AFG settlements grow in the second half in quarter two of FY24 and also into the third quarter of FY24.
Product development is continuing to be a focus. We have launched, and I launched Retro Thrive, which targets the over-50s product with a first-in-the-country, interest-only 40-year home loan. Our investment in Thinktank we've seen Thinktank grow, their book to AUD 5.5 billion, since, and reminding that at the time of AFG's investment back in 2018, that book was sitting at AUD 800 million. Their name, just like ours, has been impacted by rising costs of funds in this stage of the funding cycle, and as a consequence, their contribution to our earnings in FY for the first half is lower at AUD 1.3 million. In terms of page 16, we talk about our funding costs. While the runoff remained elevated in the first half at 42%, we are seeing as I said, we are seeing signs of that stabilizing.
Again, we're talking about it returning to growth in the second half of the first half, so the second quarter. That makes it pretty easy to say that. We've got three warehouses available, which have increased their costs significantly year-on-year during the period. So we're still washing those through. But the positive sign is that funding costs have peaked and starting to come back. Our exit NIM of 111 basis points is a reflection of that higher level of funding costs but also a decision for it to move from margin protection to book protection on the basis of seeing those green shoots in the marketplace. If I move through to page 17, we talk about the quality of the book.
So just a reminder of our book, and you can see our arrears, our 90-day-plus arrears on the right-hand side there, which sort of stands out as being a very conservative book. So, a reminder that 75% of the book sits in prime mortgages. All 42% of the balances are below AUD 500,000, and 87% of the balances have an LVR below 80%. And a reminder also that anything that originated above 80% LVR requires individual LMI policies to be in place. Our arrears have increased following the pandemic credit expansion and lower loan book, but arrears have since decreased to 1.6% across the book. No losses in the first half with cumulative loss history across 15 years totaling just AUD 260,000. Despite this impressive result, we've maintained our provision from a prudence level, our loss provision at AUD 3.3 million.
Our market-leading technology is one of the cornerstones of our recruitment activity and our ability to drive efficiencies throughout our business over the longer term. Our Refresh Technology Stack will provide a modern API services on a cloud-native platform, and the CRM, Flex CRM has been we've upgraded the interface. We've enhanced our digital trust. All brokers now have multifactor authentication as they log into our proprietary systems. And we've also included and introduced 24/7 365 eyes on glass monitoring and response of our site of our systems. And we're progressing our main thrust of our technology build is around direct lodgement via BrokerEngine, and so far we've included two releases of which have been favorably received.
From the asset finance perspective, we have our Partner Connect platform, which has launched, but we've also progressed Ambition Cloud version 3, which is the proprietary technology for our brokers, which will include a better customer experience with a bit of digital experience for those brokers and customers who are using that platform. Working a lot now. I will pass across to Luca to talk about the financials.
Cheers, Dave. I'll start on slide 20. As Dave mentioned, it was as anticipated. It's been a very challenging first half from a numbers point of view, but it is one in which the benefit of our diversified income streams and our annuity-style earnings came to the fore. The earnings we make from these diversified streams are now more evident with the new reporting segments.
The segments align to the way we allocate capital and manage the risk. For those of you that were at our December update, these new segments align to those reported on then. Overall, our NPAT for the half was AUD 14.5 million, down 34% or AUD 7.4 million. There were two stories within that, though. Our core higher-returning segment distribution, which is our aggregation services, delivered a profit before tax of AUD 27 million, up 7%. The segment delivered a return on equity of 41%. It has been well-reported the pressure that non-bank earnings were under, driven by a range of factors, and that has really underpinned the decline in our result, with our manufacturing segment down AUD 12 million for the half. This includes our 32% share of Thinktank's earnings. Pleasingly, and as David mentioned, the sub-economic competition driven by the majors has ceased.
Funding costs appear to have peaked, and that, combined with product innovation, meant we saw a stronger end to the half, which has continued across January and February. You will notice that the tax expense was higher this period. This was driven by a non-cash adjustment associated with our option valuation. It was a one-off adjustment and won't be repeated. As you would expect, our operating expenditure for the half, we recorded a reduction of AUD 1.12 million, and I'll cover that reduction in more detail shortly. The final point to note on slide 20 is our underlying NPAT A. You'll see that the trail commission adjustment is lower than this time last year.
While we continue to see historically high levels of runoff as a result of record expansionary, then record contractionary monetary policy, unprecedented levels of cashbacks, and the flow and impact of elevated levels of mortgages, which have now largely transitioned to variable, the runoff rate did step down in the half, and we would expect that trend to continue. We have declared a fully franked dividend of AUD 0.04 per share, which represents a 60% payout ratio. The ex-dividend date is 7 March, and the dividend will be payable on 25 March. Turning to slide 21, this slide summarizes our new reporting segments. Focusing first on distribution, which is our core business, it provides strong returns underpinned by our annuity-style income generated from the trail commissions. The segment generated AUD 27 million of earnings and, as I mentioned previously, was up 7% year-on-year.
The cost-to-income ratio of this segment, as you would expect, is a little higher given the sales force, and for the half, was at 45%, although an improvement on the previous year. I'll talk more about it in the coming slides, but the Distribution Business is the focus of our current investment cycle, and as you can see on this slide, we expect to see a decent return from that investment in time. On Manufacturing, which is our securitization program, this is where we take the credit risk. The earnings of that segment are materially down on the prior period, and for the half, were reported at AUD 9 million. Consequently, we saw returns significantly reduce. The CTI of that segment was 62%, affected by the lower net interest income.
Central services, which reflects the centralized costs providing services to both our distribution and manufacturing businesses, reported costs of AUD 13 million, which was 3% higher than the previous year driven largely by project activity in our technology space. On the next slide, the slide shows the gross profit we generate from our business segments. Overall, gross profit was down AUD 9.7 million to AUD 62 million, again, almost entirely driven by the impact of lower net interest margin, which was down 11.6. With our distribution business, which represents 82% of our gross profit, our earnings are split across three key drivers. Firstly, our residential trail and upfront commissions, which contributed which combined declined by AUD 1.5 million as the payout ratio continued to lift, and for the half, was at 96%.
The second driver is the higher margin income we generate from our broker network in white label and other asset classes or via subscription income. Our white label business had a particularly soft beginning to the year, and first quarter volumes were down 30% as our partners focused on volumes from their proprietary channels. As we have reported, though, our white label volumes are recovering, although they are still well off their peaks. The third is obviously our investments in Fintelligence and BrokerEngine, which continue to outperform our internal expectations. They reported growth of 20% for the half. On the payout ratio, I'll just spend a couple of minutes here because I'm sure there will be some questions. The payout ratio is driven by the mix of our settlements, with there being a wide range of payout ratios primarily driven by the size of the broker group.
As you know, we over-index in large groups, and that is because of the full service offering we provide. In turn, it does mean when our white label and securitization projects and products are more competitive, we'll see a notable benefit to our integrated margin. These larger groups are also more likely to benefit from the efficiency benefits that will be delivered through our technology investments and, in turn, increase broker services income for AFG. The final point on this is that you can see that settlements were slightly down for the half. What we would expect is, as settlements start to lift, as we saw later in the half, is that those higher volumes will provide some support for the commission income line. As commented in December, we do see a natural ceiling in the payout ratio.
It is important for our brokers that we make money to reinvest in their businesses, but it will move around depending on which of our broker groups are delivering the settlements. To NIM, I'll cover this off quickly given how widely it is analyzed and reported on. The NIM rate was 116 basis points. As David mentioned, we saw some positive signs with how this might move, but our next warehouses are not due for renewal until May 2024. It's also worth mentioning that our second half NIM in FY23 was 127 basis points. On slide 23, our operating costs overall saw a decline, but there are a few moving parts within that. If I adjust for the one-off project costs, we would have seen a decline of close to AUD 2 million year-on-year or just under 5%.
AFG isn't alone as it continues to uplift its technology capability and is therefore experiencing an increase in technology costs. I anticipate these costs will continue to experience upward pressure. The encouraging thing, though, is that we think there are a number of initiatives that we can look to offset that pressure. In the charts to the right on the slide, you can see that outside of IT costs, we saw a decline in all other cost categories. Turning to slide 24 and our balance sheet and cash flow, as you know, AFG has a very strong cash-generating asset base, and we have AUD 187 million in cash and other liquid assets. This puts us in a great position combined with our higher-returning distribution business to find opportunities to invest for our brokers to improve not only their businesses but also for our shareholders to grow their returns.
The chart on the right shows that we traditionally have a very high Cash Conversion Ratio. This half, the timing of tax payments meant that we reported a fairly low conversion ratio by our standards at 80%. This timing impact will unwind in the second half. The orange and pink bars at the end of the chart show why we made the decision to temporarily reduce our dividend payout ratio to 50%-60% for the 24-month period as our CapEx requirements lift in the near term. I'm on slide 25. The slide shows the disciplined approach we take to deploying our capital and where we have spent our CapEx in this period. If I focus on the chart to the right to begin with, across the half, we have spent AUD 10.3 million on enhancing our technology position.
The majority of that spend is outward-facing to brokers, and as David mentioned, there has been some good progress made. In addition, we invested a further AUD 10 million on increasing our holding in Fintelligence and BrokerEngine, and you saw earlier the strength of those businesses. As I mentioned on the previous slide, we did temporarily reduce the dividend to reinvest that cash into enhancing our broker proposition and positioning the company for future growth as the industry starts to transition. We have a very prudent approach to the way we look at our investments and manage our capital. We look at it through three lenses shown on the left of the page. The investments we make need to demonstrate that they will move AFG forward against each of these, and as you would expect, capital investments need to exceed an internal rate of return.
Finally, I'm on slide 26, and I did just want to take a minute to demonstrate the criteria I spoke through in action and the outcomes of that discipline coming from our more recent and significant investments. The slide shows to the left the key investment, the industry trend that we are in taking advantage of, and how we are realizing the benefits of those investments. Clearly, we are further advanced with some of these investments like Thinktank, which we invested in 2018 and has a carrying value of AUD 33 million. Its loan book is AUD 5.5 billion, and last year, its share of earnings was AUD 6 million. The returns on this investment are clearly very strong. On Fintelligence, we spent some time talking about the strength of that business in December and its market-leading position underpinned by its technology.
It is outperforming our investment expectations, and with settlements now in the asset finance space exceeding AUD 3 billion, we are looking to leverage that further and, in line with our strategy, deliver higher margin either through white label or manufacturing. BrokerEngine has provided us the technology platform to deliver our industry-leading direct lodgement solution. We are partway through that now and expect that investment to deliver a range of benefits in the near future. With that, I'll leave it there and hand back to Dave.
Thanks, Luca. I'm just going to go to page 28. So effectively, in summary, you know, the key takeouts for us is the reset, we believe the residential market is back to growth. AFG's near-term trend is we continue to embed ourselves as providing a crucial service in Australia's financial system. Bank branches continue to close at record rates.
Digital direct remains centered on simple approvals only. Regulation and compliance expectations will continue to lift, and customers will continue to seek a personal, convenient experience that provides competition and choice in a very complex marketplace. There's been growth in property prices and settlement activity driven by record migration, strong employment, and interest rates reaching a peak, and these will underpin credit growth and settlement activity. Our brokers are reporting a high level of inquiry. We'll continue to benefit from expansion into higher growth and margin asset classes as well as new recurring revenue streams. To the right, you can see the January trading update. I'm pleased to say that that trend has continued into February as being very, very positive. With the return of non-bank competition, the outlook for our manufacturing business becomes more positive.
After a period of cycling stimulus-induced comparatives, we see our market returning to growth. Final TFF payments have occurred or are occurring, replacing near-free funding with higher-priced alternatives, and funding costs appear to have peaked, but NIM remains under pressure while competition remains intense. We expect our Thinktank investment will continue to grow as these markets improve. Again, a January trading update on the right-hand side, the pleasing impact is that for February, those numbers, that trend has continued. On page 30, we talk about AFG's place: how the role AFG plays in the financial system. You know, one in 10 residential mortgages written in the country are coming from our brokers, spread throughout the country. You know, we believe, our business or our brokers will become bigger and busier. We believe consolidation is coming in the broker market. It's fragmented with an aging demographic.
There's increasing fixed cost regulatory technology as well as insurance, and technology enabling broker organizations to grow faster becomes important. That technology is being provided by organizations like ourselves to provide compliance and cybersecurity requirements but also our customers' increasing demand for a digital experience even with their local broker. Diversification is critical. Residential growth has kept brokers busy. Commercial and assets are our opportunity to continue to grow broker earnings and provides a broader offering through their services to ensure customer retention. Our strategy, and we believe we're well-positioned for market recovery and growth. As the economic conditions improve, as the return of non-bank competition, broker is structurally critical across the channel, and AFG's diversity, product diversity, which is generating 75% off the back of strong cash flows and a conservative balance sheet, will pay dividends in the longer term.
Our growth strategy reminder is based on three strategic pillars: grow our broker network, provide market-leading technology, and leverage our distribution to deliver higher margin across the businesses. On that note, I will pause and take any questions.
Thank you. And we are now opening the floor to questions. If you would like to ask a question, please press star followed by the number 1 on your telephone keypad to raise your hand and enter the queue. If you are using a loudspeaker and selected to ask your question, kindly switch to your handset to ensure your question is clearly heard, and please limit to one question and one follow-up. If you have additional questions, please re-enter the queue, and we will address them as time permits. And your first question comes from the line of Tim Lawson from Macquarie. Your line is open.
Hey, guys. I'll start with just one question. Just in the distribution segment, guys, can you just help us understand that obviously, Resi settlements are broadly flat, but the higher margin, white labels, you know, down materially, and the front-book payments up. You're just reporting growth in that segment. Can you just try and sort of unpack exactly what's going on there?
Thanks, Tim. Morning. The primary driver of the growth in that segment, I guess, is the investment that we made in Fintelligence and BrokerEngine. We've seen a reduction in the OpEx in that business as well. The thing that's offsetting those two positive drivers is that sort of headline reduction in the residential business, which is sort of down 1.3. And outside of that, we've obviously restated the segments, so the headline number relative to last year's segment would be significantly stronger. And what we used to do was in the aggregation segment, as it was reported, would we record all the sort of shared costs between the distribution business and the manufacturing business. We've now pulled those out and put those into the central services pillar. So hopefully, that answers your question, but feel free to have a follow-up.
Yeah. So, yeah, just a follow-up. So can you maybe just sort of quantify that reallocation? And I assume you've restated the PCP, so the growth's not, it's an apples-to-apples comparison. Is that?
Yeah. Yeah, that's right, mate. Probably the best proxy is that central services pillar, which was reported at negative AUD 13 million, that largely represents what would have been stripped out of the distribution and across. So on a.
Yeah.
Although it's a bit crude, on a previous like-for-like, the distribution business would have held fairly steady.
Right. And you've talked about sort of services that you charge outside that segment before, sort of below that gross profit line. What are you doing with those sort of income lines? Have they been moved as well, or any of those been moved?
So they were always in that segment, Tim, that aggregation services segment. And they're reported.
Yeah.
Probably slide 22 is the best one to focus in on. That shows the gross profit number that comes from those broker services, which was reported at slightly down year-on-year at 10.5 versus 10.9. I think within that, there's a couple of moving parts. The primary thing is the timing of our events. Those events create some noise. So if I stripped out that noise, we actually would have seen a 9% increase in those revenue streams year period on period.
Right. Okay. I'll jump back in the queue.
Before we continue on to the next question, a reminder: if you would like to join the queue to ask a question, please press star 1 on your phone keypad. And your next question comes from the line of Tim Strong from Citi. Your line is open.
Oh, good morning, guys. Thanks for taking my questions. Just given we're further into the reinvestment program with AUD 10 million capitalised in this result, I was just wondering if you could provide a sense of, you know, the total investment spend and how quickly that'll amortize through the P&L.
Thanks, Tim. Morning. So, so I guess, in the half, we spent 10, as Dave mentioned, where we've made some really good progress. We'd expect that we'd spend another decent amount through the second half of this year. And then that will sort of bleed into financial year 2025, but then that core part of work would be done and would move more into sort of a BAU technology spend.
Yes.
In terms of how quickly that then amortizes, it'll depend on the technology components, but we tend to look at a lifetime of 5-8 years.
All right. Great. That's, that's helpful. And in terms of your, I guess, confidence in getting a return on this spend, I mean, are we most likely to see this come through, I guess, the other income lines in, in Fintelligence and BrokerEngine and broker services as, like, a service model? Is that the way to think about it?
What it will do, Tim, is it'll come through in both levels. It'll come through because the proposition will be a stronger proposition for recruitment. So the distribution, you know, we'd expect it to accelerate some levels of recruitment into the network, but also that you are right, the actual other fees and services for use of that technology and services will also increase.
Yeah. That's great. Thanks, guys.
Yeah. There's a follow-up question from Tim Lawson from Macquarie. Your line is open.
Thanks, guys. Just in terms of the nim outlook, obviously, you've given us an ex nim, which is really helpful, but how are you seeing sort of nim's given sort of current funding and competition? Is 111 a reasonable base?
I think so, Tim. I think it's a reasonable base. You know, we're done with our funding costs largely for the year, so the next time we go to market there will be in May. The big unknown is obviously competition. Dave sort of mentioned where we're finding niches to try and expand that NIM, but I think that the 111 is a pretty reasonable base. I don't know, Dave, if you wanna add anything to that.
Yeah. I reckon I think, 111 is the reasonable base. I think the, the I hate to use the word pivot, but the pivot that we've sort of done over the last two months in particular before the end of the financial year, which we're starting to see some signs of, is moving away from and this is really driven from that market, the market economics, from NIM protection to book protection. So, you know, there was a phase there for probably about 15-18 months where there was just no point trying to match, you know, Big Four lender pricing. And remember, you know, we talk about 75% of our book is prime, right? So we were faced with a heightened level of competition.
We are now seeing that we can actually retain some of those customers that we've got, so we're starting to see the runoff slow down, but that's at the expense of a little bit of NIM but not, not horrifically so.
Great. Maybe two follow-up questions to that. In your earlier comments talking about sort of the book growth, you talked about sort of growth niches. Can you just—I mean, you based on your sort of 95% prime comment, can you just talk us where your book mix is?
Yeah.
Is that helping the NIM a little bit as well in some sense?
It's, it's supporting the NIM, Tim. But the, the niches you know, we've seen some really good, starting to see some good flow into that self-managed super fund model, product. We're actually seeing some we've got a, a product called, Retro Switch, which is that dollar-for-dollar refinancing using, a, a lower buffer for existing customers, with no cash out on that loan. So basically, those customers looking for a better rate, but not having a, a high level of buffering applied but given that they've been in that loan for a number of years, and they're already servicing at that level. So from our from our perspective, that, that is the area where we're growing and also some of the investment, investment lines that we're writing. So in other words, investment property.
Yeah. Okay. Just with that, that NIM at sort of 111, and the sort of loan life you've got, I mean, just the economics of the securitization segment. I mean, obviously, you've made the restatements, and you've got disclosed numbers, but you're paying, you know, more than half of the first year NIM out to brokers, and then you know, your loan life's well under three years. You obviously got a cost-to-income ratio against that NIM.
Yeah. Well, it's competitive. We're in a window at the moment, but we're still at the upside in our securitization business, Tim. We've invested in the technology platform, which will take cost out in terms of processing and double entry. Yeah. Look, the economics are still sound. It's still generating a return on equity for us.
Okay. Thank you.
That does conclude our Q&A session for today. I'd like to hand back to David for closing remarks.
Appreciate everyone joining us today. Hopefully, we'll see a number of you on the road in the next coming weeks. So thanks very much.
This concludes today's conference call. Thank you all for joining us, and enjoy the rest of your day. You may now disconnect.