I would now like to hand the conference over to Mr. David Bailey, CEO. Please go ahead.
Thanks very much, and good morning, everyone. I'm here today in Perth with our CFO, Luca Pietropiccolo. Luca. You'll hear from Luca shortly. In the interim, what I might do is just walk through at relative pace some of the highlights within the presentation itself, and then Luca will talk about the financials, and I'll come back and do a little bit of a wrap-up around that with some commentary around what we're seeing in the market at the moment. So before I get started, I will just call out the pages I am on within the presentation, and hopefully you can follow along. So moving to page three, straight away. So, two thousand and twenty-four represents 30 years for AFG, so it's our 30th year birthday.
And it's a business which has grown from success to success since it started in the early days within Perth, Western Australia. So those thirty years gives us experience in financial services, and it's proven through. It's a business model which has been proven through the different market cycles we've been experiencing. We now have over four thousand brokers within the AFG group. Now, the brokers are our core asset, and they operate in a residential and our commercial mortgage market these days within Australia, which is over AUD 800 billion in size, and has proven to be relatively resilient with strong economic momentum. Our portfolio of investments operate across the value chain within finance, and so they include Thinkt ank, which is in the commercial mortgage and securitization space.
Fintelligence, which is in the asset finance, broking space, and of course, BrokerEngine, which provides, tools for our brokers to make them more efficient and look after their customers in an increasingly digital manner. In terms of the broader mortgage market, the mortgage brokers now share 74% of all originations flowed through the Australian market from a residential perspective. AFG is responsible, or AFG brokers are responsible for one in ten of those mortgages. Our trail book through that history has continued to grow, which represents the twentieth consecutive year of book growth. That trail book, which provides predictable cash flows, sits at around AUD 214 billion. AFG Securities book, which is part of our manufacturing segment, it's pleasing to announce that that book has returned to growth.
That sits at the year-end at AUD 4.4 billion. Our brokerage services, we have around about 5,000 brokers subscribing to some of our technology services, which represents significant growth over a period of time. Quickly turning to page 4, this strategy hasn't changed over time, particularly over the last 5 years. AFG's strategy continues to be the aggregator of choice, not just for our brokers, but also for our lending partners, and it's delivering higher margin products through a national network. Our catchphrase is, "A fairer financial future for all." We'll do that via our strategic pillars, which includes growing our broker network, providing market-leading technology, and delivering higher margin through our distribution. Through those segments, which I've just mentioned, distribution and manufacturing.
Distribution this year represents 78% of FY 2024 gross profit, and manufacturing, of course, is the balance at 22%. Jumping straight through to page six, some of the highlights we talked about previously, the 74% broker share. It is the preeminent and dominant channel across the market. 74% remains the record high. We talked about our 4,000 brokers, which helped sustain our footprint across the marketplace. Our residential loan book is also at a record high of AUD 200 billion, and AFG Securities is well-positioned now as the funding and competition cycle returns, and I'll touch on that shortly. Excuse me. The financial highlights, which Luca will talk to very, very shortly, includes a AUD 54.1 million distribution earnings, which is up 20%.
13% increase in broker subscription and the Fintelligence gross profit increased by 7%, and overriding across the business, there's been a AUD 3 million cost reduction in operating expenses. Our manufacturing business is well documented, as most non-banks have had issues with competition and funding costs across the marketplace. There's been a real story of two halves. We've seen over the last six months, us taking the decision as the market and level of competition has started to turn back to more normal cycle, more original cycle.
We've started to see originations build in that part of the business, and of course, our investment in Think tank has been impacted by the similar features as our secur-- our own AFG Securities business, and therefore, our contribution or our 32% earning contribution from that part of the business has been impacted because of those market conditions. If I jump to page nine, the three strategic pillars, we think we've made really good progress over the last six months and gives us some optimism about where the future looks over the next two years. We'll continue to grow our broker network. AFG's share of the broker market has continued, has been supported by record recruitment for the period.
We've introduced a concept or a new business strategy called Partner Connect, which ostensibly is spot and refer, and we are starting to see over three hundred and fifty brokers have already signed up to that, where, you know, we will help fulfill transactions on their behalf, generating additional margin for that broker, but also for AFG. And there's been a 122% increase in brokers using Fintelligence since we acquired that business just over two years ago. Our broker-leading technology proposition, you'll remember, eighteen months ago, or twelve to eighteen months ago, we said that we were going to undertake a level of investment within our technology part of our business.
I'm pleased to say that we are over the hump of that, and we are looking to but we will continue to look to improve broker efficiency. Our first to market proposition with BrokerEngine Direct is on track to be delivered in this half of FY 2025. We'll continue to invest in Fintelligence market-leading platform, and that will be launched in an updated version, similarly in first half of FY 2025. We have around 1,400 subscribers in the FY 2024 to recurring revenue streams, including market-leading compliance and market services. Our other strategic pillar is around delivering higher margin through our distribution. Our manufacturing book, in terms of AFG Securities, has returned to growth, reaching AUD 4.4 billion, which is up 8% on December 2023, and we're continuing to deliver alternate lending products.
AFG Securities has three times the market share of the nearest non-bank lender within our panel, and we feel as if there are other opportunities for us to continue to grow that aspect of our business. On page ten and eleven, there's some summary around economic conditions. I think the market has been well inundated with people's views on the marketplace. It suffices to say, the things that we are focused on is in terms of inflation. We're starting to see the impact of the cost of living. The cost of living continues to impact, but we are starting to see this trend down across the market. Unemployment is increasing, however, it's well below the long-term average, and whilst some uncertainty remains, cash rate reductions are expected in two thousand and twenty-five, all things being equal.
And so all of that leads to a return to growth and a positive outlook. On page 11, we talk about confidence in the housing market, and the index is there. The annual house price growth part of the market is solid, and it's just driving a increased level of credit growth across residential and commercial. On page 12, we talk a little bit about the market's broker share. So it is the preferred distribution channel in the residential market. AFG continues to embed itself as a provider of crucial services in the Australian financial system. If you look over the last six years, 2,100 branches have closed, including 800 in regional areas, so lenders are increasingly relying on the broker channel.
Brokers provide, and we've always known this, a trusted support to customers and local communities, and the demand is growing for aggregators that provide leading compliance and effective services supported by technology, which fits nicely into our strategy around our technology builds and refreshes. The delivery of our new broker technology will enable our brokers to continue to grow efficiently, and as a result, we expect to continue to increase broker numbers within the AFG network. In terms of the market conditions for the non-bank market share, there's a slide on page 13 which shows the start of the bounce back of non-bank activity in the marketplace, which is really benefiting from improved funding conditions.
The TFF had a obviously had a funding advantage as well as deposit books, but we're starting to see front book-back pricing differential close to near just around nine basis points, remembering that that was peaking towards 52 points. And so the positive trends in the funding market and cash rate reductions expected in FY 2025 just increase the level of confidence we have around the AFG business model and in particular, AFG Securities as a non-bank lender. So we'll continue to invest.
What our strategy has been over a period of seeing book decline is continue to look to grow that AFG Securities book, which will mean we'll use some of those funding cost benefits that we've achieved over the last two to three months, being contributed towards a book growth strategy to provide longer-term earnings benefit as opposed to short-term gains. On page fifteen, a little bit more around our broker network and some of our recent investments. We're very pleased with both our investments in Fintelligence and in BrokerEngine. You can see down the bottom of those slides, the number of users that Fintelligence Ambition Cloud has driven over a period of time, and the continued growth in BrokerEngine subscribers.
Those BrokerEngine subscribers are up 140% since acquisition, and BrokerEngine is the key linchpin of our technology strategy, which is all driven around providing our brokers with more time and creating higher levels of efficiency in the way they process and work with their customers, in a more and increasingly more digital manner, still providing that choice and competition to Australian consumers. Slide 16 is an important one, where we talk about increasing average earnings per broker. So we're over 4,000 brokers being the core of our business model. Diversification has driven growth in AFG's gross profit by about 9%. You can see there how that's been broken down, broken up.
We're generating 36,000 gross profit per AFG broker in FY 2024, 74% of earnings from diversified products, and the pie chart on the right demonstrates some of those, the diversification of the income that's being driven. Residential volumes over the period of start have demonstrated solid momentum. In particular, we have experienced strong quarter four lodgements, which have really continued into the new financial year. And some of that's been supported by recruited broker volumes. So, in other words, those brokers that we've recruited over the last 12 to 18 months are starting to hit their straps in terms of new originations to the AFG network. The middle chart there talks about the large broker, large groups, which generate significant scale.
Small and medium groups still represent 60% of our volume, but larger broker groups settle ten times more than the average, and recent recruitment as an indicator of seven large groups is expected to generate over AUD 2.5 billion in settlements on an annualized basis, so that fuels our level of optimism as we move into FY 2025 and beyond. While the payout ratio has increased to 96%, we must remember it includes a shift towards larger groups, which then generate higher payout ratios, but as we talked earlier, and Luca will talk about as well, the average generation of income per broker is on the increase. Our residential loan book now sits at AUD 200 billion, which, as everyone would know, generates a stable annuity revenue stream.
And importantly, runoff has improved. So what we're seeing in terms of the broader dynamic in the marketplace is that the level of refinances has started to soften. We're seeing runoff improve. It was at 35%... it's at 35%. It was at 39% at the same time last year at half, FY 2023 half year, which is elevated by, which at the time, as we're aware, was elevated by increased bank competition and the introduction or the presence of cash backs. Moving to slide 18, AFG Home Loans market share has started to grow again. You can see there, we have achieved 7% in the second half, which is the first half was 6%. The main driver of that was AFG Securities.
We've also launched two new white label partnerships with Brighten and also with LongView, which is a shared equity scheme, which is just in its fledgling state, but is looking is showing positive signs of being an element that provides a different type of product to consumers wishing to get into the marketplace. Our asset finance business settlements grew by 21% to AUD 3 billion and now represents 5% market share, we believe. Reminder that FY 2023, it was around about 3%. We've launched Partner Connect, which is the referral solution for residential brokers to refer asset finance within AFG. And the chart below just shows the build of asset leasing and asset finance business that we've driven through the business. Commercial remains a continued important part of our business.
Commercial credit growth is sitting at around about 8%. Our settlements within the commercial business is up 18% to AUD 4.5 billion. And we have a 13 billion dollar trail book, which includes, Thinktank white label. So the opportunity to increase broker market share in commercial continues to replicate the success of residential. Our digital strategy is highlighted on page 19. It's probably where most of the focus of our technology build has been over the last 12 to 18 months. We've just, we've delivered a modern API services, and we're very proud of the fact that we've been able to achieve, items such as that modern API services, cloud native program, upgraded our FLEX CRM, interface.
We've introduced multi-factor authentication with enhanced 24/7, 365 monitoring, and obviously the Partner Connect and Ambition launch, as well as the Ambition Cloud, which is the crucial part of the technology build within or the technology offering within Fintelligence, is on track for the first half of FY 2025. All of these elements will introduce or will deliver reduced risk, complexity, and costs for our brokers and for our business, and a more modern, scalable architecture which is built for growth. One of the linchpins of our business or our business strategies is we believe good brokers are going to get busier, so increasing broker productivity becomes an important focus for us.
Direct lodgement with BrokerEngine has been the main technology focus for over the last 12-18 months. This has been a significant project to enhance BrokerEngine and workflow management for our brokers. And we've delivered a new interface and additional functionality in FY 2024, and we're very, very close to moving into BrokerEngine Direct. In fact, it's in pilot at this stage, where the broker will be able to lodge deals directly to a lender via the ApplyOnline system, without having to double entry data, which most aggregators' technology requires them to do. So, we believe that on average, that will save a broker around about 90 minutes per deal.
It will drive reduced costs in terms of documentation, which will be embedded within the platform, create significantly better customer experience, and just as importantly, improve security across the business. On page twenty, we talk about AFG Securities. AFG Securities is, we talk about these two halves. AFG Securities has had a year of two halves. So I think when we last spoke to you as part of investor call, we were starting to see signs of improved opportunities for AFG Securities. We've now doubled our market share, our footprint, and are continuing to build. So we remain number one non-bank on the AFG panel.
Lodgements steadily grew in FY 2024 and quarter four delivered AUD 1 billion, which is the third highest recorded quarterly result that we've ever recorded. Settlements from this will continue to flow through into FY 2025. Front book to back book pricing differentiation, as we talked about earlier, has narrowed. The NIM, however, does remain below our average and is affected by competition and multi-year pricing of warehouses. The June exit NIM was around about 109 basis points, and as I said, we're quite comfortable at this point of time to continue to look to grow the book, with a view that we're taking a longer-term view around a book of size is important for us as we move into the future.
The new origination platform, which we introduced in the first half of the current financial year, is settling and just starting to deliver scale efficiencies. I talked earlier about our investment in Thinkt ank. Those earnings from Thinkt ank have been affected by similar market conditions as AFG Securities, with a lower NIM and a higher level of runoff. Importantly, though, their loan book has grown to 5.8 billion from 5.3 at June two thousand and twenty-three, and the contribution obviously is softer, but the fact that they've been able to maintain and grow their book is an important feature as we look moving forward into future financial performance.
The quality of our loan book remains very strong, and you can see there 75% around in prime mortgages, 40% of balance is below 500K, and 85% have an LVR below 80%. You see the size and the level of offsets across the business, across each of those accounts. Whilst arrears are more elevated than what we're used to, they are still in line with the major bank averages, and our loss provisions remain prudent at AUD 3.3 million. We've experienced no losses over the current financial year. Our credit assessment techniques remain strong. We don't have anything that, at this stage, we believe would turn into a loss.
And a reminder that, the cumulative losses across this book over 15 years have been just AUD 260,000. On page 22, we talk about our funding costs, which are showing positive signs. The book in itself has, runoff has reduced, from a high of 42% down to 35%. Part of that is due to less competition in the market, but part of that has also been us using some of the NIM savings that we've or NIM benefit to ensure we can retain some of those customers. The loan book, again, consistently grown, and is up 8% compared to December 2023. Funding margins within the warehouses have improved, with lower funding costs achieved in some warehouses and some in the current negotiation.
And the average NIM for FY 2024 is 113 basis points. And obviously, during the year, we issued AUD 1.5 million in securitization bonds to the marketplace. I'll pause there and pass across to Luca on the financials.
Cheers. Thanks, Dave, and good morning, everyone. I'm just starting on slide 24. Dave mentioned the challenging first half of the year, that earning deterioration ceased in the second half as we started to see a return to more normalized operating conditions. Particularly, the repayment of the TFF free kick, and consequently, an increase in the ability of the non-banks to compete. The final quarter of the year strengthened again with our strongest lodgements in both our distribution and manufacturing segments for over two years. This has put us in a good spot to start FY 2025, and Dave will touch on the outlook shortly. For the year, our NPAT was down AUD 8 million to AUD 29 million. This reflected the deterioration in manufacturing segment, the outcome of the well-documented challenges that non-banks faced, and Dave talked through earlier. Elsewhere, the business performance was particularly solid.
Our earnings stemming from our annuity style income from our core higher returning distribution business, with its earnings increasing 20% year-on-year. The distribution segment is not only a point of differentiation, but it continues to be a highlight supported by our investments, and provides a portfolio of growth options as we look forward. As you would expect, our operating expenditure required some adjustment, and the result of that was a reduction of AUD 2.6 million year-on-year. If I focus on underlying NPAT A, you will see that the trail commission adjustment is lower this time than last year. The trend to continue as we see historically high levels of run-off reset.
The higher runoff was the outcome of record expansionary, then record contractionary monetary policy, combined with record cash backs and the flow on an impact to elevated levels of fixed mortgages, which have now largely transitioned to variable. The runoff rate stepped down in the first half and then again in the second half. If I look more broadly, the lower earnings outcome flowed through our operating cash flow and return on equity, with both outcomes lower than the same time last year. We have declared a fully franked dividend of AUD 0.04 per share. This represents a 60% payout ratio. The ex-dividend date is ninth September, and the dividend will be payable on eleventh October. Turning to slide 25. This slide summarizes the reporting segments which we transitioned to in the first half.
If I focus first on distribution, which is our core business, it provides particularly strong returns at 38%, with that return, including the more recent investments we've made, not only in technology and BrokerEngine, but also our Fintelligence business. As I said before, the result is underpinned by our annuity style income generated from the trail commissions. This segment delivers consistently strong returns with no credit exposure, and this year represented nearly 80% of our earnings. The segment generated earnings of AUD 54 million, up 20% year-on-year, and as Dave mentioned, during the year, we did invest heavily to improve our technology proposition, and we expect our second half FY 2025 result to benefit from that investment once we finalize that program.
On manufacturing, which is our securitization program and where we take the credit risk, the earnings of that segment are materially down on the prior period at AUD 15 million. Consequently, we saw return on equity significantly reduced, although it's still a reasonable 12%. As was outlined earlier, the book returned to growth in the second half, and we closed just shy of last year's AUD 4.47 billion loan book balance at AUD 4.44 billion. The average book through the year was 4.2, compared to 4.8 billion in the prior year. Despite the second half book growth, it did come at the expense of NIM, and our second half NIM decreased to 111 basis points, comparative to our first half at 116.
Clearly, the higher book balance will be of benefit to our earnings as NIMs improve. I know Dave touched on it a little bit earlier, but I did just want to emphasize the quality of the book with another period in which we did not take any losses despite increased arrears across the market. Turning to central services, which recorded a loss of AUD 26 million, which is high, 6% higher than the prior year, largely driven by that technology-related activity. On slide 26, this slide shows the gross profit we generated from our business segments. I think this slide summarizes the business well in terms of numbers. It shows that our distribution business generates 78% of our gross profit.
Within our distribution business, we have a diversity of high returning growth options, and finally, that our manufacturing segment provides exposure to the returns that credit markets give when the conditions arise. On our distribution business, for the year, it represented AUD 106 million of gross profit split across the three key drivers. Firstly, our residential trail and upfront commission, which combined, declined by 1.6 as the payout ratio lifted to 96%. Although I'd note that the rate of increase slowed. The second is the higher margin income we generate from our broker network in white label and other asset classes. Our white label business had a particularly volatile year, with volumes down 30% as our partners focused on volumes from their proprietary channels.
The third part is obviously our investments in Fintelligence, BrokerEngine, which continue to outperform our internal expectations and report a 12% growth year-on-year. Turning to slide twenty-seven, our operating costs. Overall, again, we saw a decline, with declines across most categories year-on-year. The one category that saw an increase was in technology. There are two elements to this. We have seen a general increase in service costs, primarily relating to use of our cloud-based technology, that's fee cost increases, but also an increase in the level of consumption as we move to an increased database business. The second is the cost associated with transitioning platforms as we deliver our new technology capability. It will take some time to decommission the older platforms, but we would expect in future periods that some level of duplication costs are removed.
Looking forward to FY 2025, I expect to see the following in relation to our tech cost base. The commencement of amortization of our new technology platforms will begin. You will see that we currently have AUD 34 million of capital work in progress. We will amortize most of that over eight years, which will see our amortization costs increase by roughly AUD 3 million a year. Some of that work in progress will commence amortizing in the first half, and some will commence later in the financial year. Turning now to our balance sheet and cash flow. As you know, AFG has a very strong cash-generating asset, and we have AUD 190 million in cash and other liquid assets.
This puts us in a great position, combined with our high-returning distribution business, to find opportunities to invest for our brokers to improve their businesses, but also for our shareholders to grow returns. The chart on the right shows that we traditionally have a very high cash conversion ratio, and for the year, we finished at 107%. The orange and pink bars at the end of the chart show why we made the decision to temporarily reduce our dividend payout to 50%-60% for 24 months, of which we are now halfway through. As Dave mentioned, we have now seen that expenditure peak, and FY 2025 will see us return to a more normalized level of expenditure.
I'll finish on slide 30, and I did just want to take a minute to demonstrate the criteria outlined on slide 29 in action, and that the outcomes of the discipline that we show in making our investments, delivering a stable of portfolio of growth options. The slide shows to the left the key investment that we've recently made, the industry trend that we are or anticipate taking advantage of, and how we anticipate realizing the benefits of those investments. Clearly, we are further advanced with some of these investments, like Thinktank, which we invested in in two thousand and eighteen, and has a carrying value of AUD 33 million, with its loan book balance at AUD 5.8 billion, as Dave mentioned before. While the earnings are down this year, across that investment, it has been particularly strong.
On Fintelligence, we spent some time talking about the strength of that business in December last year and its market-leading proposition underpinned by its technology offering. 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 technology platform to deliver our industry-leading direct lodgment solution. We are partway through that now and expect that investment to deliver a range of benefits in FY 2025. Finally, we have spoken previously about AFG looking to invest directly into select broking groups. Work during the year continued on this initiative. As you would expect, these investments will need to meet our investment hurdles that I discussed on the previous slide.
I'll leave it there, and thanks, everyone, and hand back to Dave.
Thanks, Luca. I just thought I'd spend a little bit of time on the outlook, and part of that outlook is really seeing what we're seeing in the market in FY 2025. On slide 32, you can see it's been a particularly strong period of strong months where we're seeing growth in lodgments and lodgment activity across the marketplace. In lots of documentation about the softness in Victoria, but we've still been able to grow Victoria, and part of that is really driven around recruitment activity coming to fruition and starting to feel that in at the start of FY 2025. So WA and South Australia are the highest growth rate. AFG Home Loans is up by 186%, sorry, 108%.
Sorry, 80%, and AFG Securities is up 186%, which demonstrates the trend that we've been referring to around that book. If whilst we're not through August at this point of time, you know, one of the things I would call out is we're experiencing a year-on-year growth of about 13% on the residential side of the business, and in excess of 150% for the AFG Securities business in the month of August, year on year. So, our resi lodgements in July and August have remained strong. On page 33, it's just the, there's a table there or a graphic there, which really just indicates where we're seeing the world and how we think we can play into reacting that.
So we think brokers can become bigger and busier. We talk about that market share. There's been settlement growth of 7% per annum. Brokers are moving away from the contractor model into employee model. So the businesses themselves are maturing, and they're looking for an aggregator partner that can help in that process. So part of that is consolidation is coming. You know, we celebrate thirty years of AFG.
That therefore implies that there's been some brokers around for 20 to 30 years who are looking to transition their business, which is part of our strategy, is to how do we facilitate that consolidation and enable some of the younger brokers in the marketplace wishing to grow and wishing to make a career of mortgage broking, and how do we facilitate that? Technology to drive efficiency. We're continuing to improve our technology and our offering, and the diversification for a broker moving forward will be critical. And we believe we tick all four of these elements quite strongly, and the proposition is resonating into the marketplace. So on slide 34, in summary, we believe we're strategically positioned to continue to deliver earnings growth. Credit markets will continue to improve. The broker is the critical channel.
There's been a return of non-bank competition, and again, AFG has a preeminent position within our lender panel as a non-bank, being three times the size of, in terms of originations, than any other non-bank lender. Product diversity generates 74%, which fits into that concept that we've had since we started thirty years ago. Our brokers grow, we grow, so providing more opportunities for our brokers to generate income provides more income for AFG. And our growth strategy is based on three pillars, being grow our broker network, provide market-leading technology, and deliver higher margin products through distribution. So I guess, in summary, and just to take some questions, you know. The way we look at the world is the broker is the dominant channel, which we believe that channel will continue to grow.
We are a larger player within that dominant channel. Through diversification strategies, our revenue per broker is growing. We're recruiting more brokers, and we have increased optimism around our securitization book and our other avenues to grow earnings, as we move into FY 2025 and FY 2026. On that note, I will pause and yeah, we've got some questions, so, thank you.
Thank you. If you do wish to ask a question today, please register by pressing star then one on your phone and waiting for your name to be announced. If you wish to cancel your request, please press star two, and if you are on a speakerphone, please pick up your handset before asking your question. First question today comes from Tim Lawson at Macquarie. Please go ahead.
Hey, guys. Thanks for taking my questions. Just so you can expand, David, on the hubbing sort of strategy, where you're trying to help with that transition of older brokers into new brokers, just where you're at with that. You've talked about that for a year or so now.
Yeah. So, it's fair to say we've had. We've spent a lot of time doing the research and looking at the market in terms of how the model works in other industries. And we are, we have an active pipeline of opportunities, and we're moving through those opportunities at the moment at various stages of initial due diligence, non-binding indicative offers, and a formal documentation of agreements. So not quite there yet, but we are working hard on achieving our first couple of investments in the next six months.
Okay. So it implies that pricing's got closer to where you're more comfortable with, that you might-
Yeah, we've talked a while around. You know, there's two elements, Tim. One is pricing and valuation elements. The other one is, and all due respect to our brokers, these are taking longer than we thought because we are reliant when we go through a due diligence process on getting returns of the information. So these are small businesses, and it's not like buying a Fintelligence or investing in a Thinkt ank. So, you know, there's a it just takes longer to get that type of return of information and due diligence because brokers are doing what they do best, and that's helping their customers and flowing through opportunities to generate income.
Yep. And just a question on the sort of front book mix. You talk about your sort of mix of prime, but clearly there's more competition in prime. Can you just talk about where you're seeing, prime versus near prime, or how you define it in terms of the front book?
Yeah. We are generating our flow. If I look at the current growth in flow, has really been facilitated via... It's predominantly prime, Tim, but in places where our serviceability calculators are a little bit more generous, so customers who are prime in nature wanna buy the bigger house, go to a bank, and they just don't quite service yet, but our servicing is a little bit more generous because we are not, we don't have to apply the 3% buffer. We can apply a 2.5% buffer.
Yep, and just last question for you. Just on the, maybe expand, some comments on the equity investment line, just sort of being a bit softer over the last little while. Just where you see the outlook for that?
The equity investment? So, I'm presuming the major component of that, Tim, would be Thinkt ank.
Yeah.
So Thinktank has been operating in a similar market as us in terms of, you know, there's been a higher level of runoff across their book. They've been challenged on NIM, as most others have in the marketplace. You know, their target market, there's still a very big, very good and robust business, but, you know, what we've seen is they've been able to grow their book over a period, but that's been at the detriment of margin. So, you know, there's a similar level of optimism within the Thinktank business as we have within our securities business.
Okay. Thanks for taking my questions.
Thank you. Your next question comes from Tom Strong at Citi. Please go ahead.
Good morning, Dave and Luca. Look, my first question is just around the level of competition in the mortgage market. I mean, you and the non-banks will see improved funding costs as RMBS spreads come down. I mean, what are you expecting to see with regards to competition? Is it sort of remaining rational or do you think front book spreads will come down?
That's a good question. Depends on what you define as rational, Tim. I think we've been through a period of rather irrational. It's not irrational. You know, you talk. There's talk about front book pricing and major discounting, discounting their standard variable rate. Anyone who takes that rate at the moment in terms of what their discounted standard variable rate is probably needs to go see a broker, so look, it's a lot better than it was. There's been places where you know. I think the big thing was the elimination of cashbacks, to be honest, Tom.
So yeah, I feel, I feel it's. There's places where you can play, and contribute and generate product, which isn't that 70%, you know, prime suburb of Sydney or Brisbane. So yes, banks are looking for volume, but they're not cutting each other's throats like they have over the last two years.
Yeah. Okay, great. And just a question on the distribution business. I mean, in terms of your hopes to build out the broker network, I mean, I saw if you look at the first half, there was little growth, but you had some good growth in the second half. Is that mostly just from the Partner Connect initiative? And what can we sort of expect from broker growth over the next twelve months?
Look, we are really, really encouraged. We talked about those seven broker groups we've gone over the financial year, which are large broking groups. So, you know, to move broking groups, it takes time, to move aggregators, sorry. So they're starting to hit their straps. And our pipeline of potential recruits, with the rollout of our new technology platform in terms of BrokerEngine and going direct to a client online, we have a number of you know, what we are offering, other aggregators will talk about a workflow tool, but it's nowhere near as refined as an advance. They're trying to build it.
And the direct to client online lodgment, when I talk about that 90 minutes per transaction on average, you know, it's created a pipeline of brokers, which we have a level of confidence that they will see what we're offering. So the Partner Connect is early days comparatively. We've got 350 brokers with agreements on that Partner Connect, but the early signs of that are very, very positive and pleasing.
And just to add to that as well, Tom, you know, if we think about where we have made that investment and the BrokerEngine Direct, you know, a third of those subscribers on BrokerEngine aren't AFG brokers as well. So it provides an opportunity for us to have a really constructive discussion with who the aggregator is and the additional functionality that BrokerEngine Direct will be providing to the AFG brokers.
Very clear. Thanks, guys.
Thank you. Your next question comes from Gavin Allen at Euroz Hartleys. Please go ahead.
Morning, Luca and David. Thanks for all that.
Good morning, Gavin.
Very good. How are we today?
Very well, mate. Yeah, yeah.
That's good to hear. Just a quick one for me. So I apologize, I was in and out of the call on a few different things, but the white label. I think you mentioned white label was down 30% over the year. Just wondering if there is any levers that you can pull to make this more attractive to your network. Like, do you have scope to sort of control your own weather a little bit on that front?
Look, I think the benefit of the white label product is that in times where it's relatively tougher for securities to work, white label generally provides a buffer for us.
Yeah.
You know, ideally, you know, if we've got a choice, we would put that business towards AFG Securities every day of the week.
Mm-hmm
... because of the long-term earnings benefit. But in terms of what we've done with the white label product is we've introduced a loyalty program with customers, where they can generate additional cash back via their spend, so with a business called Grow Your Money. So, that sort of sits over the top of the AFG Home Loans program. Ideally, you know, the thing with AFG Home Loans, if the providers of the white label product have no appetite or their service proposition falls over because of whatever reason, you know, we will suffer. And that's why our focus is on continuing to build out the securities business.
Yeah.
But there will be elements of... You know, we've seen some great introduction of business with Brighten, as an example, as a contra to some of the other white label partners that... But, they will come in and out of the market, like most other white label providers.
Yeah. Okay. And just one quick last one from me. Just on the direct lending side, you've been very public about a focus on volume there. And recognizing that NIM was down again a little bit in the second half, just wondering, is that about as low as you go? And the reason I ask that is, can we begin to sort of forecast this based on volume with a reasonable expectation that NIM is at least kind of stable, do you think, or is it too early to tell?
Yeah. No, I'll just say, you know, yeah, I'll probably take a leaf out of our behavior during the time of cashbacks and significant competition in the marketplace. We actually stood out of the market because our return on capital on those mortgages were below our desired level.
Yeah.
So it's fair to say, Luca talked about the return on capital or return on equity on our broking business. Sorry, on our broking business and our manufacturing business.
Yeah.
You know, we're probably at that point roundabout now, so I think there's some reasonable level of confidence there, Gavin.
Yeah, makes sense to me. Thanks very much, guys. Appreciate it.
Thank you. Your next question comes from Michelle Wigglesworth at Australian Ethical Investment. Please go ahead.
Hi. Hi, guys. I've got two questions. The first is your comment about getting some near-prime loans that are prime in nature but don't quite meet serviceability buffers. If rates come down, do you think that those?
... borrowers will then be able to go to major banks, and you won't be able to get those volumes? That's my first question, and my second question was on broker revenue. You said that's increasing. Apologies if I've missed this on the slide, but do you disclose that, and is that something you could think about disclosing if you don't, so we could see the trends?
Yeah, I'll get Luca to talk about the disclosures, 'cause I'm at risk of being going into CFO mode. But in terms of, while he's whilst he's looking at the slide, in terms of your first question around potential runoff as interest rate reduces, you know, we would look to. As the market moves, we will move, and we will respond to those customers. You'll remember that those customers are, you know, there's obviously costs of those customers coming into the mortgage in the first place, costs for those customers to move. Our general view is, and our history shows that it's not just a. Once they're in the loan, they're relatively comfortable, and if you treat them appropriately, they stay for a period.
So I, you know, serviceability changing and buffering changing doesn't drive immediate exits out of the loan book, Michelle.
But can you just confirm? Like, the new volumes that you would have otherwise got, does that mean that you won't get them now, or when rates, if rates come down?
I think everything's relative. So as rates go down, house prices go up, and therefore they need a bigger loan size. So, you know, the serviceability calculation is quite dynamic in that respect. So it's not as simple to just say, one thing happens, the other thing happens. It. You know, our experience has been, in a rising market, that there's opportunities, for to obtain customers around the serviceability, and similarly, in a falling market, based on the dynamic of house prices and the like, there's an opportunity also, based on that servicing calculation, to retain those customers or attract new customers.
Okay, thanks for that. And I realize I didn't clarify my second question very well. I meant revenue per broker. You were saying that your revenue per broker will, it will increase as a function, you know, when we talk about payout ratios and so forth, but we should be looking at revenue per broker.
I thought you might have let me get off easy there, Michelle, with the revenue question, so we haven't shown the revenue per broker, but there is a gross profit per broker on slide sixteen, and yes, I think the way that we think about the overall AFG proposition is: What's the integrated margin look like?
Mm.
And that comes through in the portfolio of different options we're providing for our brokers and links into our strategy. So that's absolutely the way that we think about our distribution network and how we work with them for that win-win.
Thank you.
Thanks. Thank you. Once again, if you do wish to ask a question, please register by pressing star then one on your phone. Your next question comes from Richard Wiles at Morgan Stanley. Please go ahead.
Thank you. Good morning, David. Morning, Luca. I have a couple of questions.
Rich.
You said you'll use... So first question's another one on the AFG Securities book. You said you'll use some of the funding cost benefits to invest in book growth. Do you have a sort of target or aspirational growth rate or a book size you're sort of working to for AFG Securities? And how much operating leverage do you actually have in that business?
I'll answer the second part of that question first, Richard. In terms of the operating leverage, we think we are well placed. With, I mentioned earlier, we talked about the introduction of a new software or new panel workflow tool for our AFG Securities business, which enables us to, which drives efficiency from, not just an operations perspective, but also a credit assessment perspective. So, you know, we're very comfortable in terms of leverage around number of people required and workflow improvements we've made to that part of the business, and we'll see those benefits wash through, you know, effectively now that that platform is seated.
In terms of the target broking or target size of the AFG Securities book, I think the best way of looking at it is, you know, we ultimately wanna get to around about. We've always said we wanna get to around about 10% of all our flow into an AFG product, and hopefully more over time. The best way of sort of gaining a feel to that is maybe around about 50%-55% of that white label flow would be linked to AFG Securities proprietary product.
Okay, and that's sort of a medium-term aspiration. If you look at the sort of period ahead, the FY 2025 year, do you have a sense of how much growth you can get in the portfolio? You're obviously going to manage it a little bit. You'll have a volume margin trade-off. So can you give us an idea of how much growth you're sort of looking for?
... you know, we're August now, so we've got lodgements. We've given you a good guide on that, so it gets you sort of almost the first half in terms of lodgements. The second part of the question is, it depends on what competition does, right? So we will be disciplined, and Dave sort of mentioned this earlier, we'll be disciplined around the returns that we wanna make out of this portfolio. We've done it before, so it's hard to give you a guidance because we just wanna make sure that we are giving ourselves the flexibility around maintaining profitability and maintaining returns on equity.
Okay, and I have a question about the industry more broadly. Mortgage industry balances, so not flow, but balances. Growth in balances have picked up a touch as the year has progressed, sort of tracking at, you know, five or six or probably low fives at the moment, whereas earlier in the year we were probably in the sort of low to mid fours. So there's obviously a little bit of optimism coming back into the market about growth that's probably related to, you know, less runoff. However, the RBA minutes revealed that the board seriously considered a rate hike. That's probably not something that's front of mind for borrowers. They're probably thinking more about when are we gonna get the first rate cut, rather than the potential for a rate hike.
You've got 4,000 brokers who are effectively your partners. You're close to the front line. How do you think, you know, higher for longer or even a rate hike would affect sentiment and growth in the mortgage market?
That's a really good question. I can talk about what our brokers... And there's a different feel and different view across the market, depending where you're operating, Richard. So the brokers in Victoria are probably a little less optimistic around where they're sitting in the marketplace, and I think there's some regulatory issues in terms of taxes and the like, which are impacting that level of optimism. Pre-approvals, confidence within the broader broker and customer set. There was an article in the industry magazine the other day around pre-approvals being at the highest, at one of the highest levels, for brokers and brokers' customers, which tell me that customers are still focused on getting in and making sure they don't miss the market.
But you know, there's a little bit of a supply issue. You know, it's clear, this is the first time I've seen a market where there's some people who are very, very eminently comfortable in terms of meeting a 25 basis point rate rise where... But there's some others who are probably hurting a little bit and CBA and Westpac yesterday probably referenced those in terms of the younger borrowers are probably hurting a little bit more. Most brokers I'm speaking to are relatively optimistic and that, A, the customers are, you know, talking about moving, talking about investment properties.
We're starting to see, you know, some of our brokers who provide, who have relationships with investment businesses or investment housing investment businesses, are indicating there's a lot of now reverse inquiry back into Victoria. So rather looking for an investment property, they were moving and looking at Queensland and WA. They're saying that the heat's coming into that market now, and maybe Victoria is the market that they will go invest in now. So a long, long way of answering. I There is a level of optimism, and there's a level of optimism in the broader customer base, and the level of inquiry remains strong. You know, AUD 8 billion worth of lodgement inquiry or lodgements in July, will be a similar number in August. That tells me things are pretty robust.
Yeah. Thank you.
Thank you. That does conclude our question and answer session. I'd like to hand back now for some closing remarks.
Thanks very much, and thanks, everyone, for your time. I've just seen it's an hour, so I appreciate your time today and look forward to catching up with you in the coming weeks.
Thank you. That concludes our conference call today. You may now disconnect your lines.