Good afternoon, everyone, and welcome to the Latitude call today, where we've acquired the business, the consumer business of Humm. I am Matt Wilson, the head of IR at Latitude, and I'm joined by our MD and CEO, Ahmed Fahour, and our CFO, Paul Varro. I'd like to begin by acknowledging the Wurundjeri people, who are our traditional owners of the land from which I'm hosting this meeting today, and pay my respects to their elders past and present. There will be an opportunity to ask questions at the end of the presentation. You know the drill, dial star one to register a question. I'll now hand over to Ahmed.
Well, good afternoon, and thank you very much, Matt. Thank you very much on short notice, for those of you who are able to join us, on the announcement of the signing of the definitive documents to purchase this business. Many of you would be familiar with what we're talking about because obviously on January sixth, this year, we announced the heads of agreement signing. I guess to some extent, some of this information might be a little bit repetitive from what we initially said, but we're here to provide a little bit more detail and certainly how the negotiations and the due diligence went and where we landed in this final document.
You would see that the headline price that we had posted at the time of the signing has been maintained, which is AUD 335 million. I guess the big difference though, between when we signed this deal, when we announced this deal on the sixth of January, where we are today is as follows, which is we were able to acquire the assets and the receivables and the business, but at the time, we indicated that as a minimum, there would be AUD 152 million of net tangible assets. Now that we've confirmed our due diligence and we've confirmed all of our work, I'm pleased to say that the balance sheet will come with AUD 190 million of net tangible assets.
The business itself is generating about AUD 35 million profit before tax. Our work has confirmed that we see this as an underlying sustainable earnings level, and we expect to see AUD 35 million of earnings in the actual day-to-day running of the business. In addition to that, the work that we have done has identified that there is a huge synergy opportunity here for us. The synergies in terms of the full run rate of these synergies will be AUD 65 million, of which AUD 55 million of that synergy is cost out. They're the ones we're including as our in our announcement today that we're very firm with. Paul Varro will run through the details of the AUD 55 million cost-out program and what that means.
When you add the 55 and you add the 35 together, you get AUD 90 million on an annualized basis that we expect to see profit, a cash profit before tax in the year 2023. On an annualized basis, that is. Paul will run through that. In addition, we see another AUD 10 million of revenue synergies, 10 million of profit that is, before tax to come from revenue-related cross-selling and other opportunities as a net outcome. That will come after 2023, where the provisions initially build up and then you get the full run rate into 2024 and 2025 and beyond into the future.
This is quite an exciting deal for us because it's not every day that for a purchase price for AUD 335 million, you get 2.5 million+ customers, just under AUD 2 billion of receivables, in a business, AUD 90 million annualized of profit earnings, from this business. On top of that, you get a terrific management team. Some of you might be staring at slide number four, if you've got that in front of you, where we outline, in essence, the summary of what I've just been giving you. First and foremost, it's an acceleration of our strategy.
This acquisition is a beautiful tuck-in acquisition for us, which allows us to achieve some of the really important growth in the big-ticket play, and particularly in some of the verticals that I've spoken about in the past that go beyond our core strength. We are really strong in the home economy. We're really strong in technology. This introduces and gives us access to 60,000 merchants, two and a half million customers that are interacting already with the with Humm consumer. What it does is it allows us to accelerate in those really critical verticals that we have.
You can see that outlined on slide number seven, whereby we can show you the merchants that we have terrific partnerships with, but it also brings with it in Humm's business some terrific merchants in the area of solar, for example, and an area we've been targeting. Another one we've been very much focused on is the healthcare segment. There's no question that Humm is leading in that category and are doing a great job in both solar and in health. Then the third one is in the travel area. Travel has been very subdued in the last couple of years, and Humm has you know not benefited from that.
We certainly, in our famous 28 Degrees card, have also seen very subdued activity in that regard. With borders opening coming later this month and into March, and with travel set to re-emerge both into Australia and out of Australia, this area, in addition to solar and health, are going to be major growth opportunities for the Humm platform, but also for Latitude as well. If I can take you back to slide number 4, the opportunity with this acquisition for us is it introduces and allows the investment that we've made in our technology platform to achieve significant scale and the monetization of those opportunities as well.
While we've downplayed in the numbers the revenue opportunity, in the short term, I think there is enormous revenue opportunity in the medium term and is really going to be the basis of a major transformation. If you think about it, the two combined organizations, and it'll be useful if you're staring at slide number six at this point. If you think about the overlap, that we have in these areas, but also if you think about the things that, Latitude is famous for, which is its cross-selling, we have a lending product in personal loans and in auto loans, and the great majority of our business comes from cross-selling personal loans and auto loans into our installments business. Well, I've just said to you, we've doubled our installment base. We've gone from 2.5+ million customers.
We're at 2.8 million customers, but 2.5 in the installments space to over 5 million customers in installments. Currently, we only have 150,000 personal loans and auto loans that we do, and the great majority, as I said, in our personal loans have come from cross-selling into our customer base. That represents roughly 6% of our customers that we have penetrated, and that, our money lending business, is a third of our profit. One third of our profit comes from lending, and it only represents 6% cross-sell.
You can imagine now what the opportunity is in the coming years and in the coming 3, 4, 5, 6, 7 years to be able to double the base and to really drive that penetration and achieve the same success we have with the existing customers as we will have in the combined group. The beauty about all of that, not a single dollar of that opportunity is included in the short term accretion and performance that we're outlining for you in this presentation.
The third opportunity, as outlined on slide 4, Paul Varro will take you through this, is the actual EPS accretion and what we're going to achieve in the year 2023, and what we're gonna achieve for the business in terms of the synergies, which is AUD 55 million, as I outlined earlier. I won't take away any of Paul Varro's thunder in being able to articulate that. When I stand back today, before I hand over to Paul Varro, I wanted to just point out as well, which is where we are differentiated. This is really important that I explain this. If you can turn to slide 8, please, and I can help just to explain one of the key differentiators.
One of the things that I've always articulated is that if you look at the total volume that Latitude writes in small ticket, it's about AUD 100 million in an organization that writes over AUD 7 billion in volume in any one year. It's a tiny part of our business, small ticket, what people refer to as buy now, pay later. What is not really well understood is that the Humm consumer business, that two-thirds of the volume that it writes is actually big-ticket installments, and that's our heartland. We are a big ticket player, and two-thirds of the profit, and we make profits that Latitude makes, comes from a bigger ticket play, AUD 2000, AUD 3000, AUD 4000, which is paid off over a longer time period, one year, two years, maybe even five years.
This is the heartland of what we do, but it's also the heartland of what Humm has successfully positioned itself under Rebecca in achieving. Two-thirds of its volume is in bigger ticket, longer duration items, and that's the opportunity for us. We are not rapidly growing in the small ticket space, although that is a part of it. But when you add up Humm's small ticket and our small ticket, it's AUD 400 million out of an organization that will jointly do AUD 8 billion plus of volume in any one year. So it would represent 5% of our total volume, is a way to think about the kind of business and the kind of model that we're creating.
This is why when you look at this organization, when it comes together, it will be the only profitable buy now, pay later/installments player in Australia, New Zealand, maybe even globally. We differentiate ourselves because we are profitable. We're highly focused on the installments business. We are focused on our consumer and our merchants in a partnership, and we have a differentiated and successful model. Let me hand over to Paul to now walk you through slide 10 on the economics and the synergies of this deal.
Thanks, Ahmed. If you go to slide 10, what I thought I'd do is actually just take you through the synergies in a fair bit of detail. Along the left-hand side of the page, you can see the walk of the AUD 55 million of cost synergies that Ahmed mentioned. Then on the right-hand side, we've got a fair bit of detail there as to how those synergies arise. I'll just step you through those as we walk through it. The first bar you can see there is the AUD 32 million of tech synergies. What's going on there, our investment thesis is really around migrating LatitudePay onto Q2 and also migrating the Humm BNPL's platform onto Q2 as well, which helps us decommission two platforms there.
The other part of the thesis is that we migrate all of the cards platform onto Latitude VisionPLUS platform. With those three moves, if you like, you're moving from five platforms down to two. That's what drives the technology synergies that you see there, the AUD 32 million. About one-third of that is due to the retirement of LatitudePay. The other two-thirds is around the retirement of the cards platform in Humm, along with some shared service tech synergies as well. The second bar that you see there is the AUD 20 million duplicate cost synergy. Really when you bring two complementary businesses together that are very similar in nature, we've got very similar sales finance or installment products, very similar BNPL products. We actually operate in very similar, same markets, so Australia and New Zealand, and obviously have the same rate settings.
Given that they're so complementary, there will be a lot of duplication when we bring these two businesses together. If you think about it, if you bring AUD 1 billion worth of receivables and put it onto the Vision platform, and as you do that, you migrate them to either GO or Gem, which is our card products. You can actually get some pretty good synergies in terms of your back-office functions, as well as product, marketing, risk, and compliance as well. We see these two principal synergies that add to AUD 52 million as really gettable over the short term as well, and I'll tell you how they evolve through 2023 and beyond. The third synergy to get you to your AUD 55 million is on cost of funds.
Really that's just about bringing the Humm platform onto our funding program. At the moment, both businesses are carrying headroom, whereas we know that we can optimize that once the collateral goes into our funding platform as well. Ahmed talked about our cross-sell capability and the fact that Humm don't actually cross-sell to personal loans, and so the net revenue synergy there that you see in the bar on the bottom right is really around us cross-selling off the additional 2.5 million customers that we're acquiring. That's actually net, that's actually a net synergy. As we migrate some of the cards customers onto GO or Gem and in New Zealand, we'll actually normalize APRs as well as we assume some account attrition through that process as well. We think we've been quite conservative on the revenue synergy.
As Ahmed said, we fully expect the AUD 10 million to arise in the medium term. I might just take you to slide 12 just to give you a quick glimpse of the integration plan. Our integration plan is really clear. We're gonna run it along 3 main lines. Firstly, it's to integrate the Humm business. As you can see there on the page, that'll include a TSA period and doing all of the back-end migrations. You have the 2 principal migrations that I spoke to before. In the blue there, it's about BNPL, and in the green, it's about sales finance. We expect the completion in the fourth quarter of 2023. I should say as well, we're expecting integration costs of around AUD 60 million, as well as write-offs and restructures of around AUD 30 million.
A total restructure and integration cost of AUD 90 million. If I take you now back to page 11, Ahmed talked about the value that we see in the business, and really this describes to you how we see it at run rate, but also in 2023. Starting from the left-hand side, you can see the normalized 2023 earnings of AUD 35 million, and then the AUD 55 million of annualized synergies that I just walked you through. That gets you to the AUD 90 million annualized synergies. What we've also done, though, is lay out for you the in-year synergies that we're expecting in 2023. If you walk them again, you're AUD 35 million. We expect of the AUD 55 million, AUD 20 million of those synergies to accrue in 2023.
By 2023, we expect value of around AUD 55 million, and as Ahmed said, at run rate, AUD 90 million, ex the revenue synergies. With the revenue synergies, obviously you can see at run rate, we're talking AUD 100 million. As I said before, we're highly confident, in particular in the cost synergies, which is why we've highlighted them as part of this presentation. I'll now turn it back over to Ahmed, who's gonna close out the presentation before we go to Q&A.
Yeah, thank you very much. Look, all the standard, you know, other parts of the transaction details there are outlined on page 13. I'm happy to cover in the Q&A any of those sessions. Look, in summary, and where we are at the moment, we are extremely excited about this opportunity. We're very grateful to the Humm organization to entrust us with the business that they have been building and working on for well over 20 years. They've been in the business a long time. We've been in the business a very long time as well. We've been head-to-head competitors and lots of similarities between the two organizations. Now there's an opportunity for us to work together in this opportunity.
I'm also grateful to the management team at Humm and really looking forward for them coming over with the business. It's a big tick for me to see that not only do they believe in what they've built, but also they'd like to still be part of it into the future. The price is the same. Essentially, the synergies are there. It's, you know, well and truly nearly AUD 100 million of earnings for AUD 335 million dollar price. The tangible assets are AUD 109 million, up AUD 38 million on the initial case. We've confirmed our synergies. The business is highly complementary and accelerates our strategy. It allows us to do cross-sell over a bigger, wider pool.
It avoids Latitude having to spend large amounts of capital to build the big ticket platform that has been successfully built inside Humm. It allows us to accelerate into certain verticals that we weren't operating in. Quite frankly, this is a highly value-accretive deal, which comes with fantastic executive talent. We're open to picking up any questions that you may have, and I look forward. Also, I remind you, please, that our results day is on Monday, which could be focused on this opportunity, and we look forward to spending Monday with you talking about the 2021 results.
Thanks, Ahmed. I'll hand over to Noah, the operator, to run the Q&A session.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Josh Freiman from Macquarie. Please go ahead.
Hi, Ahmed and team. Thanks for the opportunity. Just a few questions from me. I think in slide 6, you guys provide that customer breakup between Latitude and Humm. Have you guys done the analysis on sort of customer crossover and what customers already exist that utilize both services?
Thanks very much, Josh. As you can imagine, that was one of the very important pieces of work because you not only have to work out where your synergies are, you have to actually work out where your dis-synergies are, I guess, for want of a better word, and what does it mean on the revenue side. You'll note very carefully that we have set aside that AUD 10 million of net revenue synergy, and we don't even need to add that into this. What I'll do is let me just hand over to Paul because we have factored that in and while I'm not arguing for it to be included in that net number, it is very exciting to know that we've done that analysis.
Yeah, thanks for the question, Josh. We actually did some work on both portfolios, and in particular, we're able to look at our LatitudePay portfolio, which is much smaller than Humm's portfolio. We are able to see of our LatitudePay customers, how many customers had Humm product in specifically BNPL. There's a lot more overlap in BNPL than in sales finance, which is the larger installment portfolio. The overlap that we saw is around about 20%, and we've factored that in in terms of our cross-sell synergy as well as some of the dis-synergies as well. All of that is already factored into the revenue synergy for the AUD 10 million.
Thank you. Just another question as well, and you'll have to forgive me 'cause I didn't cover Humm prior. You may have to give me a little bit of latitude, so to speak, on the value. I'm pretty sure there was a COVID provision in Humm that was still remaining. I think it was about AUD 20 million. Is that forming part of that acquisition, and do you expect that to unwind and sort of impact FY 2022 results?
For a guy who doesn't cover a stock, you're pretty cluey questions. Thanks, Josh. I don't know how long you've been saving that funny pun about the latitude. Let me respond back by saying you can have as much latitude as you wish, but look, on a more serious point. It is Friday, sorry. On a more serious point, yeah, we did do that analysis, and we do know in their results for this year, they had already flagged that there would be the use of the COVID provision to achieve their numbers, you know, in terms of their numbers, and it's there and so forth.
The AUD 35 million profit before tax, or call it circa AUD 25-26 million profit after tax number that we gave in this announcement is not this year's earnings. It's a 2023 normalized underlying true earnings of the business, which does not include any benefit in profit from COVID overlays.
Thanks, Ahmed. I guess I'm just checking if there would be an impact in sort of second half 2022, depending on when you guys sort of complete the transaction or if that's expected to just online in prior to the completion?
Yeah. We are only giving you, like, let's just pick a date that we own the business by 30th of June, just pick a date. That from the first of July onwards, our analysis is that from the date we own it going forward, in our numbers, we are not relying on any COVID provision releases for the numbers that we've given to you.
Perfect.
Let me just check. Paul Varro, did I get that right?
You did get that right.
Okay, Josh. I've been given the tick by the CFO.
Been nervous for a while there, but he's done well.
That's good. That's good.
Okay. I think that's okay for me.
Thanks, Josh. I appreciate it.
Thanks, Ahmed.
I look forward to seeing you on Monday, I guess.
Perfect. See you on Monday.
Thank you. Your next question comes from James Ellis from Bank of America. Please go ahead.
Thanks very much. Good afternoon, and congratulations on getting a binding agreement to this point. I've just got two questions. Firstly, look, you've given the useful disclosure about the cost synergies being 9% of the combined cost base. I was just wondering what the same number was or what percentage of the cost synergies were to the target cost base. Just to the Humm businesses you're acquiring. Then the second question is around one of the completion conditions. There's a reference to one of the conditions being Humm receiving a draft ATO ruling on certain aspects of distribution of Latitude shares. Obviously, we can't know what, you know, way that may or may not fall, but just sort of, are you expecting...
Is that gonna be a particularly high hurdle? Is it gonna be a sticking point, for getting the deal through to completion as one of those conditions? Thank you.
Yeah. Thanks very much, James. Good to hear from you, as well. I'll get Paul Varro to answer the first question because that's pretty straightforward. Let me just answer the second one while, and then he can then give you the specific answer to the first one. In terms of the conditions around the ATO, Humm are committed. It's not a condition of. Like, once the deal is done, the question is when the shares are sitting, and let's assume it's the 150 million shares. When they're sitting at the Humm group, corporation level, they are committed in their release, as they've said, to distribute those shares as soon as practically possible through a combination of either or, and/or, through a capital return or through a dividend or some nature of both.
While it's not up to me to speak on behalf of Humm, they will speak for themselves, but they've developed a methodology, and they're looking for a ruling, I think, to allow them to find the most shareholder efficient way to distribute those shares once they're there. The reality is that the deal will get done, and now we're just talking about how you get those shares to the shareholders in the most tax-efficient way. Does that make sense to you?
Yeah. No. That answers the question.
Yeah. I'm not too worried about that. I'm very confident about that. In terms of your first question, which is slightly more important, let me hand over to Paul.
Yeah. Thanks, Ahmed. As you pointed out, James, the 9% is actually on the total cost base for Latitude as well as the Humm consumer business. I think it's important to point out that we've not settled where the costs are coming out in detail, but from the analysis we've done and the diligence work we've done, we expect sort of AUD 10 million-AUD 15 million of the cost to come out of the LatitudePay base. If you take that out of the synergy analysis, you're at about 25, 24, 25% of the Humm base. We think that is still very gettable given the you know, complementary nature of both businesses.
Thank you.
Thank you. The next question comes from Minh Pham from Barrenjoey. Please go ahead.
Hi. Thanks for giving me the opportunity to ask a question. Just two, if I may. Firstly, on the Humm credit engine versus Latitude, just interested in seeing what you've learned in the due diligence process from the credit health of Humm's underlying customer base versus yours and what kind of adjustments if you do need to make to the credit engine as a result of the acquisition.
Sure. Paul Varro is itching to answer that question, Min. Thanks for dialing in.
Thanks, Minh. We did a lot of work on credit as part of diligence. As I said before, they're quite complementary, the two businesses. In terms of origination credit, they're pretty similar. Humm's underlying losses on cards or their net charge-offs are slightly higher than Latitude's, but very similar indeed. In terms of reserving, which is the other point, we're probably a little bit more conservative in our reserving rates than what we've seen on the Humm books. We're likely, obviously, to adopt our provisioning methodology, so we'll see a little bit of a book up when we bring those books onto our portfolio.
Great. Thanks. Maybe just my second question. I'm sure you've as part of the due diligence looked at the key merchants within the Humm Group and I'm just interested in if there's discussions that they'll be automatically transferred to Latitude with similar terms and what the general view of the Humm merchants are about the Latitude brand.
Yeah. The answer is yes, and that's actually one of the exciting parts of the deal. I think you're probably looking at that slide number 7, I think it is, where you can see, you know, some of the brands that we have on the left-hand side, and you can see some of the brands that are on the right-hand side. Let me just give you a little bit of, you know, sort of background on one aspect, which is actually quite important on this part. We at Latitude are going to adopt the Humm brand for this business unit. It'll be, you know, Humm by Latitude hypothesis we're working with right now. In many ways, the Humm merchants won't have to change what they're doing.
Actually, the people who have to change will be on our side. When you look at our side in terms of LatitudePay merchants, it's a much, much smaller merchant list. They've got 60,000 merchants using the Humm brand, and whereas we have a very small business in small ticket side of things. That's, you know, roughly 10% of the size of the Humm consumer business. We're pretty excited by the fact and don't see any problems whatsoever incorporating that and integrating that in.
Great. Thank you.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Ben Bailey from Harvest Lane Asset Management. Please go ahead.
Hey, Paul. Hey, Ahmed. Thank you very much for taking the call and opening up the floor to questions. I just had a few with regards to the, you know, the mechanics of the transaction completing. Just noting on slide 13 of that presentation, as part of the regulatory approval, you guys have flagged ACCC and NZCC approval as part of the deal. Is there any sort of preliminary advice that you guys have received on that, you know, potential areas of concern that the respective bodies might look into a little bit?
Our advisors have not indicated anything for us to be alarmed about or concerned about. Obviously, we don't take anything for granted. We respect the fact that regulators need to go through their work. If you look at the space we're operating in and the areas that we have, you know, we are competing against global giants that have no boundaries around the world, whether they be, you know, everything from PayPal through to the big banks and through to other operators. You know, there are many players in this space, and we don't see, we don't foresee any particular sticking issue on that, Ben.
Yeah. Okay. We're checking all the same. Then just
Yeah, sure. No problems. I just want to be clear. On the public record, I do not take any of that for granted, and I'm respecting the fact, if they're listening to this, that they don't give me any harder time for saying that.
No, I certainly don't wanna preempt it. Yeah. At face value, that seems reassuring enough. Just in terms, I notice there's you know, the headline price is subject to you know, adjustments on completion. If any adjustments are required, does that primarily adjust the scrip ratio offered or the cash component or the mix of both?
It will start out with the cash and work its way through.
Finally from me, just on the shareholder approval to issue the additional shares and, you know, if shareholder approval isn't obtained, there's that different cash-scrip payout ratio. Has there been discussions with the existing shareholder base to get, you know, comfort around what the elections might be?
Yeah. The backstop arrangements were put in place just in a mechanical way. I assume you know many - you would be aware that at this point that, you know, many deals are done like that. There's always those kinds of mechanisms put in as a backstop. The reality is that, you know, we have a diverse range of shareholders, but on our board, we have something in the order of 75% of our shareholders do sit on our board, or board members that represent the funds that are the underlying owners. They are in separate entities, and so we do have to be careful that our board members act in the interest of Latitude and their organization then will act in their own interest.
You know, obviously vote in the way they need to vote. We will be, you know, pursuing, you know, the initial offer of asking for getting the 150 million shares and the rest in cash. If in the event that did not occur, that the shareholders didn't want to issue 150 million shares, we've created this alternative mechanism where we have the capacity to issue 45 million shares and the rest we will do in cash through our own capital structure and our reserves to fund the deal. Obviously, you know, when the time comes, we'll see how that goes. At the moment, we're working on the assumption it'll be 150 million shares.
Yeah. Okay. Appreciate it. All right. That's it for me, guys. Thank you very much, and congratulations again on sealing the deal.
Yeah, Ben, thanks for asking that question.
Thank you. Your next question comes from Tony Mitchell from Ord Minnett. Please go ahead.
Good morning. I'm just wondering, in view of the deal now being approved by both boards, do you think that you've paid if you've got this on the cheap? If the scheme of arrangement
Tony, you work for Ord, and I think that's for you to decide, the answer to that question. All I would say to you is, you know, the economics of the deal is obviously we wouldn't do it and we're not gonna go buy something if we didn't think it was an attractive deal. That's the first point. You can assume that a few of us have been around a long time and, you know, we obviously wanna make this attractive. I think this is actually a brilliant deal for the Humm organization. If you think about it, their market cap was, you know, where it was, and this is a pretty full price from their point of view relative to their market cap.
Now, the advantage that we have is this enormous synergy number. That doesn't exist without us buying the business and the ability just to take that business and put it onto our platform and to get those outcomes. Those outcomes are truly amazing and are highly value accretive. Now, we've got to do it. We've got to actually execute and do the work. But in such a complementary organization, it really gives you huge optimism. Now, here's the beauty about the way we've done this, which is, it's not as if Humm say, "Well, gee, you're gonna get all this upside," but actually the shareholders of Humm benefit too, because the value that we create, they will share to the tune of 150 million shares that they will get to their shareholders. Their retail shareholders don't miss out.
They're actually participating to the extent that they hold on to those shares and benefit. I'm very excited by this as I was at Australia Post when I bought StarTrack. We bought that business, and we bought it, and we saw what happened to the parcels e-commerce boom, and we set it up, and we were able to really leverage the structural benefits that occurs. This will create a lot of value for both shareholders.
Are you surprised that no other organization bid for this business?
Well, I don't know who's bid for the business, but I read their announcement where they said that, they had, you know, some offers. So I did note that, and that's fine. You know, that's just the way it is. Really that's a question for them to answer, really, about, you know, what else occurred in their organization. From my point of view, the alternative is to say, who is the most complementary organization in Australia? I. We've got synergies.
Yeah.
I think that's the really big difference. The second part is that, think about how fortuitous our timing is, you know. It's. I'm sure it's not lost upon you what's happening around the world to this sector.
Yeah.
where all the prices have gone. You know, I think I'd like to think that commentators would like to think that not only is it a good strategic deal, but our timing is not bad either.
Okay. The other thing is it correct to say that this deal, if you get it over the line, will substantially widen your share ownership significantly, particularly if the 150 million shares are issued. As a result, does that mean that, from an index point of view, that you could get included in a major index which you're not included in now because your shareholding structure is so tight?
Well, I mean, Tony, that's an excellent point. I haven't labored that point in this presentation, but I'm sure it's not lost upon those that just think about it for a few minutes. I mean, one of the biggest issues that we have with our stock, we're the only profitable player in this sector, and yet our liquidity is really, really poor because we did a compliance listing, and we don't have enough volume trading on the market. That's what's holding the stock back, not because we don't make money. We make a ton of money. We're trading on a 8% dividend yield. Then you'll see on Monday, you know, what our results are and all this kind of stuff. You know, if you look at our half-year results, we're profitable and we do well.
The issue is that the lack of liquidity. What this opportunity does is that it takes our free float from somewhere in the 20s and assuming 150 million shares goes into the 30s. As you, I'm sure, are aware, one of the major indicators for indexing is you got to be above 30%. There's a few other things you got to do.
Yes, yes.
That's the key one. You got to be above 30%, and we will be above 30%. This gives us, in addition to everything else, an opportunity to get indexed. Once we're indexed and the liquidity that comes with that is a massive upside for shareholders in this stock.
Right. Can I ask you, why didn't you bid for the other part of the business?
We're not in the commercial business, we're not in the SME business, and we're not interested in that activity. That is not part of our strategy. This is on strategy.
Right. Just on timing of this in terms of, you know, meetings and scheme arrangements and Humm shareholders meeting, when, what's a realistic date do you think that this could actually be consummated?
Look, our target, our preference, you know, what we know and everything we know, because, you know, you can't force a regulator to make any decision.
No, no, I know.
You know how that works, right?
Yes.
You know, if all things go exactly the way historically they've gone and so forth, we should be able to get this done by the middle of the year. Really we're in the hands of the regulator gods. All of the internal stuff, like, for example, we've got our AGM in April. We'll be putting all our notices out soon, you know. I know that the Humm organization will be working through their board approvals and all of that. You can imagine over the next 3-4 months, we'll be working all hours. In parallel, we'll be getting the relevant regulatory reviews done, and we hope we'll get those answers.
Anyway, the target is to have it done by June, and we'll see how we go with the regulators.
All right. Just a final question. There's been talk in the press that, on the assumption that this deal goes through and you're effectively consolidating the sector, and as you've addressed, there's increasing regulation. Would some of the smaller players that are listed and haven't done so well, would they be attractive opportunities for you as well once this deal is done, or would you have to wait until you get this thing done?
Mate, I'm just trying to get through to this morning. I can barely think about how I'm gonna handle this weekend.
Yeah. Right.
Yeah, look, you know, I think we're pretty excited about where we're at.
Yeah.
this opportunity.
All right.
We're gonna focus on.
All right.
on getting this done, and
Yes.
We'll see how we go.
All right.
All right. Thank you very much, and thanks for the questions.
Thank you. Thank you.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question is from Rhett Kessler from Pengana Capital. Please go ahead.
Hi, Rhett. Rhett, I can't hear you if you're asking a question. Operator, do you wanna issue those instructions again, just in case?
Yes. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Rhett Kessler, your line is live.
No. I think we must be having some telephony issues. Maybe, Rhett, if you can hear us, we can't hear you. Maybe you can ring Matt Wilson after this call, and happy to see-
Sorry. I think I found the problem. Sorry.
Oh, there we go.
Is that better?
There we go. I thought if I give you enough time, you might solve the technology thing. I can give you a plan if you want a Samsung or an Apple.
Thanks. Thanks very much. Appreciate that. Just a quick question on the cards business for Humm. Last year made AUD 64 million pre-tax. You're predicting AUD 35 million in 2023. Certegy is not included in that, which I think you get your hands on as well. You've got a mainly cards business, I think. But does that mean that the they said only made AUD 12.5 million in the first half. Does that mean that was specific to them that the credit card earnings got crunched due to COVID, or was it yourselves as well?
Let me just give you just some context, and there might be some words or naming points that you've used. Firstly, if I remember correctly, the AUD 65 million was their group result, not their cards result. That's the first thing. I think that includes the commercial business as well as their cards installments and buy now, pay later business. Anyway, we'll check that, but that was my memory of that number you're talking about. The first thing I just wanna point out is that we are only, as I've been saying today, only buying the consumer business. In their own press release today, I think Humm said half their profit comes from commercial and half their profit comes from consumer. That's the first thing.
In their press release today, I also note that they've given some indications of what that business, the consumer business has made in an unaudited results. That's very important to note.
No, I take your point. Just so we're clear, the FY 2021 numbers come from their annual report where they break up what the Aussie and New Zealand cards business was. That's excluding commercial, and it was AUD 64 million. They made some losses in investments and stuff elsewhere, but six... I'm just, you know, it's-
Yeah.
Just-
Yeah. I'll continue on that all I would say to you is the business that we're looking at in terms of what we're buying in terms of the 2021 results did not indicate that they made AUD 60 million in cards. I can tell you that categorically. They're indicating to us that they made AUD 25 million from the analysis that we can see for 2021 that they're working on an after-tax basis of AUD 25-odd million or AUD 35 million pre-tax, which is the number that we're familiar with and on the business that we're buying. The second point that I just wanted to indicate to you is that our business is not a cards largely cards business. I'm happy to have Rick. After this call, we'll send you a portfolio breakdown.
If you look at our traditional credit card business, which is mostly the 28 Degrees business, it represents about 5% of our portfolio. Our installments business, which is attached to a credit card like the GO Platform, which is an installments, you know, which we use at many retailers like Harvey Norman, has the installments business on it, and then it has also attached to it a general purpose credit card, like a Mastercard that's attached to it or the Gem card which has a Visa card attached to it. If you look at our business in terms of that credit card general purchases as opposed to the installments business, it is insignificant, a very, very small proportion of our business.
Whereas Humm does a little bit more in traditional cards in New Zealand than what we do. Where I'm going with all of that is the card industry or the card pure general credit card business is not something we're interested in and it's not a very big part of their business, and it's certainly not a very big part of our business. We have a specialty, the one exception being our specialty 28 Degrees card, which is a really important opportunity for us in the travel segment. What I called out earlier in this call, I'm not sure if you heard one answer to one particular question that I gave, and this is quite important to a part of the business that we're buying.
When we analyze the consumer business today using their unaudited 2021 results that they reported, what I can say without breaching any confidentiality 'cause it's well-publicized, is yes, in that profit number there are some one-off numbers of gains or releases of provisions that that are components of their profit. When we come to do our normalized earnings and look at the true business in terms of revenue, expenses and profit, we are suggesting that in the year 2023, next year, calendar year, we can generate AUD 35 million from the three activities that they do: buy now, pay later, installments and cards. That does not include any COVID provision releases or any macro overlay releases in calculating our number of AUD 35 million. It's real profit. It's revenue minus expenses minus bad debt provisions.
Okay. Yeah, I'm just looking at the fiscal year 2021 numbers which, you know, sort of contradict what you're saying in terms of the magnitude. I'll take that on notice. I'll follow up later.
Yeah. No problem.
Thanks very much.
If you like, after this call I'd be delighted if you could call Matt Wilson and then why don't we just compare notes? It's probably gonna be even easier to do that once Humm announce their results early next week and we're gonna do ours on Monday. It might be better to use those December 31 accounts 'cause then you can do your like for like analysis. At least see it the way we're seeing it anyway and we can then maybe better understand yours.
Gotcha. Thanks very much.
Thanks, Rick. Thank you very much. I think that's the end of the questions. And thank you all very much for your time. We're well within our hour slot. Can I just thank you all very much on a Friday for taking the time to do this. We're very excited about this opportunity. We think it's going to be very much value creating for our shareholders. I look forward for many of you to join us on Monday where we can tell you about the success what we achieved in 2021 and look forward to seeing you or speaking with you at that time. Have a good afternoon.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.