Results presentation. All participants are in a listen only mode. Today's presenters are Daniel Foggo, Chief Executive Officer, and Miles Drury, Chief Financial Officer. The presentation will be followed by a question and answer session. If you're an analyst, a broker or institutional investor and you wish to be added to the question queue, please press the Raise Hand button visible at the bottom of your screen. I will now hand over to Daniel Foggo, Chief Executive Officer of Plenti. Please go ahead.
Thank you, moderator, and thank you everyone for joining us this morning for our results presentation for the year end of 31 March. We're pleased to be delivering these results today, which in a year when many lenders have struggled, firstly, show how we've continued to grow our loan portfolio and revenue really strongly. Secondly, show how our technology-led business is delivering significant economies of scale. Thirdly, how we've delivered robust cash NPAT growth. Let's get into our results presentation, if we can put that up on screen on page two. As a reminder, Plenti is a technology-led lending business. Amongst other things, we're a prime lender, we're cash NPAT profitable, we're taking share across three large lending verticals. We're technology-led with a team of around 50 product and engineering specialists, and we're founder-led with a long-term perspective.
In total, we're a team of 200 Plentineers, all committed, devoted to building Australia's best lender. Moving to page four on the results we achieved last year. In terms of metrics, we grew our loan portfolio strongly, up 36% to AUD 1.8 billion. The 67% growth in our average loan portfolio in the year drove strong revenue growth, up 62% on PCP to AUD 143 million. We drove robust Cash NPAT of AUD 4.5 million, up AUD four million on the prior year, despite margins being compressed for much of the period. Finally, we maintained our track record for delivering really strong credit performances. Credit outcomes, which are leading across our listed peers in each lending vertical. All these metrics are pleasing as our operational and strategic advancements which we are most proud of.
Notably, we enhanced our retail investor platform, which during the year we passed AUD one billion in loans funded. Peer-to-peer lending is alive and well. This included creating a new investment market, the Notes Market, which allows us to provide a high return to our investors while also allowing us to recycle our corporate capital invested in our ABS notes. We further advanced the depth and diversity of our funding base, including through the issue of two ABS transactions. Thirdly, we advanced our technology platform, including through the launch of Green Connect, a service which helps make the purchase of solar battery systems more affordable to Australian households. Moving to page five. We've delivered really strong loan portfolio growth every year since we funded our first loan in 2014. We kept the track record intact in the last year, growing our portfolio 36%.
We did this despite increasing our borrower rates to at times being well above our competitors, so we could earn the net interest margins we wanted to achieve. Pleasingly, our portfolio growth was reasonably consistent across each of our three lending verticals. Moving to page 6. This slide shows we've been successful at consistently growing our revenue. Importantly, it also shows that we've been able to translate this increased scale into improvements in Cash NPAT profitability. Note Cash NPAT we report is post all of our technology, product and technology development costs, which were AUD 10.4 million in FY23. On page 7, regarding our delivery against objectives and expectations. When we presented at this time last year, we set out how we saw our FY23 playing out in light of the rapid changes in interest rates that were taking place.
I'd like to think the picture we painted at that time has proved to be accurate and that we've been able to achieve the expectations we set. As we show on this page, we successfully achieved the objectives we articulated for the second half of the year across growth, profitability and operating leverage. On page eight, we highlight our competitive strengths. I won't talk through each of these strengths. I will emphasize it is these points of difference and the investment we've made in each of these foundations over the last decade, which have allowed us to continue our momentum over the last year, whilst many other lenders have encountered issues. Moving to our three lending verticals.
Firstly, in terms of automotive finance, as you can see on this slide, we have driven strong growth in our loan book over the last year, up a cool 34%. This year has been most notable for firstly, the growth we've achieved in our EV funding, helped by our relationship with Tesla. Secondly, the growth we've achieved in lending to commercial customers, which went up over 200% year-on-year. Although I'd highlight our consumer auto loan originations were lower than the prior year. Of our three lending verticals, this is the channel where competitors were particularly slow in passing on higher funding costs to borrowers. We chose to prioritize it in the right NIMs or the right net interest margins rather than maximizing on originations.
We continue to set the standard, especially in terms of speed and ease for others to follow in broker channel, where we originate most of our auto loans. We are excited about our plans to continue to raise the bar further in this channel. Moving to renewable energy lending, our smallest lending vertical, but one that is very important to us. With elevated power prices, increased awareness of the benefits home battery ownership, and a very supportive federal budget, a vertical which we believe is set to deliver continued growth. The year has been very pleasing, not just with the 44% growth in our loan portfolio, but with some exciting initiatives coming to fruition.
We built and launched Green Connect, an innovative point-of-sale platform which brings together renewable energy product manufacturers, energy retailers, equipment installers, and Plenti's cost-effective finance to provide Australian households with access to a broad selection of more affordable home solar battery systems. Our team that drove this initiative have proven Plenti can really impact the shape of the loan markets it operates in through bringing partners together and building binding technology. Whilst the early days, we've already seen our Green Connect platform help us win key accounts as they see Green Connect as helping drive the future of the market. Moving to personal lending. As we expected in a higher interest rate environment, and with the COVID lockdowns behind us, we are seeing strong industry-wide demand for personal loans, with ABS data showing 20% growth year-on-year.
Our RPL business has shown solid growth, primarily driven in the first half by our high-performing broker team, and in the second half by the market share gains driven by our recently appointed direct-to-consumer team. Our direct-to-consumer loan originations grew by over 50% half-on-half. We now have over 700,000 Australians in our ecosystem. We see this ecosystem and the attractive economics we earn by lending directly to the space as a key competitive advantage given our differentiated scale. What's driving the strong performances across each of our lending verticals? On page 13, we set out some of the technology initiatives we've been working on during the year. We've long talked about our unique proprietary, fully featured technology platform and the benefits this technology ownership brings.
In financial terms, as I mentioned, we invested over AUD 10 million in product and technology in the year. I think a very marginal dollar invested is helping to drive either market share gains or improved margins over time. It is this investment which lets us consistently raise the bar and set the standard for others to follow in each of our verticals. On this page, we show some of the tech projects we brought to life over the year. You can see driving efficiency of operations and automation has been a key focus, as well as growth projects such as Green Connect. On page 14, we show a series of charts that evidence the operating leverage we've been able to achieve as Plenti scales. We are proud of these metrics. Most notably, we're really pleased with how we've been able to drive down our cost-to-income ratio year after year.
In FY21, the year of our IPO, our cost-to-income ratio was 55%. In the last year, this has reduced to 34%, making us a very low-cost producer. In the next year, we expect to be able to show this ratio continuing to improve, being able to reduce from 37% in the first half to 31% in the second half of FY23. Finally for me, before I pass to Myles, is our credit performance, as seen on page 15. As you can see from these important charts, we've continued to deliver very strong credit outcomes. Our annualized net loss rate over the years is only 68 basis points, and our 90-day plus arrears at the end of the period were only 42 basis points. Less than half of what many of our peers might show. Why is our credit performance market-leading?
Our technology platform lets us make smart credit decisions. As I said this time last year, others might say this, but the proof is in the data. Looking forward, whilst we've taken a prudent approach to credit over recent years, despite the benign credit environment, we continue to fine-tune our credit appetite and credit policy. That's the state of our operational performance. I'll now pass to Myles to talk through our financial performance.
Thanks, Dan. Clearly, the highlight of the FY23 year was delivery of a meaningful Cash NPAT results of AUD 4.5 million. This was achieved through strong revenue growth and effective cost control, which helped overcome the impact of margin compression from the rising market interest rate environment. In terms of growth, loan portfolio growth remained good, with the average portfolio up 67% year-on-year, which fed through to a broad equivalent growth in revenue at 60%. Margins were the story of the year. I will talk to that more on the following page. Obviously, we put a lot of work to recover the impact of the significant market movements in the second half of calendar 2022.
The key driver of profitability was really good cost control across the business as our technology-led model drove operating efficiency, notwithstanding investment in a number of areas to support future growth. One important item to call out is that as a result of improved profitability, the group was basically self-funding through the year and all cash usage related to supporting growth in the loan portfolio. On the funding side, we continued to develop and strengthen our warehouse and ABS programs as the scale of the portfolio grew. We also enhanced our retail platform and we're particularly pleased to introduce a new market which supports recycling of capital for ABS transactions to allow the business to grow while consuming minimal capital. On slide 18, margins were clearly the story of our FY23 year in the context of a volatile macro environment.
Despite funding cost headwinds, we were able to restore margins in the year to return margin stability post the first half. As investors are aware, we saw a very rapid increase in funding costs around March to April last year that materially impacted margins on new loans written. Plenti made a clear decision to proactively raise rates to adjust for this increase in funding costs. There was a lag in our ability to do this given we needed to remain conscious of competitive pricing. This impacted portfolio margins in the first half, which reduced to 5.3%. By the second half, we'd restored margins on new originations to be in line with or above the portfolio average, and this remained the case through the period.
Given the relative size of new originations compared to the existing portfolio, it does take some time to move portfolio margins. In the second half, there were also some offsetting margin impacts, most notably with the expansion of the larger of our two auto warehouses. The combination of higher margins on new loans and offsetting funding cost changes on the overall book resulted in stable NIM half on half, which we had indicated would be the case. Pleasingly, the exit rate for margins on new loans is above the portfolio average. We see portfolio margins remaining broadly stable as the year progresses, including due to some more facility repricing and acceleration in growth in the auto channel, which has a lower NIM profile. Transaction costs on new loans are also down slightly, reflecting some reductions we've been making to broker commissions.
Strong credit performance remains a feature of the Plenti portfolio, given the type of customers that we fund. Our overall credit result for the year of 68 basis points was an excellent performance when you compare across the market. We've been consistently clear, however, the last few years have been very benign for consumer credit, and a return to longer-term trend was expected. If anything, the surprise has been that it has taken as long as it has. We saw this adjustment start to happen at the back end of last calendar year, again, consistent with broader market trends, and hence why we provided an average actual loss rate in March and April to give a better sense of where credit currently sits. Another useful indicator of the credit outlook is the ECL provision.
You will note that the ECL provision rate at the start of this calendar year ended up being about two times the actual realized losses in the year, and the ECL at our last balance date is now running just above two times the current portfolio realized loss rate. We do expect to gradually increase loss rates from here, but based on environmental performance, we think we are largely through the normalization phase. Slide 20 sets out the P&L, where the key dynamic is the one I referred to earlier. A material increase in cash NPAT to AUD 4.5 million, driven by strong revenue growth, with operating leverage being demonstrated on the cost side. This cost performance helped offset the headwind of higher funding costs due to market factors and corporate debt costs of capital used to grow business.
In sales and marketing, we actually reduced spend as we didn't repeat some brand investment from FY22. Also managed direct digital acquisition spend carefully. I note that we actually increased loan origination volumes from the direct channel, even though we spent less on digital advertising in the period. We continued to invest in product and technology and increased spend there, primarily in team and salaries, while general operating expenses grew at about a third of book, again, largely in salaries. One observation to note is that we spent all of our technology spend. Numerous peers take the approach of capitalizing technology spend. To provide comparability, we've shown indicatively what the impact on Cash NPAT would've been if we'd capitalized tech spend.
In the FY23 year, we could have capitalized approximately AUD five million of spend, which would've seen Cash NPAT at AUD 9.4 million for the year. We provide further detailed half-on-half analysis in the appendix. On slide 21, we provide an overview of funding developments both on the loan portfolio and corporate funding. With growth in the loan portfolio, we've continued to expand and develop our funding program, which is now very well established across our warehouse, ABS, and retail investor platforms. In the year gone, we successfully completed two more ABS deals, with total issuance in our program to date exceeding AUD 1.3 billion.
The most pleasing aspect of our ABS deals this year has been the introduction of a number of large international investors to support the program, and we continue to work actively to diversify our base of supportive investors as the portfolio grows. Following the successful deal of Green ABS in February, we indicated we expected to follow similar timing to last year on our next auto ABS, so you can assume that we are well progressed in preparations for that. While warehouse headroom gets a lot of focus from investors, we see it very much as BAU activity and continue to increase and decrease as needed, depending on book growth and the timed ABS deals. From a corporate funding perspective, FY23 saw us continue to access capital and recycle existing capital to support business growth.
The corporate debt facility was introduced just before the start of the FY23 year, followed by the second facility and establishment of the Notes Market at the end of calendar 2022. This market allowed us to offer an attractive new product to our retail investors, while also recycling our capital in ABS transactions back to supporting growth. Importantly, the business was self-funding on an underlying cash flow basis for the loan book growth funding in the year. The appendix contains more detail on cash flow and some information to help bridge the statutory result to actual core cash flows. Being in a position to operate on an ongoing basis without needing additional capital other than growth is an important milestone.
With the corporate debt facility and ABS note recycling capacity, we've also given ourselves tools to access capital to support our growth going forward. With that, I'll pass back to Dan to talk about prospects and outlook.
Thank you, Myles. We've been positive about FY24, as you can see by the objectives we have set, which are, first, in terms of growth. After keeping loan originations reasonably stable over the last year, we expect to grow loan originations over the coming year, which will support continued loan portfolio growth and help grow our revenue to over AUD 100 million. Secondly, in terms of efficiency, we expect to reduce our cost-to-income ratio to below 30% and remain on target to deliver AUD 25 million in efficiencies as our loan portfolio scales towards AUD three billion. Thirdly, in terms of profitability, we expect to drive robust Cash NPAT growth. Moving to page 24, we want to provide some color on how we see FY24 playing out half on half.
We have shown over recent years a significant shift in profitability towards the second half of the year. We expect this to play out again in FY24, primarily driven by, firstly, an uplift in direct-to-consumer marketing expenditure in the first half, given the improved economics we are now achieving in this channel. Secondly, a continued uptick in credit losses in the first half after the very benign credit environment of the last two years. We expect profitability in the second half to be boosted by the continued scaling of our loan portfolio. Briefly, on page 25, we set out the benefits of scale we expect to achieve in the medium term as we set out in our half year results in November last year.
Our objective is to deliver AUD 25 million in cost benefits as we double the size of our loan portfolio from one and a half billion dollars to AUD three billion. Achieving this requires our cost to grow at 0.46 times or lower, we are confident of achieving this given our historical performance, with this being around 0.35 times. In summary, it's been another solid year in which we continue to grow our loan portfolio and revenue strongly. Secondly, we leveraged our technology strengths to deliver significant economies of scale. Thirdly, we delivered robust Cash NPAT growth. Thank you very much for listening. I'll now pass back to the moderator to facilitate any questions you might have.
Thank you, Daniel. We'll now take questions from participants. As a reminder, if you're an analyst, institutional investor or broker, you wish to be added to the question queue, please press the Raise Hand button visible at the bottom of your screen. When your position in the queue is reached, you'll be able to ask your question of the presenters directly. I'll now pause while the question queue is compiled. The first question comes from John Hind. John, you may go ahead.
Good morning, Dan and Miles. Thanks for your presentation. Thanks for taking my question. Great to see the revenue guidance you issued today, AUD 200 million, which is really encouraging and obviously growth year-on-year. Can you help us think about where that comes from on a vertical basis, please? Perhaps if you're willing, you know, we can talk to how that may impact profitability as well, given each of the verticals, you know, do operate with different profitability levels.
Ask you, Miles. Well, if you want, John, talk about volumes first, and then I'll talk about the profitability of the channels.
Sure. Thanks.
In terms of volumes, we actually, on our portfolio over the last year, we saw real stability across the contribution from each of the different channels. When we look ahead into FY24, you know, I think it's really apparent that there's a greater growth opportunity for us in the automotive finance. You know, we funded a large amount, a larger amount in auto finance in FY22. When we look ahead, or sorry, in the past year, obviously, we quite deliberately pulled back our originations given we didn't like the numbers at that time. When we look forward, we're moving more into a growth stance. Given the size of that market at around AUD 35 billion of originations every year, we've got a small market share.
There's a much greater growth opportunity there. Yes, we do expect a greater contribution from auto, but we do expect to continue to maintain, you know, growth in both renewables and personal lending. John, from a profitability point of view, I don't think. As the portfolio's scaled up, although as Dan said, you know, you probably think of it slightly more growth in auto than in peer and renewable, which both of which we obviously continue to want to grow. You're not gonna see, I don't think, a huge shift in the way that the, you know, the portfolio composition looks just given the sort of relative sizes.
You know, I did talk to, you know, probably margins, you know, being more stable rather than sort of at the levels we might've seen in the last month or two. To an extent that reflects a bit more auto, given it does tend to be a lower margin product. You know, I think really what we like to or we seek to do is, you know, drive profitable lending across all of our different verticals, you know, which then drops through margins, through transaction costs and operating costs to the bottom line.
Thanks. I'm just interested from the vertical growth, given, you know, auto's a touch softer. Not softer, it's not the right word, but there was less growth in it than personal this year. You're expecting that to reverse a little bit more?
I think that's fair. We see a, you know, a great opportunity in auto, which you know is in front of us.
Yeah. That is that coming from less participation from competitors, or just continuing down that aggressive, I guess, market share growth for the categories you wanna be lending to?
I particularly called out commercial automotive finance, where, you know, we actually saw our volumes reduce in the last 12 months. We see an opportunity to restore them to where we were in FY22 and.
Okay.
Consumer, sorry. You know, that is a large market. We, as we mentioned, you know, other lenders were quite slow in increasing their borrower rates when funding costs went up. We deliberately, you know, reduced our volumes on the back of that. That is leveling well now. We see more sensible margins. There's an opportunity to grow and derive the right economics.
Okay. Just if I can touch on loan losses, then I'll get back in the queue. You're still sector leading there from the print today, I think. Given the way the book's shaped in the last sort of six to nine months, and I guess the loans, the roll-offs that have been taking place in the last two years, I mean, should we... I know it's ambitious, but could you potentially say that loan losses stay flat-ish over the near and medium term? I mean, do you think, given your model, that we could actually, you know, see a new normal around these levels?
I think we've tried to be, and we've been telling people that, you know, what we've seen over the last year or two is not where it was gonna be long term. We obviously gave a bit of a view of where things were in March and April, around 90 basis points. I think we said we expect, and this is not necessarily to do with our lending, it's just to do with what's gonna happen in the broader market, that ticks up a little bit from here. I mean, I can't. I think, you know, if you look on a sort of long-term, you know, context, something in the one to low 1s is probably where, you know, things should settle. Obviously, we'll see exactly how the year plays out.
You know, we're part of the way there now. As you say, you know, those types of numbers would still be, you know, even if we moved to that, would still be very favorable compared to, you know, the broader market group, which reflects the credit we're writing.
Thanks. Just on those losses, can you just maybe walk through the mechanics on some of them? I mean, where are they appearing? Like what vertical? I assume it's not renewable. Are you getting, you know, like for the... If you're seeing losses in the asset back, vertical, I mean, are you able to get that asset back? Are you retrieving, and being able to convert, I guess?
Yeah. The, the losses emerge as you'd expect, given kind of the risk profile and yeah, frankly, the margins that we charge. You know, personal lending is the highest. Auto would be the next, and then renewable, given their larger home owners is the, is the lowest. In terms of recovery on the, on the auto side, I don't think we've seen a significant shift in our recovery rates for vehicles. You know, we're still getting back a long-term view. There's kind of 45% recoveries on those losses. I don't think that's moved substantially in the last six months. Yeah, it's more just the broad, you know, the broader shift.
We know that the last, you know, 24 months have been, you know, an abnormal environment, and we're just getting back to what was, you know, kind of the usual for markets that look like this.
Great. Thanks, guys. I'll get back in the queue.
Thanks, John.
Thanks, John.
As a reminder, if you're an analyst or institutional investor and you wish to be added to the question queue, please press the Raise Hand button visible at the bottom of your screen. When a position in the queue is reached, you'll be able to ask a question. I'll now pause while we wait for any further questions. Next question once again comes from John Hind. John, please go ahead.
You got to the front of the queue very quickly there, John.
Yeah, I know. Thanks for looking after me. The release obviously talks to some delivering some enhancements to technology and improving the customer experience. Given by the guidance you're talking to, it looks like, you know, that investment's taking place now. Can you perhaps share some more detail there? How do you measure the success, and how do you think? Ultimately, I think, you know, you want this to separate you from the competitors. Just a little bit more color on the product and how it's evolving would be great. Thanks.
Sure. Yeah, you're actually right. We invest heavily in technology. We've got a very high proportion relative to other lenders of our headcount focused on product and technology. It's a key differentiator of our business, and we expect to continue to leverage that to grow market share and also hopefully to be able to just sustain or build a margin premium versus other lenders. How do you achieve that? It's really by delivering an easier experience, much greater speed, and much greater ease for our partners and our end customers. Over the last year, we've spent a lot of our investable time and energy and product and technology focused on driving efficiencies as much as a better customer experience. Although those two things often do go hand in hand.
We're speeding things up at the back end and making it more efficient for us, then that typically leads to a better experience for the customer as well. That was the focus over the last 12 months. We don't think we're finished in terms of prioritizing, the operational efficiency and feeding that through that customer experience. It is a priority for the next 12 months to continue to do that. As you can see with the launch of Green Connect, we're always working on growth projects as well. We do expect throughout the year, you know, we're not gonna provide clarity on what products we're going to launch.
If you look at the history of this business, we've typically moved into a new channel or launched a new product of one sort or another, every year. We don't expect this year will be different.
Great. Okay. You've had another good year in terms of your cost-to-income. Lots of, you know, I guess lots of wins there. With this next layer of investment you're making now, Do your targets change at all? I guess we had leverage coming through the business quite significantly in FY24, and I think that's in line with what you're trying to tell us today. I mean, could we be looking at a greater leverage than we first thought with the, with the business?
I don't have your numbers, so exactly what you've got in your expectations, but yeah, we clearly want to keep on driving leverage from a cost point of view. I think maybe just splitting it down into the different sections though. I think sales and marketing this year we have flagged that, you know, given the performance of that team in, you know, driving good volumes, you know, on, you know, attractive cost per funded loans, you know, we do expect to increase our investment in the year, and that's one of the things that'll impact the first half result, given that goes straight to the bottom line. So you can expect to see some increase in that. You know, we're not talking, you know, enormous numbers, but we will accelerate spend there.
you know, technology spend, you know, we probably don't have quite the level of growth going forward that we probably saw in the last little while. We've obviously got a pretty substantial team in place now. We will add, you know, a few more people, and yeah, obviously salary increases occur in that channel, but there's probably less pressure in tech salaries than there's been previously. We'll do a bit more there. you know, across the G&A side of things, a lot of that's driven by sort of growth in loan book and growth in origination. I don't think. Our objective there is to be better than what we've done previously, and as Dan says, that's about, you know, using technology to continue to improve efficiency.
Again, the historical trend is broadly not a bad guide.
Great. That was very helpful. Thank you very much.
Thanks, John.
Thanks, John.
There are no further questions. Thank you again for joining Plenti Group Limited's Full Year 2023 Results Presentation. This concludes today's webinar. Good morning.