Ladies and gentlemen, thank you for standing by, and welcome to the Resimac Group FY 'twenty one Investor Call. At this time, all participants will be in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to your speakers today, Mr. Scott McWilliam, Chief Executive Officer and Jason Azzopardi, Chief Financial Officer.
Please go ahead, gentlemen, and thank you.
Thanks, James. Good morning. It's my pleasure to welcome you to Redfinax Rodolf's investor conference call for the year ended 30 June 2021. My name is Thomas Williams, CEO of Resimax with me and Jason Azzopardi, our CFO. We'll be talking to the investor presentation once we get this morning and welcome any questions at the end of our presentation.
If I think back 12 months ago, even 6 months ago, I don't know if anyone could anticipate that the last portion of our population would be locked down again today. I hope I'll get to everyone and then see if anybody's virus. Supporting our impacted customers through these difficult times continue to be a key focus for the business. However, notwithstanding trials and tribulations brought about COVID-nineteen and other adverse events, the Redeemak Group has had a great year. We were pleased and humbled to be awarded Nonbank of the Year 2020 Australian Mortgage Awards in recognition of the compelling brand proposition we offer to our third party distribution partners and also our customers.
Resinac Group has been well placed to serve the increasing strong residential property market demand through the strength of our multichannel distribution model, which now includes 2 new brands that we launched in FY 'twenty one. Our new direct to consumer channel brand, homeless.combu, as well as Resimac Asset Finance, which enables us to offer a full suite of lending products to customers and commercial borrowers. Looking now to Slide 2 of the investor presentation, I want to highlight fiscal 9% on the prior year. The Royaltyn issued our lowest margin prime and specialist R and D transactions since the GSE, reflecting strong adjusted demand for our mortgage backed securities. Homelands.com.au launched in September 2020 and has contributed to the growth of our direct consumer assets under management, which increased by 10% to $1,900,000,000 The lower cost of funds from prime line has supported our aggressive growth strategy with strong lead generation and are driving effective cost per settlement and a market leading front end technology providing customers with a seamless online application process.
We're in our Asset Finance launch early in the calendar year off the back of our 100% acquisition of IA Group. We launched the new branch in the broker channel in April with strong support from our broker partners. This was followed by the launch of our new online direct to consumer channel. By restructuring the business as warehouse facilities, we've been able to reduce the cost of funds, enabling us to offer competitive loan products across consumer and commercial finance. Over in New Zealand, our revenue plan continues to go from strength to strength, reporting $405,000,000 in settlement in FY 'twenty one, up 81% on the prior year.
Our securitization program in New Zealand followed the same trend in Australia, with our RMBS prime dealers issued at materially lower senior margins compared to previous year. Furthermore, the new origination system launched in August paved the way for a faster and more streamlined loan processing for both of the New Zealand. Can I please ask everyone to turn to Slide 4, where I'll provide an overview around the filings? In FY 'twenty one, the group generated statutory profit after tax of $107,600,000 up 92% compared to FY 'twenty. To provide the market with a true underlying recurring profit of the business, we normalize our profit where we receive 1 off income items unlikely to be repeated in future periods.
The normalized profit after tax of $104,000,000 excludes the fair value gain on our equity investments. This profit increase is underpinned by a 29% increase in net interest income to $242,700,000 driven by a combination of home loan assets under management increasing 11% and home loan interest net interest margin increased 17 basis points to 207 basis points. The higher net interest income combined with our continued cost discipline resulted in a significantly lower cost to income ratio of 32.1 percent for the year, a decrease of 5.90 basis points. I'm particularly pleased we continue to optimize our use of capital with our return on equity at an industry high level of 36.9%, an increase of 11.40 basis points. As a result, we have increased the FY 'twenty one final dividend to 0 point 0 $4 and the full year fully franked final dividend to $0.064 a 113% increase on FY 'twenty.
Finally, moving to Slide 5, I wanted to call out our operating expenses and loan impairment expense. Firstly, operating expenses increased $8,500,000 or 14% compared to FY 'twenty. As I outlined at half year, our core banking replacement project is well advanced with $7,800,000 of cost incurred in FY 'twenty one. The cost of this project has been fully expensed in the profit and loss statement. We expect a further full $1,000,000 of cost to be incurred in FY 'twenty two specifically related to this project.
Secondly, loan impairment expense of $2,700,000 decreased 88% compared to FY 'twenty. You will recall last year, we raised a COVID overlay of 16,400,000 dollars This overlay is now released, and all loans credit risks are assessed individually within our expected credit loss model and will remain so going forward. We remain conservative on the potential credit risk on loans currently or previously in hardship and have resumed payments. The movements in our collective provision are summarized in the table on Slide 13. Thanks, guys.
Moving on to Slide 8. I'm pleased to report our Home Loans business and growth trajectory continued with Resimax setting a record home loan settlement of $4,800,000,000 up 3% compared to FY 2020. Most pleasing is the momentum we built in the second half settling $2,700,000,000 an increase of 25% compared to the first half. This growth is driven the strength of our Broker Direct brand in BUNT Australia and New Zealand. Our high market competition is and I'm pleased to continue to demonstrate the ability to increase assets and our management at a multiple of system.
Our home loan portfolio increased 11% to $13,800,000,000 across all products and channels. Once again, the second half momentum is evident with annualized AUM growth in the second half of 14% compared to 8% in the first half. Finally, our treasury funding continues to deliver outstanding results. The second half feature of record low single margin on our RMBS issuance with our high quality portfolio and origination strategy resonating well with investors globally. As reported to the market on Friday, we priced at $1,000,000,000 prime RMBS at levels not seen since the Q4 of Q3, including 3 gs notes pricing and bills by 68 basis points.
These oil cost of funds allow us to aggressively target product segments, but we believe we can take market share. Our cost of funds will continue to benefit into FY 'twenty two and beyond from these lower RMBS margins. As mentioned earlier, we are pleased to report the Board has declared a fully print final dividend of $0.04 per share, resulting in a total dividend for FY 'twenty one of $0.064 per share. I'll now quickly touch on our growth strategy before moving on to questions. So I can ask you please to move to Slide 16.
Our mission is to create a digitally enabled non bank lender providing innovative, competitive and accessible lending solutions to more high lenders, consumers, businesses in Australia and New Zealand. Our WESP Mac branded home made businesses in Australia and New Zealand are designed to offer a broad spread of products with flexible lending solutions aimed at a wide audience, facilitated predominantly through third party brokers. This is our largest channel and largest opportunity measured by AUM and a market and strategy we've been refining and executing on for many, many years. We built this business on the promise of a superior service to brokers and customers and that promise remains unchanged. Fundeloads.com.au is our new online direct to consumer brand, servicing a growing audience who prefer to engage online and directly.
We believe this market will continue to grow as customers become more and more comfortable transacting online. It is a customer led digitally enabled low touch points channel targeted at a specific audience. The growth of this channel is a strategic priority for the group. Redeemak Asset Finance enabled us to service what we believe in an underserviced market. It is a logical and adjacent opportunity for the business to offer new products to new audiences, leveraging off our existing funding program and distribution platform.
Consistent with our home loan strategy, a strong digital experience will underpin the delivery and service proposition across asset finance. Finally, our strategy is to continue to grow our assets under management and our molecular system. We believe our current investment in digital transformation combined with the growth of our brand across brokers and also the direct channel in the Australian Union position us well to settle at least $8,000,000,000 in home loans and $1,000,000,000 in asset finance in FY 'twenty four. I'll now hand it back to your 3rd questions.
3rd questions. Our first question comes from John Hinde. John, your line is open. Good morning, Scott and Jason. Congratulations on a good result, and thanks for taking my question.
Thanks, John.
Great. If we could perhaps just touch on the outlook for your NIM. The second half is down a little bit. Could you perhaps help us understand that a little bit better? And perhaps how much of a benefit you expect the recent RMBS issuances that have been done at quite attractive rates?
How much do you expect that to impact your NIM in 2022 and beyond?
Yes. Thanks for the question. Look, I think the way to look at NIM is in 2 factors. The one is the home loan pricing. Now clearly, we are seeing
very, very competitive pricing on new business
in the market, and that is continuing. And there's absolute pressure. We're not immune to that pressure on yields. The yield factor in FY 'twenty two will largely be dependent on back book runoff. We are seeing a lot of competition in the market, and we are seeing when that back book runs off, it can be a hit on our yield.
We obviously are hedged to that is the amount of specialist settlements that we can originate in FY 'twenty two. So we do expect yields to continue to decline in FY 'twenty two, but we think that we're going to hit the bottom in FY 'twenty two. In terms of cost of funds, I've tried to best demonstrate the benefit of RMBS issuance on Slide 10. And what I've got on that chart there is how much we've originated in RMBS in each year and what the margins were in each year for those RMBS. Now most of our RMBS deals, there are a few exceptions, are 4 year deals.
So that allows you to start projecting about what's rolling, what's turning out on our RMBS and what will and what benefit we're getting from the new RMBS. In summary, we're going to get the benefit from these low margin RMBS for the next 4 years. And the longer we continue at these low margins that we've been able to originate in the second half, our blended cost of funds is going to continue to benefit from that.
Great. Thanks very much. And just 2 more from me. With the ABS business, conscious that you probably don't want to discuss the product publicly just yet. But I mean how receptive have the Brophyryne's network been to date?
And can you perhaps give us some color on the book in the second half? I think it was about 80,000,000 dollars in the first half. We were able to sort of drive that business this period. And I guess then with the qualitative statements around the targets you've got for $1,000,000,000 by FY 'twenty four?
Yes. You're right. I'll go back to the first piece is we are seeing month on month growth in settlements through that channel and which obviously is encouraging, albeit we haven't fully launched ourselves to affordable distribution yet because it's important that we've got the process and the technology right to take advantage of that opportunity I touched on earlier where we do believe it's an underservice market. So our investment in technology within Asset Finance is pretty similar to the way we think about investment in technology and digitalization within kind of our business. And we will be prepared the business will be prepared to have production to support more than $1,000,000,000 to say almost in a year by FY 'twenty four.
And so we're encouraged by just albeit we're coming off a low base. We're obviously doubling or trickling the book. That's why we're trying to think of it. That is likely to happen for the next couple of years because we are coming off low base. And we believe those targets are very realistic.
All right. And just one more on that guidance slide. Sorry?
And did you talk on quality or how is that based?
On quality? Sorry, I was talking about quantitative or qualitative. Just one more on that guidance side. They're pretty aggressive targets. How do you I mean, how do you plan to get there?
And how much when you think when you step back and you think about the environment you're playing in, how much is perhaps incumbents not playing as much in your space and pulling back? And how much is Resimac taking share?
So David, as we grow and continue to grow AUM at a multiple systems, we are obviously taking market share. But when we step back and have a look at that kind of number, when we kind of forecasting out of what are the targets we set ourselves and how we're setting up the business today to give ourselves the best chance to hit those targets. When we write them down into monthly settlements and you think about the size of system, it's still not big numbers. It is a $400,000,000,000 a year home loans market. So when we're making statements that we believe with the service proposition and the technology to support that, we're looking to take more than $8,000,000,000 of that.
It gives you a lot of comfort because I wouldn't call them overly aggressive. And the same is the asset finance as well. And it is a very, very large market. And we believe there is an opportunity for us to in the near term, and I'll call it 3 years in the near term, to take 1% or 2% of that market. So when you bring it back to monthly settlements and you look at our business and the different channels and brands that we have, when you think about them in isolation, we believe that they're very achievable.
Great. Thanks. Thanks very much, guys. I'll jump back in the queue. Welcome.
Our next question is from Tim Lawson. Really just almost a follow-up to the discussion you've been having already. But in terms of the core system, you put up the investment. How important is that in being able to sort of
do the volumes you're talking about? So in terms of doing the volumes, Tim, what we're rolling out in terms of our new origination system, which we've actually just rolled out in New Zealand and we will be rolling out in Australia, staggered rollout in Australia between now and probably the end of October, is that particular system that probably more supports production? Is that particular system that allows us to find scalability when thinking about settlements. The core system that you touched on is probably more important when we're thinking about user experience because it very much then supports the back end experience with our customers when we're thinking about the weighted average life of our customers, which is obviously extremely important because it's that particular system that also is supporting that banking experience and that mobile app experience that we're looking to roll out in New Zealand and in Australia in the near term. So the origination system, which we just rolled out in New Zealand and just about to roll out in Australia, is more about helping us in supporting production and also reducing turnaround time and driving scalability.
The second piece is more about UX.
Yes. Okay. And when that expense that's currently going through the P and L is done, does that just disappear? Or do they get those costs remaining
in some other way in the business? It's a good question. So we look, we think our investment in process and digital, we'd like it to continue. We would this is a large transformational project. It would be definitely the highest cost one off project.
We want to continue to invest to build scale into this business. We have very, very large growth ambitions. So the honest answer, we don't have that mapped out what we do post the transformation project because it is so large for us. But we want to continue to invest in this business long term and keep positioning it for future growth. So I don't want to commit and say definitely yes because there will be an element of spend.
Whether it's the same amount of that project, it's to be determined. Okay. Thank you. We don't have any there's no plan for us to go through a project of this size in the near term. I've been told you I only replace your core bank in just months in the career.
But what we will be doing going forward is I don't think we actually ever invest. So yes, stop investing in technology and driving kind of that digital outcomes, which is all around speed, effective learning user experience. What we will do going forward is we'll continue to build applications on top of the foundation, which is that core banking system that we are in the process of replacing. So we won't be looking at projects of this size in terms of individual project size from a dollar perspective nor from a time period perspective, but we will continue to invest in our even around that platform, especially from an application perspective to continue to improve that user experience, which benefits us internally from an efficiency perspective, but obviously very much driven by the user experience at the Street level.
Thank you. Our next question is from Michael Kent.
Yes. Fantastic result. I know that you've increased profit like 80%, 90% for the last 2 years. How do you think that the market should be or maybe internally, how do you measure your performance? Is it a combination of return on equity, profit growth?
I mean, what I'm just curious as to what's the incremental measures you have for measuring performance and what your objectives might be in that regard? Yes, the good question because internally, we don't actually spend a lot of time looking at the numbers that drop out of the bottom of achieving our KPIs. So the numbers that we do look at internally around cost income ratio, so I think that's kind of a demonstration of whether the business is obviously is growing and looking for efficiencies within the process and the system also demonstrates the cost discipline. And hence, sometimes easier during strong times for costs to build some back in those costs. And that's obviously something that we're very focused on and so is the board.
And the other thing is return on equity. We won a capital efficient model. We'll continue to run a capital efficient model. And I think that's there are probably 2 measures we talk about quite a bit internally. And the other and which is probably becoming a growing pipeline when we think about internal conversations, which should then just result in greater settlements, greater AUM and a growing profit is customer insights.
We are very much focused on moving towards more of a data driven organization to build out on the intel that we have today. Things around predictive analysis and things like that It's something we spend a lot of time talking about. So that's the measure of customer experience. It's probably a KPI internally that we talk about quite a bit. So I'd say across those three measures, that's probably at 80% Okay.
What about dividends? Do you get the much discussion about that internally? I know you've got pretty big store of franking price there. I mean, it's great to see the increased dividend, but you probably could increase your payout ratio from 25% and still have enough sort of room for growth, couldn't you? Yes.
Look, we're mindful of supporting the organization or investing back in the organization for further growth. We still see ourselves as a growth stock more than a yield stock. And I believe with the improvement in our payout ratio, albeit it's still modest, during that kind of 20% to 30% range. We recognize the importance of obviously delivering those profits back to shareholders. But growing investing in terms of our technology and investing in our plumbing program is critical to our growth.
And we will continue to support what I'd say is a modest payout ratio. And in time, we'll move towards what we believe will be a healthy blend between a growth stock and a yield stock. Thanks, Scott. Just to add to that, we've always run a very capital efficient business, which is clear in the middle of the rally. We're talking about some ambitious growth targets, and we do need capital for that.
Asset Finance requires a bit more capital than high loans and the funding structure that Scott's alluded to. So we are reinvesting capital either into the projects that we're doing or into our funding programs, which will deliver long term benefits to shareholders. We've got the track record where we've done we've had efficiencies of capital out for now, and we'll continue to do that. We're not sitting on piles of cash and not using it efficiently, I can assure you. You.
Our next question is from Andrew Tan.
Scott, Good day, Jason. Thanks for the questions, and well done. And thanks for your efforts in managing the business. Just a question about the comment about warehouse funding. I guess, the margin of that was elevated during COVID.
So is there a benefit from that normalizing, I guess, going forward? Yes. So you generally do. So your warehouse pricing or margins will generally follow market pricing. So obviously, the 1st round of COVID, I would say, 12 months ago, where credit spreads moved out, so does warehouse pricing.
But obviously, as credit spreads have moved in, in the term markets, for them, so will warehouse pricing. On average, and I'm not saying it happens, it's correct every day, but we But generally, your warehouse pricing will charge at a slight premium to your term pricing. And the reason for that is, by definition, it is warehouse. The objective is to move from that warehouse into the term market. So there, you can understand it needs to be more attractive to move into the term market and to support that process.
But the 2 generally move together. There might be a slight lag between warehouse price and the term market, but they generally price increasingly. Okay. So And if you're spending should pay us pricing stay where it is today for the whole of FY 'twenty two, that would be a tailwind to mid compared to 'twenty one? The average warehouse price in 'twenty for a manger is today will be lower than 'twenty one.
And how do we look at that? I guess, is it similar to that RMBS chart you put in that Slide 10? Well, it's not so to Scott's point, it prices a bit a small premium to where recent pricing is. But the thing is every time we do an RMBX, we can't immediately go back to all our warehouse providers to get a rate price that we only got about 2 months ago. So the new issuance is assisting us with warehouse pricing.
And some of the offshore warehouse was maybe 6 months renewals. I mean, we might have to wait a 4 month period before we can to reprice that. So what it is is the R and D strategy is a great benchmark for us to allow us to be able to get a variety of warehouse providers, and we just negotiate and working hard on every basis point on that regularly. Okay. So if I'll be having a perfect guess?
I don't want to pin down the basis point number. I'd rather look at total cost of funds. I might just take that away and come back to you, Andrew. Okay. But I guess, it was a headwind of 4 bps in FY 'twenty one, so it should be a tailwind of 4 bps at least in FY 'twenty two.
Yes. And to split that, first half 'twenty one was a headwind of 7 bps. It was a tailwind of 2 bps in the second half. So we would expect that tailwind new originations coming on and a full year of lower warehouse costs. We expect funding cost to be a tailwind in FY 'twenty two.
But as I noted earlier, RER, yields a fair headwind. Okay. With the run off of the back book, what's driving that? Is it early repayments of borrowers? Or was it refinance activity?
Look, it's both. And we're seeing it across the market with our peers. There's a lot of people looking at their personal balance sheets. There's a variety of factors that we're seeing.
So
we're doing everything we can. We're doing everything we can, but the reality is there's a lot of back book pricing. It's a lot higher than total. And people are looking at that and making a change, and we're doing everything to make sure that change is sustainable on that home loan journey. But sometimes, it's difficult for us to retain if we find out too late.
So look, that's a very real good focus for the business at the moment. It's how can we keep originating at the levels we are and increasing that, but also retaining a loan as important as originating 1. And we've got a number of initiatives in place to try and reduce that. Okay. And just jumping to the Resimax asset finance side.
Is it loss making at the moment? Like is it well, are you absorbing the losses in the business as you start that business up? No. It's all a profitable business. It's sort of profitable business.
But and you are growing many book. It's a slow start as you're investing in the program. You're investing in technology. You're investing in staff. And then before you find that kind of hockey stick sets 2 to 3 years out.
But it's a profit making business today. And obviously, we have high incentives of its contribution to the overall growth in 3 to 5 years' time. And we think about things like NIM that you're just talking about, helps you kind of balance your NIM trade off or where it is, we call, risk adjusters. But it's a market where we tend to grow in and we see great opportunity in. And the performance of that book, despite the fact it's still relatively small, has been exceptional.
Okay. Great. And just lastly, just about the IT costs. I just wanted to understand whether that is that $4,000,000 in FY 2020 incremental to $7,800,000? Or is it really a net reduction of $3,800,000 that's going to be expensed?
No. $12,000,000 So it's $4,000,000 of OpEx in FY 'twenty two, not $11,800,000 $1,000,000 Does that make sense to what you're asking right? Yes, so one off expense. Yes, yes. Okay, got it.
Yes, yes, 7.8 this year, following in next year on that project. Okay, great. Thanks very much. Cheers, Andrew. Thanks, Andrew.
Our next question is from Stanley from Bell Potter. Stanley, your line is open.
Hi, Scott and Jason. I'm assuming that's me. But looking back on the side of the gold. Look, just a quick question. There's obviously a reasonably big uptick.
Just wanted to understand the profile of that going into FY 'twenty two. Yes. So obviously, strong momentum in the second half. And if we break down into quarters, a strong 4th quarter, with obviously healthy momentum money into FY 'twenty two. So that answers your question.
What was the main driver of that? Like what caused the uptick in the 4th quarter? Look, we were pretty targeted. And I think we're going to make some statements as well, but we're all going to be certainly targeted, especially in relation to the new prime market where we saw opportunity, especially where we could see credit specialist RMBS deal. So it was very much supported by quite a targeted campaign around the new prime market.
And to test that market as well for depth and quality. That was probably the main driver behind it and well supported by our growth community. Okay. So what was the split between the 3rd Q4? Don't have the split in front of me, Stan, but the 4th quarter was strong in the third quarter.
Okay, okay. And should we be looking at as if it's sort of a run rate of the Q4 going into the first half? Obviously, it's difficult to look that far forward, but would that be your expectation? Steve, I think that's kind of fair, but obviously, we're still in this day what we're and it looks like we're going to be in quite some time. So yes, I think that's a fair assumption to make that into the Q1 with a bit of uncertainty around that second quarter, which should be at most of our.
Yes, yes. Okay, great. That's all from me. And yes, look, congrats again on a fantastic result.
We appear to have no further questions at this time. I'd like to turn back to my presenters.
Thank you, everybody. I appreciate you taking an hour to have a good day to our results. On our Asset finance business. We're looking forward to executing on our core banking platform within the next 6 months, which again will benefit the businesses, but also our borrowers and our growth partners. And take care.
Thank you very much.
Ladies and gentlemen, that does conclude today's conference. Thank you all for attending, and you may disconnect your lines.