Good morning, and welcome to Money3's investor webinar for the results released this morning for the first half of financial year 2022. From the company today, we have Scott Baldwin, the Managing Director and CEO, and Siva Subramani, company's CFO. Scott and Siva will go through a presentation shortly that's up on the screen. Before we do so, I'll just remind you that this call is being recorded, and you can submit questions via the Q&A button at the bottom of the screen. I'll now hand it over to Scott to get started. Thanks very much.
Thanks, Simon, and thank you, shareholders and other interested parties for joining the call today. We have some very good results to share with you. I'm pleased. Myself and Siva Subramani, the CFO, is here. He's just off camera at the moment, though. Let's go through the results. Highlights. This has been a standout half for the business. Anyone that's followed the story would know that the last couple of years have been interesting, with the pandemic. Certainly a standout 56% increase in new loan originations for the half, which is a combination of organic and inorganic growth. You would appreciate we acquired Automotive Financial Services, the prime credit quality business at the start of 2021, so not all of that is flowing through. That's the inorganic path.
The organic growth has very much come from the Money3 business, the core original business of the Money3 group. One thing for investors to take on board is a lot of that 31% growth through the Money3 business has come from increasing numbers of customers. Not only have we benefited from a little bit of our asset appreciation, it's only about 5% in terms of average loan, we've very much benefited from serving more customers over the half when you compare it to the prior corresponding period. 56% growth, a very good result for us. Sets us up for a very strong FY 2023. You'll note that the loan book is just under AUD 700 million at the moment.
We've called out here that we believe we have all of the things we need and the right momentum for the loan book to finish the financial year at AUD 800 million. For many of you that have followed the story would know that that puts our revenue next financial year in that sort of AUD 240+ million mark. The foundation is set for a very solid year in FY 2023 as well as the second half of this year. Revenue up 34%. Off the back of that growing loan book, you should be expecting similar sort of growth in revenue going into FY 2023 as well. NPAT up 29%. We have certainly benefited from improving credit quality in all markets. You'll see that in the further slides on credit quality.
Our clients are generally telling us that, you know, with strong employment and strong asset pricing, that they are paying their loans back quicker than we would expect, and that they are not experiencing any sort of challenges repaying their loan. We have many customers that are now in advance of their loan commitments. EBITDA growth has come through, solid 27% growth year-on-year. Loan book, as we said, 47% year-on-year growth. 15% growth since June 30, AUD 690 million today. We're calling out that we want investors to think that by June 30, we expect to be closing the year at around AUD 800 million. We think in the following year, calendar year, that our loan book starts to hit that AUD 1 billion.
Just in terms of debt funding, you know, we have a mixture of debt and equity funding the business, and as we're calling out here, we have all the ingredients we need today to get our book to AUD 950 million, so AUD 250 million growth on top of where we are today. We have confidence with the initiatives away in terms of approving our warehouse in New Zealand, adding an additional mezzanine funder, and also just some retained profitability over the next twelve months of closing that gap to get to AUD 1 billion. That's the highlights for the half. Just moving on, a little bit about the group. Many of you will already be existing shareholders and have heard this. I really wanna call out the strengths of the business.
At the heart of our group is a very well-positioned collections team. Our customer care team have been with the business for around 20 years now. They have a very strong strength of managing repayments for the client as and when needed. We do think that if there is a downturn in the market, that this team is what's going to set us apart from many of our peers in terms of our ability to collect on our receivables. New loans originations continue to grow, now peaking at around AUD 40 million a month.
We think we're set to start and break that regularly moving into this half and beyond, particularly as investors should expect strong growth from the Automotive Financial Services business, the prime credit quality business that we acquired at the start of last year, really starting to leverage the Money3 distribution network and grow its monthly settlements. As we've called out many times before, Money3 has invested significantly in technology along the journey. We have a lot of integration with our partners, which is why our number of customers continues to grow as we grow our business partners and as we grow the efficiency of our technology of acquiring a client. That continues to improve, you know, every month within the business with investment we have in technology.
We also have seen record levels of returning customers. For the core business of Money3, one in three customers over the last six months return to us to buy a second, third or sometimes fourth car and have us funding it. That is improving our credit quality, is lowering our cost of client acquisition, and is allowing us to continue the story with a customer that as your journey continues with Money3 and you buy more assets over time, your funding continues to improve. Works for us and it works for them. Many of the strategies we have in place for the Money3 group, we're now starting to leverage in the two acquisitions that we've acquired, Go Car Finance and Automotive Financial Services. You should be seeing greater presence from the group through our three dealer, broker and direct distribution channels.
The acquisitions that we've made have broadened the addressable market. If you consider consumer, commercial, personal lending across the two countries, I think the addressable market in its entirety is AUD 33 billion. Through this slide, we try and break it down so you can see that each segment where its focus is. Just a little bit on each of the business units. Money3, that's the core business unit. It's been around for over 20 years now. We've originated that through that business, well over AUD 2 billion worth of assets. More importantly, we've also collected on well over AUD 2 billion worth of lending in that segment as well. It's a very profitable, fast-growing part of our business.
I just wanna call out that over the last six months, they've done a fantastic job of increasing their volume on the car price current on PCP by over 30%. A lot of the growth that you're seeing coming through in this half has come from the Money3 business unit, where if we were sitting here 12 months ago, you would have heard us talking about Go Car Finance being the driver of growth. It hasn't produced as much growth in this half, Go Car Finance, our New Zealand operations, simply because of lockdowns. Victoria's lockdown ending has driven Money3. Our growth engine that we acquired just on 12 months ago, Automotive Financial Services, that business already had 30 years of trading history.
What Money3 has very much been able to bring to that is an expanded distribution network, which is driving more growth through that business. Collectively originating in Australia approximately AUD 25 million-AUD 30 million a month. Relative to the whole market for new and used commercial vehicles consumer vehicles, we're still a very small player in that AUD 14 billion vehicle market. Just moving on to the financials. As you'll see, 30% increase in revenue. Margins is probably the worst part to call out. We think we're starting to see a trend back to normal in bad debts. That's why EBITDA margin has come back just a little bit, but we think north of 50% is where we continue as a business.
NPAT margin, I know we've called this out many times in the past. We think sort of that north of 25% is where we are. We continue to sit a little bit ahead of that, as a result of, you know, good execution and some favorable bad debts. We think that trend continues. Just calling out again, AUD 690 million of loan book is where we finished for the half. It would have been more if we put it through our profile for standard cash collection, but we are still experiencing accelerated cash collection from our clients.
With New Zealand restrictions easing somewhat coming into the second half, and them really starting to get back to their usual growth profile, we think getting to roughly AUD 800 million at June 30 is very achievable for the group. Just calling out some highlights here. I wanna take investors to the loan book because that's the best thing we can show you to predict the future. The largest section there, 60% of the business is coming from the Money3 business unit. You'll see that Go Car has grown to 28, and you'll see that AFS is 12%. As those other two businesses grow significantly in their relative markets, and with the pie growing, what you'll start to see is their revenue contribution growing over time as well, in line with the loan book.
There's just a lag. Money3, in terms of revenue contribution, will continue to decline. However, do expect the pie to continue to grow as well. The loan book is the leading indicator of where revenue is going to come from in future periods. Just calling that out. In our first 12 months, we managed to grow that business by almost 80%. That was really by leveraging the Money3 tried and tested distribution channels. That has been a solid contributor to that growth in AFS. In terms of its further growth, we think that investors should expect AUD 10+ million a month starting to come through regularly for AFS. That loan book percentage will continue to grow in the second half.
Go Car Finance, over 300% growth since we acquired it. For those that have followed that journey, the earn-out has come to an end. It's the management team there is still in place and staying with the group, and we expect good growth to return out of that Go Car Finance business as pandemic restrictions ease. Money3, the core business unit, really the standout in the last six months, 30%+ growth in new loans. Only a 5% increase in the average loan size. Calling that out, given that there's been a lot of conversation about appreciating assets in the market. We have experienced that.
It just may not be as much as what the investors think. We feel that a lot of the increased asset pricing is starting to stabilize very much towards the end of last year. For those of you that remember last year, we negotiated with General Motors, and we bought the business that traded as Holden Financial Services or GMF Australia. That customer care team in the Money3 business continues to collect that. We've seen some of those customers come back for a second loan already, which is delightful. We've also seen given that many of those are for the purchase of a Holden Colorado that they've appreciated given the current market. People are interestingly paying out those loans so that they keep those assets.
It's been another acquisition that's been a very good contributor to our bottom line. Just moving on to our capital structure. A lot happening on this slide. Just calling out the loan book and our forecast. I think we get to June 30 with AUD 800 million of receivables. Hopefully, as you build your models and start to look at the business, you can see that that drives us to a revenue next year in the mid-200s. You can work out what that does to profitability, but we think that all the momentum is in place for a very solid result and uplift on this year in FY 2023. Just moving on to the continual improvement in credit quality.
You know, while that book is growing, the book is growing and the credit quality continues to improve. You can see that from the slide on the right. As that credit quality continues to improve, investors should expect to see the impairment provision across the portfolio continue to wind back a little bit, and our ability to raise debt continue to increase. Improving quality is meaning that not only can we have higher leverage, it is also likely to drive down the cost of funding. The Money3 group is a little bit late to that party in terms of acquiring debt. We're still principally funded by equity. I mean, our loan book is principally funded by equity. Around AUD 300 million of that AUD 690 million is the equity of the business.
That means that with that low leverage that we go into the second half. No, there won't be any repricing in what the equity costs us, so you know, we will not feel any increase in debt like some others might. Also, considering that we're a little bit late to acquiring debt, our debt costs are probably higher than some of our peers and likely to continue to trend down, even in a rising interest rate environment. Certainly in the near term because of improving credit quality, lifting leverage and our scale as we grow the amount of debt funding that we have. Currently funded by four banks and another institution across the group, all with appetite to you know grow their partnership with Money3.
You know, we're just delighted that we have so many options in terms of funding now compared to where we were two or three years ago. Not only do we have the options, we have better pricing coming through and greater leverage. All of those is why we say we have a lot of confidence of our return on equity continuing to improve towards that 20% mark, as we put our capital management plan in place throughout our business. Just moving to the outlook before we take questions from shareholders. Forecasting that our NPAT will be in excess of AUD 50 million this year. We're also forecasting or have declared a 6 cent fully franked dividend to be paid on the 29th of April for the first half.
We're restating our dividend payout policy of 40%-70%. We tend to stick to that moving forward, so shareholders should have confidence that those dividends are within that range. Now, we're also reintroducing the dividend reinvestment program. We think now is the right time. The volatility of the market seems to be returning back to the normal, so we've reintroduced or, you know, activated the dividend reinvestment plan. We encourage all shareholders to participate in that, as a small discount will apply. We have talked about our aspiration of getting to AUD 1 billion. We think that that's next calendar year. We also have a lot of programs in place that will help us build the second AUD 1 billion into our business organically.
We're also calling out that we think that there will be opportunity in the market over the next 12 months to acquire some businesses that help us broaden our addressable market or improve our mix of products. We particularly think that the commercial loan sector, an opportunity may present itself or personal lending. That's the end of the presentation. We'll end that there, and Simon will take any questions from you that Siva or I can answer.
All right. Thanks, Scott. First question, can you just talk to or explain the reasoning behind the higher bad debts expense as a percentage of revenue?
If you go back 12 months, 'cause that's what you're comparing against, those bad debts, we would say, were artificially low. We called that out at the time that we were a large beneficiary of the superannuation release. When the government put that program in in Australia, we found that many of our customers potentially utilized that program to pay down their debts, and it did drive down our bad debts to an artificially low level. Bad debts are our annualized bad debts at the moment are trending at around 3.9% of the receivables. We think that is more normalized amount of bad debts and what we think that we will deliver towards the end of this, you know, financial year.
We think in the range of 3.5%-4.5% is where we expect our bad debts to end, and that's a more normalized number. It's not that they've gone up, it's just they've returned to normal.
All right, thanks, Scott. Next question from Jonathon Higgins at Shaw and Partners. Can you talk us through expectations on finance and in particular milestones coming up and how the group can deliver funding reductions into a rising interest rate environment?
Look, it is a rising interest rate environment. There's been many questions on that. As a business, we were late to the party in terms of creating our warehouses, which means we have paid a little bit more than many of our peers. But in this current environment, because we're at that stage, we've improved the credit quality across our business, we've proved that we are, you know, are able to manage and deliver that to banks. We believe that there is still. Our next movement is probably a reduction in the cost of fundings, even in a rising interest rate environment, and that's driven by low leverage, high credit quality of assets.
You know, 3.9% annualized bad debts is lower than many of our peers, and some of them would argue that their credit quality is better. You know, we continue to improve credit quality. Low bad debts is what's allowing our funders to pass on some better cost of funding, as well as that scale continuing to grow. Investors saw evidence of that just before Christmas in the relationship we have with Credit Suisse, where Credit Suisse was able to upsize the facility, also shave off some pricing in that facility too, which we'll be able to deliver to the bottom line in the second half. We think that trend continues across our business.
Thanks, Scott. Next question from Jonathan. Bad debt expectations as COVID provisions are released and what you're seeing across your customer base.
Well, we're seeing a customer base that is managing the pandemic very well. We certainly have seen as the media drives concern, customers tend to repay their loans faster, and we've benefited from very strong cash collections. There's no indication in our book that there's going to be any worsening of our bad debt over the next six months. You know, if anything, we're expecting this normalized level where we are, 3.5%-4.5% bad debts is probably the range. We think that we're very comfortable that's where it's going to land for this financial year. People should take on board that there's some things in our customers' favor. Unemployment is very low at the moment, so it's very easy to have a job.
There is some wage inflation that is going through, which is making it easier for customers to repay their loans. Finally, anyone that is turning over their vehicle at the moment is, you know, if you've bought a car in the last three years, you're probably selling your car for more than you paid for it, which means it makes it very easy to pay out a loan. There's a lot of tailwinds in terms of bad debt that we think benefit the group, particularly in the next 12 months.
Thanks, Scott. Final question from Jonathan. You're conserving your equity for book growth, but any other thoughts on capital uses?
Well, as you see, our business in terms of new originations grew 56% in the first half. Our focus very much is that strong organic growth through building out or leveraging the three distribution channels across all of our network. The number one place we wanna use the equity in our business is to support the equity layer in the warehouses that we've created and grow our receivables to that AUD 1 billion as a short-term step. That's the number one pushing for that growth. The second place we think there's opportunity to deploy our equity is potentially in acquiring either a book or a business that gives us greater distribution or another product.
Finally, you know, you'll see with the AUD 0.06 dividend, we're starting to return to paying out, you know, good dividends from the business on a half-yearly basis. I think that trend, you know, investors should expect that to continue. Modest dividends, but a strong focus on growth.
Great. Thanks, Scott. Next question is from John Hynd at Wilsons. Can you provide a little bit more color on the current environment? Have you seen demand change in the last month or two? And will demand improve as travel opens up?
Demand has continued to be very strong, and I'll try and answer that by each business unit. The Money3 business unit is continuing strong demand for that product. Organic growth has been awesome from Money3, our high margin business. That we expect to continue through the second half. Now, New Zealand, it was pretty much flat in the first half as a result of restrictions. Restrictions in New Zealand saw dealerships close and no trade happened, so that really did impact us. Group growth is going to appear stronger, simply because New Zealand's starting to come back online. Midday today, the Ardern government sort of announces the next stage of restrictions. We expect the next level of restrictions easing.
We think New Zealand's starting to get back to its usual growth profile, which means as a group, we are growing faster. AFS. AFS, a business we newly acquired. We are writing circa AUD 5 million-AUD 8 million a month through that business today. We've been introducing that product, that prime credit quality product, to our distribution partners. And they have, you know, they have supported that very strongly. We think that continues. One of the things I wanna call out with the AFS business that we have focused our energy on is supporting local Australian manufacturers. They might be manufacturers and assemblers of assets. Think caravans, think horse floats, and think other sort of trailers, assets that are assembled or manufactured here in Australia.
1/3 of the assets that we funded over the last six months through AFS are assets that are built in Australia, you could say. We see strong growth continuing through that business segment moving forward.
Thanks, Scott. Just a follow-up question from John: How does the current environment position you for pricing? Can you raise rates?
That's not part of our strategy. You would probably appreciate that we, you know, we are not the cheapest provider of finance in the market. That's not been our strategy. We seek out niche, niches that have good margin. You know, many parts of our business have margins around 15%-20%. We think that we can maintain those margins through this period of time. So we don't plan to increase our cost. Our focus is very much broadening our addressable market. We have called this out as we broaden our addressable market, that we continually expect about a 1%-2% reduction in gross yield across the portfolio over the next twelve months as the business has more prime credit quality applicants coming in. I hope that answers that question.
You know, we are a business that's still that manages some very good margins that have been in place for some 20 years now. You know, we think that's the right sort of place to play, and we're growing our presence in that prime credit quality that's probably going to bring it down 1%-2% over the next 12 months.
Great. Thanks, Scott. Next question: What did New Zealand lend per month in first half versus expectations?
I might have to defer to Siva for the exact numbers there.
Yeah. Look, the average numbers in New Zealand for the first half were around NZD 7 million-NZD 7.5 million of lending, while the normal trend is well above NZD 10 million. We expect that kind of normal to come back in the second half.
What we should say is that in New Zealand, we saw a significant reduction in loan volumes towards the end of August. September in New Zealand was about 20% of usual volumes. We only settled loans in New Zealand in September that were pre-approved or assets in the pipeline because of the lockdown, dealerships closing. September was, you know, about a third of normal. Then it's taken a few months to build that pipeline back up again of pre-approved loans for vehicles to get delivered. We've seen, you know, October start to return. It wasn't until November and December that our monthly origination volume started to get back to the levels where we'd like to be, all of them still under July.
We're sort of seeing that softness continue in January but really starting to pick up now in February. We're very optimistic of the Ardern government winding back their restrictions a little bit after today's announcement, which will just drive further growth or returning back to those normal volumes in New Zealand. The call-out here is it's mainly September. The month of September is when we saw a massive drop-off. Started to go down in August, massive drop-off in September, started to pick up in October, and starting to return to normal, you know, sort of mid to late November. We think with further easing of restrictions, we get to the point where, you know, we're funding north of 500 vehicles every month in New Zealand moving forward.
Thanks, Scott. What is the gross loan book currently sitting at, and how should we expect the interest savings to improve into the second half?
Look, the gross loan book is currently sitting at AUD 690 million as of the end of December. We haven't disclosed what it is today, but it's AUD 690 million at the end of December, and we are confident of getting to AUD 800 million by 30 June of this year. Now, I might let Siva make a comment on where he thinks the direction of our debt funding cost is going.
Thank you, Scott. I think with respect to the debt funding cost, as Scott made some comments earlier, just to add to that we do have arrangements in our existing warehouse structure, where with additional volume, the margins are expected to go down, and we would expect by the second half we will start to fully utilize those margin reductions. Having said that, we do have a very low levered book, and the next stage in our debt strategy would be to increase leverage to optimal levels, with a future step in terms of a securitization term out. While I don't expect that to happen in this financial year, but that's kind of a next logical step we would pursue to have further reductions in our cost of funds.
All right. Thanks, Siva. Should we expect a provision release in the second half, and what's the possible range?
You'll note that our provisions have been declining as a result of improving credit quality. They're now at low 5%. You should expect to see that continue to decline over the course of this year. You know, I'm assuming that conversation question is relating to the pandemic provision we took a couple of years ago. By June 30 this year, that will have rolled into our normal provisioning. There's still a couple of million AUD of benefit that's likely to come through in the second half. It will continue to trend down closer to 5%, as we get to June 30.
Look, I would say Siva spends a lot of time on building that model and estimating what, you know, what unemployment looks like and other macroeconomic factors. They're all quite good at the moment. I know inflation and other things are coming, but strong asset pricing, a consumer base that's principally not owning its own home, so it doesn't have that same cost impact that some might appreciate, is giving us a lot of confidence that it continues to come down over the next six months with the growing loan book.
Thanks, Scott. Next question. What gives you the confidence that you'll have the same success with acquisitions outside the auto sector as you've achieved with GoCar and AFS?
As a group, we have acquired many businesses over the last 10 years that I've been here. I think the success comes down to we are looking for businesses that are within our wheelhouse. When we talk a little bit about commercial lending, what investors should hear from that is a ute, a van or maybe a bobcat. It's assets that are within our dealer network that we already deal with today. We understand the asset, we understand how to price the asset, particularly if it's a used asset, and we understand where that asset goes at the end of its loan life cycle.
You know, sticking to our strength, given that it's a very large market, we think sticking to what we know and what we know well it gives us confidence that any acquisition will continue to deliver to the bottom line. That's why we would plan to do it. We also have significant organic growth, so I don't feel under any pressure to buy something. I just think that there is going to be a market where there's been a little bit of overexuberance, and we're in a good place to manage a portfolio of receivables if they come to market. You know, if investors are looking for what gives us the confidence, the New Zealand acquisition, amazing people. They've rolled into our culture.
Their business is now over three times larger than it was when we acquired it. AFS, we acquired that a little over a year ago. It's now grown 70%. We've rolled those people into our corporate culture, and we've leveraged the distribution that we have today. Now, we haven't really called this out because it's a rundown book, but you know, we bought the Holden Financial Services loan book off General Motors. We've rolled that into the Money3 distribution network. And we actually haven't needed to acquire any staff for that business. The Money3 core team were able to absorb that in everything they do. I think it's what gives us confidence is knowing what we want and focusing on those things that give us one of two things. Product expansion.
What will be key is, you know, growing our product portfolio within the ones we know, acquire loans for assets, or distribution expansion, that would get us into another vertical to allow us to acquire more clients at a, you know, at a cheaper cost of client acquisition. The market right now is trending towards the high end. I mean, you would appreciate there is quite a bit of competition. Competition has driven up the cost of client acquisition considerably. We're just lucky as a group that we have multiple business units, a very large database of well over half a million clients. And we're a well-known brand, three well-known brands. You know, generally, they've all been trading for over 20 years.
We're able to capitalize on that market presence with our three brands.
All right. Thanks, Scott. That concludes the Q&A. I might just hand it back to you for closing remarks.
Thanks, Simon. Just to reiterate, the leading indicator in our business is loan book growth. We have a lot of confidence of our loan book exceeding AUD 800 million by June 30 and exceeding AUD 1 billion within the next 18 months. In order to get there, we need funding. We've secured funding through our warehouses today to get to AUD 950 million, and we're confident with the partners, banks that we have today and our growing equity, that we have everything we need for the next level of funding to take us well beyond AUD 1 billion. We also think that at the heart of our business is a very strong collections culture, which puts us in very good stead to manage any receivables that we've got across our business.
All of these things together give us confidence that FY 2023 is going to be a record year for the group, and that the growth momentum that you've seen over the last 12 months continues, given the work that we're doing today. Thank you, everyone, for taking the time to listen to Siva and I. I know that there's a few one-on-one calls with institutions coming over the next day or two. We'll look to answer your questions there. For anyone else, if something's unanswered and they'd like more information, please reach out to our investors at money3.com.au email to post that question or come back through Simon Hinsley. We look forward to hearing from you all shortly.
Thanks so much, Scott. Thanks all for joining.