Today's meeting is being recorded.
Today, I'm joined by Managing Director and CEO, Scott Baldwin, and CFO, Siva Subramani. Before I hand it over to Scott to get started on today's presentation, I'll remind you that you can submit a question through the Q&A function at the bottom of your screen. We'll address these at the conclusion of the presentation. I'll now hand over to Scott to start the presentation. Over to you, Scott.
Thanks for the introduction, Banjo, and thank you to all the listeners that have joined our results call for today. For those that wanna follow along, we'll be discussing the results that you can see on the financial year 2022 presentation that was lodged with the ASX this morning. Assuming that it's there for you to flick through. Let's start by reviewing the highlights of the business. As you will see, group revenue is up 30% year-on-year, and that's on the back of very solid loan book growth over the course of the year. What we've seen is a very robust increased cash flow that the business has collected over the course of the year, driving up revenue.
Loan book has been up 22%, a great result in the current year, we believe. Probably a little bit less than we had expected, but that is only because of the excess cash flow and a little bit of weakness in the New Zealand market. Net profit after tax of AUD 51.6 million is as promised north of the AUD 50 million guidance number that we're very proud to have delivered for our shareholders. Probably the most exciting thing for Siva and me on the deck that you'll see here is AUD 300 million of available cash flow. Available cash gives us a lot of flexibility.
You will note that, of the AUD 300 million of available funds, 122 million is cash, of which about AUD 70 million of that, roughly AUD 70 million, is unrestricted. Which gives the group, a lot of optionality in terms of our capital management program. Things that we will be considering, as a business will be, the dividend, using that excess cash for organic growth in our loan book, any potential acquisitions, and of course, as you may be aware, the company has a current buyback in place today. Leverage across the business, is currently at 47%. We think that's a fairly low leverage. As you'll find, further on in the slide deck, we have a capacity to take our debt to AUD 661 million.
We've got lots of headroom in that facility with cash and headroom to you know to continue the organic growth or the other things we talked about in our capital management plan. EBITDA has grown in line with revenue. You know, probably one of the challenges there that many would realize has been increasing labor costs. The other part for our business has been growth in provisions over time. We'll talk more about that later through the deck to explain bad debt and provisioning, and how we believe we've taken a rather conservative approach to that as a business. Earnings per share is expected to continue to grow over time, and thank you, Banjo, for bringing that up along with return on equity.
We're still on the first page there, just looking at the impairment provision currently sitting at 5.7% or AUD 39 million in absolute terms, versus bad debts in our business of 3.7% or AUD 27 million for the year. We believe that our impairment provision is conservative. We believe that we are well provided, given any market deterioration that may happen in the current changing environment. We do believe that we have a conservative provisioning across our business, which is prudent in the current economic environment. Dividend for the half is declared at AUD 0.07, which is flat on last year, but a 30% increase over the full year, so AUD 0.13 full year dividend for the business.
Given the available cash is also one of the tools that we're able to use in terms of our capital management. We'll skip through to the following slide six, if we can, Banjo. We'll just talk a little bit about why we think Money3 is a very good business. We have a very long track record of producing profitable growth for our shareholders, which is evidenced by the slides that you've just seen.
As a business, we continue to focus on a segment of consumers where, while the vehicle that they choose might be discretionary for the vehicle, you could consider that the asset itself is not so much a discretionary item because people are acquiring a vehicle, a used vehicle, typically, through our group, and that vehicle is helping them to get to work to earn an income. It also helps them to get the kids to school, but generally to participate in society. We do very much look at it in terms of the consumer focus of the business. While the vehicle might be discretionary, the purpose often isn't.
As a business, for many of you that would have followed the journey, you'll be aware we have a very strong customer care team that has really underpinned very strong cash flows, particularly in the Money3 business, over the last 12 months. No penalty for early pay up with any of our loans, which has meant that a well-funded consumer has taken a pragmatic approach to pay down their loans sooner than they otherwise have to, which we've benefited in the revenue that as you would see, the loan book has come off a little bit as a result of that excess cash flow. I look at that as a good thing. Bad debt performance, a specific slide on that coming up, but it continues to improve.
We sit here today with July's results, where we've seen further improvement. We're very happy with how the performance of our receivables and our credit quality continues to improve. One last call out on this page is as a group, why we think, you know, we're a good investment. We continue to have our growing and large database. We think evidence that the quality of the business is the 1/3 customers returning to take a loan, you know, off us again over the last 12 months. One third of the, principally the Australian business, customers have come back to borrow again. It's something that we think is testament to the service that we provide to our consumers. Management team here has a long history.
Whether it's some of the people like Paul or Brian that have recently joined the group, both of them come from automotive, a long history of automotive lending. There's a lot of talent within the business. Just talking further about the opportunity on the next page, we believe that we're well-placed to continue to take market share. Our view is that, coming into this financial year, we've seen more conservativeness from our competition. We do believe that particularly from March through to May last year, we saw some very aggressive competition in the market. As is the mantra of the group, driving profitable growth, we've only written business that we believe can produce a profitable outcome for us. We believe that puts us in a better long-term position.
We also have significant headroom within our facilities and also a cash position of AUD 300 million that puts us in a great position to either grow organically, which we expect to do. We expect to see new origination growth north of 20% this year, which will drive growth. We also have money to look for strategic acquisitions. Please keep in mind, we have been through many market cycles, as you'll see with the graphs we went through previously in the 20-year history of the group. We have managed positive and negative cycles that we've been through and continued to grow through that. Might jump to the next slide, please, Banjo. The financials for the year. Just the highlights in terms of last year's financials.
Revenue up 30% to AUD 187 million, driven off the back of that very strong cash flow has pushed that up. Given that we start this year with a record loan book, you know that you can rest assured that revenue will be higher than this number in FY 2023 because we start the year with the largest loan book the group has ever had. We also have good momentum in our lending volumes. New Zealand has been a bit subdued, but I'm excited to say that Monday, yesterday, New Zealand team advanced over AUD 1 million in new loans. That's one of the strongest days we've had for the last 12 months.
While there has been some softness in the market, really excited the Go Car business is starting to turn around. As you'll see throughout the slide deck, the Money3 business, particularly Money3 and Automotive Financial Services here in Australia, have both been having record years. Very strong new originations, AUD 467 million of new lending over the course of last year. We believe that we are in a strong position that will grow over 20% this year. We'll move on to the next slide. This is just sort of giving you a key couple of drivers of profitability to our business. Gross loan receivable, AUD 733 million. Deferred revenue, just under AUD 50 million. That's essentially the deferment of the application fee.
We defer all of our upfront fees that we charge to a customer, and they get released over the life of the loan. We know that means that we, compared to some peers, may have a slightly lower revenue up front, but it's part of creating a sustainable revenue release. You have AUD 50 million that you know is coming. Impairment provisions of AUD 39 million. Experience this year was 27. That 39 million is based on some modeling that Siva and his team have spent a lot of time looking at in terms of unemployment and other things that may happen in the economy as a result of rising interest rates.
We believe that we have started the year in a conservative position, which sets us up well that as our book grows, we only need to take up provision on new lending, as opposed to what may, you know, be a deteriorating economic environment. In our business, net debt AUD 300 million. This slide's evidence here. Sorry, it just moved a little bit too quick for me, Banjo. One big difference, standout difference between our group and many of our peers is that, you know, of our AUD 733 million of receivables, most of that today is still funded by equity within the group. That equity gives us an ability to compete in some sectors that our peers don't.
It also gives us lots of opportunity to continue to grow leverage, which will improve our return on equity and EPS over time. We can just move through to the next slide on debt. As you can see the facility limits AUD 661 million, drawn AUD 426 million. The number really to focus on though is the combination of debt and cash, which is the AUD 300 million available. We continue to focus on our diversified strategy. The different lenders have funded different portfolios within our business. That combination of six major banks, it also includes two partners that we have in there for mezzanine debt as well, which will improve the group's leverage, which will continue to drive NPAT and return on equity.
You'll see our return on equity has moved to 15%. It's grown considerably over the last 24 months, and we believe these activities will continue to improve the business's return on equity closer towards 20%. We just move on to the next slide about credit book quality. This should be one of the things that investors take most note of. Particularly the red line at the end, credit impaired 0.02%, a little over AUD 100,000. This is the leading indicator of what's coming down the line in terms of bad debts. You can see that our credit quality has been very stable over the last 12 months, and you can see a continual improvement in that credit-impaired sector.
The AFS business is growing as a slice of the pie of the business. If you consider the whole pie, AUD 733 million is going to grow. We say in calendar year 2023, we believe that'll grow beyond AUD 1 billion. The AFS slice of that pie continues to grow at the fastest rate. It went for the first six months of last year without a bad debt. Had a couple of loans written off in the second half. It is a very high quality portfolio of receivables, of prime automotive receivables, and that will continue to drive the overall quality of the business.
Notwithstanding, Money3 business in particular has continued to improve the credit quality, possibly at a, you know, we have sacrificed some growth for quality over the last six months, in particular in this current environment. We believe that's prudent because we are still growing rapidly and improving the credit quality, which is giving us the ability to lift our leverage, which will drive that EPS and return on equity over time. Really happy that we come into FY 2024 at the end of July. I know many investors are concerned about deteriorating portfolios. I'll just elaborate on this for one more minute.
In terms of this year, we highlight throughout this deck that we think our bad debt will be between 3.5% and 4.5%, roughly in line with this year. This year's result was 3.7%. We are confident of that because we start the year with a very good quality of receivables. You know, nearly all customers paying or paying ahead of schedule. The other part being the time lag it takes for a bad debt to move through the cycle is around six months in terms of if people are selling their cars. You know, the concern, I believe, is unfounded that the bad debt might blow out this year.
If we move on to the outlook, sort of reiterating some of the themes of what we've talked about. Bad debts we see it being 3.5%-4.5% of the book for the year. Fairly consistent with what we've delivered this year. I think investors should be quite comfortable with that. We have AUD 300 million of funding headroom. We acknowledge that, there's some costs that we've taken as a result of having the certainty of having availability. What that means is we can focus on growth over the course of 2023, which will deliver an even better result coming into FY 2024 as that funding is deployed.
You'll also note through here that we started building out our product offering, particularly in commercial. We lent AUD 27 million over the course of the last 12 months into commercial assets. Think of that as somebody wanting to buy a van, a ute, a bobcat, or a small asset for commercial purposes that they're deriving income from. That it's in line with the distribution channels that we have and often complementary to some of the dealers we're working with today. I think there's an opportunity for the group to continue to grow within that sector, and that will be a focus for the business. We also think that while there's been some challenging conditions in New Zealand that they are starting to improve.
If I can give you any evidence of that, yesterday, AUD 1 million of settlements in the day. That, I mean, is a record for us for the last six months, you know, where it has been quite subdued. We are quite excited that New Zealand's momentum is starting to pick back up again over there. Now, in terms of demand for vehicles, I know there's been some conversation about that. You know, as supply chains for new vehicles remain constrained, we think there will continue to be a buoyant used vehicle market in Australia and New Zealand, as many people need a vehicle to participate in society, go to work, take the kids to school, or other things.
We believe with these tailwinds to our business that we'll continue to take market share, and we'll push into some other product offerings in the business to continue to grow. With that, I'll close, and we'll take questions from anybody.
Perfect. Thanks, Scott. We will now move on to the Q&A session. Just a reminder, if you did wanna ask your question, please do so via the Q&A button at the bottom of the screen. The first question comes from Jonathon Higgins from Shaw and Partners. Can you talk us through the expectations on loan book growth? Repayments look to have created a good position on cash, but plenty available. What are your uses and targets?
We expect some of that excess cash flow to return back to normalized positions. I mean, I think at the start of this year, the typical consumer is still very well funded, has a very good balance sheet. Many of our consumers don't have a home loan or other debts, so they're choosing to get ahead of their commitments for their vehicle because it is, you know, it's something that is a necessity for them. The cash flow that we have, you know, the headroom that we have, the AUD 300 million, we certainly see some of that being deployed in organic growth of the business. We did call out the amount we wrote last year.
We're very confident, given the momentum of the business, that we'll grow our lending volumes north of 20% coming into this year. We'll keep it at north of 20% until we see how we go through the year, but we'll be focused on growing profitably through the course of the year as much as we can. We also think there's an opportunity that will present itself probably at the back end of this financial year or in 2023 calendar year to acquire other strategic acquisitions that will help us either broaden our distribution or add another product to the group. Our loan book expectations, certainly we are expecting solid growth and sometime next calendar year to hit AUD 1 billion.
Just not putting an exact month on it because there's still a lot of uncertainty as to when that will come through. We are confident of hitting it in the next calendar year.
Thanks, Scott. Just another question from Jonathon. The returns out of AFS are different to core Australian operations. Can you give us an idea of yield annually into FY 2023?
AFS has a much lower yield, much higher leverage in that business. So we can produce quite good outcomes. For every, you know, the last 50 basis points increase, we passed on 52 points to the consumer. We will be passing that on as base rates increase. We haven't seen any sort of reduction in demand. June was the strongest month that AFS has ever had, close to AUD 15 million originations that month. We think that as we temper volume to rate, that sort of sits a little bit under that number through the course of the year. We certainly think that that customer is able to bear the increasing rates. I think it goes from, you know.
I think we start to see low teens in the interest rate being offered through the AFS business. Currently we've been around, you could say between 10% and 12% interest rate for the majority of customers in that space.
Talking on interest rates, what are the effects of interest rates on the business? You now have a number of facilities available and operating. What is the blended interest rate or blended margin over BBSW of the group currently?
I love challenging questions and that's why Siva is here, so I'm going to let him answer that one.
Thank you, Scott. I might probably say the blended interest rate, including the margins, is probably in the high fives at the moment. What I'm referring to at the moment here is the start of this financial year. During the course of last financial year, you would have noticed that we have increased substantially our facility limits. What that brought along was reduction in the margins from our funders. That has helped us to absorb some of the increases in the central bank cash rates. We expect further reductions in margins over the course of this year as we continue on the journey of putting in more warehouse facilities on the New Zealand operations. Hopefully, that should help us to reduce the impact of base rate increases further.
The margin Siva is referring to is the cost of debt margin to the banks that we're borrowing the money from. As we highlighted, we think with the AFS business, we maintain our margin by passing on you know a lot of the base rate increases through to the customer. Sorry to interrupt you.
Thanks, Scott, and thanks, Siva. Just to clarify on the deferred revenue, the application fee is collected from customers upfront, but only recognized revenue over the life of the loan.
Typically, the application fee is a component of the net amount financed to the customer. It is often financed within the receivables and paid back in from a cash point of view from the customer over time. Hence why we recognize it on cash receipt, not upfront.
Thanks, Scott. Can you discuss any impacts on Money3 volumes from the change in ownership of Stratton Finance to Pepper?
Stratton Finance is a broker that refers business through to the Money3 Group. It continues to do. It's very small. It is very small referral relative. We have quite a diverse range of brokers referring to the business. We haven't seen any negative impact as a result of Pepper Money's acquisitions. Typically when we've seen similar sorts of acquisitions in the past, those businesses, particularly very good brokerage houses, are quite reliant on the broker that's on the phone. That person directs traffic based on their knowledge, their relationships. We haven't seen any downturn as a result of Pepper Money's actions and have, I think, like other lenders, been assured by the Stratton team that it's not going to impact the volumes that we receive.
Even if we did, it is a small part of the pie, in terms of our introduction volume.
How does the company decide whether to continue with the buyback at current share price and still represent good value versus increasing dividend payout or equity requirements for book growth?
No, that is a conversation that the board is engaged in on an ongoing basis, considering, you know, the use of capital between growth, which is our preferred growth, either through organic growth or acquisitions. That's certainly our number one priority. Then, considering buyback versus dividends is, I mean, it's an ongoing and an evolving conversation within the business. You know, in terms of priorities, our number one priority is growth of the business and to allocate funds there. We are well aware that the group has quite a large balance of franking credits. We are paying out a reasonable amount of dividends within our policy, and investors should expect that to continue. The cash balance that we have does give us optionality.
We'll continue to evaluate what is the best capital management strategy over time, including share buyback, as you would see, has happened. We're confirming we will reinitiate the share buyback if there is weakness in the share price post-release of these results.
What kind of leverage level is the long-term target for the business?
Sorry, Banjo, could you say that again?
Yep, no worries. What kind of leverage level is the long-term target for the business?
Let's let Siva answer that question.
Sure. Thanks, Scott. I think on a long-term basis, we would be comfortable to bring the leverage up towards the 75% mark. There are entities in the lending space that have taken up leverage into the 85% on a group-wide basis. However, we feel the optimum leverage would be around the 75% mark.
I think we answer that, you know, with the mix of product we have today. The AFS today sits at roughly 95% levered. And we see that growing. The Money3 business higher margin sits at a lower leverage. It's that blended approach we think is the right approach, giving us an ability to target the wide spectrum of credit quality across our business.
Thanks, Scott, and thanks, Siva. With the used car prices and values artificially high due to the bottleneck of supply of new cars, are you concerned that the value of your collateral will be substantially reduced as the supply chain for new cars improves, increasing with the supply of new cars?
Yes. Residual values is something we consider often here. I'd ask all people to consider that the amortization of most of our loans happens over a three-year period. In terms of that residual value coming off, it has to come off very aggressively, which I don't believe there are any signs of that in the current environment with supply chains and other challenges to get new cars into the country. You know, the fleet as a whole in this country has aged by a couple of years as a result of a lack of new cars coming in. There's a significant amount of vehicles that have to come in to create the volume to drive down used car pricing, and we're just not seeing that at this point in time. That's part of the puzzle.
The other bit is the very fast amortization of our receivables, meaning that the loan is paying down, as a car depreciates. I mean, I understand and appreciate that many of the loans that we have written, those vehicles have actually seen significant appreciation. They are worth far more than the outstanding balance of the loan. They have to come down, quite a bit before they get to that price. I'd ask people to consider if you were aware that your car was worth AUD 1,000 less than your loan, would you stop paying it? Because that's not the experience that we've ever had in the business.
Thanks, Scott. The AUD 3 billion loan book is a medium-term target. What would the capital structure look like in that scenario?
Very, very good question. That, as we turn our mind to growing our business through a mixture of consumer and commercial lending, you know, I anticipate that we'll give more color to that over time, but we are turning our mind to that. You know, certainly increasing leverage across the business is a key to delivering that on it.
In addition to that, I would say that by then, we would also have a term out from our warehouse facilities. To truly make our warehouse facilities into a revolving mode. Thereby the excess equity that may come through can continue to fund the book as we grow towards the AUD 3 billion mark. Having said that, overall, on the capital structure, we would still try to maintain a gearing ratio or a leverage ratio of around 75% debt funded.
Can you talk about initial experience with commercial vehicle finance in New Zealand?
At the moment, our most of our commercial experience is here in Australia. The AUD 27 million referred to of lending is in our Australian operations. We only have one commercial loan in New Zealand, and it has performed quite well. In terms of New Zealand, it's very early days. We anticipate introducing more to the portfolio there in the second half of this financial year, as things normalize. At this point in time, we don't have that experience. We expect that launch to happen in the second half.
Thanks, Scott. You mentioned Money3 taking market share from others. Do you see you can continue to do this? What are your competitive advantages? Do you have a goal of the market share you'd like to achieve?
We do believe we can continue to take market share, and I think that's evidenced by the growing loan book and the growing new lending over time. We think that we're well placed to take that because as a business, we've continued to focus on profitable growth. We have been doing this for some time now. We've seen many new entrants come and then leave the sector for a variety of reasons. We think that is likely to occur in the current lending environment. As a lender, you know, an unprofitable lender growing in the segment exits, it leaves a hole which creates an ability for us to fulfill that demand within, you know, the market.
We also have many initiatives in place to partner with third parties to grow our business. You know, we have a commercial relationship, one in Auckland and one in Sydney that have both delivered good volume growth in terms of vehicles for us. You know, we believe we'll take market share because some competitors just won't be there in 12 months. We believe, as we continue to grow our technology and integrate with third parties, that it continues to build our lending volume. Finally, we've had a strong focus on our direct business. You can see that we had one in three Australian customers return to us for another loan. It's not quite as strong in New Zealand. We're still building that business there.
You know, that evidence of returning business and over half a million customers in our database gives us a lot of confidence that the business continues to grow. As people come back for a second and third loan, and we increase our new to Money3 customers, that our database grows, which will continue to grow our business.
Can you describe the current regulatory environment in both Australia and New Zealand and anything emerging on the horizon?
There has been a lot of change over the last couple of years. I'm not aware of any new legislative environment coming our way, post the Royal Commission here. I know in New Zealand that they, you know, commenced a licensing regime, of which we've submitted all required paperwork there. But, you know, at this point in time, you know, I certainly think there has been a lot of change. What we expect to see is that now bedding in, you know, from the regulators in both countries.
That concludes the Q&A segment. Scott and Siva, I'll hand back over to you for your closing remarks.
No, thank you, Banjo. I appreciate the opportunity to speak to investors and other interested parties today. Just to reiterate, given the strong concern that's come through, you know, we believe we've outlined today, all the reasoning why we think our bad debts trend within a 3.5%-4.5% range of our book over the course of the year. We're very comfortable that we achieved that. We also think that our provisioning as a business goes back to normal now, and provisioning is essentially based on loan book growth. When we write a new loan, and the book grows, we will have an upfront provision as a result of that new loan, which means, you can expect that normalization to come through the P&L.
We have a large amount of headroom, AUD 300 million, that through our capital management plan gives us lots of optionality in terms of growth, organically, acquisitions, buybacks or dividends. It puts us in a very strong position that way. Just closing, you know, that market expansion that we planned, that we have been planning and have started to roll out in terms of commercial lending, we think will add quite nicely to the volumes we're writing. On a final note, I'm really excited that New Zealand appears to have turned a corner. AUD 1 million of lending yesterday, which was quite exciting for the team in New Zealand that it is starting to pick back up again to levels that we would expect to see continue.
Thanks for the time, Banjo, and thanks all for listening.
Fantastic. Thanks everyone for your time and thanks, Scott and Siva.
Thank you.
Thank you.
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