Good afternoon, everybody. Thank you for joining. My name is Stuart Robertson. I'm the Chairman of Solvar Limited. On behalf of the board, I'd like to welcome and thank you for taking the time to attend our 2024 annual general meeting of the company. I'd also like to formally acknowledge the traditional owners of the country throughout Australia and recognize their continuing connection to the lands, waters, and communities. This meeting will be held in a hybrid format, allowing for greater shareholder participation. For those shareholders attending virtually, I can assure you that you will have the same opportunity to participate today as you would if you had attended the meeting in person. This includes being able to ask questions and vote through the online platform. I'll discuss these processes a little later.
For those of you attending virtually, if you have any technical difficulties with the online platform, please call the number on your online platform screen now, and someone will assist you. There is also an online meeting guide on the platform to assist you. If we experience technical issues that impact the online portion of the meeting, I'll assess the circumstances and communicate further with you via the online portal. I hereby declare the meeting open. I am advised by the Company Secretary that the notices of meeting have been properly dispatched and that a quorum of members is present, and call the meeting to order. With us today, we have my fellow directors, Mr. Scott Baldwin, Managing Director; Mr. Symon Brewis-Weston, Non-Executive Director; Mr. Craig Parker, Non-Executive Director; Ms. Kate Robb, Non-Executive Director; and our Company Secretary, Mrs. Terri Bakos. Our CFO, Mr.
Siva Subramani is attending remotely via telephone. And from our auditors, we have Mr. Benjamin Lee. On behalf of the board of Solvar, welcome to our 2024 annual general meeting. I'd like to start by reflecting on this year's achievements and will conclude with comments regarding the outlook for FY 2025. Following my address, Scott Baldwin, our Managing Director, will give a short presentation on the business. Solvar is a finance provider in underserviced markets. We're proud that we've written in excess of AUD 3 billion in loans since our inception, having helped many customers to acquire a vehicle, which for many people is essential for their mobility. Throughout 2024, the group continued to focus in three key areas. One, identifying key markets we participate in and how we can continue to grow market share in those markets.
Two, ensuring the group develops the necessary infrastructure to ensure the business can achieve sustained growth in the years ahead, which includes our investment into uplifting the group's cybersecurity posture, which has seen the group progress towards ISO 27001 security certification. And three, continuing to broaden the group's risk and compliance framework to ensure our products are best of breed. We believe there are ongoing growth opportunities from expanding our existing core business across the customer segments we operate in, which comprise the non-conforming through to the near-prime consumer segments. This is achieved through the broker, dealer, and direct channels which we currently operate in. We have recently announced also the launch of a dedicated commercial offering to complement our existing products. And I'm pleased to advise we have recently appointed a head of commercial lending to lead the further development of our commercial business unit focused on financing SMEs.
We continue to optimize how we allocate the group's capital, including the decision to cease new lending in New Zealand. Go Car Finance was an excellent investment for the group. However, we felt the current opportunity for the group to repatriate capital and redeploy it to the establishment of the commercial business in Australia will lead to a superior financial result for shareholders' performance. From a results perspective, FY 2024 delivered a normalised net profit after tax of AUD 29 million and a statutory net profit after tax of AUD 17 million, and the group paid a final dividend of AUD 0.05 fully franked to complement the half-year AUD 0.05 fully franked interim dividend. The Australian loan book grew by 11.2% on prior corresponding period to AUD 791.1 million, and the Australian revenue grew by 10.6% to AUD 173.7 million.
From a capital management perspective, the group's on-market buyback has led to 8.1 million shares being repurchased to date and will continue to do so where it benefits the group. Philanthropy. In FY 2024, Solvar continued our unwavering commitment to our philanthropic mandate. We made significant strides to contribute to projects across our four focus areas: humanitarian and social, science and education, cultural and arts, and community and environment. We directed our resources to areas of need and partnered with organizations with high impact. Our top three partners in Australia, each addressing critical causes and community needs, were Big Hug Group, which supports children, women, and family welfare. Save a Child's Heart, which provides cardiac care to children in developing countries. And Orange Sky, which supports people experiencing homelessness and hardship.
In New Zealand, we collaborated with the Big Buddy Mentoring Trust to support youth welfare programs and Debt Fix to promote financial education. A culture of giving was fostered across our organization, and staff engaged in drives to support ongoing activities with our philanthropic partners, and Solvar matched approved staff-led fundraising initiatives. Additionally, we worked with Our Trace to meet our environmental goals, further emphasizing our commitment to sustainability.
These partnerships and initiatives reflect Solvar's dedication to create positive change in our communities and beyond, and set a new benchmark for 2025. Just move to the outlook. The International Monetary Fund's World Economic Outlook is forecasting global growth to remain stable yet underwhelming. However, ongoing global conflicts could lead to downward revisions. In terms of the domestic market, interest rates have remained at their current level since November 2023.
While the most recent economic data indicates inflation to have just crept within the 2-3 range that the RBA seeks, the current anticipation is that rates won't begin to ease until Q1 or the end of Q1 2025. There are no material developments regarding the ongoing legal action with the Australian Securities and Investments Commission, or ASIC, and the Commerce Commission in New Zealand. A hearing date's been scheduled to commence in February 2025 for the ASIC matter. For financial year FY 2025, the group anticipates that the Australian loan book will close at circa AUD 850 million, which is approximately an 8% growth over FY 2024. We give guidance today of a normalized net profit after tax of AUD 34 million for FY 2025. On behalf of the board, I'd like to welcome Craig Parker, who's joined our board on 18 September 2024.
Craig brings a wealth of experience in financial services and spent over 40 years at Westpac, where he was responsible for Westpac's global structured finance and securitization activities. I'd also like to thank Kate Robb, who retires from the board today. Kate has been a valued board member for the past five years. As Chair of the Audit and Risk Committee, Kate oversaw a significant uplift in the governance capabilities of the company, and I wish her well for the next chapter. I'd also like to thank my fellow directors, our Managing Director, Mr. Scott Baldwin, his management team, and the staff of the Solvar Group for continuing to build the company into a leader in the industry. Asking questions online.
Shareholders participating online today can submit written questions at any time during the meeting proceedings by clicking on the Q&A icon on the top right of the online portal screen and then selecting Other Business or a specific resolution. Once you finalize your question, click on the Send button. To ensure questions reach us in time, I ask that you submit them during the course of the meeting. Asking questions via telephone. If you wish to ask a question verbally, an audio question facility is available. Instructions on how to do this are contained at the bottom of the online portal. When asking a question, please state your name before asking the question. All shareholders participating will have the opportunity to ask questions at set times during the procedure of the meeting.
Please note, if you have a question that is specific to a resolution, we'll answer it as we address that resolution. If you have a general shareholder question, it will be addressed after the formal business of the meeting is completed. If we are not able to get through all the questions today, we'll refer to specific questions that would be better addressed on an individual basis. We'll respond to them after the meeting. If we receive multiple questions that are similar, we'll try to amalgamate them into one or choose to answer the broadest question, which will cover off the others. We'll take questions from shareholders in the room first, followed by written questions via the online portal, and then audio questions if any. I'll now hand over to Scott to conduct his presentation.
Thank you, Stuart. Thank you, everyone, for making the time to come and attend the AGM. We'll start with going through a presentation in the group. We'll jump to the second slide, but that's okay. The Solvar Group is made up of three product brands focused on different risk profiles of consumers across Australia and New Zealand. The target addressable market for our group is around AUD 42 billion, made up of AUD 35 billion of consumer, and we've defined roughly an AUD 8 billion target market of commercial opportunity. That is principally small business in Australia. As we're highlighting here, we believe we have roughly 4 million opportunities a year to provide finance to people looking to buy an asset. That's roughly how many assets change hands each year. Currently, we have approximately a 1% market share. So, lots of opportunity for us to continue to grow our business.
Our vision is to empower our customers through accessible, responsible, and flexible financial products. We do this by focusing our business on underserviced markets. Underserviced markets to us typically means consumers that are often considered higher credit risk to other providers, consumers looking to buy older assets or used vehicles, and consumers that are looking to buy vehicles of low dollar value that don't necessarily meet other lenders' risk appetites. We provide a very personalized service across our business. Customers access through a wide broker network all over Australia. We also have a presence in a small number of dealerships throughout Australia where people can apply for a loan, and another part is our direct business, which essentially means anyone that has access to an internet, so typically a mobile phone or other mobile device, they can apply online for our products and services.
Our products that we offer to consumers are transparent and responsibly lent. We make an assessment on every consumer application and commercial application that we receive, and those loan terms are transparently offered back to the customer through multiple touch points when a customer applies for a loan. Our products we consider to be one of the most flexible in the market in terms of how we offer it to the customer, the distribution, but also the ongoing support of our customer throughout the term of their journey with us. Just finally, on this first page to call out the, in addition to our products, our distribution, and our customer care, we also have a strong focus on community. As Stuart mentioned before in his opening address, we donated over AUD 265,000 to community projects over the last 12 months.
And principally, we work closely with Trace to ensure that the carbon produced by our operations is offset through efforts in tree planting and other things to offset the carbon produced by the group. Just moving on to the next slide. This is the history of the group and how we performed over time. You'll note that the group has grown organically. And for those that have followed the journey, we've also had quite a bit of inorganic growth with acquisitions that we've made over time. With the strong balance sheet that we have today, we're in a good position to continue our organic growth in Australia and also look for opportunities to grow acquisitions when they are right. Since listing, as you can see in the EPS/DPS slide, we've paid a dividend.
We've always paid a dividend since the company has been listed, and we believe that we are in a good position to continue to do that. In order to maintain this sort of growth profile over the longer term, as Stuart said, we've appointed a head of commercial operations to focus the growth of our business in our commercial product offering, which will continue to grow the loan book, our revenue, and our bottom line, we believe, in years to come. We still think there's a lot of opportunity in the consumer side to what we do, but to continue the growth profile of the business, that's the product that we're focused on. I think there's a lot of opportunity there. Just moving. FY 2024, a lot of this would have been read before, but last year we delivered a normalized net profit after tax of AUD 29 million.
The statutory result is AUD 17. The difference between the two is principally the goodwill that we wrote off in New Zealand as a result of ceasing that lend and also the one-off legal expenses resulting from the legal action. We'll move to Q1 results. I think that will. Next slide. As you'll see from here, our Australian revenue continues to grow, 4.9% growth over last year. This is driven by the fact that the loan book continues to grow. We're seeing better momentum now coming out into Q1 than we've seen, and we anticipate that you should continue to see loan book growth and revenue growth over the next 12 months. A lot of the growth that we've seen, particularly in this quarter, has come out of our Money3 business.
We've had a strong focus on repositioning the credit appetite there and growing our product offering out to our broker network, and that has given us some growth that you'll see in the next slides in terms of loan book coming through in our Australian business. Bad debts across Australia have remained flat, which we think is an exceptional result considering the macroeconomic environment we're in. 3.9% in the Australian business is pretty much in line with where we were this time last year and also last financial year and is really testament to the efforts of the collections team that we've continued to maintain a good bad debt profile in the business. Australian net profit after tax of AUD 7.9 million is up 6.4% on last year, really driven by that loan book growth.
We're calling out that we expect loan books, those AUD 803 million, to grow to north of AUD 850 million over the course of the next nine months of the year. The other part that we, why we're confident in the bad debts, we made a number of changes to the credit quality of which the Money3 business is focused for, making adjustments particularly to the higher risk customers, just not lending to them anymore, which is starting to improve our bad debts, and we believe you should see the benefit coming through over the course of the year of improving net profit after tax contribution. We've also, with the result of making our New Zealand business smaller, had a strong focus in our operational expenditure, and you'll note that that has come down on the same time last year.
As we move to the group slide, you'll note there's a slight reduction in revenue. As you saw previously, the loan book in Australia continues to grow, so there is a bit of a cross-over period. The Australian business is growing, replacing the revenue that we don't have in New Zealand anymore as we repatriate those funds. Bad debts across the group have stabilized considerably in the Q1 after the period of challenge that we had in New Zealand last year, and we anticipate being in the middle part of our target range for bad debts over the course of the year, and that continues to perform well. The normalized net profit after tax is AUD 9 million for the Q1 , which is, I think, an exceptional result. The normalization there is the one-off legal fees that are associated with the regulatory matter that we're currently defending.
As we move to the next slide, so this is the Q1 performance of the business. You'll note that our net profit after tax margins continue to expand. We've done a lot of work to reprice the front book, so those new loans that we've been writing, if you consider the automotive financial services business, the margin there has moved beyond 6%, which is an area where it drives good profitability coming through our business, and we expect to see our business grow in the H2 as we continue to focus on that AFS business like we have with the Money3 business. Credit quality. This is something in the current challenging economic environment that we've spent a lot of time focusing on.
You can see in the middle there how much things have improved in New Zealand, and the other parts of our business we feel are benefiting from our change of credit risk focus. If we didn't have this deteriorating economic environment, we believe you'd see some improvement coming through in bad debts, but that is, I think, a really good result with where we are in the current macroeconomic environment. As you look through our debt facilities, we are in the process, and by the end of this financial year, we'll have paid off all of the debt that we have in New Zealand. And we have focused on reshaping the facilities that we have in Australia.
We have over AUD 160 million of headroom, so there's lots of opportunity to continue to build and grow our business here in Australia, notwithstanding the fact that there's also the repatriation of funds that will come back from New Zealand. So lots of headroom to continue to grow our consumer book in Money3 and to grow our AFS consumer and our commercial business that we've got here. The group has AUD 40 million of free cash that we can use to grow debt facilities, make an acquisition, or just focus on our general organic growth that you're seeing starting to come through the business. Just the final part here in terms of credit quality. Worth a little bit of time on that. You'll note, and it's a bit hard to see on the slide here, but there's a 1% improvement in our strong credit quality.
That's AUD 9 million of receivables over the last 3 months that have improved in the strong quality. So in this challenged environment, we've actually had a really good result in maintaining or slight improvement in the best end quality area of our receivables, of our loan quality receivables on the previous slide. Just moving to the outlook. We are forecasting AUD 34 million normalized NPAT for the year, normalized for the legal, the fees associated with the regulatory matter. That's roughly a AUD 0.138 EPS was last year. We're forecasting a sort of AUD 0.1617 EPS, roughly 15% growth on last year to get to AUD 34 million. So good growth starting to come through. Bad debts were everything that we're seeing because bad debts take months to go through the system, but we are well on track to stay within our target range of 3.5%-4.5%.
A good 8% growth in our loan book here. We continue to see opportunity to take market share. The market here is growing. There's more Australians every day. We read it in the newspaper regularly that people are coming to the country, that those people need to acquire a car, provides us with an opportunity. And there is a large. There's a trend that we continue to see. Big banks don't fund used vehicles anymore. It comes out into the non-bank sector. And while there has been a growth of lenders in the non-bank sector, we feel that we're well placed to continue to take a larger market share and benefit from that trend of small growing market as a result of more people in Australia and the change from big banks into the non-bank sector of where people get their funding from.
It's not the norm to go to your bank anymore to get funding for a car. You would see the non-bank sector predominantly services that space, and we're well placed to continue to grow. Just in terms of operational highlights, the ASIC matter continues to be outstanding. We're confident that we, in terms of our position with that regulatory matter, court date has been set in February. As soon as there is a material update that we can tell people, we will let you know. But there really isn't much more to communicate to shareholders at this point in time other than the fact that we continue to prepare for that court case in February. The book in New Zealand continues to run down.
We've been managing the expenses in that portfolio, and the cash that is thrown off there has been used to pay down the debt, and we'll start to repatriate to Australia to continue to drive the organic growth in our business here. With the automotive financial services business, if you remember this time last year, we talked about the back end of that platform being converted. Over the last six months, we've been very focused in the front end of the software stack from AFS being converted onto new technology. By the end of Q3, all of our Australian operations will sit on a single back end and a single front end for originations.
Still have more to do there, but that has been quite a bit of work that we've been doing in our business to improve the turnaround time that we can offer to brokers and consumers that apply online and improve the quality of our responses to make it more seamless from the time that they apply because all applications are very much becoming more digital, less and less paper involved in this process, almost non-existent today. So a continual investment in our software, we believe, will drive further efficiency. And just cutting that turnaround time, generally, we experience better uptake or better approval as a result of being quicker. One of the last points here is we have made a significant investment of internal resources and partnership with third parties to get ISO 27001 certification.
What that means is going through all of our business, looking at ways for which cyber criminals can take data out of the business, and we've invested heavily to ensure that we don't fall foul or are best protected is probably the more accurate way of putting it, and the conclusion of that is that the ISO standard will give us a certification which we anticipate will come early in the new year as we are going through. We've done the work. We're now in the certification process for our business as they look through our security and our management of customer data. Just finally, in terms of the market outlook, we're certainly seeing it continue to change and evolve.
We think there's going to be lots of opportunity for us to grow organically and continue to focus on those niche markets that give the return that we are focused on as a business and to have us return to that level of profitability where we were a few years ago. We also see a number of our competitors in this space contracting, which gives us that opportunity to continue to take market share. And finally, just to reiterate the guidance, we anticipate a normalized net profit after tax for the year of AUD 34 million, a significant growth on last year, both statutory and the last . We'll pause there to see if there are any questions from the room or if there's any questions online.
Yes, Michael.
Last year, AUD 4 million last year. How much next year?
This year? So this year, yeah.
There was roughly AUD 700,000 in the Q1 , and it's hard to predict because of the uncertainty known, but in providing you the guidance, we are thinking of a similar level of expense this year as what we received last year. If the court case is expected to go for around two weeks, if that is the case, we anticipate similar levels of expense.
Prospect that when the court case and the claim back, legal expenses?
Let's make an assumption that we do win our case that ASIC has against us. The court has a set amount that they allow you to claim back, which I think is nowhere near the expense that a legal firm actually charges. So a large portion of that, no, we won't recover.
What we won't do, Scott, is we won't take questions after the resolutions.
Okay. Yeah. Yeah.
We'll get on through this paper list. Thank you, Scott, so we'll now proceed with the formal aspects of the meeting. But before doing so, I'll remind you all that only shareholders or their appointed proxies and corporate representatives are entitled to vote or speak at this meeting. As each of the resolutions before us today will be decided by poll, I hereby appoint Ms. Christina Piccolo of Computershare up the back there. Thank you, Christina, as the returning officer for the meeting. Votes will be counted after the end of the meeting and results published on the ASX and the company's website. Shareholders can cast their vote using the physical voting card that they received upon registering today or online through the meeting portal, validating their online registration. For those voting online, a vote icon will appear at the top of the online platform screen.
Selecting this table will bring up a list of resolutions and present you with voting options. To cast a vote, select one of the options for, against, or abstain. There is no need to submit your vote as the vote is automatically recorded. You will receive a vote confirmation on your screen, and you can change your vote at any time until voting is closed after the meeting. Proxy holders are reminded that you must vote in accordance with the shareholders' direction. The proxy votes that have been submitted prior to today's meeting will be set out on the slides shown for each resolution. For some context, the current number of Solvar shares on issue is approximately 204 million. Shareholders have appointed the chair of today's meeting, myself, as proxy for up to 109 million shares to vote either for, against, or with discretion for all resolutions.
As indicated on the proxy form and in the notice of meeting, my intention as chair is to vote all discretionary or undirected proxies held by me in favor of each resolution. Notice of meeting. With members' permission, I'd like to take the notice of meeting, including explanatory memorandum, as having been read. And now to the formal business and resolutions. The 2024 annual report. To receive the financial statements of Solvar Limited for the year ended 30 June 2024, together with the director's report and the auditor's report as set out in the annual report. As advised, we have Benjamin Lee, Audit Partner from BDO, with us today. We've received no questions prior to the meeting on the accounts or conduct of the audit. Are there any questions in relation to these accounts and the conduct of the audit for the company's auditor?
Terri, do we have any further online or verbal questions in relation to this matter? Thank you, Terri. As there are no questions, I hereby table the accounts, and we shall move on to the formal resolutions. Resolution number one, remuneration report. This resolution is to consider and adopt the remuneration report for the year ended 30 June 2024. On screen now are details of the valid proxies received prior to the meeting. Are there any questions in relation to this resolution? Terri, are there any online or verbal questions in relation to this resolution? Thank you, Terri. I'll now put the resolution to a vote. Please cast your vote if you wish to vote. Let's move to the next resolution. Resolution two. As this next resolution actually relates to myself, I'll hand the chair of the meeting over to Mr. Symon Brewis-Weston.
Thank you, Stuart. This resolution is to consider the re-election of Mr. Stuart Robertson as a director of the company. Details of Mr. Robertson's qualifications, background, and experience are contained in the explanatory memorandum attached to the notice of meeting. On screen now are details of the valid proxies received prior to the meeting. Are there any questions in relation to this resolution? Terri, are there any online or verbal questions in relation to this resolution? Given that there's no questions, I will now put the resolution to a vote. Please cast your vote if you wish to vote. I will now hand the meeting back to the chair, Mr. Robertson, to consider the next resolution. Thank you.
Thank you, Symon. Resolution three, the election of Craig Parker as a director. This resolution is to consider the re-election of Mr. Craig Parker as a director of the company.
Mr. Parker was appointed to fill a casual vacancy on 18 September 2024. Details of Mr. Parker's qualifications, background, and experience are contained in the explanatory memorandum attached to the notice of meeting. On screen now are details of the valid proxies received prior to the meeting. Are there any questions in relation to this resolution? Terri, are there any online or verbal questions in relation to this resolution? Thank you, Terri. I now put the resolution to a vote. Please cast your vote if you wish to vote. Let's move to the next resolution. Resolution four, refresh employee equity plan, EEP. This resolution is to refresh the allocation of securities under the employee equity plan. Details of the transaction are contained in the explanatory memorandum attached to the notice of meeting. On screen now are details of the valid proxies received prior to the meeting.
Are there any questions in relation to this resolution? Terri are there any online available questions in relation to this resolution?
Thanks, Terri. I now put the resolution to a vote. Please cast your vote if you wish to vote. We'll move on to the next resolution. Resolution five, the refresh employee exempt share plan. This resolution is to refresh the allocation of securities under the employee exempt share plan. Details of the transaction are contained in the explanatory memorandum attached to the notice of meeting. On screen now are details of the valid proxies received prior to the meeting. Are there any questions in relation to this resolution? Terri, are there any online or verbal questions? Thank you, Terri. I now put the resolution to a vote. Please cast your vote if you wish to vote. Let's move to the next resolution.
Resolution six, the issue of performance rights to Mr. Scott Baldwin under the employee equity plan. This resolution is to consider the issue of performance rights to Mr. Scott Baldwin. Details of the issue to Mr. Baldwin are contained in the explanatory memorandum attached to the notice of meeting. On screen now are details of the valid proxies received prior to the meeting. Are there any questions in relation to this resolution? Terri, are there any online or verbal questions?
No.
Thank you, Terri. I now put the resolution to a vote. Please cast your vote if you wish to vote. Ladies and gentlemen, that concludes the formal business of the meeting. The directors of the company and company management would be pleased to take any questions you have regarding the company after the closure of the meeting.
If you haven't voted and you wish to do so, please vote now. Voting will be open for five minutes after the conclusion of the Q&A session. Thank you all for attending, and I formally close the meeting at 2:35 P.M. We'll now answ er any questions from shareholders in the room first, then online and via telephone, if any. If there's any questions, please go ahead. Please.
What exactly does sort of repositioning Money3 mean? You said it's sort of tightened up. Is that essentially what that means?
So I mean, credit standards. Yeah. No, over the last 18, 24 months, you'd be aware we've had an allegation from ASIC. So we've looked at the credit risk profile of the borrowers that borrow from us. You'll note that some of our growth profile has flattened out through that period of time as we have looked at different borrower profiles.
And we've said that understanding where ASIC is positioned itself with the need for all lenders to use their household expenditure model, it's sort of not. It's regardless of what our view is of the law. We have. Oh, sorry. We have looked at the credit risk profile that we know does not create any regulatory concern. And we have adopted that through our business, which has seen for a period of time a slowing in growth, but we are now back to a point where our monthly volumes are growing in our Money3 business. Now, that's a slightly repositioned credit risk profile. What I mean by that is the credit risk of the Money3 customer that gets written today should have a lower bad debt profile than a customer written three years ago. Now, what we're seeing is a flattening or our bad debt's going sideways.
Now, I think that's very encouraging. If you consider the high inflationary environment and the current economic outlook of where we are, we are staying flat in that. We anticipate, as the rest of our backbook (backbook being those loans written prior to this 12 months rolling off out of our business), that the overall Money3 credit quality will improve, which will do two things. Firstly, it will drive down our bad debts. And there's a side result that less bad debts means less OpEx through our business, as in less staff needed to manage that process. So there will be that benefit. And the secondary benefit, which happens after the improvement starts to occur, is your cost of funding will continue to improve.
What we anticipate is, as we look through a three-year journey to turn our business around, that drive back to sort of that AUD 0.22-AUD 0.24 EPS as a company occurs through a multitude of things, but one of them being the improving credit quality of the organization and, secondly, the improving cost of funding that comes through over time.
And the interest rate that is being charged to the customers in Money3, is that more or less staying the same despite these improved standards or increased standards?
In the Money3, the first thing is all customers from Money3 do get a fixed-rate contract from us. When they borrow that money over three to five years, the loan is a fixed rate. If you look at the portfolio, there are different rates depending on risk. The higher the risk, the higher the interest rate.
They have changed slightly, but if you look at the portfolio, you'll see that the portfolio yield has come down a bit, and that's more as a result of not changing rates, but the bottom end not being there like it used to be. It's a smaller percentage. Bottom end or higher credit risk borrower forms a smaller percentage of the overall portfolio. If you look at the Automotive Financial Services business, you will see that the front book is priced at a higher yield than it was two years ago. We've essentially been working on passing on the cost of interest rate rises through to the consumer, and we see that now with widening NIMs coming through, widening net interest margins coming through on the AFS business.
You also mentioned that there's sort of contraction happening with other competitors. I mean, what's driving that?
If you look at some business, and take a public one that we can talk about, Cash Converters had a loan portfolio targeted to the same consumer base as Money3. It was called Green Light Auto, if you're not familiar. They made a decision not to participate in the space. I generally feel that if you have a loan book sub AUD 1 billion now, it's going to be challenging to build a profitable business. You need a large critical mass in order to build a profitable business. There are a number of players out there that might have AUD 50 million or AUD 100 million of receivables. If you think of the barriers to entry to get into this market, it's not just capital like it used to be. There's certainly a large compliance overlay.
If you look at the non-bank sector and where our regulator is focused, there's a large compliance overlay that's required for every business. We are well placed to continue to take market share and build and grow our business. Now, admittedly, we've all felt pain as a result of what's happened with the regulatory matter in our business. But we are responding. We've learned from that. We've had lots of reflection on the statements made by the regulator in terms of their interpretation of the law. And we believe we are building a better business that is more sustainable, that will be there over the long term, servicing what I think you'll find as a result of the macroeconomic headwinds, a growing consumer base that just find it hard to get access to credit from larger banks. Okay.
And you think that the regulatory action in general is almost sort of increasing the barriers to entry? So not only increasing the amount of potential customers, but also decreasing the serviceability of those customers. Does that make sense?
Well, I'd say it is increasing the barriers of entry. There's more statements you see from banking CEOs that they're just not in that space anymore. And you can see the non-bank sector. Yes.
The cost of doing business is higher. Right. So if you think about what we've built out over the last few years in terms of our compliance and risk function, the barriers to entry are much higher than they used to be. So I'd definitely say that, yeah.
If anyone else has any questions, hopefully. I just wanted to ask about the margins. The Q1 update is obviously more positive, I think, in that respect.
But there's been a pretty big decrease in the normalized EBITDA margin. And in addition to that, I noticed some changes in the short-term incentive conditions. And EBITDA margin was removed, and also NPAT was removed. So yeah, I'm curious as to why that would be removed. What I'll do for that question is I might ask Symon as our Chair of our Remuneration Committee to talk around the remuneration.
In terms of the short-term incentives, there's a much bigger focus in the group around productivity. There's lots of change going on in the group. So certainly, by no stretch of the imagination, are we not focused on the returns. But we think to be competitive in the long term, there's a very focus on the acceleration of some of our technology projects and our productivity going forward.
And we think the faster we can get them done, the business will be in a lot better position going forward. So that's the real drive to that. But there's a fair bit of heat on, and the team needs to deliver. So don't take that as any shortcut. I think we showed last year that we are quite firm on where the STIs are at.
Right. But so you're saying that there's a bit of leeway given in terms of the investment that is being made? Is that?
No, what I'm saying is we've got to continue to get the business into continue moving forward, but at a fair pace to improve productivity, our customer experience, and our technology platform so that beyond the next 12 months, we can continue to deliver profitable growth. You just can't stand still, and we've really got to keep on with that. Yeah.
Because, I mean, that was maybe what, Scott, I wanted to ask you. There's been obviously a really significant increase in the loan book over the years, but that hasn't really led, I mean, it hasn't seemed to have led to much sort of operating leverage in terms of it's still around that. It's now well under 50%, but in terms of the EBITDA margin?
Because I feel like I've heard two questions, but let's start with EBITDA. You'll notice in our accounts, in our profit and loss, we have made a number of changes. We've replaced the word revenue with interest income. And that is changing what is recognized as revenue versus what was before. And we've also tried to take your attention away from EBITDA because we feel, as a business, to your point, as we grow leverage, it is less relevant.
What's relevant as we change the metrics in our business as we become more debt-funded? We used to be a predominantly equity-funded business. We have to change the metrics throughout our executive team and in the way we look and measure ourselves because EBITDA is less relevant when one of our biggest costs is going to be our interest expense. So part of that change of focus that you're starting to see come through the accounts is a group-wide change of focus to make sure that we don't miss that our biggest expense coming through our business is going to be, if it's not already, is our interest expense. The second question I heard was around all of these changes and growth is not giving me more in my pocket, which is fair. That is very fair because that has happened.
We have had from two years ago when we were delivering close to AUD 0.24 EPS to where we were last year at AUD 0.138, which was a low. It's not so much the growth that has driven the problems, but the number one has been our regulatory matter, and number two has been the failure of Credit Suisse, which has been our principal funder, so our cost of funds did go up, and we are working hard to bring them down. And we are working on that, which will improve that bottom line, but the focus on regulatory, we have hired a number of compliance professionals to come into our business to help us make sure that things are more documented, that are more clear, and more procedurally based.
And more importantly, we have had to invest in more people spending time in government initiatives with financial counselors, meeting people, getting out into other government-sponsored organizations to explain why our product adds value to consumers, why we're not as cheap as a home loan, for example. Because it's not well understood that it's a small loan. There is a large cost of investment that goes into assessing that loan in order to give it. And we've had to make those investments in our business to continue to be sustainable. And I know that that has created a step backwards in terms of our profitability. And hopefully, the initiatives that you see and the uplift in the bottom line, you can see that we are on the journey back to where we were. Thank you.
Am I just moving on to the? Oh, sorry. Go ahead.
Just grab the microphone so I can hear you on the line.
Thank you. Yeah. Patrick Irwin, shareholder. Thank you for taking those questions so ably. In relation to the regulatory matter, has there been evaluation made of the maximum that it might cost the company if everything goes against you? And if so, what is that?
The way the law works is that if there's a points system and there's fines associated with each, which effectively points, and if found guilty on all charges and if appeals, etc., etc., unsuccessful, there's an amount that is a substantial amount. However, and there's a big however on this, is that's typically where cases are totally undefended. We're absolutely defending the case.
And our advice has been, it's a tricky area because we just simply don't know, has been that that will be contained within the cost of what we're already paying from our lawyers, effectively. Can you explain how that can be contained within what you're already paying? Well, we would expect it to be a non-material amount as it stands today. However, we don't know, I should say, that as well.
Are you saying it will be insignificant in relation to the legal costs you've already incurred?
Yes. Correct. Okay.
Thank you. That's a good answer. Can I sweep in another question?
But I need to stress, I'm not counsel. We don't know. But that's the guidance I'd give.
Thank you. Can I do one more quick one? Absolutely. The New Zealand situation, I understand you're withdrawing completely from that market.
What will be the total wash-up in terms of loss or gain from that whole enterprise, approximately? Can you say? It's a great question. You've almost mirrored exactly a question online. At this point, we don't see there being an impact on, we expect a break-even in terms of the NTA, and I'm probably answering the one that's here from where we are today. So Go Car business in the last quarter made a small profit, and we anticipate that we can run that down and break even, that we can collect our cash back. The yield, which is roughly sort of 24%-25% off that portfolio, will cover the cost of collecting it. And the tail that's in there, we are still a large collections business and have the ability to do that, if not in New Zealand, here in Australia. Thank you.
I might, if there's no more questions in the room, move to an online question. An online question: Are the 2025 EPS LTI calculated as a change from the FY 2024 EPS? The 2024 EPS and share price are at historical lows, and Solvar's doing a share buyback that bumps up EPS. Why has the board set this like so? For all this, I might hand to the chair of the Remuneration Committee, Mr. Symon. Yeah.
Thank you for the question. Very good question. So there's two components to the LTI. One is absolute total shareholder return growth, and the other one is obviously EPS. And they're equally weighted in terms of that.
So I just want to point out, so in terms of setting that forward over the three years, we look at what we think is a good growth in this particular market with respect to how we see the environment. What I might want to overlay for that is the board's discretion has the right in terms of taking into consideration anything like buyback that might impact those, and therefore both positively and/or negatively if we were to do a significant capital raise for whatever reason, and we will and can exercise discretion in terms of increasing those if required, so I think I just want to point that out that starting from a base, you can't assume that you'll be doing buybacks, etc., etc.
But if those do occur over time, we would say they're non-management contributions in terms of the EPS or absolute total shareholder return, then the board will exercise its discretion in terms of co nsidering those. Thanks, Stuart.
Thank you. Thank you, Symon. The next question is: What lending target is being set for the commercial lending unit for this year? What will be the size of a typical advance? I'll pass to you, Scott.
Thanks, Stuart. Thank you for the question. So I think there's two answers there. There's the existing commercial business that we have today, which is in the AFS unit. And that business has targets, has our growth targets there, which will drive the loan book north of AUD 850 million. And that is built into that target there today.
In addition to that, we have hired a head of commercial lending who's here in the room today. But his target will be to look at how do we expand the asset class that we currently have today so that we can originate more into this space, into that. And I keep coming back so that people have this in context. Our focus today, like the number one asset we fund for commercial purposes today, is a Ford Ranger. The number two is a Toyota Hilux. The number three is a Isuzu D-Max. And the number four looks like some form of tractor, tractor mowing device. We certainly see the opportunity for that to expand in terms of light commercial. Think of a four-and-a-half-ton Isuzu truck and other assets in that space.
Craig's job is to come back with a business plan to expand the growth on the business that we have today. In terms of the second question there about what's a typical loan for a commercial asset, well, most of what we're funding is a used Ford Ranger. If you look at five-year-old Ford Rangers, you get a rough idea of what the asset costs. There's often a deposit in there. The typical is sort of in that AUD 30,000-AUD 50,000 of funding that goes to the dealer for that customer to buy that. If you look at the range of prices, the rest is typically made up of the deposit.
Thank you, Scott. Another question from online. The board is setting LTIs for the CEO using the EPS and share price.
However, the earnings and share price are significantly impacted by decisions that have a delayed impact after decisions are made, for example, asset shares and bad debts. Can the board consider setting LTIs based on longer periods or require the shares are held for a longer period? I'll pass again to you, Symon.
The answer to those questions in a word is yes, of course, we can. The other thing to note is that we do issue a grant every year. So this is an ongoing basis in terms of each year we get to adjust what we think is going to be important for the business for next few years should it change. I would point out that those issued in 2021 and 2022 won't vest. So although it was counted in those years as CEO income, we haven't achieved those goals.
So the trick always is to set something that's not so far in the distance that it's actually worth no incentive vis-à-vis creating enough that it's driving long-term shareholder growth. Hence, we make an issue every year that should the team start to make really good decisions over a period of time, it's going to be very rewarding for shareholders, but also provide the management team with incentive to do that. So we're always under review in terms of how we remunerate executives. We've moved to a third, a third, a third. So the team is pretty incentivized over a p eriod of time, particularly CEO, to really drive long-term shareholder growth. So thank you for the question.
Thank you, Symon. There are no further questions online. Are there any further questions in the room? No. We've already closed the meeting, so I'll invite everyone to tea and coffee.
Thank you all again for attending. Thank you.