Market Release
5 May 2020
Market Announcements Office
ASX Limited
Exchange Centre
20 Bridge Street
SYDNEY NSW 2000
Dear Sir/Madam
MACQUARIE CONFERENCE PRESENTATION
The Company will address the Macquarie Australia Virtual Conference today. Attached is the accompanying presentation.
Authorised for disclosure by:
Lisa Bevan
Company Secretary
CONTACT DETAILS
Alison Clarke, AFG Head of Corporate Communications | Mob 0402 781 367 |
David Bailey, CEO | Tel (08) 9420 7888 |
2020
MACQUARIE CONFERENCE PRESENTATION
H1 FY20 results - Highlights
$18.3M
$16.7M $16.7M
H1 FY18 | H1 FY19 | H1 FY20 |
Reported NPAT up 10%
to $18.3M
5.7 5.9
4.7 4.7 5.4
FY18 FY19 FY20
Interim dividend up 15%
Final Interim
$17.7M
$14.4M $14.7M
H1 FY18 | H1 FY19 | H1 FY20 |
Underlying NPAT up 20%
to $17.7M
AFG Securities settlements up 46% to $690M with loan book
up 51% to $2.5B
H1 FY20 Residential Settlements flat with
$16.9B
Q2 lodgements and
settlements are up 19%
and 6% on last year
Residential trail book
up 5% to $151.7B
AFG Home Loans now services over 25,000 retail customers
AFG Home Loans
trail book up
17% to $9.8B
Comparisons to prior period | 2 |
Stable platform continues to support future growth
Over half of overall profit now generated outside traditional aggregation. Providing a stable platform for future growth
AFG | AFG | Asset | |||
Commercial | Finance | ||||
Securities | powered by | White | Connective's | ||
Thinktank | Label | ||||
current focus | |||||
Personal | Merged group | ||||
AFGHL | AFG Business Platform | Loans | focus | Strategic | |
White Label | White | Aquisitions | |||
Label |
Residential | Commercial | Asset | Personal | Insurance | Other |
Broker | |||||
Mortgages | Mortgages | Finance | Loans | Referrals | |
Services | |||||
Broker Distribution Network | Greater |
product | |
Technology/Customer/Choice | diversity |
Strengths of the business model:
- Established and diversified network with 2,975+
brokers across Australia offering over 4,000 products
- Diversity with traditional wholessayd itale broking/ aggregation, distribution and manufacturing, with the ability to adapt focus in changing market conditions whilst having a significant actuarilly assessed cash flow stream being delivered
- Investment in broker technologies has supported brokers to continue to help their customers whilst observing social distancing rules and meeting their compliance obligations
Update on Connective merger:
- AFG expects to submit our response to the ACCC's Statement of Issues in the coming week
- Court case: Closing arguments complete. Judge retired to consider evidence
3
AFG, AFGHL & AFGS
Loan book as at 31 December 2019 | 4 |
Strategic & market outlook
AFG is well positioned to capture future growth opportunities. Disruption from COVID-19 will likely result in some market disruption in the short term, with the government implementing a number of initiatives to support lenders through the pandemic
Well positioned for future growth opportunities
- Capital light, strong balance sheet with no debt
- Established distribution network with further opportunities for brokers as customers are not able to attend bank branches
- Strong cashflow generation including annuity type stream from organisations with strong credit ratings
- Ongoing investment in technology to grow scale efficiently
- Delivering on AFG's earnings diversification strategy
- Continuing to drive competition and choice
- of Aus Mortgages written through a broker1
57% | 56% | 55% | 55% | |||
54% | 54% | |||||
52% | ||||||
52% |
Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 Jun 19 Sep 19 Dec 19
Market outlook
- RBA cash rate set at 0.25%
- Government funding initiatives to support bank and non-bank lenders. Including Term Funding Facility offered by the RBA to bank lenders and $15bn Structured Finance Support Fund managed by the AOFM
- The AOFM has confirmed Delegate Approval to provide AFG with mezzanine funding to replace some of the existing providers and allow increased warehouse limits. This is in process of being documented with the AOFM
- Disruption from COVID-19 is expected to result in increased unemployment levels and a drop in house prices
- In response to the environment, some lenders are strengthening credit underwriting criteria which may impact conversion of lodgements to settlements
- COVID-19impacting AFG Securities with 4.6% of the book in hardship, with approximately the same percentage entering into a payment arrangement such as moving to interest only
- Market outlook remains uncertain and dynamic
1. Source: MFAA. March 2020 data not available until late May | 5 |
AFG Mortgage index update
Record month to close the quarter as major lenders put their foot down
Jan 2020 | Feb 2020 | Mar 2020 | Q3 FY20 | Q3 FY19 | |||
Lodge # | 7,203 | 9,945 | 11,196 | 28,344 | 23,036 | ||
Lodge Vol ($000's) | 3,764,133 | 5,491,165 | 6,147,542 | 15,402,840 | 11,610,804 | ||
Average loan size | 522,578 | 552,153 | 549,084 | 543,425 | 504,029 | ||
Investor % | 25% | 25% | 26% | 25% | 26% | ||
First Home Buyers % | 17% | 16% | 13% | 15% | 14% | ||
Refinance % | 27% | 27% | 33% | 30% | 25% | ||
Upgrader % | 39% | 41% | 38% | 39% | 43% | ||
Interest Only % | 17% | 17% | 18% | 17% | 19% | ||
Principal and Interest % | 83% | 83% | 82% | 83% | 81% | ||
- Largely driven by record low interest rates, brokers helped borrowers shore up their positions against the impacts of COVID-19 ahead of potential shutdowns
- March was a record month with $6.15 billion lodgement volume. Volumes for the quarter were 33% up on the same period last year, headlined by Victoria being 40% up
- Increase in major market share from 53% to 60% driven by all four actively pursuing market share with cash back offers
- The decrease in Upgraders has been offset by
significant increase in the proportion of Refinancers
- Across all lenders, processing times have increased resulting in a backlog for some lenders
6
April 2020 trading
- Total residential lodgements $5.2 billion, up 34% on April 2019 with growth in all states, fuelled by a spike in refinance activity. It is noted credit activity in April 2019 was benign following the Royal Commission and in the lead up to the Federal Election
- AFG Home Loans lodgements down 34% on the back of increased competition from the major banks
- AFG Securities lodgements down 69% which reflects reduced credit appetite and increased pricing to manage the existing pipeline in this period of COVID-19 disruption
- Significant shift in mix towards the majors continues, while the further decrease in Upgraders has been offset by significant increase in the proportion of Refinancers
- Conversion ratio remains uncertain
Comparison of April 2020 lodgements to April 2019
31% | 34% |
27%
11% | 43% |
69% 33%
Change on April 2019
7
Types of lodgements
Significant shift in customer mix with refinancers increasing, and decreases for First Home Buyers and Upgraders Also a large increase in the percentage of lodgements choosing a fixed interest rate with the cash at 0.25%
Customer type
45%
40%
35%
30%
25%
20%
15%
10%
5%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 APR | ||||||
FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | FY20 |
Fixed rate %
35%
30% | 3 | 0. | 0% | |||||
25% | 2 | 5. | 0% | |||||
20% | 2 | 0. | 0% | |||||
15% | 1 | .5 %0 | ||||||
10% | ||||||||
1 | .0 %0 | |||||||
5% | ||||||||
5 | 0. % | |||||||
Q1 Q2 Q3 Q4 | Q1 Q2 Q3 Q4 | Q1 Q2 Q3 Q4 | Q1 Q2 Q3 Q4 | Q1 Q2 Q3 APR | ||||
0 | .0 % | FY16 | FY17 | FY18 | FY19 | FY20 | ||
Inv % | First Home Buyers % | Refinance % | Upgrader % |
8
Lending activity
Majors taking back market share during COVID-19. Brokers playing a critical role in providing distribution and fulfilment in the absence of branch
Major vs Non-Major
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 APR
FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | FY20 |
Major | Non-Major |
Non-Major Market Share
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | APR |
FY16 | FY17 | FY18 | FY19 | FY20 | |||||||||||||
Non-Bank lenders | Non-Major Banks |
9
Lending activity
Average loan size has marginally increased while the national average LVR has reduced slightly in April
$800National Average Loan Size
$700 $600 $500 $400 $300 $200 $100
National Loan to Value Ratio
74%
72%
70%
68%
66%
64%
62%
60%
58%
56%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 APR
FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | FY20 | |
National | NSW | NT | QLD | SA | VIC | WA |
54%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 APR
FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | FY20 | |
National | NSW | NT | QLD | SA | VIC | WA |
10
Investor loans
While the percentage of Investor loans is flat overall, the proportion of refinancing increased to offset lower new Investor loans
Investor Loans %
60%
50%
40%
30%
20%
10%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 APR | ||||||
FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | FY20 |
Investment %Average
Investor Loans % per State
60%
50%
40%
30%
20%
10%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 APR | ||||||
FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | FY20 |
NSW | QLD | SA | VIC | WA |
11
Continued investment in technology
- Supporting the execution of our strategy to attract & retain brokers - upgrading AFG's core broker platform with the latest technology for growth, efficiency and customer management
- Allows the option of online interaction between broker and customer
- Improve process efficiency, submission quality and compliance capability
- New customer portal in pilot mode with broker portal to be released in H1 FY21
- Even more important in a post COVID-19 market
12
In conclusion
H1 FY20 result generally demonstrated the robust nature of the business driven by AFG's earnings diversification strategy.
Complexity remains in the market. Greater competition and choice evidenced by the growth in non-major lenders prior to COVID-19. Brokers continue to be a dominant channel for home lending.
Proposed merger with Connective ongoing with court process awaiting decision from judge and AFG responding to the ACCC's Statement of Issues. Positive resolution on both elements required for transaction to close.
Investment in technology to update the core broker platform with the latest technology capabilities for brokers' growth, efficiency and customer management. Delivering better outcomes for brokers and customers, particularly important in a post COVID-19 market.
The cash flow generation capability of the business combined with a debt free balance sheet and an annuity style flow from trail book continues to be a feature of the AFG business model.
AFG is still exploring future growth initiatives.
13
Q&A Thank you
Important disclaimer
This presentation contains general information which is current as at 4 May 2020.
The information is intended to be a summary of Australian Finance Group Limited (AFG) and it its activities as at 31 December 2019, and does not purport to be complete in any respect.
The information in this presentation is not a recommendation or advice about shares in AFG (or any other financial product or service). It is not intended to influence, or be relied upon by, any person in making a decision in relation to AFG shares (or any other financial product). This presentation does not take into account the objectives, financial situation or needs of any particular investor. You should consider your own objectives, financial situation and needs when considering this presentation and seek independent investment, legal, tax, accounting or such other advice as you find appropriate before making any financial or investment decision.
To the extent permitted by law, no responsibility for any loss arising in any way (including by way of negligence) from anyone acting or refraining from acting as a result of this material is accepted by the AFG Group, including any of its related bodies corporate.
This presentation contains some forward looking statements. Such statements only reflect views held by AFG as at the date of this presentation and are subject to certain risks, uncertainties and assumptions. Actual events and results may vary from the events or results expressed or implied in these statements. You should not place undue reliance on any of these statements.
No representation or warranty is made in respect of the accuracy or completeness of any information in this presentation, or the likelihood of any of the forward looking statements in the presentation being fulfilled.
The forward-looking statements included in this document speak only as of the date of this document. The AFG Group does not intend to update the forward- looking statements in this document in the future.
For further information visit: www.afgonline.com.auOr contact:
Alison Clarke
Head of Corporate Communications +61 402 781 367
15
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AFG - Australian Finance Group Ltd. published this content on 05 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 May 2020 22:33:14 UTC