Australian Finance Group (AFG) H2 2025 Earnings Call August 26, 2025 08:00 PM ET Company ParticipantsDavid Bailey - CEOLuca Pietropiccolo - CFORichard Wiles - Head of Research, AustraliaTim Lawson - Division DirectorConference Call ParticipantsJeff Cai - VP & Equity Analyst - Financials & InsuranceDavid BaileyThank you, and good morning, and thanks for joining Luca and myself today. It's a pleasure to present AFG's full year results for financial year 'twenty five, a year that marks further progression in o ...

Financial Data and Key Metrics Changes - The underlying NPAT for FY '25 was £40.8 million, with statutory NPAT up 21% to £35 million [26] - Gross profit increased by 12% or £15 million, reflecting growth across both distribution and manufacturing segments [26][32] - Operating expenses totaled $96.6 million, with a normalized second half OpEx of $46 million, down from the first half [27][30] Business Line Data and Key Metrics Changes - Distribution earnings contributed 81% of the business, with gross profit up 10% to $68 million [6][32] - Manufacturing earnings surged 53% to $16 million, driven by a larger loan book and improved net interest margins [4][32] - Subscription income rose 13% to $21 million, supported by increased adoption of BrokerEngine plus and other services [4] Market Data and Key Metrics Changes - Broker market share increased from 75% to 77%, with expectations to reach 80% [12] - AFG Securities loan book grew by 23% to $5.5 billion, with settlements up 65% [3][20] - The residential mortgage book grew by 5% to $211 billion, indicating strong market activity [6][17] Company Strategy and Development Direction - The company focuses on three strategic pillars: growing the broker network, providing market-leading technology, and delivering high margins through the distribution network [8][10] - Investments in technology and strategic acquisitions are aimed at diversifying income sources beyond traditional residential mortgage aggregation [4][10] - The company anticipates continued consolidation within the broker industry, positioning itself to capture future growth opportunities [13][52] Management's Comments on Operating Environment and Future Outlook - The management expressed optimism about the economic environment, citing lower unemployment and cash rate reductions stimulating market activity [3][44] - The company expects strong momentum into FY '26, supported by a record pipeline and improving market conditions [16][44] - Management highlighted the importance of brokers in the marketplace, emphasizing their role in providing competition and choice to consumers [46] Other Important Information - The company maintains a strong capital position with $182 million in investments and liquid assets, allowing for reinvestment where returns are compelling [4][40] - Cash conversion for the year was 90%, with a net cash position of $12 million, providing capacity for growth [40] Q&A Session Summary Question: Changes in the industry approach to brokers - Management noted that major lenders remain engaged with brokers despite their focus on proprietary networks, as brokers provide essential customer choice and competition [58][60] Question: Growth potential of the broker industry - Management believes consolidation will occur, but currently, it is a favorable time for brokers, with opportunities for growth and customer retention through additional services [62][63] Question: Revenue uplift from brokers writing multiple products - Management indicated that while achieving 100% of brokers writing multiple products is unlikely, there is potential for growth beyond the current 58% [65][67] Question: Home loan volume and securitization - Management clarified that the decline in home loan volume was due to the cessation of a white label program, with new products expected to drive future growth [74][76] Question: Net interest margin (NIM) benefits from rate cuts - Management discussed the impact of lower cash rates on NIM, indicating a small improvement alongside ongoing competitive pressures [80][82] Question: Outlook on payout ratios - Management acknowledged a natural ceiling on payout ratios, influenced by the mix of broker activity and overall market conditions [96][97] Question: Margin versus volume trade-off - Management confirmed a focus on volume growth while being mindful of return on capital, indicating a balanced approach to managing margins [98][99]