Australian Finance Group Limited (AFG.AX) Earnings Call Transcript & Summary

Good morning, everyone. On behalf of the Board and management of AFG, I would like to welcome you to the 2025 Australian Finance Group Annual General Meeting. My name is Greg Medcraft, and I am the Chair of the Board of the Australian Finance Group Limited. To begin with, we'd like to acknowledge the traditional custodians of the land we're meeting on, which is the Whadjuk people of the Noongar nation and acknowledge and respect their continuing and the contribution they make to the life of the city -- of this city and this region. Today, the Annual General Meeting is a hybrid meeting. It's being held physically at 240 St. George's Terrace in Perth, Western Australia, and I extend a warm welcome to shareholders and visitors who have attended in person. The meeting also is being conducted online by the MUFG Virtual Meeting Platform, and I welcome shareholders, proxies and guests attending the meeting virtually. As a hybrid meeting, shareholders and proxies attending online may ask questions and submit votes during the meeting. Instructions on participating in the online meeting can be found in the notice of meeting available on the ASX platform. For those present, as a courtesy to others, please, as always, turn off your mobile phone. And it is now past 9 a.m. We have a quorum present, and therefore, I declare the meeting open. For those of you here in Perth, please ensure you have registered. And even if you are not a shareholder, you've obtained a registration card. The meeting agenda will be as follows, and it's here on the display: First, introductions and housekeeping; second addressed by the Chair; third is the CEO's address; fourth is the formal business; and fifth, close. In Perth, we are joined by nonexecutive directors, Brett McKeon, Craig Carter, Jane Muirsmith and Annette King. Unfortunately, one of our directors, Malcolm Watkins is unwell, unable to attend and sends his apologies. I would also like to introduce our CEO, David Bailey; our CFO, Luca Pietropiccolo and our Company Secretary, Michelle Palethorpe. We also welcome Timothy Dachs and Yasi Mahendran, representing Ernst & Young, the company auditors. They are in attendance and will be available to take questions from the shareholders. Kate Nguyen, representing our share registry, MUFG Corporate Markets, is also in attendance. Are there any apologies to be noted? No. So the Company Secretary has confirmed no apologies other than one I've mentioned have been recorded. So before moving on to the formal part of the meeting, I will now provide a brief address and then invite our CEO, David Bailey, to address the meeting. So FY '25 was a defining year for AFG. We delivered solid earnings with net profit after tax increasing by 21% to $35 million, while underlying net profit after tax and before amortization rose to $40.8 million, a 13% uplift. Underlying return on equity was 19% and both Distribution and Manufacturing segments delivered significant earnings growth, up 10% and 53%, respectively, driven by successful execution of our strategy, broker network expansion and resilient market conditions. This year's results reflect the strength of our diversified business model, our disciplined approach to capital allocation, our ability to adapt and thrive in a dynamic market environment. FY '25, we continue to invest in technology and strategic growth. Our technology enhancements boosted broker productivity and engagement, and the full acquisition of Fintelligence was successfully finalized in November 2024. We launched our Broker Investments program, marking an exciting evolution of our broker partnership model, broadening our earnings base and reinforcing our commitments to mutual growth. Our securitized lending business has enjoyed great success this year, with earnings increasing from -- by 53% to $16 million. AFG's role in ensuring a competitive lending market can be seen in the flow of business to non-major lenders. In FY '25, AFG broker flows to nonbanks were 11.6%. And in Q1 '26, we are seeing similar levels around 11.2%. Residential mortgage-backed securitization programs played a crucial role in supporting smaller banks, nonbank lenders, credit unions and building societies in Australia. We are very pleased to compete -- completed a highly successful transaction last month, and David will provide further details regarding this achievement later this morning. RMBS schemes offer a vital alternative source of competitive funding, empowering small lenders to compete more effectively with the big 4 and helping keep borrowing costs down for consumers. AFG, together with other industry leaders, continues to champion the introduction of a government-backed RMBS scheme. Such a program would meaningfully enhance competition in the home lending market and help insulate the financial system from systemic liquidity risks. This would level the playing field to provide increased access to funding for smaller lenders and drive greater choice for borrowers, fostering a more dynamic and competitive landscape. With broader competition, consumers benefit from more attractive interest rates and a wider array of home loan options, supporting affordability and financial security for homebuyers across Australia. Last month, proud to say AFG was named Major Aggregator of the Year at the 2025 Australian Broking Awards. The Australian Broking Awards recognize outstanding achievements within the mortgage and finance sector. The Major Aggregator of the Year category acknowledges organizations that demonstrate exceptional leadership, innovation, effective broker support and a strong commitment to assisting brokers in developing their businesses. Receiving this award once again, is a significant achievement, and the recognition is a testament to the hard work and outstanding contribution from our staff and members. As we head into FY '26, we remain committed to aligning our strategic decisions with the objective of long-term value creation for our shareholders. Looking forward, we are confident in AFG's capacity for continued growth and scalability. The foundations we've laid over the past 3 years across technology, distribution and broker services position us well to meet our FY '29 aspirations and beyond. So on behalf of the Board, I want to thank our shareholders for their continued support, our brokers for their trust and our executive team for their leadership. I'll now invite our CEO, David Bailey, to share more on our operational performance and strategic outlook.

Thank you, Greg. I'd also like to extend my thanks to our shareholders both here and online for joining us today. FY '25 was a year of effective execution and strategic momentum. We delivered across all 3 of our strategic pillars: growing our broker network, working with our distribution to deliver higher margin opportunities and harnessing technology to be more agile, competitive and profitable. The strength of our performance is reflected in our results. Our broker network continues to grow, now supporting over 4,200 active brokers representing 1 in 6 across Australia. Residential settlements rose by 15% to $63 billion, expanding our total loan book beyond $210 billion. This growth is a testament to the trust our brokers place in us and the strength of our platform. We saw meaningful margin expansion through our distribution channels. Distribution earnings grew by 10% to $68 million. Our gross profit margin from our diversified product portfolio rise by 12% this year. This increase highlights our ongoing commitment to providing brokers with a broader range of offerings and demonstrates the effectiveness of our strategic priorities. AFG Securities reported strong financial results with its loan book growing to $5.5 billion. As both an originator and distributor of mortgages, AFG occupies a differentiated position in the Australian home loan market, providing us with considerable insight into mortgage market behaviors and trends. This expertise informs our credit policies and lending practices, which are fundamental to the performance of our lending business. In the current rate reduction cycle, we are closely monitoring runoffs, which we are sensitive to cash rate movements. In the first quarter of the new financial year, we're seeing elevated rates of runoff as customers actively seek opportunities to make savings. As Greg touched on earlier last month, we were delighted with the successful upsizing of our latest prime RMBS transaction to an equal largest placement to date of $1 billion. Strong demand from local and onshore investors -- offshore investors, sorry, was experienced. We remain committed to offering our competitive suite of home loan products to our brokers and their clients as well as sound investment opportunities to participants in the RMBS market. The contribution from our investment in Thinktank improved by 24%, and our leasing and asset finance settlements reached $3.5 billion, led by the performance of our intelligence business. As Greg mentioned, we launched our broker investments program with the completion of 3 equity investments, 2 within our network and 1 external to AFG. At the end of last month, we were delighted to sign an agreement with another AFG broker to support their business plans, taking the total investees to 4 separate entities. These investments are expected to be earnings accretive in FY '26 and continue to broaden our earnings diversification strategy. Technology remains central to our strategy. BrokerEngine Plus is now the system of choice for our brokers, with a Net Promoter Score approaching 50, reflecting high levels of broker satisfaction. Our broker services suite continues to drive operational efficiency and regulatory confidence, helping our partners navigate an increasingly complex environment. Looking ahead, we remain confident in our ability to scale. We've outlined our aspirations for FY '29 including a $9 billion AFG Securities book and a long-term net interest margin of 120 basis points. These aspirations are ambitious, but they are grounded in our continued investment in technology, broker services and strategic partnerships. Pleasingly, quarter 1 in FY '26 set new records with AFG's mortgage lodgments reaching $30.6 billion, a 10.5% rise from last quarter and representing a 26.5% lift year-on-year. AFG Home Loans maintained a stable market share of 6.2% of AFG lodgments this quarter, and now AFG Securities accounted for 71% of this flow. This represents the highest proportion recorded in the past decade and a notable increase from the 61% in the previous quarter. This performance underscores a sustained momentum within the AFG Securities pipeline as the new financial year commences. Home loan -- home values have hit record highs and with national rental vacancies at just 1.2%, investor demand is rising quickly. In quarter 1 FY '26, investor loans made up 36% of our lodgement flows. This is up from 32% in the same period last year. Australia's housing finance market is expected to continue its upward trajectory over the next 12 months, supported by strong employment, ongoing supply constraints and sustained borrower demand. As interest rates ease, we anticipate renewed momentum in home lending and increased opportunities across the marketplace. AFG is well positioned to lead this next phase of growth. Our scale, technology and deep broker relationships places us at the forefront of an industry that now accounts for almost 78% of new mortgage flows. With more Australians seeking trusted advice, choice and competitive lending solutions, the strength of our AFG broker network will continue to drive market confidence and deliver positive outcomes for customers. Finally, I would like to acknowledge our people. By people, I mean our staff, our brokers and business partners. Their dedication and resilience have been instrumental in delivering these results. Together, we are building a stronger, more innovative AFG, one that is well positioned to deliver sustainable earnings growth and long-term shareholder returns. I'll now hand back to Greg to conduct the formal business of the meeting.

Thank you, David. Before I open the floor to questions, I'd like to outline the question and voting procedures, so each person who signed in today will have received either a yellow voting card, a blue card or a red card. If you're holding a yellow card, you may vote and ask questions. If you're holding a blue card, you may ask questions but cannot vote. And red cards are for visitors who may neither ask questions nor vote. [Operator Instructions] Due to time constraints, we may not be able to get to every question. If this happens, we'll be in touch as soon as possible to answer your question after the meeting. In order that -- I propose that the order for taking question will be as follows: first, questions from the floor. Please then state your name and whether you are a shareholder in your own right or an attorney, proxy or corporate representative of a shareholder. You will be invited to ask questions now or as we discuss each of the resolutions at the end of the formal meeting. Secondly, I will then take questions from any holders who have asked questions online. With regard to voting and further information for shareholders in the notice of meeting, in the interest of equitably representing the views of shareholders in accordance with the ASX Corporate Governance -- Council's Corporate Governance principles and recommendations, we intend to call a poll in relation to each of the resolutions considered at the meeting. The poll will be conducted at the end of the meeting. I will outline now the poll procedures prior to conducting the poll. The results of the poll will be released to the ASX after the votes have been counted, and we refer you to the notice of meeting for the details of voting exclusions, and copies of notice are available at the front of the room in Perth and online on the virtual meeting platform. The proxy results for each resolution will be shown on the screen behind me. And for those online, you'll see the results for each resolution presented in the virtual meeting platform. To the extent that open proxy votes are held by the Chair of the meeting, those proxies will be cast in favor of the resolution. I'll now open the floor to questions. Please, if you have a question, you're here, please state your name. And in fact, there are no questions, I believe. And now do we have any questions online?

Yes, we do, Chair. The first question -- well, it's actually a statement from shareholders, Stephen Mayne.

Hello, Stephen.

It's, "Well done for offering a full hybrid AGM with video disclosing the proxies early to the ASX, receiving no material process votes and not waiting until November to hold the AGM. I've nominated for the Board of multiple Perth-based companies, which hold dinosaur physical AGMs in late November in order to try and shift practice and appreciate having transparent and well-governed companies like AFG based in Perth, which can be cited as best practice example when negotiating with other Perth-based companies to lift their game." I think that's just a statement.

Thank you, Stephen, and I acknowledge you and what you're doing in corporate governance, including under my previous role. So thank you.

He has several other questions.

Okay. Maybe I should take that back, Stephen, anyway.

The first question he asked is, thanks for disclosing the proxies early, along with the formal address, including the headcount data. Last year, you removed the headcount data from the poll data. The annual report says we have 18,946 shareholders. It would be good to know how many of them voted for and against each item in the poll. Stockland and ARB did this for the first time yesterday. Will you follow suit in order to make retail voting sentiment public and highlight the chronically low retail voting rates in Australia, a problem which needs to be tackled? Would you like me to add to that one?

Yes. I mean it's quite an interesting question. Yes.

So we appreciate your comments about us transparently putting our proxies online early. Thank you. There is no requirement, legal requirement for us to disclose headcount. So at the moment, we're not proposing to disclose that.

Okay. Next question.

Next question. How many full-time equivalent staff do we currently have? And is this likely to fall over the coming 12 months with the rapid rollout of AI? Which parts of our business and operations are the most prospective for AI productivity gains and how energetically are we embracing those opportunities? I think it's for you or David, maybe.

I think, well, I'll just say our people are our most important asset -- our most important asset. And if we can get more productivity from AI, we will, but our people will remain underlined. So Dave, I don't know we want to add to that, but...

I think I'll just reinforce those but also indicate that AFG is a people business. It's built on people. It's built on the people's relationships with our brokers and those brokers relationships. We see AI as an enabler to drive more efficiency from the customer experience. And we wouldn't expect any reductions in headcount, just a better customer and employee experience in terms of the work they do with AI.

Great. Yes. More efficiency, better customer engagement.

There are no more general questions. There is a question on one of the other resolutions, but I'll wait until that resolution.

Okay. Okay. Good. Well, thank you again, Stephen, for the questions. Okay. So the -- thanks now. There's no further questions. We'll move on to the formal proceedings of the meeting.

I've been advised by the Company Secretary that notice of meeting has been properly circulated, and there are no objections. And I will take the notice of meeting as read. I have received confirmation that the presentation materials for today's Annual General Meeting have been lodged with the ASX in accordance with the listing rules. All directed proxies will be voted on as directed. Any undirected proxies that default to the Chair of the meeting will be voted in favor of the resolutions, including where the resolutions are connected directly or indirectly to the remuneration of key management personnel. A copy of the minutes of the last AGM held on 18th October 2024 are available at this meeting if any shareholders wish to inspect them. So the first item on today's agenda relates to the financial report of the company for the financial year ended 30 June 2025, together with the directors' report and auditor's report. It's not necessary to formally pass the 2025 financial reports. However, our shareholders are gathered here today, it is a convenient time to ask shareholders whether they wish to address any matters in those documents. I now invite shareholders to comment or ask questions on the reports. Questions may also be asked of the auditors in relation to the conduct of the audit, the contents of the audit report, accounting policies adopted by the company and the independence of the auditor in carrying out the audit. If any of the shareholders on the floor have a question or comment, please raise your yellow or blue card, and I don't see any cards being raised. So if have any questions being submitted online prior to the meeting.

Not for this resolution, no.

Okay. Good. So no further questions. We'll move on to the next item of business. As I advised earlier, we will conduct a poll in relation to each of the resolutions considered at this meeting. For those physically attending, the persons entitled to vote at this poll are holding yellow cards. You actually can mark either for or against or abstain for each of the resolutions on your voting card for your vote to count. And once you have finished marking your card, please place it in one of the ballot boxes circulating in the room after all resolutions have been read. If there are any aspects regarding the voting on which you are uncertain, please do not hesitate to ask the MUFG staff who will be circulating the ballot boxes after reading all the resolutions. For those attending virtually, click on "get a voting card," enter your shareholder credentials per the instructions and click on either for, against or abstain button for your vote to count and then select submit. So we now move on to item 2 on the items of business, the adoption of the remuneration report for the financial year ended 30 June 2025. Under the Corporations Act 2001, listed companies are required to include as part of their directors' report a remuneration report, which includes specified information. The directors have prepared a remuneration report for the period ended 30 June 2025, and it is included on Pages 34 to 49 of the 2025 annual report, which has been made available to all shareholders. The Corporations Act also requires companies to put to shareholders a nonbinding vote to enable shareholders to voice their opinion on matters included in the remuneration report. And I remind key management personnel and their associated parties that voting exclusions apply to this resolution under the Corporations Act, and excluded parties should not vote. Therefore, I'll move the following resolution that the remuneration report for the company for the year ended 30 June 2025 be adopted. The proxies received for item 2 are displayed on the screen and show a majority in favor of the resolution. Are there any questions or comments from the floor? No? Have any questions been submitted online prior to the meeting?

Not for this resolution.

Okay. Good. Okay. So if there's no further questions, I'll now put the resolution to a poll. Please complete your voting card or submit your online vote for this resolution. [Voting]

Okay. I'll now move to item 3 of the agenda, the reelection of Jane Muirsmith as a director. As stated in the notice of meeting, in accordance with the company's constitution, a director must retire from office no later than the longer of the third Annual General Meeting and 3 years following that director's last election or appointment, and retiring directors are eligible for reelection. Jane Muirsmith was last elected as a director at the 2022 Annual General Meeting and Ms. Muirsmith therefore retires. And being eligible, offers herself for reelection to the Board of the company. All director details are set out in the directors' report on Pages 27 to 33 of the 2025 annual report, and Ms. Muirsmith details are on Pages 10 and 11 of the notice of meeting. So I will not repeat those details. I'll move the following resolution that Jane Muirsmith, who retires as a director of the company in accordance with Rule 8.1(e) of the company's constitution and being eligible, be reelected as a director of the company. The proxies received for the item 3 are displayed on the screen and show in favor of the resolution. Are there any questions or comments from the floor? No. Are there any questions that have been submitted online or prior to the meeting?

There is one question from Stephen Mayne. A well-governed Board has multiple potential future chairs on the Board and doesn't have to look outside when the Chair exits. Do Jane Muirsmith and the Chair believe that it is currently the case at AFG? Also, could the Chair comment on the likely timetable for chair succession? For instance, is he definitely planning to run again when his current term expires. None of this is to suggest that Greg is doing a bad job and should go. He appears to be a very good Chair, and we're doing well, so keep it up.

Thank you, Stephen. So yes, that's what I can't delegate. My intention has to -- it will be to renominate when I -- my term comes up. I've just been appointed by the government for 5 years to be the Chair of Aus energy Australia to oversee the energy transition. So I'm not going anywhere. So -- and in terms of succession, we are -- in terms of other directors, clearly, succession is top of our mind in terms of directors in the next few years because we have a number who are reaching their sort of limits, so -- and that is something that we are actively involved in at the moment. So that -- I think that hopefully answers your question, Stephen. So yes.

Yes. Thank you.

Okay. Good. I'll now refer to item 4 of the agenda, the reelection of Annette King as a director. As stated in the notice of meeting and in accordance with the company's constitution, a director must retire from office no later than the third Annual General Meeting and 3 years following director's last election or appointment. Retiring directors are eligible for reelection. Annette King was last elected as director at the 2022 Annual General Meeting. Ms. King, therefore, retires and being eligible, offers herself for reelection to the Board of the company. All the directors' details are set out in the directors' report on Pages 27 and 33 of the 2025 annual report and at Pages 10 and 11 of the notice of meeting. So I will not repeat those details. So for item 4, I'll move the following resolution that Annette King, who retires as a director of the company in accordance with Rule 8.1(e) of the company's constitution and being eligible, be reelected as a director of the company. The proxies received for the item 4 are displayed on the screen and show in favor of the resolution. Are there any questions or comments from the floor? Are there any questions have been submitted online?

No online questions.

Okay. All right. Good. Well, not that happy. So now there are no further questions, I'll put the resolution to a poll. Please complete your voting card and submit your online vote for this resolution. So now that, all the resolutions have been read, please ensure you properly completed your voting card and kindly lodge your voting cards in the ballot boxes circulating in the room, and I can see it circulating in the room here. If you have not already done so, shareholders and proxyholders participating by the virtual meeting platform should now submit their votes, and we will have a -- you'll see a timing countdown will appear on your screen. And so we can just wait a couple of minutes to allow that to occur in the room. [Voting]

Michelle, is the online...

Online voting can continue. So you can close the poll with that ongoing.

Okay. It appears that all persons have now voted. I therefore declare the poll closed. Rather than adjourn the meeting, I'll ask the share registry and our Company Secretary to calculate the poll results and to announce them to the ASX when this is completed. This concludes the formal business of the meeting. Thank you for your attendance and participation in today's meeting, particularly Stephen. But now we look forward to your continued support in the coming year. And I now declare the meeting closed. Thank you.