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

Thank you for standing by, and welcome to the Investor Briefing for AFG 2022 Full Year Results Announcement. [Operator Instructions] I would now like to hand the conference over to Mr. David Bailey, CEO. Thank you. Please go ahead.

Thank you, and good morning, and thanks, everyone, for joining the call today. I'm going solo today. As you're aware, our CFO, Ben Jenkins resigned and left us a couple of weeks ago. And we're in the process getting very close to finalizing -- hopefully finalizing an appointment of a new CFO. But in the interim, you've got the ex-CFO talking about financials, which may be a little dangerous, but we'll get started. So thank you very much. We did preempt our results by a release to the market late last or early last week. So the FY '22, I'm going to jump straight to Page 3. The FY '22 results really just underpins the earnings diversification, which journey that we've been on has delivered the 20% growth in NPATA to $61.3 million of the reported NPAT after the Volt and technology-related impairments we advised the market of last week, I mean, it lands at about $38.8 million. The result was as a consequence of record settlements within the residential mortgage brokerage business, which is up 36% on FY '21. Mortgage brokers continue to dominate the residential mortgage market reaching a market share at the end of the March quarter, we're still waiting on the June quarter numbers, a market share of 69.5%. So -- and the other part of the results, which are probably important to highlight, our AFG Securities, which is the main driver of our earnings and diversification strategy saw settlements up by 102% in FY '22. And Fintelligence and BrokerEngine, which are 2 acquisitions we undertook during the financial year are performing above expectation. And the other investment, key investment, which is that our investment in Thinktank, which is around about a 32% interest. So our earnings from that grow by a further 16% to $6.1 million. The cash flow generation capability of the business continues to grow and it's therefore, enhanced our historical dividend policy. We're driving a dividend, a fully franked dividend of $0.96 per share, which is an increase of 30% on FY '21. The other highlight for us for the year was AFG was awarded the Aggregator of the Year at the recent Mortgage and Finance Association of Australia Awards. It's just a strong validation and indication of all the hard work our team has undertaken over the last 12 months to win that award. Strong results, we talked about our after some disappointing impairments relating to Volt or BrokerEngine -- sorry, broker-related technology. Whilst we have some learnings from those events, we remain committed to the ongoing investment in technology to deliver improved experiences for our brokers and their customers. If I jump to Page 4, we can talk about some of the highlights. The one thing that drives home to me is that there's the number of customers that our AFG brokers are now helping in service. So that's over the 500,000 customers and included that as a subset are nearly 21,000 white label customers and just under 11,500 AFG Securities customers. So that business and that part of the business continues to grow and grow successfully. 3,700 brokers are now associated with AFG. And importantly, BrokerEngine subscribers -- subscribes to the technology, our workflow technology, which our brokerage provided has grown to 1,650 brokers. And that represents since our acquisition in December 2021, a growth of 40%. You can see there the other highlight for us is the AFG Security settlements, which is up 41% to have a -- sorry, the loan book, sorry, is up 41% to arrive at about $4.8 billion. The other one I'll call out has been quite a stellar year for commercial settlements, which is up 67% from FY '21. And that number sits at $3.9 billion, arriving at a book size of $10.9 billion. Investment highlights on Page 5, a couple I'll call out TSR [indiscernible] growth of 98%. The dividend yield, which we talked about previously at 9%. We continue to have a capital-light balance sheet and our normalized EPS represents 18% growth between FY '15 and FY '22. So the summing up that the strategy we've embarked on is really about providing choice to Australian consumers and competition to Australian consumers by building the distribution, providing competitive products and investing in companies who are also providing most competitive products. And what we're seeing and starting to see here is generating ongoing shareholder returns. I just flip across to the next page, a couple of pages we can talk about some operating performance statistics. We've talked about those residential settlements being up by 36% to $59.4 billion. We've also talked about the AFG Securities book with $4.8 billion, which is up 41%. It's really a driver of earnings, the future earnings for us into the future. The commercial in AFG business volumes were up 67% and 26% respectively. So that's really a reflection of what we're seeing -- starting to see coming into the marketplace, not only in commercial mortgages and commercial activity on the up. What we're starting to see is a high level of engagement with broker through customers, through broker, through to the lenders in terms of how they access these products. And that's probably one thing I would call out throughout the observations over the last 12 months. Not only have you seen a shift from lenders and the level of engagement of lenders with broker to generate business in the commercial piece, we've also seen -- sorry, into the residential piece, you've also seen an increased level of engagement from these lenders into the broker market to access customers as well. We have over 75 lenders on our lending panel now and the large lift in those is in relation to commercial lenders coming onto the AFG panel. The Thinktank business continues to go from strength to strength. We're very, very pleased with that. The internal white label settlements of Thinktank are up 84%. And the leasing asset finance results are sort of are reflective of that level of activity in the market and really does endorse our decision, our investment in the distribution business, which is the Fintelligence business. AFG Securities on the next page shows strong growth in volumes at lodgments. We're seeing a change in mix towards some higher-margin products, which is our Link Retro lightning [indiscernible] super fund products, which are providing some level of protection against margin compression. We did call out and we have been calling out that the margins we've been enjoying over the last 12 months in particular industry highs and that there would be some normalization, but the change in mix for us allows us to offset some of that. We've undertaken $1.7 billion in RMBS term outs over the FY '22, both in conforming and nonconforming transactions. And whilst we're seeing pricing in the RMBS market being impacted by market conditions, we are seeing -- we are fully expecting these pricing to normalize over the year. And we do recognize that the majority of that funding is already locked in. During July and early August, we also negotiated an increased level of our warehouse capacity of $700 million, and we'll continue to issue RMBS paper throughout the cycle because with a constant eye on minimizing balance sheet risk for the business. We have mandated a term transaction as of 2 days ago. We'll continue with that process over the next week or so. Credit risk and margin is a bit of a focus for the market at the moment. One of the things in the history of AFG Securities performance has been its loan performance, exceptionally low loss history of $260,000, which we attribute to obviously a conservative credit approach, but also more importantly, some of the data insights we were able to gain from the other broad shares of lodgments coming through the pipe from our brokers. And so that helps guidance and steer our credit policy. 44% of our loan book is a balance below $500,000, and 88% of the book has an LVR below 80% at the time of settlement. So the other point to mention is we've talked about the constriction of the net interest margin. We are taking action. Over the last 2 rate rises, we have put around about 25 basis points back into the back book, and we are continuing to change the mix of product, where the credit makes sense for us. We've talked about briefly about that arrears performance. I think the important point to realize is that of the $260,000 worth of losses since we started AFG Securities, only $32,000 related to post GFC condition. So we've had 31 loans in arrears which are greater than 30 days. 30 loans out of 11,000 loans is quite insignificant. Loan hardships are at 9 loans or 0.08% of the book. The performance of the book continues to be so strong that our underlying provisions have -- through the ECL calculations, have reduced by $395,000 compared to June despite the fact the book has grown strongly. And a lot of that is due to our conservative credit policy, but utilizing our insights across the broking business to assist in that credit policy design. White label and aggregation. White label and aggregation obviously are key parts of our business. We've talked about those settlements across the broader business and the loan book now sits at $182 billion. It's been our best year of recruitment for brokers in the 10 years with 200 groups recruited into AFG under the AFG banner. White label volumes have seen settlements grow by 36% up to $2.9 billion, and leasing and asset finance volumes are up 132% to $1.5 billion, which includes Fintelligence settlements of since January. And so that component is around about $700 million. The commercial update really just emphasize that the growing impact that we're seeing with commercial within part of our business, a 67% increase in settlements and a 19% increase in the loan book. The technology, we continue to invest in technology, and we will continue to invest in technology. The investments in Fintelligence and BrokerEngine businesses are all about providing better services and better products for our brokers and in turn, our customers. Now we'll continue to invest in our lodgment platform. We have refocused our in-house technology development to really look at a multilayered architecture, which incorporates the platforms from BrokerEngine and Fintelligence and some of the pieces that we've developed along the journey. We talk about subscriptions and brokerage and they're up 41%. It's clear that BrokerEngine is a really important part of what our broker sees in value. So it made a very strong and logical sense for us to consider BrokerEngine as a broader part of our architectural platform moving forward. And we've talked about our investments involved. We're not -- we're disappointed involve in terms of how it's turned out. But we're not using that as an opportunity to stop investment in technology. We'll continue to invest in technology and look at ways of learning from those investments, continue to invest in people and businesses as well and also exploring ways to partner with organizations of a like mind. And an example of that is our recent partnership agreement or decision to partner with TikTok, who are looking to start their own broking business. That will see us integrating with their technology along the way, but also see us consider some parts of their technology to assist in our ongoing technology journey. If I turn to Page 13, we talk about our investments. What people sometimes don't necessarily recognize is our Thinktank investment is equity accounted. It sits in the balance sheet around $28 million which is a historical cost. It's contributed $6.1 million to our earnings for the year, which is up 16%. I'll let you do the math in terms of what the true carrying value of that investment is, if you back sold a 32% interest driving a $6.1 million return for the year. Fintelligence, earnings contribution of $3.6 million since acquisition. So that's at 100% and that's after tax and that's for 6 months. We're actually seeing -- we're seeing $700 million in additional asset finance settlements come through. And we are seeing a very positive response from some of our brokers who wish to be early adopters of the platform into their own business. So the cross-fertilization of what Fintelligence is doing as well as what AFG is doing is starting to take seed. BrokerEngine is an important plank in our technology offering, and I've talked about those 1,650 subscribers into the business. So as you can see, with the majority of our investments to be placed, Volt aside, we're very, very happy with the progress of all of those investments over the last FY '22. I'm going to jump to the financial results now. You can see revenue is up 25% across all of our -- higher volumes across all the pillars of our growth. Net interest margin because we've got a larger book is up 17%. We talked about our Thinktank investment. We've talked about the contribution of Fintelligence is now making to our business. And you can just see that the operating cash flow is down and that's really a timing difference between when we receive commission payments and when we pay them out. We expect that to convert, in fact, it did convert in the first month of FY '23. All this drives the dividend at 80% of underlying profit. And you'll remember at 31 December, we changed our dividend policy to actually say we are paying dividends. We used to pay dividends purely on the cash or dividend received from our associates. We are now paying dividends on the trading results of those contribution to the trading results of those entities into our business. Trail book accounting, you can see there underlying normal NPATA is 12% above FY '22, really driven by the size of the loan book and growth in settlements rather than any changes or significant changes in the assumptions. The key change, you can see there when compared to FY '21 is the variability, so the average loan life has come up a little bit compared to FY '22, which is understandable given the level of activity in the marketplace. And obviously the discount rate we would expect over next year given the recent rate rises to impact future settlements moving forward. The Slide 17 is the one which is really is trying to illustrate when we think it does illustrate the transformation the business has been going through over the last 3 to 5 years. So aggregation remains a core part of our business. The majority of our gross profit now comes from services and products delivered through the broker network. And you can see the contribution and the comparison between FY '15 and FY '22. And it's important because aggregation is a competitive market. It's a competitive market and our offering is a little different to some of the others. It is more a broader service offering. And the important piece is that's being supplemented through these other investments and other revenue-generating capabilities. The other income provides a level of offsetting for margin [indiscernible], which I'll talk about shortly, and the asset finance combined with their investment in Fintelligence provides another avenue for future growth for our business. On Page 18, we talk about our financial strength. And one of the key strengths of AFG is cash flow and annuity generating ability. And these annuities are coming from ADIs, predominantly ADIs or highly rated financial institutions. So that enabled us to continue to generate strong cash flows. The strong balance sheet enables further growth through acquisition and investing in further strategic initiatives. You can see there, we've got a number there of $217 million in assets, which are unrestricted net trail book and investments. And so again, I'll highlight the fact that our investments are carried at cost. So that $217 million is a robust base for the business. And therefore, if you throw in -- if you look at that compared to the market cap, the valuation of the business as it currently stands, I would suggest is rather unchallenging. The subordinated notes increased during the period purely driven off the back of the growth in the loan book and obviously the warehousing capability. As with all RMBS businesses or asset-backed finance businesses, there's an opportunity to recycle those cash when we term out to the marketplace. So that $217 million I've talked about is really around providing core balance sheet strength for the business moving forward. On Page 19, we talk about the summary of our cash flow. It is a capital-light business model. It generates strong cash. And excluding some timing differences, which I mentioned earlier, NPATA really converts to operating cash flow at 95%. And that really just -- that conversion of profit into cash flow, it is really a reason why our dividend policy can be much sustained and maintained at that 80% level. The balance sheet strength. The trail book accounting means that the net asset now if you combine the residential home loans -- sorry, AFG home loans and commercial trial books, that net asset now is about $106 million. And you can see on that balance sheet, for the first time, we've recognized and goodwill in relation to the Fintelligence acquisition. That is now currently being amortized at round about $300,000 per month washing through there. The other income, I mentioned that earlier in terms of being a nice offset. You can see the other income has increased. So service fees were up 8% due to the number of brokers -- the increase in the number of brokers using our services. And the services include things like compliance, professional indemnity, insurance and marketing services. We have had an increase in sponsorship income in the last couple of years due to COVID. We've seen a level of our ability to spend on broker events has been impacted. And so therefore, we've been able to map. So this year, as the country has opened up, we've had more broker events, which means more broker sponsorship has been brought to account. What that also it might translates into is obviously below the line in terms of the expenses, some of the marketing expense and broker-facing or conferencing expenses and the like have also increased. So there's kind of a one-for-one replacement of sponsorship income and conference expenses in the period. The other important thing I wanted to raise and we've got there in FY '18, is there was -- it was -- FY '18 was a year that we received volume bonus income of around $1.3 million. And so that volume-based income was banned following recommendations coming out of the Royal Commission. So FY '18 was probably the last year that, that bonus income was received. So you take $1.8 million out of the FY '18 result and then compare it to an FY '22 result, even adjusting for the additional sponsorship income, the quality of the earnings within the other income of the business has improved and is now maintainable and sustainable over a period as we bring more services to our brokers and more brokers adopt and embrace those services. And I think that's a really important part of our other income assessment. I'm just going to jump to FY -- I'm sorry, FY '23, just to Page 23 in terms of the strategy for growth. And the strategy has always been about building the distribution and then moving up the value chain. So as you can see, we've built distribution in residential and we'll continue to grow that and continue to invest in that part of our distribution. But we're moving into other asset classes for that distribution. So you can see with the increase in settlements and volumes coming through from the commercial business, we are creating a pipeline of new brokers wishing to embrace and adopt commercial mortgage -- commercial broking. And we've also, obviously, through our investment in Fintelligence, moved into a different type of asset class in a more sizable and meaningful way in terms of asset finance. So having established that base of distribution, we will move up that value chain. So you've seen us do that with residential with white labels and obviously into the RMBS sector, we've now got a $4.8 billion book. You've now also seen we've done the same thing, we've also embraced white label within the commercial space with our arrangement with Thinktank. We will look to bring on a white label partner in due course around the asset finance fees and where we can't take -- necessarily take -- move straight into the manufacturing capability, we would look at investments in commercial providers, such as what we've done with equity -- sorry, equity investment in Thinktank. So the strategy dwell around building the distribution, moving up the value chain, whether it be through white label, whether it be direct involvement and participation in the RMBS or IBS market or if we can't -- or if the option is available is for us to take a direct investment in an organization, which is always doing that and match that distribution capability of AFG and white label capability with the capability of manufacturing with a potential investment. And so that part is relatively consistent. But I think what you should be able to start seeing, particularly on where our earnings diversification is coming from, it's starting to take seed in terms of broadening the asset base and broadening the areas of which we are generating income. The final piece is our investment in BrokerEngine is providing tools for our brokers to enable them to take time out of their day. And that's an important part and an important consideration of the broker. It take time out of the broker's day to allow them to become more efficient in a market which is continuing to be busy. I want to turn now just to the outlook. Just in terms of -- I'm on Page 25 now. The broker and lending market, we remain a key player in the lending market, broker market share. So 1 in 10 mortgages written in the country coming from an AFG broker. We remain a part of the broking industry, which now generates 69.5% of all flow. And we would expect that to be maintained as branch footprints continue to reduce and customers continue to embrace the competition and choice which the broker channel provides. Our home ground advantage in terms of the industry information we obtained and how we apply that in terms of our own business decisions and our own business and investment decisions continues to assist us in executing our plans. Let's talk about -- ongoing talk about the rising interest rates. Historically, we've performed very well in a rising interest rate. It's been some time since that happened. But our history look has shown that customers will continue to look for the right and appropriate deal for them in a rising interest rate environment. We're seeing that level of activity and engagement with our brokers continue at a good level. And we're seeing also a quite unique part of the market going on right now where we're coming off the back with nearly 40% of all mortgages were written in a fixed rate environment. Those fixed rate environment over the next 2 to 3 years will return to the market because those fixed rate terms will cease. And AFG brokers during this period have written over $36 billion of fixed rate product. We would fully expect all our AFG brokers to be participating in that $36 billion worth of activity over the next 2 to 3 years because they created a relationship over this time with these brokers. Now the other part of the housing sector, generally residential mortgages generally do perform well across the cycle. And we've got a proven track record of strong arrears performance and low losses compared to our peers. And the current AFG Home Loans book is high quality and using that robust credit process as well as that home ground advantage do not underestimate the power of that home ground advantage that we have in terms of data. We can see what every lender is doing in the marketplace, and we understand the credit impact and the flow impact of those decisions. In terms of the more broader, more definitive around the outlook for the aggregation business, yes, rates and unemployment levels still are historical levels despite the fact that the speed of uplift in the cash rate is quite rapid. We think our market offering is compelling. We've got balance sheet strength. We've got industry-leading compliance advocacy, analytics capability, sorry, and a broad technology offering and have seen our broker numbers increase to over 3,700. The aggregation business and other asset classes provide further opportunities for growth. The other thing, which some people continue to overlook, is that the trial book, which we talk about, which generates so much cash flow does provide a hedging capability in areas of lower activity. So what that means is that in lower levels of activity, the loan book loans extend and more cash come through than originally expected. So it doesn't -- it means, we don't necessarily participate in the peaks and troughs from a cash flow perspective as much as some other businesses might. Mortgage customers are continuing to embrace the channel. It is now clearly the dominant channel for mortgage origination, and it's acknowledged by customers, but it's also being acknowledged by lenders. So lenders are saying, we finally accept that broking is where customers want to access our product. It's been solidified by a concept called Best Interest Duty. It's the only place where customers will know if they go get advice. It's the only place that they are compelled -- that the person giving advice are compelled by law to provide them with the advisories in their best interest. And finally, so the lenders are finally saying if it puts us where brokers -- our customers want to access a product, we need to be there. And so the level of engagement we're seeing from lenders across the platform has never been stronger. In terms of the manufacturing and lending, we remain positive around our manufacturing and lending business. We've got increased capacity through the business. Lenders predominantly responds to the rate rises by passing on the rates and through to customers. So whilst that timing of our ability to pass that rate rise will be impacted in the short-term, we think we are in a position to broadly preserve longer-term net interest margins. So I say longer-term, yes, there is an expectation we have been telegraphing that the historical NIMs that we've been generating over the last 18 months have been higher than we would have normally produced, but still at a level which is comfortable for us. That home ground advantage I've talked about in sort of drilling down into means that, our ability to identify pockets of distribution and pockets of product manufacturing capability and design means that we are capable of identifying proper areas of expansion. And we talked about that 38% of customers adopting to use a fixed rate product in 2021. That number is now 8%. And even that dropped from 38% to 8%, just means because AFG Securities has never offered a fixed rate product, the addressable market for AFG Securities has increased by 48%. So those $36 billion of residential mortgages provide a nice opportunity for us, not only in terms of the number of customers coming back -- who will be coming back to customers, but also an ability for our brokers to be close to customers who are looking for the best option for the finances. July trading, you can see the numbers were softer. So the market has slowed. July was quite interesting. If I look at the month of the date in August, they're not down as much as July is, in fact, some states such as Victoria are pretty flat. West Australia is flat. New South Wales is softer. So the overall number is down. I think it's down in July by about 13%. But in August, that number is probably around about 4% on month-to-date. So from that perspective, it's not overly concerning in terms of volume. The RBA's activities around increasing interest rates is having the impact of slowing the marketplace. But in terms of other statistics and feedback from brokers that the level of inquiry remains high and it's just generating some level of tensiles with customers who will probably just wait and see what's going to happen. So in conclusion, I know I've been talking for a while and down for drink water. We've got a leading aggregation platform and ability to continue to invest in technology and services. We serve our broker service over 500,000 customers. The package of what AFG provides is validated by an Aggregator of the Year Award. We've got a capital light and robust balance sheet. Those net cash investments and other financial assets of $217 million. We've had a track record of strong returns and fully expect those strong returns to be maintained. We've got growing distribution across a number of asset classes, which does diversify the business even further. Our investments in Thinktank, and we're very, very pleased with our investments in Thinktank. Our investments in BrokerEngine and Fintelligence, whilst early days are providing positive returns for us above our expectation. The dividend consistency has been maintained $188 million in fully franked dividends since listing in 2015, and that's before the dividend we've just announced today. We're well-positioned to take advantage of increasing broker penetration of commercial and asset finance markets. And we have capacity to outperform in a rising interest rate environment given the positive demand drivers for the broker, our high-quality loan book and proven performance in the past in rising interest rate periods. So I might just pause there, take a drink of water and open you up to questions.

[Operator Instructions] Your first question is from Minh Pham from Barrenjoey.

Just looking at Slide 9, where you're talking to action taken towards that contraction includes rate raises and ongoing change in mix of new products written. And you have spoken a lot about your outlook for margins. It does sound like you are moving up the risk curve to manage margins. 2 questions on that, if I can. Is the higher margin products you're talking about still, I think we've mentioned before, is it still 40 basis points higher than your full docket? Do you think it's the right time to be moving up the risk curve given the outlook?

Yes, it is 40 basis points. And we're talking about moving up the risk curve. It's -- we call it conforming versus nonconforming. So the characteristics of the product is still sub-70% over good credit scores, and obviously, the thorough credit assessment process that we normally go through. So I'm not talking dual income, no kids. -- sorry, jumbo loans on the like. We have built our profile and our business on a very conservative setting. So the view that we're moving up the risk curve, it means probably better interpreted we're not looking for pure prime that's what we've done in the past. And our decision to move up that path was taken 12 months ago, and we haven't changed credit appetite since then. We just refocused the sales team on those opportunities.

And maybe just a second one, if I could, on operating expenses. There have been large increases. Appreciate those acquisitions that have put into that number. But could you tell us how much of that is FTE increase versus wage inflation? Amortization has also picked up. So just interested in the outlook for cost management given the rising inflation and continued need to invest in technology?

Sure. Sure. So headcount is our biggest cost. So if I look at the expenses for the year, maybe about $5 million of it is acquisition related. We've also got around about $1.5 million of it related to conferencing expense, which I mentioned earlier. We've also got -- clearly, we've had an increase in staff numbers [indiscernible]. We've now got nearly 300 staff in the business. And 12 months ago, that number was probably closer to just over 200. The other components of -- as a bit you mentioned it, there's about $1.7 million in acquisition amortization. And obviously, we have an increased level of term-out costs because we've increased the number of term-outs during the period, and IT costs will continue to be -- yes, we have had a historical policy of trying to expense as much of that as possible, and that's predominantly headcount. So IT costs in this marketplace, we've been through a rate -- sorry, rate rise, we've been through a round of salary increases over the last 6 months. We think we're reasonably well set on that. We think feedback from the market is it's coming off a little bit. Probably the biggest area of sales -- sorry, of wages increases is probably -- yes, we've got IT people, but we've also got one of the side effects of 70% of the customers now using broker is that all lenders have now turned around and said that they need to have more of a footprint and presence in the broker channel, and that requires headcount. And so they have the best hunting ground for lenders to access the broking market is probably the aggregation channel employee base. And so that's driven up some costs there as well. Does that answer your question, Minh?

Yes, great.

Your next question is from Brendan Sproules from Citi.

Look, I've just got a couple of questions. Firstly, just on the July slide, I think it's Slide 28. I was wondering if you could make some comments around the performance of AFG Securities. Obviously, it's quite a significant softening in the market on the direct month 12 months ago, but obviously, AFG Securities is performing quite differently to that. So I'm wondering if you could expand further on where the successes have come back?

Look, it's -- the 3% is higher. Yes, again, some of those niche products that we've talked about, I just talked about with Minh. AFG Securities has slowed down in July -- sorry, in August, but not horrendously so. We also did slow down a little bit of originations in AFG Securities. Just in terms of -- I talked about that conservative approach and outlook for AFG Securities, Brendan. But yes, the proposition of good rate, good turnaround times and consistent credit decision still holds true and even in that market, where it is quite competitive in the prime market, but in the nonconforming near-prime type market, we are able to create -- we have got a strong following, and we are creating a growing footprint in that space as well.

Just the second question, if I may, just on Slide 17. It's an interesting cut of your gross profit over a 7-year period. I guess I'm interested in -- you described your business now as having a lot of sort of low-risk annuity style cash flows. I was wondering whether you could contrast these wheels here in terms of if we do get a slowdown, I mean, you're in much larger business over the 7 years, and you're obviously a lot more diverse. I mean how much, I guess, of the current gross profit is linked to the current year activity versus how much is contributed to a trail book or a margin of a loan book that's obviously going to not be as impacted by what potentially may be slowing you next year?

Yes. Look, I mentioned before that and we do have -- if you look at the P&L, I don't have the exact numbers, but historically, round about 50% of our revenue in the resi side was trail book and 50% was upfront, historically on a longer-term average. And what we've seen is that, that delta moves up and down based on the levels of activity. So we do feel relatively cushioned by a softening in the marketplace in terms of overall cash flow being generated. But the headline profit number might move up or down based on -- the big driver is obviously upfront commission. If that slows down, the cash flow comes through, but the profit number is a bit softer. So I look at it, the other part is the AFG Securities book, the irony is that if the AFG Securities book slows, the growth of security slows down and on the assumption that you retain those customers, you don't have the cash flow impact upfront of commission payments for new customers. And the annuity style of that loan book continues to wash through. And commercial, we're seeing a strong -- we've moved into Thinktank, commercial products in Thinktank. Their investment, our investment in Thinktank, if that market slows down, again, they'll have the similar experience as we'd expect in the AFG Securities business that will probably spin off more cash. The asset finance business in terms of -- is transactional. So that might come off a little bit, but the Fintelligence part of it, there is bulk of the paying fee for that to have access to the platform. I'm just trying to think of it all the main areas. And the other one is our other income and fees are really driven now at the number of brokers using our services. So compliance services, you want to be in the -- if you want to be in the market, you need to have compliance. So that's something you can need to be in the market. If you want to be a broker, you need professional indemnity insurance, you need a marketing platform, you need a technology platform. So those -- that quality of those earnings are probably linked to the number of brokers we have. So I'm not sure I've answered that. But I think we've broadened where we get our business from, and therefore, it provides them -- if I look at the commercial business at the moment, I talked about those numbers in residential being sort of in August as an example, being a little softer. But in commercial for August, it's up 52% on the same period, and Thinktank commercial is up 22% in the same period. So there are some contrasts going on. The level of slowdown of economic activity, we're not seeing it just yet, Brendan.

Your next question comes from Richard Wiles from Morgan Stanley.

I've got a couple of questions. The first one also relates to Slide 28. Why is New South Wales so bad in July, down 24%, Victoria, down just 6%?

Yes. Well, you tell me you live there, Richard. I don't know, to be honest, I really don't know. August number is down 7%. So it sounds like it might be one out of the box. Victoria is our strongest state from an AFG perspective. We're a little softer in New South Wales, but it's not from loss of broker groups. I'm looking at -- if I'm looking at data in New South Wales, it's particularly strange sometimes. July is also a month of school holidays, New South Wales probably locked down in that period. I'm not sure -- and in the prior period, yes, I'm not sure people are traveling. And what we do find is, I mean, brokers have an ability to travel as it's school holiday, they too.

And then my second question relates to these fixed rate mortgages. I understand that the banks are engaging their fixed rate mortgage customers in the months leading up to the fixed-rate maturities. It seems that customers have 3 options. They can either accept the previously agreed discount on the standard variable rate when the maturity comes through, they could negotiate with their existing lender for even bigger discount or they could reengage with your brokers and look to refinance to a different lender or perhaps get your brokers to help them get a bigger discount from their existing lender. Can you give us an idea of sort of what proportion of customers will fall into each bucket? What are you seeing or what are you expecting?

I know we've got a couple of brokers on the call here. So maybe I'm -- my gut feel here is that most customers brokers who have a good relationship with their customer, and we will be helping them prompt that with our marketing capability as well will be -- of course, the bank might be contacting the customer, our brokers will be contacting the customer as well. And the broker will then be doing their best to once the brokers engaged, applying a best interest duty lends across the transaction. And if there's a better offer in the marketplace, the broker will move them to that new lender.

Yes. And given what's happened with pricing in the last year or 2, there probably is a better offer in the marketplace. Is that the comment?

I think you can guarantee that. I think you can guarantee that, yes. I think, Richard, the key piece there is the one thing that's different from our last interest rate rise and fixed-interest cycle that we may have gone through is that the level in broker engagement with the customer base, now it's 70% and also the fact we've got best interest duty.