Resimac Group Limited (RMC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. The time is now 9:30. Our Company Secretary has confirmed that we have a quorum of [ 2 ] [ manifests ] registered. I would like to welcome you all to our first virtual AGM and now declare the formal proceedings of the meeting open. My name is Warren McLeland, and I'm the Chairman of Resimac Group Limited. I'd like to introduce you to my fellow directors, sitting opposite me. Immediately opposite me is Patrick Saville and to his left is Wayne Spanner. Both of them are with me in our Resimac Board Room in Sydney; and also to Susan Hansen, who is dialing in from Auckland and who represents us from New Zealand with our managers and Chairs our New Zealand business. We also have in attendance, on my immediate right, is our CEO, Scott McWilliam. On the other side of the table, Jason Azzopardi as our CFO; and to my left, maybe not visible is our Company Secretary, Peter Fitzpatrick. The company's auditors, Deloitte, are also in attendance, represented by our audit partner, Delarey Nell. The Notice of Meeting has been sent to all shareholders and lodged with the ASX on October 16, 2020. It has also been made available on the Resimac Group Limited website and posted on the share registry website since that date. I will take the Notice of Meeting as read. I refer to the minutes of the last meeting of shareholders of the company, which was for the AGM held on November 26, 2019. The minutes of this meeting have been reviewed by the Board and is signed by the previous Chairman on January 29, 2020. The minutes are with the Company Secretary are available for inspection. Shareholders today will be asked to consider 6 resolutions at the meeting. As Chairman of the meeting, I exercise my right pursuant to the constitution of Resimac Group Limited to request a poll on these resolutions. In order to provide you with enough time to vote, I will ask the registry representative office to open voting for all resolutions now. The log in instructions for the online voting portal are detailed in the Notice of Meeting and online voting guide. I will then read out the resolutions and allow time for shareholders to ask questions on the resolution. You may vote on each resolution at any time before I close the poll at the end of the meeting. However, before we commence the formal proceedings of each resolution, I would like to start with my Chairman's address. When your company began operations, the Internet, as we know it, did not exist. Like the Internet, we have certainly come a long way during our history. We confidently expect the coming decade will witness an even faster rate of change, and in parallel, will present even more opportunities for growth for our group. The ongoing challenge we have set for Resimac is to keep pace with the speed of evolutionary change. Our 3- to 5-year ambition is to aggressively and purposely grow our success by embracing the fintech revolution and digitization. 2020 was a challenging year for many reasons. I am delighted to advise that despite the adverse impact on the Australian business activity due to COVID-19, the disruptive spring and summer bushfires across the country and the continuation of the drought and the combined hit of all that on the economy as a whole, your company produced record financial results for the year to June 30. This is a position that only a few Australian and New Zealand publicly listed companies can claim. So what have been the key business drivers for success in 2020? First, we acknowledged the extensive support provided by the Australian government to our nonbank industry segment during the coronavirus market meltdown. This is a stark contrast to the GFC in the years 2007 to 2010, when the focus from government was exclusively on the banking sector, with the nonbanks being left to survive as best they could through the bulk of the GFC until the AOFM was activated by the government. By the end of the GFC, the nonbank share of the residential housing market had dropped by 85%. However, in 2020, which was arguably more significant in economic decline, our segment experienced double-digit growth. With increasing competition from the major banks in the second half of the year, conversely, our segment growth rate slipped back to single digits. Financial support has been provided by the federal government through the direct financial assistance of the AOFM, the Australian Office of Financial Management, and an accommodated interest rate policy implemented by the Reserve Bank of Australia through a series of interest rate reductions. Most recently, the RBA has announced an extension of its government bond purchasing plans in size and tenor of the bonds purchased after 10 years. This is likely to be extended imminently to a large quantitative easing program. While Resimac will be a beneficiary from these policies, a distinct uneven playing field has emerged between the pricing and financial support received by the major banks and nonbanks. Given the scale of the nonbank sector's contribution to the Australian residential lending market, we consider this as grossly unfair and disproportionate. Our long-term securitization financing program has continued to be pivotal to our planning process and success, evidencing Resimac's proven leadership in the nonbank sector. Our pedigree, history and unparalleled track record over 30 years of issuing bonds has provided us with a long-term and sustainable competitive advantage. Resimac's funding partners, Australian and overseas major banks and institutional professional investors, have been loyal and supportive throughout 2020, with the strength of these partnerships, again being demonstrated during the peak of the COVID crisis. Resimac continued to lend throughout the year, even while other lenders were not so fortunate. Our essential move to work-from-home policy this year was achieved promptly and successfully, thanks to a rapid response by our management team. The well thought out strategy permitted a seamless continuation of our origination of new business while maintaining our industry-leading turnaround times. This enabled record levels of new lending to be generated for Resimac without any deterioration in service quality. This is testament to the quality of our employees, notwithstanding the challenges of working remotely. The growth in new business was achieved without any weakening in our credit standards, while retaining a very high-quality book of loans. Our constant attention to process improvement, automation and the buildup of our offshore servicing center, now numbering 75 people in Manila, has directly contributed to our results. The planning for this investment began 6 years ago, and it has demonstrated its value to the group the first days of operations in 2016. Our management of costs, overall, is paramount, and the evidence of its success is our low cost-to-income ratio being the envy of the market. I emphasize my comments are applicable to our wholly owned New Zealand subsidiary. While operating independently with a discrete Board of Directors in accordance with New Zealand government requirements and management team, the company has faced similar macro challenges in 2020. The company's conservatism, governance and overarching culture ambitions and objectives also parallel Resimac's in Australia. We are proud to report that notwithstanding a severely competitive market, Resimac New Zealand enjoyed considerable growth in 2020. At Resimac's last Annual General Meeting -- at Resimac's last -- on behalf of my colleagues, excuse me. I'm sorry, I just got to [indiscernible]. Okay, I'm sorry. I turn to [ page 2 ]. At Resimac's last Annual General Meeting, we foreshadowed our plans to ensure our Board and management team would continue to be refreshed. Wayne Spanner was appointed as a director in first quarter 2020, and he has made a significant contribution to the Board in a short time he has been with us. Wayne brings with him a truly successful career in law, both in Australia and overseas, and an in depth understanding of commercial governance and compliance standards. The search for an additional nonexecutive director has been successful, and now that all the necessary checks and documentations have been completed, we'll be appointing our final selection at the Board meeting which follows the AGM. A subsequent announcement will be made to the ASX. Our CEO, Scott McWilliam, has strengthened his senior management team, who, in turn, have cascaded change to team members, upgrading the skills and competencies of our total workforce. Overall, our retention of key people remains one of the highest amongst our competitors. Our collegiate culture, which encapsulates conservatism but with a strong measure ambition for growth, has continued to augment our cross-functional skills. On behalf of my director colleagues, I congratulate our CEO, Scott McWilliam, for leading our team through the most demanding of years. To each of our employees, I extend our gratitude for their extraordinary work ethic and dedication to the business. It has been a real privilege to chair Resimac during this unprecedented time. I now ask Scott to provide a selection of specific highlights during the financial year.

Thank you. Thank you, Warren. Good morning, everyone, and welcome again to our first virtual AGM. I'm pleased to report that Resimac has had one of the strongest and most successful years in its 35-year history. We reported a record profit while growing our home loan portfolio for the third consecutive year. We laid the groundwork for our growth in asset finance lending. We made material inroads in our digital transformation journey. And we launched our new homeloans.com.au brand. Before I delve into the details of our accomplishments this year, I wanted to acknowledge the significant efforts and contribution of our staff across Australia, New Zealand and the Philippines. The speed at which they transitioned to a working-from-home model and the way that they've embraced new ways of operating was instrumental to our successful navigation of the disruption caused by the global pandemic. Turning now to our financial performance. Resimac achieved outstanding results for the year ended 30 June 2020. Our normalized net profit of $55.7 million represented a 79% increase to our previous full year result. This profit increase was underpinned by a 60% increase in net interest income, which is driven by strong settlements and AUM growth at a multiple to system. The growth in our portfolio is a testament to our focus on consistent and timely credit decisioning and the overall service offering resonating well with brokers and customers alike. Our continued cost discipline enabled us to significantly reduce our cost-to-income ratio from 56.6% in the previous year to 37.9%. We're also pleased to declare a fully franked final dividend of $0.018 per share, resulting in a total dividend of $0.03 per ordinary shares. Despite the disruption in global funding and credit markets as a result of COVID-19, we successfully extended and increased our warehouse funding lines and capital lines by more than $2 billion. Complementing the support of our banking partners was the overwhelming support from our domestic and offshore investors. The group issued 2 $1 billion RMBS transactions in the first half of FY '20, followed by 4 benchmark size transactions since the start of the pandemic. Resimac's strategy to diversify into asset finance lending is well underway. In July 2019, we acquired a 15% stake in Positive Group, a fintech that specializes in asset finance solutions. We followed this by the acquisition of a controlling -- acquisition of 60% stake of asset finance lender, International Acceptance Group, in January 2020. These investments enable us to gain valuable industry insights, extract synergies from our existing distribution network and importantly provide us with an immediate access to the sector. We've also made significant headway in our digital transformation, a project that will culminate in Resimac's evolution into a digital nonbank. We've partnered with key technology and service providers to facilitate a rich digital experience for our customers, brokers and other participants through automation, digitization and artificial intelligence. This will create a flexible, scalable and secure platform while driving an even lower cost operating model that will be critical to the next phase of our growth. In August of this year, we launched our new direct-to-consumer brand, homeloans.com.au. With over 40% of home loan borrowers preferring to deal directly with a lender, this digital native brand gives us access to a bigger pool of potential customers and supports our strategic objective of diversification of originations. The reception to homeloans.com.au has been extremely positive. Customers have been thrilled with the exceptional customer service, turnaround times and competitive interest rates. These attributes, combined with what is possibly the industry's most powerful domain name, provide a strong platform for future growth. In closing, I would like to thank you, our shareholders, for investing in our business and supporting our mission. Thanks to our business partners, from our brokers, to our bankers, for their patronage and support. Thank you again to our staff for the invaluable role they play, not just in the success of our business, but also in the financial wellbeing of our customers through these challenging times. Thank you also to the industry for recognizing Resimac as Nonbank of the Year at the recent 2020 Australian Mortgage Awards. We are honored and humbled to receive this recognition and is a title we'll proudly live up to over the next year and beyond. Thank you.

Thank you, Scott. As previously notified, voting on all resolutions today will be conducted by way of a poll. In order to provide you with enough time to vote, I remind you that the online platform is open for voting on all resolutions. I shall now move to the formal business of the meeting. The first item of business for this meeting is the receipt of the financial report for the year ended June 30, 2020. This item is not required to be voted on. I now ask if there are any questions on the financial report. But before reading -- receiving some, I do wish to advise that we have not received any advanced questions for our order -- our auditor, Delarey Nell, who, as I mentioned earlier, is with us. However, we have received in advance the following questions from 1 significant shareholder, Motrose Pty Ltd. First question is, can we receive an update on our New Zealand business? I will ask Susan Hansen, who is dialing from Auckland and is our Chair of the New Zealand subsidiary, to respond. Thank you, Susan.

Well, thank you, Warren. Thank you for asking questions about New Zealand. It has been operating for 9 years. And during this time, we've had steady growth, and see no reason why this shouldn't continue. Today, New Zealand makes up 5% of the total Resimac Group assets and about 5% of the profit, which is a very big improvement from the early days. The home lending market is different to Australia, in that the nonbank is considerably smaller share of the total residential market, and we consider there's a lot of scope for it to grow. And 9 years ago, when we moved into New Zealand, finance companies and their investors have been very hard hit by the GFC, and the industry was seriously tainted. This has required a lot of education, rebuilding of trust, and of course, regulation. We've been responsive to the market, identifying niches and shifted more from specialist to prime. Today, our prime loans make up more than 80% of the book. And more than half of loans are fixed-term loans. So looking forward, we see no reason why growth should not continue. And -- but similar to Australia, just like our Chairman mentioned, the banks may have a more favorable support in terms of their cost of funding. However, we're able to be response with a quick turnaround and great customer care. And I think we have to acknowledge the team of 17 people, led by Luke Jackson. It has been a year of unprecedented challenge. And when COVID hit, there was a seamless transition to working from home. The team kept true to their purpose in working closely with borrowers, both new and existing. And despite many hardships a few months ago, I'm delighted to say that today, we only have 4 loans in hardship. That's less than 4% of the total book. And today, our -- did I say less than 4%? I meant to say it's 0.4%. And our total arrears are less than 0.12%. And I think given the environment, that is pretty impressive. New Zealand is very fortunate that it can leverage off the expertise from the group in many areas, including securitization and technology. In September, there was a successful $250 million securitization issue, and the digital transformation of Resimac New Zealand is currently underway, which will position us very well for the future. The New Zealand economy has performed considerably better than expected. And the housing market is reported to have grown in excess of 10% this year. And commentary today is suggesting that 10% growth could carry on for some years. But we're aware of those same commentators were saying something quite different 6 months ago. So we are well aware that the cycle can and will turn, and we are very prepared. So I hope that answers the question.

Thank you, Susan. The second question from Motrose is, does the company expect merger activity to continue to be a key part of the growth when the business is relying solely on organic growth? I'm asking Scott McWilliam to respond to this question as CEO.

Thank you for the question. Look, we remain opportunistic from an inorganic perspective, and I think we always were. We've made significant investments in our core business, but also diversification of our asset classes over the last -- especially over the last 12 months. And so we're very much focused, at this stage, on extracting as much value and implementing and securing our [ feisty ] asset finance market as well as obviously investing in ourselves from a digital transformation perspective and also growing our third channel, being the direct channel, over the coming years. That's an area of focus of business. And I generally call that organic today considering we're in those sectors. So where opportunities presented in the market that allow us to either accelerate growth, areas of interest, our strategic priorities will always be in the market, looking at where inorganic opportunity allows us to accelerate on those opportunities. So yes, we remain in the market, we remain vigilant, and we're obviously looking at opportunities to grow our business. But the core and digitization and rent is where we're really focusing today.

Thank you, Scott. I remind you that the call and your ability to ask questions remain open. We have received 2 more questions, from the shareholders [ and the ] Board directly. The first one is from a shareholder, [ James Hughie ]. Will Resimac be willing to accept the Chinese financial institution as a significant investor in Resimac's equity? And I'll pass that one to the CEO again.

So say that again?