Resimac Group Limited (RMC) Earnings Call Transcript & Summary

Ladies and gentlemen, the time is now 9:30 a.m. As we have required quorum of 2 members present. My name is Warren McLeland, and I am the Chair of the company. I would like to welcome you all to our virtual AGM and now declare the formal proceedings of the meeting and the poll open. I acknowledge the Gadigal people of the Eora Nation as the traditional custodian to of this land on which we are meeting and pay respects to their elders past, present and future. We trust that this is our last AGM to be held virtually. Next year, we expect to convene this meeting using both the virtual and live channels at which shareholders will once again be invited to be present. I'm joined today in person by my director colleagues, Duncan Saville, Susan Hansen, Caroline Waldron, along with Wayne Spanner, who joins us virtually from New York City. Resimac's key management team members present are CEO, Scott McWilliam; Company Secretary, Peter Fitzpatrick; Chief Financial Officer, Jason Azzopardi; Chief Operating Officer, Danielle Corcoran; and our General Manager for Asset Finance, Michael Moloney. Also present is Heather Baister, from our auditing firm, Deloitte.She and Jason Azzopardi are available to address questions you may have on the financial statements and the results therein. The notice of meeting has been sent to all shareholders in line with the Australian Securities Exchange on 14th October 2022. It has also been made available on the Resimac Group Limited website and hosted on the share registry website since that date. I will take the notice of the meeting as read. I refer to the minutes of the last meeting of shareholders of the company, which was the Annual General Meeting held on 16 November 2021. The minutes of that meeting have been reviewed by the Board and signed by me as Chairman on January 20, 2022. The minutes are with the Company's Secretary and are available for inspection. Shareholders will be asked to consider 3 resolutions at this 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 to open voting for all resolutions now. The logging instructions on the online portal are detailed in the notice of meeting and the 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 any 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. During FY '22, COVID's impact on work absentees and the consequential staff shortages slowed down the scope and speed of our economic recovery after of the pandemic. Resimac was not immune from these challenges in Australia and New Zealand. Compounding this with the natural disasters, particularly in Australia from bushfires, followed by floods across the Eastern states commencing in early 2021. During the second half of FY '22, the Russian invasion of Ukraine, spearheaded and compounded supply chain shortages, resulting in global line turbulence and then inflation. The reaction was increasing interest rates, widening credit spreads and higher volatility in all asset classes. No industry nor investor segment has been spared. It is axiomatic that risk and uncertainty has accelerated. And for at least the next 6 to 9 months, there is little to no improvement expected. Despite the deteriorating macro environment, Resimac's financial performance for FY '22 was outstanding. First half '22 results were particularly impressive; second half '22 results are a fairer reflection of the current operating environment. Early in FY '22, your Board and Executive leadership team allocated time and resources to recalibrate and refocus our medium-term business strategy, setting new priorities and measuring progress. Our aim is to extend our industry leadership position among non-banks and to embed digital into our way of doing business. One of the major decisions has been to further expand our asset-based financing business. We aim to move to a 2 -- to a dual business model with Asset [Audio Gap] '21. Our cost-to-income ratio remained a low 33.4%. We consider Resimac as an obligation, which it relish us to accept to ensure ESG and climate change, in particular, plays a pivotal role in the group for the next 10 to 15 years. We have implemented several initiatives over the last few years, and our intention is to continue to expand our investment in this program. Your Board is thrilled at the direct involvement of our people who have enthusiastically contributed to a number of our initiatives. Sustainability is one dimension of our ESG program, and a principal driver underlying our ambition. On behalf of my fellow directors, I thank our shareholders and stakeholders for their support and loyalty. I acknowledge the extraordinary commitment of our employees and the amazing efforts they have made in Australia, New Zealand and Manila. And in particular, to recognize the exemplary efforts of all those responsible for bringing to life our new origination and servicing platforms. I'd like now to pass to our CEO, Scott McWilliam, to address the meeting.

Good morning, everyone. Like Warren, I'm pleased to welcome you all to Resimac Group's Annual General Meeting. FY '22 was a tale of 2 very different halves. The first half saw a record low cash rate driving fierce competition, especially in the fixed rate market. The second half saw a rapid monetary tightening cycle fueled by inflationary concerns, which has continued through and into FY '23. Financial performance for the year-ended 30 June 2022. Despite these macroeconomic challenges, Resimac has adapted. We were pleased to report continued strong growth in assets under management in FY '22, including growing our home loans portfolio to more than $15 billion for the first time while ensuring the best possible return for shareholders. We were able to achieve this milestone off the back of a series of successes. Our third-party distribution partners were instrumental in helping us to increase our settlements by 30% compared with the prior comparative period. In addition, we have capitalized on the strength of our specialist products, which are well supported by our brokers, bankers and debt investors. Special mention needs to be made on the specialist portfolio where assets under management increased by 55% in FY '22. Our sales growth was driven by our focus on high-yielding but low-risk specialist products in preference of Prime, where we made a strategic decision to avoid the race to the bottom on price. We are pleased to report the statutory and normalized profit was broadly in line with FY '21, excluding one-offs. Normalized profit slightly increased to $104.4 million. However, when we exclude the large non-cash fair value gains on our interest rate swaps of $18.2 million, normalized profit, normalized NPAT is reduced to $86.2 million. It is important to highlight this significant non-cash fair value gain as it does unwind through the P&L in future years. Our wholesale funding program remains a key pillar of the sustained success of our business. This performed strongly in domestic and international capital markets to provide an ample funding capacity. We issued close to $6 billion of Prime and non-conforming RMBS in Australia and in New Zealand for FY '22. We also increased the number of warehouses in both home loans and asset finance. Building for the future. While we delivered solid performance in FY '24 -- in FY '22, we continue to lay the foundations for future growth. We made substantial progress on overhauling our core banking systems, including rolling out a new originations platform. These upgrades are providing faster turnaround times and greatly improving the front and back-end experience for brokers and for customers. Our asset finance business is an important pillar in our product diversification strategy and enjoys strong growth in FY '22. We're using our existing funding and distribution platforms to capitalize on what we believe is an under-serviced market and customers are responding positively. Similar to our mortgage business, we commenced a project to replace our asset finance originations platform in FY '22, focusing on automation, speed to decision and customer experience. I'm pleased to say that we'll be rolling out the first of many products on the new platform this month. We expect to complete the entire rollout of all asset finance products on the new platform by 30 June 2023. Specialist focus. As I mentioned, key through our 2022 success was the performance of our specialist lending solutions. These products have helped to many self-employed and SME borrowers who often find it difficult to secure home loans from banks. Resimac has a long history in originating, underwriting and funding these products, and we are excited by the opportunity to establish a leading market position. Looking ahead, albeit in a significantly softer market, these self-employed and SME borrowers continue to present margin and origination opportunities. While competition for Prime borrowers has intensified as interest rate shifts higher, Resimac will play to its strength and work with the broker channel to identify suitable borrowers that can benefit from our range of leading solutions. Finacle go live in Australia. We are pleased to advise that as of Monday, the 14th of November, yesterday, we have successfully launched the final phase of our new IT applications renewal program. We previously mentioned how we've completely refreshed and replaced our origination system. However, this release -- with this release, we are now running all of our core mortgage system on SaaS-based cloud platforms across Australia and New Zealand. Resimac, like many of our peers, has been on a homegrown core system for servicing mortgages. But as we have grown over time, our customer, people and product needs have grown beyond what we can support internally. Moving to this new platform, mitigates risk and sets us up for future growth. Pleasingly, with this milestone, we are unlocking a stream of products and customer capabilities. The first installment of which is a new mobile-responsive online self-service platform, including enhanced payments and card management capabilities which enable us to offer a vastly improved customer experience. Our strategy of being customer-centered and digitally driven means that we'll continue to invest in this platform and continue to improve our offering to customers. Outlook. The mortgage lending market remains fiercely competitive in the softening market compounded by interest rate and property price uncertainty. Increased household expenses and inflationary concerns. We expect these conditions or pressures to continue over the near-term. And as a result, settlements to be lower in FY '23. That said, we are confident in the ability of our portfolio to absorb these pressures with customers managing their high repayments well today. Unemployment is at historical lows. Our portfolio has significant prepayment buffers conservative credit assessments and low LVRs. Strategy. Resimac Group continues to focus on being a customer-obsessed company that makes home ownership, financial freedom and business success more accessible to everyone. Our Resimac branded home loans businesses in Australia and New Zealand are designed to offer a broader suite of products with flexible lending solutions that cater for a wider audience facilitated predominantly through mortgage brokers. This is our largest channel and the largest opportunity measured by AUM and a market and a strategy we have been refining and executing on for many years. Resimac Bank Asset Finance enables us to service what we believe is an under-serviced market. This is a logical and adjacent opportunity for the business to offer higher-margin products to new and existing audiences, leveraging off our existing funding and distribution platforms. In summary, our strategy is to originate and manage a diversified core of loan assets at sustainable margins by leveraging off the strength of our brands across home loans and asset finance. We will achieve this with a deep and unrelenting customer focus that enables us to deliver better and more achievable lending solutions. In closing, I want to acknowledge the hard work of our business partners from our brokers to our bankers, who performed incredibly in challenging times. Thank you. Our Board of Directors and Executive leadership team continue to adapt to rapidly changing market conditions. And as said, of course, I'm confident will help us weather some of the short-term macroeconomic challenges that protect our long-term opportunities and value. Their support has been invaluable. Our people across Australia, New Zealand and the Philippines are the [ engine room ] of Resimac, and they continue to impress me with their work ethic and commitment to our customers. A big thank you to all of you. Finally, a special thank you to you, our shareholders, for your support and faith in Resimac Group. We are truly grateful for your investment, and I look forward to answering any questions shortly. Thank you.

Thank you, Scott. I shall now move to the formal proceedings of the meeting. Resolution 1 relates to the remuneration report. The remuneration report can be found on Page 28 of the company's annual report. Shareholders are required to consider and if the remuneration report for the year ended June 30, 2022 be adopted. The vote on this resolution is advisory only and does not bind the directors or the company. Are there any questions from shareholders with respect to the remuneration report? The proxy votes received by the company in respect of this resolution are as follows and displayed on the slide that should be visible next to the video presentation at the meeting. The results appear on the screen now for you. I apologize because we have not -- I apologize because we have not finished the first item of the business, which I shall now attend to. The first item of business for this meeting is the receipt of the financial report for the year. This item is not required to be voted on. I now ask if there are any questions on the financial. Before I do this, I advise that we have not received any advanced questions for our auditor. However, we have received an advance following question from a shareholder, Metros Limited. The question is, do you expect to maintain the current dividend, and I shall ask Jason Azzopardi, our CFO, to response.

Yes. Thanks, Warren. So our FY '22 dividend, as you said in your speech increased to above 30%. And actually, when you exclude the fair value on derivative gains that we had, it was just under 40%. That's up from in the low 20s in FY '21. So we're happy that we've been able to increase returns to shareholders. In terms of their expectations going forward is we do expect to maintain the dividend at these levels.

Thank you. Do we have any other questions from shareholders with respect to the financial report? Okay. thank you. I don't consider it's necessary to repeat what I stated in relation to the remuneration report. The results are up on the screen now. I note that a number of proxies are not eligible to vote on this resolution. Let's proceed to Resolution 2, which is to consider and if thought fit pass the following resolution as an ordinary resolution. And Mrs. Susan Hansen, who retires by rotation in accordance with Clause 13.4 of the company's constitution, is reelected as a director in accordance with Clause .13.4.3 as a company's constitution. Susan was appointed to the Board in October 2016. Susan's biography was included in the Notice of Meeting and in the annual report. The Board supports the reelection of Susan. I shall now ask Susan to say a few words.

Thank you, Warren, good morning, everyone. And as Warren said, I've served on the Board of the Group since 2016. I'm Chair of the Audit Committee and a member of Risk and Compliance Committee, Remuneration Committee and the Technology and Digital Innovation Committee, and I am also chair of our wholly-owned subsidiary in New Zealand. I'm a Chartered Accountant and worked in financial services for 40 years and had governance roles for 20 years. [indiscernible] of the company and for [indiscernible] current skill. I'm very grateful to my colleagues on the Board for their support of character and executive team who is always responsive. I'm sincere to say that I'm proud to be part of Resimac journey and its privileged to serve on your Board.

Thank you, Susan. Are there any questions on the resolution?

No questions.

No questions. The proxy votes received by the company representing 71.2% of securities on issue in respect to this resolution are as follows and displayed on the slide. Resolution 3 is to consider and if thought fit pass the following resolution as an ordinary resolution. That Wayne Spanner, who retires by rotation in accordance with Clause 17.4 of the company's constitution is reelected as a Director of the company's constitution. Wayne was appointed to the Board in February 2020. Wayne's biography was included in the Notice of Meeting and in the annual report. The Board supports the reelection of Wayne. I shall now ask Wayne to say a few words.

Thank you very much, Warren. I'm assuming you can all hear me, and thanks for the opportunity, and good morning to everybody. It's certainly been a privilege and a pleasure to participate on this Board, and I thoroughly appreciated the opportunity over the last 3 years. I've enjoyed working with my fellow directors and deeply value their experience insights, and I think we complement each other very, very well. I'm certainly proud of our achievements that you and Scott have talked about earlier. As some of you know I come from a legal and business background, having operated in a legal and regulatory environment for over 30 years in the litigation practice. 9 of those are the Managing Partner and the CEO of the Australian Northern -- Norton Rose Fulbright. I worked, studied and lived across many countries, South Africa, United Kingdom, Australia and the United States and worked in Asia as well. And it's been -- and I've been part of a -- and led the Australian arm of significant legal transformation in the legal industry, taking domestic law firm and making it international with over 7 mergers around the world to create a $2 billion law firm. Following my retirement as a Managing Partner in Australia, I continued in an Executive role with Norton Rose Fulbright now based in New York, leading the firm's global strategy, people, innovation, responsible business, ESG, compliance functions, including a few other. It's in that context that I think have provided a significant capability around the strategy, business transformation, including the technology transformation, risk compliance, audit, employee benefits and operations and brand and marketing. I also come with a legal background in that context. I sit on this Board, but also the Audit Committee, Risk and Compliance Committee, and I Chair the Remuneration Committee. I'm particularly proud and delighted. One of the first things on the Remuneration committee, I was able to do was bringing new capability on to our Board, bringing Caroline Waldron to join the Board as well and also ongoing review of Board effectiveness. Certainly living and working across the United States and Australia provides great insight into the key issues affecting us in the domestic market in Australia. The challenges and the opportunities that we face that both Scott and Warren mentioned. I'm excited about the opportunities at Resimac. The achievement thus far and certainly look forward to continuing to work with the Board for another term. Thanks, Warren.

Thank you, Wayne. Are there any questions on this resolution? No questions. The proxy votes received by the company representing 71.2% of securities on issue. In respect of this resolution are as followed and the displayed on the screen. We now proceed to the poll. Computershare is our share registry provider represented today by Mr. Paul Latinski as Returning Officer. Voting at today's meeting will be conducted via an online platform. For those entitled to vote at today's meeting, if you have not already done so, please log in to the online voting portal as provided in the Notice of Meeting. And online voting guide and vote as the poll will be closing soon. If you are eligible to vote at this meeting, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit or submit an enter button as the vote is automatically recorded. You have the ability to cast and change your vote on all resolutions up until the time I declare voting closed. Following confirmation by Computershare, final results will be announced to the ASX later today. Please note that I shall be voting undirected proxies as a shareholder Chairman in favor of all resolutions. I shall now allow some time for voting. [Voting]

Okay. I now declare that poll will close. As noted, the results of today's meeting once finalized will be announced to the ASX. However, I can advise that at this time, based on the proxies received and the votes on the floor this morning,that I believe all resolutions laid down today will be carried. Thank you for your attendance today. I now declare the meeting closed at 10:00.