Resimac Group Limited (RMC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. The time is 9:30 a.m. and the company's Secretary has confirmed we have a quorum, and accordingly, I open and welcome you to Resimac's 2024 Annual General Meeting. On behalf of your directors, I acknowledge the Gadigal people of the Eora Nation as the traditional custodians of this land on which we are meeting and pay my respects to their elders past, present and emerging. The notice of meeting, together with the FY '24 Annual Report has been distributed to shareholders in the required time frame established by our regulators. My name is Warren McLeland, and I'm your company's Chairman. I'm joined this morning by my Non-Executive Director colleagues, Duncan Saville, Wayne Spanner and Caroline Waldron, along with Susan Hansen, who is our interim CEO. Also with us this morning is Heather Baister, our audit partner representing Deloitte. Heather is available to answer any questions shareholders may have in relation to our audited financial statements. I welcome the presence of a select group of our executives, including James Spurway, Resimac's CFO; Andrew Marsden, Chief Treasury Officer; Pete Lirantzis, Chief Strategy & Operating Officer; and Peter Fitzpatrick, Company Secretary. James, Andrew, Pete and Peter are available to respond to any questions from shareholders in relation to their specific areas of responsibility. I extend my welcome to our key stakeholders in Resimac's ongoing success, including representatives from our key partner bankers, our private and institutional investors, both domestic and internationally, in our securitized bonds and our growing number of equity investors in our ordinary shares. Before I provide my Chairman's address to the meeting, I advise the notice of meeting has been sent to all shareholders and lodged with the Australian Securities Exchange on 18 October, 2024. 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. The minutes of the last meeting of shareholders of the company, which was the Annual General Meeting held on 14 November 2023, has been reviewed by the Board and signed by me as Chairman on January 30, 2024. The minutes are with the Company 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 enough time to vote, I will ask the registry representative to open the voting and the poll for all resolutions now. The log-in instructions to 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 resolutions. You may vote on any resolution at any time before I close the poll at the end of the meeting. I will now proceed with my Chairman's address. I welcome you again to the 39th Annual General Meeting of Resimac Group. During our history, which goes back to 1985, our sector has endured performance highs and lows due to volatile economic and industry conditions, such as the Asian currency meltdown, the global financial crisis, the COVID pandemic and now persistent relatively high inflation. Resimac has come through all in a stronger financial position than when entering. However, FY 2024 has unequivocally been the most fiercely competitive view during our history. Principally, it was an unintended consequence of the RBA's attempt to stimulate bank lending. Retail borrowers following the COVID-19 pandemic through the provision of low-cost funding, all up $220 billion to 10 basis points per annum or up to 3 years. Disappointingly, the nonbanks do not receive a dollar of this finance, with the banks using it to create the most aggressive pricing the industry has ever experienced. This was reflected in our FY '24 operating financial results and to which I referred in my letter to shareholders in our FY '24 annual report. NPAT fell to $43.1 million on a normalized basis, 42% lower versus prior year, $43.1 million versus $73.7 million driven by average home loans AUM lower by $1.2 billion or 22%. Our NIM was 12 basis points lower, reflecting a higher cost of funds for the Home Loan business, 1.56 versus 1.68. Higher loss provision coverage for Asset Finance business accompanied with portfolio growth. We declared our final year dividend at $0.035 per share versus $0.07 for FY '24. Fortuitously, the worse of that competition has entered the history books. And as a consequence, we have been able to return to actively promoting growth in new business in our prime lending product from the end of 2023. We are now in the second quarter of FY '25, and our most recent months are producing volume of new business back to the levels of 2019. We have increasing confidence that with the cash rate from the RBA of 4.3% [indiscernible], the next move in the rate will be down by 25 basis points, most likely in the first half of calendar year 2025, followed by a further 25 basis points in the subsequent half. Such declines will also stimulate lending in our Asset Finance business as well, of course, all current lending products. FY 2024 has been a year of change in our employee team. Our CEO, Scott McWilliam resigned from Resimac in July. Scott was pivotal in the company's ability to navigate the COVID battle and to commence our business transformation into the digital era. To that end, our capital investments in technology, which commenced in 2022 are starting to yield results from a productivity and customer service standpoint. As we go forward, we will continue to embrace the opportunities technology presents across all functions of our business to facilitate improvements for our service offering to our customers and brokers. Also to address the tougher conditions in FY '24, we introduced a cost reduction program, including a reorganization of our business. Following Scott's departure, we appointed Mrs. Susan Hansen as Interim CEO. Susan's knowledge of the business from her experience as a Non-executive Director for Resimac has been invaluable in this transition period. During this period, the Board has had the opportunity to reassess our strategy and leadership needs and expect to be imminently making an announcement regarding an appointment for the commencement of our new CEO in the first half of calendar year 2025. Resimac's 39 years of pedigree has consistently been categorized by its culture, a collaborative high-performance culture from top to bottom which has been a major contributor to success. Culture, of course, changes over time, reflecting the dynamics of business strategy and the need to adapt to environmental innovations. Our objective is to ensure that such changes are embraced by our Board and management team to build on the principal features of our culture, especially with the effective collaborative teamwork, respect for each other and our principle focus on our diversifying customer group. That way, the probability of continued business success becomes and remains very high. As announced in October, we successfully entered into a major transaction for the purchase of the remainder of Westpac's auto financing business. While this occurred in FY '25, we consider it evidences our positive attitude to achieving significant growth in the coming 3 years. Mrs. Hansen will briefly provide an early update on this transaction and its future impact on Resimac's Asset Financing business. Our business outlook, therefore, for FY '25 is one of improvement and modest growth from the lows of 2023, followed by accelerated growth in FY 2026. I also announced that this is my last Annual General Meeting as Chairman, having served a 4-year term. Your Board has unanimously agreed to appoint Wayne Spanner, a 4-year Resimac Non-Executive Director as my replacement with immediate effect. I shall remain on the Board as Deputy Chair. I retain full confidence in the future prosperity of Resimac going forward. I extend my gratitude to my director colleagues and all Resimac team employees for their support and loyalty, and I'm truly delighted to pass the baton to Wayne as our next Chairman. I shall now ask our interim CEO, Susan Hansen to address the meeting.

Good morning, everyone. In line with Warren's address, it is my pleasure to welcome you to Resimac Group's Annual General Meeting. Thanks for joining us today, as I represent Resimac as Interim CEO and share our progress and outlook for the company in what has been a challenging economic landscape. Firstly, on behalf of the Board, I would like to thank Warren for his invaluable service to the company, as Chairman of the Board since 2020 and for the many other roles he's played at Resimac since 1999, including Chief Executive and Executive Chair. His contribution to Resimac has been tremendous, and it's the key reason why Resimac is where it is today. We are fortunate that he will continue with the company in the role of Deputy Chair. The Board's unanimous decision to appoint Wayne Spanner as Chair is supported by his excellent performance and contribution across many of our committees since he joined board in 2020. He brings strong commercial skills and experience that includes managing partner of an international law firm and Independent Chair of another professional services firm. He will continue to chair the Remuneration and Nominations Committee. In FY '24, Resimac remained steadfast in our commitment to advancing our strategic objectives, even as we navigated significant market pressures. I'm pleased to report that our Asset Finance business achieved notable growth, reaching $1.1 billion in assets under management, a significant increase from $600 million in FY '23. While mortgage originations faced challenges in the first half of the year largely due to intense competition in the home loans market, we saw a positive rebound in the latter half. As a result, we are on track for improved AUM in FY '25. We also witnessed encouraging developments in our mortgage book. The dynamic loan-to-value ratio decreased to 61% and record low arrears. To align with industry standards and in response to the high risk profile of our asset finance book, we have prudently increased our provisions. I want to assure you that our estimated credit losses remain conservative. Despite these positive indicators, our normalized net profit after tax for FY '24 stood at $43.1 million, down from $73.7 million in FY '23. This decrease primarily stems from a decline in Prime mortgage lending amid fierce competition, while reduced net interest margin had a relatively smaller impact. This experience has heightened our awareness of risk-adjusted returns, which is now a central focus in our decision-making. The impact of inflation has been significant, affecting both our business costs and the cost of living for our customers. We recognize the dual challenge this presents, resulting in low profits and less incentive for our people. As a result, we've declared a fully franked dividend of $0.07 per ordinary share, down from $0.08 last year. We understand that it's never ideal to reduce dividends, especially in a time when costs are rising. Our commitment to strengthening cost discipline is known to scrutinize our processes and priorities. We're determined to improve our cost-to-income ratio as we move into FY '25. As we have previously advised, we acquired the Westpac Auto back book in early October, and we are currently in the process of migrating the book onto our system with the expectation that completion will be at the second half of FY '25. We are excited with the opportunity this presents as an entry into new product lines such as novated leases and auto consumer finance. We're also grateful to the team that is working very hard to make the migration happen. I want to take a moment to acknowledge our customers. Many Australians are feeling strain of high living costs, including mortgages and consumer goods expenses. We remain dedicated to supporting our customers who may need financial assistance. Our business implemented a framework designed to manage these situations with both efficacy and empathy. I extend my gratitude to our team for their commitment to helping our borrowers during these tough times. Our partnerships with funders, brokers, banks and suppliers are the engine of our business. We're grateful for their continued support and look forward to working together with them to achieve our growth initiatives in the coming year. As part of our strategic review, we've made some important business decisions in FY '24. We concluded that the current economic climate in New Zealand characterized by subdued growth and increased regulation does not support the necessary return on capital. As such, we decided to cease new originations in the New Zealand market for the foreseeable future, though we will continue to support our existing borrowers. The financial year also saw a significant change in leadership for Resimac. Scott McWilliam resigned as CEO in July and I was asked by the Board to step in as Interim CEO. I would like to acknowledge the instrumental role Scott has played in shaping Resimac since merging the home loans in 2016. We wish Scott all the best in his future endeavors. Looking ahead, we recognize that our continued digital journey is vital to our success. We are committed to training our people to identify opportunities for technology adoption and automation. We're excited about potential synergies we can explore in FY '25. In closing, I want to express my sincere gratitude to the entire Resimac team. Their dedication to our mission is evident in the work they do every day. I also thank the Board for their confidence in me and for their invaluable support during this transition. Thank you for your continued trust in Resimac. Together, we will navigate the challenges and drive our company towards a successful future. Thank you.

Thank you, Susan. As previously advised, 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, 2024. This item is not required to be voted on. I ask if there are any questions on the financial report. Before I do this, I advise that we have not received any questions in advance for our auditor. Do we have any questions on the online platform?

Yes, we do, Chairman. First question from Stephen Mayne. There's no sign of an archive of the webcast from last year's AGM on the Resimac website. The annual report says we have at least 2,600 shareholders, but less than 50 will be online today watching the AGM. As the one event of the year focused on retail shareholders, what are we doing to ensure that as many shareholders as possible have access to the full AGM debate? Will the Chair undertake to publish a full archive of the AGM webcast on our website?

Well, my response, Mr. Mayne, thank you for the question, is the provision of an online webcast has not been part of our policy. But I know of no reason why it shouldn't be in that position. So we will investigate. And if the Board so desires, then we will establish a webcast going forward.

Thank you. A second question from Mr. Mayne. Our shares have fallen from almost $2.50 in 2021 to just $0.88 at last night's close. But CBA shares I just saw to $153, giving you the market cap of $260 billion. Why have we been so ineffective at competing against Australia's biggest lender when it is lumbered by an expensive retail network? The Chair talked about the challenges of finding the Australian Banking oligopoly in last year's AGM. As the Big 4 oligopoly got even more powerful over the last 12 months, what should regulators do to support greater competition in the banking market?

Thank you, again, Mr. Mayne for that question. It's interesting to observe that you've compared what would be regarded as a minimum with the giant, i.e. Resimac and Commonwealth Bank. So in many respects, they're incompatible incomparable, too. And I would point out to you that I assure you the CPA is sitting on an earnings multiple of close to 28, and we're about 9. So that's one major reason for it. There's a significant difference. But it also reflects part of the -- connecting your question, and that is that the nonbanks generally are at a competitive disadvantage to the major banks, and that's been made of some note in our address -- my address today and Susan Hansen has also mentioned it. And the facts are whether we like it or not, that the RBA in its decision to tend to stimulate home lenders to retail borrowers coming out of the pandemic by offering a large amount of money for finance to the banks of 10 basis points for a 3-year period had an extraordinary impact on the level of competition. So whatever pricing power that nonbanks had was extinguished overnight through that provision. So there was no level-playing field to commence with between the 2 segments. And whatever resemblance there was, was eliminated as a result of the RBA's decision. From what I understand from the governor at the time, there wasn't an expectation. I don't know whether -- certainly not in writing that I'm aware of, that the banks would pass through to the nonbanks some of the benefits of the financing that they received. And that never happened to my knowledge, nor to other participants in the nonbanking sector to whom we've not spoken. So I think the dilemma that we have is the government could talk very positively about promoting competition in financial services as indeed in other industry areas, but the delivery and the execution in those statements seems to be far assured of any expectations that those participants have. So from my perspective, the bank oligopoly, which ultimately leads to almost a form of monopolistic pricing has been more concentrated as a result of that than it was before. I don't foresee that there will be very much change in that going forward, irrespective of which political party is in power. So it's a feature that we'll just have to continue to live with and adapt. Thank you for the question.

I have a question from Andrew Tan. The commentary notes said you expect improved AUM in FY '25. Do you also expect an improvement in NIM in each of the residential mortgage and asset finance books?

Thank you for the question. Mr. Tan. A very good question. With respect to the first point, the ability to write more prime lending and other receivables in the Asset Finance business, we have been scaling up in the Prime market for almost a year now. Gradually as the price competition slowed and declined and that has accelerated as we've moved into end of FY '24 and '25. And I mentioned that our business volume generally is now back to where we would have before COVID. So we're very pleased with the response we've had from our traditional supporters. With respect to NIM, there has been an improvement in our NIM as a consequence of the less aggressive competition from the major banks in particular. But the NIM still remains low, and we hope and have some expectation that the NIM will improve more into FY '25 and '26, but we -- we're not anticipating a major change in the competitive landscape. So it's going to continue to be tough. And whether we like it or not, both our businesses are in what we might refer to as commoditized products. And I think history demonstrates that in those types of products, margins only decline. So we have to continue to learn to adapt and that continues to be done via our service offering, which comes back to speed and acceleration of our trend towards digital-based lending and so on. So it's going to be a perpetual problem for us, but we have measures to at least minimize the extent we can have the squeeze on margins.

Another question from Mr. Tan. Can you please provide more details on the purchase of the Westpac book? What sort of profit contribution do you expect that book to make once migrated? Or is the opportunity more about entry into novated leases and consumer auto finance space?

I'd like to pass that question to Susan Hansen, our Interim CEO, if you wish to and Andrew Marsden is our Chief Treasury Officer.

As we have announced to the market, the value at completion is expected to be between $1.4 billion to $1.6 billion, and we expect completion to be halfway in the first half of next year. I hope that answered your question.

Andrew, would you like to comment?

The transaction reflects the long-standing strategy that Resimac has with respect to inorganic growth, we've been quite a consistent participant in the M&A space. And again, it's very much aligned with the growth strategy for our Asset Finance business.

Thanks, Andrew and Susan.

There are no questions, we might move on to the next resolution and we'll address any other questions directly offline.

Thank you. Let's move straight into Resolution 1, which relates to the remuneration report. The remuneration report can be found from Page 27 of the annual report. Shareholders are required to consider the remuneration report for the year ended June 30, 2024, be adopted. The vote on this resolution is advisory only and does not bind the directors of the company. Are there any questions with respect to the remuneration report on the online platform?

There's no questions on remuneration report.

The proxy results received by the company in respect of this resolution are displayed on the slide that should be visible next to the video presentation of the meeting. The remuneration report has overwhelmingly passed. I move now to Resolution 2, is to consider and if thought fit to pass the following resolution as an ordinary resolution, that Mr. Duncan Saville who retired 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 of the company's constitution. Duncan was appointed to the Board in November of 2017. His biography was included in the Notice of Meeting and in the annual report. The Board supports the reelection of Duncan. I now invite Duncan to say a few words.

Good morning, everyone, and Warren, thank you for that introduction. As mentioned, I've been NED since 2017 and importantly, I've been a major stakeholder since late 1990s. I'm a chartered accountant, a fellow of the Financial Services Institute of Australasia and a fellow of Australian Institute of Directors. I've been investing in the stock market since the late 1970s and I'm a long-term value investor. I generally back management team. While I have a significant beneficial interest in Resimac and represent a major shareholder, my role excluding my corporate governance role is to challenge the executive team at the Board table and ask some challenging questions to ensure our strategy is current, fit for purpose. Financial services industry is highly competitive as you heard from the Chairman, and government does not always provide a level-playing field to nonbanks, such as allocating the major banks unbelievably cheap medium-term funding at ludicrously fixed rate of 0.1%. This clearly impacts the competitive landscape. However, as a nonbank, we need to be nimble and ensure that we retain our relevance, competitiveness and agility in the face of rapidly changing technology and embrace opportunities that AI provides all financial service players, which aren't being blinded by the new shiny toy. At the same time, we need to be smart to compete with the banks on IT spend, with a huge investment in technology that the major banks are currently incurring. As my final comment, I'd like to acknowledge Warren for his immense contribution to Resimac, both as former CEO and Chairman. The company owes him a huge thank you, and I'm delighted he can remain as NED.

Thank you, Duncan. Are there any questions on this resolution on the online platform?

Yes, there's a question from Mr. Mayne. Duncan Saville said at last year's AGM that he's controlling 62.5% stake is owned by a fund which has third-party investors in the Board. Could you please clarify what proportion of the fund he personally owns and what proportion of the fund or does he get to a appoint? Is he the Chair of the fund Board and what powers do the external investors in the fund have? And if they wanted to liquidate the fund stake in Resimac, does Duncan agree that the perceived overhang of his controlling stake in the company has contributed to the underperformance of our shares?

I'm not quite sure of the one question there, Peter.

There's lots of questions. Let's go back backwards, Stephen. And obviously I understand your question. Is there a perceived overhang? Well, as I've been a buyer of shares over the last few years, I cannot believe the market thinks that I'm going to sell shares. And if I was going to sell shares, I'd sell them at a premium, not at a discount. But therefore, and I do not have an overhang and nor does the company. Having said that, quite a few nonbanks do have major shareholders. I think Pepper does, I think Liberty does, so I'm not sure where that question is driven from. Going backwards again, is the Chair of the Fund Board? No. What powers do external investors fund have if they want to liquidate? That seems to be a lot -- nonsensical question. Why would external investors want to liquidate the fund stake in Resimac? External investors of Resimac or external investors of Summers. So I'll pass that one. Could you clarify what proportion of fund he personally owns? Well, we nowadays don't own personal shares, they're owned in vehicles and trusts, so I personally do not have any shares, but I'm a beneficial shareholder. And then last statement is the statement is a -- answered. Thank you.

No further questions.

No Further questions. Thank you. Thanks, Duncan. Resolution 3 is to consider and if thought fit, pass the following resolution as an ordinary resolution that, Mrs. Susan Hansen who retires by rotation and accordance with clause 13.4 of the company's constitution is reelected as a director in accordance with clause 13.4.3 of the 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 unanimously supports the reelection of Susan and I shall now ask Susan to say a few words in support of her reelection.

Thank you, Warren, and thanks for the opportunity to stand for reelection. As has been mentioned, I have served as a Non-Executive Director since 2016. I was Chair of the Audit Committee and chaired the New Zealand subsidiary until July this year when I stepped in as interim CEO when the previous CEO resigned. I've worked with the executive leadership team to craft and implement a strategy that will drive value for Resimac. Central to this theme is the acquisition of the Westpac Auto back book, which is pivotal to the growth of our Asset Finance division. The migration of this book has exposed tremendous talent. Competency and commitment has helped in our process to identify the next CEO. Until the CEO is appointed, I will continue to serve in the interim role. It has been a privilege to work closely with people inside Resimac. Given the opportunity, I look forward to leveraging off the skills and experience I have gained to serve Resimac as a Non-Executive Director in the future.

Thank you, Susan. Are there any questions...

Mr. Warren, I think Mrs. Susan has probably answered, but there was a question from Stephen Mayne. Susan Hansen has been acting CEO since Scott McWilliam's sudden resignation in July. Is Susan a candidate for the permanent CEO role? And could controlling shareholder, Duncan Saville, please comment on who he believes our permanent CEO should be? Which headhunting firm is assisting with the recruitment process?

So if you'd like me to answer the first part of the question?

I think that's relevant for you -- the first part for you.

No. Thank you for your question again, Mr. Mayne. And -- no, I'm not standing to be the permanent CEO.

Thanks, Susan. I think I can respond to the second part of that question. I think I should respond to it rather than necessarily that Duncan -- unless he would like to. But what I wish to say is a reinforcement of the comments we made at the time of the departure of Scott and the appointment of Susan, and that was that the Board unanimously agreed to review and do a survey of the marketplace. That process is drawing to a close but not complete. We have used our own network of contacts in the marketplace, both here and internationally. And certainly, all the directors have participated in that process to the extent of advising the Board generally with potential candidates. And we have not officially firmed up an arrangement with a search firm because their own contacts were only profound, if not high quality. And we did use an external advice with respect to combing the market for other potential candidates. And we gain that process in Clean Island. So it's been exhaustive, comprehensive and diversified, I'd say both in Australia and overseas. And we believe we've been done a really thorough job, which has been independently managed and we have considered that we're moving to a very successful conclusion. Duncan, would you like to add anything to that or no?

I'm not quite sure what the question was.

The question was would Duncan Saville comment on who he believes our permanent CEO should be and which headhunting firm is assisting with the recruitment?

Yes. No, there's no need to comment what was commented as part of the question.

Agreed. Okay. Thank you. So the proxy results, no votes received by the company, representing 67% of securities on issue in respect to this resolution are now displayed on the slide. Duncan Saville has been overwhelmingly supportive. We can now proceed to the poll. Computershare is our share registry provider, excuse me, represented today by Glen Rogers as an returning officer. Voting at today's meeting will be conducted via an online platform. For those entitled to vote at today's meeting who have not already done so, please log into the online voting portal as provided in the Notice of Meeting and online voting guide, and vote as the poll will be closing shortly. 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 a submit button or 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 will be voting undirected proxies that I hold as Chairman in favor of all resolutions. I will allow a few minutes now for voting. [Voting]

The company secretary has advised that -- the consideration is that the shareholders had sufficient time to vote. So I have closed the poll as advised. As noted, the results of today's meeting, when finalized will be announced to the ASX. I can advise that at this time based on the proxies received and the votes on the floor for this meeting that I believe all resolutions laid down today will be carried. Thank you again for your attendance today, and I now declare the meeting closed. And the time is 10 minutes, almost 11 minutes past 10. Thank you, everybody, for your attendance.

Thank you.