Solvar Limited (SVR) Earnings Call Transcript & Summary

[Operator Instructions]

Good morning and welcome to Solvar's financial year 2023 results presentation. From the company, today, we have Managing Director and CEO Scott Baldwin; and the company's CFO, Siva Subramani. Before I hand it over to Scott, [indiscernible] through the presentation up on the screen. I'll just remind you that you can submit questions through the Q&A button at the bottom of your screen, and we'll get to those post the end of the presentation. Scott, I'll hand it over to you now. Thanks very much.

Thank you, Simon. And thank you, investors and other interested parties, for taking time to join our presentation today. Siva and I will go through the presentation. There will be questions and answers at the end. And should there be anything left unanswered for you at the end of -- please feel free to send an e-mail through to Simon, and we will respond to you. Next slide, please, Simon. Just in terms -- I'll run through the highlights of the business over the last 12 months. We have certainly seen strong revenue growth out of Australia. Most of the results that you see there in revenue and loan book growth are driven out of our 2 Australian operations. New Zealand essentially has been flat through that period, in both of those, as a result of the many things we've called out, the flood and one-off weather events and essentially the economic downturn that New Zealand has been through. Australia, on the other hand, has been very resilient. And we have continued to see strong demand for vehicle finance throughout both of our business this year, and both of them have posted very strong growth, loan book of Money3 growing some 24%; and AFS, our near prime focused business, nearly 50%. So a lot of that loan book growth you see is driven out of those 2 operations. In terms of bad debts. We think -- well, you will have noticed that there's been uptick in bad debt in the second half, a lot of that driven out of these one-off weather events in New Zealand. We are predicting, in the forecasts [ we put out ] last week, for some of that to continue through this financial year, FY '24, but we believe that our bad debts are going to still be within our target range of 3.5% to 4.5%. And as you can see, for FY '23, we're at the bottom end of that range, so very happy with those results. In terms of cash on balance sheet, we currently have $78 million of unrestricted cash in our business. The rest of the cash that you see there sits within the warehouses as restricted cash in our business that we don't have access to until certain timing happens that allows that to be released. In the announcement we put out last week, we are predicting an uplift in that restricted cash component as we continue to draw down on debt to [ fund our operations ]. As you'll see further through the slide deck, we're in a very good position where we are able to continue to fund the growth of the business all through debt. There's not a need for additional capital, equity capital, to fund that growth over the next year or 2. And just finally on the highlights. We have declared for the second half a $0.09 dividend, taking the total to $0.165. And that dividend will be payable on the 9th of October this year. Moving to next slide, strong track record of good revenue and loan book growth over the last 6 years there. We predict that that's going to continue into FY '24. Revenue growth, we're expecting -- given the loan book growth that we've written, you'll note that that's roughly 24% growth in the loan book over the last 12 months. That will -- that's the leading indicator of what's going to happen with revenue growth, and we're expecting revenue to continue to grow into FY '24. Very good results there. Some of the headwinds in terms of that revenue growth have been fairly [ well advanced and immediate ] in terms of slowing consumer demand, but we feel that, over this period of time, we've continued to take shelf space, so to speak, more market share from our competitors, given that the business is well funded and we've been able to grow, particularly in the Australian operations. We will call out further through the deck, though, that there has been some margin pressure with that growth in revenue, but we anticipate good revenue growth coming into FY '24 as well. Just moving on to the next slide -- just one point to call out on the previous one. We completed our share buyback program. $15 million was the share buyback program, of which -- you'll see this in the accounts, but $13.5 million were spent in FY '23. The remainder were spent in FY '22, but we concluded that program. For those of you that are new to the Solvar operation, this is a bit of an overview of our business. The Solvar Group has 3 trading entities that sit and operate within it: Automotive Financial Services, which is targeting consumer and commercial near-prime applicants, predominantly cars, but there's certainly a slight mix of other assets funded by the AFS business, light commercial, yes, and some caravans and boats in there. Money3, the legacy business of the group, has had an exceptionally strong year in FY '23. You'll see that through the loan book growth, but they also repositioned themselves and launched a new set of products in September last year. That has fueled a lot of that growth. You'll note in the accounts that the group is now writing -- roughly [ 40,000 worth of ] loans written in FY -- sorry, $45 million worth of business is written every month. And that equates to roughly 3,000 loans is what we've been settling. A lot of that is driven by that growth out of the Money3 business unit. Go Car Finance. You'll see, year-on-year, that loan book [ down ]. We're expressing it here in Australian dollars, which is different to what you'll see in the appendix where we're giving the New Zealand dollar number, but that business has been flat. [ We've called out ] we expect it to be reasonably flat throughout FY '24 as well because of the well-stated headwinds there. [ The ultimate business, though, we're expecting to see ] continued strong growth. In terms of the assets that we fund. Typically they're cars but with a small mix of other assets as well, and that's cars for consumer and commercial purposes. We then break down our business as we've done here in terms of assets that we do in consumer assets versus commercial assets, just noting that this is the portfolio as a whole. And 93% of our portfolio is secured against the vehicle, typically a car. Across the group, we have over 20 years track record of lending and collecting money for personal loans, particularly in consumer; and over the last 3 or 4 years, a growing presence in commercial lending. Our strategy across the group has been to continue our profitable growth by offering sustainable products to our customers [ that they get ]. We have a very strong collection team across Australia. And we are leveraging a lot of the experience that we have in Australia and New Zealand at the moment and trying to reflect the operations that we have in Australia in New Zealand as we work on lifting our cash collection and our collections processes across the business. You'll note that -- as we talk throughout the slide deck, about improving our efficiencies through our business. We see a lot of that being in our collections and credit team. As stated before, the business has a very strong balance sheet. Your company is very well capitalized. At 30 June, [ we had $78 million ] cash on hand, which gives us lots of optionality in terms of capital management for business to either continue to fund further growth or some of the other initiatives we've discussed over the last 6 months with the market around share buybacks or other capital management issues or potentially using that money to fund an acquisition to drive growth. Just moving on to the financials, I'll call out some of the reasons for that strong revenue growth. You'll note that, second half bad debts, if you break it down, there was a bit of an uptick on first half. We've called out the reasons why that -- with the announcement that we made last week, we had factored in a continuing bad debt experience [ similar to ] what we experienced in the second half. It's yet to be determined, but as we'll cover in our credit quality slide further in the slide deck, you'll see that, whilst it -- there is some deterioration in credit quality, I think, as every lender in this space is experiencing, it is well within, well, typical bounds of where our business has been. And it gives us confidence that the bad debt experience over the course of FY '22 is not going to be any material movement from what you've seen in previous years and well within our target range of 3.5% to 4.5%. Just calling out there that a lot of that revenue growth that you see has particularly come out of the Money3 and the AFS business unit. And both of them, given the loan book growth, are well placed to continue to grow throughout FY '24. Moving on to the next slide. One of the things I think worth calling out here to explain this slide [ is that, the ] cars that we have funded as of June 30, the loans against them is $910 million. The way we recognize revenue in this business is [ against ] cash, so only when cash collected is revenue recognized. If there isn't cash collected or there is a noncash component of a loan, say a fee that hasn't been paid, all of that lands in the deferred revenue line. So you can see that what makes up that $910 million is $62 million of deferred revenue. So all of those deferred elements of revenue that we're waiting for the cash to come through to collect them. Impairment provisions. You'll note that impairment provisions have grown year-on-year. A lot of that is a result of that $176 million growth in loan book over the time, so -- and you'll note in the next line there 5.7% to 5.2%. The reason for the reduction in impairment provision is because overall, the credit quality, it continues to prove -- improve across the group. Each of our 3 business units have very different profiles when it comes to arrears, bad debt and credit and impairment. Our largest segment of growth that you will get when you go through the rest of the deck, you'll see, come out of the Automotive Financial Services business. And with a bad debt profile there well under 0.5%, it is driving down our overall need for impairment provisions. And investors should expect that -- as the business continues to grow and as the Money3 business has been writing better credit quality than it did, say, 3 years ago, that those impairment provisions will continue to -- as a percentage of the overall whole business continue to come down. Impairment provisions, as you will see there, are $43 million versus the bad debt expense we had in FY '23 of $33 million. In terms of our debt facilities, we have $323 million of headroom in our facilities. You can see that a lot of that -- and I'm sure many of you will work out that a lot of that headroom is in New Zealand, but as we start to draw down on that headroom, it will free up some of the cash that's there. We're also in -- [indiscernible] in constant negotiation with our funders to look at the facilities in the Australian operations there, so we're quite confident that we will be able to continue to fund our business over time. We also continue to work to drive further efficiencies across all of our funding stack to take out as much costs as we can, which you'll see in the next slide, and improve the structure. So we acknowledge that there's some work to do in our debt facilities and our debt structure to improve its efficiency, but what we can call out here today is that we have over $300 million of debt facilities. And a lot of that, we can draw down without the need of additional equity, which in the announcement that was put out last week, one of the assumptions we did make is that our growth was all driven by debt without equity, which the previous slide would call out for you. Just moving on to our costs and costs over time. So what we're wanting investors to see here is the improvement in net margins that we've generated through this business as we've looked to restructure how we are funded through debt capital. If you look to the last line there, average net margins across our business over the last 3 years: I think Siva and his team have done an exceptional job of driving down that average margin from about 10% to 5%. So what that means is, if you are sitting there thinking about our cost of funds, the average margin across our debt stack is 5%. All of the other bits move, as you would see. Or you can make your own assumptions there about RBA or RBNZ, in terms of their cash rates, but the margin has come down to 5% at the start of FY '24. As we continue to draw down and grow debt across the group, there is a little bit of improvement that we can drive through our average net margin costs over the course of the year, but a lot of that benefit, we don't expect to really come through until FY '25 in our business. So we acknowledge that there's some work to do there, but that is our average net margin. Anything else you'd like to add there, Siva?

No. I think that sums it up quite well, Scott...

Stable credit quality. This seems to be a concern, an item of concern, for many investors, from phone calls that I've had. When we look at our portfolio here, you'll note that, at closing FY '23, why we're so confident of our bad debt continuing within the trend is, if you go back a couple of years, you can see that we are materially ahead of where we have been, notwithstanding that there has been a slight deterioration over the -- particularly over the last 6 months, in the business from -- essentially from March through to June. But we are still in very good shape to manage -- to deliver within our target range of bad debt experience we think that the group is going to have. Just in terms of some of the highlights that we see coming into FY '24. We think that we are going to be able to continue to take market share, take shelf space from some of our competitors. While we've called out that FY '24 is going to be a challenging year for our group, we believe that we're in very strong position to do better than most of our peers in this market at this point in time. And a lot of that benefit will then come through in future financial years, but we do think we are in good shape principally because of our very strong collections team and our ability to collect, the fact that we feel that we have -- that the quality of the business that we've been writing over the last 12 to 24 months is superior than the quality of the business that we wrote traditionally in the past. So as that rolls off, better-quality business should lead to lower bad debts and more efficiency coming through our business. We also call out that we have more work to do to pass on all of the central bank interest rate increases that have happened over the last 12 months. We have passed on some of those increases but still have some work to do. Just calling out in terms of New Zealand. We have seen an improving experience in terms of our collections through our business. We have slowed new front-book originations given the current state of the economy in New Zealand, but we think that, that business is well placed to make a solid contribution coming back in FY '25. In terms of the financial outlook, that momentum continues in that we are writing sort of north of or about $45 million worth of business a month, roughly 3,000 loans a month. We expect that to continue and with some growth in Australia. And I think we've called out many of the other points in here, so at that point, I think we will park it there and ask if any of the investors on the call have questions.

Perfect. Thanks, Scott. Thanks, Siva. [Operator Instructions] First question, from Jonathon Higgins at Unified Capital Partners. Can you just talk to us, is guidance still retained for FY '24 from a couple of weeks ago? It just wasn't specifically called out.

Look. The market update we've put out from a couple of weeks ago is retained. We put that out because there's obviously a material movement from the profit that we're delivering this year to where we're calling out [ with sort of the ] headwinds in FY '24. We anticipate giving a more fulsome explanation and guidance at our AGM.

Perfect. Thanks, Scott. Second question from Jonathon: A lot of free cash. What's it to be utilized for? I also noticed [indiscernible] further finance facilities. What's the purpose and requirement of these?

So in terms of the free cash that's sitting in the balance sheet. I mean we've called out that it is sitting [ there and gives us this ] optionality to look at essentially the capital [indiscernible] that we could put in place, like a share buyback, the acquisition of another company. Or investors should expect to see that come down over the course of FY '24 as we use it to either [indiscernible] or to fund continued growth through in the loan book. The headroom that you see in the funding facility is what we are drawing down on in order to fund the growth of our loan book over the course of FY '24 and beyond.

[ Perfect. Thanks ]. FY '24 guidance -- actually the $600 million in loan book growth since FY '19. They've not been accretive to net [ but despite ] also a large increase in leverage. What has management learned about managing interest margin going forward so the future growth actually translates into [ a return ] to shareholders?

No, that's a fair question. So just to qualify the announcement that we made a couple of weeks ago in regard to the forecast. There's 3 headwinds that we were signaling there, and I understand that funding costs have been the focus of those. We are predicting a slight uptick in our bad debt experience, still being well within the range, and that is [ trading down ] FY '24 [indiscernible]. We're also flagging an uplift in our operational expenditure across our group. And partly, that is just the inflationary environment that we've seen, whether at all levels of costs of running a business are going up, particularly labor. And our business has experienced that, like others. And we haven't, at this point, been able [ to pass on ] all of that cost through to consumers; and hence why we call out a number of profitability measures that we are passing through the -- productivity measures to pass through our business to improve our productivity across the group. Some of the increases in labor are around developing of a -- governance, risk and dedicated cyber teams. While they are recurring, we don't expect to have that incremental growth coming into FY '25. With the revenue growth that we expect to experience over the course of FY '24, shareholders should expect the operational expenditure to -- growth to moderate as we go [ from FY '25 ]. So yes, there is [ a big leap ] that led to providing that downgrade, but a lot of that, we expect not to be reoccurring as we go into FY '25. And in terms of the last part of that question, in terms of funding costs, I might [indiscernible], Siva.

Yes, no, thank you, Scott. Just to sort of add to what Scott had said. The reason why we also put the downgrade is there are a couple of timing issues that are coming into FY '24. One of them, as we grew the book, there is naturally higher-credit-quality portion of the book which had a lower margin. And to Scott's comments earlier, we are trying to increase our front book margins by passing on the rate increases over the course of -- we had done that over the course of FY '23. And we'll continue to do that in '24, which will have its impact on correcting the adjustments [ that are included in FY '24 ]. Secondly, to interest rate, as you would all appreciate, there's been an accelerated interest rate over the last 12, 18 months, but the general consensus in the market is maybe we are at the top of the interest rate cycle. So as things normalize or the rates start to come down, there's going to be a natural expansion in our NIM given we are also repricing our front book. And the benefit of those should definitely start to come back into the P&L and reflect the profitable increases for the increased loan book that we are driving through this process. I'm calling out that FY '24 is just [ a timing miss ]. And there are 2 negatives that are coming in [indiscernible] which should start to correct themselves as we move into '25 and beyond.

Great. Thanks, Siva. A few questions just around the share buyback and the dividends and whatnot. Can you just talk [ to the audience ] with regards to why didn't buy back shares instead of paying dividends? And any thought process in terms of dividend outlook for FY '24?

Look. In terms of dividend outlook, the Board has guided the market to the policy, which is to pay out up to 90%. I think a number of shareholders have provided feedback to the Board in terms of their views on that. At this point in time, there's been no discussion about changing the policy that's currently in place. As you can see by the cash that we're holding, some of [ our issues ] are around FY '24 and still generating a large profit as a business, so -- but in terms of -- specifically in terms of dividends, obviously the $0.09 won't be replicated at the next dividend for the first half, but the intent is to keep the policy in place as it stands today. And as the Board have called out, that is to pay up to 90%, payout ratio is the proper term, over the next half. So we don't plan to change that. I think there was a second part to that question, Simon, if you could just repeat it, please.

All right, bear with me -- sorry. There's a hell of a lot of questions coming through. That was just in terms of why not for buyback now instead of paying dividends.

No. Look. I think there's many capital management programs that the company can put in place. The buyback is something that we did. We did find that it's supported share price greatly over the past 12 months; [ and if able to be sustained ] at these current levels, that it will drive EPS accretion. It is a ongoing conversation at the Board level at this point in time. In terms of the dividend that has been declared, the Board [indiscernible] for consistency of messaging. We have the funds available to pay the dividend. We are very confidently growing franking credit balance sitting on the balance sheet. And that's an asset [ for all of the ] shareholders of the company who were one of the first [indiscernible] company. And we didn't want to -- we didn't feel it prudent to make any material change to that at this point in time, but I do -- rest assured that it is an agenda item. The Board will continue to consider dividends versus share buyback in the current environment.

Great. Thanks, Scott. Just a question, and there's a few along these lines. " [ So happy that we made all of them ], but I'm just trying to understand the downgrade a little bit better. Is the back book not fully hedged to match the duration of [indiscernible]? And if not, why not?"

Yes. So I think, [ to express that ], I need to put it in 2 parts. Part of the backlog that we don't have high [ interest ] margins on OpEx, that is hedged today and has been hedged. And that's been [ part of policy of our system ]. The portion of the book where we have high interest margins, yes, we don't hedge. And there are 2 reasons to that. There's already been a strategy to pass on interest rates to [indiscernible] to offset the back book portion. The second part of that is, in the past, if you take 12 or 18 months back, we were at quite low level. So a significant portion of the book continue to be [ flipped through ] equity. And as we are moving through this capital structure change from more equity to debt, we will continue to sort of look at how much more -- we will continue to hedge appropriately.

Perfect. Thanks, Siva. A question from Marcus Barnard at Bell Potter, regarding Slides 8 and 9. Could you give us more detail on how the spread [ such as to net margin out of ] BBSW will vary as more of the debt facilities are drawn? Do all the facilities have [ fixed margins ], or do these vary by [ usage ]?

We do have -- or we did have decreasing margins when we initially put some of these facilities. I would like to call out that, those margin reductions where -- that we draw on the facility, we have fully utilized all of those growth and the margins, so you could assume that these margins would more or less be fixed into future until we renegotiate future debt facilities.

Perfect. Thanks, Siva. What proportion of the RBA rate hikes do you think you'll be able to pass through to customers? And what's your medium-term target return on equity?

Great questions. There certainly has been some competitive tension. And what is making this a challenging question to answer is the fact that the yield on the AFS business is much lower than the yield on the Money3 business, for -- and when you average gross yields across the businesses, you will see that they are declining. That's not always a point for concern. And you can see that the AFS business has a very different profile for productivity, bad debt and particularly attachment points for funding. So we are calling out that our yield has -- I think we said on a number of presentations, to expect a [ 2% ] decline over time over a number of years as our business repositions itself from being only [ very deep ] specialist provider [indiscernible] broaden our [indiscernible]. So we're getting to the end of that. We think our business gets yields in the 20% for the time being, but we are following up that -- with the contraction of the business in New Zealand, that the yield does appear -- yes, does come down faster this year than we had originally anticipated. And [ that's because ] New Zealand will be flat or maybe in some slight decline while AFS continues to grow. AFS' yields across the portfolio at the moment tend to be in that 12% to 13% range, which does produce a profitable outcome for our business. Albeit its cost of funding is the cheapest in the group, its bad debt is [indiscernible] in the group. And its productivity is the highest given the nature of the clients that are coming in to be funded in that group. So when you consider all of those, it produces [ a critical ] outcome of business. In terms of passing on the rate rises, we -- another part of what is impacting our business is we've made a conscious decision, for some of our highest-margin customers, not to fund them through [ the pending period ], as we look to become more conservative. So some of the offsetting benefit of that lowering yield will be a reduction in bad debt. Now that's -- hasn't necessarily materialized as we anticipated because of growth in bad debts, particularly out of New Zealand, but over a longer term, we'd expect our portfolio yield across the group to stabilize around these levels. Around 23% is where we think that that's going to come through in FY '24. And some bad debt normalization as times go through will offset that. And then you will start to see more of that revenue falling to the bottom line, which I think is actually what investors are asking. "When will you see more of that come through to the bottom line, to returning our profitability to normal levels? [ Do you think that will happen in FY '25 ] ? "

Thanks, Scott. A few questions [ from Allan Franklin at Canaccord ]. Could you please provide some data on the [ lead in line with national sustained ] costs versus PCP and how to think about this line item more generally?

A lot of that is driven back out of the AFS business. I mean, if you look at it, you will see that the cost of client acquisition there is typically higher than the other businesses. And that is coming through in the P&L. A lot of it is driven by [ client acquisition costs ] [indiscernible] growth, more so than the servicing costs, as -- I'll go as far to state that, as credit quality continues to improve, client-servicing costs have been somewhat flat over the last couple of years. And a lot of that growth has been driven by costs of -- client acquisition costs. We're expecting some of that to normalize as we see less competition in the marketplace, but there has been a trend over the last couple of years that with growing competition there has been, even down at that [ Solvar ] specialist client quality, higher fees paid by other parties. Many of them are starting to materially retreat from that business [ sector, but we think it should ] -- expect to see that flattened in the Money3 and Go Car businesses particularly, yes, through '24.

Okay, well, [ a quick one from ] Allan, referencing -- sorry. I already asked that one. How should we think about [ Money3-linked ] debt funding availability? Do you need additional facilities to cover near-term growth?

As you have seen in our balance sheet, we do have a significant portion of free cash. While we'll continue to -- and continue to work on facility expansions, we would also look at using some of the free cash in this high-interest-earning [ funding ] [indiscernible]. Just talking on facilities in specific: As we grow faster and have -- we will continuously [ expand ] facility limits. And as a natural progression from here, we will also be looking at [ term on ] securitization in the near future.

I think it's fair to say that Siva has a number of things that he's in discussion with on the Australian and particularly Money3 business units, to fund those. And we -- I mean the existing [ conduct ] there is also have appetite to extend that facility when we're ready. Part of one of the things that we're considering is that not having too much capacity too soon given the cost and managing that to manage our bottom line [ in some detail ].

Thanks, Scott. Just going back to a question I asked earlier just in terms of medium-term target for return on equity, [ risks for that ].

Look. FY '24 is going to be challenging because, as everyone will see, return on equity is likely to be -- or return on tangible asset is like to be around 8% or a little bit less. So we understand that headwind driven by those 3 items that we discussed before. We would like to see that return on equity trending back to the 15% come -- we'd like to see that coming through in FY '25, but it might be more like '26. The only hesitation here for me -- like I know what we can drive through our OpEx. And we think how bad debts are, but there is a little bit of uncertainty about funding. And we hesitate to make any sort of speculation on where base rates will go given how quickly they've changed. If -- we predicted [ to 50 points ] of rise in the -- is how we came to the number that we've put out to the market last week. We did that based on some estimates that Siva got from one of the banks. We're not trying to speculate on that. We -- in fact, if there is -- if it flattens out or if there's a rate reduction, then getting back to that [ and ] 15% target return on equity in FY '25 is far more achievable, but certainly we see us being there by FY '26. If I could answer it: We know that we're not there in '24. We'll be working towards it in '25. We're definitely there in '26.

Perfect. Just final question from Allan at Canaccord. [indiscernible] the loan book outlook for [ billion plus ] by June '24. Is it fair to say that this requires a lower level of loan originations versus '23? And any additional detail on how to think the mix of loan growth between the brands, knowing New Zealand is a headwind to this?

[ Let's give a ] comment on the origination numbers because you're right. There's not a material movement from where we are at the moment, but the other bit to keep in mind is that, New Zealand, we're actually expecting to be flat or contract through that period of time. So [ I think everything ] is all being done out of the Australian operations...

And to further add to Scott's comment earlier, like, is [indiscernible] would be slightly lower than FY '23. And there has been a deliberate [ attention. As we've seen just comment and all ], I mean, a couple of weeks back, we are [ slowing ] lending in New Zealand due to acute macroeconomic headwinds. And we are very keen not to grow our lending during these tough times. and we are very conscious of keeping our credit quality of our loan book stable over this [ period ].

So...

Great. Thanks -- sorry, Scott. Yes...

No, I was just going to say. So we're calling out that our -- if you think of our [ book growth ] over the last sort of 5 years, this year is likely to be about half of that typical level of growth, but we are still growing. And most all of, that growth, we're predicting to come out of the Australian operations. And we think that, that growth is coming to us as a result of our ability to take more market share in this period of time.

Great. Thanks, Scott. Just noting the time, we're trying to get through the rest of the questions, with respect, reasonably fast. Were there any provisions taken out for the ASIC [ case ]?

No. We haven't take up -- taken up any specific provisions. And in the results you've just seen, we've not called out any of the incremental legal fees that [ we did incur ] in that. At this point in time, there's not much to update in terms of the progress of ASIC. As soon as anything is known, we will make the market aware, but at this point in time, it's [ a true ] process that just takes time to work through.

Thanks, Scott. What is the dollar impact [ from the ] New Zealand extreme weather event?

I would say we haven't seen the full result of that yet, hence why the predictions and the forecasts to the market last week. I think we would be best to provide guidance to that number at the AGM or at the half [indiscernible] the rest of that come through. Because what you can see in the impairments slide in here is that we have some accounts that are on our credit impaired or watch list that at this point in time we [indiscernible] whether they'll move through to write-off or whether they start to improve. What we experienced is that, from March [ through to May ], we experienced [indiscernible] tightening of cash flow in our New Zealand operations. As things normalized or as -- if I put it in more simple terms, as consumers became more accustomed to their income and the impacts of inflation, they started to get back and pay their cars again. Many customers expressed it's quite challenging with washout roads, with their inability to get to work or their inability to work normal levels given that we're dealing with the impacts of the extreme weather. Now that they're behind them, people are starting to catch up. We can see that in improved cash flows through June and July, and we are confident that, that continues to improve through August. [ I mean August kind of have the ] best [ lines ] of cash collection in New Zealand operations this year, so we are confident that it continues to improve, but it's not guarantee. And so it would be better if we gave a fuller account of that once [ most of these ] accounts move through [indiscernible].

[indiscernible]. Can you talk to us about the thing that you're saying in terms of change in borrower behavior or sentiment? Are there any leading indicators that would impact bad debt in the future?

I guess we're seeing more borrower conservatism, but that's probably more new originations than we are seeing in terms of -- to predict the bad debts. I mean there's -- the market is becoming conservative, particularly in New Zealand. If you look at credit applications through any of the bureaus, you'll see that it's a material reduction from 12 months ago. And I think we're seeing some of that here in Australia as well, but in terms of predictions for bad debt -- and part of the reason why we're confident in continuing to hit within our target range is just that unemployment in both countries continues to trend at record lows. And while arrears may have upticked a little bit, particularly in New Zealand, of those one-off weather events, while people are employed, they will manage through these. They may be a bit slow, but we're expecting them go through unpaid loans, [indiscernible] loans out. That's probably one of the key indicators the team is confident that -- through this economic cycle, that we'll do reasonably well. Most of our consumers aren't -- they don't have another debt to repay. This is the largest [ debt ]. And as we hear every day from consumers, the car is an [ essential item ] to them. It gets them to work. It gets them to take the kids to school. It gets them [indiscernible] society, so they are very keen to maintain access to a [indiscernible] and will continue to travel. And we've seen that coming through in our cash collections improving in the month of August in New Zealand. The last 2 months have been months of improvement in terms of cash collection.

Perfect. Thanks, Scott. [ These few ] questions is around unpaid loans [indiscernible] NTA. How do you sort of look at, a, issuing shares under DRP [ based on ] low share prices; as well as growing the book [indiscernible] buying back shares?

Look. That is -- that question comes up often, even when we're not trading at a discount. Remember the only participants in the DRP are existing shareholders that have supported the business for the long term. We have, I guess, a couple of competing challenges here, all positive. And that is we're -- as a profitable business, we are growing balance of franking credits. We hear from many of our shareholders who would like to see more of those franking credits [ account ]. On the other hand, we have a dividend that we could be using for other things, so I think the point and where we continue [ to lean ] is that dividend reinvestment is only for existing shareholders who are on the register. Those franking credits and those dividends are -- they belong to the members, to the shareholders; and hence why we pay them. We ideally love to see more shareholders participate in the reinvestment plan and grow their holding in the business. It would make it easier for us to maintain or lift dividends. And I understand, for those that don't participate, that the -- that there is the challenge there, but we feel that [ the happy medium ] is paying a reasonable amount of our dividends out and providing an option to the -- for those that wish to participate in a reinvestment plan.

Great. Thanks, Scott. Just last question: Just any change to the Credit Suisse facility post the UBS takeover [indiscernible]?

I'll let you answer.

No, there's been no change. It's been business as usual. And we all hear that, with the change -- by the way, Credit Suisse has also sold the structured finance product to Apollo. And they've established a new company, as you'd have picked up in the market. It's called ATLAS. So it's the old Credit Suisse facility. What we see is, as these transition complete, there's going to be an easier ability to expand facility limits through this transition process.

Yes. I understand in the media it might be creating some confusion there given Credit Suisse's funding provided to Apollo, but from our -- for investors' purposes, we should, you should consider that the Solvar Group is funded by the ATLAS entity here in Australia and in New Zealand.

Okay, thanks, Scott. Thanks, Siva. Scott, I might just hand it back to you for closing remarks.

Yes. And thank you, Simon. I understand that we need to do some more explanation in regard to funding and the other headwinds focus in the business. We tried today to address those questions and concerns. If there's things that have -- that we've missed, please send them through to Simon. And we will attempt to come back and answer those questions. We do thank all the shareholders for being on the call today and continuing to hold stock as we move through these challenging times, but thank you for your time and for your investment in the company.

Thank you.

Great. Thank you all for attending. Cheers.