Solvar Limited (SVR) Earnings Call Transcript & Summary

Good morning and welcome to Solvar's First Half Financial year 2025 Results Presentation. Up on your screen is the presentation released to the ASX this morning. And 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 to go through the presentation, [Operator Instructions] Scott, I'll hand it over to you. Thanks.

Thank you, Simon, for the introduction, and thank you, shareholders and other stakeholders that have dialed in today to listen to our first half results. Move to the first slide. As you see, we wanted to focus on explaining to shareholders how we're building a bigger and better Solvar for the future. Over the last 6 months, there has been considerable effort into rebuilding the foundations of the organization so that we can leverage from here for sustainable growth into the future. What you'll see as we go through the presentation results, I think, is an excellent turnaround within the business. Normalized NPAT is up 27% at $18.5 million and statutory NPAT up 28% to $16.9 million, a significant turnaround on the half last year. You'll notice in what we've been working on in the first 6 months to drive that bigger and better Solvar business, essentially 4 key initiatives driving through our business, a significant focus on our bottom line, hence, why you can see the uplift not just in our normalized numbers, but the statutory numbers, strong focus in managing costs as well as investing into the platform for growth. One of the key initiatives that we spent quite a bit of time on, as you'll see here, is our cybersecurity, building better walls around our customer and corporate data to protect it given the backdrop of increasing cyber risk, not just with our company, with everyone else's, but our intent is to build as good a foundation as we can. And as a result of all of the effort, well over $1 million of investment into our infrastructure, we achieved an ISO 27001 certification, which is the cybersecurity certification around protecting our data. The other thing that we've spent a significant amount of time in the first half on in terms of improving our business has been the preparation for the federal court. So you'll note a lot of normalization within our results, which is principally the external legal fees. We've had to bear the costs internally going through the P&L of all of the work that we've done in preparation for trial. But it hasn't just been work to prepare for the trial. We've also looked at many of our procedures and policies within our business to look at those through the lens for which ASIC have raised their claim and put our best foot forward to ensure that we're not here again. So while we think that -- and we'll continue to defend the claim brought forward by ASIC, we have done a lot of work to rebuild our policies, procedures and look through our business -- just to ensure that we move to sort of best practice across our business. And finally, one of the key initiatives that we've had in that first half has been the consolidation or replacement of all of the legacy Automotive Financial Services platform. So that's -- over the last 6 months, in particular, it has been the underwriting platform. In prior periods, we've talked about the loans management platform and the front-end website. So as we sit here today live on consolidated infrastructure, the Money3 and the AFS business now operate on the same infrastructure that manages their website, that manages their underwriting tool and also all loans now land into the same loans management platform, which means it doesn't matter which business unit you work for in the Australian operations, you can see the same database, the same login for all of our staff to see customers regardless of which brand that they have presented to us from. What we expect that to do is moving forward into the future is drive our productivity and enhance our customer experience and our broker ability to refer business to us. While that principally all happened in the first half, we've already started to see some benefits of that. AFS have had more loan book growth in the first 2 months of this year than the first 6 months of last year. So that investment, not just in the technology, but the teams and relooking at our process is certainly driving growth, which will underpin your future earnings of the business in future periods. Moving through other investments that we've made here. In terms of credit and underwriting, we have gone through all of particularly the Money3 credit processes and procedures and looked at how we underwrite business. You certainly have seen the impact of that in some declining volumes. But -- you'll see that they're principally flat half-on-half for Money3 and starting to grow again as that comes to an end. In terms of capital management, we've made a strategic decision to repay the debt facility in New Zealand. Now the last payment was made in January, but throughout the half, we used the excess capital that we had on our balance sheet and repaid our debt facilities in New Zealand, which will help improve the return and bottom line out of that business as it runs down. We also introduced and went through a lengthy process of credit assessment where third parties looked at our business and we were -- and we secured an additional funding partner for our Money3 business. This gives us a large international bank as well as a local credit fund funding that business. So funder diversity was key. And having just completed that in the last few months, we're excited that people have looked through our business and we've been able to secure funding. The share buyback program continues to remain in place as it was late last year. We just haven't been buying as per the blackout, which if shareholders are interested, the trading rules, which the government -- the company follows are on our website. So if it's within our proposed trading range, you'll see that initiate again. In terms of strategic initiatives that we've been working towards, we put a lot of time into getting ready for establishing a dedicated commercial lending business unit. We brought in a key executive into the business that has had a career in commercial lending and he will lead up that business unit within our group as you consider us building a bigger business. This is one of our key initiatives to diversify our earnings. And there's not going to be a bottom line contribution from that business in FY '25, but it is laying the foundation for that sustainable growth into '26, '27, '28. So you should expect more to see from our commercial lending business as you come into next financial year. We've also spent a lot of time looking at our expenses across the business. There's been a significant reduction in employee expenses. A lot of that is off the back of managing our staff and our personnel supporting our New Zealand-based operations. But we've continued to grow our revenue and managed our expenses, which given where that has been in past years has, I think, is a significant accomplishment in our business when you also consider the work that our technology teams did in cyber resilience, our compliance teams managed around the federal court case that happened recently and the work that we've done to consolidate systems. And the final part of what we've done to make our business a simpler, cleaner business with a better foundation. Siva and his team have worked on closing 11 dormant subsidiaries within the group. All of these had operations in them, but we've now cleaned that up just to make it a -- the group as a whole, a simpler business with a stronger foundation for which to grow upon. We made some organizational changes within the group. We've appointed that head, the General Manager for our commercial operations, who comes with a wealth of experience. We also appointed a Chief Information Officer. And we've also had some key appointments around our compliance team as well. So we think that certainly sets us up for good growth moving into the future. Just in terms of the backdrop in terms of the market, we'll all be aware that there was a rate cut, which will certainly benefit the Money3 back book. We will also benefit the future interest earnings, interest income coming out of the Money3 business as we continue to offer the same fixed rate product that we have for a number of years and with lower cost of fundings on that back book will benefit and also a margin differential on new business that's being written. The other part that we're seeing from the interest rate cut is not so much the interest rate cut that will benefit the business, but the confidence that comes through from consumers. However, that will be offset by an election, which does typically create some uncertainty in terms of volumes in our business. We also, over the first half, completed the purchase of a couple of small automotive loan books, which rolled into the Money3 business. These are all from small private lenders, and that has been completed. Moving on to the financial highlights for the first half. Revenue was up 4.6%. Now a big achievement here certainly is the 17% growth in the Automotive Financial Services business, good revenue growth out of that business. There hasn't been a lot of loan book growth in AFS, which is why all the loan book growth you're seeing coming through the Australian operation is essentially Money3, which is testament to that rebuilding of the product and getting back to a growth setting. And I'll just remind you that subsequent to the IT investment, the merging of the software platforms has been a huge distraction for the AFS business, and that's the results that you're seeing today. But we're now settling loans on that common infrastructure between Money3 and AFS. And the first 2 months of this year, we've posted really solid growth out of the AFS business, exceeding the first half. So I'm very confident that you start to see that growth pick up as you come into the back half of this year, but principally in FY '26. Some other things to focus on there is bad debt as well, always a focus for all investors. You'll see later in the slides that Siva will take you to that overall credit quality has had a slight improvement, which I think it's not a small feat there that if you consider that we're in a period of high inflation as well as the cost of living challenges that many Australians are facing that our loan book quality improved. And the leading indicator of that has been that lifting of cash collections. Customers have been paying, and we made some strategic decision to write off probably a little bit more than what some shareholders might have liked, but that has driven a slight improvement in our loan book and has kept us well within our target range of 3.5% to 4.5% bad debts for our continuing operations. We'll move on to the next slide, which is the group. Normalized $18.5 million NPAT for the first half. The normalized actions that we've put through our P&L are the external legal fees associated with the regulatory actions that are a foot. We've -- as we mentioned, -- we introduced that mezzanine facility in Money3. I think the key takeaway here has been that in spite of some challenges, we've had a third party go through our business, and we've brought a new lender into the Money3 warehouse and that gives us some diversity of funding through that business. Earnings per share have increased by 30%, up to $0.082. If you normalize that, you'll be getting very close to $0.10, which is good. Dividends per share, 20% increase. And as we highlight, we think we can maintain that throughout the year of $0.06, which should be well received by most shareholders. Loan book growth, slight growth in overall group loan book as the Australian operations replaced the contracted loan book in New Zealand. As that book runs down, you'll start to see growth coming off as a result of Australia because the cash collection in New Zealand will slowly come down. Let's move on to the financials, and I'll hand over to Siva to take you through the key financial results.

Thank you, Scott, and good morning, everyone. To throw a bit more insights into the performance of the Solvar Group during the first half. What we have done is segregated our financial statements from a group point of view to our continuing operations. And this is primarily done because the group operations are impacted by the rundown from New Zealand. So we have presented the group in the next slide, but I would like the investors to focus on the underlying performance of the continuing operations, which will continue to grow in future. You would see that the loan book during the half has grown during the full year from December '23 to December '24 has grown circa $50 million in the continuing operations. And the continuing operations here represent the 2 business units that we have in Australia, which is Money3 and AFS with the support teams in the corporate function. So the $50 million loan book in the last 12 months growth was also impacted by the platform -- technology platform consolidations that Scott mentioned earlier. With that all completed, we expect that the loan book will come back to a double-digit growth in the upcoming months as well as into the FY '26 and beyond. And this loan book growth, you can see has reflected in growth in our interest income, which has grown by 4.6% during the first half. The key item to note with our interest income line is the yield on the loan book has marginally come down from 24% to 23%. And this is on the back of improving credit quality as we are attracting better credit quality customers into our portfolio and with the mix of AFS gaining a bit more size into the overall portfolio that's contributing to that. We expect this yield to continue to reduce at circa 1% as we bring more of the higher quality customers into our portfolio. The other thing to note here is our free cash has come down from $88 million from June 2024 to circa $60 million in December 2024. And the main reason for that is we have used a lot of free cash to fund our loan book, which has resulted in a decrease in our interest expense both in the continuing operations as well as the overall group operations. We also have a huge amount of headroom in our funding facilities, which will continue to support the growth we expect to come in FY '26. Moving on to the lines below the net interest income -- sorry, staying back in the continuing operations. The impairment and bad debt expense appears to have grown higher. But if you look into the details of it, we are still within the target range of 3.5% to 4.5%. Our bad debts are still running at 4% of the book. And most of the provision increase has come from the growth in the loan book. Our operating expense line shows a marginal increase of 2.4%. I would like to disaggregate that number into 2 parts. The increase is primarily coming from our loan origination cost, which is driven by the growth in the loan book. And you will see that the rest of the cost, which is predominantly employee expenses has come down. And that comes on the back of the technology investments that we are putting. We expect that in future, a lower cost base on our employees will be still providing us better growth on our loan book and our operations. We have also disaggregated the FX differences on devaluation for the first time in these presentations, primarily to take away the movements that are coming from the intercompany balances that we have in New Zealand. And again, as we move into the future, these differences will diminish and disappear as New Zealand repays its intercompany loan back to Australia. Moving on to the next slide. I think the key takeaway point on this is New Zealand has provided a positive contribution in the first half, but each of the numbers compared to the prior year appears to be lower because of the rundown process in New Zealand. Moving on to the next slide. 3 segments to this. The first one provides a disaggregated view, on the left-hand side provides a disaggregated view of the bad debts by geography. And the key takeaway point is our Australian operations or continuing operations have been stable with respect to our bad debt experience, while in FY '24, most of the spike came from New Zealand, which seems to normalize in the first half. And our continued prudent management of the rundown process will help us maintain the bad debt as well as the collection process in a better state. On the middle slide -- middle part of the graph, we have the Australian debt facilities. The key takeaway points here, there is a healthy headroom of more than $130 million in debt facilities. During the first half, we also introduced new funders into the Money3 facility, creating diversification. The overall leverage has increased compared to prior comparative period. That's predominantly because most of the loans that we are writing now are better funded and that will continue to provide the impetus for growth through funding as we grow the book in the future. As I mentioned earlier, the free cash has come down to $60 million, but there is still sufficient cash to initiate a number of capital management activities as well as fund acquisition opportunities as they come along. On the right side, you have the credit quality slide. The key takeaway point here is there is a marginal improvement in our Strong and Good, which has gone to 81.8% of our book. We do see continued pressure from the servicing side given the high inflation environment that we had in the past. But even with easing of inflation, there is still sufficient tightness as we experienced from our customer repayment profile, but the customer care team have done a fantastic job in making sure the collections have been very strong despite a very tough environment.

Yes. We've made a lot of changes to our underwriting criteria. And if you look at the early warning indicator as being complaints, our complaints -- while our customer numbers have increased, our complaints numbers are starting to trend down, which is very encouraging. The other part is we're in a high inflationary environment at the moment and cash collection has gone up, which is what's driving that slight improvement in credit quality, which has seen us maintain our level of provisioning that we've had before. Many of our peers have made a material change to their settings there where we have confidence given the cash flow and that early warning indicator of our complaints and actually going down has given us confidence to think that we're well on track to be within our target range of 3.5%, 4%, 4.5% for the financial year. So I think that's been -- I can't underestimate the amount of work that's born in from our credit and customer care teams to work with our customers over the last 6 months to drive that slight improvement in overall credit quality in what is a challenging environment. If we go and talk about our regulatory update because this has been a significant piece of work that the business has undertaken. Money3 and ASIC appeared in the Federal Court in Victoria in February. There's still 1 day or closing statements to still occur in March. But after that, the judge in the coming months will hand down his findings as highlighted here. I think the -- I hope the big takeaway that everyone gets from this is that this is nearing the end. We've been through not only a very challenging time, but a lot of reflection of our business. And we are confident in our position and anyone that has attended the trial would understand where our confidence comes from. We are focused on our customers. They are the main people that we look to serve. And the biggest thing that this will deliver is the completion of this so that we can move on and focus on growth with our business. The similar matter that's underway in New Zealand will be defended. But with changes in the regulatory -- the manager of this sector in New Zealand from the Commerce Commission to the FMA means that that's probably just a little bit away, but we'll continue to defend that like we have here in Australia. If we move on to the outlook. Lovely. So we maintain our normalized NPAT of $34 million for the year. I suspect that there will be questions about why we've chosen not to uplift that and just to try and front foot those questions. I mean every time we've seen an election it has created a significant disruption to our business, there is uncertainty. So with an abundance of caution, we've left that at $34 million. The other part, too, is while we've had a great contribution from our Go Car finance operations in the first half, a huge turnaround from the loss that was posted last year to a contribution to our bottom line this year. We're anticipating with sort of that final leg of closure costs as we manage that business for it essentially to break even, not make a material contribution to NPAT in the second half. Maintaining our expectation of bad debt, 3.5% to 4.5%. And just trying to give you the early warning things, the declining hardship and complaint requests are down slightly. Cash collections, as you'll see, have grown faster than the loan book. Normally, that is lagging and that it is testament to consumers trying to manage their debt in what is an inflationary environment with challenging cost of living. So that gives us lots of confidence that is where we maintain that. In terms of dividends, we've lifted our dividend for the first half by 20% over last year to $0.06. And the Board is confident of maintaining that sort of payout ratio moving forward. We're well progressed with establishing a stand-alone commercial business unit within the group, and we expect that, that will make a contribution in FY '26, but all the work is happening at the moment. The buyback program is still in place, and we'll follow -- we haven't been buying for those asking that question because we've been in a blackout period before our results are released. So -- but that program will be active, continue to be active as long as it's within our desired parameters of purchasing. In terms of -- for our operations, the trial with ASIC is nearing completion with -- we expect in the coming months to have the judge hand down his findings. Our actions in New Zealand to run down the loan book are progressing as we anticipated, in fact, probably going in the first half better than we expected, and that is pleasing to see. The technology simplification program has been -- I can't underestimate the amount of work that all of our staff have put into replatforming our AFS business so that our Australian operations are now all sitting on the same platform and technology will drive simplification, and it does move our tech from some old and outdated tech and gives us better ability to drive productivity, better governance across our organization, better ability to share customer and client data between our Money3 and AFS operations, and it does give us a platform that is current. All finance businesses have to continue to invest in technology in this challenging world and our cyber footprint improves materially as a result of upgrading that technology. Just in terms of the general market, while the labor market remains tight, we think that bodes very well for our collections and our cash flow across our business. And we think that's why you're seeing an uplift in cash. We expect that to continue for the foreseeable future. I reiterate we maintain our guidance for FY '25. And a part of that is because we expect some disruption from the federal election. But on the other side, the rate cut, cheaper vehicle pricing, we are seeing some improvement in the demand for vehicles and for funding. With that, I'll hand back to Simon, and we look forward to receiving some questions.

Great. Thanks, Scott. [Operator Instructions] So first question, can you please at least carefully comment on consensus estimates for FY '26? In your current slides, you mentioned that you are prepared for robust growth in FY '26, but consensus shows only 1% to 3% increase in revenues and EBITDA. Is that wrong or at least conservative?

Look, I think the -- in fairness to the 3 analysts covering the stock, they put that together last year. They've now had the benefit of seeing the first half and the start of the turnaround. I'd expect all of the analysts to be redoing their guidance. There has been a lot of uncertainty, not just in the market, as you've seen with our peers, but also as a result of the regulatory action. As we get to the end of them, I would expect that analysts will make changes to their guidance for '26 and '27, which I think we're all in line roughly for this year. But for them to change, you may want to add.

And in addition to that, I would add that the rate reduction that we all experienced in February is also going to add a lot of confidence into the market and from a lending point of view as well. So our comments on the robust growth in FY '26 is also on the back of the start of the rate-cut cycle.

I might just let Allan Franklin from Canaccord ask a question.

Can you hear me? I think I just want to sort of clarify some of the capital management and/or lending comments, please. I appreciate there are some sort of gives and takes, but you're sort of referring to putting some of your free cash to work, but at end of period, leverage ratio is sort of up a bit. And just to be clear, shaping into FY '26, you'll lean a bit more on debt, and we can expect that sort of leverage ratio sort of creep up, which would, all else equal in a better rate environment come through at a pretty strong incremental margin, if that makes sense. Just on the mezz fund, just timing of that, please. When did that sort of drop in? To what extent is the sort of additional costs to come from that lender into the current period?

So we introduced the mezzanine funding in the Money3 warehouses in September 2024. And there were 2 parts to the reasons why we brought in. One was diversification of our funding partners, but also the scalability of the Money3 book as well. And one thing I would like to use this opportunity to reiterate over the last 18 months, Money3 has introduced a new product into its portfolio. We call it the Platinum, which is attracting the higher quality of our customer base. And that particular segment, we expect strong growth in coming years and hence, the introduction of mezzanine into our fiscal year, which reduces the amount of equity that we need to contribute for every dollar growth in loan book.

The better price funding we got from that mezzanine provider is what got us confidence to use some of that excess cash to pay out the higher cost debt that we had in New Zealand.

And just on New Zealand, just to explore the rationale or the sort of, I guess, logic where the further you get into that wind down, perhaps the harder collections become. Have you seen that to an extent yet or at what point in time would you sort of consider some of that book to get a bit more harder to collect on?

I think -- we expect the rundown profile of that portfolio to be reasonably within our budget. By the time that harder tail comes through in sort of '27, the -- it won't be material to our results. And I mean, all of you that have spoken to Siva know that he has put a lot of time into ensuring our provisions align with the performance of that loan book. So I would expect -- that book is going to contract reasonably rapidly and become immaterial to results. And I would expect our provisions to align with any expectation of bad debt that might come out of, frankly, a deteriorating economic environment in New Zealand. Like we don't see it as being a good growth economy for some time, which is what our external strategic partner that we had helped with us pointed out to us, and we're seeing it play out from the work that [ Kearney ] did with us over 12 months ago.

One other just quick last query, just on employee costs. Just sort of directionally, first half into sort of second half, we should allow for a level of growth showing through, just sort of exploring to what extent the technology implementations have on employee cost moving forward?

Technology has meant that our employee costs over the last 3 years haven't moved materially in our underwriting and collections teams. The uplift in employee costs has been more expensive, dedicated, particularly compliance risk regulatory-focused employees. That technology -- and the growth in wages you've seen has just been the -- through the COVID cycle, I don't think our industry like others has been immune from an uplift in wage costs. And we've always had that challenge of driving our technology to improve productivity at the same time while wage costs are going up. We started to see that nexus break over the last 6 months. We have the team that we need. We have some investment that we need to continue to make in technology, but we should be able to see that growth in our receivables with the team that we have today.

Thanks, Allan. A few questions just around regulatory, legal, et cetera. Will the legal issue in Australia be truly concluded this calendar year? Or do you see one of the parties challenging the upcoming decision?

Look, for those who followed the trial, you would note that we made a lot of submissions around the expert witness put on by ASIC. The judge allowed that to come through. We think a lot of that is around ensuring that both parties have a fair hearing and say, like, at this point in time, the feedback we've had from our legal counsel is that they're not anticipating any sort of appeal, but we actually haven't even got to the findings being handed down. So to answer that question, I think we truly need to wait until the judge hands down his findings. But we've maintained through this whole process that we think our lending practices have been fair and transparent. And I do think that came out quite loudly in the court case for anyone that did see or listen to those witnesses given that it was a public court case. I do think we, as Money3 have received a fair hearing so far. So we will see how that process proceeds with the judge.

Thanks, Scott. Leverage has increased to over 70%. Is it expected to decrease again as the New Zealand book runs down and repatriate cash, I would call 70% being a longer-term target.

I think the position that we are in is certainly within our risk management targets. The repatriation of cash from New Zealand is definitely available to fund further growth in loan book in Australia. And it is also going to be driven by what else do we do from a capital management point of view, as Scott alluded earlier, the share buyback program will kick back in place subject to how the pricing works in the market. Similarly, we do have the new commercial lending operations that we will initially fund through our own equity. Subsequently, that will go back into funding platforms that will drive up the position on leverage. However, from a target perspective, we do target our leverage is around that 75% to 80% range over the next few years.

Thanks Siva. A few questions from Marcus Barnard at Bell Potter. Given the yield goes down as credit quality improves, why is the bad debt charge gone up? I appreciate one is new business, the other is back book.

Yes. So to answer exactly those comments, while our front book, which is having a higher ratio of higher-quality customers coming in, a bit of the bad debt is driven by the existing back book. As the back book runs off, we will see material improvement in these bad debt ratios as a percentage of book.

Another question from Marcus, can you quantify the net benefit of replacing New Zealand debt with the Australian debt?

So the net benefit in percentage terms would be circa $ 1, if you look at 1% in terms of the cost of funds. Having said that, we've also used a lot of our own free cash to repay the debt in New Zealand. So if you put it in absolute dollar from a P&L point of view, we would have benefited circa $2 million to $2.2 million pretax reduction in interest cost.

Attempted to hedge interest rate expenses in Money3 inflation pressures may arise with geopolitical risk, rising interest rates are pain for the last time.

Sorry, Simon, if you could repeat the question, please.

[indiscernible].

Siva and his team implemented a hedging policy on the Money3 portfolio for all new originations. So we haven't hedged the back book, so we'll benefit that from the rate cutting cycle. But as you can see, this book turns relatively quickly and new originations are hedged in the Money3 book. And I stress the AFS portfolio has always been hedged. Yes, we're well aware of the pain. We have changed our policy. Siva and his team have done a lot of work to introduce new policies around hedging. And do you want to comment any more about you started hedging that portfolio?

Yes, yes. So we've taken an approach where we started hedging the front book, which allows us to benefit from the rate reduction cycles on the back book. And we expect that, that will continue to bring some benefits into FY '26 to the tune of somewhere between $1 million to $1.5 million in pretax reduction in interest cost.

But also from a future point of view, because these books roll off relatively quickly, we will match fixed debt with fixed to consumer lending.

Historically, the company has achieved EBITDA margins of around 50%. Is there a goal to return to margins towards that? Or just now the lower yield on the book [indiscernible] that margin lower?

We are trying to change the whole way we think about our business, which you'll see at this half, how Siva has restructured the P&L, bringing interest from the -- below the line up to the top, which is reflective of the business changing the quantum of debt. We were principally a finance business funded by equity, which is unusual in every sense. As we -- you called out on the call, our leverage has lifted and is likely to continue to do so. So it makes sense for us to lessen that focus on EBITDA across our business as interest becomes the largest expense in the business. So we've moved it to the top of the P&L, so it's easy to see and that everyone can keep their focus on it. So yes, while we have focused on EBITDA as a metric in the past, moving forward, that is not one of the core metrics of which we want to measure or have investors think of us by given the changing mix of the business in terms of how it's funded. Do you want to add anything there?

Yes. Thank you. But I think I would point out to the introduction of the new metric that we have started putting in our financials, we call it the net interest income margin, you can call it NIM. And that's at a healthy high teen. It's marginally moved between DCP and current periods. But as of December in the first half, it's running at 17.6%. And our target is to -- as we target better quality customers into our portfolio, we are expecting, if not a similar reduction in our cost of funds as well that will help us to maintain the NIM percentage, which will, in turn, contribute to our bottom line as we try to keep the [indiscernible] expense more fixed in nature.

Just a couple of questions around dividend and dividend policy. First of all, when do you think you'll increase the dividend and the dividend policy? And second of all, just in terms of this half dividend, why no reinvestment option?

So just in terms of the policy, I mean there's been no change. I mean it's fairly broad. I do understand that we're paying in the sort of low 70% payout ratio. The policy is up to 90%. We're not at the top end of that. And dividends have lifted 20% from where they were last year. So I think the Board conversation was one around rewarding shareholders for being on the journey. Given the cash flow coming in from the New Zealand operation, we were able to do that as well as maintain a share buyback program and fund new growth and an acquisition given our increased access to debt funding within our business. Now there was a second part of that question, maybe if you ask that again.

Just around the dividend reinvestment for the half.

Look, where our share price is, we don't want to issue any new capital at these current prices. And I do understand it is only going to loyal shareholders. But given where our share price has traded below NTA in the recent 12 months, we encourage shareholders to buy on market. We've chosen not to issue new equity as a result of that discount to NTA. And I don't think the Board will entertain bringing that back in until the share price improves in the nonbank sector, we're one of the cheapest stocks relative to price the book on the market. So we're conscious to protect shareholders' value and hence not offering the reinvestment plan.

And just a final question. What will the areas be of lending undertaken by the commercial lending business unit?

So the focus will be used assets, principally used wheeled assets initially until we build some history in that business unit. So shareholders would be well aware that we have a reasonable portfolio in that $50 million to $60 million range of basically utes and vans. We've talked about that at the full year that it's principally Toyota Hiluxes, Ford Rangers and D-Maxes from Isuzu. The Dedicated Commercial division is going to continue to focus on used assets, but with a focus of trying to bring in some heavier assets that we can fund for small business. But our target consumer is very much a small business. We're not trying to compete with any of the banks in this space, buying a used Bob cat or other commercial assets in this space.

Thanks, Scott. That concludes the Q&A. I might just hand it back to you for closing remarks.

No, thank you for joining the call today, and we appreciate shareholders sticking with us as we've very much feel that we have taken the last probably 12 months to rebuild the foundations of the organization. We think we're in a strong position to build a better Solvar and a better group from where we were. We have some exciting things around coming, particularly around the launch of our commercial business. I also expect to see the results of all the investment we've made in technology over the last 6 to 12 months starting to come through. So I do feel like we've turned a corner. It has -- the organization has put a huge amount of time into the regulatory matters. And I believe that we are well placed not to be in those situations again, which means the business can get back to focusing on growth and bringing more customers and also more diverse customers into our business. With that, thank you for your time. And if there's questions that are unanswered here, please feel free to reach out to Siva or I, and we'll be delighted to welcome them to answer them. So thank you.

Thanks. Thanks, everyone. Thanks