Good morning, everyone, and welcome to Pepper Money Limited's first half, 2023 results presentation. My name is Gordon Livingstone, Investor Relations at Pepper Money. I would like to begin by acknowledging the traditional custodians of the land on which we meet today, the Gadigal people of the Eora Nation. We pay our respects to each of their elders, past, present, and emerging. Following a business update from Pepper Money's CEO, Mario Rehayem, Pepper Money's CFO, Therese McGrath, will walk us through the financials. After some closing remarks by Mario, there will be an opportunity to ask questions, which can be either via phone or submitted via the portal. I will now pass over to Pepper Money's CEO, Mario Rehayem. Thanks, Gordon. On behalf of my team at Pepper Money, I would like to thank everyone who has joined us today. Before stepping through the operational, business, and financial performance for the first half of 2023, I think it is worthwhile just taking stock of Pepper Money's journey. Pepper Money's mission has always been the same: to help people succeed. We have developed deep understanding of customer niches, typically underserved by the banks. Our ability to act nimbly, to innovate, and to leverage our core competencies of credit, funding, distribution, and technology, has seen the business grow from a specialist lender in 2000, to a leading non-bank lender in mortgages and asset finance. We have successfully managed through all cycles over the last 23 years. We know when to drive volume, when to flex the margin, how to manage and allocate capital, and how to price for risk. Since our foundation in 2000, Pepper Money has grown to become one of the largest non-bank lenders in mortgages and asset finance. We have exemplary long track record in the debt capital markets. We have a broad and deep investor base of both domestic and global debt investors that have and continue to support us over the past two decades. Since 2003 to June 2023, we have raised in excess of AUD 36 billion across 58 transactions via our RMBS and ABS programs. We have helped nearly 410,000 customers into homes, cars, boats, and caravans. Many of these typically are not served by the major banks. Our pursuit of innovation to support underserved customer niches has seen Pepper Money expand from being a specialist lender in Australia in 2000, to now offering prime, Near Prime, and specialist mortgages in Australia and New Zealand, self-managed super fund mortgages, and small balance commercial real estate loans in Australia. A complete suite of asset finance solutions, from consumer to commercial, to used cars, to marine, to novated leasing. We were at the forefront of EV lending. In the first half of 2023 alone, our EV lending was AUD 184 million, up 272% on prior comparable period. All the above was built organically, which has seen the business underwrite AUD 54 billion in loans since 2000. Pepper Money has AUD 19 billion in assets under management. As a business, we have seen through all the cycles, from the GFC to the Greek crisis. We responded to COVID in a way that helped not just our customers and employees through the uncertainty, but saw us accelerate our technology platform and business growth. We have successfully managed through all peaks and troughs of the property market over the last 20 years, and during this time, we have remained focused, disciplined, and nimble. We have leveraged what we are great at, data and customer insights, technology, funding, distribution, credit and underwriting, and how to balance risk and rewards. This is why, since we started the business 23 years ago, we have cumulatively only written off 0.4% of total loans originated. As you can see, at all points of every cycle, Pepper has put in the groundwork to ensure we remain strong and have the ability to capitalize on opportunities as they emerge. The changing conditions seen over the second half of 2022 accelerated over the first six months of 2023, given further increases to interest rates, high inflation, and volatile capital markets. The performance of our mortgage business was also impacted by the intense competitive environment as banks fought to gain market share through price and cashback offers. As I spoke about in February, when presenting our full year results, we were expecting the softening in mortgage originations seen in the second half of 2022 to continue into 2023. This has happened. We were prepared and responded by accelerating the growth in asset finance, which has achieved, again, record results in the first half of 2023. This has helped counteract the current cyclical trend experienced in mortgages. While originations of AUD 3.5 billion were 38% lower than prior comparable period, asset finance originations of AUD 1.8 billion were the highest we have ever achieved in a half, and we're up at 19% on PCP. Flexing to drive asset finance has ensured we have tightly managed AUM, which is a key driver of future profitability, and at AUD 18.9 billion, total AUM is in line with 2022 close. NIM compression over the last 18 months is starting to ease, and while NIM at 2.06% was down 23 basis points on PCP, it reduced only five basis points on the second half of 2022. We have continued to implement back-and-front book price increases as the RBA raised official cash rates. This has helped to partially offset increased cost of funds. Likewise, growing our asset finance business has helped maintain total NIM, given the positive mix impact. We continue to be disciplined in credit risk management. Our 23 years of experience through multiple economic cycles and the use of our proprietary data and analytics sees 90-plus arrears continue to trend below long-term averages. Loan losses as a percentage of AUM at 0.28% increased only 2 basis points on December 2022. This was driven by the AUM growth in asset finance. There is some noise in the cost base, given that the prior comparable period did not include the Stratton acquisition in the run rate. Normalizing for Stratton, our core FTE costs are only up 3% on PCP, all other expense lines, other than corporate interest, have increased below inflation, given our scaled processes and technology. Therese will run through the expenses in more detail in the financials. Pro forma impact at AUD 52 million is down 29% on PCP, with the flow-through of adverse market conditions in mortgages, higher funding costs, and increased provisioning for loan losses, as asset finance AUM grows, all impacting profit flow-through. On top of this, expenses have increased on PCP, given we acquired Stratton July 1, 2022, so have a full six months of costs now reflected over and above PCP. As we enter the second half, I am encouraged by several trends, from easing inflation to stability, returning to funding spreads. Likewise, we are starting to see demand in mortgages pick up. The board has declared a fully franked interim dividend of AUD 0.035 per share, representing a 30% payout ratio and an annualized yield of 5.1%. Pepper Money remains, as always, disciplined in respect to capital. We have been able to grow our asset finance business over 2023, as we have had the capacity to deploy capital to fund the growth opportunities. Now to business performance. Total originations were AUD 3.5 billion in the first half of 2023, with asset finance exceeding mortgages for the first time, delivering AUD 1.8 billion, up 19% on PCP and 37% on the second half of 2022. Given the breadth of our mortgage product suite, as the RBA increased interest rates, we were able to enhance our focus on the non-conforming mortgage segment. Of the AUD 1.7 billion in mortgages originated in the first half of the year, 65% were non-conforming. Lending AUM of AUD 18 billion was 1% lower than PCP, but with a clear mix shift. While mortgages AUM dropped 12% on PCP to AUD 12.4 billion, asset finance has now reached AUM of AUD 5.6 billion, up 32% on PCP. This growth equates to 3 times system over the prior comparable period. We do believe we are now the largest non-bank asset financier in Australia. Turning now to each of the business areas. No doubt, the market has been tough for mortgages. Equifax reported that mortgage inquiry volumes were down over 10% in the 12 months to June 2023. At the same time as demand was down, banks were competing to gain market share and were offering very compelling rates as well as high levels of cash backs. In balancing capital allocation, we decided to accelerate our growth in asset finance while focusing on margin in mortgages, given our strengths in the non-conforming segment. This was a slowdown in mortgage originations and mix skewed to near-prime and specialists. Mortgage AUM dropped by 12% on PCP to AUD 12.4 billion. Other than lower origination rate over the last 12 months, we have also seen high in customer attrition across our mortgage portfolio as customers sought lower rates and capitalized on cashback offers offered by the banks. 97% of customers who refinanced away from Pepper Money moved to a major bank. We continue to maintain our strong track record of disciplined credit risk management. This has seen indexed LVRs protected, with 66% of loans sitting in LVR bands below 70%. We moved our customer rates within 2 weeks of when the RBA announces an increase to the OCR. However, given regulatory requirements to provide customers 20 days notice before their repayment amount can increase, this time lag has caused a NIM drag of about 1 basis point. A detailed NIM walk will be covered in the financial section, likewise, Therese will talk you through our credit performance in detail. Before turning to asset finance business, I will call out the credit performance of our mortgage portfolio continues to track well. Our customers are managing the 12 increases in interest rates experienced since May last year. If we do believe the borrowers may be facing financial stress, we will actively engage with them and provide options, from lower repayments for a period to loan restructuring. We continue to manage credit risk tightly. As I've said in the past, we will take risk on the customer, but not on collateral. Our 90-plus days arrears, which is the best indicator of future hardship for mortgages are tracking well inside the long-term average, and as at June 30, 2023, we only had 361 loans in 90-plus arrears. Now to asset finance. Our asset finance business continues to outperform the market, growing 3x system, half one 2023 over half one 2022. As we moved into 2023, we saw a clear opportunity to accelerate growth in asset finance. As the COVID-generated supply issues, which had been impacting car deliveries, were starting to ease and tax incentives presenting growth opportunities for us in novated leasing and electric vehicles. We knew we could capitalize on the opportunity to fast-track volume growth as we had the capital needed to fund the credit enhancement, which is higher for asset finance versus mortgages. This allowed us to bring forward planned ABS securitizations to support growth. Our investment in systems and processes meant we could continue to drive scale and productivity. Accelerating in asset finance would allow us to balance out for the lower run rate in our mortgage business. In the first half of 2023, we have grown asset finance originations by 19% on PCP, with novated leasing being the fastest growing segment, albeit from a low base. Of the AUD 400 million originated through novated leasing, 81% was electric vehicles. As always, we were disciplined with the type of risk we took on. 63% of originations in the first half of 2023 was Tier A clean credit customers, originations were up 24% versus PCP. AUM for asset finance now stands at AUD 5.6 billion, growing 32% on PCP and 19% on where we closed 2022. This growth is all organic, and I will cover off in the next slide how we have used processes and technology to deliver growth on reducing cost to serve. Asset finance net interest income increased by 12% on PCP to AUD 66.2 million. As record volume growth offset the adverse impact of rising swap rates and funding margins. We also partially protected income by price increases. From a net interest margin perspective, the combination of swap rate volatility and the strong growth in our novated leasing segment, which has lower rates but virtually no loan losses, drove some compression in NIM for asset finance, with H1 2023 NIM of 2.62%, 12 basis points below the 2H 2022 and 45 basis points below PCP. The strong mix of business, Tier A, and novated leasing, coupled with our credit and underwriting know-how, has seen us manage the credit quality of the portfolio. Loan loss provision increased in line with AUM growth, and the 90-day plus arrears for asset finance closed June at 0.19%, well inside the long-term average of around circa 0.24%. Turning now to how we have been able to deliver scaled growth in asset finance. I have spoken in the past about how our tech stack has been supporting both scale and productivity. We have always made constant investment in our technology platform. Our approach is to ensure that the full potential is reached. Using asset finance as an example, we have invested in our Solana platform at a run rate of AUD 3 million per annum under the build phase and just shy as AUD 2 million under the leverage phase. Leverage is important as it allows us to continually improve. It also has allowed us to support ever-increasing loan application volumes. As application volumes have grown, we have extended our API suite into more introducers, driving double-digit improvement in productivity per FTE. We are now at a stage where 81% of novated leasing loans and 40% of commercial are auto-approved. As we continue to learn and invest, these auto-approved rates will continue to grow. However, we will always make sure for higher risk tier loans that a human oversees final approval. Our Solana platform has significantly improved the partner and customer experience. Simply put, it is about making it easy to do business with Pepper Money. We conduct regular partner surveys and quoting a particular partner directly from our most recent survey, I think says it all. Improvements to the system and tech have turned Pepper into an industry leader in technology with a collaborative, relationship-based approach. Introducers want Pepper to succeed. In a rate-sensitive environment, Pepper can push forward in pricing or increase in consistency, speed, flexibility, and growing appetite, particularly in commercial deals where there is greatest strength. To help our partners deliver the best experience to their customers, we launched real-time payments at the end of 2022. This now means that from the time a customer's loan is approved to the time it settles, is between two and four hours. Our partners can deliver the best experience from time to yes to time to cash, which improves their customer NPS. All this is driving real returns. Our average cost per application has reduced by a compound average of 22%. Cost to serve will continue to improve as we continue to scale. As mortgages are designed in the same way, we will continue to reduce our cost to serve for our mortgage portfolio as volumes return. Now to funding. Funding is at the core of our growth. Over the first six months of 2023, we have raised from the public markets in excess of AUD 3.1 billion, an incredible growth of 22% on PCP. To June, we completed four public securitizations, and a further AUD 734 million was added in private term securitization over the six months. As I've said in the past, we have always taken the prudent approach to funding and maintained a minimum of 6 months of headroom. This is part of our ongoing strategy that allows us to be prepared to manage any cycle, whether it's up or down. Given our mortgage volumes, we reduced warehouse capacity limits by AUD 600 million, bringing total warehouse capacity at 30 June 2023 to AUD 10.3 billion, down 6% from December 2022. We have started strong as we entered the second half. Our second ABS for the year, SPARKZ 7, for AUD 725 million, settles today. I will now pass to Therese on the financials before coming back to talk about the outlook. Thank you, Mario. Good morning, everyone. Mario has covered off the volume trends experienced by the business over the last six months. I'll now concentrate on NIM, credit quality, and expense movements. If we turn first to net interest margin on page 11. Mario noted earlier that NIM compression is starting to stabilize. Total NIM for the first half of 2023 at 2.06%, with only 5 basis points below second half 2022. As the RBA increased interest rates, we implemented both back and front book price increases across mortgages. When swap rate volatility was impacting asset finance, we also repriced this portfolio. However, there is always a delay between the date of notification of increase and when it takes effect. This lag, coupled with widening funding margins, saw NIM compression continue into 2023. Clearly, the downward pressure on NIM is starting to ease. Looking at our mortgage portfolio, which is the waterfall on the bottom left-hand side of the chart, as the RBA increased the official cash rate, we increased prices on both our back and front books, which saw customer rates increase by 139 basis points, H1 2023, when compared to H2 2022. However, continued volatility in BBSW and further deterioration in external margins were not fully covered by customer rate increases and product mix, and as such, mortgage NIM decreased seven basis points, half on half. These conditions were the same in asset finance, which is the graph on the lower right-hand side. The volatility in swap rates is clearly seen in our asset finance NIM. Over the first half of 2023, NIM contracted 61 basis points from rising swap rates. As our asset finance products are fixed rate, we hedge the book almost every two days, which does allow for some protection. What we continue to experience with swap rates moving faster than even our hedging program. While we moved customer rates up, this was eroded by adverse cost of funds as well as the business mix. The novated leasing segment grew substantially over the first half, making up 24% of originations and now represents 12% of asset finance AUM. While novated leasing has a low NIM, as it is salary sacrificed, it has virtually no credit losses, so margin after losses is maintained. These factors contributed to asset finance NIM reducing from 2.75% second half 2022 to 2.62% in the first half of 2023. Now to credit. The credit performance of our portfolio continues to be strong. Our customers are managing the 12 rate rises experienced since May last year. Total credit expense increased by AUD 5 million on second half 2022, and AUD 11 million on PCP. Mortgage loss expense remained flat on the second half of 2022, in line with AUM. Asset finance loss expense increased on the second half, given the AUM growth. Specific losses for asset finance increased in the half to June as we saw a short-term uplift in insolvencies, as government protections implemented under COVID-19 were removed at the start of the year. Insolvency trends have now reverted to pre-COVID averages. Versus PCP, the increase in asset finance loan loss expense was further driven by the release in the first half of 2022 of COVID and other post-model overlays. At June close, we hold as total provisions of AUD 130.4 million, a coverage ratio of 0.72% of asset fund management, up from 0.67% as at December 2022. This increase is due to strong growth in asset finance. As the impact of macroeconomic conditions, including high interest rates and ongoing inflationary pressures, are yet to be fully reflected in consumers' disposable income, a total post-model overlay of AUD 15.8 million, AUD 13 million of which relates to the mortgage business, is being held in case of increased customer hardships. At 30 June 2023, loan losses as a percent of AUM, excluding post-model overlay of 0.28%, continue to be well inside the long-term average. The marginal increase of two basis points on the second half of 2022 was due to the growth of asset finance as an overall% of business mix. We continue to monitor early indicators of potential future loss through the 90-plus days arrears, as per the chart on the bottom right-hand side. Please note that as per industry standard, COVID hardships have been removed. 90-plus days arrears for both our mortgage and asset finance portfolios are well inside the long-term average of about 1.45% for mortgages and 0.24% for asset finance. Again, to note, we continue to be conservative and are holding AUD 15.8 million in post-model overlays. Turning to expense management. The underlying picture is slightly muddied when trying to compare to PCP due to the consolidation of Stratton in the second half of 2022. To try and cut out the noise, it is best to look at key ratios when comparing first half 2023 with first half 2022. Underlying FTE, which is, which is our lending FTE, declined 7% on PCP. Core FTE salary and wages only increased 3% on PCP. The increase of 9% in Manila reflects the substantially higher inflationary environment that the Philippines has been experiencing. If we compare the expense run rate to the second half of 2022, given Stratton was fully incorporated for those six months, controllable expenses continue to be tightly managed. Marketing and technology costs have decreased 3% and 1% respectively on the second half, as synergies and efficiency gains are captured. Reported depreciation and amortization increased 14% due to right of use, as we have entered into new leases for both our head office and our Parramatta Service Center. Underlying depreciation relating to the investment in our platforms is flat period on period, given our consistent reinvestment rate. Due to the movement in BBSY, corporate interest expense increased 36% over the second half of 2022 to AUD 11.7 million. For completeness, I have provided our core metrics on page 14, which we have largely covered off already. Turning to our pro forma income statement on page 15 of our investor presentation. While the adverse market conditions in mortgages were partially offset by record growth in asset finance, ongoing NIM compression, coupled with increased loan loss expense, given asset finance AUM growth and the annualization of Stratton operating expenses, all contributed to EBITDA at AUD 94.7 million, contracting 21% on PCP and 19% on the second half of 2022. When we add to the EBITDA, the increase in depreciation and amortization, which I have just covered, and the adverse impact of movements in BBSY on corporate interest expense, our pro forma NPAT of AUD 52 million contracted 29% on PCP and 25% on the second half of last year. If we now turn to our balance sheet, the main movement, as you would expect, has been in loans and advances, which at AUD 18.1 billion for 30 June 2023, have followed the movements in AUM, net of loan loss provisions. We originated AUD 3.5 billion in new financial assets over the period. Asset growth was financed by the issuance of four public term securitizations of just over AUD 3 billion and a further AUD 734 million in private term securitization. Given the soft mortgage market, we reduced warehouse capacity by 6% from 31 December 2022 to AUD 10.3 billion. Net assets at 30 June grew 4% on December 2022, with cash and cash equivalents at the end of the first half of AUD 1.1 billion. Retained earnings reflect the profit delivered by the business over the first half, net of dividend paid. As usual, we continue to manage capital, balancing between holding sufficient levels to manage in uncertain markets and knowing when and where to invest. Thank you, and I'll now hand back to Mario to close. Thanks, Therese. Yes, while it has been challenging for our mortgage segment, our diversified business model, our ability to manage capital, plus our ongoing investment in our market-leading technology, has allowed us to flex and focus on driving significant growth in asset finance. As we start to move into the back half of the year, I am encouraged by some of the external trends we are seeing. Most notably, as reported by Equifax, mortgage inquiries are again starting to trend upwards. Likewise, asset finance inquiries remain steady. Looking ahead, there are more encouraging signs. Inflation, at least on the demand side, is moderating. The rate of interest rate rises has slowed, and while I'm not confident to bet they have stopped, I believe we are getting closer to the terminal rate. Unemployment remains very low and immigration is returning, a great stimulus to housing demand. Pepper Money is prepared. Over the 23 years we have been in business, we have successfully managed through all cycles. Our credit performance remains strong. We have managed our customers through 12 rate rises, and we have maintained the quality of our portfolios. We are well provisioned. As I de-detailed, our technology and processes are scaled. What we have achieved in asset finance will be replicated in mortgages as volumes return.... We have not sat still in mortgages, even when demand had been suppressed. We continue to launch new products, such as self-managed super fund mortgages, so that when market confidence returns and interest rates trend back to historical averages, we are best positioned to capitalize on the growth. We have the funding headroom to support the growth when it returns. I started today by taking stock of the Pepper Money journey. We started over 23 years ago as a specialist mortgage non-bank lender in Australia. Since then, we have successfully navigated the business through multiple economic cycles. We have built a business with strong core competencies in credit and underwriting, distribution, funding, data, and technology. We are diversified, both in terms of scale of our two core lending businesses of mortgages and asset finance, as well as the ever-expanding range of products we offer. We have one of the strongest distribution footprints in the market. We know how to innovate. We are nimble, but we are also disciplined, whether it be how we manage credit, expenses, or capital. With AUD 19 billion in assets under management today, we remain strong and have the ability to capitalize on opportunities as they emerge. Thank you, and I will now hand back to the operator for questions. Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Josh Freeman from Macquarie Group. Please go ahead. Hey, Mario, Therese. Good morning. Can you guys hear me? Yes. Yeah. Hey, Josh. Perfect, hey. A couple of questions from me. Maybe if I start sort of with the first one, just on prime mortgages. Looks like 46% of your mortgages asset under management still is in the prime segment. When we sort of compare your pricing there on a portfolio basis for the back book, relative to the front book price for major banks, there's sort of a gap there of about 150-160 basis points. Given some of the majors are really offering refinancing terms at a 1% serviceability buffer, it's pretty hard to see how you guys can stem any churn in this segment. I guess I just want to ask: What sort of mitigations do you guys have to stop that, that negative growth in this book? Yeah, sure. You are right to point out. We have always been north of around 60 to 80 basis points wider than the banks, so this is not foreign territory for us. What we did see is a very aggressive grab of market share by the banks, with not only aggressive rates, but also coupled with very strong cashback offers. This is what stimulated the actual heightened attrition. The comfort that we get at the moment is, one, the banks have retreated in... or most banks have retreated in the cashback offers, and what we're seeing is their front book pricing actually starting to increase, which is in line with their cost of funds starting to increase. The other piece that we're finding is that, when we compare the first half of 2023 on the second half of 2022, attrition has come down by 3%. In saying that, what we're starting to see is an easing, and we, you know, it, it'll still be heightened, attrition, up until what we call the pipeline has flushed through of the banks, because there is obviously a significant pipeline that is still going through and still being processed by the banks. We do believe that the attrition will continue to be slightly heightened to around about November, and then we'll start to see it normalize back to long-term averages. The other piece is. Under- - that we've obviously been, you know, focusing heavily on non-conforming. What, what will happen over time is you will start to see the non-conforming mortgages and the weighted average NIM that comes out of the non-conforming start to take over that prime attrition. Understood. Thank you. Second, second question. I noticed you mentioned, you know, the exit margin sort of sitting at about two and four, which is, you know, only two basis points down on this half, and you guys both mentioned that you were, you know, hoping for a bit more margin stability. When I sort of look at the impacts to the half funding costs, was a significant impact to margins? When you guys mentioned that you expect more stability, I sort of look at the RMBS and ABS that you guys issued in 2020 and 2021, and those remain well below current securitization spreads. As those roll off, I would expect margins to continue to decline from here. Am I missing anything? If not, what sort of mitigants do you have to, to protect against this? Yeah, when you look at total funding costs, our funding costs increased by around 316 basis points on the first half of 2022, and around 124 basis points on the second half of 2022. When you look at it from that perspective, the two main drivers, or three main drivers of that is, one, attrition. That, that actually drives NIM compression, and that's roughly at around, you know, three basis points or 2.5 basis points a month, depending on what the attrition rate is. You've got the cost of term out and, and your typical cost of funds and your BBSW and where that where that is positioned. What we have noticed in the last two-three months is a decent tightening on our ability to term out, so the, the, the price that we will term out on. We've just noticed a couple of the banks who really do set the scene for us have seen that roughly around 30 basis points of tightening on their AAA funding. What we're comfortable with, and the level of comfort we are getting is there is a lot of liquidity in the market. There's not enough supply in the market because most non-banks do, you know, represent a higher proportion of the RMBS market in, in most cases. What we're finding is that there is a significant tightening on pricing. We will, we will gain comfort on not only the liquidity, but also the tightening. Then there's obviously the stabilization of BBSW because the RBA is, you know, starting to tone down the narrative around interest rate rises. Thank you. Thank you. Your next question comes from Thomas Strong, from Citi. Please go ahead. Good morning, and thanks for taking my questions. I just wanted to follow up on the NIM. I mean, you make the comments that you've seen signs of stability in the NIM going from 2.11% to 2.06% and an exit of 2.04%. If I go back to the February results, you were talking an exit of 2.29% in December 2022. Can you just reconcile, I guess, the message of stability in the inverse, the 2.29% exit to 2.04% by June? It looks like quite a bit of volatility and sort of it's quite a material compression through the half. Yeah. If you go to, or when you get a chance to look at page 11 of the deck, Therese mentioned in the top right-hand side of the deck, you can clearly see the walk from the 229 all the way to 211 in the second half of 2022, and from there, the 211 to the 206. What you will find is there is a significant difference there from the swap rate, and we've always made it very clear that we are, you know, beholden to the swap rate. We cannot determine on what that volatility will be, so we cannot forecast that. Where we are also, and where we have been hit also is the attrition piece. Like I said, in the first half of this year, attrition would represent roughly around 20 basis points, just in the first half of this year. We're starting to see that slow down, and that means that the NIM compression on that back book, will start to slow down as well. Yeah. Just, just to be clear, I mean, the, the 2.29 I was referring to was the December 2022 monthly exit NIM. If I look over the half, you would have started the first of January 2023 at 2.29- Yes. - based on that disclosure. How do we sort of get down to an average of 206 and an average, and an exit of 204? Does that... It just implies- Yeah. a lot of volatility in the half and, and a period that would have been below two, presumably to get that kind of average. As Mario said. Yeah. The primary driver was the attrition. The customer attrition was very heightened in the first half of 2023. Again, it was largely down to the very competitive environment that we were experiencing with banks. The main movement that you're seeing is slightly higher yielding. Mm-hmm. customers attrite away and move to banks. I think Mario mentioned that 97% of all of our customers who do attrite or refinance, refinance away to a major bank. Yeah, I think just to add to that, in our last results, I, I did recall that one of the main drivers as well with NIM is mix of business. That is heavily determinative of how much, what percentage we write in prime versus, versus non-conforming. Also the big driver of NIM is the LVR position that we take at any given time. In the back half of last year and coming into the front half of this year, we decided to take on lower LVR originations purely because of where the housing market was, and we knew that we were going into the peak area, so we started to slow down. There's a significant variance in our borrower rate or the yield that we generate is based on LVR as well. We took a conscious decision to go for the lower LVR business. Then you've got your other areas, which we've spoken about, which is attrition, cost of funds, and, and your competition as well plays a material part. Okay, thank you. If I could just ask a follow-up question then on asset finance. Back in February, you talked to an exit NIM of 302, and we still have an exit NIM of 255. Just seems a very material contraction, and I appreciate your comments that you're taking sort of lower margin, novated business on the view that it has lower credit risk, but still seems like a very material fall. There's been- Yeah. - some suggestions within the, within the industry that pricing is quite irrational in autos at the moment. I guess, ex novated, could you make a comment on how you're sort of seeing the landscape within autos and, and whether you're- Sure being sharper on price to get volume? Yeah, there's a combination of obviously we wanted to lean into auto, because of the suppressed volumes coming through mortgagers. We will be in more competitive on price. The other piece is that we did write more Tier A volume, which has a material impact on the NIM coming through the door. And then you've got obviously, the novated leasing component as well. We did have a couple of months where there was volatility in the, in the swaps, which also plays a material part for asset finance. Like Therese said, we do the best we can to mitigate that by hedging every second day. Again, I think Mario hit the nail on the head. We've taken less credit risk in asset finance. Mm-hmm. It grew by Tier A. Likewise, it grew significantly by no tap, novated lease and electronic. Yeah ... electric, electric vehicles. It's the management of your underlying NIM and your credit portfolio performance that we were focused on. Yeah. Okay, thank you. Thank you. Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Minh Pham from Barrenjoey. Please go ahead. Hi. Hi, Mario and Therese. Can you hear me? Yep. Yes. Yes, Minh. Good morning. Yeah. Great morning. Two questions if I could, it's sort of leaning to the NIM as well. You've seen the mortgage book continue to skew towards the near prime specialist. You've spoken that about that a bit today. If we're looking at Slide 6, I think it shows that the near prime front book rate is only now 50 basis points ahead of your prime versus, you know, in first half 2022 is about 70 basis points ahead. Just wondering whether or not that's been a result of the mix of competitors you're seeing in the near prime book. Is it a result of competition? You know, you mentioned a bit before about the margins benefiting from this, and it probably hasn't just yet. Is that just a timing issue? Yeah, look, it's a, it's a, it's a combination of a few things. The near prime of today is a very different representation of near prime 12 months ago, and the reasons for that is we introduced a new product that still sits inside that segment called Near Prime Clear. Now, what that is, is that's taken all the risky elements out of the near prime product, and we've, we've put it, so, on its own. So it's more closer to a prime risk profiled borrower, as opposed to near prime or specialist. So that's. We've seen a growth in that Near Prime Clear segment, and that has been one of the main reasons, you will see the weighted average interest rate for near prime come down. The other piece is obviously, attrition, again, is playing a part of the near prime, rates coming, coming down, especially on, obviously, on the back book. For, I think in general, and, and this is a message to everyone, in general, and we have said this before, whenever you see us significantly reduce margin or weighted average interest rates, it means that we are either going for growth, but there's always an element of us taking less risk. That has always been the case, in, in, in historically with this business. Great, thank you. Maybe changing tact a bit to cost. Looking at some of the disclosure you provided on page 13, and doing some back-solving, focusing on the core ANZ business, it looks like if we take the FTE decreases, and the staff costs that you've provided, it implies that there was about a 7% cost rise per FTE in the ANZ business, sequentially, so first half 2023 versus second half 2022. Just wondering if there were any one-offs in that number. Can you just talk to the cost pressures that you're seeing there? Yeah, if we look at the core business, Minh, I think I quoted- Yeah. the number of a 5% increase. Now, salary and wage inflation has been running around the 3%, 3% increase, but there are also some other elements that actually flush their way through. When you increase your salary, you also have to increase your long service leave provisions and things such as that. Now, we are running at an average salary and wage number within the ANZ business of core lending of roughly 3.1% salary and wages. The little variance to the 5% that you're seeing is the provisions that we put in for long service leave, and top-ups in other areas. That's 3% wage increases you're seeing per half? 3.1%, exactly, in the ANZ- Yeah. core lending business. Great. Thank you. Thank you. Your next question comes from John Hein, from Wilsons. Please go ahead. Good morning. Thanks for taking my question. I just wanted to follow up on that attrition, that 20 basis points from attrition. You're talking about customers going, looks like more frequently to banks, or leaving Pepper more frequently for banks at the moment. I thought the banks were being a little bit more careful with their books and sharpening their books. Has this changed, or what are customers doing differently to get their mortgages with banks now? It does seem like it's a reasonable switch away from Pepper. We've always prided ourselves on taking on good credit risk, and being, and being able to support customers that are misunderstood by banks on day one, but day two, they have always looked at them and said, "Yep, we, we probably should have taken that customer originally." We have always had a very high number of customers whenever they refinance away, are refinancing away to a bank. That is one of the positionings of our product, especially, the non-conforming product or the prime product, is practically a bank product regardless. If, if you're a bank customer and you're coming to us for whatever reason, at that point in time, you may have had a, a, an issue or you may not have had an issue. It doesn't mean that the quality that we are underwriting in Pepper is not bank quality. They always have been. You're saying that this is part of the cycle normally, but because you're not filling in with, I guess, other, originations, we're sort of, we're catching it now? No, what, what, what's accelerated it is the cashback offers. You know, we've like I said earlier, we've always priced our bank, you know, quality customers, at, you know, north of 60, 80 basis points to the banks. That's always been part and parcel of our offering since 2014 with poor prime. What we're saying is, is that with the cash backs, plus our BBSW, swing on, so the volatile component of it, the banks were just too appealing and it's broken through that threshold. We got to a point where our customers were getting rates that were north of 100 basis points cheaper, plus an AUD 5,000 cashback. We don't blame them from moving across. you gotta, you gotta also understand that the banks were finding it very hard to not lose business to other banks. People were enticed by the shiny light of the cashback, it was more so the cashback than the actual rate. On the positive front, that's now easing back. I think there's only one of the major banks that may be still out there with cashback offers. The other banks have eased their way off it. Okay, great. I've just got one more. I just wanted some color about the, you know, the contribution from asset finance going forward. With this, you know, this step up, it was almost a, almost a build in the book on a half-on-half basis. Was this always part of the plan or? Yeah. was it part... Yeah, so was-- or, you know, the qua- part of the question was, was it to offset some of the weakness in originations you're seeing with the mortgages book? If it was always part of the plan, can you give me some color on, on how you're seeing the category at the moment from competition, how dynamics, pricing, and... Yeah, I guess, I guess let's start there. Yeah. Again, this business prides itself on discipline. Discipline and the way that we position ourselves is always to be ready to capitalize on opportunities that come across our industry. When we are investing heavily in technology, when we are heavy, investing heavily in our funding program, in our headroom that we have for that, this gives us the opportunity that when mortgages that we believe we shouldn't be taking part because of where the returns are, we have an opportunity to capitalize on asset finance. The system was built to withstand that scale. The funding is designed to take on that ramp up. All of this is about building a robust business model that allows us to flex, just like we did in 2018, 2022, with prime mortgages, where we're making in excess of 200 basis points of NIM on prime. We will take advantage of that. All we're trying to do is to make sure that we are product agnostic. We have an origination machine that allows us to put in more products, that allows us to capitalize on that as the market allows it. 'Cause at the end of the day, we're not gonna be able to control the market. The banks do that. The housing market does that. For us, we're ready to capitalize on either asset finance growth or mortgage growth. Okay, with the exit NIM being more attractive for asset finance, we can assume that you're gonna aim to have another material step up in the asset finance originations? If the market permits, then why wouldn't we? Yeah, definitely, we will, we will look to double down. In saying that, you know, We believe it's gonna be a very steady run rate for the back half of the year, depending on what the supply chain is like, and depending on what the market, you know, what the consumer sentiment is like on buying new, new cars and the like. Competition in that space, are you, you know, again, putting through pretty big origination growth for that, for that vertical? Yeah. Did you face competition there or-? Yeah. Are you comfortable? The main, the main difference between mortgages and auto is that our main competition really is other non-bank lenders, so they have no funding advantage to, to, to ourselves. Where with the mortgages, obviously, the market is very heavily controlled and dictated by the banks. Thanks, Mario. Thank you. Thank you. Your next question comes from Jeff Cai from Jarden. Please go ahead. Good morning, everyone. Good morning. Can you give us Can you give us a bit more color on why you expect sort of mortgage runoff will slow by November? Is there a risk that runoff may accelerate as the major bank's 1% buffer rate product picks up more momentum from here? The reason why I'm saying that is because the first half has already indicated that we've had a slowdown in attrition. The second piece is the reason why we're saying that it's gonna be October, November, is we're still factoring the pipeline so that the banks are still processing those loans of cash backs coming through, through the door. We know that they have a delay in getting those loans through, so we're just factoring in that extra piece. All new business, besides one bank, is no longer offering those cash backs. We've got to also remember that, you know, the banks are doing what they can to roll off the TFF, and they're gonna start managing their front book pricing. We are already starting to see the variable rate front book pricing lift. Yes, they are trying to drop the fixed rate or the long-term fixed rate three years, but at the same time, they have quite a lot of volume to do. With regards to the 1% serviceability buffer, I do see that as an exception for the banks to use at their discretion, but they are going to do that to manage their attrition of all the customers coming off their fixed rate. That's not a market we've ever played in, so it will not impact our available opportunities in mortgages. Got it. Just, I guess maybe given the attrition pipeline, is it fair to assume that your margins in, in July and, and August is lower than your exit NIM? I think, I think the, like I said, I think there is an opportunity for us to start ramping up our mix in, in volume, which will help, you know, take on a little bit of that, absorb a bit of that compression. There is still some compression to come through. Also at the same time, we are starting to now feel, and as I said earlier, more confident that there is a tightening of cost of funds for the non-bank sector, especially for us personally. We would look to be slightly more aggressive in mortgages to start ramping up our application flow, flow. We have already, in the back half, sorry, in, this month, come out with a promotion in mortgages, because we're, we're more confident where the cost of funds are. We have seen a, a very decent uplift in our application flow coming through, through the door. Albeit, it's only been two weeks since we've launched the promo, but it's north of 20% of our application flow increasing already. We're looking to double down on that and probably drive volume to the end of the, end of the year. Got it. Thank you. If I just push my luck, just a question on, on costs. I mean, given the tougher revenue outlook, I mean, how, how do you broadly think about the cost base going forward? Any sort of plans to flex down the cost base? Yeah, look, it's a, it's a good question. Really, what we're just seeing is the annualization of Stratton as it comes on board. What we've exited the first half with is the, you know, the run rate we've been taking forward, and we've got really strong opportunities from a synergies perspective as well as an efficiency perspective to get through. It's one of the reasons we've already seen our marketing costs come down 3% period on period or on second half of last year. Likewise, our technology expenses continue to come in and reduce by 1%. What we've just seen in some of the expense lines is some, I don't want to say one-time items, but more movements. We entered into 2 new leases, and that just brings forward the right of use under the accounting, which creates a little bit of noise in the depreciation and amortization. Likewise, as we've been seeing BBSW impact mortgages, BBSY swings have been impacting our corporate interest expense. If BBSY starts to stabilize a little bit more, we'll get, you know, a more consistent run rate there, and we've already highlighted the right of use on depreciation and amortization. We'll just get the run rate there going forward, too. Just to, just to add to that, we, we, we also got to not forget that this business in this half did see a record number of total transactions that we have transacted with. In a given month, we were taking on in excess of 12,000 applications. That is a 25% uplift. What we are showing here is a very strong technology platform that's allowing us to grow in scale, and when mortgages comes back, the system is going to comfortably be able to grow in that, in that area with the less FTEs. In saying that, that the AUM as well, that's a servicing side of the business, that hasn't really moved much in by way of number of customers. It's actually increased by the number of customers. When you look at it from that perspective, we're transacting more loans than ever before. We have more customers on board than ever before. Then you look at our Australian FTE is down 9%, and our Manila FTE is down 4%, so our total FTE for that business is down 7%. When you look at it from that perspective, record number of applications coming through the door, record number of customers that we are servicing, and our FTE is down 7%. Got it. Thank you. Thank you. There are no further questions at this time. I'll now hand back to Mr. Rehayem for closing remarks. I'd like to thank everyone for joining us today. Again, we are very comfortable with the disciplined nature of the business. We appreciate our, our mortgage volumes are down, but we have the ability to flex into auto. We have the ability to flex into our CRE, our New Zealand business, and at the same time, we are reducing our cost to originate and cost to serve. Thank you, everyone, and have a great day.