Ladies and gentlemen, thank you for standing by, and welcome to the Resimac Group first half FY 2023 investor call. At this time, all participants will be in a listen-only mode. There will be a presentation followed by a question and answer section. At which time, if you wish to queue for a question, you will need to press zero followed by one on your telephone keypad. I would now like to hand the conference over to your speakers today, Mr. Scott McWilliam, Chief Executive Officer, and Mr. Jason Azzopardi, Chief Financial Officer. Please go ahead, gentlemen. Thank you. Thank you, and good morning, everyone. My pleasure to welcome you to Resimac's results investor conference call for the half year ended December 31, 2022. As mentioned, I'm Scott McWilliam, the CEO of Resimac, and with me is Jason Azzopardi, our CFO. We'll be talking to the investor presentation launch with the ASX this morning and welcome questions at the end of this session. In today's presentation, we'll take you through our performance highlights, an overview of the macroeconomic environment, the quality of our portfolio, and our near-term focus. I can ask you to turn to page 3. I'm pleased to report the group continues to demonstrate strong profitability with a normalized NPAT excluding the impact of fair value movements on derivatives of AUD 40.7 million for the first half. Our cost-to-income ratio of 42.2% remains at industry lows and a ratio we believe is sustainable going forward. Our home loan portfolio increased to over AUD 14.7 billion compared to prior corresponding period. Is lower than the record highs we reported at June 2022. The lower AUM is driven by us originating AUD 2.4 billion of settlements and a higher prime runoff, where large banks are targeting refinance with aggressive interest rates and cashbacks. Our asset finance offering remains steady and has progressed well throughout the year, and we've settled AUD 210 million during the period. Finally, I'm pleased to report the board has declared a fully franked dividend, interim dividend of AUD 0.04 per share. Moving to page four, the macroeconomic environment has evolved significantly compared to the full-year results six months ago. The aggressive tightening cycle has continued through 2023, with more increases forecast in coming months as central banks struggle to contain inflation. A number of economists are now forecasting a cash rate of 4.1% by 30 June 2023. Rate increases are clearly placing downward pressure on home loan market activity, with December 2022 purchases 30% lower than December 2021. This has fueled aggressive chase for refinance activity by the large banks, particularly in the prime space. Whilst we understand the need to tame inflation, the RBA has a precarious position with AUD 300 billion of fixed rate home loans expiring over the next 12 months. The RBA will need to wait for these fixed rate portfolios to roll off to today's rates to gauge the true impact of this tightening cycle and what it will have on the economy. Whilst we are experiencing increase in early stage arrears, our portfolio remains in great quality. We have a lot of confidence in the credit quality of our portfolio and the limits that we have in place. As highlighted on page 4, 5 and 6, we've provided some insights on that portfolio. Some of the call-outs in relation to the portfolio include: as at 31 December, our specific provisions were a record low of AUD 2.5 million. Whilst our collective provisions remain unchanged, we increased our collective provision materially at 30 June 2022. This increase was driven by an AUD 9 million increase on our macroeconomic overlay. Whilst this was an outlier to our peers at the time, it has proven to be prudent in hindsight. I'll now hand over to Jason to talk through some of the financials. Thanks, Scott. Turning to page 8. In line with our year-end, we have included a normalized NPAT number excluding the impact of fair value on derivatives. This NPAT number was AUD 40.7 million for the first half, higher than second half 2022, albeit second half 2022 was impacted by the one-off AUD 9 million macroeconomic overlay loan impairment expense. As Scott mentioned, our cost-to-income ratio of 42.2% has increased. A 40%-45% cost-to-income ratio range is a realistic medium-term target for the group. Our operating expenses were higher, this was predominantly driven by an increase of about 20 FTE and the inflationary impact on employment expenses. We are committed to ensuring our operating cost base reflects the current challenging home loan market in the second half. Return on equity for the period was 20.8% annualized. This has decreased from previous highs as our asset finance book absorbs upfront capital whilst in the book build phase, a timing drag on NIM. Future growth in the asset finance portfolio will be NIM accretive in the future. Finally, as Scott mentioned, the board has declared a fully franked interim dividend of 14 cents per share, an annualized dividend yield of circa 7%. Thanks, Jason. If I could ask everyone to move to page 9. Home loan settlements were lower, driven by the aggressive pricing and cashbacks, targeting prime loans, refinancing. Broadly, what is a 30% drop in system growth from December 2021 to December 2022. Pleasingly, Home Loans has recorded strong settlements in our specialist portfolio of AUD 1.6 billion, which is broadly in line with the previous half. The settlement outlook for this calendar year is challenging. The RBA Term Funding Facility provided to the ADIs, as well as unusually high household savings and cashbacks, providing large banks with a competitive advantage, albeit temporarily. Moving to page 10, our home loan AUM increased slightly compared to December 2021. With a decrease on the height of 30 June. Since the RBA Term Funding Facility was fully drawn down, we've reported three consecutive halves of prime AUM runoff. We expect this uneven playing field to continue into FY 2024 or broadly calendar year 2023 until the TFF is repaid and household savings are drawn down. Pleasingly, our higher margin specialist portfolio continues to grow, and our broad range of products are assisting under-serviced parts of the market. Moving to page 11, I'm pleased to report, our NIM management strategy saw our net home loan NIM stabilizing in first half 2023, increasing 4 basis points compared to the second half of 2022. Despite the BBSW curve moving from an inversion to cash rate to a curve tracking ahead of our anticipated RBA rate increases, we have managed our repricing strategy accordingly to offset these BBSW increases. The benefits of our repricing strategies would be larger if not impacted by the drag of BBSW increasing in advance of the cash rate. In first half 2023 alone, NIM was impacted 21 basis points from this drag. This drag will impact us again in second half 2023 whilst the tightening cycle continues. Funding costs increased 8 basis points, driven by an increase in our RMBS tracker rate, an annual repricing of our warehouses. While the signs are early, non-bank RMBS issuance in early second half 2023 appears to indicate RMBS pricing peaked in the first half. It says, in summary, we're pleased with our first half profitability and settles performance in what is a challenging market. Our strategic focus on new management over AUM growth has been successful, with NIM increasing 4 basis points during the period. Plus, we've seen early stage arrears tick up in December and January. We remain confident Resimac's portfolio will absorb this stress. Furthermore, a conservative approach to provisioning over the last two years ensures our provisioning coverage is more than sufficient to absorb any potential credit losses arising from arrears. Despite the challenging operating market for non-bank, our strategy to continue to grow assets under management where our NIM hurdles are met. Our focus will be in niche prime as well as specialist home loans, as well as commercial asset finance segments. Over the short term, we expect the prime market to remain aggressive, with banks continuing to write loans below cost of capital and continuing cashbacks. Our strategy will be achieved through leveraging our global funding program to provide quality lending solutions to brokers and consumers in Australia and in New Zealand. I'll now hand back to the moderator and happy to take any calls. 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. The first question comes from Jonathan Mott from Barrenjoey. Please go ahead. Yeah. Hi, guys. Got a couple of questions if I could. The first one just on slide 11, where you give a breakdown of the home loan repricing, the 197 basis points. Can you break down how much of that is a result of mix with more movement into the non-prime or specialist versus the prime book? How much of is that actually versus repricing above cash rates or any other movements to the mix breakdown? Yeah. Hi, Jonathan. The first, on the reprice, the reprice is 22 basis points above cash rate on that. The mix is embedded in. It's very difficult for us to split out mix increase. It's part of our organic runoff. It's very difficult for us to give a certain number, but we repricing in totality, 22 basis points over and above cash rate. Okay. Just a more general question, you talked about this a bit, already, just the economics at the moment that the banks are actively cross-subsidizing using their deposit spread advantage and competing really aggressively in the mortgage market in the prime space. That comment said many times that the banks are now pricing below their own cost of capital. Is it actually make economic sense for those to be writing prime loans at the moment, given where spreads are, some banks still pricing with four, you know, in the fours for prime mortgages, the cashback and the brokerage? Do you basically just have to become a specialist, in the non-prime area until the economics change and deposit spreads get eroded away? Yeah. Look, the short answer, Jonathan, your question is yes. When we think about our business and the markets and the core segments that we play in, is the prime markets for a business like ours, is a market that we step in and banks can step out of. Very much determined by how aggressive the banks are and what's happening in credit markets. You know, where, you know, our relationship with our brand, is very much focused in that new prime specialist market of home loans and obviously wanting to grow out in asset finance for a number of reasons. You know, they are markets that allow us to compete in, to be attractive in, and to resonate with through all cycles, including this one. It doesn't make a lot of sense. I'd probably answer the first part of your question. It doesn't make any sense for us to be competing with the banks, at the economics that we're talking about. I'm talking prime there, by the way. No, that's great. I agree with that. Thank you. Thanks, John. Thank you. Once again, 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 next question comes from Brendan Sproules from Citi. Please go ahead. Hi. Good morning, team. Just a couple of questions for me as well. The first is on the movement in the specialist assets under management. I mean, you had quite good settlements during the period of AUD 1.6 billion, but the books only grown sort of AUD 200 million. It does look like refinancing or repayments in that book have really accelerated this period. Could you maybe make some comment on that dynamic and who, you know, your main competition in this market that seem to be winning share? Yeah, look, I think what broadly the market is talking about the fears, you know, and elevated activity in terms of refinance activity in the prime market. The reality is, you know, we're seeing a lot of refinancing activity across different product types and different asset classes. We have seen a pickup in activity even across near prime and specialist, which is no great surprise considering the movements that borrowers are facing on a monthly basis, with interest rates going up. We are in a period across all products, whether it be prime, non-prime and arguably even into other financial products where we're seeing heightened activity, where borrowers are looking around to make sure they're actually on the best possible product. We don't expect that necessarily to die down. I suppose when we think about our book makeup, we're confident that we can hold, you know, AUM in those particular markets where we want to be competing, we're happy to compete. We do expect as we continue to move our way through this tightening cycle, we do expect that refinance activity to remain above average levels. Thank you. Just to add to that, Brendan, is I think in a period of elevated interest rates, some customers throughout their home loan journey will move from specialist to prime. I think in a scenario where people's interest repayments are increasing so rapidly, brokers and customers will be pushing for that potentially more than they would have in the past, which will put some pressure on our AUM. Yeah, that's a very good point. I, my second question is also on slide 11. I mean, one of the challenges of pricing home loans is that they generally push up the rate when the cash rate moves up. Obviously the BBSW during the period did have quite an elevated spread relative to the cash rate. How has that impacted your NIM in this period? What's the outlook? I know you've got it guided to lower NIMs in the second half. To what extent is that spread between cash rate and the 30-day BBSW gonna be a driver of that guidance? It'd be great to know. I'd love to answer your question, Brendan, as you're probably well aware, we haven't had a month of where rates have increased, we actually haven't got a period of stabilization. We started this cycle with BBSW under cash, we still don't really know where it's gonna settle above cash. What we have seen in that BBSW number in the half are a couple of things. One, in the benefit we were getting where it was inverted to cash has disappeared. I've called out that lag between the RBA cash right now repriced. RBA day, the BBSW has pretty much already priced in the cash rate increase. Our ability to reprice our portfolio is probably 10 to 12 business days after that occurs. We've effectively got this drag of our entire funding platform getting hit with BBSW before we can reprice the yield side. That hurt us quite a bit in that first half. The repricing that we did do was to compensate for, one, the loss of that inversion, but also that drag. Whilst there's a monthly repayment cycle in the second half, we see that as the biggest headwind for our NIM, because we will get hit on that drag again. We are very, very keen to see the cycle stop for a period of time, so we can see some stabilization in bills as well and see how this liquidity in the system that was keeping it inverted in the past, does that still exist and where does it sit long term? We think about it as 10 basis points above cash, just using historical averages, but we can't put our hand on our heart and be really strong on that. That's interesting. If I could just push my luck for another question. How does the NIM change in the December month versus, say, that average that you're showing there in the first half of 1.75%? It's been fairly flat because we did a lot of our repricing earlier in the half. If you're asking for exit NIM, there's not a dramatic difference in that because as run-offs increased in the latter part of the half, we've had a bit of a yield runoff as well as getting the benefit of the reprice on the other end. We still got that lag impact in December from that December increase. Yeah, no, I understand. Got you. Thank you. Thank you. Your next question comes from Andrew Tan from Bell Potter. Please go ahead. Hi, Scott. Hi, Jason. Just a few questions from me. You mentioned warehouse repricing and I guess the spreads with the RMBS issues. Are getting a little bit better. Are you able to quantify kind of the increase in warehouse pricing and also, I guess, the reduction in the spreads in the RMBS issues post the first half? Yeah. The first half, we had a relatively small amount of volume of warehouses that were repriced. We have about AUD 2 billion of warehouse renewals coming up in Q4. They'll be subject to price reviews at that stage. Look, we're actually heartened by one of our warehouse renewals did an increase in price. It really does depend on the type of warehouse or the relationship we've got with them and where their cost of funds are at. It's hard to give guidance on that. RMBS pricing, we've got obviously the usual chart we have in here on page 12 of the investor presentation. You can see in the first half that our small amount of RMBS issuance that we did in the half was at higher prices, and we've deliberately, because the benefit of having lower settlement is we've been able to sit in our lower margin warehouses for those times. We've been heartened to see there's been a couple of deals that have priced in this half already that have been, I don't know if the term oversubscribed, but had plenty of demand for investors, and the pricing is coming in about 5 to 10 basis points lower than those spreads that we have on there. We're hoping that those prices have peaked there. As I said in my earlier comments, early days, but we've got good cause to believe that they won't be going up from here. Okay. Yeah. The other, the other piece to add into that for Jason is also the lack of supply of RMBS in the market is also extremely helpful. You know, there's not a lot of production coming out of major banks because they're well funded through deposits. You know, so, you know, talking to investors, you know, we are seeing a lot of investors, you know, today that are that let's say are attractive to the yields today, and therefore, you know, we expect to see a lot of issuance over the next, you know, couple of months and potentially over the rest of this calendar year being well oversubscribed. Just with the fixed rate cliff coming up, the big four banks and other participants, do you feel that is an opportunity to win some share or will the refinance market to the variable loans be so competitive that you don't really expect to compete in that, I guess, fixed rate cliff, runoff? Look, Andrew, it's a bit of an unknown. I mean, it'd be naive for us just to sit back and think that the banks won't throw everything at those customers to retain them. Let's just assume that they're gonna do. Because they're obviously so aggressive at the moment, when system activities come off, retention is such an important strategy in this market. You know, those, you know, those large four that make up the bulk of that AUD 300 billion of roll-off, you know, they'll do everything they can to try and retain them. That said, you know, for those, you know, for us that are looking to refinance activity, it definitely presents an opportunity. The bulk of those loans will be prime, so the question is, you know, how attractive can we get? The reality is a lot of those customers will move purely just based on the fact that their rate is increasing significantly with the incumbent, therefore, they'll be looking for a new relationship. Yeah. Yeah. Well, a portion of those refinance into service, serviceability kind of constraints, which means they have to look elsewhere though? well, it probably goes two ways, Andrew. Some of them, if serviceability is an issue and may be kind of caught up into a term that journalists like to use and, in terms of, you know, kind of like, what was it? Prisoners. The prisoners, the mortgage prisoners, they can't go anywhere. Yeah. You know, and that's true. You know, those that were kind of at the fringes at very low rates may not be eligible for refinance in a, in a, in a higher interest rate environment. Our view is most will. You know, serviceability, even at these higher, servicing rates, i.e. 300 basis points above the rates that we even have today, we're not seeing that is the reason why, you know, borrow, let's say applications are being declined. You know, so there's still a lot of strength in the system. There's still a lot of borrowing power out there. There's still very strong serviceability, in the system. What we're finding is a lot of borrowers and even brokers are sitting on their hands because they just want to see, probably the RBA starting to signal that we're getting close to that targeted, or terminal cash rate. Borrowers can make decisions with a bit more certainty. Okay. Just lastly, on the comment about right-sizing the cost base, like how do we look at that? I guess, like if you look at the first half run rate of OpEx, it's about AUD 43 million. Yeah. How do we look at the, I guess, the OpEx base going forward? I guess, yeah, it's a task that we've got to move through in the context of this environment. You know, we, you know, our view is that, you know, this market will be challenging for the short to medium term. Therefore, we need to look at our cost base over the short to medium term. Our focus, as we mentioned earlier, is very much at that niche prime and specialist home loan market, as well as growing our asset finance. When we think about our cost base, and we think about where we want to invest, it will be in and around those particular segments. The reality is, you know, we're writing less business and we are an origination business. Therefore, you know, we need to be prudent, look at our cost base, as we see, you know, this market, especially in prime and production from prime, being soft for a period of time. Okay. All right. Thanks very much. Thank you. Your next question comes from Tom Kamilarri from Private Investor. Please go ahead. Hi, team. Hi, Jason and Scott. Thanks for taking my question. Just a question on the asset finance business unit now. Could you just help us understand the economics of asset finance at the moment, where the loan book sits at the moment? We saw settlements in the past, but where the loan book currently sits. Yeah, just the NIM on that product and how you see competition in the space, and why you're confident on that AUD 1 billion target. It seems like this is the perfect time for you to pivot to this type of high, you know, high NIM product. Yeah. I'll quickly just start on a couple of the numbers, and I'll let Scott talk to the competing environment where we see the business going. The book's about a bit over AUD 500 million at the moment. NIMs, target NIMs are about 2.5%-3%, depending on the product type. It can be higher depending how far we go up the risk curve, basically. At the moment, we're pretty conservative with the credit risk that we're taking in there. It's got a small contribution to NPAT at the moment, but we're investing in it in terms of capital for funding and on platform to scale that business up. Scott, I'll let you talk about competitive environment and strategy. Yeah. You know, we are still committed to an annualized production, you know, by 2024 of AUD 1 billion in settlements. You know, we believe that is still, you know, the right target considering the opportunity and the fact that we're coming off to a very low base. You know, that is something that is still very much a focus of the business, especially as we continue to roll out new products and also, kind of, stand up new technology in that particular part of the market. It is competitive. You know, whilst a lot of the, you know, banks have stepped out of that market, that it is a competitive market, especially across non-banks, but it's also a very large and a very mature market, and it's extremely well supported from a funding perspective. You know, whilst historically Resimac has almost exclusively spoken about funding from an RMBS perspective, the reality is, you know, the ABS market and even the CMBS market are very deep, very mature and very active today. Our funding partners and our debt investors participate in both of those markets, and we've had, you know, very pleasing conversations with them about support. You know, we believe it is our opportunity to take market share, and we believe it's there to take. You know, we are in a position now where technology, funding, capital and the operating model are shaping up really well as we enter into FY 2024, which is why, you know, we're out there with, you know, I'd say a healthy target for 2024, but still remains, you know, even $1 billion, you know, in annualized production by the time we get to 2024, it's still a small part of the market. We believe that, you know, it's a solid target, but the right one and also a target that we believe that we can continue to grow off in future years. Yeah. The industry or the settlements that we can see seem like they're holding up okay in this environment. Can you also talk to the split between consumer and commercial and what you'll go after there? Yeah. We are really, at this stage, as we kind of roll out our business model into that market, we are mostly consumer focused. Sorry, commercial focused, I should say. You know, there's a lot of learnings, you know, through commercial. It's easier for us to attack commercial than consumer. The reality is, you know, your customer experience as well as your delivery is very different through consumer than it is through commercial. Commercial, you know, leans more to our strength today. Technology and the further investment in technology is even more important when you ultimately get to that consumer space. Those numbers that I referred to earlier, as we think about that target of AUD 1 billion, that is predominantly commercial. We'll make sure that we test our products and build our relationships through commercial before we then tap, you know, the consumer part of the market, which is then just the next evolution, or the next opportunity in terms of asset finance for Resimac. Yeah. It carries a lower impairment risk as well. Then just following up, changing tack a bit. Just on loan impairments, can you help us think about how this line moves as you pivot to a more, I guess, a greater share of specialist loans in the book? We saw a really good result this half. Just need some help on forecasting that line going forward. Yeah. Look, I think the thinking about loan impairment expense is obviously the balance sheet side is provisioning. It's probably worth even just thinking about the last couple of years. We took a really large COVID provision when COVID hit across our book. From memory, it was about AUD 18 million. We didn't release that to our P&L and take a sugar hit like some other institutions did. We did that for two reasons. One, we knew we were factoring in, we had good AUM growth into the future, which we did have since then. Obviously we were going to start scaling up asset finance. That's allowed us to build up that provision very conservatively. At 30th of June, we took an AUD 9 million macroeconomic overlay, which was questioned by some as being over-conservative. I think now where we sit today, we have a provision that is very, very good coverage for any potential future loss that we have into the future. Even if the mix is changing in the AUM, looking at our arrears, looking at, we've even got a chart on page 4 here, which will show you when we look at all of our arrears, and I'm talking about 31 plus days, and we look at all of the LVRs for those, for everyone in arrears, we can only see AUD 10 million of loans where they've got a dynamic LVR of 90% or more. With no LMI. With no LMI. For us, even with arrears tipping up, the book is very conservative historically in terms of how we've originated it, so we're in good stead. Even if we do incur losses, we have got a really large provision there to absorb it. In the direct answer to your question, I don't see loan impairment expense being a very large number in our P&L, certainly in the second half, and I'll hopefully be saying the same thing in six months. Yeah, thanks. That's really good color. Thanks, guys. Thank you. There are no further questions at this time. I'll now hand back to Mr. Scott McWilliam for closing remarks. Yeah. Look, thanks very much. Thank you for your time, everybody. As usual, if you do have any further questions, please feel free to reach out to Jason and myself. We're happy to answer any questions you have. Enjoy the rest of your day. That does conclude our conference call today. Thank you for participating. You may now disconnect.