August 24, 2011
Australia's largest independently-owned mortgage broker, Mortgage Choice (MOC) today announced a healthy FY11 cash profit of $15.9 million, an increase of 7.4% on FY10.
The group's loan book rose 6% to $42.4 billion as it recorded significant franchise network growth during a period defined by the financial conservatism of consumers and businesses.
Its high performing dividend again delivered shareholders a strong return; the Board declared a fully franked dividend of 7 cents per share, taking total dividends to 13 cents per share.
Financial highlights for the 12 months to 30 June 2011
- Net profit after tax (NPAT) on a cash basis was $15.9 million, an increase of 7.4% on $14.8 million for FY10.
- The group's total loan book, ie. residential and commercial loans written by brokers in its franchise network and broker members of its aggregation arm, reached $42.4 billion. This was up 6.0% on $40.0 billion at 30 June 2010.
- $9.9 billion in housing loan approvals was generated for the group as Mortgage Choice continued to achieve industry-high productivity levels per broker. This result was down on $10.1 billion in FY10 as a consequence of a general market slowdown.
- A final fully franked dividend of 7 cents per share was declared by the Board, taking total dividends out of FY11 profits to 13¬¬ cents per share. This was an 8.3% increase on 12 cents per share in FY10.
- Total commission revenue on a cash basis was $132.9 million, down 1.6%.
- Net assets were $90.3 million, up from $77.3 million on 30 June 2010.
- On an IFRS basis:
- NPAT was $27.5 million, including an after tax adjustment of $12.3 million to the valuation of the trail book.This is up 17% on $23.5 million in FY10, which included an after tax adjustment of $9 million.
- Earnings per share stood at 22.9 cents compared to 19.7 cents in FY10.
Financial and operational performance
Demonstrating its flexibility and ability to perform well in a restrained market, Mortgage Choice produced a full-year cash NPAT of $15.9 million, a 7.4% increase on FY10. On an IFRS basis it was also up, by 17% to $27.5 million, including an adjustment to the valuation of the trail book.
The group loan book grew to $42.4 billion, up 6%, while franchise numbers rose by 5.4% to 368.
CEO Michael Russell said, "This past financial year was one of the most demanding for the company's brokers and staff in our 19 years of operation. Yet, Mortgage Choice emerged a consistent performer, unscathed and ready to capitalise on the opportunities that lie in wait."
"We are pleased to announce a 7.4% rise in cash profit, a 5.4% lift in franchise numbers, our group market share reaching 4.1% of all new home loans in Australia and our customer satisfaction rating averaging 92.3% for the year.
"We also saw stable productivity from our Mortgage Choice brokers, who average 58 loans each per year, and a doubling of the brokers in our aggregation arm, LoanKit.
"It is satisfying to present a healthy financial performance, loan book and recruitment growth, broker efficiency and customer satisfaction during a year of great change for the market and for Mortgage Choice, which has been steadily evolving to ensure we make the most of a new lending landscape. Our sound result shows the company's DREAM strategy, an acronym for diversification, recruitment, existing broker support, acquisitions and managing costs, is producing rewards.
"Shareholders are again being rewarded with a dividend result higher than that in FY10 - a fully franked dividend of 13 cents per share. Mortgage Choice continues to be a solid earner with a yield that outperforms that of other small cap financial services companies."
DREAM's progress includes:
- An improved customer offering that encompasses an even broader range of quality commercial and personal loans, asset finance and risk and general insurances.
- Renewed focus on quality greenfield recruitment resulting in 19 greenfield and 19 existing franchises sold to enthusiastic rookies, generating more income and greater potential to build market share, in turn helping underpin sustainable growth objectives.
- An overhaul of learning and development programs, the introduction of a target driven lead conversion project, streamlining of commissions reporting and improvements to franchisee benchmarking are all better assisting franchisee business development.
- The acquisition of a second business, home loan, health insurance and life insurance comparison website HelpMeChoose.com.au, extends the group's reach into consumer finance and generates more leads for its franchise and aggregator broker networks.
- A restructure, including relocating NSW State Office to Group Office and hiring three ex-franchisees, is ensuring better aligned resources and provides deeper insights into the broker network's needs.
- The launch of bluegumTM home loans, Mortgage Choice's first white label product, has further empowered its brokers and sees them providing even greater choice to customers.
- Deployment of an integrated CRM, its Product Analysis & Qualification technology, and an electronic submission software platform is delivering significant productivity benefits.
Mr Russell said, "Our recently acquired businesses, HelpMeChoose.com.au and LoanKit, received significant resource attention and proposition reinvestment over FY11. We recognise the need for these business arms to flourish alongside our franchise network as important income generators."
"We have also contributed much strategic thinking and effort into progressing our systems and processes to ensure we meet the new responsible lending obligations. National licensing, as I have said previously, will raise the profile of our industry as a profession, serving to cull brokers who are unprepared to meet compliance standards. I am pleased to see this already occurring.
"Mortgage Choice has the experience, expertise, resourcing and economies of scale needed to ensure we operate to the most stringent of ethical standards in meeting all NCCP requirements.
"One innovation for FY11 was introducing a system for centralised and secure document storage. Our brokers are required to upload every customer's credit assessment and loan application files to this repository vault, which they can easily unlock upon customer request. The vault is monitored by our expanded compliance and corporate standards team, which also regularly visits franchises."
The home loan market
Housing finance commitments during the financial year were down 7.8% on FY10 ($242.7 billion versus $263.2 billion).
First homebuyers' home loan appetite showed the largest fall because many were encouraged into the FY09 and FY10 marketplace by the First Home Owner Grant (FHOG) boost. The number of dwellings financed for this group in FY11 was down 35.1% on FY10.
The decreased activity here greatly affected credit demand from other homebuyers, as many needed to sell to first timers before moving onto their next property.
Refinancers and investors were the most active borrower groups in FY11. November 2010's shock 25 basis point (bp) cash rate rise and subsequent interest rate rises beyond that by most lenders pushed a large number of borrowers into action, as did increased media talk of the benefits of switching loans and heated competition between lenders during 2H11 that is still obvious today.
"FY11 was especially challenging for mortgage brokers due to the prior financial year's FHOG boost bringing many purchases forward and the drop in Australians' financial confidence. This damage was caused by a range of living cost hikes, November's out of cycle interest rate rises and speculation about further rises and a so-called housing bubble," Mr Russell said.
"To deal with these changed conditions, one strategy we executed was to strengthen our presence amongst the more experienced borrower groups, focusing heavily on investors and refinancers. We understand the need to go where the business is rather than sit back and wait for conditions to return to 'normal', which may never happen.
"If conditions remain subdued for a number of years, our brokers are well equipped to continue to run successful operations that concentrate on areas of growth located within both the home loan market and other realms of personal and commercial finance."
Boding well for housing finance in FY12, the number and value of owner occupied commitments during the last quarter of FY11 were either noticeably up or steady on the month previous. In addition, the number of first homebuyer dwellings financed in the June 2011 quarter was up 13.4% on March 2011 quarter.
"If interest rates hold steady into CY12, which is looking more likely, employment remains healthy and vendor discounting continues at this pace we could well see a second and third consecutive quarter of housing finance growth to finish off the calendar year," Mr Russell said.
"With competition between lenders for higher loan volumes resulting in interest rate discounts, higher maximum LVRs and more attentive customer service, the home loan landscape is looking promising for borrowers and for the brokers who assist them.
"Australians are increasingly aware of the plethora of property finance options available for new purchases and refinancing. Over 40% of new mortgages are sourced through brokers and I can't see that changing anytime soon."
Plans for the next year
In FY12 Mortgage Choice will dominate many of its DREAM goals while recognising the multi-year strategy is not a quick win solution. It will also introduce the final element of its transformation.
"Elevating our market share, our reach as a consumer finance provider and our productivity will continue to be strong focuses as we fine tune our metamorphosis into a more rounded financial services organisation," Mr Russell said.
"We will heighten our brand presence with new collateral such as our just-launched marketing campaign and franchise recruitment website. We are kicking off other projects to increase lead generation and conversion across our much broader product range. We are improving our CRM, reporting and benchmarking systems for improved franchisee business development. We are exploring further new technologies and communication channels to increase efficiency, improve cost management and elevate our profile as an opinion leader.
"Our overarching goal remains: refining Mortgage Choice's role as a mortgage specialist that offers a broader financial services experience to better meet the needs of its customers; a credible and trustworthy organisation where brokers take their responsibility to borrowers very seriously.
"Today's financial results announcement shows the company can provide its shareholders and other stakeholders with a consistent performance despite market headwinds. Mortgage Choice has an ongoing commitment to build stronger value for all our stakeholders and will continue to seek and leverage growth opportunities.
"As always, we proudly remain Australia's largest independently-owned mortgage broker with a robust model, strong brand, healthy geographic spread, and industry leading productivity."
For further information or to arrange an interview, please contact:
Mortgage Choice Corporate Affairs
(02) 8907 0472 / 0407 416 124