Australian Finance : Macquarie Conference PresentationOpens in a new Window

Market Release

5 May 2020

Market Announcements Office

ASX Limited

Exchange Centre

20 Bridge Street

SYDNEY NSW 2000

Dear Sir/Madam

MACQUARIE CONFERENCE PRESENTATION

The Company will address the Macquarie Australia Virtual Conference today. Attached is the accompanying presentation.

Authorised for disclosure by:

Lisa Bevan

Company Secretary

CONTACT DETAILS

Alison Clarke, AFG Head of Corporate Communications	Mob [phone]
David Bailey, CEO	Tel [phone]

2020

MACQUARIE CONFERENCE PRESENTATION

H1 FY20 results - Highlights

$18.3M

$16.7M $16.7M

H1 FY18

H1 FY19

H1 FY20

Reported NPAT up 10%

to $18.3M

5.7 5.9

4.7 4.7 5.4

FY18 FY19 FY20

Interim dividend up 15%

Final Interim

$17.7M

$14.4M $14.7M

H1 FY18

H1 FY19

H1 FY20

Underlying NPAT up 20%

to $17.7M

AFG Securities settlements up 46% to $690M with loan book

up 51% to $2.5B

H1 FY20 Residential Settlements flat with

$16.9B

Q2 lodgements and

settlements are up 19%

and 6% on last year

Residential trail book

up 5% to $151.7B

AFG Home Loans now services over 25,000 retail customers

AFG Home Loans

trail book up

17% to $9.8B

Comparisons to prior period

2

Stable platform continues to support future growth

Over half of overall profit now generated outside traditional aggregation. Providing a stable platform for future growth

AFG	AFG	Asset
Commercial	Finance
Securities	powered by	White		Connective's
	Thinktank	Label
		current focus
			Personal	Merged group
AFGHL	AFG Business Platform	Loans	focus	Strategic
White Label	White		Aquisitions
			Label

Residential	Commercial	Asset	Personal	Insurance	Other
Broker
Mortgages	Mortgages	Finance	Loans	Referrals
Services

Broker Distribution Network	Greater
	product
Technology/Customer/Choice	diversity

Strengths of the business model:

• Established and diversified network with 2,975+

brokers across Australia offering over 4,000 products

• Diversity with traditional wholessayd itale broking/ aggregation, distribution and manufacturing, with the ability to adapt focus in changing market conditions whilst having a significant actuarilly assessed cash flow stream being delivered
• Investment in broker technologies has supported brokers to continue to help their customers whilst observing social distancing rules and meeting their compliance obligations

Update on Connective merger:

• AFG expects to submit our response to the ACCC's Statement of Issues in the coming week
• Court case: Closing arguments complete. Judge retired to consider evidence

3

AFG, AFGHL & AFGS

Loan book as at 31 December 2019

4

Strategic & market outlook

AFG is well positioned to capture future growth opportunities. Disruption from COVID-19 will likely result in some market disruption in the short term, with the government implementing a number of initiatives to support lenders through the pandemic

Well positioned for future growth opportunities

• Capital light, strong balance sheet with no debt
• Established distribution network with further opportunities for brokers as customers are not able to attend bank branches
• Strong cashflow generation including annuity type stream from organisations with strong credit ratings
• Ongoing investment in technology to grow scale efficiently
• Delivering on AFG's earnings diversification strategy
• Continuing to drive competition and choice
• • of Aus Mortgages written through a broker1

			57%	56%	55%	55%
	54%	54%
52%
52%

Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 Jun 19 Sep 19 Dec 19

Market outlook

• RBA cash rate set at 0.25%
• Government funding initiatives to support bank and non-bank lenders. Including Term Funding Facility offered by the RBA to bank lenders and $15bn Structured Finance Support Fund managed by the AOFM
• The AOFM has confirmed Delegate Approval to provide AFG with mezzanine funding to replace some of the existing providers and allow increased warehouse limits. This is in process of being documented with the AOFM
• Disruption from COVID-19 is expected to result in increased unemployment levels and a drop in house prices
• In response to the environment, some lenders are strengthening credit underwriting criteria which may impact conversion of lodgements to settlements
• COVID-19impacting AFG Securities with 4.6% of the book in hardship, with approximately the same percentage entering into a payment arrangement such as moving to interest only
• Market outlook remains uncertain and dynamic

1. Source: MFAA. March 2020 data not available until late May

5

AFG Mortgage index update

Record month to close the quarter as major lenders put their foot down

		Jan 2020	Feb 2020	Mar 2020	Q3 FY20	Q3 FY19
	Lodge #	7,203	9,945	11,196	28,344	23,036
	Lodge Vol ($000's)	3,764,133	5,491,165	6,147,542	15,402,840	11,610,804
	Average loan size	522,578	552,153	549,084	543,425	504,029
	Investor %	25%	25%	26%	25%	26%
	First Home Buyers %	17%	16%	13%	15%	14%
	Refinance %	27%	27%	33%	30%	25%
	Upgrader %	39%	41%	38%	39%	43%
	Interest Only %	17%	17%	18%	17%	19%
	Principal and Interest %	83%	83%	82%	83%	81%

• Largely driven by record low interest rates, brokers helped borrowers shore up their positions against the impacts of COVID-19 ahead of potential shutdowns
• March was a record month with $6.15 billion lodgement volume. Volumes for the quarter were 33% up on the same period last year, headlined by Victoria being 40% up
• Increase in major market share from 53% to 60% driven by all four actively pursuing market share with cash back offers
• The decrease in Upgraders has been offset by

significant increase in the proportion of Refinancers

• Across all lenders, processing times have increased resulting in a backlog for some lenders

6

April 2020 trading

• Total residential lodgements $5.2 billion, up 34% on April 2019 with growth in all states, fuelled by a spike in refinance activity. It is noted credit activity in April 2019 was benign following the Royal Commission and in the lead up to the Federal Election
• AFG Home Loans lodgements down 34% on the back of increased competition from the major banks
• AFG Securities lodgements down 69% which reflects reduced credit appetite and increased pricing to manage the existing pipeline in this period of COVID-19 disruption
• Significant shift in mix towards the majors continues, while the further decrease in Upgraders has been offset by significant increase in the proportion of Refinancers
• Conversion ratio remains uncertain

Comparison of April 2020 lodgements to April 2019

31%	34%

27%

11%

43%

69% 33%

Change on April 2019

7

Types of lodgements

Significant shift in customer mix with refinancers increasing, and decreases for First Home Buyers and Upgraders Also a large increase in the percentage of lodgements choosing a fixed interest rate with the cash at 0.25%

Customer type

45%

40%

35%

30%

25%

20%

15%

10%

5%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 APR
FY14	FY15	FY16	FY17	FY18	FY19	FY20

Fixed rate %

35%

30%	3	0.	0%
25%	2	5.	0%
20%	2	0.	0%
15%	1	.5 %0
10%
	1	.0 %0
5%
		5	0. %
	Q1 Q2 Q3 Q4	Q1 Q2 Q3 Q4	Q1 Q2 Q3 Q4	Q1 Q2 Q3 Q4	Q1 Q2 Q3 APR
		0	.0 %	FY16	FY17	FY18	FY19	FY20

Inv %

First Home Buyers %

Refinance %

Upgrader %

8

Lending activity

Majors taking back market share during COVID-19. Brokers playing a critical role in providing distribution and fulfilment in the absence of branch

Major vs Non-Major

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 APR

FY14	FY15	FY16	FY17	FY18	FY19	FY20
			Major	Non-Major

Non-Major Market Share

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

APR

FY16

FY17

FY18

FY19

FY20

Non-Bank lenders

Non-Major Banks

9

Lending activity

Average loan size has marginally increased while the national average LVR has reduced slightly in April

$800National Average Loan Size

$700 $600 $500 $400 $300 $200 $100

National Loan to Value Ratio

74%

72%

70%

68%

66%

64%

62%

60%

58%

56%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 APR

FY14	FY15	FY16	FY17		FY18	FY19	FY20
National	NSW	NT	QLD	SA	VIC	WA

54%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 APR

FY14	FY15	FY16	FY17		FY18	FY19	FY20
National	NSW	NT	QLD	SA	VIC	WA

10

Investor loans

While the percentage of Investor loans is flat overall, the proportion of refinancing increased to offset lower new Investor loans

Investor Loans %

60%

50%

40%

30%

20%

10%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 APR
FY14	FY15	FY16	FY17	FY18	FY19	FY20

Investment %Average

Investor Loans % per State

60%

50%

40%

30%

20%

10%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 APR
FY14	FY15	FY16	FY17	FY18	FY19	FY20

NSW

QLD

SA

VIC

WA

11

Continued investment in technology

• Supporting the execution of our strategy to attract & retain brokers - upgrading AFG's core broker platform with the latest technology for growth, efficiency and customer management
• Allows the option of online interaction between broker and customer
• Improve process efficiency, submission quality and compliance capability
• New customer portal in pilot mode with broker portal to be released in H1 FY21
• Even more important in a post COVID-19 market

12

In conclusion

H1 FY20 result generally demonstrated the robust nature of the business driven by AFG's earnings diversification strategy.

Complexity remains in the market. Greater competition and choice evidenced by the growth in non-major lenders prior to COVID-19. Brokers continue to be a dominant channel for home lending.

Proposed merger with Connective ongoing with court process awaiting decision from judge and AFG responding to the ACCC's Statement of Issues. Positive resolution on both elements required for transaction to close.

Investment in technology to update the core broker platform with the latest technology capabilities for brokers' growth, efficiency and customer management. Delivering better outcomes for brokers and customers, particularly important in a post COVID-19 market.

The cash flow generation capability of the business combined with a debt free balance sheet and an annuity style flow from trail book continues to be a feature of the AFG business model.

AFG is still exploring future growth initiatives.

13

Q&A Thank you

Important disclaimer

This presentation contains general information which is current as at 4 May 2020.

The information is intended to be a summary of Australian Finance Group Limited (AFG) and it its activities as at 31 December 2019, and does not purport to be complete in any respect.

The information in this presentation is not a recommendation or advice about shares in AFG (or any other financial product or service). It is not intended to influence, or be relied upon by, any person in making a decision in relation to AFG shares (or any other financial product). This presentation does not take into account the objectives, financial situation or needs of any particular investor. You should consider your own objectives, financial situation and needs when considering this presentation and seek independent investment, legal, tax, accounting or such other advice as you find appropriate before making any financial or investment decision.

To the extent permitted by law, no responsibility for any loss arising in any way (including by way of negligence) from anyone acting or refraining from acting as a result of this material is accepted by the AFG Group, including any of its related bodies corporate.

This presentation contains some forward looking statements. Such statements only reflect views held by AFG as at the date of this presentation and are subject to certain risks, uncertainties and assumptions. Actual events and results may vary from the events or results expressed or implied in these statements. You should not place undue reliance on any of these statements.

No representation or warranty is made in respect of the accuracy or completeness of any information in this presentation, or the likelihood of any of the forward looking statements in the presentation being fulfilled.

The forward-looking statements included in this document speak only as of the date of this document. The AFG Group does not intend to update the forward- looking statements in this document in the future.

For further information visit: www.afgonline.com.auOr contact:

Alison Clarke

Head of Corporate Communications [phone]

15