Financial Highlights of the Mortgage Choice franchise
All figures quoted are based on AGAAP unless otherwise stated.
• Record net profit after tax $14.8 million, up 16 per cent on FY2005 $12.7 million. (AIFRS $17.9 million)
• Total revenue $126.2 million, up 14 per cent on previous period (AIFRS $142.1 million)
• Earnings per share 12.6 cents per share compared to 10.9 cents per share in FY2005. (AIFRS 15.2 cents per share)
• Final dividend of 7.5 cents per share brings FY2006 total to 14.5 cents per share including a special dividend of 2 cents.
• Trailing commission of $63million up to 51.2 per cent for FY2006 (as percentage of total commission income) compared with FY2005 50.1 per cent.
• Mortgage Choice franchise generated $10.6 billion in housing loan approvals during FY2006 and continues to achieve industry high productivity levels per broker.
• Loan book now stands at $25.7 billion, 18 per cent up on FY2005; this compares to system growth of 13.3 per cent year on year.
• Expected life of new loans remains at 3.8 years, consistent with the prior year.
• Total broker growth strong, increasing to 620 as at 30 June 2006 up from 574 in the previous corresponding period.
• Franchise growth was higher than the previous corresponding period with Franchise numbers increasing to 423 as at 30 June 2006, up from 407 in the previous year.
• A total of 64.5 per cent of commission revenues was paid to Franchise owners compared to 62 per cent for the previous period.
Over the past twelve months an average of 92.8 per cent of the financial services franchise customers indicated a willingness to conduct repeat business while an average of 93.6 per cent indicated they would refer family and friends to Mortgage Choice.
Leading Australian mortgage broker Mortgage Choice Limited (ASX code: MOC) today announced a record net profit after tax for the year ended 30 June 2006 of $14.8 million, up 16 per cent on the previous period. This was a strong result in a growing but intensely competitive market for mortgage broking services nationally.
The result was achieved against a backdrop of strategic focus; continued high demand for our services; a committed Franchise network and prudent expense control. The continued growth in the company’s loan book reflects extended loan life and, new business volumes during the period were in line with expectations.
Total revenue for the year to 30 June 2006 was $126.2 million, including total commission income of $123.1 million. This included $60.1 million derived from new mortgage origination, up 13 per cent on the previous year. Trailing commission income increased to $63 million, now 51.2 per cent of total commission income.
Mortgage Choice generated $10.6 billion in housing loan approvals during FY2006 and continues to achieve industry high productivity levels per broker. The average size of loans written by Mortgage Choice brokers has continued to increase, and now stands at $248,800, higher than the ABS average of $221,100 (June 2006). This reflects the strength of the Mortgage Choice broker network especially in the eastern states of Australia where property prices are higher.
Net assets at 30 June 2006 were $9.3 million (AGAAP) compared to $9.8 million at 30 June 2005. The balance sheet is underpinned by $8.4 million in cash on hand (2005 - $11.5 million).
Cash flow from operating activities during the year was $12.8 million compared to $13.8 million in the previous year. Dividend payments of $15.3 million were made during the year.
The Board has declared a second half fully franked dividend of 7.5 cents per share, bringing the total ordinary dividend for the year to 12.5 cents per share. This represents a payout ratio of almost 100% of AGAAP earnings for the year to the 30 June 2006. This is in addition to a special dividend of 2 cents announced at the interim results, bringing the total payout for the year to 14.5 cents fully franked.
Managing Director of the Mortgage Choice franchise Paul Lahiff said:
“This result clearly demonstrates the strength of our national model. We were less reliant on what is currently a flat New South Wales housing market, to provide the performance we were after. By contrast, Western Australia and to a lesser extent Queensland have continued their robust growth off the back of the resources boom, while Victoria and South Australia have been steady performers.
“The results achieved underline the fact that Mortgage Choice has an extremely high quality, proven business model - one that is capable of delivering a sound performance even in challenging market conditions.
“The Australian mortgage market has continued to grow. Approximately, four in every ten Australians now source their home loan through a mortgage broker. People are looking for high quality advice, convenience and someone to take the legwork out of finding the most suitable home loan option – exactly the service Mortgage Choice offers.
“Mortgage Choice expects some consolidation to occur in the mortgage broking industry. A number of factors could potentially act as catalysts, including a stricter regulatory environment, economies of scale in marketing, support and administration, and a preference by lenders to deal with a smaller number of higher volume and quality broker organisations. The Company will be alert to acquisition opportunities given this environment, but will review any opportunity cautiously and prudently. Clearly however, the major emphasis of the business is focused on organic growth.
“In this kind of market, visibility, strong brand values, quality, consistency and track record are the keys. Lenders are increasingly basing rewards on quality, sustainability and performance. Our proven track record, experience, critical mass, support for brokers and quality control set us apart from our competitors.
“We are now comparable to the sixth largest loan book in the country, after the major banks – Commonwealth Bank, National Australian Bank, Westpac, ANZ and St. George. Of significance is that Mortgage Choice’s expected life of new loans remains at 3.8 years, consistent with the prior year. This is an outstanding result in a very competitive market.
“The large banks have not pulled back from lending through brokers – in fact, many regard mortgage brokers as an even more essential distribution channel in housing finance. They are moving to focus service and commission levels on the quality performers. At a consumer level, our approval rating is at an all time high. Over the past twelve months an average of 92.8% of customers indicated a willingness to conduct repeat business while, an average of 93.6% indicated they would refer family and friends to Mortgage Choice.
“Our growth in broker numbers has been pleasing, with the total broker network increasing to 620 as at 30 June 2006 up from 574 in the previous year. At the same time our shop front numbers grew by 22 to 185 permanent outlets. This combined growth demonstrates that our existing Franchise owners are confident about the future and willing to invest in their businesses to accommodate further expansion”.
Mr Lahiff also advised that Mortgage Choice franchise growth improved on the prior year, with net Franchise numbers increasing by 16 to 423 as at 30 June 2006 up from 407 at 30 June 2005. The current state of the employment market, the competition for new Franchisees and a continuing and deliberate focus on quality candidates over quantity, continues to create a challenging environment for recruitment.
He said: “Our focus continues to be on quality, not quantity. We are continually upgrading the quality of our offering as well as building the capacity of our brokers to compete, to deliver for their clients and to capitalise on Mortgage Choice’s high brand visibility.
“Since 2002, regulation of the mortgage broking industry has remained a critical part of Mortgage Choice’s agenda. In November 2004, the NSW Department of Fair Trading released a Discussion Paper on a proposal for National Uniform Regulation. As part of our continued push for greater consumer protection, Mortgage Choice lodged a comprehensive response. A regulatory impact statement was expected later in 2005.
“It is disappointing therefore, to find that the industry still awaits further developments”.
In conclusion, Mr. Lahiff said: “We are confident that we are well placed to achieve profitable growth in the coming year. Improved broker recruitment, the ability to scale up the business with minimal additional cost and disciplined expense control, will continue to be important going forward.
31-Oct-2006