ASX Announcement Tuesday 28 August, 2012 RHG Audited Profit Result and Dividend Announcement Audited Profit for the year ended 30 June 2012 today announced a consolidated full year net profit, after provision for tax, of $40.7 million for the year ended 30 June 2012. The mortgage book is closed with no new mortgages being originated and therefore is in paydown. Accordingly the directors of RHG expect the profit for future years to be substantially lower. Dividend As previously disclosed to shareholders, the Company s intention is to pay out free cash flows as and when appropriate. After considering the current cash holdings and future cash requirements of the business the directors of have declared a dividend of $0.10 per share fully franked to be paid to all shareholders. The following is the payment timetable. Ex-Entitlement Date Close of business Wednesday 26 September 2012 Record Date Close of business Wednesday 3 October 2012 Payment Date Wednesday 17 October 2012 Directors wish to reiterate to shareholders that the mortgage book is in paydown and therefore profit next year is expected to be substantially lower than this year s result. The business continues to operate in an uncertain environment and therefore future cashflows of the business may be needed to support the business and various warehouse facilities. Consequently the size and timing of any future dividends is uncertain. Annual General Meeting It is currently planned to hold the Annual General Meeting on Friday 9 November 2012. Further media enquiries David Symons 0410 559 184
Results for announcement to the market RHG LIMITED 1. Reporting Period Reporting Period: Year ended 30 June 2012 Previous Corresponding Period: Year ended 30 June 2011 2. Results for announcement to the market % $ 000 Revenues from ordinary activities Down 43.3 To 74,215 Profit from ordinary activities after tax attributable to members Down 45.0 To 40,700 Net profit for the period attributable to members Down 45.0 To 40,700 The consolidated profit after income tax attributable to members, for the year ended 30 June 2012 was $41 million (2011: $74 million). Dividends Dividends paid to members during the financial year were as follows Ordinary dividend of $0.10 per share paid on 14 October 2011 30,849 - Special dividend of $0.06 per share paid on 15 December 2011 18,509 - Ordinary dividend of $0.045 per share paid on 4 April 2012 13,882 - Ordinary dividend for the year ended 30 June 2011 of $0.79 per share - 242,122 63,240 242,122 Audited Accounts This preliminary financial report has been prepared in accordance with ASX listing rule 4.3A and is based on accounts which have been audited. The audit report, which is unmodified, will be made available with the Company s financial report. The audited accounts have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. RHG Limited is a for-profit entity for the purpose of preparing the financial statements. Annual General Meeting The Annual General Meeting is scheduled for 9 November 2012. 1
3. Commentary on the results for the period On the 14 October 2011 the company paid to members a fully franked ordinary dividend of $0.10 per share. The total cost of $30,848,318 was deducted from retained profits. On the 15 December 2011 the company paid to members a special fully franked dividend of $0.06 per share. The total cost of $18,508,991 was deducted from retained profits. On the 4 April 2012 the company paid to members a fully franked ordinary dividend of $0.045 per share. The total cost of $13,881,743 was deducted from retained profits. The total number of shares on issue at 30 June 2012 was 308,483,177. The directors have declared the payment of a fully franked dividend of $0.10 per share. The total cost will be $30,848,318. The dividend was declared on the 28 August 2012 and will be paid on 17 October 2012. The Group s mortgage book is closed and in run-off. The Group will continue to manage and service its mortgage book. It is important to note that the revenue of the business will reduce over time in line with the rundown of the Group s mortgage book. The directors expect the profit for future years to be materially lower. The Group s funding mix as at 31 July 2012 was: $ 000 Warehouse facilities 1,866,551 Residential Mortgage Backed Securities ( RMBS ) 826,064 During the year the Company was able to roll all warehouse facilities with similar financial conditions when they were due for renewal. The market for RMBS which would allow RHG to convert existing warehouse facilities to term facilities has offered no opportunity for refinance on a satisfactory economic basis. A default will likely arise if a warehouse cannot be renewed and the mortgages are not sold. This could result in a higher margin and all principal, interest and fee collections on mortgages funded through the warehouse after payment of security trustee, servicer and manager expenses being returned to the warehouse facility provider in order to accelerate repayment of the facility. If this were to occur, the cash flow available to the Group from excess spread would be deferred until the facility is repaid in full. Each warehouse facility has been structured so that if it is not renewed or otherwise defaults there is only limited recourse to the Group. If a warehouse facility is not renewed or otherwise defaults and the related assets are liquidated, the primary impact for the Group would be the loss of future income streams from excess spread, being the difference between the Group s mortgage rate and the cost of funds, fee income and write-off of any unamortised balance of deferred transaction costs. The directors are satisfied that any sale of mortgages in repayment of warehouse facilities or an event of default in relation to the Group s warehouse facilities will not affect the Group s ability to continue as a going concern. The Group provides limited support in respect of the warehouse facilities and RMBS programs by way of representations and warranties. To the extent that the Group breaches any of these representations or warranties, the Group may be exposed to losses. In addition the Group provides limited credit support and undertakes a range of services in respect of the warehouse facilities and RMBS programs. Each RMBS may be repaid at the Group s option at their call date. We currently have seven RMBS issues that have passed call dates and have not been called. As at 30 June 2012 the Group s significant liabilities (excluding liabilities of the Group s securitisation vehicles) include trail commissions payable to brokers of $10.5 million (2011: $13.2 million) and taxation payable of $3.2 million (2011: $31 million.) Tax has been calculated including all benefits from changes to the tax consolidation regime. The directors are satisfied that the Group will have sufficient cash resources to settle its liabilities as and when they fall due. It is important to note that revenue will reduce over time as the Group s mortgage book ages and amortises. As at 30 June 2012 the Group has a provision for individually assessed loan losses of $4.8 million (2011: $8.1 million). Additionally a collective provision of $2.3 million (2011: $3.1 million) has been booked to reduce the carrying value of loans that have not been individually assessed to their estimated recoverable amount. As at 30 June 2012 the Group s mortgage book, including deferred transaction costs was $2.8 billion (2011: $3.8 billion). The Group s mortgage book remains closed and in run-off. 2
4. Statement of comprehensive income Revenue from continuing operations Interest income 278,291 405,843 Interest expense (207,667) (297,182) Net interest income 70,624 108,661 Fee and commission income 3,591 22,217 Total income net of interest expense 74,215 130,878 Total expenses excluding interest (16,068) (26,222) Profit before income tax 58,147 104,656 Income tax expense (17,447) (30,625) Profit for the year 40,700 74,031 Other comprehensive income - - Total comprehensive income 40,700 74,031 Profit for the year attributable to: Owners of 40,700 74,031 Non-controlling interest - - 40,700 74,031 Total comprehensive income for the year attributable to: Owners of 40,700 74,031 Non-controlling interest - - 40,700 74,031 Earnings per share for profit from continuing operations attributable to the ordinary equity holders of the company: Basic earnings per share 13.2 24.2 Diluted earnings per share 13.2 24.0 3
5. Balance sheet Assets Cash and cash equivalents 196,378 266,347 Loan assets held at amortised cost 2,790,055 3,813,177 Other assets 4,803 4,034 Plant and equipment 56 86 Deferred tax assets 3,209 4,529 Total assets 2,994,501 4,088,173 Liabilities Debt issued at amortised cost 2,773,832 3,797,203 Derivative financial liabilities 73,211 83,585 Financial liabilities at amortised cost 10,467 13,241 Other liabilities 14,291 21,403 Provisions 4,771 32,472 Total liabilities 2,876,572 3,947,904 Net assets 117,929 140,269 Equity Contributed equity 3,784 3,584 Retained profits 113,943 136,483 Reserves 202 202 Total equity 117,929 140,269 4
Statement of cash flows Cash flows from operating activities Interest received 275,930 403,420 Interest paid and other costs of finance (215,999) (288,214) Receipts from customers 5,686 11,483 Payments to suppliers (18,068) (21,949) Tax refund/(paid) (43,892) (14,656) Net cash inflow from operating activities 3,657 90,084 Cash flows from investing activities Payments for plant and equipment (7) (39) Net decrease in mortgages and receivables 1,021,153 1,284,139 Net cash inflow from investing activities 1,021,146 1,284,100 Cash flows from financing activities Proceeds on exercise of options 200 200 Share buy-back - (785) Dividend payment (63,240) (242,122) Net repayments to bondholders and warehouse providers (1,031,732) (1,330,568) Net cash outflow from financing activities (1,094,772) (1,573,275) Net (decrease)/increase in cash and cash equivalents (69,969) (199,091) Cash and cash equivalents at the beginning of the financial year 266,347 465,438 Cash and cash equivalents at the end of the financial year 196,378 266,347 6. Dividends Dividends paid to members during the financial year were as follows Ordinary dividend of $0.10 per share paid on 14 October 2011 30,849 - Special dividend of $0.06 per share paid on 15 December 2011 18,509 - Ordinary dividend of $0.045 per share paid on 4 April 2012 13,882 - Ordinary dividend for the year ended 30 June 2011 of $0.79 per share - 242,122 63,240 242,122 7. Dividend reinvestment plans Not applicable. 8. Statement of retained earnings Movements in retained profits/ (accumulated losses) were as follows: Balance 1 July 2011 136,483 304,574 Net profit for the year 40,700 74,031 Dividend paid (63,240) (242,122) Balance at 30 June 2012 113,943 136,483 9. Shareholders equity Cents Cents Shareholders equity per security* 38.23 45.77 *Including deferred mortgage and debt transaction costs 10. Accounting standards for foreign entities The accounts for foreign entities have been prepared in accordance with Australian Accounting Standards. 5
11. Results commentary Earnings per share Reconciliation of earnings used in calculating earnings per share Net profit after tax per statement of comprehensive income from continuing operations 40,700 74,031 Profit from continuing operations attributable to ordinary equity holders of the Company used in calculating basic and diluted earnings per share 40,700 74,031 Weighted average number of ordinary shares used in the denominator in calculating the basic earnings per share 308,182,631 306,254,061 Adjustment in regard to options - 2,000,000 Weighted average number of ordinary shares used in the denominator in calculating the diluted earnings per share (dilution relates to share options) 308,182,631 308,254,061 12. Segment information The Group operates in a single business segment of provision of funding and servicing of residential mortgages in a single geographic segment of Australia. The Group ceased origination of mortgages in which it holds beneficial interest on 16 November 2007. In accordance with AASB 8 Operating Segments, it is appropriate to detail the information used by the Board of Directors to monitor the business. Below is set out the corporate balance sheet which represents a consolidation of the Group that excludes non-recourse mortgage vehicles. These are excluded on the basis that the assets and related funding of these vehicles do not represent the rights or obligations of the shareholders of the Group except to the extent that excess income is earned. This balance sheet is not prepared in accordance with Australian Accounting Standards. Net Tangible Assets Under current accounting standards, which have the force of law, the Company s consolidated balance sheet is a consolidation of assets owned by bondholders, assets owned by warehouse providers and assets owned by shareholders. The assets owned by the Company (i.e. shareholders) are as follows: $ 000 $ 000 Cash and cash equivalents and intercompany receivables 54,533 105,339 Subordinated debt 14,600 14,600 Collateral deposits 39,513 42,497 Investment in impaired mortgages 16,300 15,000 Floats and security deposits 3,437 3,337 Sundry receivables and accruals 609 679 Property, plant and equipment 56 86 129,048 181,538 Accounts payable and accruals 6,607 2,841 Provision for losses - Specific 4,805 8,127 - General 2,305 3,091 Provision for income tax 3,233 30,998 Provision for broker trail expense 10,467 13,241 27,417 58,298 Net tangible assets 101,631 123,240 Net intangible assets* 16,298 17,029 Shareholders equity 117,929 140,269 * represented predominantly by deferred transaction costs. 6
Reconciliation between total assets and total liabilities between the statutory balance sheet and the corporate balance sheet: 2012 ($ 000) 2011 ($ 000) Assets Liabilities Assets Liabilities Total per the statutory balance sheet 2,994,501 2,876,572 4,088,173 3,947,904 Less: loans, derivatives, notes and associated balances of securitised trusts (2,865,453) (2,849,155) (3,906,635) (3,889,606) Total tangible assets 129,048 27,417 181,538 58,298 The balance sheet above does not consider a number of factors they are set out below: the rights to future income that might be derived from the book of mortgage receivables managed by the Company; an ongoing obligation to service the mortgages and bear the costs associated with mortgage servicing; the extent to which future losses on the mortgages may exceed the residual income from the mortgages and any actions that may be taken by warehouse providers as described in Note 3. 13. Events occurring after balance sheet date During the year the Company was able to roll warehouse facilities with similar financial conditions.the Group remains in discussion with its various warehouse providers in regards to future maturity dates. A default will likely arise if a warehouse cannot be renewed and the mortgages are not sold. This will result in a higher margin and all principal, interest and fee collections on mortgages funded through the warehouse after payment of security trustee, servicer and manager expenses being returned to the warehouse facility provider in order to accelerate repayment of the facility. As a result the cash flow available to the Group from excess spread would be deferred until the facility is repaid in full. Each warehouse facility has been structured so that if it is not renewed or otherwise defaults there is only limited recourse to the Group. If a warehouse facility is not renewed or otherwise defaults and the related assets are liquidated, the primary impact for the Group would be the loss of future income stream from excess spread, being the difference between the Group s mortgage rate and the cost of funds, fee income and write-off of any unamortised balance of deferred transaction costs. The directors are satisfied that any sale of mortgages in repayment of a warehouse facility or an event of default in relation to the Group s warehouse facilities will not effect the Group s ability to continue as a going concern. Since year end, the directors have recommended the payment of a fully franked dividend of $0.10 per share, which was declared on the 28 August 2012. The aggregate amount of the dividend declared on 28 August, but not recognised as a liability at year end was $30,848,318. Subsequent to year end, two warehouses with a face value of $799.4 million (as at roll date) have rolled in the normal course of business. As advised to the market on 19 July 2012, the Company reached agreement with ASIC in respect of fees charged by the Company on certain loans. The resolution with ASIC resulted in a refund to eligible customers of $3.3 million which has been brought to account in the current financial year. 7