The broking franchise group has reported an increase in mortgage settlements volumes and a rise in its underlying loan book over the fourth quarter of the 2019 financial year.
Yellow Brick Road (YBR) has released its fourth quarter results for the 2019 financial year (4Q19), reporting a 1 per cent rise in mortgage settlement volumes, which increased to $2.5 billion when compared to 3Q19.
The increase in settlements helped bolster YBR’s loan book, which grew 0.5 per cent to $49.4 billion.
The fourth quarter recovery follows a 20 per cent decline in settlements over the third quarter, in which volumes fell by $600 million from $3.1 billion.
Moreover, YBR reported an improvement in its underlying financial position, with its operating cash surplus increasing to approximately $200,000, up $130,000 from $70,000 in 3Q19.
As at 30 June 2019, YBR held $4.1 million in cash and $7.7 million in borrowing facilities ($7.2 million drawn and $500,000 undrawn).
The improvement was partly offset by a 4 per cent increase in YBR’s operating cash outflows, which rose by $340,000 to $8.35 million (excluding branch and broker revenue).
According to the broking franchise, its underlying financial position was also strengthened by the sale of its stake in wealth investment service Smarter Money Investments, which was sold for $7.5 million.
YBR has received most of the payment, with $5 million paid to the franchise on 12 July.
The group will receive a deferred payment of $2 million in July 2020, with the final $500,000 to be paid in July 2021.
The group added that it has used part of the proceeds received on 12 July 2019 to prepay in advance $2 million on the company’s bank debt facility.
YBR executive chairman Mark Bouris said that the group’s decision to sell its stake in Smarter Money Investment, was part of its ongoing strategy to create a “much simpler business” by disposing of its head office wealth business functions and focusing on mortgages.
YBR mortgage strategy
In May, YBR announced that in order to “concentrate its efforts” as a mortgage distribution, servicing and manufacturing group and “reduce significantly the cost-to-income ratio of the business”, it was looking to “dispose of, outsource or otherwise restructure the head office wealth business functions”.
While YBR franchisees will still be able to distribute wealth products and give wealth advice to their existing and future clients, it is intended that this would be done under a separate Australian Financial Services Licence with one or more third parties.
“The restructure of the wealth business is expected to significantly reduce our cost base, allowing us to run a leaner and more cost-effective organisation,” the group said in May.
By offloading the wealth business, YBR is looking to renew its focus on mortgages, both through distribution, servicing and securitisation, as its mortgage businesses “offer significant leverage to the market”.
YBR would therefore retain its franchise network, which has an underlying mortgage book of approximately $7.6 billion and currently consists of 115 branches and more than 140 accredited business writers.
It will also retain Vow Financial aggregation, which reportedly has a network of 505 broker firms with more than 1,000 accredited brokers and around $785 million in mortgage settlements per month.
The restructured YBR Group will also retain its mortgage servicing arm, via the manufacture and servicing of mortgage originations through its existing Resi Mortgage Corp business.