Mark Forsyth

So really your strategy is to use other people’s money.

Well spoken. We estimate this year there will be $10 million worth of marketing of which $1 million will be ours, $9 million will be other people’s. Now the advantages – I get massive leverage much faster, the downside is depending on their strategy, I don’t necessarily own their customer, I don’t necessarily have the ability to talk to their customer. So what we’re very clear about early on is the fact that if they want to be in the financial services space above and beyond what they do today, that we have the right to talk to their customer about financial services outside of the products that they’ve got today.

The next thing is, could I get these people around the BLOOM network to open up their customer base to each other? Could I be the intermediary that allows an AV Jennings customer to talk to a Medibank Private customer? Because Medibank Private people can buy property from AV Jennings and I’m the intermediary that’s allowing the transaction to occur, that’s my vision for BLOOM. Then how do I create money out of that? We’ve started with mortgages, then what I’ve done is because I’ve got their asset liability statement, we’ve started to add on products and services of our own around those principal assets which are deposit bonds, insurance and then the announcement we made last week was about lease finance and we’ve got a joint venture for wealth management as in super funds but we don’t do it, we just refer the leads. So of course I have the network in terms of distribution then I have the network in terms of products and services.

Could we talk a little bit about the lease finance business because obviously that’s an area that’s going to affect SMEs. Do you get a sense of how bad the situation is?

Well, coming out of the GFC it must be pretty damn chronic because there is no overdraft facility, there is no availability of loans to SMEs for running their business. So my view has been for a while, unless they asset finance their growth, the economy is strapped. I can’t remember the statistic but this economy is not as big as Germany but in Germany something like 75% to 80% is fuelled by SMEs.

I think the employment figures are similar here.

And WA has got the highest statistic bar none. So if you’re going to have your SMEs fuelled, your economy is not going to fire.

I mean from what you’re saying, do SMEs need to look at it differently? Instead of going to the bank and grabbing a big pile of $3 million, you need to look at every little different bit of your business and think about the funding options for those?

They do, because I think if they went to the bank and asked for $3 million, they wouldn’t get it.

Exactly, but they might get $300,000 for that bit of equipment.

Correct. And even that driver last year was impinged. We’ve come back at the market because we believe that that market exists, it’s tight but I think there’s an ability to fund that from some discussions I’ve had with some overseas financial institutions because Australia is an attractive market, we’ve come out of the GFC better than everybody else. I can get funds, either wholesale or top up funding or new funds from overseas. So I’ll be able to top up say a product we’re going to get at 60% to 70% lend, I’ll be able to top up by 20% to 30% with overseas money.

Is that going to be difficult to get that money do you think?

No. Money is relatively easy to get. Everything is return driven so there will be a rate difference. But at the end of the day, most businesses, SMEs, they’re not entirely rate focused. They’re actually short of capital and governments are not issuing capital, banks aren’t issuing capital. So if I’m paying an implied rate instead of a mortgage rate of 7% but I’m paying a leasing rate of 12% or 13%, that’s the difference between me trebling my business or not. It’s just an expensive business but that market’s very tight at the moment.

That’s the thing that’s going to kick start the real economy for the SMEs. It was interesting actually I just got an SMS yesterday from Singapore. The Singapore Government has come out with four criteria to get loans for businesses, SMEs, but really simple. We make everything very complicated. And the finance on that is like 3.5%.

And is that coming from the Government?

The Singapore Government. But better than putting in roofing insulation, why wouldn’t we give the SMEs finance?

Very good question, very good question. So is there any opportunity there immediately or in the longer term as the economy recovers?

I’m not going to wait for the economy to recover; my personal view is the economy has already recovered. I mean the guys that we’re talking to are bullish, they’re SMEs, they want to grow but they need finance to grow. So my job on the back of that demand is to go out and find money to fund that growth. So I’ve got to go and find either domestic money, hedge funds from here or I’ve got to find institutional money from China, Singapore, the US.

But it is around?

Oh yes, it is around. I mean, our level of returns here are significantly better than Europe or the US.

Given you’re on the ground in the mortgage sector, are you looking at house prices fearfully or are you perhaps looking and thinking there are a lot of people that are going to need to refinance in the next little while?

We’ve seen the growth but I’ve sat with a fair few economists in the last few months and I tend to think that one of the things we only ever hear is one side to the equation, which is the property price, but nobody ever focuses on the other side of the curve which is why is the price going up? And that is there is a shortage of supply so why doesn’t anybody talk about supply curve?

So what is driving the demand? And we know where the lack of supply is, that’s state government not federal government. Builders aren’t getting involved because there’s no money to build from the banks or from what I hear it is about land release, land releasing is slow, but what is fuelling demand is that we are going to go from 25 million to 36 million people. That means that every 12 to 24 months, there are one million new people in Australia. We are already 150 thousand houses short, plus a million people who are all skilled migrants, they are all aspirational, middleclass people who are looking for somewhere to live. So I don’t see where the supply curve is going to catch up with that sort of demand anytime soon.

From a Firstfolio specific point of view, you guys are from a financial point of view at the start of a turnaround phase. Looking forward over the next 12 months, what is the main priority to keep that revenue and profit growth going? It is cementing the distribution network or do you need to keep adding acquisitions as aggressively as you have been?

You can actually make more money if you stop. If you look at the RAMS business, they are actually making more money now that they are closed and just running the book off. But that doesn’t have any future, a long-term value proposition for shareholders is based on the fact that we have to grow profitability but also create a new business that has life above and beyond a rent roll.

And so it is always a difficult strategy when you are growing so fast, or a conundrum when you are growing so fast, to increase the profitability and keep the momentum growing and so I am constantly balancing the two. I think we need to be, if I have a five year vision, I think we need to be double the size of our books, so not $20 billion but $40 billion. I think we need to have income from other products, diversified products, as 15-20% of our business. I think in the short-term we can be 10-15% but 20% long-term.

And that is a trade off. I can make more money, more profitability and more cash for the shareholders, but I want to create a long-term business for them that has got legs, and that needs to be bigger. We need to grow the distribution network, we definitely need to look at how do we create bigger brand presence on the web, how do we expand multi-brand strategy, and then how do we fit in multiple products around the web strategy. There will always be in Australia an element that wants retail, so we can’t ignore the retail, and I haven’t ignored it and we will keep growing that bit but I actually view the long-term strategy as being a connection between web and physical interface. To me at the moment this physical interface is 30-40%, but in the future the physical interface is 10-15%.

The last part of my strategy is, at some point in time we will take the business international. We have already been approached by China, Malaysia, Indonesia and the Middle East and I think we’ll take the eChoice brand and methodology internationally. We won’t necessarily run it but we will find a joint venture partner. I am well aware of the risks of Australian businesses that go internationally, I have been an ex-pat for 20 years, we would look at mitigating that risk by splitting the entity and calling it eChoice International, for example.