Success while others are failing

The deal with Wizard was obviously the one that attracted the most headlines in the past 18 months. From your perspective, what has been the secret of your recent success?

During the last two years when the global financial crisis started and sent shudders through all businesses, including our business, it was a matter of trying to ascertain ‘What does it all mean?’. It was time when I could take stock and say ‘What do we need to do? Notwithstanding the good business that we have, how do we insulate ourselves?’ or even better, ‘How do we take advantage of what is going to unfold and what opportunities will there be?’.

I have always found in life that when uncertainty exists, tremendous opportunities arise – and that goes right back to when I started Aussie in the middle of the last recession.

I nearly went bankrupt then when I had a joint venture with the Bank of South Australia, owned by the state government. I naively thought they would never go broke, they’re owned by the government.

So I have always been one that when uncertainty comes in there is a part of me that says ‘Right, when opportunities come up make sure you are fit enough to pounce on those’.

With the dramas [of the financial crisis] I was approached about 20 months ago by Commonwealth Bank to talk about whether or not I had any interest in them acquiring a minority interest.

I have always said no to numerous approaches over the past 17 years. But because of the financial crisis I wondered what my wish-list would be in this downturn. There’s no credit funding, so wouldn’t it be great to have access to wholesale funding when competitors don’t. Wouldn’t it be great to have access to a balance sheet to acquire something where organisations like ours don’t have big balance sheets.

That was 18 months ago and we ended up agreeing on terms and then a year ago we settled that deal where they acquired 30%. That gave me the confidence to see what was out there and the Wizard opportunity arose, but we didn’t have much time to act on that because the National [Australia] Bank had exclusivity when it came out and we only had a couple of weeks to do things under the radar.

By my having a shareholder like Commonwealth Bank, [Commonwealth] agreed to acquire $4 billion of the GE-funded home loans. I could never have done that, because it would have cost billions of dollars!

So [that is] the reason why we did that deal with Commonwealth Bank and I still retain total authority and running of the business because they are a minority shareholder. It paid instant dividends for the bank, because they ended up taking around two and a quarter billion in cherry picked prime customers with low LVRs who never missed a payment, which was instant gratification.

I had the opportunity to then buy distribution from Wizard, for a firesale, which gave us scale in terms of our size. We now have 800 finance brokers and we have
150 Aussie shopfronts and franchises.

The last 18 months have meant you had to embrace change. You had to have the courage to make decisions. I am a very independent person – I will have had this business 18 years by next February – and I have never wanted partners.

Notwithstanding the fact we have been one of the most profitable businesses in the sector, yet I still saw the opportunity of making dramatic change by allowing our biggest single competitor – going back years – onto our share register because I could see benefits for both them and for Aussie.

It is all about embracing change and taking a positive attitude to ensure that you can seize on opportunities – and you have to expect the opportunities to come. Too many people pull down the hatches and jump in the trenches and just curl up and hope for the storm to blow over. The smart operators can see that there will be once in a lifetime opportunities that will come up and go looking for them and have the courage to actually make hard decisions quickly.

What have been the challenges for you through that process?

The challenge is ‘how do you integrate?’. Integration is always high risk. You have different cultures, you have a lot of capital that needs to be put in to the process of integration.

When we did the deal there was no guarantee that one Wizard franchisee would come across to Aussie. We were buying the actual franchise distribution, but it was subject to each individual Wizard franchisee agreeing to come over to Aussie – they didn’t have to.

We took a measured risk on that and fortunately we got about 85% of them come across, comprising 97% of the good operators.

That was a risk.

The integration was also a risk in terms of bringing another business into ours that impacts on every facet of our operation, from technology to training to disciplines to product differences.

Aussie had never gone through this before, but it made me very proud when I had a look at every division of the business throughout the country. They all did their job and the transition was as seamless as we could have possibly have ever hoped for. There were huge challenges and sleepless nights and chaos.

But when you talk to all the ex-Wizard people who came across they are saying that it was a great move, the brand is better, the systems and management and resources are better. It has turned out to be a great story and we are now writing record business.

In fact we had our most successful year in the last 17 years in the last 12 months. It was the most successful in growth, the bottom line and every facet of the business and yet it was also a historical year that will go down in history as catastrophic for many organisations.

You have long been a champion for consumer rights over the journey, but how do you see the market for consumers now? It seems like there has been a shrinking of competition.

There has been a shrinking of home loan providers and one of my best decisions I ever made was eight years ago, when we changed the business model from being the largest mortgage originator, where all our business was in Aussie home loans. We were the first to introduce securitisation in 1994 when we partnered with Macquarie Bank to bring it in. That created the industry, then RAMS followed and copied us and Wizard and a whole industry was born. Cheap money was sourced offshore as well as from the domestic market and that bypassed the banks and mums and dads got interest rates that were 3% cheaper and that forced the banks to drop the interest rates.

My decision to change from being an originator totally reliant on the global credit markets to turning myself into a large supermarket of home loans, where we offer 2000 different home loans to consumers, that turned out to be a very important decision because we haven’t been exposed to the credit markets as much as everyone else.

We would still process $1.5 billion a month in new home loans, but 95% is brokered off to the banks and other lenders, so we aren’t relying on the credit markets anymore.

We are purely broking plus we have leveraged our brand over the past five years to have a successful Aussie MasterCard credit card business. We have now rolled out mortgage protection insurance, general car insurance, car loans, personal loans, and life insurance so that we are diversifying our income stream while we are growing our home loan share.

We ‘de-risked’ reliance on the credit market eight years ago, we leveraged the brand to diversify some of our income by getting into other home-centric products beyond home loans and to gain scale we have acquired Wizard Home Loans and we have partnered on a minority basis with the biggest bank in the country that better understands home loans and property than any other bank. We have positioned ourselves to be very strong and in a position where if we want to do an acquisition we could do it. We are also reaching out to so many more consumers because we are giving them what they want. Consumers want two things: trust and choice. Having 800 brokers, 150 shopfronts and growing with more products, we are positioned to do extremely well in the years ahead.

What is next for Aussie?

We believe that we should stick to home-centric products. We don’t want to go out and say we will sell cheap cars or cheap crystal glasses or watches. We have to
stick to home-centric products whether it is the mortgage, the credit card, the car loans, the personal loan, the insurance on the house or on your life. We are also looking at financial planning to give people a choice – especially mums and dads who are not high flyers and who understand very little about financial planning. Over the next 12 months I would expect us to incorporate a financial planning business within Aussie,
but we will also be growing our market share. Currently we are around 7% of new home loans in terms of people we are servicing but we think that can grow to 10-15% over the course of the next 18 months to two years.
Our numbers will swell. We are getting more and more people wanting to join Aussie because they can see we are very strong and we have one of the best consumer brands in the land. We have a big bank which has a minority interest and doesn’t involve itself in the running of the business and our focus is very consumer focused. We are getting more and more people wanting to join because they like what we have to offer. So we see ourselves offering more employment and serving a far greater number of people in the community and also giving them choice of service distribution – do they want to go into a shop or do they want us to go into their home or workplace at any time that suits them. We give them the choice of which channel they would like to deal with and which products are available. We are not out there saying a Holden is better than a Ford, we will just give them the whole range and help them come up with the best solution for their circumstances because everyone’s individual needs vary. We want to continue to be able to provide that choice with a reputable brand behind it.

You mentioned earlier that the company is soon to turn 18 – what are the major lessons you have learned while building Aussie?

Focus is critical. I am someone who doesn’t have any other business interests. I am not the director of any other organisation. I support some charities and I have never played the stock market.

I am all about focus and commitment and not diluting your resources or time and energy by spreading into different things. That has worked very successfully for me.

Embracing change is absolutely critical. As a youngster I grew up in the back of fruit and veg shops with my mum and dad – I went to 11 different schools because they would buy a greengrocer’s and do it up and 12 months later we would move onto another one and I would go to a new school. As a young kid in primary school I got to embrace change as part of my life. That helped me in later life in my working life in understanding and embracing change. We have never seen as much change happening as we do now and unfortunately for most, change has to be forced on people for them to actually alter the way they do things. I have been fortunate to grow up understanding that change is part of your life and will always continue.

I have also learned that you need to inspire and motivate the people who work with you. You need to communicate so they understand what the vision is and the strategy and why we are doing what we are doing. They need to know what the impact will be for them and for the community and you have got to get them to buy in.

I have always said that my number one customers are the people who work with me because if they don’t buy in and trust the decision making, then it won’t work because as you grow you are relying on the team to fly the flag – you can’t do it on your own anymore.

I have also learnt that senior executives need to get out there with the troops. I spend half my time flying around the country meeting all my team. We have gone from 24 franchise shopfronts to 150 because of the Wizard deal so every week I try to visit four or five or six of them out in regional Australia or Tasmania or wherever. I go and meet their customers or invite their business partners to have a coffee and meet with them all to have a chat so I am out there making sure that myself and my senior team are seen by our troops out there, rather than being an organisation where we are in our bunker in head office and not understanding what is going on in the real world. I have always been a believer in that. When we first kicked off Aussie for the first four years I went out and saw people and physically signed off on their homeloans. You have really got to get your hands dirty and understand your business and the only way to do that is to get out with the troops and customers and understand that consumer needs change all the time and consumer groups change all the time.

You recently announced that some Aussie brokers did a deal on Facebook didn’t you?

It was on Twitter. One of our franchises just stumbled on it. It just goes to show that you have to stay on top of the social changes that are going on all the time.

It has been a hell of a journey, but I am still learning every day and I am enjoying every minute of it and I am pleased that I don’t have any other business interests because I have my hands full here. I am very hands on and loving it.

You might not consider it a business interest, but don’t you invest in horses as well?

Yeah, but that is just a hobby, you lose money on them. I’ve also got my boat, that is also an expensive hobby.

In terms of actual business where you expect to make money, I don’t have any others of those.

So horses aren’t a great investment?

No way in the world. [Laughs] Even though years ago I shared in the ownership of the Australasian champion racehorse, even with that I am still way behind.

There is a difference between hobbies and true business. Anything that flies, floats or feeds is a bad investment.