Harmoney Corp Limited (6DR.F) Q1 FY2026 Earnings Call Transcript & Summary

Good morning. I'd like to welcome you to the Harmoney Corporation Limited Q1 FY '26 Investor Presentation. With us today, we have Mr. David Stevens, CEO and Managing Director; and also Simon Ward, the Chief Financial Officer. A bit of housekeeping. The Q&A box down the bottom is open through the course of the meeting. At the conclusion of the presentation, we will get around to answering your questions. So please feel free to populate that through the course of the presentation, and we will fill those at the end. Over to you, David, and many thanks for everyone's attendance.

Thanks, Michael. Hello, and welcome to Harmoney's first quarter 2026 trading update. I'm David Stevens, CEO and Managing Director of Harmoney. With me today is Simon Ward, our Chief Financial Officer. We're looking forward to updating you on our progress during the first quarter of our financial year '26 and then answering any questions you may have. So turning to Slide 2. Today, I'll begin with an update on our financial year '26 profit guidance, followed by our first quarter financial results, an introduction to our secured loan product now launched, then finally, an update on our capitalization and funding before moving to answering any questions you may have. Now turning to Slide 3. We are reaffirming our financial year '26 cash NPAT profit guidance of $12 million, which represents a 111% increase on the prior year result with our first quarter delivering both loan book growth and risk-adjusted margin growth in line with our expectations. One feature I'm particularly pleased to announce is a strong return to growth experienced in New Zealand with originations up 50% on the prior comparative period following the full implementation of Stellare 2.0 in New Zealand last quarter. The New Zealand loan book has transitioned from a contracting last year to this quarter growing at an annualized rate of 10%. We remain confident that we are on track to finish the year with a loan book over $900 million, while delivering a full year net interest margin of approximately 10% and a risk-adjusted margin of over 6%. Costs continue to remain a focus and remain firmly under control. These factors combined enable us to maintain full confidence in delivering on our $12 million cash NPAT guidance for this year and continuing to grow this in the years to come. Now turning to Slide 4, providing our key metrics for this quarter. Our loan book has now grown to $833 million, an 8% increase compared to the same point last year. This top line Australian dollar growth is actually suppressed by the weaker New Zealand dollar, which fell 6% between 30 June '25 and 30 September '25. In underlying currency, the Australian loan book grew by 18% to $502 million and New Zealand loan book grew by 1% to NZD 378 million. We are not anticipating the weaker New Zealand dollar to have a material impact on our financial year '26 cash NPAT result as the business benefits from significant natural hedging with most of the cost base in New Zealand. The strong growth in both markets is driven by the superior origination performance of Stellare 2.0. In Australia, where Stellare 2.0 has now been operating for close to 18 months, originations increased by 15% on Q1 '25. In New Zealand, where Stellare 2.0 was only implemented in June '25, originations increased by more than 50% on Q1 '25. Our net interest margin has continued to improve, up by 140 basis points to 10.3%, driven by new lending NIM, which continues at over 10%, making up a larger share of the portfolio as older loans run off. Credit losses for the quarter are stable at 3.8%, with New Zealand credit losses up slightly from a historically low base. We expect credit losses to remain stable over the remainder of the year, particularly with Stellare 2.0 now operating in New Zealand. Stellare 2.0 has been operating in Australia for well over a year now and is already delivering lower credit losses. 90-day arrears are up slightly to 0.77%, but still very low at less than half the Australian market average. Our risk-adjusted income, which is our core measure for Harmoney is our income after both funding costs and actual credit losses improved to 6.5%, up 130 basis points from 5.2% for the comparative first quarter last year, driven by widening NIM, while holding credit losses stable. Stellare 2.0's deep automation and the scalability it provides is evident in our exceptional industry-leading cost-to-income ratio of 19%, which remains a strong focus for the business. Now turning to Slide 5, which provides an update on our secured auto loan product launched on Stellare 2.0 during late September. A key driver behind our implementation of Stellare 2.0 was to provide a modern, agile platform on which we could accelerate our product innovation. So I'm really pleased to announce that in late September, only 3 months after completing our Stellare 2.0 rollout and migration across the group, we've launched a secured car loan product on Stellare 2.0, leveraging its money and second capabilities to provide customers with flexibility to become a cash buyer, shopping with a competitive preapproved secured credit line, not dependent on dealer finance options. We are confident that our innovative approach to automotive lending will appeal to a new cohort of customers from a large market that we currently underserve, enabling us to accelerate our loan book growth, while maintaining a strong risk-adjusted margin. Our value proposition empowers customers to become cash buyers, strengthening their negotiation position. We all know it's cheaper for cash and freeing them from expensive, confusing and pressure dealer finance options, enabling them to drive away on the day. The key to our innovative approach is that we continue to make our credit assessment on the individual, not the value of the asset as ultimately, it's the individual who pays a loan, not the car. This also enables us to provide 100% of financing, so no separate dealer deposit required on the day. And as with all our lending, our car loan is 100% digital online process, seamless, fast and frictionless from application to approval with money in the customer's account in seconds when they need it. Our focus is now on market education, promoting the finance first cash buyer, shop second mindset via targeted digital campaigns. I look forward to updating you on progress through the year, as we explain the benefits of this innovative product to more customers. Now turning to Slide 6, which looks in more detail at our capital position. Harmoney has a well-diversified funding program with warehouses from 3 of the big 4 Australian banks as well as being an established capital markets issuer of asset-backed securities. As is typical with warehouse and asset-backed securitization funding arrangements, Harmoney's own money is also invested in its loan book. The strong credit quality of Harmoney's loan book means that we can be extremely capital efficient with borrowings supporting 96% of the current loan book and Harmoney providing the remaining 4%. That capital efficiency also means that Harmoney's existing cash -- accessible cash reserves of $35 million are sufficient to support a loan book of up to $1.5 billion without any need to raise equity. In addition to those existing cash reserves of $35 million, Harmoney being cash profitable enables us to reinvest those profits as our equity in further loan book, taking growth well beyond the $1.5 billion supported by existing cash reserves. In December, we expect to apply $7.5 million of our $35 million available cash reserves through refinancing our $22.5 million corporate debt facility and reducing the drawn balance to $15 million on materially improved terms. Now turning to Slide 7. We're about to move to answering your questions that have been raised during the presentation, but I'd like to take this opportunity to remind you that Harmoney has set up Investor Hub, which is a dedicated platform for investors to learn more about us and engage directly with Harmoney's leadership team. I'd encourage you to sign up as this is where we regularly post new content, including videos accompanying our ASX announcements, interviews, research reports and webinars. If you think of any questions after today's presentation is completed, I'd encourage you to log in and ask those on Investor Hub. We will endeavor to respond as quickly as we can. We'll now turn to answering your questions. Further note, there will also be a recording of this presentation on our website later today.

Thanks very much, David. A few questions have now coming through thick and fast. The first question is just in relation to the progress of the share buyback and what proportion of the 5% has been repurchased so far.

Yes. So the buyback is in place up until, I think, around the end of April 2026. We -- I don't know the exact number we've purchased. We have -- obviously, we do a notification the day after we do any buyback online, so it can easily be added up, but I think it still will be under probably 1%. So we're -- as I said earlier at the full year results, we're looking for the most efficient way to manage our capital. And one of the things I've mentioned here is repaying very expensive corporate debt, which obviously is accretive to shareholders as well. So we will just manage that as we go, and that's in combination with that capital reduction of the corporate debt and then sort of look to buy back shares as and when we feel appropriate.

Yes, sure. Question just in relation to the NPAT line. How does that translate NPAT or statutory or underlying versus your $12 million cash profit, maybe should be guided by some of the research out there, David. Not sure.

Yes. If the question is what's the statutory profit, we haven't given guidance on the statutory profit. You can see the adjustments that are made that there's no change to those adjustments from cash to statutory.

Yes. What credit loss percentages are you comfortable with? At what level would you begin to tighten your credit criteria?

Yes. Look, we obviously run at over 10% net interest margin. So we are comfortable running losses between 3% and 4%. That gives us a risk-adjusted margin, which is our key measure of around that 6% or there. Obviously, it does move around a little bit. But as long as we are sort of targeting around that 6% or greater, that's the key line I'm looking at. So I hope that answers your question.

Okay. Just moving on, a question here from Lachlan. Other nonbank lenders originate auto loans through brokers. Can you explain why Harmoney decided to target 100% online approach and what would be the negatives of using brokers as a funnel and did you choose to go online only as it's difficult to get broker access, et cetera?

Look, I'll probably answer from the last question first. We're 100% direct-to-consumer business. We're not set up to be managed brokers. I've done plenty of that in the previous life. We're 100% online business. So that's why we've chosen to go down that path, not because we haven't even -- we haven't even gone to a broker. So that's just not a consideration for us now. We want to leverage our existing platform and our existing way of originating customers, and that's the reason why and that's why we've made our product in a way that doesn't require an intermediary or third-party dealer or broker to sit in the middle.

Any upcoming refi, David? What would the company's expectations be on savings annualized from that refi?

Yes. Look, I'm not going to disclose the exact details of that. Obviously, the refi is still in progress. We expect that to be done this calendar year. And we said it's a material reduction. So I think we can leave that one there.

Well, that further leading to that debt refi, question is around any potential sort of upside risk to the guidance.

Look, the existing facility runs basically until Christmas. So there's not going to be any change in this quarter. And then obviously, it's going to be -- we only got 6 months of the year left. So look, we'll continue to monitor that and -- but I'm not providing an upgrade at this point in time.

Very cool. With the new secured car loan, what are your expectations around NIM and risk-adjusted NIM to look like compared to the group as a whole or group average?

Yes. That's a good question. Look, we -- it may be a touch lower, particularly as we started off, but the risk-adjusted margin is what I really care about. It's not the NIM. So that 6% we target. Look, cars may be a little bit lower than that, probably a bit early to say. But because we're leveraging our platform, where we're not adding cost to the OpEx of the business to do it. So anything we can add at a good customer acquisition cost is really accretive to the business. So we've got a little bit of flex on that. But obviously, the weighting of the group is still predominantly unsecured. So you're not going to see any near-term major changes to that 6% risk-adjusted margin that I've talked.

Okay. Moving on this question is around customer acquisition metrics. What are you seeing out there just in relation to new customer cost of acquisition?

Yes. Look, it's pretty consistent with what it's been historically. We're not seeing -- there's no new sort of competitors per se. We spend a certain amount direct every year, and we are always spending a similar amount to what we have in prior years.

Fair enough. Question just around average loan values for new and returning customers. Is there any expectation of any sort of material changes from 17,100 and 12,800 in FY '25 after you adopt the adoption of the new platform?

Yes. Look, not -- I wouldn't say so, not material, like it might move around a little bit. I wouldn't expect there to be. Obviously, if we start doing more cars, it might tick it up a little bit because they tend to have an average high deal size. But no, not expecting too much change to those numbers.

Sure. A question around, obviously, the new secured car product. How much lower are you expecting the credit losses to be given we're talking about a secured car product versus unsecured?

Look, I think we'd be running around market average. The market average is around 1%, maybe 1.5% for losses. So it is materially lower. And that gets back to my earlier point around the risk-adjusted margin being -- targeting that's what we target, right? So the NIM is kind of irrelevant for cars. So it's what that risk-adjusted margin is, and that will be incorporated into that.

A question around the drivers of NIM, obviously looking at the expansion, is that a result of higher average interest rate or lower funding costs?

It's really a combination of both. It's -- our pricing -- our book has gone up in terms of the weighting of higher interest margins. And then our funding costs have come down a little bit as well. So -- and as we said in the presentation that as the more of the newer stuff makes up a larger percentage of the outstanding loan book, it flows into that number. So yes, look, we've got great funding in place at Harmoney, 3 of the big 4 banks, we're really well supported, great margins from funders. And then also, we feel we've got a good product that's priced well for the customer that we're lending to. So yes, look, we're very happy with where the NIM expansion sits from both sides.

Okay. A question, David, obviously, we've just launched the new car product to the market. I got a question here from Warrick, who is just asking what other new products, new choices has Harmoney got out there?

Yes. So in our full year, we gave a bit more color around that and that hasn't changed. So a customer app is quite important to our business and that touches on the car product, it touches on our existing product and particularly around our retention piece. And then obviously, we've got a product modification of the different product around the revolving type facility that we're looking at as well. So I think that will probably be the main things, the main sort of things from the external standpoint that come to life in this financial year. But the product team are working on many, many more things than what we put in our presentation. So look, the beauty of the new platform is we're able to do this now. We were never able to sort of get to this sort of innovation piece historically. So look, lots to come, and we're super excited about the team and highly engaged with being able to get new products out. The fact that we got the card product out in the first few months. So we only finished migrating the system at the end of June last year and launched 2.0 across the whole platform. We've already got a new product out. It's important we get that new product -- it's not just good to launch products. You've got to actually make them sizable and earn money from them as well. So it's important we don't just throw a product out and sort of go on to the next. We've got to make sure we establish that one in. It's a huge market that I really want to get a small share of, will make a huge difference to our numbers. And then obviously, we've got big engineering team and product team to keep the same number in place what we had when we were doing the migration because now their focus is on product innovation and we're really, really keen to get our teeth into that.

Thank you for that. A question around cash OpEx. Obviously, there's been quite a bit of stability in the last 3 years. Is there an expectation that cash OpEx in FY '26 to be any different for the last 3 years?

No, nothing materially. Like obviously, we've got to pay people more and inflation and those sorts of things, but it's only really that. We're committed to that cost-to-income ratio we run. We're not -- as I said, we're a platform-based business and I've been saying this for 5 years now. This business has leverage. It's not a business to just to keep throwing heads at it to make it work as a platform. And why we talk about our platform more than others is for that reason, that is our business. That's our #1 and really only asset. When I look at purely outside of people, that's the asset of the business. It's a platform. And that's what drives this business. That's what operates 24/7, 365 a year. And we've got the right people in place to manage that. And it can be a lot bigger, can be double or triple the size of this business with adding minimal OpEx to it.

Thank you for that. Question here from Steve. Are you still assuming 140% additional lifetime borrowing of the customer compared to the original loan? Or is this figure sort of moving upwards or downwards based on observed recent behaviors?

Well, we update it every 6 months in our presentations to the market and it remains very consistent with that number. So yes, it might move around a little bit, but it's generally around that number. So yes, no, we're not seeing any change there.

Okay. Coming to a final question here. Any comments around loan runoff rates in both markets?

No, there's no real change. It's a bit consistent with what we've forecast and sort of historical run rates.

Another late one coming in. Do you see white labeling your lending platform for other financial institutions where we've got a broader and larger customer base?

Yes, absolutely, that's an opportunity and that's the system is built in a way that where we could do that. We -- and that's something that remains on our sort of strategic priorities. But that's not something we've got built into guidance or anything like that. My experience with dealing with large institutions like big 4 banks and that, it can be a very slow burn sort of thing. But obviously, the customer bases that can be there at the end are quite significant. So it's worth -- we're certainly looking at that space.

Okay. We'll just pause there just for any late questions to come through, David and Simon, just. I think we're pretty exhausted there, David. So I might actually throw to you for -- hang on. Sorry about that. Any thoughts on the competitive landscape? Have you noticed anything changes in behavioral strategies that positively impacting your business?

Not really. Look, over the long term, we'll see some other parties come into the direct space a little bit for a month or 2 and then disappear again -- but that's been happening for years and years. So there's been no new entrants in the space. I'd say in short, no. It does it change a little bit from month-to-month or week-to-week, it does a little bit. But on average, it's been staying the same, has done for years now.

Fair enough. I think there's a follow-up question from the question we asked about partnership with other financial institutions. The question from anonymous is, could you sort of -- is it what potential partners could be?

Yes. Look, I'm not at liberty to say that now, but I think you can probably -- we run a very successful personal loan product direct online to consumer where you don't need branches and things like that to originate. We're obviously launching a car product now. So I think you can probably work out which businesses offer these types of products and may not do them that well. And that would probably be the low-hanging fruit right from the big end of town right through to sort of more mid-level. But yes, it's exciting. It's exciting to be in a place where we can actually look to do that now.

Okay. I've got a question here from Bill. I assume this has to do with geographic -- any potential geographic expansion like markets beyond New Zealand and Australia?

Yes, not as yet. The platform is built in a way where it's global in terms of the way that -- what it sits on, but we feel there's enormous opportunity in front of us in both Australia and New Zealand. And I want to execute on those, and I don't want management distracted by something beyond these two countries because that comes with distraction. And we've got a lot in front of us in the current markets that can make this business a very, very strong, successful, growing, profitable business. It's -- I just want to make sure we execute on those rather than getting too caught up in further geographies, but maybe something on the table down the track.

Lovely. We've got no open questions now. So I think we'll close the Q&A. David, I might throw it to you for any closing comments.

Yes. Look, thanks, Michael. Obviously, we gave guidance out only a few months ago. I think in summary, it's going -- everything is going as planned. We're very excited about the new products we've launched. We're excited about refinancing our corporate debt. We're excited about just growing the business organically in both regions. It's great to see New Zealand performing really well post the implementation of Stellare 2.0 and that's been a little bit of a negative for a while, and that's really, really started to turn around, which we're very excited about. But yes, look, I think first quarter is, obviously, you wouldn't want to see much difference from what we said a couple of months ago. And I think we really -- we're on the right trajectory. So thank you for the interest and look forward to chatting to you next at our AGM in December that will be fairly brief. And then obviously, our full year -- half year results in February. Thank you.

Thank you. Any follow-up questions, again, as David said, please feel free to use the Investor Hub platform on the company's website or feel free to reach out directly to Ethicus Advisory Partners. We're happy to also accommodate any corporate access for any interested parties. Anyhow, again, thank you for that and enjoy the rest of your day. Thank you.