Harmoney Corp Limited ($HMY)

Good morning. Welcome to the Harmoney Corp Limited Q3 FY '26 Investor Presentation. This morning, we have MD and CEO, David Stevens, presenting alongside Simon Ward, Chief Financial Officer. Just as a matter of housekeeping, David and Simon will undertake the presentation, and we will field questions at the end of the presentation. So if you do have any questions, please use the Q&A box to fill those questions, and we'll happily accommodate the answers for that. So thank you for attending this morning, and I will pass over to David. Many thanks.

Thanks, Michael. Hello, and welcome to Harmoney's Third Quarter 2026 Trading Update and Presentation. I'm David Stevens, the CEO and Managing Director of Harmoney. With me today on the line is Simon Ward, our CFO, who will be available to join me in answering your questions at the end of the presentation. Harmoney has continued to produce very strong performance across all our key metrics this quarter. With Stellare 2.0, we are continuing to seize a huge market opportunity we have in front of us, enabling us to reaffirm our financial year '26 cash NPAT guidance of $13 million. Now turning to Slide 2. Our outstanding performance in the year-to-date has provided the confidence to reaffirm our guidance of $13 million cash NPAT, which we increased from $12 million at the half year. As you can see from the chart, this guidance represents a 128% increase on last year's result and a phenomenal compound annual growth rate of 331% since financial year '24. This growth trajectory is driven by the continued impact of Stellare 2.0, which we expect to propel our year-end loan book to over $900 million and a net interest margin of around 10% and a risk-adjusted income of around 6%. Risk-adjusted income is our income after funding costs and actual credit losses and one of our core efficiency metrics. This is a clear reflection of the scalability of our platform and our team's ability to execute. Now turning to Slide 3. So now looking at the key year-to-date metrics driving our strong profit guidance. Our group loan book grew by 10% on the prior comparative period to $879 million. Even more impressive is that this headline growth masks even stronger underlying growth due to the suppressing effects of the current weak New Zealand dollar, which is at its lowest level in 12 years. Our Australian book has grown by an impressive 17% to $544 million, now representing 62% of the total loan book. And our New Zealand loan book has grown by 9% in local currency to NZD 402 million. This strong momentum was driven by the enhanced efficiencies of our Stellare 2.0 platform, which lifted originations by 19% in Australia and over 50% in New Zealand in local currency. Our lending margins also remain exceptionally strong. Net interest margin on the loan book increased by 120 basis points to 10.3%, with new lending NIM continuing at over 10%. Meanwhile, credit performance remained stable, with credit losses flat at 3.8% and our 90-plus-day arrears continuing to improve to 0.62%, which remains at less than half of the industry average. The combination of higher NIM and stable credit losses increased our risk-adjusted income margin by 120 basis points to an impressive 6.5%. Finally, our high levels of automation continue to provide significant operating leverage, bringing our cost-to-income ratio down further to 18.2%, which remains exceptional for the industry. Now turning to Slide 4 and then on to Slide 5. I'd like to remind you of one of the most important aspects of our business model, our customer flywheel. When Harmoney acquires a customer, we're not thinking about a single transaction. We're thinking about an ongoing relationship that builds over time as customers' financing needs come and go. The data here tells a powerful story. Our history shows that on average, our customers borrow an additional 150% after their initial loan. So if someone takes out an $18,000 loan initially, they subsequently come back for another $27,000 over their lifetime with us. Here are the economics that matter. That first loan costs us around 5.6% in customer acquisition cost, or about $1,000. Each time that customer returns, the cost of acquisition is near 0 due to the existing direct relationship. This is pure margin expansion. On this slide, you can see the 4 interconnected stages of the Harmoney value flywheel, all powered by our Stellare platform. Let me talk briefly through how this creates compounding economics for Harmoney. Stage 1, customer acquisition. We start with smart, targeted acquisition. Our algorithms work alongside Google's to identify prime customers who are actively looking for credit. People with strong credit histories and genuine intent. We're using over 10 years of proprietary data to find exactly the right customers, and that precision is hard to replicate. Next, Stage 2, deliver experience. We're next focus on delivering an experience that makes our customers want to come back, minutes to apply, instant decision and money in minutes, generating a 4.8 out of 5 star rating with over 60,000 reviews. This isn't just good service. This is creating customer delight at scale through automation. Every interaction builds trust and increases the likelihood they'll return. Then Stage 3, customers returning. This is where it all happens. Because we already have a direct relationship with our customers, subsequent lending CAC is near 0. And so far, on average, customers come back for a further 150% of their loan value over time. Because we've already covered our acquisition costs, the net income on every dollar of additional lending is nearly pure margin. Then finally, Stage 4, data intelligence. This stage is what makes the Harmoney flywheel truly defensible. With every loan, we generate more first-party data, which makes our AI and decision models better. Better models mean better decisions, lower losses, and the ability to approve more customers safely. It's a virtuous cycle that is hard for competitors to replicate. This isn't theory, these are actual results, and the beauty is the flywheel is accelerating with Stellare 2.0. Moving to Slide 6. Now let's take a look at how we are deliberately accelerating each stage of this flywheel over the remainder of this year and next financial year. First, the blue box, customer acquisition. We're expanding who we can safely serve. Stellare 2.0 has already proven this with originations up 29% from the prior comparative period. We're using next-generation AI to approve more customers while maintaining credit quality. We've also started exploring embedded finance partnerships with auto marketplaces, which could open significant new acquisition channels. Second, the green box, deliver experience. We're increasing the value we capture per customer through our auto lending product. This isn't just adding a product, it's about becoming the primary lending partner for life events. When a customer needs a car loan, we want them thinking of Harmoney first. Early results are promising, with our vehicle loan book up 19% since this time last year. Third, the red box, customer returns. We're accelerating the velocity at which customers return by building a mobile app with 1 click loan access and launching revolving credit to reduce friction when customers need additional funds. Finally, the yellow box, data intelligence. We're investing in next-generation agentic AI for personalization at scale. Think of it as giving every customer their own private banker, automated, intelligent and getting smarter with every interaction. Our proprietary first-party data creates a defensible AI advantage that's extremely difficult to replicate. A key insight here is that these initiatives are interconnected. Better AI means we can serve more customers. Multi-product households have higher lifetime value and lower churn. Faster return cycles mean better economics. It all compounds, and we're making significant progress on each one. Now turning to Slide 7. Next, I wanted to provide an update on our innovative secured auto product, which leverages Stellare's money in seconds capabilities to provide customers with the flexibility to become a cash buyer, shopping with a competitive preapproved secured credit line not dependent on dealer finance options. We view this product as a material incremental profit driver for the business, and our consumer education around this innovative offering is beginning to gain traction with our vehicle loan book growing strongly, achieving 19% growth over the prior comparative period. To support this strategic expansion, we've obtained a credit approved term sheet from a Big-4 Australian bank for a secured lending warehouse in New Zealand, which will unlock a lower cost of funding through our car loans. We are poised to accelerate this momentum even further, having onboarded a significant new auto partner in New Zealand in April '26, which will be followed by a subsequent rollout in Australia in the next financial year. Now turning to Slide 8. So concluding with a return to our Harmoney flywheel, what does it mean when we accelerate every stage of the flywheel simultaneously? More customers joining, plus higher lifetime value per customer, plus faster velocity between loans equals exceptional profit growth. This combined effect accelerates our profit growth and gives us absolute confidence to reaffirm our financial year '26 guidance of a loan book of over $900 million, delivering $13 million cash NPAT and our first half return on equity of 31%, which is what happens when you combine margin expansion with capital efficiency. But I want you to think beyond financial year '26. We've shown over 300% growth in cash profit over the past 3 years. With the flywheel accelerating with Stellare 2.0 fully deployed with our auto product scaling, we have a clear line of sight to continue strong profit growth, all while maintaining credit quality and being able to fund growth from reinvested profits. So when I talk about accelerating the flywheel, I'm talking about driving the business to even higher profit levels over the next few years. The foundations are in place, the technology is proven, the unit economics are compelling, and we're executing. At this level of profitability demonstrated and a clear pathway for expansion, the Board and management believe that Harmoney's shares remain undervalued at current levels, and therefore, it's in the best interest of shareholders to extend its on-market share buyback program beyond the current expiry date of the 29th of April 2026. This buyback will be extended for a further 12 months, ending no later than the 29th of April 2027. That concludes the results presentation for today. We'll now turn to answering your questions. Just a reminder, you can submit a question at the bottom of your screen. Thank you.

I'll just pause there for questions that come through, David and Simon. Okay, I got a question, just more around the macro in -- just bear with me. Actual -- I'll direct the question on auto. Would you address the portfolio weighting parameters around motor vehicles?

I think the question around the portfolio weighting, look, obviously, it's a small percentage of our book currently, but we see that as being a -- I've used the words a significant and material part of the business going forward. So that's sort of our expectation that it will become a material part of the Harmoney book. We're only just really getting it going. You can see, we're already up 19% loan book growth in that segment, but we expect the acceleration to really commence as we bring on these new partners that I mentioned.

Question around probably, the total addressable market. Obviously, there's some peers out there that have third-party relationships. David, has there been any external interest in relation to partnerships to support Harmoney's growth, either from a direct or equity level?

Yes. Look, we've -- you're right that the market is huge. And as mentioned, we just bring on a significant partner in New Zealand this month, looking to bring more on. At this stage, there's no sort of equity tie-ups or things like that. Obviously, I'm always open to looking at things like that. But certainly, at this stage, we're not doing that.

Maybe some questions around the Kiwi market in relation to whether the company is actually sort of taking share in New Zealand or the pie is getting larger to drive that loan book growth. Maybe if you can give some color around that and also just around the growth opportunity, obviously, in New Zealand?

Yes. Well, I received the Equifax report yesterday around inquiries. So inquiries, up in single digits year-on-year in the personal loan space. So the market is starting to recover in that respect. But obviously, we're 50% up on originations in New Zealand. And yes, that's really off the back of us taking some more market share because we've only launched our platform last July, in New Zealand. So that's obviously having a combination of us taking some market share. And obviously, the market improving in the space a little bit as well.

Got a question around the long-term incentive plan, David. And more around the TSR being fully vested to be in the top 25% of the small ords. Probably questions around that structure, whether it's a metric of the capitalization or whether there's any further complexity to it?

Look, quite simply, we have to be in the top 25% of companies over a period of time, I think from July last year through to the 3 different tranches at vest for another 2 years from that point and another 3 and 4 years from that point. And so it's relative-based. So it needs to be in the top 25% of companies in that index for the full vesting to occur.

Another question just from Ord Minnett just around commentary coming out of the Royal Bank of New Zealand in relation to near-term inflation risks driven by, obviously, fuel and energy coming out -- driven by the Middle East conflict. The question is whether you're seeing any sort of early signs of stress in borrower repayments or arrears? Obviously, the numbers you put out, David, this morning are pretty compelling. So I'll let you add further to that.

Yes. Look, the short answer is no. We haven't seen -- you can see our numbers, and they're out. They're very flat. The losses, flat at 3.8%. The 90-day arrears are flat or just slightly improved. Yes, there's not really any mix going on between Australia and New Zealand either, but it's been quite consistent. There's still -- the unemployment rate is really low. New Zealand, still think it's 5.4%, the latest numbers. I think sometimes New Zealand gets a bit of a poor media coverage in Australia. I see that, obviously living across both countries. But it's still -- we're not seeing that at all. Obviously, in applications in the last month or 2, we've seen customers -- it's more expensive. People buy fuel, it's more expensive than what it was. Maybe a little bit less surplus cash to pay loans. But -- and when we're looking at new applications, but people make it work, people -- as I said, employment is still very high across both countries. And we -- people find a way to make it work. I use the example, three years ago, everyone thought there's going to be defaults everywhere in mortgages. So there's a huge mortgage cliff coming when interest rates were going from 2% to 6%. People absorbed that and made it work. We don't talk about it anymore because it was one of those things that never really happened. And I think this time, again, people find a way to make it work. And those ones out there that don't, we'll work with them as a -- through hardship provisions and the like that we're required to do under the legislation. So we're really pleased where those numbers are coming up.

Right-o. Obviously, the next question, sort of very similar question just about NZ unemployment. But I will sort of direct the question to your mobile app and the timing of that release, David.

Yes, that will be likely first half, next financial year, so sort of second half of this calendar year.

And just any trends that you're seeing? I know you always spent extensive time with Google in recent times around SEO, customer acquisition costs and the like, inflation around keywords, which obviously may or may not be relevant here. But yes, just your learnings from...

Yes. Look, we've got a pretty sophisticated model that we've been using for Google for about 10, 12 years. So we haven't seen much change at all in that space. Obviously, people using AI overviews and ChatGPTs and Geminis and Claudes and all that stuff, way to find and research things on the Internet now. But still clicking through to our ads. Our ads just aren't coming up through search. We were never a big player in SEO. We got most of ours through the paid advertising. And we're -- you can see our acquisition costs and the like are still very consistent. And I think that comes about because we actually buy pretty smart. We're not just throwing up ads and ad words to everyone who's using Internet or everyone that's searching on ChatGPT or the like. So yes, look, we haven't seen much change, and that's been consistent for years now. And you would think that if those -- the LLMs were having an impact. I imagine most people on this call are using it using these things every day. You would think that, that would have an impact already, and haven't seen it. We're obviously adjusting our models. So we're more highly relevant on those. And obviously, the 10 to 12 years' worth of data intelligence that we've got on that is being used to do that. So yes, we're -- I guess the truth is in the numbers, and we're not seeing any real change there as far as how we originate the cost for us to originate, I should say.

A question about the revolving loan product. Any time line for release of that product?

Yes, that will be our financial year '27. I'm not sure yet whether it will be first half or second half. Just a priority call on some other things we're working on.

Sure. Question around corporate debt refinancing. Obviously, we saw a refi done December last year. Question about any sort of further scope or time lines around -- any refis down the pipe?

No. Look, that's -- yes, that's what I call a platform facility. It's a Big Four bank, a very competitive rate to 3-year term, which we'll be looking to roll over probably 12 months out. It's effectively like a -- think of it as an overdraft facility in some ways. It's not required to be drawn like a lot of credit funds require. It just gives us some extra capital there. And look, there's no -- just -- we just had it in December. It's not front of mind at all. And I don't think I could do any better than what we've got there as well. So yes, there's no look to that. Obviously, our warehouses come up for renewal all throughout the year or years, I should say. So we renew them as they go, and we've been doing that since we changed the business from peer to peer in 2020.

Thanks, David. Just a question around white labeling the tech. Is there any sort of consideration around white labeling?

No. We -- look, I've had that question before and it's not a bad question. We're focused on our core strength, and that's lending in Australia and New Zealand. Having a IT help desk facilitating software being out to other third parties is just not something that we see as being a core competency of ours or something that we need to do to grow this business into what we wanted to.

A question on the auto market on secured autos. Any learnings from the early experience in relation to -- from the launch, David? What's sort of exciting you from a consumer aspect and what -- have there been any challenges that you've seen to date?

Yes. Look, I think because our product is different to what's currently in the market, you actually become a cash buyer, you actually get the cash before you go into the dealer. Or if you go for a private sale, you already have the cash that's very relevant in our product for private sales. People that get it and use it, they love it because it's so easy. I was only talking to a friend the other day that used the product by chance and they ended up, they were doing it -- using us initially, but they were trying to get a security release, and it was a private sale and they're having trouble getting that. The bank wouldn't give them the money until they got that released, and it was sort of a chicken and egg scenario. And with our product, that was easy because they could buy the car with the money. That security would then come off on the sale, and then they could then go and register security after they owned it within 60 days. So -- but it's getting that knowledge out there. I think we're getting better at it, but it does require that. So that's -- when I explain the product features too, pretty much everyone have to -- everyone thinks it's a great product and it works really well. But you've got to get that education and knowledge through, which has probably been the slower part, I suppose, of the rollout, the product itself can actually work well in the tech around it.

A question here in relation to your peers and their performance. Are they experiencing similar growth levels? Or is Harmoney sort of outperforming them on a relative basis?

Yes. Look, yes, obviously, we've -- there's been some side-by-side analysis that's done, I think it's even on our website by Trim Capital. It's probably the best way for yourselves to look at that. Look, I feel the flywheel that we talk about in our platform, I think we have a very scalable business, and we have a truly profitable business. You can see our cash NPAT and our statutory NPAT are both -- at the half year, they're aligned. We're not sort of making the profit numbers by different definitions. So I think that's something to really call out. Yes, I think we -- and we're doing it. We're writing the book at good margins as well, doing it a really good return on equity. So I think I'll leave that -- I don't want to really talk about our peers per se because they've always got their own stories. But I think our numbers are really strong. And I think when you look at that side-by-side analysis, so I'll let you make your own mind up.

Just to reiterate that on the Harmoney website, there has been a recent research piece done by Trim Capital, doing a peer review on Harmoney's listed peers. I wouldn't obviously encourage you to have a look at that. And Trim Capital regularly does update that on a more mark-to-market basis. So I'm sure there will be further work done on that in time. A question around weighting motor vehicles. I suppose the question I think where an investor is coming from, David, is where -- what could you see auto being as a percentage of contributed profitability to Harmoney as a group.

Look, the auto space is large, both in Australia and New Zealand. We can see that. We talked about peers earlier. A lot of them are in the car space, and it's actually the majority of their loan books because the market size is bigger. So there's nothing to say we couldn't have a similar pathway, but I suppose the important thing I want to really reiterate here is the motor vehicle is another product segment for us, I suppose. We see significant growth in the unsecured personal loan product as well. This is now about -- because we have a platform where we can go broader, why we're focusing on that now. Look, it could be over half the book, but I'm not going to give any sort of -- because it is a market that's probably 2x or 3x the size of the unsecured personal loan book. That's why we're excited about it. That's why we -- the reason we built this platform was to be able to push harder into some of these markets. You can see we signed a big partner in New Zealand. Now -- this month, we've got more to come. We've got this -- we're also doing it in Australia as well. So we'll -- it will be big, but we're going to do it right. We're not going to rush it. We make sure we get this right. We're lending on the same scorecard as our unsecured scorecard, just with a pricing difference. So we're not taking on any extra credit risk. If anything, it's slightly less because of security behind it as well. So we're very confident about this.

A question here from Jonathan. Just wondering whether you could provide insight into tracking a new loan risk in this uncertain environment? And when will we see the true creditworthiness of recently originated loans? And how does the company actually track that?

Yes. So look, we don't present this to the market for -- it's complicated, but we track it on what's called a vintage or static loss basis. So what that means, and I'll try to summarize it the best I can. We track every loan on how it's performed 1 month in, 2 months in, 3 months in, et cetera. And we look at that over like a 10-year period. So if we start to see the curve, if you like, you were getting more arrears or losses happening at month 1 than it did in month 1 for the last 10 years or -- and then month 2, et cetera. That's when we start to look -- notice if there's something going on. So we do get -- this is well before a loan goes to write off for a loss or whatever. So we track that very closely. That's something we have in our monthly reporting. I should mention, most credible credit businesses would be doing that. But it's something we've -- that's how we track the business from doing that since here. We used to do that back at Flexigroup and the like. It's the true way to manage losses. So we see that. Look, our loans are really run for about 2, 2.5 years. So they're not -- even though there might be 5 or 7 years loans they're written on. People don't take the loan out for that long. So we get a really good gauge on it. We look at it first payment dishonors. There's many things we look across there. And we're not seeing that. As I said, we probably see a little bit more in the applications where obviously, the last month or 2, there's been a little bit more cautiousness and people obviously had more expense coming through. Petrol is a huge cost to most households. And -- but yes, look, as I said before, here's another example from the mortgage cliff, people find a way to make it work. And we're not seeing any change to those curves.

Thanks, David. A question here, probably more from a macro, is whether Harmoney have made any sort of forward looking at economic overlays on credit provisions for obviously the oil prices at the moment like what NAB have recently announced? Obviously, given transport fuel and probably expected food price increases coming through.

Yes. Look, not as such. We're not seeing that many of our numbers. We do have a macro overlay in our provision anyway. Obviously for -- we didn't know the oil shock was coming, obviously, but there's always something that seems to be coming. So we'll assess that particularly at year-end. And -- but look, I think that what we have in there would be sufficient. But obviously, I don't have a crystal ball either. So we'll continue to monitor that.

With the recent rise in interest rates, has that led to any sort of pickup on new lending inquiries from potential customers shopping around product, David?

Look, no, not really. We saw that the first couple of weeks of March were a little bit softer when the Iran war broke out. I think people were a bit uncertain. So we saw less inquiry coming through. Look, I think customers will always shop around to some degree, whether it's interest rates going up, going down, staying flat. So we haven't really seen any change there.

A question around the auto products. Have you seen increased inquiries with obviously a significant movement in fuel prices whether people sort of shopping around for more fuel-efficient vehicles, EVs to upgrade to, David?

Look, I'd honestly be guessing at that. We're obviously seeing more inquiries. We don't look necessarily at what vehicle they're getting. Again, we're assessing them for an amount. We're not necessarily looking at if it's an EV or if it's a combustion engine or the like. So yes, I wouldn't have necessarily the right answer for that one.

What does the average customer look like? Obviously, from a profile perspective, what is the use of the loan? And has it actually changed over time?

Yes. Look, this is -- if you look at our half year results or our full year, we put it in the appendix, the answer to this every time. So you could almost drop the pie charts over one another over the last half -- how many half years we listed for now. What, 6 half years and 6 full years, so 12, you'd be able to see it hasn't changed that much. And that's our best point of reference for that. The average age customers, mid 40s, average loan size, $20,000, using for a number of different purposes. And basically full-time employed in office or trade roles, that sort of thing. So I encourage you to look at that slide in our appendix and all our presentations because that will give you a detailed answer.

Okay. Coming down to a few more questions. Just a question trending on gross yields across the market given the recent moves in interest rates.

Yes. Look, so I guess we have 2 things. New Zealand's rates haven't really moved, and then certainly not the cash rate, the swap rates move around a little bit. Australia, look, we've gone up 50 basis points or so. It's not something we -- we're not a mortgage book, so we're not really hanging on to every basis point makes a huge difference. We look at our pricing. Obviously, customers are more open to pricing going up because they -- I hear it in the market. When we borrow off the swap curves anyway, the 2-year swap rates. And look, we look at our margins on a, I would say, daily basis, but close to it. And we look to see that we're getting the returns that we seek, which is a -- we target a 9% to 10% NIM. We target risk-adjusted income of around 6%. So as long as we're achieving around that level, we feel our pricing is right.

There's a question around the share buyback here. I probably think the company does not provide guidance to this, but the question is to -- down to what ROI would the company buy shares?

Yes. Look, I think you've answered the question for me, Michael, I can't state that. And we're -- under the law, we're required to only buy shares at certain VWAPs and things like that. So yes, we monitor that. And obviously, when we feel appropriate, we instruct our broker to buy shares, obviously, in accordance with the law.

Okay. We just might pause there for any further questions to come through. While we're waiting for that, this presentation actually has been recorded, and the company will provide this recording on the website in the coming days. So David, I think we're probably exhausted the Q&A right in this presentation. So I would pass back to you for any closing remarks that you'd like to make.

Yes. Thanks, Michael. Look, thanks for everyone's interest today and for all the detailed questions. If you've got any questions following the meeting, please send them through to Investor Hub, and we'll do our best to get back to you as soon as we can. Thank you, everyone. Have a great day.

Thank you very much.