Harmoney Corp Limited (HMY) Earnings Call Transcript & Summary

Good morning, and welcome to the Harmoney Corporation Limited FY '26 Results Presentation Webinar. Presenting today is Harmoney's CEO and Managing Director, Mr. David Stevens and also Chief Financial Officer, Mr. Simon Ward. As a bit of housekeeping, the company will answer your questions at the end of the formal presentation, and we ask you to fill these questions in the Q&A box screen. So I will now pass over to David, and many thanks for your interest and your attendance.

Thanks, Michael. Hello, and welcome to Harmoney's Full Year 2026 Results Presentation. I'm David Stevens, CEO and Managing Director of Harmoney. With me today is Simon Ward, our CFO. Harmoney has delivered a record full year result, which I'm really looking forward to sharing with you today. Cash NPAT of $13.5 million exceeded the upgraded guidance we provided to the market in February, and every one of our key metrics improved on last year. We're also today setting financial year '27 guidance of a further step up to $16 million plus. Now turning to Slide 2. So I'll begin with our financial year '26 key highlights and our financial year '27 profit guidance. And then I'll remind you of what sets Harmoney apart and how our customer flywheel works. Before handing you over to Simon, who will take you through the financial results in detail. Finally, I'll discuss our outlook before responding to your questions. Now turning to Slide 3 and then on to Slide 4 to highlight our key achievements for financial year '26. Cash NPAT was $13.5 million, up 139%, exceeding the upgraded $13 million guidance we provided to the market in February by a further $0.5 million, driven by our increasing scale and automation-driven operating efficiency. Our capital-efficient balance sheet means that profit translates into a full year cash return on equity of 33%, which is an amazing result. This year, we achieved a $10.2 million statutory net profit after tax, which is 86% growth from the prior year, driven by our underlying cash NPAT result. Turning to lending and book growth. Our Australian loan book grew 14%, and our New Zealand loan book returned to solid growth, up 11% in New Zealand dollars. At a group level, the headline number is up 7%, because the New Zealand dollar fell $0.11 against the Australian dollar through the year to a 13-year low balance date. Our net interest margin or NIM rose 90 basis points to 10.2%. Careful management of the margin on our new lending has delivered a sustained increase in the margin across the whole portfolio. Credit performance was stable with credit losses of 3.9%, up slightly from 3.7% and within our 3% to 4% target range. Our 90-plus-day arrears improved down to 0.67% from 0.74%. A high level of automation drove further efficiency gains with our cost-to-income ratio improving further down to 18%. And finally, Harmoney remains well funded for growth. We refinanced our corporate debt with a big 4 Australian bank in December 25. We have warehouse facilities from 3 of the big 4 banks with total capacity over $1 billion and we closed this year with $27 million of unrestricted cash plus a further $12 million of accessible cash and this was even after repaying $7.5 million of corporate debt during the year. Now turning to Slide 5. At Harmoney, we are committed to our reputation for delivering on what we tell the market. So I'm delighted to confirm that this year, we've again exceeded our market guidance. We upgraded our financial year '26 cash NPAT guidance from $12 million to $13 million at the half year, and we've exceeded that upgraded number by a further $0.5 million with cash NPAT of $13.5 million. We also delivered on the supporting metrics we guided to. We said net interest margin of around 10%, we delivered 10.2%. We said risk-adjusted income of around 6%, we delivered 6.4%. Risk-adjusted income is our income after both funding costs and actual credit losses and is a core measure we manage this business too. On the loan book, we guided to over $900 million by year-end. And in the currency, each book is written in, we comfortably achieved that in both countries. On a reported basis, the group loan book was $889 million because of the low year-end New Zealand dollar. Now turning to Slide 6 and on to Slide 7. Our financial year '26 performance gives us the confidence to guide to a further step up in the year ahead. We are setting financial year '27 cash NPAT guidance of $16 million plus. As you can see from the chart, that continues a remarkable trajectory, a compound annual growth rate of 187% from $0.7 million of cash NPAT in financial year '24 to our financial year '27 guidance 3 years later. This guidance also reflects the year of building ahead of us. Our scaling auto product, a new intermediary channel and the launch of our mobile app, all of which I'll come back to in the outlook. Finally, on this slide, the Board and management continue to see significant value in Harmoney's equity at current levels. Having now released our financial year '26 results, our on-market buyback can now recommence in line with the 12-month extension we announced on the 22nd of April '26. Now turning to Slide 8 and on to Slide 9. I'd like to take a moment here to provide a quick recap of what sets Harmoney apart from others. We run a scalable, automated online personal lending business across Australia and New Zealand. We have a total market opportunity of more than $150 billion with current market share of less than 1%. So we have a huge total addressable market in front of us. Our algorithms partner with Google to attract prime, high-intent customers at low cost. And then our direct relationship with those customers and our great customer experience, sees them returning again and again for their borrowing needs at new zero acquisition costs. We use deep first-party data and AI models to deliver a prime loan book at a risk-adjusted income above 6%. That being our income after both funding costs and actual credit losses. We are funded by 3 of the big 4 banks, and we're an established issue up in the public asset-backed securitization market. Our [ stellar ] platform drives a low cost-to-income ratio of 18%. And our cash return on equity for the year was 33%, which is exceptional in any business and especially in financial services. Just a quick reminder of our product on the right-hand side of the page, our loans are up to $100,000 with an average new loan size of $18,000 dispersed to customers within minutes. We offer personalized pricing based on the borrower's risk profile from 5.76% to 24.99%. We don't charge any fees other than a one-off establishment fee. Terms run up 7 years, and we now offer both secured and unsecured options. Our loans are typically used for debt consolidation, home renovations, cars and helping people with life events such as weddings, education and travel. Now turning to Slide 10. Now I want to spend a moment reminding everyone about our customer flywheel, which is a core driver of Harmoney's success. When Harmoney acquires a customer, we're not thinking about a single transaction we're thinking about an ongoing relationship. The data tells a powerful story. Our history shows that on average, our customers buy an additional 150% after their initial loan. So if someone takes out $18,000 initially, they subsequently come back for another $27,000 over their lifetime with us so far. Here are the economics that matter. That first loan cost us around 5.6% in customer acquisition cost, so about $1,000 on an $18,000 loan. Each time that customer returns, the cost of acquisition is near zero due to the direct relationship we already have with them. This is pure margin expansion. And that won't take long to come back, the average time between the customers first and second loan is 15 months. This isn't a theoretical long-term play. The flywheel spins fast. And you can see it's working in this year's numbers, leading to our existing customers grew 41% to 216 million. We're not in the business of onetime transactions. We're building a compounding growth profit engine where every customer we acquire today becomes increasingly valuable to [ Mara ]. Now turning to Slide 11, we'll walk you through each component of the Harmoney flywheel. This slide shows the 4 interconnected stages of the Harmoney Value flywheel, all powered by our Scalar platform. I'll now take you through each stage and how it creates compounding economics for Harmoney. Stage 1 customer acquisition. We started with a smart targeted acquisition. Our algorithms work alongside Google to identify prime customers who are actively looking for credit. People with strong credit histories and [indiscernible] intend. We're using over 12 years of proprietary data to find exactly the right customers, and that precision is hard to replicate. Our acquisition cost on new customers are around 5.6%. Stage 2 delivery experience. We then focus on delivering experience that makes our customers want to come back, minutes to apply an instant decision and money in minutes. This isn't just good service, it is creating customer delighted scale through automation. Every interaction builds trust and increases a likelihood to return. Stage 3. Customers returning. We already have a direct relationship with our customers. Acquisition costs on subsequent lending is near 0. And on average, customers come back for a further 150% of their first loan value over time. Because we've already covered our acquisition costs, the income on every dollar of that additional lending is nearly pure margin. 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. And on the right-hand side of the page, you can see the result. Unit economics at compound, delivering risk-adjusted income of 6.4% and a cash return on equity of 33% this year. This isn't a theory of these actual results. Now turning to Slide 12, I'll hand over to our CFO, Simon Ward, who will take you through our financial results in more detail.

Thanks, David, and hello, everybody. Please turn to Slide 13, summarizing our key financial metrics for the year ended 30 June 2026. As David has said, this year, Harmoney has delivered a record result. And as you'll see on this slide, we've delivered it with an improvement in every key metric on the page. I'll touch on each of these now before going into more detail on the following slides. Firstly, our loan book grew 7% to $889 million. As David mentioned, the headline growth was suppressed by the weaker year-end New Zealand dollar. Their loan book growth drove revenue up 10% to $145 million, with our average portfolio interest rate maintained at 16.9%. Our net interest margin or NIM improved by 90 basis points to 10.2%, driven by a 100 basis point reduction in our funding costs. Our risk-adjusted margin, which is our margin after both funding costs and actual credit losses improved by 70 basis points to 6.4%. Our acquisition to originations ratio improved 30 basis points to 3.1%. [ Astellia 2.0 ] delivered higher new customer conversion across both countries, it is Harmoney's customer flywheel brought those customers back for further lending at near 0 acquisition cost. Our cost-to-income ratio improved another 110 basis points to 17.8%, remaining market leading. This is a direct result of the operating leverage we get from our highly automated Stellar 2.0 platform. These improvements across every key metric delivered our statutory NPAT of $10.2 million, up 86% and our cash NPAT of $13.5 million up 139%. And our capital-efficient balance sheet means that the strong profit result translates into a statutory return on equity of 25% and a cash return on equity of 33% more than double last year. On the next few slides, I'll discuss each of these key performance metrics in more detail. Now turning to Slide 14. Looking at our loan book and revenue. [indiscernible] having operated in both countries for a full year. We saw good growth in both markets. While the group loan book grew 7% to $889 million, the underlying local currency growth in each country was stronger than that, with the Australian loan book up 14% to $556 million and New Zealand loan book up 11% in local currency to AUD 406 million. The Australian loan book is now 62% of the total loan portfolio. With the average portfolio interest rate maintained at 16.9%, it's the loan book growth that drove the 10% or $13 million revenue increase shown in the chart on the right. While the weaker year in New Zealand dollar suppresses the reported group loan book metric, it did not have a material impact on our profitability due to the structural hedging within the business as most of our operating cost bases in New Zealand. Now turning to Slide 15, looking at our lending metrics. A key feature of the Harmoney business is the consistent strength of our lending margins, underpinned by our proprietary credit assessment models, which allow us to price attractively to prime borrowers driving low credit losses with those low credit losses then unlocking competitive funding rates. Looking at the chart on the top right, you can see the 3 core levers of our lending margin. The top line shows our average portfolio interest rate steady at 16.9%. The middle line shows our funding rate, which reduced by 100 basis points to 6.8%, reflecting lower base rates flowing through our swap resets and improved margins across our warehouse facilities. Then the third line is our actual credit losses, which are up slightly at 3.9%, but remains stable and within our target 3% to 4% range. Looking at the chart on the bottom right, you can see the combined outcome of these underlying trends. Lower funding costs against a steady portfolio interest rate lifted our net interest margin by 90 basis points to 10.2%. Then the ultimate measure of our portfolio's profitability is the risk-adjusted income, being our income after funding costs and actual credit losses. This is the key comparative between lending portfolios. And this year, Harmoney has reached an exception of 6.4%, up 70 basis points. Next, turning to Slide 16, where I'll provide more detail on our credit performance. Harmoney's consumer direct model provides us with rich deep consumer data, which we use to train our AI credit models. This has enabled us to build a prime loan book of resilient borrowers with 70% employed on the professional office or trade rolls and 88% aged 30 years and older. Further demographic detail on the loan book is provided in the appendix to this presentation. Looking at the chart on the top right, credit losses were up 20 basis points this year to 3.9%. But looking back over a longer period, gives a more useful picture. 4.1% in FY '24, 3.7% last year and 3.9% this year. This shows the book performing consistently, and we expect losses to remain within our 3% to 4% target range. Moving to the chart on the bottom right, our 90-plus day arrears, which are a forward-looking indicator, improved through the year to 0.67%, down from 0.74%, that remains well less than half the Australian market average of 1.61%. Next, turning to Slide 17, looking at our operating leverage. A key feature of Harmoney's business model has always been our [indiscernible] platform and the high levels of automation that it provides, enabling us to scale without proportionately scaling our operating costs. This year provided another clear demonstration of that leverage in action. Our loan book grew 7%, and our revenue grew 10%, while our cash operating costs grew by only 3%, below the rate of inflation in both countries. I think the dollar amounts give an even better context to the scale of that operating leverage. This year, revenue increased by $13 million, while our cash operating costs increased by less than $1 million. As the chart on the right shows the operating leverage has enabled us to continue to drive our cost-to-income ratio down from 24% in FY '23 to 20% in FY '24 to 19% last year and now 17.8% this year. It's this combination of loan book growth, strong risk-adjusted margins and a scalable cost base that is [indiscernible] for the year. Statutory NPAT of $10.2 million, cash NPAT of $13.5 million, up 139% and a cash return on equity of 33%, more than doubling last year. And finally for me, turning to Slide 18, looking at our capital position. Harmoney has a well-diversified funding program with warehouses from 3 of the big 4 Australian banks and since December, a big 4 Australian bank corporate debt facility. As this typical with warehouse funding arrangements, Harmoney's own money is invested in its loan book. The strong credit quality of Harmoney's loan book means that we can be very capital efficient with borrowings funding 97% of the current loan book and Harmoney providing the rest. The chart on the left shows in the red section, Harmoney's warehouse equity of $28 million supporting its current loan book of $889 million. On top of this, Harmoney has a further $12 million of accessible cash that being loans funded by Harmoney, which are available to be drawn down as cash from our funders at any point, plus we have a further $27 million of unrestricted cash on hand. Combined, it's $39 million of cash, which would support growing the loan book by another 113% to $1.9 billion without needing to raise any equity. Then in addition to right now, being able to support a loan book of up to $1.9 billion. Being profitable means Harmoney can reinvest its profits is its contribution to growth beyond that $1.9 billion. With every $1 million of profit funding an extra $30 million of loan book growth. And you saw both of those levers at work this year. FY '26 profits funded our loan book growth, and improved advance rates from our fund has allowed us to repay $7.5 million of corporate debt while growing our cash reserves. The key point here being that we have a profitable, scalable and self-funding business model, that's well funded for the significant growth ahead. So with that, turning to Slide 19, I'll hand you back to David to take you through our outlook.

Thanks, Simon. Continuing now to our outlook. Please turn to Slide 19 and then on to Slide 20. Now let's take a look at how we're deliberately accelerating each stage of this flywheel. This acceleration commenced in financial year '26 and continues into financial year '27. These aren't random initiatives. H1 is designed to make the flywheel spin faster, and we're already making progress against them. First, customer acquisition. We're expanding who we can safely serve with next-generation AOI underwriting on Stellar and we've embedded finance partnerships, for example, with auto marketplaces, we expect to lift approval rates while maintaining credit quality and to expand our reach through partners. And the progress is already visible. Total originations were up 21% this year. Second, deliver experience. We're increasing the value we capture per customer by building multiproduct relationships personal and auto together and by lending against life events. This isn't just adding a product, it's about becoming the primary lending partner across a customer's life. When a customer needs a car loan, we want them thinking of Harmoney first. The progress here is our vehicle loan book up 20% on the prior year. Third, customer returns. We're accelerating the velocity at which the customers return with a mobile app giving streamlined loan access, this reduces the friction when a customer needs money again, which reduces the time between loans and reduces our blended acquisition cost. And that cost has continued to come down to 3.1% of originations this year. Finally, Data Intelligence. We're investing in the next generation of agentic AI for personalization at scale and in predictive retention models. Think of it as giving every customer their own private banker automated, intelligent and getting smarter with every interaction. Our proprietary first data creates a defensible AI advantage is extremely difficult to replicate. The key insight here is these initiatives are interconnected. Better AI means we can serve more customers, multiproduct customers have higher lifetime value, faster return cycles mean better economics, it all compounds, and we're making significant progress on each one. Now turning to Slide 21. I want to spend a moment on a new channel for Harmoney because it's a genuine addition to how we reach customers. Since launching our Secure product, a key learning for us has been a large share of the vehicle market prefers to access their vehicle financing through a trusted intermediary. Alongside that has been the learning that our instant decisioning and cash bio-advantaged product, allowing the borrower to obtain their secured loan before they purchase a vehicle solves a lot of challenges currently faced by intermediaries. So it has strong appeal to that channel. So rather than ignore this portion of the market, Harmoney is expanding into it, whilst also continuing to focus on and grow our existing Consumer Direct business. In New Zealand, the intermediary channel went live last quarter with a second partner onboarding this month. We have utilized the same technology and applied into Australia for rapid development. In Australia, where we only launched 2 weeks ago with 1 intermediary, we've already originated over $1 million in car loans. We have a further 10 intermediaries in the pipeline for this year. The Australian market for consumer new vehicle purchases is estimated by the ABS to be around $20 million per year, and we have a pipeline opportunity of over $100 million of annual funded volume by financial year '28, coming from 10 or more intermediaries. Our right to win in this channel is the same thing that wins for us in our direct channel. The cash buyer advantage on our secured product and automated decisioning that returns and answering seconds rather than days. We expect that to drive market share gains in both Australia and New Zealand. Now turning to Slide 22. So concluding with a return to our Harmoney Flywheel, what does it mean when we accelerate every stage of the flywheel of simultaneously? More customers joining plus higher lifetime value per customer plus faster velocity between loans equals accelerated profit growth. That is what underpins our financial year '27 cash NPAT guidance of $16 million plus. But I want to think beyond financial year '27. We've grown cash profit from $0.7 million in FY '24 to $13.5 million in financial year '26, with the flywheel accelerating with Stellar 2.0 deployed in both markets with our auto product scaling and a new intermediary channel opening, we have a clear line of sight to continue strong profit growth all while maintaining credit quality and funding that growth from reinvested profits. So when I talk about accelerating Flywheel, I'm talking about driving this 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 most importantly, we're executing. 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.

Thank you, David. We'll just pause there for questions to come through. First question, David, is around the secured car loans and its growth. Where do you think your risk adjusted income will move to in relation to that?

Yes. Look, as I've said for a long time, we sort of target around that 6% obviously, the secured card loan market does run at a lower loss rate, but obviously, the margin is a little bit -- the net interest margin is a little bit tight as well. So we'll still be targeting around that 6%, it might come down a little bit, but obviously, that will take a fair while to run through the book. And we're doing this all very incremental cost to the business. So I think at this stage, we say, will be targeting around that 6% as that becomes much a higher weighting in the loan book. That's a while down the track. It could come down a little bit off that 6%. But certainly for the near term, that's where we expect it to be.

Question here from Erin, congratulations on your excellent cash NPAT result of $13.5 million. I note you guidance of $16 million for the company implies a minimum growth rate of only 20% versus [ 140% ] for the prior year. Is there any sort of level of business activity impacting on the company holding back NPAT growth? I assume that's off a low base the previous year, David.

Yes. So fair questions. Obviously, 140% growth is probably a little bit understandable, as you probably imagine, and I'm probably surprised we're trading where we are if that was the expectation. But nonetheless, it's a good question. The -- there's a few things going on. Obviously, we're still just into that financial year. So I'm going to be a little bit conservative, but I don't have a crystal ball. So I feel that, that level is appropriate for now. Probably one thing too. We are building a new channel there as well. I've spoken about the intermediary channel. Whilst it is incremental. It does have a cost associated with it. It's not something we -- you get -- you build a holding in business for free. But it's not having a material bearing, but it is having a bearing on some of that -- the growth on next year's immediate target. Hopefully, we've got off to a great start million dollars in 2 weeks. I'm pretty excited by that myself and from 1 intermediary. So if we can replicate that with the other 10 and continue that sort of trajectory. Hopefully, we'll be in a position later in the year to increase that number. But at this point, I feel it's appropriate given the each economy is up, where we're at and with the investment that we're making in the business.

A question around the order book, sorry, around the loan book and the percentage of that loan book, which is secured? What percentage would that be, David? And how has that changed over time?

Yes, it's still pretty small. But as we bring on the intermediary channel, the vast majority of those loans are secured. So we'd expect over time that percentage to come up, particularly as we -- that $1 million that we've written that all [indiscernible] all be secured. So you'll start to see the secured percentage increase in the book. But at current days, it's 1% or 2%.

Question around the buyback. Can you provide a summary of the buyback in percentage of capital terms and the cost and given the guidance to the objectives around that going forward.

Yes. So I think we canceled the shares just before 30 June. I think Simon was just over 1 million shares at a cost of around about 600,000 to 700,000. It's in our accounts anyway. So that's all -- those shares have been canceled around of the share capital at 30 June. Under the New Zealand law, we're allowed to buy back up to 5% of the stock. So that's obviously -- we'll look to do that. Obviously, we are restrained by VWAPs and certain amounts of percentage of volumes per day under the listing ASX rules, so we have to hear by that. But we'll -- it's able to go back into place from Monday, I think. So we'll look to buy shares as we feel necessary, we feel that there's a huge amount of value in the stock where it's at. And makes sense for the company to buy back that stock. I'll just skip to the next question as well because it's related with regards to the dividend policy. So we feel at the moment where the stock is at, we feel it's the best use of shareholders' funds to buy the stock back. We're also -- we are growing the business. We're growing a business unit as well. So we obviously feel that using that money to further grow the business is important. And there were also -- in regards to dividend specifically, we've only -- we noticed in the accounts this year, we've got -- we have a small tax expense and we'll start to pay some tax in Australia in the current -- in the financial year we're in now. That will start to give us some franking credits, but it's a pretty modest amount. So I don't really want to -- when I've got the opportunity to buy back shares, I don't really want to pay unfranked dividends. So for now, we'll continue on the path of the share buyback, obviously, as we pay tax building up some franking credits and then look to the dividend policy following that.

Thanks, David. Our next question comes from Tom Tweedy from MA Financial. Existing customer operations grew at 41% in FY '26, and our central to the flywheel, how much of FY '27 growth do you expect to be driven on repeat borrowing.

Yes. Look, as the pool of new customers gets bigger, that's a great -- it gives us more customers to market to, which is fantastic. We certainly -- financial year '26 was the first year where we had both countries on Stellar 2. So we're really able to focus on existing customer growth. I think I said last year, I appointed an executive into that role to focus on it specifically. So we probably got a little bit of sugar hit in that number. But by the same token, the number of customers on book increases. So we'd expect to still obviously continue to grow strongly the existing customer base. Obviously, 41% is a pretty big number of anniversary over, but -- and that's all built into our guidance what we expect there.

Second question from Tom. Cash operating costs rose by only 3% in the year. How should we be thinking about cost growth into FY '27 for you to achieve your guidance?

Yes. Look, I think we do a really good job around cost management. [indiscernible] the cost-to-income ratio. Obviously, I did talk about we are building the intermediary business. So I would say don't have fairly minimal costs. There are some costs are coming there. And that's obviously is built into our guidance number as well. But outside of that, I think we extend to run business at certainly in single-digit cost increases. We run it -- there's a whole point of this business. I've been saying it for years, it is a platform business. we don't need to add heads to grow it. And that model in an operating assumption hasn't changed. So we're not -- obviously we got to pay people more, there is inflation and things like that, but we're not expecting material cost growth to the core business, a little bit extra cost, obviously, as we bring on intermediary, but that's going to pay itself back in droves over -- in the back half of this year, hopefully, and certainly into future years.

My question around the new intermediary channel, David. Will this be personal auto loans only at this stage or do the intermediaries you target also write loans in light commercial or other adjacencies?

Yes. Good question, and thanks for the clarification, Tom. It will really be personal lines and auto loans to consumers. We won't be going into the SME commercial space. It's a pretty crowded space. And we know we're good at, and that's -- that's taking another leap away from our call.

Just a question about M&A. Is the business additionally looking any M&A to grow market share.