Humm Group Limited (HUM) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the hummgroup Limited FY '26 Results. [Operator Instructions] I would now like to hand the conference over to Angelo Demasi, Chief Executive Officer. Please go ahead.

Thank you, and good morning. Thank you everybody for joining us today as we release hummgroup's full year results for the FY '26 year. I'm Angelo Demasi, Group Chief Executive Officer and Managing Director, and joining me today is Anthony Taylor, hummgroup's Interim Chief Financial Officer. I'll start by drawing your attention to the disclaimer on Slide 2. As always, this presentation contains forward-looking statements that are subject to risks and uncertainties. This include underlying and other non-IFRS measures which are unaudited. It should be read alongside our other periodic and continuous disclosures lodged with the ASX. All figures are in Australian dollars, unless otherwise stated. Turning to Slide 3, you will see the agenda for today's presentation. Today, Tony and I will walk you through the slides included in the investor presentation. I'll start with the highlights of the group's performance and the year in review. Tony will then take you through the financials in more detail. I'll then close with a summary and outlook for FY '27. We'll open for questions at the end. With that, let's move to Slide 5, where we have summarized the year in review. Against the backdrop of macroeconomic and geopolitical uncertainty, hummgroup has successfully navigated an extraordinary level of corporate activity. This included 2 successive non-binding indicative offers and the associated due diligence processes, an activist shareholder campaign culminating in board renewal, extensive Takeovers Panel proceedings and voluntary undertaking, multiple ASIC investigations into historical matters, and the determination and settlement of the Forum Finance Federal Court proceedings. At the same time, the external environment presented its own challenges. The conflict in the Middle East and disruption to fuel supply weighing on our commercial demand, the volatile New Zealand dollar impacting reported earnings from November onward, a softening in consumer and SME demand, and the commencement of a new buy now, pay later regulatory regime in June 2025. Importantly, many of these matters are now largely behind us. I want to acknowledge the resilience of our people, the trust of our customers, merchants, and brokers, and the strength of our operating model, which allowed us to keep moving forward, execute with discipline, and deliver results despite sustained external and corporate pressures. Let's now move to Slide 6, highlighting the group's performance and key results. The headline is an underlying net profit after tax, adjusted for non-cash items and excluding irregular items, was $44.2 million. Those irregular items totaled $19.1 million before tax and largely related to the corporate and legacy matters we have just stepped through. On that basis, underlying diluted earnings per share were $0.088, and underlying return on equity was 8.5%. Importantly, the underlying cost income ratio was 51.9%. That is the clearest indication that beneath the noise of the year, the underlying cost base remained disciplined. Credit also remained well controlled, with group net credit loss to average net receivables at 2%, demonstrating disciplined credit management through the cycle. Statutory profit after tax was $15.7 million, absorbing the irregular items, the full impact of the year's credit provisioning, and other non-cash items. Importantly for shareholders, the board has declared a fully franked dividend of $0.02 per share for FY '26, a 4.5% return. Taken together, these measures show a business that delivered resilient underlying earnings, maintained disciplined costs and credit performance, and continued to return capital to shareholders through an unusually complex year. Let's now turn to Slide 7, further detailing key performance metrics. There are 3 key points I'd like to draw out. First, profitability was clearly impacted by irregular items, but the underlying earnings picture remained resilient. We have presented both statutory profit and also underlying net profit after tax, adjusted for non-cash items and excluding the irregular items, clearly and transparently throughout the presentation. Second, the underlying cost base remained disciplined. While the reported cost income ratio was 57.7%, reflecting the irregular items we have already discussed, on an underlying basis, excluding those irregular items, operating expenses were $169.7 million, and the underlying cost to income ratio was 51.9%. Third, net interest margin improved. While net interest income of $258.3 million was down 2.3%, net interest margin improved 10 basis points to 5.5%, supported by lower funding costs, disciplined pricing, and a favorable consumer portfolio mix. Turning to Slide 8, we outline the group's credit performance. Through significant macroeconomic and geopolitical uncertainty, average assets under management remained broadly stable at $5.2 billion, and group net credit loss to average net receivables was well controlled at 2%, up 20 basis points on PCP. In commercial, net credit loss to average net receivables was 1.46%, broadly consistent with our third quarter update. This reflects the expected seasoning of earlier vintages, longer asset recovery lead times, and broader macroeconomic conditions. Importantly, newer originations continue to be written to deliberately stronger credit settings, which supports portfolio quality over time. In consumer, the loss rate increased 10 basis points to 2.86% amid the planned legacy product runoff. Within that, Cards Australia improved 2.3%, supported by credit policy and scorecard optimization. Importantly, net loss to average assets under management was lower at 1.8%. This broader measure includes receivables managed under the forward flow and supports the message that credit risk is being actively managed across both on-balance sheet and forward flow receivables. Moving on to Slide 9, balance sheet and capital management. Assets under management closed at $5.3 billion, down 4.3%, while average assets under management was broadly stable at $5.2 billion, a better reflection of underlying portfolio performance through the operating period. Group volume was $3.5 billion, reflecting disciplined operations through a softer market, a deliberate decision to focus on credit quality rather than a constraint on funding capacity. Operating cash was just over $100 million as at June 30, 2026, allocated for liquidity requirements, risk appetite buffers, working capital and strategic growth capacity. Importantly, the conclusion of the Forum Finance matter resulted in a final settlement of $22.5 million, plus FY '26 hummgroup legal costs of approximately $2 million. This had a market impact on the closing operating cash. On the group's equity capital position, net tangible assets increased by $36 million to $412.9 million, or approximately $0.82 per share, driven largely by the after-tax market-to-market position of our hedging instruments. Turning to Slide 10, our platform transformation is now well progressed and is on track. Throughout FY '26, we have continued to upgrade the group's core technology foundations. The new modern data platform is now live, as is the new humm loan platform. Our focus now shifts to operational enhancement and capability expansion. We have successfully decommissioned our physical data centers, shifted systems to a cloud environment, and uplifted our cybersecurity posture, creating a more reliable and resilient technology operating environment. The Cards replatforming is now underway and is expected to complete in FY '27, following which, the migration of our Australian and New Zealand card products can commence. Collectively, these investments provide a stronger foundation for future revenue growth, an enhanced customer and merchant experience, and enable greater operational efficiency. Moving to Slide 11, our targeted offshore investment continued to deliver into FY '26. There was a material improvement in international, with net profit after tax, adjusted for non-cash items, up from $0.4 million in FY '25 to $8.1 million in FY '26, with humm Ireland delivering a net profit after tax, adjusted for non-cash items to $14.3 million on strong receivables growth and disciplined credit management. International volume was up 27.2% on PCP, including 27.8% growth in Ireland and 41.1% growth in the U.K., with humm UK closing receivables up 51.7% on PCP. During the year, we also introduced mezzanine debt in both Ireland and the U.K., further improving capital diversity and supporting future growth in those markets. In Canada, we have successfully reset the operating model, delivering a 42% structural cost improvement and renewed the product offering, setting a stable foundation for future growth. I will now invite our interim CFO, Tony Taylor, to present the financials in more detail.

Thank you, Angelo, and good morning, everybody. I will now take you through the group financial performance in more detail, building on the themes Angelo has covered. Resilient underlying earnings, disciplined cost management, controlled credit settings, and a stronger technology platform entering FY '27. I will start with net profit after tax, adjusted for non-cash items. Net profit after tax, adjusted for the non-cash items in FY '26 was $13.8 million, and statutory profit after tax was $15.7 million. Excluding $19.1 million of irregular items before tax, or $13.4 million after tax, underlying net profit after tax adjusted for non-cash items was $44.2 million. The reported result absorbed 2 clearly identified factors. Material irregular items relating to regulatory, legal, and compliance matters, including Forum Finance, M&A, the EGM, and Takeovers Panel proceedings, and the anticipated seasoning of the commercial portfolio following successive periods of strong growth. Statutory profit after tax also reflected the non-repeat of the prior period $7.9 million ECL release on the initial forward flow sale and the $10.6 million adverse ECL movement on higher commercial coverage. I will walk you through the bridge to underlying profit on the next slide, so I will not dwell on those items now. Turning to income. Net operating income was broadly stable at $327.1 million, down 1%. Within that, net interest income was $258.3 million, down 2.3%, but net interest margin improved 10 basis points to 5.5%, supported by lower funding costs and improved consumer yields. Total operating expenses were $188.8 million, including the $19.1 million of irregular items. As can be seen, excluding the irregular items, operating expenses were $169.7 million, up 2.9% PCP. This result was positive as it covered $6.7 million of inflationary pressure, partly offset by $4.5 million of savings in Canada, which exceeded our stated target. The underlying cost base remains largely stable, with employment costs well managed throughout the year. The group closed assets under management at $5.3 billion. Average assets under management remains stable, with Commercial, Ireland, and the U.K. helping offset planned legacy consumer AU runoff and New Zealand dollar translation impacts. The financial summary is consistent with the strategic story. FY '26 included identifiable non-recurring matters, external pressures we could not control, and higher credit provisioning, but the underlying business remained resilient, margin improved, and the cost base was actively managed. With that overview, let me move to the profit bridge, where I will step you through how statutory profit reconciles to NPAT after cash, non-cash adjustments, and then to underlying NPAT after non-cash adjustments. Turn page 14, the profit bridge. To assist investors in assessing the underlying earnings of the business, the group also presents underlying net profit after tax, adjusted for non-cash items. This is calculated as statutory profit after tax, adjusted for non-cash depreciation, impairment, and amortization, expected credit loss or ECL, and irregular items. This measure is not a statutory financial measure and is not presented in accordance with the standards. We start with statutory profit after tax of $15.7 million, which includes the full year ECL provision movement, non-cash items, and irregular items. First step is to add back the $15.1 million of net non-cash items after tax, which takes us to net profit after tax, adjusted for non-cash items before irregulars of $13.8 million. We then net back $13.4 million of irregular items after tax, $19.1 million before tax. The irregular items primarily relate to the concluded Forum Finance litigation and settlement, EGMs, Takeovers Panel proceedings, M&A activities, ASIC investigations into historical matters, remediation and restructuring programs. That gives underlying net profit after tax adjusted for non-cash items of $44.2 million. The key message is straightforward. After adjusting to disclose non-cash and irregular items, underlying NPAT after non-cash adjustments of $44.2 million gives investors a clearer view of the earnings base through an unusually complex year. The next slide provides the supporting detail behind those adjustments, including the specific irregular items referred and non-cash movements. We set this out on page 15, supplementary information slide. We set this out in detail because transparency matters, particularly in a year where non-cash and irregular items had a meaningful impact on the reported results. The $19.1 million of irregular items before tax is concentrated in identifiable matters. $9.9 million of legal and regulatory costs related to Forum Finance, $2.6 million for the EGM and Takeovers Panel proceedings, $2.5 million on M&A relating to 2 nonbinding indicative office, $1.4 million of ASIC inquiry costs on historical items, $1.1 million of remediation, and $3.6 million on a business restructure to improve productivity from here. Non-cash items increased $1.8 million to $15.1 million, driven mainly by higher ECL provisioning and partly offset by the absence of last year's software impairment. Depreciation and amortization was steady, reflecting a stable asset base. The key point is that the adjustments are clearly identified and transparent. They relate either to non-cash accounting movements or to discrete corporate, legal, and regulatory matters in FY '26, rather than the normal operating cost base. In the next slide, we turn our attention to the performance of our operating segments. Turning to page 16, Commercial. Commercial delivered net profit after tax adjusted for non-cash items of $34 million. As expected, the result reflects a more challenging operating environment, including softer SME demand in the second half and the seasoning of earlier high-grade changes. Assets under management was broadly stable at $3.3 billion, up 0.1%, and net receivables increased 1.8% to $2.8 billion. Net operating income was also resilient, down only 1% to $124.8 million. Net interest income was down 3.3%, and net interest margin was 3.4%, down 5 basis points. That reflects lower average net receivables and a deliberate shift in portfolio mix as new originations were written to stronger credit criteria, partly offset by an improvement in cost of funds. Credit impairment costs increased to $51.5 million, comprising net credit losses of $14.6 million and an ECL provision increase of $10.9 million. This reflects the seasoning of earlier vintages, longer asset recovery lead times, and the broader SME environment. Importantly, the newer commercial book is being written to deliberately stronger credit settings. That is the right trade-off for this point in the cycle and supports portfolio quality as we move into FY '27. Volumes were down 7.9% to $1.4 billion, reflecting softer SME demand and disciplined origination. But pleasingly, June 2026 monthly volume exceeded budget at more than $160 million, giving us a positive exit rate heading into FY '27. Overall, Commercial remains a resilient business, supported by strong longstanding broker relationships, disciplined underwriting, and a diversified portfolio across rural and regional markets. The next slide moves to Consumer, where the profit performance was stronger and the portfolio mix story is quite different. Consumer delivered net profit after tax, adjusted for non-cash items of $31.2 million, up 25.8% on the prior year, driven by Cards New Zealand, Cards Australia, and humm Ireland. Net operating income was broadly stable, down 1.1% to $202.3 million. Strength in Cards New Zealand and humm Ireland offset softer volumes in the PosPP Australia loan offering in its first full year following the regulatory changes in June '25. Credit losses improved 3.5%, supported by strong credit performance across the Cards Australia and New Zealand portfolios, while ECL benefit from the ongoing runoff of humm Classic. Operating expenses were $106.6 million, down 7.8%, reflecting the operational reset in Canada and disciplined cost management across other portfolios. Closing receivables of $1.9 billion, down 11.2%, reflecting expected legacy runoff and New Zealand dollar translation impacts. Importantly, the Australian transition is approaching an inflection point, with growth in the new platform expected to offset the decline in the legacy portfolio in the second half of FY '27. From here, I will move to corporate, where we separately identify the central costs and irregular items so the operating segment performance remains clear. The purpose of this segment is to provide transparency. In FY '25, the group revised its internal reporting structures to create a corporate segment comprising central back office functions. This helps separate shared costs and irregular items from commercial and consumer, giving investors a clear review of underlying business performance. The increase in corporate operating expenses to $46.5 million largely reflects the irregular items we have already discussed. All of these matters are now largely concluded, which is important context for how to think about the corporate cost base entering FY '27. In FY '27, a groupwide productivity review will be undertaken to support a more efficient, scalable, and growth-oriented business, with the objective of lowering the group's cost to income ratio over time. The FY '27 focus, therefore, on productivity and cost efficiency, supported by platform transformation, AI-enabled automation, and a comprehensive activity-based review. The message from corporate is that FY '26 costs were elevated by identifiable matters, while the FY '27 emphasis is on a leaner, more scalable cost base, and improved operating leverage. From here, I will move into credit risk in more detail. At group level, net credit loss to average net receivables increased 20 basis points to 2%. That remains a controlled outcome given the external environment and the portfolio transition we have discussed. Commercial increased 30 basis points to 1.5%, reflecting the seasoning of earlier high-growth vintages, softer SME conditions in the second half, and longer asset recovery lead times already discussed. In response, our deliberate shift towards higher quality commercial credit customers continues to improve credit quality over time. Newer originations have been written to stronger settings, and that should support portfolio resilience through the cycle. In PosPP, net credit loss to average net receivables increased 30 basis points to 2.7%, reflecting the planned humm Classic runoff and product transition in Australia. Internationally, Ireland improved to 1.7% and the U.K. to 1.5%, demonstrating continued portfolio optimization and credit discipline. Cards performance remained resilient, with Cards Australia improving 30 basis points to 2.3% following credit score card optimization, partly offset by New Zealand Cards at 3.5%. The 2 charts below the table show the direction of credit quality over time. The commercial weighted average credit risk rating continues to improve, and Consumer Australia and Cards New Zealand credit scores have also improved. In other words, we are writing better credit quality into the books. Balance sheet provision coverage increased 10 basis points to 2.7%, and that is around 70 basis points above actual losses as at June 30, 2026. This reflects our prudent reserve position as we enter FY '27. The key insights on credit are discipline management through the cycle, the losses increased where we expected them to, coverage remains prudent, and the quality of our new originations continues to improve. I will now move to the funding platform that supports the group's growth and capital flexibility at Humm. It remains a genuine point of differentiation for the group. Our funding platform is diversified, it is mature, and is supported by leading Australian and international wholesale and institutional investors across the full capital stack. Warehouse facilities, private placements, public transactions, and forward flow facilities across multiple currencies allow us to fund asset pools at the optimal capital and pricing point. Private placements provide targeted leverage benefits, releasing capital back to the group for reinvestment and growth. The forward flow program supports capital light growth by enabling targeted deployment of our capital base, enhancing shareholder returns. In FY '26, we executed a second forward flow arrangement, securing our $500 million one-year committed facility. We closed the year with $5.4 billion of on-balance-sheet wholesale debt facilities and $1.4 billion of undrawn capacity available to fund future growth. The funding message is straightforward. The platform is diversified, capital efficient, and importantly, has the capacity to support disciplined growth. With that, I will hand back to Angelo to take us through the summary and the outlook.

Thank you, Tony. To wrap up, let us please turn to Slide 22 for a review of FY '27 and beyond. FY '27 will be a year of adjustment and disciplined execution. Following meaningful progress on our platform transformation, our focus shifts to the card replatforming, now underway, to a major and final milestone. We acknowledge the need to adjust to the constantly changing external environment, and as such, plan to intensify our focus to optimize across volume, margin, and credit quality to generate increasingly reliable risk-adjusted returns for shareholders. Productivity will be a group-wide focus, with the platform transformation serving as a core enabler, together with greater use of AI-enabled automation and activity-based cost review scheduled for the first half of FY '27. Finally, we will continue to pursue capital-efficient asset under management growth, leveraging the group's well-established, efficient, and cost-effective funding platform. With an extraordinary level of corporate activity and legacy matters from FY '26 now largely behind us, funding capacity extended, and the platform transformation progressing to plan, hummgroup enters FY '27 as a leaner, self-funded platform better positioned for growth in a more stable corporate environment. Again, I would like to acknowledge our people, whose focus and professionalism allowed us to continue supporting our customers, merchants, and brokers through what was an extraordinary year. To our shareholders, thank you for your continued trust and support. We enter FY '27 with a defined pathway to creating sustainable value. And finally, thank you to the board of directors for your ongoing support and commitment. I will now hand over to the moderator to commence the online Q&A. Thank you.

[Operator Instructions] Carlie Bangs, Company Secretary, will facilitate the questions.

Thanks very much for that. My name is Carlie Bangs. I am the Company Secretary here at hummgroup Limited. Our first question is from Josh Hopp, and Josh asks, why doesn't the board consider a special dividend? I am not talking about a higher interim or final dividend, but a one-off special dividend to return some of the excess cash generated over the years to patient and long-suffering shareholders.

Thank you, Josh. We appreciate your question. What I would say is that the board periodically evaluates special dividends. However, our capital management decisions are based on operating cash available after funding liquidity, working capital, and also strategic growth requirements, rather than just total cash balances. As we outlined on Slide #9, operating cash has reduced markedly in FY '26, largely due to the Forum Finance settlement. Given our growth opportunities, particularly in the consumer and the international businesses, the board believes that maintaining the current dividend ratio for payout of 30% to 40% remains appropriate, and that there is no additional or surplus capital available at this time for a special dividend. Thank you again for the question.

Thanks, Angelo. Next question is from John, who is a shareholder. John asks, "There have been multiple articles in The Australian Financial Review and elsewhere that refer to continued activist investor pressure on the company to pursue a divestment of its commercial business and continued interest from Credit Corp in acquiring the business. Is Humm currently pursuing a sale of either the whole company or its division?

Thank you for the question, John. The question really is a matter for the full board, but I'll leave you with an initial response here, and that is that like any responsible board, we continually assess the performance of the group overall and each of the lines of businesses within, and make decisions on the best allocation of capital and forward-looking strategy. To be clear, though, our current focus right now is on disciplined execution together with a focus on sustainable returns. Thank you.

Thanks, Angelo. We have another question from John. John asks, "Following the board changes as a result of the activist campaign, what steps has the board and the company taken to maximize shareholder returns? It is disappointing that the refreshed board does not appear to have taken any action.

Thanks again, John. I would say that the refreshed board and the company remain firmly focused on maximizing shareholder value, primarily through disciplined execution. When you look at the priorities that we've set for FY '27, that is to complete the platform transformation, but also adjusting into an intensified focus to optimize returns through volume, margins, and credit quality, but then also driving productivity through automation, AI, and cost reduction initiatives. These are actually initiatives and decisions taken by board in agreement together with management, and together with also looking to drive more capital-efficient AUM growth throughout FY '27. Thank you again.