MoneyMe Limited (MME) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining. I would like to begin by acknowledging the traditional custodians of country throughout Australia and their connections to land, sea and community and we pay our respect to their elders, past and present. Welcome to the presentation of MoneyMe Limited's interim results for the first half of FY '24. I'm Clayton Howes, Managing Director and Chief Executive Officer, and joining me on the call today is Neal Hawkins, our Chief Financial Officer. We're both delighted to be presenting to you today and look forward to taking any questions you may have at the end of the presentation. Beginning on Page 1, I'll start by giving you a quick introduction to MoneyMe and our offering. MoneyMe is a founder-led and B Corp certified digital lender on a mission to challenge the traditional ways of credit with digital-first experiences that meet the needs of modern customers. We target creditworthy customers with credit products for the mass market, focusing on car loans, personal loans and credit cards. MoneyMe was founded in 2013 to transform personal lending by simplifying the borrowing experience and eliminating outdated complexities. Our first customer was employed by one of the major banks, a clear reflection of the experience gap that is now being bridged by fintech lenders like MoneyMe. Our key point of difference is our technology-driven customer experience, enabling us to deliver near real-time credit decisioning with loans that settle within minutes. Our B Corp certification reflects our commitment to lead the industry on ESG and high sustainability standards. On Page 2, you'll see our agenda for this briefing. I'll cover the key performance highlights for the half, followed by operating highlights before handing over to Neal to run you through the financials in more detail. Before finishing, I'll cover our strategy and outlook for the remainder of financial year '24 and beyond. Moving to Page 3, MoneyMe delivered a solid first half result with $6 million in net profit after tax, reflecting technology-driven cost efficiencies, strong credit performance and effective interest rate management. We increased originations in the half, maintaining a stable book balance, whilst facilitating a further shift in our loan book composition to a high credit quality asset base. Our loan book now has an average Equifax credit score 741 and 48% secured assets, both up on the prior periods. The stronger credit profile of our loan book is delivering the results with the reduction in net loss rate to 4.6% in the first half of '24. That's down from the second half of '23 and the first half of '23. We have executed on our strategies in the half. We increased the ratio of secured assets in the book. We invested in increased automation, strengthened our customer data protection and optimized for future growth by simplifying the product portfolio, and executed planned warehouse renewals. MoneyMe also became B-Corp certified in August '23 and was awarded ESG & Sustainability Initiative of the Year during the half. We published our most comprehensive sustainability report to date and submitted our Modern Slavery Statement. Moving to Page 4, our strategy is well calibrated to the macroeconomic environment. Our largely variable rate book enabled the adjustments to customer pricing to protect margins in an increasing interest rate environment. Our moderated growth strategy and transition to high credit quality assets, with an increased secured asset mix, have continued to safeguard the business against external risk factors such as cost of living pressures. We continue to focus on the opportunity in the car loan market. It's a massive market opportunity, and we have a product-led advantage. During the half, we grew secured car lending and extended our competitive advantage in this sector, with further enhancements to a car loan product, Autopay. To address emerging opportunities and threats, we strengthened the business by investing in artificial intelligence for fraud prevention and cybersecurity. I'll now run you through the key operational highlights. I'm on Page 6. MoneyMe successfully navigated the challenging macroeconomic environment in the first half of '24, while also building readiness for future growth. We continue to elevate the credit quality of our book. At the end of December 23, the loan book had an average Equifax credit score of 741 and 48% secured assets, both up on the prior periods. We continue to extend our technology advantage through further digitization and automation of operations processes, as well as enhancements to core products. Pleasingly, customer satisfaction and engagement remains strong despite increasing prices. As mentioned, MoneyMe achieved B Corp certification in August '23 and was also awarded ESG & Sustainability Initiative of the Year. We're changing our constitution in FY '23 to reflect our commitment to having a positive impact. This means our environment and social impact is no longer a second thought or a nice-to-have for our business. It is a requirement. Warehouse financing renewals were executed as planned, and new business for noncore products were phased out as part of our strategy to focus on our core products, car loans, personal loans and credit cards. Finally, we achieved a healthy net interest margin of 10% for the half, despite the interest rate increases. There's certainly a lot of margin opportunity when we are in the decreasing rate cycle. Over the next few slides, I'll expand on each of these and other key operational highlights. As set out here on Page 7, our ongoing focus on higher credit quality borrowers and further diversification of our customer base has continued to shift the composition of our loan book. Not only has our average Equifax score increased, but 86% of the loan book had an average Equifax score 600 and above. That's up from 81% in the first half of '23 and 83% in the second half of '23. Looking specifically at new loan originations during the half, the average Equifax score was 780, up from prior periods, demonstrating not only our continued focus on high credit quality borrowers, but also our ability to grow originations within this customer segment. It was great to see the strength of our loan portfolio recognized by 2 recent Moody's credit rating upgrades for our term securitization. Moving to Page 8. Our strong diversification across customer demographics and industry sectors reduces risk and provides a natural hedge against adverse macroeconomic conditions. Money's customer distribution aligns geographically with the Australian population with a concentration of 11% or less across industry sectors. Our median customer age has increased from 33 in FY '23 to 35 in our first half of '24, with 57% calling within the 36 or above category while only 10% of 25 were younger. Our focus on longer long terms and strong mix of remaining contractual terms support loan book stability and robust cash flows. Over 90% of our portfolio has an average remaining contractual term of over 2 years. That's up from 88% at the end of FY '23. If you could now please turn to Page 9. We continue to enhance our customer experiences through our innovation in the half with further digitized application journeys and increased automation of optical character recognition -- that's OCR technology -- to facilitate efficient invoice scanning and data processing. We also launched autopay to caravans through a strategic partnership with one of Australia's fastest-growing manufacturers of luxury caravans at Snowy River. We also began development of applications leveraging generative artificial intelligence to enhance customer service interactions and operational efficiency. As part of this initiative, MoneyMe is creating an internal tool aimed at enhancing the speed and accuracy of customer service responses. A beta version of this tool is set for release in the second half of '24, following significant progress made during our first half of '24. Turning to Page 10. It's pleasing to note that MoneyMe continues to achieve high customer satisfaction, despite interest rate rises. We attribute this to our focus on customer-centric innovation and leading customer experiences. 75% of our customer service calls were answered within 10 seconds during the half. MoneyMe's Net Promoter Score increased to 68 in the half, up from 60 at the end of FY '23. And our Google review ratings remained at 4.6 out of 5, above the industry benchmark and well above the average of our B4 banks. 34% of our customers have 2 or more products with us, and over 105,000 customers have accessed MoneyMe's free credit score tool since its launch in FY '23. I'm on Page 11. MoneyMe continues to deliver profitable purpose, achieving high sustainability standards as demonstrated by our B-Corp certification. The certification allows us to measure and verify our impact against an internationally recognized framework and gives our stakeholders reassurance that we are investing in the ESG initiatives that truly matter. Our Certified B impact score is 91.2, well above the median score of 50.9 for ordinary businesses and the 80-point certification threshold. There are currently only 2 ASX-listed lenders with B Corp certification, with MoneyMe being one of them. Investing in sustainable business practices is not an arbitrary decision or box-ticking exercise for MoneyMe. Sustainable businesses have been proven to outperform over time. In a recent survey, 82% of our customers said they care about the sustainability performance of lenders. The majority said environmental performance would directly influence their choice of a lender. In our most recent employee survey, 93% of employees said they believe MoneyMe's commitment to social and environmental responsibility is genuine. And I'm pleased to say we continue to see high employment engagement of 77%, above the industry benchmarks. During the half, we published our most comprehensive sustainability report to date, as well as our Modern Slavery Statement. Our sustainability report can be found on our investors website and I'd encourage you, our shareholders, to read it. Given our comprehensive sustainability framework and reporting, MoneyMe is well placed to meet mandatory climate-related financial disclosure obligations when we are required to do so, under the proposed standards published by the Australian government. If you can join me on Page 12. MoneyMe's largely variable rate book has allowed us to adjust customer pricing to mitigate the impact of margins in a rising interest rate environment. While our net interest margin reduced slightly from the prior half, it remained healthy at 10% for the first half of '24, even with further cash rate increases and our move to high credit quality assets with lower yields. Our variable rate book also presents an opportunity to price competitively once the interest rate cycle turns. We will continue to monitor the external environment and calibrate our pricing strategy accordingly. I'll hand you over to Neal, who will cover our financial performance for the half.

Thanks, Clay, and good morning, everyone. I'm pleased to run through MoneyMe's financial highlights for the first half of 2024, as outlined from Page 14. MoneyMe delivered a statutory profit of $6 million in the first half of '24. That's up from $3 million in the second half of 2023. The result was delivered on a fairly flat loan book, supported by slightly higher originations when compared to the last 2 half periods. The result also reflects an improving loan book credit risk profile. Net losses reduced to 4.6% for the first half of '24, alongside both the Equifax profile and secured asset mix continuing to increase. As set out on Slide 15, statutory profits from FY '23 have continued into the first half of financial year 2024 as expected. The profit reflects effective cost management and the shift to a higher credit quality loan book, while the overall loan book size stays materially the same in the first half of 2024 compared to the second half of 2023. More specifically, net revenue reduced to be $103 million in the first half of 2024 compared to $114 million in the second half, while operating expense reduced slightly more from $111 million in the second half of '23 to $97 million in the first half of '24. The group expects to post a positive statutory profit for the second half of 2024 and therefore, financial year 2024, while it continues to calibrate business settings to the current macroeconomic environment. Moving on to Page 16. As expected, revenue reduced for the half compared to the prior comparative periods, in line with the transition to a higher credit quality book, which has a lower risk and associated yield. Revenue from secured assets continued to grow into the first half of '24, contributing to a roughly 39% of total gross revenue. Gross revenue continues to be interest income based with the first half '24 result also reflecting customer pricing updates made in response to higher market rate-driven funding costs. Moving on to Page 17. MoneyMe's closing gross customer receivables were materially flat compared to the first half of '24, in line with the group's focus on moderating originations to reduce credit risk and support statutory profitability and initiatives to support the group's funding and liquidity position. Originations increased in the first half of '24 compared to the prior comparative periods, to be $277 million for the first half of '24. The increased originations increased the loan book credit quality and the secured asset mix further. Management expects originations to continue to grow over time, whilst the economic environment improves and in line with a high credit quality focus. On to Page 18. MoneyMe's operating costs comprised of sales and marketing, product design and development, and general and administrative expenses. These were materially flat for the first half of '24 when compared to the second half of '23 and are a reduction when compared to the first half of '23, despite the increasing cost environment. They reflect the group's low-cost operating model and its technology-driven efficiencies. Operating cost is expected to further improve from capital investment initiatives and loan asset growth. Turning to Page 19. MoneyMe's impairment expense was $17 million in the first half of '21 compared to $33 million in 2023. The lower charge in 1824 mirrors how the AASB 9 accounting provisioning to customer receivable ratio reduced to 5.8%, that's down from 6.6% for financial year 2023. These reductions reflect expected credit loss model updates to include recent asset performance and in particular, an ongoing increase in secured assets to 48% at the end of December 2023, compared to 44% as of the end of June. These assets have a materially lower loss rate than unsecured assets. It also reflects an ongoing increase in the credit quality of unsecured assets, 86% of the low book have an Equifax score equal to or above 600 at 1H '24. That's up from 83% in the second half of '23. It also reflects arrears and loss ratio is reducing as lower credit quality assets roll off. Model risk and management overlays at the 31st December 2023 remain unchanged from the 30 June 2023 position to help safeguard against potential impacts from the ongoing uncertain macroeconomic environment. Moving on to Page 20. The business has a mature diversified funding program, enabling scale and stability. The closing funding mix for 1H '24 includes 5% corporate debt, 17% term securitization funding, and 78% from warehouse funding and other trust facilities. Key first half '24 funding-related milestones include warehouse financing renewals, which were executed as planned, extending the AutoPay, Horizon 2020 and SocietyOne warehouses into calendar year 2024, and also good engagement from current and new potential funding partners to support further optimization of the funding platform into calendar year '24. Refining the funding program remains a key strategy for unlocking future growth and returns. I'm pleased to pass over to Clay to make a few points on MoneyMe strategy and outlook.

Thanks for that, Neal. If you could please turn to Page 22. The market opportunity for each of MoneyMe's core products is significant. MoneyMe currently has roughly 1% to 2% of the personal loan and credit card market and less than 1% of the auto finance market. There's an opportunity for MoneyMe to gain market share from incumbents with their focus on mortgages and limitations caused by outdated processes and clunky legacy platforms that slow down the rollout of new innovation. Banks have also been exiting the car finance sector, which poses a great opportunity to continue to leverage the unrivaled speed and customer experience of our AutoPay product. Turning to Page 23. With a solid foundation in place, MoneyMe is well positioned for profitable and sustainable growth beyond FY '24. MoneyMe will continue to execute its key strategies, which include extending our technology advantage through product innovation, automation and expanded AI capabilities; capitalizing on the significant market opportunity to grow our award-winning car loan product; growing our operating leverage and optimizing the business for future growth and strengthening our cybersecurity defenses. In conclusion, I am proud of the demonstrated agility of our technology-led business and our commitment to challenge the traditional ways of credit. We will continue to lead with innovation, speed and digital experiences to build a bigger, stronger and more profitable MoneyMe. I'd like to thank the incredible team at MoneyMe and investors for your continued support. And we've now opened the line up for questions.

[Operator Instructions] Thank you. We're showing no questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.