Harmoney Corp Limited (HMY) Earnings Call Transcript

Thank you very much for joining us this morning for the Harmoney Corp Limited Q1 FY '27 Operational Update. I'd like to introduce Mr. David Stevens, the CEO and Managing Director of the company. And the company of David is Simon Ward, the Chief Financial Officer. Before we start presentation, just as a matter of housekeeping, we'll be answering any questions you have at the end of the formal presentation. And we kindly ask you to fill these in the Q&A box on your screen. So many thanks for your interest this morning. I'm looking forward to hearing a good story around the continued operating leverage that is coming through Harmoney as it continues to scale the business and also more exciting intermediary channel that is showing rapid growth. Over you, David? Thank you.

Thanks, Michael. Hello, and welcome to Harmoney's First Quarter Financial Year 2027 Trading Update. I'm David Stevens, the CEO and Managing Director of Harmoney. With me today is Simon Ward, our CFO, who will join me in answering your questions at the end of the presentation. Now turning to Slide 2. Today, I'll begin with our financial year '27 profit guidance and then take you through our key metrics for the first quarter. I'll then give you an update on our intermediary channel, which has been the standout of the quarter and then recap on our customer flywheel. I'll finish with a reminder of our capital and funding position before answering any questions. Now turning to Slide 3. At Harmoney, we are committed to our track record of delivering on what we tell the market. So I'm pleased to reaffirm our financial year '27 cash NPAT guidance of $16 million plus, which represents growth of at least 18% on the $13.5 million we delivered in financial year '26. As you can see from the chart, that guidance continues a remarkable trajectory, a compound annual growth rate of 187% from $0.7 million of cash NPAT in FY '24 to our financial year '27 guidance. Two interns are driving that growth. Stellare 2.0, which continues to grow our direct business in both countries and our new intermediary channel. Together, they're driving our year-end loan book to $1 billion plus. Finally, on this slide, the Board and management continue to see significant value in Harmoney's equity at current levels and our on-market share buyback is continuing in line with the extension we announced on the 22nd of April '26. Now turning to Slide 4. This slide compares our first quarter with the same quarter last year. Our group loan book grew 9% to $912 million Growth was strong in both markets in local currency with our Australian loan book up 14% to $573 million, and our New Zealand loan book up 11% to NZD 418 million. Australia now makes up 63% of the group loan book. Our net interest margin or NIM held steady at 10.3%. Credit performance also remained stable with credit losses steady at 3.8%. And our 90-day plus arrears, which are a forward-looking indicator of credit quality, improved 13 basis points to 0.64% from 0.77%. Steady NIM and credit losses delivered a continuing strong risk-adjusted margin of 6.5%. Risk-adjusted margin is our income after both funding costs and actual credit losses, and as such, is a core measure we manage this business too. Australia platform with its high levels of automation continues to deliver increasing operating leverage as we grow our loan book with our cost-to-income ratio improving a further 100 basis points to 18%. Now turning to Slide 5. Our new intermediary channel has been a standout of the quarter, so I'd like to spend some time on it. We only launched our Australian intermediary channel in mid-August. In the short time to 30 September, we've already originated $7 million in car loans. We had 2 partners live in Australia in September, loan options AI and driver, taking us to 4 partners now live across Australia and New Zealand, with more already lined up to join through the second quarter. What our partners value most is speed and certainty. Stellare was built to serve direct online applications, so it also assesses, approves and funds intermediary introduced loans within minutes, which is a compelling proposition for our partners and their clients. As Julian Fed, the Founder and CEO of loan options AI put it, cleared funds in 25 minutes from when the client first picked up the phone call. This channel only adds marginal overheads because it runs on the same Stellare platform, the same credit models and the same automation as our direct business. We have onboarded partners at a deliberate pace to get that experience right from day 1. And the opportunity in front of us is large. The Australian car lending market is around $20 billion a year, and we see a pipeline opportunity of over $100 million of annual funded volume by financial year '28 from 10 or more intermediaries. Now turning to Slide 6. Many of you will have seen our flywheel before. So rather than walk you around the wheel again, I'd like to tell it as one customer story and show you where the last quarter's progress fits in. So Stage 1, a customer comes to us looking to borrow $18,000. Today, they can find us in 3 ways. Through online sites and search tools like Google Search, through AI answer engines and now through our partners. When they come from -- wherever they come from, we're looking for a prime customer and winning that first loan currently costs us around 5.6% of volume or about $1,000. Stage 2, they apply in minutes get an instant decision and have their money in minutes. The 25 minutes from phone call to a cleared funds that I mentioned on the last slide, is this stage at work now in the hands of our partners. Stage 3, where the economics turn. On average, our direct customers come back and borrow a further 1.5x their loan, about another $27,000. And because we already have the relationship, that further lending costs us nothing to acquire. So the longer a customer stays with us, the more valuable they become. At this stage, it's too early to say how the relationship will develop under our new intermediary channel. But the key point with the intermediate channel is that it is all new incremental volume that we were previously not targeting. Stage 4. Every one of these loans, the first and every 1 after it adds to our first-party data. The data trains our seasoned AI credit models which makes sharper decisions about the next customer arriving at Stage 1, the wheel feeds itself. Now turning to Slide 7. Think of this slide is our scorecard for financial year '27. Each box is 1 stage of the flywheel with what we are building to make it spin faster. Rather than repeat the plan, I'll focus on what has moved since we last spoke to you only a couple of months ago in August. The blue box, customer acquisition. When we presented in August, our first Australian partner at GoLive, Less than 2 months later, our Australian intermediary partners have originated $7 million. Alongside that, we're about to launch the next generation of our AI-assisted underwriting helping customers complete their applications more accurately and efficiently. The green box, delivery experience is about earning more from each customer relationship with personal and car loans together and lending that follows a customer's life events. The clearest sign of progress here is a growth in our vehicle loan book, up 22% on the same time last year. The red box, customer returns is about making it easier for customers to return the next time they need a loan. Our mobile app, which we have just launched this week to customers, will give customers streamline access to their next loan. In the yellow box, data intelligence is our longest term investment. Next-generation agentic AI for personalization at scale and predictive retention models working towards a private banker experience for every customer. This advantage builds quietly because it is trained on proprietary models and customer behavior, customer behavioral data built up over many years. These 4 boxes are not separate projects. A customer can now join us through a partner in the blue box, carload alongside a personal loan, deepened that relationship in the green box. The app brings them back sooner in the red box and every loan sharpens our model in the yellow box. Progress in any 1 of these boxes speeds up the other 3, and that is what we mean by accelerating the flywheel. Now turning to Slide 8. Now turning to our capital position. The figures on this slide are as at 30th June '26, our most recent order balance date. Harmoney's business model is very capital efficient. Our warehouse funding provided by 3 of the big 4 Australian banks funds 97% of our loan book with Harmoney providing the remaining 3%. The chart on the left shows in the red section, Harmoney's warehouse equity of $28 million supporting the existing loan book. On top of this, Harmoney had 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 had a further $27 million of unrestricted cash on hand. Combined, that is $39 million of cash, which would support growing the book by another 113% to $1.9 billion. Beyond that being profitable, we can reinvest our profits to fund further growth with over $1 million of profit funding $30 million of additional loan book. You saw both of these levers at work in financial year '26. Our profits funded loan book growth and improved funding advance rates allowed us to repay $7.5 million of corporate debt while still growing our cash reserves. Our only recourse borrowing is corporate debt at a low 31% of equity, which was covered 2.8x by operating cash flow in financial year '26. The key point being that we have a profitable, scalable and self-funding business model and Harmoney is well funded for growth ahead. That concludes our presentation for today. Simon and I will now turn to answering your questions. Just a reminder, you can submit a question at the bottom of your screen.

Thanks very much, David. I just pause there for some questions to come through. I got a question here from Logan from MA Financial. Originations of $122 million in the quarter, what quarterly origination run rate are you expecting from here to achieve a $1 billion-plus loan book? How much of an acceleration is required? And do you expect this to be driven primarily by the intermediary channel or in the core personal loan book?

Yes. Thanks, Lachlan. Well, we've given increased guidance around the sizable expectation of the loan book, which we didn't do in August. So hopefully, that gives a market a lot more color on where we're thinking. I haven't given guidance on quarterly originations for obvious reasons. It's something that's pretty granular. But hopefully, you can sort of work backwards from that year-end loan book number to get to that. Look, certainly, we see the intermediary channel being a key component of that growth. It's obviously coming off a 0 base. So it does -- and we're bringing on new partners all the time. You can see the growth on one of the earlier slides of the -- as we bring on more partners, that number grows. And obviously, the speed that we bring them on will help to -- help drive that number higher than $1 billion, but we're doing in a very safe way and very measured and managed way. We want to make sure the product is exactly how our partners want it. We've had great success already with the 2 partners that we're with and you've seen by public comments made by the founder and CEO of loan options. So that's really pleasing. We want that type of feedback. It's not a winner-take-all market, but we feel we've got a unique product in the market, and we want to get it right. So that will be there. The direct business continues to grow well. Look, New Zealand is going along really well, probably a little bit further through the cycle than Australia, to be honest. Australia is probably a little bit softer than probably in the last month or 2, but we expect that to turn around, and it's just, I think, strays a little bit behind in the current cycle of, say, what New Zealand is -- that we're going through now. So yes, look, really, really positive on the outlook on both segments.

Thanks, David. Next question -- this question quite commonly asked, 90-day-plus arrears have improved, which has obviously been a great outcome given the macro backdrop. What's your outlook on credit losses in FY '27?

Yes. Well, look, we've sort of said for quite some time now, we want to run a book of around 3% to 4% on credit losses. That -- that hasn't changed. That's sort of the expectation in our guidance. Obviously, it's been around the high end of the 3s and we'd expect to stay around there. As I said, I think the New Zealand economy is actually probably slightly better at the moment in the Australian economy. So a year ago, everyone was talking about the New Zealand economy being not so great. So if things change, we move and the numbers stay around the same. We don't play around of our credit underwriting. We use a consistent model. We improve with data all the time. We're not sort of -- we don't sort of open up the credit jaws when things look a bit better and go the other way. So we have consistent underwriting. And I think that helps make consistent results in our losses. So we're comfortable where that's at. And as I said, 90-day arrears are down, which is a great. Lead indicator, and that's a number we really focus on. And yes, so look, we're sort of expecting a similar sort of level in this financial year as last year.

Question in for Mark. How can you be assured of credit quality in the car market, given you car prices are soft and under pressure. And you have a few years exposure when conditions could deteriorate?

Yes. Thanks for the question, Mark. I would like to ask that one myself and as a question. Well, the good thing -- the thing we wish you underwrite the loan as if it's an unsecured loan. So we actually don't take any more comfort, if you like, from it being secured. We actually -- the loan is always done against the consumer themselves rather than any recovery value of the car. All we do in our product is give a pricing discount to the customer for securing it. So that's obviously a pricing decision, so -- as opposed to a credit decision. So we wouldn't expect to see any worse performance than the unsecured book, which you've been writing for 13, 14 years. But obviously, in a net loss position, so after recovery, you'd expect that where that does go back. We'd obviously have the ability to collect on the car itself. So the net loss position would be lower. So yes, great question. Absolutely no difference from our unsecured underwriting.