Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Harmoney Corp Ltd (ASX:HMY, Financial) launched its new platform, STELLAR 2.0, which became fully operational in Australia in July 2024, leading to a 50% growth in loan originations compared to July 2023.
- The company achieved its fifth consecutive half of positive cash impact and loan book growth despite higher interest rates.
- Net interest margin for the final quarter of FY 24 was over 10%, indicating strong profitability potential as higher margins spread through the loan portfolio.
- Acquisition costs were down 14% year-on-year, driven by efficiency gains from automation.
- The company successfully completed New Zealand's first-ever unsecured personal loan ABS and added a new warehouse, extending three existing facilities, creating growth capacity of $181 million.
Negative Points
- The statutory loss for the year increased to $13.2 million, including a one-off $9.5 million non-cash impairment expense on the retirement of the STELLAR 1 platform.
- Risk-adjusted income contracted by 120 basis points to 4.8%, driven by reduced net interest income and slightly higher incurred credit loss rates.
- Higher market interest rates constrained loan book growth to 2% for the year.
- The average funding rate increased by 170 basis points to 7.7%, driven by funding market increases and higher leverage within some facilities.
- The company's New Zealand segment showed a negative cash impact, primarily due to the bulk of operating costs being based there.
Q & A Highlights
Q: Can you provide some sense of the trend in the market regarding funding margins on warehouse facilities and whether any facilities are up for renegotiation in the next 12 months?
A: We recently renewed three of our warehouse facilities for another two years and added a new facility. The ABS market has been strong, providing good margins and plenty of funding capacity for loan book growth. (David Stevens, CEO)
Q: With STELLAR 2.0 up and running, should we expect a more aggressive loan book growth in FY 25?
A: Yes, we expect significant loan book growth, particularly in the second half of FY 25, as we fully leverage STELLAR 2.0. (David Stevens, CEO)
Q: Can you elaborate on the partnerships you mentioned and what they might mean for the business outlook?
A: We are working on some exciting partnerships in our core space, which we hope to update on in the next quarter or half-year. (David Stevens, CEO)
Q: How has STELLAR 2.0 improved application approval rates without being overly optimistic?
A: We conduct extensive back-testing against both approved and declined deals to ensure changes are effective. The system now targets smaller loans more flexibly without changing our credit growth standards. (David Stevens, CEO)
Q: Do you foresee the need for an equity capital raising if growth goals are achieved in 2025?
A: No, we have sufficient cash and undrawn corporate debt, and the business is profitable, so we do not plan on raising equity unless for a highly strategic reason. (David Stevens, CEO)
Q: Can you explain the 90% automated decision rate and its impact on risk?
A: Automated decisions provide consistency, which is less risky than human variability. We review every deal post-settlement to ensure the system's decisions align with our credit policies. (David Stevens, CEO)
Q: Will there be further write-downs once STELLAR 2.0 is rolled out in New Zealand?
A: No, all write-downs related to STELLAR 1.0 have been completed. (David Stevens, CEO)
Q: What are the expected impacts of transitioning the existing STELLAR 1.0 book to STELLAR 2.0 in FY 25?
A: The transition is straightforward due to our fully amortizing product, and it is included in our outlook without significant additional costs. (David Stevens, CEO)
Q: How do you plan to achieve the 20% cash return on equity run rate by the second half of FY 25?
A: We expect higher interest rates on new lending and easing funding costs to improve our risk-adjusted income margin, helping us achieve the 20% target. (David Stevens, CEO)
Q: What is your reliance on Google for customer acquisition, and how does it impact costs?
A: Google is our largest channel for originations, and we have a strong partnership with them. Our direct relationship with customers helps keep acquisition costs low. (David Stevens, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
