Remarkably, the six-month result has already surpassed our total statutory NPAT for the entire 2025 financial year. This was driven by our underlying cash NPAT, which also reached AUD 6.1 million, with non-cash adjustments netting to zero for the half. Cash NPAT also exceeded our full-year FY 2025 result of AUD 5.7 million, driven by strong loan book growth and continuing efficiency gains. This profit result delivered a 31% return on equity, a significant leap from the 13% achieved in the same half last year. Our loan book growth remains robust, up 9% overall. This was led by a standout 17% growth in our Australian loan book. In New Zealand, the book has also returned to growth, up 5% in local currency, with New Zealand originations surging 49% following the successful deployment of Stellare 2.0 in June 2025.
Our net interest margin, or NIM, continues to be a core strength. Sustained new lending NIM of over 10% has driven our total portfolio NIM to 10.3%, an increase of 130 basis points on the same half last year. On the credit front, performance remains stable, with credit losses of 3.9%, while our 90+ day arrears improved to 58 basis points, down from 64 basis points, reflecting the high quality of our loan portfolio. Our commitment to automation continues to drive efficiency, maintaining a 19% cost-to-income ratio as the loan book scales. Finally, Harmoney remains exceptionally well-positioned for future growth. In December 2025, we successfully refinanced our corporate debt with one of the Australian Big Four banks.
A facility of this nature from a Big Four bank is rare in the non-banking finance industry, so it's yet another endorsement of the strength of our business. In addition, we maintain warehouse facilities with 3 of the Big Four banks, with a total capacity of approximately AUD 1 billion, and even after making a AUD 7.5 million corporate debt repayment, we closed the half with AUD 24 million in unrestricted cash. Now turning to slide 5, then onto slide 6. Our outstanding performance in the first half of financial year 2026 has provided the confidence to further lift our guidance. We're upgrading our financial year 2026 cash NPAT guidance by AUD 1 million, an 8% increase over our previous guidance to AUD 13 million.
As you can see from the chart, this guidance represents a 128% increase on last year's record result, and a phenomenal compound annual growth rate of 331% since financial year 2024. This growth trajectory is driven by the continued impact of Stellare 2.0, which we expect to propel our year-end loan book to over AUD 900 million at a net interest margin of around 10% and a risk-adjusted income of around 6%. Risk-adjusted income is our income after funding costs and actual credit losses, and one of our core efficiency metrics. This upgrade is a clear reflection of the scalability of our platform and our team's ability to execute. We enter the second half of the year with strong momentum and a clear path to delivering these record results. Now turning to slide 8.
I'd like to take a moment here to provide a quick recap of what sets Harmoney apart from others. We're Australia and New Zealand's largest 100% online consumer direct lender. We have a total market opportunity of AUD 150 billion, with our market share, current market share less than 1%, so we have a huge total addressable market in front of us. Our algorithms partner with Google's to attract prime, high-intent customers at low cost, and then our direct relationship with those customers and great customer experience sees them returning again and again for their next borrowing needs at near zero acquisition cost. We use deep first-party data and AI models to deliver a prime loan book at a 6.4% risk-adjusted income. Remember, that's our income after both funding costs and credit losses.
We're funded by three of the Big Four banks, plus public securitizations. Our Stellare automation drives a low cost-to-income ratio of 19%, and our return on equity for the half was 31%, which is, which is exceptional in any business, especially financial services. Just a quick reminder of our products on the right-hand side of the page. Our loans are up to AUD 100,000, with an average new loan size of AUD 18,000, which is disbursed to customers within minutes. We offer personalized rates on borrower's risk pro-- risk profile. We don't charge any fees other than a one-off establishment fee, and all our loans are fully compliant with applicable consumer legislation. Our loans are typically used for renovations, debt consolidation, and helping people with life events such as travel, education, and weddings. Now turning to slide 9.
Now, I want to spend a moment on what I believe are a couple of the most important slides in this presentation, our customer flywheel. When Harmoney acquires a customer, we're not thinking about a single transaction, we're thinking about an ongoing relationship that builds over time as customers' financing needs come and go. The data here tells a powerful story. Our history shows us that on average, our customers borrow an additional 150% after their initial loan. So if someone takes out AUD 18,000 initially, they subsequently come back for another AUD 27,000 over their lifetime with us so far. Here's the economics that matter. That first loan to the customer costs us around 5.6% in customer acquisition costs or CAC. So about AUD 1,000 on an AUD 18,000 loan.
Each time that customer returns, the cost of acquisition is near zero due to our existing direct relationship with them. This is pure margin expansion, and they don't take long to start to come back. The average time between a customer's first and second loan is 15 months. This isn't a theoretical long-term play. This flywheel spins fast. We're not in the business of one-time transactions; we're building a compounding profit engine where every customer we acquire today becomes increasingly more valuable tomorrow and over time. Now, turning to Slide 10, I'll walk you through each component of the Harmoney flywheel. This slide shows the four interconnected stages of the Harmoney value flywheel, all powered by our Stellare platform. I'll now talk you through each stage, describing exactly how this creates compounding economics for Harmoney. Stage one: customer acquisition. We start with smart, targeted acquisition.
Our algorithms work alongside Google's to identify prime customers who are actively looking for credit, people with strong credit histories and genuine intent. We're using 10 years of proprietary data to find exactly the right customers, and that precision is hard to replicate. Next, stage two: deliver experience. We next focus on delivering an experience that makes our customers want to come back. Minutes to apply, instant decision, and money, and money in minutes, generating a 4.8 out of 5-star rating with over 60,000 reviews. This isn't just good service; this is creating customer delight at scale through automation. Every interaction built, builds trust and increases the likelihood they'll return. Then stage three, customers returning. This is where the magic happens.
Because we already have a direct relationship with our customers, subsequent lending CAC is near zero, and so far on average, customers come back for a further 150% of their first loan value over time. Because we've already covered our acquisition cost, the net income on every dollar of additional lending is nearly pure margin. Then finally, stage four, data intelligence. This stage is what makes Harmoney, Harmoney's 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 customers safely. It's a virtuous cycle that is hard for competitors to replicate. This isn't theory; these are actual results, and the beauty is the flywheel is accelerating with Stellare 2.0. Now I'll hand over to Simon to present the financial results in detail.
Thanks, David, and hello, everybody. Please turn to slide 12, summarizing our key financial metrics for the half year ending 31 December 2025. As David has mentioned, this half, Harmoney has delivered exceptionally strong growth in both our statutory and underlying cash net profit after tax, both surpassing last year's full-year result. This success has been driven by strong gains across almost every key metric. I'll briefly touch on each of these now before going into more detail on the following slides. Firstly, our loan book continued its strong growth trajectory, up 9% on the same half last year to AUD 857 million. That growth, combined with the higher portfolio interest yield, drove a 12% lift in revenue to AUD 71.9 million.
Our net interest margin, or NIM, improved by 130 basis points to 10.3% from both the higher portfolio interest yield and lower funding costs. Our risk-adjusted income, which is our margin after both funding costs and credit losses, improved by 110 basis points to 6.4%, driven by the higher NIM. Our acquisition to originations ratio improved to 3.1%, as Stellare 2.0 delivered higher new customer conversion rates across both countries, and Harmoney's customer flywheel, where existing customers return for future borrowing at near zero acquisition costs, began to include those increased new customers. Our cost-to-income ratio was up slightly on the same half last year, but remains a market-leading 18.5% and is an improvement on the full-year FY 2025 ratio of 18.9%.
This exceptionally strong cost-to-income ratio is a direct result of the operating leverage achieved from our highly automated Stellare 2.0 platform. These improvements across key metrics have delivered our statutory NPAT of AUD 6.1 million, up 202%, with non-cash adjustments netting to zero. Our cash NPAT was also AUD 6.1 million, up 166%. Our capital-efficient balance sheet means that the strong profit result translates to an annualized return on equity for shareholders of 31%. On the next few slides, I'll discuss each of these performance metrics in more detail. So now turning to Slide 13, looking at our loan book and revenue. With Stellare 2.0 operating in both countries, it's driving a re-acceleration of the loan book. The group loan book is up 9% on the same half-
Last year to AUD 857 million, and that headline growth is suppressed by the current New Zealand dollar weakness against the Australian dollar, down at its lowest level in 13 years. By way of comparison, if the exchange rate had remained at the 30 June 2025 level, the group loan book would be AUD 882 million, nearly AUD 30 million higher. While the weaker New Zealand dollar suppresses the headline group loan book, it does not have a material impact on our profitability due to structural hedging within the business. In local currency, the New Zealand loan book was up 5% on the same half last year, an expected but nevertheless pleasing turnaround after contracting during FY 2025. Stellare 2.0 led the turnaround with a 49% increase in originations compared to the same half last year.
The Australian loan book growth remains strong, up 17% on the same half last year. Australian loan book's now 61% of the group loan portfolio. Looking at the chart on the right, accelerating loan book growth, together with an increased average portfolio rate, has increased revenue growth, up 12% on the same half last year to AUD 71.9 million. Now turning to Slide 14, looking at our lending margins. A key feature of the Harmoney business is the consistent strength of our lending margins, underpinned by our proprietary credit assessment models, which drive attractive pricing to prime borrowers, in turn 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 three core levers of our lending margin.
The top line shows our average portfolio interest rate has continued to climb, now at 17.2%, as we originate new loans at higher yields and older, lower-yielding loans paid down. The middle line shows our funding rate, the rate at which we borrow, which is reduced to 7%. Then the third line is our actual credit losses, which are up slightly but remain low at 3.9%. Looking at the chart on the bottom right, you can see the combined outcome of these underlying trends. The combination of higher lending rates and lower funding costs lifted our net interest margin by 130 basis points to 10.3%. Then, the ultimate measure of our portfolio's profitability is risk-adjusted margin, being income after both funding costs and credit losses. This is the key comparator between lending portfolios.
In this half, Harmoney's has reached an exceptional 6.4%. Next, turning to Slide 15, I'll provide more detail on our credit performance. Harmoney's consumer direct model provides rich, deep consumer data. We use this data to train our AI credit models, and this has enabled us to build a prime loan book of resilient borrowers, with 70% employed in either professional, office, or trade roles and 89% aged 30 years or older. Further demographic detail on the loan book is provided in the appendix to this presentation. Looking at the chart on the top right, you can see that while credit losses ticked up slightly this half, they've remained largely consistent and stable, with a downward trend over the past two years. The small uptick this half is expected to flatten or reduce over the remainder of the year.
Moving to the chart on the bottom right, our 90+ day arrears, which are a forward-looking indicator, remain very low at 0.58%, less than half the Australian market average. Next, turning to Slide 16, looking at our operating expenses. A key feature of Harmoney's business model has always been our Stellare platform and the high levels of automation that it provides, enabling us to scale our loan book without proportionally scaling operating costs. As the chart on the right shows, while our loan book grew by 9%, our cost-to-income ratio continued its long-term downward trend, down from 18.9% last year to 18.5% this half.
Harmoney's combination of loan book growth, strong risk-adjusted margins, and scalable cost base underpins another record result, with this half statutory and cash impact of AUD 6.1 million, surpassing the profit for all of last year, which was itself a record, and delivering a return on equity for shareholders of 31%. Next, turning to Slide 17, looking at our capital position. Harmoney has a well-diversified funding program, with warehouses from three of the Big Four Australian banks, plus a securitization program, and now an Australian Big Four bank corporate debt facility. As is typical with warehouse funding arrangements, Harmoney's own money is also 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 96% of the current loan book and Harmoney providing the rest.
The chart on the left shows, in the red section, Harmoney's required cash contribution of AUD 34 million for its current loan book of AUD 857 million. On top of this, Harmoney has an additional AUD 5 million, which it is entitled to draw cash from funders at any point, AUD +24 million of unrestricted cash on hand. These together add to AUD 29 million of cash, which can support growing the loan book by over 75% to AUD 1.5 billion today, without needing to raise any equity. Then, in addition to already being able to support a loan book of up to AUD 1.5 billion today, being profitable means Harmoney can reinvest its profits for its contribution and book growth beyond that AUD 1.5 billion, with every AUD 1 million of profits funding an extra AUD 25 million of loan book growth.
Finally, as a reminder, Harmoney's share buyback announced last May of up to 5% of share capital remains in place through to the end of April. So in summary, we have a profitable, scalable, and self-funding business model that is well capitalized for the significant growth ahead. And with that, turning to slide 18, I'll hand you back to David to take you through our outlook.
Thanks, Simon. Continuing now to outlook. Please turn to slide 19. Now, let's take a look at how we're deliberately accelerating each stage of this flywheel over the next 18 months. I've already talked about what we have done. This is looking forward for the next 18 months. These aren't random initiatives. Each one is designed to make the flywheel spin faster. First, the blue box, customer acquisition. We're expanding who we can safely serve. Stellare 2.0 has already proven this, with originations up 27% on the same half last year. We're using next generation AI to approve more customers while maintaining credit quality. We've also started exploring embedded finance partnerships with auto marketplaces, which could open significant new acquisition channels. Second, the green box, deliver experience. We're increasing the value we capture per customer for our auto lending product.
This isn't just adding a product, it's about becoming the primary lending partner for life events. When a customer needs a car loan, we want them thinking of Harmoney first. Early results are promising, with our vehicle loan book up 18% since this time last year. Third, the red box, customer returns. We're accelerating the velocity at which customers return by building a mobile app with one-click loan access and launching revolving credit to reduce friction when customers need additional funds. We've already driven overall CAC down to 3.1%, and there's more room to go. Finally, the yellow box, data intelligence. We're investing in next generation agentic AI for personalization at scale. Think of it as giving every customer their own private banker: automated, intelligent, and getting smarter with every interaction. Our proprietary first-party data creates a defensible AI advantage that's extremely difficult to replicate.
The key insight here is that these initiatives are interconnected. Better AI means we can serve more customers. Multi-product households have higher lifetime value and lower churn. Faster return cycles mean better economics. It all compounds, and we're making significant progress on each one. Now turning to slide 20. So what does it mean when we accelerate at every stage of the flywheel simultaneously? More customers joining, plus higher lifetime value per customer, plus faster velocity between loans, equals exceptional profit growth. This compounds to our ability to deliver our upgraded guidance for financial year 2026 of a loan book of over AUD 900 million, driven by Stellare 2.0, AUD 13 million cash NPAT, and a 31% return on equity, which is what happens when you combine margin expansion with capital efficiency. But I want you to think beyond financial year 2026.
We've shown over 300% growth in cash profit over the past three years. With the flywheel accelerating, with Stellare 2.0 deployed, with our auto product scaling, we have a clear line of sight to continue strong profit growth, all while maintaining credit quality and being able to fund growth from reinvested profits. So when I talk about accelerating the 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 we're executing. That concludes today's presentation. We'll now turn to answering your questions. Just a reminder, you can submit a question at the bottom of your screen.
Thank you, David.
Are you gonna ask a question, Michael?
Yeah, just, first question comes from James. Congratulations on another impressive result. Expansion into new regions, countries, is that on the agenda, or is the runway in the current business substantial enough to maintain the current growth run rate? If you could talk to that, it would be stellar.
Yeah, look, there's no short- to medium-term plans of moving beyond Australia and New Zealand. But certainly there's lots of product adjacencies and channels that we are actively pursuing at various stages. So, yeah, and look, we obviously, we've now built the platform we've talked about for quite a while, and that's now That's highly scalable, and we're able to build new products onto that, new channels. So we, you know, we've obviously, the bigger numbers get, the harder percentage growth is, but, we're very confident in being able to deliver very strong results, as I said on that last slide. Going forward, we've got a great model, we've got a great team, we've got a great total addressable market ahead of us. So, yeah, very exciting.
Right. The next question is, and you mentioned, obviously, the accelerated flywheel. Can you please provide an update on how the development of the mobile app is going?
Sure. Yeah, so we expect that. We've got a pilot of it. It's not on the App Store yet, but that's scheduled for Q4, so sort of the April to June period this year.
There's another question in relation to obviously geographies about is this the Stellare platform transferable to other countries, or is there enough runway in Australia and New Zealand? I suppose-
Yeah, it is.
We're talking about the-
Yeah, that's the only part I didn't cover in that first question was just, yeah, it is true, it is transferable, but there's no intention to do that, and we're not planning on, you know, selling the software off. It's just not. That's just for our use.
Right. Another question touching on your product development. We've obviously covered that, David. I think maybe, the next part of the question is in relation to partnerships with other financial institutions.
Yeah, yeah. Look, we're working through some options there. But look, I don't have anything to update the market at this point. It's too early stage.
Well, another question talking about sort of segmentation and products. Is there any other areas you see ripe for disruption, or, you know, extreme growth, you know, versus what's actually existing or incumbent?
Yeah. Well, obviously, the auto space is huge. It's a huge market across both Australia and New Zealand. We launched a new product last year in a different way to what traditional sort of finances offer. It's a, you know, turning the customer into a cash buyer, as opposed to sort of going with pre-approvals or having to seek the finance in the car dealer or the like. You know, our product enables private buyers as well, where you can go and take the car. Not have to go through a dealer. You can go and buy it. You've already got the money in your account, so you can go and buy the car from a private seller as well, which is not that common. So we're already still 80% growth there.
It's still early days. We've still got lots to go there and, you know, expect over, you know, the coming few months, we'll have more to talk about there. So certainly, that's one. We talked about our revolving credit that we're building as well. We see that's a big opportunity as well 'cause, you know, we're not in that space at the moment, and there's new and there's sort of, you know, sort of different nuances to the product that we're looking to make it more customer appealing and get to be more front-of-wallet with customers, as I call it.
So, you know, we really talk about not being one-off transactions, about being more front of mind when making, the customer's making a, you know, a large amount of money to do what their life event is, or their home renovation, or whatever they're choosing to do in their life. We wanna be more front of mind and, you know, that's something we're doing a huge amount of work on at the moment. So yeah, lots to do. Financial services has been around for hundreds of years and, yeah, but it continually evolves and, you know, we feel we're making some good progress into that, and our technology allows us to be at the forefront of it.
Our next question is, what is the outlook for funding costs, given recent cash rate changes and the outlook here in Australia?
Yeah, look, yeah, small changes to the underlying rate, you know, don't have a real material impact on us, to be perfectly honest. We're not a mortgage book or a really low-margin business, where, you know, every 25 basis points is gonna make a huge difference to what you report the next half or year, or whatever. So and look, we've obviously got the flexibility to adjust our rates on a daily basis if we want to. So, the 25 basis points, 50 basis points, whatever it is, you know, honestly, it doesn't keep me awake at night. It's not something that's really concerning at all. But, you know, obviously, we manage that.
We, most importantly, target a 10% net interest margin, and we target a 6% risk-adjusted income margin. So if we're sort of sitting around that mark, you know, we're happy with that, and we'll work with whatever rates do, and we've proven that for the last five years since we've been listed. So, you know, I think we, that's not something that's too concerning.
A question here in relation to risk-adjusted margins. Obviously, the company achieved a very impressive 6.4%. The question just around the guidance, does that, you know, if guidance is 6%, does that sort of you know, imply that it's sort of tracking back to that number? And what actually does give you the confidence around the higher NIM, and is that all related to product mix?
Yeah, look, yeah, we've targeted the 10% and 6% for a while, so I don't go guide to specific, you know, basis points. So I think you can take the view that if you model our business, you know, if you stick to that 10 and 6, certainly on the current product mix, you know, that's where we target, so it's been very transparent. Obviously, as we bring on other new products, and the like, we Auto is lower NIM, and it's also lower losses, so that might bring that down a little bit over time. But we're not sort of building that in, into this year, in any way.
But for us, because we have got such a scalable platform, even if we add a lower margin product on top, it's incremental. We're not adding cost to the business to do it, so, you know, why wouldn't you write it? If you've got the funding for it, and you've got the capital for it, you know, you write the business every day, and it's good credit performance, you'd write the business every day of the week. So that's the beauty of the business. We're not having to add cost to it to bring on new products. So that might, over time, change a little bit at a group level, but certainly at a, you know, at a product level, they're the margins that we, that we have achieved for years and we target.
Our next question is congratulations on the strong result and the excellent refinancing that the company recently did. Understanding actual losses are below ACL provisioning rates, could you please give some info as to why the company has sort of looked to drop the ACL provisioning rates to 4.3% from 4.5%?
Sure. I'll, I'll get Simon to answer that one, so I'll flick it over to him.
Yeah, it's really driven by the relative performance of the underlying loans in the book. Back then, I think the 4.5 was actually from this time last year. So over that period of time, especially with Stellare 2.0 coming in, the underlying performance of the loans on the book is better, and we obviously look at forward-looking economic indicators and what we think the impact will be on the current book. So those two things combined is really what's driven it down.
Thanks, Simon. Back to David. Next question is: How much funding headroom do you currently have? As an example, obviously not looking at equity capital, but can you grow to AUD 1 billion book without further securitization deals?
Yeah, we're saying that we've got close to AUD 1 billion in warehouse funding. Look, we can increase our warehouse funding at any stage as well. And so we obviously don't go too high because we've got to pay unused line fees on, you know, that. So we've got our books, what, AUD 857 million at the moment. We've got basically AUD 1 billion in capacity, so, you know, you got AUD 100-AUD 150 million. If it grows further, I'll get, I'll get another AUD 100 million. It's not a problem. We increase warehouses all the time, and then obviously, we've got the public securitization markets that we can do to clear those existing warehouses out as well. And that frees up a huge amount of capacity. So there's just, that is something that I definitely don't lose sleep at night about.
You know, we've got great funders in place, have done for a long time. We've got three big, the Big Four banks, which I think is, you know, gives us the diversification as well. So yeah, plenty of capacity, very supportive funders. You know, we're bringing new products in, we're supporting those. You know, so we're, you know, it's some, it's an area of the business that's really well, really well managed.
Next question is around the macro environment within New Zealand. Do you see any green shoots in the New Zealand macroeconomic environment?
Yeah, look, I, you know, I live across Australia and New Zealand, and yeah, so I get to see both. I think probably that certainly in Australia, the sometimes the media that we see read is probably, you know, a bit more damning than what the reality is. New Zealand's, you know, they've dealt with some high interest rates for a long time. It's come off. People are now buying, doing more things because rates are a lot cheaper. Employment's still good. The, you know, the country's actually going along, you know, reasonably. You know, he's talking about interest rates going back up, you know, later in the year.
So yeah, people are taking advantage of the lower rates and taking out loans to do things that they may have put off for a while. You know, it's still a small country, it's only for 5 million people. But you know, we've seen our growth turned around, the loan book started growing again. And we don't see that changing. We think that growth has really returned, and we'll continue to grow the existing product and roll out new products as well.
More question around the auto book, David. Just, obviously growing off a low base, how do you see the acceleration of that growth and, you know, the potential of, you know, the size of that auto book?
Yeah, well, look, we, you know, probably in the next quarter, so not the one we're in now, but the one after, we've got some, you know, pretty exciting things happening. And, you know, the auto is a big space, right? So it could be, it could actually be bigger than our current book, right? But the important thing for me is we continue to grow our current products. Just have the, you know, the returns that we're getting, and anything that comes from auto and the like is pure cream on top, and they're incremental size. So, you know, we've got the scalable platform, right? And I keep saying that, and I'll keep saying it because that's what makes this business much more profitable and successful than others in the market, right?
We have a truly scalable platform that's now built and delivering. I've kept the same IT team that we had when we were doing the migration and building the platform. They're all working on new products. They're all working on improvements. They're all doing that now. All that really exciting stuff. So we haven't gone and saved a bit of money, let's stop innovating and building in this business. But we've kept the same number of people. Let's grow this business into more segments, more channels, change the product, get more customer-centric with the customer and, you know, continue to grow this place. And we're doing that at a 19% Cost-to-Income Ratio. So we'll, you know, and, you know, we'll continue to drive that down as we bring on more revenue.
Next question is pretty much along the same theme, David, just around, you know, the learnings from the auto loan book. But you know, how, what are your learnings about your approach to that in the future? I think you've pretty much answered that, but if you've got any further to add.
No, look, I don't think so. Like, our product is new, so obviously it takes a little bit of education. People don't quite get it initially, obviously, but everyone, once they get it, thinks it's a pretty cool product. And that's okay. It takes a little bit of time. That's why we don't build, though, numbers into our guide, our current year guidance for new products because, you know, we don't want to, we want to make sure we get them right, and we're not pressured into making poor decisions on rollouts because, you know, to hit time frames. So, you know, we've got, it's, you see, it's already coming through, but, you know, we've got a lot, like, long way to go still.
And, you know, that'll all be incremental to the business going forward. The beauty is the core of the business is performing. That's the beauty. So everything we do on top is not we're trying to substitute underperformance of the core product. That's the key difference. We're not doing M&A to try and find something to substitute under poor core performance. The core is performing, so everything we do on top of that is incremental, and that's how I run a business. I don't want to be trying to have to find things to substitute a poor underlying business.
Now, a question around capital management. With the ROE, delivery of, you know, an impressive 31%, why is cash better utilized buying back shares rather than, investing in the growth of the business? And can you give us some more, you know, thoughts from management around capital allocation?
Yeah, sure. So we implemented the share buyback back in May last year, and a key reason for that was because we did have surplus cash for a period of time. If you recall, we couldn't repay our corporate debt until December, so it allowed us to do that, you know, obviously buy back some shares over that time. Since then, we've bought back some shares, and we've also repaid AUD 7.5 million of corporate debt out of our cash earnings. So pretty impressive number. There's not many in the space that are paying down corporate debt out of earnings. So obviously, that's obviously chewed up some cash. Share buyback's still in place. We obviously haven't bought any for a while. There's no, you know, whilst we
It's there, and we can use it. There's not a, you know, we're not necessarily gonna get to the 5%. We may not buy any more. But it is in place till April. We don't have to, we don't have to do anything. So as I said, you know, as those, a lot of new things coming on, and to that person's question, yeah, you're right. Like, I probably will leave it in the business. You know, but I had, you know, for that time there, I was particularly had a fair bit of surplus cash, so we took the opportunity to buy the shares, buy some shares back, particularly when they were ridiculously cheap.
You know, whilst we had before we had could pay, repay that corporate debt back in December.
Question here from Steve. What's the company's thoughts in relation to sort of mitigation of sort of economic downturns?
Look, I think this comes back to. We're talking about sort of we've been through downturns before. You know, we have a very diversified loan book, which is quite key in any sort of downturn. We're not like all our loans haven't come through a broker, say, in I don't know a particular state that has gets impacted more than another one. The loans right across Australia and New Zealand, probably reflective of the population in terms of the mix. You know, we've got a lot of detail in our appendix around the demographics. And look, we monitor this. We look at use historical loss static loss rates to really monitor how losses perform. So you can see early if things are changing, and we can adjust on the go.
Because we are a direct platform, we can move our credit or credit models to tighten them if we wanted to. We just haven't had to for years and years and years to do that. You know, and the business is robust, so we're not, it's not like, it's something that we monitor like any business, but not something that, again, you know, we get too hung up on, right? We manage, monitor the data. We get 10,000 customers a month, and we get bank statements from about 6,000-7,000 of those. We see what's going on with people's, you know, ability to pay. So if we start seeing more people coming through that look stressed, we'll make decisions across the rest of the business.
But I think because of that first-party data that we get, we actually have a greater insight into what's going on, you know, than a lot of others in the space. Probably getting like sort of what smaller banks get, you know, we're using lots of transactional data. So we're seeing all that, and, you know, we can adjust as we see, you know, things improve or decline. And I'm not so sure it's I think New Zealand's been through the worst of it and looking to improve, and Australia, well, you know, it's going pretty well from an employment sense and the like as well. So obviously, what happens globally, you know, we, you know, no one really knows.
But that can, you know, if there is things in that, you know, we've got an adjustable business that we can, we can make changes to as we need.
. Just a question around partnership channels. Is the company sort of looking at sort of meaningful partnership opportunities?
Yeah, we are. And as I said earlier, we've, you know, we're probably too early to talk to the market about some of those, some of those things. But, you know, we, we haven't really been able to look at those until the platform was, was rebuilt. So, you know, early days on, on some of the bigger ones, for sure. But, yeah, there's, there's, there's plenty of, other ones coming through.
A question just about the uptick in loan losses to 3.9%. Is there a correlation with the implementation of Stellare assessing the credit quality coming through?
Look, it is, and yeah, it's We've got a target range of 3%-4%. I think it's moved from 3.7 to 3.9. It's sort of a bit of a new- It's not something worth really talking about, to be honest. The same as if it went from 3.9 to 3.7. You know, as long as it's in that range, we're happy. You can see the 90-day arrears are down to 58 basis points, which is, yeah, about a third of the market, so of what the market average is. So you can see there's not like a big tail coming through into the numbers. So, yeah, look, it's, there's nothing of substance to see there.
Question just on economic macro in New Zealand. Unemployment rate sensitivity, you've seen a tick up of 1%. Is that affecting any of your origination growth plans?
No. Simply, no.
Okay. Moving on, given the discount versus your listed comps, why do you think the market isn't rewarding you in terms of valuation re-rate, given the growth and execution over the last 12 months?
Yeah, well, look, yeah, that's the market to determine, not me. I think for us, we're the only one that gives guidance. We deliver on guidance or exceed, and it's a good guidance number. There's some of my peers out there are making big losses, right? You know, I can only do what I can do, but hopefully from this presentation, you can see the, the differentiator factors of us, through our, you know, platform, cost to income ratios, growth rate, return on equities, all that stuff, the new opportunities that are coming to us. I can only control my backyard. And hopefully, you know, the market starts to see that, you know, we're a company that delivers on our promises, or exceeds on what we say, and can get some comfort around that, that we're a growing profitable stock.
We're not adding back everything in town to get to a profit number. We're consistent in our reporting. We clearly reconcile everything to our audited numbers. You know, I've run listed companies for many, many years now, and you know, this is not a short-term play. You'll see that we're transparent, we deliver, and we've got a great story in front of us and you know, I think over time, that builds long-term shareholders and trust, and that's that wins in the end. So some of my peers might have a better valuation than me at the moment. Yeah, yeah, I can't control that, but I control what we're doing, and I think we'll you know, we'll win in the end.
Thanks, David. Just talk about your returning customer base. Does that sit with a lower loss rate versus the new customers coming through?
Sorry, I, I missed that. I was thinking about something. What was the question again, Mike?
Returning customers, lower risk-
Yeah.
What is the loss rate versus new customers?
Oh, yeah, good question. You're correct. Historically, it's been about 30%-40% lower on existing customers to new customers. I think with the implementation of Stellare 2.0, that's narrowed a little bit. I think we're getting better at the new customers' origination. We're certainly seeing that in our early loss cohorts. So that percentage might be dropping a little bit over time. But yeah, there is absolute value in when you've known a customer, you've seen them make good repayments, you're only offering repeat loans to good customers. Obviously, we're not offering them to customers that have been in and out of arrears. So yeah, it does perform better. But I do believe that the
We, it's well, I don't believe it's factual that we're getting better on the assessment of new customers as well. So, that's why the returning customer is very valuable to us, and we stress that through the presentation.
Yep. Just for the benefit of an investor here, can you sort of give us a bit more sort of color around your unrestricted cash and its use?
Yeah, it is what it is. We don't play games with it. It's our free cash flow at the top of the company, where we can use that to grow the business, we can use it to fund deals, we can use it for anything. There's no restrictions on it. The total cash number is restricted cash, which, you know, obviously, I don't even include that in the numbers I talk about because it's money that's used for funders only. It's not our money per se. It's not my free cash flow. It's a timing difference in money that's got to be repaid back to the funder each month. We obviously have to snap the cash balance at 31 December, and whatever, you know, sitting in collections accounts and the like, gets included in that number.
But really, it should be a net offset to borrowings. It's just the accounting standard requires you to hold it in cash because it's actually cash, but really, the right way is probably to deduct it off the borrowings number as cash received. So yeah, no, it's a true cash, free cash flow number. There's no restrictions on that cash.
Just a follow-on question from Jonathan, just around sort of new, new customers and loss rates. Is the higher loss rate for new customers added into the caps for the cap, for the customer acquisition cost?
No, the customer acquisition cost is just the marketing expense, and that has got nothing to do with the loss rate. The loss rate would come through the risk-adjusted income.
Okay. Well, we're just coming down to the final, conscious of time, we'll get through this. Stellare 2.0 appears to be obviously a driver of loan book growth, operational efficiencies. Talking about New Zealand originations up 49%-50% after the rollout, and the group achieving 10.3% NIM in the first half. As you scale towards 900+ book, what specific enhancements to Stellare 2.0 or the auto, or any upcoming automation initiatives will further improve the risk-adjusted income and maintain your low 19% cost-to-income ratio? So in short, enhancements around Stellare 2.0. Dave?
Thanks for the summarizing. That was a detailed question. Look, I'd like to think we've covered a fair chunk of that. We are continually, like, our platform is something that we are continually, you know, enhancing, finessing, updating. It is our, it is our number one asset, right? So we will continue to do that. As said, we target that 6%, 6% +, risk-adjusted income. So that's something that hasn't changed. We do those enhancements to help keep that level. We're not Yeah, they are, that's where our targets are. That's why we have a team of, you know, we've got around 35, 40 people in product engineering and data science, right? That's their job, is to ensure that's operating efficiently.
We're continually rolling out enhancements to that to make it better. We're using a lot of that more AI within that. We've used AI, we've used machine learning for 12 years across in our platform, but and with our buying, we're now using that, obviously, a lot more of that, you know, a lot of the LLMs and the like, that we, you know, within the business and, we're building applications that, you know, ideally will be just using AI, using AI. Having, you know, having the app speak to you rather than having to fill it in. You know, there's all sort of stuff we're doing, and that all helps to get more customers, so that's better experience for them, and then also not add cost to the business by when you bring these customers on.
So, lots and lots going on to answer that question, and, you know, we're very focused on that.
Thanks, Dave. Last question, just around your NIM of 10.3%. Talking about sustainability, just given the landscape of increased competitive pressure and reliance on Big Four bank funding.
Well, I'd rather have more reliance on three of the Big Four banks funding me than than others, for number one. We've been around that level for quite some time. Obviously, it went down, I think it went down the low, it was around 9, when we were a few years ago, when we had really high interest rates for a while. But you know, I think we're in a, you know, we're in a better funding spot since then. Rates are nowhere near scheduled to go up so much, so quickly, which you know, that was a pretty rapid increases, so it was hard to move pricing and the like back then. So you know, we're very comfortable. On the current product mix, we're very comfortable around 10.
As I mentioned earlier, if we move into more into autos, that does come with a lower margin, also comes with lower losses as well. But that's all incremental on top of what we do today. So as long as that core business keeps firing and we're adding more and more on top, if that comes at a slightly lower margin, so be it. Who cares? We'll keep growing shareholder returns and profit, and that's what we're all here to do.
Right. That closes out the Q&A segment of the presentation. So just for a bit of advertising, the company will circle back in March for a formal roadshow for investors, potential and existing. So please feel free to reach out to myself at Ethicus Advisory Partners. I'll pass to you, Dave, before closing remarks post a very excellent first half FY 2026 result.
Thanks, Michael. On behalf of Simon and myself, thank you for your time. Thank you for all those questions. I think that's probably the most questions I've had. I need to have a glass of water after that. But yeah, look, I think in summary, we've got a, you know, a fantastic platform, I'd say best in market. But certainly, we've got a great customer acquisition model. We're building sustainable profits. We've got great new product initiatives, and we're doing this at a return on equity of 31%. It's really, I think any way you cut it, the financial numbers don't lie, and they're really proving that we're now executing on a really strong platform and a strong business model.
So I look forward to meeting yourselves, some of yourselves over the next few weeks and coming on the journey with us, 'cause I think we've got something really special here and we're excited to be executing our strategy and hopefully delivering even better numbers in years to come. Thank you. Have a good day.
Thank you, David. Thank you so much.