As a matter of housekeeping, we will be answering any questions you have at the end of the formal presentation, and we would kindly ask you to fill these in the Q&A box on your screen. Many thanks for your interest this morning. I am 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 to you, David. Thank you.
Thanks, Michael. Hello and welcome to Harmoney's first quarter financial year 2027 trading update. I am 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 will begin with our financial year 2027 profit guidance and then take you through our key metrics for the first quarter. I will 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 will 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 am pleased to reaffirm our financial year 2027 cash NPAT guidance of AUD 16 million plus, which represents growth of at least 18% on the AUD 13.5 million we delivered in financial year 2026. As you can see from the chart, that guidance continues a remarkable trajectory, a compound annual growth rate of 187% from AUD 0.7 million of cash NPAT in FY 2024 to our financial year 2027 guidance. Two engines are driving that growth. Stellare 2.0, which continues to grow our direct business in both countries, and our new intermediary channel. Together, they are driving our year-end loan book to AUD 1 billion+ .
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 buy-back is continuing in line with the extension we announced on the 22nd of April 2026. Now turning to slide 4. This slide compares our first quarter with the same quarter last year. Our group loan book grew 9% to AUD 912 million. Growth was strong in both markets in local currency with our Australian loan book up 14% to AUD 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%. Our 90+ day 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 to. Our Stellare 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%. 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 AUD 7 million in car loans.
We had two partners live in Australia in September, LoanOptions.ai and Driver, taking us to four 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 Fayad, the Founder and CEO of LoanOptions.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've onboarded partners at a deliberate pace to get that experience right from day one.
The opportunity in front of us is large. The Australian car lending market is around AUD 20 billion a year, and we see a pipeline opportunity of over AUD 100 million of annual funded volume by FY 2028 from 10 or more intermediaries. 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's story and show you where the last quarter's progress fits in. Stage 1, a customer comes to us looking to borrow AUD 18,000. Today, they can find us in three ways: through online sites and search tools like Google Search, through AI answer engines, and now through our partners. Wherever they come from, we're looking for a prime customer, and winning that first loan currently costs us around 5.6% of the loan or about AUD 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 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 one and a half times their loan, about another AUD 27,000. 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 intermediary 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 one after it, adds to our first-party data. The data trains our seasoned AI credit models, which make sharper decisions about the next customer arriving at stage 1. The wheel feeds itself. Turning to slide 7. Think of this slide as our scorecard for financial year 2027. Each box is one stage of the flywheel with what we are building to make it spin faster. Rather than repeat the plan, I will 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 had gone live. Less than 2 months later, our Australian intermediary partners have originated AUD 7 million.
Alongside that, we are about to launch the next generation of our AI-assisted underwriting, helping customers complete their applications more accurately and efficiently. The green box, deliver 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 streamlined access to their next loan. 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 behavioral data built up over many years. These four boxes are not separate projects. A customer can now join us through a partner in the blue box. Car loan alongside a personal loan deepens 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 one of these boxes speeds up the other three, and that is what we mean by accelerating the flywheel. Turning to slide 8. Turning to our capital position. The figures on this slide are as at 30 June 2026, our most recent audited balance date. Harmoney's business model is very capital efficient.
Our warehouse funding, provided by three of the big four 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 AUD 28 million supporting the existing loan book. On top of this, Harmoney had a further AUD 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 AUD 27 million of unrestricted cash on hand. Combined, that is AUD 39 million of cash, which would support growing the book by another 113% to AUD 1.9 billion. Beyond that, being profitable, we can reinvest our profits to fund further growth. With every AUD 1 million of profit funding AUD 30 million of additional loan book. You saw both of these levers at work in financial year 2026.
Our profits funded loan book growth and improved funding advance rates allowed us to repay AUD 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 2026. 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 paused there for some questions to come through. Right, I've got a question here from Lachlan, from MA Financial. Originations of AUD 122 million in the quarter. What quarterly origination run rate are you expecting from here to achieve a AUD 1 billion+ 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?
Thanks, Lachlan. We've given increased guidance around the size of the expectation of the loan book, which we didn't do in August. Hopefully that gives the 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. 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 zero base, so it does obviously. 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 drive that number higher than a billion.
But we're doing it 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 two partners that we're with, and you've seen by public comments made by the Founder and Chief Executive Officer of LoanOptions.ai. So that's really pleasing. We want that type of feedback. This is not a winner-takes-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. New Zealand's going along really well, probably a little bit further through the cycle than Australia, to be honest. Australia's probably a little bit softer than probably in the last month or two.
But we expect that to turn around and it's just, I think Australia's a little bit behind in the current cycle of, say, what New Zealand is, that we're going through now. So yeah, look, really positive on the outlook on both segments.
Thanks, David. Next question, and it's a question quite commonly asked. The 90+ day arrears have improved, which has obviously been a great outcome given the macro backdrop. What's your outlook on credit losses in FY 2027?
Yeah. Well, look, we've sort of said for quite some time now, we want to run a book of around 3%-4% on credit losses. That hasn't changed. That's sort of what the expectation in our guidance. Obviously, it's been around the high end of the threes, and we'd expect it to stay around there. As I said, I think the New Zealand economy is actually probably slightly better at the moment than the Australian economy. So obviously, a year ago, everyone was talking about the New Zealand economy being not so great. So, things change, we move, and the numbers stay around the same. We don't play around with our credit underwriting. We use a consistent model that we improve with data all the time. We don't open up the credit jaws when things look a bit better and go the other way.
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 you said, 90+ day arrears are down, which is a great lead indicator, and that's a number we really focus on. And yeah, so look, we're sort of expecting a similar sort of level in this financial year as last year.
Question here from Mark. How can you be assured of credit quality in the car market given used car prices are soft and under pressure, and you have a few years exposure when conditions could deteriorate?
Yeah. Thanks for the question, Mark. I would like to ask that one myself as a question. Well, the good thing, we actually underwrite the loan as if it is an unsecured loan. So we actually do not take any more comfort, if you like, from it being secured. We actually let. The loan is always done against the consumer themself 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 is obviously a pricing decision, as opposed to a credit decision. So we would not expect to see any worse performance than the unsecured book, which we have been writing for 13, 14 years.
But obviously in a net loss position, so after recovery, you would expect that where debt does go bad, we would obviously have the ability to collect on the car itself, so the net loss position would be lower. So yeah, great question. Absolutely no difference from our unsecured underwriting.
Thanks for that. Question here from Jonathan. When stress testing the credit quality of the book, what unemployment rate do you use and what type of customer concentration do you have, and what do you look at to monitor the credit quality?
Yeah. There's a few questions in there. I might take them in a slightly different order. The type of customer concentration we have, we disclose that every half year and full year, and we've done it since we listed. It shows the demographic of customer really clearly, so very much spread across the population, fairly evenly, both Australia and New Zealand. 70-odd percent are- In 73%, I think it is, or so, are in office trade roles, office roles, trade roles, professional type roles. The average age customer is in their mid-40s. Because we're direct, we're not concentrated on a specific state or anything, or where we're getting a lot of deals from one particular area, which is a great thing for managing losses. You want to have diversification, which this book really does, which is great. Look, unemployment is obviously a measure.
One thing to note, a change in the unemployment, we've seen unemployment rate move from what it has, and it's had no impact on arrears whatsoever. If it moves another 1% up, there'll be a little bit in there, but it's not like all our customers have personal loans. All the people who lose their jobs have personal loans with us. Even if it goes up another 1% or 2%, we don't feel it would have a material impact on our business. It also depends on how long that unemployment rate's up for as well. That's another key thing that needs to be looked at.
Then there's whether you actually believe the unemployment rate that's published, which I think anyone that spends a little bit of time seeing how that rate is calculated would probably find the unemployment rate's quite a lot higher than what it actually is being reported, particularly when you look at underemployment and the like. So I think the books were already experiencing quite a lot higher unemployment than what is reported anyway. So, yeah, look, as I said, that diversification is key. Consistency of credit underwriting is key in there as well. So we monitor that. We monitor our static loss, which for anyone that's technical on this, we don't just look at the percentage of the loan book of loans written off in arrears.
We actually look at how a cohort of loans has performed in month 1, month 2, against month 1 and month 2 of loans written for the last 5 to 10 years. So we can see if those trends start to look, if losses start to appear earlier since a loan was originated, and that's something we've done as a business. I've done it my whole career, and we've been doing this at Harmoney since day one. We don't just write a lot of loans and grow the denominator so the loss number looks good. You've got to be looking at it much earlier in the origination cycle on that.
Just another question just in relation to New Zealand. Obviously, there's been a formal launch of their national election over there. Just from past learnings of the market in New Zealand leading into election, do you anticipate any change around originations or growth there at all?
Yeah, I might hand that one to Simon, being the local Kiwi, to answer that for more of a historical thing. But go for it.
Yeah, I think there is probably a little bit of a pause in activity at the moment because the election does seem to be hanging in the balance a bit. I think that once we are through that, I'd expect things to pick up as normal post any election. We tend to have, I guess, fairly centrist governments here, so it doesn't swing too far either way, depending on who gets into power. I think, yeah, natural around election slowdown at the moment, which will probably pick up again as we get post that and head into the holiday season.
Thanks, Simon. I'll just pause there to see whether any further questions come through on the Q&A box. I would direct you to that box if you do have any questions before we pass back to David for any closing remarks. We'll just pause there for a moment to see whether any more come through, Dave.
Okay.
All right.
Thanks, everyone.
I will pass to you.
Obviously, it was only a couple of months since we spoke last time, but hopefully you are seeing we have made some good progress in those couple of months. Really excited about where the business is at, and really looking forward to delivering some really good returns over the coming period. Thank you. Have a great day.
Thanks, David. Thanks, Simon. Any further questions, please feel free to direct those back through the email contact at the back of the ASX release this morning, or alternatively, please contact myself directly at Ethicus Advisory Partners. Again, thanks very much for your time and interest today, and have a pleasant day. Thank you.