Please be advised that today's conference is being recorded. It is now my pleasure to hand you over to the Chief Executive Officer, Mr. Stuart Grimshaw. Please go ahead.
Good morning, and thank you for joining us today as we release the first half results for financial year Humm Group Limited. my name is Stuart Grimshaw, and I'm the Chief Executive Humm Group. also joining me today is Adrian Fisk, our Chief Financial Officer, and David Grevler, our Head of Investor Relations. On slide three, you will see the agenda for today, and Adrian and I will walk you through the slides. Turning to page five, where we have highlighted the key performance metrics of the half. Our focus on delivering an exceptional customer experience has delivered a strong result for the period, once again highlighting the efforts of management in improving the performance of the company. There are six key metrics that I wanted to leave you with.
Firstly, we delivered cash profit after tax of AUD 29.8 million, an increase of 119% on the same time last year. Earnings per share was up 124% from this time last year to AUD 0.11 a share. Return on cash equity was up 122% to 10.9% over the same period. Management's focus, discipline, and execution have delivered an 18% improvement in the cost-to-income ratio, dropping from 64%- 52.4% today. Income has increased 6%, and we've delivered a 13% reduction in operating expenses over the prior comparative period in a difficult inflationary environment. The strength of our risk assessment and recovery and collection processes has been demonstrated once again with credit losses being maintained at the historic record lows of 1.8% of average net receivables. Finally, the strength of our result has allowed us to declare a fully franked interim dividend to shareholders of AUD 1.25 per share.
This represents a post-tax return of 6% on an annualized basis and an increase in dividend of 67% over the same time last year. Turning to the next page, in the first graph on the left-hand side, you can see the increase in shareholder value and returns. Return on cash equity has continued to grow, more than doubling the return from last year to now being to double digits at 10.9%. This growth has been off the back of a higher cash profit after tax for the first half, which has increased threefold since the second half of financial year 2023. The chart below that evidences the strong credit culture that permeates throughout the company, with net loss to average net receivables remaining at record lows of 1.8%.
This highlights the positive impact that our product mix has on the business, with the expected losses from our commercial portfolio as the portfolio seasons, being offset by lower loss rates across our consumer portfolio following changes to credit settings initiated in the first half of financial year 2024. The chart at the top right shows the impact of cost savings that have been delivered. In the first half of financial year 2023, our cost base was AUD 92 million. This increased to AUD 97.4 million in the first half of financial year 2024, with us now delivering a cost base of AUD 85.1 million for the first half of financial year 2025, slightly up on the second half of financial year 2024. An exceptional result given the cost pressures felt across all parts of the supply chain and employment sector.
Since the inception of our cost savings program in the first half of financial year 2023, we've delivered a gross total savings amount of AUD 36.6 million. These savings have been used to fund investment in our global operations, invest in sales capability, technology investments, including the uplift in the capability of our technology team, funding the long-term incentive programs for management, and offsetting the impact of inflation on our cost base. The final chart in the bottom right-hand corner highlights the continued growth in assets under management. We now manage AUD 5.3 billion in assets, up 14% on the prior comparative period, with a compound annual growth rate of 19% for the past two years, which is a terrific outcome growing off a large receivables portfolio.
Assets under management is our new measure of loans and receivables and includes the current balance of the AUD 500 million in assets sold to MA Financial. Whilst these assets are no longer on our balance sheet, we continue to generate fee income from servicing, risk managing, and providing collection services on these assets together with a share of the residual return. On page seven, we highlight our capital management initiatives and returns we have generated for shareholders. The chart on the left highlights that from financial year 2023, we have returned over AUD 80 million to shareholders through a range of initiatives, including dividends on ordinary shares and the perpetual notes, AUD 10 million share buyback in financial year 2024, and the AUD 27 million partial repayment of principal and accrued interest of our perpetual notes this half year just gone.
The chart on the right shows the value that we've delivered for shareholders, with two-year compound annual growth of 30% for return on cash equity and cash earnings per share, which is a more than doubling of returns over the last 12 months. Our future growth will—turn me out to page eight. Our future growth will be enabled by investments in technology and transformation. These initiatives will deliver increased revenue as we transform our platforms, build out new data capabilities, and leverage AI and deliver cost savings stability as we modernize our infrastructure and leverage cloud and SaaS opportunities. The fundamentals of our transformation program include transforming our core platforms, including our lending, card management, and customer experience systems. We're investing in better data management that will evolve our use of AI across a range of areas in our business, starting with our call centers and credit teams.
At the same time, we are modernizing our technology infrastructure as we decommission our data centers and move more of our systems and services into the cloud. Most importantly, these technology investments will be made from within our existing capital expenditure envelope and operating expense budget. As you'll see from slide eight and under the right-hand side of the table, we are moving into a more evolved technology environment with a number of initiatives underway. These technology initiatives are critical in supporting and delivering our organic growth strategy, which we communicated at the full year and at our AGM. We're also investing in the future growth of the company, focused on enhancing the customer experience through new platforms, product, and data, as well as leveraging AI capability where possible. I'll now hand you over to Adrian to take us through the group financials.
Thanks, Stuart, and good morning. I'll be discussing the financial Humm Group for the half year, 31 December 2024. We are very pleased with the momentum of the business, our results, the key drivers of performance for the first half of the FY 2025 year. The first half saw an increase in cash profit to AUD 29.8 million from AUD 13.6 million this time last year, which is a 119% increase, and from AUD 22.3 million, a 34% increase from the second half, FY 2024. This represents significant effort from the management team to transform the underlying performance of the business over the last two years. Our investors will remember that we agreed to remove normalized profit as a core metric and adopt cash profit after tax as a performance metric from this period.
Cash profit takes statutory profit after tax and adds back the impact of non-cash items being depreciation and amortization and AASB 9 provision movements on a post-tax basis. This simpler measure means that we no longer normalize items into our results, such as suspended products, which have now been removed and absorbed into our cost base, and other expenses that we previously deemed one-off and material in nature. Our comparatives have been restated and are consistent with the reconciliation we shared in the appendix on page 28 of our 30 June 2024 results presentation. For the half year, our statutory profit of AUD 27.3 million is up from an AUD 6 million loss in the prior comparative period and is only AUD 2.5 million different to our cash profit of AUD 29.8 million.
Our growth metrics remain strong despite broad pressures on credit growth across the market in which we operate, with assets under management growing 14%, representing 19% CAGR over the last two years. Interest income is also up 6%, net operating income up again 6% on the prior comparative period. Our performance measures also remain strong, with portfolio maintaining at a stable trend of 5.5% and a net loss to ANR continuing its historic low of 1.8%. I note on this slide the dollar value of credit impairment charge is lower than previous periods, and this is a result of provision reductions associated with the forward flow sale and improvement in underlying credit performance of the consumer business in Australia, which I'll cover on our upcoming slide. We are very pleased to report operating expenses down 13% on a PCP basis, with the CTI falling from 64% to 52.4%.
This brings cost savings since the commission of the program to AUD 36.6 million, with AUD 4.8 million delivered in the current period. Pleasingly, ROCE, return on cash equity, is up 10.9%, or a 122% increase on the prior period. Finally, I note that CapEx was AUD 11.3 million in the period as we implemented our hybrid product this year, with the target of AUD 20 million for the full year. This is within the expected spend of AUD 18.20 million that we've been communicating to the market and encompasses the technology transformation highlighted by Stuart. Turning now to slide 11, the commercial business known as FlexiCommercial, our leading equipment finance business, continues to maintain momentum with cash profit of AUD 26.5 million, up 35% on the prior period. The growth metrics for commercial continue to be positive, with assets under management growing 18%.
Net interest income is up 13%, and net operating income, which includes service fees under the forward flow arrangement, is up 20%. We've seen some signs of slowing growth across the market, with SMEs delaying purchases of large equipment in the current financial climate and looming federal election. Our team continues to perform well and is growing market share with our largest brokers and dealer groups. We have successfully diversified our growth in the half and have launched our FlexiPremium product, which represents larger loan size, high-quality assets with lower expected credit losses. This has resulted in a slight reduction in front-book NIM, but has increased volume in recent months, and we expect credits to improve over the life of these loans, enhancing shareholder value. I also note that front-book NIM lifted in the January period.
The commercial business is extremely well run, and its performance metrics continue to improve, with portfolio NIM up 20 basis points to 3.7% and, critically, cost-to- income falling from 38% to 26.8%. Our very strong cost-to-income ratio delivers operating leverage and allows us to quickly respond to market conditions, capture market share, drive annual returns to shareholders while profitably growing our business. Annual net loss to ANR has lifted 10 basis points to 0.8%. This is in line with our expectations as the commercial receivable seasons and is consistent with what we've previously communicated to the market. This is a result from strong growth in FY 2023 and FY 2024, with losses rates normalizing towards 1% over the medium term, which remains an exceptional credit loss number. Return on cash equity for the commercial business increased 38% to 23.5%.
Now on slide 12, the consumer finance business continues the transformation that commenced over two years ago, delivering a cash profit of AUD 3.3 million from a loss of AUD 6.1 million in the prior comparative period. As you can see from the graph on the bottom right-hand side, we have a number of profitable businesses, including Cards NZ, Cards AU, Humm Ireland, and Humm AU, which generated AUD 14.8 million in combined cash profit, up from break-even result in the prior comparative period. In particular, the Australian business has benefited from deliberate action taken 12 months ago to improve credit performance of the portfolio across Humm AU and Cards AU. Humm AU, in particular, continues to grow strongly with targeted margin enhancement across verticals and merchant. We're also executing against targeted investments, which totaled AUD 8.7 million for the period.
These investments included Humm U.K., as discussed at our most recent AGM, Humm Personal Loan, and Humm Canada. Humm Ireland is pleasingly delivering strong growth in financial performance as the leading point of sale business in the Irish market. The business is supporting the growth of the U.K., and its outperformance will be used to fund U.K. growth. The Personal Loan product is a hybrid product which will replace our PosPP over time and will comply with the new regulations that go live in Australia shortly. The hybrid product allows for both merchant services fees and customer interest in addition to fee. This product construct is based upon our successful Ireland and Canada offering, which already provide these features and expands our channel partner opportunities that we can target, whilst improving unit economics for the business and boosting shareholder returns.
The hybrid product has been in POC for the last three months, and we plan to launch to key merchants on 31 March 2025. We remain confident in the opportunity, unit economics, and Canadian business, but our losses are higher than we expected at this time. The local Australian team, with a proven track record of delivery, have been heavily engaged in supporting the Canadian business, with a clear path to reducing second-half losses and a path to profitability in FY 2026. On slide 13, the slide is consistent with the updates we provided in FY 2024 and sets out the movement in net interest margin in the financial statements. Pleasingly, it shows that NIM at 5.5% being held consistent with the FY 2024 results, which is a function of significant work at a transaction merchant level to improve portfolio NIM.
In the period, yield improvements offset by older swaps, which were written at favorable prices, being replaced with new swaps at higher fixed rates. Also, on the slide, we've shared our exit NIM, which represents the NIM for the final month of the reporting period. This is slightly down at 5.4% versus 5.5%, with the 10 basis points representing the targeting of the FlexiPremium product that I discussed in the commercial slide, which is expected to deliver lower losses over time. We note that the consumer exit NIM was higher than the portfolio NIM in the period. It is important to note that these NIM metrics are strong metrics in our sector. The business continues to prioritize margin and pricing across consumer and commercial, with consumer focused on unit economics per merchant and vertical to ensure that finance is appropriately priced.
In Treasury, which manages our cost of funds, we continue to see credit spreads improve, and we've been able to achieve more favorable pricing in recent transactions and facilitate negotiations over the period. We expect these favorable credit settings to continue for the remainder of the year as investors, particularly in credit funds, compete for assets in the markets in which we operate. On rates, we continue to hedge our portfolios to 100% and have executed additional swaps in our variable-rate portfolios to lock in pricing benefits and smooth volatility. The Australian swap curve was and remains inverted beyond three years. However, recent shortening of expectations on the timing of cash rate cuts have flattened the curve over the last few weeks.
We are watching to see how the market responds to the RBA's decision later today and are cautiously optimistic that if there is a lower cash rate, that will boost consumer confidence and we'll start to see SME growth. We note that any changes to the yield curve will have only minor timing effects on pricing in the front book, with minimal overall NIM impact. On slide 14, credit risk management, we're pleased to report that annualized net loss to ANR has been maintained at 1.8%, which is a historical low Humm Group, and is an outcome of deep experience and disciplined execution by the credit team and the business over the last three years.
The increase in net loss to ANR for the commercial business to 80 basis points is in line with our near-term expectations and represents the normalization of that portfolio as it seasons towards the forecast medium term of 100 basis points net loss to ANR. We have previously discussed the impact on arrears that we are witnessing in the Victorian economy, and these trends continue and have been managed to an acceptable level by the credit team. These are excellent loss rates for this book and reflect the secured nature and diversification of this portfolio. You can see on the bottom right graph the improved credit quality of this portfolio since December 2022 using our internal rating systems.
Consumer losses have fallen 80 basis points to 2.5% and have improved due to deliberate actions, particularly in the Australian business, to tighten credit settings as demonstrated by the chart on the bottom right. The POSPP team have been particularly effective in this regard, delivering a net loss of 2%, which is a 90 basis point improvement on the prior period, noting that we have completely exited the high-loss Little Things product. Similar trends have been delivered in Cards AU, with a net loss to ANR dropping 60 basis points to 3.5%. NZ Cards has increased losses from 50 basis points to 3.4% on a PCP, but this is only a 10 basis point increase since 30 June 2024. The increase in loss rates demonstrates a level of seasonality in this business and as a result of higher volumes and a tougher macroeconomic environment being experienced in New Zealand.
These positive results have improved our balance sheet provision ratios, and with our balance sheet remaining conservative provided for, given our improved loss rates. On slide 15, we have a differentiated funding platform that has enabled us to continue to grow through all market conditions, while some of our competitors have remained constrained. During the period, we've executed over AUD 3 billion in funding transactions, including finance facilities, private placements, and the forward flow program. This included executing new facilities in the U.K. to support growth in this market and new transactions to support the Canadian business. Our funding plan combines the use of warehouse structures, public and private, term transactions, and the forward flow program. These are all supported by leading local and international banks, along with local and international credit investors.
On the bottom right-hand side, you can see we've been able to continue to grow our book by becoming more efficient in our funding structures through increased utilization of mezz across our warehouses and term transactions, optimizing the capital structure, improving funding costs, and minimizing the capital employed across the platform. This is made possible by the strength of our credit performance that's set out on the previous page. As we discussed in the last results in August, we executed our forward flow program in the period with AUD 495 million sold to seed the program, with AUD 500 million remaining under the forward flow program. It's delivered on expectations with the financial outcomes as expected. The benefits of this facility increase our capacity for capital-like growth in commercial. It improves ROE accretion as we grow fee income without equity impact.
Our business becomes an origination and asset platform, and hence the change to our definitions on those metrics, diversification of our funding platform to protect the business, and we see this as an opportunity to expand beyond the commercial business. Our unrestricted cash balance for the year was AUD 113.6 million, which includes the repayment of AUD 25 million of our perpetual note, given the step-up in cost that is contracted later in the year. It is our plan to repay the entire perpetual note in this period, and this demonstrates the strength of our capital markets transactions that we've been able to execute, improving returns for shareholders. I would like to thank you for your time and now hand back to Stuart to close the presentation.
Thanks, Adrian. Turning to slide 17, final slide, just to summarize where we are and following on from Adrian's comments.
We've continued to strengthen our balance sheet and have built an efficient and diversified funding platform with sufficient headroom that underpins our future customer growth strategy. We continue to refine credit settings, looking to leverage data and AI and build on our existing credit and collection processes to ensure that our risk management and metrics remain strong. We remain focused on operational efficiency and will continue to pursue a lower cost-to-income outcome as we target continued income growth while achieving further cost savings to cover the impact of inflation and investments for further growth. As mentioned on slide eight, our future growth depends on our ability to transform our platforms and modernize our infrastructure. We have already commenced this journey and are excited about the opportunities that this will create for us.
Finally, and importantly, the first half of financial year 2025 delivered a very strong result, which saw an impressive growth across many metrics. We have delivered strong returns to shareholders and continue to build on the foundation for future profitable growth. That concludes our presentation for today. We'll reintroduce our quarterly market updates with a Q3 trading update in April to May of this year. I would like to thank you for joining us today. I'd also like to thank the team at Humm for a result they rightfully should be proud of. I will now hand back to the moderator, who will open up the conference bridge for questions. We'll also take any questions that come through via the webcast. Thank you.
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced.
To withdraw your question, please press star one one again. To ask a question via the webcast, please type it into the box and click submit. To give more people the opportunity to ask questions, please limit to no more than two questions. Please stand by while we compile the Q&A roster. We will now take our first question from the line of Phil Chippindale from Ord Minnett. Please go ahead, Phil.
Oh, hi, Stuart and Adrian. Thanks for your time. Firstly, I just want to touch on the commercial segment. Adrian, in your comments, you mentioned that the SME segment, you've experienced some potential weakness there, SMEs delaying their purchases, etc. Can you give us sort of the latest on that? Any sort of observations you can make since 1 January?
Yeah, so we had we were pretty much on our expectations for January in terms of volume growth.
The team have been diversifying just the nature of the assets that we're pursuing, which has enabled us to maintain good growth in December, and we'll continue to leverage both the FlexiPremium and the FlexiLite part that we have in market. Overall, you see across the sector there has been a reduction in volumes in terms of growth, but our team are doing a good job to improve our competitive position.
Okay, thanks. Just on the topic of forward flow, clearly you transacted I think it was AUD 466 million in the first half. Can you just talk to your current plans in the second half? Can you just confirm how much control you have around the timing of that, if you have in fact the ability to defer some of that if you so desire?
Yeah, what we'll be managing very closely over the second half is yield. We'll be making choices about whether to use the forward flow or to not use the forward flow. Yes, we have the flexibility to be able to do that. The first AUD 495 million was just to seed the pool, and we have flexibility from there about what we execute.
Okay, thanks. I'll jump back to Nick here.
Thank you. T he last question comes from the line of Larry Gandler from Shaw and Partners. Please ask your question, Larry.
Hi, yes, thanks, guys. Good result in a tough market. Just following on, Stu, from that first question about FlexiCommercial, can you talk to maybe some of the verticals that you've concentrated on in that last half to try and actually outpace what was a tough market?
Yeah, Larry, good to hear you.
We've played pretty much within the same verticals that we've always played in, but what we've been able to do is offer a different style of product to the industry, which has enabled us to expand the customer base that we have far and beyond that. We've also been able to implement some efficiencies, which enable us to settle quickly. We've used a couple of AI tools to enable that. Plus, we've had electronic signatures, which we should have had but haven't had, enable us to close transactions even quicker than we have. The service proposition has strengthened. What we've found is that our offering has meant that we've started replacing a number of other financiers on our broker's lists.
We're actually getting a bigger share of the broker's business due to the, I suppose, the range of product that's now opening up to all their customers, not just some of their customers. I suppose to further build on where you are potentially heading, we have expanded into the regional New South Wales market and into regional Queensland, and we're just about to implement a new agricultural policy, which will enable us to start working that vertical more so than we have currently. We see tremendous opportunities, not only through regional New South Wales and Queensland, but also into Western Australia, where we know there's demand for the product.
Okay, excellent. That helps. My second question on Canada, it looked like the losses arose due to sort of credit issues there. Can you just put some color around that and how that changes into the second half?
Yeah, there are a few merchants we had in there that we did in the early stages have incurred some losses. We've shut those down in October, but the losses still came through the books till the end. We've reinvigorated the platform. We're starting to originate, we're starting to get some volumes, some good volumes back. The arrears are now back, of new businesses back under control. The piece that we're looking at is is there a more efficient way that we can reduce the cost base as we start to grow the volumes. It is a work in progress, but we do see opportunity there to actually change that result around.
It is unlikely the loss will be of that magnitude in the second half. I know you do not want to give guidance, but is that how I interpret your comments there?
We would certainly hope not.
Okay, great.
Thanks.
Thank you. There are no questions on the phone lines at the moment. I'll hand back to the room to check for any questions online.
Thank you very much. We've had some questions come through on the webcast. Extending the question on Canada, is the higher loss from Canada a result of lower revenue or higher expenses?
The losses came through from the expense line was fairly consistent, so it was mainly through the loss line that we saw that increase. Plus, also we invested in some of the technology estate there to actually make it more seamless. We had a few bugs in there, so it was a bit of technology and losses. The underlying cost base remained fairly consistent.
Okay, thank you. On the dividend payout ratio, we know that the dividend is AUD 0.0125 per share with cash earnings of AUD 0.11 per share.
Can you give a bit more color around that dividend payout ratio and whether there'll be any other capital initiatives looking into the second half?
Sure, no problem. As we've communicated, we try to pay out a dividend ratio within the sort of 30-40% of free cash flow. This number is at the higher end of that range, so up around the 40% of that number. We're pleased to be able to do that. We're also looking, we obviously paid down the perpetual note, so we paid down 25 of that, and it's our intent to try and do more of that in the second half. They're the key initiatives that we have in place.
One final question that came through is around CapEx. The spend in the first half versus the spend in the second half.
There's a comment that in the cash flow statement, it appears to have grown from AUD 7 million CapEx in the first half of last year to AUD 11 million now. What does that outlook look like for the remainder of the year?
Yeah, that's right. As we've been executing our hybrid product, which is our regulated product in POSPP, we're sort of higher from a run rate perspective in the first half than the second half. We are very clear on hitting our target for the second half. We'll deliver AUD 20 million over the full year as our plan, which is consistent with what we've expressed to the market previously.
Thank you very much. That concludes all questions that came through on the webcast. Handing back to the moderator, are there any further questions coming through from the conference group?
There are currently no further questions.
Oh, we do have a follow-up question from the line of Larry Gandler from Shaw and Partners. Please ask your question, Larry.
Thanks, guys. Can't help myself. Just on Australian, I think it was Australian cards that you guys are also implementing or upgrading the system there. Just wondering if you can update us on how that's going and when that business sort of returns to growth.
Yeah, thanks, Larry. We're close to the stage of mandating a vendor to actually implement the system for us. We expect that that should be, if we can run it as we think internally, to have it probably due to release by the end of FY 2026, with a pilot in market by the first half of calendar year 2026.
We're managing the existing card portfolio, as you can see, mitigating some of those potential credit losses through there and getting some efficiencies while we actually implement this new system. The focus has been on getting the hybrid loan in place, which we're close to getting, and then moving into the cards platform just to mitigate any operational risk we may incur by trying to run a dual implementation strategy.
Okay, great. Thanks, guys.
Thanks, Larry.
Thank you. I am showing no further questions. Thank you all very much for your questions. I'll now turn the conference back to the room for closing comments.
Thanks very much, everyone, for listening in today. Both Adrian and I are around for further follow-up questions as and when needed. Please feel free to reach out should you require. Thanks again for taking the time with us today.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.