I would now like to hand the conference over to Mitchell Hawley, Head of Investor Relations. Thank you. Please go ahead.
Thanks, Julian. Good morning, and welcome to Latitude's result briefing for the year ending 31 December 2025. I'm Mitchell Hawley, Head of IR, and I'm joined by our MD and CEO, Bob Belan, and CFO, Guillaume Leger. In the spirit of reconciliation, Latitude acknowledges the traditional custodians of country throughout Australia and their connections to land, sea, and community. We pay our respects to the elders, past and present, and extend that respect to all Aboriginal and Torres Strait Islander people today. I'll now hand over to Bob to begin the presentation.
Thanks, Mitch. Good morning, everyone, and thank you for joining us. 2025 was another strong year for Latitude. Another year where disciplined execution allowed us to capitalize on more stable macroeconomic conditions and renewed customer demand, driving earnings growth and momentum, which has continued into the new year. For several consecutive reporting periods now, we've delivered material growth in assets, revenue, operating leverage, and income. We've also achieved record new customer originations, profitably increased market share across our businesses, and have grown our receivables to the highest levels in five years. Last year, we added more than 300,000 new customers to the Latitude franchise, up 16% year-on-year. Customers made 59 million credit card transactions, generating AUD 7.4 billion in purchase volume. Both of these metrics are up 10% versus 2024.
New personal and auto loan originations reached a record AUD 1.6 billion. This drove an 8% increase in interest-bearing receivables to AUD 5.4 billion and lifted our total lending receivables to AUD 7.2 billion. That's up 10% year-on-year and 14% half-on-half. The quality and sustainability of earnings clearly matter, and to that end, we've maintained a very disciplined and data-led approach to balancing our growth and our margins. The market share gains I just mentioned were supported by further improvement in net interest yield, which rose 11.7% for the year. That's up 104 basis points. Despite some volatility in the labor markets and some stress on household balance sheets brought on by inflationary pressures, credit performance remained within historical ranges and internal expectations.
Turning to slide six, you'll see that interest income for FY25 came in at AUD 1.2 billion, up 11% year-on-year. After accounting for funding and credit costs, risk-adjusted income was AUD 573 million, also up 11% year-on-year. While we invested over AUD 20 million in new growth-related initiatives last year, we also reduced underlying cash expenses by 3%. This supported a material improvement in operating leverage, bringing our CTI down 800 basis points to 43.1%. Cash profit before tax came in at AUD 211 million, that's up 36%, and cash net profit after tax was AUD 105 million, up 59% year-on-year. Return on tangible equity, which in my view is the clearest measure of structural strength, increased 702 basis points to 22.4%.
Today's result reflects a business growing on solid foundations and a commitment to delivering strong and sustained shareholder returns. We ended the year with a tangible equity ratio of 7.1%, which is at the top end of our target range. And as a result, the board has declared a AUD 0.05 fully franked second half dividend. With phase I of our Path to Full Potential strategy now largely complete, we're moving on to phase II, which we're calling Bridge to the Future. The key elements of this are outlined in a bit more detail on page 11 of the document. We will remain focused on organic growth in segments where we hold structural, capability, and scale advantages. We'll also look to accelerate our expansion into new industries where there's a clear opportunity for our products to better serve customers.
To lead this, I'm very pleased to share that I've appointed Stefano Tognon to the role of Executive General Manager, Enterprise Growth, a team he will build over time to service the lending needs of a broader set of partners in industries that we have not historically focused on. The next phase of our strategy also involves forging new partnerships with world-class technology providers, accelerating the modernization of our technology stack, lowering operating costs, and enhancing our competitive capabilities. Further investment in cyber defense and risk management excellence will also be key organizational priorities. If executed well, which I'm confident we're well positioned to do, phase II of our strategy will further strengthen and differentiate Latitude's business model, a model that has proven over time to generate compelling returns which we're seeing emerge in the business today. In closing, I want to acknowledge our people.
The outcomes achieved over the last three years is a direct result of their focus and accountability, delivering for our customers, our partners, and our shareholders alike. With that, I'll now turn it over to our CFO, Guillaume, to take us through the financial drivers in a bit more detail.
Thank you, Bob. Turning to slide 13. FY25 reflects a year of profitable growth, which continued strengthening in both margin and risk-adjusted returns. Revenue increased to AUD 1.2 billion, up 9% year-on-year, with revenue yield expanding to 17.5%. Net interest margin increased to 11.75%, up 104 basis points year-on-year. That expansion reflects deliberate pricing actions, variable portfolio mix, and disciplined funding execution. Risk-adjusted income increased 11% to AUD 573 million, with risk-adjusted income yield lifting to 8.28%, up 27 basis points year-on-year. These improvements are directly linked to the successful execution of our strategy. On slide 14, you can see how that translates into shareholder outcomes. Cash PBT was up 36% year-on-year to AUD 211 million.
Cash NPAT increased 69% year-on-year to AUD 105 million. Importantly, this profit growth has been delivered while maintaining a strong balance sheet with tangible equity ratio of 7.1%, in line with our target range. During the year, we reduced corporate debt, improved advance rates, and flexibility across our funding programs. We also completed the buyback of approximately AUD 11 million of capital notes, supporting efficient capital management. Together, these actions strengthened the balance sheet and improved capital efficiency, contributing to an increase of our return on tangible equity, reaching 22% for the year. The board has declared a second-half dividend of AUD 0.05 per share, fully franked. This brings the total dividend for the year to AUD 0.09 per share.
With franking restored for the second-half dividend, the distribution represents a yield of 11.5% on a cash basis, or over 16% on a gross self basis at current trading levels, while remaining consistent with our capital plan and medium-term payout settings. We are therefore delivering three things simultaneously: higher earnings, strong capital discipline, and increasing returns to shareholders. That is the outcome of sustainable margin expansion and disciplined risk management. Turning to slide 15. Volume growth remains strong. Total new volume increased 9% year-on-year and 13% half-on-half. That translated into 7% growth in gross receivables year-on-year to AUD 7.2 billion, the highest in level in five years.
We are growing ahead of system across both Pay and Money in Australia and New Zealand, particularly in personal loans, where we continue to strengthen our position as the leading non-bank unsecured lender in Australia. We believe that we have the capability, distribution reach, and funding platform to continue delivering above-system growth over the medium term while remaining disciplined on return thresholds and risk settings. Slide 16 brings this together from a margin perspective. Risk-adjusted income margin increased 27 basis points year-on-year, reflecting three key drivers. Revenue yield expansion of 20 basis points, supported by disciplined pricing and improved mix, particularly in Money, where new business APRs are materially above portfolio yields. Cost of funds reduced year-on-year as benchmark rates eased and spreads tightened across our ABS and warehouse programs.
This was partially offset by increased net charge-off, as expected, in line with our strategy in the current economic cycle. The key point here is that we are taking risks where we understand it well and where it generates attractive incremental risk-adjusted income. Also, higher receivables, combined with stronger margins, delivered AUD 58 million or 11% year-on-year increase in risk-adjusted income. On slide 17, credit performance remains strong and within our expectations. Delinquencies are tracking broadly in line with long-term historical ranges and remain well within our target operating range for this stage of the cycle. The portfolio continues to reflect disciplined underwriting, and new origination quality remains solid, with score distributions aligned to our target probability of default bands. Importantly, we are priced appropriately for the risks that we are taking, and credit outcomes are consistent with our return thresholds and risk-adjusted margin expectations.
Slide 18 shows the longer-term credit loss profile. Net charge-offs are trending within historical ranges, and provisioning remains prudent, with coverage of 4.45%. While net charge-offs have increased year-on-year, consistent with a normalizing environment, this remains in line with our point-in-cycle assumptions and is reflected in our pricing. Importantly, Latitude's overall credit cost remains predictable, which is critical to sustain return to shareholders. Our ability to price risk appropriately, actively manage vintages, and adjust credit settings dynamically gives us confidence that we can continue to deliver profitable growth in the current macro environment. Turning to slide 19. Operating leverage continues to improve. Operating income grew 15% year-on-year, while cash operating expenses increased 0.6% on a normalized basis. That delivered positive Jaws of 14.5% for the full year.
Cash cost-to-income ratio improved to 43.1%, approximately 800 basis points better than the previous year on a normalized basis. Importantly, this has been achieved while reinvesting over AUD 20 million into growth initiatives, including AI, cybersecurity, new products, and capability uplift. We are reshaping the expense base to create capacity, investing in future growth while expanding margins and delivering sustainable profit growth. At Latitude, operating discipline underpins growth ahead of the system, expanding NIM, strong risk-adjusted returns, disciplined credit outcomes-
... and improve operating leverage. With that, I'll hand it back to Bob to take you through the outlook.
Thanks, Guillaume. Next summary. Four things I want to highlight on the outlook. First is we expect to benefit from stronger customer demand and growth initiatives and investments that we put into the business over the last 24 months. Said differently, we expect a volume-led growth in receivables for the coming months. We will maintain a very disciplined approach to margin management. It's a hallmark of this management team. Very important that we're balancing growth with profitability, and so ensuring a focus on net interest margins and optimizing revenue yields will continue to be a hallmark of how we run the business going forward. We're pleased with the credit performance in FY 25.
However, need to be mindful of the impacts that labor markets, inflation, and central bank interest rate settings have on households, and prepared to respond accordingly with pricing, risk, and portfolio management strategies as and when required. And finally, we'll continue to invest prudently in cyber, technology, and other growth initiatives to further strengthen our products and services that we offer to our in our core markets of Australia and New Zealand.
Thanks, Bob. So now I'll hand it back to Julian for the Q&A.
Okay, great. Thank you. If you wish to ask a question, please press star one on your telephone keypad. If you wish to cancel your request, please press star two. If you are using a speakerphone, please pick up the handset before you ask your question. Your first question comes from the line of Sally Hong with Morgan Stanley. Please go ahead.
Team, congratulations on the good result today. I just have a few questions. So just on the strategy piece, as you enter phase II, how should investors think about measuring success over the next 12-24 months? Like, what are the key KPIs that matter most at this stage?
It's a good question, Sally, and, hello, and hope you're doing well. Look, fundamentally, all the growth in new adjacencies will be reflected in a few different ways. One, we should expect to see volume growth inside of our businesses and portfolios. We also see it as an opportunity to, again, expand, but expand profitably, and so we'll be pricing things accordingly as we enter into new segments. And we expect to deploy capital in the form of investment very efficiently to generate strong, strong returns. So what I would say is you'll see an amplification over time. And what I would say is that, you know, the market will need to be patient with us as this new segment begins to grow.
We do expect it to begin to compound in due course. But fundamentally, what you'll see is a strengthening of the metrics that we're using today to, you know, to determine success.
Thanks, Bob. That was helpful. So, on the volumes piece, like, you know, how do you aim to maintain the strong volume growth in pay, particularly in the higher rate environments? And the same question goes on the money side as well.
Yeah, for sure. So, a couple of thoughts. Let's just break them down. In our pay division, we're seeing strong customer demand, and what I would say is we offer the market, Sally, as you know, competitive, and differentiated value proposition. And so ensuring that customers more broadly are aware of that proposition, new customers, is really important. One of the hallmarks of this result is that we were able to acquire 300,000 new customers to the franchise, last year. And what that tells me is that our product is really resonating, particularly in this environment with new customers. The other opportunity, which the pay team is really capitalizing on, is increasing share of wallet for our products amongst existing customers.
Turning those products that are often used for a large purchase at one of our main retail partners into a card that can be used for more everyday purchases is something that we're seeing gain significant traction, which has been sort of the case for the last 18 months or so. We see more growth opportunity within our existing retail partners and have initiatives and plans in place to make sure we're working closer with those partners to meet their needs. I'd expect some of the growth to come organically from those new partners. As we've just talked about, we do see some level of contribution in FY26 coming from the new set of partners that we plan to go after as part of the adjacency strategy.
On the money side of the business, you know, what I would say is we've done really well, consistently over the last number of years. And I think one of the core elements of competitive differentiation that we have is a very contemporary technology system that allows us to look at customers, look at applications, and really make that application process as streamlined and efficient as possible. We work very closely with our broker distribution network. We continue to build those relationships and strengthen those relationships. And at the end of the day, big banks still hold the vast majority of the market share in the personal loans market, and what I think our results suggest is that we've-...
Been able to chip away at that market share over time, but also do it again at higher net interest margins, which we're quite pleased about. So without giving away all of the secret sauce, again, good focus on disciplined execution, continuing to do the things that we have done today, but better and more. As well as some new initiatives that we have planned around adjacencies, is where we see our growth coming from.
I would add that we're seeing increase in volume in all of our products. When you think about our interest-free financing, if someone feels like they're affected by rates on their mortgage or whatever, you know, this product could appeal to them. So, across all of our products, there are things that people can pick from depending on their situation.
And Sally, one just final, final comment. I do wanna sort of underscore the point that for the last 12 months, I've been pretty consistent in my messaging that we will look to drive volume growth, that will drive asset growth, but we will be maniacally focused on ensuring that our margins are maintained and remain strong. And so where there is a trade-off to be made between volume and net interest margin management, the priority will be on NIM.
Thank you. That was very helpful. So just then, on the margin, maybe this is a question for Guillaume. Can you walk us through the impact of higher rates on margin? Like, specifically, you know, how should we think about a 25 basis point increase in the RBA cash rate, flowing through the group margin over time?
So we have tools to compensate for any cash rate increase. So just a couple of thoughts here. We are able to change the rates on our products, and we have been working on our pricing for years now. We were able to determine what is the right pricing amount for the product. So there is a certain level of passing the rate increases on. But also you have to remember that we have an improving funding program that has given us better spreads already in 2025. This will continue to 2026. Obviously, the deal that we've done, they're still on the books and better spreads. And we believe that we can continue to do even better spreads in 2026.
Also, remember that we've been hedging now for a few years, and we've increased that hedging last year. So we are benefiting from the lower rates that are embedded in these swaps. Also, keep in mind, the pricing on our portfolio for the front book that we've implemented, say, in the past year or two, is better than what you see in the portfolio. So there continues to be an improvement in the pricing as we go along. So all of these points here tells me that our NIM should remain good and maybe even improve.
Thank you. Then just on the cost outlook, the CTI ratio improved about five percentage points in the half. Like, where do you think this can sustainably land over the medium term? And what would be the biggest drivers for further improvement going forward?
Okay. I think, you know, in terms of the business more broadly, Sally, we're always looking for opportunities to, redeploy capital to growth, growth initiatives. And I think one of the things we're, quite proud of is how we've reshaped the cost base to be much more geared towards growth investments versus running the business type of, type of costs. And, and we'll continue to look for those, those, those opportunities as time goes on. The other thing is, you know, we expect to realize the benefit from technology investments that we've made over the last two to three years. And so, you know, when you replace, older technology with newer technology, the run cost of those technologies just come down.
And, as you'll see in Path to Full Potential Phase II, we expect to sort of double down on those types of investments, which in the moderate to long term, should have a pretty material impact, on cost-to-income ratio, as well as our Jaws ratio. And so some combination of, continuing to manage, the business in its, in a very disciplined, expense way, and also realizing the benefits of prior investments that we've made and upcoming investments that we'll make in technology modernization, should give us a strong and sustained, opportunity to make sure that our operating leverage continues to increase.
That's great. Thank you. Just a final question on credit quality. What are the key early indicators that you're watching for, like a potential spike in credit deterioration? Where are you seeing the most sensitivity to higher rates today?
Look, traditionally, Sally, what I would say is that... Well, the first part of your question is, like, there would be dozens of metrics that we're looking at daily, weekly, monthly, across various different parts of the organization, as you would expect out of a company that has made a business out of unsecured consumer lending. And, you know, one very fortunate part of the business here at Latitude is that we have a very long history of credit performance across a number of different consumer segments and cohorts, which really gives us a bird's-eye view into what some of the sort of leading indicators may be. And without getting into them specifically, what I would say is, there is-
... a long list of metrics that we're looking, both leading and trailing, which give us an insight into how the overall portfolio is performing. In terms of, you know, what are the sort of key sensitivities, I think the ones that I mentioned in my opening remarks are really the primary ones. So things, you know, inflation, the impact that that has on customer serviceability is something that you've got to pay very close attention to. Interest rate rises are also very important for the same reason. It sort of challenges the household balance sheet. About 50% of our customers are homeowners, and so when there's an interest rate adjustment, it certainly has an impact.
And so that's something that we're really mindful of. And the biggest driver is labor market strength. And so, you know, to the extent that the labor markets remain strong, which they have, you know, that obviously gives us a fair bit of encouragement about what the outlook looks like.
Thank you. I guess, like, how comfortable are you with the current provisioning levels?
Yeah. Go, go ahead again.
Sorry. We are very comfortable. Actually, credit cost is exactly where we want it to be. I think last time we met, we talked about us not wanting to leave any money on the table, right? Because we want to price and lend at exactly the point that maximizes our risk-adjusted income, and we've improved that over the past 12 months. We want to continue to improve it. And part of that is to take these risks in a very purposeful manner. So our book is exactly where we want it to be, and you know, we provision in line with that, to your point.
Sally, you'd probably know this, but we go through a very rigorous process and a very regular process of updating those provisioning models that are sort of using the latest standards and strategies and techniques to give us as clear of an outlook as a model can give you on what the future looks like. But at a, what is it? 4.35 provision. 4.45 provision rate, where relative to where the underlying losses are, we're feeling quite comfortable that there's not only sufficient, but quite sufficient buffer there.
Excellent. Thank you both for your help today. Have a good one.
Thanks, Sally.
Your next question comes from the line of Steven Wright with Morgans Financial. Please go ahead.
Thank you. Hello, Bob, team. Congratulations. I'm just actually following on from Sally's question then. Just on the net charge-off rates, just to understand, do you see the increase simply a normalization of rates? Or is there something there that we probably should be looking out for in terms of, you know, that period was a period of lower and more lower and stable cash rates. We've recently seen an increase in the cash rate. So do we expect to see that charge-off rate kick up further from here?
So just a couple thoughts, and thank you, Steven, for the question. So there was a period, right, during COVID, the charges were lower, so we have gone back to normalization, to your point. And as I said before, we purposefully take risk to maximize risk-adjusted income, which means, set the charge-off rates at a level that is optimizing that risk-adjusted income. So we go through all of our cohorts of potential risks. We set the price at the right level for the amount of risk that we're taking. And then as a result, we maximize our rate. You asked about the macro level. So of course, charge-offs are impacted by unemployment, inflation, cash rate levels.
All of that we take into account in our provisioning model and also the way that we go to market with our products and the pricing levels of those products.
So, Steven, just to maybe add to that or sum it up, unmitigated, any one of those things has an impact on, could have an impact on, on losses. And so to Guillaume's point, the focus for us is on risk-adjusted returns. And so, you know, using the levers that we have at our disposal, whether that's price, whether that's how we use our treasury tools to achieve lower funding costs, whether that's on collection strategies, or core underwriting strategies, those are all tools that we have to carefully manage.
I think what it underscores, going back to the point Sally raised, is very, very diligent monitoring of the macro conditions and a clear understanding of the impact that those conditions have on underlying customer performance, which we do on a very regular basis.
Thank you. That's great.
Thank you. And with that, there are no further questions at this time. I'll now hand the call back to Mr. Belan for closing remarks.
Thank you, Julian, for hosting today's call, and thanks to all of you who joined us this morning. On behalf of Mitch and myself, looking forward to meeting with you over the coming week or two as we make around post-earnings announcement today. Thanks again for joining us. All the best.
Thank you. And with that, that does conclude our conference for today. We thank you for your participation. You may now disconnect.