Now I'd like to hand the conference over to Mitchell Hawley, Head of Investor Relations. Please go ahead.
Thanks, Kate. Good morning, everyone, and welcome to Latitude's results briefing for the half year ending 30 June 2026. I'm Mitchell Hawley, Head of Investor Relations, and I'm joined today by our Managing Director and CEO, Bob Belan, and CFO, Guillaume Leger. In a spirit of reconciliation, Latitude acknowledges the traditional custodians of countries throughout Australia and their connection to the land, sea, and community. We pay our respects to elders, past and present, and extend that respect to all Aboriginal and Torres Strait Islander people today. I'll now hand over to Bob.
Thanks, Mitch. Good morning, everyone, and thank you for joining us. I'm pleased to share that Latitude has made a solid start to the 2026 financial year. It's been another period of focused execution, which has again translated into a strong set of operational and financial outcomes. Turning to slide five, you'll see that we've added 148,000 new customers to the Latitude franchise during the half. Card transactions, which is the key measure of customer engagement, increased 7%, and purchase volumes grew 5% to AUD 3.6 billion. New personal and auto loan origination reached AUD 785 million, lifting our total receivables to AUD 7.3 billion, their highest levels in six years. Moving on to slide six , cash profit for the half came in at AUD 64.3 million, up 39% year-on-year. Net interest margin increased 27 basis points to 12%, while risk-adjusted income grew 3% to AUD 286 million at a solid 8% yield.
At the same time, our cost-to-income ratio improved by almost 400 basis points to just over 41%. These are strong outcomes, particularly given three RBA cash rate increases during the half and inflationary pressures that continue to affect household budgets. They also reflect the discipline that's been maintained here at the company around pricing, credit, and portfolio management. This combination of earnings growth, improved operating leverage and a robust balance sheet has enabled the board to declare a fully franked interim dividend of AUD 0.055 per share. It reflects our confidence in the business and our capacity to return capital to shareholders while continuing to invest for the future. Beyond the headline numbers, I'm pleased with the consistency of the performance that the company is now delivering. We've been deliberate about building a business capable of producing strong and sustainable results through different points in the economic cycle.
We're not managing Latitude for any 1/4 or 1/2 . A longer-term focus underpins the decisions we make each and every day. How we price, how we grow, the credit risks we take, how we manage our costs, and of course, where we choose to invest. I won't spend a lot of time speaking about the specifics on the next few slides that go into the pay and money division performance details. I'll leave that for Guillaume to cover very shortly. The key takeaway, however, is that both of our core businesses continue to perform well and continue to gain market share profitably. I'm also encouraged by the momentum that is building within our new enterprise growth division, established earlier this year to extend our product offering into new and underserved segments, specifically health and wellness and home services.
We expect this business to become an increasingly important contributor to Latitude's asset growth and earnings over time. Turning to slide nine, I'm pleased with our progress today, but I also see considerable opportunity ahead. Our Bridge to the Future strategy, which we launched in January, is about building on the strong fundamentals now established across the company. There's still plenty of work ahead, but we have a clear strategic direction to guide our decisions. We have the execution discipline to deliver and the financial capacity to continue investing behind the opportunities that will underpin our future profitability growth. Finally, I want to thank all of my Latitude colleagues. The progress that's been made over the last three years is a direct result of their focus, their hard work, and their commitment.
With that, I'll hand it over to our Chief Financial Officer, Guillaume Leger, to take you through the results in more detail. Guillaume, over to you.
Thank you, Bob, and good morning, everyone. Turning to slide 11, the first half reflects continued momentum across the group. We are growing receivables, generating higher earnings from that growth, and doing so while maintaining strong returns and disciplined risk settings. Starting on the left-hand side of the page, we continue to see healthy origination activity across our business, resulting in average receivables growth of 6% year-on-year. That growth translated into earnings, with total operating income increasing 7% to AUD 438 million. We achieved this while maintaining pricing discipline and continuing to optimize our portfolio mix, contributing to a 20 basis point increase in operating margin to 12.2%. On the right-hand side of the page, risk-adjusted margins remain resilient. Across the portfolio, disciplined risk management, portfolio optimization, and funding initiatives continue to support strong risk-adjusted returns of 8%. Turning to slide 12.
Cash profit before tax increased 12% to AUD 105 million. Cash NPAT increased 39% to AUD 64 million and statutory profit increased 37% to AUD 54 million. The board has declared a fully franked dividend interim of AUD 0.055 per share. This represents the fourth consecutive increase in the dividend since the second half of 2024. It reflects confidence in the strength of the balance sheet and the underlying earnings profile of the business. Importantly, this result demonstrates both sides of our capital discipline, generating attractive returns on capital, while returns of capital to shareholders is delivered by a compelling dividend yield of approximately 12% or 17% on a fully franked gross-up basis. Our tangible equity ratio remains strong at 8.1%, or 7% on a pro forma basis, assuming the redemption of Capital Notes 1, which has its first call date on the 27th of October 2026.
This remains within our target operating range of 6%-7% and provides capacity to support future growth while continuing to return capital to shareholders. Turning to Slide 13. New credit card and loan volume increased 4% to AUD 4.4 billion, despite headwinds from the New Zealand dollar. Growth was achieved across both money and pay divisions. The half-on-half movement reflects the historical seasonality of the business. Receivables increased 4% year-on-year to AUD 7.3 billion, supported by continued origination growth and a disciplined approach to portfolio management. Importantly, growth continues to be generated from new business and remains aligned with our return hurdles and risk appetite settings. This portfolio growth continues to translate into higher earnings and returns. Turning to Slide 14. Margin performance remains strong. Risk-adjusted income increased AUD 286 million. RAI returns remain strong at 8%, despite evolving macro conditions.
Funding cost improvements from new term funding initiatives, warehouse refinancings, and lower average benchmark rates in New Zealand more than offset the effect higher RBA cash rates during the half. As a result, operating income margin expanded 20 basis points year-on-year to 12.2%. Credit performance remained within expectations. Together with pricing discipline, funding optimization, and portfolio management, this continued to support attractive risk-adjusted returns. Ultimately, the underlying economics of the business remain resilient. Turning to Slide 15. Funding remains a key strategic strength of the group. During the half, we completed five funding transactions totaling approximately AUD 2.3 billion and further diversified our funding platform. We now have 65 investors across our program, AUD 5.3 billion of warehouse capacity, and AUD 8.8 billion of public ABS issuances since the inception of Latitude.
We also completed a Capital Notes 2 issuance, successfully raising AUD 135 million, including approximately AUD 64 million reinvested from Capital Notes 1 investors. Importantly, improved pricing and funding flexibility supported lower funding spreads during the half. Broadly speaking, our diversified funding platform continues to support growth, margin expansion, and balance sheet flexibility. Turning to Slide 16. Credit performance remains consistent with our expectations and in line with our portfolio settings. The macro environment continues to place pressure on household budgets. However, portfolio performance remains within risk appetite. On the left-hand side, origination quality remains strong, with 63% of our new customer origination within our CR1 and CR2 segments. In the middle of the page, delinquency rates have continued to normalize, reflecting both macroeconomic conditions and a portfolio risk setting that support attractive risk-adjusted returns. This has translated into net charge-offs increasing to 4.2%.
On the right-hand side, risk-adjusted income remains strong at 8%, demonstrating the resilience of the underlying portfolio economics. We continue to maintain a prudent provision position with a coverage ratio of 4.59%, up 14 basis points during the first half. All things considered, we remain comfortable with the risk profile of the business and continue to generate attractive risk-adjusted returns. Finally, turning to Slide 17. Operating leverage continued to improve during the half. Cash operating expenses reduced 2% year-on-year, while we continued to invest in technology, AI, and future growth initiatives. Productivity and simplification initiatives more than offset inflationary pressures. As a result, our cost-to-income ratio improved to 41.3%. We also continued to deliver positive jaws of 9%, with operating income increasing 7% year-on-year and cash operating expenses reducing 2% year-on-year. Importantly, we are not simply reducing costs.
We are reallocating investments towards initiatives that improve productivity, enhance customer experience, and support future growth. Ultimately, disciplined cost management continues to create operating leverage and supports margin expansion, growth investment, and stronger earnings outcomes. With that, I will hand it over back to Bob.
Thank you, Guillaume. The last page of the document really speaks to the outlook and our views for what is ahead, and let me just walk everyone who is on the call through that very quickly. Our view is that we are well positioned to navigate through what is clearly a more challenging environment here in Australia and to some degree also in New Zealand. While we may expect originations to moderate, we do continue to expect to grow our assets or receivables throughout the year. As I have mentioned in prior calls, we continue to stay fanatically focused on that interest margin risk-adjusted return. That requires a different set of tactics and techniques in the current environment and we are more than prepared and well positioned to ensure that discipline is maintained.
We continue to see the ongoing benefit of historical and current investments in AI and automation, and fully expect there to be ongoing improvement to operating leverage as the half year goes on. As I have shared before, we are an organization focused on the fundamentals, executing for the long term, and really continue to make investments to ensure that is the case here at Latitude, not for the next half, but for the long-term future. Mitch, over to you.
Yep. With that, we'll hand it back to Kate for the Q&A.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes to the line of Sally Hong with Morgan Stanley. Please go ahead.
Morning, team. I just had a few questions this morning. Bob, you mentioned that you continue to expect good receivables growth, but also flagged softer discretionary spending and lending demand. How should we think about the receivables growth over the next 6-12 months versus the 4% year-on-year growth you guys have delivered in first half 2026?
Yeah. There's a few things going on, Sally. There's without any question been some level of pullback in consumer discretionary spending, and I think that's an obvious and expected outcome in the current environment. On the other hand, there's also a stronger demand for credit when these moments in the macroeconomic picture emerge. Those are the two sort of offsetting components. We see strong demand for things like debt consolidation loans and refinancing, which is great. It shows the customers are being proactive about managing their household balance sheets. That said, I've always been clear that we will prioritize net interest margin risk-adjusted return over volume growth, and that will continue to be the case. I guess the last point I'd raise is that repayment rates are another key feature that we watch.
Those have remained quite resilient in the first half of the year, but to the extent they slow down, that could contribute to greater asset or receivable growth in the back half.
I would also add that we are growing beyond our traditional space with our new division enterprise growth, in the space of health and wellness and home services. Those are areas that are just pure growth for us because we haven't been very much in this space before, and it can diversify our outlets to more than just the traditional retail.
Great. This is probably a question for you, Guillaume. The margin reached 11.95% in the high rate environment. What are the key tailwinds and headwinds to margin over the next 6-12 months? Should we expect the margin to probably hold around these levels?
Thanks, Sally, and good morning to everyone. Look, a lot still needs to play out in the macro and in the rates as you also could see the past few weeks and months, we've been on a bit of a rollercoaster. Is the RBA going to increase or not? I think the news is a little clearer, the path that it's going to, so that will definitely impact our margin. We've been able in the past few years to reduce our spread. But at any point in time, this could also change. But we've been quite successful, and I think our investors are recognizing the strength of our platform and our returns. Our pricing has been, our discipline has been consistent.
As you can see on page seven for the money business, our new business continues to be originating at a higher yield in the portfolio so that as we drop off the vintages that are at lower rates and originate at higher rates, it also improves our portfolio. We have a series of hedges on the books already that we have locked in, for the most part last year at lower rates. So that also gives us a tailwind in our margin in the future.
Great. So just on the net charge-off, it has risen to 4.24% over the half. When you say losses remain within expectations, what sort of trajectory for net charge-offs are you assuming for the second half of 2026? What would need to happen for these losses to move materially higher?
Look, just like everyone else, every lender in Australia and New Zealand, we were affected by macroeconomics and employment and so forth. So most people have disclosed slightly higher net charge-offs or provisioning. You also see this in our numbers. In our case, we have great ability to price at levels that we believe is the right price for the risk. On our money portfolio, we have 23 pricing segments, which is why we say that the losses are according to our expectation, because if someone comes in at a certain risk profile, we price and we end up getting better returns, as I was talking about a few minutes ago. But of course, that cohort, if it is slightly higher risk, then it would generate the credit losses that you see.
This is why we keep saying that it is in our expectation that in order to continue to generate the 8% excess spread that we do generate, this also sometimes, a certain period would be in line with slightly higher credit losses.
In that environment, Sally, when we say that it is really important for organizations to be super agile in terms of how they respond to adjusting their settings when it comes to new originations, but also the actions we take to manage the portfolio. Thankfully, we are a scaled company, but we are not a bureaucratic company, and we are in a position where we can spot things and risks and opportunities that are emerging and respond quite quickly to them.
Okay. With the risk-adjusted income yield at 8% today, what do you view as an appropriate or sustainable through the cycle RAI level? How should we think about the trade-off between the margin and the credit costs from here?
Like I said earlier, I think there is still lots of things in the macro environment that need to play out. A lot of it is in the cash rates, and our ability to continue to issue our program at the spreads that we have today. Also those macros influence, of course, the losses. We control what we can control, which is the pricing that we go out to market with, the volumes that we originate, and the customer offer that we have. We feel really good about the risk profile between investments.
I did notice the 90-days PD did rise to about 1.27%, and that is still above the pre-COVID long-term average. Are you seeing any signs of delinquencies stabilizing? Which customer cohorts or leading indicators should investors watch to assess whether those net charge-offs have peaked?
Well, I think we have to also compare apples to apples here because we had a methodology change. If you follow the line or right around where we were pre-COVID. But of course, just like I was saying, with the macro settings that we have at the moment, there is a bit more delinquency that we are spending quite a bit of effort actually in our collection profile and some new AI tools to improve our collections and our programs and various credit initiatives. And we work with customers to optimize what we collect. And as a result, you can see our rate continues to be aligned with our expectations.
Okay. Is the provision coverage at 4.6% an appropriate level in the current risk environment? Should we expect coverage to rise further from here if those delinquencies rise as well?
Yes. We want to maintain a prudent provisioning, and that is why we increased it a little bit. Also the models that create this expected credit loss take into account recency and experience. So when you suffer a little bit more net charge-off, then that influences your provisioning. But we always want to look for a buffer, and we take into account also macroeconomics in that. So at that level, we feel like we are sufficiently provisioned for where the book is at the moment.
Okay, great. Just finally on costs. The cost income ratio fell year-on-year to 41%. Where do you think this can sustainably fall to?
Bob and I are very focused on every single initiative to make ourselves as productive as we can. That implies reallocating resources to more productive investments and better resources that generate as much revenue as we can from the costs that we incur.
Sally, the only thing I'd add to that is one of the key pillars of the Bridge to the Future strategy is modernizing the technology platform. As you'd imagine, that represents a pretty significant part of our overall OpEx. Progressively, I think the team has done an incredible job and continues to execute really well against taking out older legacy pieces of technology that are becoming increasingly expensive to manage and replacing them with far more contemporary world-class capabilities that not only drive down our operating costs, but frankly deliver better outcomes for customers and partners. As we connect that particular work stream under Bridge to the Future continues to gain momentum, I'd expect costs to drop out purely as a result of the replacement of legacy technology with new, more modern infrastructure.
Great. That was really helpful. Thank you.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. There are no further phone questions at this time. I'll now hand back to Bob Belan for closing remarks.
Thank you everyone for joining us today. On behalf of Guillaume, Mitch, and myself and the company more broadly, great talk this morning. Looking forward to spending a little bit more time with some of you over the coming weeks. Thanks again.
That does conclude our conference for today. Thank you for participating. You may now disconnect.