FY21 Results Announcement

[Please note that this text has been automatically generated from a PDF file containing tables, images and other graphical elements. As a result, formatting may be affected, and table data may not be readable. We suggest reading the PDF version to preserve full comprehension.] The future of money is consumer-direct. FY2021 results presentation - 31 August 2021. All values in NZ$ unless otherwise stated. HARMONEY (C) 2021 FY2021 RESULTS PRESENTATION 31 AUGUST 2021 -- Rapid growth across all key metrics. Account acquisition. Powerful consumer-direct acquisition engine. Fast approaching 700K Harmoney accounts. New loan originations. High growth of new customer originations in Australia powered by Stellare's Libra. Net lending margin. Superior net interest margin and net lending margin demonstrate portfolio quality, benefit of 100% direct, and 3Rs (Return, Repeat, Renew). [Please see the graphs on page 2.] -- FY2021 Highlights. The 100% direct difference. June 2021 was our highest ever month of originations, and was then surpassed in July 2021 ($54m). [Please see the diagrams on page 3.] -- 100% direct: Harmoney's unique model -- Harmoney is the largest 100% consumer-direct money platform in Australia/New Zealand. Our unique strategy is to create direct relationships with consumers, at scale, then nurture them to create high value now and in the future. To do this Harmoney combines data superiority, technological superiority, and marketing superiority like no other. Market leading direct loan originations. $2.1B CUMULATIVE ORIGINATIONS AS AT 30 JUNE 2021. [Please see diagrams on page 5.] -- 100% consumer-direct means deep consumer data. Broker model offers limited consumers to Fintechs. Harmoney has a much deeper universe of consumer data. With our direct data, we see consumers in hi-res and real time. And we have a 7 year head start with consumer data from over 400,000 loan applications totalling over $7 billion in lending enquiry. -- Libra: not your grandad's credit scorecard. Harmoney's behavioural data-powered credit decisioning engine. [Please see diagrams on page 7.] Stellare Libra 1.7/1.8: better-than-ever conversion. Bureau credit scores are too generic to be solely relied on for sophisticated pricing and personalised rates. Particularly for significant customer segments - like Millennials - who can have very thin credit files. Most importantly, our data tells us there are much better predictors of creditworthiness. Libra's behaviour-based scorecard learns from data acquired through Harmoney's 400,000+ completed loan applications. For version 1.7/1.8, Libra incorporates 100+ pD (probability of default) predictor data points identified through behavioural analysis. Libra 1.8 went live in NZ in mid-June 2021. Early results show similar trend to Libra 1.7 in Australia. Stellare Libra 1.7: ~25% better credit performance compared to index of prior internal scorecards. Early analysis of arrears for loans scored under Libra 1.7 (released February 2021) shows improved performance when compared to prior scorecards at the same point in time. We expect further performance improvements in future Libra releases as our innovative behavioural scorecard matures. -- Accounts continue to grow rapidly. Huge opportunity in a massive market and banks continue to shed market share. [Please see diagrams on page 8.] Rapidly accelerating account growth. We have already acquired almost 700K direct Harmoney accounts and associated data, more than any other Australasian listed Fintech. Our successful and unique collaboration with Google continues to support our account acquisition as we head towards 1 million accounts. Fintech's market share of personal lending is accelerating. Every year, the amount of people heading online to do the things they need to do is growing and that growth is accelerating. This trend is plainly evident in personal finance. And when they turn to online, people aren't looking for the status quo. They're looking for more convenience, they're looking for more value, and they're looking for fairness. -- Stellare's automated end-to-end loan application supports rapid scalability of Harmoney. [Please see diagrams on page 9.] Straight-through-processing (STP) measures the ratio of loans that complete a fully automated end-to-end loan application, ie. no human intervention. Our STP settings can be temporarily adjusted to apply conservative settings as needed, such as when releasing a new scorecard, or where the macro conditions warrant a conservative approach (early COVID). Fully automated loan applications. 68% 6 MONTH AVERAGE FROM JAN TO JUN '21 -- Financial and operational results. -- Australian new originations grow 260% on marketing scale-up post IPO. [Please see diagrams on page 11.] New customer origination growth fuels receivables book growth. o Q4 FY21 new customer originations exceed pre-COVID peak. o Australia 52% of H2 new originations. o New customer originations a lead indicator of 3Rs (Return, Repeat, Renew) originations, with those customers later returning for future needs. o 3Rs customers proved a stable source of quality originations through COVID. o FY21 average loan size originated of ~$25,000. o FY21 average cost per loan to originate of ~3.7%. -- Group receivables growth led by Australia expansion. [Please see diagrams on page 12.] Return to growth in H2 FY21, following COVID-19 impacted H1 FY21. o Record period end $501m receivables book. o 14% Group H2 FY21 growth on H1 FY21 (annualised) o 69% Australian H2 FY21 growth on H1 FY21 (annualised) o H2 FY21 growth driven by accelerating originations from resumption of direct marketing and a lift in Australian conversion following February 2021 release Libra 1.7 scorecard. o New Zealand book returns to growth post COVID in Q4 FY21. Australian receivables 69% AUSTRALIAN H2 FY21 ANNUALISED RECEIVABLES BOOK GROWTH -- Stellare platform delivers true scalability. [Please see diagrams on page 13.] Revenue is set to grow significantly during FY22 on continued loan book growth, with superior net lending margin and market leading automation delivering operating cost efficiencies. o Marketing-to-originations efficiency ratio to hold steady, even with continued investment in AU expansion, as minimal-cost 3Rs originations accelerate. o Harmoney's direct marketing costs are recognised up front as incurred, ahead of the interest revenue generated, which is received over the life of the loan. This provides a suppressed view of profitability when compared with businesses originating loans via brokers, as commissions are expensed over the life of the loan. Pro forma group revenue FY21. $79m Based on actual and forecast pro forma numbers. Revenue grows materially faster than opex, creating large scalability opportunities. -- NZ$205m funding capacity to support continued expansion. Warehouse transition on target. [Please see diagrams on page 14.] -- Continued Libra improvements leads to best credit performance ever. [Please see diagrams on page 15.] -- Harmoney's Net Lending Margin demonstrates strength of underlying profit drivers. 16.3% AVERAGE INTEREST RATE. Harmoney's personalised rates driven by Libra's scorecard provides risk based interest rates leading to a distinctive competitive advantage. 10.6% NET INTEREST MARGIN. Harmoney continues to drive down its cost of funds through more efficient warehouses leading to market leading net interest margin. 6.8% NET LENDING MARGIN. Harmoney's strong Net Lending Margin takes into account all lending related costs, including losses (charge-offs). Harmoney's rates are comparable with "Big 4" bank rates. Easier, faster, more convenient customer experience. Our range of personalised interest rates attracts customers who are used to traditional bank rates but at a superior customer experience. -- Strategy and outlook. -- The big banks were already retreating. Then the pandemic further boosted online. [Please see diagrams on page 18.] -- AU on-track to achieve NZ conversion performance as product features align. [Please see diagrams on page 19.] Parity in conversion opens $1B p.a. opportunity in Australia. $1B originations per annum in Australia becomes achievable as conversion metrics reach parity with New Zealand. Parity with NZ in new conversion. Parity with NZ in retention. $1B p.a. AU origination target. -- Conversion improvements alone can rapidly grow our AU and NZ loan book. [Please see diagrams on page 20.] Quality of accounts attracted to Harmoney represents untapped potential to convert credit worthy customers through initiatives focused on engagement and nurturing (~54,000 alone in H2 FY21). Untapped potential: ~47,000 credit worthy accounts in H2 FY21 Of 67,000 new accounts created H2 FY21, 70% (~47,000 accounts) could be targeted with initiatives to increase conversion. ~30,000 of untapped potential have had bank data analysed A significant portion of the untapped potential have shared their bank transaction data with us - these are customers with intent. Our journey to offering lending to more customers. With our current strong rate of account creation, continual improvements in our conversion rate through ongoing Libra scorecard development and new features to improve affordability and flexibility, we are in a position to accelerate origination growth. -- Our data superiority drives superior new products: beyond personal loans to personal lending. We will use our data advantage to identify opportunities and build product experiences that fit customer goals and lifestyles. The ultimate personal loan. Strategy o Redesign the personal loan to fit the customer's objectives - move beyond personal loan to personal lending. o Increased flexibility: e.g. multi-drawdown, line of credit, goal-setting tranches. o Money in minutes. Outcome o Moving from one product to more enduring "always-on" limit product, increasing retention and customer lifetime value. o Flexibility increases market share beyond the traditional personal loan market. A product for everyone. Strategy o Value beyond the personal loan. o Lending products or financial tools. o Available to all account holders, specifically targeting the untapped potential. Outcome o Lower acquisition costs as more applicants become engaged customers - not just borrowers. o Higher retention as customer relationship moves beyond the personal loan. -- Delivering on our vision. Consumer-direct acquisition at scale. o Direct relationships build trust and make it easier for consumers to share data. o Scale and depth of consumer data provides high-res modelling of consumer behaviour - individually and in aggregate. o Data modelling driving efficiencies in large scale consumer acquisition. o More accounts, lower cost per account. Conversion optimisation. o Revolutionary Libra 1.7 (AU), 1.8 (NZ) scorecard finds more creditworthy consumer through broader behaviour data. o Increases conversion rates from applications to settled loans without change to credit risk settings or automation. o Lower arrears compared to previous scorecards. Margin superiority. o Consumer-direct model removes the cost of intermediaries. o Strong margin supports large scale consumer acquisition. o Tech and data combine to provide virtuous investment cycle, leading to cheaper accounts. o Consumer life-time value maximised through 3Rs retention. -- This is just the beginning. Our unique model drives rapid, scalable financial growth. So financially, what does this all mean for the next 12 months? [Please see diagrams on page 23.] -- Appendices -- A$135m Australian portfolio. Building a high skill, high value customer base. [Please see diagrams on page 25.] -- $358m New Zealand portfolio. Building a high skill, high value customer base. [Please see diagrams on page 26.] -- Profit and loss (pro forma and statutory reconciliation). [Please see diagrams on page 27.] The pro forma profit and loss is intended to provide a more meaningful view of Harmoney's operating performance. The adjustments from statutory are consistent with those made in the Prospectus, most significantly normalising for differences in the statutory accounting treatment between warehouse and peer-to-peer funded loans. The pro forma normalisation for the borrower establishment fee rebate removes the impact of recognition of a non-recurring provision in connection with a historic dispute with the New Zealand Commerce Commission arising out of Harmoney's peer-to-peer lending activities, which has now been settled. The pro forma normalisation for IPO expenses removes the non-recurring expenses recognised in the current year relating to Harmoney's initial public offering in November 2020. The Group expenses all its customer acquisition costs (marketing and verification costs) as incurred (no capitalisation and subsequent amortisation). -- Cashflow [Please see diagrams on page 28.] -- Balance sheet [Please see diagrams on page 29.] The balance sheet is presented on a statutory basis. As such, the finance receivables and borrowings relate only to loans that are warehouse funded. Peer-to-peer loans are in addition to these finance receivables and borrowings, and are included in the pro forma. -- Key operating and pro forma financial metrics. [Please see diagrams on page 30.] -- Board of Directors. Paul Lahiff Independent Director and Chairman. Paul was previously Managing Director of Mortgage Choice Limited (2003- 2009) and prior to that Managing Director of Permanent Trustee and Heritage Bank. Paul sits on the Boards of Sezzle Ltd, 86400 Ltd, Austbrokers Ltd, and NESS Super. He is also the Chair of the ISO 20022 Migration Steering Committee and holds a Bachelor of Agricultural Economics from Sydney University. He is based in Sydney, Australia. David Flacks Independent Director. David was a senior corporate partner of Bell Gully for many years and was General Counsel and Company Secretary of Carter Holt Harvey for 4 years during the 1990's. Since retiring from Bell Gully, David has had a number of governance and regulatory roles. He is currently chair of dual NZX and ASX listed AFT Pharmaceuticals and is chair of the Suncorp New Zealand group of companies, and a director of Todd Corporation. He has been chair of both NZX Markets Disciplinary Tribunal and NZX Regulatory Governance Committee, and a member of the New Zealand Takeovers Panel. Tracey Jones Independent Director. Tracey is a professional director and family office adviser. She currently has a portfolio of governance roles in the commercial, not for profit and charitable sectors. She has significant investment, commercial, and governance experience having previously held executive roles in one of New Zealand's largest family offices. She is a chartered accountant, a member of the Chartered Accountants of Australia & New Zealand, and a member of the New Zealand Institute of Directors. Neil Roberts Director and Founder. Neil founded Harmoney, was CEO over 6 years driving the capital path, building culture systems and processes that are intrinsic to Harmoney's success. Prior to that Neil was Head of Sales and Business Development at FlexiGroup, leading a team of 80 with sales of $200m driving a $30m profit. Neil founded the Direct Division of a listed New Zealand retail company, PRG Group, that sold personal loans to consumers and raised retail debentures to fund loans. Launched in 2001 PRF Direct, achieved $3.2b in personal loan applications and $1.2b in written personal loans over five years. Ultimately heading the business, Neil was responsible for over 400 staff and a balance sheet of $750m in assets with forecasted PBT of $50m six years later and prior to being sold to GE Money in 2006. David Stevens Chief Executive Officer and Managing Director. David is a highly experienced CEO specialising in the non-bank consumer and commercial finance sectors within Australia and New Zealand. David most recently led a start-up company, ultimately securing a major equity stake in the business by the Bank of Queensland in 2018. Prior to this, David served as CEO and CFO of Humm (formerly "FlexiGroup") (ASX: "FXL" now "HUM"). In David's near-decade with FlexiGroup, he led large teams in the strategic growth of the business, through both organic growth and M&A of what was a small company to an ASX200-listed business. Whilst CEO of FlexiGroup, David led the $300m+ acquisition of Fisher & Paykel Finance and spent considerable time in New Zealand in the course of his work in the local side of the business. -- Important notice and disclaimer. The material in this presentation is provided for general information purposes only and is current as at the date of this presentation. It is not a prospectus or product disclosure statement, financial product or investment advice or a recommendation or offer to acquire Harmoney shares or other securities. It is not intended to be relied upon as advice to investors and does not take into account the investment objectives, financial situation or needs of any particular investor. Investors should assess their own financial circumstances and seek professional legal, tax, business and/or financial advice before making any investment decision. The information in this presentation does not purport to be complete. It should be read in conjunction with Harmoney's other periodic and continuous disclosure announcements lodged with the Australian Securities Exchange and New Zealand's Exchange, which are available at www.asx.com.au and www.nzx.com respectively. This presentation may contain forward looking statements including statements regarding our intent, belief or current expectations with respect to Harmoney Group's business and operations, market conditions, results of operations and financial condition, specific provisions and risk management practices. Such forward looking statements involve known and unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the control of Harmoney Group and which may cause actual results, performance or achievements to differ materially from those expressed or implied by such statements. Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date thereof. Past performance is not indicative of future performance. No representation or warranty, express or implied, is made as to the fairness, completeness, accuracy, adequacy or reliability of information, opinions or conclusions in this presentation, including the financial information. To the maximum extent permitted by law, none of Harmoney or its related bodies corporate or their respective, its directors, officers, employees or contractors or agents do not accept liability or responsibility for any loss or damage resulting from the use or reliance on this presentation or its contents or otherwise arising in connection with it by any person, including, without limitation, any liability from fault or negligence. The financial information in this presentation has not been audited in accordance with Australian Auditing Standards. This presentation contains certain non-IFRS measures that Harmoney believes are relevant and appropriate to understanding its business. Investors should refer to the Full Year Results FY21 for further details. All values are expressed in New Zealand currency unless otherwise stated. All intellectual property rights in this presentation are owned by Harmoney. -- The future of money is consumer-direct. Thank You End CA:00378232 For:HMY Type:ANNREP Time:2021-08-31 09:22:56