1H22 Results Presentation

[Please note that this is a text version of a release and so may be missing formatting, tables, images and other graphical elements that are not necessarily indicated here. We strongly suggest reading the PDF version to preserve full comprehension.] Half Year FY22 Results All values in $NZD unless stated otherwise 1 2 Contents 1HFY22 Financial Highlights & Upgraded FY22 Guidance Why 100% consumer-direct (B2C) wins Growth initiatives Appendices All amounts in this presentation are denominated in $NZD unless otherwise stated 3 1HFY22 Financial Highlights The 100% direct difference 4 Rapid growth across all key business metrics 1. Account acquisition Powerful consumer-direct acquisition engine. Over 769k customer accounts have been added to our Stellare(R) platform. 2. New loan originations High growth of new customer originations powered by our Stellare(R) platform. 3. Superior net margins Superior net interest margin and net lending margin demonstrate portfolio quality, benefit of 100% consumer direct and existing customer growth 5 New originations grow 224% on marketing scale up post IPO New customer loan origination growth fuels receivables book growth Significant growth in loan originations continues 58% of new customer loan originations now come from Australia (42% New Zealand) New customer loan originations are a lead indicator of future originations/earnings as these customers later return for future needs on average, every customer takes >2 loans Australian loan book on track to exceed New Zealand loan book in ~12 months Average loan size originated of ~$24,000 6 Loan book growth led by Australia expansion Continued growth in 1HFY22, led by strong AU originations Record period end $557m Group loan book, representing 22% growth on 2HFY21 (annualised) Growth driven predominantly by 50% growth in Australian loan originations on 2HFY21, from targeted direct marketing and improved customer retention rates New Zealand limited book growth due to COVID restrictions and significant NZ regulatory changes February 2022 $600m Group Loan Book as at late February 2022 7 Harmoney upgrades FY22 market guidance Harmoney forecasts its transition to warehouse funding to be ~90% complete by 30 June 2022 (83% at 31 January 2022). FY21A, 1HFY22A and FY22F based on pro-forma financials. FY22F assumes COVID-19 lockdown restrictions in Australia and New Zealand do not have a material impact on originations or repayments, and a 1.07 AUD/NZD exchange rate. 8 Harmoney exceeds its Nov 2020 IPO potential Australian replication of consumer-direct (B2C) Stellare credit and marketing models Significant Australian loan book growth Transition of funding from peer-to-peer to warehouses/ABS Leading economics Profitability Continuous data led innovation Revolutionary behaviour-based scorecards 1.7 and 1.8 in Australia and New Zealand driving higher conversion and lower losses Enhanced product flexibility, introducing a 7 year loan term Funnel enhancements, responding to major changes in New Zealand lending regulations 9 Why 100% consumer direct (B2C) wins 10 Largest 100% online consumer-direct (B2C) personal lender across Australia & New Zealand The long term value of consumer-direct Our unique strategy is to create direct relationships with consumers 100% online, at scale, then nurture them to create high value now and into the future. To do this Harmoney combines data, technology and digital marketing like no other. 11 The consumer-direct (B2C) multiplier effect With a consumer-direct (B2C) relationship, Stellare(R) targets customers for remarketing campaigns; offering the right solution for the customer at the right time The multiplier effect in action: 42K accounts from 2015 originally created $123m in year one loan originations. Six years later, these same accounts contributed $464m, a 4x increase in loan originations This multiplier effect is only just getting started for Harmoney in the Australian market 12 Why 100% consumer-direct (B2C) wins 13 More Aussies signed up for their personal loan via online than via phone, branch, broker combined Google, Kantar Shopping Pulse, May 2021. 14 Market Size: Harmoney & listed peers <2% Australian personal lending market Huge market opportunity The Australian personal lending market represents an enormous growth opportunity as consumers move online. The vast majority of personal lending is still provided by banks and traditional lenders. Consumers are gravitating to purchasing and conducting financial services online. Personal lending is for many purposes, e.g. home, car, life events, small business and consolidation of these. Harmoney's deep data focuses its marketing and funding on the most attractive opportunities. 15 Consumer-direct means deep consumer data Broker: Limited data Broker/intermediary models offer limited consumers and data to build smart credit and marketing platforms. Direct: Deep data Harmoney has much deeper consumer data. 7 years of consumer data from over 470,000+ loan applications totalling over $7.6 billion in loan applications. Deep data + A.I. Consumer data plus machine learning in the Stellare(R) platform builds smarter credit decisions and smarter digital advertising, which efficiently grows Harmoney's loan originations. 16 Stellare's automated loan application process facilitates rapid scalability Fully automated loan applications are 66% Straight-through-processing (STP) measures the ratio of loans that complete a fully automated loan application process (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. Fully automated loan applications 66% 6 month average Jul - Dec 21 17 Customer acquisition proven in NZ - now driving Australian growth Proven acquisition model The Stellare(R) marketing model outbids competitors for target consumers, real-time feedback refines targeting, driving down CAC. The consumer-direct relationship then drives CAC lower as existing customers return for future needs, at ~$0 CAC i.e. ~$0 CAC to originate 2nd, 3rd, 4th... loan. Proven in New Zealand and now replicating in Australia, as Stellare(R) learns and existing customer base grows. <5% Acquisition Cost to originations ratio in New Zealand 18 How does Stellare's integration with Google work? 19 Efficient, accurate and optimised customer acquisition Globally, Facebook has more than 1.93 billion daily users. Prototyping 20 Deep data refines Libra scorecards Extensive rich data fuels our proprietary technology 21 Libra: Harmoney's behavioural data powered credit decisioning engine Stellare(R) Libra 1.7: ~25% better credit performance 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. Stellare(R) 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 470,000+ 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. 22 Continual Libra improvements lead to the best performance ever Group arrears & losses performance Group arrears and losses continue to perform ahead of expectation and are at historical lows. Implemented Libra 1.7 in Australia in Feb 2021 and Libra 1.8 in New Zealand in June 2021, showing improved credit performance, through improvements in arrears and early defaults. 23 Libra's accuracy rewarded with funding diversity, lower cost of funds and increased return on equity ~$300m undrawn funding capacity Consistent low loss rates have attracted funding from 3 of the "Big 4" banks, bringing cost of funds down 370bps in last 18 months A$105m securitisation completed in Oct 21, weighted average interest rate of 1.45% + hedged base rate Return on equity has doubled since our inaugural securitisation as ~50% less capital now required in Harmoney warehouses Transition to warehouse funding continues to lower funding costs, loan book now 83% warehouse funded A$20m corporate debt facility executed in December 2021 to further support loan book growth 24 Scalability powered by automation Automation powers operating cost efficiencies 100% online application with 66% of applications completed without human intervention Credit officers remain six, while annual originations have grown 300% Upgraded FY22 guidance - Forecast 30 June 22 loan book of >$650m Cash NPAT Positive Pro-forma FY22 Guidance 25 $1billion average loan book expected to generate ~$45m Cash EBITDA 26 Growth initiatives 27 Harmoney's growth initiatives - three areas of focus 1. Australian expansion Australian 'personal loan' Google search market is 9x New Zealand. Australian conversion expected to replicate NZ. Expanding consumer direct marketing channels e.g. Meta partnership. Brand awareness launch in late 2022. 2. AU/NZ conversion gains 7 year loan now live in AU/NZ Major functionality releases in 2022 improving conversion. Vertical focus - targeting our core verticals. Co-borrower in AU in 2022. Meta partnership - Stellare first party data integration to power advertising across Facebook / Instagram. 3. Enhanced & new products Enhancing our existing product with the 'Ultimate Personal Loan' Deliver value beyond the personal loan into new products and segments 'Product for Everyone' Optimise product opportunities by using deep data, speed to market which is enabled by the Stellare(R) platform. 28 Australia direct $1b+ p.a. opportunity on replicating New Zealand's growth and repeat business New Zealand Existing customers generate >50% of originations, as longer established, highly satisfied, direct customer base return for further needs Australia Existing customers generate ~20% of originations as customer base grows, future annuity stream to replicate NZ in 9 times larger market 29 2. Conversion improvements alone can rapidly grow our loan book Quality of accounts attracted to Harmoney represents untapped potential to convert credit worthy customers through initiatives focused on engagement and nurturing (~81,000 alone in H1 FY22). 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. 30 3. Our data superiority drives new products: beyond personal loans to personal lending Data advantage We will use our data advantage to identify opportunities and build product experiences that fit customer goals and lifestyles. The ultimate personal loan Strategy Redesign the personal loan to fit the customer's objectives - move beyond personal loan to personal lending. Increased flexibility: e.g. multi-drawdown, line of credit, goal-setting tranches. Money in minutes. Outcome Moving from one product to more enduring "always-on" limit product, increasing retention and customer lifetime value. Flexibility increases market share beyond the traditional personal loan market. A product for everyone Strategy Delivering value beyond the personal loan into new segments (auto, SME), products, or financial tools. Targeting new consumers and the untapped potential of existing accounts Outcome Increase conversion & CLV through enhanced customer fit lowering CAC Higher retention as the customer relationship moves beyond the personal loan. 31 Appendices 32 AU$185m Australian portfolio. Building a high skill high value customer base., 33 NZ$363m portfolio. Building a high skill high value customer base. 34 Profit and loss (pro forma and statutory reconciliation) 35 Cashflow 36 Balance sheet 37 Key operating and pro forma financial metrics 38 Important notice and disclaimer 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 Half Year FY22 Results 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 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. End CA:00388029 For:HMY Type:MKTUPDTE Time:2022-02-28 09:45:38