Harmoney Corp Limited

Hello and welcome to Harmony's full year 2023 results presentation. I'm David Stevens, the CEO and Managing Director of Harmony. With me today is Simon Ward, our CFO. Just a reminder that from this year we changed our reporting currency to Australian dollars. All numbers in this presentation are in Australian dollars unless otherwise noted. Now turning to slide two. We bring your attention to important information related to disclosures in today's presentation. We'll leave this with you to review at your leisure. Now turning to slide three. Today I'll begin with highlighting our results for financial year 2023. I'll then go into an overview of our business model. Many of these themes will be familiar to you if you've followed our progress, but it's useful to keep these top of mind as we go over what this model is delivering today and will continue to do so into the future. I'll then hand over to Simon who will take you through our financial results. Finally, I'll discuss our strategy and outlook before responding to your questions. You can submit a question on the webcast at any time during the presentation. by typing it into the after question box and then hitting submit. We'll then endeavour to respond to your questions during the Q&A at the end. Now turning to slide four and then on to slide five. This slide presents our key performance metrics. For financial year 23, our loan book experience growth of 28% bringing it to $744 million. We also grew our revenue by 47% to $107 million. We delivered a net interest margin of 9.6% in a year of significantly increasing interest rates, which was very pleasing and proves that the Harmony consumer direct business model can effectively pass on increases in interest rates without impacting demand for its product. A real highlight was our market leading cost to income ratio of 28%, and I note this includes all operating costs below operating income. This all resulted in a cash impact for the year of 4.7 million, For the first time, we're able to report a cash return on equity, which was 8.4%. We have a medium term target to be achieving a 20% cash return on equity, and we expect this to be on a run rate during financial year 25. Now turning to slide six. As mentioned, we listed on the ASX less than three years ago with the goal of accelerating our growth in Australia. It's pleasing to see how successful the expansion has been to date. with the group loan book increasing by 28% over the last year. This year, the Australian loan book surpassed the New Zealand loan book for the first time, reaching 51% by the end of the year. In this year, we also moderated originations by 4%. However, we're able to lower our customer acquisition spend by a massive 41%, showing that our marketing algorithms continue to become more effective and our existing customers return for future needs, which also grew by 28% in Australia during the year. Now turning to slide seven. There are nine key points broken up into financial, customer value and risk management. Think of it this way, if you remember anything from today's presentation, these are the key points I'd like you to remember. In terms of financial, we've reported a cash end pad of $4.7 million for the year with a cost to income ratio of 28% and have unrestricted cash of over $27 million. This is a significant endorsement of Harmony's 100% consumer direct model and our execution of it through technology and automation. Our net interest margin of 9.6% is testament to the power of Harmony's customer acquisition and credit assessment models, key components of our Snell Air technology platform. It's also important to know that our 100% direct model allows us to more easily adjust rates. This is not something easily done in traditional broker models. We've also achieved an 8.4% cash return on equity for the year and are targeting a 20% cash return on equity run rate during FY25. This is the first time we've guided to a return on equity target. We feel this is achievable and at a level of a highly valuable technology business in financial services. In terms of customer value, our customer satisfaction record remains high with an average score of 4.7 out of 5 on over 53,000 reviews across Google and Shopper approved in Australia and New Zealand. Of course, keeping customers happy is why many return for their future borrowing needs, and they do so at minimal cost, customer acquisition cost to Harmony. Our Australian expansion continues at pace, with the Australian loan book surpassing the New Zealand loan book for the first time, as I mentioned earlier. We feel this is an outstanding result considering we only listed on the ASX less than three years ago. In terms of risk management, our net interest margin is achievable with a quality portfolio with over 40% of borrowers owning their own home, and when combined with our low arrears rate, reflects quality throughout the entire loan book. We have highly diversified funding with warehouse facilities from three of the big four banks, three mezzanine funders, and our own securitization program in both Australia and New Zealand, and I'm happy to say that the New Zealand 200 million ABS deal settled yesterday. Finally, 76% of our floating rate borrowings are hedged to mitigate any impacts from interest rate market movements. Now turning to slide eight and then slide nine. Just a quick reminder of our customer value proposition. Our loans are personalized to the customer, meaning interest rates and term options are matched to each person based on the individual credit characteristics. Our technology plays a big role here. We offer loans up to $70,000 with terms of three, five, or seven years. Our average new loan size is $21,000. Our processes are fast and are intentionally designed to be simple for customers to use and understand. Again, our technology plays a key role here, enabling us to make a lending decision within minutes for most applications and funds arriving in bank accounts within 24 hours of accepting a loan. Carrying the theme of keeping it simple for customers, we have just one fee, a loan establishment fee. All loans are of course fully compliant with applicable laws and regulations. We offer loans to help customers start or achieve just about anything. The examples listed are our most common, starting from renovation loans and debt consolidation, through helping people with life events such as travel, education and weddings. Now turning to slide 10. Our strategy is 100% consumer direct. There are a number of well-known distribution strategies in our industry, such as broker and broker direct hybrid models, but Harmony 100% direct has proven to be the right strategy for our unique business model. The reason for this is captured in the formula at the top of the slide. It shows how our deep consumer data and tech-driven strategy on the very left of the equation produces high shareholder returns on the very right. While in between sits four key values connecting strategy to returns. These are lower customer acquisition costs, lower credit losses, lower funding costs while keeping operating expenses low. We're targeting a 20% cash return on equity rate being achieved in financial year 25. We'll come back to this formula throughout today's presentation to help illustrate how the results connect to this unique business model. But it's important to note here that personal loans are just a starting point for Harmony, and that our consumer direct business model supports growth opportunities throughout a whole range of consumer finance products. In January we launched our new secured car loan product, which I'll talk about later, and you can see further diversification possible into other credit products, such as line of credit, credit cards, right through to home loans, for example, particularly as our new platform, Stellair 2.0, becomes live, which I'll talk about in more detail later as well. Now turning to slide 11. This slide talks to the very left side of our business model formula, data machine learning and automation. To properly build SCALE, it's clear that you need automation. For that, you need advanced and integrated machine learning capability. To do that successfully, you need more than just tech. It needs to be massive amounts of quality first-party data. We consistently attract over 10,000 new customers each month. All of this data is used to constantly train our machine learning models. There's a huge number of customers for any business. This high volume of consumer financial data, combined with over nine years of historic data, effectively supercharges training of our machine learning so we can optimize for sophisticated, highly efficient marketing with platforms such as Google giving us the right customers at low cost, and risk-adjusted income of 6% gained through more accurate risk assessment of customers. This combination of data, machine learning, and automation built into our technology platform, Stellair, has been a core feature of Harmony since our inception. Now turning to slide 12. The power of Stellair's machine learning goes far beyond assessing customers at their point of their loan application. It plays a significant role throughout the entire lifetime of our relationship with the customer. As mentioned earlier, machine learning is used to train our customer acquisition models so we can attract the right customers for the right cost. Harmony is highly selective when it comes to audience targeting. We have important responsibilities as a lender, and we also need to ensure our marketing spend is efficient and effective. This is where sophisticated customer acquisition models play a key role, and again, where huge amounts of first-party consumer data is key. When these models are used with powerful digital marketing platforms like Google, Microsoft Ads, and Facebook, the result is highly targeted and cost-effective customer acquisition. What this means as practice is that we can acquire the right customers for the right price at scale, and critically, we can forecast this as a high level of reliability. We can then use our direct relationship with the customer to tailor existing products to their needs and devise new services to offer. Proof of our ability to target the right customer with the right product is reflected in our Google reviews and Shopper approved scores with over 53,000 reviews and an average score of 4.7 out of 5. Moving to the second column, nationally we work hard to ensure we deliver a great customer experience so we can create annuity revenue and satisfy customers' return with minimal customer acquisition cost to us. This experience is underpinned by our automated, simple and streamlined 100% online process. And in the third column, our ability to scale returns, scale remains an important factor in the Harmony model, and our continued investment in technology remains a key enabler. Already this year, we have achieved a cost-to-income ratio of 28%, which is exceptional in any industry. The diagram bottom right of the page shows how all these factors combine to support the lifetime value of a customer. Our customer acquisition model helps us to attract the right customers. Our application and loan experience is highly tuned to customer satisfaction, so customers return to Harmony for their future needs. Based on our New Zealand experience, this cycle is expected to lead to 140% in additional originations to the same customers over the next six years at minimal customer acquisition cost. That number was 130% last year. To give you an idea, it continues to grow as the years go on. Turning to slide 13, I'll now hand over to our CFO, Simon Ward, who'll take you through our financial results in more detail.

Thanks David, and hello everybody. Please turn to slide 14, which summarises our key financial performance metrics for the year. I'll begin by going through each of these items briefly now, before going into more detail on the following slides. Beginning with the loan book, As David mentioned earlier, Harmony's loan book continues its strong growth, up 28% from last year to $744 million. This loan book growth has driven revenue growth of 47%, up from $73 million last year to $107 million this year. Both our net interest income percentage, which is our interest margin after funding costs, and our risk-adjusted income percentage, which is our interest margin after funding costs and incurred credit losses, are down compared with last year, driven primarily by increased funding costs as central banks have lifted rates to combat inflation. Funding costs have increased more rapidly than the influence of rate increases passed through to borrowers. As mentioned in our half-year results, and a point I'll come back to in a few slides, FY22, and in particular the first half of FY22, did represent an exceptionally low point for Harmony's funding costs. on very low market interest rates. Harmony maintains a strong margin, so even with the increases to funding costs, we're able, through our use of dynamic pricing and hedging strategies, to continue targeting a net interest margin of 10% and risk-adjusted margin of 7%, achieving 9.6% net interest margin and 6% risk-adjusted margin for the year. Moving next to acquisition costs, These reduced by 41% compared with last year to $12 million on both the decision to moderate loan book growth to focus on profitability and on continuing marketing efficiency gains with 41% cost reduction resulting in only a 4% reduction in originations. As many of you will know, key features of Harmony's business model are that we are 100% consumer direct, delivered 100% online via a highly automated Stelia platform. This high level of automation enables us to scale rapidly without having to similarly scale operating costs, again demonstrated by a further significant reduction in our cost-to-income ratio, down from 37% last year to 28% this year. These components combined enable Harmony to deliver a cash MPAT of $4.7 million up from $200,000 last year, and a cash return on equity of 8.4%. Our statutory MPAT was a $7.6 million loss, with the main difference between this and our cash MPAT being the $7.8 million increase in our expected credit loss provision, driven by loan book growth with movements in that provision excluded from our cash MPAT. Importantly, our cash MPAT does include all actual credit losses. We exclude the movement in our expected credit loss provision from our cash MPAT because this movement is a non-cash expense, similar to depreciation and share-based payments, which are also excluded from cash MPAT. Our increase in credit loss provision is a product of our loan book growth, with recognition of our accounting provision for expected future period losses being required on all new lending at the time of origination. ahead of recognising any corresponding interest income that may be earned from that new lending. Now turning to slide 15 to look at revenue in a bit more detail. As mentioned earlier, the loan book grew 28% to $744 million. Growth was across both the Australian and New Zealand markets, but was led by growth in the Australian book with it surpassing New Zealand and reaching 51% of the total loan portfolio by the end of the year. This loan book growth powered 47% revenue growth, growing from $73 million last year to $107 million this year. The average portfolio interest rate fell slightly from 15.9% to 15.5% as the portfolio weighting shifted through lower rate calendar year 2021 originations. This financial year represents a contemporary low point for the portfolio interest rate as targeted rate increases passed through on new loans from calendar year 2022 become a larger proportion of the loan book. By June 2023, the average portfolio rate was 15.7%. Now turning to slide 16, providing more detail on our acquisition costs. The softening market sentiment brought on by rising central bank rates meant that this year we were elected to moderate growth in favour of stronger profit and cash flow. As a consequence, originations which were a healthy $426 million reduced by 4% from the prior year. However, importantly, this was accompanied by a 41% reduction in acquisition costs, down from $21 million to only $12 million. This achievement illustrates two key features of Harmony's business model which we've been highlighting since listing. Firstly, our ability to rapidly adjust the rate at which we grow our line book to suit the economic environment. This comes from the flexibility of our 100% online consumer direct origination model with no long-term contracts or sales teams to support. Secondly, the power of data-driven Stelia marketing platform, twinned with our consumer-direct model. Our Stelia marketing platform ingests deep consumer-direct application data and applies continuous machine learning to focus our online marketing efforts on desirable high-intent customers. Then, through offering a great consumer experience, our new and existing customers return to us the next time they want to start something new. And when they do, because of the existing direct relationship, those subsequent loans have minimal acquisition cost. This has long been a feature of the New Zealand business, where more than half of originations are from existing customers, and is replicating in Australia following our expansion in that market, with Australian customer originations this year growing to 28% on last year for existing customers. Combined, these two features drive the falling ratio of customer acquisition costs to originations, shown on the chart on the right. Over time, the Australian ratio should reach the New Zealand ratio as the mix of new to existing customer originations converge. Now, turning to slide 17, focusing on credit performance. The deep consumer data provided by our consumer direct model also powers our machine-learned credit models. This has enabled us to build a prime loan book of resilient borrowers, with 74% employed in either professional, office or trade roles, and 87% aged over 30. Further demographic detail on the loan book is provided in the appendix to this presentation. Harmony's prime loan book continues to deliver low credit losses. at 3.6% for the year, up from 2.5% in the prior year, with the increase driven by the ageing or seasoning of the Australian loan book, following the strong growth last year. Personal loans tend to reach peak hazard for loss during the period 12 to 18 months after origination. The 3.6 credit loss remains well within our 3 to 4% target range. Our 90-day arrears also remain very low, at 0.58%, two-fifths of the current Australian personal loan market average for arrears. Now turning to slide 18, providing detail on our funding. This month, Harmony added a fifth big four bank warehouse, sized at 140 million, and also issued New Zealand's first public non-credit card consumer asset-backed securitisation. sized at $200 million New Zealand dollars. These transactions provide further endorsement of the continuing quality of Harmony's loan portfolio and increase current growth funding capacity to around $330 million. Supporting this increased funding capacity, as at 30 June, unrestricted cash stood at $27.5 million and Harmony retained its efficient capital structure with borrowings equal to 95% of the loan book further underpinning Harmony's ability to continue its loan book expansion. During the year, Harmony's average funding rate increased to 6%, up from an exceptionally low 4.5% last year. This increase was driven by increased market interest rates as central banks lifted rates. However, it should be noted that the first half of last year was a particular low point for Harmony funding costs, with facility timing resulting in very low unused capacity and associated line fees, and most borrowing pegged to very low spot rates, rather than higher hedged forward rates. On average, through FY23, around 78% of Harmony's floating rate borrowings were hedged, which as the chart on the right shows, has significantly dampened the impact of central bank rate increases, enabling us to deliver a net interest margin of 9.6%, very close to our 10% target, even with both the Australian and New Zealand official caps rates increasing by over 300 basis points through the year. Now turning to slide 19, looking at our operating expenses. One of the key features of Harmony's Stelia platform is its high levels of automation. This has enabled Harmony to continue to scale its loan book much faster than its operating expenses. As shown in the chart on the right, with the loan book growing from $581 million in the prior year to $744 million this year, while the cost-to-income ratio has fallen from 37% to 28%. This scale effect compounds in future years as the book growth delivers multi-year annuity revenue, with customers returning for future borrowing needs due to Harmony's great consumer direct experience. The ability of the Stellia platform to scale underpins delivery of our $4.7 million cash MPAT and our 8.4% cash return on equity this year. It also underpins our ability to deliver a 20% return on equity in the medium term. And now, turning to slide 20, I'll hand you back to David to take you through our strategy and outlook.

Thanks, Simon. Continuing now to strategy and outlook, please turn to slide 21. Australia continues to be a significant growth opportunity for Harmony. On the left side of the page, we have our customer annuity chart. We can see that we're achieving in Australia a similar impressive annuity growth trend we saw in New Zealand, but now in a nine times the size market. This presents huge potential in the $143 billion market in Australia. The time series graph on the right-hand side shows a large and stable Australian personal lending market in black, and illustrates the enormous growth opportunity for Harmony as consumers continue to gravitate online for financial products. While the vast majority of personal lending is still provided by banks and traditional lenders, Harmony and others in our listed peer set continue to make positive inroads, which can be seen by the red line in the graph. Harmony's new customer lending in Australia grew to $177 million in financial year 23, and with Harmony's progress in Australia following the same trend as New Zealand's performance We're on track for these customers to add approximately 140% in repeat lending over the next six years with minimal customer acquisition cost. Now turning to slide 22. The second strategic growth initiative is the expansion of our product experience and offering. In a nutshell, we have more qualified customers than we have products to offer them, and the opportunity is to devise a broader mix of products to meet the needs of all these customers. The diagram to the left shows this relationship. As mentioned earlier, we're generating 10,000 new customer accounts each month, over 300 on average every day of the year, totaling over 120,000 new customer accounts a year. A portion of these customers are unsuitable for a loan, shown in grey, while some shown in blue are still prospecting, meaning that the accounts are too early in the application process or have not progressed far enough to know their credit profile. But the majority of those 10,000 new accounts are qualified prime accounts, customers suitable for a loan. Some of those prime accounts, 800 on average, go on to be a Harmony-funded loan represented by the red segment. This leaves the green segment representing 6,000 prime qualified accounts each month that are not served by our current offering. They present a large opportunity to convert to customers through new features such as an always-on line of credit or an interest-only loan or a new product beyond the personal loan such as cars secured or credit cards. Aligned with this initiative are efforts to increase conversion through an even better user experience combined with new credit and affordability models. I'll talk in more detail on the next three slides about our initiatives that have just been launched or are in progress that address moving the red arrow further into the green. Now turning to slide 23. Harmony is not historically focused on the car market as we've only offered an unsecured product and typically unsecured interest rates are a little higher. The car financing market is a large market but most of the financing is provided by car dealers who typically receive a commission for referring deals. At that point, the borrower can be quite captive to the rate and terms offered by the dealer's preferred financier, having already decided on the car they would like. We believe that our consumer direct model can disrupt the market by offering borrowers the ability to shop around privately or at dealers with the confidence that they already have the cash in their bank account to drive away with their new car on the spot. Once customers draw down the funds from us, they have 60 days to provide Harmony the car registration and certificate of insurance to keep the lower secured interest rate. If this isn't provided, the interest rate reverts back to the higher unsecured loan rate. The loan is underwritten on the customer's ability to repay, i.e. in the same way as our unsecured loan and not based on any value attributed to the security provided by the car. In addition, borrowers can also prepay their loan without penalty if they no longer require some or all of the amount borrowed. Stellia Marketing commenced in late January, growing from a zero base to 5% of new customer lending being via this product in second half 23, providing an early indication that customers are finding this disruptive car loan model attractive. Secured arrears were also 0% at 31 July this year. With the rollout of our new platform, Stellia 2.0, which I'll discuss in more detail on the next couple of slides, we expect this to further boost the attractiveness with features such as money in seconds and targeted experience enhancements. Now turning to slide 24. As a technology-led lender, with over half of our employees involved in development, we're constantly working on enhancements to our Stellia platform. This enhancement focuses on customer profile and process and loan management with the main advantage being that it will facilitate much faster development and deployment of new and innovative financial products that allows us to seize a huge opportunity we have from those 6,000 prime customers who already create accounts each month that we don't currently serve. As an initial example, we're planning to launch being able to safely say yes with the right rate and the right amount for more customers in the $2,000 to $15,000 range. which Stelia 1.0 is not calibrated towards. Stelia 1.0 is very successful at offering a great product for those seeking loans in the $15,000 to $70,000 range, but less so below this level. For a variety of reasons, as our model tends to lean towards older homeowners that can draw larger loan amounts, which was a legacy from our peer-to-peer lending days. However, it's likely to knock out good credit quality customers that are looking for a smaller loan. Interestingly, we actually receive more inquiries for loan amounts below $15,000 than we do for loans above $15,000. So you can see the opportunity that is right at our feet. Important to remember as well that we're already attracting these customers, so no extra marketing cost is required. In addition, this has a multiplier effect as every customer we would bring onto our platform, based on history and New Zealand experience, brings an additional 140% of loan drawdowns over the next six years with minimal customer acquisition cost. So by growing this 15,000 and below segment, we'll bring increased future lending as we grow with the customer. Now turning to slide 25. Stellair 2.0 is now live. That's very, very exciting for our team and for our business going forward. Harmony in just nine months has replatformed its proprietary origination and loan management platform, which has now been launched to selected customers in Australia last week. This milestone has been achieved with the same engineering headcount, technology budget, and while maintaining the current in-market platform of Stellair 1.0, but redirecting those resources onto Stellair 2.0. With the new agile architecture and capabilities of Stellair 2.0, Harmony is poised to deliver on aggressive product strategy of new products and innovations which competitors will find difficult to match. Harmony is driving lending innovation forward by launching 100% straight-through processing powered by advanced automation and machine learning. Credit decisioning will be fully automated where algorithms and data rulesets will draw from multi-source rich data backed by comprehensive internal monitoring, resulting in consistent and highly accurate credit decisions. Along with a robust fraud prevention suite, Harmony launches Money in Seconds, which means most approved borrowers in Australia will receive their disbursed funds in six seconds on Australia's new payment platform. A fast new platform combined with a world-class 100% automated origination platform will propel Harmony further ahead of the innovation curve with increased speed to market for new products and services. Now turning to slide 26. In terms of our overall outlook, we split this into three areas, being interest rates and asset quality, medium-term growth, and then specifically on financial year 24. With respect to interest rates and asset quality, a reminder Harmony has the ability to pass through targeted interest rate increases for our sophisticated risk-based pricing model to maintain a 9% to 10% net interest margin. Funding costs are managed with a diversified funding panel of three of the big four banks and three mezzanine funders, together with an ABS program in Australia and New Zealand, while 76% of our borrowings are hedged. We're a high quality diversified loan book of which 74% are employed in either professional, office or trade roles, together with market leading 58 basis points on 90 day plus arrears level. With respect to medium term growth, we expect growth to remain strong due to the large total addressable market. Harmony's consumer direct model is taking market share from the banks with plenty of room to grow in the $143 billion market. Harmony has been and continues to work with Google to implement its AI technology to further enhance customer experience, lowering customer acquisition costs, and to further reduce our cost to income ratio. We're also targeting a 20% cash return on equity run rate in financial year 25. Now, specifically in terms of financial year 24, in terms of the first half, the focus is on Stellair 2.0 rollout. This will result in a lower first half 24 cash MPAT. but sets us up for significant cash impact growth in second half 24 and particularly in future years. We expect the loan book to grow in first half 24, however materially accelerate from second half 24 after Stellair 2.0 is fully rolled out across both countries. That concludes today's presentation and now we'll turn to answering your questions.

Thank you. If you wish to ask a question, you will need to join the webcast. Please type your question into the ask a question box and click submit. I'll now hand over to Mr. Stephens.

Thank you.

Thanks for all the questions. There's quite a few here, so we'll do our best to get through most of them. First question is, all else being equal, if you slow your loan book growth, will group credit losses as a percentage of loans grow above your 3% to 4% target range. We're not slowing. As I've said, we've given guidance that we expect loan book growth to continue. If the question is more around if the rate of growth slows down, we don't expect that range to change. That has been a target range. We actually manage the business on a static loss basis, which is how we measure loss performance. It's a better measure than looking at what the accounting standards show in the annualized loss or average loss, but we would expect it to stay within that range even if loan book grows at a slower rate than it has historically. Next question, how is customer acquisition costs calculated? The question is, don't you only go direct with our broker commissions? Yes, good question. That is all our marketing costs that we pay to find customers. Effectively, our marketing costs go in there. Correct, we don't pay broker commissions, but obviously we do pay for marketing space in Google and other online services. So that's that one. Next one, if interest rates do not increase from here, do you expect that your average funding cost to stabilise around 6%? No, it will still go up from here because the 6% is the average from last year, so we'd expect that to probably be in the shorter term, sort of in the sevens, but we've also increased book at the same time by a corresponding amount. We would expect the NIM to remain around that 9% to 10% level. No, the 6% will be higher in financial year 24 as the more recent funding becomes a higher weighting in the book. As I said, we've also repriced our loan book as well for the borrower's pay, so we expect to maintain that NIM. The next question was a similar line, was what was the exit NIM margin at year end, and what is the outlook for NIM this year, and what are the likely impacts? I think I've answered that question. The beauty of our business is we can move interest rates very, very quickly. We don't have to go through communication to partners and any brokers and retailers and the like. Having run a business like that, that can take quite some time and quite a fair bit notice period because we are direct. For any new lender coming in, we can obviously adjust the rate overnight. It does give us quite enormous flexibility as we see swap rates move and the like. Obviously, we borrow off two to three year swap rates, so they can be a little bit different to what the general public is seeing in OCR rates and the like. As I said, we expect to be around that nine to mid-nines level throughout the year in NIN. Next question. You described Stellair 2.0 as the next evolution. Can you explain how this will impact Harmony? Yeah, look, this is probably our, certainly our biggest project since, I would say probably since the IPO. Whilst we're only a business nine years young, there was, like any business, we had some legacy in the systems. We were a peer-to-peer lender originally. We're obviously not that anymore, haven't been for a few years now. The new platform is, in terms of our ability to launch new products, to have customers with a much more seamless experience. As I said, payment in seconds to customers, approval, 100% automation. Yeah, it's not just a system upgrade, it is a new beginning in a lot of ways for our technology at Harmony. Now the marketing and the data science and the credits all stays the same, but it's really the back end system and the front end customer experience that is quite different. We golfed on this project about 12 months ago, and we're really pleased to have rolled that out in the last couple of weeks into Australia as part of phase one, and that will continue to roll out over the coming months. And then New Zealand from the start of next year, we'll start to roll that out there with a whole group sort of hopefully being on the full sweep by the end of the financial year. So yeah, it's very, very exciting and I know the team are highly engaged by it and we're very proud of where we've got to and we've got to keep delivering and that's what we do here. Next question. As the OCR cash rate starts to fall in future years, will those be passed on to borrowers or taken to your bottom line? Obviously, we hedge our facility so it won't come off as quickly as the OCR comes off. Look, we tend to focus on that 9% to 10% NIM. I think as our cost of funds start to come down, we'll look to pass that on as well. providing we're maintaining that 9% to 10%, which I think we've been pretty clear on for a long time. I think that's a healthy return for shareholders and also allows us to charge a fair rate to consumers as well. Next question, can you talk to trends in runoff in both markets? Have voluntary prepayments come back relative to last year and what are you seeing going forward? Yes, good question. Certainly, during 2021, we certainly saw a lot of people refiing into their home loans and the like, because they're obviously taking advantage of very low fixed rates. As rates have gone up, we've seen that early prepayment rate slow down a little bit, which is a good thing for us. We've also seen customers that find it a lot easier to come through our process, not from a credit perspective, but from an application perspective, to get approved and funder than necessarily going back to their bank in the current environment. That's a real positive for us. Next one. Are there a lot of one-off costs associated with Stellair 2? Will costs fall away after it's live and functioning, or is the additional cost fixed and offset by future growth? Yeah, great question again. As I said, we used our existing team to work on Stellair 2.0. We didn't hire any contractors or consulting firms and the like. It was all done by our team. We pivoted it away from the current platform, which probably cost us a little bit of origination. It definitely did cost us origination. some origination in financial year 23 because of the focus being on that. As you can see, we still delivered very strong results. We've now got a really exciting new system to work with going forward. We expect actually our licensing costs, our non-people costs to come down once we're fully off the old system. That's pretty exciting. From a team perspective, we've got so many opportunities to work on. that team will be really focused on product development and really taking advantage of those. We're an incredibly successful business in originating customers. You can see by that 10,000 consistent a month, which the majority is in Australia. We don't have a household brand name in Australia, but we're able to generate that very consistently. What we need to do is get more products to those customers. That's really going to be the focus. With a new platform, we're going to be able to do this months and months and months quicker than what we would have been able to do with the old platform. That's what the teams will be focused on once the rollout is complete. Next question, are there opportunities to improve the capital efficiency of the group that you have or considering to drive a higher return on equity? Look, I think we're targeting a 20% return on equity run rate in financial year 25, which is not that long away. That is a very successful, valuable business in financial services. What I used to run many moons ago, we were at that level for quite some time and it was really performing well. We obviously want to be at a premium to where the bank's return on equity is at. I don't think there's probably too much more inefficiency we can run there. I think it's pretty good, but as I said, that 20% return on equity is coming to a short-term target. It's getting closer and closer, so we're pretty excited about that. Are there any regulatory hurdles you see impacting Harmony over the next several years? As we run a fully regulated product in both countries, so we're not subject to any kind of buy now, pay later type changes or the like. We run a personal loan product that's been around for decades. The actual product itself is the same as what the banks have. We don't expect any changes to that. Obviously, we're well across those things and we have top tier law firms that we always are in touch with, but we're not aware of any changes. There's some tweaking going on potentially in New Zealand around the laws that were brought in 2021 that were probably a little bit quite restrictive. There's already been some winding back of those recently, and I understand that the current government is looking at further repealing some of those. I think they probably went a little bit far in New Zealand on some fronts.

That would only be a positive for us if that's the case. Next question.

I've got lots of questions here, so I'm just making sure I'm conscious of time on the call as well. Given you expect Cash Empat to be down, on first half, but up in half two, but you're targeting a financial year 25 MPAT cash return on equity of 20%. This means the forecast cash in about the 25 should be around 10 to 12 million. Look, I'm not going to give numbers, but you could probably do, and I did say run rate in financial year 25, rather than a 20% return on financial year 25, so just be clear on that. You could probably work out, try and devise a profit number from that if you're good at maths, but I'm not going to specifically give forward guidance on a year out. Have you considered any acquisition opportunities or is the strategy entirely organic growth? Great question. I love M&A. I did a lot in my previous role, but we've got a lot of organic growth in front of us. As you can see from the launch of the new platform and the amount of customers we get a month, wouldn't rule it out. Obviously, where our share price is at makes that a little bit more difficult than what it would be if we had a lot stronger share price, but if it was something that was very strategic to where we see our strategy, we'd obviously consider it, but we don't need M&A to find growth. We can do it very easily. well through organically. Why do we think Harmony is so undervalued on the ASX given the apparent strong performance and runway? Look, we've just got to keep performing as a business. Obviously, the market in our space hasn't been particularly kind since the highs of 2020. We continue to deliver strong results and we've done that every half year that we've reported since listing on the stock market. We'll continue to do that and my experience with this is eventually you get rewarded for strong fundamentals. We don't change our story every three months. We keep consistent and hopefully you'll see that in all our results and eventually I feel that the market rewards strong performance. Your cost of income has fallen significantly in the last year. Is this a one-off and what should this be if you get a normal level? It's absolutely not a one-off. Our cost base is very flat and we continue to grow revenue very strongly. We continue to forecast that number coming down for quite some time. Certainly not going up. Thank you for all the questions. I'm very, very pleased. When do you expect the group to start paying dividends? Again, good question. We have that much organic growth to look forward to. Thinking of dividends at this point is not on the table. We feel that we can get better returns by putting any cash back into the business. Can you comment on B2B opportunities to invest earlier on the third party platforms? Not in our short-term strategy, but however, that's something that we would be able to do with 2.0 in a lot more straightforward way. It's something we couldn't have imagined or even something like a white label would have been very difficult under the legacy 1.0 platform, but certainly something that is worth consideration in the coming periods. Next question, I'd imagine NIM on the secured lending vehicle is quite a bit lower than overall NIM due to lower losses. Can you give a flavour of what proportion to assist with thinking about mixed effect going forward? Are you also doing vehicle lending in both AU and NZ? Yeah, we are doing in both AU and NZ. Look, we're not in the new car market. It tends to be a lot tighter pricing because the manufacturer tends to subsidize the finance cost through the vehicle. We're only doing secondhand. The NIM would probably be about 200 points lower on average, to answer that question, but as you correctly said, the losses are lower and recovery obviously is greater as well. Is there ample capital to fund the rapidly growing loan book, or will new capital be required at some point in the future? Look, our forecasts have us running the business with the current capital position. Obviously, we hire a business that uses capital in our funding stacks. We try to make that as efficient as possible, but if growth was obviously off the charts, we obviously look to that, but at the end of the day, that's well within our management and we've moderated that throughout last year and we can manage to a cash balance if we need to. We can put the accelerator down for growth and that's another benefit of being a direct model. We don't have sales people and I guess broker models to feed constantly. We can kind of move our direct marketing up and down as we want to and as we see the market is right for that. The CEO of the business, it's a great lever to have and something that we use from time to time. We're very much aware of cash positions and funding positions. We manage the business as profitable and to grow as much as we can. I think we do a reasonable job at it. Next question, what about M&A approaches for Harmony being acquired? Celia must be starting to show its big value to players. Absolutely. I'm not going to comment on M&A being approached. As a management team, we own a lot of the company and we're super excited about what we have at our feet. What the share price is today is not necessarily what the value of the company is worth, so we continue to, as I said earlier, just to deliver on results, and that eventually gets rewarded. Do you want to answer that one, Simon? What was the decline in New Zealand originations in second half 24? Was this driven by lower repeat customer loans or a drop in new customer loans? Does this flow into the outlook for Australian originations at FY24?

Yeah, I can pick this one up. So we focus our new customer marketing efforts where we see the opportunities being the greatest. And so in the second half, there was more of a focus definitely on Australia than on New Zealand. It's really a cost equation for us. In both markets, as we talked about earlier, we did moderate originations just to focus more on profitability. We're not seeing any lesser appetite in New Zealand for repeat customer originations than previously, and I certainly don't see that flowing into their outlook for Australian originations. model of originating existing customers to come back for loans has remained pretty constant and true throughout the New Zealand journey. As the data we've shown displays, Australia is very much following that trend.

It's such a large market in Australia and we're still nibbling at market share there as well. We think there's plenty of room for growth. Next question, are you likely to expand beyond New Zealand and Australia in the next few years? Look, the simple answer to that is no. There's so much opportunity in the Australian and New Zealand market. Making a big song and dance about going to some US and those countries and that, that's all great. the dead bodies from other financial services businesses lying around that have gone and done that sort of thing without scale. We're going to stick to what we know best. With Australia being nine times New Zealand's personal lending market, do you expect to continue to grow in line with the experience you've had in New Zealand, or are there differences in each market such that this may not happen? The markets are very similar. We use the same origination platform in terms of probably Google, which obviously has localized data, but is the sector the same technology. Obviously, the market is just that much bigger. We don't see ... We've been in Australia for about five years now, and three in a material way. We're not seeing ... It's very similar in a lot of ways.

One question, it looks like the New Zealand loan book has been fairly flat for the last three years.

Going back to December 20, it was 360 and it's about the same now. One key change is that New Zealand dollars has moved to Australian dollars, so I think if you did a New Zealand dollar comparison, New Zealand is up about 10%. We did experience lower book growth in New Zealand, particularly after the changes to the legislation came in in December 21. But that's started to change, and the New Zealand book has actually grown a bit more in the last sort of six, 12 months. We don't expect, the next question, do we expect Australia to plateau like New Zealand? No, we don't, because it's just purely based on market size. Has the arrears rates in the New Zealand book trended up in the last six months? No. The New Zealand book is performing really, really strongly, albeit from a sort of macro view the increasing interest rate cycle started a little bit earlier in New Zealand than it did in Australia. I think I've got to pause it there, conscious we've gone through overtime, but thank you for all the questions. I really appreciate the interest and I look forward to meeting with many of you over the coming weeks. On that point, I'll wrap up the call.