Harmoney Corp Limited

Hello and welcome to Harmony's full year 24 results presentation. I'm David Stevens, the CEO and Managing Director of Harmony. With me today is Simon Ward, our Chief Financial Officer. I've been looking forward to presenting today's results for the last 18 months as we have some very exciting news to share with respect to our number one strategic priority, that being our new platform, Stellair 2.0, which became fully operational in Australia in July 2024. Now turning to slide two. Today I'll begin with reminding you of Harmony's key differentiators. I'll then take you through our key highlights of financial year 24 and the exciting results of Stellair 2.0. I'll then hand over to Simon who will take you through our financial results. Finally, I'll discuss our 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 ask a 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 three and then on to slide four. What sets Harmony apart from others? We're Australia and New Zealand's largest 100% online consumer direct lender. The total market opportunity of $150 billion with our market share less than 1%, so we have a huge total addressable market in front of us. Our algorithms partner in real time with Google's algorithms to attract prime, high intent customers at low cost. We provide a great customer experience and direct customer relationship attracts returning customers at near zero cost. We use deep first-party data and AI models to deliver a prime loan book and a 5% risk-adjusted income. We're funded by three of the big four Australian banks, plus securitisation programs. Our Stellair automation drives a low-cost income ratio of 24%. The last half represents our fifth consecutive half of positive cash impact and loan book growth. Just a quick reminder of our products. On the right-hand side of the page, our loans are up to $70,000 with an average new loan size of $20,000, which is dispersed to customers within minutes. We offer personalized rates based on borrower's risk profile. We don't charge any fees other than a one-off establishment fee. All our loans are fully compliant with NCCP and CCCFA in Australia and New Zealand respectively. Our loans are typically used for renovations, debt consolidation and helping people with life events such as travel, education and weddings. Now turning to slide five. For those of you who prefer a visual representation of our business and the core unique features that set us apart and will drive our success, we set up a simple diagram of Harmony on a page. We've spoken, starting at the bottom left, we've spoken about the market size and total addressable market of over $150 billion. We now have a state-of-the-art platform in Stellair 2.0, which is fed by rich first-party data and AI automation to attract, assess, and approve our ideal customers. Our customers love us, who come back to us for future finance needs, which creates a great annuity stream for us with minimal customer acquisition costs due to our existing direct relationships. This allows us to effortlessly scale and serve more customers with our existing team. We then utilize our world-class funders and ABS programs, which ultimately leads to a 20% cash return on equity, of which we expect to be on that run rate during the second half of FY25, which I'll go through in more detail later in the presentation. Now turning to slide six. To properly build scale, it's clear that you need automation. For that, you need advanced automation and AI capability. And to do that successfully, you need more than just tech. It needs massive amounts of quality first party data. First party data means that the financial information is direct from the customer, not hand-picked or pre-filtered by a broker. We consistently attract over 10,000 new customer accounts each month. All of this data is used to continually train our AI models. This is a huge number of new customers for any business. This high volume of consumer financial data, combined with 10 years of historic data, effectively supercharges training our AI 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 adjustment income of 5% gained through more accurate risk assessment of customers. This combination of data, AI, and automation built into our technology platform has been a core feature of Harmony since our inception. Now turning to slide seven. 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. Harmony is highly selective when it comes to audience targeting. We 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 in practice is that we can acquire the right customers for the right price at scale and critically we can forecast this with a high level of reliability. Proof of our ability to target the right customer and the right product is reflected in our Google reviews and Shopper approved scores with over 57,000 reviews and an average score of 4.8 out of 5. Moving to the second column, naturally we work hard to ensure we deliver a great customer experience so we can create annuity revenue as satisfied customers return with minimal customer acquisition cost. This experience is underpinned by our automated, simple and streamed 100% online process. And in the third column, our ability to scale remains an important factor in the Harmony model and our continued investment in technology remains a key enabler. Already in this year, we have achieved a cost to income ratio of 24%, which is exceptional. The diagram at the bottom 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 at minimal customer acquisition cost. For example, on average, every customer taking out an initial $20,000 loan would return to Harmony for an additional $28,000. Now turning to slide eight and then to slide nine for our FY24 highlights. To highlight our key achievements for financial year 24, This was our fifth consecutive half of cash impact profitability and loan book growth, despite significantly higher interest rates. Our net interest margin for the final quarter of financial year 24 was back over 10% for new business. We are now past the peak of the interest rate cycle, therefore this higher margin will start to spread through the loan portfolio. Acquisition costs were down 14% year on year. Our automation drove continued efficiency gains with our cost-to-income ratio down to a market-leading 24%. We launched Stellair 2.0, which I'll talk about more on the following pages. In July 2024, which was the first full month where all marketing channels were directed to Stellair 2.0, we experienced over 50% growth in loan originations compared to July 23. We successfully completed New Zealand's first ever unsecured personal loan-backed ABS. A new warehouse was added and three existing facilities were extended for a further two years, creating growth capacity of 181 million. We refinanced our corporate debt and increased the limit by a further 50%, providing junior note capacity for up to 200 million in additional loan book growth. Now turning to slide 10. Stellair 2 represents a significant leap forward in our technology from our previous peer-to-peer platform to a new cloud-native banking solution used by globally recognized banks in Europe and the US. Based on a modern cloud stack for our relationship with Google Cloud, it is more secure with native horizontal scaling, continuous deployment, and high availability. Importantly, we've delivered a new core banking system together with our internally developed process automation across business and technology teams. This makes it easy for us to fully automate complex process flows across people and systems. We are launching Stellair 2.0 using a small fraction of its capabilities. However, it's designed to seamlessly accommodate a spectrum of financial products, ranging from deposits to home loans. Stellair 2.0 has been designed for enterprise performance, availability and security at scale, while retaining the flexibility to help us deliver new innovative products and services in the future. Now turning to slide 11. We're excited to share that in July 2024, we moved 100% of our Australian new originations to Stellair 2.0. This is a great snapshot of the success story we're seeing in Stellair 2.0, as in July, where all traffic was directed to the new platform, we originated 14.4 million of new business, representing a 50% uplift in volume compared to July 23, when all traffic was directed to Stellair 1.0. This was achieved through advanced algorithms and rules in Stellair 2.0 to address segments of our customers that were underserved in the past. Previously, a customer applying for $5,000 was assessed in a similar way as someone applying for $70,000. This meant that for the same 10,000 people, Stellair 1 would have only given an offer to 650 people per month. Under Stellair 2.0, this has increased to 1,300 people per month, which is a 100% increase. We offered nearly double as many loans under $15,000 in July 24 compared to July 2023. These are people who, with good credits, would have likely been automatically declined in Stellair 1 because of that inflexibility. You may recall from our earlier presentations that this was an area that we expected Stellair 2 to better serve our customers. Alongside these underlying improvements, the team has deployed a beautiful new application flow which is driving better customer retention through the application process and helps us collect more accurate financial data. Now turning to slide 12. These results for July are not a one-off. With a platform and automation in place, we are now seeing consistent and repeatable results. This trend has been seen for 12 months now whilst we have been progressively rolling out Stellair 2.0. But since July, we have had full throttle on Stellair 2.0 and this growth has continued into August. We've achieved automation and scalability safely by using 10 years of data to create the rules and data models, and the decisions are audited every day by credit officers. With Stellair 2.0, 90% of applications are completely automated. This has all been delivered, achieved by our in-house team without any additional tech staff and costs. We've saved over 10% of costs despite running Stellair 1.0 in New Zealand alongside Stellair 2.0. As we fully decommission our old platform, we expect to see further cost savings. Improved conversion and origination volume hasn't come at cost of credit quality with a 10% improvement in arrears and no change to the average Equifax scores as a result of more personalized limits and risk rules. Alongside the automation, we also have a credit officer review every loan post-settlement to identify any potential improvements to rules for future decisioning in the platform. As we've covered on the previous slide, July was the first month where we had all new Australian borrowers assessed by Stellair 2.0. Conversion by dollars was up 50% on July 23. This is showing the efficiency and reach of our new platform, as acquisition costs are down 30% on a cost per loan basis. Turning to slide 13, I'll now hand over to our Chief Financial Officer, Simon Ward, who'll take you through our financial results in more detail.

Thanks, David, and good morning, everybody. Please attend to slide 14. I'll begin by going through each of these items briefly now before going into more detail on the following slides. Starting with our loan book, which reached $758 million, up 2% from last year, while revenue grew 15% to $123 million, driven by both loan book growth and a higher average portfolio interest rate. Our net interest income percentage contracted 80 basis points to 8.8%, just short of our target 9%, driven by higher funding costs. However, with our fourth quarter new lending net interest margin above 10%, we're expecting our portfolio to return to the 9% during FY25. Risk-adjusted income, which is our interest income after funding costs and incurred credit losses, contracted 120 basis points to 4.8%. driven predominantly by the reduced NIM just mentioned, and also slightly higher incurred credit loss rate, which I'll explain in more detail on a later slide. Offsetting this, acquisition costs were down 1.7 million, 14% to 10.6 million, as we moderated pursuits of new customer growth while consumers adjusted to higher costs and climbing market interest rates. Harmony's high level of automation, which enable us to scale our loan book without having to similarly scale operating costs, continue to drive improvements in our exceptional cost-to-income ratio, which is now 24%, down from an already low 28% last year. Our statutory loss this year increased to $13.2 million. However, this includes a one-off $9.5 million non-cash impairment expense on the retirement of our Stellia One platform. enabled by the successful launch of our new Stalia 2 platform. Statutory MPAT, normalised to exclude that one-off Stalia 1 impairment adjustment, was a loss of $3.7 million, a 51% improvement on last year. The cost-to-income ratio of 24% has also been normalised to exclude that one-off impairment However, it otherwise includes all operating expenses, including share-based payments, depreciation and amortisation. Finally on this slide, Harmony has generated a cash impact profit of $0.7 million, which although down on last year, driven predominantly by the higher interest costs, represents our fifth consecutive half of both positive cash impact and continued loan book growth. This year presents stability and consistency which we've been pleased to demonstrate through this tightening phase of the interest rate cycle, which we believe puts us well-placed to capitalise on Stelia II in the next phase of the cycle. Turning now to slide 15 to look at our loan book and revenue in a bit more detail. Higher market interest rates through the year have influenced many consumers to defer activities that require finance. And where they haven't, in some cases, higher interest rates have lowered their borrowing capacity. These factors have constrained book growth this year to 2%. However, we believe that as consumers adjust to higher interest rates and as rates start to ease, this will unlock some pent-up demand. While book growth has been moderate, revenue has grown 15% on last year to $123 million, driven by a combination of book growth and a higher average portfolio interest rate as interest rate increases passed through on new lending have grown to a higher proportion of the portfolio. The average interest rate this year was 16.2%, up from 15.5% last year. Our average new lending rate through our most recent quarter has been 18%. This, together with the continuing amortization of lower rate earlier year loans, should continue to increase our average portfolio rate for some time. Now turning to slide 16, providing detail on our funding. This year Harmony renewed and added to its bank warehouse facilities provided by three of the big four Australian banks. We also issued New Zealand's first public asset-backed securitisation of unsecured personal loans, as well as refinancing and upsizing our corporate debt facility. Our average funding rate increased 170 basis points to 7.7% this year, driven predominantly by funding market increases, but also partially driven by achieving higher leverage within some of our facilities on the proven quality of our loan portfolio. Harmony's balance sheet is very capital efficient, with borrowings equal to 95% of the loan book. With unused warehouse capacity of 181 million, undrawn debt capacity of 7.5 million, and over 20 million of unrestricted cash on hand, Harmony is well capitalised for loan book expansion in the coming year. Hedging coverage ended this year at 85%. Turning to slide 17, focusing on credit performance. The deep consumer data provided by our consumer direct model powers our AI 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. Credit losses in the second half of the year have come down to 4% from 4.2% in the first half of the year. As discussed in our first half results, an earlier, less accurate Australian scorecard was transitioning through its peak hazard for loss period during that first half, which elevated losses in that first half. As the two charts on the top right show, the rest of the portfolio now forms the much larger component and has a much lower static loss rate. As a consequence, and as expected, losses have begun trending back down in the second half, reaching that 4%, back within our target 3% to 4% range. Our risk-adjusted income percentage, which is our income margin after both funding costs and credit losses, has reduced to 4.8% this year, down from 6% last year, in part driven by this year's uptick in the incurred credit loss rate, but to a greater extent driven by the increase in the average funding rate discussed on my last slide. However, this margin has already returned above 6% for new business written in the fourth quarter, with higher interest rates passed through on new lending, and as funding costs have begun to ease. The chart on the bottom right shows our 90-plus day arrears have also returned towards historic lows. finishing the year at 43 basis points, around a quarter of the current Australian personal loan market average. Now turning to slide 18, providing more detail on our acquisition costs. Harmony's algorithms have continued working in partnership with Google's to cost-effectively seek out those customers most likely to take a Harmony loan. This consumer direct approach provides us with incredible flexibility and agility to adjust and fine tune our acquisition costs in response to market conditions. This year, while continuing to grow our loan book, we've managed to reduce acquisition costs by 14% to 1.7 million. 14% or by 1.7 million. The chart on the right, which is one we show regularly, shows both our total acquisition spend and our ratio of cost per dollar originated. You'll see that the ratio has steadily trended down over the years with a slight uptick this year. One of the major benefits of Harmony's consumer direct model is a key driver of both the overall downward trend in that ratio and the slight uptick this year. That being that due to the great experience we provide, our customers tend to return to us the next time they want a loan. And because of our existing direct relationship with them, those subsequent loans have near zero additional acquisition costs. This year, these existing customer originations have also been impacted by higher market interest rates. However, lower originations to these customers are not accompanied by a reduction to the acquisition costs, as there are next to none. And this has driven the small uptick shown in the chart. This coming year, off the back of both increased new and existing customer originations, driven by both increased conversion from Stellia to, as well as improving market sentiment, we're confident that the historical downward trend of this marketing efficiency ratio will resume. Now, heading to slide 19, looking at our operating expenses. A key feature of Harmony's Stellia platform has always been its high levels of automation. which has even further enhanced this year with the successful launch of Stellia 2. This automation again enabled Harmony to scale its loan book much faster than its operating expenses, with this year's operating expenses actually reducing 4%, while the loan book continued to grow. This is shown in the chart on the right, with the loan book growing from $744 million last year to $758 million this year. while the cost-to-income ratio has fallen from an already low 28% last year to 24% this year. We fully expect the scale effect to continue in future periods as we continue to grow our loan book. This ability of our Stellia platform to scale has enabled Harmony to deliver its fifth consecutive half of both loan book growth and cash-impact profitability, even during this tightening phase of the interest rate cycle. And this is what underpins our confidence in achieving our 20% cash return on equity run rate target in the second half of 25. And with that, turning to slide 20, I'll hand you back to David to take you through our outlook.

Thanks Simon. Continuing now to our outlook, please turn to slide 20 and then slide 21. Harmony is well positioned to capitalise on the capabilities of our new platform and into its next phase of growth. We have four main strategic priorities for financial year 25. The core platform, continued improvement of the conversion of customers, developing new opportunities, and increasing margin. Within the platform, our biggest immediate focus will be bringing the power of Sellier 2.0 to our New Zealand customers. Importantly, we've always built the new platform with multiple countries in mind. This is not anticipated to be a huge piece of work. However, as we did in Australia, we will continue to conservatively roll out the platform and make sure that the system is working well before we roll out 100% of the volume. Following this, we'll be able to fully retire Stellair 1.0 and we expect to drive further costs out of the business. The core of the platform is in a great state. The further developments here will be taking things to the next level. including next generation and credit scenario back testing to allow us to easily test new processes and credit models against historical applications. On conversion, the game changer has been the real-time visibility into every interaction our customers have with Harmony and the data feeding back into our new product development. This has allowed us to release over 1,200 times in the last year, a mixture of small and big updates to increase conversion and will continue that effort in the coming year. However, there is also huge scope for increased use of AI tools to personalize the application experience and offers that customers receive to help more customers. Having the platform live also presents us with a number of new capabilities that we can take advantage of. We already collect most of the data we need to assess the customer for multiple products, so the next step is to expand the lending products we have available. And while it's too early to get into specifics at this stage, with some exciting new partnership opportunities that we're working through that will leverage the flexibility and capabilities of Stellair 2.0. The personalisation that new platform affords us not only allows us to ensure more people get to a great offer when they come to us, it also means that we can achieve our target net interest margin of 10% through a new pricing optimisation engine that we're working on. as well as increasing sophisticated process automation that delivers a better customer experience at scale and with lower costs for us. Now turning to slide 22. In terms of our overall outlook, we've split this into three areas, being interest rates and asset quality, growth outlook, and specifically first half 25 and second half 25 financial years. With respect to interest rates and asset quality, A reminder, Harmony has the ability to pass through targeted interest rate increases and decreases through our sophisticated risk-based pricing model to achieve our 10% net interest margin. Funding costs are managed with a diversified funding panel of three of the big four banks and mezzanine funders, together with an ABS program in Australia and New Zealand, whilst 85% of borrowings are hedged. It's a high-quality diversified loan book of which 74% are employed in either professional, office or trade roles. together with an extremely low 43 basis points at 90-day arrears levels. With respect to the growth outlook, we expect growth to remain strong to the large total addressable market. Harmony's consumer direct model is taking market share from banks, with plenty of room to grow in the $150 billion market. Harmony has been and continues to work with Google to implement further AI technology to enhance customer experience, lowering customer acquisition costs, and to further reduce our cost-to-income ratio. The rollout of Stellair 2.0 across the entire business is set to increase revenue, lower costs, and drive higher profitability. We strategically invested in this project through a challenging higher interest rate environment and cost pressures on consumers, and have carefully managed costs to make sure we kept growing conservatively through that period. We're excited for the coming years, as we're very well positioned to benefit from that investment now. Specifically, in terms of the financial year 25 outlook, It appears that the interest rate cycle has reached its peak in both markets, and Harmony has now proven that its business model is highly resilient through all phases of the interest rate cycle. Therefore, we expect to see, in first half 25, completion of Stellair 2.0 rolled out in both countries to set us up for significant growth in second half 25 and beyond. Then we expect to see significant acceleration in loan book growth, net interest margin on the loan book to return to 9%. You will note from our earlier comments that the fourth quarter 24 was over 10% net interest margin on new business, which will spread through the loan book over time. We also expect to see cash impact growth in financial year 25 and also a 20% cash return on equity run rate achieved in second half 25. Now turning to slide 23. As I just said, a key focus for us is targeting a 20% cash return on equity run rate in second half 25. So I wanted to try and show you this as simply as possible and why we have conviction in achieving this target. The diagram on the right shows a simple illustrative scenario of us getting to this goal. In financial year 23, we achieved the risk-adjusted income margin of 6%. Risk-adjusted income is our income after funding costs and credit losses divided by our average loan book. This year that margin reduced to 4.8% driven predominantly by higher market funding costs discussed earlier by Simon. However, as also mentioned, our margin is already widening as higher interest rates pass through on new lending grow as a proportion of the loan book as funding costs begin to ease and as credit loss rates improve. This is illustrated by the risk-adjusted margin on fourth quarter 24 new business already being above 6%. Whilst it will take some time for this to reprice through the entire loan book, it will lift the portfolio risk-adjusted margin through financial year 25. The scenario on the right adopts a midpoint of the financial year 23 and 24 risk-adjusted margins at 5.4%. At that margin, Harmony could achieve its 20% cash return on equity target from an average loan book of $819 million, which is only 8% higher than the 30 June 24 balance of $758 million. For added context, the two-year cumulative annual growth rate for Harmony's loan book is 14%. Achieving that 20% cash return on equity assumes a 5% inflationary growth rate on our financial year 24 customer acquisition and cash operating expenses. We're very comfortable with this as historically these costs have been stable or falling even in a high inflation environment due to efficiency gains, including from the high levels of automation in Stellar Platform. The scenario shown is just one example of a potential pathway to our target of a 20% cash return on equity run rate in second half 25. Clearly, we could also reach that target with a different mix of risk-adjusted income margin or loan book growth, but I'm hopeful that by setting out this simple scenario based on historically achieved margin, growth and cost inputs, you can see how credible and within reach we believe this target to be. That concludes the presentation for today. Now turning to slide 24. I'd just like to remind you that we recently set up our new investor hub, which is available at harmony.com.au slash invest. We've created this to provide shareholders and potential investors with a centralized place for all Harmony investment resources. You'll find updates, announcements, reports, videos, and more. Plus, shareholders can ask questions or share comments directly with the Harmony team. Please join our investor hub. We will now turn to answering your questions. Just a reminder that you can submit a question on the web task. by typing into the ask a question box and then hitting submit. Thank you. Your first phone question comes from Ian Munmore with Ord Manette.

Good morning, Dave. Good morning, Simon. Thanks for taking my questions. I might just ask three if that's all right, fellas. Just firstly, just on your comments around the funding margins on the warehouse facilities, can you just perhaps give us a sense of the trend um in the market um whether you've got any facilities up for renegotiation um over the next 12 months uh secondly uh loan book size um just in terms uh your intention to uh to grow that into f525 um you know is it are we fair to assume a more aggressive rate of growth now that cell air 2.0 is up and running uh and then thirdly just on the partnerships you alluded to dave um yeah is there anything You could perhaps flesh out a little bit more as to what are your options for those partnerships and what that might mean for the business. Thank you.

Thanks, Ian. In terms of funding availability, as I said in the presentation, we just set a new facility up in the year and we renewed three of the warehouses for another two years. We might have one due at the end of June next year. They're going to go out a fair way, which is good. We have very big support from three of the big four banks, plus we obviously run our securitization programs to empty some of those warehouses out along the way. If you follow the market at all, the ABS market in this space has been really strong. new issuers and doing it at really, really cheap rates, really good margins for the issuers. So certainly plenty of funding capacity and funding availability. Loan book growth, yeah, look, we expect the loan book growth to really start moving now, particularly in the second half as we bring everything onto Stellair 2.0. And we think that's where our, yeah, That's what we're here for, right? We're here to grow a loan book at good margin. And yeah, that's what the key focus of the business is and what all our, you know, what, you know, I think our incentives are based around and what, you know, shareholder value is based around. So, you know, the reason I'm very excited about this at the top of the call was, you know, this is something we've been working on for 18 months, just over 18 months, and we finally got it. It's like having a, you know, a Ferrari in the garage when we used to have a, you know, I don't know, And lastly, on the partnerships, yeah, look, we've reasonably progressed. Probably can't share too much detail, but they're in our core space. They're working with some partners that we think are pretty exciting. Hopefully have an update on that, maybe in the quarter, but certainly in the next half.

Thanks, Dave.

Okay, got some questions online. Can you give some examples of how you stress Steliad 2.0's improved application approval rate to ensure that it's not overly optimistic in approving applications compared to Steliad 1.0? So first of all, and I mentioned in the presentation, we do a lot of back testing against any changes that we put through, and we do that against not only approve deals, we do that against decline deals as well. That gives us a great understanding of a change that we make, what impact that could have on a customer we wrote in the past or a customer that we didn't write in the past. That's critical when you're writing a financial services business like ours. Probably the key point I said, we haven't changed credit rules per se, it's just the system now targets, uses more flexibility on smaller loans. It doesn't assess them for, if you go back to our peer-to-peer days, we were very incentivized to lend as much as possible. That was the way the model worked, providing it was done responsibly, whereas the smaller deals weren't really as a key focus for us. The system was all built around that model. We're still going to be writing the same deals that we do today at the higher level. It just allows us to get into a market where our system was probably cutting people off that we shouldn't have. We still apply minimum Equifax scores across all our loans. There's been absolutely no change in that. We use an income to loan percentage and we use various other risk factors through the way there. Just because it's a smaller loan amount, remember average loan size is $20,000. That will probably come down a little bit over time as we have more of a weighting to small loans, but we're still right the same and more actually because of all the other things we mentioned about how we've got much better insight into the customers So we're writing a lot more loans, over $20,000 as well. And it's really, everyone will talk about their application and that, and I'm not sitting here saying our application is better than others, but certainly as far as what the consumer sees, but as far as what we see and what we're able to understand where the customer's at and speak to them in the process, I think that's really, really, really advanced. And that is helping customers get through a process where they may have got stuck in the past, not for credit reasons, but for operational reasons.

I'm just reading through the questions.

Do you feel you might need a modest equity capital raising if growth goals are achieved in 2025? The short answer is no. We have sufficient cash in this business. We've got $21 million at the full year. We've got $7.5 million of undrawn corporate debt. It would have to be, and the business is profitable, so it's actually spinning off cash. That would be in a scenario of super growth. probably 100%, that sort of level. It's certainly not something we have in our forecasts and something that I don't plan on doing unless there was some highly strategic reason. On slide 12, can you please elaborate on the 90% automated decision? Do you mean... Do you mean 90% of the application approvals are fully automated from online application to loan approval without any credit officers and assessor group?

Isn't this too risky for arrears and losses?

Not really, to be honest. As I said, using humans is actually a lot riskier than using systems. If you've built your system properly, you get consistency of decisioning. Humans, everyone's different and everyone has different come into the office whilst they might use the same credit policy, it can actually change between people quite a bit. We've deliberately built the processes in. We actually have credit officers, as I said, review every deal post-settlement to make sure that the loans that the system is approving is consistent with what they would approve and also what the system has been set up to do. That's a key feature. That's probably why we took the 12 months in rolling it out. We wrote our first deal about a year ago in Sedalia too, but we've taken a year basically making sure those rules are operating correctly without putting major volume through the platform. It's the way the model works. It's how we get the automation. You can see the performance. The Equifax scores are the same. The arrears are actually lower. I'd actually say we've probably got some tighter rules in there around some things that we've learned throughout the way. I prefer having a system make decisions, providing it's been architected properly and built properly and the appropriate risk rules than having a lot of different humans reviewing deals.

Next question.

Do you really mean that the 20% will occur? by June 25 to take effect from first half 26? No, we will be on the 20%. Our stated target is to be on 20% cash return on equity during second half 25. It won't be for the financial year 25 year. It won't necessarily be for the whole second half of 25, but we'll certainly be on that run rate in there. I guess you could imply from that question that we will be on that from first half 26. That's right. Assuming it keeps going the way we would expect it to, that's right in that regard. We're pretty confident about that.

How do you achieve that improvement in NIM?

Do you get benefits on margin from funders or customers? I think, as Simon said, we have increased our customer rates a little bit. Remember, we don't borrow off the 30-day rate. We borrow off the swap rates. They have started to trend down. The rates are actually inverted at the moment. We borrow two to three year rates. We're starting to see that margin come through the book, but obviously we do have 85% of the book hedged. We've got all the swaps that are locked in against pricing. It does take some time to flow through it, but as you can see from our fourth quarter, we are already over 10% NIM and that's always been our target and as that newer business starts to become a bigger proportion of the loan book over the year and over future years, that helps us with that target.

What is your reliance on Google for customer acquisition and are these

per client win costs? Sorry, I'm not sure. That's the first part of the question. Yeah, we do use, a lot of our originations come through Google and have been since seven, eight years now. It's the biggest, it's got 95% market share when it comes to search. So we do a lot with Google. It's certainly our biggest channel for origination. But there are other channels we do as well in a direct nature. But yeah, so we absolutely continue to work with Google, and I think we're certainly one of the largest ones that solely works with Google in Australia and New Zealand in this space. Do you want to do the New Zealand National Cache Impact once more?

New Zealand cash impact was negative this financial year. Assuming interest costs were slow to change, how much would implementing Stellia improve the result? I guess the first thing I'd point out is that the New Zealand cash impact is shown as negative because the bulk of our operating costs are actually based in New Zealand. This is where our offices are and our tech development team is based. it's very much a feature of Harmony's business that our cost base is in New Zealand, and yet we are able, with very little additional cost, able to grow the Australian market on top of that. So we very much view the business overall as a group, but when you break it down in that segment note, the main driver of that difference between Australia and New Zealand Cash Impact is really just because this is where the bulk of the costs, the operating costs are. We definitely do expect Stelia II to uplift our originations in New Zealand. The level of increase on percentage terms may not be quite as big as Australia because we are already much more established in the New Zealand market, and it is a smaller addressable market than Australia. But nevertheless, we do expect to see significant conversion improvements when we bring that model to bear in New Zealand.

Great. Thanks, Simon. The next question, could there be a further write-down once Stellar 2 is rolled out in New Zealand? in first half 25, or had it all been written off completely? Yeah, good question. It's all been written off completely. The only cost we're carrying now is about four or so million, and that's all relation to Stellair 2, so there'll be no further write-off. Obviously, we made that decision this half based on the fact that we had full confidence that we were going to run Stellair 2 across the whole business and was operating, so it made sense to make that write-down. Stellair 1 could have continued on if we wanted it to, Hopefully, you can see already that the performance and the things that we can now do with Stellair 2.0 are light years apart from where we were. Not that Stellair 1 was great. It got us 10 years. It's our 10-year anniversary of the company next month. It got us all there, but like anything, we are a tech business and platforms need to be replaced with newer technology.

Okay.

Next question, congrats on the process on costs. Can you give some thoughts on where you think the cost to income ratio could look like a couple of years out? Look, I think I'm not going to give specific guidance on that, but we're not adding costs to this business outside of collectors as the book gets bigger and fairly small cost in the scheme of things. This business is a platform, and we've said that right from the start. We don't have any vision of increasing costs in the business. Simple as that. We run a pretty tight ship here, and I think we've proven that over years. We'd expect that over years to keep coming down. What are the expected impacts of transitioning existing Stellair 1 book to Stellair 2 to be an FY25? I think it's all included in our outlook. There obviously is some internal time that's spent on doing that. Obviously, we've built it with this in mind, that there will be some sort of existing customers moving over, but given our loan book is a fully amortizing product, the transition's actually not that complicated compared to, say, If you had around like a credit card book or something like that where you had millions and millions of transactions all with different terms attached to it and the like, it's fairly simple to move a book that you've got a clear pay down period over to a new platform. But that's something that will be going in the background and I don't expect that to really be seen by anyone and customers won't even know. It'll just be moved in the background, which I think

It's the way you want to do these things.

Has Harmony considered expanding into cash managing apps and early wage or tax access products? Not as such. Not really. I understand there's some value around employer type channels and things like that, but no, that's not in the sort of

Certainly not in the roadmap. I think that's getting towards the end of them. Just a question.

Sorry, I've just got lots of questions on here, so I've got to do this in real time. It's not recorded, it's live, obviously. You have less than 1% of the $150 billion market.

What would you be your real aspirational target in market share to be in three years' time? some pretty decent targets now, particularly off the back of having the platform. I know we've talked about this endlessly, but you have to remember that Harmony is a platform business. We have direct relations with customers. We don't have sales teams where people go out and bring business to us. Our platform is particularly more important than, say, another business model that the platform just facilitates the transaction. Our platform is everything. With that, we're now able to do, as I said in the presentation, we've got a state of the art core banking platform. We've got all our process automation on top of that, which now gives us a huge potential to go into that market. We will continue to get as much of that as we can. Whilst I might have internal targets for the team, we just see it as we don't need to go outside our core. We know that if it's just in Australia and New Zealand and in the personal lending space, there's huge growth. I believe that's much lower risk to any organisation than having a strategy where you're going to other countries or you're going into, let's just say, commercial lending, for example, where it's two steps away from your core. That's not something we need to do. We're hitting start with a huge market right in front of us, which is part of what we're good at and where our core lies. If you decided to stop growing the loan book, how much cost could be saved, both OPEX and provision for growth? How much cash would the business spend off? Great question, and I think anyone that's good with Excel could probably figure that out. It does spend off a lot of money because you've got 750 odd million at a nine or 10% margin on that, and in that scenario, certainly not a scenario that we are planning on or doing, but it would be significant. I'm not going to quote the number, but you could work that out in a model if you were to do that, and I think it would be quite high. Once Stellair 2 is rolled out in New Zealand, how far away are the new products using the new capability? Look, we ask, part of the team is working, the product team does work on innovation and that's continually going on at the moment. But we'd like to have some similar, some products out in the next year. But the focus really is making sure we roll New Zealand out properly and we also get continuing to increase that conversion in Australia. The fact that we're now offering 1,300 customers an offer as opposed to 650, that's huge. That's something we want to ... Why can't that be 1,500? Why can't that be 2,000? We keep getting 10,000 customers a month. It's a huge opportunity and that's where I think Harmony's differentiated. We don't need to go and incentivize intermediaries or brokers or the like to send us more business. We've actually already got the customers coming to us. With the new platform, we're able to get to those a lot quicker and a lot better. That's why the offers are up. They're getting a better experience. We're seeing better insights to where they're at. If they make a mistake in the application, which is obvious. They earn $5,000 a month and it should be a week. Things like that that might not have been seen before and declines might have been made. Now we're seeing that in real time. This is the difference between using it 2024 technology and a 2014 technology. We're lucky we don't have the legacy of a lot of financial businesses that have to employ massive teams to do that. We've done all this with our in-house team. CapEx is pretty much the same, if you look year on year. We don't expect that to go up either. That's just our run rate of the business, and we have been at that level for some time, I think.

I think that's it for the questions. We might wrap up the call there.