Harmoney Corp Limited

Hello and welcome to Harmony's first half 25 results presentation. I'm David Stevens, the CEO and Managing Director of Harmony. With me today is Simon Ward, our CFO. Harmony has produced a very strong profit result this half, which I'm really looking forward to sharing with you today. This result has been underpinned by the work we have done developing and launching Stellair 2.0 over the past 24 months. This has set us up to capitalise on the huge market opportunity we have in front of us particularly as interest rates and market conditions begin to improve. One aspect that I'm most looking forward to for the first time is providing current year profit guidance as well as our profit target for next financial year. Now turning to slide two. Today I'll begin with our first half 25 key highlights and our financial year 25 profit guidance and FY26 target. Then I'll remind you of Harmony's key differentiators. I'll then hand over to Simon who will take you through our financial results. Finally, I'll discuss our outlook and highlight the embedded value in our business 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. To highlight our key achievements for the first half of 25, This half we achieved a $2 million statutory net profit after tax, up from a $600,000 loss in the same period last year. This was primarily driven by our $2.3 million cash net profit after tax, which is up over 350% from the same period last year, driven by improvements across all our key metrics and our continued loan book growth. As a result, we delivered an annualized 13% cash return on equity for the half. Cash return on equity is our cash end part for the half, over our average total equity in the half, annualised. This result places us well on track for achieving our target 20% cash return on equity run rate in second half 25. Our loan book continued to grow, up 4% on PCP, with Stellair 2.0 propelling 43% growth in Australian new customer lending. Our net interest margin on new lending during the half continued at 10%, raising the average NIM for the entire loan book back to 9%, within our targeted nine to 10% range. Our loan book credit performance continued to strengthen with credit losses down to 3.7% for the half from 4.2% in the same half last year. Our high levels of automation drove further efficiency gains with our cost to income ratio continuing to fall, now down to 18%. With all these metrics heading in a positive direction, Harmony is well capitalized for continued profitable loan book growth with total warehouse capacity over 900 million $21 million in unrestricted cash plus $7.5 million in undrawn corporate debt. Now turning to slide five. I'm really pleased to announce that for the first time Harmony is now in a position to provide the market with current year cash impact guidance as well as our cash impact target for next financial year. Our confidence to begin providing this guidance is driven by reaching the significant milestone of successfully rolling out our Stellair 2.0 platform in Australia together with the performance and strength of our $783 million loan book. In financial year 25, we expect to deliver a cash end part of $5 million up from $700,000 last year. We also remain well on track to achieve our previously stated target of reaching a 20% cash return on equity run rate in the second half of this financial year, having already achieved a 13% cash return on equity this half. To achieve this guidance, we expect to maintain our net interest margin within our targeted 9% to 10% range. In our next financial year, financial year 26, we are targeting a cash NPAT of over $10 million and a cash return on equity in excess of 25%. This will be underpinned by Stellair 2.0 delivering more prime customers in both markets and compounding loan book growth as increased new customers become satisfied existing customers returning for subsequent borrowing needs. We also continue to expect to maintain our net interest margin within our targeted nine to 10% range through financial year 26. Now turning to slide six and onto slide seven. What sets Harmony apart from others? We're Australia and New Zealand's largest 100% online consumer direct lender. We have a total market opportunity of 150 billion with our current market share less than 1%. So we have a huge total addressable market in front of us. Our algorithms partner with Google to attract prime, high intent customers at low cost and then our direct relationship with those customers and great customer experience sees them returning again and again for their next borrowing needs at near zero acquisition costs. We use deep first party data and AI models to deliver a prime loan book at a greater than 5% risk adjusted income. That being our income after both funding costs and credit losses. We are funded by three of the big four Australian banks, plus public securitizations. Our stellar automation drives a low cost-to-income ratio of 18%, and our cash return on equity this half is 13%, meaning we're well on track to achieving our targeted 20% cash return on equity run rate during the second half of this financial year. 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 $18,000, 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, and all our loans are fully compliant with applicable consumer legislation. 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 eight. To profitably 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. You need massive amounts of quality first-party data. First-party data means that 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 of 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-adjusted income in excess of 5% gained through more accurate risk assessment of customers. This combination of data, AI, and automation built into our technology platform that has been a core feature of Harmony since our inception over 10 years ago. Now turning to slide nine. The power of Stellair's machine learning goes far beyond assessing customers at their point of the 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 with the right product is reflected in our Google reviews and Shopper approved scores with over 58,000 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 streamlined 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've achieved a cost to income ratio of 18%, 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 experience, this cycle is expected to lead to 140% in additional originations to the same customer that minimal customer acquisition cost. For example, on average, a customer taking out an initial $20,000 loan would return to Harmony for an additional $28,000. So cumulative total borrowings of $48,000, and that's just our experience so far. Now turning to slide 10. At Harmony, we have an experienced and shareholder-aligned leadership team. We have deep FinTech experience and have a large personal stake in the business with board and management owning 30% of the business and in addition a significant 10% long-term incentive share plan. The leadership team has long-term commitment to the business with an average tenure at Harmony of over seven years. We've included in our appendix Harmony's shareholder composition showing the 30% board and management ownership and further detail on substantial shareholders and the remaining shareholder make-up. Now turning to slide 11, I'll 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 12 summarising our key financial metrics for the half. I'll begin by going through each of these metrics briefly now before going into more detail on the following slides. As David has mentioned, we've had a very strong half, with our cash impact up by 350% on the first half last year to $2.3 million. This was a consequence of improvements across pretty much every key metric, starting with our loan book, which continued its record of growing every half since Harmony listed in 2020, now at $783 million. While the loan book is up 4% on the same half last year, revenue grew 7% to $64 million, driven by both the loan bulk growth and by a higher average lending rate across the loan portfolio. A net interest income percentage, also known as net interest margin or NIM, contracted 20 basis points from the first half last year to 9%. But with new lending NIM continuing at over 10% through the first half of this year, we see our portfolio NIM continuing to head higher through the rest of the year. Risk-adjusted income, which is net interest income less incurred credit losses, improved 30 basis points to 5.3%, with lower credit losses more than offsetting the 20 basis point reduction in NIN just mentioned. Acquisition costs as a percentage of loan originations improved 10 basis points to 3.2%, as origination growth resumed, with Stelia II having a positive impact in Australia. Our cost-to-income ratio also continued to improve, down 300 basis points to an exceptional 18%. Our cost-to-income ratio includes all of our cash operating expenses. It's detailed in our profit and loss statement in the appendix. To align this ratio with cash MPAT and peer group ratios, non-cash share-based payments and depreciation and amortisation are now excluded. Had they been included, This ratio would still have been an exceptional improvement, dropping from 24% first half last year to 20% this half. In both cases, the improvement is driven by Harmony's high levels of automation, enabling us to scale our loan book without having to scale operating costs, a leverage advantage that will continue to build as our book continues to grow. This half we're reporting statutory net profit after tax of $2 million, up from a statutory loss in first half last year of $600,000. That improvement was primarily driven by the 350% increase in our cash impact to $2.2 million, up from a $500,000 profit first half last year, which is a combination of our growing book, growing revenue, improved risk adjusted margin, and improved cost to income ratio. On the next few slides, I'll now discuss each of these key performance metrics in more detail.

So now turning to slide 13, looking at our loan book and revenue.