Humm Group Limited

Good morning. Thank you for joining us for our half year 21 results presentation. My name is Rebecca James, Chief Executive Officer of Hum Group, and I'm joined today by our Chief Financial Officer, Jason Murray. I'd like to start today by talking you through our group highlights for the half before discussing our plans to accelerate local and international growth. I'll then hand over to Jason, who will walk you through our financials. We will, as always, allow for your questions at the end of the presentation. We believe our offering is the most flexible Buy Now Pay Later offering in the world. We're the only provider to facilitate transactions up to $30,000 with payment terms ranging from five fortnights to five years. Today, 2.6 million customers entrust us to help them buy and pay over time. And we're just getting started. It's our mission now to take our offering global, expanding into the United Kingdom from Ireland and also into Canada. We're taking the fight to our competitors, both locally and globally. We intend to significantly ramp up our investment in marketing and our product experience in all key markets. Turning to slide five, you'll see the group highlights for the first half. During the period, we've added 750,000 new customers, up 40% on PCP, taking total group customers to over 2.6 million. We now have a superior credit decision engine, delivering net loss to ANR of 3.2% in the first half 21 months. a direct result of continued investment in our proprietary decision engine to improve our credit performance. We are a digital first business with over 1.3 million app downloads to date, a significant increase in digital penetration. And our buy now, pay later business is ramping up. Buy Now, Pay Later segment volumes of $473 million is up 14% on PCP, reflecting the strong performance in Hum Island, Little Things in Hum Australia and the increasing contribution from Bundle. Our new Buy Now, Pay Later product offerings, including Little Things, Australia, New Zealand, Island and Bundle, have been snapped up by consumers, with volume in these products increasing 90% on PCP. More importantly, our customers are using our products more regularly with total BNPL transactions up 293% on PCP to 1.5 million as we penetrate into everyday spend and increase our stickiness with customers. The strong results from the half now gives us the confidence to invest in our strategy designed to support and accelerate our long-term growth. On slide seven, you'll see that Hum has four areas of focus that will support its short and long-term growth. Everything we've done up to now has been to get us to a position to put our firepower behind these growth initiatives and expand our customer numbers, merchant numbers and addressable market, both locally and abroad. We will go to market with new products, Bundle and Hum Pro, with target new markets and new audiences to expand our domestic reach in Australia and New Zealand. Drive customer engagement and transaction frequency, building our products that are loved and used every day. Expand our instalment payment core by attracting new merchants and platforms in Australia and New Zealand through our differentiated product offering and expand into new markets internationally through a considered and differentiated strategy that will appeal to a broader range of merchants and customers than traditional buy now, pay later players. On slide eight, you will see that following beta testing in December 2020, the company is now proudly promoting Humpro, a buy now, pay later product designed to meet the needs of small to medium business owners. As part of new products for new audiences, Humpro has been designed to give business owners more options and greater flexibility when financing their business and follows demand from SMEs who are looking to invest and grow as trading conditions return to pre-pandemic levels. There are just under 3 million SMEs in Australia and New Zealand and a $30 billion credit market, representing a significant opportunity for Humpro. Hump Group will leverage its considerable experience in responsible credit decisioning and building customer-centric experiences as it rolls this new product out to its business customers. On slide 9, you'll see that Humpro can be used anywhere MasterCard is accepted. online, in-store and to pay supplier invoices. Other buy now, pay later for business solutions require suppliers to be integrated into their network, which limits how and where they can be used. HumPro acts like a universal trade account. It is accepted universally at every supplier that accepts MasterCard payments. Purchases are grouped into monthly balances with another month to repay. It also allows users to manage multiple monthly balances on individual repayment terms, providing the freedom to continue making purchases without impacting existing commitments. And of course, our fees are competitive and transparent. On slide 10, you'll see that Hum Group's other new product designed to drive growth is Bundle, our nascent buy-now-pay-anywhere product, which has already gathered over 50,000 customers. Using the Mastercard network, Bundle customers can shop anywhere, anytime, online and in-store. interest-free with no minimum spend. Bundle has experienced positive momentum over the period, with monthly transactions now reaching over $321,000. Monthly volumes have also grown rapidly over the half, now totalling $11.4 million a month. Bundle? as the world's first buy-now-pay-anywhere platform, has significant technology and data expertise, and the company has been exploring ways to collaborate and partner with the world's best technology and payments companies to realise that potential. In November, we announced the first step in that mission through a partnership with Mastercard to expand the application and distribution of Bundle. The agreement is for five years and is expected to deliver an additional growth path for Hum Group, at the same time as expanding the services that schemes can provide to customers. Hum Group has become synonymous with easy, digital, interest-free finance, and the key to this is a focus on driving customer engagement through our digital channels. There have been over 1.3 million app downloads across the Hum Group ecosystem, including 120,000 buy now, pay later app downloads in December 2020 alone. We have designed seamless and delightful app experiences, which include instant provisioning that allows our customers to sign up and shop in less than two minutes, marketplaces that offer a frictionless two-click shopping experience, apps rich with additional features like BPay that allows customers to pay for household bills at over 20,000 providers, and easy and simple to navigate repayment features that allow customers to pay their way. Our app scores have been consistently high and our focus on continuing to deliver a strong customer experience has driven customer usage now to 14 times a year on average and delivered an MPS of 58. That's a net promoter score showing engaged customer advocacy for Hum. Hum is the original buy now, pay later product that allows young families to live interest-free forever. Our ability to finance both big and little purchases continues to drive retailer adoption and customer growth and will be our USP when we expand into new markets. HUM focuses on driving customer engagement by signing new merchants and platforms in our existing markets. During that period, we continue to add new merchants, which shows the strength of the product and our differentiated customer proposition. In the last 12 months, the company has added over 9,300 new retailers. The growth in home and health over that period shows that being able to finance both small and big ticket items is resonating with a broad range of retailers. It's what we own and where we'll win. And this has translated into rapid growth for our BNPL products, as you can see on slide 13. A key driver of expanding our instalment payment core as the brand continues to gain traction and consumers use our product more regularly. App downloads increased 130% on the prior December month, surpassing 119,000 downloads, the biggest ever month for Hum Group. Monthly transactions have skyrocketed 316% over December 2019, as we penetrate into everyday spend and increase our stickiness with our customers. Total BNPL volumes have increased 23% since December 2019, driven by an 85% growth in Little Things volume over the same period. Big Things volume in Australia was slightly restrained during the beginning of the half as consumer spending on large items, typically purchased in store, and healthcare felt the challenges of Melbourne's extended lockdown. These have since returned. Turning to slide 14, and I'd just like to talk about the continued success of our Irish operations, which have gone from a leasing business to a rapidly growing buy-now-pay-later business in a short space of time. As the only buy-now-pay-later player in Ireland, we've nearly doubled our customers in the first half 21, while also generating strong growth in retail partners and volumes. The rapid progress in growing buy-now-pay-later customers, volumes and retailers in Ireland clearly demonstrates Hum Group's ability to pivot and scale internationally. With many of our retail partners in Ireland also operating in the UK, this provides us a stronger base from which to expand. On slide 15, you'll see that today, Hum Group is announcing the launch of our Buy Now, Pay Later product, Hum, into the United Kingdom and Canada in the second half of the financial year 2021. Buy now, pay later adoption in these markets is still in its infancy, with a significant opportunity to displace outdated traditional point of sale finance. We are well placed to capture the shift from revolving credit to paying over time in fixed instalments, with a focus on higher value purchases in health, automotive, home improvement and luxury. With a market opportunity of $778 billion and as the only player servicing both the United Kingdom and Ireland, there is a clearly differentiated offering for merchants and customers that will challenge traditional point of sale finance in the United Kingdom. Our Little Things product will be available for smaller ticket items and Big Things for more significant purchases with longer terms. The UK expansion is spearheaded by Patrick Joseph Byrne, CEO of Hum UK and Ireland, and Ross Gould, our Head of Credit and Risk. PJ has led the Hum Ireland business for a number of years, delivering continued growth in volumes and customers. From the outset, when exploring our expansion into the UK, we built our offering around a customer-centric product design. That means that it has already been configured to meet increasing regulation, including serviceability checks. Canada provides HUM with an additional $613 billion market opportunity and given our strong existing relationships and the region's complementary regulatory framework, it makes for an attractive market for HUM to enter. We've made great progress already in preparing for our launch and announcements around board and senior executive appointments for that region are due imminently. We're also in active discussions with a number of participants in the market with further strategic alliances to be announced on launch. On slide 19, you'll see that PJ and the team have already made strong progress in the UK with over 200 retailers signed up including Pamela Scott, Instasmile, McGurk's Golf, River Medical and Therapy Clinic. With substantial capital at our disposal, the ability to service large items a key differentiator and a significant international market opportunity, we have a strong platform for future growth. It's an understatement to say we're incredibly excited about the potential of these markets and we look forward to updating you on our progress. I'd now like to hand over to Jason to walk us through the first half 21 group financials.

Thanks, Rebecca. And turning to page 18 of the PAC. Gross income, which is interest income plus fee income, was $225.2 million, down 6.4% on the prior comparative period, or PCP. The biggest driver of the decline was lower interest-bearing balances in AU cards. There was also an impact from the consumer leasing business, which is in runoff, and ceased writing new business in 2019. Gross profit, which is gross income, less interest expense, and less direct cost of sales, was $174.3 million, down 4.1%. The decline was proportionately less than gross income due to lower borrowings in some segments and lower cost of funds, which led to a $7 million saving. Marketing and operating expenses will be covered in more detail in the next slide, but at headline level, we're really pleased with the progress we've made to date, reducing combined operating expenses by 11.1% on PCP. Turning to credit performance, impairment losses were down 35.2% to $25 million. Impairment losses are made up of actual losses, less any recovery benefits from those losses, and the movement in provisions against the portfolio. The combination of lower actual losses and strong recoveries led to a net loss of $40 million, down 12%, or $5.5 million on PCP. $6.1 million of the provision movement, or $4.3 million after tax, is a partial release of the COVID-19 macro overlay. You'll recall at the FY20 full year we took a $30.9 million post-tax provision in relation to the impact of COVID-19, and the majority of that provision remains in place until we get a clearer view of the full impact of the pandemic. The balance of around $2 million is an increased write-back of the baseline provision. This robust credit performance reflects the benefit of continued investment in our superior credit decisioning engine and fraud platform and the adoption of a customer-centric approach to hardship management and collections. Our tax expense of $18.7 million, although up substantially on PCP, is now at more normalized levels of around 30%. Last year, our tax expense was lower, as there was a one-off benefit recognized through the tax expense line. Taking into account all of these movements, our cash NPAT of $43.4 million for the half is up 25.8%. This strong underlying profit increased earnings per share to 9.6 cents and improved return on equity to 13.1%, despite our having raised capital during the period. Reconciling cash NPAT to stat NPAT are non-cash items of $4.8 million, and these are contained in the appendix on page 31. Looking to the second half of 21, Hum Group is focused on growth in Australia, New Zealand and Ireland, and we're also entering two new international markets, as Rebecca mentioned. This will involve investments in marketing, product and people, and the company therefore expects second half 21 cash NPAT to be lower than the first half. To support the company's investment for growth, the board has decided not to pay an interim dividend for the first half 21 and will continue to review the dividend policy each half year period. Turning to operating expenses, we wanted to provide greater clarity on the underlying movements which have resulted in Home Group becoming a simpler, leaner operation. Operating expenses are down $10.9 million compared to PCP. Payroll costs are down $13 million as we further streamline the business by removing duplicate roles and functions, saving $6.9 million and achieving a 30% reduction in our headcount since December 2018. Other operating expense savings of $3.6 million were driven by simplifying the business and disciplined management of costs. We've consolidated three telephone systems into one. We've developed a single knowledge management system. And by introducing lower cost self-serve models like web chat, we've standardized our approach to serving customers. Importantly, these efficiency gains have also improved consumer product reviews. Marketing expenses were up $1.8 million and reflect a conscious investment in new products with home launching in New Zealand in September and a renewed focus on bundle after that product pretty much went into hibernation during the early months of the COVID-19 pandemic. Depreciation was up $3.9 million reflecting increased investment in systems and the steady stream of product development as well as continued innovation and feature rollout in our existing products to further drive customer engagement. Our cost to income ratio of 49.8% in the first half 21 is down 420 basis points on PCP. And as you can see in the bottom right chart, we've made significant progress in reducing the core operating costs of the business. CTI excluding marketing and depreciation has fallen 790 basis points since the first half 20 to 34%. Investment in international expansion will drive a moderate short-term increase in the cost-to-income ratio, but we will maintain a continued focus on reducing core operating expenses, excluding marketing and appreciation. We'll now take a look at the segment views, turning first to Buy Now, Pay Later, or BNPL. This segment consists of Hum, our traditional BNPL product, and now also includes Bundle, our Buy Now, Pay Anywhere product, which we've recategorized from Australia Cards, and the newly launched Hum Pro, our Business Now, Pay Later product. Cash impact for the half was $3.1 million. Although remaining profitable, and we're the only profitable BNPL player that we're aware of, we haven't reinvested $6.7 million into new products and new markets, and we've shown this on a comparative basis for the prior period. The impact in both periods was caused by development costs in Bundle and Humpro. The current period also includes investment in the relaunch of Bundle and, to a lesser extent, Hum New Zealand, which launched in September. It was really pleasing to see volume of $473 million up 13.8%. This reflects strong performance in Hum Ireland, Hum Little Things, and an increasing contribution from Bundle. We're genuinely excited about Bundle and the momentum that has built in the last few months since the effective relaunch. Across BNPL, momentum in online volume continues as customer spending shifts to e-commerce. We're also seeing consumers purchase larger ticket items online. Gross profit of $45.5 million was down 7.3%, despite receivables growth of 8.9%. The decline was due to higher direct cost of sales as we invested in the business and margin compression in some product segments. The continued focus on cost efficiency mentioned earlier led to a $2.4 million decrease in operating expenses for the segment. The operational savings were actually greater than this. However, we reinvested in marketing and new product launch and development. Finally, the portfolio continues to perform really well with 30-plus day arrears at 1.85% for Hum Australia at the end of the period. Turning to cards, profits increased on both sides of the Tasman despite a challenging operating environment. Australia cards cash end pad of 12.2 million was up 87.7% despite volume declining 43.2% to $201 million due to the impact of COVID-19 across travel-related industries. If you exclude key travel partner volumes and associated refunds, the segment volume period-on-period only declined 2.4%, outperforming System in Australia, which shrunk just over 9%. Gross profit for AU cards was down 9.9% to $37.5 million due to a decline in interest-bearing receivables. There was an industry-wide paydown of card balances over the period, and importantly for Hum Group, this was more prevalent in Once and Lombard, our legacy products in runoff, with Hum90 interest-bearing balances remaining broadly stable. The faster than expected pay down of the books in runoff has also had a positive impact on impairments. In fact, the company wrote back $200,000 for the period from lower arrears, as well as a partial release of the COVID-19 macro overlay of $4.3 million after tax as a result of the significant drop in the number of hardship cases from the prior period. Turning to New Zealand cards, cash end pad of $14.3 million was up 5.9% for the period. Volume was down 17.3%, again largely due to the impact of COVID-19 on spending, noting that travel and hospitality make up a lower proportion of the volume we write in New Zealand compared to Australia. Gross profit for New Zealand cards was up 2.8%, driven by higher net interest margin and lower direct cost of sales. In addition, operating expenses reduced 8.5%, reflecting the benefit of the cost reduction initiatives in this segment. Next, the commercial and leasing business. Cash end pad of $13.8 million for the half was up 46.8%, reflecting a business that has been completely rebuilt and refocused. Volume was up 46.9%, driven by stronger growth in Australia in small business lending through our dedicated broker distribution channel and an internal focus on fast and efficient approvals. The reputation that the team have built over the last 12 months as a prudent lender providing consistent and quick credit decisioning has allowed us to gain share in a market that grew modestly overall. This prudent growth has not been at the expense of credit quality, which is level with prior periods and in some sectors even better. Gross profit of $36.7 million was down 3.4%, mainly due to the portfolio mix, moving from vendor finance programs to chattel mortgages. In addition, the runoff of the consumer leasing portfolio continues to diminish half on half, but is still recorded in this segment. The simplified structure and runoff of legacy products has also led to a corresponding reduction in OPEX of 29.3% to $15.7 million. Finally, just before Christmas, the team also enrolled in the SME loan guarantee scheme, enabling access of up to $100 million of 50% lost guarantee support. Turning to slide 23, you can see the changing profile of Australia Commercial and Leasing as we've refocused this business. With operating income up and capital deployed down, the ROE of the business continues to improve. The strategic review of the business is still in progress, and this focus on driving capital efficiency remains the top priority. To this end, we'll be launching a $300 million asset-backed transaction in March, and we're exploring mezzanine debt opportunities to drive lower equity contribution in the warehouse facilities. Turning to credit risk management, we're extremely pleased with the credit performance of the group over the period. The focus of the credit team has been to ensure that our processes are robust with continued investment in our credit decisioning engine and the group fraud platform. In BNPL, the net loss to ANR is down 80 basis points to 4.1% as a result of reduced arrears and the investment in our platform driving better customer management. Australia Card's net loss to ANR reduced 40 basis points to 3.8%. As mentioned previously, the repayment of card balances across the system was evidenced in our portfolios, but was matched by a greater reduction in associated losses. New Zealand Cards was the only business segment across the group where net loss to ANR actually increased due to the maturing of the MasterCard scheme portfolio and a reduction in the recovery rate from debt sales. Both served to move the loss to ANR for the portfolio from a low base to more in line with New Zealand industry benchmarks. The commercial and leasing book continues to perform incredibly well, despite strong volume growth. With 95% of loans that were previously in hardship in the Australia portfolio from COVID-19 now performing, and arrears substantially down, we're seeing good lead indicators of the quality of loans being written and the performance of the book. These segment results aggregate to a group net loss to ANR of 3.2%, down 10 basis points on PCP, and a great result in a year of major disruption. Moving on to our wholesale funding facilities, and our Treasury team have done a fabulous job ensuring that we remain well funded for growth, with $737 million in undrawn wholesale funding facilities available to us as at 31 December 20. In October, we successfully completed a $250 million HUM AU term securitization, the 11th securitization of HUM Group's BNPL receivables to date. In 2016, we were the first Australian ABS issuer of green bonds, and with the latest transaction, we've now issued over $470 million of green ABS notes as certified by the Climate Bonds Standard Board. Just after the period end, we also settled mezzanine funding of $70 million for the Australia Cards portfolio, which will drive additional capital efficiency in that portfolio and across the group. We are super focused on driving further ROWE improvements in the Australia commercial and leasing business. And as I mentioned earlier, the $300 million term securitisation will launch in March. Turning now to our corporate debt facilities, and as you can see, we've significantly deleveraged the balance sheet, providing liquidity and positioning Home Group for growth. The recent equity raise has given us significant balance sheet flexibility as we expand into new markets and grow customers and receivables across our product suite. With nil net gearing as at 31 December 20, we will continue to look at the best options for capital efficiency while maintaining adequate liquidity. Needless to say, with government stimulus coming to an end and impairment losses at all-time lows, we remain well positioned for all eventualities. And with that, I'll now hand back to Rebecca.

Thank you, Jason. We believe that we have the most flexible buy now, pay later offering globally, enabling seamless approvals for purchases big, small or business related. And we empower consumers to choose how they wish to pay with terms from five fortnights through to five years. We already have significant scale with 2.6 million customers and we're just getting started. We now have a significant market opportunity, both locally and internationally, and with a total addressable market of $1.9 trillion. Home Group has emerged from the pandemic in the strongest possible position, with substantial capital at our disposal. We're now ready to put that firepower behind four clear, recognisable products to accelerate our growth. Thank you for your support. I'd now like to take questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question. Our first question comes from Apoorv Sigal with UBS. Please go ahead.

Good morning, Rebecca and Jason. Just my first question, with Hum's entry into the UK, I saw that you've signed over 200 merchants already. Can you just talk to what the feedback's been from those UK retailers in terms of why they've chosen to go with Hum? And also, are any of these merchants like Hum exclusive or is it a case where merchants are generally just happy to offer additional buy now, pay later options to what they already have?

Yeah, thanks, AP. The feedback that we've had on our market entry into the United Kingdom has been incredibly strong. As the only operator in Ireland, we actually have a really strong point of differentiation for retailers. As you can imagine, many retailers service customers in both markets. And so we are the only ones that can concurrently service that particular need. So the demand has been strong. Some of those relationships are exclusive because they've made the decision to only have one offering in cart that can service both of those markets. But others, we will be one of a number in cart.

Got it. Okay. And then just further in terms of the strategy for UK and Canada, Little Things has clearly been the growth driver in Australia, up 47% in volume terms. Big Things volumes are up 6%. Which of those two products will be the key focus in the UK and Canada, just based on which of them you think has the best chance of success?

Look, it's very much the sum of the parts, AP, in a differentiated offering. I mean, what is winning retailers is the fact that we can span the small and bigger ticket and, again, removes the need for a retailer to have multiple players in cart. And while the growth rate in our smaller transactions has absolutely been impressive, we need to recall that we launched that side of our business in April 2019, so it's quite new. You know, the significant proportion of our volume overall is in that larger ticket.

Yeah, sure. Okay. Just one final question for me, please. This is from the cards business. Obviously been heavily COVID impacted. Can you talk to the timing of what a recovery looks like and can this business get back to pre-COVID volume levels?

We absolutely believe that it can. We rebranded that product late last year into Hum90. So it now squarely fits into that ecosystem. We are successfully acquiring customers directly. And one of the great inbuilt features of that particular product is, again, its installment payment feature. So any customer... that comes on board, that makes a transaction of over $200, they can decide to use what's called our Hum90 wrap feature and they can choose to pay that off over three months, six months, nine months or 12 months in fixed term installments. And so it is very much tapping into this change in consumer preference for fixed term instalment products. And we're really pleased with how that's trending.

I think also, Pete, just pointing out again the fact that X refunds and travel-related volume was only back 2.4% against system, just over 9%. We were actually pretty pleased with that result because maintaining prudent credit quality is also important. So as we come out of the pandemic and as marketing of that product increases, as Beck mentioned, we're positive, and the P&L obviously speaks for itself.

Awesome. Thanks, guys. Appreciate your time.

Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. There are no further questions at this time. I'll now hand back to Ms. James for any closing remarks.

I know we have a number of meetings with many of you lined up individually over the next two days. And so Jason and I look forward to taking your questions directly. Thank you for your support.