Harmoney Corp Limited (HMY) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Harmoney Corp Limited FY '23 results webinar. [Operator Instructions]. Please note, we will not be taking questions from the conference call today. [Operator Instructions]. I would now like to hand the conference over to Mr. David Stevens, CEO and Managing Director. Please go ahead.

Hello, and welcome to Harmoney's Full Year 2023 Results Presentation. I'm David Stevens, the CEO and Managing Director of Harmoney. 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 2. 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 3. 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 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. And 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 endeavor to respond to your questions during the Q&A at the end. Now turning to Slide 4 and then on to Slide 5. This slide presents our key performance metrics. For financial year '23, our loan book experienced growth of 28%, bring 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 Harmoney 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 NPAT for the year of $4.7 million. And 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 6. As mentioned, we listed on the ASX less than 3 years ago with the goal of accelerating our growth in Australia. So 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 7. There are 9 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 NPAT 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 Harmoney'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 Harmoney's customer acquisition and credit assessment models, Key components of our Stellare 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 FY '25. This is the first time we've guided to a return on equity target. We feel this is achievable 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 customer acquisition cost for Harmoney. 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 3 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 lower arrears rate reflects quality throughout the entire loan book. We have highly diversified funding with warehouse facilities from 3 of the Big 4 banks, 3 mezzanine funders and our own securitisation program in both Australia and New Zealand, and I'm happy to say that the New Zealand $200 million ABS deal settled yesterday. And finally, 76% of our floating rate borrowings are hedged to mitigate any impact from interest rate market movements. Now turning to Slide 8 and then Slide 9. 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 for $70,000 with terms of 3, 5 or 7 years. Our new average new loan size is $21,000. Our process is 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 and most applications and funds arriving in bank accounts within 24 hours and accepting the loan. Carrying the theme that keeping it simple for customers, we have just 1 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 Harmoney, 100% direct has proven to be the right strategy for our unique business model. The reason this is captured in the formula at the top of the slide. It shows here 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 its 4 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 Harmoney, 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 the home loans, for example, particularly as our new platform Stellare 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. And 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 9 years of historic data, effectively superchargers 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, Stellare has been a core feature of Harmoney since our inception. Now turning to Slide 12. The power of Stellare machine learning goes far beyond setting 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. Harmoney 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, with 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 is 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 a 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 at an average score of 4.7 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 and satisfied 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 Stellare remains an important factor in the Harmoney 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 in loan experience is highly tuned to customer satisfaction to customers return to Harmoney 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 6 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 will take you through our financial results in more detail.

Thanks, David, and hello, everybody. Please turn to Slide 14, which summarizes 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, Harmoney's loan book continued 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, FY '22 and in particular, the first half of FY '22 did represent an exceptionally low point for Harmoney's funding costs on very low market interest rates. Harmoney 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 our 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 Harmoney's business model are that, we are 100% consumer direct, delivered 100% online via a highly automated Stellare 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 Harmoney to deliver cash NPAT of $4.7 million, up from $200,000 last year, and a cash return on equity of 8.4%. Our statutory NPAT was a $7.6 million loss with the main difference between this and our cash NPAT 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 NPAT. Importantly, our cash NPAT does include all actual credit losses. We exclude the movement in our expected credit loss provision from our cash NPAT because this movement is a noncash expense, similar to depreciation and share-based payments, which are also excluded from cash NPAT. Our increase in credit loss provision is a product of our loan book growth, with recognition of accounting provision for expected future period losses being required on all new lending at the time of origination, ahead of recognizing 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 its 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%, this is 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. Softening market sentiment brought on by rising central bank rates means that this year we elected to moderate growth in favor 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 to 2 key features of Harmoney'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 Stellare marketing platform twinned with our consumer direct model. Our Stellare marketing platform ingests deep consumer 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 lines have minimal acquisition costs. 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 2 features drive the falling ratio of customer acquisition cost 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 and existing -- 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. Harmoney'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 aging or seasoning of the Australian loan book following the strong growth last year. Personal loans tend to reach peak headed for loss during the period 12 to 18 months after origination. The $3.6 million Credit loss remained well within our 3.3% to 4% target range. Our 90-day arrears also remained very low at 0.58%, 2/5 of the current Australian personal loan market average for arrears. Now turning to Slide 18, providing detail on our funding. This month, Harmoney added a fifth Big-4 bank warehouse sized at $140 million and also issued New Zealand's first public noncredit card consumer asset backed securitisation, sized at NZD 200 million. These transactions provide further endorsement of the continuing quality of Harmoney's loan portfolio and increased 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 Harmoney retained its efficient capital structure with borrowings equal to 95% of the loan book further underpinning Harmoney's ability to continue its loan book expansion. During the year, Harmoney'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 Harmoney funding costs with facility timing resulting in very low unused capacity and associated line fees and most borrowing peaked to the very low spot rates, rather than higher hedged forward rates. On average, through FY '23, around 78% of Harmoney's floating rate borrowings were hedged, which is 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 cash 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 Harmoney's Stellare platform is at high levels of automation. This has enabled Harmoney to continue to scale its loan book much faster than its operating expenses. As shown on the chart on the right was 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%. The scale effect compounds in future years as the book growth delivers multiyear annuity revenue with customers returning for future borrowing needs due to Harmoney's consumer direct experience. The ability of the Stellare platform to scale underpins delivery of our $4.7 million cash NPAT 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 Harmoney. 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 on a 9x 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 Harmoney as consumers continue to gravitate online for financial products. While the vast majority of personal lending is still provided by banks and traditional lenders, Harmoney and others in our listed peer set continue to make positive inroads which can be seen by the red line in the graph. Harmoney's new customer lending in Australia grew to $177 million in financial year '23. And with Harmoney'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 6 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 and we have products to offer them. And the opportunity is to provide a broader mix of products to meet the needs of all these customers. The diagram on the left shows its 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 gray, 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 Harmoney funded loan represented by the red segment. This leads the green segment representing 6,000 prime qualified accounts each month that are not served by our current offering. But they present a large opportunity to convert to customers through new features such as and 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, our 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 3 slides about our initiatives that have just been launched or in progress that address moving the red arrow further into the green. Now turning to Slide 23. Harmoney has 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 Harmoney 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. Stellare marketing commenced in late January, growing from a 0 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, Stellare 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 Stellare 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 Stellare 1.0 is not calibrated towards. Stellare 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 lead towards older homeowners that can draw larger loan amounts, which was a legacy from our P2P lending days. However, it's likely to knock out good credit quality customers that are looking for a smaller loan. Interestingly, we actually received 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 in 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 bring on to our platform based on history in New Zealand experience brings an additional 140% of loan drawdowns over the next 6 years with minimal customer acquisition cost. So by growing this 15,000 and below segment will bring increased future lending as we grow with the customer. Now turning to Slide 25. Stellare 2.0 is now live. That's very, very exciting for our team and for our business going forward. Harmoney is in just 9 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 Stellare 1.0, but redirecting those resources on the Stellare 2.0. With a new agile architecture and capabilities of Stellare 2.0, Harmoney is poised to deliver an aggressive product strategy of new products and innovations, which competitors will find difficult to match. Harmoney 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 rule sets 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, Harmoney launches money in seconds, which means most approved borrowers in Australia will receive their dispersed 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 Harmoney 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, I remind Harmoney 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, Harmoney's consumer direct model is taking market share from the banks with plenty of room to grow in the $143 billion market. Harmoney 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 Stellare 2.0 rollout. This will result in a lower first half '24 cash NPAT, but sets us up for significant cash NPAT 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 Stellare 2.0 is fully rolled out across both countries. That concludes today's presentation, and now we'll turn to answering your questions.

[Operator Instructions] I'll now hand over to Mr. Stevens.

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 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 or which is basically how we measure loss performance, it's a more -- it's a better measure than looking at sort of, I guess, what the accounting standard show an annualized loss on average loss -- but we would expect it to stay within that range even if loss of EBIT 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 without broker commissions. Yes, good question. That is all our marketing costs that we pay to find customers. So effectively, our marketing costs are going there. So correct, we don't pay broker commissions, but obviously, we do pay for marketing space in Google and other online medium. So that's that one. Next one. If interest rates do not increase from here, do you expect that your average funding cost to stabilize around 6%. No, look, that 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 7s, but we've also increased our book at the same time by a corresponding amount. So we'd expect the NIM to remain around that sort of 9% to 10% level. So the 6% will be higher in financial year '24 as the more recent funding becomes a higher weighting in the book. But as I said, we've also repriced our loan book as well. So the borrowers pace. So we expect to maintain that NIM. Next question of seamless line was what was the exit NIM margin at year-end? And what is the outlook for NIM this year and what the likely impacts? Yes, I think I've answered that question. We -- the beauty of our business is we can move interest rates very, very quickly. We don't have to go through sort of communication to partners and brokers and retailers and the like, that's having run a business like that, that can be -- takes a 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 sort of overnight. So it does give us quite enormous flexibility as we see swap rates move and the like. Obviously, we borrow off two to three years swap rates. So they can be a little bit different to what the sort of general public is sort of seeing in sort of OCR rates and the like. As I said, we expect to be around that sort of 9% to mid-9s level throughout the year in NIM. Our next question. You described Stellare 2.0 as the next evolution. Can you explain how this will impact Harmoney? Yes. Look, this is probably our -- certainly our biggest project since, I would say, probably since the IPO. And whilst we're only a business nine years young, there was -- like any business, we had some legacy in the systems. We're a P2P lender originally. We're obviously not that more have 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. Yes. It's a new -- it's not just a system upgrade. It is a new beginning in a lot of ways for our technology at Harmoney. Now the marketing and the data science and the credit all stay the same, but it's really the back-end system and the front end sort of customer experience that is quite different. And it's really -- we got on this project about 12 months ago, and it was -- we're really pleased to have had rolled that out in the last couple of weeks into Australia as part of Phase 1, 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 the whole group sort of hopefully being on the. This is the full suite by the end of the financial year. So yes, 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 OTR cash rates start to fall in future years, will those be passed on to borrowers or taking the bottom line. Obviously, we hedge our facilities, so it won't come off as quickly as the OCR comes off. And look, we tend to focus on that 9% to 10% NIM. So 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. And I think that's a healthy return to 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 you're seeing going forward? Yes. Look, good question. Certainly, we -- during 2021, we certainly saw a lot of people refying into their home loans and the like, because obviously taking advantage of very low fixed rates. As rates have gone up, we've seen that prepayment rate -- early prepayment rates slowed down a little bit, which is a good thing for us. And we've also seen customers that find it a lot easier to come through our process, just not from a credit perspective, but from an application perspective, to get approved and [ online ] funded than necessarily going back to their bank in the current environment. So that's a real positive for us. Next one. Are there a lot of one-off costs associated -- will costs fall away after its live and functioning or is the additional cost fixed and offset by future growth? Yes, great question again. As I said, we used our existing team to work on Stellare 2.0. We didn't hire in contractors or consulting firms and the like. It was all done by our team. We pivoted in away from the current platform, which probably cost us a little bit of originations. I would have definitely did cost us some origination in financial year '23 because of the focus being on that. But as you can see, we still delivered very strong results. And we've now got a really exciting new system to work with going forward. So we expect actually our licensing costs, so our non-people costs to come down once we're fully off the old system. So that's pretty exciting. But from a team perspective, we've got so many opportunities to work on it. And now that team will be really focused on product development and really taking advantage of those. We're incredibly successful business in originating customers. And you can see by that 10,000 consistent a month, of which the majority is in Australia, we don't have a household brand name in Australia, but we're able to generate that very, very consistently. So all we need to do is get more products to those customers, and that's really going to be the focus. And with the 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, and 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 high 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. [ One has ] to run many moons ago, we were at that level for quite some time and really was really performing well. We obviously want to be at a premium to where the bank's return on equity is at. And I think we -- I don't think there's probably too much more in efficiency we can run there. I think it's pretty good. But as I said, that 20% return on equity is a real -- is coming to a short-term target. It's getting filled and getting closer and closer. So we're pretty excited about that. Are there any regulatory hurdles you see impacting Harmoney over the next several years? Look, as we run a fully regulated product in both countries, so we're not sort of subject to any kind of buying now pay later type changes or the like, we run a personal loan product that's been around for decades. It's right -- 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 we're probably a little bit -- that's the right way to raise quite restrictive. And there's already been some winding back of those recently, and I understand the current government is looking at further repealing some of those. So I think it probably went a little bit far in New Zealand on some fronts. So that would be only be a positive for us, if that's the case. Next question. Sorry, I've got lots of questions here. So I'm just making sure conscious of time on the call as well. Next, given you expect cash NPAT to be down on first half, but after half 2, where you're targeting actually FY '25 NPAT cash return on equity of 20%. This means the forecast cash ends up to $25 million should be around $10 million to $12 million. Look, I'm not going to give numbers, but you could probably do -- I did say run rate in financial year '25 rather than a 20% return on financial year '25. So just to be clear on that. But you could probably work out trying to devise a profit number from that if you're good at math 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. 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. I wouldn't rule it out. Obviously, our share prices that 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 obviously consider it. But we don't need M&A to find growth. We can do it very well through organically. Why do you think Harmoney so undervalued on the ASX given the apparent strong performance in runway? We just got to keep performing as a business. Obviously, the market in our space hasn't been particularly kind since sort of the highs of 2020, we continue to deliver strong results, and we've done that every half year that we've reported since stock -- 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 start -- you'll see that in all our results. And eventually, I feel that the market rewards strong performance. Your cost income has fallen significantly in the last year. It is a one-off and what should this be if we give it normal level. It's absolutely not a one-off. Our cost base is very flat. And we continue to grow revenue very strongly. So 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 would you expect the group to start paying dividends? Look, 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 embed Stellare on the third-party platforms? Not in our sort of short-term strategy around -- but however, that's something that we would be able to do with 2.0 in a lot more straightforward way with something we couldn't have imagined or even like something like a white label would have been very difficult under the legacy -- the 1.0 platform, but certainly something that will -- 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 us flavor of what portion -- what proportion to assist we're thinking about mix effect going forward. You are also doing vehicle lending in both AU and NZ. We are doing in both AU & 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. So 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. [indiscernible] Capital of under equity 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 are 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 salespeople 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. [ It's a ] [indiscernible] CEO of the business, it's a great lever to have and something that we use from time to time. So we're very much aware of cash positions and funding positions. And we're -- we manage the business to as profitable as -- and to grow as much as we can. And I think we do a reasonable job at it. Next question. What about M&A approaches for Harmoney being acquired, Stellare must be starting to show its big value to players. Absolutely, I was going to comment on being approached, where, as a management team, we own a lot of the company. And we're super excited about what we have at our fleet. And we're not -- we don't -- what the share price is today is not necessarily what the value of the company is worth. So we continue, as I said earlier, just to deliver on results, and that eventually gets rewarded. What was a decline in New Zealand originations the 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 in FY '24?

Yes. 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 a repeat customer originations than previously. And don't -- I certainly don't see that flowing into their outlook for Australian originations. This model of originating existing customers to come back to loans has remained pretty constant and true throughout New Zealand -- throughout the New Zealand journey. And as the data we've shown displays Australia is very much following that trend.

Yes. Look, I think to -- it's such a large market in Australia, and we're still sort of taking little bit of market share there as well. So where we think there's plenty of room for growth. Next question. Are you like 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 Australia and New Zealand market. We can go in -- making a big song about to some U.S. and those countries and that's all great. I think you can look at some of the dead bodies from other financial services businesses lying around that have gone and done that sort of thing without scale. So no, no, we're going to stick to what we know best. With Australia being 9x 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 it may not happen. But the markets are very similar. We use the same origination platform in terms of predominately Google, which obviously has localized data. But it's effectively the same technology. And yes, obviously, the market is just that much bigger. So we don't see -- and we've been in Australia for about five years now. So -- and three in a material way. And we're not seeing -- it was very similar in a lot of ways. one questions, It looks like the New Zealand loan book has been fairly flat for the last three years. Going back to December '20 was 360 and it's about the same now. The one key change is that New Zealand dollar has moved to Australian dollars. So I think if you did a New Zealand dollar comparison, New Zealand done 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 started to change in the New Zealand book has actually grown -- grow a bit more in the last sort of 6, 12 months. We don't expect -- next question. Do we expect Australia at plateau like New Zealand? No, we don't because it's just purely based on market size. Has any arrears rates in New Zealand book trended up in the last 6 months? No, the New Zealand book is performing really, really strongly, albeit from a sort of macro view that the rate cycle -- the increasing interest rate cycle started a little bit earlier in New Zealand than it did in Australia. And look, I think I've got to pause there, consciously we've got through over time. But thank you for all the questions. And I really appreciate the interest, and I look forward to meeting with many of you over the coming weeks. And on that point, I'll wrap up the call.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.