Harmoney Corp Limited (HMY) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of Harmoney Corp Limited. I'm Mike Travis, Harmoney's General Counsel and moderator for the meeting. The text of the Chairman's and CEO's addresses that you'll hear today have been launched on the ASX and made available on our investor website at harmoney.co.nz/investor. I'm pleased to confirm that we have a quorum for this meeting. And with that, I will pass you to our Chairman, Paul Lahiff.

Thanks, Mike. Good afternoon, and thank you for joining Harmoney's 2023 Annual General Meeting. My name is Paul Lahiff, and I'm honored to be the Chair of Harmoney. I'd like to start by introducing my fellow Board members: Tracey Jones, Independent Director and Chair of the Audit and Risk Committee, who will be retiring at this AGM after 9 years of service on the Harmoney Board; Neil Roberts, Director and Founder; David Stevens, our Managing Director and CEO; John Quirk, Independent Director, who will assume the role of the Chair of the Audit and Risk Committee; and Monique Cairns, Independent Director and Chair of the Nomination and Remuneration Committee. We also have Simon Ward, our Chief Financial Officer; and John Kensington, audit partner, KPMG, present with us today. This year has been another impressive year for Harmoney with continued growth in the business and reaching the important milestones of cash NPAT profitability in full year '23. We have set further ambitious targets for the coming years, expecting to generate a return on equity of 20% in the medium term, a target that is unique amongst our peer group. Further progress was also made with significant funding facilities, evidence of the strong support we receive from 3 of the 4 largest banks in Australia and New Zealand. I'll get Dave to share more detail on this shortly. We continue to have complete confidence in Harmoney's executive team who are strongly aligned with the strategic pathway taken. It is clear that the market is yet to recognize the value being created within the business, but I expect that in time, with further progress toward our return goals, that this will change materially. Our diverse funding drives significant growth options for our business. Our loan book continues to perform in line with expectations, and our cost of customer acquisition is peer-leading. Combined with the strong growth we expect to achieve this year, the drivers of shareholder value are evident and in time, I truly believe will be recognized by the market. In the meantime, David and his team remain focused on execution of our strategy. On behalf of the Board, I'd like to thank my fellow Board members, our CEO, David Stevens, and all our Harmoney staff for their contributions. I also want to wish my fellow Board member, Tracey Jones, all the best in her retirement from Harmoney. Tracey's contributions have been significant as Chair of the Audit and Risk Committee and a member of the Nomination and Remuneration Committee. Tracey, we will miss your wise counsel and calm head. Finally, I would also like to thank you, our shareholders and our fellow stakeholders, for your continuing support of Harmoney. We look forward to further growth and achieving new milestones in 2024. Let me now pass over to David, who can talk in more detail about our operational achievements.

Thank you, Paul, and thank you, everyone, for attending our 2023 Annual General Meeting. As Paul mentioned, we have continued to make progress on our strategic plan this year, delivering strong growth and profitability, as we begin to see the benefits from our scale and the efficiency of running 100% direct-to-consumer business model. Our product solutions are fast, easy to understand and 100% accessible online. As we continue to grow, the benefits of having a highly automated platform underpins our confidence in our ability to achieve our target 20% return on equity run rate in financial year '25. In summary, for the 12 months to 30 June '23, we delivered a cash NPAT of $4.7 million and a cash return on equity of 8.4%, finishing the year with a loan book of $744 million, up 28% on the prior year, with the largest segment of the book now in Australia. Given the size of the Australian market opportunity at $140 billion and being a small player, the opportunity to take share from the larger banks and traditional lenders is significant. Encouragingly, an important customer trend is emerging in the Australian market, seen previously in New Zealand, where existing customers return for new loans. The value of these customers is greatly enhanced, given the minimal cost of acquisition. As a result of this, we've seen overall customer acquisition costs fall dramatically in the last year, down 41% in financial year '23. I've shared with you previously the unique position Harmoney is in with our data-driven Stellare platform and our highly targeted and efficient marketing with Google. In August this year, we launched Stellare 2.0 to select customers in Australia and expect to see even more sophistication as this is rolled out fully across Australia and New Zealand in financial year '24. Turning our attention to macro events. The central banks in our key markets, concerned about inflationary pressures, aggressively increased cash rates. As a result of this, our funding costs have been rising faster than the average lending rate in our portfolio. However, with the combination of an efficient hedging strategy and an ability to pass on rate increases, we're able to minimize the impact on our financial performance. Overall, our average funding rate increased by just 150 basis points in financial year '23, substantially lower than the 325 basis point increase in the Australian cash rate over the same period. Further, we benefited from reduced levels of early repayments given a reduction in mortgage refinancing activity across both markets. And finally, the quality of our loan book has seen impairments well within our target range at 3.6%, and 90-plus day arrears are well below the personal loan market average. We finished the year with over $27 million in unrestricted cash and have sufficient capacity for lending growth with total warehousing facilities of over $900 million from multiple high-quality lenders, including 3 of the big 4 banks in Australia and New Zealand, a significant endorsement of the strength and quality of Harmoney's lending platform. After year-end, in August 2023, we also priced our inaugural New Zealand asset-backed securitization of NZD 200 million. This was rated by Moody's and placed with several new and existing investors, setting us up for further securitizations in both Australia and New Zealand as we continue to grow in the coming year. In the first quarter of the current financial year, as reported, our loan book increased slightly to $747 million, up from $744 million at 30 June. In this quarter, we further moderated marketing spend, continuing to prioritize profitability over loan book growth in the short term, as we focus on the rollout of Stellare 2.0 and the closure of our retail peer-to-peer platform. Looking ahead, in terms of the profile of financial year '24, as the focus in this half has been on Stellare 2.0 rollout and the closure of our retail peer-to-peer platform, first half '24 is expected to deliver a cash NPAT of approximately $0.5 million. However, these investments set us up for significant growth, particularly in future financial years.

Thank you, David. Thank you, Paul. I note that the text of 2 ordinary resolutions were included in the notice of meeting, which was sent to all shareholders, along with the explanation of the purpose of those resolutions. The resolutions are standard procedural matters, and I read them again now for the minutes. The first resolution is that Neil Roberts be elected as a Director of the company. And the second resolution is that the Board be authorized to fix the remuneration of the company's auditor for the ensuing year. I note that as Director Neil Roberts is the subject of the first resolution, he has recused himself from comment on that resolution. However, in the notice of meeting, the Board have otherwise requested that the shareholders consider and, if thought fit, vote for each of the resolutions. If you haven't already voted, you can do so now and for a short time after the meeting by clicking on the get a voting card button. You'll need to provide validation by entering your security holder number and post code, or if you're acting as a proxy today, by entering the proxy number in the proxy details box. On submitting this information, you should see a voting card with 3 -- sorry, 2 resolutions, and you may place your vote by clicking on the for, against or abstain buttons. Once voting is closed, submitting voting cards cannot be changed, and the results of the voting will be collated and confirmed after the meeting, and we will provide the results to the market and on our investor website at harmoney.co.nz/investor. The next item in the meeting was for consideration of any other business raised by our shareholder, but no additional business has been raised. So the final item for the meeting is consideration of any questions raised by a shareholder. At this point in time, we don't appear to have any questions. Do you want to provide a couple of minutes of meetings, a minute? Please.

I do. I have a couple of minutes. Any questions?

Yes. We'll pause the meeting for a couple of minutes, if anyone wants to raise any questions. We don't have any questions at this stage. So that is the end of the question-and-answer session, and I'll pass you back to our Chairman for closing remarks.

Thanks, Mike. I'd just like to thank all of our shareholders and other people that have joined in our AGM this afternoon and to wish you the very best of the rest of the afternoon. Thank you, and the meeting is now closed.