Harmoney has made a $15.4 million loss for the 15 months to June 30 after it took an $8.9m impairment on its loan book and moved from a peer-to-peer model to using term facilities to fund its lending.
The consumer lender previously made a $7.2m profit for the 12 months to March 31, 2019, its accounts show.
Chief executive David Stevens said the period saw strong revenue growth, with its portfolio income almost doubling from $24m to $46m as it expanded its lending into Australia and moved from peer-to-peer lending to loans funded from warehouse facilities.
"Lending expanded significantly, with total lending now surpassing $1.7 billion with almost 50,000 customers across Australia and New Zealand."
Earnings before interest, tax, depreciation and amortisation was $200k, up from a loss of $8.4m in the prior period, with its net cash from operating activities rising from $3.1m to $6.2.
"These results demonstrate the scaleability of Harmoney's platform, with net portfolio income growing by 94 per cent while remaining operating costs (adjusted for non-cash and one-off items) grew by only 8 per cent."
Stevens said the net loss was attributable in large part to its transition to on-balance sheet loan funding with immediate provision for expected future period credit losses, as well as a reduction in expected future revenue from peer-to peer funded loans.
"Both categories were impacted by the anticipated longer-term effects of Covid-19."
Stevens said the impairment expense was primarily driven by the 250 per cent growth in loans funded on balance sheet, together with an increased non-cash loss provision due to the IFRS9 accounting standard.
"Of the $8.89m, only $2.5m was incurred (rather than provisioned) impairment losses. An incurred impairment expense of $2.5m on a $136m loan book represents a loss rate of less than 2 per cent."
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Stevens said the loss was not due to Covid-19.
"We also incurred one-off set-up costs associated with establishing our corporate debt facility and our Australian warehouse facility."
The lender stopped taking retail money to fund loans at the end of March after being the first company in New Zealand to become a licensed peer-to-peer lender.
Stevens said the decision to close retail investing was made over time.
"... while we are proud to have created a new class of retail investment, it is time to concentrate our resources on sustainable growth and creating a better borrowing experience for consumers in New Zealand and Australia."
Stevens said one way it hoped to do this was through continuing digital innovation. It now had five years of borrower behaviour data which allowed it to more accurately predict credit risk, allowing it to reduce interest rates charged and increase loan limits.
He said as an online platform, Harmoney was able to make a seamless transition to operating under level 4 restrictions.
"Our first focus was to support existing customers, some of whom had been
pushed into unexpected hardship as a result of the pandemic. We adopted a pragmatic approach, working closely with borrowers to restructure repayments."
Stevens said then it moved to quickly adjust its loan criteria in the face of the pandemic and introduced additional checks for new loans.
The company also scaled back its operating expenditure in response to Covid.
"When we observed that borrower demand had temporarily dropped, we were able to immediately reduce monthly marketing expenditure by over 90 per cent, again
demonstrating the advantages of our scalable digital platform."
Harmoney received $453,000 in wage subsidies from the Government during the first lockdown.
It also received grant income of $1.646m from the Government via Callaghan Innovation for research and development activity and the R&D loss tax credit.
Despite the loss, Stevens remained upbeat about the company's prospects.
"Harmoney is in business to help create brighter futures and as we look ahead to 2021, we believe the future is indeed bright for our business.
"It took Harmoney four years to reach our first $1 billion in lending, but only 12 months to lend the next NZ$500 million.
"As we continue our expansion in Australia, where the personal lending market
is estimated to be more than eight times larger than New Zealand, we're excited to see where this growth pathway will lead us on both sides of the Tasman."