CMYK: 0,0,0,100 CMYK: 10,10,10,100 CMYK: 20,20,20,100 CMYK: 0,70,100,0 CMYK: Reversed ANNUAL REPORT 2020 Front cover: Harmoney Christmas Party 2019. CMYK: 0,0,0,100 CMYK: 10,10,10,100 CMYK: 20,20,20,100 CMYK: 0,70,100,0 CMYK: Reversed CONTENTS From the Chair From the CEO Our purpose Our values 2020 highlights Directors’ responsibility statement Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of changes in equity Consolidated statement of financial position Consolidated statement of cash flows Notes to the consolidated financial statements Independent auditor’s report Other information 2 4 8 9 10 12 14 15 16 18 20 22 52 54 AnnuAl report 2020 HArmoney Corp limited FROM THE CHAIR This year, Harmoney marked five years in business, an important milestone for any startup and a fitting moment to take stock of our achievements so far and our vision for the future. Despite the challenges of a global pandemic, 2020 saw substantial growth in lending and revenue, as well as significant new investment into the business. We successfully completed our series C capital raise, and raised corporate debt capital. This enabled us to accelerate our transition to on-balance sheet lending and continue our expansion into the Australian market, where lending has more than doubled compared with FY19. With our increased capacity to fund loans on-balance sheet, we closed retail investment opportunities from 1 April 2020. While from a personal perspective, it was disappointing that we could not continue with the retail investment model upon which Harmoney was founded, the shift to on-balance sheet lending simplifies our business model, providing new opportunities to innovate, scale and improve the borrowing experience for consumers. In November 2019 we welcomed David Stevens as CEO. David is a highly experienced CEO and CFO in the non-bank consumer and commercial finance sectors on both sides of the Tasman. His appointment allowed our founder and former CEO Neil Roberts to transition into the role of Chief Product Officer, where he can lead the continued innovation, strategy and product development that is integral to Harmoney’s success. We also welcomed two new directors from our investor partners: Andrew Yeadon from Trade Me and Udhav Goenka from our series C shareholder, Kirwood Capital. These directors bring valuable experience and additional perspectives in investment, technology and finance to our board. Our fifth birthday celebrations sparked an opportunity to reflect upon our journey so far, and affirm our commitment to our values and our From the outset, Harmoney has been a disruptor of interest rates and traditional lending models and we believe that we have played a significant role in helping drive down interest rates on consumer credit products. 2 | AnnuAl report 2020 company manifesto. We believe that responsible landscape, continue to help consumers reach lending plays a crucial role in helping people embrace life’s opportunities. While our business their goals with conservative risk-based lending and increase investor funding lines at a time of has grown significantly since its inception, we considerable uncertainty. continue to help our customers achieve their goals through financial products that are friendly, fair and simple to use. On behalf of the Harmoney board, I thank our senior leadership team and all our staff for their hard work and dedication in 2020. Our business From the outset, Harmoney has been a disruptor has come a long way over the last five years and of interest rates and traditional lending models it is pleasing that so many of our foundation team and we believe that we have played a significant are still with us today, a testament to the purpose- role in helping drive down interest rates on driven culture and opportunities at Harmoney. consumer credit products. One of our core values is ‘pioneering’ and with this spirit of innovation, we have used data intelligence gathered over our five years in business to reduce lending risk, grow our lending book, reduce the cost of borrowing for consumers and inform our highly successful marketing campaigns. The board wishes to acknowledge David, the senior management team and all our staff for the proactive and agile manner in which the business responded to the challenges of the COVID-19 crisis. The lean and nimble structure of the business enabled us to quickly adapt our lending model and processes to a rapidly changing economic We are excited to build upon our momentum in Australia and consolidate our impressive growth in New Zealand. The board is confident that Harmoney is well placed to continue its path of significant growth into FY21 and beyond, while remaining true to our purpose and vision to help create brighter futures. David Flacks CHAIR AnnuAl report 2020 | 3 HArmoney Corp limited FROM THE CEO Harmoney experienced significant growth and development over this financial period, despite the headwinds experienced from March to June 2020 as a result of the COVID-19 pandemic. This report covers a 15-month period, with the shifting of our final balance date from 31 March to 30 June. This period saw strong revenue growth, with portfolio income (after non-cash adjustments) of NZ$46.0m, almost double that of FY19, as we expanded lending in Australia and accelerated our transition from a peer-to-peer model, to loans funded from warehouse facilities. Lending expanded significantly, with total lending now surpassing NZ$1.7bn with almost 50,000 customers across New Zealand and Australia. Our final pre-COVID-19 quarter (October to December 2019) was record-breaking, with total lending averaging more than NZ$50m per month. Harmoney seeded its first securitisation warehouse with the Bank of New Zealand in December 2018 and grew that facility to NZ$100m over the course of FY20. In January 2020 we seeded a second warehouse facility - our first in Australia - with Westpac, growing that facility to NZ$20m despite PORTFOLIO INCOME ($million) LOAN ORIGINATION ($million) $535 $114 $421 $402 $57 $345 $351 $42 $309 a significant reduction in new lending from March $214 due to the impact of COVID-19. We closed the period with an adjusted EBITDA1 profit of NZ$0.2m, up from a loss of NZ$8.4m last year. Correspondingly, net cash from operating FY2017 FY2018 FY2019 FY2020 activities was NZ$6.2m, up from NZ$3.1m last NZ AU year. These results demonstrate the scalability of 1. Adjusted EBITDA: See note 4. 4 | AnnuAl report 2020 Harmoney’s platform, with net portfolio income growing by 94% while remaining operating costs (adjusted for non-cash and one-off items) grew by only 8%. Our overall net loss of NZ$15.4m is attributable in large part to our transition to on-balance sheet loan funding, with immediate provision for expected future period credit losses, as well as a reduction in expected future revenue from peer-to- peer funded loans. Both categories were impacted by the anticipated longer term effects of COVID-19. LOAN BOOK ($million) $450 $300 $150 FY17 FY18 FY19 FY20 We also incurred one-off set up costs associated OFF BALANCE SHEET ON BALANCE SHEET with establishing our corporate debt facility and our Australian warehouse facility. In October, we successfully completed our series C capital round, raising NZ$25m in equity from two new investors: Australian private equity firm Kirwood Capital, and Lookman Trust, a private institutional investor based in New Zealand. At the same time, we raised a corporate debt facility of AU$10m, bringing the total capital raised to NZ$35.7m. The success of the series C funding round and debt capital raising was a vote of confidence in Harmoney’s business model, the quality of our loans, and our vision for future growth. The round diversified our funding lines and enabled us to invest in digital innovation, scale our business and expand our debt warehousing programme, including funding on-balance sheet loans in Australia for the first time. This investment also accelerated our transition from a peer-to-peer lending model, to warehouse facility-funded loans. From 1 April 2020, all new loans are funded by Harmoney and wholesale debt investors. Existing loans funded by retail investors will continue until repaid and the retail book will gradually scale down. The decision to close retail investing was made over time and while we are proud to have created a new class of retail investment, it is time to These results demonstrate the scalability of Harmoney’s platform, with net portfolio income growing by 94% while remaining operating costs (adjusted for non-cash and one-off items) grew by only 8%. AnnuAl report 2020 | 5 HArmoney Corp limited concentrate our resources on sustainable growth and creating a better borrowing experience for consumers in New Zealand and Australia. One way we achieve this is through continuing digital innovation. Harmoney’s risk-based pricing model relies on accurately predicting credit risk through our online automated application. With the benefit of five years of borrower behaviour data and thanks to ongoing investment in developing and refining our credit scorecard, we are now able to predict an individual borrower’s creditworthiness with greater accuracy than ever before. This enabled us to reduce interest rates across the majority of our credit grades and provide consumers with more suitable offers, as more people now qualify for a lower interest rate or a higher loan limit than in previous years. We introduced quote functionality on our platform, enabling prospective borrowers to get an accurate interest rate quote from Harmoney without recording an enquiry on their credit report. This empowers consumers to shop around for a loan that best suits their personal circumstances, without impacting their credit score. We also extended loan top ups to Australia, enabling qualifying existing customers to draw down additional funds to help them achieve their goals. This provides a better service to customers with good credit performance, and a further pathway to grow our lending book and revenue. It took Harmoney four years to reach our first NZ$1bn in lending, but only 12 months to lend the next NZ$500m. 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. recognition this year, when Harmoney was named Australia’s top risk-based personal loan at the Finder product awards. These awards celebrate the best and most innovative businesses challenging the status quo on behalf of consumers and Harmoney was praised for its ‘super-low rates’ and Harmoney’s offering and our high standard the absence of early repayment fees. of customer care continues to resonate with borrowers. Our NPS score consistently performs above 70, placing our customer experience in the same territory as iconic tech brands like Apple, Amazon, and Netflix. This year we received 6,000 new reviews across ShopperApproved.com and Google Reviews, maintaining an average score of 4.7/5 on both websites, and Harmoney was awarded the Canstar 5 Star award for a fifth consecutive year. Our innovative use of data is also attracting attention, with Harmoney’s digital marketing team taking home the ‘Best Use of SEM/SEO’ award in the highly competitive 2019 IAB New Zealand Digital Advertising Awards. The team used historical data and real-time signals to develop an innovative customer prospecting model and partnered with Google to ensure that relevant messages reach the right audience at the right Our disruption of interest rates and traditional time. The success of the model in the New Zealand lending models brought further external market has allowed us to confidently increase our 6 | AnnuAl report 2020 marketing spend over time and develop a powerful marketing expenditure by over 90%, again strategy that we are now replicating in Australia. demonstrating the advantages of our scalable digital platform. While technology and data continue to drive our business, the dignity of people is paramount. When Our staff worked extremely hard this year, at times life throws an unexpected financial curve-ball, under challenging circumstances. Harmoney’s Harmoney can help people stay on track and keep success is attributable in no small part to their moving forward towards a brighter future. shared passion for transforming the borrower These beliefs are at the heart of our company manifesto and were never more relevant than during the COVID-19 pandemic that unfolded experience, and their commitment to innovation and continuous improvement. It is a testament to all their hard work that Harmoney was named as a finalist for the Company of the Year award, at the rapidly in the final months of this financial period. 2020 New Zealand HiTech Awards. As an online platform, we were able to make a seamless transition to operating under level 4 Our staff complete an annual engagement survey restrictions and our first focus was to support with CultureAmp. This tool allows us to measure existing customers, some of whom had been how positive staff feel about their work, find pushed into unexpected hardship as a result of areas for improvement and benchmark ourselves the pandemic. We adopted a pragmatic approach, against top performing financial services and working closely with borrowers to restructure new technology companies. Our recent employee repayments. We then considered how we could continue to provide responsible lending, while mitigating potential risks to investors and securing the long engagement score of 86% is truly world class. The culture at Harmoney is inspiring and I am proud to lead our team as we continue to help our customers embrace life’s opportunities. term future of our company. No credit scorecard Harmoney is in business to help create brighter is designed in anticipation of a crisis of such futures and as we look ahead to 2021, we believe magnitude, so we moved quickly to adjust our the future is indeed bright for our business. It loan criteria. We also introduced additional checks took Harmoney four years to reach our first for new loans, so that each application could NZ$1bn in lending, but only 12 months to lend the be considered in light of borrowers’ changing next NZ$500m. As we continue our expansion personal circumstances and the evolving economic in Australia, where the personal lending market situation. Throughout this time we kept funders fully informed, acknowledging the challenges and sharing steps taken to mitigate potential risks. Our proactive approach to communication enhanced investor confidence and we were able to increase our funding lines above pre-COVID-19 crisis levels. It is worth noting that we were able to rapidly scale back our operating expenditure in response to the evolving situation. When we observed that borrower demand had temporarily dropped, we were able to immediately reduce monthly 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. David Stevens CHIEF EXECUTIVE AnnuAl report 2020 | 7 HArmoney Corp limited OUR PURPOSE Our purpose describes why we exist and do the We continue to make the borrowing experience things we do. It’s the reason we get out of bed fairer, faster and more accessible, removing and inspires us to do better. It’s the impact we inconvenience, awkwardness and uncertainty want to make on the world. Timely access to money is transformative. Providing credit-worthy people access to money when they need it most allows them to seize opportunities. And by providing responsible lending to more people through simpler access, associated with traditional borrowing. In a little over 5 years, Harmoney has transformed the way people borrow and lend money. We started by creating Australasia’s largest personal loan marketplace, facilitating over $1.7 billions in loans to nearly 50,000 customers. and better ways of assessing and pricing risk, that But we’ve only begun. Our purpose continues to transformation can extend beyond individuals to direct us in the pursuit of helping people create whole communities. brighter futures. 8 | AnnuAl report 2020 OUR VALUES Our values are the foundation for how we operate Empathy: as a team and how we treat our customers and inclusive, supportive, connection the community. Even though we rely heavily on our technology to help us do the hard stuff and Pioneering: data science to help us make decisions, upholding invention, discovery, curiosity, leadership the dignity of people is paramount at Harmoney. Impact: resourceful, outcome-orientated, bold Integrity: honest, ethically, respect, accountable, candour Consistency: stable, reliable, trust-worthy AnnuAl report 2020 | 9 HArmoney Corp limited 2020 HIGHLIGHTS $1.7b in lending New lending continues to grow strongly, reaching new milestones. $500m in receivables In November 2019 we achieved $50m single month loan volume for the first time. We repeated that again in December. World-class employee engagement We’ve achieved an employee engagement score of 86%. We continue to nurture and support a passionate and motivated workforce. Jason Scrivener used his Harmoney loan to revive a family property – to share a place of significance with his grandkids, and help strengthen whakapapa and connection with their land. 10 | AnnuAl report 2020 NPS of 75 Customer satisfaction scores continue to reflect value and trust in Harmoney. Successful series C $35.7m in new capital raised, incorporating equity and corporate debt. Australian warehouse facility Launch of our second warehouse facility in February 2020 – our first for Australia. 4.7 overall reviews rating 4.7 overall reviews rating AnnuAl report 2020 | 11 HArmoney Corp limited DIRECTORS’ RESPONSIBILITY STATEMENT The directors are pleased to present the financial reporting and accounting standards have consolidated financial statements of Harmoney been followed. Corp Limited for the 15 month period ended 30 June 2020. The directors believe that proper accounting records have been kept which enable, with The directors are responsible for ensuring that the reasonable accuracy, the determination of the consolidated financial statements give a true and financial position of the Group and facilitate fair view of the financial position of the Group as compliance of the consolidated financial at 30 June 2020 and its financial performance and statements with the Financial Reporting Act 2013. cash flows for the 15 month period ended on that date. Harmoney Corp Limited’s directors do not have the power to amend these consolidated financial The directors consider that the consolidated statements after issue. financial statements of the Group have been prepared using appropriate accounting policies The Board of Directors of Harmoney Corp Limited consistently applied and supported by reasonable authorised the financial statements set out on judgements and estimates and that all the relevant pages 14-51 for issue on 26 August 2020. For and on behalf of the Board David Flacks DIRECTOR 26 August 2020 Tracey Jones DIRECTOR 12 | AnnuAl report 2020 HArmoney Corp limited CONSOLIDATED INCOME STATEMENT For the 15 month period ended 30 June 2020 15 months ended June 2020 12 months ended March 2019 Notes $’000 $’000 Interest income Fee income Other income Total income Marketing expenses Personnel expenses Impairment expense Administration expenses Interest expense Verification and servicing expenses Technology expenses Depreciation and amortisation expenses Loss before income tax Income tax benefit 5 6 7 8 9 5 11 18,852 16,529 2,099 37,480 14,101 13,150 8,899 6,879 5,698 3,909 3,855 977 (19,988) 4,616 1,055 30,808 1,412 33,275 9,410 11,512 830 5,308 327 3,068 2,957 96 (233) 7,453 (Loss)/Profit for the period attributable to the owners of the Company (15,372) 7,220 The accompanying notes form part of and should be read in conjunction with these consolidated financial statements. 14 | AnnuAl report 2020 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the 15 month period ended 30 June 2020 15 months ended June 2020 12 months ended March 2019 Notes $’000 $’000 (Loss)/Profit for the period attributable to the owners of the Company (15,372) 7,220 Other comprehensive loss attributable to the owners of the Company Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations Loss on cash flow hedge 12 Other comprehensive (loss)/income for the period, net of tax (250) (818) (1,068) Total comprehensive (loss)/income for the period (16,440) 12 (108) (96) 7,124 The accompanying notes form part of and should be read in conjunction with these consolidated financial statements. AnnuAl report 2020 | 15 HArmoney Corp limited CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the 15 month period ended 30 June 2020 Share capital Foreign currency translation reserve Share based payment reserve Cash flow hedge reserve Accumulated losses Total Notes $’000 $’000 $’000 $’000 $’000 $’000 Balance at 1 April 2018, as originally stated 32,812 (96) 1,457 Impact of NZ IFRS 15 adoption Balance at 1 April 2018, as restated - - - 32,812 (96) 1,457 Profit for the 12 month period ended March 2019 Other comprehensive income / (loss) for the 12 month period ended March 2019, net of income tax Total comprehensive income/(loss) for the 12 month period ended March 2019 Recognition of share based payments Transfer to capital Balance at 31 March 2019 Loss for the 15 month period ended June 2020 Other comprehensive loss for the 15 month period ended June 2020, net of income tax Total comprehensive income/(loss) for the 15 month period ended June 2020 Recognition of share based payments Transfer to capital Contributed capital Balance at 30 June 2020 22 22 22 22 21 - - - - (28,737) 7,523 5,436 7,523 (21,214) 12,959 7,220 7,220 (108) - (96) (108) 7,220 7,124 - - - 1,209 (280) 2,386 - - - - 1,209 - (108) (13,994) 21,292 - - - - 280 - 12 12 - - 33,092 (84) - - - - 125 23,469 56,686 - (250) (250) - - - - (15,372) (15,372) (818) - (1,068) (818) (15,372) (16,440) - - - 564 (125) - - - - - - - 564 - 23,469 (334) 2,825 (926) (29,366) 28,885 The accompanying notes form part of and should be read in conjunction with these consolidated financial statements. 16 | AnnuAl report 2020 RELATED IMAGE GOES HERE HArmoney Corp limited CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2020 June 2020 March 2019 Notes $’000 $’000 ASSETS Cash and cash equivalents Trade and other assets Finance receivables Property and equipment Deferred tax assets Total assets LIABILITIES Payables and accruals Borrowings Provisions Lease liability Derivative financial instruments Total liabilities NET ASSETS Issued capital Foreign currency translation reserve Share based payment reserve Cash flow hedge reserve Accumulated losses Equity 13 14 15 16 11 17 18 19 16 12 21 22 12 22 34,779 5,223 129,222 1,448 9,548 180,220 6,263 132,630 9,832 1,684 926 151,335 9,531 12,716 37,814 155 5,165 65,381 3,909 36,952 3,120 - 108 44,089 28,885 21,292 56,686 (334) 2,825 (926) (29,366) 28,885 33,092 (84) 2,386 (108) (13,994) 21,292 The accompanying notes form part of and should be read in conjunction with these consolidated financial statements. 18 | AnnuAl report 2020 RELATED IMAGE GOES HERE HArmoney Corp limited CONSOLIDATED STATEMENT OF CASH FLOWS For the 15 month period ended 30 June 2020 15 months ended June 2020 12 months ended March 2019 Notes $’000 $’000 CASH FLOWS FROM OPERATING ACTIVITIES Interest received Interest paid Other income Payments to suppliers and employees Net cash generated by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Advances to customers Payments for plant equipment Net cash (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from finance receivable borrowing Net proceeds from corporate debt Net proceeds from share issue Principal element of lease payments Net cash generated by financing activities Cash and cash equivalents at the beginning of the period Net increase / (decrease) in cash and cash equivalents Gain on foreign currency bank accounts Cash and cash equivalents at the end of the period 13 17,951 (5,576) 35,411 (41,616) 6,170 (99,209) (33) (99,242) 84,863 10,163 23,469 (189) 118,306 9,531 25,234 14 34,779 787 (246) 34,090 (31,553) 3,078 (38,194) (24) (38,218) 37,000 - - - 37,000 7,658 1,860 13 9,531 The accompanying notes form part of and should be read in conjunction with these consolidated financial statements. 20 | AnnuAl report 2020 AnnuAl report 2020 | 21 HArmoney Corp limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the 15 month period ended 30 June 2020 1. General information Harmoney Corp Limited (the Company) and its subsidiaries are companies whose primary business is to originate, service, and invest in loans. The Company is a FMC Reporting Entity as it is a licensed peer to peer lender. The Group consists of Harmoney Corp Limited and its subsidiaries and controlled entities through which it invests in loans, these are listed in note 24. The results and position of each group entity are expressed in New Zealand dollars, which is the functional currency of the Company and the presentation currency for the consolidated financial statements, unless otherwise stated. Harmoney Corp Limited is a company incorporated in New Zealand and registered under the Companies Act 1993. The Company was incorporated on 1 May 2014. The Company has elected to change its year end from March to June 2020. These consolidated financial statements are for the 15 month period ended June 2020 while the comparative information is for the year ended March 2019 and accordingly, the results are not directly comparable. 2. Significant accounting policies 2.1 Basis of preparation The consolidated financial statements of Harmoney Corp Limited comply with New Zealand equivalents to International Financial Reporting Standards Reduced Disclosure Regime (NZ IFRS RDR) and have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (GAAP). The Company is a for-profit entity for the purposes of complying with GAAP. The consolidated financial statements have been prepared on the historical cost, except where otherwise identified. 22 | AnnuAl report 2020 2.2 Statement of compliance and reporting framework The Group qualifies for NZ IFRS RDR as it is an FMC Reporting Entity with lower public accountability and it is not a large for-profit public sector entity. The Group has elected to apply NZ IFRS RDR and has applied disclosure concessions. 2.3 Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by the Company and its subsidiaries. Control is achieved when the Company: • has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns. The assets and liabilities of entities whose functional currency is not the New Zealand dollar, are translated at the exchange rates ruling at balance date. Revenue and expense items are translated at the spot rate at the transaction date or a rate approximating that rate. Exchange differences are taken to the foreign currency translation reserve. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. 2.4 Goods and services tax Revenue, expenses, assets and liabilities are recognised net of the amount of goods and services tax (GST) except: • where the amount of GST incurred is not recovered from the taxation authority, it is recognised as an unrecoverable GST expense in the income statement; and • for receivables and payables which are recognised inclusive of GST (the net amount of GST recoverable from or payable to the taxation authority is included as part of receivables or payables). 2.5 Application of new and revised accounting standards The Group has applied NZ IFRS 16: Leases for the first time for the reporting period commencing 1 April 2019. On adoption of NZ IFRS 16: Leases, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of NZ IAS 17: Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 April 2019. The Group has adopted NZ IFRS 16: Leases retrospectively from 1 April 2019, but has not restated comparatives for the 2019 reporting period, as permitted under the specific transition provisions in the standard. The new accounting policies are disclosed in note 16. AnnuAl report 2020 | 23 HArmoney Corp limited In applying NZ IFRS 16: Leases for the first time, the Group used practical expedients permitted by the standard and accounted for operating leases with a remaining lease term of less than 12 months as at 1 April 2019 as short-term leases. Adjustments recognised in the balance sheet on 1 April 2019 The change in accounting policy affected the following items in the balance sheet on 1 April 2019: • Right of use assets - increase by $1,924,000. • Lease liabilities - increase by $1,626,000. 3. Critical accounting judgments and key sources of estimation uncertainty In the application of the Group’s accounting policies, the directors of the Group are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. 3.1 Coronavirus (COVID-19) pandemic The ongoing COVID-19 pandemic has increased the estimation uncertainty in the preparation of these financial statements. The estimation uncertainty is associated with the extent and duration of the disruption to business arising from the actions by governments, businesses and consumers to contain the spread of the virus. The Group has two significant accounting estimates in these financial statements based on forecasts of economic conditions which reflect expectations and assumptions as at 30 June 2020 about future events that the Directors believe are reasonable in the circumstances. The underlying assumptions are also subject to uncertainties which are often outside the control of the Group. Accordingly, actual economic conditions are likely to be different from those forecast since anticipated events frequently do not occur as expected, and the effect of those differences may significantly impact accounting estimates included in these financial statements. The significant accounting estimates impacted by these forecasts and associated uncertainties are predominantly related to expected credit losses and the variable consideration components of certain fees. The impact of the COVID-19 pandemic on each of these accounting estimates is discussed further below and/or in the relevant note to these financial statements. Readers should carefully consider these disclosures in light of the inherent uncertainty described above. 24 | AnnuAl report 2020 Allowance for expected credit losses The Group measures the allowance for expected credit losses (ECL) using an expected credit loss impairment model as required by NZ IFRS 9: Financial Instruments (NZ IFRS 9). The Group’s accounting policy for the recognition and measurement of the allowance for ECL is described at note 15. The estimated impact of COVID-19 has been incorporated into forward- looking inputs as described in the note. Transaction price and variable consideration The Group measures the transaction price including variable consideration to determine income as required by NZ IFRS 15: Revenue from Contracts with Customers (NZ IFRS 15). The Group’s accounting policy for the recognition and measurement of this income is described in note 6. The transaction price is determined based on models of expected customer behaviour which are informed by historical experience. An overlay has been applied to reduce the amount of income recognised to accommodate for the expected deviation from that base given current uncertainties. 3.2 Treatment of development costs incurred in the period The Group has incurred and will continue to incur significant costs in developing its online lending platform and on other projects. The directors believe that the costs fall within the definition of research and development within NZ IAS 38: Intangible Assets. These costs have been assessed against the recognition and measurement criteria in that standard. The costs have been recorded as Intangible Assets on the balance sheet where the Group believes that all the requirements of the recognition criteria outlined in the accounting policy (note 10) and expensed where they have not been met. 3.3 Option valuation for share based payments The options granted under NZ IFRS 2: Share-based payments are required to be valued. The valuation exercise requires a high level of judgment in its assumptions. The assumptions are discussed in detail in note 20. 3.4 Deferred tax asset relating to tax losses NZ IAS 12: Income Taxes allows the capitalisation of tax losses as deferred tax assets only to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised. The directors believe that there is sufficient certainty to warrant the recognition of this asset based on expected future taxable profits. 3.5 Determination of transaction price for distributing services The Group has estimated the transaction price for distributing services, being the amount to which the Group expects to be entitled for matching lenders with borrowers that meet their AnnuAl report 2020 | 25 HArmoney Corp limited lending criteria. The transaction price includes a component of variable consideration as the amount of certain payments is correlated with borrower behaviour over which the Group has no control. The Group has estimated the transaction price based on historically observed patterns of borrower behaviour. The assumptions made regarding the rate of default and early repayment by borrowers has a significant impact on these financial statements. 3.6 Expected credit loss provision The Group has estimated the provision for expected credit losses based on historically observed patterns of borrower behaviour adjusted for current and future economic outcomes. These are discussed in detail in note 15 and have a significant impact on these financial statements. 4. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing the performance of the operating segments, has been identified as the Chief Executive Officer. Description of segments Management has determined the operating segments based on the reports reviewed by the Chief Executive Officer (CEO) that are used to make strategic decisions. The CEO and the Board, in addition to statutory profit after tax, assess the business on an adjusted EBITDA basis. Adjusted EBITDA is a non-GAAP measure and consists of profit/(loss) before income tax, adjusted for determined non- cash and abnormal items. It is intended as a supplementary measure of operating performance for readers to understand the cash generating ability of the Group. Adjusted EBITDA does not have a standard meaning prescribed by GAAP and therefore may not be compared to information presented by other entities. The CEO considers the business from a geographical operating and head office perspective and has identified three reportable segments: New Zealand, Australia and Head Office. The Group operates in New Zealand and Australia. Intersegment revenue is not considered by the chief operating decision makers and is accordingly excluded from segment reporting. 26 | AnnuAl report 2020 Segmented income statement For 15 months ended June 2020 $’000 New Zealand Australia Head Office Interest income Lender fees Borrower fees Portfolio income Interest expense Incurred credit loss expense Marketing expenses Verification and servicing expenses Portfolio expenses 17,945 13,617 7,504 39,066 4,160 2,510 8,222 2,913 17,805 907 4,274 2,196 7,377 813 - 5,880 995 7,688 Net portfolio income 21,261 (311) - - - - - - - - - - Personnel expenses Technology expenses Administration expenses Adjusted EBITDA Non-Cash Adjustments Change in expected credit loss provision Change in NZ IFRS 15 expected revenue Change in deferred establishment fees Employee share scheme Depreciation and amortisation expenses Other Normalisation Adjustments Warehouse and debt set up expenses Grants and subsidies Corporate debt and other interest - - - - - - 12,318 3,855 4,613 21,261 (311) (20,786) (5,201) (10,538) (24) (1,188) (261) (239) - - - - - - - - - - - - - (832) (977) (2,270) 2,099 (721) Group 18,852 17,891 9,700 46,443 4,973 2,510 14,102 3,908 25,493 20,950 12,318 3,855 4,613 164 (6,389) (10,799) (263) (832) (977) (2,270) 2,099 (721) Profit/(loss) before income tax 5,498 (1,999) (23,487) (19,988) Income tax benefit 4,120 496 - 4,616 Loss for the period attributable to the owners of the Company 9,618 (1,503) (23,487) (15,372) AnnuAl report 2020 | 27 HArmoney Corp limited Segmented income statement For 12 months ended march 2019 $’000 New Zealand Australia Head Office Interest income Lender fees Borrower fees Portfolio income Interest expense Marketing expenses Verification and servicing expenses Portfolio expenses 1,050 12,178 6,764 19,992 327 6,726 2,531 9,584 5 2,465 1,177 3,647 - 2,685 537 3,222 Net portfolio income 10,408 425 - - - - - - - - - Personnel expenses Technology expenses Administration expenses Adjusted EBITDA Non-Cash Adjustments Change in expected credit loss provision Change in NZ IFRS 15 expected revenue Change in deferred establishment fees Employee share scheme Depreciation and amortisation expenses Other Normalisation Adjustments Other income Grants and subsidies - - - - - - 10,944 2,957 5,305 10,408 425 (19,206) (830) 7,140 629 - - - - - 454 - - - 14 - - - - (569) (96) - 1,398 Profit/(loss) before income tax 17,347 893 (18,473) Income tax benefit 7,192 261 - Group 1,055 14,643 7,941 23,639 327 9,411 3,068 12,806 10,833 10,944 2,957 5,305 (8,373) (830) 7,594 629 (569) (96) 14 1,398 (233) 7,453 Profit for the period attributable to the owners of the Company 24,539 1,154 (18,473) 7,220 28 | AnnuAl report 2020 5. Interest INTEREST INCOME INTEREST EXPENSE Interest on receivables funding Interest on corporate debt Interest on lease liability Total interest expense 15 months ended June 2020 $’000 12 months ended March 2019 $’000 18,852 1,055 15 months ended June 2020 $’000 12 months ended March 2019 $’000 4,973 628 97 5,698 327 - - 327 Interest income and interest expense are recognised in the income statement for all financial assets and liabilities, measured at amortised cost using the effective interest method. The effective interest method allocates interest income or interest expense over the life of the contract, or when appropriate a shorter period, using the effective interest rate. The effective interest rate is the discount rate at which the present value of the future cash flows equals the net carrying amount of the financial asset or liability. When calculating the effective interest rate the Group estimates the future cash flows considering all the contractual terms of the contract but does not include future credit losses. 6. Fee income Lender fee income Distributing services Borrower fee income Establishment services Protect fees Other fees Total borrower fee income Total fee income 15 months ended June 2020 $’000 12 months ended March 2019 $’000 7,823 6,139 1,553 1,014 8,706 16,529 22,226 6,729 1,189 664 8,582 30,808 Harmoney has assessed all the fees paid by lenders and determined that there are two material performance obligations, being distributing services and debt collection. Debt collection is included in borrower fee income as other fees. Distributing services Distributing services refer to Harmoney facilitating the matching of credit worthy borrowers with lenders within criteria chosen by the lender. The fees charged for this service are recognised at the point matching is complete and to the extent that an aggregate reversal AnnuAl report 2020 | 29 HArmoney Corp limited in revenue is not expected. Given only one material performance obligation the transaction price is allocated to the single performance obligation. Payment for distributing services is made by the lender via a combination of fees payable at the point of matching with a borrower, when borrower repayments are received and on a monthly invoice cycle where fees are calculated based on lender portfolio performance. Certain fees charged at the point of matching lenders with borrowers are rebateable if the lender does not achieve the required return on their investment. This is typically due to the borrower loan closing earlier than stated on their contract due to early repayment or default. At the point the performance obligation of matching the lender with a borrower is satisfied, the Group estimates and records as revenue the amount of variable consideration to the extent that it is highly probable that a significant reversal in the cumulative revenue recognised will not occur. The Group’s estimate of rebateable amounts are booked as distributing services rebate provision (note 19). Other fees Other fees include fees charged to investors for collection when borrower repayments are dishonoured or in arrears. A performance obligation arises every time the credit event occurs. The Group performs the debt collection activity following every credit event and recognises revenue at the point in time the follow up activity is undertaken. Given only one material performance obligation the transaction price is allocated to the single performance obligation. Revenue is recognised only to the extent that it is likely that the amount will be recovered. Establishment services Establishment fees are a brokerage fee charged to borrowers for arranging a loan between a borrower and a lender. The performance obligation of arranging the loan is fulfilled at the point in time the loan is matched. Given only one material performance obligation the transaction price is allocated to the single performance obligation. The fee is recognised as revenue on loan contract date. Where the Group is the lender, establishment fees are required to be amortised over the expected life of the finance receivable in accordance with NZ IFRS 9: Financial Instruments. The deferred amount is recognised as a reduction to the finance receivable (see note 15). Protect fees Some of the finance receivable assets have the payment protect feature attached. If the borrower under the loan contract has elected the payment protect feature and makes a successful claim within the required period, principal and interest repayments covered by the claim will be waived by the lender. No amounts are paid to the borrower in the event of a waiver. Where the Group is the lender, Protect fee revenue is the amount charged to the borrower for the payment protect feature. This Protect fee revenue is recognised in the income statement from the attachment date over the period of the contract. Protect fee revenue is 30 | AnnuAl report 2020 earned in accordance with the pattern of the underlying exposure to risk expected under the payment protect feature of the loan contract. The portion of Protect fee revenue included in the financial receivable asset but not yet earned as at the balance date is recognised in the statement of financial position as an unearned waiver fee revenue (note 17). Where the Group is not the lender, the Protect fee revenue is the amount charged to the lender for arrangement and management of the Protect loan. Given only one material performance obligation, the transaction price is allocated to the single performance obligation. At the point the performance obligation of matching the lender with a borrower is satisfied, the Group estimates and records as revenue the amount of variable consideration to the extent that it is highly probable that a significant reversal in the cumulative revenue recognised will not occur. The Group’s estimate of rebateable amounts are recognised as a protect claims provision (note 19). 7. Other income Other income Grant income Wage subsidy Other income Total other income 15 months ended June 2020 $’000 12 months ended March 2019 $’000 1,646 453 - 2,099 1,398 - 14 1,412 Grant and wage subsidy income Grants from the New Zealand Government are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Harmoney received grants related to Research and Development activity as funded by Callaghan Innovation and the R&D Loss Tax Credit as funded by Inland Revenue. Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis in the same periods in which the expenses are recognised. The Group also received wage subsidies funded by the Ministry of Social Development. The subsidy was part of the New Zealand Government’s COVID-19 response plan. The wage subsidy was predicated on certain criteria which was considered in the Group’s application. The Group’s evaluation has not been reviewed by Ministry of Social Development to date. 8. Impairment expense Change in expected credit loss provision Incurred credit loss expense Change in expected protect claims provision Impairment expense 15 months ended June 2020 $’000 12 months ended March 2019 $’000 6,223 2,510 166 8,899 830 - - 830 AnnuAl report 2020 | 31 HArmoney Corp limited 9. Expenses Expenses for the period includes the following items: 9.1 Administration expenses Professional services fees Unrecoverable GST Other expenses Total administration expenses 9.2 Fees paid to auditors Harmoney Corp Limited group financial statement audit Harmoney Australia Limited financial statement audit Harmoney Warehouse No. 1 Trust financial statement audit Harmoney Australia Warehouse No. 1 Trust financial statement audit Other audit services Statutory audit fees Harmoney Corp Limited NTA agreed upon procedures Harmoney Australia Limited AFSL reporting Custody controls assurance engagement Callaghan grant review Assurance and regulatory compliance Other services* Total 15 months ended June 2020 $’000 12 months ended March 2019 $’000 3,462 1,901 1,516 6,879 2,356 1,637 1,315 5,308 15 months ended June 2020 $’000 12 months ended March 2019 $’000 130 37 36 45 - 248 3 10 39 8 60 100 408 113 38 53 - 5 209 3 10 48 10 71 84 364 *Other services provided include tax advisory services (2020:$100k, 2019:$18k) and due diligence advisory services (2020:$nil, 2019:$66k). 10. Research and development Research and development costs expensed as incurred 6,425 7,237 15 months ended June 2020 $’000 12 months ended March 2019 $’000 Expenditure on research activities is recognised as an expense in the period in which it is incurred. 32 | AnnuAl report 2020 An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: • the technical feasibility of completing the intangible asset so that it will be available for use or sale; • the intention to complete the intangible asset and use or sell it; • the ability to use or sell the intangible asset; • how the intangible asset will generate probable future economic benefits; • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • the ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. 11. Income taxes 11.1 Income tax recognised in profit or loss Current tax In respect of the prior period Deferred tax In respect of the current period Total income tax benefit recognised in the period 15 months ended June 2020 $’000 12 months ended March 2019 $’000 (36) 4,652 4,616 - 7,453 7,453 The income tax expense for the period can be reconciled to the accounting profit/(loss) as follows: 15 months ended June 2020 $’000 12 months ended March 2019 $’000 Profit/(loss) before tax from continuing operations Income tax benefit calculated Effect of expenses that are not deductible Previously unrecognised temporary differences Origination of temporary differences Other Income tax benefit recognised in profit or loss. (19,988) (5,698) 845 - 142 95 (4,616) (233) (53) 263 (7,273) (403) 13 (7,453) AnnuAl report 2020 | 33 HArmoney Corp limited The tax rate used for the reconciliation above is the corporate tax rate of 28% payable by corporate entities in New Zealand and 30% for those in Australia, on taxable profits under tax law in their respective jurisdictions. Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the period. Taxable profit differs from ‘profit/(loss) before tax’ as reported in the consolidated statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other periods and items that are never taxable or deductible. The Group’s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. 11.2 Deferred tax balances The following is the analysis of deferred tax assets/(liabilities) presented in the consolidated statement of financial position: Deferred tax assets Deferred tax liabilities Deferred tax assets June 2020 deferred tax (liabilities)/assets in relation to: Tax losses Deferred R&D expenses Share based payments Accruals Plant & equipment and intangibles Distributing services June 2020 $’000 11,696 (2,148) 9,548 March 2019 $’000 10,272 (5,107) 5,165 Opening balance $’000 Recognised in profit or loss $’000 Recognised in equity $’000 Closing balance $’000 5,303 3,319 1,127 523 (6) (5,101) 5,165 (1,147) 1,036 43 1,761 1 2,958 4,652 - - (269) - - - (269) 4,156 4,355 901 2,284 (5) (2,143) 9,548 34 | AnnuAl report 2020 The recognised tax losses are subject to meeting the requirements of the applicable tax legislation, including maintaining shareholder continuity. March 2019 deferred tax (liabilities)/assets in relation to: Tax losses Deferred R&D expenses Share based payments Accruals Plant & equipment and intangibles Distributing services Opening balance $’000 Recognised in profit or loss $’000 Recognised in equity $’000 Closing balance $’000 - - - 10 (10) - - 5,303 3,319 487 513 4 (2,173) 7,453 - - 640 - - (2,928) (2,288) 5,303 3,319 1,127 523 (6) (5,101) 5,165 12. Cash flow hedge Cash flow hedge reserve The Group borrows funds (note 18) in order to purchase finance receivables (note 15). The interest rate payable on the borrowings is floating while the interest receivable is fixed at the point the funds are lent. The interest rate risk is managed and mitigated through the use of interest rate swaps, which exchanges floating interest payments with fixed interest payments. The swaps are entered into to match the maturity profile of estimated repayments of the Group’s borrowings. These are accounted for at trade date. The cash flow hedge reserve is used to recognise the effective portion of gains or losses on derivatives (interest rate swaps) that are designated and qualify as cash flow hedges. At inception of the hedge relationship, the Group documents the economic relationship between hedging instruments and hedged items including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The Group documents its risk management objective and strategy for undertaking its hedge transactions. The valuations were based on market rates at 30 June 2020 of between 0.27% for the 1-month BKBM and 0.36% for the 5-year swap rate for New Zealand (2019: 1.76% to 1.85%) and 0.09% for the 1-month BBSW and 0.27% for the 5- year swap rate for Australia. Fair value The interest rate swaps are initially recognised at fair value through profit and loss on the date the derivative contract is entered into and are subsequently measured at their fair value at each reporting date. All significant inputs required to measure their fair value are observable, therefore the swaps are level 2 in the fair value hierarchy. AnnuAl report 2020 | 35 HArmoney Corp limited The fair value of the interest rate swaps are determined from valuations prepared by independent advisors. These are calculated using a discounted cash flow model using forward interest rates extracted from observable yield curves. Discount rates include an adjustment for counterparty credit risk. 13. Cash and cash equivalents Cash and cash equivalents at the end of the reporting period as shown in the consolidated statement of cash flows can be reconciled to the related items in the consolidated statement of financial position as follows: Cash on hand and demand deposits Short term deposits Restricted cash Total cash and cash equivalents June 2020 $’000 10,106 17,299 7,374 34,779 March 2019 $’000 2,754 3,456 3,321 9,531 Cash and cash equivalents are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any impairment. No adjustment has been made for counterparty credit risk in cash and cash equivalents as the risk of impairment is expected to be not material. Restricted cash is held by Harmoney Warehouse No. 1 Trust and Harmoney Australia Warehouse No. 1 Trust, controlled entities (note 24). The funds may only be used for purposes defined in the Trust documents. Non-cash transactions During the current period, the Group did not enter into any non-cash investing and financing activities (2019: Nil). 14. Trade and other assets June 2020 $’000 March 2019 $’000 4,253 327 625 18 5,223 11,223 1,064 313 116 12,716 Trade receivables Prepayments GST receivable Current tax assets Total trade and other assets 36 | AnnuAl report 2020 Trade and other assets are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Trade receivables includes $1.2m (2019: $0.8m), which is a portion of distributing services fees held by the lender in a bank account controlled by them which can only be withdrawn once certain conditions are met. The conditions do not require further performance obligations to be satisfied by the Group. No adjustment has been made for counterparty credit risk in the financial assets above as all counterparties are considered to be of good credit standing and the risk of impairment is expected to be not material. 15. Finance receivables Finance receivables Protect receivable Accrued interest Deferred establishment fees Expected credit loss (ECL) provision Total finance receivables June 2020 $’000 134,917 1,109 1,168 (897) (7,075) 129,222 March 2019 $’000 38,196 810 267 (629) (830) 37,814 Refer to note 6 for the accounting policy for and description of protect fees and establishment fees. Finance receivables are initially recognised at fair value and are subsequently measured at amortised cost using the effective interest method, less the expected credit loss allowance. 2020 Expected loss rate Gross carrying amount Expected credit loss provision Net carrying amount 2019 Expected loss rate Gross carrying amount Expected credit loss provision Net carrying amount Stage 1 4.07% $’000 133,551 (5,439) 128,112 Stage 1 2.06% $’000 38,363 (791) 37,572 Stage 2 57.46% Stage 3 96.13% $’000 2,069 (1,189) 880 $’000 465 (447) 18 Stage 2 39.00% Stage 3 0.00% $’000 $’000 100 (39) 61 - - - Total 5.20% $’000 136,085 (7,075) 129,010 Total 2.16% $’000 38,463 (830) 37,633 AnnuAl report 2020 | 37 HArmoney Corp limited At initial recognition, an impairment allowance is required for ECLs resulting from default events that are possible within the next 12 months (12-month ECL). In the event of a significant increase in credit risk, an allowance is required for ECL resulting from all possible default events over the expected life of the financial instrument (lifetime ECL). Financial assets where 12-month ECL is recognised are in stage 1; financial assets that are considered to have experienced a significant increase in credit risk are in stage 2; and financial assets for which there is objective evidence of impairment, so are considered to be in default or otherwise credit impaired, are in stage 3. Stage 1 ECL resulting from default events that are possible within the next 12 months (’12-month ECL’) are recognised for financial instruments that remain in stage 1. Stage 2 An assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting period by considering the change in the risk of default occurring over the remaining life of the finance receivable. Unless identified at an earlier stage, all financial assets are deemed to have suffered a significant increase in credit risk when past due. Significant increase in credit risk is measured by comparing loss ratio for the remaining term estimated at origination with the equivalent estimation at reporting date. Stage 3 The Group determines that a financial instrument is credit-impaired and in stage 3 by considering relevant objective evidence, primarily whether: • contractual payments of either principal or interest are past due for more than 120 days; and • the loan is otherwise considered to be in default. If such unlikeliness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is 120 days past due. Interest income is recognised by applying the effective interest rate to the amortised cost amount, i.e. gross carrying amount less ECL allowance. Write-off Finance receivables (and the related impairment allowances) are normally written off, either partially or in full, when there is no realistic prospect of recovery. Measurement of Expected Credit Loss (ECL) Provision The Group has adopted a loss ratio approach using available past data. The loss ratio for each segment (combination of grade and delinquency) is calculated based on historically experienced loss rates since inception of business. These loss ratios are applied to the balance at year end for the relevant segment to calculate the undiscounted ECL. These are then discounted based on average interest rate and average days to charge off. 38 | AnnuAl report 2020 Period over which ECL is measured Expected credit loss is measured from the initial recognition of the financial asset. The maximum period considered when measuring ECL (be it 12-month or lifetime ECL) is the maximum contractual period over which the Group is exposed to credit risk. Forward-looking economic inputs The Group has calculated ‘economic multipliers’ to apply to the ECL having considered the economic environment at reporting date. The finance receivable has been segregated into three categories 1) in hardship 2) not in hardship but in arrears 3) not in hardship and not in arrears. For each segment one or more probabilities and weightings have been assigned, i.e. whether the loan will a) be unaffected b) perform poorly c) perform worse. The probability of each outcome is assessed and the multiplier is the sum product of the multiplier and probability. AnnuAl report 2020 | 39 HArmoney Corp limited 16. Property and equipment Right of use asset Furniture and fixtures IT equipment Other intangibles Total property and equipment Right of use asset Buildings Equipment Total right of use asset Operating lease commitments disclosed as at 31 March 2019 Discounted using the lessee’s incremental borrowing rate of at the date of initial application Less short-term leases not recognised as a liability Lease liability recognised as at 1 April 2019 Of which are: Current lease liabilities Non-current lease liabilities Depreciation charge on right-of-use assets Buildings Equipment Interest expense Expense relating to short-term leases (included in administration expenses) Cash outflow for leases in the period June 2020 $’000 March 2019 $’000 1,319 71 58 - 1,448 - 86 62 7 155 June 2020 $’000 1 April 2019 $’000 1,296 23 1,319 1,891 34 1,925 1 April 2019 $’000 1,920 1,689 (63) 1,626 June 2020 $’000 1 April 2019 $’000 15 1,611 1,626 969 715 1,684 908 11 919 97 106 287 The lease payments are discounted using the incremental borrowing rate, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. 40 | AnnuAl report 2020 Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right-of-use assets are measured at cost comprising the amount of the initial measurement of lease liability and any lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Payments associated with short-term leases and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. 17. Payables and accruals Accruals Unearned waiver fee revenue Employee benefits accrual Trade and other payables Total payables and accruals June 2020 $’000 March 2019 $’000 4,162 1,109 461 531 6,263 584 810 952 1,563 3,909 Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. 18. Borrowings Receivables funding Corporate debt Total borrowings June 2020 $’000 121,636 10,994 132,630 March 2019 $’000 36,952 - 36,952 Receivables funding is used to fund the purchase of finance receivables (note 15). Guarantees The receivables funding borrowings are secured by all assets of the applicable Trusts as detailed below. Transaction costs have been capitalised. The Harmoney Warehouse No. 1 Trust facility limit is $140m and expires December 2021 (2019: Facility limit of $89.5m, expiry AnnuAl report 2020 | 41 HArmoney Corp limited December 2020). The undrawn balance of the facility on 30 June 2020 was $64m (2019: $48m). The Harmoney Australia Warehouse No. 1 Trust facility limit is AUD$115m and expires January 2022. The undrawn balance of the facility on 30 June 2020 was AUD$93m. Harmoney Warehouse No. 1 Trust – Trust assets Cash and cash equivalents Finance receivables Harmoney Australia Warehouse No. 1 Trust – Trust assets Cash and cash equivalents Finance receivables Trade and other assets June 2020 $’000 4,564 110,042 114,606 June 2020 AUD $’000 2,628 18,538 9 21,175 March 2019 $’000 3,320 38,711 42,031 March 2019 AUD $’000 - - - The corporate debt borrowings are guaranteed by way of a performance and payment guarantee by each of Harmoney Corp Limited, Harmoney Limited, Harmoney Services Limited, Harmoney Australia Pty Ltd, Harmoney Services Australia Pty Ltd, and Harmoney Warehouse Limited. The facility limit is AUD$10m at an interest rate of 15% and expires January 2023. Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. 19. Provisions Distributing services rebate provision Protect claims provision Total provisions Carrying amount at start of the period Charged/(credited) to profit or loss - additional provisions recognised Amounts used during the period Carrying amount at end of the period June 2020 $’000 March 2019 $’000 9,666 166 9,832 3,120 17,777 (11,065) 9,832 3,120 - 3,120 506 5,522 (2,908) 3,120 The distributing services rebate provision represents an estimate of distributing services revenue which may be rebated as at reporting date. The estimate has been made on the basis 42 | AnnuAl report 2020 of historical trends across the existing loan portfolio and may vary. These amounts have not been discounted for the purposes of measuring the provision because the effect is not material. The protect claims provision is measured as the central estimate of the value of expected future payments under payment protect contracts issued by the Group, with an additional risk margin to allow for inherent uncertainty in the central estimate. The claims provision has been estimated based on claims history experienced with this product by a similar portfolio of finance receivables with the same repayment waiver feature attached and an increase for the likely impact of current and future economic scenarios. The estimated cost of claims includes direct expenses to be incurred in settling claims i.e. the amount of finance receivable principal that will be waived. The following table discloses the amount and number of finance receivables with payment protect. Finance receivables with payment protect ($’000) Number of contracts with payment protect June 2020 22,808 1,165 March 2019 9,036 446 20. Share Based Payments Details of the equity settled share option plan of the Group The following table provides details of the options granted by the Group as remuneration to employees and directors. Exercise price Grant date fair value Opening balance Granted Exercised Forfeited Closing balance Vested and exercisable Number of share options 2020 Scheme 2 Grant date 28 Feb 2020 $ nil $0.11 Scheme 1 Grant date 1 Apr 2020 Grant date 24 Feb 2020 Grant date 21 May 2018 Grant date 21 Aug 2017 $ nil $ nil $0.16 $ nil $0.10 $0.17 $0.26 $0.26 $0.09 $0.17 $0.11 $0.09 - - - 2,000,000 10,938,315 2,436,000 1,913,290 Other options Grant date 1 Mar 2014 $ nil $0.00 12,000,000 36,103,102 1,634,692 - - 1,000,000 250,000 - - - - - 36,103,102 - 1,634,692 750,000 817,346 250,000 2,000,000 2,000,000 - - - - - 351,500 1,726,392 8,860,423 8,860,423 - - - 52,000 120,774 2,384,000 2,384,000 1,792,516 - - 12,000,000 12,000,000 Total 29,287,605 38,737,794 601,500 1,899,166 65,524,733 26,311,769 AnnuAl report 2020 | 43 HArmoney Corp limited Exercise price Grant date fair value Opening balance Granted Exercised Forfeited Closing balance Vested and exercisable Number of share options 2019 Scheme 1 Grant date 21 May 2018 Grant date 21 August 2017 $0.16 $ nil $0.10 $0.17 $0.09 2,000,000 $0.17 $0.11 $0.09 12,539,876 3,186,000 1,913,290 Other options Grant date 1 March 2014 $ nil $0.00 14,000,000 Total Scheme 2 33,639,166 - - - - - - - 1,601,561 - - 2,000,000 - - 2,000,000 - 10,938,315 6,092,320 750,000 2,436,000 736,000 - - 1,913,290 - 12,000,000 12,000,000 3,601,561 750,000 29,287,605 18,828,320 On 28 February 2020 share options were granted under a performance rights based long term incentive plan. The allocation of rights provides participants with an opportunity to be rewarded for company performance and aligns employee interests with the interests of shareholders. The fair value at grant date was determined using a Monte Carlo simulation model that takes into account the exercise price, the term of the option, the share price at grant date, the vesting hurdles, the expected price volatility of the underlying share, the expected dividend yield, and the risk-free interest rate for the term of the option. Scheme 1 On 21 August 2017 the terms of the share scheme were finalised and share options were granted. The share option plan is designed to provide long-term incentives for Directors and senior management to deliver long-term shareholder returns. Under the plan, participants are granted options which only vest if certain performance standards are met. Further options were granted in May 2018, February 2020 and April 2020 under the same option plan. Options granted on 21 May 2018, 24 February 2020 and 1 April 2020 The fair value at grant date was determined based on a comparable arm’s length transaction. An option pricing model was not required as the options were granted with a $0 exercise price. Options granted on 26 April 2017 The fair value at grant date for share options with a $0 exercise price was based on a DCF valuation. The fair value at grant date of share options with an exercise price was determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share and the risk free interest rate for the term of the option. 44 | AnnuAl report 2020 No options have expired during the period (2019: Nil). Other options The share options granted on 1 March 2014 are to be exercised within 10 years of grant date. Given that these options have a nil exercise price the fair value of the option was calculated on the same basis as an ordinary share. The fair value at grant date was calculated as the mid point of share of net assets and share of capital in the Company. 21. Issued capital ISSUED CAPITAL COMPRISES: Fully paid ordinary shares Fully paid Series A shares Fully paid Series B shares Fully paid Series C shares Total issued capital 21.1 Fully paid shares 2020 2019 Number of shares 141,967,409 26,256,128 33,768,253 58,203,070 260,194,860 Share capital $’000 8,100 8,146 16,971 23,469 56,686 Number of shares 141,365,909 26,256,128 33,768,253 - Share capital $’000 7,975 8,146 16,971 - 201,390,290 33,092 Ordinary shares Series A Series B Series C Balance at 31 March 2018 137,307,629 26,256,128 33,768,253 Shares issued 4,058,280 - - Balance at 31 March 2019 141,365,909 26,256,128 33,768,253 - - - Shares issued 601,500 - - 58,203,070 Balance at 30 June 2020 141,967,409 26,256,128 33,768,253 58,203,070 Fully paid Series A shares carry a right to: one vote per share (except in relation to any vote relating to the appointment of directors), to an equal share in dividends, and to a preferential, pro-rata share of net assets on wind up (subject to the Series C and B shares liquidation preference). Fully paid Series B shares carry a right to: one vote per share, to an equal share in dividends, and to a preferential, pro-rata share of net assets on wind up (subject to the Series C shares liquidation preference). Fully paid Series C shares carry a right to: one vote per share, to an equal share in dividends, and to a preferential, pro-rata share of net assets on wind up; a variable number of bonus shares if a specified event occurs, with this entitlement expiring immediately prior to a liquidation, trade sale or an initial public offering that meets specified conditions. AnnuAl report 2020 | 45 HArmoney Corp limited On a liquidation event (as defined in the Company’s Constitution), the surplus assets of the Company remaining after payment of its liabilities shall be applied: • first, in paying to each Series C shareholder an amount equivalent to the Series C issue price for each share, or the entitlement if the Series C shares were converted to ordinary shares immediately prior to the liquidation event, whichever is greater (or if the surplus assets are insufficient to pay full amount, a pro rata amount based on their holding of Series C shares); • second, in paying to each Series B shareholder an amount equivalent to the Series B issue price for each share, or the entitlement if the Series B shares were converted to ordinary shares immediately prior to the liquidation event, whichever is greater (or if the surplus assets are insufficient to pay full amount, a pro rata amount based on their holding of Series B shares); • third, in paying to each Series A shareholder an amount equivalent to the Series A issue price for each share, or the entitlement if the Series A shares were converted to ordinary shares immediately prior to the liquidation event, whichever is greater (or if the surplus assets are insufficient to pay full amount, a pro rata amount based on their holding of Series A shares); • fourth, in paying the balance (if any) to all ordinary shareholders pro rata based on the number of ordinary shares held by each of them (with the Series shares not participating beyond their preferential entitlements). 22. Accumulated losses and Reserves ACCUMULATED LOSSES Opening balance Impact of NZ IFRS 15 adoption (Loss)/Profit attributable to owners of the Company Closing balance 15 months ended June 2020 $’000 12 months ended March 2019 $’000 (13,994) - (15,372) (29,366) (28,737) 7,523 7,220 (13,994) Foreign Currency Translation Reserve Exchange differences relating to the translation of the results and net assets of the Group’s foreign operations from their functional currencies to the Group’s presentation currency (i.e. NZD) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. SHARE BASED PAYMENTS RESERVE Opening balance Arising on equity settled benefits Deferred tax on share based payments Transferred to share capital Closing balance June 2020 $’000 March 2019 $’000 2,386 832 (268) (125) 2,825 1,457 569 640 (280) 2,386 The above equity settled reserve relates to share options granted by the Company under Directors agreements and employee agreements. Further information is set out in note 20. 46 | AnnuAl report 2020 Share-based compensation plan The Group receives services from employees and directors as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted: • including any market performance conditions • excluding the impact of any service and non-market performance vesting conditions and • including the impact of any non-vesting conditions. At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions and service conditions. It recognises the impact of the revision to original estimates, if any, in the income statements, with a corresponding adjustment to equity. When the options are exercised, the company issues new shares. 23. Related party transactions Balances and transactions between the Company, its subsidiaries and controlled entities, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. 23.1 Compensation of key management personnel The remuneration of directors and other members of key management personnel during the period was $2,451,028 (2019: $1,875,322). AnnuAl report 2020 | 47 HArmoney Corp limited 24. Subsidiaries and controlled entities Details of the Group’s material subsidiaries and controlled entities at the end of the reporting period are as follows. Date of incorporation Place of incorporation and operation Proportion of ownership interest and voting power held by the Group SUBSIDIARY Harmoney Limited Harmoney Services Limited Harmoney Investor Trustee Limited Harmoney Australia Pty Ltd Harmoney Services Australia Pty Ltd Harmoney Nominee Limited Harmoney Warehouse Limited CONTROLLED ENTITY 15-May-14 New Zealand 16-May-14 New Zealand 9-Jul-14 New Zealand 20-Feb-15 22-Sep-15 Australia Australia 28-Nov-17 New Zealand 14-Mar-18 New Zealand Harmoney Warehouse No.1 Trust* 3-Dec-18 New Zealand Harmoney Australia Warehouse No.1 Trust** 4-Dec-19 Australia 2020 100% 100% 100% 100% 100% 100% 100% n/a n/a 2019 100% 100% 100% 100% 100% 100% 100% n/a n/a * On 13 December 2018 the Group entered a wholesale funding agreement with two other financiers under which it purchases finance receivables through Harmoney Warehouse No. 1 Trust ( the Trust). The Trust is a special purpose entity was set up solely for the purpose of purchasing loans from the Originator (Harmoney Nominee Limited and Harmoney Services Limited) under the Subscription Agreement with funding from Financiers. The senior and mezzanine financiers fund up to 89.5% of the purchase with the remainder being funded by a subordinated loan from the Group. Harmoney Group subsidiaries have been appointed Manager, Servicer and residual income beneficiary. Under NZ IFRS 10: Consolidated Financial Statements , an investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. As the Group controls the financing and operating activities of the Trust and is the residual income beneficiary, the Trust is controlled by the Group and is required to be consolidated into the Group financial statements. ** On 4 December 2019 the Group entered a wholesale funding agreement with two other financiers under which it purchases finance receivables through Harmoney Australia Warehouse No. 1 Trust (the AU Trust). The AU Trust is a special purpose entity which was set up solely for the purpose of purchasing loans from the Originator (Harmoney Australia Pty Limited) under the Issue Supplement with funding from Financiers. The senior and mezzanine financiers fund up to 88.5% of the purchase with the remainder being funded by a subordinated loan from the Group. Harmoney Group subsidiaries have been appointed Manager, Servicer and residual income beneficiary. Under NZ IFRS 10: Consolidated Financial Statements , an investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect 48 | AnnuAl report 2020 those returns through its power over the investee. As the Group controls the financing and operating activities of the Trust and is the residual income beneficiary, the AU Trust is controlled by the Group and is required to be consolidated into the Group financial statements. 25. Financial assets and liabilities Fair value hierarchy of Financial Instruments Not Measured at Fair Value. The following table analyses financial instruments not measured at fair value by level in the fair value hierarchy. FINANCIAL ASSETS Cash and cash equivalents Trade and other assets Finance receivables FINANCIAL LIABILITIES Payables and accruals Borrowings FINANCIAL ASSETS Cash and cash equivalents Trade and other assets Finance receivables FINANCIAL LIABILITIES Payables and accruals Borrowings June 2020 $’000 Level 2 - - - (5,154) (132,630) Level 1 34,779 1,250 - - - Level 3 - 3,003 129,222 - - March 2019 $’000 Level 1 Level 2 Level 3 9,531 835 - - - - - - (3,099) (36,952) - 10,388 37,814 - - There have been no transfers between levels in the period (2019:Nil) level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. AnnuAl report 2020 | 49 HArmoney Corp limited NZ IFRS 9: Financial Instruments requires financial asset debt instruments to be classified on the basis of two criteria: a. the business model within which financial assets are managed; and b. their contractual cashflow characteristics (whether the cashflows represent solely payment of principal and interest (SPPI). There are three resulting classifications of financial asset debt instruments under NZ IFRS 9: Financial Instruments: a. Amortised cost: financial assets with contractual cash flows that comprise SPPI, and which are held in a business model whose objective is to collect their contractual cash flows are measured at amortised cost; b. Fair value through other comprehensive income (FVTOCI): financial assets with contractual cash flows that comprise SPPI, and which are held in a business model whose objective is to both collect their contractual cash flows and to sell are measured at FVTOCI; and c. Fair value through profit or loss (FVTPL): financial assets with contractual cash flows that do not represent SPPI, or which are held under a different business model are measured at FVTPL. Financial assets can also be designated at FVTPL if doing so eliminates or significantly reduces an accounting mismatch. 26. Contingent liabilities The Group was subject to Case Stated and Enforcement legal proceedings during the 15 month period ended 30 June 2020. The Case Stated proceedings asked the court to answer a question of law based on a limited factual scenario, namely whether the Platform Fee that Harmoney charges borrowers is subject to the Credit Contracts and Consumer Finance Act 2003 (the Act). On 8 July 2020, the Court of Appeal upheld the High Court judgment that Harmoney is a creditor and the Platform Fee is a credit fee, on the facts presented. There has not yet been any substantive argument before the court with respect to the Enforcement Proceedings. A High Court hearing will be held in September 2021 at the earliest. Until such time as a judgment is issued, based on complete facts, determining whether the Platform Fee that Harmoney charges borrowers is subject to the Act, and whether or not it is reasonable under the Act, the application of the law to the Group remains uncertain. Harmoney’s position remains that its fees are not subject to the Act, and that even if they were, the fees are reasonable and there is no compensation due. As such, Harmoney’s legal liability is contingent on the outcome of the Enforcement Proceedings. There are no other contingent liabilities as at 30 June 2020. 50 | AnnuAl report 2020 27. Events after the reporting period On 11 August 2020, it was announced that the greater Auckland region would be placed under COVID-19 alert level 3 restrictions, while the remainder of the country was placed under COVID-19 alert level 2 restrictions. As a financial services provider Harmoney is an essential business. It is unknown at the date of signing how long this lockdown period will last for. The expectation that this event would occur again has been considered in the significant accounting estimates impacted and recognised in the expected credit losses, NZ IFRS 15 variable consideration estimates and recoverable amount assessments of financial assets in these financial statements. U Goenka was appointed as Director on 27 July 2020. There were no other material events subsequent to period end. AnnuAl report 2020 | 51 HArmoney Corp limited INDEPENDENT AUDITOR’S REPORT 52 | AnnuAl report 2020 AnnuAl report 2020 | 53 HArmoney Corp limited OTHER INFORMATION For the 15 month period ended 30 June 2020 Directors The following persons respectively held office as directors of the Company and the Company’s subsidiaries during the 15 month period ended 30 June 2020. Harmoney Corp Limited DM Flacks (Chair) NG Roberts TK Jones R Dellabarca LM Forster (Appointed 22 October 2019, Resigned 13 July 2020) AD Yeadon (Appointed 1 February 2020) S McLean (Resigned 26 July 2019) Harmoney Australia Pty Limited BS Taylor DM Nesbitt B Hagstrom (Appointed 5 August 2019) Harmoney Services Australia Pty Ltd B Hagstrom BS Taylor Harmoney Investor Trustee Limited SP Ward NG Roberts B Hagstrom (Appointed 5 August 2019) Harmoney Limited SP Ward NG Roberts B Hagstrom (Appointed 5 August 2019) 54 | AnnuAl report 2020 Harmoney Services Limited SP Ward NG Roberts B Hagstrom (Appointed 5 August 2019) Harmoney Nominee Ltd SP Ward NG Roberts B Hagstrom (Appointed 5 August 2019) Harmoney Warehouse Limited SP Ward NG Roberts B Hagstrom (Appointed 5 August 2019) Employee Remuneration The Company and its subsidiary companies had employees who received remuneration, including non-cash benefits, in excess of $100,000 for the 15 month period ended 30 June 2020 as detailed below: REMUNERATION $ Number of employees 100,000-109,999 110,000-119,999 120,000-129,999 130,000-139,999 140,000-149,999 150,000-159,999 160,000-169,999 180,000-189,999 190,000-199,999 220,000-229,999 230,000-239,999 240,000-249,999 260,000-269,999 270,000-279,999 300,000-309,999 310,000-319,999 370,000-379,999 440,000-449,999 520,000-529,999 530,000-539,999 710,000-719,999 7 8 7 6 3 1 4 4 1 1 1 1 2 3 1 1 1 1 1 1 1 AnnuAl report 2020 | 55 HArmoney Corp limited Directors’ Interests The following are particulars of general disclosures of interest by Directors of Harmoney Corp Limited holding office at 30 June 2020, pursuant to section 140(2) of the Companies Act 1993. Where applicable, the disclosures also include directorships of subsidiaries of the relevant companies. DM Flacks Vero Insurance New Zealand Limited Vero Liability Limited Flacks & Wong Limited Director Director Director NZ Markets Disciplinary Tribunal Chair (Resigned) Asteron Life Limited Zero Invasive Predators Limited Project Janszoon Trust Company Upside Biotechnologies Limited (in voluntary liquidation) AFT Pharmaceuticals Limited NZ Venture Investment Fund NZVIF Investment NZX Regulatory Governance Committee Todd Corporation Limited TK Jones Tutanekai Investments Ltd Kepa Investments Ltd Sandat Consulting Ltd N’Godwi Trust New Plymouth PIF Guardians Ltd Jones Family Office Partners Ltd Nikko Asset Management NZ Limited RC Custodian Ltd Petal Foundation R Dellabarca New Zealand Growth Capital Partners R P Dellabarca Trust Solvency II Solutions UK Ltd Fintech Solutions Blues Management Ltd NZ Rugby Promotions NG Roberts Neil Roberts Trustee Company Ltd Neil Roberts Business Trust Roberts Family Trust Minc Limited Fintech NZ Executive Council 56 | AnnuAl report 2020 Director Director Director Chair Chair Deputy chair (Resigned) Director (Resigned) Chair Director Director Director Director Trustee Director Director Chair Director Trustee and Chair CEO Trustee Director Director Director Director Director Trustee Trustee Director Co Chair AD Yeadon Lifestyle Asset Holdings Limited Director SP Ward Monde Five Ltd DM Nesbitt Director Neslan Pty Ltd as trustee for the Nesbitt Family Trust Trustee B Hagstrom Brad Hagstrom, Renee Hagstrom, and Guy Hagstrom as Trustee trustees for the Hagstrom Family Trust BS Taylor Tap Capital Pty Limited Director Indemnities and insurance Pursuant to section 162 of the Companies Act 1993 and the Constitution, Harmoney Corp Limited has entered into insurance for the directors of the Group to indemnify them, against liabilities which they may incur in the performance of their duties as directors of any company within the Group. Remuneration and other benefits received by Directors during the period Directors’ fees $ # of options TK Jones DM Flacks R Dellabarca 63,677 144,722 63,677 476,613 953,227 476,613 Donations The Group donated $8,635 in the current period (2019: $21,000). AnnuAl report 2020 | 57 CMYK: 0,0,0,100 CMYK: 10,10,10,100 CMYK: 20,20,20,100 CMYK: 0,70,100,0 Copyright 2020 Harmoney Corp Limited CMYK: Reversed