Thank you for standing by, and welcome to the Humm Group first half 2021 results conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Rebecca James, CEO. Please go ahead.
Good morning. Thank you for joining us for our half year 2021 results presentation. My name is Rebecca James, Chief Executive Officer of Humm Group, and I'm joined today by our Chief Financial Officer, Jason Murray. I'd like to start today by talking you through our group highlights for the half before discussing our plans to accelerate local and international growth. I'll then hand over to Jason, who will walk you through our financials. We will, as always, allow for your questions at the end of the presentation. We believe our offering is the most flexible Buy Now, Pay Later offering in the world. We're the only provider to facilitate transactions up to AUD 30,000 with payment terms ranging from five fortnights to five years. Today, 2.6 million customers entrust us to help them buy and pay over time. We're just getting started.
It's our mission now to take our offering global, expanding into the United Kingdom from Ireland and also into Canada. We're taking the fight to our competitors, both locally and globally. We intend to significantly ramp up our investment in marketing and our product experience in all key markets. Turning to slide five, you'll see the group highlights for the first half. During the period, we've added 750,000 new customers, up 40% on PCP, taking total group customers to over 2.6 million. We now have a superior credit decision engine delivering net loss to ANR of 3.2% in the first half 2021, a direct result of continued investment in our proprietary decision engine to improve our credit performance. We are a digital-first business with over 1.3 million app downloads to date, a significant increase in digital penetration. Our Buy Now, Pay Later business is ramping up.
Buy Now, Pay Later segment volumes of AUD 473 million is up 14% on PCP, reflecting the strong performance in Humm Ireland, Humm Little Things in Humm Australia, and the increasing contribution from Bundll. Our new Buy Now, Pay Later product offerings, including Humm Little Things Australia, New Zealand, Ireland, and Bundll, have been snapped up by consumers with volume in these products increasing 90% on PCP. More importantly, our customers are using our products more regularly, with total BNPL transactions up 293% on PCP to 1.5 million as we penetrate into everyday spend and increase our stickiness with customers. The strong results from the half now gives us the confidence to invest in our strategy, designed to support and accelerate our long-term growth. On slide seven, you'll see that Humm has four areas of focus that will support its short and long-term growth.
Everything we've done up to now has been to get us to a position to put our firepower behind these growth initiatives and expand our customer numbers, merchant numbers, and addressable market, both locally and abroad. We will go to market with new products, Bundll and hummpro, with target new markets and new audiences to expand our domestic reach in Australia and New Zealand. Drive customer engagement and transaction frequency, building our products that are loved and used every day. Expand our installment payment core by attracting new merchants and platforms in Australia and New Zealand through our differentiated product offering. Expand into new markets internationally through a considered and differentiated strategy that will appeal to a broader range of merchants and customers than traditional Buy Now, Pay Later players.
On slide eight, you will see that following beta testing in December 2020, the company is now proudly promoting hummpro, a Buy Now, Pay Later product designed to meet the needs of small to medium business owners. As part of new products for new audiences, hummpro has been designed to give business owners more options and greater flexibility when financing their business and follows demand from SMEs who are looking to invest and grow as trading conditions return to pre-pandemic levels. There are just under 3 million SMEs in Australia and New Zealand and an AUD 30 billion credit market, representing a significant opportunity for hummpro. Humm Group will leverage its considerable experience in responsible credit decisioning and building customer-centric experiences as it rolls this new product out to its business customers.
On slide nine, you'll see that hummp ro can be used anywhere Mastercard is accepted, online, in-store, and to pay supplier invoices. Other Buy Now, Pay Later for business solutions require suppliers to be integrated into their network, which limits how and where they can be used. Hummp ro acts like a universal trade account. It is accepted universally at every supplier that accepts Mastercard payments. Purchases are grouped into monthly balances with another month to repay. It also allows users to manage multiple monthly balances on individual repayment terms, providing the freedom to continue making purchases without impacting existing commitments. Of course, our fees are competitive and transparent. On slide 10, you'll see that Humm Group's other new product designed to drive growth is Bundll. Our nascent buy now, pay anywhere product, which has already gathered over 50,000 customers.
Using the Mastercard network, Bundll customers can shop anywhere, anytime, online and in store, interest-free with no minimum spend. Bundll has experienced positive momentum over the period, with monthly transactions now reaching over 321,000. Monthly volumes have also grown rapidly over the half, now totaling AUD 11.4 million a month. Bundll, as the world's first buy now pay anywhere platform, has significant technology and data expertise, and the company has been exploring ways to collaborate and partner with the world's best technology and payments companies to realize that potential. In November, we announced the first step in that mission through a partnership with Mastercard to expand the application and distribution of Bundll. The agreement is for five years and is expected to deliver an additional growth path for Humm Group, at the same time as expanding the services that schemes can provide to customers.
Humm Group has become synonymous with easy digital interest-free finance. The key to this is a focus on driving customer engagement through our digital channels. There have been over 1.3 million app downloads across the Humm Group ecosystem, including 120,000 Buy Now, Pay Later app downloads in December 2020 alone. We have designed seamless and delightful app experiences, which include instant provisioning that allows our customers to sign up and shop in less than two minutes. Marketplaces that offer a frictionless two-click shopping experience. Apps rich with additional features like BPAY that allows customers to pay for household bills at over 20,000 providers. Easy and simple to navigate repayment features that allow customers to pay their way.
Our app scores have been consistently high, and our focus on continuing to deliver a strong customer experience has driven customer usage now to 14X a year on average, and delivered an NPS of 58. That's a net promoter score showing engaged customer advocacy for Humm. Humm is the original Buy Now, Pay Later product that allows young families to live interest-free forever. Our ability to finance both big and little purchases continues to drive retailer adoption and customer growth and will be our USP when we expand into new markets. Humm focuses on driving customer engagement by signing new merchants and platforms in our existing markets. During that period, we continued to add new merchants, which shows the strength of the product and our differentiated customer proposition. In the last 12 months, the company has added over 9,300 new retailers.
The growth in home and health over that period shows that being able to finance both small and big ticket items is resonating with a broad range of retailers. It's what we own and where we'll win. This has translated into rapid growth for our BNPL products, as you can see on slide 13. A key driver of expanding our installment payment core as the brand continues to gain traction and consumers use our product more regularly. App downloads increased 130% on the prior December month, surpassing 119,000 downloads. The biggest ever month for Humm Group. Monthly transactions have skyrocketed 316% over December 2019 as we penetrate into everyday spend and increase our stickiness with our customers. Total BNPL volumes have increased 23% since December 2019, driven by an 85% growth in Little Things volume over the same period.
Big Things volume in Australia was slightly restrained during the beginning of the half as consumer spending on large items, typically purchased in-store and healthcare felt the challenges of Melbourne's extended lockdown. These have since returned. Turning to slide 14, I'd just like to talk about the continued success of our Irish operations, which have gone from a leasing business to a rapidly growing Buy Now, Pay Later business in a short space of time. As the only Buy Now, Pay Later player in Ireland, we've nearly doubled our customers in the first half 2021, while also generating strong growth in retail partners and volumes. The rapid progress in growing Buy Now, Pay Later customers, volumes, and retailers in Ireland clearly demonstrates Humm Group's ability to pivot and scale internationally.
With many of our retail partners in Ireland also operating in the U.K., this provides us a stronger base from which to expand. On slide 15, you'll see that today Humm Group is announcing the launch of our Buy Now, Pay Later product Humm into the United Kingdom and Canada in the second half of the financial year 2021. Buy now, pay later adoption in these markets is still in its infancy, with a significant opportunity to displace outdated traditional point-of-sale finance.
We are well-placed to capture the shift from revolving credit to paying over time in fixed installments, with a focus on higher value purchases in health, automotive, home improvement and luxury. With a market opportunity of AUD 778 billion, and as the only player servicing both the United Kingdom and Ireland, there is a clearly differentiated offering for merchants and customers that will challenge traditional point-of-sale finance in the United Kingdom. Our Humm Little Things product will be available for smaller ticket items and Big Things for more significant purchases with longer terms. The U.K. expansion is spearheaded by Patrick Joseph Byrne, CEO of Humm UK and Ireland, and Ross Gould, our head of credit and risk. PJ has led the Humm Ireland business for a number of years, delivering continued growth in volumes and customers.
From the outset when exploring our expansion into the U.K., we built our offering around a customer-centric product design. That means that it has already been configured to meet increasing regulation, including serviceability checks. Canada provides Humm with an additional AUD 613 billion market opportunity, and given our strong existing relationships and the region's complementary regulatory framework, it makes for an attractive market for Humm to enter. We've made great progress already in preparing for our launch, and announcements around board and senior executive appointments for that region are due imminently. We're also in active discussions with a number of participants in the market with further strategic alliances to be announced on launch. On slide 19, you will see that PJ and the team have already made strong progress in the U.K. with over 200 retailers signed up, including Pamela Scott, Instasmile, McGuirks Golf, River Medical, and Therapie Clinic.
With substantial capital at our disposal, the ability to service large ticket items, a key differentiator, and a significant international market opportunity, we have a strong platform for future growth. It's an understatement to say we're incredibly excited about the potential of these markets, and we look forward to updating you on our progress. I'd now like to hand over to Jason to walk us through the first half 2021 group financials.
Thanks, Rebecca. Turning to page 18 of the pack. Gross income, which is interest income plus fee income, was AUD 225.2 million, down 6.4% on the prior comparative period, or PCP. The biggest driver of the decline was lower interest-bearing balances in AU Cards. There was also an impact from the consumer leasing business, which is in runoff and ceased writing new business in 2019. Gross profit, which is gross income less interest expense and less direct cost of sales, was AUD 174.3 million, down 4.1%. The decline was proportionately less than gross income due to lower borrowings in some segments and lower cost of funds, which led to a AUD 7 million saving. Marketing and operating expenses will be covered in more detail in the next slide, but at headline level, we're really pleased with the progress we've made to date, reducing combined operating expenses by 11.1% on PCP.
Turning to credit performance, impairment losses were down 35.2% to AUD 25 million. Impairment losses are made up of actual losses, less any recovery benefits from those losses, and the movement in provisions against the portfolio. The combination of lower actual losses and strong recoveries led to a net loss of AUD 40 million, down 12% or AUD 5.5 million on PCP. AUD 6.1 million of the provision movement, or AUD 4.3 million after tax, is a partial release of the COVID-19 macro overlay. You'll recall at the FY 2020 full year, we took a AUD 30.9 million post-tax provision in relation to the impact of COVID-19, and the majority of that provision remains in place until we get a clearer view of the full impact of the pandemic. The balance of around AUD 2 million is an increased write-back of the baseline provision.
This robust credit performance reflects the benefit of continued investment in our superior credit decisioning engine and fraud platform and the adoption of a customer-centric approach to hardship management and collections. Our tax expense of AUD 18.7 million, although up substantially on PCP, is now at more normalized levels of around 30%. Last year, our tax expense was lower as there was a one-off benefit recognized through the tax expense line. Taking into account all of these movements, our cash NPAT of AUD 43.4 million for the half is up 25.8%. This strong underlying profit increased earnings per share to AUD 0.096 and improved return on equity to 13.1%, despite our having raised capital during the period. Reconciling cash NPAT to stat NPAT, our non-cash items are AUD 4.8 million, and these are contained in the appendix on page 31.
Looking to the second half of 2021, Humm Group is focused on growth in Australia, New Zealand, and Ireland, and we're also entering two new international markets, as Rebecca mentioned. This will involve investments in marketing, product, and people, and the company therefore expects second half 2021 cash NPAT to be lower than the first half. To support the company's investment for growth, the board has decided not to pay an interim dividend for the first half 2021 and will continue to review the dividend policy each half-year period. Turning to Operating Expenses, we wanted to provide greater clarity on the underlying movements, which have resulted in Humm Group becoming a simpler, leaner operation. Operating Expenses are down AUD 10.9 million compared to PCP.
Payroll costs are down AUD 13 million as we further streamline the business by removing duplicate roles and functions, saving AUD 6.9 million and achieving a 30% reduction in our headcount since December 2018. Other operating expense savings of AUD 3.6 million were driven by simplifying the business and disciplined management of costs. We've consolidated three telephone systems into one. We've developed a single knowledge management system. By introducing lower cost self-serve models like web chat, we've standardized our approach to serving customers. Importantly, these efficiency gains have also improved consumer product reviews. Marketing expenses were up AUD 1.8 million and reflect a conscious investment in new products, with Humm launching in New Zealand in September, and a renewed focus on Bundll after that product pretty much went into hibernation during the early months of the COVID-19 pandemic.
Depreciation was up AUD 3.9 million, reflecting increased investment in systems and the steady stream of product development, as well as continued innovation and feature rollout in our existing products to further drive customer engagement. Our cost-to-income ratio of 49.8% in the first half 2021 is down 420 basis points on PCP. As you can see in the bottom right chart, we've made significant progress in reducing the core operating cost of the business. CTI, excluding marketing and depreciation, has fallen 790 basis points since the first half 2020 to 34%. Investment in international expansion will drive a moderate short-term increase in the cost-to-income ratio, but we will maintain a continued focus on reducing core operating expenses, excluding marketing and depreciation. We'll now take a look at the segment views, turning first to Buy Now, Pay Later, or BNPL.
This segment consists of Humm, our traditional BNPL product, and now also includes Bundll, our buy now, pay anywhere product, which we've recategorized from Australia Cards, and the newly launched hummpro, our business now, pay later product. Cash NPAT for the half was AUD 3.1 million. Although remaining profitable, and we're the only profitable BNPL player that we're aware of, we have reinvested AUD 6.7 million into new products and new markets, and we've shown this on a comparative basis for the prior period. The impact in both periods was caused by development costs in Bundll and hummpro. The current period also includes investment in the relaunch of Bundll, and to a lesser extent, Humm New Zealand, which launched in September. It was really pleasing to see volume of AUD 473 million, up 13.8%. This reflects strong performance in Humm Ireland, Humm Little Things, and an increase in contribution from Bundll.
We're genuinely excited about Bundll and the momentum that has built in the last few months since the effective relaunch. Across BNPL, momentum in online volume continues as customer spending shifts to e-commerce. We're also seeing consumers purchase larger ticket items online. Gross profit of AUD 45.5 million was down 7.3%, despite receivables growth of 8.9%. The decline was due to higher direct cost of sales as we invested in the business and margin compression in some product segments. The continued focus on cost efficiency mentioned earlier led to a AUD 2.4 million decrease in operating expenses for the segment. However, we reinvested in marketing and new product launch and development. Finally, the portfolio continues to perform really well, with 30+ day arrears at 1.85% for Humm Australia at the end of the period.
Turning to cards, profits increased on both sides of the Tasman despite a challenging operating environment. Australia Cards cash NPAT of AUD 12.2 million was up 87.7%, despite volume declining 43.2% to AUD 201 million due to the impact of COVID-19 across travel-related industries. If you exclude key travel partner volumes and associated refunds, the segment volume period on period only declined 2.4%, outperforming system in Australia, which shrunk just over 9%. Gross profit for AU Cards was down 9.9% to AUD 37.5 million due to a decline in interest-bearing receivables. There was an industry-wide pay-down of card balances over the period, and importantly for Humm Group, this was more prevalent in Once and Lombard, our legacy products in run-off, with humm90 interest-bearing balances remaining broadly stable. The faster than expected pay-down of the books in run-off has also had a positive impact on impairments.
In fact, the company wrote back AUD 200,000 for the period from lower arrears, as well as a partial release of the COVID-19 macro overlay of AUD 4.3 million after tax, as a result of the significant drop in the number of hardship cases from the prior period. Turning to New Zealand Cards, cash NPAT of AUD 14.3 million was up 5.9% for the period. Volume was down 17.3%, again, largely due to the impact of COVID-19 on spending, noting that travel and hospitality make up a lower proportion of the volume we write in New Zealand compared to Australia. Gross profit for New Zealand Cards was up 2.8%, driven by a higher net interest margin and lower direct cost of sales. In addition, operating expenses reduced 8.5%, reflecting the benefit of the cost reduction initiatives in this segment. Next, the Commercial and Leasing business.
Cash NPAT of AUD 13.8 million for the half was up 46.8%, reflecting a business that has been completely rebuilt and refocused. Volume was up 46.9%, driven by strong growth in Australia in small business lending through our dedicated broker distribution channel and an internal focus on fast and efficient approvals. The reputation that the team have built over the last 12 months as a prudent lender providing consistent and quick credit decisioning has allowed us to gain share in a market that grew modestly overall. This prudent growth has not been at the expense of credit quality, which is level with prior periods, and in some sectors, even better. Gross profit of AUD 36.7 million was down 3.4%, mainly due to the portfolio mix, moving from vendor finance programs to chattel mortgages.
In addition, the run-off of the consumer leasing portfolio continues to diminish half on half, but is still recorded in this segment. The simplified structure and run-off of legacy products has also led to a corresponding reduction in OpEx of 29.3% to AUD 15.7 million. Just before Christmas, the team also enrolled in the SME Loan Guarantee Scheme, enabling access of up to AUD 100 million of 50% loss guarantee support. Turning to slide 23, you can see the changing profile of Australia Commercial and Leasing as we've refocused this business. With operating income up and capital deployed down, the ROE of the business continues to improve. The strategic review of the business is still in progress, this focus on driving capital efficiency remains the top priority.
To this end, we'll be launching an AUD 300 million asset-backed transaction in March, and we're exploring mezzanine debt opportunities to drive lower equity contribution in the warehouse facilities. Turning to credit risk management. We're extremely pleased with the credit performance of the group over the period. The focus of the credit team has been to ensure that our processes are robust, with continued investment in our credit decisioning engine and the GroupThor platform. In BNPL, the net loss to ANR is down 80 basis points to 4.1% as a result of reduced arrears and the investment in our platform driving better customer management. Australia Cards' net loss to ANR reduced 40 basis points to 3.8%. As mentioned previously, the repayment of card balances across the system was evidenced in our portfolios, but was matched by a greater reduction in associated losses.
New Zealand Cards was the only business segment across the group where net loss to A&R actually increased due to the maturing of the Mastercard scheme portfolio and a reduction in the recovery rate from debt sales. Both served to move the loss to A&R for the portfolio from a low base to more in line with New Zealand industry benchmarks. The commercial and leasing book continues to perform incredibly well despite strong volume growth. With 95% of loans that were previously in hardship in the Australia portfolio from COVID-19 now performing and arrears substantially down, we're seeing good lead indicators of the quality of loans being written and the performance of the book. These segment results aggregate to a group net loss to A&R of 3.2%, down 10 basis points on PCP, and a great result in a year of major disruption.
Moving on to our wholesale funding facilities, our treasury team have done a fabulous job ensuring that we remain well-funded for growth, with AUD 737 million in undrawn wholesale funding facilities available to us as at December 31, 2020. In October, we successfully completed a AUD 250 million Humm AU term securitization, the 11th securitization of Humm Group's BNPL receivables to date. In 2016, we were the first Australian ABS issuer of green bonds, with the latest transaction, we've now issued over AUD 470 million of green ABS notes as certified by the Climate Bonds Standard Board. Just after the period end, we also settled mezzanine funding of AUD 70 million for the Australia Cards portfolio, which will drive additional capital efficiency in that portfolio and across the group. We are super focused on driving further ROE improvements in the Australia Commercial and Leasing business.
As I mentioned earlier, the AUD 300 million term securitization will launch in March. Turning now to our corporate debt facilities, as you can see, we've significantly deleveraged the balance sheet, providing liquidity and positioning Humm Group for growth. The recent equity raise has given us significant balance sheet flexibility as we expand into new markets and grow customers and receivables across our product suite. With nil net gearing as at December 31, 2020, we will continue to look at the best options for capital efficiency while maintaining adequate liquidity. Needless to say, with government stimulus coming to an end and impairment losses at all-time lows, we remain well-positioned for all eventualities. With that, I'll now hand back to Rebecca.
Thank you, Jason. We believe that we have the most flexible Buy Now, Pay Later offering globally, enabling seamless approvals for purchases big, small or business related. We empower consumers to choose how they wish to pay, with terms from five fortnights through to five years. We already have significant scale with 2.6 million customers, and we're just getting started. We now have a significant market opportunity, both locally and internationally, with a total addressable market of AUD 1.9 trillion. Humm Group has emerged from the pandemic in the strongest possible position with substantial capital at our disposal. We're now ready to put that firepower behind four clear, recognizable products to accelerate our growth. Thank you for your support. I'd now like to take questions.
Thank you. Our first question comes from Apoorv Sehgal with UBS. Please go ahead.
Good morning, Rebecca and Jason. Just my first question. With Humm's entry into the U.K., I saw that you've signed over 200 merchants already. Can you just talk to what the feedback's been from those U.K. retailers in terms of why they've chosen to go with Humm? Are any of these merchants Humm exclusive, or is it a case where merchants are generally just happy to offer additional Buy Now, Pay Later options to what they already have?
Yeah. Thanks, AP. The feedback that we've had on our market entry into the U.K. has been incredibly strong. As the only operator in Ireland, we actually have a really strong point of differentiation for retailers. As you can imagine, many retailers service customers in both markets. We are the only ones that can concurrently service that particular need. The demand has been strong. Some of those relationships are exclusive because they've made the decision to only have one offering in cart that can service both of those markets. Others, we will be one of a number in cart.
Got it. Okay. Just further in terms of the strategy for U.K. and Canada, Little Things has clearly been the growth driver in Australia, up 47% in volume terms. Big Things volumes are up 6%. Which of those two products will be the key focus in the U.K. and Canada, just based on which of them you think has the best chance of success?
Look, it's very much the sum of the parts, AP, in a differentiated offering. What is winning retailers is the fact that we can span the small and bigger ticket, and again, removes the need for a retailer to have multiple players in card. While the growth rate in our smaller transactions has absolutely been impressive, we need to recall that we launched that side of our business in April 2019, so it's quite new. The significant proportion of our volume overall is in that larger ticket.
Yeah, sure. Okay. Just one final question from me, please. Just on the cards business, obviously been heavily COVID impacted. Can you talk to the timing of what a recovery looks like, and can this business get back to pre-COVID volume levels?
We absolutely believe that it can. We rebranded that product late last year into humm90, so it now squarely fits into that ecosystem. We are successfully acquiring customers directly, and one of the great inbuilt features of that particular product is, again, its installment payment feature. Any customer that comes on board that makes a transaction of over AUD 2,000 or, sorry, over AUD 200, they can decide to use what's called our humm90 wrap feature, and they can choose to pay that off over three months, six months, nine months, or 12 months in fixed-term installments. It is very much tapping into this change in consumer preference for fixed-term installment products. We're really pleased with how that's trending.
I think also, just pointing out again the fact that ex refunds and travel related volume was only back 2.4% against system just over nine. We were actually pretty pleased with that result because maintaining prudent credit quality is also important. As we come out of the pandemic and as marketing of that product increases, as Rebecca mentioned, we're positive and the P&L obviously speaks for itself.
Awesome. Thanks, guys. Appreciate your time.