Cash Converters International Limited (CCV.AX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Jason Kulas, and I am the Chairman of Cash Converters International Limited. It gives me great pleasure to welcome you to the 2020 Annual General Meeting of the company. I am advised that the necessary quorum of 5 shareholders is present. And I therefore declare the Annual General Meeting of the company open. Before I commence with the formal parts of the meeting, I will outline some procedural matters for the meeting. In light of the COVID-19 pandemic and restrictions on travel and physical gatherings, we felt it safest... [Technical Difficulty] Sorry, I'm back. We felt the safest way for everyone to host this AGM virtually. As you will appreciate, this is a new way for us to hold an AGM and for many of you, this may be the first time participating in an AGM virtually. If you experience any difficulties during the meeting, we've published a virtual meeting guide on the ASX and our website, which includes how to seek assistance. I will explain the question and voting procedures when we get to formal items of business. However, I understand that shareholders may not be able to stay for the entire meeting. So I will declare the poll open now. This means you can vote on all items of business at any time until the poll closes at the end of the meeting. The Board recommends that shareholders vote in favor of all items of business. If you are eligible to vote, a new polling icon will now appear on your screen. Shareholders can also submit questions online now any time up until the close of the meeting. Questions will be addressed at the relevant item of business. So please state the item number at the beginning of your question. Finally, in the event of any technical difficulties, we ask for your patience while we work to address the issue as quickly as we can. If a technical issue results in my being unable to continue to chair today's meeting for a period of time, Executive Deputy Chairman, Peter Cumins, will act as Chair of the meeting in my place, and will continue with the meeting until the technical issues are resolved. I would now like to introduce you to my fellow Directors, Chief Executive Officer and Company Secretary, joining us from various parts of Australia and international. Joining us today is Peter Cumins, Executive Deputy Chairman; Lachlan Given, Director; Kevin Dundo, Director, Julie Elliott, Director; Robert Hines, Director; Sam Budiselik, Chief Executive Officer; Brad Edwards, Company Secretary. I also welcome Ms. Leanne Karamfiles from Deloitte, the company's auditors, who has joined the meeting. Ahead of our business, I would like to provide you with some brief commentary on the 2020 year before introducing the company's Chief Executive Officer, Sam Budiselik, who will address you on the financial performance and operations of the business and his observation since his appointment in February 2020. Although it has been a challenging year for most businesses, Cash Converters performed admirably, evidenced by its strong financial results for the period ended the 30th of June 2020. It is a credit to the management team who delivered such a solid result amidst the impacts of the pandemic. While I was only appointed to the role of Non-Executive Chairman of Cash Converters at the end of August 2020, one aspect of the company's DNA and culture, which became immediately apparent to me was the importance placed on the customer. It is perhaps this attribute, shared across all levels of the business, that enable Cash Converters to adapt so effectively to the challenges it faced during the year. Sam will comment on how the company is tracking in early fiscal year 2021, but shareholders should be pleased by the way cash converters has bounced back from the impact of COVID-19. The Board and I remain optimistic about the future of the company with an appropriate level of caution expressed about the ongoing domestic and global business environment. The Board has endorsed management strategy, a simple but effective plan to build upon Cash Converters' strong domestic operations, optimize current product and service offerings and identify new opportunities for expansion. These 3 strategic pillars of network expansion, product development and operational excellence, will allow Cash Converters to consolidate, optimize and grow its position as the lender and retailer of choice for customers now and into the future. It is the Board's intention that Cash Converters again becomes a dividend-paying company. The Board is currently assessing dividend policy within a range of net profit after tax, yet to be determined. The Board is aware of utilizing the company's valuable franking credit balance. The Board must prudently consider a number of factors before reaching any determination, including, but not limited to the general business and economic environment, the operating results and financial conditions of Cash Converters, future funding and capital requirements and strategic growth initiatives, in addition to the ongoing impacts of COVID-19. I would like to take this opportunity on behalf of the Board to thank Mr. Kevin Dundo, who retires from the Board at the end of the AGM. Kevin has been an Independent Non-Executive Director since early 2015 and has made a valuable contribution, not only at the Board level, but as Chair of the Audit and Risk Committee and as a member of the Remuneration and Nomination Committee. We extend our gratitude and appreciation to Kevin and wish him the best for the future. I would like to thank my fellow Board members, company management and employees for their resilience during what has been an incredibly challenging period. Finally, I acknowledge and thank our shareholders for their continued support and look forward with confidence to the year ahead. I will now hand over to Sam Budiselik, CEO, for his presentation, after which we will turn to the formal resolutions to be considered by shareholders and voting.

Thank you, Jason, and good morning, fellow shareholders. It is a pleasure to be here at our AGM, my first, as the CEO and the first virtual AGM held by the company. I've had the pleasure of working at Cash Converters since 2016, holding a variety of roles, including Chief Operating Officer before being appointed Chief Executive Officer in February 2020. That appointment followed the devastating bushfires during summer and coincided with the outbreak of COVID-19 in Australia and the corresponding restrictions deployed to limit its spread. I do believe that the company's success in dealing with unexpected and unpredictable events such as these over the short-term is largely dependent on what has been established over the longer term in relation to strategies, systems, people, and most importantly, culture. As a regulated credit provider, we were well-equipped to care for our customers that needed our support most, by extending our hardship assistance program, providing interest and fee relief and deferring our collections activity, in line with government-mandated closures. Our most recent Net Promoter Score of 62, which is well above other banking and financial service businesses, was a strong signal to me that we got our approach right. I cannot recall a clear display of our organizational values than throughout this period. Being real people who are passionate and proud, caring and respectful and tenacious problem solvers, we continue to deliver on our purpose of unlocking possibilities together. I am proud of how my colleagues dealt with the complexities faced throughout the year. And I wanted to acknowledge and thank everyone across our business for working tirelessly to ensure we were there for our customers when they needed us most. It should be noted that these challenges remain ongoing, with Victoria only recently coming out of its extended lockdown and more recently, South Australia, entering a period of temporary lockdown. Our priorities remain keeping our people safe, keeping those who rely on our business safe whilst meeting their needs and safeguarding the capital of our shareholders. I would hope you agree that today, we have achieved those objectives. Our FY 2020 results have been communicated to the market previously. So I'll touch on them only briefly in addition to providing an update as to how the business has been trading over the course of the first quarter of FY 2021. I should note at this point that any information relating to FY 2021 is unaudited and should not be taken as guidance. Our performance during FY 2020, summarized in the AGM presentation, was pleasing considering the challenges outlined previously. An operating EBITDA of $62.1 million and an operating net profit after tax of $19.6 million reflects a significant improvement on the previous corresponding period. A key driver of this performance was our online sales growth, a direct result of significant investment in digital assets and capabilities that has enabled us to interact with our customers across multiple channels and formats. Our online corporate retail sales increased 42.6% during the year and online lending increased to account for 61.2% of all loans funded. Our physical store network continues to provide us with a significant competitive advantage as a distribution network, complementing the growing online channel, with a record fourth quarter store retail result in FY 2020 demonstrating this value. Our focus on operational excellence and cost base management allowed the company to close the financial year with cash and equivalents of $106.5 million and a per share net tangible asset value of $0.289. As communicated previously, a reduction in credit demand as a result of COVID-related government stimulus and early superannuation access, which impacted our customer segment, in particular, resulted in our loan book values decreasing throughout the second half of FY 2020, a trend that continued into the first quarter of FY 2021, but that has now reversed. Whilst all loan books are now growing again, the impact will result in what we expect to be a softer first half of FY 2021 when compared to the prior year. To give you a feel for the recovery and underlying business activity, at the heart of Australia's economic lockdown in April 2020, our combined store and online unsecured loan application volumes dropped to around 550 applications per day. By September 2020, that volume had recovered to over 1,000 applications per day and has continued growing. Over the same period, the approval rate for these applications increased from a low of around 15% as we implemented many short-term COVID-related credit rules, which now removed has restored the approval rate to a more normal rate of around 25%. Our pawnbroking loan book also recovered from a low point of $7.6 million in July 2020 to now sit over $10.8 million by the end of September 2020. Total net bad debt as a percentage of revenue has continued to decrease, down from 24.3% at the end of June 2020 to 18.9% at the end of September 2020, reflecting our ongoing investment in data analytics, credit risk modeling and assessor training. As demand for credit continues ahead of Christmas, we remain focused on the objective of continuing to optimize our bad debt levels. Whilst remaining alert to an ever-changing economic landscape, we remain cautiously optimistic that our first quarter FY 2021 momentum will continue, as Australia hopefully continues to emerge from hard lockdowns and resume some semblance of normal economic activity. Moving on to our strategy. We continue to expand our corporate retail store network in Australia to complement our growing online presence. We will acquire franchises in a disciplined manner where it makes financial and strategic sense to do so and selectively open new outlets where we are underrepresented in growth corridors. We will continue to evolve our lending product range and focus on operational excellence, particularly platform and service optimization across all parts of our business. Underpinning the execution of this strategy is the ability to attract and retain leaders and team members who are passionate about our business with the necessary skills to enable us to succeed and who embody the cultural values outlined earlier. The fact that we have already started delivering on our strategic objectives, such as the acquisition of our Morley, Western Australian franchise store and our Melbourne City store in Victoria, shows that we have found the right mix of passion, skill and cultural alignment across our team. With our team now in place, I'm confident we can continue to generate value for our customers and shareholders alike. We believe our business model and integrated multichannel store and online network is unique in our sector and provides us with a significant competitive advantage. A robust pipeline of potential store acquisitions and development opportunities, supported by a strong balance sheet and cash flow provides us with a clear runway to grow our business in a measured and disciplined way in markets that we know and with customers that we understand. With a new securitization facility agreed with our financier year to December 2022 and strong levels of available cash, we are well-positioned to benefit from the anticipated increase in consumer spending and general economic recovery. As Jason mentioned in his address, it is the Board's intention that Cash Converters again becomes a dividend-paying company, and we believe that the appropriate point to discuss timing, value and method of delivery for a dividend is at the close of the half year. At this point, should the Board approve the payment of a dividend, the market will be informed in line with our continuous disclosure obligations. As CEO and a fellow shareholder of Cash Converters, I thank you all for your continued support and look forward to delivering on the growth plan outlined and to addressing you, hopefully, in person at future meetings. I will now hand back to the Chairman to continue the meeting. Thank you.

Thank you, Sam. Now let us proceed to the formal business of the meeting as described in the notice of meeting. Voting on all resolutions today will be conducted by way of a poll. The proxy votes which have been submitted for each resolution will be shown on your screens at the relevant time. I will now discuss procedures for voting and asking questions. As I mentioned earlier, if you are eligible to vote, a polling icon will have appeared on your screen. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to click a submit or enter button as the vote is automatically recorded. You do have, however, have the ability to change your vote up until the time that the poll closes at the end of the meeting. You can vote on all items at once. Lisa Ahwan from Computershare has agreed to be the returning officer today. And following confirmation by Computershare, final results will be announced to the ASX later today. This release will also be available on the company's website. I will now explain the procedure for asking questions during the meeting. You can submit questions at any time, and you do not need to wait until the relevant item of business. We encourage you to submit your questions as soon as possible. We will then seek to address your questions during the discussion on the appropriate item of business. We will endeavor to answer as many questions as we can. [Operator Instructions] In the interest of orderly discussion, and to give as many shareholders as possible the chance to participate, I would like to provide a few guidelines. [Operator Instructions] Questions sent via the online meeting platform may be moderated to avoid repetition. And if questions are particularly lengthy, we may need to summarize them in the interest of time. The purpose of today's meeting is to present the accounts of the company, together with the Director's report for the year ended the 30th of 2020, to deal with the ordinary business in regard to formal resolutions for the reelection of one director, the election of 3 directors who have joined the Board since the last AGM and the adoption of the remuneration report. Please note the Executive Deputy Chairman, Mr. Cumins, will chair that part of the meeting dealing with my election. The first item of business deals with the financial statements. These financial statements and reports are for the financial year ended the 30th of June 2020, and are taken as laid before the meeting. Please note, there is no resolution for this item of business. I now invite shareholders to comment and ask any questions. [Operator Instructions]. As I've advised, Leanne Karamfiles, representing the company's auditors, Deloitte, is in attendance to answer any questions shareholders may wish to direct to her in relation to the conduct of their audit or in relation to the preparation of the financial statements. There being no questions, we will now move on to the second item of business and the formal resolution. I confirm that I'm holding open proxies in my capacity as Chair of the meeting and intend to vote all of those open proxies in favor of each formal resolution. On to Resolution 1. The first resolution is ordinary business and relates to the reelection of Mr. Lachlan Given as a Director. It reads that Mr. Lauchlan Given, being a Director of the company and being eligible, is reelected as a Director of the company. Mr. Given's biography and experience is set out in the explanatory memorandum accompanying the notice of meeting. I now invite shareholders to comment and ask any questions. [Operator Instructions] And please refer to the screen for the results of the proxy voting on the formal resolution. There being no questions, I put the resolution to the meeting. If you haven't already done so, please now cast your vote on this item. I will now move to the next order of business. Resolution 2, the second resolution is ordinary business and relates to the election of Ms. Julie Elliott as a director. It reads that Ms. Julie Elliott, who having been appointed a Director of the company since the last Annual General Meeting, retires under Clause 51.2 of the company's constitution, and being eligible, is elected as a Director of the company. I now invite shareholders to comment and ask any questions. [Operator Instructions] Ms. Elliott's biography and experience is set out in the explanatory memorandum accompanying the notice of meeting. Please refer to the screen for the results of the proxy voting on the formal resolution. There being no questions. I put the resolution to the meeting. If you haven't already done so, please now cast your vote on this item. I will now move to the next order of business. The third resolution is ordinary business and relates to the election of Mr. Robert Hines as a Director. It reads that Mr. Robert Hines, who having been appointed a Director of the company since the last Annual General Meeting, retires under Clause 51.2 of the company's constitution and being eligible, is elected as a Director of the company. I now invite shareholders to comment and ask any questions. [Operator Instructions] Mr. Hines' biography and experience is set out in the explanatory memorandum accompanying the notice of meeting. Please refer to the screen for the results of the proxy voting on the formal resolution. There being no questions, I put the resolution to the meeting. If you haven't already done so, please now cast your vote on this item. I will now move to the next formal part of business. The fourth resolution is ordinary business and relates to my election, so I will ask Mr. Cumins to chair this part of the meeting.

Thank you, Jason. The fourth resolution is ordinary business and relates to the election of Mr. Jason Kulas as a Director. It reads that Mr. Jason Kulas, who having been appointed Director of the company since the last Annual General Meeting, retires under Clause 51.2 of the company's constitution and being eligible, is elected as a Director of the company. I now invite shareholders to comment and ask any questions. [Operator Instructions] Mr. Kulas' biography and experience is set out in the explanatory memorandum accompanying the notice of meeting. Please refer to the screen for the results of the proxy voting on the formal resolution. There being no questions, I'll put the resolution to the meeting. If you haven't already done so, please now cast your vote on this item. I will now hand back to Mr. Kulas to chair the remainder of the meeting.

Thank you, Peter. The next item of business asks shareholders to adopt the company's remuneration report for the year ended the 30th of June 2020. The fifth resolution is an advisory resolution only. It reads that the remuneration report of the company for the financial year ended the 30th of June 2020 be adopted. I now invite shareholder to comment and ask any questions. [Operator Instructions] Please refer to the screen for the results of the proxy voting on the formal resolution. There being no questions, I put the resolution to the meeting. If you haven't already done so, please now cast your vote on this item. Ladies and gentlemen, that concludes the resolutions to be presented to the meeting. The poll on all items will close in 30 seconds. I now ask all shareholders to complete their voting before the poll closes. I will pause for a moment to allow time for final voting. [Voting]

Jason, I have a couple of questions here from 2 shareholders I would like to relate to the meeting. I'll summarize now, if I can, the content of the question.

Thank you, Sam.

The first question is noting that in the CEO address, we mentioned purchasing franchise stores back with a share -- net tangible asset level of $0.29, and our share price trading around $0.20 at the moment with the market cap of the company at $120 million, approximately. Why wouldn't we buy back stock on market? And a similar theme from the second shareholder submitted question is from a capital allocation point of view. What plans do we have to unlock the intrinsic value of the business? And what alternatives do we have to make a return on our capital in the year ahead? I think if I can just summarize from the management team's perspective, the company considered its capital management initiatives in line with the strategic growth plan outlined in the presentation previously, in addition to our financial and operational requirements and the economic environment and the ongoing impacts of COVID-19, in terms of assessing an optimal cash level on our balance sheet. As summarized in the presentation, we have outlined 3 strategic pillars of network expansion, product development and operational excellence, which all have funded work streams underneath those initiatives that will deliver value over time. In addition to the strategic plan funding, the business obviously has to consider normal CapEx requirements, working capital requirements, future years ahead considered as well. And we do retain restricted cash to fund our loan growth, and within our securitization facility, which remains a priority for our business to grow going forward. I guess, I would just say, finally, as I outlined in the addresses, it is the Board's intention to balance returning capital to shareholders and becoming a dividend-paying company, again, with the continued investment in the business and execution of the strategic plan outlined. So I hope that addresses the question sufficiently. Thank you.

Thank you, Sam. Sam, are there any other questions?

No. That's it, Jason. Thank you.

Thank you to all shareholders and proxy holders who joined us today, asked questions and voted under the unusual circumstances that we find ourselves in this year. The Board and management regret that we can't be there to join you for refreshments in person as we ordinarily would. I now formally declare the meeting closed. As noted earlier, details of the final results will be posted on the company's website and on the ASX company announcements platform later today. The poll has now closed, and voting results will be finalized.