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

Good morning, ladies and gentlemen. It gives me a great pleasure to welcome you to the 2023 Annual General Meeting of the company. My name is Timothy Jugmans, and I'm the Chairman of CCV. I'm advised that the necessary quorum of 5 shareholders is present, and I declare the Annual General Meeting of the company open. Before I commence with the formal parts of the meeting, today's AGM is a virtual meeting, being held online via the Computershare meeting platform. This allows shareholders, proxies and guests to attend the meeting virtually. In addition, shareholders and proxies can ask questions and submit votes. If you experience any difficulties during the meeting, we have published a virtual meeting guide on the ASX and our website, which includes how to seek assistance. I will explain the virtual voting process when we go to the formal items of business. I declare the poll open now, and shareholders 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 business items. If you are eligible to vote, a new polling icon will now appear on your screen. Shareholders can also submit questions online now or any time up until the close of the meeting. Questions will be addressed at the relevant item of business, so please state them 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. I would like -- I would now like to introduce you to the fellow Directors, Company Secretary and Auditors joining us today. Joining us today is Sam Budiselik, Managing Director; Peter Cumins, Executive Deputy Chairman; Lachlan Given, Director; Julie Elliott, Director; Robert Hines, the Director; Henry Shiner, the Director; Mark Ashby, the Director; Lisa Stedman, Chief Operating Officer; Jonty Gibbs, Chief Financial Officer; Andrew Kamp, Chief Strategy and Commercial Development Officer; Meagan Hamblin, Joint Company Secretary. I also welcome the company's auditors, Mr. Peter Rupp and Mr. Nicholas Gordon from Deloitte, who have joined the meeting. I will now provide some brief commentary on the 2023 financial year before we proceed to the formal business of the meeting. Following the formal close of the meeting, I will introduce the company's Managing Director to provide his address. The Board and I remain excited and optimistic about the long-term prospects of the company. Both Board and management remain focused on positioning the business well for ongoing long-term growth through leveraging our strategic pillars: customer and purpose; expansion and acquisitions; and operational excellence. These pillars focus on putting our customer at the heart of our business and driving growth through optimizing our existing operations and pursuing select acquisition targets, predominantly from our franchised network, which meet our valuation metrics and bring long-term earning opportunities. I would like to thank Sue Thomas for her effort, contribution and commitment during her tenure with the Board. Sue served diligently as a Non-Executive Director and provided valuable support and advice to the Audit and Risk Committee, Governance Remuneration and Nomination Committee and the Board Investment Committee. I wish her the very best with her future endeavors. On the 6th of October, we welcomed Mark Ashby to the Board of Directors as Non-Exec Director. Mark is an experienced board and advisor for over 30 years' experience in senior roles in both listed and private sectors in Australia and the United States. Mark's appointment complements the Board's existing composition with a focus on corporate finance, strategy and growing shareholder value. Underpinning the Board's optimism, this year, we delivered a strong revenue growth off the back of record demand for our products coming out of this disrupted period. Our loan books have grown rapidly with gross loan books up $278.5 million in Q1 FY '24, up 30% on the comparative period last year. This was achieved during a period of legislative change, passed by the Australian government during the financial year as part of the Financial Sector Reform Act. As mentioned in the annual report, this has considerably impacted our SACC business. Our new non-SACC loan products have performed well and offer customers more flexibility, choice and lower-cost options as we continue to transition away from the SACC sector with our overall loan book now well diversified. We have made notable progress in growing our corporate store footprint locally and internationally with the acquisition of the New Zealand master franchise, acquiring the largest franchisee store network in the United Kingdom and several local franchise store operations. We've been able to pursue these acquisitions while maintaining a strong balance sheet position, which allowed us to continue seeking future opportunities. Following the formal AGM, our Managing Director will present an outline of the past financial year and provide an update on Q1 FY '24. I'm pleased with the solid performance of FY '23, including payment of a fully franked $0.01 final dividend, which demonstrates the Board's confidence in our earnings and balance sheet position. This is our sixth straight half-year dividend. I would like to thank my fellow Board members for their contributions, and management and their teams for their commitment and work towards the company's strategy and their continued focus on serving our customers. Finally, I'd like to thank our shareholders for their continuing support and look forward to an exciting future for Cash Converters. Before proceeding to the formal business of the meeting, as described in the Notice of Meeting, I'll outline the process for voting and asking questions. Voting on all resolutions will be conducted by way of a poll. The proxy votes submitted for each resolution will be shown on your screen at the relevant time. If you are eligible to vote, a polling icon will now have appeared on your screen. Selecting this icon will bring up a list of resolutions and present you with voting options. Select one of the options to cast your vote. There is no need to click a submit or enter button as the vote automatically is recorded. You can change your vote up until the end of the time that the poll closes at the end of the meeting. James Kruger from Computershare has agreed to -- 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. You can submit questions at any time, and you do not need to wait until the relevant items of business. We encourage you to submit your questions as soon as possible so they can be reviewed by our moderators. We will also seek to address your questions during the relevant item of business. If we are unable to provide an answer during the meeting, we will endeavor to provide an answer once the meeting has closed. Online attendees can submit questions at any time. [Operator Instructions] Please note that while you can submit questions from now on, we will address them at the relevant time in the meeting. Please also note that your questions may be moderated or if we receive multiple questions on one topic, amalgamated together. You'll receive a confirmation when your question has been sent. [Operator Instructions] Ensure that each question is succinct as possible and ensure your questions are relevant to the business of the meeting. 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. [Operator Instructions] The purpose of today's meeting is to present the accounts of the company, together with Directors' report for the year-end 30th of June 2023, and to deal with the ordinary business and special business set out in the Notice of Meeting. Shareholders will be asked to vote on formal resolutions for the re-election of 2 directors; the election of 1 director who has joined the Board since the last AGM; the adoption of the remuneration report; and the approval of grant of performance rights to the Managing Director. Turning to agenda item 1, the first item of business for the financial statements and reports. These final statements and reports for the financial year ended 30th of June 2023 are taken as laid before the meeting. Please note, there is no resolution for the item, and I now invite shareholders to comment and ask any questions. Please limit your questions at this time to the matters related to this agenda item. As I advised, Mr. Peter Rupp, representing the company's auditors, Deloitte, is in attendance to answer any questions shareholders may wish to direct to him in relation to the conduct of their order or in relation to the preparation of the financial statements.

Chair, we have received some questions in relation to the financial statement and reports. The first question is, is the Chairman focused on bridging the disconnect between the net tangible assets and the market capitalization that has now stood for years? Is there a compelling reason why the Chairman believes the buyback is not in the best interest of shareholders given the business consistently generates large amounts of cash in this trading at a 30% discount to net tangible assets? With your blessing, I can pick that up. We do, as a Board, remain committed to supporting the management's strategy outlines of growing earnings and continuing to invest in the business in a disciplined way to grow scale, whilst returning to shareholders, through dividend payments, when possible, a return. In terms of buybacks in particular, through our Board Investment Committee, we evaluate all potential capital opportunities and do measure them up against an internal return rate, to ensure that the best opportunities are selected to deploy capital and generate cash and earnings returns. And I hope that answers that question. The second question we do have in relation to the financial statement and reports is in relation to, even after the $97 million loss, our audited net assets are still $189 million which materially exceeds our current market capitalization of $128 million after the shares recently hit a 3-year low. Would the auditors please explain why the write-downs weren't larger? Perhaps I could take that as a management question, plus the auditors, and just from my perspective, explain that as we go through our audit, we do test all of our assets for write-down or impairment. The write-down that was booked in that financial year was in relation to the Personal Finance business, which was as a result of some significant regulatory change in relation to the SACC or Small Amount Credit Contract product and label. Beyond that, each of the assets are tested through the audit process. And if required, a write-down would be dealt with and audited in terms of other loan books and other assets being asked for inventory, et cetera. So hopefully, that answers that question unless you've got anything further to add from our auditors, Deloitte.

Thank you. It's Peter Rupp here, the auditor. I can answer that question also in the context of the content of our audit report. Before I do respond though, it may be helpful for shareholders for me to briefly explain the context of our audit and how we form our opinion on the accounts. Management prepares a financial report and the responsibility for approving and issuing the report is that of Board of Directors. In doing so, the directors have received a declaration from the CEO and CFO indicating that the financial records have been properly maintained and that the financial report appropriately prepared in accordance with the requirements of the Corporations Act. Our role is to conduct an independent audit of that financial report and issue an independent auditor report to you, the shareholders, in accordance with the Act. In respect of the specific question on the impairment write-down in the context of the deficit of net assets to market capitalization, I draw your attention to the key audit matter, which is summarized in our audit report on Page 131 of the audited financial statements, entitled Impairment of Goodwill and Other Noncurrent Assets. Whilst the deficit is considered to be what we call an impairment indicator, the actual impairment write-down is actually a factor of the value and use calculation prepared by management, which is subject to a number of assumptions, which are subject to challenge by the audit. We have challenged those assumptions, and we've tested the disclosure as appropriate in the accounts. I believe that adequately provides sufficient answer to that question. We're happy to take any further questions if required.

Thank you, Peter. Chair, there are no further questions.

Thank you, Sam. The first resolution is ordinary business and relates to the reelection of Mr. Lachlan Given as a Director. It reads, "That Mr. Lachlan Given who retires by rotation in accordance with clause 51.2 (sic) [ clause 52.1 ] of the Company's Constitution, and being eligible, be reelected as 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. Please limit your questions at this time to the matters related to this agenda item. Please refer to the screen for the results of the proxy voting on the formal resolution.

Chair, I have one question submitted in relation to Resolution 1. The question is along the lines of EZCORP is the controlling shareholder with a 46% stake. As an EZCORP nominee, could we comment on how committed EZCORP are to the Cash Converters business? With the stock hitting a 3-year low of $0.20 recently, why isn't EZCORP buying more shares at the moment? If I could take that answer from a management perspective in terms of the support that I receive from EZCORP on the Board and the contribution from the EZCORP Directors supporting us with our business and growth strategy. The management team will run through a pretty standard process of formulating a strategic plan that's taken to the whole Board annually and debate it and ultimately endorsed. And the execution of that plan then ensures. And that's been fully supported by the Board unanimously including all directors. And over time, sharing of ideas, insights and guidance has been terrific from a management perspective in terms of the contribution of the EZCORP directors.

Thanks, Sam. Yes. We are very supportive as nominations of EZCORP. We are very supportive of Cash Converters. The decision on buying shares in Cash Converters from an EZCORP perspective is the matter of an EZCORP Board and not for me to discuss.

No more questions, Chair.

Thank you, Sam. The second resolution in ordinary business as -- relates to the reelection of Mr. Robert Hines as a Director. It reads, "That Mr. Robert Hines who retires by rotation in accordance with clause 51.2 (sic) [ clause 52.1 ] of the Company's Constitution, and being eligible to be reelected as a Director of the Company." I now invite the shareholders to comment and ask any questions. Please limit your questions at this time to matters related to this agenda item. Mr. Hines' biography and experience is set out in explanatory memorandum accompanying the Notice of Meeting. Please refer to the screen for the results of the proxy voting on the formal resolution.

Chair, we have received 2 questions in relation to Resolution 2. The first question, I might surmise. The full year accounts outlined that over the past 2 years, the business has invested over $100 million in capital. It appears incremental returns to date are below the cost of capital. Can Robert Hines, in capacity of Chair of the Board Investment Committee, shed some color on the value added by the Investment Committee and how it monitors returns on capital deployed, both prospectively and retrospectively? If I could pick that up from a management perspective, the Board Investment Committee we established a number of years ago now, serves the purpose of evaluating all potential investments against a robust framework, which does include, among other considerations, a full discounted cash flow analysis against our weighted average cost of capital and the discipline of the process ensures that any forecasts that are considered in relation to that assessment are tracked and ultimately included in our operating budgets. And the Investment Committee will regularly review prior acquisitions for performance against those forecasts to ensure that we do realize the anticipated internal rate of return that has ultimately warranted an investment. And I should add that we do consider a number of different investments that do get declined as a result of that process. And a majority of our capital invested over the recent years has gone into growing our loan books. And an amount for the [ vals ] and New Zealand acquisition's showing in the FY '23 numbers and then U.K., which was settled in FY '24. And those acquisitions will follow that same process. So thank you for the question. I'm hoping that addresses that question. The second question. Robert Hines joined the Board of Humm Group last year. Aren't they a competitor of ours in some respects, offering consumers finance? Are there any areas of overlap? Did the Chair have any discussions with Robert Hines before his appointment to the Humm Group Board? And I'll direct that to you, the Chair. Thank you.

Thanks, Sam. Yes, Robert Hines did discuss that before joining Board. And we believe there is no material crossover at all, and welcome Robert's views when he's discussing consumer finance and is a good value to the Board.

No further questions, Chair.

Thank you, Sam. The third resolution is ordinary business and relates to the election of Mr. Mark Ashby as a Director. It reads, "That Mr. Mark Ashby, retires under clause 51.2 of the Company Constitution, and being eligible, be elected as Director of the Company." I now invite shareholders to comment and ask any questions. Please limit your questions at this time to matters related to this agenda item. Mr. Ashby's biography and experience is set out in the explanatory memorandum accompanying the Notice of Meeting. Please refer to the screen results for the proxy voting on the formal resolution.

Chair, we have one question in relation to Resolution 3. It's -- the question is briefly touching on Mark Ashby's background. With Myer experience under ownership with TPG and an outcome there that resulted in some rising rental payments and some other problems for Myer. And a general question around Mark's experience and capability and learnings that will assist Cash Converters. Again, if you would allow me to answer that from my perspective. When I engaged with Mark through the open selection process that we ran to add an additional director to the Board, I found Mark's experience very relevant in terms of retail, but also finance in general and refinancing of our securitization facility and our lending framework is something that it's only early but Mark has added a lot of value to, through Mark's network and through Mark's background assisting the management team with the review of the securitization facility. And that's going to, hopefully, you'll benefit going forward, and I'm confident that will. I hope that answers that question. And there are no further questions, Chair.

Thanks, Sam. The next item of business asks shareholders to adopt the company's remuneration report for the year ended 30th of June 2023. The fourth resolution is an advisory resolution only. It reads, "That the remuneration report of the Company for the financial year ended 30th of June 2023 be adopted." I now invite shareholders to comment and ask any questions. Please limit your questions at this time to matters related to the agenda item. Please refer to the screen for the results of the proxy voting on the formal resolution.

Chair, we've received one question in relation to Resolution 4 and the question reads, "Thanks for disclosing the proxy votes to the ASX. Why was there a 13% protest vote on the rem report, and also will an archive of the AGM debate be made available on the company's website for those who weren't able to listen live?" Briefly, just from the management perspective with the rem report, we've taken an action away to engage external rem consultants to assist us with an improvement in our disclosures in general around our rem reporting. The period in question was a difficult period for the management team and the support from the Board was well appreciated as a result of all the work that went in to see us through the period in question over the past 3 years and to arrive where we have. Chair on behalf of the Board, I'm not sure if you have anything further to add to that. You're on mute, Chair.

That answers that question.

Thank you.

With no other questions, we'll move to…

No further questions, Chair.

We'll move to the special business of the meeting. The next item of business asks shareholders to approve the grant of performance rights to the Managing Director. The fifth resolution is an ordinary resolution only. It reads, "That, for the purpose of ASX Listing Rule 10.14 and all other purposes, approval be given for the grant of 4,729,730 performance rights to Mr. Sam Budiselik, Managing Director of the Company, under the Company's Equity Incentive Plan on terms described in the Explanatory Memorandum." I now invite shareholders to comment and ask questions. Please limit your questions at this time to matters related to this agenda item. Please refer to the screen for the results of the proxy voting on the formal resolution.

Chair, we've received 2 questions in relation to Resolution 5. The first question reads, "Would the CEO summarize his past LTI grants as to whether they have vested or lapsed? Also, has he ever sold any ordinary shares in the company or bought any on market without relying on an incentive scheme to build his equity position?" If I could take that as that relates directly to myself. I have purchased equity on market in the past, and that's disclosed through my holding statements, and I have not sold a share in the company in the past, not at this point in time. My rights -- my LTI grant rights, in particular, have lapsed for a number of years with the first vesting year, the year before last. I hope that answers that question. The second question reads along the lines of explaining why LTI rights are important for the management team, but in granting them and exercising discretion, to weigh the TSR and EPS hurdles, how are shareholders' interests being protected? I would just clarify the discretion that was exercised was only in relation to one of the measures, being the EPS measure, and it resulted in 50% of that measure being awarded. And beyond that, the LTI plan is a fairly standard plan that is voted through the AGM and endorsed by shareholders and available for review if required. No further questions, Chair, beyond that.

Thank you, Sam.

Sorry, excuse me, Chair. There's one more question. Shareholders have just one opportunity here to address questions to the directors that represent us. Is it possible to have further contact with the Board or the directors throughout the year? I would propose, I'm always happy to receive feedback from shareholders, and I do regularly. And we'll always attempt to provide a response. And if that requires [ audit ] consultation, I'm happy to consider that too going forward. Thank you.

Thank you, Sam. Ladies and gentlemen, that concludes the resolution 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. [Voting]

I now declare the poll closed. As noted earlier, these results will be posted on the company's website and on the ASX later today. With the formal proceedings over, I now formally declare the meeting closed and hand over to Sam to provide his address. Thank you.

Thank you, Tim. And good morning to the West Australian shareholders and afternoon to those in the States and other shareholders. I would like to begin by reflecting on our achievements in financial year 2023 and then provide an update on the first quarter of the financial year 2024. I am proud to lead a passionate and dedicated team here at Cash Converters, spanning our store operations, head office and loan assessing centers within Australia and now across the globe. Our management team is pleased to report strong financial performance in FY 2023, which continues to enable the pursuit of future growth opportunities, both domestically and abroad. I want to express my gratitude to everyone across our global business who contributed to this outcome. Turning to our financial performance, I was delighted to report robust results for 2023. Our revenue grew 23% over the previous year, reaching $302.7 million. Operating EBITDA stood at $57.2 million with an operating profit after tax of $20.1 million, reflecting the sustained momentum across our business. These results have fortified our balance sheet and our cash position, allowing us to internally fund new loan book growth, acquire new stores and continue our fully franked dividend payments to shareholders for the sixth consecutive half year period. Top line revenue momentum into FY '24 has continued with 24% growth achieved in the September quarter, Q1 FY 2024, which was up 47% compared to Q1 FY 2023. Our balance sheet remains strong at $58.4 million of cash and cash equivalents at 30 September 2023, after funding loan book growth and the settlement of the recent U.K. franchise acquisition. Throughout FY 2023, we witnessed strong underlying demand, highlighted by a record number of applications for our Personal Finance lending solutions with application volume up 21% from the previous year. Noting that we decline 7 out of 10 applications received speaks to our prudent risk management policies, our responsible lending focus and to the high quality of our growth as a result. Our FY '23 loan originations rose by 24% compared to FY 2022, reaching $348 million. As a result, our total gross loan book reached a high watermark of $271.4 million at June 30, 2023, representing a remarkable 27% increase over the end of FY 2022, as illustrated by the table showing the gross loan book in the release materials and on screen for those viewing. The changing loan book composition reflects the diligent execution of our product transition strategy following significant regulatory change. We have been focused on developing products that reduce borrowing costs and add flexibility for our customers as we transition away from the Small Amount Credit Contract or SACC market. Notably, our medium loan book grew 34% in FY 2023, reaching $102 million and affirming the success of this strategy. We are also excited about the performance of new loan products, particularly our line of credit, which provides better flexibility and a lower-cost option for our customers. Momentum into FY 2024 has continued, with 3% growth achieved in the September quarter, Q1 FY 2024, or up 30% compared to Q1 FY 2023 on a pcp basis. Our store operations have also played a pivotal role in serving our customers and have delivered a strong result off the back of that customer-centric approach, with revenue growth of 15% in FY 2023. We've optimized our inventory mix, bringing more focus to higher-value items, that's prestige jewelry and watches, designer handbags and high-end electronics. This shift has not only boosted overall sales trading activity but has also improved gross margins in the store network. Our retail business model emphasizes sustainability, contributing to a circular economy by repurposing pre-owned goods and our multichannel approach allows our customers to transact both in-store and online. Our recent strategic acquisitions have begun to contribute to group financial performance and integration with our wider group is progressing. The results, as of the most recent trading update, reflect the full cash outlay for acquisitions, with the returns to follow across the financial year 2024. The Capital Cash acquisition in the United Kingdom combines with our existing United Kingdom franchisor operations to provide a key hub to propel further growth into the U.K. and Europe, diversifying our geographic operations and revenue streams. U.K. operations are performing well with revenue and earnings in line with expectations. Integration of the New Zealand business into group operations commenced in the second half of FY 2023, with initial focus on optimizing the business model to unlock the available efficiencies between Australia and New Zealand. Underlying performance in New Zealand is in line with expectations. We have recently implemented additional controls to manage credit risk in New Zealand, and we remain confident in the outlook of that business over time. Looking to FY 2024. I'm pleased to report the momentum we have built in the business throughout FY 2023 has continued into the new fiscal year as touched on earlier in terms of revenue and gross loan book growth. As confirmed in a trading update released to the ASX on October 24 this year, in Q1 FY 2024, we achieved group revenue of $101.4 million, a 24% increase from the previous quarter and a notable 47% uplift compared to the same period last year. This revenue growth is driven by continued loan book growth and the inclusion of the first quarter of trading results from our recent New Zealand and U.K. acquisitions. This underscores the resilience of our diversified business model and the sustained demand for credit across our customer segment and various geographies. Our gross loan book also reached another record high in Q1 FY 2024, totaling $278.5 million, a 30% uplift compared to Q1 in the prior year. Now looking further forward, we're excited by the opportunities that lie ahead. Several of our strategic initiatives have begun delivering revenue growth across the global group. Our store network continues to expand, and our digital platforms are performing strongly and reaching new customers. Loan book growth through FY 2023 and into FY 2024 has been strong, and there are further opportunities for us to continue to both grow market share and optimize performance. Our customers have been impacted by legislative changes that we are doing our best to manage but that has resulted in rendering us unable to assist many customers that we may have responsibly supported in the past. For Cash Converters, in many instances, we have been able to offset this financial impact with growth in new products and other non-impacted product lines. The competitive landscape also continues to evolve favorably, and we remain focused on taking advantage of our strong position in the market. In closing, the strategic growth focus for the company remains growing organic demand driving our loan book growth; new product releases growing new loan books; and executing value-accretive store acquisitions. In closing, I want to extend my gratitude to our colleagues for the passion and commitment we bring to our customers every day and to our shareholders for your continued support. I look forward to providing another update on our progress at the conclusion of the half year period in February next year. Once again, thank you for your attendance at this Annual General Meeting.