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

Good morning, ladies and gentlemen. It's gives me great pleasure to welcome come you to the 2024 Annual General Meeting of the company, my name is Timothy Jugmans, and I'm the Chairman of CCV. I'm advised that 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 get 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 polls closed 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 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. I would like now to introduce you to my fellow directors, company secretary and auditors joining us today: Sam Budiselik, CEO and Managing Director; Peter Cumins, Executive Deputy Chairman; Lachlan Given, Director; Andrew Spicer, Director; Henry Shiner, Director; Robert Hines, a Director; and Mark Ashby, a Director; Lisa Stedman, the Chief Operating Officer; and Jonty Gibbs, the Chief Financial Officer; Andrew Kamp, the Chief Strategy and Commercial Development Officer; Luis San Martin, Chief Risk Officer; and Meagan Hamblin, the 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 2024 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 CEO and Managing Director, to provide his address. The Board and I remain excited and optimistic about the opportunities and prospects of the company. Both Board and management are focused on positioning the business well for the long-term growth through prudent capital deployment via store acquisitions in Australia and the U.K., along with new loan product development. Cash Converters delivered strong FY '24 operating and financial results with revenue up 26% and EBITDA up 21% on the prior year, driven by continued loan growth book growth fueled by ongoing demand for our core lending products and pleasing growth in contributions from our recent acquisitions. We have expanded our product suite to meet the needs of a broader range of customers. We are continuing to grow our medium amount credit contract book and new Line of Credit offering as we focus on delivering more flexible, lower-cost solutions for our customers. Our loan books grew 6%, up $288 million, during FY '24, a remarkable result as we restructure the book away from the small amount credit contract product. Our disciplined approach to store acquisitions and expansions has been a key driver of growth. This year, we further strengthened our presence through selective acquisitions with 47 stores acquired in the U.K. and a further 3 acquired in Australia during FY '24, delivering a combined $3.7 million EBITDA to the group. We continue to assess acquisition opportunities that align with our long-term strategy and valuation metrics with over 200 further franchised stores in those markets and 51 currently under active consideration for acquisition. The franchise network is approximately the equivalent size of our corporately owned store network in Australia and over 3x the size of our corporately owned store network in the U.K., giving some indication as to the size of the growth opportunity ahead of us. In terms of Board changes, I would like to thank Ms. Julie Elliott for her effort, contribution and commitment during her tenure with the Board. Julie served diligently as a non-executive director and provided value support and advice as Chair of the Governance Remuneration and Nomination Committee and a member of the Audit and Risk Committee and the Board Investment Committee. Julie made a significant contribution to the company's governance and remuneration structure, practices and reporting. I wish her the best for her future endeavors. On 22nd of May 2024, the Board welcomed Mr. Andrew Spicer as a non-executive director. Andrew has previously served in the role of Managing Director and CEO for Canstar for the past 16 years. And prior to that, played pivotal role in listing WebCentral on the ASX. Andrew's corporate experience also included executive roles at Suncorp Bank and consulting roles for Ernst & Young and McKinsey. Andrew's extensive corporate and strategic experience was especially sought to complement the company's Board. Following the formal AGM, our CEO and Managing Director, will present an outline of the past financial year and provide an update on Q1 FY '25. I'm pleased with the solid performance of FY 2024, particularly due to the deliberate strategic shift of our business away from small and vehicle loans, ensuring our capital is allocated efficiently and for a maximum total return. The strength of our business and balance sheet enabled the Board to declare the payment of a fully franked $0.01 final dividend, when coupled with similar payment at the half year, demonstrates the Board's confidence in our earnings and balance sheet position. The final dividend declaration represents our eighth straight half year dividend. I would like to thank my fellow Board members, management and their teams for their contribution and commitment to the company's strategy and for their continued focus on providing an excellent experience to our customers. Finally, I'd like to thank our shareholders for their ongoing 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 will outline the process for voting and asking questions. Voting on all resolutions will be conducted by way of 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 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 is automatically recorded. You can change your vote up until the time the poll closes at the end of the meeting. 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. You can submit questions at any time, and you do not need to wait until a relevant item of business. We encourage you to submit your questions as soon as possible, so they can be reviewed by our moderators. We will 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 is 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 will receive a confirmation when you question has been sent. [Operator Instructions] Ensure that your question is succinct as possible and ensure your question is relevant to the business of the meeting. Questions sent via 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 the director's report for the year 30th of June 2024 and to deal with the ordinary business and special business set out in notice Of meeting. Shareholders will be asked to vote on the formal resolutions for the reelection of 2 directors, the election of 1 director who has joined the Board since the last AGM, the adoption of the remuneration report, the approval of grant of performance rights for the CEO and Managing Director, the approval of adoption of the Cash Converters' incentive rights plan rules and the approval of an amendment to the performance rights under the Cash Converters Equity Incentive Plan. The first item of business deals with the financial statements and reports. These financial statements and reports are for the financial year ended 30th of June 2024, 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. Please limit your questions at this time, to matters related to the agenda item. As I've 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 the audit or in relation to the preparation of financial statements.

No questions, Chair.

There being no questions, we will now move on to the second item of business and the formal resolutions. 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. The first resolution is an ordinary business and relates to the reelection of Mr. Henry Shiner as director. The first resolution is an ordinary resolution. It reads, "that Mr. Henry Shiner being a director of the company, who retires by rotation in accordance with Clause 51.2 of the company's constitution and being eligible, will be reelected as director of the company." Mr. Shiner'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 matters related to this agenda item. Please refer to the screen for the results of the proxy voting on the formal resolution.

No questions received, Chair.

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 second resolution is ordinary business and relates to the reelection of Mr. Peter Cumins as director. The second resolution is an ordinary resolution. It reads, "that Mr. Peter Cumins being a director of the company, who retires by rotation in accordance with Clause 51.2 of the company's constitution and being eligible, be reelected as a director of the company." I now invite shareholders to comment and ask any questions. Please limit your questions at this time to this matter related to this agenda item. Mr. Cumins' biography and experience is set out in the explanatory memorandum accompanied in the notice of the meeting. Please refer to the screen for the results of the proxy voting on the formal resolution.

No questions received, Chair.

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. Andrew Spicer as a director. The third resolution is an ordinary resolution. It reads, "that Mr. Andrew Spicer, who having been appointed as director of the company since the last Annual General Meeting, retires under Clause 51.2 of the company's 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. Spicer'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.

No questions received, Chair.

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 next item of business asks shareholders to adopt the company's remuneration report for the year ended 30th of June 2024. The fourth resolution is an ordinary resolution. It reads, "that the remuneration report of the company for the financial year ended 30th of June 2024, be adopted." I now invite shareholders to comment and ask any questions. Please limit your questions at this time to matters related to this agenda item. Please refer to the screen for results of the proxy voting on the formal resolution.

No questions received, Chair.

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. We now move to the special business of the meeting. The next item of business asks shareholders to approve the grant of performance rights to the CEO and Managing Director. The fifth resolution is an ordinary resolution. It reads, "that for the purpose of ASX Listing 10.14 and all other purposes, approval is given for the grant of 4,599,212 performance rights to Mr. Sam Budiselik, CEO and Managing Director of the company, under the company's incentive rights plan on the terms described in the explanatory memorandum." I now invite shareholders to comment and ask any 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.

No questions received, Chair.

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. The next item of business asks shareholders to approve the adoption of Cash Converters Incentive Rights Plan Rules. The sixth resolution is an ordinary resolution. It reads, "that for the purpose of ASX Listing Rule 7.1 -- 7.2, Exception 13(b) and for all other purposes, approval be given for the issue of securities under the company's incentive rights plan as described in the explanatory memorandum." I now invite shareholders to comment and ask any 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.

No questions received, Chair.

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. The next item of business asks shareholders to an amendment to the grant of performance rights under the Cash Converters Equity Incentive Plan. The seventh resolution is an ordinary resolution. It reads, "that for the purpose of ASX Listing Rule 6.23.4 and for all other purposes, approval be given to amend the terms of the performance rights issued under the company's FY '23 and FY '24 long-term incentive schemes as described in the explanatory memorandum." I now invite shareholders to comment and ask any 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.

No questions received, Chair.

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. 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. [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 the meeting to Sam Budiselik, CEO and Managing Director, to provide his address. Thank you.

Thank you, Tim, and good morning fellow shareholders. I would like to begin by reflecting on our achievements in financial year 2024 and provide an update on the first quarter of the financial year 2025. In FY 2024, Cash Converters delivered a standout financial performance in both our stores and lending businesses. Revenue grew by 26%, reaching $382.6 million. Operating EBITDA was up 21% to $69.1 million and operating profit after tax was $20.8 million. This growth builds on the past few years results and strengthens our position, allowing us to continue expanding our loan products suite, acquiring earnings accretive franchise stores and to maintain regular fully franked dividend payments to shareholders for an eighth consecutive half year period. Store operations made a substantial contribution to the FY '24 results, with Australian corporate store retail revenue up 11% compared to FY '23, with more than 600,000 retail transactions conducted during the year. The acquisition of a network of 42 franchised stores in the U.K. in July 2023 followed by an additional 5 store acquisitions in June 2024, further boosted store performance by $3.4 million in profit before tax during the year, with the U.K. now a material contributor to our corporate store network. Our inventory mix continues to evolve with the growth in high-value, higher-margin items such as prestige jewelry, watches, designer bags and high-end electronics supported by the opening of an additional luxury concept store in Bondi Junction. This initiative extends the appeal of the Cash Converters concept to a broader range of customers served from a lower-cost store operating model. Our role in the circular economy has never been more relevant, and we are proud to have repurposed over 1.7 million pre-owned goods through our stores in Australia alone this year. This commitment to sustainability, combined with an evolving product mix, such as luxury goods in select markets, allows us to cater to varying customer needs while enhancing our margins and strengthening our market presence. FY '24 saw loan books grow again, up 6% on FY '23 with strong underlying demand continuing through the year. This growth is particularly impressive during the same period, we have continued to transition our loan book composition away from the Payday small amount credit contract product which represented less than 20% of the gross book at the end of FY 2024. We also commenced the rundown of the Green Light Auto book late in FY '24 to allow us to deploy that capital to strategic initiatives that will deliver a better return. The Line of Credit product has continued to grow through FY '24, reaching $14.6 million at the period close. This product provides a more flexible, lower cost option to our customers and along with a medium amount credit contract is a key focus of our loan book looking forward. Finally, we delivered this loan book growth alongside an improvement in book quality with half year net loss rates for the second half of FY '24 down to 8% compared to 11% for the corresponding period in FY '23. This performance reflects both our prudent credit risk stance and the capability of our proprietary machine learning based credit risk models. We are actively targeting reacquisition of franchised stores in Australia and the U.K. to drive further earnings growth. We acquired 50 stores during FY '24, which are now fully integrated into our corporate store network and are performing well and contributed $3.7 million PBT to the group in FY '24, which was 14% of our total. With over 200 more franchised stores in those markets and 51 currently under active consideration for acquisition, there is an opportunity for future earnings growth as we continue to apply the same disciplined acquisition approach that has delivered the above results to date. Looking to FY '25, I am pleased to confirm the FY '24 momentum has continued into the new year. Our recent Q1 unaudited trading update released to the ASX on 28th of October this year shows revenue growth, up to $95.8 million for the quarter. We have seen a minor decrease in loan book as the loan mix changes to reflect the move away from Payday SACC loans, the new LOC product grows and the Green Light Auto vehicle book winds down following our decision to enter -- to exit that sector. Importantly, as the book composition matures, we have demonstrated ongoing control over loss rates with the Q1 FY '24 quarterly net loss rate down to 3.7% from 4.8% in the same quarter in FY '23. Finally, looking further forward, we're excited by the opportunities that lie ahead for the company. 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 across FY 2024 was strong, and there are further opportunities for us to continue to both grow market share and optimize performance across our medium amount and Line of Credit loan products. Our customers have been impacted by legislative changes that we are doing our best to manage but have rendered us unable to assist many customers that we may have responsibly supported in the past. For Cash Converters, we have been able to offset this financial impact with growth in new loan products and franchise store acquisitions in Australia and the U.K. The competitive landscape also continues to evolve favorably and we remain focused on taking advantage of our strong position in the market. In summary, the strategic growth focus for the company remains, driving loan book growth with an increasing focus on MACC and LOC loans and tightly managed loss rates; continuing to innovate with new product releases; and deploying capital to the ongoing acquisitions of franchised stores, primarily in Australia and the U.K. In closing, I am proud to lead a team of passionate and committed professionals who are consistently focused on putting our customers first and delivering their best across our stores, personal lending, online operations and back-office support teams. This commitment has been a key component in our strong financial performance in FY 2024 and creates a solid foundation for growth both domestically and abroad. I would like to thank everyone across our global business for their hard work and dedication in achieving these results. I look forward to providing another update on our progress at the conclusion of the half year period in February. Once again, thank you for your attendance at this Annual General Meeting.

Chair, we do have one general question that has come in, in relation to the New Zealand business and an update. I'll answer that if you don't mind. We...

Please go ahead.

As we disclosed in the financial statements, we did hold a 25% equity interest in New Zealand since 2014. And as our shareholders know, we moved to 100% ownership of the operation, acquiring that on a net asset basis, historically. In terms of background, New Zealand is a network of 11 corporately owned and 11 franchised stores, offering retail, secondhand good purchase and sale, pawnbroking and is a regulated unsecured consumer lending provider in that market. Earnings in that business have been impacted by regulatory change over time, with the operating improvement and the economy in New Zealand anticipated to improve over time. In terms of the performance, the core New Zealand business is performing well, with revenue ahead of budget, and profit performance has been somewhat behind expectations as we have reported, but we have taken action to reposition the business in New Zealand, in particular, addressing credit risks that presented as a result of the economy deteriorating late last year. The economies, as I say, is starting to show some signs of improvement. There is a change in government as people would know in New Zealand. And in general, I think economic, commercial and consumer sentiment is improving. But we're confident that we have the business well positioned to take advantage of that uplift and happy with the way things are performing in New Zealand. I hope that answers that question, and I'll pass back to the Chair. Thank you. And that's meeting close. Chair?

Thank you very much, everyone, for attending. Have a great day.