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

Good morning, all. Commence the call in about 30 seconds or so, just give people a minute to join. All right. I think we'll kick off. Thank you for your time. Welcome to the Cash Converters FY 2025 Results Call. Thank you for joining us. We have today released our financial results and our annual report to the ASX, as you may have seen. I'll talk to the investor presentation that was released this morning throughout this earnings call. Joining me in Perth today, I do have Andrew Kamp with me, our Chief Strategy and Commercial Development Officer; Andrew oversees our M&A team and activity; and Rob Santoriello, who oversees our Investor Relations and our financial planning and analysis team. And thanks to the guys for joining. And we'll be happy to take any questions at the conclusion of the presentation as a result. I'll just present the presentation now that we released this morning. Sorry, just give me 1 minute. Okay. This is coming through shortly. Hopefully, that can be viewed. Great. You may have seen that we are pleased to report a strong full year result this year. It's reflecting the continued execution of our strategic business transformation and the financials we'll dive into in a minute, but we're very excited about the way that's progressing. Just to say at the outset of the financial year, it's been a very big year for the company internally. There's some significant changes we have made to move our business in a slightly different direction. We've moved decisively to make some pretty key calls that we'll talk about, consulting extensively with our customers and our franchisees and obviously internally. Our statutory profit up 41% to $24.5 million is terrific, but this doesn't happen without the support of a great team. And I just wanted to take this opportunity to thank everybody involved in the delivery of this result internally and to our franchise partners through our networks. Moving on to Slide 2, who we are. Just for a brief moment for those that haven't followed our story recently, I wanted to talk a little bit about our business model. Hopefully, that's now presented.

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Okay. Let me just talk to that. Sorry, I'll just go back to that. The who we are slide, Slide 2. Still not updating. Okay. Sorry, I'm not sure why that's not presenting. Just give me a second. Let's try this. Okay. Just a brief recap of our business model for those that haven't followed us recently. We offer 2 main services at Cashies. We are really focused on repurposing retail inventory through our circular economy like our traditional business model. And we do provide a large nonbank lending option for our customers. We do provide a significant -- we do play a significant role in the circular economy. As you'll see, we repurposed over 1.7 million items in Australia alone in FY '25. So it's a high-volume retail trading model that we operate in our stores. And we are growing that store network really focused in terms of size on Australia and the U.K. becoming a significant contributor to that store network, which we'll talk about. And we've been selling more luxury inventory through our store network. The model has changed in line with the global trend to focus on luxury inventory, high-end watches and handbags and jewelry. And through the year, launching a luxury-only store in Bondi was a terrific success, and we'll talk about expansion plans for that part of the business, which is great. We are also a large nonbank lender. You'll see there on the slide. We process over 0.5 million applications in Australia alone for personal loans. We have about 80,000 active customers in our loan book. And it really is a unique business model offering through our store network and our digital channels, both of those services. And I think importantly, as people are turning back to wanting to deal directly face-to-face with businesses and to receive support over the counter, in particular, with our lending business, we have a really unique network and business model that we're seeing deliver some terrific results. So it's great to see that starting to shine through. Just moving forward to a strategic transformation slide. This is probably the most exciting slide, I think, or significant slide in our deck. We'll dive into the financials in a minute. But I first just wanted to talk about a significant pivot that we've undertaken with our business. And we have really taken some difficult decisions to change our focus on our lending business and to continue growing our retail business. As has been communicated, we did significantly alter our strategy and finance away to move away from payday or small loans and vehicle loans, and that was communicated over recent years that we'd started that process. And pleasingly, that's progressing really well, and we'll talk a little bit more about the financial performance off the back of that move. But it was significant, requiring engagement with our franchise network and taking our customers on a journey. And that process continues into the new financial year as well as we're looking to streamline our customer offering further. We have changed eligibility around the product offer for the business, too, and that is significant because it changes the risk profile of the business. So moving forward, we're really looking at a different customer cohort, people who are gainfully employed, somewhat aspirational in nature, mistrusting of the banks, trusting of our brand. And we do see our store network growing, enabling us to reach more of those customers to bring new customers into our new loan books. On the store side, significant acquisitions have been undertaken, and we're really excited about the opportunity that still exists through the store network, both in Australia and the U.K./ Europe really are 2 areas of focus where we operate those store networks. Acquiring the stores has been important to continue growing our earnings and our business reach. And like I say, the inventory change through the store network has been really well received as we've started luxury-only store models, we've seen the rest of the store network start to attract more of that inventory and a really strong result off the back of that is higher margins and our trading performance continues to grow. And our intent there has been communicated to continue acquiring our franchise stores in Australia and the U.K./Europe in those 2 markets really significantly off the back of acquiring the New Zealand operation as well. So that's progressing really well. And I think that strategic pivot with those 2 things combined has really seen this momentum continuing through our business that we're seeing, which is terrific. Pleasingly, also on the funding side of the business, where we did through the financial year, engage with Lloyds in the U.K. and set up a facility there that's allowed us to acquire stores in the U.K. and accelerate that program. I think in Europe, there seems to be strong appetite to continue funding the business in general, which is terrific in terms of bank funding. And it's allowed us to mix a little bit of bank debt in with some of the cash funded growth that we've been executing in Australia. Significantly with the lending change in Australia, I think we're now in a position where we can really review our securitization funding costs and our facilities in Australia as well, overall diversifying our funding mix and bringing down our funding costs. And that's led into a strong result, we'll talk about in a minute. Just briefly to touch on the store network, that global store network that we referred to, like I said, the blue bubbles on the chart are really the franchise opportunities in our core markets that we're still pursuing. Those networks do keep growing with our existing franchise partners opening new stores. We don't intend to introduce any new franchise partners into our business. But we don't mind the network growing through those new site openings and ultimately creating a future pipeline of supply that we can continue acquiring from our better operators. And we also target the better stores in the network that we've been buying back, and that is yielding strong results. So overall network growth, continued acquisition in those markets, Australia, U.K. and Europe, we're really optimistic we can continue building our network out and continuing our momentum as a result. Talking to the financial highlights. I think at face value, a really strong result, really happy with the way things have gone through the year. If we think to the pivot that we made just before we jump into the results, if we look at our business in the 2 halves of the lending business and the retail store business, it's probably a clearer way to think about the transition that's underway. If I use the analogy of sort of flying a 747 on the lending side, we've powered down 2 of the engines, the payday lending and the vehicle business as we're running those books off, sort of switching our focus to the remaining 2, the Medium Loan and the Line of Credit businesses, the future loan books of the business, if you like. At the same time, we've deliberately been acquiring franchise stores in Australia and the U.K. offsetting some of the lost speed on the finance side of the business. And we've managed to do that and continue to deliver strong financial results, which is terrific. I think over time, as we fire the other finance engines fully and return that business to a growth footing, having undertaken a lot of work to rebuild, release new products and reposition and targeting new customer cohort, we'll see that earnings momentum start to really come back into the finance business to complement the store momentum that we've got. And we've got the vision of bringing those 2 together and really continuing our momentum as a result. So with that in mind, I think the revenue being stable is a really strong result considering the changes on the Personal Finance side of the business, which is significant. We've very pleasingly delivered operating EBITDA growth, up 8% on the slide there, you'll see I think the runoff of the loan books is progressing particularly well. We're managing our costs well on that side of the business as we're exiting those loan books and our loss rates are falling quite significantly as we reposition that business. I think also the Aussie store operating EBITDA growth, we saw up 29% to $31 million as a result, as I mentioned, of the change of inventory mix, some higher margin turnover and an increase in activity overall. The stores are performing very strongly, as is the U.K., the U.K. now contributing nearly 20% of our EBITDA coming from a low base of not really anything only a few years ago. So the U.K. business, we're very bullish on that growth rate and the opportunity in that market continuing. We've declared a second half $0.01 dividend. We've maintained our $0.02 per share dividend for the full year, the fifth year in a row. We are very focused on balancing executing our growth opportunities and returning to shareholders. And we do have a strong balance sheet, as you'll see, with $73 million of cash and equivalents. Approximately $12 million of that is actually tied up in our securitization facility. So theoretically, the remainder is available to continue executing our strategy. Moving across to Slide 7. The growth slide here we're seeing, I think if we start on the left-hand side chart, pleasingly and deliberately, the growth of the blue box, the U.K. and New Zealand contribution to our overall revenue mix is deliberate and pleasing. We're really focused on sort of the geographic diversification of our business, different types of businesses slightly. We offer personal finance in Australia. We don't in the U.K. So we've got a nice mix of geography, product, customer and a diversified revenue contribution starting to unfold. And we just called out the loan books moving down now the legacy loan books, the paydown and the vehicle loan books moving down. And we'll really then focus going forward on growing the orange gross revenue number and continuing to diversify the mix. Good earnings trends. I think we've really been focused on good claim numbers this year, good momentum in terms of our operating EBITDA and our operating NPAT have us confident we're executing the strategy well and positioning the business correctly to continue that momentum. And on the third chart, the loan book and net loss rates, we've really matured our credit models, enabling us to dial in our loss rates. And we can be quite deliberate now if we choose to slightly increase those rates, if we do go a bit more aggressive and chase some book growth or optimize profitability, and we're balancing both of those objectives, I think, successfully as a result. And the gross loan book, the previous focus on just growing that gross loan book now changing to profitably growing that loan book and repositioning that book, you see that sort of washing through in those numbers. Segment highlights do call out a couple of key observations, I think. Firstly, store operations, the operating EBITDA growth is significant, underpinned partly by franchise acquisitions and partly by margin increase. Our gross profit margin, I think we lifted to 51% from 47% on the previous year. So we are seeing good buying through the store network, good appetite and demand from customers. The inventory mix is holding up nicely. Obviously, gold price increases have really been a benefit to our store and good overall momentum in the store network really gives us a strong sort of core channel through our business to then not only distribute pre-owned retail, but other products. As I mentioned, the luxury-only store seeding in Bondi has been successful and we do plan to expand that across Metro Australia initially and then potentially wider. Personal Finance, look, I think it's as predicted sort of moving in the way that we hoped. It's been through a substantial change as we touched upon, less risk in the business now, different customer mix, lower loss rates and returning to a growth footing is really the story of the Personal Finance business. So very happy with how that's transitioning and Vehicle Finance running off in a way that we anticipated and is providing a solid contribution through this transition period as we start growing the new loan books. Yes, cost of origination in the finance business is something that will start to fall as we are originating a different kind of customer and off a lower cost base. U.K., significant and exciting. I think the vision around the acquisition in the U.K. a couple of years ago now enabling us to continue expanding that network is yielding material results, and we see that growing going forward and are excited by that. And with the team in place in the U.K., it opens a European opportunity to us where we do have licenses out in Europe that we could consider reacquiring along with store networks and continuing to grow that segment. And New Zealand, whilst not a large contributor, it has been a significant turnaround. It's a credit to the team in New Zealand as to how that business has been rebased and is now growing, and we see that continuing, which is great. And managing all of that with our head office cost focus has been significantly challenging. We've got a lot going on, but we've held costs well. And going forward, I think we have good operating leverage and scale built into our business to continue increasing our revenue and our earnings whilst holding our cost base tight. Just to finish off, looking forward, as we said, on the PF side of the business, we'll continue to pay down the vehicle loan exit sort of powering down sort of those engines 1 and 2, whilst looking at the new loan book growth. So we're very focused now on the Medium Loan book growth and the Line of Credit growth, powering up the engines again and to get that part of the business growing in the right way. We are looking at a significant internal initiative around product development, customer journey and marketing to provide a simpler offer to the market to give the customer the best option that's suited to them in the most seamless way. And I think a lot of work has gone into simplifying our overall journey through our business, and we'll really see results in Q2 flowing off the back of that. On the store network side, we do continue focusing on a solid pipeline of opportunities in AU and the U.K./Europe. We're fortunate to have our stores owned by franchisees that are looking to sell in some cases that we're considering acquiring, and that will be an ongoing initiative to continue to corporatize our store network in those 2 locations. And we are experiencing some growth. We have existing franchisees opening new stores, and we are opening a few corporate greenfield sites. So that network will continue growing, which is terrific. And I guess finally, on the capital management side, as mentioned, now we do have some European bank support. We can consider mixing some low-cost debt into the capital structure to continue growing our network. With the changes to the finance business, we are exploring different funding opportunities in Australia. And I think we're in a really strong position to maintain our focus on dividends, balancing our growth opportunities, looking at our earnings and focusing on Cash NPAT growth going forward. All in all, a terrific year for the business, and I think a great financial result. There are some slides that we have provided around the retail store strategy, providing a little bit more color as to how we're buying the retail stores through the network. Simply put, we're trading sort of 4 to 5x EBITDA in general, depending on the size of the network and the opportunity those stores provide us to then add additional growth, new store sites and leverage our existing network around those networks we're acquiring. And that's been progressing really well, and you'll see a number of stores have been purchased. And I think that acquisition framework is working really well. On the right-hand side, we can see the contribution of the acquired stores feeding into our overall financial results by design. And I think if we can keep that momentum going, as said, with the Personal Finance business starting to grow again, we're in a really strong position. We do have a really well-established acquisition pipeline in Australia and the U.K., as mentioned, and teams in place that are managing and executing those opportunities. And now we're looking to new geographies. I think sort of in the midterm or short term, we've got opportunities to consider buying country licenses back in store networks in Europe, and that's something that's really exciting now that we have the framework and the people in place. There's a photo there at Bondi Junction, the luxury-only store. If you are in Sydney, I'd encourage you to check it out. It's a pretty unique store, and I think it presents really well and the customer feedback has been terrific, so much so that we now plan to open a similar format store in each of the capital cities across Australia. And there's certainly the appetite in the U.K. too for this kind of product. And I think importantly, this sort of flagship luxury-only store in each of the capital cities does spawn more of that inventory in general through our store network. So we are changing the store network to a smaller footprint with high-quality inventory, and I think that mix will continue. And these luxury-only stores are really those flagship stores, making people aware of that trade in our network and obviously generating a lot of stock, so much stock that we can shift some out to some of the other stores and benefit from that too. And with that, I'll complete the presentation, and thank you for listening. I appreciate you listening, and we are open to any questions if there are any if you'd like to send them through. I don't think we have any on that note. Okay. Thank you for your attendance, and I look forward to speaking soon.