Credit Corp Group Limited (CCP.AX) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning. Welcome to the 21st Annual General Meeting of the Shareholders of Credit Corp Group Limited and our second virtual AGM. I wish to welcome all shareholders joining us via either the Lumi online platform or watching via the webcast. I thank you for joining us and trust you're all well. The Lumi platform enables shareholders and proxies to ask questions and submit votes. I hope that this mode of undertaking the AGM is once again a smooth experience for you and facilitate strong engagement and participation. As we have a quorum present, I declare the meeting officially open. I'm Eric Dodd, the Chairman of the Board of Directors of Credit Corp Group Limited, and in accordance with the company's constitution, I am Chairman of this meeting. I will now ask the Company Secretary, Mr. Thomas Beregi, to advise whether we have any apologies.

There were no apologies received.

Thank you, Thomas. No apologies received. I'd also like to introduce our company directors who are present here with me. Mr. Don McLay, a nonexecutive director, Chairman of the Audit and Risk Committee and a member of the Remuneration and HR Committee; and Ms. Trudy Vonhoff, a nonexecutive director, Chairman of the Remuneration and HR Committee. Due to social distancing requirements, our other 3 directors are online. They are Ms. Leslie Martin, a nonexecutive director, Chairman of the Nomination Committee and a member of the Audit and Risk Committee; Mr. Richard Thomas, a nonexecutive director and a member of the Nominations Committee; and Mr. Phil Aris, a nonexecutive director and member of the Audit and Risk Committee. I'm also joined here by the company's Chief Executive Officer, Mr. Thomas Beregi. Other members of Thomas' executive team are either present or have joined the meeting online. Also joining us today are the company's legal adviser, Mr. Guy Sanderson from Hamilton Locke; and Mr. Sandeep Kumar from Hall Chadwick, the company's auditor. I will call upon Guy and Sandeep to answer any relevant questions as required during the meeting. I am going to commence with the Chairman's address and will be followed by the CEO's quarterly update presentation. We will then move to the ordinary business of the meeting. Following that, we will open the meeting up to questions covering any aspect of the meeting, including my address, the CEO's quarterly update presentation, the ordinary business or any other relevant matter a shareholder wishes to raise. We are combining the questions into one session at this meeting. As voting will remain open until the end of the meeting, this approach will not preclude the right of shareholders to be heard. Questions can be submitted at any time. To ask a question, select the messaging tab at the top of the Lumi platform. At the top of that tab, there is a selection for you to type your question. Once you finish typing, please hit the arrow symbol to send. Please also note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. Please note also that if we receive multiple questions on one topic, we will provide an amalgamated response. Voting today will be conducted by way of a poll on all items of business. And in order to provide you with enough time to vote, I will shortly open voting for all resolutions. When that happens, if you're eligible to vote at this meeting, a new voting tab will appear. Selecting this tab will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There's no need to hit a submit button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time that I declare voting closed. I will now declare voting open on all items of business. The voting tab will soon appear. Please submit your votes at any time. I will give you a warning before I move to close voting. And remember, you can only vote using the Lumi online platform. I'll now commence my address. This is the first time that I stand before you as Chairman, and it gives me great pleasure to report on the strong performance in 2021, together with a promising outlook for 2022 and the years ahead. Throughout my career, I've had the good fortune to work with some excellent organizations, but I regard Credit Corp as one of the best companies that I've had the privilege of being associated with. Credit Corp's 2021 performance demonstrates why it is a truly great company with excellent prospects for the future. The company's success has been built on continuous improvements and disciplined expansion. This has involved establishing and leveraging strengths with the objectives of achieving positions of leadership and positive differentiation across all markets. Credit Corp has applied its ability to understand and work with credit-impaired consumers to develop new businesses capable of delivering ongoing growth for our shareholders. The company has always appreciated the risks associated with its segment of the consumer credit market and the importance of sustainability. All of the company's products and services have been structured to provide genuine customer solutions. A strong culture of compliance has been supported by an effective control framework to ensure that Credit Corp always stands out for responsible and sustainable conduct. These foundations were evident in Credit Corp's ability to successfully navigate through an unfavorable environment to deliver strong results in 2021. The core Australian and New Zealand debt purchasing business faced difficult and uncertain conditions. A significant portion of the company's customer base was being supported by government and private stimulus, which was progressively withdrawn. A number of major credit issuers had ceased sale as part of their approach to COVID-19 forbearance. Organic purchasing volumes were further reduced as the impact of forbearance programs and stimulus payments temporarily suppressed charge-offs. The core business faced the prospect of rapidly declining collections and dramatically reduced investments. Staying true to the foundations of the company's long-term success avoided the prospect of adverse results. Operating disciplines ensured that collections were maintained as government and private sector support was withdrawn. Credit Corp's leadership in responding to financial hardship provided several major credit issuers with the confidence to resume sale and award their entire volume to Credit Corp. Through a combination of superior pricing analytics, leading operational capability and unrivaled financial capacity, the company was able to acquire the Collection House purchased debt ledger book at an attractive price. The transaction was promptly integrated, making a strong contribution to collections in 2021 and the years ahead. The lending business also encountered a challenging operating environment. It was necessary to tighten lending criteria to account for the prospect of rising unemployment as government support was withdrawn. At the same time, stimulus payments, including the early access to superannuation, were suppressing demand for unsecured credits and producing a high incidence of loan repayments. As a consequence, the consumer loan book was running off rapidly. Once again, Credit Corp turned to the disciplines that have made it successful in the past. With each progressive reduction in government support, the impact on repayment behavior was assessed and lending criteria adjusted. As stimulus subsided, existing customers returned to the cheapest and most sustainable product in its category. A decision to resume television advertising during the first half lifted new customer demand and helped deliver record lending volume over the second half of the year. By the start of 2021, Credit Corp had developed a U.S. business capable of being a market leader. Key operating metrics showed that Credit Corp was competitive with the most successful operators in the country. Whilst its share of purchasing was still small at just 3%, it was the sixth largest buyer in terms of purchasing outlay, one of the largest in terms of in-house collection workforce and had established a diversified range of purchasing relationships. At the same time, there was still a concern for the U.S. outlook because COVID-19 was spreading rapidly and consumer support was scheduled to end during the first month of the year. Stimulus and forbearance had temporarily reduced total market purchased debt ledger supply by as much as 50%. Much of the country, however, remained open. And over the first half of the year, the company's collection experience showed that the U.S. consumer was in a solid position. With the change in federal administration, stimulus was reintroduced and layered on top of a substantially recovered consumer economy. Despite initial concerns and tight ledger supply, it became clear that the U.S. would present an opportunity to accelerate growth. And Credit Corp seized that opportunity to increase its level of ledger investment in the U.S. It increased its share from existing clients and established 3 new purchasing relationships. And this, combined with the operational improvement and a strong consumer position, produced a 26% increase in collections and a doubling in segment earnings. So having recovered during 2021, Credit Corp now looks ahead to reporting another year of solid growth and returns. 2022 has started with a record pipeline of contracted PDL purchasing and considerable excitement around new products and business improvement initiatives to sustain growth well into the future. After a successful year, I want to thank my fellow directors, the company's CEO, Thomas Beregi, and his management team for their leadership of Credit Corp over a challenging period. And on behalf of the Board and shareholders, I also thank all of the company's employees for their ongoing commitment and dedication. I would also like to pay tribute to Mr. Don McLay, who retires as a director later this month. Don was Chairman of the company for almost 13 years and oversaw more than a decade of uninterrupted growth in earnings and the transformation of the company from a monoline Australian and New Zealand debt buyer to the diversified international financial services business it is today. Don's drive and vision has placed the company in an excellent position for continued growth. So on behalf of the Board and shareholders, I thank Don for his enormous contribution to Credit Corp and wish him well in retirement. Thomas will now provide you with an update on the company's performance so far this financial year. He will also give you an assessment of the outlook for the balance of the year. And after his presentation, I will move to the formal resolutions. I'm pleased to hand over to our CEO, Thomas Beregi. Thank you, Thomas.

Thank you, Eric, and it's great to have so many engaged shareholders attending our meeting online today. I'll move straight into the presentation. So our objective is leadership of the credit-impaired consumer segment. We define our market as people who have had trouble with credit, most having defaulted on a previous credit obligation. We operate in competitive businesses, and 3 competencies are critical to our success. We must have superior analytics and discipline because our business is all about pricing and managing risk. Our operations must be strong to compete. We must be sustainable and compliant to deliver on our promise to our debt sale clients, other stakeholders and the community. This ensures that our business can continue well into the future. Applying these competencies, we target to deliver strong earnings growth while producing acceptable returns, which we define as a return on equity in the range of 16% to 18%. And we try to do that with a conservative financial structure. We have strong metrics and approaches for these competencies across our 3 businesses. Continued leadership has delivered a strong start to the 2022 year for our debt buying businesses. We've experienced strong collection results in all markets over the first quarter. Last year's numbers were inflated by the impact of stimulus measures, as Eric has mentioned, but the comparison to 2020 shows 2-year growth of approximately 20%. Purchasing has been limited to date, but the outlook is improving. We've built our purchasing pipeline steadily over the course of the quarter to the point where we've now revised our investment guidance to the top half of the range that we provided just a few months ago in August. Our market share has improved in all markets, which has provided a platform for further growth as purchased debt ledger supply recovers. Our increased share is being driven by continued leadership in sustainability and compliance. Across all markets, our dispute rates remain significantly lower than our competitors. And we continue to be rated more highly by important consumer stakeholders in the not-for-profit financial counseling sector. Leading indicators point to a recovery in purchased debt ledger supply. Credit card usage is growing in both the U.S. and Australia, and we know that this will translate into arrears and charge-offs over time. Our balance sheet is ready to absorb any opportunities which arise. We remain debt-free with substantial cash and undrawn credit lines available. In 2021, our capital position facilitated the Collection House book acquisition, and we retain the financial capacity to secure another similar transaction while, at the same time, increasing our organic purchasing in line with the recovery in purchased debt ledger supply. Lending volumes have been temporarily impacted by state lockdowns in Australia, but the final weeks of October showed a strong recovery, and advertising is once again in place to drive loan book growth over the upcoming peak demand period. We've had a very busy start to the year as we look to expand our lending activities. Wallet Wizard has issued its first loans in the U.S.A. Our auto loan product was relaunched and is achieving very solid volumes. Our Buy Now Pay Later pilot reached some impressive milestones in terms of both merchant and new customer acquisition. And we continue to work on some other exciting opportunities, with further pilots to commence later in the year. Overall, it's been a strong start to the year. Purchased debt ledger investment is now likely to fall within the range of $220 million to $240 million. Net lending remains on track for $45 million to $55 million for the year. And net profit after tax will be in the range of $85 million to $95 million, which will represent earnings growth of up to 8% over the prior year should we hit the top end of that range. Thank you, and I'll now hand back to Eric.

Thank you, Thomas. As I noted earlier, we will move now to the formal business of the meeting and then open the meeting up to questions after the formal resolutions have been put. First, we will address questions that have been lodged before the meeting and then take questions that have come through via the Lumi online platform. We will not have a separate question-and-answer session between each resolution due to the limitations of the virtual meeting format. However, please be assured that voting on all resolutions will not close until there's been a comprehensive opportunity for questions from shareholders to be asked. Voting on the resolutions will remain open until the end of the meeting via the Lumi online platform. Valid proxies given will be shown to the meeting as each resolution is tabled. So we're now moving to the formal component of the meeting, in which only items of business to come before the meeting today will be those specified in the notice of meeting. Proceeding with the ordinary business, we have 4 items of ordinary business, which you have had the opportunity to review and consider through the circulated notice of meeting, and I will take that notice of meeting as read. As required by the government's legislative instrument, which enables virtual meetings such as this, votes on each resolution that are the subject of this meeting will be taken by way of poll, which is opened via the Lumi online platform until just prior to the end of the meeting. The poll will be taken on all resolutions. It's open now via the Lumi online platform and will remain open until just prior to the close of the meeting. Nakul Joglekar of Boardroom Pty Limited, our share registry, will act as returning officer in relation to the poll. The results of the poll will be released to the Australian Securities Exchange later today following the conclusion of the meeting. There have been proxies given in respect of today's resolutions, which I intend to disclose when those resolutions are considered. As mentioned in the notice of meeting, it is intended that any undirected proxies given to the Chair will be voted in favor of the relevant resolution. Moving to agenda item 1 on the -- is to receive the -- to receive and consider the financial report, the director's report and the auditor's report of Credit Corp for the year ended 30th of June 2021. There will not be a formal vote on this item. If you have a question, ask it through the messaging tab and it will be answered after all the formal resolutions have been put to the meeting. I will now move to item 2 on the agenda being the reelection of directors. And I will now ask Mr. Don McLay to resume the Chair. Thank you, Don.

Thank you, Eric, and good morning. Item 2a concerns the reelection of Mr. Eric Dodd as a director of the company. I would like to invite Eric to say a few words.

Thank you, Don. Each time that I've stood before you over the last 12 years and sought reelection to the Board, I've talked about how much I enjoy serving on the Board of this great company. It really has been an absolute privilege to be a part of this company's remarkable growth and, in particular, to see the growth and development of Thomas and his management team. As Chairman, I see my role as that of maintaining the strong and effective working relationship between the Board and management. And if reelected, I will use my time to ensure that these relationships have strengthened and carried through to the next generation of the Board and management team of this company. Thank you.

Thank you, Eric. The resolution reads, Mr. Dodd retires and, being eligible, offers himself for reelection in accordance with clauses 20.1 and 20.7 of the company's constitution. Proxies received in respect of this resolution are now shown on the slide. As the Chairman has already noted, voting is by way of a poll, which will close just prior to the end of the meeting. The Chair will now revert to Eric for the remainder of the meeting.

Thank you, Don. Item 2b concerns the reelection of Mr. Richard Thomas as a director of the company. I'd like to invite Mr. Thomas to say a few words.

Good morning, ladies and gentlemen. I'm Richard Thomas. Like Eric, it has been my privilege to get to know many of you as we've come on this journey together at Credit Corp. For those I haven't met, just a brief description of my background. It was all spent in financial services. I was privileged to run one of the largest finance companies in Australia and New Zealand and spent 5 years in the United States of America, also in personal credit lending. I would like to think that a combination of lending across both our products and all our geographies, Australia, New Zealand and the United States, have helped the team at Credit Corp grow the business as we have expanded our reach. I look forward with your approval to continuing to help that team grow the business into the future. Thank you.

Thank you, Richard. The resolution reads, Mr. Thomas retires and, being eligible, offers himself for reelection in accordance with clauses 20.1 and 20.7 of the company's constitution. Proxy votes received in respect of this resolution are shown on the slide. As I already have noted, voting is by way of a poll, which will close just prior to the end of the meeting. Item 2c concerns the reelection of Mr. Phil Aris as a director of the company. I'd like to invite Mr. Aris to say a few words.

Thank you, Mr. Chairman. Good morning, ladies and gentlemen. It gives me great pleasure to address the AGM and provide a brief summary of my background and experience. My career spans over 30 years, bringing extensive experience in senior executive and Board roles within the financial services and technology sectors across Australia, the United Kingdom and Asia. My financial services roles include Head of Credit Cards at the Commonwealth Bank of Australia; Regional Director of Thorn-EMI Asia Pacific, working across Australia, the U.K. and Hong Kong; and Chief Executive and Managing Director of listed professional service company, CountPlus. My transition to nonexecutive roles includes serving on a number of advisory boards, supporting and mentoring technology start-ups as well as serving as nonexecutive chairman of Xpon Technologies Limited, a leading provider of data analytics, artificial intelligence, machine learning and customer experience technologies for leading corporates in Australia and the U.K. Digitalization is fundamental to both the consumer lending and debt buying segments as Credit Corp business. I'm a strong believer and advocate for the role of technology within financial services in providing scale, efficiency and sustainable customer experiences. I believe my appointment as nonexecutive director of Credit Corp allows me to apply the breadth of my skills and experience in continuing to facilitate and support the execution of Credit Corp's strategic growth objectives. If reelected, I look forward with great pride to continue my role as nonexecutive director, and I thank you for your time. I hand back to the Chairman.

Thank you, Phil. The resolution reads, Mr. Aris retires and, being eligible, offers himself for reelection in accordance with clause 19.5 of the company's constitution. Proxy votes received in respect of this resolution are shown on the slide. As I have already noted, voting is by way of a poll, which will close just prior to the end of the meeting. I'll now move to item -- agenda item 3, which is the increase in the nonexecutive directors' maximum fee pool. The text of the resolution is on the slide now. The resolution to adopt the increase in the nonexecutive directors' maximum fee pool is a nonbinding resolution, and there is a voting restriction which applies to it. The company will disregard any votes cast in any capacity on this resolution by or on behalf of any key management personnel who are all the directors and members of management and their closely related parties such as their families. However, those persons can vote as proxies of other eligible shareholders where they have been directed how to vote, and the Chairman can vote undirected proxies on behalf of eligible shareholders. Proxy votes received in respect of this resolution are shown on the slide display. As I have already noted, voting is by way of a poll, which will close just prior to the end of this meeting. I'll now move to item 4 on the agenda, being the adoption of the remuneration report for the year ended 30th of June 2021. The text of the resolution is on the slide now. Resolution to adopt the remuneration report is a nonbinding resolution, and there is a voting restriction which applies to it. The company will disregard any votes cast in any capacity on this resolution by or on behalf of any key management personnel who are all the directors and members of management whose remuneration is detailed in the annual report and their closely related parties such as their families. However, those persons can vote as proxies of other eligible shareholders where they have been directed how to vote, and the Chairman can vote undirected proxies on behalf of eligible shareholders. Under the Corporations Act, the resolution of shareholders that the remuneration report be adopted or any failure to pass that resolution is advisory only and does not bind the company or its directors. Proxy votes received in respect of this resolution are shown on the slide display. As I've already noted, voting is by way of a poll, which will close just prior to the end of the meeting. I'll now invite questions from shareholders and proxies related to any of these resolutions as well as my address, CEO presentation and any other relevant matter a shareholder or proxy wishes to raise. I will address questions provided in advance of the meeting first, followed by questions submitted through the Lumi online platform this morning. All questions must be addressed to myself as Chairman of the meeting and will only be considered if they are relevant to the business of the meeting. Where appropriate, I will call on specific directors, management, the auditor or other advisers to respond to shareholder or proxy questions. In order to manage the volume of questions, we will take one question at a time from each shareholder or proxy, and we'll rotate back in the event of shareholders who wish to ask multiple questions. If we receive multiple questions on one topic, we will combine to provide one amalgamated question. I will ask the Company Secretary to read out the questions received.

Thank you, Eric. First question is received from Sue Howes on behalf of the Australian Shareholders' Association. In our interactions with the Chairman, he indicated a need for Board renewal. Could the Chairman please provide a description of the process being undertaken in this regard as well as an update on progress made?

Thank you, Sue. The Board has undertaken a renewal process, which commenced over 18 months ago. Last year, you will have noted that Rob stepped down from the Board. We've announced Don's stepping down this morning. We have 2 new -- relatively new directors in Phil Aris and Judy (sic) [ Trudy ] on the Board and have, at this moment, a process underway with Heidrick & Struggles to look at the renewal of the Board itself. We're very conscious of the need to balance Board renewal with the great strength that we have within the organization, of stability within the Board and management team itself. So it's a process the Board takes very seriously. We are moving and have demonstrated that quite significantly over the last couple of years, and that process will continue through over the next few years as we look to renew the vast majority of the Board.

Thanks, Eric. The next question is also from Sue Howes of the Australian Shareholders' Association. She notes that the Australian Shareholders' Association has raised issues in respect of the incentive programs, noting in particular that the short-term incentive is paid out in cash and that the long-term incentive has a 3-year performance period. What changes is the company contemplating to these incentive programs in your future years, if any?

I think to answer that question, I'd like to hand over to the Chairman of the Remuneration and HR Committee, Trudy Vonhoff. Thank you.

Thank you, Eric, and thank you to the ASA for the question. And yes, our short-term incentive, or STI, is paid out in cash annually. And the cash payment reflects that it is a reward for performance based on the achievement of meeting short-term financial and operational objectives, and those objectives are set annually. And the LTI, or long-term incentive program, aspires to reward sustained growth in earnings and shareholder returns over time. At this stage, the setting of the 3-year performance period remains for the LTI program. And this LTI program aligns with our 3-year strategic planning process. We currently believe that the framework is working effectively. But having said that, the committee and the Board continues to review our remuneration framework and strategies. We'll take on board that feedback and the feedback of other stakeholders and investors to make sure that we've got the balance right. Thank you.

Thank you, Trudy. Next question, please.

Thanks, Eric. The next question is from Ray Tollefsen of Teaminvest. So also in relation to the incentive programs. The question makes the point that the use of relative TSR as a performance hurdle within the long-term incentive structure may not be an effective incentive given that it's largely driven by share price movement, which is beyond the control of executives. And the question is will the Board consider an absolute TSR hurdle rather than a relative TSR hurdle for the long-term incentive.

Thank you. Once again, I think Trudy is best placed to answer that question. Trudy, thank you.

Thank you, Eric, and thank you, Ray. And yes, we agree that relative TSR, like most [ vicious ] in this space, does have some shortcomings. And I think I just might recap on our LTI program for the benefit of everyone online. So first of all, with our LTI program, we have a gate opener which is measured, and that gate is opened based on ROE or return on equity. And currently, we need to achieve a 16% return in order for the gate to be opened. Once that gate is opened, we have got 2 performance measures, 50% being weighted to compound annual growth of NPAT and the other 50%, as pointed out by Ray, is awaiting against relative TSR performance. And that comparator group is the ASX 200 with the exclusions of material and energy stocks. The 50% of weighting that's been allocated to TSR is directly related to shareholder returns. And we want to make sure that we keep that alignment between executive outcomes and shareholder outcomes. Whilst it's not a direct comparator, we believe the ASX 200, with those exclusions, is still a relative comparative benchmark, particularly because our shareholders in the ASX 200 -- we compete against everyone else in the ASX 200 to get that shareholder investment. And we believe it's a reasonable benchmark. Absolute TSR as a measure has its positives, of course, but it also has some shortcomings, and those mainly being to determine in advance what company performance will be against the market performance in the longer term. And this too can be subject to windfall gains and windfall losses for our executives based on how the share price is performing. As I said in the previous question, we think the framework is working well and working effectively. And I think bearing in mind that we've got the 50% weighting to NPAT versus the 50% weighting to relative TSR that we've got the balance right. And we will continue to review and make sure that we get that balance right in the future. Thank you.

Thank you, Trudy, for that most comprehensive answer. The only thing I'd like to add is I think the strength of the company's incentive-based remuneration system has really been evidenced over the last 2 years in terms of the remuneration outcomes for executives and the Board during the tough year of 2020 and then, of course, the recovery in 2021. It never has been, in my view, a more evident -- or better evidence of exactly how strong that incentive-based remuneration system is and how well it served both this company and, of course, our shareholders. Thank you. Michael, do you have another question for us?

Yes. Thanks, Eric. Next question is also from Ray Tollefsen of Teaminvest. He asks, what threat the fast-growing tech-based collection companies such as InDebted and Remita, operating in both Australia and the U.S., pose to Credit Corp's collection model and margins?

I might hand over to Thomas to answer that one. Thank you.

Thank you, Eric, and thank you, Ray, for your question. I think the first thing to say is that Credit Corp is always looking at competitors, always looking at what others are doing, always looking at the way business is conducted in our segments around the world. While we have been a leader for many years, we know that to continue to be a leader into the future, we need to make sure that we're on top of developments in all markets by all competitors to ensure that we remain at the forefront. So specifically in relation to the question, the particular technologies being used by these, I guess, fintech debt collectors are based around digital or online interaction, mobile interaction, interacting with consumers through text messages, launching online portals, auto-negotiate functionality, effectively negotiating with the machine, now that is all technology which Credit Corp has and has had for some years now and continues to refine and improve. The truth is that for the majority of the activity that Credit Corp undertakes, we are dealing with very late-stage debts and in the main larger balances. Typically, these very late-stage debts have already been through these automated forms of debt collection. And so doing that, again, only produces very limited results. And it's the more in-depth collection activity that is undertaken on the phone and through other methods that is required to achieve the sort of returns we do on the more aged debts that Credit Corp is undertaking. But our approach is to use a variety of methods, including these digital interactions. So this -- the digital interaction works best when debts are relatively fresh such as at the very early stages, through payment reminders and other things. Typically, we do some of that work within our collection agency business where we are working for clients, not on debts that we've purchased from them but for debts that they retain. And that's where we come up against some of these operators in a very limited capacity, and we have received feedback from our clients that are sort of integrated solution, which combines some of these digital methods, which with traditional voice-based methods produces superior results. So we don't discount the threat of innovation or change. And we're certainly aware of it and we continually seek to adapt to ensure that we maintain our leadership position. Thank you.

Thank you, Thomas. Next question, please.

Thank you, Eric. Question is from [ Gilbert Wesson ]. Has the COVID pandemic increased the company's business? And if so, to what extent?

Okay. Don't get comfortable, Thomas, I think I'll ask you to answer that one, too. Thank you.

That's all right. Thank you, [ Gilbert ], for your question. Look, paradoxically, COVID has not necessarily been positive for businesses like ours, at least not to date. And that is because, I guess, COVID has generated a couple of responses. One has been a government response, which has been to inject a lot of stimulus into the economy to allow early superannuation withdrawal, a lot of direct-to-consumer support, which has, in general, allowed consumers to repair any arrears, to repay their credit outstandings, particularly their unsecured credit like credit cards, and you might have noted in the presentation earlier the reduction in total unsecured credit usage that has occurred. So that's been one impact. The other impact has been during periods of lockdown and other disruptions as a consequence of COVID, consumers have had more limited spending options, so limited opportunity to travel and limited opportunity to spend on discretionary items in the way they have historically, which is also suppressed credit demand and the use of credit. And so both of these factors have diminished supply, the supply of charge-offs, the debts that we purchase. It has diminished the volume of work coming to us as a sort of fee-for-service or commission-based collector in our agency business. And also, as noted, it has, for a period of time, reduced demand and stimulated heightened repayment in our lending business. But we can think that all of that is now reversing as the world goes beyond stimulus measures and immediate responses to COVID and things return back towards a more normal situation. We can see consumer spending starting to recover, credit card balances increasing, and that will point to charge-offs down the track and a recovery in supply. We're seeing increased demand for our lending products. So in effect, the short answer to the question is COVID has not, at this stage anyway, created additional business for the company. It's probably been a headwind, but one I think we've successfully navigated to date, and as things recover, we look forward to a more positive environment.

Thank you, Thomas.

Thanks, Eric.

Do we have more questions for us?

Yes, we have some. The next question is from Sue Howes of the Australian Shareholders' Association again, noting that there have been sort of recent indicators of rising inflation and asking what impact that might have on the market for charged-off debts and if that will create investment opportunities for Credit Corp.

Thomas will answer that, please.

Yes. Look, it's an interesting question in terms of overall economic impacts arising as a consequence of inflation. And obviously, we here at Credit Corp are not really economists, so take our commentary for what it's worth and consider it to be at best anecdotal. But inflation, look, to the extent that it's associated with rising consumer stress and some kind of downturn that perhaps challenges levels of employment, we'll potentially see rises in arrears and then -- and potentially charge-offs, which might be favorable for our business. In terms of any impact of inflation on interest rates, typically, we don't see -- or historically, we've not seen a direct correlation between our business and rising interest rates. So a lot of the consumers that we deal with are not homeowners. The majority of them are not homeowners. So the people who default on unsecured credit typically don't own their own homes. So rising interest rates don't typically have a big effect on these people other than any ripple through that I mentioned earlier on employment or other issues. So look, it will be interesting for us to see. Obviously, our business is well prepared. That is our job. Our job here at Credit Corp is not to forecast or predict the future but to ensure that we're managing the company so that we can succeed in a range of economic outcomes. So at the moment, we are debt-free and have substantial undrawn credit lines. To the extent that inflation generates an economic downturn, results in rising interest rates, this might affect our competitors, particularly most of whom are substantially more levered than we are. And so should there be a downturn, we would anticipate some strong opportunities for Credit Corp in the debt purchasing segment. Thank you.

Thank you, Thomas. I believe that exhausts the questions that were submitted prior to the meeting. Michael, do we have any that have been submitted via the Lumi platform this morning?

Yes, we do, Eric. The first question submitted is from Howard Coleman of Teaminvest. He asks the question that -- note, I should say, that our productivity per hour is higher in the U.S. than in Australia and asks sort of what we attribute that excellent productivity in the U.S. to given that we've obviously got a less experienced sort of staff base over in the U.S.

Thomas, do you want to field that one? That's [ not here ].

No, certainly. Yes. So you see, historically, productivity in the U.S. has historically been lower. However, in the most recent quarter, that has switched and is now higher than it is in Australia. And this has a little bit to do with the mix of purchasing, what we're purchasing in each environment, the volume of debt as a proportion of total receipts that are being received via payment arrangements. And so all of these factors have contrived in the current quarter to show very, very strong productivity in the U.S. relative to Australia. But perhaps the most significant factor at the moment has been some of the difficulties we've faced in recruiting staff in the U.S. Ideally, we would have more staff at the moment and we would be experiencing lower productivity. Those staff would be recent hires. But in the U.S., with the existence of some very generous and overlapping unemployment support, it has been very difficult for companies like ourselves to recruit people to the sort of entry-level positions that we offer within our collection environment. And so the short answer to your question, Howard, is that our productivity at the moment should probably be a bit lower in the U.S., and it will fall as we now resume recruitment and grow headcount in the U.S. Ultimately, that will result in higher overall collections but lower productivity. It will allow us to better and more thoroughly exhaust the value in the debts we have purchased and continue to purchase. But we see that as a temporary situation arising from particular measures in the U.S. that have made recruitment difficult, and that should reverse over time. And Australia being a more mature environment where we have a large ongoing repayment book should, over the next few years, continue to show higher productivity than the U.S. Thank you.

Thank you, Thomas. Thanks for that question, Howard. It is a fine balance. Do we have any other questions?

Yes, Eric. Next question is actually an amalgamation of a couple of questions that have come in. Just asking in respect of the U.S. Wallet Wizard pilot, what some of the KPIs are that are being monitored in order to potentially take that out of pilot and for it to be a vertical that can continue to be expanded upon.

Thomas, I'll ask you to answer that. Thank you.

Yes. So our product -- our Wallet Wizard product in the U.S. operates below the sort of safe harbor interest rate that applies in that market. So it's well below the rates of many other lenders in that market, payday lenders and what are sometimes called installment loan providers who charge high rates of interest. It is marketed, however, to a similar customer base. So we're dealing with a customer base that has limited options where most of their options are very costly and sometimes unaffordable. And so the critical thing we've got to work out with our product is whether we can achieve a loss rate that will make the product economic while operating within this safe harbor the interest rate. And that's in the context of it's a lower rate than competitor rates. And so we've got to offset that with a lower rate of losses. So that is the critical metric that we've got to hit. We have a pro forma loss rate that is a little bit lower than the loss rate we would expect to occur -- incur here in Australia on our Wallet Wizard loans, and we need to be hitting that. There are some competitors who are doing something similar to the product we have in the U.S. So there are some precedents for lower loss rates. The difficulty is a lot of those competitors have a significant storefront component to their business, which means they're able to do physical underwriting. They're able to look at their customers, assess documents and almost do a kind of a spot underwriting. Our offering is online. And the question for us is whether we can replicate those lower loss rates we see from some of our competitors with a significant sort of physical presence using our online presence. So that's the key question for us and one that hopefully we'll be able to answer over the next 6 to 12 months that will enable us to adjust, adapt and accelerate the rollout of the product. Thank you.

Thank you, Thomas. Any other questions?

Yes, Eric. Next question, again, it's an amalgamation of several questions in relation to the Wiz Pay, Buy now Pay Later pilot. First part of the question is the rationale for entering that market given that it appears to be relatively crowded. And then the second part of the question is to understand the way in which applicants are assessed in terms of a credit assessment.

Okay. I will hand over to Thomas to address particularly the second part of that question. But I guess in terms of the rationale, it's consumer demand. That's the way people want to do business. For ourselves, though, it really does revolve around customer acquisition and opportunities we have then to move those customers into other products or in line with our traditional offering. But Thomas, you might want to elaborate on that, please.

Yes. Thank you, Eric, and thank you to those who ask this excellent question. Yes, as Eric mentioned, things are changing in the credit landscape. And with our sort of Wallet Wizard product, we specifically advertise for customers and customers come directly to us. The Buy Now Pay Later product, customers are going to merchants with a view to acquiring a product and come across our offering and become Credit Corp customers. And it is our hope that over time, those customers might consider some of our other lending products, including our Wallet Wizard loan and also our car loans and other products that we're working on. So we do see within our Wallet Wizard business that the sort of people that are taking out Wallet Wizard loans are relatively heavy users of Buy Now Pay Later. So there is an overlap. So Buy now Pay Later can be seen as another way of serving and acquiring customers within the sort of product suite that we offer. So I think that was the first part of the question. Just remind me once...

Just asking for credit checks.

Yes, certainly. So the credit checks for smaller amounts below $500 are necessarily limited. There are some credit checks that we undertake that ensure that we're managing risk and there's all the required sort of identity and fraud checking as well. Once we get into larger amounts, we're dealing with an assessment that is very close to the assessment that we'd be undertaking on our Wallet Wizard loan. So there is a threshold when we get into larger amounts. We're doing more thorough assessments, more akin to what we're doing and more akin to what would meet responsible lending laws even though those laws would not specifically apply to this type of lending. Thank you.

Thank you, Thomas.

Yes, Eric, the next question is also from Howard Coleman of Teaminvest. Just asking about what Credit Corp's intention is in terms of the format of the AGM next year assuming there are no longer COVID restrictions on physical meetings, sort of asking whether we'll do a hybrid or a physical meeting again next year.

Thank you, Howard. Look, we haven't taken a final decision on whether we will. By my own view at this stage is that we will, in all likelihood, move to a hybrid, which will ensure that we get the maximum coverage. I've always had the philosophy, if you like, that as many shareholders as possible should have the ability to access the AGM. And I think this hybrid method is probably the best way of achieving that. At the moment, the plan is that we will move to a physical meeting again. We'll certainly have that, unless we have further deterioration in -- COVID will become COVID-22 at that stage, I think. But in all seriousness, I think we're probably looking at a hybrid meeting for next year's AGM. Thank you. Any other question?

The next question, Eric, also an amalgam of a couple of questions. Just asking how Credit Corp engages with consumer negotiation fintechs such as [ Liva ].

I think, Thomas, if you're first answering that, please.

Yes. Look, we encounter a lot of different consumer representatives, some are full profit, some operate on a digital basis, some utilize statutory provisions under bankruptcy act, both here and in the U.S. and to some extent, in New Zealand. So we engage with a number of representatives, and we have sort of established modes of conduct for the way we'll deal with those representatives. Typically, in all instances, what we try to do is replicate the sort of outcomes that we would achieve dealing directly with the consumer. So what we're trying to do in our interactions with these parties is understand the consumer's position, sometimes asking for evidence when we're dealing with some of these parties to make sure we understand what the consumer's capacity is and then attempting to structure a repayment solution, which sees us achieve an outcome that reflects the consumer's capacity to repay over time. And that's the way we approach these negotiations. We don't typically agree a lot of discounts or standard deals or anything like that. Some others in our market do. But for us, it's a case-by-case basis, assessing the consumer's capacity and structuring something that they can afford but still ensures we get an adequate return on the outstanding.

Thank you, Thomas. Next question, please.

Yes, Eric. The next question is from Howard Coleman from Teaminvest again. It's a follow-up question from your response to the initial question in relation to Board renewal. He's seeking assurance that in terms of the sort of Board renewal process that the Board will retain sufficient experience in terms of directors who have a thorough understanding of the business.

Thank you, Howard. Yes. As I mentioned during my initial response to that question, it is a balance and it is important that we don't, for want of a better phrase, throw the baby out with the bath water. In other words, that stability of management and Board has stood this company in very good stead. We don't want to move to a position where that is suddenly all replaced. So it is a gradual and measured approach to renewal that the Board is taking. Very conscious of the points that you raised there, Howard. And you can rest assure that we will ensure in the way that we go about this renewal process, all of those skills that are required at Board level will be introduced perhaps in a slightly different format or experience base, probably a better word for it, in terms of the new directors that we bring on. And that blend of new and experienced directors, I agree with the premise of the question, is very important for us to maintain.

Thanks, Eric. A question from [ Pierre Fennec ]. Just asking about collection performance against the assumptions that underpin the impairment that was taken up at June 2020 and just whether there's likelihood that some of that impairment might be reversed in future periods.

Thanks for the question, [ Pierre ]. Again, I think I'll hand over to Thomas to answer that fully. Thank you.

Thank you, [ Pierre ]. Great to hear from you again. So look, the answer to the question is that in the main, collection performance has been in line with those assumptions. So while we were preparing our accounts for the 2020 financial year, we had a lot of awareness of a period of stimulus when collections would be relatively high in a period where collections would, to some extent, fall. And all of that was built into the projections that went into the impairment largely in Australia and New Zealand. Collections on those historic purchases that were in place at June 2020 have tracked relatively closely to those assumptions. In the U.S., there's been some slight outperformance but not material. And so overall, it's getting to the stage where through the sort of ongoing amortization and continued collection activity that the likelihood of a reversal, I guess, with each passing month is becoming -- is probably becoming more remote. However, it's something that will be revisited at the half year balance date and then again at the full year as part of finalizing our accounts. Thank you.

Thanks, Thomas. Thanks, [ Pierre ].

There aren't any further questions, Eric, sorry.

There are no further questions. Thank you, Michael. We've now completed questions. And in a couple of minutes, I'll close the voting system. Please ensure that you have cast your vote on all resolutions. And I'll now pause to allow you time to finalize those votes. [Voting]

Is there anyone who needs more time to cast their vote? Please indicate. If not, I hereby now declare that voting is closed and ask the returning officer to count the votes. As I mentioned previously, the results of the poll will be released to the stock exchange later today. So ladies and gentlemen, that concludes this meeting. And there being no further business, I declare the meeting closed. On behalf of the Board of Directors of Credit Corp, thank you for your participation in today's meeting. I wish you all a good afternoon. Thank you.