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

Welcome to Credit Corp's 2023 Full Year Results Presentation. I am Thomas Beregi, the CEO of Credit Corp. Our objective is leadership of the credit-impaired consumer segment. We define our market as people who've had trouble with credit, most having defaulted on the previous obligation. We operate in very 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 responsible and comply to deliver on our promise to our debt sale clients, other stakeholders and the community so that our business can continue. Applying these competencies, we target to deliver strong earnings growth into the future, while producing acceptable returns, being our return on equity of 16% to 18% with a conservative financial structure. We have strong metrics and approaches for each of these competencies across our 3 businesses. Our leadership has delivered the flexibility to manage 3 challenging conditions. In 2023, Australia and New Zealand debt ledger purchase volumes failed to recover and remained at around half of their pre-COVID levels. In the first half of the year, we had to rapidly increase U.S. staffing in a tight labor market to service an unexpected increase in sale volumes under our existing contractual premiers. And in our lending business, we needed to actively manage credit settings to accommodate very strong consumer demand while taking account of the prospect of deteriorating pre-COVID conditions. Despite these challenges, the company recorded net profit after tax within 5% of the prior year's record result. While earnings continued to run off in the core Australian and New Zealand debt buying business, and we suffered from costs associated with rapid staffing growth in the U.S. The impact of these factors was largely offset by a very strong result from the consumer lending business. There was a solid operation or recovery from the U.S. business over the second half with both productivity and collections improving as we brought on new recruits up to speed. And this was achieved despite increased repayment plan delinquency over the last few months of the year. On this point, there's likely deterioration in collection, conditions will be something for us to monitor in 2024 as we make further purchasing decisions. The loan book grew to a record level over the first half, and we managed to maintain it over the second half despite tightening the credit settings in response to an increase in the arrears. Loan book finished the year in a very healthy position. Losses are on track to remain within pro forma, and we continue to hold provisions to account for an uncertain outlook. In 2023, we invested in the growth businesses of U.S. debt buying and consumer lending. And this investment should deliver strong earnings growth from these segments in 2024. Late in the year, prices of U.S. purchase debt ledgers fell to levels which aligned with our outlook for collection conditions, and we're able to build a solid pipeline of purchasing for 2024. We also extended our banking facilities to June 2026. And this means we have the financial capacity to secure any larger one-off purchasing opportunities that might arise. So just to conclude with our guidance for 2024, we're expecting net profit after tax in the range of $90 million to $100 million, and at the midpoint, this represents earnings growth of 4%. We also anticipate that investment will moderate from the levels of the past year, producing significant free cash flow. Thank you.