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

Welcome to Credit Corp's 2024 Half 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 have had trouble with credit, most having defaulted on a previous obligation. We operate in very competitive businesses in 3 competencies that 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 compliant to deliver on our promise to our debt sale clients, other stakeholders and the community. This ensures that our business can continue. Applying these competencies, we target to deliver strong earnings growth into the future while producing acceptable returns, being a return on equity in the range of 16% to 18% with a conservative financial structure. We have strong metrics and approaches for each of these competencies across our 3 businesses. But we've been operating in a challenging environment. In the U.S., there has been a sustained deterioration in collection conditions. In our lending business, we have needed to actively manage credit settings to accommodate strong consumer demand, while taking account of the prospect of a deteriorating economy. And in Australia and New Zealand, our debt buying business remains in runoff as we continue to suffer from very low market sale volumes. As we advised in October 2023, challenges in the U.S. have affected the company's current year performance. Elevated repayment plan delinquency, which first emerged in the last quarter of the 2023 financial year has persisted. This made it necessary to revise collection forecast for the next 3 years. As a consequence, we wrote down the starting value of our U.S. purchased debt ledger book by 14% with a one-off impact on earnings of $46 million in net profit after tax. Similarly, we advised that our underlying U.S. earnings would fall short of previous expectation by $10 million in net profit after tax. The impairment charge means we are reporting a first half loss of $12.1 million. Excluding this one-off charge, our performance was solid. Underlying earnings were up by 5% over the same period in the prior year, with lending segment growth offsetting the impact of a runoff in the Australian, New Zealand debt buying business. Our focus is on improving our U.S. operations, and we are seeing some gains from our efforts with collections and productivity starting to improve. Operational improvement in the U.S. will remain important because investment conditions are looking increasingly favorable as competitive demand remains weak while PDL supply is increasing, allowing us to build a strong U.S. investment pipeline at a time when purchased debt ledgers prices are more attractive. The lending business delivered record volume in the half year with strong consumer demand converted through efficient advertising. Growth is being achieved with sound credit settings. Arrears fell significantly over the half year and losses remain within pro forma. We've maintained our leadership in responsible practice. In particular, our response to consumer hardship was again rated the highest of any financial services provider by financial counselors in Australia. And this has helped maximize Australian and New Zealand purchasing in a constrained market. While we continue to work hard on our costs to minimize the impact on earnings as collections in the Australian, New Zealand debt buying business run-off, the outlook for the full year is for strong investment, primarily driven by lending volume, and we expect to fund this investment from operating cash flow and existing credit lines. Just to conclude with our full year guidance, the earnings outlook is unchanged and the statutory net profit after tax in the range of $35 million to $45 million; on an underlying basis, before the impairment charge, this is $80 million to $90 million in net profit after tax. We expect ledger investment to fall at the upper end of the previously advised range at $230 million to $250 million, and net lending has been revised upwards significantly to $140 million to $150 million. This investment should lay a sound platform for a return to growth in 2025. Thank you.