Pioneer Credit Limited (PNC) Earnings Call Transcript & Summary

Was it for all employees or just a certain section of the employees, this equity?

Certain sections of it.

Yes. So -- thanks, Michael. [ Mr. Yoshi ], so the equity incentive plan is for generally speaking the senior management of the business. And it's recommended to the Board and the Board would then go through a process to approve or otherwise issuing that equity to those executives.

When we voted previously, wasn't it for all employees?

It can certainly go to all employees. It's generally though confined to certain executives.

As an aside from that or in addition to, the company has from time to time considered ways it can involve all of its staff in the equity of the business and would continue to think about that. The relationship between our staff and the company and its customers and its shareholders is something we very much keep in our mind. And it's not out of the realm of possibility that we wouldn't find a way to extend it as widely as we could.

And one other question, are these bought on the market or are they created, [ issued ]?

We buy them on the market, though.

Yes. So the question was are the shares bought on the market or are they issued? There is the ability to issue them. But we have only ever bought them on market so that they don't exist -- they don't dilute the existing shareholders.

And we have a very cautious and well-managed regime by which those purchases occur. Okay. If there are no other questions, I'll move on. Thank you.

So that we'll now go to Resolution 7, which is to consider and, if thought fit, pass a resolution to issue 8 million options to Managing Director, Keith John. The independent directors believe that without Mr. John's commitment to the -- through the last 18 months and his commitment to the company, the position of the company today would have been very different. Put quite simply, we wouldn't be here. Under Keith's leadership, Keith and his other executives endured an extraordinary workload and worked tirelessly to achieve the best possible outcomes for all security holders. Departing from the script for a moment, I've got to say personally, there have been times in this last year where the Board has had deep concern about the wellbeing of our executive. The commitment that they've shown to work all hours, and I might say our advisers, too, that seemingly endless meeting is somebody who looks after the welfare of your people, it's been a great concern. I just wanted to pause for a moment and say on behalf of shareholders, it's been an extraordinary effort and much appreciated. And no better example than the leader, Keith. In considering Keith's performance over the previous 12 months and the commitment Keith has made to the refinancing process, including the personal security he has offered to the refinancing process, the independent directors recommend the issue of 5 million unquoted options exercisable into fully paid ordinary shares at a strike price of $0.30 expiring 3 years from the date of approval of this issue by shareholders and 3 million unquoted exercisable into fully paid ordinary shares at a strike price of $0.30 expiring 3 years from the date of the approval of this issue by shareholders, subject to the VWAP of the company shares exceeding $1 for a minimum period of 8 consecutive weeks during the exercise period and Mr. John being employed at the company at the time. In order to fully exercise the options and receive the shares, Mr. John must pay a total exercise price of $2.4 million to the company. I'll now put the resolution to the meeting that for the purpose of ASX listing Rule 10.14 and for all other purposes, shareholders approve the grant to Mr. Keith John, Managing Director or his nominee, of 8 million options under the Pioneer equity incentive plan under terms described in the explanatory statement, which accompanies and forms part of the Notice of Meeting. The independent directors unanimously recommends that shareholders vote in favor of Resolution 7. Voting restrictions apply to this resolution. The company will disregard any vote as a proxy by a member of the KMP at the date of the AGM or that KMP's closely related parties in favor of the resolution by any person referred to in listing rules 10.14.1, 10.14.2 or 10.14.3 who is eligible to participate in the Pioneer equity incentive plan or an associate of that person. Proxy votes are now displayed. Are there any questions on this matter?

No questions.

No questions online. So voting will be conducted by a poll. I will now move to the next resolution. This is the spill resolution. Resolution is a conditional item of business and is being put to shareholders at this AGM as the company experienced its first strike on its remuneration report at the 25 November 2019 AGM. As all resolutions are being voted by poll and the result of that poll will not be known until after the close of the meeting, this spill resolution will be put to the meeting and voted on in the same manner as other resolutions. Resolution 8 will be withdrawn if the poll reveals that less than 25% of the votes cast on Resolution 1 are voted against the adoption of the remuneration report. If the spill resolution is not withdrawn in accordance with my previous comments and it passes with more than 50% of the eligible votes cast, then the company must hold a spill meeting within 90 days at which all directors, other than the Managing Director, who were in office when the company's 2020 Director's report was approved, will retire and may resubmit themselves for reelection. If you do not want the spill meeting to take place, vote against Resolution 8. If you want the spill meeting to take place, vote for Resolution 8. I now put the resolution to the meeting that subject to and conditional upon at least 25% of the eligible votes cast upon Resolution 1, that is the remuneration report being cast against the adoption of the remuneration report, an extraordinary general meeting of the company, the spill meeting, will be held within 90 days of the passing of this resolution. All directors who are directors when the resolution to approve the director's report for the financial year ending 30 June 2020 was passed, other than the Managing Director, cease to hold office immediately before the end of that spill meeting and resolutions to appoint persons to offices that will be vacated immediately before the end of the spill meeting in accordance with Paragraph 2 above to be put to the vote at the spill meeting. The Board strongly recommends that shareholders vote against Resolution 8. I intend to vote undirected proxies against Resolution 8. Voting restrictions apply to Resolution 8. The company will disregard any votes cast on Resolution 8 by or on behalf of a member of the KMP, whose remuneration is disclosed in the remuneration report for the financial year ended 30 June 2020, or their closely related party as a proxy by a member of the KMP at the date of the AGM or that KMP's closely related party. Proxy votes are now displayed. Are there any questions on this matter? Thank you. As there are no questions and the voting will be conducted by a poll, I'll now move to conduct the poll. Ladies and gentlemen, the company has adopted the ASX Corporate Governance Council Guidelines which recommends that a poll be called on all substantive matters. In this instance, it's appropriate that all resolutions be conducted by poll pursuant to the requirements of the law and the company's constitution. Link Market Services Limited has been appointed by Pioneer as the returning Officer for the poll. Shareholders who are present in person and who are entitled to vote have been given a yellow voting card. If you do not have a yellow voting card, please refer to the Link staff at the registration desk. On this card, you will find a series of boxes for voting. Please indicate on your card how you wish to vote by ticking or marking the appropriate square for all of the resolutions that have been read. You must mark either the for or against box for your vote to count. If you are a proxyholder, the summary of the votes to which you're entitled has been provided with a yellow voting card. If you only have directed votes, you need to do nothing other than submit the voting card. Votes at your discretion or open votes are shown in the column titled Open Vote or Vote Open on your proxy summary and can be cast at your direction by marking either for or against in the box. Shareholders who have registered and are attending remotely may click on the Get a Voting Card button. You may need to use the scroll bar on the right-hand side of the voting card to view all resolutions. Please follow the prompts online to complete the voting card and then click the Submit Details and the Vote button. The proxy votes are hold as a nominated proxy for shareholders in relation to each resolution are now displayed. Representatives of Link Market Services will now collect your completed voting cards from the floor. You must lodge your voting card for your votes to be counted. [Voting]

Any outstanding voting cards? Then on that basis, I now declare the poll closed on the floor. Online voting will end 5 minutes after the close of the meeting. The results of the poll will be released to the ASX later today and posted on our website. In accordance with the company's constitution, I confirm that there is no other business to be brought forward to be transacted. As there is no further business, this concludes the formal proceedings of the 2020 Annual General Meeting of Pioneer Credit Limited, and I thank you for attending. And before I finally bring the gavel down, I'd just like to take a moment to thank my 2 fellow non-executive directors who have not been specifically mentioned, just so that your example and commitment to the business has been extraordinary, and it's been a privilege to be the Chairman with your support. Thank you. That done, I will now close the meeting. Thank you. Having concluded our Annual General Meeting, I'd like to invite Keith John to present his Managing Director's presentation.

Thank you, Michael. Thank you all for attending both online and in person today. There'll be an opportunity for questions at the end of my presentation for anyone that has any. What I'd like to do really is spend only a brief moment on FY '20. Clearly, there's been a lot said about it, and it was only recently that we started trading again on the ASX. So we'll cover that briefly and then really step into what's happening in FY '21, what our strategy is and what we hope to achieve over the course of the next year or so. In terms of FY '20, obviously, it was a very challenging year in terms of how the business was operating. Liquidations clearly softened during the beginning of the pandemic, in particular. But very positively in our business, our payment arrangement portfolio grew over that period, up some 23% from FY '19 to FY '20, and it's continued to grow since then, up another 4% to the end of October to just shy of $370 million. It's quite a remarkable achievement in the context of where our whole economy is at and where our consumers are at but is reflective really of a few things. The first is the quality of our underlying portfolio. Predominantly bank-focused, we've brought the best consumers, and our book represents the best consumers of the impaired credit segment. Those consumers have the highest propensity to heal compared to payday loans and small account credit contracts and the like, which we do not participate in. It's been a conscious and a very deliberate part of our strategy since inception and one that we think has served us very well through the past year, in particular. That is obviously also supporting the value of our portfolio and our book, which is very important, obviously to the validity and sustainability of this business. The other point to note is the quality of the underlying performance. It's not just that we've managed to grow our payment arrangement book through this, but we've done it in an environment where it's been our lowest purchasing over 6 months for many, many years. For the last quarter of last financial year, the banks pretty much suspended all PDP sales, and we had no new stock, for lack of a better description, coming into our business and obviously, very slow on the way out. So against a low investment environment, we've had tremendous performance of our payment arrangement book. That leads us to what else we've been focusing on, of course, improving liquidations from our older vintages, given that there's been nothing coming in, in terms of new performance, there's been a very strong focus and a continuing focus on making sure that we liquidate and we service the back end of our book as well. There is an incredible value that's to be released from that over the coming years. And there's been a tremendous amount of work done to make sure that we realize that value at the moment. And we're working hard to do that. To give you context, in the last quarter of last financial year, we invested about $2 million against what was originally contracted at about $15 million. So it's quite a marked difference in terms of what we invested at the front end, but obviously has allowed us, and the focus that we've had on the back end has been really, really important. Obviously, FY '20 was impacted by some very significant costs as a result of the Carlyle-related corporate activity. We're pleased to have that behind us. There are some more costs, obviously, during the first quarter of this financial year, given that we've only just recently completed the refinancing. The bulk of that is behind us now, and we can really look forward to the future for Pioneer. A lot of people talk about culture, and it's almost become a byword. And we've put up this slide every year, and it's been in every presentation since the day we listed. Never before have the Pioneer principles been more important than in the past year. Doing the right thing, doing it a great -- during a period of great adversity, looking after your people, looking after each other and trying to get the best outcome for bondholders and shareholders has been critically important. And without having people that believe in a culture, people that understand and are committed to what we stand for at Pioneer, that simply wouldn't have been achieved. And it's with great pride that we talk about our Pioneer principles and something that's been very important throughout the whole of our organization, from the Board down. Certainly, it is the cornerstone and the foundation of what will make us successful again in FY '21 and beyond. Of course, none of that is possible without a very committed team and a very committed board. I'll thank them towards the end of this presentation. But the amount of work that's gone in over the last year, in particular, as Michael said, 66 board meetings is quite extraordinary in any circumstance. That doesn't include the countless hours outside of the boardroom, talking about this business and working on our plans, not just as a management team and as a Board, but also with our advisers, many of who are here today and who we thank for all of their incredible efforts. FY '21 is a really interesting time for Pioneer. Over the course of our journey, we're focused and we've talked regularly about compliance, about customer outcomes and about putting people first, both our staff and our customers. Really, now is the time for us to capitalize on all of that great work that we've done, continue to focus on it, but to capitalize on what lays in front of us. There are incredible opportunities that represent -- that are present in our market now. Firstly, in terms of PDP supply. Clearly, there is going to be a lot of impaired credit coming to market. We stand very well placed to take advantage of that not just because we are now recapitalized, and we're in a position to buy it, but because we're trusted to look after those consumers, we're trusted to do the right thing by them, and we're trusted to get great outcomes for those people, for our stakeholders, for you, but also for our vendor partners. It's never been more important than right now how you treat a consumer and what we're doing with them. And Pioneer is very well positioned to do that. Vendor and product diversification. Clearly, there are opportunities to grow into other segments. Throughout the next period, though, our focus really will be on banking and finance. It's where we have the greatest credibility. It is also where there is the greatest amount of focus put on and value put on by the vendors in terms of what we do and how we drive customer outcomes. Focus on growing payment arrangements. This has always been a focus of our business, but something we're continuing to work through now. And as you can see from the growth that we spoke about just at the beginning of this presentation, really underpins the value and the liquidations that flow through and make this business sustainable. Throughout the course of the pandemic, but also the events of the last year, we still managed to have liquidations above $100 million. It's quite a remarkable achievement when you think about the disruption that not only occurred to the consumer, but also to this business and the restrictive manner we had to operate because of some of the funding requirements at the time. That in large part is because of our payment arrangement book and because of the sustainability of those arrangements. When we work with consumers, it is not about squeezing people for money. It is about underwriting those consumers so that they can make the payments that in a manner that's good for them and for us. And it's held us very, very well. There is undoubtedly increased regulatory scrutiny that has occurred over the past year and will also occur from here on in. A lot of people are scared by scrutiny and by regulators. They are nothing but our friend. It is one of the great things that we have going for in this business. It's a business that puts other people first, is exceptionally honest and holds itself to a high standard. The more scrutiny, the more regulator focus we have, the better. And certainly, it's something that's serving us well. It makes life more difficult for others. But certainly, in terms of underpinning our business and the way that our vendor partners deal with us, it's something that we very much welcome. Finally, increasing our operating leverage. We reached a certain size going back a couple of years ago now when we first broke $100 million. We haven't really had the opportunity to become more efficient through this business given the events. We now have that opportunity and something we're working very hard on, both through cost reduction in terms of becoming more efficient the way our back office works, in the way that our analytics works and the way that our support functions work, but also in the way that we deal with our consumers through digital engagement and the like. So big opportunity for us for this year, in particular. I've mentioned our differentiated approach. It is really what has separated us from everyone else in the field. Across our business, it looks like -- really like this. One is our portfolio, which has been incredibly resilient. Our data science is improving every day. We are growing that team, and we are attracting better and more capable people every year. That is really supporting the underlying portfolio selection, but also our performance as we go through this period. As I mentioned, we do not buy payday lending, and we do not buy those lower value customer segments or product segments. And that has really supported us through this period. Our vendor relationships, I mean, quite remarkably through the last year, not 1 vendor has terminated a contract with Pioneer. That is in a large part to do with the way that we engage with them and also the value that they see from the Pioneer relationship. We're very, very proud of that. Our disciplined acquisition strategy, which we're very focused on, obviously, again, supported by the value of the portfolio that's been presented this year and audited this year and really held up quite well, particularly, if you think back to the date that, that was valued, which was the 30th of June and Australia looked a lot different to the way that it does today. And finally, most importantly, is doing the right thing, again, something that we focus on. In terms of our consumers, that looks like our Net Promoter Score. We're the only group in the sector that promotes -- that runs a Net Promoter score, and it runs at plus 13% across our business. I'll talk a little bit more about that in a moment. In terms of our performance to date, Q1 was our best first quarter ever. We're really proud of that. In terms of that number, it's not just, though, the top line liquidations. It's the underlying quality that sat behind that number, which is very difficult to see, unless you're deep inside the business. Needless to say, it is our best quality quarter as well. Very low discounting throughout our book, very high number of payment arrangements that we're committed to, very efficient way of operating. So we're very, very happy with that. In the 12 months to September '20, again, our PA portfolio increased quite remarkably. In terms of cost efficiency, we've had a really strong focus on people and systems and using those to become more efficient right across our business. That will continue over the course of the next year. And finally, of course, the refinancing, which was completed in September. We have a $180 million facility. It is drawn to $169 million. We have not used the $20 million purchasing facility to date. And as it stands, do not expect to use that for the balance of this financial year. So all of our investment currently contracted at $33.5 million is out of free cash flow, okay? The only time we anticipate, at least at this stage, using the purchasing facility is if there's some sort of extraordinary opportunity for us. We do not expect that until at least after Easter. From our perspective, one of the ways we're protecting against the unknowns of the pandemic, and we've only seen in the last week how quickly things can change with what's happened in South Australia, is by being cautious about the way we invest our capital until we have a little bit more clarity about what's happening and how we emerge from the current situation. But like I said, everything that we've bought to date, $10.6 million has been funded from free cash flow, and everything that we have contracted, we expect to fund from free cash flow as well. On the left-hand side, we have the cumulative liquidations against our investment. You can see that, that continues to grow. And clearly, that's a really important part of this business. There's simply no point us investing money if we're not recovering beyond that. And certainly, that's happening now, and we expect it to continue and continue to grow quite strongly from here. On the right-hand side, you'll see our graph of liquidations. And over time, we've seen a gradual decrease in our liquidations from accounts that are less than a year old and an increase in the ones that are older. It's a really important part of our business in that we continue to service customers the entire way through our book and through their journey. We have to do it in the right manner. We have to do it in a manner that respects them and also respects what we're trying to achieve in a business. An incredible amount of work has gone on to ensure that we are doing that in a sustainable way. And also in light of the way that the consumer expectations and stakeholder expectations are changing, need to be really cognizant of those expectations. But we're very proud that our liquidations continue to grow from the older parts of our business. Our payment arrangement book, as I mentioned, continues to grow. There are now some 30-odd-thousand consumers that are on regular payment arrangements with Pioneer, and that continues to support our monthly liquidations and the underlying performance of our business over the course of each year. This is something very much we're looking to grow, something that clearly consumers like. They like dealing with an organization that understands that they will take the time to understand them and to set up something that works for them and for us. In terms of the first quarter, our EBITDA was about $9.7 million. These figures were, of course, unaudited. We had almost $7 million in costs as a result of the Carlyle activity. It really is the bulk of the rest of the cost that has been paid from this unfortunate set of circumstances. We also were the beneficiary of Job Keeper to the tune of $2.8 million, which gives us a normalized EBITDA of $13.7 million for the first quarter. We expect to see this continue to grow through the course of the year. We're very happy with the way things have gone so far. Clearly, record liquidations in the first quarter assist this, and then obviously, not having significant costs in the next quarter are certainly going to help the performance of this business over time. Just for clarification purposes, we're not entitled to Job Keeper any further from this -- from the original time frame, which I think was September. I've mentioned Net Promoter Score. And I think this is a really important slide. This is the sort of information that we share with our vendor partners, and it's one of the strongest selling points as to why someone would choose Pioneer over another. Particularly as we try to buy very conservative and cautious price points. And you can really see from the first contact where it's minus 26%. So we've bought an account from a bank and the first time we speak to them, the experience is generally negative, reflecting what they might have experienced in the past and their disappointment of their circumstances. And as we work with these consumers over time, you can see that, that score improves dramatically. It's a testament to the way that our operations team speak to consumers, understand them and actually deliver good outcomes for them. Over the course of a year, our -- or the last 6 months, our NPS is plus 13%, which we think is a very strong result, particularly given the circumstances that have occurred, the amount of stress in the environment over the course of the pandemic. Finally, in terms of our outlook, PDP sales have recommenced generally on improved terms for us. That's obviously something that's good for our business. Over the course of the next year, we expect to see those accelerate. Not everyone is selling yet, but some of the banks are and some of the other second-tier financiers, telco and utilities are, and we expect to see this pickup over the course of the next year. Well funded and compliant sector participants like Pioneer are going to do well through this period, and it's certainly something that we're focused on. A highly regulated industry likely to face increased scrutiny. This creates a great barrier to entry. And certainly, in terms of Pioneer, we've put a lot of effort and a lot of resource into supporting our compliance regime and the way that we deal with our customers, particularly those that have complaints over the course of the past year or so. Certainly, one of the things that will continue to allow us to succeed. The resilience of our portfolio, I've spoken about in terms of the value that sits inside it, the fact that we focus on buying Tier 1 bank grade customers, those that really were the best consumers from a credit quality perspective when they are originated. People get into trouble. It happens all the time. But those that were the best quality ones have the highest propensity to heal, and they're the ones that we are working with. We will continue to do that and work on that part of the portfolio and our business. We've obviously taken significant steps to organize our business for a new normal. Like everyone, we've had people working from home. We've had people with different circumstances that have emerged through this period. And the agile nature of our workforce has really been appreciated. There's increased investment in compliance and also our customer-facing servicing strategies. We are on the path, as we've mentioned, to the appointment of a new nonexecutive director, at least one of those over the course of the coming months, and we're a long way down the path of interviewing and meeting with a range of people that can add some value to our business, not just in terms of skill set, but also breadth. It's a lot of work for 3 nonexecutives, let alone a Managing director. So there's plenty of opportunity there. And we continue to invest in our data management and data science parts of our business. I mentioned the free cash flow, record Q1 liquidations, again, set against the lowest investment environment that we've had since listing, is a really remarkable performance. Normalized EBITDA of $13.7 million in Q1, and we expect that to increase throughout the year. We've got $33.5 million contracted at the moment in terms of PDPs. There's opportunity for us to upscale that over time. But we'll do that in a manner that we think is cautious. And when we have more certainty around what the environment looks like going forward and obviously, the recoverability of those consumers over time. But our focus will obviously remain on bank-originated customers. And finally, as Michael said, I mean, we had tremendous support from Nomura through this period. Clearly, the funding is expensive, but it was done in a manner to make sure that we preserved as much shareholder value as we could. We didn't do a highly dilutive equity raise. That came at a price, a short term price, but we think it's one where shareholders will be materially better off. We're working with our advisers now on refinancing that debt. And we'll start to pick up speed on that in the new financial year once we get our -- sorry, in the second half once we get our first half results completed. That's it for my presentation. Are there any questions at all?

[ Mr. Yoshi ], just wait for the microphone, if you don't mind. Thank you.

As you said, the company has got a substantial amount of debt. What do you consider a reasonable amount of debt for the company?

Look, it's a great question. Without putting an actual number on it, clearly, we'd like to get the number down. And we will do over time. There's a path to doing that. But in terms of where we sit internationally, our debt sits at about average. From an Australian perspective, clearly, it's high. We've got some work to do over the course of the next 6 months, in particular, to work out where we want to be. Historically, it was set at 60%. It's closer to 80% now. But it's manageable. Like I said, we consciously took on that without doing the equity raise because if you think about when that would have occurred, it would have been highly dilutive to existing shareholders. But over time, clearly, we want to strengthen the balance sheet as well. Our operating, if we continue to perform the way we are now, we'll certainly go a very, very long way to doing that and reducing it, back to more acceptable and comfortable levels.

One other question. It's good to see that you're funding PDPs out of cash flow. Out of your annual requirement, do you have a percentage of what you would like to fund yourself or the company, i.e. that may be increasing your retained earnings and not so much worry about paying a dividend in the early years and using that cash flow to fund the purchases of PDPs?

Yes. Thank you. So look, I mean, clearly, for this year, we'd like to -- we'd prefer not to be drawing down on additional debt through this period. If there is an opportunity for us to buy something that is investing, something that is actually -- represents really good returns and justifies that drawdown, then clearly, we'll do it and then over time, reduce it. I mean, ultimately, it will be nice to reduce our reliance on debt. We typically did 50-50 in terms of debt to free cash flow or debt to equity. And we need to get back there soon. And that's what we're working for towards in terms of the first quarter call at least. Thank you. With no other questions, really, it is -- the last thing to do is to thank several people. Firstly, to my executive, to Barry, who's not here today but -- and to Sue. Thank you, Sue. Incredible amount of work over a ridiculously long period of time. Many, many late nights, and I couldn't have done it without either of those 2 people. I haven't forgotten Jason and Andrea, but I should tell you that when they joined us in late May, they joined on the basis that I had assured them that this would all be done by the 30th of June. Little did they know that the circumstances would change again, and we'd have more work to do. So to both of you, thank you, not just for your work but also your patience and your considered manner in which we got through this period. It's a very challenging period if you're already employed by a business, but to join another business and go -- to join a business and go through what we did is obviously -- is very challenging. To my Board, thank you so much. I've thanked them all personally as I absolutely should, but we wouldn't be here without the 3 of you. The incredible amount of work, number of hours, counsel, the ability for me to scream now and then Michael and vent has been really appreciated and invaluable, and we thank you all incredibly. And finally, to our shareholders and bondholders. Obviously, it's not just a challenging period for your Board and executive, but also for the people that actually have their money invested in this business. I can assure you, we have done everything to respect your investment, as we always have and we always will. We thank you, and we look forward to a better year ahead. Thank you. That concludes everything, Sue, if I'm not mistaken, and we can adjourn for some refreshments. Thanks, all.