Pioneer Credit Limited (PNC) Earnings Call Transcript & Summary

[Audio Gap] Limited FY '22 Results Presentation. [Operator Instructions] I'd now like to hand the conference over to Mr. Keith John, Managing Director. Please go ahead.

Thank you, everyone. Thank you for joining us, and welcome to the results presentation webinar for our FY '22 financial year results. As you are fully aware, last few years have been very challenging for Pioneer, a period through which our management team and your Board worked very hard to position this business for the future and the unique opportunity that sits in front of Pioneer today. I'm very pleased with where we're at and today's presentation will focus on '22 to the extent that it's a period that we're reporting on, but it's really about the future and what the future holds for Pioneer and how we, as shareholders in this business together succeed from this point going forward. In terms of the year just passed, operationally, we had an exceptionally strong period. Liquidations were up 13% to almost AUD 107 million. If you think about the environment that we've come through, stress on the consumer, very low sales opportunities in the beginning of the period, that's an exceptionally solid result. More to the point, our investment through the period of almost AUD 100 million, our largest ever and more than the preceding 2 years combined, sets us up for a very strong FY '23. A lot of that investment came late in the year and had no impact on FY '22, and we look forward to demonstrating our ability to liquidate and to liquidate well and appropriately through the coming period. Our EBITDA, our cash generation was also strong, up 11% to AUD 61 million, demonstrating the unique generating abilities of this business that we can then reinvest back into the growth that we have ahead of us. And our net revenue was up as well, up to AUD 54 million. That's after a very significant movement in our PDP valuation, which I'll talk through in a moment to position us very, very well for the future. The important thing to remember in our business is that the removal of -- the amortization of our PDP does not mean that the cash is gone. It means that the expense for future periods no longer exists, and we are very well positioned with an exceptionally clean balance sheet and a very, very strong starting position to make FY '23 the year of profitability and the future of this business and the growth of this business moving forward. I also highlight that we've got net assets per share of about AUD 0.61. It's really important. It's materially above the prevailing share price. And whilst we haven't had much to sell over the last couple of years, now we have an incredible amount to sell with an incredible investment proposition for shareholders and for new equity investors and will be out-marketing that very heavily starting from today. In terms of our FY '22 strategy, we laid that out right at the beginning of last year for shareholders to see and for you to measure us against. And I believe we've done an exceptional job and my team has done an exceptional job of delivering on that. The first was the opportunity to refinance our senior facilities. And to that end, we did that about a year earlier than anyone expected and materially reduced our funding costs, but also increased our capacity to borrow as well and to invest back into this business. We completed 2 successful capital raises. Those raises were both at a premium to market, something that is almost unheard of in Australian equity markets. And the reason that there are premium to market is this business is substantially better than the share price reflects. And on that basis, we expect people to invest at that level if they're introducing new capital and your Board and your management team participated along the way. We capitalized on the PDP opportunities that existed in the market. We've spoken about this for a couple of years. We were heading towards a contracting market, and that has certainly eventuated and quality participants like Pioneer that have an exceptional track record of treating customers well are being differentiated and being able to demonstrate that differentiation to quality vendors are going to win. Pioneer has just completed its largest investment ever of almost AUD 100 million through the period, as I've mentioned, and that is very, very good for the outlook for our business moving forward. The opportunity for us to buy performing portfolios is also very important. Through the course of the year, we've grown our performing arrangements booked from AUD 377 million to AUD 464 million. It is significant growth, and it's growth that underpins the valuation of our book, it's growth that underpins our future liquidations and its growth that underpins the security and the operational advantage that we have sitting inside this business. In terms of FY '22 from a P&L perspective, as I mentioned, we had strong liquidations, we had strong EBITDA. Our amortization charge, we have increased by about AUD 9 million to reflect what we see as the emerging or the significant commentary around cost of living pressures. One of the things I'll say about that is it's not something that's wholly reflected in our book, and it is part of the unique set of circumstances that exist in Australia at the moment, where we seem to have lots of cost of living pressures and no movement and no material downside to retail sales or any other sort of [continuing] measures. We are seeing that as well, but we think positioning ourselves today for the future is very, very important. And like I said, the cash is still there. The opportunity is still there. It is incumbent upon my team to realize that for all of us and realize that appropriately, which is exactly what they are doing. In terms of our balance sheet, it is as clean as a balance sheet could possibly get. There are no intangibles on our balance sheet. There is no goodwill on our balance sheet. It is straight-out assets, less liabilities gives you a net position. We're in a very, very strong position to take this business forward from here. And in FY '23, we will, for the first time in a number of years, be able to present a set of financial results to you without any one-offs, without any explaining to do. It is exactly what it is. And we're very confident that we're going to be presenting that to you with profit at a statutory line, which we will be updating shareholders on the progress of and guidance of at our general meeting in November. In terms of our leverage, this is an important part of our business. It's something that hasn't been fully understood by Australian equity markets, and it's certainly something that we need to do a better job of explaining to people. Compared to the largest peers internationally of pure-play debt purchases and collections businesses, Pioneer's leverage is below average. That doesn't mean it's at a level that we are comfortable with. It means they compare to the rest of the world, it is below average, and it means that compared to the rest of the world, this is actually an exceptionally sustainable amount of leverage. That said, your Board and your management are very focused on reducing that through time. And what that means for us is increasing the operational leverage in this business, decreasing our cost of service, improving our liquidations and investing that back into our balance sheet. All said, the next opportunity for us is the opportunity to refinance our existing facilities and bring those costs down. And that opportunity exists for us. There is significant interest in people funding this business moving forward, and we look forward to exploring that over the course of the next 12 months. I've mentioned PDP investment to you, AUD 100 million, which is our largest ever, and we're very, very proud of the way that we have grown that book and the way that our team has done that discretely and for great returns back to our shareholders. We look forward to bringing those through in the coming periods. You can see on the right-hand side of the slide, the price that we have paid over the course of the journey remains around about the same. And that's important. The way we invest your money, the way we invest our money, our cumulative money is critically important, and we've been very successful at doing that now for a very long period of time. We've done it again during FY '22, and we will absolutely do it again during FY '23. I mentioned our performing arrangements portfolio and our PDPs in total. We now have 41,700 performing arrangements customers. These are customers that are paying us on a weekly, fortnightly or monthly basis, not dissimilar to a performing loan book. It's incredibly valuable to AUD 464 million of customer payments, most of which is accruing interest coming back into this business. In addition to that, we've got about AUD 1.5 billion of opportunity for us to work with. These are customers that have capacity through time to repay us, and we look forward to working with those customers to help them relieve their debt stress and also for those customers to contribute to the incredible value that sits within Pioneer and the incredible value that sits for shareholders. The reason why we have great opportunities in front of us, both from a liquidation perspective, but also importantly, from a purchasing perspective and investment perspective is because of the way we treat the customer. Long before anyone started talking about customer treatment in our sector, long before anyone focused on what compliance outcomes were, long before anyone talked about putting the customer first, Pioneer was there and doing it and it has been doing it since day one. It is in our culture. It is in our blood, and it is why vendors choose Pioneer in preference to others. That means when we invest in portfolios from quality participants, we get the opportunity to do it at a fair price without the need to pay up like some others might have to and the opportunity to work with those customers over-time to get a reasonable outcome for them and a reasonable outcome for us, and that is good business. It is very good business in this industry, and it has proven to be very good business over the course of the last couple of years. We are in a sector that has significantly fewer competitors today than it did only a few years ago. That is not true of many sectors, but it is true in this one because of the way we've differentiated our business and the way that we are supported by vendors to work with those customers over-time. In addition to that, as you know, we're working through B-Corp certification to establish and demonstrate our ESG credentials. We've passed the self-certification process for that. We're some way through the order of that now it is a lengthy process, but it's important to continue to demonstrate the way that we are different, the way that we think different and the way that we think about our social responsibility, both to the market and to our vendors, and we look forward to updating shareholders with respect to that over-time. Finally, to the FY '23 outlook, and this is what it is all about for Pioneer, and this is what it's all about for you as our shareholders and hopefully, for those that are looking to join our shareholder register. We have incredible market tailwinds. We've been talking about this for a number of years. There is less competition. People want to deal with good people. They want to deal with good companies, and they want to deal with companies that understand the value of a customer and who put them first. Without question, that is Pioneer and that is good for us. We demonstrated it last year with AUD 100 million of investment. We will demonstrate it again this year. We already have 2/3 of this year's contracted investment under or forecast investment under contract. That is very powerful. We believe there are more opportunities for growth for us this year beyond that, and we look forward to updating shareholders on that as we progress. We also focus on our vendor depth and who we work with. There is unquestionably a lot of opportunity in the Australian market. There is a lot of talk about default. We don't just invest because the opportunity exists. We invest because the opportunity exists with the right customers, with the right vendors at the right price point. We do that because the single largest shareholders in this business alongside you is management. We are all on the same page, all driving for the same long-term sustainable outcomes and sustainable profitability. And this is the year that we will demonstrate that and show you that. We will continue to work to grow outperforming arrangements. You know the value of that, and we're working through that. We're very pleased with how it's growing. We've grown it consistently over a number of years, and we're looking forward to doing that again this year. Regulation; thriving under increased regulatory scrutiny. Regulation is our friend. We are well ahead of what the minimum requirements are, all good businesses are. We welcome regulation. We like regulation. It's something we've invested heavily in and it's one of the reasons why we're winning and that we've got the opportunities in front of us. We will continue to invest in that through this period, and we will continue to invest in making sure our customers get the best outcomes. And if we do that, we will get great outcomes as well. And again, realize operating leverage. There are significant cost in this business, right up until the last year or so, when we reached scale, it's the point of highest cost of service. We reduced it through the period down to 44%. We will reduce it again in FY '23 and continuing, and we're working hard at doing that in a very real way. And the last bit, as I've mentioned, is funding. This business has incredible opportunity to decrease its cost of funds over the coming periods. We are working on that. And in the way we've done it before, we will do it in a very considered and a very measured way so that the benefits to shareholders flow are sustainable. We're very pleased to have the support of our existing funding partner, Fortress, they have been an incredible partner. They understand that they are transitionary and we are a business that will be able to finance materially lower cost in the future. We will be working towards doing that in the coming period. As I have said at the outset, Pioneer presents a strong investment case. We've worked very hard to get to where we are today. We are supremely confident in our future and into what we will deliver to you this year, and we'll start marketing that effective today and start telling our story to the equity markets so that we can see that reflected in our share price and see that accurately reflect the incredible value that this business represents. I thank you for your time in listening to my presentation, and I welcome your questions.

[Operator Instructions] Your first question today comes from Glen Wellham from MST Financial. Glen asks, how difficult will it be to scale-up the business to meet the demand? For example, can you source the people in this competitive market? Can you pick-up people from other previous competitors?

Look, clearly, employees and getting employees to come and join the business or join business has been a challenging period or has been challenging over the last year or so. We've certainly seen a significant change in the market in the recent -- probably the recent month or 2 and we've got a significant number of people that are looking to join Pioneer and we've got a big induction starting in the coming weeks. We're very confident that we can get the right number of people on-board and get them skilled up in the way that we work to have the human conversations that we have with our customers, so that they'll be financially contributing to this business through this period. In terms of our competitors, let me say this at the outset. Pioneer is not a predatory business. There is nothing about us that is predatory and there is nothing about us that is anything other than working with people to get the best outcomes for them just as with our customers. Some of our competitors have got into trouble. We're all aware of that. Some of their employees are now working for us. We suspect that more of them will in the future, but we are trying to work with people to make sure that everyone gets a good outcome because we think that's good for business and we think that there will be more opportunity in that front in the year ahead.

Your next question comes from Sunny Yang from Yang's Family Trust. Sunny asks, what is the likely liquidation amount in 2023?

Sunny, we've specifically not guided to any numbers other than to profitability at the moment. We want to update shareholders very clearly on where we are in November at the general meeting. Needless to say, we're expecting to have a material increase in liquidations over the course of FY '23, driven in part by the very significant investment, of course, that we made into performing arrangements last year with that AUD 100 million investment that we made through the period. So we're expecting very strong improvement in liquidations. Certainly, July and August have led-off very nicely for us, and we're very comfortable with that. And we look forward to updating shareholders fully in November, early November at the general meeting.

[Operator Instructions] Your next question is a follow-up question from Glen Wellham from MST Financial. Glen asks, how long can you get cost to serve, in about 2 years as you reach greater scale?