Pioneer Credit Limited (PNC) Earnings Call Transcript & Summary

Any questions on the phone line?

There are no phone questions at this time.

Thank you. As there are no questions and voting will be conducted by a poll. I will now move to the next resolution. Resolution 4. Resolution 4 is to consider and if thought fit, pass the resolution to ratify the issue of 16,866,614 fully paid ordinary shares. I now put the resolution to the meeting that for the purpose of ASX Listing Rule 7.4 and all other purposes, the issue of 16,866,614 fully paid ordinary shares to institutional investors as more fully described in the explanatory statement be approved. The Board unanimously recommends that shareholders vote in favor of the ratification of the issue of 16,866,614 fully paid ordinary shares. Are there any questions Sue?

No questions.

Any questions on the phone line?

There are no phone questions at this time.

Okay. As there are no questions and voting will be conducted by a poll. I will now move to the final resolution. Our ASX Listing Rule 7.1 allows companies to issue up to 15% of their fully paid ordinary shares over a 12-month period without shareholder approval. ASX Listing Rule 7.1A enables eligible entities to seek approval for an additional 10% of their fully paid ordinary shares over any 12-month period. Pioneer is an eligible entity as it is not included in the S&P ASX 300 Index and has a market capitalization of less than $300 million. And Resolution 5 seeks shareholder approval by way of special resolution to have the ability to issue securities under the 10% placement facility. While the company currently has no plans to make an issue of equity -- of equity securities under Listing Rule 7.1A. This approval provides the company with additional flexibility. I now put the resolution to the meeting that for the purposes of Listing Rule 7.1A and for all other purposes, shareholders approve the issue of securities totaling up to 10% of the issued capital of the company, at the time of issue, calculated in accordance with the formula prescribed in listing rule 7.1A.2 and on the terms and conditions as set out in explanatory statement. The Board unanimously recommends that shareholders vote in favor of the 10% placement facility. Are there any questions Sue?

There are no questions.

Any questions on the phone line?

There are no phone questions at this time.

Thank you. As there are no further questions and no further resolutions, I will move to 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 resolutions. Link Market Services Limited has been appointed by Pioneer as a returning officer for the poll. Shareholders who have registered may click on the get a voting card button. Once your voting card appears, all the resolutions to be voted on will be displayed. 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 vote button. The proxy votes that I hold as a nominated proxy for shareholders in relation to each resolution are now displayed. 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 will be posted on our website. In accordance with the company's constitution, I confirm that there is no other business to be brought forward be transacted. And as there is no further business, that concludes the formal proceedings of the 2024 Annual General Meeting of Pioneer Credit Limited, and I thank you all for attending the meeting and declare the meeting closed. Having concluded our Annual General Meeting. I'd now like to invite Keith John to provide his Managing Director's presentation.

Thank you, Steve, and thank you to all the shareholders and visitors, our staff, everyone that's joined us today for this update and for our AGM. We really appreciate your interest in our business, and your participation in the ongoing building back of Pioneer. Before I start, and walk us through the presentation, which really is an update building upon what we're working on from our full year presentation only a short while ago. I just want to talk briefly about where Pioneer is and what it will be doing in the next few years? And Steve talked about this in his speech, in particular around the way the Board will function from here and what we're about. In short, we're about to get very boring. I think shareholders will welcome that, we certainly will, following the events of the last few years. And very boring looks like 3 very simple focused parts or paths to deliver to you, our shareholders, what you expect to this company, which is sustained profitable growth. The first is the Board's focus on continuing that effective governance that we've had the whole way through. And part of that leads to that litigation against PwC, which I'll update you on in a little bit. The second is overseeing management's performance. And for the Board, that's clearly the oversight of what we do as management and how we deliver on the operational strategy of the business. And for the executive, your executive, that is about excellent execution through our business and how we drive this business forward in a very sustainable, profitable and consistent way. And the third is for us to continue to work now to optimize our balance sheet to build that strength back into our balance sheet over time, so that we're a very strong, robust company as we have been previously. And that is our focus for the next few years. So as we walk through presentations from here, you will see more about our operational performance, more about why we are a great business, why you should trust us with your capital. Why the banks want to sell to us and how we're going to turn that into growth and value for you, our shareholders, and for our other stakeholders as well. Much of what I will present today, you have seen before, but it contains the updated information as at last night, so that you can continue to get a really good feel for the way the business that you have invested in continues to grow and to execute. We remain a debt recovery specialist, and we're focused on acquiring and servicing retail debt portfolios. We don't work for third parties. And as you know, we do not invest in payday loans. It is a critical difference between us and everyone else that builds strength and resilience into the business that we have, but it also supports attracting really good talent into our contact centers for the people that are working with our customers directly. They want to be working with customers that have the opportunity and have the ability to get ahead and get back on track financially in their lives. They get great satisfaction from working with our customers through situations to deliver that. And it's a critical part. If we have payday or lower-quality segments, it's very, very difficult, it's not where we operate. Our PDPs, as you know, are primarily acquired from the banks and major financial institutions. In our business, there is a lot of opportunity now. It's to be expected with the cost-of-living pressures that are around and have been for some time. In the context of how we execute our investment strategy, it is very considered, it is very strategic, and it is about building long-term repeatable growth into our business. We have market leadership across this sector. We are exceptionally well known and regarded for our differentiated servicing. If you go back and look at our very first presentation to the ASX in 2014, we spoke about that. It has never changed. It is a hallmark of this business and it has been the right strategy, the whole way through. We now live in an environment where consumers have incredible weight, in terms of their persona, in terms of the way they influence the behavior of companies and people that service them. Pioneer has always been at the forefront of that and will continue to be. That's highly regarded and it's a great hallmark of this business, which allows us to be successful. We've got an incredible track record. Since 2008, we've invested almost or just over $0.75 billion in the portfolios across some almost $6 billion in receivables. That's a lot of consumer debt. That's a lot of data, and we've got a very talented team that are very dedicated to making sure that we invest our money, your money, we invest it well. And if we don't, then we don't do it. We don't take unnecessary risk with any of our capital. Our customer base now, some 221,000 consumers across $2 billion in receivables, $435 million of which is under arrangement. These are customers that are paying us weekly, fortnightly or monthly on a regular basis, and it's a great source of repeatable revenue from us or for us. We need to look after those customers really, really well. And I think we do an exceptional job of that. And ultimately, this bit that makes us different, the bit that makes us special, everyone talks about culture, very few people can define it. In Pioneer, it's founded in good. We look for people that have good intent. That's what makes us special. And we're very, very focused on that. We make mistakes like everyone, but our intent is unbelievably good. And it's one of the great characteristics if you walk across our contact center floors, which many, many people have, you can feel it, right across our business and it's part of why the banks love dealing with us. Over the course of the next couple of years, we've got a lot of growth opportunities. These are not opportunities that sit outside of our core market, they are all in our core market. Right back to what I said at the beginning, this is going to be a very boring business now. We are focused on improving our profitability and continuing to grow that, improving our balance sheet and continuing to strengthen that and growing in our markets where we can do that profitably for our benefit, for your benefit, in a sustainable way. In terms of our positioning, we're one of few scale participants. We live in a virtual duopoly now across the major banks. That's a really great position that we've dealt ourselves into over the past few years. We think over the next few years, that's going to pay dividends for us handsomely. We've got a market-leading reputation. You can't be one of the participants if you don't have that, ours is market leading. We are renowned for that. And if you think about this business over the last few years, the challenges that it had pre-refinancing to be able to maintain these relationships with the banks is a great testament to the work that our entire team does and the way they care about our customers, about our vendors, about your capital, about every single thing that we do. That's creating opportunities for us that we think are unique and are going to pay massive dividends over the next few years. We've got that unique servicing approach. I've spoken through that. And the very logical -- very logical position that we have. We don't compete with our vendors. We don't compete with our vendors. These people are the ones that are helping grow this business, and we respect that deeply. They know we respect that deeply. And we're a part of the solution for them. We don't compete with them. In terms of the growth opportunities, there's a broad range. There are performing portfolios from vendors, also some of our competitors as they become less competitive because of cost of funds, because of the increased compliance costs that our sector faces and so forth. Having scale allows us to participate in that. And over the course of the last year, you've seen some of those transactions. There are a broad scale warehouse transactions coming to market in the next couple of years. Over the last few years, coming out of COVID, there's been a lot of portfolio stockpiled. They're coming back to market now, we think we're in an ideal position to participate in that. Alternative portfolios that are low cost to serve, really important in terms of how we manage this business, how we allocate our capital. There is some M&A opportunities as well, competitors that are looking to exit from this market. And finally, an economic outlook that is very supportive of this business. The biggest swing factor in the performance of our portfolio is not interest rates. It is how many people are employed. Australians are incredibly focused on paying down debt. It is a big focus of Australians, and we are continuing to see that right through the operation of our business. The full year, we spoke about -- we've got the quickest or the most number of customers paying us at 3 months, 6 months and 12 months than we've had in years. And the average payment arrangement is up 2.3% over the last couple of years. It's a remarkable number when you consider exactly what's going on in our economy. But it goes to the quality of our book, the quality of the service we provide and the strength of the Australian consumer and just how remarkable they are in their intent to pay down debt. In terms of investment, as I've said, there is an incredible amount of opportunity that sits in the market more than we have ever seen, more than we have ever seen in terms of the number of vendors that are coming and engaging with us. That creates a whole range of work for us, obviously, a big part for Pioneer is to understand those vendors. We're not interested in one-off transactions. That's not who we are. We are looking for long-term sustainable partnerships so that when you, as a vendor, get to the point of wanting to sell again or whatever, you only think of Pioneer. That's where we're aiming. As we said, we've invested some $0.75 billion. We've got extensive performance data, and you'll see just how strong our underwriting is in a moment, and we don't invest in payday or SACC. Right? That has served us incredibly well. On the right-hand side of the graph, you can see there, through '18 to '21, those COVID years, our investment peeled off dramatically as you would expect. But through that time, our cash collections remain pretty static at $100 million, and then you see it shoot up as soon as we started investing again. It's a really important part to understand that this business continues to do really well, even when it stops investing when it's ex-growth because it continues to perform well in the back vintages. You can't do that unless you look after these people well and if you don't invest well, and we do both of those things incredibly well. As we stand today, we need to invest about $56 million on a replacement basis. So anything beyond that is growth. That's where we're in the growth territory. As we start, we've had the best starting position of investment in the last 6 years. We were $61 million when we released -- at the full year results. We're now up to $65 million. We haven't made that much more in investment. We're spending a lot of time talking to people understanding what the opportunity is, and making sure that we allocate the rest of our capital, the rest that we want to allocate this year exceptionally well. In terms of our investment, this really just talks to what we've done in the past 3 years, so you can just see how diversified it is. We had 20 vendors in FY '24. You will have seen we've already got 14 in FY '25. It's a great position to start from. And we've dealt with 30 vendors in the past 3 years. Very, very proud of that. We're very, very proud that the people that we're dealing with, want to continue dealing with us and continue doing business with Pioneer and trusting us with their customers. In terms of ERC, at June '24, this is the estimated remaining collections. What do we expect to recover over time from that book. We've got $435 million under arrangement, we expect to recover about $642 million. The job of our team, of our analysts and all the other people is to see if we can increase that through better analytics, through better data, through better treatment. And that's one of the big jobs that we have when we talk about operational performance. But across our book there, you can see 80% of our book is credit cards and personal loans. And there's a bit of insolvency in there and a bit of mortgage and some other asset types as well, car loans and the like, but are really, really nice portfolio of customer types that we understand fully. At the full year, we removed this graph, and we were asked by some of our institutional shareholders and new to business shareholders if we put it back. And of course, we're very pleased to do that. The feedback of shareholders is critical. We can't possibly understand everything that's important to you but we do seek your counsel and we do listen to you and it's valued. This here talks to our performance across vintages. So 36% of our revenue in the first quarter this year has come from accounts that have been with us for less than a year. And you can see the performance right through our books. We're very, very pleased with the continued performance of our business and our operation across everything else that we're working on. In terms of historical returns, and this goes back to the quality of our underwriting, no one in Australia has ever published this information. It is regularly published in the Northern Hemisphere, and we always talked about once we reach scale, we would do this and in line with our commitment to be the most transparent and the most well understood business in our sector. We're publishing the real returns that you can see on a vintage basis. The graph in the black is the multiple -- the money multiple we expected at underwriting. What was our investment case? The bar in the orange is receipted cash collections, what we've actually got in the bank and the bit more that we expect to recover. And you can see right across the board, we are exceeding our underwriting. This goes back to the way this business is structured from the delegation of the Board and the investment delegation that is provided to management. It is rigid. It is immovable, and it is very, very clear about where we can invest and where we cannot invest. And that is provided and delegated to a management team that is all heavily invested into this business with its wealth sitting alongside you as shareholders. There are no short-term incentives in this business, as I have repeated time and time again. When we invest our capital, when we invest your capital, we are doing it with a long-term outlook on what is best for this business. We do not do things for the short term. We make sure that we're investing for the long term to get great outcomes, and that is why from an underwriting perspective, we are outperforming across every vintage. Finally, we've had lots of questions with respect to the litigation against PwC. It's very difficult to be more expansive than what we have on the screen, but it's being provided by our counsel so that we can give you as much information as we possibly can with respect to how that litigation is progressing. In short, we have a claim against PwC for some $32 million, including the accrued interest. They have not counter claimed against us, and we are not aware of any reason they could counter claim against us. This matter needs to continue to progress. And where we are now in that process is we have provided our expert evidence. We think that is compelling as we do our entire case. The matter will be returning before a Judge for case management in March next year, late March next year. And what will happen at that stage is that the Judge will set out a detailed path through to in likelihood mediation and then to trial. So set it all out and then we'll continue to progress through the matter. We will provide you with an update most likely at the full year results next year. But we're very pleased with the way the matter is progressing and with the work that our counsel are doing and that our team has done over the last few years to ensure that we can recover that which we believe is due. I just mentioned our alignment to shareholders. Management remains the largest shareholder and exposure to this equity as you should well expect. When we make decisions, we are standing right beside you, and we are there after you. That's the way it should be in small financials. It's the way it's always been at Pioneer, and it is a key part of our formula to success. As I have also explained to people when we make investment decisions, there are four people in the room, and it is unanimous or it does not happen. We don't move from that. We don't budge on integrity or standards. It's critical to ensuring we get the best possible outcome every time. In terms of our long-term incentives, as you are aware, there are 3 yearly incentives. We need to deliver on this year's performance. And then next year, for those incentives to vest, we must deliver a statutory net profit after taxation of at least $18 million. We will do everything to deliver upon that number. In terms of our outlook, as I've mentioned, there are strong tailwinds for opportunities in our sector. We've guided to an investment of $80 million. We've held at that. We've got $65 million under contract already. We think there's some upside risk to this investment guidance late in the financial year, but we want to make sure we invest that money really, really well to start with. Industry regulatory focus is clearly a big part of our industry. It's what sets us apart. We've got a strong compliance record. We've got our NPS, which is an advantage. We continue to invest heavily in that part of our business. There remains this opportunity to realize some of the operating leverage in our business that's brought about through scale, and also brought about through our new platform, which is on track to be delivered in 2025. You have an exceptional and well-tested and experienced management team working for you. They're very, very committed. Deeper than that, you've got an exceptional team of people working through our business at every level. Only last week, we had a celebratory dinner for people that have been with us for more than 10 years. There was about 25 people at that dinner, which is quite remarkable when you think about we only started 11 or 12 years ago. So that was a great celebration, but those are people that are just incredibly committed to delivering for our shareholders and for our customers. And we reiterate our guidance, PDP investment of at least $80 million, net profit after taxation for the full financial year of at least $9 million.

With that said, we have received one question online. I'm more than happy to take any other questions online should you wish to submit them but I'll answer that question now, which was with the additional capital from exercising the $0.80 listed options assist in improving the balance sheet at all, is it required? Thank you for the question. It absolutely will assist in improving the balance sheet. There's no doubt about that. We're working hard to appropriately share our message, share the growth story. We've had fantastic support from some of our new institutional shareholders, which we're just so grateful for in terms of them also sharing the message and helping us as we move through this next phase of the business. We're very keen to see those options exercised and hopefully -- and we're hopeful that, that will occur. It's not required. We don't need the extra capital, but I can assure you it will be very, very well used in making sure we build resilience back into our business at a very good rate. There are no more questions that have come through. That concludes my presentation. I thank you very much again for your attendance today. I thank you for your interest and support of Pioneer and special thanks to my Board. It's a lot of work for a small Board. We're very focused on a lot in our business and I appreciate all of your efforts and to my executive as well, thank you for everything that you do each and every day in our business. Thank you.