Pioneer Credit Limited (PNC) Earnings Call Transcript & Summary

Good morning. I'm Chantelle Hadley at Pioneer Credit. Thank you for joining our FY '26 results presentation. I'm joined today by our Managing Director, Keith John; and our Chief Financial Officer, Barry Hartnett, who will be taking you through our presentation. [Operator Instructions] But for now, I'll hand over to Pioneer's Managing Director, Keith John.

Good morning, everyone, and thanks so much for joining us today. It's always a pleasure to be able to talk to you and certainly to be able to talk to you in the context of our business, what we've achieved in FY '26 and really what we achieved towards the back end of FY '26, which is setting us up for FY '27. But in terms of our performance, obviously, these results have been pre-released to the market in July, but we're very pleased to confirm today cash collections of $147.6 million, up in a measurable sense on last year. And certainly, we're well structured now for a significant improvement during FY '27 in that number. Our EBITDA at an all-time high, and this really is a proxy for how we generate cash within this business, almost $106 million, a remarkable amount of cash generation in our business and done it in a very, very efficient manner. Our earnings before interest and taxation, just shy of $56 million. We're very pleased with that number again, of course, and just shows you the efficiency with which we run and also the caution with which we value our loan books, which is the depreciation and the amortization part of our EBITDA number. Finally, driving that NPAT, we originally had a target set in FY '22 of $18 million for this financial year. And for those that have been with us on the journey, you'll know that management incentives have been tied to achieving that $18 million number, which was some -- set some 4 years out. We did that. We did that in spades, and we're very, very pleased to deliver and present to you today a Net Profit after Taxation of $23.1 million for the financial year. In terms of the portfolio highlights, really, the key takeout on this slide, more than anything is PDP investment. When we started FY '26, we guided the market to an investment of $80 million. We've also spent considerable time talking to you, but also and very importantly, of course, our vendor partners about who we are as an organization, why we are different to others and why we are the right business to be backed and to be trusted with their portfolios. Pioneer is the only group in Australia without exception, with an agreement with each of the Big 4 Banks in place. And that, in part, has driven record investment of $105 million for the year. Most of that -- or sorry, not most of that, but a large proportion of that was settled in June, and we're very, very pleased with that, and that is going to drive this business forward in FY '27. Our PA portfolio has been relatively stable at $406 million, and you might be aware that we get a lot of our revenue from that portfolio. We'll be certainly seeking to increase the value of that portfolio and the number of customers that we have under arrangement through this financial year. Our ERC, our estimated remaining collections, this is the gross amount of money that we expect to recover from our portfolio, the some-odd $2.3 billion, $2.4 billion in assets that we have under management is just shy of $800 million, and we carry that asset at $400 million on our balance sheet. I'll now hand over to Barry Hartnett, our Chief Financial Officer, to walk you through our financial statements.

Thanks, Keith, and good morning, everyone. I'll now take you through Pioneer's FY '26 financial performance. The company delivered NPAT of $23.1 million, representing growth of 245% on FY '25, and as Keith mentioned, meeting our upgraded guidance. Interest income increased by 16% to $102.5 million, reflecting the scale of portfolio investment completed over recent years. Employee expense was reduced by 4% to $31.7 million. That's despite material growth in the portfolio and PDP investment. Finance expenses reduced significantly from $38.3 million to $26.9 million, and that's driven by the successful repricing of the senior facility and medium-term notes. The refinancing benefit of $7.7 million was recognized during FY '26. Again, importantly, and as Keith mentioned, the significant proportion of FY '26 investments was completed late in the financial year and therefore, contributed only modestly to FY '26 earnings. From a cash flow perspective, cash collections increased to $148 million in FY '26. Net operating cash flow increased significantly by 35% to $70.8 million. The increase reflects the higher collections, disciplined cost management and reduced funding costs across the business. The company continues to demonstrate strong cash conversion, reinvesting $93.8 million into PDP acquisitions during the year. The improved supply conditions and attractive pricing supported a record $105.1 million of PDP investment in FY '26. The difference between the PDP investments and the cash expenditure principally reflects settlement timing and year-end payables. Despite the record investment activity, the group finished the year with a higher cash balance of $7.9 million. This slide highlights the operating leverage within the Pioneer platform. Cash collections, as you can see, have increased from $107 million in FY '22 to $148 million in FY '26, representing an increase of 38%. Over the same period, the Cost to Service reduced from 44% to 34%, again, demonstrating benefits of scale, operational discipline and ongoing productivity initiatives. While the Cost to Service increased modestly during FY '26, it remains within our target range and substantially below historical levels. We continue to see further opportunities to drive efficiency as technology initiatives are embedded across the business. On the balance sheet, you can see total assets have increased to $445 million, driven primarily by the growth in PDP assets, which increased 17% to $400 million. The increase reflects disciplined portfolio investments completed in FY '26. Net assets increased 38% to $83.7 million, reflecting strong FY '26 earnings and continued value creation for shareholders. Trade payables increased due to the PDP acquisitions completed late in the financial year. These balances have subsequently been paid down. Operating cash flow, together with additional borrowings, has enabled Pioneer to accelerate investment into high-quality PDP assets. Finally, I'd just like to highlight the continued improvement in our credit metrics. Interest cover improved to 4.1x at March '26 and remains at that number post the recently completed equity raise. On the second piece, the group LVR reduced from 89% at March '25 to 84% at March '26 and further to 77% post the recent equity raise. This is amongst the lowest in the world. With continued profitability and the benefits of the recent capital raise, we expect leverage metrics to continue to improve over time. At the same time, management remains focused on opportunities to reduce the group's cost of funds. I'll now hand back to Keith.

Thank you, Barry. So a really impressive set of metrics and delivering on everything that we've committed to shareholders and communicated to the market well in advance as we are again this year with respect to our outlook, which we'll get to in a short while. You know our story well. We are an ethical debt recovery business. We're underpinned by industry-leading compliance record. It's very, very important. It is our currency. It is the reason why banks trust Pioneer. And from them, they can -- there are 3 key things that make us different. One is the way we look after our customers, the customers that the banks sell us. They are people, they are good people. They are Australians trying to get ahead in very, very tough times that we face now for consumers. The Pioneer customers are resilient. They are performing incredibly well and Pioneer supports them incredibly well, and that's valued by the banks. The second is we do not compete with our vendor partners. I can't underline this more. We don't sell loans. And because of that, banks know we're on their side. We're working together, and we're not looking to extend the credit cycle to people that are already challenged with credit. It's not what we do. We're about recovery and about ethical debt recovery and working through that and not competing with the banks. And the third is we do not buy payday loans. And you can see that come out in the quality of our portfolio and the quality of our performance, particularly over the last few years as we've been faced with rising interest rates and inflationary pressures right across the country. Our investment profile, we had a record $105 million PDP investment in '26, and we are guiding to investment of $100 million to $110 million for FY '27. We already have $77 million of that underpinned by forward flow agreements, which we're very, very pleased about. And we've got a very, very strong pipeline of opportunities for us to take advantage of during this period. Our reputation has never been better, and we've worked very, very hard at that. And our standing amongst banks and non-bank lenders is exceptionally good and exceptionally strong. And we are increasingly seen as the solution before others for those parts of the market. In terms of our advantage, there are 2 ways that we look at this, the consumer moat, high-quality origination. We purchase from the banks and the non-bank lenders only the very best quality customers. Those that have the highest propensity to heal, we have no exposure to payday or to SACC. That's very important. We've got low exposure to home loans. Less than 10% of our customers own a home loan. Only a very small proportion of that actually have an arrears on their home loan. But subsequently, they are not as exposed to interest rate movements as other books might be. The other important part about our business is the low unemployment exposure. Based on credit bureau records, our exposure is around 2%, less than half the national average. And at first glance, that might appear an unusual thing. But when you think about our book and the fact that we don't buy from the bottom quartile of financial society, we don't buy payday. We don't buy, buy now, pay later or SACC. You soon get to understanding that our book is very high quality with people that are employed and a good propensity to heal. That is part of what is underpinning the strength of our portfolio and the performance of our book. From an operating perspective, we've got incredible regulatory guardrails inside of our business. We've got proprietary data. Vendor access, really, really important. We invest a lot of time in making sure that we've got these relationships that we invest in these relationships genuinely so that we are the solution. We've got funding, operational leverage and importantly for you, aligned management. There is no short-term incentive for any member of my management team or executive, including myself, we are remunerated over 3 or 4 years. And what that means is when we invest in a portfolio today, we don't get paid for 3 or 4 years, which is exactly the way it should be, given it takes us time to extract the full value from these books. So management is aligned with making the right decisions for the medium to long term in the benefit of all shareholders. ERC and returns, you can see that we continue to grow our ERC. You should naturally expect that given the heavy investment we made last year into the PDPs. They have been done on similar returns to what we have always purchased. We think about our returns on the basis of an internal rate of return, and we continue to grow that over time. On the right-hand side is our underwriting. And you'll see the underwriting multiple, which is where we purchased at in the dark color there and the orange is the achieved plus ERC. And you'll see we can see that we continue to outperform that based on what we've actually recovered and what we expect to recover into the future for the newer vintages. I've spoken briefly about shareholder alignment. We speak about this a lot, but I can't emphasize enough the importance that I and my Board have placed on shareholder alignment for a very long time. In small financials, it's critically important and particularly in a business where the portfolios we buy, we earn the majority of our money over a period of 3 or 4 years. Management has significant skin in the game. And that ensures that we're aligned to you and we're aligned to making great decisions, good decisions, considered decisions when it comes to the way we invest our cumulative money and the way we think about risk and the way that we management. For FY '27, we'll be expanding the way we think about incentive for management and including a measurable compliance outcome, cash collections measures, return on investment and critically important. At our April Strategy Day with our Board and with some of our close advisers and groups that work with Pioneer, we set and agreed our NPAT target for FY '29, which is at least $35 million. It's a big number. It's pretty close. We're less than 3 years away from it. Management is wholly committed to delivering upon that number as is your Board, and we fully expect to and management incentives are in part going to be tied to delivery of that number. Finally, to our outlook. And again, from a $33 million loss in FY '22, management committed to an $18 million NPAT target for '26. And our incentives were aligned entirely to that outcome. We have delivered upon that commitment and exceeded it. And as I just stated, management and your Board are now aligned and committed to delivering an FY '29 NPAT of at least $35 million. What can you expect from us in this coming year? Number one, we're forecast to be fully funded to grow into Australia's #1 PDP buyer. Now being the #1 buyer in itself is not the target, being the best buyer, the most disciplined buyer and the most rewarded buyer by banks is what our target is, and that's what we're focused on. We expect to be #1 because of that this year. FY '27 investment of $100 million to $110 million, $77 million already projected under forward flow. Cash collections to grow significantly, as you should expect, given the investment from where we are today to $170 million to $180 million. We expect to deliver material earnings growth and to update you at our AGM at the end of October as to our progression with respect to that target. And importantly, something I know many shareholders have been waiting for and looking forward to is the path is now set for return to dividends on the achievement of our FY '27 results. And for you to hang your hat on and for management to achieve for all of us, our commitment for an FY '29 NPAT target of at least $35 million. That concludes the formal part of my presentation. I welcome to anyone with any questions that might arise.

As it stands, we've one question at the moment, which really talks to, in the past, the amount of leverage that we had in this business that was in the mid- to high 90s and how we've brought that down now to 77% and what our gearing and our target level is going forward. We've been very clear in recent years that we were seeking to bring down our leverage. And whilst it was manageable and certainly something we were comfortable with achieving or delivering within, it is an important thing, and we've always wanted to be a business that has returned to the comfort of equity within its portfolio over time. We've done that 2 ways. One is through continued performance by investing in good quality books and by using that cash generation to increasingly buy new books and to perform. And then, of course, we've recently had the equity raise of $17 million, which we're very pleased to have completed and with the support that we received from our existing shareholders and also from a couple of new significant shareholders that came in. So that got the leverage down to 77%. The Board has yet to complete its target or agree upon its target, but we feel now that we're getting to the range that is reasonable for this business. At its upcoming meetings, we'll spend more time on that. We still expect leverage to drop from here. But once we decide upon that number, then we will communicate that to shareholders very, very soon. That concludes the questions that we have received. I thank you for your time today. I thank you for your support. As always, myself, Barry and our team are available to take any questions from you offline or over the coming weeks. We wish you all the very best, and thank you for your time.

Thank you, Keith and Barry, for taking us through the presentation and answering the question that we received there. But if you do have any other questions, the best way to contact us is via e-mail, investor_relations@pioneercredit.com.au. And then you can always follow us on LinkedIn as well at any time, that's where we share our news to keep you up to date. As Keith said, that concludes the presentation for today. So thank you very much for joining.