1HY25 Financial Results Webinar

00;00;00;02 - 00;00;00;23
Chantelle Hadley
Welcome.

00;00;00;23 - 00;00;29;18
Chantelle Hadley
My name is Chantelle Hadley. I'm the Head of Digital and Customer and part of the senior leadership team at Pioneer. Thank you for joining our half year results presentation. I'd like to also introduce our Managing Director, Keith John, and our Chief Financial Officer, Barry Hartnett, who will take you through our results. Please feel free to enter any questions that you might have using the Q&A box on your screen, and Keith or Barry will answer those at the end of the formal presentation.

00;00;29;21 - 00;00;46;28
Chantelle Hadley
Now I will start with Keith.

00;00;47;00 - 00;01;20;18
Keith John
Thank you Chantelle. And to everyone. Good morning and welcome to our half year 25 results presentation. As we get into the performance highlights, I received a text message this morning from one of our substantial shareholders talking about the results and how we entered the virtuous cycle territory where growth, in our PDP investment and the returns we have, are now, exceeding the funding costs in this business.

00;01;20;18 - 00;01;41;08
Keith John
And obviously driving profits and that's flywheel territory, which continues to grow from here. So we're very, very pleased to be there. As we talk to you today about our performance.

00;01;41;11 - 00;02;04;06
Keith John
We have in front of us today our results compared to last half, not to the prior corresponding period. And we've done that to try and show you very clearly the steady, planned growth of this business and how we're performing cash collections, up half on half, a couple of percent to $71.5 million. We're very, very happy with that.

00;02;04;09 - 00;02;38;05
Keith John
Traditionally, the second half is stronger than the first half in this business. You'd expect us to be growing those numbers a bit, given the significant investment we've made across this business over the course of the last couple of years. EBITDA, it's a proxy for cash generation into this business. And it's where, the cash is generated, to fund PDP investment, that we make each period EBITDA, on a statutory basis, $47.6 million.

00;02;38;05 - 00;03;07;24
Keith John
If we were to normalise that, it's flat, half on half. Very good performance. More importantly, and much more impressively, is our EBIT performance, which is up significantly, to $22 million during the period. Finally, our net profit after taxation, we took a very aggressive stance with respect to expensing costs and ensuring that, that balance sheet stays super clean in this business.

00;03;07;24 - 00;03;26;16
Keith John
Very, very easy to read $3.6 million, for the half a result we're proud on and lines us up very neatly to meet our guidance of $9 million net profit after taxation for the full year.

00;03;26;19 - 00;03;54;04
Keith John
In terms of our portfolio highlights, we completed PDP investment of just shy of $30 million for the half. We've guided to 90 million for the full year. That is substantially underwritten. We'll get into that a little bit later, into the pack. But a tremendous amount of opportunity for Pioneer, to invest in portfolios in the current market.

00;03;54;07 - 00;04;42;17
Keith John
Our ERC estimated remaining collections is up 5%, again, a number we should expect. This is the amount of money we expect to receive in future periods from our portfolios following significant investment, during the last couple of years. That's growing very, very nicely. Our PA portfolio largely flat down a tad bit to $431 million. We expect to see that grow now, through this half with the additional investment that we have coming through and our PDP asset, treated cautiously, $329 million, up 2%, through the period.

00;04;42;20 - 00;05;09;13
Keith John
In terms of the half, what have we achieved? It's been quite a remarkable half, for this business and really, again, sets us up to deliver our guidance this year. But most importantly, that statutory net profit after taxation in 26 of at least $18 million. We closed our senior financing debt facility with 50 million of growth funding in a four year tenor at a materially reduced cost.

00;05;09;20 - 00;05;34;04
Keith John
We're starting to see that stuff come through now. We've had our first interest rate cut as part of this. What looks like an interest, easing cycle every 25 bps is worth $700,000 to the business. So we're starting to see that come through clearly. If there are other cuts through the period that's going to add up, quite substantially for the business.

00;05;34;07 - 00;06;03;06
Keith John
And importantly, we've got the opportunity to continue to put pressure down on our funding costs over time. And we're working towards that in terms of our expensing and our NPAT, for the period, like I said, we've taken an aggressive approach with respect to how we expense items rather than booking them to the balance sheet. $1.7 million of project cost expense.

00;06;03;09 - 00;06;38;19
Keith John
You'll see on the balance sheet there. We've got intangibles of less than $1 million on our balance sheet flat half on half. So taking an aggressive approach there, we've made significant progress on our core system replacement. Go live is within expectations. And we, expect this to deliver further efficiencies to us in the future. The other thing that we completed during the half was we've completed the build of a modern data and analytics platform, which will help us improve decision making and enable advanced analytics.

00;06;38;22 - 00;07;03;11
Keith John
And we expect this to, to add to the portfolio performance over time and how we continue to support for our customers, support our vendors, but also obviously to, drive cash collections out of those, portfolios that we invest in. And finally, we raised $10 million of equity to further strengthen the balance sheet.

00;07;03;11 - 00;07;26;28
Keith John
You can see that drop straight through on our net assets, which have increased by about $12 million over the half.

00;07;27;00 - 00;08;03;20
Barry  Hartnett
Thank you and good morning, everyone. I'm pleased to share our financial results for the 1H25 period, which reflect the strong recovery on operational improvements across the business. We're pleased to report a statutory net profit after tax of 1.7 million for the period, with a normalised profit of 3.6 million. After adjusting for one off expenses. Total income for the period has grown to 47.9 million, and there is an impairment gain of 3.8 million on the portfolio.

00;08;03;23 - 00;08;32;24
Barry  Hartnett
This is in comparison to an impairment loss of 18.1 million for the second half of 24. It's important to note that this gain is not a reversal of prior impairments, but rather a reflection of a cohort of outperforming assets that result in cash. And this underpins the quality of our portfolio. The company remains focused on cost discipline, and we are pleased to report that our cost to service is at 36%.

00;08;32;27 - 00;09;01;00
Barry Hartnett
That's from a statutory level, which is the midpoint of our target range between 35 and 37%. Moving forward, we will continue to streamline processes, leverage technology and enhance automation, ensuring that we maintain cost discipline without compromising quality. On the right hand side of this slide, we've provided a breakdown of the adjustment from statutory to normalised NPAT.

00;09;01;02 - 00;09;34;13
Barry Hartnett
Call outs are project expenses of 1.7 million, which relate to consulting fees for our core system replacement and the implementation of a data analytics platform. Both of these are key investments in our transformation strategy. There is refinancing expenses of 1.1 million this reflects the final costs associated with the refinancing that we completed in July 24. And there's 800k of notional tax expense based on the other two adjustments.

00;09;34;15 - 00;09;45;23
Barry Hartnett
After these adjustments are normalised. Net profit after tax stands at 3.6 million.

00;09;45;25 - 00;10;14;25
Barry Hartnett
Our balance sheet remains strong, providing a solid foundation for growth in terms of key movements for the period. Total assets increased to 370.7 million. And again this is driven by higher PDP assets, which grew to 328.7. Cash balance of 600k , which is lower than anticipated. However, this is purely based on timing of receivables which is now being received.

00;10;14;27 - 00;10;54;19
Barry Hartnett
Total liabilities decreased to 314.9 million, primarily due to lower trade and other payables, which declined to 14.5 million. This reduction was largely related to refi costs and PDP related payments. At the period, the company has borrowings of 289.7 million, with 46 million in unrestricted funding available. As Keith mentioned, our net assets increased to 55.8 million over the period. This increase in net assets is a key indicator of our disciplined capital management.

00;10;54;21 - 00;11;10;05
Barry Hartnett
Moving forward, our focus will be on reducing leverage, maintaining purchasing discipline and maximising returns on an applied capital. And again, this will further strengthen our balance sheet.

00;11;10;07 - 00;11;33;04
Keith John
Thank you Barry. One of the other big, changes in our business over the course of the last six months has been the number of new shareholders and the amount of new interest that's emerged in our business. We naturally expect that given the performance of our business and the outlook, for us, for those of you new to our business.

00;11;33;06 - 00;11;58;03
Keith John
A quick overview about who we are. We're a debt recovery specialist that acquires and services purchased debt portfolios. Everything we work, we own, it's held on balance sheet. We don't work for third parties on a fee for service basis. You're investing in real assets that are held on our balance sheet, and have real value. We're a leader in the Australian PDP market.

00;11;58;09 - 00;12;27;09
Keith John
There is a near duopoly now. And still we have a situation where competitors, albeit smaller now, are exiting the market. Since 2008, we've invested well in excess of three quarters of 1 billion Australian dollars across 790,000 customer accounts and almost 6 billion in receivables. That investment and that experience is vital and critical in enabling us to continue to

00;12;27;12 - 00;12;51;11
Keith John
underwrite well, to make sure that when we invest our capital, your capital, which we're very, very conscious of. We do that in a very considered manner and one which is respectful of the returns that we need to get, particularly in future periods. We've got a current customer base. These are customers that we're working with now of some 210,000, almost 2 billion in receivables.

00;12;51;17 - 00;13;18;21
Keith John
And of that $431 million is already under a committed payment arrangements. These are customers that are paying us, weekly, fortnightly or monthly. They clearly underpin our cash flow. And we employ people in Australia and the Philippines. One of the very big parts about our business is how we employ those people and what sort of people they are, and we described them as people that are founded in good.

00;13;18;23 - 00;13;32;24
Keith John
We're looking for good people with a good, strong social conscience, because they're the people that work best with our customers to get them back on track and relieve their debt, stress.

00;13;32;27 - 00;14;09;11
Keith John
A couple of the highlights of our business and why this is such an investable business for shareholders, for equity market participants, but also for our vendors. Why they choose to deal with us. One, we're one of few scale participants with access to funding. In addition to our funding, and we've talked about, the growth funding we have available in terms of our credit facilities, but we also generate significant free cash through each month and through each period which substantially funds or wholly funds our investment through a year.

00;14;09;14 - 00;14;30;27
Keith John
We have a market leading reputation, and this is very, very important. Banks want to deal with groups that they can trust, that they know will look after their brands and their customers as well. Pioneer is renowned for that, and we do not offer further credit. We do not compete with our clients. We're one of the few participants like that.

00;14;30;29 - 00;14;44;14
Keith John
And as the largest of those, that doesn't offer further credit, it positions us ideally to be dealing with more and more vendors over time.

00;14;44;17 - 00;15;04;28
Keith John
In terms of the investment that we make and, ERC our estimated remaining collections, you will see through the period there, investment can be a little bit lumpy. Half on half in this business. But over the course of the last few years, we've been growing it nicely. We did 90 million last year, and we expect to do 90 million this year.

00;15;05;00 - 00;15;34;09
Keith John
We've guided 68 in the second half. Most of that, or a large portion of that, I should say, is already under contract. We currently have, a very significant number of portfolio opportunities in front of our investment committee, which meets, in the next day that we are considering. We've never seen the volume of vendors coming to market, and certainly the volume is increasing, all the time.

00;15;34;11 - 00;16;03;02
Keith John
We had 15 unique vendor partnerships in the first half. That's 15 unique groups that we're buying from. And importantly. And as always, there are no payday loans or no SACC small account credit contracts in our portfolio. We are only focused on buying tier one rated debt, that debt, those accounts that have got the propensity to pay in the propensity to heal, and customers we can work with over time.

00;16;03;04 - 00;16;35;26
Keith John
On the right hand side, we have ERC by product type you can see our very strong focus on credit cards and personal loans remains, as you would expect, with some exposure to other product, which we've had for a very long time as well. We've got a diverse vendor base, we've got a diverse product base, and we have limited or no concentration risk, in our business, something that we've worked hard to achieve and which we think is very valuable.

00;16;35;28 - 00;16;48;19
Keith John
In terms of our returns, collections by vintage, you will note.

00;16;56;14 - 00;17;27;08
Keith John
My apologies. I believe I dropped out there in terms of collections and returns. As I said, we've just had our highest proportion in quite some time of accounts greater than two years old that have, paid and contributed to cash collections through this period. That's part of what is reflected in that impairment gain that, that Barry referred to in, the profit loss statement, in terms of our underwriting, that continues to progress very, very well.

00;17;27;08 - 00;17;51;12
Keith John
You'll see our performance, our ROI is well above in all historical periods, slightly below in the first half of 25. And that just reflects our cautious approach to how we value these portfolios and the fact that we've bought, portfolios late in the half that haven't started, actually. Actioning them as yet. So, just a little bit below.

00;17;51;12 - 00;18;13;10
Keith John
But we’d expect to see that tip up by the, full year. We have a board delegation for investments of a net IRR of at least 15%, and we have exceeded that on all vintages.

00;18;13;12 - 00;18;42;29
Keith John
In terms of shareholder alignment, we think this is critical in small financials. My family are the largest single shareholder, in the business. In terms of funds, Samuel Terry are our largest shareholder with 13%, of the equity and a range of other substantial shareholders. We also have a, numerous, institutional funds that have joined us over the next six months.

00;18;42;29 - 00;19;05;08
Keith John
And we look forward to their continuing support over, over the coming couple of years as we look upon delivering on our guidance in terms of our long term incentive program. You will be familiar if you've heard me talk before, no one in a leadership or executive position in this business has a short term incentive. We've never done them.

00;19;05;08 - 00;19;37;18
Keith John
We never will. The incentive that we have in place is long term. It is earned over three years. So we have three yearly targets for 23, 24 and 25. And on the basis that each of those targets are met. It carries forward. And then we need to deliver on our FY26 promise to you that FY26 is a statutory net profit after taxation of at least $18 million.

00;19;37;21 - 00;20;05;00
Keith John
In terms of our outlook and our guidance, this hasn't changed for some time in the way that we see the market. Strong tailwind opportunities for PDPs. We've got a lot of opportunity there. Our investment guidance was upgraded in December to greater than $90 million, and we look forward to delivering that for our vendors, for our customers and for you our shareholders.

00;20;05;03 - 00;20;35;05
Keith John
We've got, there's a very strong regulatory focus in our industry, as you should well, expect our compliance record and our NPS are an advantage. And one of the tangible ways that we, demonstrate that to our vendor partners, spend a lot of time working on unlocking the operating leverage in this business. And you have seen from a couple of years ago where our cost to serve was 44%, and now it's at the, midpoint of our range at 36%.

00;20;35;07 - 00;21;17;09
Keith John
We think there's a lot of potential there for this business. There are data improvements in, cost out opportunities that continue to present for us that we need to capture, which we're working on. You've got a tested and experienced management team, very, very critical, founder led business by myself and long term, executives with this business and LTI that I just spoke about our guidance, we iterated at FY25 NPAT of at least $9 million and an FY26 NPAT of at least $18 million.

00;21;17;11 - 00;21;38;08
Keith John
Finally, there is a bridge to our FY26 guidance. We've presented this before. It is where we are guiding the market to and how we expect to get there. Clearly, we're making some inroads into that now with the efficiencies that you can see coming through in our business. And we very much look forward to delivering that.

00;21;38;08 - 00;21;42;03
Keith John
For shareholders.

00;21;42;05 - 00;22;11;12
Keith John & Chantelle Hadley
With that said, Chantelle, I thank you for running that part of the presentation. If we've got any shareholder questions, will gladly answer them now. Thanks, Keith. We do have some, first, the share price performance of the company has been disappointing considering the earnings growth and outlook. What are you doing about that? Thanks, Chantelle. Look, we share your disappointment.

00;22;11;12 - 00;22;41;29
Keith John
Certainly. I share your disappointment. The majority of my family's wealth is invested into this business. And certainly, we believe that the share price should be materially higher than where sits today. To that end, we are working with the institutional funds, and we're working with the brokers that support this stock. And making sure that we're, spreading our message and putting it in front of people.

00;22;42;06 - 00;23;10;28
Keith John
I think the other part to recognise is this business is recognised across the world and across the northern hemisphere as being materially undervalued. Certainly, as the year goes on, I will be exploring options around how we unlock that value. It's pointless continuing to, go through equity markets where it's not recognised when there are other avenues to do that.

00;23;10;28 - 00;23;25;28
Keith John
And if we don't start getting appropriate recognition, appropriate share price appreciation in the, near to medium term will seek to, change that and to unlock it in other ways.

00;23;26;00 - 00;23;36;12
Chantelle Hadley
This one says. Fantastic presentation. I would like to know what you view as the biggest risks to the business.

00;23;36;15 - 00;24;04;18
Keith John
We get asked this question a lot. And it's from my view, it's genuinely one thing, and that's hubris. We live in an environment where we have full employment and it doesn't really look like that's changing. And, because of that, our customers have capacity to pay. So we need to respect that and understand that.

00;24;04;24 - 00;24;31;10
Keith John
We also have an environment whereby we have limited competition and substantial opportunity, but we need to respect that situation, continue to act with integrity and continue to be disciplined in the way that we underwrite our business in the way that we tell our story to equity investors and the way we present ourselves to our vendor partners. So we're very, very focused on that.

00;24;31;12 - 00;24;48;08
Keith John
Keeping our feet grounded is critical. And I'm fortunate enough to have a very solid executive and leadership team around me, that ensures that, that happens.

00;24;48;10 - 00;25;25;09
Chantelle Hadley & Keith John
Another group yesterday mentioned that the PDP market had fewer sellers and the banks were selling less. So can you comment on that. For sure. This has been a narrative that's been peddled by other groups for various reasons. From a competitive perspective, you know, I think the reason that, that is being, that narrative is being played out is because they compete with the vendors and subsequently people are less inclined to sell to them.

00;25;25;11 - 00;26;06;21
Keith John
That is, not Pioneer’s experience. The other side is groups talking about digital collections, contingent collections and the like. Our experience is somewhat different. $90 million is a significant investment, to make in any one period. And we certainly have substantially more opportunity to capture, than that right in front of us right now. The reason, that we don't just go and grab more market share immediately is because we have to be able to operationalise it, and we have to ensure that it is repeatable for everyone.

00;26;06;22 - 00;26;34;19
Keith John
What we don't want to do is deliver 9 million this year, 18 million next year and have a gap or something else the year after. This is about building a sustainable business with long term earnings growth as we have traditionally been. 9 million, 18 million, 18 million plus some. So there's plenty of opportunity in the market. We disagree wholeheartedly. We think we've demonstrated that time and time again.

00;26;34;21 - 00;26;59;20
Keith John & Chantelle Hadley
And look forward to proving it out over time with, our earnings growth. Keith, can you provide an update on the PWC matter? For sure. You might recall at our AGM in late October last year, the matter was set down for what's called a strategic conference at the end of March. That is continuing.

00;26;59;25 - 00;27;25;07
Keith John
So we have a strategic conference at the end of March. We understand that will set the timeline and the pace for the rest of this year were it to progress. Our counsel remains confident in our position. We've certainly had more work done with respect to that, following the evidence that's been provided so far by, the defendant.

00;27;25;09 - 00;27;44;13
Keith John
And, we're very comfortable with our position and look forward to getting a good result for shareholders, in time, you know, at best, we think that's later this year. Maybe it's a little later than that, but, we're working to get the best result for all of us.

00;27;44;15 - 00;28;17;25
Chantelle Hadley & Keith John
Of the 2 million in interest savings. Sorry. In the FY26 bridge, what assumptions are around, further rate cuts? Yeah, it's not so much around, Barry, actually, I should throw it to the CFO. Given it's a financial question. Yeah. So there's no further rate cuts included in that number. We had, 25bps. Come through which is in the forecast, the balance is relating to the SPV that we set up last year.

00;28;17;27 - 00;28;39;14
Barry Hartnett & Chantelle Hadley
For two large portfolio last December. That's an amortising facility, and we expect that to be paid off by the end of the financial year. And in crystallising with the interest savings next year. What are you doing about AI in your business?

00;28;39;16 - 00;29;11;29
Keith John
Thanks, Chantelle. There's obviously been a lot of hype about AI. There's been a mountain of hype about AI in the collections and servicing space. We have invested heavily through the period in modernising our data and analytics platform. As we've called out. And we've been using what people refer to as AI for some time, albeit on a lower, or at the infancy of the journey.

00;29;12;01 - 00;29;41;21
Keith John
It's an important part of our solutions going forward. We're treating it carefully. We don't think it's a song and dance routine that requires, explanation or, presentation back to the market. We see it very much as a business as usual offering that supports what we've done in the past as opposed to, replaces it.

00;29;41;23 - 00;30;05;00
Keith John
So, you know, in time and through time, we expect that to continue to put some pressure down on our cost to serve. But, you know, again, let us deliver on that first rather then make commitments and, you know, I think we need to show delivery of it over time, which is what we'll do.

00;30;05;03 - 00;30;18;00
Chantelle Hadley
Okay. We have time for one last question. And this one is for Barry. Is the forecast NPAT for this year and next year statutory or normalised?

00;30;18;03 - 00;30;37;18
Barry Hartnett
The FY25 guidance numbers, normalised number, normalised only for project cost. And the refi costs which have occurred. And the FY26 number is a statutory number.

00;30;37;21 - 00;30;59;29
Chantelle Hadley
Okay. So we've reached the end of our question time slot. If we didn't get to your question, we will definitely reply to you via email. And if you have anything else that you'd like to ask us, feel free to email us at investor_relations@pioneercredit.com.au, and to stay up to date with our latest news, you can also follow Pioneer Credit Limited on LinkedIn.

00;31;00;04 - 00;31;04;16
Chantelle Hadley
Thank you all for joining.