Cash collection surge 40%, driving full-year profitability

Keith John (00:12):

Hello and welcome to Pioneer Credit's webcast of its first half '23 financial results. We're exceptionally proud to be presenting you a remarkable set of results today evidencing all of that part of the story and the growth story that we've been talking about with Pioneer for the past couple of periods. A unique position that we're in that we're now capitalizing on where we have lessened competition and better opportunities for Pioneer. And what we are seeing come through in these results today is the performance from our purchasing in late '22 and some really positive outlook for later in '23, '24 and beyond.

(01:03):

In terms of our highlights, cash collections up 40% on the prior corresponding period to $68 million. It's a record amount in the first half for us. It's a record amount in any half and it's driven in part by the significant investments we've made over the past 18 months, but also from the increasing efficiency that's been driven through our business and through our operations by our people. EBITDA is up to $45.2 million for the half. Another record. And with an increasing margin to us as we've done that work at a lower cost base. We're very, very proud of that and we're very proud of where we've got our costs down to and we see that as being a sustainable level going into the future. EBIT as well, very, very strong in a record. $13.1 million for the half. And finally we close out the period with a small loss of 1.3 million, narrowing it significantly from the prior corresponding period.

(02:22):

In terms of the investments, we had a very, very good period. It was slow for much of the period as we waited for opportunities to come to us that we knew would be good for our business and good for our shareholders. 66% of our investment in the half occurred in December as we waited for those opportunities. And during the period, we invested some $42.4 million. We expect to get great benefit out of that over the coming periods. Our estimated remaining collections, this is the amount of money that we expect receive from the $2 billion in receivables that we own. That currently sits at $586 million. Much of that is already under contract to us with some $460 million currently performing. So these are customers that have already agreed to pay us and are paying us on a regular basis. That asset is carried on the balance sheet at $308 million.

(03:35):

In terms of our profit and loss statement, as I mentioned, very, very strong cash collections, up 40%. A remarkable result in a period and something we expect to continue from here. Expenses were down. Another very, very good result, particularly in an environment with cost pressures and with inflation. We managed our cost very, very well. It came down to 34% of collections during the period. We expect it to settle there or slightly above a 35%. We're very, very happy with the cost of service in our business now and that leads to profitability in FY '23. Finally, our interest expense you will see has come down significantly during the period and we have the opportunity to reduce that much more significantly from here later in calendar 2023 and we look forward to delivering upon that for the company and for shareholders.

(04:42):

Our balance sheet is in good shape. It's clean. We've got a strong cash position. We've got $308 million worth of purchase debt portfolios. We have a deferred tax asset of some $22 million yet to be recognized, but will come onto the balance sheet once we return to profitability. With respect to leverage, our leverage is below the average of international peers. When you consider that in the context of how financial services are funded generally, it is very modest. We have the opportunity to reduce that leverage, which we are keen to do through cash collections performance and through cost management. We will work on that and we'll continue to work on that over the coming periods.

(05:44):

In terms of funding, we have $9 million available in our current funding to support any purchases outside of the significant cash flow that we already produce. We also have the opportunity of course to extend that funding facility further and if we need to do that during the period. We don't foresee that, although it is an opportunity that's that is available to us for any growth that might be outside of what we currently see.

(06:16):

In terms of our portfolio, as I said, we had a very, very good period of investment, 66% of which landed in December. It came about to us then for a range of reasons. One was people were waiting to see how their books performed during the period. And also from our perspective, it was about securing investment with the appropriate vendors, some 17 vendors during the period, spreading our risk and making sure that we have a business that is resilient with plenty of purchasing opportunities in the future. This is not a story that is shared by many, but it is a story that is real for Pioneer as people continue to prefer us over others because of our compliance record, because of our servicing differentiation, and because of the way we treat them in our relationships with them.

(07:16):

We currently have investment guidance of $61 million. There's some risk to the upside of that and we hope to capitalize on that later in the period. In terms of Cash collections by vintage, you'll note that there is now a very serious contribution from vintages less than one year old. You should expect that that's the money we invested recently and that's the performance coming through. Importantly though, for our older vintages, they have continued to grow and they have performed very, very well. Some $28 million coming from those vintages, up 6% on the prior corresponding period. And that's equally important because you need to ensure that the money we invest today, we continue to realize value from for a very long period of time. And we're doing just that.

(08:12):

In terms of our performing arrangements portfolio, this is a very, very good story. Essentially flat compared to last half at $460 million, reflecting largely the late investment that we made through the period. We expect that number to grow again during this current half. Our risk is spread across some 41,000 customers. Those customers are performing very well. A default rate of about 3.3%. Remarkable in the book, but it comes about for a few reasons. One, for customer type, we don't have any payday lending loans in our portfolio. Two, our customers predominantly are not exposed to housing market, so they're not being impacted directly by the increases in interest rates at the moment. They are of course being impacted by the cost of living pressures, but we are in an environment where there is full employment in Australia and that serves us well in serving our customers well.

(09:26):

But on top of all of that, when Pioneer enters into an arrangement with a customer, it does it with a view to sustainability, sustainability for us and sustainability for the customer. And because we enter into our arrangements in that manner, there is a very low default rate. And that's good for our business and it's good for our cash flows. Of course, that's all evidenced in our customer treatment. A net promoter score of plus 24. It's remarkable result and it's one that's been consistent in our business for a very long period of time. As the only business of our type that publishes net promoter, it is a very tangible way of demonstrating to you, our shareholders, the investment community, but also to our vendor partners just how well we look after customers and why they continue to prefer to deal with us.

(10:24):

Finally, onto our outlook. We've got a very, very significant opportunity that sits in front of us. We've delivered on everything we said we would deliver on over the last few periods. As we've guided the company through to FY '23. The opportunity for us to thrive under increased regulatory scrutiny is very real. We've done a very, very good job of it and it will continue to put pressure on others in the sector. It's a very big strength of Pioneer and it's one that we're very proud of. Our compliance regime, never having had a reportable systemic issue, never having had an enforceable undertaking. No one else can say that. And it's another way we demonstrate ourselves to our vendors and it's why they give us the opportunities they do.

(11:14):

Capitalizing on PDP opportunities. As we said, we invested some $42 million during the period. There are very many opportunities available to Pioneer. One of the key differences that separates us from others is we don't have a competing loan product in the market with our clients. We're aligned with them, we're aligned with the vendors, and they like that. In terms of our performing arrangements portfolio, we expect to see that grow through this period beyond the $460 million. It's valuable, very low default rate. We get about half of our monthly revenue from that part of our book. In terms of the operating leverage, we've brought down our cost of service remarkably down to 34% during the period. And as I said, we expect it to stay around 34, 35% from here on in. The opportunity for us now is to continue our investment in analytics and data and continue our investment in efficiency, which we will drive back into supporting our business better, writing better performing arrangements, driving better revenue outcomes, and securing our people for the future.

(12:30):

And finally, the improving macroeconomic conditions. Significant tailwinds, most every financial institution that's reported to today is talking about increasing defaults into the future. They need someone to manage them. They need someone good that they can trust, that they have faith in and they have a long-term relationship with. That's Pioneer. That's good for our business, as is the full employment rate that we currently experience and our way of dealing with customers in making sure our arrangements are sustainable for them. We expect that to continue for some time yet and we expect that to lead to a full year profitability for this business in FY '23 with very good tailwinds and very good opportunities sitting in front of us from there.

(13:19):

I thank you for your time today and I look forward to speaking to you soon.