Driving sustainable growth

00:00:00:00 - 00:00:25:14
Danielle Ecuyer
Sticking to stock specifics, we are in reporting season hangover in FinTech Pioneer Credit has reported a 103% hike in profits, while earnings jumped 9% to just shy of $50 million. So to get across the story and behind the numbers, Pioneer CEO Keith John joins me up on the desk. Keith, thank you so much for coming in and congratulations on the results.

00:00:25:14 - 00:00:26:17
Keith John
Pleasure. Thank you so much.

00:00:26:18 - 00:00:39:21
Danielle Ecuyer
So really interesting because you basically purchase impaired credit and then, I assume, remediate it or try to. Can you just run us through some of the dynamics of your book?

00:00:40:01 - 00:01:10:19
Keith John
Yeah, for sure. Thank you. So we buy impaired credit, as you said, generally retail credit. So principally credit cards and personal loans, mostly off the major banks, but also off the non-bank lenders. And really, we fill the space that's about solving for consumers that can't meet their payments today. So we work with those consumers. Most of them need over, you know, need time to cure and provide the funding back to the other institutions, the banks, the non-banks, so they can get on with their business, which is lending money.

00:01:10:21 - 00:01:39:15
Danielle Ecuyer
Absolutely. So in these results, it's interesting because you're seeing a good revenue growth, you're looking at cash collections, which were up 11%. How can we draw or can we draw a parallel to what's going on in the economy with the growth that you're seeing in your results, as in consumers are getting a bit stretched? You know, interest rates are rising and for you, your type of business, you basically benefit under that scenario, so to speak.

00:01:39:20 - 00:01:59:04
Keith John
Yeah. Danielle, it's really interesting. I mean, most people assume that we do better when things are really, really tight and it's not quite the case. What we're seeing in our results is very much the resilience of the Australian consumer. So they've got a very strong desire to pay down debt and to get ahead and we're seeing that.

00:01:59:04 - 00:02:24:00
Keith John
So in our business we don't have any payday loans or any very low quality consumer, you know, sentiment or financial experience, but they're getting ahead. The other part or the anecdotal part is increasingly the consumers we deal with and we've got about 250,000 consumers in our book that we're talking to today. They're talking about the cost of living pressures. What's it like?

00:02:24:00 - 00:02:42:08
Keith John
They can't afford meat anymore that they might have bought before. They can't go shopping like they used to. So they're meeting their financial commitments. And I think we're seeing that through, you know, bank results and people like ourselves, but they're really struggling at a retail end. And we're seeing that come through in some of the results for the retailers.

00:02:42:10 - 00:02:49:16
Danielle Ecuyer
Tell us about how your operating margins are going and whether or not they improved over this period.

00:02:49:18 - 00:03:13:24
Keith John
Yes, So ours have improved mainly because of the scale of our business. So going back sort of 12, 18 months ago, we grew quite quickly. Our market's changed a lot in the past 18 months, we've had less competition. There's been a lot of debt come to market that hasn't been around for some time and that's driven our performance quite firmly.

00:03:13:24 - 00:03:21:20
Keith John
So our margins have increased dramatically over the period. We expect that to continue for some time yet.

00:03:21:22 - 00:03:35:14
Danielle Ecuyer
Hmm. Interesting. Now, just in terms of cost to serve. Can you explain what that actually means and what sort of again, percentages, margins you work around there. For sure.

00:03:35:19 - 00:03:59:17
Keith John
So the cost to serve is really what is the cost for us to operate relative to the marginal dollar that we bring into our business? I mean the reason the banks choose to partner with us is because of the way that we deal with consumers. So banks want to make sure that we're dealing with them in a way that's very compliant, in a way that supports the consumer to get back on track and to get ahead.

00:03:59:19 - 00:04:24:13
Keith John
You know, the bank business is really about lending money, and they want these consumers to be in a position to borrow off them again. So we are expert in making sure that when we're recovering that money and working through a situation, we do it well for the consumer and also support the bank. So our cost to serve has dropped from high 40, 50% down to about 35, which is in our target range.

00:04:24:15 - 00:04:49:03
Keith John
That largely reflects the scale of our organisation. And now that we've reached scale, we expect that to be relatively consistent from here on in. There's the opportunity to decrease it during over the next couple of periods. But really, we're focused on making sure we can continue to deliver the service we do at the price point we do. But there's very good margins for us where we're operating.

00:04:49:03 - 00:04:49:11
Keith John
now.

00:04:49:15 - 00:05:02:22
Danielle Ecuyer
Just interested to note in terms of the borrowing refinancing with Nomura Australia. So can you just explain how this fits into your business model. For sure.

00:05:02:24 - 00:05:31:06
Keith John
So over the course of the journey, look, we had a tough period going through COVID. We needed to refinance at what were usurious interest rates. We've been bringing those down. Nomura has financed us twice, once quite a few years ago. They recently provided us with a $35 million facility at much cheaper interest rates and now are seeking to become our senior financier again at cheaper interest rates again.

00:05:31:08 - 00:05:46:05
Keith John
So we think that will save us somewhere between $8 and $11 million a year, which will drop straight to the bottom line and put us back on the trajectory to hit the numbers that we were previously of sort of $20, $30 million NPAT in the next year or so.

00:05:46:09 - 00:06:06:24
Danielle Ecuyer
Oh, excellent. And I was going to ask about the outlook, but you pretty much answered that one there. What sort of risks are you seeing to your business model at the moment? Because you said if the economy is not, you know, it's not so directly linked to how the economy is doing, but what are some risks?

00:06:07:03 - 00:06:30:10
Keith John
Yeah, I think there's sort of three key risks. One, that's mitigated a little at the moment, which is interest rates. So interest rates do have an impact, more so on us than our consumers. The very vast majority of our consumers don't have home loans. They're not directly exposed to those interest rates. But given that interest rates seem to be moderating, that's a good thing for our business.

00:06:30:12 - 00:06:55:17
Keith John
Unemployment's the big one. So, you know, at four odd percent, you know, we're worried about or we're conscious of if that ticks up, kind of needs to get to 7% before it's an issue in our book. So we you know, we've got a bit of resilience in there, but we're alert to, we're heading into tough times. I'm not sure it's exactly as strong or the economy is as strong as our politicians would like us to think about.

00:06:55:19 - 00:07:15:17
Keith John
But the third one for our business is the one we're most focused on, which is actually us. You know, we've got an incredible market at the moment. There's less competition. There's a lot of debt around to buy. And really we need to make sure that we don't get ahead of ourselves. We continue doing our job and making it, you know, making our business operate, operate well.

00:07:15:17 - 00:07:21:06
Keith John
And that and that's the biggest risk. And we're very focused on that. We're sure we won't trip up, but we're alert to it.

00:07:21:08 - 00:07:35:03
Danielle Ecuyer
So is that actually, as you said, there's a lot of opportunities, but you have to be careful about what debt you're taking on board, but also not to overwhelm your systems that you take too much on board and you kind of lose control of the portfolio, so to speak.

00:07:35:08 - 00:07:54:17
Keith John
Yeah, 100%, I mean, I was talking to a broker today and I was likening it to the people that make money in a bull market, thinking they're superheroes. You know, we've all done that and then we've all lost money on the other side. And I think that experience is, is really important in the, in the context of our business.

00:07:54:19 - 00:08:11:17
Keith John
You know, there's more opportunities than we can take. We need to make sure we take the right ones, but not just for today, for tomorrow. And that's what I spend most of my time working through with my team. Are we making the right decisions for the right reasons for the long term.

00:08:11:19 - 00:08:15:06
Keith John
Forget about the short term. That doesn't build a business.

00:08:15:06 - 00:08:18:24
Danielle Ecuyer
Risk adjusted decisions, I think is probably what you're alluding to that.

00:08:18:24 - 00:08:20:05
Keith John
Yeah, 100%.