Keith John discusses Pioneer’s approach to debt recovery

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Hello. I'm Finola Burke from RAAS and our focus today is on ethically motivated financial services group Pioneer Credit, ASX ticket PNC, and joining me is managing director Keith John. Welcome Keith. Thank you Finola. Now Pioneer Credit is really at the coalface of consumer credit acquiring debt portfolios from banks and non-bank institutions and then working with individuals in an ethical manner to recover debt.

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What are you seeing in the current environment and other tailwinds for your business still intact? Yeah, for sure. Thanks Finola. Look, it's clearly a really challenging time for consumers. We know that. We hear about it every day and the consumers, we deal with it very much. The ones experiencing the types of stress that we hear about in the press.

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So what we're seeing across our business is, is a range of things that are shifting and in a quite unique manner. So there are obviously more portfolios for debt of debt becoming for sale. That's a good thing in terms of our business, and we expect that to continue for quite some time. Consumers, on the other hand, of course, are becoming more stressed.

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So those with houses becoming very stressed, those without houses, those that don't have a mortgage, not quite as much, but certainly they're changing the way that they're living. inside of our portfolio. What that looks like is we have a slight drawdown in the average payment that people are making down about 3% from the beginning of this year. But we've got a fully employed economy in a quite unique set of circumstances now where looks like we're going to head into recession, but everyone's got a job, so that's really good for us.

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So the tailwinds are intact, I suppose you could say they're blowing stronger than ever. So we're very happy about that. It's our time to really make the most of that for our business, but also to make sure we do it in a very respectful manner to both our vendors, but in particular to our consumers. And if we do that well, and I think we do it very, very well, then this business is going to be very successful for a very long time.

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If you mentioned that you are seeing an increase in the portfolio of debt, but can you talk a little bit about the sort of portfolio debt? Is income come out now then the quality of that and then about what sort of disciplines you apply when you're considering acquiring these portfolios for sure. One of the things about Pioneer is so we we focus on the big banks in particular and increasingly on that that layer below that.

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The non-bank lenders, we don't do anything that looks like payday or any of that lower, lower credit right type type debt. And the reason for that is because, one, we need to work with consumers that we know that can get ahead. We're about building lives, so there's plenty of debt coming out, not so much out of the big banks.

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Now, obviously, there has been a marked shift in the last four or five or six years to the non-bank lenders who are very efficient in deploying capital. So there's a lot of debt coming out of that part of the market. There's no surprise. It is exceptionally good quality. It was very well written, but they now need our expertise to manage those customers through their more difficult periods.

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That's what we specialize in. And of course, they also want to free up capital so they can continue to grow, grow their business. So great market and there's a great range of opportunities. And then in terms of the way we invest Finola the really important, So there's a couple of things that make this business unique. The first is no one in our leadership receives a short term incentive, and that's very, very important in this business because the portfolios we buy take 4 to 6 years to realize their full value.

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So all of our team receives long term incentives they vest over 3 to 5 years. The substantive part of of the portfolio life, it's always been that way. So we're very, very aligned to the funds that invest and also our shareholders, of course. And then the way that we work is we have a delegation from the board, we have an investment committee of five of which I'm on, and it's unanimous or doesn't happen.

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So there are great disciplines right across our business, not just in terms of return, but also in addressing the way that we service customers. And do we have the appropriate skill and capacity, the way that we fund portfolios and of course the way we align our people to getting the best results for consumers and for our shareholders. And you've done a lot of work over the past 12 months to reduce the age of the cash collections profile.

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Is there more work to be done there? And what do you see as the optimum portfolio depth? Yes. So over the course of the last year, there's been a marked shift in the the age profile and how that's coming through. So a lot more of our portfolio has been collected earlier. A lot of that is a reflection of the very significant investment we made late in 2022 where we invested $100 million last financial year, the most invested this year.

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We're investing about $60 million, I think on a run rate basis, we're probably going to be investing a minimum of 80 going forward, stretching up to about 150. So there's plenty of growth for us. And what's important for shareholders is to make sure that we're collecting at the front end, but at the back end. So as the volumes age, are we still managing to recover the amounts that we expected and we've continued to grow that as well.

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So that's a really important part of of looking at how our portfolio ages and how it matures over time. And Pioneer Credit has a high net promoter score with its customers. How do you leverage that into increased business with these customers or is that an end game for you? Look, it's it's it's a really important part of our business.

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I'm not sure how we leverage it to increase business with those customers, the ones that we're working with. But what it is pretty good for is for us to measure exactly how well we're performing in our business, in engaging with consumers, and also the feedback we get through that, that we're a business to some 400 odd people and they're having free flowing conversations with a broad range of the of the Australian population.

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Every day we get a lot of things right, we get some things wrong. This is just another element of or another way for us to receive feedback. So that we can address that immediately upon something happening or one of our consumers having, having something I wish to share with us. So that's one important aspect. The other part is we sell our business to the major banks and to the non-bank lenders based around the way we, we, we protect their brand, the way that we represent them and our reputation.

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And Net Promoter Score is a very, very clear way of demonstrating that we're very, very good at that. And then also we can provide our vendors a look through as to the way their business is viewed by our consumers and the way the way we deal with them. And that's reflective of their collection processes as people age and default and then what they do when they hand them over to us.

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So it's a really powerful set of information that I think sets us apart from from other purchases in the market. Well, thank you Keith for joining me today. I'm looking forward to catching up with you through the course of the next 12 months to check up on Pioneer Credit’s progress. Thanks so much Finola.