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Edited Transcript of CCP.AX earnings conference call or presentation 29-Jul-19 10:59am GMT

Full Year 2019 Credit Corp Group Ltd Earnings Call

SYDNEY , NSW Aug 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Credit Corp Group Ltd earnings conference call or presentation Monday, July 29, 2019 at 10:59:00am GMT

TEXT version of Transcript


Corporate Participants


* Thomas Beregi

Credit Corp Group Limited - CEO & Company Secretary




Thomas Beregi, Credit Corp Group Limited - CEO & Company Secretary [1]


Welcome to Credit Corp's 2019 Full Year Results Presentation. I am Thomas Beregi, the CEO of Credit Corp. Our objective is leadership of the credit-impaired consumer segment. We define our market as people who've had trouble with credit, most having defaulted on a previous credit obligation. We operate in very competitive businesses, and 3 competencies are critical to our success. We must have superior analytics and discipline because our business is all about pricing and managing risk. Our operations must be strong to compete. We must be sustainable and compliant to deliver on our promise to our debt sale clients, other stakeholders and the community. This ensures that our business can continue.

Applying these competencies, we target to deliver strong earnings growth into the future while producing an acceptable return, which we define as a return on equity in the range of 16% to 18%, and we do so with a conservative financial structure. We have strong metrics and approaches for each of these competencies across our 3 businesses.

Our leadership and focus on returns has delivered a consistent record of success. Our 10-year compound annual earnings growth is 21%, and this is being achieved with a strong return on equity. In 2019, we maintained our record of success with another solid year. And particularly, our newer consumer lending and U.S. debt buying businesses drove our growth, while positioning the company to realize opportunities across all our businesses.

In our Australian debt buying business, we've continued to maintain our pricing discipline at a time when sustained high pricing is producing signs of stress among our competitors. An increased focus on compliance for our Australian debt sale clients is playing to one of our core strengths, and we think it is behind a step-up in our purchasing late in the year.

In our lending business, we're seeing increased demand for credit as prime lenders tightened their lending standards, and this continues to drive the growth and quality of our loan book.

The U.S. remains a great market, and we're realizing the opportunity by expanding our purchasing relationships and rapidly growing our collection headcount. We can already see the opportunity with a step up in our level of investment late in the year. Some recent wins in our core Australian debt buying business mark a return to investment growth in our core business, and we are continuing to grow our U.S. debt buying and net lending volumes.

With $230 million in capital headroom and gearing of just 21%, we will be able to fully participate in future investment opportunity that comes our way. We continue to leverage the benefits of our uniquely resilient collection model. Our Australian debt buying business has now had 2.5 years of reduced purchasing, and collections from this segment remain at near-record levels. This is an outstanding result. And our payment arrangement book suggests that this sort of performance will continue in the near term.

These operational results are supported by our commitment to continuous improvement. In 2019, we grew labor productivity by 11%, with a strong contribution from improved technology. Our clients, the sellers of charged-off debt in Australia are increasingly focused on compliance and reputation, which plays to one of our competitive strengths. We have a significantly lower complaint rate than our competitors. And during the year, we actually managed to further lower our complaint rate at a time when our external dispute resolution provider, AFCA, is actually reporting a substantial increase in overall complaint volumes. We also have an impeccable regulatory record and a substantially higher rating from our stakeholders in the consumer movement.

Our compliance leadership has contributed to a strong purchasing outlook for 2020. Our purchasing outlook is much improved from the position at the same time last year and represents a range of $220 million to $240 million. Our consumer lending business is on track to deliver for us again in 2020.

With our consumer loan book growing by 16% over the year to $212 million. This level of growth exceeded our ongoing expectations. Prime lenders have tightened their credit standards, and we have been a major beneficiary because we have the cheapest and most sustainable offering in our segment of the market. As a consequence, new customer lending volume was up by 18% over the prior year.

We also expanded our auto lending pilot during the year. The introduction of a finance only product increased our attractiveness to finance brokers, producing an increase in broker volume across both the finance only product and our pre-existing vend-and-lend product, where we both sell the vehicle and provide the finance. We still need to monitor loss performance on this additional volume, before we expand further by bringing our auto lending business out of pilot.

The opportunity in the U.S. is large and remains very attractive. Unsecured credit and charge-off rates have continued to grow in the U.S., and we are still a very small part of a large and growing market. And we are rapidly growing our capacity to realize the potential available to us. We grew our U.S. headcount by 69% to 363 people over the year. We are on track to fill our existing Salt Lake City site in September, with 430 people, and we plan to open another site capable of taking our total headcount in the U.S. to 700 people.

In 2019, our U.S. purchasing grew by 40% to $85 million. As part of this, we established a number of new client relationships. This means there is substantial room for us to grow our purchasing from these relationships. Our U.S. business economics already approximate those of the 2 leaders in that market. Our asset turnover, effectively, the rate at which we convert our purchase debt to cash collections, is in line with the leaders, as is our cost to collect. And this is despite our relative immaturity and a pipeline of further improvements, which should see even better metrics in the year ahead.

This makes us confident that we're on track to create a large and successful operation in the U.S. The immediate outlook is for strong U.S. segment earnings growth, and this is despite the challenge of managing an agenda of rapid growth over the year ahead.

Overall, the outlook for Credit Corp in 2020 is favorable. In terms of investment, we are looking at a purchased debt ledger outlay in the range of $220 million to $240 million, and net lending of $60 million to $65 million. For earnings, we are looking at growth in the range of 7% to 10% to $75 million to $77 million in net profit after tax.

Thank you.