Pioneer Credit Limited (PNC) Earnings Call Transcript & Summary

Are there any questions on the phone line?

There are no phone questions.

Thank you. As there are no further questions and voting will be conducted by a poll, I will now move to the next resolution. Resolution 5 is the approval of the Pioneer equity incentive plan. Resolution 5 is to consider and if thought fit, pass a resolution to refresh the company's equity incentive plan which was last approved by shareholders on the 19th of November [ 2020 ]. The amendments proposed are primarily cosmetic in nature ensuring consistency and to ensure the existing plan accords with current laws and market practice and the Board seeks shareholder approval, which will allow the company to issue incentives to its key employees and ensure that those incentives granted are not counted towards its 15% capacity limit placement capacity. The Board believes that an appropriately designed equity incentive plan is an important component of the company's remuneration arrangements. Incentive equity plans are a key tool to allow the company to attract and retain directors and employees and to ensure the interest of those Directors and employees are aligned to those of shareholders in creating long-term shareholder value. I now put the resolution to the meeting that, for the purpose of Exception 13 of Listing Rule 7.2 and for all other purposes, shareholders approve the Pioneer Equity Incentive Plan and any issue of securities under the Pioneer Equity Incentive Plan on the terms and conditions set out in the explanatory note which accompanies and forms part of this Notice of Meeting. The Independent Directors unanimously recommended that shareholders vote in favor of resolution 5. Voting restrictions apply to this resolution and the company will disregard any vote cast by any person who is eligible to participate in the plan or an associate of that person. Proxy votes are now displayed. Are there any questions online, Sue?

There are no questions.

Are there any questions on the phone line?

There are no phone questions.

Thank you. As there are no further questions and voting will be conducted by a poll, I will now move to the next resolution. Resolution 6 grant Indeterminate Rights to Mr. Keith John. Resolution 6 seeks shareholder approval to issue Indeterminate Rights to the Managing Director, Mr. Keith John, under the terms and conditions of the Pioneer Equity Incentive Plan. I now put the resolution to the meeting that, for the purposes of ASX Listing Rule 10.14 and for all other purposes, approval is given for the grant to Mr. Keith John, Managing Director of 2,807,766 Indeterminate Rights for new financial consideration, which, subject to the achievement of performance and vesting conditions may convert to shares on a one-for-one basis under the Pioneer Equity Incentive Plan and the terms described in the explanatory statement. Directors and their associates are excluded from voting on this resolution unless they are ineligible to participate in any employee incentive except we're exercising a directed proxy. In addition, a member of the key management personnel, or KMP, and their closely related parties acting as a proxy must not vote on this resolution, where the proxy appointment does not specify the way the proxy is to vote unless the proxy is the Chair and the appointment expressly authorizes the Chair to exercise the proxy even if that resolution is connected directly or indirectly with the remuneration of a KMP. The Board, with Mr. Keith John abstaining, unanimously recommends that shareholders vote in favor of granting Indeterminate Rights to Mr. Keith John, under the Pioneer Credit Limited Incentive Plan. Proxy votes are now displayed. Are there any questions online, Sue?

No questions.

Are there any questions on the phone line?

There are no phone questions.

Thank you. As there are no further questions and voting will be conducted by a poll, I will now move to the next resolution. Resolution 7, renewal of proportional takeover provisions. Resolution 7 seeks the approval of shareholders to update the constitution by renewing the proportional takeover provisions for 3 years under sections 648G(4) and 136(2) of the Corporations Act. Further detail regarding this resolution is contained in the meeting notice of the meeting. I now put the resolution to the meeting that, for the purposes of sections 648G(4) and 136(2) of the Corporations Act and for all other purposes, the proportional takeover provisions in Clause 14 of the company's constitution, be renewed for a period of 3 years from the date this resolution is approved. Proxy votes are now displayed. Are there any questions online, Sue?

No questions.

Are there any questions on the phone line?

There are no phone questions.

Thank you. As there are no further questions and voting will be conducted by a poll, I will now move to the next resolution. Resolution 8, approval of 10% placement facility. ASX Listing Rule 7.1 allows companies to issue up to 15% of their fully paid ordinary shares over any 12-month period without shareholder approval. ASX Listing Rule 7.1A enables eligible entities to seek approval for an additional 10% of their fully paid ordinary shares over any 12-month period. Pioneer is an eligible entity as it is not included in the S&P/ASX 300 Index and has a market capitalization of less than $300 million and Resolution 8 shareholder approval by way of a special resolution to have the ability to issue securities under the 10% placement facility. While the company currently has no plans to make an issue of equity securities under Listing Rule 7.1A. This approval provides the company with additional flexibility. I now put the resolution to the meeting. For the purposes of ASX Listing Rule 7.1A and for all other purposes, shareholders approved the issue of securities totaling up to 10% of the issued capital of the company at the time of issue, calculated in accordance with the formula prescribed in Listing Rule 7.1A.2 and on the terms and conditions as set out in the explanatory statement. The Board unanimously recommends that shareholders vote in favor of the 10% placement facility. Proxy votes are now displayed. Are there any questions, Sue?

No questions online.

And are there any questions on the phone?

There are no phone questions.

Thank you. As there are no further questions and no further resolutions, I will move to the poll. Ladies and gentlemen, the company has adopted the ASX Corporate Governance Council Guidelines, which recommends that a poll be called on all substantive resolutions. In this instance, it is appropriate that all resolutions be conducted by poll pursuant to the requirements of the law and the company's constitution. Link Market Services Limited has been appointed by Pioneer as returning officer for the poll. Shareholders who have registered may click on the get a voting card button. Once your voting card appears, all the resolutions to be voted on will be displayed. You may need to use the scroll bar on the right-hand side of the voting card to view all resolutions. Please follow the prompts online to complete the voting card, then click submit the details and vote button. The proxy votes I hold as a nominated proxy for shareholders in relation to each resolution are now displayed. Online voting will end in 5 -- will end 5 minutes after the close of the meeting. The results of the poll will be released to the ASX later today and also posted on our website. In accordance with the company's constitution, I can confirm that there is no other business brought forward to be transacted. As there is no further business, that concludes the formal proceedings of the 2023 Annual General Meeting of Pioneer Credit Limited and I again, thank you very much for attending, and I declare the meeting closed. Having concluded our Annual General Meeting, I now invite Keith John to present his Managing Director's presentation. Thank you, Keith. Over to you.

Thanks so much, Peter. And to shareholders, thank you for your time today and your participation in our AGM. I'm going to take you through, again, the background of Pioneer why we exist, our performance and then get into some of the detail of our business to give you a solid update on how we're performing and how we have performed over the course of the first few months of this financial year and what the outlook is for us for the next -- for the rest of the financial year and beyond. As you are full aware, we are a debt recovery specialist that acquires and services, retail, finance, purchase debt portfolios. Our PDPs are acquired from major banks and financial institutions and nonbank lenders in Australia. They are held on balance sheet. We have no exposure whatsoever to the Northern Hemisphere. This is an Australian-centric business focused on growing our position in Australia. We are currently the #2 player in this market with very, very strong growth tailwinds, and I'm going to take you through those again in a short while. Since 2008, Pioneer has invested over AUD 660 million in PDPs across some $4.6 billion in receivables and 570,000 customer accounts. That gives us an incredibly large data set of consumers and consumer behavior and payment behavior for which to continue to build out this business for which to continue to allow us to underwrite well when we're investing our collective money into these portfolios. As we stand today, we've got an active customer base of some 205,000 consumers spread right across the Australian landscape, all of these consumers fall into or previously fell into what we would call Tier 1 type lenders. We do not participate in payday lending, and we do not participate in anything that is lower credit quality. We're working with consumers that have a high propensity to heal and a strong desire to get ahead. That 205,000 consumer base represents some $1.8 billion in receivables that's due to Pioneer including in that number, $454 million of performing arrangements. These are customers that have set up arrangements with us and are paying us on a regular basis weekly, fortnightly or monthly back into our business. And of course, as Peter mentioned before, we employ over 400 people in Australia and the Philippines. Very, very importantly, our people are founded in good. It's a very important part of who we are. They have a strong social conscience and that is displayed in everything that we do every day, the way that we work with our consumers, the way that we represent our vendors and the way that we deal with everyone that we come in touch with, and this is incredibly valued by debt vendors. Our Board of Directors has changed in recent times. And importantly, it is very heavily focused on balance sheet as a balance sheet-driven business. We've got a large asset. We've got a lot of debt. It's critical that we have directors that understand the financial mechanics of this business and that understand the strength of our balance sheet and how to optimize that balance sheet going forward. Steve Targett is our Non-Executive Chairman, formally out of major banks and currently the Chair of P&N Bank and CPT Global. Suzan Pervan, who you elected today, is previously out of big accounting firms and has deep experience in financial in accounting and across financial statements. Peter Hall, who chaired our AGM today, formerly at Genworth, the mortgage insurer and previously the MD at GE Mortgage Insurance. And finally, Paul Gately, who has investment banking experience across Asia with some of the largest investment banks in the region. It's critically important to the Board that we have assembled as we guide through this next part of the period and really take our business forward. As Peter said, we've set an ambitious target of $18 million for the executives and leadership of this business to unlock the incentives that you approve today. Clearly, it's an incentive that we expect to unlock, but there's much work to be done, and this is the Board that will guide us through that period. My executives have been with us for some time, Sue Symmons as Company Secretary and our Corporate Counsel. Barry Hartnett, Chief Financial Officer, has been with us for more than 10 years now. Andrea Hoskins is my Chief Operating Officer. She's got broad experience across operations, and been with Pioneer for a number of years now, leading our operations, which have been performing remarkably well. And Ian Brunette, who joined us a short while ago, previously out of the banks, leading our IT transformation or the next part of that, which I'm going to talk about very soon. In terms of who we are, this is very important. Our purpose is to put an end to debt stress. But it's the way that we do that, that is critical. And these 3 principles are how we act in our business every day, but they're also how we measure every part of what we do in our business. Act with purpose. We see people and seek to understand them. It's critical when you're dealing with consumers, particularly now as we experience that is cost-of-living pressures, which is hitting consumers so hard understanding their situation and working through them is the key to success. Our people are very, very good at that. Be human, we do what's right and not what's easy. Being human is, again, another integral part of what we do, being able to relate to people being able to connect with them and being able to understand them. And back to what Peter said earlier, our belonging statement. We're looking for people that are founded in good. If they're good people, they're going to get great outcomes for our customers. And of course, choose integrity, having integrity in what we do committing to making a positive difference, being honest, transparent and open is a hallmark of this business. In terms of our market, look, the Australian debt purchase market has changed quite significantly over the course of the last 4 or 5 years. We're now in a highly concentrated market, and there are increasing barriers to entry. Pioneer is one of few scale participants. We've got good access to funding, we've got very strong cash collections. As we've said, 6 vendors were onboarded in FY '23, and we purchased from 18. We've got a market-leading reputation. This is so very important, particularly in times where consumers are under stress. Lenders are not just selling to someone because they can pay them the money. Anyone can do that. It's about being able to fund your business consistently. Clearly, we can do that. And being able to work with consumers in a manner that makes sure business sustainable, that respects the consumers and protects the vendor's brands, Pioneer are very, very good at that. And importantly, we do not offer further credit. We do not compete with our vendors, and we do not extend the debt cycle for those of the most vulnerable consumers in our portfolios. Our business is about lifting people, and that's what we do and what we focus on every day. From an economic perspective, clearly, there are headwinds in the Australian economy. That's driving more investment opportunities across our business. But importantly, we haven't seen any impact across our performing portfolio, which is going -- ticking along very, very nicely. So we've got a fully employed economy which is great, and people are continuing to make -- meet their financial commitments, notwithstanding the pressures that they are seeing outside of those. Our market has continued to consolidate. There have been numerous parties leave this market over the course of the last few years. We think that is going to continue. Pioneer is here to stay as the #2 player in the market now by some margin. We expect to grow our position, and we certainly have been growing it over the course of the last 12 or 18 months. And vendors, of course, as I've touched on, are selling more, but they're being more selective, and that's good for Pioneer. Our long-term relationships and our investment into those relationships is valued. In terms of the competitive landscape, as I said, market exits are occurring. There are a range of performing portfolios that are available or are becoming available, we purchased a large one back at the back end of FY '22. We think that will be a feature of the market for some time yet. And there are a range of other portfolio acquisitions and M&A that are emerging. As we start to see the value of our currency through our equity price come back, that will open up more opportunities for Pioneer in the future. In terms of our performance across the first quarter, our cash collections were essentially flat on the prior quarter at $30 million. We think that's a really good solid performance when you consider that in the prior 6 months, we had a 78% decrease in our investment. So the immediate term cash flows don't come if you don't invest your money, of course. We deliberately chose to invest as we did at that time because we see better opportunities coming through, and we're starting to see those now but the performance of our business, and it will be borne out later in another slide highlights just how strong this business is performing across the entirety of its vintages. And if you recall, when approving the rights issue and the targets for this year and for FY '26, that is about making sure we invest well and we liquidate over a long period of time, and we do that very, very well. Recent PDP investments are performing ahead of expectations, ahead of our underwriting. That's a very good outcome for us. And contracted forward flow volumes are increasing, of course, as the economy tightens. There are a lot of opportunities for Pioneer, which we're very happy to see. In terms of investment in the first quarter, that's just done, just shy of $13 million, up 20-odd percent on the prior corresponding period. 81% of our year-to-date investments come from forward flow. It's our largest proportion in quite some time, and that's underpinning our PDP investment. We continue to focus, of course, on the Australian banks and finance accounts. And there are a very significant number of opportunities that are available to Pioneer and coming to market at the moment where we're preferenced. We look forward to updating shareholders on that in due course. In terms of cash collections, you will see for the first 4 bars there, our performance over the last 4 financial years. And then our performance, how we're liquidating for the past quarter. And you'll see there that 40% of our liquidations came from accounts more than 3 years old. It's the highest proportion we have ever had, and it is a testament to the way that this business is operating and the way that the operations are being run by Andrea and her team as to just how deep we are reaching into our portfolio. That's where the real uplift and opportunity exists for us beyond just the early day vintages. So where appropriate servicing strategies are in place for a tightening economy. We can see that they're working and they're working well. We've got a consistent contribution, as I mentioned earlier, from our performing portfolio and the contribution from that large performing portfolio that we bought at the back end of FY '22 continues to perform ahead of underwriting. That's a really good thing for our business. We need to keep on working at that and making sure that we outperform what we had expected and effectively what we've committed to you as our shareholders. Our customer approach, we've made much of over many, many years. When we first started talking about Net Promoter Score, most people didn't get the importance of this. We're only purchaser in Australia and certainly, that we're aware of in the Southern Hemisphere that talks about Net Promoter Score. The propensity of someone to refer us to a friend, it's an odd concept when you think about debt recovery. But if we look after customers well, they will do that. They want to do that because they get a good experience. And this is now more critical than ever as vendors are looking to people that can service customers respectfully in a manner that supports them. Pioneer does just that. In terms of our approach, there are 6 key things that make us different. We're an Australian specialist. We don't have exposure to the Northern Hemisphere or any other parts of the market. This is where we live. This is where we operate, and there is a large opportunity for us to continue to capture. We've got a unique servicing approach. We work with customers in a way that's different to anyone else and we get outcomes that are different to everyone else, and that's evidenced through our Net Promoter Score. It's evidenced through the performance of those older vintages as we just work through. And it's evidenced through the dramatic increase we've had in cash collections over the recent past. We are one of only a few scale participants. We generate significant free cash flow. We've got access to additional funding as we require to invest in PDPs. And of course, funding is very important to this business, and I'll update you in a moment just on our refinancing process. We have a market-leading reputation which is envied by many and is something that is invested in by banks and nonbank lenders alike. They like the way that we deal they like the way that we transact with them and the relationship we have with them, but most importantly, the way we protect their brand and the way that we deal with our consumers in a way that lifts them up as much as humanly possible to get a great outcome for them, a great outcome for us and in a way that protects our vendors and supports their brand and their programs. We do not offer further credit to customers. Breaking the debt cycle is important and supporting our customers to get ahead, not simply refinancing them at a higher interest rate or consolidating debt at a higher interest rate that does not, for the vast majority of people, serve a purpose. Our business is about creating freedom and helping them to reduce debt stress. That's what we do. And we do not, of course, by doing that compete with our vendors, vendors want to work with businesses that are aligned to them, not ones that are competing with them with another loan product, and that is serving Pioneer very, very well. In terms of our portfolio, we've guided to $60 million of investment for this year. Currently, we have some 62% of that under contract or completed and 81% of what we've had completed so far has come through from forward flow. That's really good for our business. It's repeatable. We understand that. We can predict that and deal with that in a very methodical manner. Again, focus is on Australian banking and finance. We do not do payday lending or lower quality receivables. The consumers that we are working with are working to get ahead. They're working with us to get ahead. And that's a strong part or a key part of the sustainability of our business. As I say, there, prices have remained pretty steady over the journey and generally reflect vendor presale treatment and also the mix of product that we buy as opposed to market competition. We're very happy with the prices that we're paying. As I've mentioned to you, much of our portfolio is performing ahead of underwriting over the last couple of periods, which says that we're also investing very, very well. In terms of the portfolio opportunity, we've got $1.8 billion of receivables due to us. The opportunity set those customers that we're working with to understand, to give them solutions, to get them back on track is $1.4 billion, and we have $454 million in our performing portfolio. That's been pretty static for the last 15 months. We expect to see that grow again through the rest of this financial year. In terms of the strategic updates for our business, we announced in July a significant investment into technology for our business, upgrading our system of record, the core system replacement, that is well progressed. There is a good team that are dedicated to that program of work. We expect that when this program of work is completed and implemented late in this financial year, it is going to significantly improve the effectiveness of our people, the way that we can communicate and deal with and service our customers that makes it better for them with less friction and ultimately support driving down our cost of service, which we've spoken about for some time. Obviously, cyber is a big talking point across most of the world now. We too have invested heavily in cyber and continued to increase our cyber posture quite dramatically. It's been a strong focus of the Board and something that we continue to work at to ensure that we remain ahead of the curve. We're working to the APRA standard. We're not APRA-regulated, but we're working to the APRA standard so that the shareholders, our customers, our staff, our people, our vendors, can all be assured that we've got a very robust program and platform in place. And finally, there's a piece of work around the optimization of our data falls out of cyber or supported by cyber, but there's a range of work there to increase the effectiveness of the way that we deal with our data and the way that we operationalize that within our business. In terms of the refinancing, a very important part of our program of work this year. It's important to note that there is no imperative from a time perspective for us to refinance. It's now the right opportunity for us to do that and to set ourselves up with a lower cost of funding and a more flexible funding facility and balance sheet so that we can continue to grow. I can tell you that there are numerous banks, both Australian and international in our data room, and they are working a way to understand our credit and our performance and to come up with a package that is suitable for our business and attractive to us. We expect a material decrease to our cost of funds and increased flexibility within that funding structure to provide greater balance sheet flexibility going forward so that we've got the opportunity to do more things inside our balance sheet as more of the fit of a business that performs the way that we do. We do not expect any additional equity to support this refinancing. We are a well-capitalized business. We certainly want more capital in our business, and we'll start to generate that over time, but we've got adequate capital for what we need to do through this refinancing process, and we don't expect that to change. We've updated the timing on the refinancing. The number of banks and the amount of interest that we've got in this process has expanded and because of that, we've pushed the timing out a little bit. What's most critical for us is that we get precisely or as close as possible to the best facility for Pioneer going forward. It's going to save us a lot of money and give us a lot of flexibility. We're expecting binding terms pre-Christmas. And of course, when we do, we'll be updating shareholders with respect to that. In terms of our outlook, clearly, alignment to shareholders is critically important. One of the key features of this business is that management and the Board are the single largest shareholders in this company. We think that's critically important in the context of a small financials business, such as Pioneer. And having our alignment to you ensures that we're always thinking about you. As Peter said, there are no short-term incentives in this business. We do not reward simply buying debt or investing money. We do not reward first year performance. All of that's easy. We reward performance over an extended period of time that aligns with the bulk of our -- the performance from our portfolios, as you should expect. So our LTI is earned over 3 years with a final hurdle in the fourth year as Peter said today. And only once that final hurdle is achieved does the incentive release. That hurdle is set at an audited statutory net profit after taxation of at least $18 million. It's not far away, and that will be a dramatic turnaround, of course, from where we have been. But it's where this business should be performing and where we expect to be performing in FY '26. Finally, in terms of our total outlook. What can you expect from us? Continued regulatory focus. The regulators are our friends, the stronger they make regulation, the better that is for us, it's creating a bigger moat around the Pioneer business. We are, of course, well ahead of regulation, as you should expect we are and continue to invest heavily in that part of our business. Strong tailwinds for PDPs. We've continued to maintain our guidance of $60 million, but there are significant opportunities for us. The moment that we can update that guidance and change that and update you, we certainly will, but we are working hard to make sure that the opportunities that we exercise are precisely the right opportunities for Pioneer. Again, having an executive and a board that's aligned to you make sure that happens. We're interested in medium-term growth and long-term sustainable earnings, and that's exactly what we're going to deliver to you. We've got agreements in place with 12 vendors. We have a 5-year forward flow agreement with the Commonwealth Bank that expires in 2027. So it's got a long way to go. It's a very important part of our business, of course. The process to reduce the cost of funds, as I mentioned, is well underway, and we expect material savings to be realized from this financial year. Our focus on operating leverage is important. The CRM replacement is underway, expected to be delivered late in this year and start delivering benefits through FY '25, but it's not just about driving cost out, it's about driving more efficient use of our people, allowing them to be more productive and allowing them to be more successful and to actually drive our data better and start servicing consumers in an even more efficient manner than we have in the past. And of course, we expect a material uplift in our NPAT. I should say at this point and just reiterate at this point, clearly, we've got a big piece of work on as well with the litigation that was announced this morning. Pioneer is fully funded for that, and we do not expect any impact to the efficient operation of our business through that period. There has been significant work completed by our advisers and by our team over the course of the last few years to get that litigation to where it is today. I think if you read the full announcement and the claim, which is attached to that announcement today, you'll see just how -- how much work has gone into that. We're very happy with the shape of that and also, again, that there will be no impact to our business going forward from that work. We've got a great opportunity, which we expect to take hold of; macro tailwinds; a tightening economy, which, of course, is driving supply, but an environment of full employment, which is very good for our business. And again, whilst we'll have a material uplift in NPAT this year, that target statutory NPAT of at least $18 million for FY '26. That concludes my presentation. I'm open to answering any questions should there be any.

There are no questions.

With my presentation complete, I thank you for attending today's meeting for giving us your time and trusting us with your capital as your Board and your Executive. As I've said, we respect that greatly, and we look forward to updating you on our performance as this year progresses. Thank you.