Credit Corp Group Limited (CCP.AX) Earnings Call Transcript

Welcome to Credit Corp's 2021 Full Year Results Presentation. I'm Thomas Beregi, the CEO of Credit Corp. Our objective is leadership of the credit impaired consumer segment. We define our market as people who have 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 acceptable returns, a return on equity of 16% to 18% with a conservative financial structure. We have strong metrics and approaches for each of these competencies across our 3 businesses. Our leadership has delivered a return to our pre cohort growth trajectory in 2021 with near record levels of investment to sustain continued growth driven by acquisition of the Collection House purchased debt ledger and a recovery in lending volumes. All of this was achieved in an unfavorable investment environment with COVID stimulus and forbearance causing a temporary reduction in purchased debt ledger supply. Despite such a large total outlay for the year, we still retain considerable capital for further investment. Credit Corp. is debt free and holds cash and undrawn credit lines totaling $370 million. This means we have the ability to secure large one-off purchases should industry stress give rise to such opportunities while also increasing ongoing purchasing as ledger supply recovers. The purchasing outlook is improving. Each month, we are seeing rising sales volumes from our purchasing arrangements and will start 2021 with a record pipeline of contracted purchasing of $150 million. In 2021, we produced earnings growth of 11%, and our U.S. business was the key growth contributor for the year, with U.S. segment earnings more than doubling to $17.7 million for the full year. Our debt buying operations performed well across the board. Our metrics in Australia were strong with the Collection House purchase producing a great result. In the U.S., we benefited from ongoing operational improvement, together with the strong financial position of U.S. consumers boosted by stimulus payments over the second half of the year. While purchased debt ledger supply contracted in the U.S., we managed to partly offset this by growing our share in the market. We also concluded initial purchases from 3 new issuers during the year. And the U.S. business has started 2022 very strongly. We have secured a record starting pipeline of purchasing, and we can see opportunities to add to this as supply recovers. The operating metrics show that our U.S. operation is very competitive, and we know there remains room for even further improvement. Our consumer loan book recovered well over the second half of the year. We saw record lending volumes over the last part of the year as existing customers who might have repaid us out of stimulus receipts returned, and this was supplemented with demand from new customers to drive growth in the loan book. In July, however, demand has softened, and we put that down to lockdown measures in several Australian jurisdictions. Based on our experience with previous lockdowns, we see this as temporary, and the outlook remains positive for our lending business. The book is on track to grow back to its pre-COVID level, and we're seeing encouraging results from our relaunched auto loan product. We also have a number of new products in both development and pilot to continue momentum in the lending business well into the future. We expect to deliver another strong result in 2022. Purchased debt ledger investment is on track for an outlay between $200 million and $240 million. Net lending should be between $45 million and $55 million, and net profit after tax is expected to be in the range of $85 million to $95 million. That means that the top end of the guidance will produce earnings growth of 8% for the year, for 2022. Thank you.