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

Welcome to Credit Corp's 2022 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 acceptable returns, being a return on equity in the range 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 consistent growth over a long period. In 2022, this continued with earnings growth of 9% driven by strong results from the U.S. and lending businesses. Debt buying operating metrics were favorable despite some challenges. In Australia and New Zealand, we managed to grow collections and productivity in the context of depressed purchasing. In the U.S., collections and productivity also grew but were impacted by a very difficult labor market, with headcount growth falling short of the level required to keep pace with our purchasing. Lending volume accelerated over the year, growing the loan book by 36% to a new record level. And credit losses remained favorable, making it necessary to release an amount of $10.1 million in after-tax loss provisions. This was to account for previously provided loans which have now been repaid. The release offset the impact of additional lending on our upfront loss provision expense, and our loss provision remained above pre-COVID levels. Total investment for the year was a record $662 million, and this was more than $150 million above the previous peak, which did impact our cash flow late in the year. But this will only be temporary as we start to reap the returns on this investment in 2023. Looking forward, we've started 2023 with a strong U.S. purchased debt ledger investment pipeline, which reflects improved purchase debt ledger supply. The data shows that the U.S. unsecured credit balances have not only recovered but now exceed pre-COVID peaks and charge-off volumes are increasing. The picture in Australia, however, is very different. Unsecured credit balances are not recovering, and unless we make another sizable one-off purchase, our Australian and New Zealand debt buying earnings will run off in 2023. The key to growing in the U.S. will be converting our increased purchasing into collections, and this will require more people. To address this, a component of our Philippines workforce has started collecting into the U.S. While it's still early, the initial results are encouraging, putting us on track to achieve another good result in the U.S. But this won't be sufficient to offset the impact of runoff in the Australian debt buying segment. As a consequence, we're guiding for a relatively flat result in 2023 with net profit after tax in the range of $90 million to $97 million for the year. It's anticipated that investment will moderate from the record levels of the past year, producing substantial free cash flow, putting Credit Corp in a great position to secure any sizable one-off purchasing opportunities that may arise in an uncertain economic environment. Thank you.