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

Ladies and gentlemen, good morning. Welcome to the 23rd Annual General Meeting of Shareholders Credit Corp Group Limited. Thanks for joining us today. I'd like to welcome those shareholders watching the meeting via online and via webcast. I'm Eric Dodd, Chair of Board of Directors of Credit Corp Limited and in accordance with company's constitution, I'm the Chair of this meeting. I'd like to acknowledge and pay my respects to the Gadigal People of the Eora Nation, the Traditional custodians of the land on which I'm speaking to you from today. I also acknowledge the Traditional custodians of the lands on which each of you are working from today. I'd like to pay my respects to Elders past, present and emerging. As we have a quorum present, I declare the meeting officially open. I'll ask the Company Secretary, Michael Eadie, to advise whether we have any apologies. Michael? Thank you. I'd like to introduce your company's Directors who are all here with me today. Just raise your hand, I think rather than stand up. Thomas Beregi, our Managing Director and CEO; Mr. James Millar, Non-Executive Director and Chair of the Audit and Risk Committee; Ms. Trudy Vonhoff, Non-Executive Director and Chair of the Remuneration and HR Committee; Mr. Leslie Martin, who is the Non-Executive Director and Member of the Audit and Risk Committee; Phillip Aris, Non-Executive Director and Member of the Nomination Committee and Remuneration Committee and HR; and Mr. Brad Cooper, Non-Executive Director and a Member of the Audit and Risk Committee and Remuneration and HR Committee; and Lyn McGrath, the Non-Executive Director and Member of the Audit and Risk Committee and the Nomination Committee. Other members of Thomas' executive team are here today. Can I ask you to please stand and make yourselves known to the meeting as I introduce you. Mr. Matt Angell, our Group Chief Operating Officer; Michael Eadie, Chief Financial Officer and Company Secretary; Mr. Mitch Symes, the Chief Operating Officer for Australia and New Zealand; Mr. Martin Wu, Chief Analytics Officer; Ms. Stephanie Palmer, the Chief People Officer; Tim Cullen, Chief Information Officer; Mr. Chris Midlam, Head of Client Services; and David Brand. Is David, with us yes? There you are David, Head of Marketing as well as being available for me to call on to assist in answering questions during the meeting, the executive team as well as myself and the rest of the Board would welcome the opportunity to speak informally with any meeting attendees at the conclusion of this meeting. Also joining us today are the company's legal advisor, Mr. Guy Sanderson from Hamilton Locke and Mr. Drew Townsend from Hall Chadwick, the company's auditor. No written questions were received in advance from shareholders for Hall Chadwick with respect to the conduct of the audit and the auditor's report as per the process set out for this Notice of Annual General Meeting. And I will call upon Guy and Drew to answer any relevant questions as required during the meeting. I'm going to commence with the Chair's address, which will be followed by the CEO's quarterly update presentation. We will then proceed to the ordinary business of the meeting, which will include the opportunity to ask questions on each item of ordinary business. Following that, we'll open the meeting up to questions covering any aspect of the meeting, including my address, the CEO's quarterly update presentation or any other relevant matter a shareholder wishes to raise. I'll now run through some instructions for asking questions and for voting in the room today. Please note that only those who are registered as shareholders or proxy holders for absent shareholders are entitled to ask questions today. Those are people who have a yellow card or a blue voting card. To ask a question, please raise your voting card. When the microphone is brought to you stand and give your name, the name of the shareholder you represent, if you're a company representative or proxy and then ask your question. Where appropriate, I'll call upon specific directors, management, the auditor or other advisors to respond to shareholder questions. However, I do ask that all questions be put through me as Chairman of the meeting. If shareholders wish to ask multiple questions, please note that we will take one question at a time from each shareholder or proxy and then return for further questions. Votes on each resolution that are the subject of this meeting will be taken by way of a poll. The poll will be taken on all resolutions at the end of the meeting. And I'll briefly explain prior to voting how the polling process will be conducted. I'll now commence with my address. Creating opportunity encapsulates Credit Corp's approach to generating long-term value. It means having the strategies and flexibility to maintain performance while laying the foundations for new sources of growth regardless of external conditions. It's about a relentless focus on providing customers with responsible pathways to resolve existing credit obligations and gain access to uniquely affordable personal finance. And despite adverse conditions, I'm pleased to report that Credit Corp continued to create opportunity in 2023. The backdrop of Credit Corp's 2023 performance was the strategic diversification of Credit Corp by the Board and management over many, many years. Each year, the company's leadership has evaluated its strategic position, assessed the alternatives for growth and made commitments to develop and expand new businesses. The acquisition of Credit (sic) [ Collection ] House Limited during the year created one of the largest collection services businesses in Australia and New Zealand, bringing in some large and growing clients. Strategic resolve and the flexibility to respond to changing external conditions has combined with disciplined execution to create 3 businesses, which are leaders in their respective markets. Each of Credit Corp's businesses confronted challenging conditions in 2023. Credit Corp navigated these conditions to post a solid earnings result while continuing to develop opportunities for growth into the future. And notwithstanding the challenges faced over 2023, the company continued to invest in creating opportunities for future growth. Investments were made in enhancing automation and digital collections within the debt buying businesses. An exciting digital credit card pilot was launched, adding to Credit Corp's suites of offerings and expanding its addressable market. At the same time as delivering on the earnings commitment made to shareholders at the start of the year and continuing to lay the foundations for future growth, Credit Corp maintained its focus on providing customers with responsible solutions. The company established over 261,000 affordable repayment plans with customers and continued to provide consumers with amongst the cheapest and most responsible cash loans available in the credit impaired consumer finance market. Credit Corp again produced one of the lowest rates of external ombudsmen and regulatory complaints in each segments of the market. Performing across a range of conditions requires a positive culture. The values of transparency, accountability and discipline define the culture at Credit Corp. Transparency to honestly appraise business prospects, identify shortcomings and set a plan of action while keeping stakeholders informed on a timely basis. Accountability to embrace challenging goals and discipline to follow through with the right execution to deliver long-term outcomes and it's the day-to-day application of these values by Credit Corp's people that underpins the actions and outcomes that we are creating opportunity. In the context of culture and values, I want to briefly touch on last week's announcement of an impairment and earnings downgrade for the company's U.S. business. Whilst the substance of the announcement was disappointing, it's pleasing to recognize the transparency and accountability shown in the way the issue has been managed. Evidence of a potential deterioration in collection conditions was communicated to shareholders in the market in August. And when the issue persisted and began to produce a variance to collection expectations, the impact on the company's accounts and outlook was quantified and communicated to all stakeholders. So, having dealt with the matter transparently, Credit Corp can now move forward with initiatives to manage the underlying issue. As part of maintaining a positive culture, Credit Corp has undertaken a carefully managed process of Board renewal over recent years. During 2023, 2 proven leaders in financial services, Lyn McGrath and Brad Cooper were appointed as Non-Executive Directors. Both bring to the Board particular expertise in the consumer finance sector, an area becoming increasingly important to Credit Corp's growth. As part of this process, Richard Thomas retired from the Board after more than 16 years of exemplary service to the company. Richard held the role of Acting Chair during a critical inflection point for Credit Corp and laid the foundations for the company's success over subsequent years. Richard oversaw a period of extraordinary growth during his tenure and his strategic acumen and practical insights from having led consumer finance businesses in both Australia and the U.S., played a critical role in the organic development of the consumer lending and U.S. debt buying businesses over the last decade. I thank Richard for his important contribution. We also say farewell to Leslie Martin, who retires from the Board today after more than 9 years of service to the company. Leslie's international domestic banking experience and strategic leadership have been invaluable to the development of Credit Corp. During this time, the consumer lending and U.S. debt buying activities have significantly grown to now comprise the majority of Credit Corp's earnings. It's been a pleasure serving on the Board alongside Leslie and behalf of my fellow Directors, I'd like to thank her for a significant contribution and wish her all the best in retirement and other endeavors post Credit Corp, probably more the latter. I also thank my fellow Directors, our CEO, Thomas Beregi and his management team in truly embodying our values, transparency, accountability and discipline, their leadership is instrumental in shaping the culture, which continues to underpin the company's success. On behalf of the Board and shareholders, I thank all employees for their ongoing commitment, effort and dedication to Credit Corp. Thank you. Thomas will now provide an update on the company's performance so far this financial year, and he will also give an assessment of the outlook for the balance of the year. I'm pleased to hand over to our CEO, Thomas Beregi. Thank you, Thomas.

Thank you, Eric, and welcome to everybody. Great to see you here and great to have those people listening and looking in online at the live webcast. Look, moving right along. So, our objective is leadership of what we call 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 competitive businesses and there are 3 competencies which are critical to our ongoing 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. And we must be responsible and compliant to deliver on the promise we make 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 and we define those returns as an ROE or Return on Equity of 16% to 18%, and we attempt to achieve that with a relatively conservative financial structure for an organization in our industry. So, we've got strong approaches and metrics for each of these competencies across our businesses, and they're shown on the chart. But we have to acknowledge from the outset that we have been operating in a challenging environment. Eric mentioned that and has continued into the current year. In the U.S., there has been a sustained deterioration in collection conditions. In our lending business, we've needed to actively manage credit settings, how much we lend to people and who we lend to, to accommodate strong consumer demand, while taking account of the prospect of a deteriorating economy. So, there is some risk in the environment that we must take into account as we conduct our day-to-day business of lending to consumers. In our Australian and New Zealand debt buying business, we remain in runoff as we continue to suffer from very low market sale volumes. And so we're looking at market sale volumes that are less than half what they were pre-COVID. The market has contracted significantly. And so moving along, in particular, challenges in the U.S. have affected expectations of the company's current year performance. We've had elevated repayment plan delinquency on our ongoing payment arrangements, which is where we source the bulk of our collections. And this first emerged in the last quarter of the financial year and we mentioned that in our announcement in August and it's persisted and that has made it necessary to revise our collection forecasts over the next 3 years. And we've made the assumption that existing conditions persist over the next 3 years. And as a consequence of that, we expect to write down the starting value of our U.S. purchased debt ledger book by 14%, and that will give rise to a one-off impact on earnings of $45 million in net profit after tax. For similar reasons, our underlying U.S. earnings will fall short of previous expectations that we provided in August by $10 million in net profit after tax. So, those are the implications of poorer conditions, a poor environment in the U.S. for our business. But look, notwithstanding adverse conditions, underlying all of that, the U.S. business is improving and operational performance has been very solid with both productivity and collections improving over the last 4 quarters. In our lending business, volumes have been strong over recent months. We're on track to grow the loan book and segment earnings. And we're achieving this growth despite tighter credit settings. Arrears have fallen over recent months and our losses remain within pro forma -- within our expectations that create strong economic returns for the company. In our Australia and New Zealand debt buying business, the task there is to manage costs down while maximizing collections and we're doing this successfully. So our asset turnover, which is the rate we effectively convert our purchase debt ledger asset into cash into cash collections is being maintained at a market-leading 1x. And the cost of collect, cost of achieving those collections is up by only 4 percentage points despite a 16% runoff in collections over the same period in the prior year. So, we're managing our costs down effectively. There's a lot of fixed costs in our business and we need to endeavor to reduce those as well as our variable costs in line with the runoff in collections if we are to preserve our profitability to [ greater ] 16% from this part of our business. And we're doing so whilst also maintaining the ability to regrow as conditions improve. The positive aspect of more difficult conditions, particularly in the U.S., is that it has produced improved pricing. So in the U.S., we're now buying purchased debt ledgers at prices which are among the lowest we've seen during our 10 years in that market. So, these are historically good levels to be buying debts. Sure, conditions are not as great, but with a bit of good fortune, over the longer term, there will be a recovery and these will prove to be very strong assets that we're purchasing at the moment. So despite all the uncertainty, it is a good time for us to be investing and laying the foundations for further growth and we are doing exactly that. And we have the capital and capacity to continue to do that. At the end of last year, we extended our banking facilities to June 2026. And during the course of this year, we'll have strong cash flow generation, which will ensure we have all the capacity we need to seize attractive purchasing opportunities as they arise. So, I just want to conclude with our outlook statement with our revised guidance for 2024. So, we're looking at statutory net profit after tax of $35 million to $45 million. If we exclude the one-off impairment, we're looking at net profit after tax, which is around 7% lower than the prior year, falling within the range of $80 million to $90 million. So that's it in terms of my update. Thank you for your attention, and I'll hand back to Eric.

Thank you, Thomas. We'll now move to the formal business of the meeting, including questions in respect of each of the items of business and then open the meeting up to general questions after the formal resolutions have been put. The only items of business to come before the meeting today will be those specified in the Notice of Meeting. We have 4 items of ordinary business that you've had the opportunity to review and consider through the circulated Notice of Meeting, and I will take that Notice of Meeting as read. Votes on each resolution that are the subject of this meeting will be taken by way of a poll at the end of the meeting and Rushad Bachana of Boardroom Proprietary Limited, our share registry will act as the returning officer in relation to the poll. I'll briefly explain how the polling process will be conducted prior to the voting at the end of the meeting. There have been proxies given in respect of today's resolutions, which I intend to disclose when each resolution is considered. As mentioned in the Notice of Meeting is intended that any undirected proxies given to the Chair will be voted in favor of the relevant resolution. Item 1 on the agenda is to receive and consider the financial report, the Director's report and the auditor's report of Credit Corp for the year ended 30th of June 2023. There will not be a formal vote on this item, but I now invite questions in respect of this item. As a reminder, if you'd like to ask a question, please raise your hand, please raise your voting card. When the microphone is brought to you stand up and give your name, the name of the shareholder you represent, if you're a company representative or proxy and then ask your questions. Are there any questions on the first item of business. Okay. If there are no questions, we'll move to the next item of business. Item 2 on the agenda being the reelection of Directors. Item 2a concerns the reelection of Ms. Lyn McGrath as a Director of the company. And I'd like to now invite Lyn to say a few words.

Thank you, Eric, and good morning, shareholders. It is a privilege to be speaking to you today in support of my reelection as Director of Credit Corp. As my bio in the AGM explanatory note states, my background is mainly in the financial services sector, leading large retail banking businesses. I was the Group Executive, Retail Banking at BOQ and the Executive General Manager, Retail at CBA. I've held various senior management roles at other banks in my career as well as management roles in other sectors. These roles equip me with deep technical experience in banking, particularly consumer finance and digital transformations, honed by more than 25 years experience in financial services leadership. Over the past year, I've been appointed to Auswide Bank Limited and Challenger Bank Limited as a Non-Executive Director and most recently been appointed to the Chair of the Australian Digital Health Agency. I believe I have the skill set and deep experience in business to complement the skills and experience of other Board members. I see my role as one where I contribute to the Board's oversight of Credit Corp's diverse operations across multiple jurisdictions and support its ongoing success. As a Director of Credit Corp, I am confident I will have sufficient time and commitment to serve you, the company and all of the shareholders. Thank you for your support.

Thank you, Lyn. The resolution reads, Ms. McGrath retires and being eligible, offers herself for reelection in accordance with Clause 19.5 of the company's constitution. Proxy votes received in respect of this resolution are shown on the slide. And as already noted, voting is by way of a poll, which will be conducted at the end of the meeting. But I'll now invite any questions in respect of this particular resolution.

[ Jeff Rogers ], thanks, representing J&J Rogers Investments, Super Fund. Lyn, thanks very much for your short talk there. I'd just like to be better understand how you'll manage your workload, I guess it's going to be the same as before. But do you think this businesses' needs are going to be the same as before? Or will they be more arduous perhaps in terms of time over the next couple of years?

Thank you, Jeff. I believe I've got 4 directorships. I believe I do have the time and experience to devote. I think I've been in this position since January this year, and I think I've been able to prove that to my fellow Directors and also the management that I do have the time to read the Board papers and make sure I answer the appropriate questions and challenge them.

Thank you. Are there any other questions in relation to this resolution? If there are no further questions, we'll move to the next item of business. Item 2b concerns the reelection of Mr. Brad Cooper as Director of the company. I'd like to invite Mr. Cooper to say a few words. Brad?

Well, thank you, Eric, and good morning, everybody. I have the privilege of having my nomination as a Non-Executive Director put before you this morning. I've been attracted to Credit Corp Group because of its aspiration for growth through diversification in new product areas and geographies. These aspirations have been enabled due to the experienced management team and Board, who will build a successful business through their expertise, discipline, culture, values and authentic focus on the customers they support. I joined the Board in April of this year. I come to Credit Corp after an extensive 40-year executive career in financial services, spanning consumer finance, insurance, investments and banking. I started my career in consumer finance as a customer service representative, taking, approving applications and collecting the loans that we made. During that phase of my career, I moved through all operational roles, including branch and regional management and running substantial centralized centers and collection centers moving through various roles, eventually being appointed to CEO and Managing Director of GE Consumer Finance. I worked periodically in the U.S. and ran complex businesses in Australia, the U.K. and in New Zealand. If confirmed by you today, I intend to work with my fellow Directors and the management team of Credit Corp to realize the growth aspirations and strategies of the group. I work within the Board and on the Risk and Audit and HR and Remuneration Committees to which I've been appointed to leverage my product and geographic experience to assist in the execution of those strategies. I thank you for your time and for your support. Thank you.

Thank you, Brad. The resolution reads, Mr. Cooper retires and being eligible offers himself for reelection in accordance with Clause 19.5 of the company's constitution. Proxy votes received in respect of this resolution are shown on the slide. I'll now invite any questions in respect of this resolution. A question here.

Thanks, Brad. I'm also a GE alumni, but not in the financial side. So, I know that burning midnight oil is part of the culture there. And I hope that is not to arduous for your ongoing health. But I didn't quite catch your current other -- if there are any other directorships, so I may have missed that when you said it, but would you rather outline that for me, please?

No, I finished my executive career about 2 years ago, and I'm now just starting to put the portfolio together. This is my first appointment into a non-executive position.

I see. And what would you envisage you could cope with in terms of...

I think if you pointed out, I had a decade with GE and I've had fairly complex senior executive and CEO roles for the last 20 years. So, I've a lot of energy, a lot of passion for these types of businesses. And so I don't think workload is going to be a problem for me. And I'm looking forward to putting a portfolio together.

Sounds good. Thank you.

Thank you. Any other questions in relation to this resolution? If not, we'll move to the next item of business. Item 3 on the agenda being the adoption of the remuneration report for the year ended 30th of June 2023. The text of the resolution is on the slide now. The resolution to adopt the remuneration report is a nonbinding resolution and there's a voting restriction which applies to it. The company will disregard any votes cast in any capacity on this resolution by or on behalf of any key management personnel who are all the Directors and Members of management, whose remuneration is detailed in the annual report and their closely related parties such as their families. However, those persons can vote as proxies of other eligible shareholders where they have been directed how to vote and the Chairman can vote undirected proxies on behalf of eligible shareholders. Under the Corporations Act, the resolution of shareholders that the remuneration report be adopted or any failure to pass that resolution is advisory only and does not bind the company or its directors. Proxy votes received in respect of this resolution are shown on the slide displayed. So, I now invite questions in respect of this resolution. Are there any questions?

My name is [ Ashton ]. I'm representing myself as an individual shareholder. So, in the remuneration report in terms of the hurdles at which the incentives kick in. So firstly, I'd like to question why the Board chose to use net profit after tax instead of earnings per share as a hurdle because at the end of the day, like what matters to shareholders -- sorry, what matters to shareholders is earnings per share. So, I think that the net profit after tax is, it's something that is being done because it's a professional management team. If it was a company owned by an owner-operator, they would not be looking at it that way. I also would point out in terms of the net profit after tax growth hurdles that from memory, I think the highest hurdle is 9%, which puts in the full value of the incentives in respect of that hurdle. Now, if you look at what the company has set off a long-term target ROE of 16% to 18% with low gearing. And historically, the company has paid around half of its earnings on average as dividends, even though there's no formal dividend payout policy. Now, assuming that were to continue on a 16% to 18% target return on equity, if that's achieved, the implied growth rate on a 50% payout ratio of dividends is 8% to 9%. So, unless you're assuming that you're not hitting your target or there's a material increase in the dividend payout ratio, you're essentially just awarding them for doing what they're expected to do. So, instead of going above and beyond the highest hurdle is just really what they should be [Technical Difficulty].

Okay. Thank you, Ashton. I might ask Trudy, who is well versed because this is a feedback we've received from a number of our shareholders and proxy advisers and so on. So, Trudy is Chair of the HR and Remuneration Committee, I think, he's best to respond to that. Trudy, can you...

I'll certainly give it my best shot, Eric. So Ashton, I think, 2 great questions. So, thank you for that. Addressing the first one around why not EPS. So, I'm just going to wind back a little bit for -- so we've got everyone in the audience with this. So, what Ashton is referring to is the long-term incentive program. And with the long-term incentive program, the way it operates or the framework is that we have a return on equity hurdle, which is the first hurdle that needs to be met before what we call a gate opener is open. So there's nothing on the table until we get past the return on equity hurdle. And that hurdle is currently set at 16%, which I think by most of the feedback I've received to date on that, that's still a fairly challenging target to open up the gate. And then once that gate is opened, which means that we're in play, we have 2 hurdles. The first hurdle is a compound annual growth rate of our NPAT, as Ashton has spoken to. And the other 50% weighting once that gate is open is on a relative TSR measure, which is the external, I guess, measure. And we think quite a lot about whether we've chosen the right measure and I think most people relate to the EPS target as target to have. I think from our perspective, we feel that for our business, particularly with the opportunistic nature of Credit Corp, particularly in the debt buying sector, we need to be a bit toppy on capital so that we can act quickly when the time arises. So, we do keep some capital in reserve. And because generally, the time to buy and Thomas can probably speak to this better than me because he's had more experience in this space in terms of buying. But that's generally when the prices are best when the market is a bit distressed. And I think to be a rational debt buyer, you can maximize your returns and get favorable returns by getting rid of your capital and we want to hold on to a little bit. So in general terms, we feel that we've got the right balance of measures. The compound annual growth rate for NPAT over 3 years, coupled with the return on equity measure that's the right fit for our business to make sure that these measures are both stretching as well as achievable for management. So that would be my answer to the first question. There is another one, I think. And this is around the actual target that we've put in place for that compound annual growth rate for NPAT. So that target, I think, is quite a stretching target, the one that was there previously, and we did dial that back this year. And I think really in a -- my one sentence response would be that would be the market expectation that we have for the 3-year growth rate. I think for management to achieve that particular target, they're going to have to have some fair wins in their sales for them to actually make it. But times will change. And I guess whether we set that target at the right level, whether it is still meets our criteria of being stretching for management as well as being achievable, we'll probably know in the next 3 years. But on our current assessment, in terms of our alignment to our strategic plan, we think that's about right.

Okay. Thank you, Trudy. I think it's a pretty comprehensive answer to that question. So, it's a question that has risen a number of times. Pierre, do you have a question?

Pierre Fenech From Teaminvest. Probably Eric, you know this because we discussed it with you. Our issue in Teaminvest is actually the use of TSR. Simply because the market determines share price based on what it perceives the future is going to be. And we're rewarding for past performance. So, we see that this is out of kilter [Technical Difficulty] in a way that we believe earnings per share is what actually drives the value of the company, which then drives the share price as such. So, our view is and we'll keep on harping on this, that maybe EPS should be considered. Thank you.

Okay. Trudy, I don't know if you want to respond again to that, again, an issue that's risen a number of times. It's a difficult balance. I notice that previous Chairman had a smile on his face when you asked that question, Pierre, because he had the same view, if I remember correctly.

I think in terms of a measure being acceptable to the majority of our shareholders relative to TSR is probably the most accepted form. From our perspective, it's certainly better than an absolute TSR measure because the difficulty in setting a target around absolute TSR is even more of a lottery, I would suggest. I do agree that the share price on any given day is really how shareholders respond to the future of the company rather than the past. And I know that it's a measure on past performance that we're measuring. So, I understand that. I think for us, in terms of the majority of our shareholders and their advisors, particularly the proxy advisors, the general consensus is that relative to TSR is, and I think the term that's used more broadly is the least-worst measure in terms of satisfying that external measure that we need.

Okay. Ash, there's a question at the back. I'll come back to you Ashton.

My name is [ Chris Lloyd ] from also from Teaminvest. I want to return to the LTI gateway, you indicated that the 16% you felt was a bit of a stretch objective. I would note that prior to 2019, Credit Corp had a return on equity above 20% pretty much every year. Do you see the ROE getting back to that level? Or are you planning on lowering the target in the future?

Before I ask Trudy to respond to that again because, again, it's an issue that has risen. Thomas, do you want to -- and I guess the short answer is the changes to market conditions in terms of markets are returning less now than they were back then. Thomas, do you want to make a comment? Or should I throw it to Trudy.

I'm happy to just make a comment briefly. I'm not sure necessarily saying that ROE is a stretch. It's the gate openness. So, it's kind of the ticket to play. So, it's not necessarily a stretch. It's our required rate of return. It's the return at which we price all our investments and our lending business cases. So, it's what we expect to earn and we expect to earn that with only -- with a relatively modest layer of debt. So, only gearing our assets to 30%, so 70% equity, which makes us a bit of a unique organization within financial services and within debt buying where debt levels are generally a lot higher. So that equity hurdle is, we think commensurate with the risk in our business and it's the day-to-day rate of return at which we set all the decisions that we make around who we lend to and what assets we purchase. So, it's not necessarily a stretch. And there are no plans to lower that. Possibly the stretch, I think, that Trudy was referring to in current conditions was more the earnings growth.

Thank you, Thomas. Are there any other questions? Ashton?

Yes. So, just in relation to the hurdles, I feel that the combination of having an NPAT hurdle and a return on equity hurdle is actually leaving a gaping loophole in terms of incremental return on equity. So, if the company is at a stage in the cycle where, let's say, it's earning a 20% return on equity. And then you have the incremental investment of that year only generating a 13% or 14% return, the average return may still be above that 18% hurdle. So, I feel like there should either be some kind of EPS constraint? Or additionally, there should be an incremental return on equity hurdle where the earnings growth is compared to the increase in equity, so -- because I feel that, that is a bit of a gap that's not addressed.

Trudy, do you want to respond to that?

I'm not sure I can say too much more, but what I would like to say is thank you for your feedback because each year, when we get questions from shareholders, we do then reflect on how we will take that on board and how we can possibly incorporate it into our remuneration framework. So, I've taken some notes and I'll be pleased to talk with you afterwards in terms of getting any additional feedback. But it is all very useful to us in terms of how our shareholders are thinking and how we can incorporate that into our future thinking. So, thank you.

Yes. As a general comment on that, we have spent a lot of time with shareholders this year, working through our remuneration report and the changes that have been put in place. I think as Trudy said, the response to that has been very good in terms of us taking on-board. Doesn't mean you take on-board everything. Obviously, there's still disagreements and difference in views. But I think it's been a very positively received report as you'll see from the proxies to the changes that we have put in place. And we'll continue with that process. We don't believe we have all knowledge sitting here. We'll continue to examine and understand what it is that our shareholders are looking for in this and respond accordingly. Okay. Are there any other questions? Yes, we've got one more question here.

It's Jeff Rogers still. I guess, Eric, you mentioned that the feedback was from your shareholders that TSR was a popular or more popular measure. I want to -- 2 questions really, I suppose. One is how do you actually arrive at that conclusion? And second, if it's not the best, why would you support it? I mean, would you go against what the majority of shareholders expressed to you or perceive they've expressed to you even if it's the wrong thing?

Trudy, I think you're probably best off to respond to that.

I think in terms of it -- when I say it's the most common -- it's the most common market accepted measure. So -- and that is, one, it's used by all the proxy advisors as well as the shareholders. So, we've spoken to a number of shareholders and we do comparisons with all our competitors where we compete for capital, what measures they're using. So -- and I wasn't meaning to be flippant about the words least-worst. But in terms of measures and looking for external measures, I think that is the best one that's there, notwithstanding its shortcomings. I think that would be comprehensive enough.