FY18 Results Presentation 31 July 2018 Thomas Beregi, CEO Michael - - PowerPoint PPT Presentation

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FY18 Results Presentation 31 July 2018 Thomas Beregi, CEO Michael - - PowerPoint PPT Presentation

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FY18 Results Presentation 31 July 2018 Thomas Beregi, CEO Michael Eadie, CFO Leadership in the credit impaired consumer segment Long-term growth ANALYTICS & DISCIPLINE OPERATIONAL EXCELLENCE SUSTAINABILITY & COMPLIANCE ROE

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FY18 Results Presentation 31 July 2018

Thomas Beregi, CEO Michael Eadie, CFO

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Leadership in the credit impaired consumer segment…

  • Long-term growth
  • ROE 16% - 18%
  • Low gearing
  • Largest database
  • History of pricing

accuracy

  • Leverage knowledge of consumer
  • Up-front loss provisioning
  • Analytical monitoring
  • Adapted knowledge to US

environment

  • Large market opportunity
  • Highest asset turnover 1
  • Lowest cost to collect 2
  • Automated decisioning
  • Collection strength
  • Unmatched efficiency
  • Productivity up by 30% over 2 years
  • Emphasis on payment

arrangements and a lower proportion of litigated outcomes

  • No adverse orders or undertakings
  • Low complaint rate
  • $1.3bn in ongoing repayment

arrangements

  • APRs below cap applicable to

mainstream credit

  • Regulatory upside - no ‘payday loans’
  • Low regulator complaint rate
  • Strong client audit outcomes

Australian / NZ debt buying Australian / NZ lending USA debt buying

OPERATIONAL EXCELLENCE ANALYTICS & DISCIPLINE SUSTAINABILITY & COMPLIANCE

  • 1. FY18 ratio of cash collections from PDLs to average PDL carrying value in Australian / NZ debt buying operation of 1.2x
  • 2. FY18 ratio of cash costs of the Debt Ledger Purchasing segment to collections of 36%

Credit Corp Group FY18 Results Presentation | 2

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…has produced sustained financial performance…

Credit Corp Group FY18 Results Presentation | 3

4 4 8 20 29 37 40 44 50 58 67 12 24 31 47 58 70 75 83 98 117 135 8% 24%

  • 30

60 90 120 150 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

ROE % Cents per share

DPS EPS ROE EPS CAGR 27% Earnings Per Share, Dividends Per Share and Return on Equity

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…delivering 17% earnings growth in 2018…

Credit Corp Group FY18 Results Presentation | 4

FY18 FY17 $ change % change Aus/NZ debt buying 1 $195.7m $186.4m + $9.3m + 5% Aus/NZ lending $79.3m $66.4m + $12.9m + 19% US debt buying $24.0m $13.1m + $10.9m + 83% Revenue total $299.0m $265.9m + $33.1m + 12% Aus/NZ debt buying 1 $46.3m $43.9m + $2.4m + 6% Aus/NZ lending $16.1m $12.3m + $3.8m + 31% US debt buying $1.9m ($1.0m) + $2.9m >100% NPAT total $64.3m $55.2m + $9.1m + 17% EPS (basic) 135.1cps 116.8cps + 18.3cps + 16% Dividend 67.0cps 58.0cps + 9.0cps + 16%

FY18 Financial results

  • 1. Aus/NZ debt buying includes agency activities
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…while positioning CCP to seize opportunity across all segments…

Credit Corp Group FY18 Results Presentation | 5

Market conditions

Aus/NZ Debt buying

  • Continued pricing competition
  • Compliance is an increasing sensitivity for credit issuers
  • Momentum into FY19 provided by strong operational

performance

  • Leverage compliance credentials
  • Maintain investment discipline

Aus/NZ Lending

  • Accelerated consumer demand for cash loans
  • Signs of credit rationing likely to create opportunities
  • Drive loan book growth
  • Expand auto lending pilot

US Debt buying

  • Pricing conditions remain favourable
  • Operational improvement to achieve competitive

superiority

  • Growth to capture the market opportunity

Segment

Credit Corp’s response

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Solid momentum in Aus/NZ debt buying…

Credit Corp Group FY18 Results Presentation | 6

  • 40,000

80,000 120,000 160,000

  • $ 100m

$ 200m $ 300m $ 400m

FY14 FY15 FY16 FY17 FY18

  • No. of accounts

Aus/NZ PDL purchases Aus/NZ collections Aus/NZ no. of accounts under arrangement

  • Collections growth of 4% despite reduced investment
  • Stable bank of recurring payment arrangements provides a strong starting position for FY19
  • FY19 Aus/NZ collections and earnings on track to achieve FY18 levels

4% increase in collections

Aus/NZ purchasing, collections and arrangements

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Supported by improved operational performance

Credit Corp Group FY18 Results Presentation | 7

Arrangement book growth

  • Total cumulative collections above aggregate pricing expectations
  • Total collections up 7% over the year
  • Aus/NZ collections up 4% despite reduced purchasing
  • Productivity up by 10% over the prior year
  • Aus/NZ productivity up by 7% over the prior year
  • Face value of accounts under arrangement maintained at a record

level of $1.3bn at Jun-18

  • Payments under arrangement represent 81% of collections
  • Improved rates of conversion to paying outcomes
  • Systems enhancements
  • Ongoing skills development
  • Technology improving contact rates in the US

(Refer to Appendix 2 and 3) (Refer to Appendix 4) (Refer to Appendix 5)

Pricing accuracy and returns on track Efficiency Arrangement book growth Continuous improvement focus

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Heavily differentiated compliance model…

Credit Corp Group FY18 Results Presentation | 8

  • Peerless compliance record
  • No regulatory orders or undertakings despite being the largest and longest established operator
  • No reportable External Dispute Resolution (EDR) systemic issues
  • Superior EDR complaint rate 1
  • Clear leader in survey conducted by Financial Counselling Australia 2
  • 1.0

2.0 3.0 4.0 5.0 6.0 7.0 Credit Corp

  • 1.0

2.0 3.0 4.0 Credit Corp Other debt buyers Other debt buyers

FY17 EDR complaint rate per $1m collected Rating of debt buyers by financial counsellors in 2017

(score out of 10)

1.

  • No. of complaints reported to EDR services divided by total PDL collections expressed in millions of dollars

2. Financial Counselling Australia: National Rank the Banks Survey 2017, March 2018, page 17 https://www.financialcounsellingaustralia.org.au/getattachment/Corporate/Publications/Reports/Rank-the-Banks-2017-Final-1-(1).pdf

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…underpins a solid purchasing outlook

Credit Corp Group FY18 Results Presentation | 9

  • $ 100m

$ 200m $ 300m FY18 FY19

  • Purchasing outlook comparable to FY18 at the same point
  • Compliance position has delivered uncontested purchasing
  • Key US forward flows renewable in early FY19

$ 60m $ 195m

  • $ 50m

$ 100m $ 150m $ 200m FY18 FY19

FY19 purchasing guide $150 - $170m $63m contracted as at July 2018

PDL Investment

Aus/NZ debt buying US debt buying

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Financial capacity in place to seize any additional opportunity

Credit Corp Group FY18 Results Presentation | 10

10% 20% 30% 40% 50%

  • $ 100m

$ 200m $ 300m Gearing $m Net borrowings Total facilities Gearing * FY16 FY17 FY18 H1 FY18 H2 Facility headroom and gearing

  • Free cash flow has reduced gearing to 41%
  • Strong cashflow will increase headroom over FY19
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Consumer loan book on accelerating growth trajectory…

Credit Corp Group FY18 Results Presentation | 11

$ 63m $ 72m $ 100m $ 121m $ 135m $ 156m $ 161m $ 172m $ 183m $ 85m Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Gross loan book (excl. provisions) Annualised revenue

Yield maintained

+3% +6% Consumer lending book and revenue

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  • $ 25m

$ 50m $ 75m $ 100m FY17 FY18 FY17 FY18 Pre-existing customers New customers

…due to strong customer acquisition and retention…

Credit Corp Group FY18 Results Presentation | 12

Customer settlements ($m)

  • Total settlements up by 11% over the prior year
  • H2 settlements up by 19% over the pcp
  • H2 new customer settlements up by 21% over the pcp

H1 H2

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…which is driving impressive earnings growth…

Credit Corp Group FY18 Results Presentation | 13

  • 31% increase in lending NPAT to $16.1m in FY18
  • On track for strong growth in FY19
  • Target returns achieved

Earnings growth

H1 H1 H1

H2 H2 H2

  • 5%

10% 15%

  • $ 5m

$ 10m $ 15m $ 20m FY16 FY17 FY18 FY19 ROA NPAT NPAT NPAT projected ROA ROA projected

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…while new lending opportunities emerge

Credit Corp Group FY18 Results Presentation | 14

  • Changing compliance standards are resulting in tighter rationing of credit
  • Increasing demand in Credit Corp’s segment
  • Credit Corp’s auto lending product pilot showing encouraging results
  • Existing ‘vend and lend’ product book grew by 20% in FY18 to $13m
  • Settled $6.8m of loans during year including $2.1m in Q4
  • Poised to grow further in FY19
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US debt buying economics in line with established competitors…

Credit Corp Group FY18 Results Presentation | 15

  • US asset turnover comparable to listed competitors despite limited ‘tail’ of collections
  • Cost to collect also similar despite the operation still ramping up and up-front expensing of legal costs

US debt buying economics

Asset turnover 4 Cost to collect CCP 0.7 44.4% 1 ECPG 0.9 44.2% 2 PRAA 0.8 39.8% 3

1. FY18 CCP US debt buying segment only 2. Full year 2017 US debt buying segment only. Encore Capital Group (NASDAQ: ECPG) is a US-listed global debt buyer 3. Full year 2017 blended rate (includes US, Europe and Insolvency). Portfolio Recovery Associates Group (NASDAQ: PRAA) is a US-listed global debt buyer 4. Ratio of cash collections from PDLs to average PDL carrying value (CCP: FY18 US debt buying segment only and ECPG / PRAA full year 2017 US debt buying segment only)

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  • $ 50

$ 100 $ 150 $ 200 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

2016/17 2017/18

…while we continue to focus on growth and improvement…

Credit Corp Group FY18 Results Presentation | 16

  • New facility opened in June to enable more rapid headcount growth
  • Productivity improvement over H2
  • New technology improving contact rates
  • Technology enhancements and skill development driving conversion to paying outcomes

US debt PDL collections per hour

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…to capture the market opportunity…

Credit Corp Group FY18 Results Presentation | 17

  • Strong growth in unsecured credit
  • Charge-offs rates increasing to 3.8%
  • Still below long-term historical average of 4.5% - 5.0%
  • Pricing remains favourable with recent operator failures preventing excess demand
  • SquareTwo bond default - 2017
  • Mid-tier buyer withdrawing from forward flows - 2018

2 3 4 5 6 7 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 Percent US revolving credit growth Quarterly charge off rates US revolving credit market

1. Total Revolving Credit Outstanding, Federal Reserve Economic Data (https://fred.stlouisfed.org/graph/?g=KHD) 2. Charge-Off Rate on Credit Card Loans, All Commercial Banks, Federal Reserve Economic Data (https://fred.stlouisfed.org/series/CORCCACBN)

1 2

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($ 4m) ($ 2m)

  • $ 2m

$ 4m $ 6m $ 8m $ 10m FY16 FY17 FY18 FY19 projection FY20 projection

…and grow profits

Credit Corp Group FY18 Results Presentation | 18

  • US is now profitable, achieving an NPAT of just under A$2m in FY18
  • Despite planned headcount growth, profitability will increase in FY19
  • Profitability to accelerate in FY20 with increased investment and ongoing operational improvement
  • Availability of ledgers will not be a constraint
  • Recently added to the bidding panel of a major issuer
  • Still purchasing at minimum lot sizes under existing forward flow contracts

US NPAT

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Outlook is for a year of solid earnings growth

Credit Corp Group FY18 Results Presentation | 19

FY19 guidance

PDL acquisitions $150 - $170m Net lending $45 - $50m NPAT $67 - $69m EPS (basic) 140 - 144 cents DPS 70 - 72 cents

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Credit Corp Group FY18 Results Presentation | 20

Questions

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Credit Corp Group FY18 Results Presentation | 21

Appendix | Key operating metrics

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Appendix 1 | Operating cash flows and gearing

Credit Corp Group FY18 Results Presentation | 22

Jun-18 Dec-17 Jun-17 Dec-16

Pre-tax operating cash flow $155.0m $150.0m $139.6m $134.5m Tax payments ($16.8m) ($15.8m) ($9.3m) ($1.4m) PDL acquisitions, net lending and capex ($114.1m) ($135.8m) ($122.0m) ($179.9m)

Net operating (free) cash flow $24.1m ($1.6m) $8.3m ($46.8m)

PDL carrying value $364.1m $361.5m $338.4m $314.5m Consumer loans net carrying value $148.9m $139.8m $130.9m $125.9m Net borrowings $211.9m $219.9m $203.5m $200.5m

Net borrowings / carrying value (%) 41.3% 43.9% 43.4% 45.5%

Operating cash flows and gearing

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Appendix 2 | Pricing discipline and accuracy

Credit Corp Group FY18 Results Presentation | 23

Pricing discipline and accuracy

  • $ 400m

$ 800m $ 1,200m $ 1,600m $ 2,000m $ 2,400m $ 2,800m Cumulative collections * For all PDLs held at June 2008, initial projections represent the forecast at June 2008 Actual cash collections Initial projections

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Appendix 3 | Collections life cycle

Credit Corp Group FY18 Results Presentation | 24

34% 36% 38% 38% 38% 36% 37% 38% 36% 31% 33% 30% 19% 15% 15% 16% 15% 19% 21% 22% 21% 25% 23% 23% 17% 17% 15% 15% 15% 12% 10% 11% 13% 14% 14% 16% 30% 32% 32% 31% 32% 33% 32% 29% 30% 30% 30% 31%

  • $ 20m

$ 40m $ 60m $ 80m $ 100m Q1 Sep-15 Q2 Dec-15 Q3 Mar-16 Q4 Jun-16 Q1 Sep-16 Q2 Dec-16 Q3 Mar-17 Q4 Jun-17 Q1 Sep-17 Q2 Dec-17 Q3 Mar-18 Q4 Jun-18 <1 Year 1 - 2 Years 2 - 3 Years >3 Years

+7% 1

PDL collections by vintage

  • 1. 7% growth in FY18 vs. FY17
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$ 100 $ 150 $ 200 $ 250 $ 300 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 2017/18 2016/17

Credit Corp Group FY18 Results Presentation | 25

PDL collections per hour

Appendix 4 | Productivity

Average FY18: $224 FY17: $203

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Credit Corp Group FY18 Results Presentation | 26

Portfolio summary

Appendix 5 | Payers base

Total portfolio Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Face value $5.3bn $5.7bn $5.8bn $5.9bn $6.0bn Number of accounts 673,000 699,000 716,000 710,000 710,000 Payment arrangements Face value $1,171m $1,235m $1,300m $1,300m $1,300m Number of accounts 147,000 151,000 157,000 153,000 157,000 % of PDL collections 78% 77% 80% 78% 81%

Aus/NZ debt buying only

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500 700 900 1,100 1,300 1,500 Jun-15 Jun-16 Jun-17 Jun-18

Credit Corp Group FY18 Results Presentation | 27

Period end headcount (FTE)

Appendix 6 | Operational and total headcount

Period end headcount (FTE)

Jun 15 Jun 16 Jun 17 Jun 18 Debt buying operations 1,004 1,096 1,198 1,208 Agency 11 13 81* 77 Lending 104 108 95 110 Support 88 96 101 102 Total 1,207 1,313 1,475 1,497 Support % 7% 7% 7% 7% Support Lending Agency Debt buying ops

* Reflects NCML acquisition in September 2016