Company Interview / Credit Corp hopeful of a turnaround

Despite facing challenges in its US debt collections business, Credit Corp (ASX:CCP) , under the leadership of Thomas Beregi, achieved a positive spin towards the end of the year. Main contributors to the 11% earnings drop included constrained volumes and changing consumer behaviors in the US. Nevertheless, stronger performance out of the US has given Credit Corp a positive outlook, driving investment towards the start of the new year.

Thomas explains that growth is anticipated for the full year 25 with a forecasted increase of 17% in underlying earnings. Despite a slump in net profit after tax, a significant increase in earnings is predicted based on operational improvement and consistent growth. The Australian business is not expected to contract further and the lending business had a strong year. High hopes exist for a continuing strong lending business.

Overall, Credit Corp's three business parts include US debt buying, Australian debt buying and collection services, and lending business which includes brands like Wallet Wizard. Emphasising recovery in dividends, Thomas assures shareholders of steady growth and stronger performance, particularly in the US. However, he mentions that returning sales volumes to pre-COVID levels in Australia will be a long road.

Full unedited transcript:

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Well. The Australian Debt Buyer Credit Corp posted an earnings slump amid ongoing challenges in its US debt collections business. Let's get details on the full year results. I'm joined by Credit Corp's CEO Thomas Burridge in the studio. Thomas, just run us through these numbers because as you would you I saw you'd put a bit of a positive spin, but you did see about an 11% drop in earnings. Yeah, 11% drop in underlying earnings. So a few things going on in our business between the years. So we've struggled in Australia for about the last 3 or 4 years with, uh, with very constrained volumes of um, of charged off credit, particularly the contraction in credit card usage, which has been quite severe since the GFC and hasn't really recovered. Um, uh, in the US, we also encountered some difficulties early in the year, uh, with, uh, changing consumer behaviours. behaviors. And we had to lower our collections outlook. And that was also baked into the results. Uh, we, of

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course, ended the year a lot more positively, uh, some stronger performance out of the US. Um, uh, which prompted us to, to invest a bit more heavily towards the, towards the end of the year and the start of the new year. Uh, so we've got a positive outlook for earnings for, for that business going ahead. Uh, we think the run off in our Australian business has pretty much run its course. So we're not facing another year where we're looking at that business contracting further. Uh, and uh, the business had lending. Business had a really strong, strong year. And, and we're looking forward to that continuing. And, uh, you know, starting with a much in large book which will throw off a lot of income in the year ahead. So how much more competitive are you than you were, say, 12 months ago? Yeah. Well, look, certainly in the US, we think we're we think we're a lot more competitive. And that's been proven out by our ability to secure more than half of our expected volume

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just in the month of July. Half of the volume we'd expect to purchase in the US over the full year. So our pricing is competitive and that's based off the strength of our operation. When you look at the net profit after tax, I mean that was a 44% slump. You had sort of flagged some weakness to the market, but it does look like that was short of what the initial expectations were. How do you, I guess, reassure shareholders that you can turn that around in full year 25? Yeah. Well, look, our outlook for full year 25 is, is for earnings to grow, uh, quite significantly. Uh, the midpoint of our guidance range is about a 17% increase in earnings, uh, underlying earnings, which were around 81 million. Uh, we took a few one offs in the year which explain that lower figure you referred to, but uh, but uh, but yeah. Look, uh, the it's, uh, to finance business, it's reasonably mathematical. If we, if we start the year with an enlarged lending book and we don't grow it

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too significantly, earnings will increase accordingly. We'll just have larger additional interest income on the on the book that we start the year with. Uh, so that is, that is pretty much locked in. Uh, and then with uh, with our operational improvement, uh, that was all manifested in the final quarter in our US business. We had a really strong final quarter record quarterly collections in the history of our operations in the US, up 6% on the prior year. So really strong, uh, and and we're looking at that continuing particularly with this additional investment. How are you seeing the overall consumer fare though? I mean, I was just talking about block saying that they think consumers are fairly resilient. Yeah. Well, look, in terms of uh, in terms of our business in Australia, we've seen consumers, uh, still being fairly resilient. Uh, we've seen, uh, you know, relatively strong repayment outcomes in our Australian debt collection business in our Australian consumer lending business. Uh, we saw strong

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demand for credit throughout the year that perhaps softened a little bit towards the end of the year. So maybe there are some pressures that consumers are facing and they're a bit, uh, bit bit less. Less, um, less enthusiastic about borrowing. Fair enough, I'd say. And, um. Uh, in the US, I guess, you know, we have seen some issues in collection performance. Uh, uh, they manifested sort of early in our year, sort of round about sort of July last year. Uh, and things haven't really deteriorated since then. So even the US consumer seems to be holding up. Let's look at your share price and I guess in terms of shareholder return as well, because you did lower your dividend. So you're paying out a full year dividend of $0.38, down from $0.70 a year ago. Never, never easy to do. What would you like to see in terms of returning shareholders better value next year? Yeah. Well, in terms of in terms of this year's dividend that that

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fell in line with earnings. So So it's still represents a payout ratio of roughly 50% of earnings. So. So with, uh, with our underlying earnings growing, uh, we're expecting that if we continue to pay out at that at that same payout ratio, there will be a very significant recovery in the dividend over the year ahead. And, uh, and that will no doubt please some shareholders and, and hopefully if our performance is strong, uh, there will be something in there in the share price as well. When do you think sales volumes could return to pre-COVID levels? Yeah. Look, I think in Australia, uh, I think that will that will take some time. That will be a long road. Uh, in essence, what is occurred in Australia is, uh, through the GFC, through stimulus. Sorry, not the GFC. More recently, Covid, uh, through lots of stimulus and superannuation withdrawal, people with credit card outstandings were able to repay those outstandings. Um, and there

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hasn't been, uh, sufficient new credit card issuance to really cause that to recover quite at odds with the US. So total interest bearing credit card balances are down approximately 35% against pre-COVID, and there hasn't really been much in the way of regrowth. That contrasts with the US, where credit card outstandings are up 25%. So strong rebound. Um, we don't see a lot of a lot, uh, on the horizon to suggest that total unsecured credit. So those credit card balances will regrow. So, uh, it will occur, I think, in time, but not in the next 1 to 2 years. So you own the wallet wizard lending business as well. What are the sort of potential acquisitions are you looking for? Or just talk us through some parts of your business and where they're at at the moment? Yeah, so so three parts of our business I've spoken a bit about the US, which is debt buying. Uh, we've got our Australian debt buying and,

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and collection services businesses where we're collecting for others rather than ourselves are for fee and and the lending business which includes wallet wizard. Uh, it includes uh, some auto lending as well. The wallet wizard. Um uh lending brand is is a very strong one. It attracts lots of consumers. It's a very functional product that that meets a need. And it's experienced some very strong growth over the past year. We're not forecasting the same level of growth in the year ahead.