Edited Transcript of MNY.AX earnings conference call or presentation 18-Aug-20 1:00am GMT

Aug 18, 2020 (Thomson StreetEvents) — Edited Transcript of Money3 Corp Ltd earnings conference call

Aug 18, 2020 (Thomson StreetEvents) — Edited Transcript of Money3 Corp Ltd earnings conference call or presentation Tuesday, August 18, 2020 at 1:00:00am GMT

Good morning, and welcome to Money3’s full year results webinar on the 18th of August 2020. This morning from the company, we have CEO, Scott Baldwin; and CFO, Siva Subramani. (Operator Instructions).

I’ll now hand over to Scott. Thank you.

Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [2]

Thanks for the introduction, Simon, and welcome all of our investors as we undertake our first virtual annual conference online from Super Meyer from our homes. So let’s get into it. So just a bit of background on Money3. So we have been around for almost 20 years now. There’s a bit of an update on this slide for those of you that have followed the story, we have — I have had 20-year period with link now well in excess of $1 billion per vehicles, all secured loans. For those of you that have been following the story, you’ll see that our number of vehicles financed in Australia and New Zealand have both improved. We’ve taken some market share moving from 1 in 500 to 1 in 450, and 1 in 700 vehicles in New Zealand, confident that through this current period of time that we will continue to see growth in the number of vehicles that we’re able to finance. Money3 has a very experienced team in Australia and New Zealand. They have a lot of experience over many years now of funding vehicles, helping people with their vehicles and not just the acquisition, but the whole of life cycle so that they can come to us for their repairs and maintenance needs as well as any other concern that they have through the vehicle.

This key and unique touch of Money3 delivered through our customer care team is one of the reasons we think that we continue to perform very well and strongly through this period of time with the pandemic and why our cash flows have been so strong. One of the other things — and one of the key strategic things to talk about today is, this is our first year where we have transitioned the business out of our branch and online lending, small out credit contract business.

We have been — we have completed that. We’ve transitioned that money out of those receivables and back into automotive receivables. So very thankful for the team, the hard work for the last 12 months of getting that done, but I can sit here today and say that we are purely an automotive focused lender in this space and that we have now completed all of that transition.

I know there was some skepticism over the years about our ability to complete that has taken a few years, but as I sit here with the team today, very focused on growing our automotive receivables and well-funded to continue to do that.

So we added this slide just to give you a bit of an understanding of what we’re funding. You’ll see that predominantly, our secured receivables are cars, and they are prominently used cars. At origination, we’ve funded over 500 new vehicles.

So it is a small part of the portfolio, but investors should expect to see that continue to grow as our teams in Australia and New Zealand broaden the offering of our products, lift some of our credit quality and improve our rates to address a bigger market or bigger percentage of the market. And what’s that is doing is attracting some larger size receivables, but also newer vehicles.

So 500 is the number of vehicles we had at origination. Now you can see here that while we’re dominated by vehicles, there’s still a spread of other assets as well in the portfolio. I think this is just testament that we have a long history of performing as a business. We do understand the industry that we’re in very well. And I think with the addition of New Zealand, we brought some like-minded people on that have continued to contribute to the business.

So the one thing I really want to draw people to here is the gross loan book, $434 million of receivables is what we grew to too by June 30. Predominantly, most of the growth was in the first half. And then with COVID hitting, we still had a small amount of growth through that period of time, but the thing to stress here is the main reason why that loan book hasn’t grown as much as it’s turned into cash. So we’re still originating receivables through that period of time, but our — the velocity at which cash comes back to us, has increased through that period.

One of the things that you’ll note as you read through our various presentations is that with the gross loans receivable, we’re giving you some confidence that we — based on what we see in the market, we think that we’ll be in excess of $500 million by the end of this financial year, this year.

Just moving on to some of the highlights of the business off the back of very strong 40-plus growth — 40% plus growth in our receivables last year, over 35% growth in revenue this year. So — and that’s really that transition rolling all the business, the cash that came from the sale of our branch and online business back into automotive receivables, strong loan book growth with the acquisition in New Zealand, translating into strong revenue growth.

Just calling out the 16% growth for the full year that would have been much stronger if it wasn’t for the second half, but I’m — we’re still delighted that the business continued to grow 1.5% — 1.7% through that period. And for the month of July, you’ll note that further in the deck, we call that was a record month for us. So we feel puts us in a very strong position for this year as well.

Loan book has continued to grow through July and August, adding about another $3 million to our receivables for that period of time. So confident that even with the lockdowns that we are still able to grow our business.

Just moving on, 30% increase in EBITDA. Many of these EBITDA impact growing in line with our receivables. Just calling out that some people — as you look through the accounts, our net profit for the year, there is $2 million that came from the discontinued operations that won’t be reoccurring, but the 30% that we’re talking about is the growth in the underlying or continuing operations of the business there.

The big call out for this conference call is for investors to understand our one-off economic provision, which is a noncash item of $10.1 million that we took against the receivables. I know that, that is not a direct result of the performance of our receivables, that is a couple of weeks of work, Siva and his team building a model, spitting there and analyzing what prolonged economic downturn would look like in our business. And like you will see with many other listed companies, we’ve chosen to take that pain of a very large provision up this financial year. And I think we’ve done a terrific job there of building a model that gives us an indication of what it would look like in unemployment levels of 10% to 12%.

Just operationally, record cash collections. While that is partly driven by things like super release and government stimulus, underlying most of that cash collection has come from normal payments that customers would make. And what we have seen is that through this period, customers have continued to make their usual payments, but in the last 3 months, we’ve seen that accelerate. And further in the appendix so that you can better understand what those quarterly cash flows looked like, we’ve given that level of debt.

It’s roughly $6 million beyond scheduled payments that we would normally expect it to come through in that last quarter, and we do think that the super release has had some impact on us, picking up that record cash flows in the last quarter.

Just moving on, in terms of application volume, if I look at this last quarter, applications have — after April’s very strong and sharp downturn, have started to improve. If I sit there and look at June and then moving into July, application volumes are up even stronger than the 20%, I think, going up to 31% in late June.

Our settlements haven’t lifted from last year’s volumes at this point as we’ve continued to have a very selective credit criteria through this period. So we’re declining more applicants than we ever have in the past, really picking those people that are working in industries that are unaffected by the — not unaffected, but that have maintained their income and are likely to do so through the impacts of COVID-19.

Just one last call out from an operational point of view. Going back, we originated a few more new vehicles that we’ve not in our order, few larger assets and that is dragging the average loan size up to $11,000. So it’s about an 8% increase on last year.

In terms of COVID for — how has it impacted the business? Certainly, in New Zealand, when we went in the first round of lockdown, we only originated 3 loans in 6 weeks. So it had a severe impact when we go to that stage 4 or beyond lockdown and when businesses have to close.

Originations in Victoria are still occurring, but on a very low level. Victoria represents around 15% to 20% of our total volume in Australia, in a normal period of time. But — so it is an impact, but it’s not a catastrophic impact to our business. We’re still originating good volumes, sort of north of around 90% of what we would have been doing this time last year.

The other things that we’re seeing in terms of the impact, quite opposite in terms of asset values, in Australia and New Zealand. In New Zealand, we’ve seen a little bit of weakening in prices of vehicles, which is spurring on some record growth in the business there. In Australia, we’re certainly seeing some appreciation of vehicles as they just get hard to come by.

Dealers are regularly saying to us that with lease vehicles staying on lease for an extra period of time, there’s less assets in the market, which is driving prices up a little bit, but we’ve made significant investments in both countries in terms of working from home, buying all of our staff laptops, there was a significant impact in terms of cost across our business. Where we can, we have written all of that off this year and made the most of what we could have — the government onetime the instant asset write-off to allow us to take that all up this year.

One of the strong things we’re seeing in both the Australian and the New Zealand market is that there is less competition. There are less people funding into vehicle fundings. We’re certainly hearing antidotally that it’s pressure to send money back overseas via bigger finance companies. It’s bank conservatism as they look to manage their cash flows and more in a direct peer-to-peer, it’s just access to cash. Not all of them appear to have had the excess incoming cash that Money3 has being likely enough to experience. So we’re certainly seeing a less competitive market, but we’re also seeing a very, very buoyant consumer out there, wanting to acquire a vehicle.

I know there’s a lot of press about people traveling less, but when people do travel, having that second vehicle or having access to a car to avoid public transport, this has been a bit of a room for us. It’s been — it’s worked quite well.

The other point to make over the last 12 months through a number of initiatives from Roy and Paul and the team in New Zealand, we’ve expanded a number of dealers that — and partner deals, the referring business to us. So COVID has had an impact on the business, but one of the positive impacts is more people have sought us out as a lender that specializes in this space that is still open and doing business. And the other big impact has been government stimulus has benefited our consumer base by giving them the ability to continue to repay their loans.

I know over the last couple of months that many investors have asked what the bounce back is like. We just wanted to give like a discussion in the media, we have experienced a very V-shaped recovery from the initial downturn. So that April period when we had severe lockdowns, it did impact us, it did create some pent-up demand. And then if you look at the July result, which we see is still continuing now into August. It’s a record result for the business, advancing over $27 million for the month to consumers for vehicles.

So we’re very confident that while we may see some ups and downs as we come in and out of lockdown, the trend is in our favor. You’ll see further on in the deck in our market statistics, certainly for Australia, there are 300,000 more registered vehicles on the road today than there was a year ago. And I know that new car sales are declining, but vehicles are staying on the road longer. People are maintaining them, and it’s that total asset base or installed base of vehicles that helps drive our business. So the more there is, the more opportunity there is for us to grow. So I think that’s a positive (technical difficulty).

Somewhat self-explanatory here. We’ve talked about the revenue, the Board declared a $0.03 dividend for this half, looking for prudence between making sure we look after shareholder interest and paying a dividend, and also retaining some cash through this period of time. One of the things we do expect is that as as a new normal starts to settle in, and there’s less competition, greater share of partners of ours for many sources to refer as application volume that we are expecting to see some solid growth and solid growth in our loan book, which will start cash through that period of time.

So just to walk between normalized and our statutory accounts. It might be easier if we explain that for the next slide, Siva. So we’ll take the other one that’s red, but — so if we work our way up, we spent a number of weeks or the finance team did building a model around a prolonged economic downturn. And the results of that model said to us that prudence would be to take a $10.1 million excess provision.

Now we’d like to think the government stimulus and that other things stay in place that we may not hit that level of provision needed within the business, but we’ve taken a lot of that upfront pain in this — in FY ’20s financials so that we are well provided for business against any prolonged economic downturn. When we acquired the business in New Zealand, we — it came with a booking rundown that was over there, 3 million KWD, [2.8 million AUD]. We took the decision that with some decline in cash flows coming off that book through this COVID period that we would write the whole book off. So that’s a one-off. It was a business — it was a core fire receivables that we had in rundown, since the day we acquired the business in New Zealand and had been contracting, but we thought prudence was given the downturn that COVID-19 created to write that off. 800,000 principally laptops so that people could work from home. Now we expensed that all in our one-off expense.

So if you work that way through with the subsidies and the tax impact, we come back to at $32.3 million. And you’ll notice throughout our other deck, we talk about normalizing continuing operations. So think — we want investors to think we delivered $30.3 million. The $2 million is a legacy benefit from the exit of the discontinued operations, which you’ll see there in the NPAT line and FY ’20 normal. So that won’t be reoccurring. But still, we’re confident if you take those couple of one-offs out, certainly, the big one being impairment provision, which is a noncash item that we got to the impact that we’re originally forecasting to the market. So just jumping forward, you’ll see that cash has been very strong, particularly cash in the last quarter — sorry, this is cash advance, getting around the wrong way, but if you look at the cash (inaudible) we would have had much stronger growth in the last quarter, if it wasn’t for COVID and the lockdown. But the very encouraging thing has been the results that we’ve posted in July, and I know that they’re not here, but in the month of July, we had record originations as things started to return to normal.

I’ll come back to my comments before. What we’re expecting to see is a market where there is strong demand for vehicles as people prefer to drive and catch public transport. We’re seeing it now with price appreciation of vehicles in Australia, slightly different mix of macroeconomic things in New Zealand, where as a result of the March change in legislation, there are a lot of vehicles in the market. And if you looking at the number of imported Japanese vehicles into New Zealand in the last 12 months, you’ll see that they hit record levels. And that is what is stuff to supply chain, fuller vehicles that when COVID hitted, you’ve had a lot of people wanting to try and move that stock quite fast and has led to some level of discounting over there.

So moving in opposite ways, but consumers are behaving similarly in both countries where demand for vehicles has been very, very strong once people can get-go out and shop and buy for those. So cash advanced has been quite strong from our point of view, and we are predicting significant growth in there.

Moving on to collections. The uptick is in the last quarter. In the appendix, we give you the quarterly breakdown of cash flows for anyone that’s building a model on what this looks like, but we expect to see cash flows remain strong through this period of time as customers really value their vehicles, when they’re calling us in to say we’d like to make payment at this point in time. Customers are saying that they just want to get ahead of their commitments and that they really value their car to get around to take the kids to school, to go to the shops and just to transport around both countries, don’t have fantastic public transport systems, if you get out of the CBD, and we’re hearing that from consumers often, which our consumers tend to live in the outer suburbs or in the suburbs of cities. And that’s where that car is almost essential for them to participate in life. And we expect that is what’s driving the desire for them to make sure that there’s no issues with their loan in repaying their vehicles.

Just moving on to the next slide, Siva. Loan book growth, 16% growth this year, very happy with that growth in the current environment. And based on what we’re seeing at the moment with the product expansion, into that near prime product and the worldwide distribution expenditure with our online initiatives and our growing number of dealers and brokers referring a small business than we would normally get that we think that FY ’20 number — ’21 number is north of $500 million. And you can work back on what that looks like in terms of profitability from there. But we’re confident that what we see in the market and where things are that we should at least be able to exceed $500 million of receivables this year. I know many are looking for a prediction of where we’re going. There’s still a lot of uncertainty from COVID. We don’t think that would be responsible, but we certainly can see that our receivables will return to growth.

This is the first time we’ve presented this based on some feedback that we’ve had over the last 12 months about credit quality. So this is just giving you the 3-year view of how our book has performed. So if you look at the dark and the light blue, strong and good, that’s what we focus on as a percentage of loan book. They’ve actually grown over this period of time, which is evident that the strong cash flows we’ve received has not just come from 1 segment of our portfolio. Impaired and substandard credit has also contributed to improving the status of their loans, coming back to what I was saying before, where most consumers value their vehicle.

So they want to make sure that they start to make amends, if they’re in arrears or get ahead of their — if they’ve got some extra cash so that, they still have their vehicles.

So we think through this current period of time that, that stable credit quality or slight improvement, you could say, it puts us in very good shape, slightly better credit quality, higher provisions than we’ve had before based on the unknown future economic outlook for unemployment and other metrics that Siva has built in there. We think, we’re in — we’ve been very conservative, and we’ve set our business up that — with those 2 pieces of provisioning and slight improvement in credit quality, that we’re well placed to return to profitability growth in FY ’21 and beyond.

A little bit of background on the market, starting for Australia. I think the — one thing I’d like consumers to go — everyone on the call to go to first is the growing segment. It’s over 300,000 more vehicles in the market today than there was a year ago, which means that our addressable market, our installed base that we can offer loans to is growing. And I call that out because there’s a lot of media about how the number of new vehicles is shrinking, and I expect that, that will continue on this year. And not so much from a lack of sales, but one of the feedbacks we are getting from dealerships, too, is that the stock is not available. So coronavirus has not just affected Australia, it’s affected the whole supply chain of vehicles moving around the world. So I think what that means positive for Money3 is that there is, we’re predominantly focused on financing used vehicles. That’s a much bigger market than new. I think that market stays very buoyant over these period of time, and I think it bodes well for our product and our organization that we are very experienced in funding used vehicles and in the current market where there is less competition. I think we have a really good opportunity to take more market share in that space.

Part of that’s evident too, but even in the new vehicle space, you’ll see that we’ve funded in Australia. While we have funded 400 new vehicles, a bit over 1/3 of that has happened in the last 12 months. So that is a growing opportunity for the business.

Let’s go on to New Zealand there.

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Operator [3]

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Scott, sorry to interrupt. I’m just mindful, just in terms of the time that we’ve allotted. We’ve got a bank up of questions coming through. We might just get to those first, if you’re okay with that and then you can finish with the outlook.

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Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [4]

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Okay. That’s fine.

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Questions and Answers

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Operator [1]

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First question, how do you reconcile the decision to increase provisions by an additional $10 million with the credit quality slide that suggests 78% of customers are in the strong/good credit quality category compared to 74% last year and the reduction in the percentage of the book that is on a watch list?

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Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [2]

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Look, it’s to be conservative about the unknown. I know Siva spent a lot of time building this model. And I’ll ask you, Siva, to give a bit of detail to the investors to the assumptions you made into building your economic model?

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Siva Subramani, Money3 Corporation Limited – CFO [3]

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Sure. Thanks, Scott. One of the key objectives that we undertook was to ensure that the provision covers any risk over the course or through the term of these loans that we carry today. With that in mind, we built a model that had a range of scenarios in terms of how the economic outlook will perform over the next few years. Also taking into account a number of assumptions, including, as Scott mentioned before, unemployment as well as income variability of our customer base, government benefits and the longevity, security value or car value that we sort of finance. And based on that, we had come to the conclusion and also leaning on the side of a prolonged economic downturn scenario, we had come up with $10.1 million of additional provision. What would we are confident of that this provision is that it will take us through even if there is — through the life of the loans, if there is a prolonged downturn, we will be quite safe with this provision.

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Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [4]

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I think part of that, too, is if we do get it wrong, we can always right that provision back to the P&L in the future. If COVID turns out to have an even bigger impact on the business moving forward because we really don’t know how bad that does end up being. We know that we’ve taken a lot of the pain in terms of provisioning upfront in FY ’20, so that doesn’t become a persistent conversation in ’21, ’22.

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Operator [5]

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The next question is from Jon Higgins of Shaw and Partners, and he’s asked, “With periods of significant stimulus payments in super, we’re seeing accelerated repayment of loans above schedules. This has seen a loan book contract on our growth materially? Can you walk us through how this is looking in July and into August?” And secondly, on this question, “What origination run rate would you have to assume on a monthly basis on average to deliver $500 million in gross receivables?”

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Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [6]

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Good question. Look, we — the stimulus has had a positive impact. Many of our customers are employed at levels where the stimulus would be a job keeper, all the job keeper are similar to the levels of income that they were already making. So it hasn’t been a huge — if they have moved on to job keeper, for example, it hasn’t been a big change of lifestyle, given that the incomes are about the same. We think internally that the bigger driver of the excess cash was more to do with the superannuation. We saw that as a slow ramp-up in — when it first came out sort of in May. But certainly, with the second wave of super release on the first day of July, we noticed our incoming cash lifting significantly.

Now what we think is a business, though, is that the impacts of that superannuation do fall off very rapidly. We don’t expect to see much forward-looking impact from incoming super because it’s already been done. The customers in our portfolio that we’re going to access super and use that money to pay down their loans. They’ve done that. So we don’t foresee the supercharged incoming cash flows continuing to come along in months ahead. We think that, that is sort of behind us now. It’s been nice because it’s meant that the company is sitting on a lot of cash at the moment and gives us the ability to make the most of any acquisition opportunities that might come along, but we don’t foresee that continuing on. I think that feeds into the other question that we do expect — a big part of contraction in the loan book has been excess cash flow coming in with that sort of tapering off a little bit and a new normal setting in that $27 million, $28 million a month, we are growing our — which is what we saw (inaudible) going out in July that leads us to growing our loan book again.

So if we just think of the last 6 weeks, trying to find the exact number, we’ve seen a loan book growth of around $3 million to $4 million in that couple of weeks sort of — through to sort of mid-August. So if you said that if we keep originating at those levels, which given that our application demand, I’m speaking more to Australia here, it’s up 30% on this time last year. So as we see other industries start to return to normal, and we know which employees are going to be there for the long term. We’ll be able to start and open up and lend to them again. I think there’s another month or 2 or possibly longer as we’ll wait and see what happens, but we’re being very selective, declining a greater percentage of applications now than we ever have. The encouraging thing is we are continuing to see, with minimal marketing spend, our application volume go up. And I think that’s a lot to do with, we have been out to the market saying, we’re still here and happy to lend to people that can demonstrate that they have ongoing employment and their income will be fine.

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Operator [7]

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Continuation, just in terms of that answer there. “what are your major — one of your major private competitors stopped lending during the thick of COVID, did you get any benefit out of that during the period? Or are you able to leverage this in any way in terms of your relationships with the dealer network?”

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Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [8]

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Look, if I think of four different competitors in Australia and New Zealand, 3 of them were saying to us that their funding was a constraint. Money3 has an extremely conservative balance sheet. We are predominantly equity funded even to this day, even though we have being (inaudible) and the hedge fund funding us with debt. It’s still — most of our business is funded today through equity, and that has given us the power to continue to fund through this period of time. Neither of our funding partners have had any issue with continuing to allow us to draw down. There is ample headroom in our facilities in Australia to be able to continue to draw down with our current receivables. So — and aside from that, they improved. So I don’t see that being a huge concern for us and an opportunity for us to continue to grow so on.

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Operator [9]

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Next question. The investor presentation talks about reinitiating discussions with new lenders. What are you hoping to achieve on that front during FY ’21?

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Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [10]

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Look, we didn’t want to give everything away today, but we went into COVID and some of the funding partners that we had been talked to banks, went into their shell a little bit. That has now come back. We’re well progressed in conversations with a bank for funding, and we’re confident that this financial year will be in a position of letting investors know what we’ve been able to achieve.

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Operator [11]

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And just in terms of New Zealand, it’s about 20% of the revenue, but only 13% to 14% of EBITDA. Can that be improved?

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Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [12]

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Yes, it can, I think — I mean, that’s fair. We have made a lot of change in New Zealand. We — the founders are still there. We hope that they will stay on beyond there in our period, we brought a new CEO in, who comes from Eclipse. I think Paul is doing a fantastic job. But you do — you sort of — you do carry a bit of expense as you you have a senior person, we think that, that is very warranted in our business today as the founders will continue to take a step back. And a lot of it is — we have a core in New Zealand, and that core can do a lot more than they are now. And I think that’s evident by — just to give you some numbers, a year or so ago, 50 to 70 loans a week out of New Zealand was a great job. The best month — best week that we had in July was around 126 settled loans that we haven’t hired any new people.

There is some scalability in that business now, now that the core is bedded in there. So I would say to investors that they should expect to see that improved over time. And the best indicator of that improvement will be the growing loan book, which we’re confident in the next month or 2 will exceed $100 million. So all of that will help improve things, and we’re not saying that we need to add any human resource to continue to grow that loan book over there.

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Operator [13]

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Bad debt expense looked like it doubled on the year prior. What decisions did you make to drive this number and should we expect it to stay this higher going forward?

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Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [14]

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Look, bad debt, we were very happy to stay, albeit at the very top end of what we forecasted, sort of 5.5% of book, but if we start to normalize that out, there was the discontinued business in New Zealand. So we’ll be writing that off again. That was $2.8 million. That should be backed out. The other part that investors should take in mind is that sort of comparing a bit of apples and orange. So it is looking like a huge growth in New Zealand, but last year’s bad debt was only 5 months where this year is a full 12 months. Bad debt in Australia, up high 40% on last year, a little bit of impact from the pandemic there, but we think that should be reasonably stable moving into this year.

We’re confident that our bad debt will stay in that 4.5% to 5.5% range and return to the lower end over time. We have seen a push up a little bit this year. What’s driving the confidence is, if you look at the loan book that we have today, we would say that in the last 3 years, we’ve never started a year and this would shape in terms of the quality of our receivables.

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Operator [15]

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Scott, next question. Last couple of questions. The increase in provision looks highly conservative. Do you expect to write most of it back during FY ’21?

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Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [16]

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No. I think — look, we wanted to be conservative because we don’t know what we don’t know at this point in time. So it makes it very hard to answer that question. Both Siva and I wouldn’t have predicted 12 months ago, we’re sitting at home in our spare rooms right now having this conference call. There are some challenges with that. We have made that work, I think, very well, given the cash that we’ve collected, and that’s a transition that we’ve done in the last 6 months. So the challenge in answering that question is that there’s so many variables that are moving at the moment. So if I look at the optimistic, a vaccine comes out and the world starts to return to normal in terms of supply of vehicles into Australia and our ability to continue at good receivables. And the answer would be, yes, the opportunity to write some of that back to the P&L would be there or would offset it against the growth in the receivables over time.

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Operator [17]

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And what went into the decision to cover the dividend? And can you talk more about M&A opportunities?

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Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [18]

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Look, we’re just being prudent, leaving a bit more cash in the business. It’s — leaves us with a couple of million dollars back in the business. And I think 1 of the things that we have seen through this current period of time is more opportunity to acquire other assets. I would say that we’ve got to get pricing right, but to think that through. But we are actively looking for loan books that are within our real house of operation in terms of vehicles in the consumer space that would fit with what we do. The other side, too, is what we saw in July was when business stepped back that it is — with less competition, that there is strong growth. So two things that were in our thinking and both of them need cash for us to continue to grow.

So I think there’s a window of opportunity for Money3 at this period of time. We have — and I know it’s sort of yesterday’s news, successfully transitioned out of our branch and online business. We have successfully brought that money back into the business and roll it out the vehicle loans. The next 12 months, this pandemic has created an opportunity for us to really put a stake in the sane and say, we are a leading provider of consumer automotive finance in both countries. And that will take cash as we grow the loan book that will take cash as we increase the number of funds that we work with because they won’t fund 100% of the receivables. And all that went into our thinking as to why we thought prudence returns that $0.08 for the year to shareholders and returns to the rest to continue to grow.

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Operator [19]

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And very final question, I promise, Scott. Is there any intention to look at new lending categories or new geographies in the medium term?

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Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [20]

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Yes. Look, we have very much been looking at that, and that’s why we’re sort of trying to call out those new vehicles. I mean, it’s not — it’s correlated, but not directly in that — as we’ve listed our credit criteria to attract higher creditworthy clients. Those rates have come down and with those rates coming down, we start to attract people that are buying newer assets and larger dollar amounts. So you certainly would see that in the partnership, with the dealership that sells Mahindra vehicles in New Zealand. They’re all brand-new vehicles. They’re all higher credit quality applicants out of the first 50 that we wrote, only 1 of them is a payment so far in the first year. So that — that’s all been — so yes, the answer is yes, we see it being too pronged. We’re very much tailoring our product offering to maintain our really core auto primary financing business, but also improving some of our rates to attract clients that have a slightly better credit quality than we would have funded in the past. There’s also a tailwind in the industry, too, with your manufacturers taking some funding overseas. And banks just not focused on this sector that is pushing more clients to us as well.

So the answer is yes. Hopefully, that answers how we see it doing broader distribution and better price product that’s attracting more clients, but also a bit of push in to some new vehicles as well. But only a small push as we make sure that the models and the bad debt and loss curves look as we expect in that better price product.

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Operator [21]

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Great. Thanks, Scott. That concludes the Q&A segment. I’ll now hand it back to you to go through the outlook and final remarks.

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Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [22]

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Look, I think we’ve covered most of what’s on the next slide, but just to call out, very well-funded, $65 million available to us today. We expect to add some funding facilities to that at better pricing this financial year, which will continue to drive bottom line growth probably more into FY ’22 than ’21. But will give us the capacity continue to grow the momentum that we see in the business and the market for that in Australia and New Zealand gives us confidence to say to investors that our loan book should exceed $500 million by the end of this financial year and I think these are the key points.

So we need many investors over the next week for one-on-one conference call. We look forward to spending time with you there to answer your questions.

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Operator [23]

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Thanks, Scott. Thanks. Siva. Thanks, everyone, for joining.

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Scott Joseph Baldwin, Money3 Corporation Limited – CEO, MD & Executive Director [24]

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Thank you.

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Siva Subramani, Money3 Corporation Limited – CFO [25]

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Thank you.

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