Ann: Annual Report 2012 , page-2

The following has been extracted from Thomas Beregi’s CEO section the 2012 Annual Report. My comments follow each paragraph.

“Credit Corp has contemplated expansion into the global debt buying market for many years. Australia is a relatively small market and Credit Corp is the largest operator, limiting the scope for further growth. Other countries, in particular the United States of America, have large and well-developed debt buying markets. Debt buying is an intensely competitive business, so the Board and management of Credit Corp needed to ensure that the core business was strong and had reached a high standard of excellence before embarking on global expansion. “
It is great to have it confirmed that OS expansion has been contemplated for some time. This means they have had the time to plan the ‘assault’ properly. I like the way Thomas considers Australia to be a relatively small market – implies they have big horizons.

“The foundations for expansion have been built over the past five years. A strong culture of discipline, accountability and transparency has been developed across all facets of the company. Appropriate systems and tools have been implemented to support and enhance the positive culture. Investments have been made in analytical tools to optimise decision-making and collection performance. Flexibility has been introduced through a low-cost offshore collection facility in the Philippines. While further improvement will be pursued, the leadership team is satisfied that an appropriate standard of excellence has now been achieved to facilitate success beyond Credit Corp’s core market.”
I like the conservativeness and detailed focus of CCP approach. I like the idea that the Philippines operation has improved sufficiently to facilitate success beyond Credit Corp’s core market. This probably means that this operation will be the bulk of manpower behind the expansion into the USA.

“The US is the largest and most developed debt buying market in the world, making it an ideal candidate for Credit Corp’s global expansion. The volume of debts sold directly from credit issuers in the US is estimated to exceed 20 times the volume sold in Australia. The existence of listed company debt buyers and large financial buyers increases the degree of pricing and return transparency, which minimises the potential for material mis-pricing.”
I like the phrase ‘Credit Corp’s global expansion.’ Are they thinking of expanding beyond the USA?

“To more properly assess returns and gain some first-hand experience in the market, Credit Corp entered a co-buying relationship with a US private debt buyer in November 2011. Purchases of $2.2 million were made pursuant to this relationship and a Credit Corp operations manager was relocated to the US to monitor the investment and gain a more thorough understanding of the collections environment. Collections on these purchases achieved ingoing expectations and a decision was made to commence stand-alone operations.”
I like the strategy of moving in slowly, learning key lessons from others before going it alone. This management is really using a top-notch professional approach to this expansion: something I would expect from a well executed military operation and the strategy of an successful international conglomerate.

“US operations subsequently commenced with the acquisition of a small existing collection agency in June 2012. The operation currently comprises 12 staff including the Australian expatriate operations manager. A forward flow purchase has been secured and collections by Credit Corp staff have recently commenced. While the US site will grow over coming months, expansion beyond the level required to properly service current purchasing commitments will be subject to satisfactory performance.”
They say that they have 12 staff. This may be factually true, but given they seem to have the back up of the Philippines operation plus the cash to make quantum expansions in the US office I am expecting this number to be increased hugely in the next company update.

“Management is hopeful of creating a successful debt purchasing business in the US capable of delivering substantial earnings growth in the future. In keeping with the company’s culture, a disciplined approach will be taken to this expansion to ensure the achievement of sustainable and profitable outcomes.”
Hopeful! Is that an understatement I see before me? I think this is the top intention of the Board for the future expansion of CCP. Let’s hope they can execute without any serious mishaps.

K