The Company has ~$65m of PDP investment under contract for FY18, against a target of $70m.
As announced on 6 April 2017, Pioneer completed a material portfolio investment (a ~$14m investment for $94m face value) which, along with the Company’s increased headcount in 2H17, will support strong earnings growth in FY18.
The Company advises that it expects to increase NPAT by over 49% in FY18 to at least $16m.
Subject to audit, the Company advises that it expects to report Net Profit after Taxation (“NPAT“) for FY17 of $10.7m.
Pioneer has achieved this result while also continuing to take a considered view of consumer serviceability, economic conditions, and a consistently cautious approach to PDP valuation.  This cautious approach has resulted in the Company increasing the expected change in value (“CIV“) expensing rate of our PDPs by at least 85 basis points from FY16.
If Pioneer’s caution proves to be conservative, the emerging value of the PDPs will exceed Pioneer’s forecasts.
This is expected to be evidenced by stronger cash generation and profitability in future years.
Pioneer classifies and measures purchased debt portfolios (PDP’s) at fair value through profit and loss (FVTPL) under AASB 139 Financial Instruments: Recognition and Measurement.
The key reason Pioneer has adopted the fair value basis is that it considers this provides more relevant information to the users of its financial statements.
Of the methods available for classification and measurement, the two most commonly used are FVTPL, as used by Pioneer,  and the other which is commonly referred to as the effective interest rate or amortised cost method.
There are more similarities between the methods used than there are differences. Both methods require the valuation of the gross carrying amount of the financial asset to be determined. A key assumption in the valuation, irrespective of accounting method adopted, is in determining the expected liquidation rate. Assumptions about the liquidation rate in all cases are based on originator and product characteristics, payment history, market conditions and management experience.
The valuation of the PDPs requires estimation of the:
a) expected future cash flows;
b) expected timing of receipt of those cash flows; and
c) current discount rate to present value the expected future cash flows
Irrespective of the classification and measurement method adopted, the requirement to assess at each reporting date the timing and quantum of expected future cash flows is the same. The difference in the methods adopted lies in the discount rate used to present value the expected future cash flows.
Under the fair value method adopted by Pioneer, the discount rate is assessed at each reporting period and factors in a risk free interest rate and appropriate credit adjustment for risks not built into the underlying expected cash flows. The assessment is based on objective market available evidence.
As outlined above, the other commonly used method for classification and measurement, if the prescribed definition is met, is the effective interest rate or amortised cost method.
Under the amortised cost method the reporting period assessment of valuation would in contrast to using the discount rate in c) above instead utilise the original effective interest rate extrapolated at investment date/original valuation date (as nominated by the purchaser of the PDPs at acquisition). Under this method the discount rate, set at original investment date, does not change over time.
The FVTPL method results in the valuation at each reporting period reflecting the reporting date assessment of all valuation parameters. The difference in fair value from one reporting period to the next is recorded as the change in value which incorporates the expensing rate of the PDPs being charged to profit and loss. As a result of recording fair value at each reporting period, there is no additional requirement or need to assess objective evidence of impairment as the reporting date valuation has incorporated all available valuation evidence and the change in value charge has expensed the change.
Under the effective interest rate method, revenue is then recognised over the life of the expected cash flows as interested received. This method does not reflect changes in the discount rate beyond the original investment date. At the end of each reporting period, under this method, an entity is required to assess whether there is any objective evidence of impairment. If any such evidence exists, the entity is required to determine the amount of any impairment loss and include an appropriate impairment charge to profit and loss with appropriate disclosure. Similarly if expectations of future cash flows were to subsequently increase, a gain would be required to be recognised, calculated by discounting the incremental cash flows at the original effective interest rate.
The financial statements of Pioneer incorporate comprehensive disclosure to clearly illustrate to users the key inputs to the PDPs valuation. There is additional disclosure around liquidation sensitivity which not only provides insight into the impact to valuation of potential changes to observable inputs but also discloses Pioneer’s best estimate of the potential valuation difference range that would arise given the different discount rates applicable to our PDP investment history.
The majority of customer accounts acquired are under forward flow agreements, where Pioneer agrees to purchase and the vendor agrees to sell a proportion of its portfolio, meeting agreed characteristics for an agreed term (typically of 12-24 months).  Pricing is typically reported as a percentage of the face value of the debt or “cents in the dollar”.
Pioneer’s objective is to invest in debt portfolios and then recover an amount on the accounts that make up those portfolios that exceeds the purchase cost by an amount that is large enough to pay all of Pioneer’s operating expenses and generate a profit and adequate return on capital. This will achieve, across the portfolio, an overall return which is evaluated and managed in terms of a return multiple to the acquisition investment.
Pioneer’s contractual obligation in accepting the offer of the customer contracts from the vendor is to service the forward flow arrangement for the agreed term at the agreed price as referenced above.
PricewaterhouseCoopers are the Company’s auditors.
In accordance with the Corporations Act 2001 (Cth), an audit engagement partner must be rotated after 5 successive financial years.  The Company was admitted to the Official List of the ASX Limited on 1 May 2014 and as such rotation of the current audit partner will be required in 2019.