Collection House : CLH - 2018 Annual Report

Annual Report 2018

Collection House Limited ABN 74 010 230 716

Contents

• 1 Our Brands

• 2 Chairman's Report

• 4 Managing Director and Chief Executive Officer's Report

• 6 FY18 Financial Results

• 7 Board of Directors

• 8 Executive Management Team

• 9 Corporate Governance

• 10 Our Purpose Statement

• 11 Directors' Report

• 30 Auditor's Independence Declaration

• 31 Income Statement

• 32 Statement of Comprehensive Income

• 33 Balance Sheet

• 34 Statement of Changes in Equity

• 35 Statement of Cash Flows

• 36 Notes to the Financial Statements

• 79 Directors' Declaration

• 80 Independent Auditor's Report

• 85 Shareholder Information

• 87 Corporate Directory

Collection House Limited (ASX: CLH) is Australia's leading end-to-end receivables management company. We provide solutions to organisations and individuals that span the entire credit management lifecycle and beyond.

We enjoy strong business relationships with major Australian and international banks, financial institutions, large corporations, local Councils, public utilities, SMEs, and Government agencies.

With more than 800 staff in offices across Brisbane, Sydney, Victoria, Adelaide, New Zealand and the Philippines, the Collection House Group offers stakeholders a range of professional, ethical and effective products and services.

Our ongoing success is a result of the breadth of our service offering, our deeply ingrained approach to ethical debt recovery, and our commitment to technology to continually evolve our service and capabilities.

1

Our Brands

Founded in 1994 and listed on the Australian Securities Exchange in 2000, the Group is made up of a number of brands offering a range of professional, ethical and effective products and services:

2

Chairman's Report

"One of the key strengths of the Company is our ability to see around corners to identify the emerging trends in our industry"

Leigh Berkley

Chairman

Collection House took decisive action as part of its ongoing transformation programme in FY18, investing in new people and technology, and focusing on employee productivity. These actions have been designed to reposition the Company for the future and to deliver superior returns for our shareholders.

The business made good progress in its financial performance, investing more than $80 million in purchased debt ledgers, and posting a 50% increase in net profit for the year as we continued to focus on building the right team and FinTech platform for the future.

The business is now well positioned to capitalise on the opportunities the Board and management team have identified, and our performance in FY18 has provided confidence in achieving future growth in FY19 and beyond.

Industry first mover advantage

One of the key strengths of the Company is our ability to see around corners to identify the emerging trends in our industry, which has enabled us to gain first mover advantage in a number of exciting areas:

Comprehensive Credit Reporting (CCR): We were first in our industry to obtain CCR information within the Lion Finance Segment. CCR gives us access to a more complete picture of the customer's credit profile, so we can work with them to improve their credit profile. I have promoted the use of CCR in other geographies, and am excited that we now have this opportunity in Australia.

AASB9: Collection House was first to work with some of the Australian Banks to consider the consequences of AASB9.

The strategic steps we have taken to leverage this opportunity have enabled us to achieve significant Purchased Debt Ledger (PDL) growth during the year, and we are ready to accommodate additional volumes in FY19.

Portfolio Enhancement Programme (PEP): We further activated PEP this year by means of a first transaction with Balbec Capital LP (Balbec) and other smaller deals. PEP allows us to free up capital on older PDL purchases and buy new, higher yielding PDLs with the proceeds. This efficient use of capital will continue in FY19.

Portal: We also launched our Interactive Debt Collection Portal this year. This highly user friendly Portal rewards interaction and allows our customers to engage with us online 24/7. The Portal is already generating significant cash collections each month at a reduced cost, and is now being used in conjunction with our C5 software by some of our major clients. This is another area for growth in FY19 as the Portal matures.

ThinkMe: Our lending business took an exciting step forward in FY18, with our wholly-owned ThinkMe Finance obtaining from ASIC a full Australian Credit Licence enabling it to provide consumer loans. ThinkMe was already a licenced finance broker and we will now be able to provide consumers with our own ethical tailored loans consumers with our own ethical tailored loans. We see this as a growing and evolving part of our business. We are proud to be able to offer our customers this new service as it aligns with our values of assisting customers regain control of their finances.

Enhanced analytics, technology and the right people

A key priority for Collection House over the past 12 months has been our investment in technology. Some of you may be surprised with the Company's ongoing transformation into a fully-fledged FinTech company, and today the reality is we are very much a data analytics-driven business.

As part of our focus on data analytics we have moved to strengthen our analytics team, and in July 2017 we appointed a highly experienced Chief Data Scientist, Anand Adusumilli, who brings more than 15 years' experience in data science and predictive analytics within the PDL sector.

A high level of confidence in our analytics has enabled us to be a more aggressive acquirer of PDLs, and in the past 12 months the Company has purchased 39% more PDLs than in the prior year. We have also seen impressive productivity gains of 42% in collections per staff hour.

With technology adoption, improved data analytics and improvements in efficiencies, we expect to generate higher returns from our PDL acquisitions in the coming 12 months.

New board appointments

While the past 12 months have demonstrated how much can be achieved by a small Board, working closely with a skilled and experienced management team, we have been searching for the right candidates to strengthen the Board for the future.

3

Chairman's Report (continued)

Following a rigorous recruitment process, I was delighted to recently announce that Sandra Birkensleigh and Catherine McDowell have been appointed as Non-Executive Directors to the Board. They bring a wealth of experience from the accountancy, banking, financial services and investment industries.

Sandra has extensive experience in financial services, particularly in the areas of risk management, corporate governance and compliance. She is the former Global Lead for Governance Risk and Compliance at PricewaterhouseCoopers (PwC) and is currently a Non-Executive Director of a number of ASX companies where she is Chair of the Board Audit Committee. Sandra is therefore perfectly placed to chair the Collection House Audit and Risk Committee.

Catherine also has broad experience in the banking, financial services and investment industries, in both senior executive and advisory roles, and will chair the reconstituted Remuneration and Nominations Committee. Her international banking experience includes her role with Barclays International, where as Managing Director she led a substantial international wealth business. In New Zealand, Catherine was the Managing Director at ANZ and The National Bank Private Banking and Wealth business (New Zealand) and was responsible for integrating these two businesses and creating a significant wealth business.

We are encouraged by the commitment of both Sandra and Catherine to the company's corporate strategy, which is delivering innovation and sustainable results, and therefore provides a level of certainty to our valued shareholders. The Board welcomes Sandra and Catherine and we look forward to their contribution.

Other board news

I have been privileged to be Chairman of Collection House since November last year, and it's been such a positive experience that I've now decided to move from the UK to Australia on a permanent basis.

I have a home here and I am already spending around one third of my time in Australia. With all the exciting plans ahead for Collection House,

I felt the time was right to make the move permanent. It will be a good opportunity to work even more closely with the new Board and our very talented management team, who are doing a really great job.

In addition, following the year end, the Board was delighted to advise the market that our CEO and Managing Director, Anthony Rivas, has confirmed he wishes to stay with the company for longer than his three-year term.

Anthony has also offered to forgo two million of his three million entitlements to performance rights due next year, currently valued at $2.6 million, as part of his commitment to shareholders and the Company over the longer term.

The Board has welcomed Anthony's commitment, and his proposal is a central part of a remuneration review we have commissioned to ensure our management team and Board are appropriately rewarded for success, while providing excellent value to shareholders.

Outlook

Our outlook for FY19 remains positive. Our team and infrastructure to facilitate our future growth are now in place, and the results for the second half of FY18 give us a high level of confidence that further growth will be achieved in the year ahead.

It is our intention to remain early adopters of technology, and to be innovative in our utilisation of data and capital. In FY19 we expect to further improve the business, enhance customer outcomes and increase shareholder value.

On behalf of the Board, I would like to thank our shareholders, clients and customers for their ongoing support during FY18. I would also like to thank my fellow Board members, senior management team and all our employees for their hard work and dedication over the past twelve months. I am proud of what we've achieved in FY18 - we have shown what we can achieve by working closely as an experienced team, and I look forward to continuing our work together as we strive to deliver enhanced shareholder value in FY19.

Leigh Berkley Chairman