EZCORP Inc (EZPW) 2015 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the EZCORP fiscal year-end 2015 results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to turn the conference over to Jeff Christensen, Vice President of Investor Relations for EZCORP. Please go ahead, Jeff.

Thank you and good afternoon, everyone. Welcome to EZCORP's FY15 results conference call. I'm excited to be with EZCORP. I joined the Company yesterday. I look forward to meeting with you in person and speaking with you.

Joining me today are Stuart Grimshaw, Chief Executive Officer of EZCORP, and Mark Ashby, Chief Financial Officer of EZCORP. During our prepared remarks, we will be referring to slides, which are now available for download from our website at www.investors.EZCORP.com. A complete copy of the slide presentation was also filed this afternoon as an attachment to our 8-K.

Before we begin, I would like to remind everyone that this conference call contains certain forward-looking statements regarding the Company's expected operating and financial performance for future periods. These statements are based on the Company's current expectations. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of uncertainties and other factors that are identified on page 2 of the presentation slide deck and discussed in our annual report on Form 10-K filed with the SEC.

It is now my pleasure to turn the call over to Mr. Stuart Grimshaw. Stuart?

Thanks Jeff, and good afternoon, everyone, and welcome to the earnings call. We hope everyone has enjoyed the holiday season. We apologize to those of you that we've taken away from that, so we promise we won't keep you very long. Sort of an apology from us as well for the filing delays we've experienced due to the financial restatement. But we now believe it's behind us, and we're back to the reporting rhythm that's consistent with the prior years.

If I turn to the slide deck and start on slide 3, the numbers weren't as we would like them, which I'm sure everyone would agree with. However, over the period of time, a lot of work has been achieved, and it continues the focus of strategic positioning that we had on the July 29, and there we outlined a number of strategies and reported clearly to the focus to simplify and optimize the strategies that we would be running through the business.

As we look through the three areas that we have focused on since the strategic update, we have refocused on the core business segments being the US Pawn, Mexican Pawn, and Grupo Finmart. And we will deal with those individually later on. We have dealt with the restatement issues, and they have had a material impact upon the results, as Mark Ashby will outline a little later on.

In terms of building the foundation, we stabilized and strengthened the balance sheet. In particular, we've really started focusing back on our core strengths of PLO growth. We have reduced our aged inventory from 20% of inventory to 11% now. The provisioning [reloans] on the Grupo has been strengthened, and also we have removed the payday loan portfolio from the balance sheet altogether.

We've implemented a new management team, which I will talk to a little later, but I would like to mention that Joe Rotunda joined us in May of this year. Joe is overseeing the pawn operations of both US and Mexico. Joe, I believe, is probably the best pawn operator in North America, and we're very grateful to have him back in the Company leading these businesses.

We've also looked to the system processes and how we're looking at those in terms of aligning the general ledger in Grupo, looking at the point of sale modernization through the pawn business and workforce planning as well, which will optimize the way we manage our workforce in the stores. We've made quite a lot of noise around the rationalization of our head office functions. Since March 2014, we've actually reduced head office numbers by 45%, taking out 160 people out of the head office of this business.

And while we are doing all that, we have seen some signs that the business is responding well to the activities that we're undertaking. We have aligned the strategic initiatives with KPIs, which we meet regularly on. The transition to the new business segment reporting has made it much clearer for everyone to understand what is required of them in the period of time. And importantly, in the last quarter of FY15, we had the best quarter-on-quarter same-store loan growth that we've seen for over five years. So there are some signs that the work we're doing while early days is starting to take some traction.

If I turn to slide 4, which recaps the slide that we outlined on the July 29, one of the things you will see this slide quite a lot because this is a three-year journey as a minimum, so we are not deviating from the plan. But we're competing in the end markets where we have attractive dynamics, and the three areas we've outlined, we believe we are well positioned. We are in the top three in those businesses. Each of them actually respond well to scale, which we can drive through organic and acquisitive activity.

The core capabilities that we are seeing being rewarded is actually through customer leadership, and we're seeing the customer satisfaction results while early and small, still show that we have some strength in relationship with the customer. In undertaking initiatives to win in these markets and supporting that, we're doing a lot of work, particularly in pawn around mystery shopping, where we can use the tools that we have there to coach and manage our teams to great levels of success for their engagement with the customers. And particularly we're starting to align the customer engagement with the incentive schemes for the store people. And that is being well received and paying them on a timely basis, which means they're rewarded for the immediacy of what they're doing.

If we move on to slide 5, this is coming back to the focus, simplify and optimize. It's a very simple strategy that relies on executing well. Under each of these, I thought we would give you a bit of color as to what has happened in the period of time.

We have acquired a number of new pawn stores, and there was 13 in the last quarter to go with the 12 we did earlier in the 2015 financial year. In Mexico, we've identified three de novo sites that we're looking to undertake and grow. In terms of Grupo Finmart, we reestablished the management team in terms of hiring a new CEO, CFO, and Chief Risk Officer, which I will talk to on the next slide.

As we mentioned previously, we closed the US financial stores, and we've did that on time and on budget. We closed 480 stores, and with that, 1,000 employees departed the organization. We were able to do that successfully, if you can call it that. It's never a great thing to close a business down, but it was the right thing to do at the time. In terms of building capabilities, we've actually started to rebuild the EZCORP executive team, and I will talk to that on the page.

In the operating model, head office has been reduced in size. We've actually brought in someone to look at product and process, which hasn't been done before. We have a new Chief Risk Officer, which also is quite unusual, but strengthens the risk parameters that we operate within.

As I mentioned, the mystery shop programs extended through both the US and Mexican pawn stores, and the management team has been responding extremely well to the valuable feedback they give us around the customer engagement. As I mentioned, the incentive plans we have in place support this.

In the rationalization, we actually have closed 44 stores. We looked out to the three- to five-year horizon. There are a number of stores that wouldn't make the return objectives that we have set. 12 of those were in the US, and 32 were in Mexico.

As I mentioned, the inventory reduction program has worked extremely well. The span of control in the US Pawn, we have actually improved that so that the district managers have just under, around 8 stores that report to them, and this was as high as 10 two years ago. It gets us back to something close to where we were in 2010 when Joe was running the organization.

We believe that the coaching environment we're creating is going to be critical to the success of this business, as well as ensure that we extend the tenure of store managers to the level and duration that we expect. The foundation will work started on Grupo to support improved underwriting, and we're looking very heavily at risk-based pricing.

If I move on to page 6, this really talks to Grupo and reminds you that in April and May of 2015, we moved to a 94% ownership structure, which gave us more control of the operation. We have a new CFO, a new Chief Risk Officer, and a new CEO started in the first quarter of this financial year. A new Treasurer started this month.

Both of these have a very strong -- always have a strong mix of backgrounds, be it in traditional and nontraditional. A number of them come from Scotiabank, Citibank and Provident Financial. So we have a very good mix of professional capability, which is designed to support the business as it goes through its next phase of growth while we build the platforms and foundations for success.

The risk management focus is definitely one that has been brought to the fore with this formal credit committee and asset liability committee established. And we have had third party recommendations in there looking at how we can improve the underwriting process for both government agencies and individual borrowers, which we will undertake at the time.

Given the increased profitability focus, we're looking heavily at loan term and pricing per contract, and we're look at prioritizing segments and conveners where we believe the returns are much greater based on the performance we have. And particularly, we've been looking in customer segment of the [mix and] Social Security institutes, which is the pension segment, which we believe offers tremendous potential. And we will be undertaking a very thorough cost review of the Grupo business to start ensuring that we align the expense ratios to where we hope we can get to.

In terms of the operational efficiency, we have a lot of manual processes which we're undertaking to automate. And one of them will be aligning our [PeopleSoft] general ledgers between the US operation and Grupo so it's consistently aligned. So with that, I will pass it over to Mark Ashby to provide more color on the numbers.

Thanks, Stuart, and good afternoon, everybody. First up, I'm going to talk for a couple of slides about the Grupo restatement. Seeing as it was such a big issue, it's worthwhile just giving you some background, maybe some clarification on the three impacts that it has had. And I will cover that on slide 7 and on slide 8.

If I start with slide 7 on the interest spread, the previous process was to recognize the revenue over the term of the loan. So if you had a loan that was for two years, you would recognize revenue on that loan each month for the 24 months. What we have found is that the effective interest method is more appropriate, and that 24 months in terms of contracted loan period could be as long as 30 months in terms of actual cash received period. As a result, we've been through all the loan portfolio, and we've averaged them on a 12-month, 24-month, 36-month, 48-month loan basis and now respread the revenue from those loans across the effective interest period.

What you saw from that was actually a reduction in interest income from when the loan was originated, and commenced, and then spread out over a longer period of time. So you would see that revenue flow over a longer period of time, which meant that by the time the loan starts to stack, you will see an increase in revenue on an accounting basis flow through. The advantage of this is it better represents the cash flow of the collection period, of the loan period. So it gives us better visibility from an accounting and reporting perspective on what that actually means in terms of running the business from a cash flow.

The bad debt reserving was another key change. The most significant change is to reserve 100% of a loan outstanding where no payment is received within a consecutive 180-day period.

If we do receive payments on those loans subsequent, which we do, we use the cost recovery method, and those payments are subsequently received and recorded initially against the bad debt expense. Then any overage, any continuing revenue, is then applied to the interest revenue line of the P&L. That's a significant change, and you can see as we get into the Grupo numbers that if you do have a couple of the conveners, a couple of the agencies that slip into 180 days, which can happen for various reasons, then we reserve 100% on what I would say is quite a conservative basis. As we start to collect those, if and when, then that is part of the operational efficiency that we need to have clear focus on that, part of what Stuart was referring to earlier on.

The asset sales is a little bit of a nuance. If you go back, we had the asset sales in FY14 and Q1 FY15. The effect was to reverse those asset sales and keep the loans on book, so the asset sales of the portfolio were made to the trust. Those trusts are now consolidated back into our books. So we get the revenue effect. We also get the bad debt effect under the policies I've outlined above. In addition to that, we get the interest expense and liability that happens to be sitting out there.

So those three items have changed the profile of the Grupo business for us. Not necessarily for bad reasons. It really does give us better visibility to match some of the cash requirements of the business to the way we report.

By way of reference, if I move to slide 8, and particularly if you look at -- the top chart is the Grupo Finmart net loan balance restated versus original -- it's all in US dollars. If you look at FY14 Q2, you see that the balances are roughly the same. If you move forward to Q3, Q4, and Q1 FY15, you see the impact of the consolidation of the trust back into our numbers. So we now have a higher balance to start to generate some revenue from.

So you can see the original net loan balance was declining as we sold off the loans, and now have been restated back up to that level. So that drives interest income, as does the interest spread. And that is really reflected in the lower part, which is the Grupo Finmart interest income restated versus original.

And if you look again from around Q3 of FY14 and just have a look at Q3, Q4 2014, then Q1 2015, you can start to see the significant departure in revenue recognition compared to what was in the past. Obviously we hadn't published Q2, Q3, or Q4, so there's no original loan revenue to compare to. But you can see the growth in interest income, partly because we have the trust consolidated and partly now because of interest spread starting to compound on top of each other as it grows coming forward.

If I move on to -- into slide 9, what you are going to see over the next few charts really reflects a lot of what Stuart introduced before in terms of the themes covering impacts of cleaning out our old inventory, focus on driving PLO growth, particularly as Stuart mentioned, since Joe has been on board. Restructuring expenses that we called out on July 29 that we've been commencing to incur, but we've split it out across each of the operating units so you can try and get an idea of what the normalized numbers look like. So I will start to talk about that.

From a total perspective and continuing operations basis, overall revenue was down 1%, net revenue was down 3%. And that gap really reflects the initiatives to clean out aged inventory and implementation of the tightened reserving policies in Grupo and the targeted reduction in scrap volume where scrapping was wound back deliberately to make sure that we had appropriate inventory to be able to sell the customers at the right point in time.

Expenses in this total chart show an increase about 13%, which is some $50 million, but really does include nearly $66 million worth of restructuring impairment and other discrete items which I will touch on a little bit further into the presentation. The EBIT numbers I will cover in terms of each of the operating unit contributions in future charts, if we have a quick look at interest expense, if we look at the Grupo interest expense, that really was due to higher average debt for the year, and that was supporting predominantly originations and also the operating cost of the business.

The increase in corporate interest cost is predominantly from the increased amortization of the debt premium associated with the convertible notes that were raised in the previous financial year. So that's the single biggest driver. So that really is the summary of the year.

On page 10, we look at the total restructuring charges and other discrete items. Now, these are attributable to both continuing and discontinued ops, but just to give you a fulsome picture of what we saw, the cost, USFS, the US Financial Services exit, you can see it in total was about $38.4 million. That covered the CFPB agreement, which we announced a month or so ago, of $10.5 million, and the rest covered the severance, lease exit cost and goodwill write-off. There are still some of those charges coming into Q1, and that's on a discontinued ops basis. But we would still expect another $2 million to $3 million flowing through into Q1.

The second point to do with business rationalization costs of $32.6 million, that does include restructuring and other discrete items. Some of the key drivers of that are the pawn store closure costs, some impairments for underreporting assets, legacy IT, asset write-offs. And we went through a very rigorous process that Stuart touched on earlier about determining which stores to close, whether we thought that they are currently achieving acceptable financial returns or could in the future.

There was an impairment we put through on the Cash Converters Australia investment of $29.2 million that reflects the movement in the share price and currency movements where the Australian dollar depreciated against the US dollar. Restatement expenses, we used the word estimate in there, $4.1 million. Clearly wasn't a cheap exercise. We had to involve a lot of external parties, including two groups of auditors and a couple of other accounting firms. Everyone had a seat at the table.

And then there was the clean-up of the Cash Genie, UK regulatory compliance, that was another $4 million. In terms of restructuring expenses on a continuing operations basis, again, we think there's another $2 million to $3 million coming through as we just wrap up the first quarter, and we will finalize that over the coming weeks.

Slide 11, to give you a normalized review of continuing operations, by normalized, what we've done is we've taken out discrete items that I've referred to, the restructuring charges and put a constant currency view on the continuing operations. So clearly, that affects Grupo and affects the Mexico Pawn operations, which is the bulk of that.

The net revenue on a normalized basis actually increased by 2% for the year. And net revenue increased by 1%. And you will notice that the US Pawn was the area where the net revenue did not increase, actually decreased by 5%. We will touch on that a little bit later on. Again, the gap between the 2% and the 1% does reflect initiatives for the margin impact of clearing out old inventory in particular.

Other expenses -- sorry, corporate expenses sitting at minus 7% for the year, and which was down $5 million. The other expense line is the CCV profit that we take as a portion of their profit into our books, or loss. It was a profit in 2014, it was a loss in 2015. So that's what that refers to.

If I jump down again to the bottom line on a normalized basis, we're looking at a loss of $23 million compared to $8 million, and you will see where that comes from as we go through the next couple of charts. As we indicated a little while back, we had planned to move to more effective segment reporting to reflect the way the business is actually managed, and you would have seen that in the 10-K, and this is a snapshot of each of those operating units.

The normal -- these are normalized numbers, so again for the US Pawn, we just take out restructuring charges and other discrete items and have it as a part of the reconciliation back where we have a chart that takes from you GAAP to non-GAAP. In total, the revenues were down 4%.

PSC revenues were down 1% for the year, but we did see a shift in trend, particularly by the time we got from Q3 to Q4, and I will touch on that on next slide. But I'm pleased to say that we've seen continued improvements in PLO growth and PSC revenues as a result.

Most merchandise sales were up by 3%. That really does reflect the clearance of aged inventory. The merchandise margin went from 37% to 35%, and that has a negative impact clearly on the business for the year.

Scrap sales had a significant impact in revenue, and as I mentioned earlier, was a direct result of conscious decisions to back off scrapping inventory that could otherwise be sold to customers and generate more appropriate revenue, particularly once we start to deal with the aged inventory levels out there. So overall, that gave us a net revenue reduction of 5%, expenses were basically flat, and at a contribution level, which is referred to as EBIT here, it was $92 million for the year, against $113 million last year.

The next chart, page 13, calls out a couple of key indicators for the business. The US Pawn line balance in the top left-hand corner, obviously that's a key driver of our revenue structure. You can see the change trend in terms of growth over the last two quarters of the year.

At the end of the year, the PLO balance was minus 6%. We had been minus 11% earlier on in the year, and the trend had reduced. On a same-store basis, we were growing -- that trend was exactly the same. So we were moving in a positive direction, and that trend continued into the first quarter.

The pawn revenue that follows the trend of the PLO, and again, we're pleased with the direction that's heading. The pawn store count, you can see over the course of the year that we made some acquisitions, a couple of de novos early in the year, but we also had closures. I touched on that earlier, about the closures of the stores in September as a result of them being underperforming, [although] today financial hurdles.

The bottom three charts really reflect the impact of trying to clean out inventory. So this shows -- the first chart shows the sales volume last year versus this year. While the sales volume is higher, you can look at the merchandise margin and see for the first three quarters, it was significantly lower. It wasn't until Q4 we saw that cross, and that is a reflection on the fact that if you look at the right-hand column, the aged inventory started to reduce to acceptable levels. And now we think that the pressure on the merchandise margin will be alleviated coming into FY16.

The next page, which is 14, it's a similar theme in terms of margins, in terms of cleaning out inventory, a similar theme in many aspects of the restructuring the business. Although on a constant currency, ignoring restructuring costs and other discrete items, to give you a view of what's happening in Mexico, it's a positive story all the way down. We've seen growth in overall revenues, and we've seen growth in PLO. We've seen growth in merchandise sales. Again, a contraction in merchandise margin from cleaning out the old inventory. Scrap sales not quite as big an impact in Mexico.

So on the end result we saw an increase of 15.3% on net revenue. Total expenses were basically flat. And at an EBIT level, we saw a turn around from the contribution of minus $4 million last year to a positive $3 million in FY15.

Page 15 has the same indicators that we use for the US Pawn, and you can see the growth in the top left-hand corner in the pawn loan balance which has been quite consistent across the course of the year. There was no new stores. As a matter of fact, in Q4, we closed nine stores towards the end of the quarter.

The PSC revenue also increased over the quarter. Sorry, consistently from Q2, Q3, Q4. The impact of clearing inventory is shown in the bottom three charts as well.

You can see the mix of pawn sales were consistently above last year, but we did have the gross margin significantly impacted across the first three quarters. And it wasn't until Q4 that we started to see that margin start to improve. And that's as a percent of sales. That again is a direct reflection on the reduction in aged inventories, and the chart on the bottom right actually shows that quite starkly in terms of the improvement that's being made.

I will just have a quick sip of water. Thank you. Okay.

A couple of callouts in terms of performance of Grupo Finmart. Obviously, the profit before taxes is not an outcome that we would like to maintain. But we have seen a few things occur. First of all, obviously our ownership went up from 76% to 98% over the last quarter of the year.

I think the interest income continues to grow, and that's driven by some strong growth in originations, about 24% from last year. But you also will note that the bad debt expense increased from $20 million to $31 million for the year. And that's a significant increase.

And as a percentage, that grew faster than our interest income. A lot of that was in Q4, and it is driven predominantly by the impact of the 180-day policy that we have. So clearly the opportunity to recover some of that money is there, and that comes from the focus that Stuart spoke about earlier, which is somewhat reflected in the increase in the expenses, which is the investment in the infrastructure to put the appropriate infrastructure in place to be able to start the manage the business to the levels that we do expect going forward.

We talk, if we move to chart 17, not a lot to say about this, but this is the summary on the US Financial Services, which is now closed. Very pleasingly, it occurred on time and it incurred under our initial budget that we anticipated. It was good negotiations and great collection efforts that put us in a better position. I don't plan to go through this in any detail, but it does give you a snapshot of what it looks like compared to last year.

Finally, just a couple of points on the balance sheet. Continuing the themes that have been spoken about earlier, we're starting to see the growth in the PLO on a constant currency basis as we adjust for the impact of depreciation. Plus we are seeing it across the impact of the United States, we're starting to see that growth at a level that we're -- I won't say happy with, but continue the duration that we like to see.

Inventory cleanup was a significant focus for the year. I've touched on that across each of the business units. Aged inventory has been flushed down to 11% of gross compared to 20% prior. Aged general merchandise is now down to 5% of gross general merchandise. General merchandise turns improved up to 2.8 times in US Pawn and to 2.4 times in Mexico, which was a significant improvement in Mexico, which is a 56% improvement. Aged jewelry reduced to 15% of gross inventory, which is down from 30%[-odd] last year, so that's a significant reduction again. All that does help in terms of easing gross margin pressure coming into next year.

The other item, and we touched on it in Grupo as part of the restatement, we have a very robust bad debt reserve in provision practices in place. The 180 days, it's pretty brutal, but it does give focus to the business. We think the revenue recognition is now more appropriate in terms of recognizing the cash cycle.

But also does -- each of those gives us opportunity for the business, if we can improve the time to collect the whole loan, that starts to affect profitability quickly, same as recovering your bad debt, particularly on the 180 days, as well as your focus on general reserve ahead of payroll. I haven't spent much time on those, but there's still key components of trying to drive profitability for Grupo.

That's a snapshot of the year. Hopefully gives you a little bit more color than trying to scroll through the 10-K. I will hand it back to Stuart.

Thanks, Mark. Moving on to slide 19, as we indicated in our call of July 29, we wanted to set some deliverables down.

We indicated at the time that there's probably going to be a lot of noise through the accounts at the time, that it would take us a couple of quarters to stabilize the accounts to actually be able to put some robust measures around the financial metrics, particularly the cost to income, EPS growth, and the ROE above cost of equity. So we will come back to those probably halfway through the year.

In terms of mystery shopper results, it's still pretty much early days, but we're seeing some stores actually having doubled their performance over the last three months as we've gone through the store, so that's been worthwhile. We just need to aggregate all those. The net promoter scores, we're still trying to get the external view across all our businesses. The turnover rates, we are just cutting by store personnel, be it store managers, as you recall, the wage and salary, the wage people.

We're getting an average turnover of about -- our store managers, close to between 3 to 4 years, which we really want to get up to the 5 to 10-year bracket, which is why the incentive scheme and the coaching that Joe is putting in place for the district managers is quite critical. So we will come back to you a bit later on with more granularity around that, which you can measure us upon.

And finally, just to wrap up on slide 20, just to recap what we've been through, we have focused on the three core business segments, US Pawn, Mexico Pawn, and Grupo Finmart, and we will continue to report transparently on those. The execution focus which we outlined as critical to the success of the strategy is quite relentless.

We have exited underperforming sites in the pawn businesses. We've stabilized the balance sheet. We closed the US Financial Services business, we've rationalized the head office, and we have a strengthened management team both at Grupo as well as EZCORP head level.

And the early signs that we're seeing, we pointed to some of early signs in the pawn business that's looking that way, but we still have a lot more work to do to optimize the business performance as to where we think it should go.

So with that, I would like to open the line up for questions.

Thank you, Mr. Grimshaw.

(Operator Instructions)

Our first question comes from the line of John Hecht of Jefferies. Your line is now open.

Good afternoon. Thanks, guys. First question, I know you guys highlighted a couple quarters ago some strategies for corporate cost savings. Are you done there, or are there more savings to go on a recurring basis?

Hi, John, this is Stuart. We've been through the hard yards of getting the easy wins where there's been duplications across functions and head office. We don't rest on that.

I think there's still opportunity, but it won't be of the magnitude of what we've seen in the past. To shrink our head office by 45% in 18 months is fairly extreme, so we'd be more looking at the process improvement angle as opposed to the actual raw, hard cost cut-out.

Okay. Second question. Just related to the overall trends, the macro trends of the business, because you're impacted like others by local prices, low fuel prices and so forth. And you seem to have reasonably good performance coming into the final quarter from the prior quarter.

Anything you can comment on the macro trends, or is this just a block and tackle execute environment? What might we want to look for to give us some aspects of a tail wind that might help you, and others in the industry?

John, the macros are still playing around. We have even watched the sales, and they change week to week. Depends on the consumers as to what's happening.

The change that really occurred in the last quarter was -- I wouldn't call it the block and tackle, but it's similar. The hard yard. You have to do it at the storefront level, coaching and managing the teams, and also measuring the performance of what is expected.

And I would say that we lost a fair degree of sight around what it takes to be successful in customer engagement at the store level. We're actually now bringing that focus particularly to bear in the US Pawn business. In the Mexican Pawn business, they've actually been doing pretty well over the last 12 months, so we've actually been helping them tweak their model a little bit better particularly around what you should look for given the experience we have in the US.

What we see is the macro environment is really benign in terms of not seeing any rapid areas of growth coming out of it. But the issue for us as management is to try and exceed market expectations where we can by managing the business to a soft roll.

Okay. And if I can ask one final question, just so I can confirm from my perspective, is there going to be any more non controlling interest items in the P&L now that you have sold or just closed some of those other divisions?

We only had 94% of Grupo.

Okay. So 94%. You didn't buy the whole.

No.

So small bit for Grupo, and is that the final slug of that?

That's it.

Okay. Thank you.

Thanks.

Thank you.

(Operator Instructions)

Our next question comes from the line of Christian Hoffman of Thornburg Investments.

Good afternoon.

Hey, Christian.

So I'm just looking at slide 11, which is -- presents normalized continuing results. So if I look at that, I get to EBITDA in the mid $50 million area. It looks like CapEx is trending around $25 million and interest is about $17 million. Am I think about the business in the right way?

From a CapEx perspective as we go forward, we've given a view to the CapEx trend out over the next couple of years, which will be an average of $15 million per year. So for the year gone, the number was a bit higher. For the years coming we will see an average of $15 million per year if you try to work that into your model.

Okay. And I guess my follow-up question would be, if EBITDA is in the $50 million to $60 million area, and by my math, the numbers have been rejiggered a few times, but I had EBITDA closer to $230 million in 2012, which admittedly was the peak. But can you help me bridge the plus $200 million to the $50 million-ish area?

I know gold has had an impact. I know shutting down US consumer has had an impact, but with all the changes, it's pretty hard to understand the story and really get a sense of what's going on. But it's a huge delta.

It's a huge delta. I think it's probably best to answers it off-line because there's a lot of changes that occurred through that. We're out of US Financial Services, there's Cash Genie, there's a US on-line business, gold was up.

Grupo was contributing reasonably well. There's a lot of changes. It's a bridge that we can walk you through, but it will take a lot more to walk through than just a one-minute discussion on the phone, so perhaps we can catch up with you afterwards.

Who should I see for that? I know there's been some changes there as well. I'm not sure who to contact anymore.

The contact would be Jeff.

Just come through Jeff. We will link Mark in with that as well.

And should filings be normal at this point going forward, or are there any other delays or complications?

The last delay was getting on the phone call today.

Okay. Thank you.

Thank you.

(Operator Instructions)

Our next question comes from the line of Henry Coffey of Sterne Agee. Your line is now open.

Good afternoon.

Hey, Henry.

You've been through hell so congratulations. It's been a lot of work.

(Laughter) as long as we're not about to go through it again with you, that will be fine.

I will be polite. When we look at the capital structure, you have that very low cash cost of interest. Are you penalized on the convertible side with the accounting, and what is the effective cost of that on a GAAP versus actual basis? What's the effective cost -- what's the GAAP cost of your debt versus the actual cash cost?

The GAAP cost -- give me a second.

Because of the accounting for the convert.

There's significant write-off of the borrowing cost sitting in those numbers in terms of the interest number for the year. And I will have to -- just give me a couple of seconds --

Sure.

If I can pull that up. I wonder if I have that at hand. But the amortization -- okay.

The actual interest expense of the [$16 million], the actual interest expense is about $6 million. The rest is accounting.

And is some of that just related to the accounting around the convert?

Yes. So what you've got, sorts of expenses in there, the amortization of the premium, the debt premium, and the deferred financing costs are the other two components that build that up.

Given that that convert's probably never going to convert or not convert in a long time, is there a way you can adjust for that, or are you going to be stuck with that?

We're stuck with the amortization of those costs. No matter what you do, you're going to pay for it. The only way in my experience, Henry, you can deal with that is to extend the whole financing structure out, which incurs another cost. And that becomes more cash prohibitive.

Right.

An accounting bleep. So that's the considerations we would have to throw into it.

What from a cash generation, capital, stock buy-back, give us a sense of what resources you have. Do you have excess cash flow here that we can start seeing deployed in buy-backs? Do you have the capacity to support the growth that you're seeing in Mexico, both of Grupo Finmart as well as the Mexican Pawn business there?

I will probably split it into two areas. The cash we generate from the pawn operations, we try to apply back in to the pawn operations through loan growth or acquisitions should they make sense to us, or even as we see in Mexico, some of the de novo growth.

The Grupo growth story is one about how we use external finances to fund the loan growth plus also use the cash flow generator to support origination but also cover the expenses. So quite distinct ways we manage our cash across both of those businesses, but is surplus cash, we do prefer to look to reinvest into the business only because opportunities such as we've seen in pawn where they picked up 25 stores, once someone acquires them, we don't see them again.

These are unique opportunities we don't want to miss out on. We think the market in it's state is being reasonably fragmented, great opportunity to deploy cash for assets which are going to return above the cost of equity anyway.

When you estimate what your cost of equity capital is, what number are you using?

We're using around 11%.

Are there any circumstances under which you would buy back stock? There are three public companies in your sector, the other two are pretty aggressive at buying back stock right now.

We would never say never. Certainly we think that we always look at it, but at this point in time, it's not on the radar.

And then the businesses we're looking at, that's the future of the US Pawn, Mexican Pawn, Grupo Finmart. There's no other -- the lessons of a prior administration were they were looking everywhere, but these three businesses are the business going forward.

That's correct, Henry. We just want to keep it simple.

Great. Thank you. And congratulations on all the work you've done over the last six months.

Thanks, Henry.

Thank you, and our next question comes from the line of Gregg Hillman of First Wilshire Securities. Your line is now open.

Good afternoon gentlemen. Could you talk about Grupo Finmart a little bit? In the past, you said the restatement was only an accounting item and it didn't really affect the cash flows for the business. Is that still your opinion?

Yep.

That's correct.

Okay. Since you guys have come on board, have the fundamentals at Grupo Finmart deteriorated since you have been involved with the company, or have they improved?

I think the way I'd answer that is probably in a couple of phases. One is, the origination growth of the company has been very strong over the period of time as it has been in the industry. So that hasn't changed at all.

What has changed is the accounting policy recognizing the cash situation of the Company, so we've aligned the accounting and the cash consistently, so that hasn't been a change. That's actually been a statement realization.

I think the opportunities for us around some of the -- understanding the cost base and getting much closer with the risk profiling now that we're 94% owner, 76% owner, we think will strengthen the Company. So I don't think that things have worsened since we've been there. The statement, financial statements have more reflected the state of the Company the way it's been for a couple of years.

Okay. And then, Mark, the whole question of financing the growth at Grupo, I notice the interest rate, the interest cost went up quite a bit from $19 million to $28 million. Can you explain that, and can you explain how you are going to finance growth at Grupo and what kind of interest rate net of any hedges will it be whereby your cost of funds is going to be on a go forward basis?

The driver of the increase in the interest expense was predominantly the increase in the average debt held throughout the cost of the year. And that is to support the origination growth.

I didn't catch what you said. Could you say that one more time please?

It's a mix of the debt on hand increased plus the interest cost associated with the debt on hand increased as well.

Okay. Then the question of financing future growth and what interest rate and what kind of spread or -- by the way, what's the spread right now? What's the net interest margin right now for that business, or what was it for last year?

Was it 36%?

We've got a yield of 36%, from 29% last year.

So the interest rate depends a lot on where the funding comes from. Some of it doesn't come out of the US, which has a hedge overlay on it which probably averages around 14%, 15%, which is lower. It all depends on how we have actually gone about the funding bit securitized one way or another.

So it's a mixed average ratio, then obviously we want the rate as low as we can so we can increase the net interest margin which drives forward to bottom line. So we're very aware of it.

Part of the structure that we've put in place at EZCORP is we've put a treasurer in place here for the first time ever, and we have one in Grupo. So there's strong focus on the debt management side that is managed both here in the US and Mexico.

The view on loans is 30% to 40%, right?

It's 36% I think for 2015.

Okay. Maybe I will follow up off-line about that.

Thanks.

Thank you.

(Operator Instructions)

One moment please for questions. I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Grimshaw for his closing remarks.

Thanks, Sabrina. Thanks very much for taking the time to listen to the story. And we will be back in just over a month's time with the Q1.

We will be around obviously for the next few days, so we will be very happy to take any calls should you want to get some further analysis or further color on the information we've presented today. But thanks once again for your time.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.