Cash Converters headed for an up to $4m loss

By Nick Hall | 12 Aug 2019 View comments

A torrid year headlined by economic instability and a damaging class action payout has seen retailer and payday lender Cash Converters headed for a loss.

In a pre-results release, Cash Converters revealed to investors that it expects to poll a net profit loss of anywhere between $2m and $4m after tax. The announcement comes just one year after the iconic pawnbroker franchise posted a $22.5m profit result.

Cash Converters class action

By far the biggest factor impacting Cash Converter’s projected loss was a $16.4m class action settlement, paid in November 2018.

While the class action was accounted for, a further trial still looms large over the pawnbroker and payday lender’s head. In its pre-result release, Cash Converters revealed that it continues to incur legal fees associated with the defence of the action, with spend climbing upwards of $3.2m.

Despite the significant profit hit, Cash Converters reported that revenue was up by eight per cent in FY2019 to $283m. However, growth in the auto lending and personal loan books had also come with an associated increase in bad debt expense.

Auto lending

With demand for fast-approval loans steadily rising, Cash Converter’s foray into the market has come with some contention.

In December last year, a Senate hearing probed Cash Converters’ same day loan offering, suggesting it may have taken advantage of vulnerable consumers.

It wasn’t the first time accusations had rumbled. Back in 2016, Cash Converters was hit with an enforceable undertaking by the corporate regulator, which demanded a review of the lender’s practises.

With fresh CEO, Brendan White now at the helm, it seems some milestones are being ticked off, however it may be some time before Cash Converters sees a return. In its latest release, the brand revealed that management had conducted a review of its credit scorecards in the second half of the financial year, tightening approval criteria.

At an approximate cost of $5m, Cash Converters engaged external consultants to conduct reviews of the unsecured personal finance loan books, with some loans written off.

“Since joining the Company in March 2019 I have had the opportunity to review the business operations and meet many of our loyal customers and colleagues,” White said.

“Cash Converters enjoys a unique position in the community, servicing over 750,000 active customers across our business segments. As reflected by a strong Net Promoter Score, our customers remain the central focus of our business and we continue to strive to deliver a customer experience that exceeds expectations.”

Cash Converters future

While the costs associated with Cash Converters’ ongoing restructuring process continue to climb, now hitting $1.4m, the CEO revealed that focus on technological initiatives would help drive future progress for the chain’s 150 Australian locations.

“By further leveraging our technology platform, digital channels and extensive store network we will continue to build upon the momentum of revenue growth and operational efficiencies in 2019, thereby delivering value for all stakeholders in the year ahead,” he said.

“I look forward to updating the market further on our emerging business strategy when the full year audited results are delivered towards the end of August.”