Thorn Group Limited Released 31 March 2019 Results Presentation

Thorn Group Limited (ASX: TGA) is a provider of alternate consumer and commercial financial solutions, including consumer and commercial leasing products and fully integrated debt collection. The company, by release, updated the market about its ongoing strategic review. According to TGA’s previous announcement dated 1st April 2019 related to the strategic review, profit guidance and profit update, the company highlighted that its strategic review is underway and while some parties expressed their interest, Thorn has not made any decision on the course of action, which will increase the shareholder value.

On 30th May 2019, the company published its Results Presentation for the full year 2018-19. TGA highlighted that the trading conditions for consumer leasing remained challenging. On the funding part, the securitised warehouse debt facility was expanded with a new mezzanine financier introduced, and the company obtained a credit rating as well.

From a balance sheet perspective, TGA’s radio rentals receivables book reported a fall of 11% and stood at $136 million from $153 million. TGA introduced mezzanine investor into a warehouse facility, which in turn reduced Thorn’s note contribution from 20% to 8%. In addition, the company’s warehouse borrowings were up $45 million to fund TBF growth. The lower cash flow in Radio Rentals prompted an asset write off of $10 million.

The company witnessed a statutory net loss after tax of $14.9 million when compared to previous year’s loss of $2.2 million. The results have been impacted by recording of loss in its Consumer Leasing division, which triggered asset impairment of $10 million under the accounting standards. The company stated that, the results have been lower than the guidance that company has provided to the market on 1st April 2019.

TGA reported revenue from continuing operations of $221.9 million in FY19, when compared to $234.3 million in FY18, which reflects a decline of 5% as compared to the previous year and earnings before interest and tax (EBIT) from continuing operations for the period stood at $9.8 million when compared to $17.1 million in prior year. The bank corporate debt has been paid down to $15 million, but is now subject to a draw stop requiring lender consent to access remaining headroom. The company communicated that the Auditor’s report is unqualified, but includes a material uncertainty related to going concern and an emphasis of matter on uncertainty regarding the unresolved class action litigation.

With respect to consumer leasing, the company’s arrears rose substantially on the back of declining customer financial position, change in Thorn’s collection model to a centralised basis and the introduction of a new debt collection IT system. The bad debt expenses for the period went up $7 million on a smaller book.

Looking at the business finance side of things. The impairment losses have increased as the book begins to mature, and the industry-wide problem supplier caused $10.1 million specific provision to be taken up (plus further separate restitution provision $1.4m).

On the stock performance front, at market close on 31st May 2019, the stock of TGA was trading at a price of $0.417, down 14.021%, with a market capitalisation of $78.17 million. Its current PE multiple stands at 7.82x.


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