Thorn Group slumped yesterday after it slashed its earnings guidance by around 30% for the year to March 31 next year and raised questions about the sustainability of its already reduced dividend.
The company told the ASX yesterday morning that expects a half-year profit of $11 million, with a full-year profit of between $17 million and $20 million for the year to March 31, 2018, a 30% reduction on last year.
That sparked a huge sell off in the shares and they ended down 22% at 90.5 cents.
The guidance reflects a worsening in trading conditions for its key Radio Rentals division, as well as ongoing ASIC investigation into Radio Rentals’ responsible lending practices and the class action launched by Maurice Blackburn.
As well the company’s earnings were undermined by the weak retail market conditions, the delay in returning customers due to the launch of the 4 year contract 3 years ago, adverse publicity, and significant operational changes.
In revealing the 30% slide in full year profit, Thorn said; “There continues to be a number of other variables which may have a material financial impact on Thorn’s business and financial performance in the short to medium term,” the company added. “These include the ongoing Australian Securities and Investment Commission investigation into Radio Rentals’ responsible lending practices (for which Thorn Group has already made certain provisions) and the class action launched by Maurice Blackburn.
"The weakness in performance is due mostly to the challenges faced by Thorn Group’s Radio Rentals consumer leasing division. These challenges include weak retail market conditions, the delay in returning customers due to the launch of the 4 year contract 3 years ago, adverse publicity, and significant operational changes arising from the roll out of the new online origination and credit assessment platform.
"This has resulted in the installation volumes for Radio Rentals for the half-year being 27% down on the same period last year.
"Regarding Thorn Group’s other operating divisions: Business Finance has continued to grow its receivables book strongly and Consumer Finance continues to wind down its receivables book in line with expectations.
"Corporate expenses are elevated due largely to the cost of administering the regulatory and legal issues facing Radio Rentals as well as the one-off expenses arising from the need to appoint a new CEO,” Thorn said yesterday.
Thorn Group also said that its two banking facilities have been rolled over, but the total of both facility limits has remained capped at $355 million and the corporate facility rollover includes progressive limit step-downs (reductions).
It also said announcement about the size of the half-year dividend will be made in November. Earlier this year, Thorn Group cuts its final dividend to 2.5 cents per share, from 6 cents per share last year. It paid an interim for 2016-17 of 5.50 cents a share – that will not be the amount declared next month.
