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Cash Converters lifts performance in 2H14, but credit metrics are weaker

by Alen Golubovic | Aug 26, 2014

Key points:

  1. Revenue increased by 22% for FY14 to $331.7m but EBITDA declined 9% to $51.6m.
  2. A weaker performance in 1H14 as well as increased levels of debt to fund the growing loan book, have contributed to an overall deterioration in Cash Converters’ credit metrics in FY14.
  3. Cash Converters has expressed a confident outlook for FY15, stating that it expects the improved performance experienced in 2H14 to continue into the coming year ahead.

On the 21 August, Cash Converters reported its full year result for FY14. As recently reported in the WIRE, Cash Converters’ 1H14 results were affected by the transition to the new Australian regulatory regime for ’micro’ credits, whilst the 2H14 performance has shown a strong improvement compared to the previous half year results. Overall, the poor 1H14 result and increasing debt levels to fund the growing loan book, have contributed to weaker credit metrics in FY14 versus FY13.

Cash Converters has expressed a confident outlook for FY15, stating that it expects the improved performance experienced in 2H14 to continue into the coming year ahead.

FY14 and 2H14 Results

The table below shows Cash Converters comparative year-on-year performance, as well as comparing 2H14 to both 1H14 and 2H13:

The strong half-yearly performance in 2H14 was driven by the following factors:

  • Corporate store revenue (up 5.2% on 1H14) and corporate store EBITDA (up 27.3% on 1H14) was strong
  • The Australian personal loan book was up 19.3% to $109.2m, with strong online lending growth
  • Australian personal loan EBITDA up 22.4% in 2H14 to $21.3m
  • Australian cash advance EBITDA up 13.3% in 2H14 to $5.1m

Weaker credit ratios

The weaker performance in 1H14, as well as increased levels of debt to fund the growing loan book, have contributed to an overall deterioration in Cash Converters’ credit metrics in FY14. The table below compares the movement in key credit metrics between FY13 and FY14:

Challenging conditions for UK business

Cash Converters’ UK business continues to experience challenges, with the personal loan book decreasing by 22.7% from £20.3 million at 30 June 2013 to £15.7 million at 30 June 2014. The main driver of this decrease is due to the static loan outgoings during the period and the planned running down of the loan book as the Company awaits the outcome of the rate cap review in the UK. Cash Converters is monitoring the regulatory situation in the UK, with the UK regulator proposing changes to introduce a rate cap on outstanding daily balances. Cash Converters is reviewing the implications of this potential regulatory change, and have indicated there is still potential in the UK to sustain their financial service offering albeit on a reduced margin. The UK business has always been a small contributor to overall group profit.


While Cash Converters’ overall results for FY14 show weaker credit metrics from earlier years, the overall performance in FY14 is a tale of two contrasting halves. The impact of the transition into the new micro credit regulatory regime caused a larger than expected dent in overall performance, however, the ‘one-off’ transitionary effects look to have passed following the stronger second half performance, with management stating they are confident they can continue the strong second half performance in FY15.

As flagged in the new issue research report, while gearing was at low levels at the time of issue, the growth in the high margin alternative finance (lending) business has seen increasing levels of debt taken to fund and grow the loan book, which has been a contributing factor in the weaker credit metrics.

Based on management’s confident outlook on performance in FY15, we should expect to see an improvement in credit metrics in FY15 vs FY14, however, gearing levels are likely to remain above historical levels going forward due to the increased levels of debt to fund the growing loan book as noted above.

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