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- Cash Converters posted a $1.69 million loss for the 2019 financial year after having to pay nearly $20 million in a class action settlement
- Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) ended the year at $39.754 million compared to last year’s $43.51 million
- Cash Converters paid the $16.4 million and an additional $3.2 million worth of other legal fees to settle a class action launched in 2016
- Shares in Cash Converters were fluctuating between red and green today, but closed flat at 14 cents apiece in a $83.22 million market cap
Cash Converters has shared its full-year earnings and profits with shareholders today which, as could be expected, took a beating from a class action suit settled early this year.
The pawnbroking company posted a $1.69 million loss for the 2019 financial year — a heavy fall from last year’s $22.5 million profit.
The company’s underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for the 2019 financial year didn’t suffer quite as hard, but still ended the year at $39.754 million compared to last year’s $43.51 million.
Cash Converters blamed the settlement of the McKenzie class action, which was launched against the company by Maurice Blackburn in 2016, for the poor yearly results.
The class action sought compensation for Queensland borrowers who were allegedly charged massive interest rates for one-month loans between April 2010 and June 2013. At the time, consumer protection laws in Queensland imposed a 48 per cent per annum interest rate cap for loans in the state.
Cash Converters, however, allegedly charged borrowers effective interest rates of over 400 per cent per year by charging excessive “brokerage fees” for cash advances.
While Cash Converters never admitted guilt, it did offer to settle the class action in October 2018 by paying $10.6 million into a fund for distribution to members of the class. On top of this, Cash Converters would pay $5.8 million in legal fees.
At the end of January 2019, the Federal Court approved the settlement. Cash Converters paid the $16.4 million, but also had $3.2 million worth of other associated legal fees.
The company explained that had it not had to pay these fees, profits would have come in at $20.7 million for the year. Of course, this is still a 8.03 per cent decrease on the previous year, but is certainly a more promising figure than the million-dollar loss.
Moving forward, the company is currently a business in transition, its annual report said. It appointed a new CEO in Brendan White in December 2018, and plans to transform itself into a diverse, sustainable and profitable business over the next five years.
As it stands, Cash Converters is still waiting on the outcome of the Lynch class action — launched the same time as the McKenzie class action and accusing Cash Converters of similar misconduct. The company says it doesn’t know how this class action will impact business, but it will keep preparing itself for growth once this issue has been resolved.
Shares in Cash Converters were fluctuating between red and green today, but closed flat at 14 cents apiece in a $83.22 million market cap.
