Thorn shares slump on fresh profit warning

Consumer and business finance company Thorn Group has warned its promised small profit for the full year has evaporated

Consumer and business finance company Thorn Group has warned its promised small profit for the full year has evaporated as rising arrears in its business finance arm that have triggered a spate of write-offs are expected to dent its earnings.

Recently appointed Thorn chief executive Peter Larantzis, who is three weeks in the role, said a 60 per cent blowout in debts owed past 30 days was not symptomatic of any pressures or debt stress in the small and medium-sized business sector, but rather reflecting a change in processes and collections administrations triggered by Thorn as it restructures. Thorn is the owner of the Radio Rentals brand.

The admission that it would not hit a profit as promised panicked investors, with shares in Thorn, already beat up over the last year, slumping by a third on Monday. Shares in the company ended down 5 cents, or 29 per cent, at 12 cents.

Mr Larantzis told The Australian he was focused on restructuring Thorn’s business-lending operations and would soon move to investigating and reworking its consumer finance arm as he attempted to drag Thorn from its poor performance, profit downgrades and sliding share price of the past few years.

The embattled Thorn, whose shares have collapsed following a string of profit downgrades, a class-action lawsuit and enforceable undertakings flowing from its treatment of consumers, advised yesterday morning that the previously announced guidance of a “small net profit after tax at the trading level, that is before significant items” would not be met.

It blamed the missed earnings on rising arrears in its business finance division prompting higher write-offs and bad debt impairment provisioning than previously expected.

The company said that debts outstanding for more than 30 days had increased from approximately 5 per cent to about 8 per cent, partly as a result of Thorn transitioning its collections activities for the expected future growth in Thorn’s receivables.

“While immediate actions have been taken to address the increase, these will take some time to take effect. The impact of the increase on Thorn’s profit and loss statement will cause Thorn to record a loss for the full year before abnormals,’’ the company said.

The extent of the loss was still to be finally determined and would be provided to the market as soon as available.

In November, Thorn posted a net loss of $25.6m for the six months to September 30 and at the time promised a return to profitability in the full year.

Thorn has also appointed Paul Rathbone as the general manager of business finance. Mr Rathbone will be accountable for developing the strategic direction and leading the growth of the commercial business and will commence his role on March 23.

“The current operation at Thorn business finance provides an excellent base from which to grow,” Mr Rathbone said.

“When this is coupled with a CEO and board that is very focused on revitalising the group and achieving responsible and sustainable growth, this is an exciting time to be joining.”

Separately, Thorn said it had completed its enforceable undertaking with the Australian Securities and Investments Commission and the company’s appointed independent expert had submitted its final Summary Report to the corporate regulator.

As part of the enforceable undertaking, Thorn has remediated eligible customers in relation to breaches of responsible lending rules. Any funds that were not able to be returned to customers have been provided as a community benefit payment to support the Financial Counselling Foundation.

The breaches, which were uncovered by ASIC in 2018, included $6.1m in refunds to customers and write-offs of default fees, and an additional $13.8m in customer refunds of excess lease payments.