TRANSCRIPTION OF FINANCE NEWS NETWORK INTERVIEW WITH CASH CONVERTERS INTERNATIONAL LIMITED
(ASX:CCV) MANAGING DIRECTOR, PETER CUMINS
Clive Tompkins: Hello Clive Tompkins reporting for the Finance News Network. Joining me for the first time from Cash Converters International is Managing Director, Peter Cumins. Peter welcome to FNN.
Peter Cumins: Thank you.
Clive Tompkins: Can you start by giving us a sense of the breadth of the business. Where do you operate today and where does the business generate its income from?
Peter Cumins: We’ve got nearly 600 stores in 21 countries around the world. Our two biggest networks are in the UK and Australia, but we do have significant store numbers in Europe – 78 stores in France, 60 in Spain. We also have stores in South Africa, New Zealand, Asia, Canada and the States - so a broad cross-section of international countries.
Our income generally comes from retailing second hand goods. It’s a big part of our business as is money lending. We operate or we provide two products, a cash advance which is a 30 day loan and a personal loan which is an instalment credit loan, generally over about seven months.
Clive Tompkins: Peter, profit for the year was a record $21.6 million, up 33.8% for the year. What were the drivers?
Peter Cumins: Two main drivers. Firstly, we acquired during the course of the year 15 franchise stores which we brought into our company-owned network. They delivered a profit or an EBIT of 27% up on last year to about $6.8 million.
The second driver was a very significant growth in our personal loan book that was up 80% on the year before. So that produced about 58.8% increase in profit to about $15.4 million on the personal loan side of the business.
Clive Tompkins: And which areas performed better than expected?
Peter Cumins: I think there were two things that really stood out for us. One was the growth in the personal loan book and I think that came about by the constriction in the availability of credit in Australia. Banks tightened up, GE Money, Esanda – they all started to constrict the amount of credit available, so we provided an easy solution to peoples’ credit needs. So we were an obvious fill-in in that regard, so that surprised us.
The other aspect that surprised us was that our bad debt levels in both our cash advance and our personal loan products remained consistent, as they have done over the years. We did expect with the GFC that there might have been some deterioration in that, but we were pleasantly surprised that was not the case.
Clive Tompkins: Peter where is Cash Converters getting its finance from?
Peter Cumins: We did a placement last year in November to a company called EZCorp which is an American-based pawn broking company that have over 1,000 company-owned stores. And they took a 30% stake in Cash Converters or 32% and have injected about $68 million into the business. And it’s that working capital that we’ve used to fund the increase in loan books and make these acquisitions of franchise stores.
Clive Tompkins: You’ve increased the number of company-owned stores with a significant uplift in revenue, how many stores are company owned out of the total?
Peter Cumins: We’ve got 78 out of a total that are franchised directly to the company, that’s the UK and Australia where there’s about 306 stores - so 78 out of that number.
Clive Tompkins: Peter can you tell us about your move into financial services. Was it a natural extension of providing cash for goods? In other words, did many customers selling goods really want a loan rather than to sell the actual goods?
Peter Cumins: Interestingly enough it wasn’t that aspect of the business but it was born out of the fact that in our original DNA, we are pawn brokers. So we were lending money to customers and it seemed a natural extension of that part of the business. What’s taken us by complete surprise is that the demographic that uses short -term credit is the broad range. We have people that earn $150,000 a year borrowing money as we do have people on fixed wages or even welfare for that matter. So it’s a very broad spectrum of users.
Clive Tompkins: So what do you put your rapid growth in financial services down to? Is it the speed of approval, proximity to customers, a simpler process than the banks and finance companies, what is it?
Peter Cumins: You could have written our positioning statement because it’s exactly all of those points. Added to that is the fact that you can’t borrow those amounts of money from a bank. If you went to the bank to borrow $364 they’d spin you around and send you out.
The other aspects are that we deal with our customers in a way in which, because all of the loans are unsecured, we obviously can’t lend anybody any more money than they can afford to repay. Whereas people got into the problem in the first place because credit cards are just – they’ve been given unlimited credit on their credit cards, they make the minimum monthly repayment. Whereas we aren’t going to get our money back unless we make sure that what we lend you is what you can afford to repay. So a customer may come in and want to borrow $2,000 but leave with $1,000 because that’s all they can afford to repay.
Clive Tompkins: Peter now to gold sales, these are all the rage these days with sales often conducted in shopping centres, is this a significant part of your turnover?
Peter Cumins: It is a significant part of our turnover but it always has been. We’ve offered a gold buying service to our customers for 25 years and we have seen an increase in the amount of gold that we purchase, but 30% of our retail sales are jewellery. So for us, we would much rather be buying quality second hand jewellery for resale than what we call scrap gold or broken unfashionable jewellery, but we do buy that yes.
Clive Tompkins: And last question - where do you see Cash Converters this time next year?
Peter Cumins: Well we’ve put out a forecast guidance for 2011 of $27 million to $27.5 million NPAT which is a 27% increase on this year’s figure. That’ll be off the back of further store acquisitions that we made in the first quarter of this financial year and further new store openings in the UK. And we would see a significant upside in the launch of our financial service products in the United Kingdom last year, and we can see significant growth happening in that in the next twelve months.
Clive Tompkins: Peter Cumins thanks for giving us a better understanding of Cash Converters.
Peter Cumins: Thank you.
