CML Group (ASX:CGR) talks finance solutions


by Rachael Jones

CML Group Limited (ASX:CGR) CEO Daniel Riley talks finance options for SMEs looking to get paid faster and invest in plant and equipment.

Rachael Jones: Hello, I'm Rachael Jones for the Finance News Network. Joining me today from the CML Group is CEO Daniel Riley. Daniel, welcome to the network.

Daniel Riley: Thank you.

Rachael Jones: Just to start off, can you give us an introduction to CML?

Daniel Riley: Absolutely, so CML Group is a business lender, providing a specialized form of finance that provides working capital for businesses in exchange for their invoices. CML Group has a market cap of just under $100 million. We have a very supportive institutional group on our share register with 50% owned by around 15 institutions. The board and management own around 13% of the company, all aligned interest in ensuring that the company continues to build earnings.

Rachael Jones: And now to your services. Can you tell us a little bit more about invoice finance?

Daniel Riley: A common problem facing businesses is cash constraint, which is caused by delayed payment from their customers. In addition to that and adding to their problem, is that businesses are often reluctant to chase payment from their clients, concerned that it might effect their relationship. So, invoice finance solves that problem by purchasing the invoices from businesses upon completion of the service, providing an immediate injection of cash, which the business can use to meet whatever their business obligations are, being payroll, servicing the next client, ATO obligations, or anything else. In addition to that, we hope to solve the problem by providing a receivables management function where we actually manage the calls to the client's client. And in doing so, allow our clients to maintain their relationships and continue to focus on their business growth.

Rachael Jones: And what can you tell us about equipment finance?

Daniel Riley: Equipment finance is a broad industry. We have found a niche which is focused on second-hand equipment, things that have a very good resale market, transport yellow goods, items like that. There is work involved in second hand, including valuations, understanding the ownership structure. We take the asset as security, usually additional equipment, and in 50% of our lends, we also take property security, so we're very comfortable with the business model.

Rachael Jones: And now to finances. Can you give us an update on how 2018 is shaping up?

Daniel Riley: 2018, the first half compared to the same period last year, we've seen a substantial uplift at all levels. Firstly, at the volume of invoices purchased, that's increased by 16% to $581 million compared to $501 million for the same period last year. We've actually had some margin improvement in this most recent half compared to the same period last year as well. So our revenue growth on those invoices purchased has actually exceeded the growth in invoices purchased, so up 31% compared to 16% at the volume level. That increase in revenue has flowed down to EBITDA, also a 31% increase. And a further improvement in NPATA level of 86%, which has allowed up to increase the dividend by 50% from half a cent to.75 cents for the half.

Rachael Jones: And now to a more general question. Mobile apps have made inroads into many aspects of our lives, have they affected your markets?

Daniel Riley: What we feel that we do very well is manage customers. There are many fintechs with mobile apps who aren't as good at managing business, but they are very good at customer acquisition. So, where mobile apps have affected us is in that customer acquisition phase. We're competing against the fintechs by creating a fintech skin on our business, effectively technology to allow online application, access to a client's cloud-based accounting data. Once they're onboard as a client, a mobile app that allows our clients on the go to see their funding availability and request a draw down. And we feel that's a bound of development for 18 months, we feel that we're very close to being competitive in that space on the client acquisition side.

Rachael Jones: And now to the last question. What can investors look out for in terms of news flow over the next six months?

Daniel Riley: A couple of key things. We've just completed an acquisition of Thorn Trade & Debtor Finance, which is our fourth in this space. That will increase our total invoice volume in '19 to $1.5 billion compared to $1 billion in FY17 and around $1.2 billion in FY18. So I think in terms of news flow, first of all would be successful integration of that acquisition. Secondly, we are undertaking a transition in our funding for more expensive historic funding arrangements with bonds to a securitization facility with a big bank. And we expect that to complete during early April, and that transition will save $3 million in interest costs on like for like volume FY19 compared to 18, so those are probably the two keys components of news flow to watch out for.

Rachael Jones: Excellent, Daniel Riley, thanks very much.

Daniel Riley: Thank you.


Rachael Jones

Finance News Network
Rachael comes to FNN after working for Fairfax Media covering international breaking news, including the global economy and politics. She joined FNN in February 2018. She has reported on Australia’s finance news for various organisations since 2000 and has also interviewed a number of key business players, including Bill Gates. Rachael has also worked across a number of countries, including the UK and the US.