27/11/2014 - 14:53

Cash Converters to raise $45m, end commission deal

27/11/2014 - 14:53

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Cash Converters International says it plans to raise $45 million to help terminate commissions to development agents on its rapidly growing personal loans business.

Cash Converters managing director Peter Cumins.

Cash Converters International says it plans to raise $45 million to help terminate commissions to development agents on its rapidly growing personal loans business.

Cash Converters said it would cost $30.8 million to terminate the agency agreements with Kentsleigh and Cliffview but it would save about $5.7 million per annum in commissions, based on the current value of loans written.

“The future savings from eliminating the commission payments are expected to be significant if the value of loans written to continue to grow, as management expect them to,” the company said in a statement.

“There is a significant cash flow benefit, no integration risk and minimal additional expenses for Cash Converters to manage the product promotion and development moving forward.”

The licences, which have been in place for about 10 years, provided for the development agents to create and promote Cash Converters’ cash advance and personal loan lending products across its network.

Cash Converters said the agreement had no fixed expiration.

However, it said due to accounting standard requirements, the termination payment can’t be capitalised, and would have an after tax impact of $18.8 million on net profit for the 2015 financial year.

To raise $45 million, the company said it would place 47.4 million shares, valued at 95 cents per share, to institutional and sophisticated investor clients of Hartleys.

Cash Converters’ major shareholder EZCorp will participate in the placement to its pro-rate interest of 31.8 per cent.

The company said it would also use $12 million of the funds raised from the placement to acquire new stores within the franchised network.

Managing director Peter Cumins said the termination of the licences will have an immediate material, positive impact on normalised earnings and cash flows.

“In FY14 the EBITDA contribution from our corporate store operations increased by 72 per cent to $15.6 million and we continue to see opportunities to assertively acquire stores from franchisees,” he said.

Cash Converters shares exited a trading halt today and closed 3.8 per cent lower at $1 per share.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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