Thorn Group's investments start to pay off

John Kavanagh
After reporting a series of flat earnings results in the past few years, finance company Thorn Group has produced solid profit growth for the year to March.

Thorn made a net profit of A$30.6 million - an increase of 8.5 per cent over the previous corresponding period.

After adjusting for acquisition costs involved in its purchase of Cash Resources Australia last year and amortisation of acquired intangibles, Thorn reported underlying cash profit of $34.2 million - an increase of 13.6 per cent.

The CRA acquisition helped; the invoice discounting business added $1.2 million of EBIT in the four months after the transaction was completed in December.

But the bulk of the improvement came from organic growth, Thorn managing director James Marshall said.

"The company made a big investment in growing its businesses over a number of years. That includes investment in websites, origination systems, decisioning systems, people and marketing. The books have to get to scale for that investment to start paying off," Marshall said.

"Our equipment finance business now has more than $100 million in receivables and we are getting good earnings out of that business."

The consumer lending business, which was launched in 2009, has receivables of $44.3 million - an increase of 56 per cent year-on-year.

Marshall said that business was not quite at scale. "We set an initial milestone of $50 million. Our loan origination this year has been the biggest increase over a prior year," he said.

Thorn sells consumer loans under two brands - cashfirst and thornmoney. Marshall said the idea was to appeal to different demographics but the customer profiles of the two businesses have turned out to be similar.

Marshall said Thorn would consolidate the business into one brand in the next few months and expected to make a significant saving on marketing and other costs.

Among the company's divisions, commercial finance (Thorn Equipment Finance and CRA) was the standout, with a 133 per cent increase in EBITDA to $7 million.

Consumer leasing (Radio Rentals and Rentlo) EBITDA rose 13 per cent to $56.1 million and consumer lending EBITDA was up 17 per cent to $1.4 million.

Receivables management (NCML) EBITDA fell 37 per cent to $2.6 million.

Marshall said the fall was due to changing business practices among clients that resulted in lower contingent placements. He said the company was moving to offset this with an increase in purchased debt ledger receivables.