Collection House Limited

June 2020 Quarter Highlights and Business Updates: Collection House Limited (ASX: CLH) is engaged in the provisioning of debt collection services and the purchase of consumer debt. The company operates through two segments -Purchased Debt Ledgers (PDLs) and Collection Services. The company’s trading performance during the June 2020 quarter was affected by the economic effects of COVID-19 pandemic, which impacted the capacity to address payment obligations in the company’s purchased debt business. The gross cashflow for the purchased debt business witnessed a major fall in the June quarter as compared to the previous corresponding period. CLH’s payment arrangement book continues to drive a strong sustainable cashflow stream and has increased substantially during the June 2020 quarter. During June 2020 quarter, the company has repaid $2.8 million of the senior secured facility, in-line with the requirements of the standstill agreement with its senior lenders.

Cash Flow Position: During the quarter, the company reported net operating cashflow of $20.5 million, which were in-line with the expectations. The receipts from customers stood at $45.04 million. The company closed the quarter with cash and cash equivalents of $9.65 million.

Decent Growth in Collection Revenue: During 1H FY20, the company’s PDL cash collections went up by 18% and interest income surged by 50% on previous corresponding period, indicating significant prior period investments in PDL assets. In addition, collections services revenue was flat on 2H FY19 but witnessed a growth of 9% over pcp. The company reported an underlying profit before tax $15.6 million, as compared to $8.5 million in 1H FY19. Over the period, CLH undertook an $89.9 million write-down before tax to the accounting value of the PDL book in order to gain the net present value impact of the adjusted cash collection profile.

Key Financial Summary (Source: Company Reports)

New Opportunities for Contingent Collection Business: For FY20, the company expects to report underlying earnings results (before impairment and other nonrecurring items) in the range of $16 million to $18 million. The company added that the COVID-19 trading environment had presented new opportunities for its contingent collection business supporting current and new clients managing their customers through the difficult operating environment. For 1HFY21, the company is focused on reducing gearing level. The company has also taken a strategic review to place the business for a more successful future, built on a foundation of delivering more customer focussed outcomes, mainly in its purchased debt business. The company is also focused on reshaping its future with the increased focus on good customer outcomes, better stakeholder engagement, conservative financial approach, simplification of the business model and improved transparency for investors.

Key Risks:  The pandemic COVID-19 has created an unprecedented challenge, impacting the Australian economy and businesses. Moreover, the company’s business is exposed to key risks, which include failure to collect PDLs in accordance with its pricing models, failure to retain existing and acquire new agency clients, and disruption to systems and operation as a result of a cyber breach or privacy breaches.

Suspension Details: On 14 Feb 2020, the stock was placed into a trading halt on the request of CLH due to the pending release of an announcement regarding review of its operating model and senior lending arrangements. The company’s shares have remained temporarily suspended since then as it continues to progress the comprehensive review of its operating model and collection strategies. It is also undertaking a comprehensive recapitalisation process with the support and assistance of its lenders and professional advisers. The company anticipates that the voluntary suspension of trading would remain until at least 30 September 2020. In addition, CLH is not aware of any reason why the suspension of its securities should not continue or of any other information necessary to inform the market about the suspension. In addition, the company believes that the resumption of trading in its securities would be premature and may present a negative effect on its ability to successfully implement the recapitalisation process. The stock of the company last traded at $1.085.

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