- Debt collector Credit Corp (CCP) has encountered a $65 million profit hit due to the COVID-19 pandemic and a purchased debt ledger (PDL) impairment
- The company expected to net between $75 million and $80 million in net profit after tax (NPAT) during the 2020 financial year
- However, that was before CCP took the PDL impairment into account
- Now, it’s expected to bring in between $10 million and $15 million for the full financial year
- The new statistics come after the company withdrew its profit guidance in March as it braced for COVID-19’s effects
- Before that, in August, Credit Corp predicted it would earn between $81 million and $83 million in NPAT for FY20 based on its Baycorp acquisition
- Since COVID-19 hit, Credit Corp’s customers have been less prepared to agree to a long term repayment plan
- This saw a sharp decline in collections and rising loan book arrears, although the company saw an increase in willingness to make one-off repayments
- The company is expecting to announce its full FY20 results in two weeks
- Credit Corp is up 0.2 per cent on the market today, and shares are trading for $15.30 per share
Debt collector Credit Corp (CCP) has encountered a $65 million profit hit due to the COVID-19 pandemic and a purchased debt ledger (PDL) impairment.
The profit blow comes after a hefty PDL hit, which has taken expected net profit after tax (NPAT) down from between $75 million and $80 million to between just $10 million and $15 million for the full financial year.
The new statistics come after the company withdrew its profit guidance in March as it braced for COVID-19’s effects.
Before that, in August, Credit Corp predicted it would earn between $81 million and $83 million in NPAT for FY20 based on its Baycorp acquisition.
COVID-19
Since COVID-19 hit, Credit Corp’s customers have been less prepared to agree to a long term repayment plan.
This saw a sharp decline in collections and rising loan book arrears. However, the company saw an increase in willingness to make one-off repayments, which brought PDL collections for May and June back to pre-COVID levels.
Credit Corp says this is consistent with the reported unemployment rates. The company is expecting a rise in unemployment and it will be impacted if its credit-impaired customers remain unemployed for a long period of time.
This will cause PDL collections to fall, while loan book arrears will rise.
CCP also expects customers to be even less likely to pay debts, due to temporary government support measures being reduced.
How has Credit Corp responded to these figures?
Credit Corp is looking to transition ongoing purchase agreements to more sustainable pricing, which will better reflect the outlook for collections from freshly purchased PDLs.
In the lending section, auto and small-to-medium enterprises have been suspended, while lending criteria for CCP’s core loan product have been tightened, halving approval rates.
PDL impairment
Over the next two years, Credit Corp is expecting to receive 18 per cent less from its PDL than what it was originally expecting. It will write down its carrying value by 13.5 per cent.
“The reduced ability to agree to new repayment plans means that recently-purchased assets comprise the bulk of the impairment and collection shortfall,” the company explained.
What’s ahead?
Despite the huge fall in profits, Credit Corp says it “continues to produce solid operating outcomes and strong cash flows”.
CCP maintains it is well-funded, with no net debt and $375 million in credit lines available over the next three years.
“We have put ourselves in a strong position to operate confidently and maximise investment as opportunities arise during what is likely to be an extended period of uncertainty,” CEO Thomas Beregi said.
Credit Corp expects to announce its full FY20 results in two weeks on July 28 and will provide its full-year guidance for FY21 at that time.
Company shares are up slightly on the market this afternoon and are trading for $15.29 per share at 3:50 pm AEST.