Cash Store Financial eyes U.K. growth, suspends Q4 dividend payments

By Lisa Kerner

Charlotte, N.C., Jan. 2 - Cash Store Financial Services, Inc.'s position in the market remains "very strong," despite 2012 being a "year of transformation" for the company, said chairman and chief executive officer Gordon J. Reykdal on Wednesday.

During 2012, Cash Store took concrete steps to become more competitive and set the stage for expansion, Reykdal said during a conference call to discuss earnings for the 12-month period and quarter ended Sept. 30.

According to Reykdal, the company reduced expenses and recorded strong revenue and EBITDA increases in the quarter.

Cash Store reported revenue of C$50.8 million, up 4.4% sequentially compared to the third fiscal quarter, and up 7.7% compared to the C$47.2 million in the fourth fiscal quarter of 2011.

Adjusted EBITDA was C$11.2 million, up from C$7 million in the third quarter and consistent with C$11.2 million in the same quarter last year.

Going forward, Cash Store will be focused on developing new products and services to diversify its revenue stream and on improving margins by growing revenues and cutting expenses.

The Cash Store business in the United Kingdom is expected to expand, Reykdal noted during the call. "Future growth in this market will be funded from operational cash flows in that market," he said.

Balance sheet and liquidity

Cash Store ended the fiscal year with a "steady" cash balance of C$19.1 million, down slightly from C$19.3 million at the end of the prior fiscal year.

The company raised C$117.1 million by issuing senior secured notes in 2012 and used the proceeds to acquire a portfolio of consumer loans from third-party lenders in the Regulated Provinces and for general corporate purposes.

Cash Store generated C$12.3 million from operations for the year, a decrease from the C$14.9 million reported for the full-year 2011. The decline was attributed to increases in noncash expenses including depreciation and amortization, loan loss provision and impairment of property and equipment. These were offset by an increase in consumer loans receivable and a decrease in accounts payable and accrued liabilities in fiscal 2012, according to a company news release.

The board of directors elected to temporarily suspend dividend payments in the fourth quarter, said chief financial officer Craig Warnock on the call. Before reinstating the dividend, the board will consider stock and debt repurchases, among other things, and there is no timeline for reinstating the dividend payments, Warnock said.

The decision to suspend the dividend payment was "prudence on the company's part" and is not related to any debt covenants, said Warnock.

Cash Store is in compliance with all of its debt covenants.

Financial highlights

For the fourth quarter, Cash Store posted net income of C$392,000, a sequential increase of C$3.8 million compared to the third quarter, and a decrease of C$1.6 million from C$2 million for the same quarter last year.

The company reported a net loss for the year of C$43.1 million, down from net income of C$9 million in the prior year. The net loss included charges of C$44.8 million of charges, comprised mainly of a C$36.8 million premium to acquire the loan portfolio, a C$3 million addition to the UK loan loss provision, C$1.6 million in branch closure costs and C$3.4 million of impairment to property and equipment.

The charges, plus higher corporate and regional expenses, caused full-year EBITDA to decrease to negative C$30.8 million from C$24.5 million for the full-year 2011.

Full-year adjusted EBITDA decreased to C$30 million, from C$48.9 million.

Total revenue for the year was C$187.4 million, down 1.3% from the prior year.

Branch operating income for the fourth quarter was C$17.2 million, a C$3.3 million increase from the same quarter in the prior year. Full-year branch operating income was down C$11.8 million at C$43.2 million.

Cash Store Financial provides payday loans and other financial services and is based in Edmonton, Alta.

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