As it battles class action lawsuit.

Thorn Group has attributed adverse publicity, weaker general retail market conditions and significant business change to the decline in earnings before interest and tax (EBIT) for its consumer leasing business, Radio Rentals, as the company defends its Rent Try $1 Buy scheme, which is involved in a class action lawsuit that launched in late March.

Within Radio Rentals, Thorn has implemented several measures to address business issues, improve its customer offer, and seek efficiencies. This includes:

  • Lowering prices during the year
  • Expanding the product range
  • Becoming more modern and affordable
  • Relocating stores to higher traffic shopping centre locations
  • Increasing marketing spend

The closure of six underperforming stores and restructuring program resulted in a reduction of 53 staff. It has also developed an online customer application and credit assessment system which is in the process of being rolled out nationally.

In a statement to the ASX, Thorn Group said, “While some of these measures delivered benefits to customers and contributed to revenue increasing 2% to $251.2 million, others represent an investment in building a more stable business over the medium term, resulting in higher costs in FY17. Those costs plus the provisioning for regulatory matters led to a 17% fall in EBIT to $36.3 million.

“The Radio Rentals division provides a service that is a necessary part of the financial system, Thorn’s research has shown, with 3 million Australians excluded from the financial mainstream, nearly 75% of customers saying Radio Rentals was the only way for them to access essential household goods and 92% rating Radio Rentals affordable.”

Thorn Group acting CEO, Peter Forsberg confirmed that Thorn is actively dealing with the business and regulatory issues, and while this is causing some short term disruption, the group’s positioning in consumer and business finance has sound medium term prospects.

“In consumer leasing, the outlook is not straightforward as we deal with finalising matters with ASIC, a class action, the delay in returning customers from the launch of the four-year contract three years ago and managing the nationwide launch of a new online origination system,” he said.

“We are raising the bar in how we relate to customers with better deals on a wider range offered in new store formats and online. With Radio Rentals this year celebrating 80 years in business and, with a national customer base of 100,000, we have confidence in its medium term outlook,” he added.

“The outlook for the Thorn Group is likely to be subdued in the coming year. Over the medium term, Radio Rental’s large and loyal customer base, prices that are already under the proposed legislative caps, and the efficient cost base will position it for industry leadership and growth,” the statement said.

The class action matter involves Radio Rentals stores owned and operated by the Thorn Group in states other than South Australia. The South Australian Radio Rentals brand is not associated in any way. In South Australia, Thorn Group stores trade as Rentlo Reinvented.