Credit Intelligence issues profit warning, flags $2m write-off and inflationary pressure on lending

Despite rising cost-of-living pressures which would typically be favourable to debt recovery businesses, Credit Intelligence (ASX: CI1) has recently issued a profit warning for FY23, citing struggles from their buy-now-pay-later and SME lending businesses.

The warning forecasts a significant net loss of $1.5 million, reflecting a 165% decrease compared to the previous year’s net profit of $2.3 million. 

Swinging away from what had been a profitable multidimensional financial services business, the flagship debt recovery business has not been able to offset those that have struggled as inflationary pressures have reduced household and business borrowing power. 

Credit Intelligence attributes this downturn to various factors, including a $2m impairment loss recognised in the FY23 reporting period, rising employee benefits, increased costs of developing BNPL services, and a decline in revenue from the SME credit financing business segment in Singapore. 

Credit Intelligence operates across different segments within the debt and debt financing sectors, specialising in credit management, debt restructuring, and fintech solutions. The company assists individuals and businesses in managing their debts, providing innovative payment solutions, and offering strategic financial advice. 

In recent years, Credit Intelligence has demonstrated a commendable track record, reporting consistent growth and delivering healthy profits. In FY22, the Company reported $15.7m revenue which delivered $2.3 million net profit after tax. 

However, the current profit warning for FY23 highlights a significant downturn, emphasising the challenges faced by the Company at a time where inflationary pressure around the world has increased the general cost-of-living, limiting spending. 

During the half-year, Credit Intelligence recognized an impairment loss of $2 million, significantly impacting its financial performance for the year. Impairment losses typically occur when the carrying value of an asset exceeds its recoverable amount, necessitating a reduction in its book value. In Credit Intelligence’s case, these impairments may be tied to an acquisition spree in 2020 when securing majority stakes in YOZO Finance and Chapter Two Holdings. 

These impairments may also be inflated by development costs for Credit Intelligence’s ambitious BNPL business which is yet to deliver any return on investment for the Company at a time when the global BNPL industry is flailing amid customer delinquencies, debt write-offs and regulatory pressure. 

Further compounding Credit Intelligence’s BNPL struggles, the Singaporean market, which constitutes a significant portion of Credit Intelligence’s business, witnessed a decline in revenue from the SME credit financing segment. Economic factors and changing market dynamics likely contributed to this decrease in lending. 

Despite the challenging circumstances outlined in the profit warning, Credit Intelligence remains committed to mitigating these risks and returning to profitability. The Company is actively implementing cost-cutting measures, streamlining its operations, and exploring avenues to diversify its revenue streams. Additionally, Credit Intelligence aims to leverage its expertise in credit management and financial technology to identify new growth opportunities both domestically and internationally.

Credit Intelligence’s profit warning for FY23 highlights the complexities and uncertainties faced by lenders where customer activity has been reeled in by inflationary pressures. 

This latest profit warning from Credit Intelligence follows a similar warning issued to shareholders in January 2023.