(Alliance News) - Shares tumbled in Morses Club PLC on Wednesday after saying it will pursue a scheme of arrangement to deal with customer redress claims for "unaffordable lending".
"Whilst the directors consider that Morses Club has adequate liquidity for the immediate future, they believe that without a potential scheme, the level of redress claims could jeopardise the group's future," it warned.
Morses is talking with the UK Financial Conduct Authority and said details of any potential scheme will be announced in due course.
Shares in the Nottingham, England-based home collected credit provider were down 38% at 5.18 pence in London on Wednesday morning.
Due to "the emerging position relating to complaints in advance of a potential scheme," Morses said it expects to recognise GBP45 million in its financial 2022 accounts as an exceptional item.
Last month, the company noted that its home collected credit division had seen a rise in complaints submitted by claims management firms, leading to claim volumes returning to the level seen in February.
"The impact of the uphold rates on complaints and adviser fees resulting from additional audit work, means that the adverse effect on adjusted profit before tax for FY22 is now likely to fall within the range of a 30% - 40% discount to market consensus," it said on Wednesday.
On recent trading, the firm said sales volumes have declined as it tightened lending policies. For the financial year ending February 2023, which it called a "transition year", it expects to make no profit.
"Accordingly, the board will not recommend a FY22 final dividend to shareholders in order to protect of the group's cash position. The short-term focus for the company is the establishment of a scheme, the outcome of discussions with the FCA about the company's business model and securing funding facilities beyond March 2023," it said.
Morses said its current funding facility of GBP35 million is in place until March 2023, and it is in talks over a possible extension and amendments to covenants.
Looking further out, Morses said longer-term market conditions are favourable due to the exit of competitors from the sector and the economic backdrop in the UK. UK consumers are currently facing soaring inflation and a cost-of-living squeeze.
"The board is confident that the group can return to profitability during FY24," it said.
By Lucy Heming; lucyheming@alliancenews.com
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