Fisher & Paykel Finance beats profit forecast with 8.9% rise
Fisher & Paykel Finance's results were again the star in its parent company's annual results, outshining the supposedly "core" appliances business.
Thursday, May 24th 2012, 2:58PM
by Jenny Ruth
The finance company's earnings before intrerest and tax (EBIT), excluding a one-off litigation charge of $6.8 million, rose 8.9% to $37.8 million while the appliances business' EBIT fell 52.3% to $11.3 million.
The outcome beat the company's $32 million EBIT forecast for the finance company made in November last year.
Chief operating officer Greg Shepherd says the better-than-expected result reflected a significant drop in bad debts and the release of a $2 million provision made in the wake of Christchurch's earthquakes and which has proven unnecessary.
Including the Christchurch provision, bad debts fell $8.2 million in the year.
The company decided in late June last year to leave the government's retail deposit guarantee scheme six months early and has now revealed its debenture reinvestment rate deteriorated from around 60% to 38% (on a rolling six-month basis) late last year.
In the month of March, the reinvestment rate improved to 89%, similar to where it was before the GFC and all the domestic finance company collapses.
The debenture book had shrunk below $100 million but is now back to $122 million now.
Shepherd says a "cliff" of maturities had been building up with $27 million set to mature in December last year.
He partly credits the steep improvement to the attractive deposit rates the company was offering in March - 7.5% to 7.75% for one-year money.
Fisher & Paykel Appliances spokesman Matt Orr says when the company decided to exit the guarantee sheme, it had been uncertain how investors would react and had been facing questions about the retail debenture running of to nothing.
If the company had remained in the guarantee scheme to the bitter end, the December maturities would have continued growing exponentially as investors moved to ever shorter investment periods to retain the guarantee's cover, he says.
"Yes, we had attractive interest rates. It (the improved reinvestment rate) tells us investors have moved beyond that safety net, that comfort, and are now starting to look at investments on their merits," Orr says.
The finance company had sufficient cash and wholesale banking facilities to cover its debenture book 1.8 times at March 31, up from 1.6 times at September 30 last year, but, in light of the recent reinvestment experience, is looking at reducing that cover now.
Shepherd says the finance company has been working on containing bad debts for the last four or five years, illustrated by the fact its balance sheet has stagnated over that period. "That translates to a portfolio now performing at a very good level," he says.
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