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South Canterbury profit falls 9.5% but still standing strong

South Canterbury Finance emphasised its longevity, and that it survived the great 1930s depression and World War ll, as well as its diversified lending portfolio and strong cash position when announcing its latest results.

Monday, August 25th 2008, 1:58PM

by Jenny Ruth

Managing director Lachie McLeod also stressed the financial strength of South Canterbury's owner, Alan Hubbard's Southbury Group.

Founded in 1926, the Timaru-based company reported an $82.7 million pre-tax profit which included a one-off gain of $40 million from selling its 12.75% stake in Dairy Holdings to Southbury last November. (The total Southbury paid for the stake was $42 million.)

Before the one-off gain, pre-tax profit was down 9.5% on last year's $47.2 million pre-tax profit. The company didn't provide after-tax figures and chief financial officer Graeme Brown says the company is still finalising its tax position.

Including further capital provided by Southbury, equity rose by $49 million to $252 million during the year.

Cash on deposit at June 30 was $334 million and the company had an additional $150 million in committed but undrawn bank facilities.

Total assets grew 22% to $2 billion during the year while loan and leasing receivables rose 11% to $1.5 billion. Its debenture book remained static at $1.3 billion but the company raised $525 million from two bond issues and a US private placement during the year.

Its bad debt write-offs rose to 1.38% of total receivables from 0.83% a year earlier.

McLeod says the company's bank facilities still haven't been drawn upon but cash has shrunk to about $250 million since June 30. The company would normally have about $70 million or $80 million in cash on hand.

But this was in an environment when other finance companies continued to fall like dominos.

In mid-June Dominion Finance froze debenture redemptions and began work on a restructuring plan which was rejected by the trustee last week. The company is now working on a wind-up. St Laurence and Dorchester Pacific stopped redeeming their debentures in late June and are working on restructuring plans.

Hanover froze its debentures in late July and is working on a restructuring plan and Strategic followed in early August with its management working on buying the business from its ailing Australian parent, Allco. It was the 26th finance company to get into financial trouble over the last two years.

Brown says the company's retention rate of debenture holders fell slightly to 63.7% in the year ended June from 70.4% in the 12 months ended December. He says the company was still getting $4.7 million in new money every week through to August 15.

South Canterbury's largest loan is only 2.3% of the total loan book while its top five exposures account for 8.7% of total receivables, Brown says.

McLeod says he expects there will be "minimal" other finance company failures and that confidence should start returning to the sector from about October.

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