Broadlands expected to show dramatically improved result
Broadlands Finance's September half-year accounts will show a dramatically improved position from March 31 because of the different attitude to assessing impaired loans taken by its new auditor.
Thursday, December 16th 2010, 6:16PM
by Jenny Ruth
Broadlands previous auditor, BDO, had insisted the accounts for the year ended March show an $11.84 million allowance for impairment against gross finance receivables of $35.35 million.
Broadlands managing director Rudi Kats says the company was unhappy at what it regarded as BDO's excessive conservatism and so sought a second opinion from KPMG. After gaining that second opinion, the company decided to change auditors and appointed Grant Thornton.
A draft copy of the September accounts, which are audited but which aren't expected to be signed off by Broadlands' board until late next week, shows gross finance receivables had fallen to $34.07 million but the allowance for impairment had more than halved to $5.17 million.
This change has dramatically boosted Broadlands bottom line to a near $4 million net profit for the six months ended September compared with the $1.85 million net loss it reported for the year ended March.
For the same reason, Broadlands, which specialises in providing car purchase finance, also saw its equity position boosted to $19.04 million at September 30 from $15.08 million at March 31.
That took equity to 47.8% of total assets at September 30, an extraordinary high level for a finance company - the merged Marac, CBS Canterbury and Southern Cross Building expect equity to be a still very respectable 13% of their total $2.2 billion in assets.
Broadland's latest position compares with equity at 39.9% at March 31.
The company no longer qualified for a Government Guarantee after October 12 but Kats says Broadlands would have preferred not to have had such a guarantee in the first place. However, back in 2008 in the depths of the global financial crisis, "you just couldn't operate without the guarantee."
The company now holds about $6.9 million in debentures from retail investors. It has only one shareholder, Tony Radisich, who, in addition to equity and retained earnings, has also provided it with $5.75 million of subordinated debt at September 30, up from $5.2 million at March 31. Radisich also owns about $6 million of the company's $13.26 million of debentures.
Radisich says he is "100% supporting the company."
Despite being given a copy of the draft September accounts, Standard & Poor's last week downgraded Broadlands' credit rating from "BB-" to "B."
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