Fisher and Paykel Finance beating budget since end of March

Fisher and Paykel Appliances said in its investor update at its annual meeting that Fisher and Paykel Finance was performing better than budgeted in the group's recent forecasts prepared for its capital raising. The consumer finance company was also doing better than at the same time a year ago as the government guarantee had improved its deposit retention rates and lower interest rates had improved profit margins. However, Fisher and Paykel Finance was seeing lower lending volumes because of lower consumer spending, but it was reducing its bad debt costs. "An overall lower interest rate environment contributed to the above budget earnings performance. The Finance business has maintained a sound level of retail debenture investment with reinvestment rates averaging in excess of 70% over the past four months," Fisher and Paykel CEO John Bongard told the meeting shortly before announcing his resignation because of a worsening of his prostate cancer. Reinvestment rates fell to 50% before the introduction of the guarantee and again in March before Fisher and Paykel Appliances finalised its capital raising and its new core shareholder in China's Haier. "The expiry of the Crown Guarantee on retail deposits in October 2010 will likely have an impact on the level of retail funding, the extent of which is uncertain until the Government announces whether the existing Guarantee scheme will cease or perhaps be extended on new terms," Bongard said. "We shall position our retail investment funding to maximise this opportunity once we are aware of how the current scheme is changed." Fisher and Paykel Finance had introduced new technology to manage credit. "Recently introduced fraud detection software and new telephone technologies have increased the capacity to reduce bad debts through improved credit origination and intense account management," he said. "Nonetheless New Zealand households remain under significant financial stress due to increasing levels of unemployment and the weaker domestic economy. Management therefore expect account delinquencies and resulting bad debts to continue for some time yet before a recovery in the economy will reverse this trend." Retail spending had been generally softer across the market, but the group's Farmers Finance Card business had performed better than the market as customers switched to shopping at Farmers. "Conversely households are reducing their use of credit for the purchase of bigger ticket non essential items in an attempt to moderate their levels of household debt. Consequently there has been a notable decline in the levels of structured finance written on Q Card in the last six months." Fisher and Paykel Appliances said its finance arm was well prepared for the changes to the regulatory environment by mid 2010, including the need for independent directors and a credit rating.