Dominion makes NZ$108 mln loss (Updated)

Dominion Finance Holdings has reported a NZ$108 million loss for the financial year to March 31 after booking losses against bad loans and goodwill worth a combined NZ$122.1 million. (Updated with details from annual report.) Dominion Finance, which has frozen investor funds and is not paying interest, is proposing a rescue plan for Dominion and North South to its trustees Perpetual and Covenant that would see the company wound up and debenture holders repaid over time. Dominion said debenture holders and banks "may well be" repaid in full, but noteholders and shareholders were unlikely to see any return. Dominion Finance Chief Executive Paul Cropp told interest.co.nz about 70% of the NZ$95.5 million worth of provisions for bad loans were from Dominion Finance, with the remainder coming from North South Finance. Dominion Finance's fate is now in the hands of its trustees and its bankers ASB and BOS International (Halifax Bank of Scotland), who are owed just under NZ$20 million and NZ$70 million respectively. Cropp said the process of finalising a proposal, if accepted, could take another 2-3 weeks.

Meanwhile, Dominion has cut 25% of its staff numbers. The huge loss, which compared with a profit of NZ$13.979 million the previous year, wiped out the group's shareholder equity, which is now listed as a negative NZ$70.296 million. The accounts show Dominion saw NZ$78.7 million worth of debentures withdrawn during the year and that it had negative NZ$703,000 in cash at the end of March. Dominion did not ask for a moratorium until June 17. The accounts show it had NZ$276 million worth of debentures at the end of March. By the time the moratorium was imposed on June 17 that number had slumped to NZ$190.5 million. It had NZ$48.7 million of unsecured capital notes on issue as at March 31. Given the heavy writedowns taken in these annual accounts it was interesting to note that Dominion said in its June 17 statement that it continued to trade profitably with net profit in April and May of NZ$2.61 million. Dominion paid its shareholders dividends of NZ$9.2 million for the year, including a 1 cents a share dividend worth NZ$716,000 on June 13. Dominion has said the Butler Trusts, controlled by founder Terry Butler, reinvested their dividends. Three quarters of Dominions loans were to owners of urban and rural sections, residential property developers or residential property investors. The accounts show that NZ$234.4 million worth of loans or 73% of the loan book was impaired as at March 31. Of those impaired assets, 40.7% or NZ$95.5 million were written off. There were a further NZ$36.05 million of loans that were characterised as past due , which means just NZ$53 million or 16% of loans were performing. Dominion's accounts show it had breached the covenants of its loan agreements with ASB and BOS International and had breached the deeds of its trust agreements with Covenant and Perpetual. Dominion also said it had become aware subsequent to balance date that a NZ$1.75 million loan to the Whisper Cove development at Snells Beach north of Auckland had become impaired. BDO Spicers, the auditor for Dominion, also gave a qualified opinion with the audit, saying uncertainties about the possible moratorium or receivership meant it could not say whether Dominion was a going concern. The full press release is available below.

Dominion Finance Holdings Limited have provided NZX with the Annual report 2008. On 17 June 2008, the board of Dominion Finance Holdings Limited entered into discussions with the group's bankers, and subsidiary company debenture stock trustees, with a view to exploring a moratorium from paying interest, debenture and capital note repayments. Subsequently the directors sought to progress a recapitalisation, with assistance from NZX firm and proposed underwriter, McDouall Stuart. These steps arose from the pressure placed on the group's liquidity due to a run on debenture maturities. This resulted from the lack of confidence in the domestic finance sector, which has been significantly impacted from the severe credit issues occurring worldwide. As a result, in the current market, this has almost created the demise of debenture based funding and the subsequent implications has created a contagion effect to property based funds and mortgage trusts. This has also increased recessionary conditions and underlying property values have fallen. With a recapitalisation proposal not having been approved, as announced to NZX on 22 August 2008, it is necessary to write off the Goodwill and Intangibles of $26.6m. When the unaudited interim results were announced in May, Bad Debts and provisioning totalled $17m, but very shortly after the demise of asset values accelerated beyond expectation. Having regard to current market conditions, we have now increased the level of Bad Debts and Provisions substantially to $80m. In addition, under new IFRS accounting standards, we have to account for future interest flows and discount them. This interest is written back over the recovery period. This non cash effect is neutral over time but severely impacts these accounts and has added $25.5m to the loss, and reduced finance receivables by the same amount. While the increased provisioning is severe, the non cash item impacts of the Intangibles $26.6m, Interest Impairment allowance $25.5m and off balance sheet unrecognised Deferred Tax Asset of $28.6m has further reduced the financial position of the business. Based on recovery of the discounted Interest in line with loans being recovered, no further detrimental market changes and the remaining part of the unimpaired loan receivables (circa 45%) performing as planned, then debenture holders and banks may be well be repaid in full (although there is no guarantee). Without some form of recapitalisation Capital Note Holders and shareholders are unlikely to see a return, unless underlying asset value recuperates significantly over the next two to three years. The business also commenced a cost review, and cost savings have been made exclusive of the one off restructuring costs of approximately $2m a year. This was significantly achieved through reduced marketing and business reorganisation. Staff numbers have reduced by 25% to date. Our People The directors, management and our people have put in exhausting hours, and devoted a huge effort during these times. On behalf of the Directors we would like to thank them for their commitment to the business. Many of our people and their families have investments in the businesses, and therefore understand the pressure and stress our investors and clients are under. Bonus Issue and Dividends Like last year, the board was mindful of the loyal support of our shareholders and wanting to maximise the utilisation of imputation credits, the Directors unanimously agreed that a bonus issue be made. The one for twenty bonus issue was announced on 14 May 2008 and allotted on 3 June 2008. The Directors declared a total fully imputed dividend of 6 cents per share. An interim dividend of 5 cents per share was paid on 16 November and a final dividend of 1 cent per share was made on 14 May 2008. The dividend was paid on 13 June 2008. Of the NZ$719,000 dividend, the majority shareholders reinvested their portion of NZ$465,000 back into the business. Outlook The board has no choice at present but to try and secure agreement for the orderly wind down of the subsidiaries, exceed the loan recovery estimates, and look for ways to improve the return to Capital Note Holders and Shareholders.