Dorchester annual loss narrows, eyes reconstruction and 're-launch'

Dorchester Pacific, owner of Dorchester Finance and Dorchester Life, says its annual loss narrowed to NZ$19.1 million from NZ$25.4 million last year and notes its capital reconstruction plan is key to the group's future.

Dorchester Finance froze around 7,800 deposits worth NZ$176 million in June 2008. Investors have so far been paid back half their money. It hopes to put its capital reconstruction plan, including a rights issue, to investors next month.

Read Dorchester's full statement below:

Dorchester Pacific today posted its full year results for the financial year to 31 March 2010 reporting a Net Loss after Tax of $19.1 million (2009 $25.4 million loss).

The major item contributing to the loss was a $16.0 million reversal of the ‘fair value adjustment’ that arose from the Deferred Repayment Plan agreed with the Company’s Debenture Stockholders and Subordinated Noteholders in December 2008. The result also included provisioning of $1.0 million for the Erceg loan exposure announced on 5 February 2010 and an additional $1.9 million provision against the residual loans and property positions.

Chairman Barry Graham commented: “The year end accounts and audit did not turn up any surprises. While the additional $1.9 million provisioning against residual property loans is a judgment call the Board wishes to ensure that all residual positions are fully provided for so any future realisations post the Capital Reconstruction Plan approval and Capital Raising are in line with carrying values”. As predicted at the August 2009 Annual Meeting, Shareholders Funds have moved from positive to negative as the ‘fair value adjustment’ of $30.7 million as at 31 March 2009 reverses over the term of the Deferred Repayment Plan. Shareholder Funds at 31 March 2010 are negative $2.8 million.

However, forecasts included in the Capital Reconstruction Plan show positive Shareholders Funds of approximately $25 million following the proposed $10 million capital raising. The accounts to 31 March 2010 have been prepared on a going concern basis.

Although an unqualified opinion is expressed, auditors Staples Rodway note fundamental uncertainties with respect to realisation of property loans and positions and the validity of the going concern basis should the Capital Reconstruction Plan not be approved by investors.

Executive Director Paul Byrnes commented: “Achievement of an operating loss for the year of approximately $200,000 before the ‘fair value adjustment’, and provisioning was pleasing and slightly better than budget. “In the Dorchester Finance business, both collections and bad debts recovered from the residual Senate motor vehicle finance book have continued to track ahead of forecast.

New lending on motor vehicles as allowed under the Deferred Repayment Plan commenced in the year. While new lending to 31 March 2010 was a modest $6 million the results in terms of loan quality, average interest rate and loan margin have been very encouraging. “Dorchester Life’s insurance, savings and reverse mortgage businesses together achieved an operating profit before tax of $1.8 million (2009 $1.2 million) which was over double the profit budgeted.

The Stop Gap redundancy insurance product and the SimpleLife insurance product released during the year have achieved sales ahead of forecast. “Over the last year we have right sized staff numbers and overheads for the current business activity but still maintained the core business. Most importantly, we have identified growth opportunities for each business. The company is ready to be re-launched”. As announced earlier in the month the Company has received final approval from Perpetual Trust on the Capital Reconstruction Plan meeting documentation to be put to Debenture Stockholders subject to legal sign-off.

The Plan will be put to investors later in June. Under the Plan, Dorchester Finance Debenture Stockholders will be offered four new securities in exchange for their outstanding Debenture Stock. The Plan if approved by investors will then be conditional on a $10 million capital raising from a rights issue of 100 million new shares at 10 cents per share which must be completed by 31 August 2010.

Directors believe that approval of the Capital Reconstruction Plan and a successful capital raising will not only see the company returning to profitability, but will also put Dorchester Pacific in the right position to take advantage of the further consolidation that is inevitable in the finance industry.