Despite more than doubling its previously forecast level of annual impairment charges, Marac Finance's parent Pyne Gould Corporation (PGC) says its annual net profit after tax will exceed earlier expectations with a boost from its car finance business.
PGC managing director Jeff Greenslade told interest.co.nz the group would book one-off charges from asset impairments of about NZ$31.9 million when it reveals its June year results on August 26. That’s up from a forecast impairment charge of just NZ$14.4 million given with PGC’s interim results in February.
“Mostly it (the jump in forecast impairments) has come from property," Greenslade said.
“A substantial portion of that is interest which we have written off as well as some still ongoing impairments in terms of principal.”
Property loans, shuffled from Marac last year to another PGC subsidiary Real Estate Credit Limited, account for NZ$8 million of the hit and Marac property finance assets accounting for NZ$5 million.
PGC is also taking a NZ$3.5 million hit, up from a previously disclosed NZ$2.5 million, from what it describes as an unauthorized loan. This stems from a NZ$4.4 million loan thought to be linked to Marac’s former chief risk officer Grant Atkinson, who mysteriously disappeared last summer. He appeared later in a dishevelled state and has since left Marac.
Greenslade wouldn’t comment, other than to say PGC had disclosed all it wanted to on the unauthorised loan.
Despite the impairment hits, PGC expects to announce annual net profit after tax of about NZ$22 million on August 26. That’s 5% higher than the NZ$20.9 million it forecast in February, which PGC says is due to the group generating NZ$17 million more net operating income than the NZ$84.7 million forecast in February.
At NZ$22 million this year's net profit will be a big turn around on the NZ$54.4 million net loss last year, which came after tax write downs on Marac's property development portfolio of NZ$59.5 million, but still well down on 2008's NZ$44.8 million net profit.
Greenslade said car finance operations had been a notable driver. These operations had been boosted by a joint venture with the Automobile Association (AA), launched April 1, which saw the AA buy a 50% stake in Marac Insurance delivering a NZ$2.2 million one-off capital gain for PGC, and the NZ$70 million purchase of GMAC New Zealand’s retail motor vehicle financing book from GMAC NZ and Cari New Zealand by Marac.
Marac was also benefiting from reduced competition in the car finance market after the demise of rivals such as Western Bay Finance, National Finance 2000 and Provincial Finance, and the exit of GMAC and GE from the market.
“The pie has shrunk in that area, but we’re now getting a much bigger slice of that pie,” said Greenslade.
“We’ve grown market share and we’ve grown our book in a shrinking market so we’re very pleased with that.”
He hoped to provide further details with PGC’s results announcement on August 26.
Of the NZ$17 million increase in net operating income above previous expectations, NZ$3 million is from Marac Vehicle and Commercial Finance, NZ$2 million from the GMAC deal, the NZ$2.2 million from the AA deal and includes NZ$4 million from PGC's asset management businesses Perpetual Asset Management and the George Kerr chaired counter cyclical investor Torchlight. It said there was also NZ$4 million of additional interest from Real Estate Credit and Marac Property.
Further detail would be provided with the full results announcement.
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