Another strong result from PGG Wrightson Finance

Another strong result from PGG Wrightson Finance

PGG Wrightson Finance has reported a strong performance for the six months ended 31 December 2009 despite the tough conditions experienced by the New Zealand economy, and the banking and finance sector in particular.

The tighter liquidity conditions saw the net interest margin, a key indicator of performance, increase by 30 per cent over the previous comparable period.

Core trading results were up on the previous year. After IFRS adjustments and a prudent increase of $3.1 million in provisions for impaired assets, profit after tax for the period was $3.3 million compared to $4.7 million in the previous corresponding period.

Investors continued to support the company, with the overall reinvestment rate improving on what was already a strong position. The long-run average reinvestment rate is now 77 percent.

“These results make a strong statement about our business model, and about the capabilities and performance of our people,” said Mark Darrow, CEO for PGG Wrightson Finance.

Negotiations were completed with the company’s banking syndicate to extend wholesale funding lines for a further two years.

The company also made significant progress on enhancing its capital base during the half-year, in anticipation of the new capital adequacy requirements being introduced under the Non-Bank Deposit Takers (NBDT) legislation. $33.8 million of new capital was invested as part of the co-operation agreement between PGG Wrightson Limited and Agria Corporation finalised in November 2009, ensuring that the new capital adequacy requirements, when introduced, will be more than met.

PGG Wrightson Finance became the first company in the finance sector to offer securities both included and excluded under terms of the current Crown retail deposit guarantee scheme.

“This was an innovation designed to provide our investors with choice,” Mr Darrow said. “The difference between the interest rates on the Included and Excluded Securities is commensurate with the fee that would have been paid to the Crown for the guarantee.”

Total loans and receivables increased from $513 million at December 2008 to $551 million at December 2009, but were marginally lower than the $560 million recorded at 30 June 2009.

Since 31 December 2009 the company has enhanced its governance framework through the establishment of a new board of directors, including two independent of the parent company PGG Wrightson Limited. Mike Allen and Noel Bates, who have extensive experience in the finance and banking sector, were appointed Independent Directors in January 2010. Mike Allen was appointed Chairman. Further changes to the board were completed in February.

The board now comprises Mike Allen (Chairman / Independent Director), Noel Bates (Independent Director), Bill Thomas, Michael Thomas, Tao Xie and Tim Miles. Bill Thomas, Tao Xie and Tim Miles

are directors of the parent company. (Tim Miles is Managing Director.) Michael Thomas is Group General Manager Financial Services of the parent company.

ENDS

PGG Wrightson Finance has also successfully completed the process to achieve a credit rating from Standard & Poor’s, with a BB (stable) rating being announced on 17 February 2010. In its report on PGG Wrightson Finance, Standard & Poors said:

“PWF’s asset quality, in our opinion, is sound, reflecting the company’s good level of security over loans, good loan-to-value ratios, satisfactory credit policy, adequate provisioning, and geographically diverse loan book.”

“Underpinning PWF’s credit quality is the company's reasonably diversified funding sources and good financial flexibility, which we consider are better than most of its peers in the non-bank financial institution sector.”

Looking forward, Mr Darrow said that having achieved a credit rating above the Government threshold, the company has already lodged an application to Treasury to join the Extended Retail Deposit Guarantee Scheme. This is due to come into effect on 13 October 2010 and expire in December 2011.

PGG Wrightson Finance is New Zealand’s leading specialist rural finance company. It has a full set of financial products and services tailored to the individual needs of farmers, including full banking services with chequebooks, EFTPOS cards and online banking; and also offers term loans, seasonal finance, livestock finance, farm input finance and equipment finance. Its market presence extends throughout New Zealand, with 19 offices as part of the PGG Wrightson Limited network.

ENDS

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