GFC survivor, Asset Finance, doubles full-year profit as interest income grows
By Jonathan Underhill
Sept. 11 (BusinessDesk) - Asset Finance, a Whakatane-based finance company that survived the global financial crisis despite a business model based on issuing debentures, doubled its profit in the latest year as interest income rose and expenses fell.
Net profit was $1.5 million in the year ended March 31, from $700,792 a year earlier, according to the company's annual report. Operating income rose about 20 percent to $5.98 million, driven by growth in interest income.
The niche lender, which is controlled by interests associated with Whakatane's George family, has a loan book of about $17.9 million, including a $1.04 million allowance for impairment losses, funded through the issue of debentures. As at March 31, the weighted average interest rate it charged was 20.1 percent, while it paid interest on its debentures of 8.2 percent. It targets the higher-risk end of the lending market, with about 60 percent of its book in business loans and 40 percent in consumer loans.
Asset Finance has had a bumpy path in the wake of the GFC, posting losses in 2008 and 2009 and relying heavily on support from shareholders to stay afloat. Its branch network has shrunk to eight from 14. Between April 2012 and December 2013 it was issued with two warnings apiece from the Financial Markets Authority and the Reserve Bank over two related party transactions. They were both been disclosed in company offer documents and were of benefit to the company, Asset Finance said.
The first dated back to 2009 when Clive George, father of current chief executive Blair George, pledged a luxury motorhome as security against a non-performing loan the company had made to a third party, causing the company's related party credit exposure to exceed the legal limit of 15 percent. In 2012, Asset Finance was temporarily stopped from raising money from the public by the Financial Markets Authority over a separate loan where the same motorhome was pledged as security.
The company was also admonished for the way it treated almost $3 million of tax losses purchased in 2010 from a company owned by Clive George and fellow Asset Finance shareholder Dennis Hodgetts. Had the losses been treated as a deferred tax asset as required, instead of a financial asset, the company would have breached its trust deed.
Asset Finance is on notice from the FMA and RBNZ that any further instances of non-compliance will be referred to the state agencies' enforcement teams, according to the company's September 2014 prospectus for the issue of up to $40 million of debentures.
"We had a few lean years and we've had our own problems," said chief executive Blair George. "It was not an easy time. We relied heavily on shareholder support. We’re pleased to have put these historic issues to rest so we can focus on our business."
The RBNZ-licenced Asset Finance as a non-bank deposit taker in March this year. It has a B credit rating with Standard & Poor's, which raised the outlook to stable from negative after the partial recovery of a large loan that was impaired in early 2014. At the time, S&P said the outlook revision reflected stabilisation of the company's asset quality position and "meaningful loan growth", which improved the outlook for earnings.
George says Asset Finance was the first finance company to request withdrawal from the Crown Guarantee scheme, put in place to help protect investors in the face of widespread finance company failures. It survived partly because more of its loan book was principal and interest, rather than the capitalised interest that characterised the failed finance companies that lent heavily to property developers, George said.
That difference meant Asset Finance had "cash flow flowing in every day," he said. The company was now in a position to consider expanding again, with options including adding branches in Auckland.