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December 27, 2007 |
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SPEIRS GROUP: Books NZ$305,000 Loss in Six Mos. Ended Sept. 30 Speirs Group Ltd reported a net loss of NZ$305,000 in the six months ended Sept. 30, 2007, on revenues of NZ$24,183,000, which earnings is a 1.68% increase from the same period in 2006. The company produced an improved underlying profit from trading in conditions that have not been favorable to the finance industry in New Zealand, Speirs noted in a regulatory filing with the New Zealand Stock Exchange. During the six-month period, important groundwork was undertaken with a view to generate more profitable trading and growth in the medium term, the company added. According to the company, its Finance Division has achieved a significant performance improvement in the first half. The Foods Division, however, suffered an unexpected setback from underlying cost increases while start-up costs associated with the Speirs Nutritionals omega-3 venture have had the expected and inevitable adverse impact on the Group's profit performance. The latter is partially absorbed by the minority interest shareholding in Speirs Nutritionals Limited. Finance Division The six months ended Sept. 30, 2007, saw unparalleled pressure placed upon the finance industry in New Zealand. Sectors of the industry that have been particularly vulnerable have been those whose prime business has been to fund property or property development, those providing funds to the lower end of the consumer vehicle market and those applying significant funds to companies or others to whom they are 'related'. Most of these companies have been completely reliant on the public sector to provide their funding lines in the form of secured stock or similar funding instruments. While Speirs has avoided all these pitfalls, it is nevertheless considered by most commentators as being, first and foremost, a finance company. As a result, the company has not escaped the impact of the cautious approach being adopted by the media and the public when dealing with the non-bank finance industry generally. The particular impact for us has been with regard to unplanned costs in maintaining satisfactory public secured stock funding, coupled with the use of wholesale backup funding facilities that the company had previously and prudently put in place. The company's securitisation programme, established some ten years ago, now provides in excess of 50% of its funding needs. During August 2007, at the height of the disarray within the finance industry both in NZ and overseas, the company was strongly supported by the Bank of New Zealand who substantially increased its day to day credit facilities and the facilities associated with the securitisation programme. Almost all Speirs lending is to the commercial sector within New Zealand. Its lending is to a wide range of industries and is geographically spread throughout the country. The company highlighted that overdue accounts have reduced markedly, it is not involved whatsoever in funding property developers, and it receives strong inwards cash flows every business day from a broadly dispersed commercial clientele, each of whom make monthly repayments to the company under asset financing agreements. In spite of the many difficulties facing the industry, the company believes its finance division acquitted itself well during the six month period. Last full year's result was distorted by the collapse of an otherwise sound client due to an internal fraud. This year's first half result, according to the company, has been achieved under: -- continued stringent lending criteria; -- continued intensive and rigorous asset valuation and disposal practices; and -- conservative individual provisioning for impaired and doubtful debts. It also reflects the benefits being generated by new value adding service offerings, including end-to-end asset procurement, management and disposal services, fuel card services, vehicle maintenance services, tailored insurance arrangements, and performance benchmarking. "The division is in good heart," the company said. "If [it is] permitted reasonable finance trading conditions, [its] Directors expect a worthwhile second half performance." Foods Division Speirs Foods manufactures and distributes fresh foods to supermarkets across New Zealand. The very nature of the product implies a heavy weighting towards the summer months in terms of volume. The first six months -- the winter months -- of its financial year traditionally produce low volumes and modest profit at best. During this six-month period the division faced cost increases in all three major cost centres -- materials, labour, and freight. Price adjustments have been made, effective in the second half year. The company expects a significantly improved performance in the second half. Speirs Nutritionals Limited This start-up operation -- 60% owned by Speirs and 40% owned by Massey University interests -- is being developed to produce omega-3 emulsion for global markets. This is a significant undertaking, and will take time to establish and bring to profit. Speirs Nutritionals Limited is now not expected to move into profit until the close of the 2009 financial year. In the meantime, on-going costs must be absorbed. Establishment costs are in line with our expectations. Dividends and Interest Payments Given the disappointing half year results, the directors have decided that no interim dividend will be payable to Shareholders. Interest payable on Speirs Bonds, Subordinated Notes and Secured Stock will be paid in the usual manner. Outlook The negative climate currently prevailing within the finance industry in New Zealand is well known. Speirs is taking the measures necessary to 'weather the storm'. Notwithstanding the conditions prevailing, the Finance Division performed adequately in the first half. While external factors may well impact on volumes, we nevertheless expect a satisfactory second half. The Food Division had a difficult first half. The second half will see an improved performance. The Nutritionals venture promises to become a most profitable and satisfactory business. The start-up costs, while regrettable, simply have to be accepted. About Speirs Group Speirs Group Limited -- http://www.speirs.co.nz/ -- is a New Zealand-based investment company. The company operates two commercial divisions: Speirs Finance and Speirs Foods. Speirs Finance is engaged in asset backed financing. Speirs Foods is engaged in production and distribution of fresh food, such as salad and fresh cut vegetable to retailers and caterers. * * * The Troubled Company Reporter - Asia Pacific, on Dec. 18, 2007, listed Speirs Group's 13.16% bond with a June 30, 2049 maturity date as distressed at NZ$60. |
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