Finance stars in Fisher & Paykel results
Fisher & Paykel Finance was the star of parent company Fisher & Paykel Appliances' first-half results, accounting for 73.6% of group operating earnings.
Friday, November 26th 2010, 3:03PM
by Jenny Ruth
Its earnings before interest and tax rose 52.4% to $18.9 million for the six months ended September 30.
"In spite of a challenging economic environment and soft retail trading conditions in New Zealand, the finance group prospered," says the finance company's managing director Alastair Macfarlane.
One reason behind the finance company's strong earnings has been the expansion of its product offerings across a wider range of retailers through its Q and Farmers cards, Macfarlane says.
The company has also been encouraging retailers to use its finance products to be more creative in their marketing than simply discounting, he says.
"A growing number of retailers are understanding the benefits they can get from offering customers a wider range of payment options."
Net receivables rose 6% to $600 million. While overall external funding, or debt, rose 12% to $575 million at September 30 from a year earlier, retail debenture funding fell to $154 million from $175 million. The company says its debenture reinvestment rate is currently running at about 67%.
Macfarlane says the company is working on migrating debenture investors towards non-guaranteed debentures ahead of its government guarantee expiring on December 31 next year, although progress is very slow.
"The speed with which investors are wanting to migrate from the comfort of the guarantee to a non-guaranteed offer is slow because they've been so badly burnt, many of them, over the last two years," he says.
"It will take time for investors to have their confidence restored."
The company is also discouraging investors from taking up investments maturing in the last quarter of next year by offering relatively unattractive interest rates on debentures covered by the guarantee.
For example, it is offering only 4% on 12-month guaranteed debentures to new investors compared with 6.75% on non-guaranteed 12 month debentures.
"What we don't want is a concentration of maturities in that last quarter of the calendar year," Macfarlance says.
He is concerned about how much appetite investors will have for debentures once the government guarantee expires and the company is already working with brokers and financial advisors, he says.
"There will be inevitably, after the deposit guarantee expires, a proportion of New Zealand savings that will not end up in banks. That's because people will want to have a higher yield than the banks are prepared to pay them."
Nevertheless, Fisher & Paykel Finance has sufficient undrawn bank facilities to repay all its debentures, should it come to that, Macfarlane says.
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