Dorchester profit boosted by capital reconstruction plan

Tuesday 31st May 2011

Dorchester Pacific has reported a $14.1 million net profit after tax boosted by the fair value adjustment made following its capital reconstruction.

The fair value adjustment reflects the forgiveness of debt in return for the four securities issued to debenture holders and note holders and includes an amount of $3.4 million that will be charged to the income statement as interest expense over the remaining life of the 2013 Notes.

On the more meaningful trading performance measure of Operating Surplus before Tax and Fair Value Adjustment, the result is a loss of $1.6 million, compared to of the $4.4 million loss forecast in the 5 year Prospective Financial Statements prepared last year as part of the Capital Reconstruction Plan.

“Dorchester reported in November 2010 that the half year operating result to 30 September 2010 was some $1 million ahead of forecast. It is pleasing to have built on this gain with better than expected trading in both Dorchester Finance and Dorchester Life operating subsidiaries over the second half," Chief executive Paul Byrnes says.

The balance sheet shows positive shareholder funds of $25.8 million as at 31 March 2011. Net tangible assets per share are $0.13.

The significant hotel properties were transferred into the Dorchester Property Trust as part of the Capital Reconstruction Plan. Directors have elected to take an additional write down provision of approximately $1.3 million against the four non-core assets remaining from Dorchester's property loan book. The additional provision has been booked in the accounts to 31 March 2011.

"While plans had been to hold these non-core property assets for two to three years, directors now believe that returns available from putting funds to work in new lending or opportunities in mergers and acquisitions activity will provide a better return over that period and will keep the positive performance momentum going," Byrnes says.

He says that Dorchester Finance's new lending, interest rates achieved, general loan quality and arrears performance were all at or ahead of forecast.

“Our focus is a quality receivables build. Cash collections and bad debts recovered on the legacy Senate motor vehicle book have been consistently ahead of forecast assumptions."

"Dorchester Life also achieved an operating profit ahead of budget. The SuperLife savings product and Reverse Annuity Mortgage (RAM) book contributed strongly. A number of insurance products have been restructured and realigned and an expanded suite of products will be released both through the sales agent force and intermediary broker sales channels over the next 3 - 6 months. Distribution of the Aon Kiwisaver product commenced in April.

The group is forecasting a net profit before tax and fair value adjustment just ahead of the break-even profit forecast included in the five year prospective financial information for the year to March 31 2012.

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