Buoyant Baycorp Advantage looks for Asian expansion

By Christine Nikiel in Sydney

Friday 8th March 2002

UPBEAT: Keith McLaughlin

Credit services group Baycorp Advantage sees a buoyant future in Asia, announcing yesterday an exclusive contract to set up a credit reporting bureau in India.

The group, which already has operations in Singapore and Malaysia, will work with the Reserve Bank of India to develop the system, and expects a roll-out by December.

The newly-merged group this week posted a 15% rise in pro forma half-year operating earnings to $A19 million ($23.3 million).

But integration and restructuring costs, heavy goodwill amortisation, and just 18 days worth of contribution from Baycorp Holdings after the December merger meant the reported net profits were down 69% to $1.9 million.

Chief executive Keith McLaughlin was upbeat about the interim result, saying the company had maintained its momentum despite the potential distraction of the merger process.

He quantified synergy benefits as predicted earnings before interest, tax, depreciation and amortisation of $18.4 million a year within three years, with the one-off merger cost of $17.1 million being spread over the first two years, he said.

The interim result was driven by the group's core credit reporting business which generated 57% of the total group revenue.

Earnings before interest and tax rose 7% to $22.4 million.

Revenue in the group's debt acquisition business fell 27% as the company backed away from what it saw as an unattractive market.

Mr McLaughlin said the group had elected not to chase debt-acquisition portfolios because prices were excessive due to many new players entering the market.

But he admitted the group was reviewing its prices in that area.

A number of capital-management initiatives are under consideration.

A share buy-back is possible within the next financial year and a "hybrid equity" issue, such as capital notes, is also being explored.

Baycorp's New Zealand shareholders, who can't benefit from Australian dividend franking credits, are potential beneficiaries of Wednesday's "triangular taxation" agreement.

A joint paper released by the Australian and New Zealand finance ministers on Wednesday proposed transtasman companies be allowed to redirect some franking credits.

Mr McLaughlin said offshore expansion by way of alliances with established players would be the group's main focus.

"Now the merger's complete we need to create additional revenue growth as opposed to slash and burn cost- cutting exercises."

International operations were expected to be cashflow positive by next year and will add about $8.6 million in revenue by 2005.

Last year's merger was the result of an exhaustive and sometimes hostile process, with talks between the Australian Data Advantage and Baycorp Holdings stretching back to 1999.

Mr McLaughlin was quick to dismiss claims of animosity between the two merger partners. He said any ill-will that may have existed no longer did so.

Baycorp has 435 staff in New Zealand and 350 in Australia, 110 of whom joined as a result of the group's joint venture with Australian receivables manager Alliance.

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