SCF predicts consolidation in NZ Finance sector

Media release, 29 August 2007

South Canterbury Finance predicts consolidation in the NZ Finance sector

With South Canterbury Finance fully supporting the inevitability of industry regulation, there will be some finance companies that will struggle with liquidity over the next 2 to 4 months. Some of these companies will consolidate or progressively wind down their loan books, due to the difficulty of attracting investment funds. These companies, many of which are well managed, simply do not have scale or diversity to obtain an investment grade credit rating.

The larger New Zealand finance companies that are able to maintain sound liquidity, an investment grade rating and have a sound credit culture, will be in a very strong position, going forward.

These predictions from CEO Lachie McLeod, who today reported an unaudited $50.6 million pre tax profit for South Canterbury Finance, well up on last years $39.3 million. The company announced that South Canterbury Finance has secured a $150 million funding line to diversify its funding mix. The funding line arranged with BNZ and CBA will rank equally with debenture holders.

“With cash in the bank at the 30th of June 2007 of $140million, the additional bank line of $150million and an investment grade rating of BBB- (stable) from Standard and Poors, we are looking forward to being a dominant force in the finance company industry.”

McLeod says the key to the company’s success lies in its strategy of having regional and segment diversity along with employing highly experienced lenders. “We are not over exposed to any one region or any one segment, and the market likes that. We operate and have people on the ground in 12 regions with some real strength in the provinces and I believe we have the best team in the market."

Chairman Allan Hubbard of Timaru, who has been a prominent participant of the finance industry in the last 50 years, commented: “There are some exceptional finance companies in New Zealand, which are well run and will continue to play a large part in the business development of this country.”

He also advised: “As 2007 was our 80th anniversary year, the Directors have decided to share part of this profit, by allocating $500,000 to already approved charities. These charities will be named later in the year.”

Highlights from the June 30th 2007 year include:

* An unaudited net profit before tax of $50.6 million up 29% ($39.3 million in 30 June 2006) and well ahead of the budgeted NPBT of $45 million

* Total assets grew 20% to $1.635 billion ($1.358 billion at 30 June 2006)

* Loan and leasing receivables up 23%, up from $1.104 billion from 30 June 2006 to $1.360 billion

* Asset quality – bad debt write off down on last year with an increase in provisioning due to forecast changing economic conditions;

- Bad debt write offs of 0.20% (0.23% 30 June 2006) of gross receivables

- Provisioning 0.58% (0.21% 30 June 2006) of gross receivables

* Debenture book grew 18% or $218 million to $1.425 billion ($1.207 billion at 30 June 2006)

* Equity up $69m from 30 June 2006 to $192 million at 30 June 2007

* Cash in bank on 30 June 2007 of $140 million

* Committed undrawn bank facilities of $150 million available.

The company experienced significant growth in the business, property lending, and plant and equipment markets. The consumer and rural markets were steady as these sectors showed some weakness. During the year the company opened a new subsidiary in Wellington and established a joint venture with Kelt Capital in the Hawke’s Bay.

Another highlight was the appointment of new managers in many regions including experienced General Managers and business lenders. “We anticipate sound growth in 2007/08 from these key appointments as they implement strategic initiatives and we gain traction from regions such as the Hawkes Bay, Taranaki, Wellington and Tasman,” says McLeod.

Operational highlights of the year include:

* Being assigned an investment grade rating from Standard and Poor’s BBB- (stable)

* Commitment to the rural sector with the recent appointment of Ken Ellis as General Manager Rural based in Timaru

* Opening of Wellington Finance and appointing John McGillivray as General Manager

* Forming a Hawke’s Bay joint venture company Kelt Finance in conjunction with Kelt Capital

* A change in premises for FACE Finance, Auckland Finance and Palmerston North Finance to better position themselves in key markets

* Growth in the awareness of South Canterbury Finance and its subsidiaries.

The investment grade rating of BBB- (stable) as assigned by the international credit rating agency Standard and Poor's has ensured a steady flow of funds throughout the year. Despite having to raise interest rates the company's liquidity position remains strong and provides the necessary capital to fund the forecasted growth.

“In the last eight weeks retention rates have averaged 76% for debenture renewals which is up on the same time last year,” says McLeod. “The debenture book has shown strong growth of $218 million for the year and this is testament to the company's 80 year history and the confidence the market shows in South Canterbury Finance financial performance and management. This is now supported by a bank funding line of $150 million raised through the BNZ and CBA to diversify the funding mix.

“The outlook for the industry and South Canterbury Finance remains positive and while there may be opportunities for industry rationalisation our focus will be on growing our regional presence and strengthening our relationships within those regions,” says McLeod.

ENDS

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