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Fisher & Paykel Finance's results shine

Fisher & Paykel Finance's performance was the stand-out in its parent company's annual results, lifting operating profit by 20% while the supposed "main" appliances business saw its profit fall 20%.

Sunday, 29 May 2011

by Jenny Ruth

The finance company's absolute result, earnings before interest and tax (EBIT) of $34.7 million for the year ended March, also outshone the appliances business' $23.7 million EBIT.

The finance company's profit increase was despite gross receivables falling 2% to $628 million.

The finance company's managing director Alastair Macfarlane says there are three main reasons for the improvement, improved margins, lower operating costs and tight control of bad debts.

Net margin improved to 10.8% from 10.6% while operating expenses fell 5% and bad debt expense eased 1%.

The company was able to maintain higher interest rates, even when the Reserve Bank cut its official cash rate in the wake of the Christchurch earthquake, Macfarlane says.

He also stresses the company's strong liquidity: while its retail debenture reinvestment rate is holding steady at 60%, it has wholesale banking facilities and liquid funds cover equal to 146% of its debenture book.

"We're just not at risk like other (finance) companies are," Macfarlane says.

While Fisher & Paykel Finance has traditionally relied on the loyalty of existing debenture holders, who tend to also own Fisher & Paykel Appliances shares, it is now working on encouraging brokers to sell its debentures, he says.

Debentures are the company's preferred source of funding, although they accounted for only 24% of its funding mix at March 31.

While many of its investors remain loyal, many have been badly burnt by the collapse of other finance companies, Macfarlane says.

A major change from the hey-day of finance companies is Fisher & Paykel Finance now has to offer debenture holders a much greater margin over bank deposits, up to 300 basis points more compared with about 40 points previously, he says.

"We have to pay a premium over the banks to encourage them to see us as a haven for their money."

A key factor in Fisher & Paykel Finance's survival when most of the major finance companies have collapsed has been "sticking to your knitting, doing what you do well and doing it better," continuing with point-of-sale lending and not getting distracted into such areas as property or car finance.

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