Financier predicts battle

Press, 19 June 1986, Page 22

Financier predicts battle

PA Auckland Intense competition from other financiers is predicted for the present financial year by the chairman of First City Finance, Ltd, Mr David Johnson. In the annual report for the March 31 year, he says some of First City’s competitors seem to be chasing market share rather than profit. First City, he says, does not have a target market share — it has a target profit. “We don’t take on new business unless we can see that it will add to the figure

at the bottom of the revenue account as well as to the balance sheet.” Mr Johnson warns that the company’s margin in terms of tax-paid profit on average total assets will decline as the company’s gearing increases. At March 31 the ratio of deposits and other liabilities to shareholders’ funds was 5.4 times. By March, 1987, Mr Johnson predicts it will be nearer 9 to 10 times. With Interest being paid on a greater proportion of total funds, the net return on total assets should drop from the present 2.6 per cent to about 1.5 per cent, while the return on shareholders’ equity increases. As previously reported, audited tax-paid profit for the March 31 year was $705,697, more than double the $347,034 reported for the previous year. The profit was after allowing for tax of $310,572, up from $283,936. The basis for calculating the tax liability has been changed during the year. A policy of discounting the

deferred tax liability to a present value by the average cost of secured deposits at balance date was introduced. “Our prospectus forecast was an after-tax profit of $550,000 on average assets of $33.5 million and year end assets of $3B million,” says Mr Johnson. “As our average assets were only $27 million, reaching $34.6 million at balance date, we achieved a considerably higher margin than originally forecast.” The profit represents 14.1 c a share, up from 9.2 c. The accounts show the company earned interest of $7,302,755, up from $2,620,372. The bulk of that ($6,747,330) came from hire purchase and advances and money market deposits. The

contribution from Government stock was $555,425 ($316,955). The company paid interest of $4,686,626 on secured deposits ($1,308,802). Interest rates ranged from 11 to 24.5 per cent. Secured deposits more than doubled from $13,069,413 to $27,757,415. Loans and advances stood at $30,501,211 ($12,605,087), being hire purchase and loan accounts of $39,497,638 ($15,738,134) less unearned income and doubtful debts of $8,996,427 ($3,133,047). About 70 per cent of the company’s lending business continues to be the discounting of hire purchase agreements from motor vehicle dealers.