First City squeezed

Press, 2 June 1989, Page 14

First City squeezed

First City Corporation, the Auckland-based finance services group, has been required to make a $3.9 million doubtful debts provision after receiving assistance from its auditors.

The chairman, Mr David Johnson, told the Stock Exchange yesterday that First City’s finance company faced difficulties in collecting accounts because of high unemployment and a dramatic fall in the value of motor vehicles. Motor vehicles were the main security for the finance company’s loans, he said.

Because of the circumstances, the directors, assisted by the company’s auditors had made a detailed review of the finance company’s receivables, resulting in a provision for doubtful debts of $3,969,684. The doubtful debts provision in the previous corresponding period was $245,800.

The $3.9M provision, plus a new policy of writing off goodwill “above the line,” had caused the major turnaround in the group’s annual result, he said. No final dividend has been recommended by the directors.

The outlook for the finance company was that it would continue trading at a reduced level of activity. Loans and advances were S6IM at March 31, down 20.8 per cent on the previous year.

“It is not expected to be a significant profit contributor in the coming year.” Telecheck Payment Systems traded profitably, although the lower amount of retail spending in the last year had continued since balance date “and this affects Telecheck’s income.” In banking, Telecheck was showing strong growth as it became a standard part in the checking process of new bank accounts. This business would remain sound with a

strong cashflow, Mr Johnson said. In Australia, Telecheck’s business had increased sharply because of the demise of a company which "purported" to offer the same service at “totally uneconomic rates.”

Creditcorp Services, a New Zealand company in which First City held 49.9%, was consolidating its position and was expected to trade profit-

ably after establishing a nationwide network of 10 branches for debt collection and legal agency services. The new policy of writing off goodwill above the line also contributed to the $1,991,000 loss, directors said. In the latest period there was a $166,183 goodwill writedown. The writedown of $1,350,799 in goodwill on the acquisition of Telecheck in the previous year was treated as a below-the-line item. Had it not been, the profit result would have been $26,375.

First City audited annual result ended March 31 1989 ($000) 1988 ($000) Turnover 23,945 24,497 Pre-tax result (2730) 1351 Tax (credit) (716) 305 Trading result (2014) 1046 Minorities ..... — 40 Equity earnings (21) 44 Group net result (2035) 1130 Extraordinaries 44 168 Total result (loss) (1991) 1298