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Hanover Finance accounts show NZ$102 mln loss for year ended June 30 (Update 3)
November 16th, 2009Hanover Finance, which is currently operating under moratorium, has released its accounts for the year ended June 30, 2009. The accounts show the company made an operating loss before fair value adjustments of NZ$283.2 million for the year, but after fair value adjustments Hanover recorded a NZ$102 million loss. (Update 3 includes directors’ comments.)
Hanover’s investors voted overwhelmingly in December last year to allow the company to operate under a five year moratorium plan, under which secured depositors were promised full repayment of deposits, although not interest owed. However, last week Hanover said this repayment was now estimated to be 70 cents in every dollar after “significant deterioration in the property development sector resulting in a disconnection between property valuations and the market value of assets”.
Hanover’s Directors said application of International Financial Reporting Standards had impacted “heavily” on the company’s financial results.
We have included the Directors’ report and the accounts below and welcome readers’ insights and comments.
The accounts show bad debts written off of NZ$137.1 million and provisions for credit impairments of NZ$136.9 million. On top of these, Hanover also wrote down NZ$34.6 million of investments held in non-charging subsidiary companies. Bad debs recovered over the year were NZ$405,000.
Directors’ comments
Hanover chairman David Henry and directors Des Hammond and Mark Hotchin said the ongoing challenges of the economic environment, together with the requirements under the IFRS, had impacted heavily on the company’s financial results.
“Application of IFRS has resulted in significant adjustments in the reported results because of the requirement to discount future cash flow forecasts on both the liabilities and asset side of the balance sheet,” they said.
“Under IFRS, given that no interest is being paid to Secured Depositors and Bond Holders under the DRP, there was a large gain credited to the income statement of NZ$190.0 million. This apparent gain will be fully written back over the five years of the DRP by a series of negative adjustments to each annual Income Statement.”
“Also under IFRS and impaired accounts receivable loans are discounted back from their projected future cash flow recoveries at the rate originally applicable to each loan even where interest charges have been adjusted or written off resulting in a large apparent cost being debited to the income statement of NZ$62.7 million. This apparent cost will then be credited back to the Income Statement over the assumed collection time of the impaired loan regardless of whether it is actually received or not.”
“These IFRS adjustments produce theoretical financial statements and financial results that few of our Secured Depositors and Bond Holders will fully understand because the adjustments fail the common sense test for companies operating under approved moratoria and in an asset realisation mode.”
Five Mile, Kawarau Falls
The directors said that realising good values from Hanover’s exposures to the Five Mile and Kawarau Falls developments in Queenstown was “very important in achieving estimated recoveries for Secured Depositors”.
“The Kawarau Falls, Stage I hotel development, which is in receivership, is now expected to be completed in early 2010. It now appears that the stage II hotel development, being a company not in receivership, may precede given that stage I hotel development will be completed,” they said.
“Since early March 2009 more parties have realised the strategic value of the two Five Mile development sites. The first site had town planning approval and recently the second site has received town planning approval by the council, which has improved its strategic value.”
Tags: Hanover Finance
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November 16th, 2009 at 4:33 pm
Hanover’s Directors said application of International Financial Reporting Standards had impacted “heavily” on the company’s financial results.
Why wouldn’t they have previously been using the international standards. What standards were they previously using. Hanover are whining because they ow have to apply a new type of standard for their reporting, but it appears they are whining, because it makes their accounts not look as good as they did using the old standards. Surely this is all down to interpretation of the figures anyway, and doesn’t affect the actual facts.
November 16th, 2009 at 4:36 pm
Wow, they started the year with nearly $500m in loans 30 June 2008, they lost $300m in impairments in the year to 30 June 2009. That’s brutal. If my math is correct, that is a 60% loss. And SCF provisioned only 10% of its property development loans as at 30 June 2009. That 10% could end up to be a lot more, and we’ll see about it in a year, if not sooner.
November 16th, 2009 at 4:40 pm
And David, that sector can only get worse.
November 16th, 2009 at 4:44 pm
You do have to wonder where Hanover got the advice from , that the commercial property sector would ’stabilise within the next year’, which is what they based the 100% payout on. They obviously hadn’t been reading interest.co.nz.
No wonder Consumer NZ ranks NZs financial industry so badly.
November 16th, 2009 at 5:13 pm
Rob : The pity of it is that Bruce Sheppard did his best to prevent this sorry saga from dragging on . He proposed a quick wind up of the company . And was vociferously cried down by the policy holders . 80 % of capital now , or maybe 100 % in 5 years time . Poor deluded fools ! ( bouquet to Brucie : Yer did the best ya could , man . )
November 16th, 2009 at 5:17 pm
IFRS has not helped the bottom line with most entities however they can’t hide behind that. It is worse than what I have generally seen in the sector.
Impairment in hotel/hospitality/property has been massive in the past year, accelerating from March/April, around 40% average so 60% seems high and dramatic to me. Some carry over from last financial year perhaps??
November 16th, 2009 at 5:36 pm
“Hanover’s Directors said application of International Financial Reporting Standards had impacted “heavily” on the company’s financial results.”
I guess this has something to do with mark-to-market. This is a problem many Japanese companies and banks had to contend with after the collapse of their asset bubble. I guess Hanover likes it sufficiently opaque so asset values look much better than they really are.
November 16th, 2009 at 7:58 pm
re iFRS… you can assume that the auditors have been pretty brutal with these accounts…
The IFRS inspired jiggery pokery does make a bit of a nonsense of the accounts… because it is very hard to see the cash on cash effect… using DCF to revalue assets and liabilities is always fraught with error and judgement… I do have some sympathy for their complaint as the cash on cash impact is now blurred by all the ‘help’ IFRS is supposed to give readers of financial statements.
However, noting about IFRS can take away from the fact that Hanover have been seriously beaten up by the property market… Strategic has done OK, but look what happened to Dorchester and St Laurence… St Laurence have only just escaped from receivership…
November 16th, 2009 at 9:52 pm
Bruce Sheppard described the Hanover boys as “pricks” on Campbell live. The word “prize” should have been inserted!
November 16th, 2009 at 11:47 pm
I wonder if Mark Hotchin’s will keep to his promise on TVNZs close up program, and put more money back in, so investors will get back all of the money they put in (less that interest). If he wants to continue living in Godzone, he should, as he admitted that he wanted to stay here. Or I wonder if that pleading on TVNZ was the last we will hear from him, now he has got that moratorium, which brought him time. People won’t forget him.
Yes Shephard did say that they should vote for receivership, and I know investors who did vote that way. However there was NEVER any promise of getting 80% back by PWC, if it was placed in receivership. Hanover were just a marketing machine, and they did a good job marketing that, even though it appears that it was mainly smaoke and mirrors. PWC who actually recommended not putting it into receivership, said that investors MAY get back between 60-80% back, but that also could have been significantly less. Unfortionately other financial commentators wheren’t as blunt and straight forward as shephard was, so the media made the moratorium sound like a good option.
November 17th, 2009 at 7:46 am
Those who agreed to the payout are sheeps…. baaabaaa
November 17th, 2009 at 8:28 am
I completely disagree with your correspondent ROB who says “… the media made the moratorium sound like a good option.”
As someone working in the media, I along with the vast majority of other business journalists made numerous statements at the time that receivership was the better option for investors. In fact, I cannot recall a single person in the media or commentator arguing the contrary prior to the investor meeting to vote on the issue.
So don’t blame the media Rob. I know we’re an easy target, but in this case, hand on heart, I believe the media did a very good job at trying to present the real facts of the case to investors. The fact they chose to ignore it is, of course, entirely their prerogative.
November 17th, 2009 at 8:42 am
Phew..these Hanover guys have a nerve to show how inept they really are….recovering $450,000 in bad debts and writing off $137,000,000.
The shareholders have simply been sucked in to think that something would be recoverable from their shonky operation…which in hindsight was all about feathering their own nests.
Maybe as with Madoff, they should all be in jail while someone sells off all their flash suits and countless Rolex watches.
November 17th, 2009 at 8:49 am
Away with you bruce..Mark Hotchin and the other prick will be at the top of the new years honours list…just the type for JK…property developers….real National Party Breeding there…next will come the ComCom leadership for services to the economy!!
Oh and it must be Don’s turn…thunk tanks need knights at the helm.
November 17th, 2009 at 8:58 am
Shame that the centi-million blackhole isn’t in Chch . Ever generous Mayor Bob and his fellow wannabe property developers in the Chch City Council would’ve bailed Mark & Eric , allowing them to develop again , another day……….Ahhhhhh , silly of me , the lads already have helped themselves and scarpered the money-pit . Only the Goldie Oldies got to suffer now . Whew ! That’s OK , then .
November 17th, 2009 at 9:20 am
Roger Thompson – Bob P and his (in the pocket) councillors are too busy bailing out Dave Henderson and building their own glass palace to have time for the Hanover pair.
November 17th, 2009 at 10:15 am
Yes Andy . I am aware of that . Thank goodness I live out in the Waimakiriri district , where our council is much more ……………… Ooooooooh , better not finish that , and make a total tit of myself !
November 17th, 2009 at 10:26 am
“IFRS don’t allow us to hide and lie”…so this is the truth….sorry….
“disconnection between property valuations and the market value of assets”…..the market valuation is wrong, ours is correct, but then we can’t sell it at our value…so it’s not our fault….
The next question on “Who Wants To Be A Millionaire”…
“Suck”, “Sucking” “Sucker” “Suckers” “Suckered”…which most described Hanovers Depositors??
November 17th, 2009 at 10:37 am
Sunked !
November 17th, 2009 at 10:52 am
Wonder if they are currently banking on getting the million + back that our Council up this way made them put away for a rainy day should Matarangi fail… or fail to meet their obligationsl……….. I believe that the Council is, or about to start spending that money now and I do not think that they will get anything back.
Anyone want a piece of sand-dune to buy?
November 17th, 2009 at 11:01 am
I took a look at the accounts of Hanover, quite a sorry picture. Very high proportion of a) impaired assets b) second/subsequent security positions and c) exposure to property development in troubled areas (hotels, bare land, commercial, tourism). So, it appears they are at the mercy of first mortgage holders who want out and don’t care for the second mortgagee’s position, and the company lacks the funds to buy out first mortgagees, and even if they did, they would be at the mercy of the market fortunes.
November 17th, 2009 at 11:09 am
I don’t know why Kiwi’s are so passive. Most other countries these guys would have headed for the hills before they were lynched or worse. Look at what happens in Australia. If I’d lost the amount of money some people here have to these financial charlatans I’d be outside their homes every morning with a bloody great banner at least. Imagine 1000 Hanover depositors blocking Paratai Drive every day for a couple of weeks as they chant and hurl eggs outside Hotchins house. Great TV watching old people lynching the wideboys. The Police would be helpless and the Government might have to step in and do something (like having Diplock investigate and prosecute somebody) Politicians love to comment on crime except when its big white collar fraud.
Mrs Hotchin must be proud of her boys!
November 17th, 2009 at 11:40 am
The only way that Hanover investors could get 100% out is if they agreed to pump in more money to a) complete projects and/or b) take out the 1st mortgage holder. ifrs is nothing more than smoke and mirrors. dcf calculations are nonsense when markets have failed so dramatically, as is the case now. The cash flow statement if prepared comprehensively is probably the only useful information to be taken from the accounts. The big problem is that unless investors can agree to a protacted windown and have sufficient resources to see the thing out, receivership will be a sorry saga and result in massive loss. great shame
November 17th, 2009 at 1:15 pm
Andrew, I dont agree. There wasn’t really detailed analysis by the media on the different options, and what PWC was recommending was correct. There were some blogs, but those aren’t really news reports, but personal opinions. There should have been more people saying that receivership is really the best option for investors, if that was truely the case. However very few stuck their head out to say this. Maybe it is becuase media stories are supposed represent the facts, rather than personal opinion, and they didn’t want to risk getting sued. You always get people in the media saying after the fact that these types of companies were in trouble, which is far too late.
I do believe NZ is let down by the media when it comes to business reporting and accessible business news. This is why interest.co.nz is so popular, becuase it fills the massive gap.
November 17th, 2009 at 1:37 pm
stevek Says:
November 17th, 2009 at 11:09 am
I don’t know why Kiwi’s are so passive. Most other countries these guys would have headed for the hills before they were lynched or worse. Look at what happens in Australia.
I agree, I don’t know why some of these investors haven’t done that. There was a bit of that with the ANZ ING fiasco, where some cusomters picketed the bank. There is an organisation that is helping out people who have been affected by these finance company failures, so I would have expected that they may have organised something.
November 17th, 2009 at 1:55 pm
Rob – Its surprising in a nominal democracy what a few thousand people and a bit of media attention can achieve. Although the Hanover guys may be beyond embarrassment, like many of their ilk before them. Unlike most of their depositors they have the option of a luxurious exile in London or Geneva. Still, I’m sure an egging or two would give a bit of satisfaction.
November 17th, 2009 at 1:55 pm
“stevek says: I don’t know why Kiwi’s are so passive. Most other countries these guys would have headed for the hills before they were lynched or worse.”
It’s because they are (old) sheep (being taken to the slaughterhouse).
November 17th, 2009 at 2:16 pm
Guy breaks into a house and steals a $1000 dollar TV. Gets prosecuted and jailed. Home owner feels violated but can move on. Finance company goes into receivership under a cloud of related party transactions and high fees paid to owners. Thousands of mainly older people have their lives disrupted and their retirement ruined. Some feel suicidal. No investigation, no prosecution. No comment from politicians.
November 17th, 2009 at 3:53 pm
“I don’t know why Kiwi’s are so passive. Most other countries these guys would have headed for the hills before they were lynched or worse. Look at what happens in Australia.”
Could always join me on the march for democracy this weekend. I am still young and stupid enough to a) think that polititians should do what the majority want b) that protesting will make a difference. c) May parents generation will sort out their mess.
See you all at the bottom of queen street on saturday. I’ll be the one guy down there with a placcard, the others will be shoppers.
November 17th, 2009 at 3:53 pm
stevek – I agree entirely with your sentiments but unfortunately Hanover did not go into receivership. Their Debenture holders voted for a moratorium, which is entirely different. One of the main arguments that Bruce Shephard used at the meeting this year was that if Debenture holders voted for receivership then the Receivers had the ability to take the Directors to court regarding their related party loans and excessive director dividend payments and get this money back. Under a moratorium this would be impossible.
Unfortunately in this case the Hanover Debenture holders added to their own problems, by voting for the moratorium rather than receivership and that was why Bruce was so angry following the meeting. I well remember when interest.co.nz reported on this earlier and many bloggers forecast this sort of outcome as it was so obvious.
November 17th, 2009 at 4:30 pm
Shuttle – Sorry I forgot Hanover was in moratorium but it was a comment on the finance companies in general. Amazing how little comment has been made by politicians about the financial sector’s failure. Likewise the newspapers. White collar fraud gets treated lightly by the courts and the public in general because its not “violent” but it has such a profound effect on so many lives, including suicides, it should be taken a lot more seriously. The SFO should be given more money and resources, not merged with the police. Sheppard and to a lesser degree Gareth Morgan are the the only guys making enough noise over this. I’d like to see some more comment from our illustrious PM on it. Its a morality tale as well as a story of financial shenanigans.
November 17th, 2009 at 7:18 pm
Social morality? —Politics?—-mutually exclusive, steve.k—-