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Geneva sees key challenge as attracting new equity and debt

Geneva sees key challenge as attracting new equity and debt

Consumer finance provider Geneva Finance has revealed an annual loss of NZ$5 million and released its annual report.

Geneva says by June 30 it will have repaid debenture holders 57.5% of the principal investments they were owed when it entered a moratorium in November 2007 and all interest it owes them, meaning it will have repaid a total of NZ$96.7 million.

The company says it's committed to the consumer finance sector but its key challenge now is attracting new equity and debt.

Read Geneva's statement below:

The after tax financial result for the year was a loss of $5.0m vs a loss of $7.0m in 2009.

The March 2010 result is after charging the non cash write off of $4.1m of deferred tax asset. This deferred tax asset written off remains available to be brought to profit in future periods to the extent future taxable profits are earned.

On a pretax basis the Group incurred a loss of $0.876m (compared to a $6.565m loss in March 2009).

March 2010 Comparison to “the plan” forecasts:

The Interest bearing repayment plan incorporated a set of forecasts for the year to 31 March 2015. While the loss of $2,476k forecast to 31 March 10 was exceeded, the major variances were accounting policy related and of a non cash nature, as evidenced by the fact that at 31 March 2010 the group had cash and facilities on hand that were $3.531m greater than that forecast.

The profit shortfall against that forecast was $2,514k, which comprised an additional $880k non cash additional write off of the deferred tax asset; $1,110k of expenses primarily comprising accelerated future forecast depreciation and provisioning for future forecast lease costs and $523k lower cash revenue as a consequence of lower lending volumes and one off abnormal costs in February and March 2010.

Investor Repayments:

As at 31 March 2010 the company has repaid 55% of all debenture principal outstanding at November 2007 (The date Geneva entered moratorium) and in addition has paid all investors their full contractual interest each month.

On the 11 June 2010 we announced the early repayment (29 June 2010) of the principal installment due to investors on 30 September 2010. This will bring the total principal repaid to investors to 57.5%. of all debenture principal outstanding at November 2007. In addition to this Geneva has continued to pay all investors their full contractual interest each month.

By 30 June 2010 (i.e. including the early repayment above) Geneva will have repaid $96.7m in principal and interest to investors since November 2007.

We would like to take this opportunity to thank our investors for their continued support over the years.

Restructuring and Rebuilding

This process has three components:

(i) Grow lending while maintaining asset quality: During the year under review the company has made a number of key management appointments to complement the changes in the target customer profile. It is expected that the benefits of these changes will be reflected in the coming financial year.

(ii) Minimizing operating costs: This process of continuous improvement which has delivered a $20.2m reduction in annual operating costs since November 2007 has been maintained, and as a result operating cost in the March 2010 year are $5.4m lower than the March 2009 year.

(iii) Attract new equity and debt. The approval of the Interest Bearing Repayment Plan in March 2010 has set the platform for achieving this goal. That plan identified the raising further equity and debt as key assumptions for Geneva’s future.

Strategic Direction

The company is committed to the consumer finance sector. The go-forward plan of the company is threefold.

- Build on and expand the distribution channels for the company’s products in a manner that adds value to our customers and the company.

- Continue to develop revenue growth opportunities that are not funding-dependent.

- Pursue opportunities to attract new equity and additional debt.

Economic Outlook

While the current economic climate remains difficult, there are signs of improvement but it is our expectation that the economic recovery will be slow.

In terms of the companies operations, the concern reported in September regarding the impact of this economic climate on the collectability of the old ledger remains.

Summary

Despite the difficult economic environment, Geneva has continued to make principal and interest repayments to investors and at the date of this report has repaid $90.1m of principal and interest. This repayment program has been achieved by contracting the receivables ledger, and then reducing operating costs to offset falling income to protect shareholder wealth.

While doing this the company’s business processes have been restructured and rebuilt to focus on a more profitable market segment. The approval of the interest bearing repayment plan in March 2010, has provided a level of funding that is manageable and proactively deals with the debt maturity profile reported in the September 2009 accounts.

The key challenge is, attracting new equity and debt. Achieving this will give the company the opportunity to capitalize on the work done to date, in the restructuring and rebuilding of the Geneva business model, and take advantage of profitable growth opportunities as the markets normalise. The board and management are committed to making every endeavour to deliver on this challenge.

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