Allied Farmers posts NZ$20.5 mln half-year loss after NZ$12.6 mln of Hanover impairments

Allied Farmers posts NZ$20.5 mln half-year loss after NZ$12.6 mln of Hanover impairments

Beleaguered Allied Farmers loss for the six months to December widened as it booked a NZ$12.6 million hit from impairments to loans and properties acquired from the Hanover Group in late 2009.

Allied Farmers, whose finance company subsidiary Allied Nationwide Finance was placed into receivership last August, said its unaudited loss for the six months to December widened to NZ$20.5 million from NZ$15.6 million in the same period of 2009. The group's half-year loss also includes a NZ$1.06 million loss stemming from Allied Nationwide.

Allied Farmers had cash of just NZ$543,000 at December 31. See Allied Farmers' full unaudited financial statements here.

Read Allied Farmers' statement below:

The past six months have been extremely challenging for the Group. The receivership of the finance subsidiary placed considerable pressures on liquidity. The finance subsidiary was a major funder of the debtors of the rural business and the loss of this finance source, together with the delay in the completion of the second phase of the proposed $9 million underwritten capital raising, meant that the Group had to significantly reduce its working capital.

Allied Farmers Limited reported an unaudited operating loss of $20.56 million (2009: operating loss $15.68 million) for the six month period ending 31 December 2010. Included in the reported loss for the six month period were impairments of $12.62 million relating to the assets acquired from Hanover Finance & United Finance and a $1.06 million loss relating to the discontinued financial services activities under Allied Nationwide Finance Limited which was placed into receivership on 20 August 2010.

The plan to retire term debt has been well communicated, and that plan became increasingly important after the receivership due to the agreement of terms on a number of loans and other obligations that had been in place with the finance subsidiary. Progress to date has been satisfactory, with the Westpac facility of $16.5 million as at 30 June 2010 fully repaid in October 2010, and $12.72 million of repayments made against debt obligations transferred to Allied with the properties acquired from Hanover Finance & United Finance (principally being those transferred to Hanover as part of the Shareholder Support Package).

During the period the Group reached agreement with Allied Nationwide Finance Limited (in receivership) in relation to its outstanding obligations to that entity. The Company’s credit enhancement and related party loan arrangements were subsequently converted to a secured loan facility, with an outstanding balance of $11.34 million as at 31 December 2010 (30 June 2010: $12.32 million).

As part of the restructuring Allied Farmers Rural re-purchased its factored debtors from Allied Nationwide Finance Limited (in receivership), partly financed by a secured loan from Allied Nationwide Finance Limited (in receivership). This facility had an outstanding balance of $7.76 million as at 31 December 2010 (30 June 2010: Debtor Factoring Facilities $17.15 million). Allied Farmers Rural faced working capital constraints due to the Allied Nationwide situation, resulting in a net loss after tax of $1.86 million (2009: net loss after tax $0.90 million) for the period. The division has during this time been working closely with its suppliers to normalise trading arrangements.

The livestock division reported a strong result on the back of solid demand in most sectors, with overall numbers down a little, but with earnings ahead of the same period last year. The Bobby Calf operation reported earnings well ahead of last year on reduced volumes. The Real Estate business traded at a loss for the period due to very few farm sales during the early part of the period. The outlook in rural for the remainder of the year is positive with the business traditionally reporting good results in the second half year on the back of dairy herd sales.

Management believe the reconfiguration of the merchandise business, which has seen the closure of three underperforming stores and a top to bottom review of product carried and services offered will begin to show through in the next two quarters. Management considers that the reconfiguration of the rural business will form a solid base from which to capitalise on the improving outlook for the rural sector, particularly in dairying. The livestock business should have a good result for the second half as both values and volumes continue to increase on the back of the improved dairy payout, and we are seeing growth in our market share, particularly in the Taranaki and South Island.

The Group has continued its process of realizing the ex-Hanover assets and while some properties have been sold below valuation reflecting the current market, some have been realized at valuation or in some cases above valuation. During the period we were unable to reach a sensible arrangement with the senior lender to Matarangi Beach Estates Ltd, resulting in it being placed in receivership. Allied Farmers Investments had paid over $2.0 million in interest and fees on this property and without some concession the Company would have just been paying out cash only to further see the equity erode.

A scheduled six monthly review of the carrying values of the assets held for resale within Allied Farmers Investments (as acquired from Hanover Finance & United Finance) has resulted in impairment losses on these assets of $12.62 million for the period.

The Group is still carrying $13.29 million of debt transferred from Hanover and a strong focus in the second half will be to repay or restructure a large part of this debt. The Group is pursuing a number of delinquent borrowers, many of whom are forcing us into litigation for recovery of the debt. Allied Farmers Investments has refused to pay the final $5 million outstanding to Hanover on the basis that there had been material breaches of the contract transferring the ex-Hanover assets to us. Hanover has now commenced legal action and this will proceed to litigation at the end of May 2011.

Finally, while we have had strong support from the farming community, we acknowledge it has been a trying time for our rural staff. We thank them for their continuing support as we continue to grow the rural business.

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