Fisher and Paykel Finance posts drop in annual operating earnings after expensive court case

Fisher and Paykel Finance posts drop in annual operating earnings after expensive court case

Consumer lender Fisher & Paykel Finance has reported an 11% fall in annual operating earnings after costs associated with defending itself in a court case against a US firm alleging breach of intellectual property rights cost it NZ$6.8 million before tax.

Parent Fisher & Paykel Appliances said today F&P Finance delivered operating earnings before tax of NZ$31 million for the year to March 31, down NZ$3.7 million, or 11%, from NZ$34.7 million in the previous year. The NZ$6.8 million figure disclosed includes both litigation costs and an unspecified provision for the court case. Stripping this out F&P Finance's normalised profit before interest and tax was up NZ$3.1 million, or 9%, to $37.8 million, F&P Appliances said.

Last September F&P Finance defended allegations in the High Court from San Francisco-based Karum Group LLC, formerly known as Credit Management Services Inc. Karum was seeking an injunction to stop the New Zealand consumer lender from using parts of a credit management system that it says incorporates its intellectual property.

Karum also sought an unspecified amount of money in damages. Fisher & Paykel Financial Services Limited, ultimately a subsidiary of Fisher & Paykel Appliances via F&P Finance, was named in the case.

F&P Appliances initially said the costs of the case wouldn't be material. The company says additional information was presented to the court late in 2011 and it's still awaiting a judgement in the case.

Stuart Broadhurst, F&P Appliances' CEO, said the finance business posted yet another strong result and is well positioned for the year ahead. F&P Finance's annual return on equity rose to 19.4% from 18.4%.

Net interest income rose 0.2% to NZ$74.7 million. Total operating income rose 0.8% to NZ$98.8 million with operating expenses up 5.4%, largely due to the relaunch of the Q Card, to NZ$40.8 million. Bad debt expenses fell NZ$8.2 million to NZ$11.2 million. Gross receivables fell 2.1% to NZ$615 million

"Net interest income was held at 2011 levels, and bad debt expenses are lower through tight arrears and collection management. Operating costs increased due to additional promotional expenses related to the relaunch of the Q Card," Broadhurst said.

"Gross receivables increased by 2% in the second half in soft retail conditions. Pleasingly, the Q Card product achieved its new business targets on the back of the increased promotional spend."

Post last year's end to the extended Crown retail deposit guarantee scheme, he said investor confidence was returning with retail debenture reinvestment rates in the month of March at 89% compared with lows of 38% earlier in the financial year. On a rolling 6 months basis the reinvestment rate's now at 66%.

The firm had NZ$111 million of retail debenture funding at March 31, down 21% from NZ$140 million a year earlier. It also has a NZ$285 million securitisation facility of which NZ$90 million was unutilised at March 31, and bank loan facilities of NZ$385 million, of which NZ$157 million was undrawn.

“Through a combination of wholesale banking facilities and liquid funds cover, we have funds in place equal to 1.8 times the retail debenture book. Now we are through the Crown guarantee transition we will review our future funding headroom requirements," Broadhurst added.

For the 2012-13 financial year Broadhurst said F&P Finance's earnings should remain resilient, despite an expectation that New Zealand retail trading conditions will remain soft.

"Increased promotional activity with the Farmers Trading Company and a broader merchant base for Q Card should improve interest income."

See a presentation on the results from F&P Appliances here.

(Update adds further detail).

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