KEY POINTS:
South Canterbury Finance's controlling shareholder Allan Hubbard has taken the unusual step of writing to the company's investors to reassure them of the finance company's stability and profitability in a volatile environment.
The 80 year old rarely speaks in public and is said to be worth NZ$650 million in the NBR's Rich List, which puts him at 13 on the list of New Zealand's richest.
Known for his philanthropy and close links to the community in the South Island, Hubbard drives a 50 year old VW Beetle and is highly regarded for his careful and conservative business practices.
However, Hubbard felt the current crisis of confidence in the finance company sector after 35 collapses in just over 2 years required a letter to South Canterbury's investors reassuring them of the financier's strong position.
In the letter obtained by interest.co.nz, Hubbard says South Canterbury was unique in that it had survived depressions, wars and oil shocks and had just 15 per cent of its loans centred in Auckland and Wellington. He forecast a pre-tax profit for the just completed year to June 30 of NZ$85 million (including a capital gain on a dairy farm sale) and a pre-tax profit for the current year to June 2009 of NZ$50-60 million.
He also reiterated comments from South Canterbury management that South Canterbury had NZ$334 million of cash on hand at the end of June and a further NZ$150 million of undrawn bank lending.
Here is the full text of the letter:
"It has been some time since I wrote to investors directly but feel that recent events require some comment.
"South Canterbury Finance Ltd was incorporated in 1926 and, apart from two years in the early nineteen thirties, has traded profitably over these 82 years, a feat that no other finance company in New Zealand has achieved. The company survived the great depression, a world war (1939 -1945), the 70's oil shock and numerous cycles in the property sector. Our business is about managing risk and providing you and our shareholders with an excellent return on their investment.
"South Canterbury Finance Ltd's business is mainly concentrated on provincial lending. Only 15 per cent of our loans are centred in Auckland and Wellington and this makes South Canterbury Finance Ltd unique - not being dependent on the economies of these two cities. We are a well diversified company with our loans well spread across rural, business, property and plant and equipment.
"We are still receiving strong loan enquiries in many areas, but are only accepting the best applications. We have always taken time to understand the borrower and his proposition before considering his present financial position. I believe in backing young people with good ideas.
"The success of all businesses I have been involved with hinges on cash flow. I have always been focused on the liquidity of the company and we have always retained more cash than some experts consider necessary. The reality is that it provides you, the investor, with the comfort that South Canterbury Finance Ltd can meet its commitments as they fall due.
"At 30th June 2008 we had $334 Million in the Bank, along with a further $150 Million of un-drawn Bank facilities. This money protects your investment. As well, 84 per cent of our borrowers repay their loans by principal and interest in monthly instalments ensuring a constant cash flow.
"The Company's annual trading results for the year to June 2008 will be announced in the next few weeks and the profit is likely to be around $85 Million pre tax. This does include a capital gain on the sale of an investment in Dairy Holdings Ltd (an investment we have held for 5 - 6 years). For the year to June 2009 we expect that the pre tax profit will be in the vicinity of $50 - $60 Million pre tax.
"A significant number of our investors have continuously supported South Canterbury Finance Ltd for over 40 years - this is only possible of course when a company has been operating for a longer period. I believe the coming years for South Canterbury Finance can continue to be successful and you, as an investor, will continue to share that success.
"We rely on your continued loyalty and support and, at the same time, I emphasise my total support and that of the company and staff to ensuring continued progress and success in the coming years."
- INTEREST.CO.NZ
