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Cynotech lifts first-half profit on repayments

Wednesday 5th August 2009

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Cynotech Holdings, the diversified holding company run by former 1980s high-flier Allan Hawkins, posted a 2.9% gain in first-half profit as debtors began repayments on impaired loans that had previously been valued at nil.

Net income rose to $1.3 million in the six months ended June 30 from $1.2 million a year earlier, the company said in a statement. Revenue rose 2% to $7.75 million.

“We’re in a very difficult sector at the moment, but we think the result is pretty good,” Hawkins told BusinessWire. “Our bad debt provisions were pretty hard” in recent years, and that left the company well-placed compared to others in the finance sector, he said.

Cynotech grew out of Rocom Wireless and Hawkins, who was jailed for fraud for four years, got involved in 2004 when he helped capitalise the company’s newly established finance unit.

The company, which gets about 66% of its revenue from lending on cars, property and mortgages, has grown by taking on loan books from National Finance and Western Bay Finance, as well as buying an ice cream cone manufacturing factory and temporary seating company.

Hawkins, who is chairman and chief executive, is awaiting word of charges from the Commerce Commission over interest and fees at Cynotech’s Budget Loans unit.

The company came under media scrutiny when it didn’t disclose Hawkins’ fraud conviction in its prospectus.

In June, the Sunday Star Times reported the finance company will face charges for allegedly misleading customers over its right to charge interest and fees, and for charging “unreasonable establishment and default fees” through its Budget Loans unit.

The regulator also alleges the unit charged credit fees on loans it acquired from National Finance contrary to disclosure statements, according to the newspaper report.  

A spokeswoman for the commission declined to comment, saying the matter was before the courts.

Hawkins told BusinessWire that the investor appetite for Cynotech’s $10 million sale of preference shares has been “trickling in” with the 9.25% annual interest rate possibly not attractive enough in the current market.

The stock, which trades irregularly, was unchanged at 14 cents on the NZX today, and has slipped 8.5% in the past six months.

Hawkins said Cynotech had maintained profit growth as loans purchased from the receiver of National Finance and Westpac Bay found value once debtors had gone through the court process and began repayments. Before repayments began, the loans had zero value.

Some finance companies exposed to property development and speculation need to “aggressively” provide for impaired loans “their results will be compromised,” he said, without citing examples.

Too many finance companies have been overly optimistic in their valuations of impaired loans, and more will have to revisit their moratoriums, he said.

“We believe that the arithmetic does not work out in some cases and this will lead to the non-fulfilment of conditions in some finance companies which are under a debenture holder’s moratorium,” he said.

Cynotech’s largest loan in its finance arm was $300,000, and it only has five loans on its books that are more than $100,000. Its total loan book was $10.8 million at December 31.

The company’s temporary seating and ice-cream cone businesses didn’t perform as well as expected, and they will “get the treatment” as Cynotech goes through a line-by-line review, he said.

Hawkins headed Equiticorp in the 1980s and was jailed for four years over the so-called H-fee, which funneled some $327 million through transactions designed to obscure its source.

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