Warning: the economy is 'misleadingly strong'

By Deborah Hill Cone

Friday 30th August 2002

Second-tier finance company Dorchester Pacific told shareholders this week it believed it could increase earnings despite a negative economic outlook worldwide.

At a standing room-only annual meeting at Auckland's Tamaki Yacht Club, Dorchester managing director Brent King said the world outlook was very uncertain and described the New Zealand economy as "misleadingly strong."

"We are positive about the next stage but don't discount the world economy. New Zealand is out of sync with the world economy," Mr King said.

But Dorchester believed it would be able to continue to show strong growth after a good year in 2001/2002.

Chairman Murray Radford said Dorchester's revenue was up 42% in 2002 to $45 million and profit was up 24% to $3.7 million.

Dorchester director and former finance minister Sir William Birch also sounded a note of caution in an address to shareholders in which he wryly admitted the National Party had had a poor result in the election.

"Looking ahead there are going to be some bigger challenges ahead for the government. They've had an easy run with a strong economy in the last couple of years," Sir William said.

Dorchester, the only listed finance company with the local Stock Exchange as its primary listing, has subsidiaries in finance, consulting and insurance.

Acquisitions during the year including the Save and Invest group, Plains Finance, Lynx Finance and Sterling Portfolio Management.

Mr Radford said much work had gone into improving the quality of lending and credit control, with the result that overall bad debt writeoffs and provisioning had reduced from the previous year.

"Bad debts show in our accounts as a major expense but a reduction this year over last year. However ... we are very much in the business of lending money and bad debts are part of that business, particularly in the vehicle financing business, which is a large part of our lending," Mr Radford said.

Like most finance companies Dorchester is eager to present itself as a blue-chip company focusing on governance issues.

In response to a shareholder question saying Dorchester's dividend policy was "all over the place" Mr Radford said the company should look at developing a dividend policy.

He pointed out as the company's directors held significant shareholdings, paying out a bigger dividend would be in their own interests but they took a conservative view because they realised Dorchester Pacific needed to keep putting money into Dorchester Finance.

At a briefing for brokers Mr King said Dorchester was still looking to grow geographically by making acquisitions to extend its network, into the "heartland" of New Zealand.

Two recent acquisitions are based in Tauranga (Fountain Finance) and Palmerston North (Lynx Finance). Another subsidiary, Civic Loan and Finance, is based in Dunedin.

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