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Dorchester lifts profit guidance, flags dividend and signals capital restructure for M and A

Wednesday 1st May 2013

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Dorchester Pacific, which avoided failure in 2010 by convincing investors to accept a debt-for-equity swap, has upped its profit guidance, flagged an intention to start paying dividends, and will re-jig its capital structure to help fund future acquisitions.

The Auckland-based firm says profit was about $1.6 million in the year ended March 31, having previously said it would be between $1.2 million and $1.3 million, it said in a statement. That's seen as rising to $6 million in 2014, before lifting to $10 million over the next two years, and the firm anticipates further merger and acquisition activity will add to those forecasts.

Dorchester announced plans to pay 40 percent of tax paid profit in dividends, applying from April 1 with the first interim return to be paid in December. The firm last paid a dividend in 2007, suspending them for three years when it first convinced debenture holders to accept a moratorium on repayments.

"While payment of dividends under this policy will always be subject to directors' discretion and any capital requirements at the time, it does signal our focus and confidence about future profits and cash flow," chairman Grant Baker said. "We also believe it is a positive consideration for existing and new shareholders attracted to a small cap growth stock in the financial services space."

Dorchester got a new lease of life when Baker's Business Bakery got involved with a recapitalisation plan in 2010 which saw some 7200 investors owed about $84 million convert their debenture stock for four different types of security to keep the firm afloat.

One of those securities were options to buy stock at 12.5 cents apiece at the end of this month, which is about three-quarters below the current trading price of 29 cents. The options have more than doubled over the past 12 months.

Chief executive Paul Byrnes will write to option holders next week to recommend they take advice on whether to exercise their right to buy shares, but strongly urged them to either exercise or sell them on-market before they lapse at end of the month.

Major shareholders, including the Business Bakery and Hugh Green Investments, have indicated they will exercise 82.5 million options, and will grab more of the company with an early conversion of 110 million optional convertible notes. The conversion will need shareholder approval.

Because some options may not be exercised, Dorchester plans to place up to 30 million new shares to ensure it adds 150 million shares, which may attract one of two institutional investors, Byrnes said.

The transactions, including the conversion of the notes, will increase shareholder funds to $61 million by July from 29 million as at March 31.

"The significantly higher shareholder funds and conservative balance sheet will fund growth of the company's receivables book and provide headroom for potential further M&A activity," Byrnes said.

Dorchester bought Napier-based debt collection agency EC Credit last year for $18.5 million cash, stock and earn-outs, adding to its finance and insurance units.

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