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Dorchester rescue plan ups net profit

Tuesday 31st May 2011

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Dorchester Pacific reported a $14.1 million annual net profit but that was entirely due to the $22.4 million benefit from last year's debt-for-equity swap rescue.

Dorchester's press release said: “On the more meaningful trading performance measure of operating surplus before tax and fair value adjustment, the result is a loss of $1.6 million compared to the $4.4 million loss forecast in the five-year prospectus financial statements prepared last year as part of the capital reconstruction plan.”

However, the accompanying profit-and-loss statement shows a $7.2 million loss before fair value adjustment (no tax was paid), down from a $17.7 million loss on the same basis a year earlier.

“There's more than one fair-value adjustment in the financial statements,” chief executive Paul Byrnes told BusinessDesk.

“Most of the public and even managers wouldn't understand accounting adjustments which distort these accounts. It's certainly not by choice we produce such accounts,” Byrnes said.

Dorchester group financial controller Barbara Badish said the $1.6 million figure was arrived at after writing back $5 million in interest expense on the former debentures and notes and $0.6 million in interest on the former capital notes and the prospectus figure of $4.4 million was prepared on the same basis.

However, a write-back of $2.2 million of bad debts previously written off wasn't included in the calculation.

“That's a normal operating expense in a finance business. It's gain against the bad debts write-off,” Badish said.

The press release said the balance sheet showed shareholders' funds of $25.8 million at March 31. That compares with negative equity of $2.8 million a year earlier ahead of the reconstruction.

It said the company had written down a further $1.3 million on the four properties remaining in Dorchester's property loan book – its hotel properties were transferred to the Dorchester Property Trust, one of the four securities issued to Dorchester Pacific's debenture holders last year in exchange for the 50 cents in the dollar they were still owed.

“While plans had been to hold these non-core property assets for two to three years, directors now believe that returns available from putting funds to work in new lending or opportunities in mergers and acquisition activity will provide a better return over that period and will keep the positive performance momentum going,” Byrnes said in the statement.

He said Dorchester Finance's new lending, interest rates achieved, general loan quality and arrears performance were all at or ahead of forecast.

“Our focus is a quality receievables build. Cash collections and bad debts recovered on the legacy Senate motor vehicle book have been consistently ahead of forecast assumptions.”

Dorchester is forecasting it will be just ahead of the break-even prospectus forecast for the current year.

Chairman Grant Baker said the achievements of the past 12 months “have been pleasing, given our starting position.”


The company has recruited “a number of high calibre executives,”

including the recent appointment of career banker Greg Peebles as an independent director, Baker said.

“We now have the board and management in place with the skills and experience to build on the momentum and take Dorchester to the next stage,” he said.

The key milestone this year was to “step over the break-even trading point.” The forecast did not include any results from merger and acquisition opportunities “although we have already evaluated a number of targets and will remain active in looking for additional but prudent growth in this area.”

Dorchester shares last traded at 10.8 cents yesterday but are being bid higher. They have traded between eight and 16 cents over the past 12 months.

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