Allied gets tough on Hanover funds

08-03-2010 | Alan Williams

Allied Farmers Ltd (ALF) won't be sitting round waiting for money owed to it, says managing director Rob Alloway.

"We're sick of promises and we're going to go and collect it,'' he said, referring to litigation action to recover loan funds and call in personal guarantees, acquired as part of the Hanover transaction.

The ALF group has major challenges turning a dollar from its new assets and expanding the Allied Nationwide Finance (ANF) business, though the rural business was ahead of forecast for both revenue and profits during January after incurring a loss in the half year.

Although Alloway said that securing a qualifying BB credit rating from Standard & Poors to enable ANF to stay in the Crown deposit guarantee scheme after October remains "a quite good possibility'', the group is expecting deposit outflows.

In a letter to shareholders, chairman John Loughlin said that the focus "for the next six months will be to further strengthen our asset and rural financing offerings, while preserving cash reserve to meet the deposit outflows when the (scheme) expires in October''.

S&P has given ANF a BB minus rating, one notch below the required figure. This is ANF's first credit rating and Loughlin said it was a good reflection of the financial strength of the subsidiary and overall ALF group.

He said the outlook for ANF was strong as the failure of many finance companies meant there was less competition in the market.

S&P said ANF had weak stand-alone capital and Loughlin said the parent company would strengthen the balance sheet. The plan is to place the best ex-Hanover loan assets into ANF, though no transfers have been made yet.

Alloway said that the group was still on track to recover $30m to $50m in cash from the newly acquired Hanover assets over the course of this year.

"The ALF board will decide business by business where the funds will go, but we will be in a position to put assets or cash into ANF.''

As well as starting litigation and calling in guarantees, negotiations had begun for the sale of some ex-Hanover assets. Alloway said ALF was also still involved in talks with Sydney-based businessman Duncan Saville, who has comitted $7m of new capital to the group, as and when it is needed.

ALF shares fell about 27% in value last week - from just over 11c down to 8c - after a reporting a $15.68m operating loss for the six months ended December 31, plus massive writedowns on the Hanover assets as it met IFRS accounting rules. Costs associated with the Hanover transaction were about $5m.

From the acquisition price of $396m, the assets and loans have been written down to $175.5m, with the biggest hit taken on the Kawarau Falls hotel development loan in Queenstown. Alloway said the outlook for this project had changed over the last three months.

ALF now has equity of $171m, out of total assets of $578.8m and a net tangible asset backing of 7.4c. Asset values are likely to be reviewed again at the full year balance date.

ANF made a net loss for the half year of $1.2m, after taking a $4.6m bad debt provision.

ALF Rural made an interim loss of $0.9m, with merchandise sales down 27% and livestock revenues down 24% on year ago figures.

Loughlin said a steady improvement in dairy commodity prices was expected to result in further strengthening on top of the January gains.

Total group revenues were $53.7m, down from $66.8m. Operating cash flows were $11.62m, down from $39.7m a year earlier.

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