Profit likely for resilient Dorchester
TWO YEARS ago, Dorchester Finance created a complex series of structures and securities as part of its debt-for-equity swap plan to repay debenture investors and come out of a payments moratorium still in business.
The plan drew plenty of criticism, with some suggesting investors would be better off just liquidating the company and taking their losses straight away rather than later.
In almost all such cases the critics would be right. But in Dorchester’s, they were not.
Two years on, the company has repaid most of the money owed to debenture investors and chief executive Paul Byrnes is forecasting Dorchester will return to profit this year after acquiring Napier-based debt recovery business EC Credit Control for $18.5 million in cash, stock and earn-outs.
Byrnes said around $1m in profit was likely for the 2013 financial year while profits of $4m to $5m were expected the following year.
For long-suffering debenture investors still holding Dorchester shares and options and units in a separate property trust, that is very good news. On present performance, they may get 100 cents in the $1 invested back out of what Byrnes conceded was a ‘‘necessarily complex’’ structure.
Byrnes said that, in time, Dorchester would distance itself from the failed finance companies and build a new business in finance, insurance and debt recovery. Meanwhile, for staff and management, it had been a case of keeping heads down and demonstrating the firm’s viability.
Byrnes credits his staff, who went without pay rises over that period, for the turnaround. He said one of his great pleasures over summer would be doing a long overdue pay review.
It was not just staff costs that had to be kept under control. Dorchester used to have 21⁄ floors in a tower in Auckland’s Shortland St. That is way too much for the new Dorchester, which hopes soon to be occupying just one floor after striking a deal with its landlord that will save up to $450,000 over the next two years.
EC Credit had a growing transTasman business, Byrnes said. Talks began over a planned joint venture, with Dorchester planning to buy some debt and partner with EC Credit for recovery. But the more Dorchester got to know the business, the more they got to like it and its founder, Matthew Harrison, who last week joined Dorchester’s board along with Kevin Brewer, a business consultant with a background in merchant banking and casino management.
‘‘It’s a sustainable business with opportunities in Australia and New Zealand,’’ Byrnes said.
About 40 per cent of its business already came from across the ditch. In New Zealand, the company had contracts with all the major banks, he added.
EC Credit’s stability and consistency of earnings effectively ‘‘de-risks’’ the acquisition, he said.
The business also fitted in well with Dorchester’s ‘‘end-to-end’’ business plans – at the back end.
Meanwhile, the finance and insurance businesses offered cross-selling opportunities and each had the ability to grow organically. But Dorchester would look at other acquisitions as well.
In finance, the emphasis was on building a ‘‘quality book’’ gradually, he said. That allowed careful monitoring to ensure there were ‘‘no surprises’’.
In insurance, there were now fewer competitors than ever, with 165 insurance companies being reduced to around 100 because of new Reserve Bank prudential regulations.
Niche opportunities would be the target along with cross-selling from the finance company in areas such as loan repayment insurance, motor vehicle breakdown insurance and ‘‘gap’’ insurance to cover the difference between insured value and market value.
Byrnes said Dorchester was looking at distributing these products through brokers and dealer networks.
Byrnes said he expected the company to have in total $70m in shareholders funds in two years, but that would require a minimum return of 15 per cent. If that could not be achieved, the company should be giving the money back, he said.
‘‘We are backing ourselves to get the minimum returns via organic growth and acquisitions,’’ he said.