The shares in small regional lender, Wide Bay Australia Ltd (WBB) will be sold off heavily this morning after the company late yesterday produced a surprise profit downgrade and increase in provisioning against two poorly performing parts of the company.
The company, which went into a trading halt on Monday, told the ASX yesterday that it was looking at a sharp fall in full year earnings after the provisioning which will total $12.8 million for the 2012-13 year, of which $9.3 million represents an increase.
The company is looking at a drop in net earnings of more than 80% and over 50% on an underlying basis. This means the final dividend is under pressure and won’t be paid if key regulator, APRA believes such a move might weaken the company’s finances.
"Mortgage Risk Management Pty Ltd (MRM), a wholly owned "captive‟ mortgage insurer which Wide Bay has previously advised is "winding down‟ its operations, has increased provisioning by $5.1m in the second half of FY12/13," Wide Bay directors said.
"This exceeds budget expectations by $3.5m. The increase stems from a recent re-examination and revised modeling of the MRM insured loan book. Actuarial guidance has now been received that confirms the provisioning requirement."
And the company said that it had taken the axe to its investment in a financial planning company.
"Wide Bay acquired a 25% interest in Financial Technology Securities Pty Ltd (FTS), a financial planning business, in 2005. The Directors and Senior Management of Wide Bay have now formed the opinion that this asset carries significant uncertainty in the previous holding value.
"Therefore it is prudent to write down the investment in this company by the full value of $7.7m (after-tax $5.9m). This write down is a non-cash item and has no impact on the capital position of Wide Bay."
As result of the write downs, the company said that net profit is now estimated to be in the range of $2.3 to $2.5 million. Underlying operating profit, excluding the non-cash investment write-down, will be in the range of $8.2 to $8.4 million, directors said.
Seeing the company earned a profit of $19.04 million (which was down 16% on the previous year), Wide Bay is looking at a substantial fall – around 86%. Based on the ‘underlying result’, the fall will be well over 50%.
WBB YTD – Wide Bay shares to slump after surprise provisioning lift and profit slide
Wide Bay earned an interim profit of $5.557 million in the first half of the 2012-13 year, meaning it is looking at a second half loss on a net basis and a profit probably as little as $3 million on the underlying basis. That is not enough to pay an final dividend, which last year was 25c a share, down from 30c a share in 2010-11.
Chief Executive Officer, Martin Barrett, who was appointed to his role in February 2013, said he and the Board are disappointed in these results.
“It does however give us the opportunity to establish a clear baseline for the company and commence the FY13/14 in sound financial shape.” The Board and Senior Management believe that the provisioning increase and the write down of the investment in FTS are conservative and position Wide Bay strongly for the future.
“We now have a new clearly defined strategy and over recent months our lending has shown early signs of a return to growth.”
Mr Barrett said that with the full benefits of an organisational restructure and the revised strategy yet to kick in, he believes this trend will continue.
“Going forward, we have positive expectations for the company and we anticipate improving results and sustainable shareholder outcomes in the years ahead.”
He said budgeted operating profit after-tax for the consolidated group for FY13/14 is in a range of $13m to $14m.
