NZF Group says its net profit could almost halve this financial year because of the slowdown in the housing market and the international credit crunch.
The fact that a turnaround in conditions was unlikely before the end of the year, coupled with a decision to retain high levelsof cash, meant net profit of $2 million to $2.5 million was expected for the year to the end of March 2009, the company said yesterday.
Managing director John Callaghan said the guidance was based on a conservative outlook of the market.
The expected net profit compared to $3.8 million reported in the year to last March.
The home loan, investment and property development markets had become further depressed resulting in fewer quality lending opportunities, NZF said.
The company had elected to retain a $40 million line of credit from the Commonwealth Bank of Australia, although costs were incurred by holding the unused facility.
The line of credit was important as it gave considerable lending flexibility, NZF said.
Accounting anomalies created by new accounting standards were another reason for the lower profit projection, but did not affect cash flows.
Another factor affecting profit was lower housing sales feeding through into lower income to NZF's brokerage business, the company said.
"This impacts on NZF's wholly owned brokerages and also its subsidiaries Mike Pero Mortgages and Finance Direct. The impact of lower commissions from the main trading banks is also now being realised."
Callaghan said NZF was well placed with significant unused funding lines to take advantage of any uplift in activity in the housing market that would inevitably occur should interest rates fall as expected.
Most of NZF's $259 million book was bank financed - principally Westpac, he said.
"We have actively reduced our reliance on debenture stock issuances over the years and now have just $51 million on issue. This is more than covered by cash and available funding lines of $77.75 million."
NZF chairman Richard Waddel said the company had not chased market share at any cost in the way some other finance companies had.
