Dorchester Pacific Ltd, the finance company that has been subject of a shareholder revolt, today issued a profit downgrade on the back of provisions for two investments that turned sour.
The company said that as a result of provisions for Senate Finance Ltd and an electricity metering business,its full year profit was expected to be between $3 million and $4m, down from $8.145m last year.
Dorchester had made a $2.7m provision for Senate, a motor vehicle financier, for poor quality loans written by two dealers.
The second provision of $1.95m for the electricity metering investment was blamed on changes in that market.
"It is now apparent that the borrowers had bad credit histories and/or limited means to make repayments," Dorchester said in explanation of the Senate provision.
The provision represents less than 1 per cent of Dorchester's total loan book.
Dorchester chief executive Andrew Walker said the company was no longer involved with the two dealers and in the past 12 months new systems had been introduced to stop such lending.
Although the provision would impact in Senate's current year, profitability and cashflow from the business remained strong, he said.
"As stated at the shareholders' meeting in August last year and in line with our strategy to diversify lending operations, Dorchester is reducing its exposure to the motor vehicle finance market, and we are currently exploring alternatives for the Senate business," he said.
Chairman Barry Graham said Dorchester remains financially sound.
"Dorchester's other lending activity is performing in line with expectations.
"We are actively assessing a number of opportunities to develop our lending portfolio and business interests and the directors have a high level of confidence in the future of the company," he said.
His comments come at a time when there have been concerns about finance companies, particular those that operate in the vehicle financing market.
At Dorchester's last meeting, Bridgecorp managing director Rod Petricevic, Shareholders' Association chairman Bruce Sheppard and former Dorchester managing director Brent King tried to get onto the board.
