Dorchester Advises on 31 March 2009 Year End Adjustments
12 May 2009
Dorchester Pacific advises the following adjustments to its accounts for the year ending 31 March 2009, (subject to audit):
• Tax Write-Off - $13m
• Property Loan Provisions - $7m
• Consumer Loan Provisions - $1.2m
• Energy Direct Metering Business Write-Down - $0.5m
• Fair Value Adjustments - $30m (gain)
The details of each adjustment are as follows:
Tax Write-Off $13m
All provisional and deferred tax will be written off at 31 March 2009, other than $1.6m provisional tax, which is certain to be utilised.
Property Loan Provisions $7m
Based on independent valuations updated at 31 March 2009, additional provisions of $7m over 10 loans will be made. These provisions include a $2m provision in recognition of the time required to realise property positions.
Consumer Loan Provisions $1.2m
An additional provision of $1.2m will be made in respect of motor vehicle and consumer receivables. The provision is in the nature of “an economic overlay” to reflect the potential impact of the uncertain economic environment, both locally and globally, on future collections.
Energy Direct Metering Business $0.5m
With a decision made to exit the Energy Direct Metering business a write-down of the carrying value of assets at 31 March 2009 will be made.
Fair Value Adjustments $30m (gain)
Under current accounting standards, the company’s secured debenture stock and unsecured notes at the date of approval of the Deferred Repayment Plan are de-recognised and the modified Deferred Repayment Plan terms of the debentures and notes (including interest forgiven) are recognised at fair value. The difference between the original liabilities and modified liabilities is recognised in the profit and loss. The accounting adjustment based on a discount rate of 18% for secured debentures and a discount rate of 30% for unsecured notes is approximately $30m. This accounting adjustment will reverse over the term of the Deferred Repayment Plan.
Chairman of Dorchester, Barry Graham advised:
“The net effect of the above adjustments is that the company will record a reduced loss of around $25m for the year to 31 March 2009 compared to the $35m loss recorded in the half year to 30 September 2008. Shareholders Funds at 31 March 2009 will be approximately $15m.
Executive Director, Paul Byrnes commented:
“While the additional property loan provisions we are now taking were not anticipated at the time of the approval of the Deferred Repayment Plan last year they reflect a more negative view taken by independent valuers of the current market.
“However, one of the primary objectives of the Deferred Repayment Plan is not to conduct fire sales, but rather to carry out an orderly realisation during the three year term of the Plan. This approach is likely to produce a significantly better result.”
“The fair value adjustment is mandatory under current accounting standards and while it supports positive shareholder funds in the meantime it does not create sustainable value for shareholders in the long term because of its reversal over the term of the Deferred Repayment Plan”.
Commenting on current trading and the cash position Mr Byrnes said:
“We have made good progress on our three hotel property exposures and there is also some interest on a couple of the other property loans at above carrying value. Collections from our motor vehicles and consumer loan books is tracking as forecast and our cash position is currently just on $20m.”
“As soon as our annual accounts are completed and audited we will be writing to investors to keep them fully informed and confirm we are on track to make the 30 June 2009 and 30th September 2009 repayments under the Deferred Repayment Plan”.
ENDS