Subiaco-based debt collectors Repcol Limited announced a net profit after tax of $9.7 million for year ended 30 June 2006, a period which inccluded the acquisition of its debt purchasing associate Javelin SPV1 Pty Ltd.
Subiaco-based debt collectors Repcol Limited announced a net profit after tax of $9.7 million for year ended 30 June 2006, a period which included the acquisition of its debt purchasing associate Javelin SPV1 Pty Ltd.
The full text of a company announcement is pasted below:
Repcol Limited today announced a record net profit after tax of $9.7 million for the financial year ended 30 June 2006, 46.1 per cent above last year.
Total Income was 6.6 per cent higher at $39.3 million. Earnings per share rose 36.9 per cent to 5.8 cents and the return on equity increased from 13.6 per cent to 16.5 per cent.
Managing director John Wreford said the company's expanded offshore operation in Bangalore, India and global partnerships had assisted in delivering the annual result.
Growth in the business continues to come from purchased debt legers although this is now primarily channelled through the joint debt purchasing entity, Transpacific Debt Purchase Pty Limited. As Repcol does not control this entity, it equity accounts for its share of profits from TDP.
Agency Income contributed $6.5 million to revenue, approximately 7 per cent lower than in 2005. However, moderate growth is expected in this business in 2007 from initiatives in the company's upgraded and expanded Queensland operation.
Mr Wreford added: "Repcol is well placed to generate continued growth, particularly through the TDP joint venture with global partner, Cargill Value Investment. We are benefiting from their expertise in debt ledger acquisitions, identifying business opportunities in new markets through their global network of partners and benefiting from the funding line provided by them to acquire new debt ledgers."
Investment in debt ledgers during the year totalled $48.4 million, including those purchased via TDP, and continues to predominantly comprise credit card and personal loan consumer debt portfolios. TDP also purchased a debt ledger and entered into a forward flow agreement with a new customer, an Australian lending institution, subsequent to year end which will assist profit growth and diversify its customer base. This will largely replace debt purchases under a contract with an existing vendor of debt to TDP which was terminated, also subsequent to year end, effective 31 October 2006.
Repcol is confident of a continued strong supply of quality consumer debt portfolios in 2007 and opportunities for further debt ledger purchases are likely. The company expects to spend a minimum of $50 million on debt ledger acquisitions in the next twelve months, in conjunction with TDP, both in Australia and overseas in new markets, and has existing collections capacity for this to be increased considerably.
Repcol acquired the Australian based debt purchasing entity, Javelin SPV1 Pty Ltd, during the year. This acquisition has provided greater transparency by enabling Repcol to recognise its value entitlement under the terms of previous sales of debt under arrangement to Javelin. By fair valuing Javelin on acquisition, Repcol Limited's retained earnings increased by $6.4 million and a discount on acquisition of $6.0 million is also included in the income statement.
The acquisition of Javelin has been cash flow positive and enabled Repcol, through an improved bank funding arrangement, to increase gearing to a more appropriate level and lower its cost of capital.
Under Australian Equivalents to International Financial Reporting Standards, Repcol classifies its purchased debt ledgers at fair value through the profit or loss. The fair value adjustment to purchased debt ledgers is an expense for the year of $17.5 million represents approximately 55 per cent of purchased debt ledger income compared to an amortisation expense (under Australian Accounting Standards) of approximately 40 per cent in the previous year.
This higher expense has been impacted by high fair value adjustment on revenue previously deferred (due to a vendor loan on debt sold which has since been extinguished) and revenue from Javelin debt during the year. The fair value adjustment expense on this revenue during the second half of the financial year was effectively 100 per cent due to the underlying debt ledgers having been fair valued previously.
Repcol continually reviews the methodology used to fair value its purchased debt ledgers, taking into account actual collections performance.
The proportionately lower percentage increase in net profit before tax compared to the increase in total income for the year primarily reflects the higher fair value adjustment of purchased debt ledgers and increased expenses in certain areas.
Employee benefits increased primarily due to a significant strengthening of the middle and executive management teams. As mentioned in previous earnings guidance, other expenses were also higher due to some restructuring of the Indian operation, expenditure on technology infrastructure (to provide a world class telephony solution) and higher borrowing costs associated with convertible notes issued.
No accounting income tax expense was recorded as the discount on acquisition of Javelin was not taxable and tax had already been deducted from the share of profits received from associates and joint ventures.
Repcol is focused on continuing to reduce the cost/income ratio for its offshore and onshore operations and expects to realise further improvements in the 2007 financial year, assisted by technology improvements.
Mr Wreford commented: "To support the growth of the company, new executive management appointments were made. The wealth of experience, technical capabilities and business development network the new team provide will continue Repcol's focus on delivering operational efficiencies, improved ledger pricing and executing new business development opportunities."
Repcol's information technology strategy will see the current year roll out of new systems for collections, call monitoring, customer contact and further enhancement to telephony which will lead to improvements in productivity and operational gains to enhance the company's ability to extract the optimum yield from its receivables portfolio.
The economic climate continues to provide favourable operating conditions with a progressive tightening bias by the Reserve Bank expected to deliver an increased supply of consumer debt. Repcol expects to have many opportunities to profit from being the industry leader in blending offshore resources with domestic operations.
To better reflect the current operations of the company and in conjunction with its focus on new markets and business opportunities, re-branding is underway and shareholders will be more fully appraised of this at the annual general meeting to be held 3 November 2006.
Having considered the level of upcoming debt ledger purchases and capital expenditure on systems and technology infrastructure, the Directors have decided not to pay a dividend this year but are keen to do so as soon as possible to pass on the value of franking credits to shareholders.
Having regard to the current economic indicators for the industry and Repcol specific initiatives underway, the Directors are looking forward to another positive year in 2007. Further guidance on performance will be provided at the annual general meeting when a number of the Repcol initiatives will be further advanced.