GENEVA FINANCE LIMITED
1
ABOUT THE COMPANY
Geneva Finance (Geneva of the company) is a 100% New Zealand-owned finance company that provides finance and financial services to the consumer credit markets. Geneva commenced business on 7 October 2002. The company’s loans are originated through three distribution channels (Direct, Retail and Dealer), processed by the central sales desk and mobile sign-up managers then
administered through a national operations centre located at Mt Wellington, Auckland.
Geneva’s principal activity is to raise funds, by issuing debenture stock and subordinated notes and through institutional funding facilities, and to lend the funds raised to individuals during the course of carrying on its finance company business. A proportion of that finance is for individuals whose personal lending and finance needs are not adequately catered for by trading banks and/or because of the specific nature of the borrowing requirement e.g. secured fixed-term personal asset financing such as vehicle or retail hire purchase finance. Over the last two years Geneva has moved away from this market, preferring to focus more on mainstream lending.
The company provides hire purchase finance, and personal loans secured by registered security interests over personal assets such as motor vehicles, household goods (e.g. furniture and appliances), and mortgages of residential property. As at 31 March 2008, the Receivables Ledger was $144.4 million (prior to provisions for deferred revenue and doubtful debts) spread over 24,115 loans, with an average loan size of $5,987. This represents a wide spread of risk due to the large number and relatively small size of each loan.
Geneva employs approximately 105 staff, most of who are based at its Mt Wellington Head office. The company also has a small team operating at its Manukau City loan sign up centre as well as a number of regional sign up managers operating in major regional towns in the North Island.
2
CONTENTS
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HIGHLIGHTS AND SIGNIFICANT EVENTS
!
FINANCIAL SUMMARY
!
CHAIRMAN’S REPORT
!
MANAGING DIRECTOR’S REPORT
!
BOARD PROFILES
!
GOVERNANCE
!
GROUP FINANCIAL STATEMENTS
o
AUDITOR’S REPORT
o
FINANCIAL STATEMENTS
o
SHAREHOLDER AND STATUTORY INFORMATION
3
HIGHLIGHTS AND SIGNIFICANT EVENTS
Moratorium:On 5 November 2007 the holders of secured Debenture Stock, Subordinated Notes and Unsecured Deposits in Geneva Finance Limited (Geneva or the company) voted by a 99% majority in favour of implementing a moratorium on the repayment of all of these investments for the period through to 30 April 2008. The moratorium was put in place to enable Geneva to take steps to strengthen its capital position in the face of a significant deterioration in investor confidence in the finance company sector, following a series of finance company collapses. Geneva faced a potential liquidity problem as a result of these market circumstances.
During the moratorium period Geneva did not issue any new debenture or note securities and relied on the support of existing funding lines. In that period the company built up cash reserves, paid interest in full on all investments, made changes to lending criteria that should significantly improve asset quality, wound down the amount of new lending to customers to much lower levels and took steps to reduce its overhead by the closure of 21 retail branches and the laying off of nearly 150 employees.
SIGNIFICANT EVENTS POST YEAR END Capital Reconstruction:
On the 28 April 2008, the company received overwhelming support from its investors for a capital reconstruction: This proposal required the approval of BOS International (Australia) Limited (the company’s institutional funds provider), Debenture holders and Subordinated note holders. The proposal also required further support being provided by Financial Investments Holding Limited, Geneva’s sole shareholder at 31 March 2008. The out come of the capital reconstruction proposal is set out below.
BOS International (Australia) Limited (BOS):
BOS is a wholly owned subsidiary of HBOS Australia Pty Ltd, which in turn is a subsidiary of HBOS plc, the largest mortgage and savings provider in the United Kingdom. It is the company’s institutional debt provider and at 31 March 2008 had a term debt facility of $43 million in place. This facility was due to be repaid at the end of the moratorium. BOS who are fully supportive of the capital reconstruction have agreed to a repayment of $8 million over a period of five months from 1 May 2008. The balance of $35 million has been rescheduled as a term loan on normal commercial terms, unless extended by agreement with BOS, repayable in a lump sum no earlier than 30 April 2011.
BOS
facility was rescheduled $35 Million commercialas a term loan for three years
$6.45 Million (15%) was repaid 31 May
2008
$1.55 Million to be repaid 30 September 2008
4
Existing shareholder:
Financial Investment Holdings Limited (FIHL), the company’s sole shareholder, has provided additional support to Geneva totalling $4.439 million. This is made up of:
! subscription for new ordinary shares to the value of $2.169 million; ! repayment of a cash loan from Geneva of $0.37 million; and
! the pledging of an additional $1.9 million of security in favour of debenture and subordinated note holders in the form of the granting of a first charge over 100% of the shares in two other wholly owned subsidiaries of FIHL – Stellar Collections Limited and Quest Insurance Group Limited.
This value is based on a liquidation value for the shares in both companies and has been assessed as fair in Northington Partners independent report on the merits of the capital reconstruction. Neither FIHL nor Stellar Collections Limited nor Quest Insurance Group Limited guarantees Geneva’s securities, or any securities to be issued under the proposal. As explained below, subsequent to year end Geneva has acquired both these companies.
!
In addition to this contribution, FIHL has converted $7.67 million of preference shares it owns in Geneva into ordinary shares at a price of $1 per share. In doing so FIHL has foregone the priority to dividends and preference on winding up over ordinary shares that the preference shares provided, thereby enhancing the position of ordinary shareholders.
Debenture holders:
FIHL
Existing Shareholder
Additional Support
! $2.169 million subscription of new shares
! $0.37 million repayment of cash loan to Geneva
! Pledging additional security of $1.9 million in the form of a first charge over 100% of - Stellar Collections Limited - Quest Insurance Group
! Preference Share Conversion
Additional Support = $4,439 million
15% conversion 1 May 2008 Listed NZAX 85% of remaining principal repaid as follows: ! 15% - 31/05/08 ! 10% - 30/09/08 ! 15% - 31/03/09 ! 10% - 30/09/09 ! 10% - 31/03/10 ! 5% - 30/09/10 ! 5% - 31/03/11 ! 5% - 30/09/11 ! 5% - 31/03/12 ! 5% - 30/09/12 Interest continues to be paid monthly at minimum 11% per annum Please note 40% of the original principal is repaid over the first 11 months
DEBENTURE
HOLDERS
5
!
Debenture holders converted 15% of the existing principal amount of debentures into ordinary shares in Geneva, for which listing on the NZAX has been applied for; and! Repayment of 85% of the principal amount of debentures over a period of four years and five months commencing with an initial payment on 31 May 2008 (which has been paid) followed by six monthly instalments on 31 March and 30 September in each year until a final payment on 30 September 2012. The amount of the instalments varies from 15% to 5% of the current principal amount of debentures held. Interest will continue to be paid monthly in arrears on the balance of principal held at a rate equal to the existing rate or a minimum rate of 11% per annum.
Subordinated note holders:
!
! Sub-note holders converted 55% of the existing principal amount of subordinated notes into ordinary shares in Geneva, for which listing on the NZAX has been applied for; and
! Repayment of 45% of the principal amount of the subordinated notes over a period of two years commencing on 30 April 2011 by four equal semi-annual instalments on 30 April and 31 October in each year with a final payment on 31 October 2012. Interest will continue to be paid monthly in arrears on the balance of principal held at a rate equal to the existing rate or a minimum rate of 13% per annum.
Both debenture and subordinated note holders had the opportunity to convert a greater proportion of their debt securities to ordinary shares than the 15% and 55% respectively proposed above, if they wished to do so. Approximately $506,000 by value elected to do this.
Purchase of Quest Insurance Group Limited and Stellar Collections Limited:
On 1 May 2008 the company acquired the total shareholding of these companies from FIHL. These companies were purchased at values determined by an independent valuer and the consideration of $1,882,000 was settled by a payment of $1,000,000 in cash and the balance by the issue of shares in the company. As part of this transaction FIHL subscribed for 1 ordinary share in Geneva for $1,000,000 in cash. Consequently the new ordinary shareholders of the company (i.e. all shareholders excluding FIHL) acquired the shares in these businesses at an effective $1,000,000 discount to independent valuation.
NOTEHOLDERS
55% conversion 1 May 2008 Listed NZAX 45% of remaining principal paid out as follows: ! 11.25% - 30/04/11 ! 11.25% - 31/10/11 ! 11.25% - 30/04/12 ! 11.25% - 31/10/12 Interest continues to be paid monthly at minimum 13% per annum6
FINANCIAL SUMMARY
Mar 05 Mar 06 Mar 07 Mar 08
GAAP GAAP IFRS IFRS
$000s $000s $000s $000s
Total Revenue 20,508 37,214 48,228 45,127
Net Surplus (Deficit) after Tax 2,273 3,789 3,438 (7,877)
Number of Ordinary Shares on Issue 2,700 3,712 5,613 5,613
Earnings per Ordinary Share (Dollars) 0.84 1.42 0.64 (1.50)
Total Assets 63,519 141,684 164,521 160,054
Net Assets 1,349 9,545 9,731 2,684
Total equity and shareholders’
subordinated loans 5,077 9,545 9,731 2,684
Net Assets Per Ordinary Share (Dollars) 1.88 1.49 0.47 0.00
Net Assets Per Share (Dollars)# 1.88 1.24 0.77 0.20
Return on Shareholders Equity % 44.7 39.7 35.3 n/a
# On 2 April 2008, all preference shares were converted into ordinary shares. Net Assets Per Share is calculated on total shares issued (ordinary and preference).
Total revenue $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000
Net surplus/(deficit) after tax
($10,000) ($8,000) ($6,000) ($4,000) ($2,000) $0 $2,000 $4,000 $6,000
`
Total assets $0 $50,000 $100,000 $150,000 $200,000
GAAP GAAP IFRS IFRS Mar-05 Mar 06 Mar 07 Mar 08 GAAP GAAP FRS IFRS
Mar-05 Mar 06 Mar 07 Mar 08
GAAP GAAP IFRS IFRS Mar-05 Mar 06 Mar 07 Mar 08
7
CHAIRMANS REPORT
During the year Geneva Finance underwent a significant transformation of its operations. As a consequence Geneva has moved from a decentralised national branch based business with the associated higher operating costs, to a centralized low cost operation. In addition the company has repositioned its product range moving away from the high interest rate, high risk sector to a more mainstream customer. The centralized business model offers greater flexibility in terms of asset quality and cost control as well as an ability to respond more rapidly to funding opportunities; while the change in product range lowers the risk of loss through bad debts. That these changes have been achieved while still retaining key management staff is pleasing.
Dividend:
It is not proposed that the company issue a dividend at this time. Management and staff:
As stated above, the company has retained its key management through what has been a very trying period. On behalf of the board I wish to take this opportunity to thank them and all the staff at Geneva for the commitment and loyalty they have shown over the last twelve months.
Directors:
Your board of Directors is being expanded so that it is more representative of the new shareholding base. As a consequence we are pleased to advise that Robin King and Phillip Bell have agreed to join the board. Both have experience in the finance sector
Looking Forward
The company is now heading into the future with a new shareholding base and a proven business model. The Board is fully committed to ensuring the company is successful but remains aware that the tightening economy and the consequent impact on historic loans performance will need to be dealt with to achieve the forecasts in the Capital Offer Prospectus.
8 MANAGING DIRECTORS REPORT
Financial Result
The financial result for the year (a loss of $7.9m vs. a profit of $3.4m in 2007), was clearly disappointing. It was however directly attributable to the significant events in the sector during the year, many of which were outside the control of the company and managements’ response to those events as the company was right sized and then repositioned for the future.
The major revenue variances between 2007 and 2008 were:
- Interest Income at $42.4m was marginally ahead (+$0.1m) of 2007. The similar outcome was a result of an expanding receivables portfolio in 2007 in a then buoyant and liquid economy, as compared to the receivables portfolio contracting in 2008 as lending was constrained under the moratorium and in addition bad debts further reduced the interest earning receivables balance.
- Interest expense increased to $16.7m (+$2.0m above 2007) as a result of higher average borrowing and increases in rates as the company endeavored to secure term funding in an investor climate reacting to the ongoing finance company failures. - Other revenue declined to $2.7m (-$3.2m behind 2007) primarily lower
commissions and third party fees resulting from lower levels of lending.
- Operating expenses at $26.7m (+$4.8m above 2007) are up because in the first six months the company continued to expand adding new staff and two new branches; In the second half of the year there were the one off costs associated with the restructuring of the business. Specifically: Branch closures $3.3m; Restructure Costs $0.8m; Moratorium Expenses $0.7m; and costs associated with the adoption of IFRS $0.1m.
- Impaired asset expense at $12.9m was $6.4m above 2007. This reflects the adoption of IFRS reporting in conjunction with an unplanned deterioration in repayments of higher margin, historically performing assets.
Restructuring and Rebuilding:
During the year the company has been restructured to better prepare it for the future. In particular changes where made to lending criteria that should significantly improve asset quality. These changes involved a move away from the higher risk sector to a more mainstream customer base and a tightening of lending eligibility criteria. In addition all except one branch in the branch network was closed (21 closures), approximately 150 staff were made redundant, and expenses were tightly reviewed. The result of these changes being a reduction of approximately $13.0m pa in overhead costs.
On a more positive note the companies operations are now centered in a single location in Mt
Wellington, Auckland. The business model is less complex and more able to react to market conditions. The revised product mix is right and has been tested to show it will deliver a good yield with an
acceptable bad debt expense. The people whose loyalty and support is to be commended are a pleasure to work with and have an excellent understanding of the new business format. While there will be challenges in the future, we believe the core building blocks are now in place.
Strategic Direction
The company is committed to the consumer finance sector. The go forward plan of the company is two fold. First and foremost to focus on the core operating activities of maximizing income per loan and
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collections effectiveness, exercise tight control over operating costs and seek to continually increase staff performance and compliance.
The second focus is to look for opportunities in the market to safely capitalise on Geneva’s conservative balance sheet and the significant lift in shareholders wealth that can be achieved by leveraging new revenue off the existing infrastructure. While these opportunities present Geneva with an exciting future, you can be assured that they will be thoroughly scruitinsed by your board of directors.
Investors
We would like to take this opportunity to thank our investors for their support over the years and in particular their support during the moratorium and the capital reconstruction.
Outlook
The current economic climate is a difficult one. The higher petrol and food prices have had a direct impact on the company’s historic loans performance. Further increases in these costs without the relief of tax cuts or higher wages make management and recovery of these loans challenging. Despite this the company is in good shape, it has a strong equity base and a viable low cost operating structure and the board are committed to ensuring these challenges are overcome.
Summary
The company has been through a difficult time but now has a restructured balance sheet and a business model that best suits the challenges ahead. The board and management are committed to making every endeavor to deliver on the prospectus forecast as set out in the capital reconstruction offer document.
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BOARD PROFILES
Brian Walsh (Chairman)Brian is chairman of the board of directors of Geneva Finance, he is a retired chartered accountant and has held positions such as Director of investment bank Merrill Lynch and Chief Manager Corporate for Countrywide Bank (acquired by ANZ National Bank in 1998). Brian holds a M.A. (hons) in Economics and also a LLB degree. He has his own financial advisory practise and has a strong background in company performance analysis, investment performance and strategic planning with considerable experience in governance of both small and large companies.
Glenn Andrew Walker
Glenn is the founder, a major shareholder and the Managing Director of Geneva Finance. He is a chartered accountant and holds Accounting and M.B.A (distinction) degrees. Over his career he has held senior commercial positions from Financial Controller to CEO in manufacturing, engineering, travel, investment banking and finance over a 28 year career. He has also owned and operated several businesses in the retail sector. Glenn has tendered his resignation as Managing Director with effect from 1 May 2008, but will remain as a Director.
Peter Edward Francis
Peter is a major shareholder and investor in Geneva Finance. He is a chartered accountant. He is a substantial active investor involved principally in the finance and property sectors. He has been a major shareholder and director of several large publicly listed property, investment and retail organisations in New Zealand and Australia. He has considerable experience in corporate governance and business management.
David Gerard O’Connell
David joined Geneva Finance as the chief financial officer in July 2006. He is a member of the NZ Institute of Chartered Accountants and has been an executive director of Geneva Finance since June 2007. Over the last 20 years David has held senior finance roles and directorships in major New Zealand corporate companies. David holds a BCA from Victoria University, Wellington.
Ronald Robin King
Ronald was the founder and director of the successful building services firm Robin King & Associates, which operated for more than 20 years and remained company accountant after selling out in 1997. He has extensive experience in investment and management, and has held directorships with a number of companies in both New Zealand and Australia.
Phillip Graeme Bell
Phillip has 25 years experience in the banking and finance sector. Since 1996 he has been joint owner of CapitalGroup Limited, which provides advice and invests in New Zealand business and property projects. He has degrees in law and commerce, and previously held positions with Countrywide Bank in New Zealand and Hill Samuel in London.
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GOVERNANCE
The Board of DirectorsThe Board’s primary responsibility is to formulate the strategic direction of the company, to oversee the financial and operational controls of the business and to manage appropriate risk management strategies and policies. The board is also responsible for fostering the business culture, appointment and remuneration of senior executives, adoption of plans and policies, the approval of major
transactions and review of the business risks. Ethical Conduct
The board is committed to behaving in an ethical manner at all times. This includes, but is not limited to: Disclosure of conflicts of interest, Disclosure of receipts of any gifts and or entertainment, behaving fairly in all business dealings and employment contracts.
Selection and Role of Chairman
The Chairman is selected by the board from the non executive directors. The Chairman’s role is to manage the board effectively, provide leadership and facilitate the board’s interaction with the Managing Director.
Board Membership
The board currently consists of the (Non executive) Chairman Brian Walsh; four non executive directors Peter Francis, Glenn Walker, Robin King and Phillip Bell and one executive director David O’Connell. Director Independence
Each of the directors has confirmed that they do not have any conflicts of interest in respect of their obligations as a director of Geneva Finance Limited. Should any conflict arise out of a particular transaction, the directors have undertaken that they will disclose such conflict of interest. Nomination and Appointment of directors
The Board is responsible for identifying and recommending candidates. Directors may also be nominated by shareholders under Listing Rule 3.2.2.
A director may be appointed by an ordinary resolution or the Board. A person so appointed as a director shall retire from office at the next annual meeting of the company, but shall be eligible for re-election at that meeting.
One third of directors shall retire from office at the annual meeting of the company each year, but shall be eligible for reelection at that meeting. The directors to retire shall be those who have been longest in office since they were last elected or deemed elected.
Directors Meetings
In the normal course of events the directors meet to review the financial results monthly normally during the last week following the month end. The exception to this being December each year where board meetings are not normally scheduled. In addition the board will meet on an adhoc basis where it is considered necessary to discuss matters that need attention prior to a scheduled meeting. Indemnification and Insurance of directors and officers
The Company has a policy of providing directors and senior officers’ liability insurance. The current policy has two components: (a) D&O cover in respect of the Capital Reconstruction Offer Document and (b) Standard policy of D&O Insurance as normally carried by listed companies in New Zealand. These policies are provided by QBE.
12 BOARD COMMITTEES
Audit Committee:
The role of the audit committee is to assist the board in carrying out its responsibilities under the Companies Act 1993 and the Financial Reporting Act 1993, regarding accounting practices, policies and controls relative to the companies financial position and make appropriate enquiry into the audits of the company’s financial statements. This responsibility includes providing the board with additional assurance about the quality and reliability of the financial information issued publicly by the company. This committee plans to meet formally on a four monthly basis in the coming year. It is intended that this committee compromise the chairman and two independent directors.
Remuneration Committee:
The Remuneration committee comprises the non executive directors. This committee meets annually to determine and approve the remuneration of the Managing Director and selected other key executives. Lending and Credit Committee
The lending committee reviews the lending and credit performance policies of the company. This committee plans to meet formally on a four monthly basis in the coming year. It is intended that this committee compromise the chairman and two independent directors.
MANAGING RISK
The board has overall responsibility for the company’s system of risk management and internal control and has procedures in place to provide effective control of the management and reporting structure. Part of this function will be covered by the lending and credit committee.
The financial statements are prepared with full supporting schedules providing analysis of all risk areas on a monthly basis. As set out above, the board meets monthly (excluding December) to formally review these reports and receive appropriate explanations from management.
All capital expenditure is controlled and monitored under a structured framework.
The board maintains an overall view of the risk profile of the company and is responsible for the overall risk assessment processes.
SECURITIES TRADING
The company has implemented a Securities Trading Policy for directors and staff. The policy follows the recommendations contained in the guidelines issued by the Listed Companies Association.
DISCLOSURE:
The company adheres to the NZAX policy of Continuous Disclosure requirements which govern the release of all material information that may affect the value of the company’s shares. The board and senior management team have processes in place to ensure that all material information flows up to the Managing Director to be viewed by the board and disclosed where appropriate.
AUDITORS INDEPENDENCE:
There is no relationship between the auditors and the company or any related person that could compromise the independence of the auditors. In addition to the audit, Staples Rodway was paid consulting fees totaling $275,000.
GENEVA FINANCE LIMITED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2008
GROUP
GENEVA FINANCE LIMITED
GROUP FINANCIAL STATEMENTS
INDEX
FOR THE YEAR ENDED 31 MARCH 2008
1 Auditor's report
3
Income statement
4
Statement of changes in equity
5
Balance sheet
6
Statement of cash flows
7-50
Notes to the financial statements
1. Reporting entity
2. Basis of preparation
3. Significant accounting policies
4. Critical estimates and judgements used in applying accounting policies
5. Interest income
6. Interest expense
7. Other revenue
8. Operating expenses
9. Impaired asset expenses
10. Taxation (benefit)/expense
11. Finance receivables
12. Provision for credit impairment
13. Impaired and past due assets
14. Taxation
15. Fixed assets
16. Intangible assets
17. Term facility
18. Debt securities
19. Share capital
20. (Loss)/earnings per share
21. Revaluation reserve
22. Financial risk management
23. Reconciliation of net surplus after taxation with cash
flow from operating activities
24. Related party
25. Current and term aggregates
26. Segmental information
27. Operating lease commitments
28. Contingent liabilities
29. Events subsequent to balance date
30. Explanation of transition to NZ IFRS
51
Shareholder and statutory information
GENEVA FINANCE LIMITED INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2008
Note 2008 2007 2008 2007
$000's $000's $000's $000's
Interest income (5) 42,422 42,289 42,422 42,289
Interest expense (6) 16,722 14,673 16,722 14,673
Net interest income 25,700 27,616 25,700 27,616
Other revenue (7) 2,705 5,939 2,523 5,760
Operating revenue 28,405 33,555 28,223 33,376
Operating expenses (8) 26,666 21,836 26,603 21,801
Operating (loss)/surplus 1,739 11,719 1,620 11,575
Impaired asset expense (9) 12,900 6,546 12,900 6,546
Net (loss)/profit before taxation (11,161) 5,173 (11,280) 5,029
Taxation/(benefit)/expense (10) (3,284) 1,735 (3,275) 1,688
Net (loss)/profit after taxation (7,877) 3,438 (8,005) 3,341 (Loss)/earnings per share
Basic (loss)/earnings per share (cents) (20) (150.49) 63.75
The attached notes form part of and are to be read in conjunction with these financial statements.
Group Company
GENEVA FINANCE LIMITED
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2008
Note 2008 2007 2008 2007
$000's $000's $000's $000's Equity at the beginning of the year 9,731 3,493 9,362 3,221 Increase in revaluation reserve 695 - - -Deferred tax adjustment 135 - - -Income and expense recognised directly in equity (21) 830 - - -Net (loss)/ profit for the year ( 7,877) 3,438 ( 8,005) 3,341 Total recognised income and expense ( 7,877) 3,438 ( 8,005) 3,341 Issue of preference shares (19) 570 3,100 570 3,100 Issue of ordinary shares (19) - 1,900 - 1,900 Dividends to equity holders (19) ( 570) ( 2,200) ( 570) ( 2,200)
Equity at the end of the year 2,684 9,731 1,357 9,362
The attached notes form part of and are to be read in conjunction with these financial statements.
Company Group
GENEVA FINANCE LIMITED BALANCE SHEET AS AT 31 MARCH 2008 Note 2008 2007 2008 2007 $000's $000's $000's $000's Assets
Cash and cash equivalents 21,483 7,227 21,483 7,115
Prepayments and sundry debtors 583 473 577 473
Taxation receivable 163 - 203
-Finance receivables (11) 121,366 141,724 121,366 141,724
Other Loans Receivables (24) - - 3,635 3,864
Deferred taxation (14) 6,430 3,214 6,430 3,349
Fixed assets (15) 8,096 10,812 3,096 6,610
Intangible assets - computer software (16) 1,933 1,071 1,933 1,071
Total assets 160,054 164,521 158,723 164,206
Liabilities
Accounts payable and accruals 1,976 2,168 1,972 2,270
Taxation payable - 1,393 - 1,345
Employee entitlements 271 442 271 442
Deposits and savings accounts (18) 882 4,022 882 4,022
Term facility (17) 42,826 17,314 42,826 17,314
Debentures (18) 98,960 112,689 98,960 112,689
Subordinated loans and notes (18) 12,455 16,762 12,455 16,762
Total liabilities 157,370 154,790 157,366 154,844 Equity Ordinary shares (19) 5,613 5,613 5,613 5,613 Preference shares (19) 7,670 7,100 7,670 7,100 Revaluation reserve (21) 1,103 273 - -Retained earnings (11,702) (3,255) (11,926) (3,351) Total equity 2,684 9,731 1,357 9,362
Total equity and liabilities 160,054 164,521 158,723 164,206
Director Director
The attached notes form part of and are to be read in conjunction with these financial statements. For and on behalf of the Board of Directors, dated 13 June 2008.
Company Group
GENEVA FINANCE LIMITED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2008
Note 2008 2007 2008 2007
$000's $000's $000's $000's Cashflow from operating activities:
Cash was provided from:
Interest received 40,815 40,828 40,815 40,828
Receipts from other sources 2,705 5,939 2,525 5,760
Net movement in finance receivables 8,976 (45,606) 8,976 (45,606)
52,496 1,161 52,316 982
Cash was applied to:
Interest paid (16,736) (14,667) (16,736) (14,667)
Payments to suppliers and employees (21,990) (20,304) (21,926) (20,259)
Tax payments (1,266) 924 (1,266) 924
(39,992) (34,047) (39,928) (34,002) Net Cash inflow/(outflow) from operating activities (23) 12,504 (32,886) 12,388 (33,020) Cash flows from investing activities:
Cash was (applied to)/provided from:
Other loans receivable - - 228 30
Proceeds from the sale of fixed assets 137 - 137
Purchase of fixed assets and intangible assets (2,722) (2,220) (2,722) (2,215) Net cash outflow from investing activities (2,585) (2,220) (2,357) (2,185) Cash flows from financing activities:
Cash was provided from:
Proceeds from subordinated loans and notes - 6,924 - 6,924
Proceeds from deposits and savings accounts - 291 - 291
Proceeds from term facility 25,500 17,500 25,500 17,500
25,500 24,715 25,500 24,715 Cash was applied to:
Repayment of bank facility - (3) - (3)
Repayment of debentures (13,723) (578) (13,723) (578)
Repayment of subordinated loans and notes (4,300) - (4,300) Repayment of deposits and savings accounts (3,140) - (3,140) -(21,163) (581) (21,163) (581)
Net cash inflow from financing activities 4,337 24,134 4,337 24,134
Net increase/(decrease) in cash held 14,256 (10,972) 14,368 (11,071)
Add Opening cash balance 7,227 18,199 7,115 18,186
Balance at end of year 21,483 7,227 21,483 7,115
The attached notes form part of and are to be read in conjunction with these financial statements.
Group Company
GENEVA FINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. Reporting entity
2.
a) Statement of compliance
b)
c)
The Group's primary activities are to borrow money by the issue of debt securities and to lend money to individuals, companies and other entities.
Basis of preparation
FOR THE YEAR ENDED 31 MARCH 2008
The financial statements for the Company and consolidated financial statements are presented. The consolidated financial statements of Geneva Finance Limited comprise the Company and its wholly owned subsidiary, Pacific Rise Limited.
Geneva Finance Limited (the "Company") is a profit orientated company incorporated and domiciled in New Zealand, registered under the Companies Act 1993 and listed on the New Zealand Alternative Stock Exchange (NZAX). Geneva Finance Limited is an issuer for the purpose of the Financial Reporting Act 1993 and an issuer in terms of the Securities Act 1978. The Company and consolidated financial statements were approved for issue by the Board on 13 June 2008.
The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice ("NZ GAAP"). They comply with New Zealand equivalents to International Financial Reporting Standards ("NZ IFRS"), and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities. Compliance with NZ IFRS ensures that the financial statements also comply with International Financial Reporting Standards ("IFRS"). These are the Group's first NZ IFRS financial statements and NZ IFRS 1 has been applied.
An explanation of how the transition to NZ IFRS has affected the reported income statement, balance sheet and cash flows of the Group is provided in note 30.
These financial statements are presented in New Zealand dollars ($), which is the Group's functional currency. All financial information presented in New Zealand dollars has been rounded to the nearest thousand.
Basis of measurement
The financial statements have been prepared on the going concern basis following the investors approval of the capital reconstruction plan included in the Capital Reconstruction Offer Document comprising an Investment Statement and Prospectus ("offer document") submitted to and voted on by investors in April 2008.
The financial statements have been prepared on the historical cost basis except for land and buildings that are stated at valuation.
The accounting policies set out below have been applied in preparing the opening NZ IFRS balance sheet at 1 April 2006 for the purposes of the transition to NZ IFRS.
Functional and presentation currency
GENEVA FINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008 2. Basis of preparation (continued)
d)
e) New standards and interpretations not yet adopted
3. Significant accounting policies
a) Consolidation
Subsidiaries
Control means the power to govern, directly or indirectly, decision making in relation to the financial and operating policies of an entity so as to obtain benefits from its activities.
The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at acquisition date. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than fair value of the Group's share of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Where subsidiaries have been sold or acquired during the year, their operating results have been included to the date control ceases or from the date control is transferred to the Group.
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
A significant area of estimation uncertainty and critical judgment in applying accounting policy is the measurement of impairment of finance receivables (refer note 3(i)).
These financial statements consolidate the financial statements of Geneva Finance Limited and its subsidiary.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the years in which the estimate is revised and in any future years affected.
The accounting policies set out below have been applied consistently to all years presented in these financial statements, and have been applied consistently by Group entities.
At the date of authorisation of these financial statements, the following new standards and interpretations were on issue but not effective:
NZ IFRS 8, Operating segments, effective for years beginning on or after 1 January 2009. The Directors anticipate that the adoption of this standard in future years will have no material impact on the financial statements of the Company. A number of relevant new interpretations and amendments to standards are not yet effective for the year ended 31 March 2008 and have not been applied by the Company in the preparing these financial statements.
Use of estimates and judgements
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The accounting policies of the subsidiary have been changed where necessary to ensure consistency with the policies adopted by the Group.
All significant activities of the Group are operated through wholly owned and controlled entities.
GENEVA FINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008 3. Significant accounting policies (continued)
b) Revenue and expenses recognition
c)
d) Fee and commission income
e) Offsetting of income and expenses Interest income and interest expense
Fees and commission income integral to the effective yield of a financial asset or liability are recognised as an adjustment to the effective interest calculation and included in net interest income.
Fees and commissions that relate to the execution of a significant act (for example, loan servicing fees and insurance commissions) are recognised when the significant act has been completed. The effective interest method calculates the amortised cost of a financial asset or financial liability and allocates the interest income or interest expense, including any fees and directly related transaction costs that are an integral part of the effective interest rate, over the expected life of the financial asset or liability. The application of the method has the effect of recognising income and expense on the financial asset or liability evenly in proportion to the amount outstanding over the period to maturity or repayment.
Income and expenses are not offset unless required or permitted by accounting standards. This generally arises in the following circumstances:
Commissions payable to originators in respect of originating lending business, where these are direct and incremental costs related to the issue of a finance receivable, are included in interest income as part of the effective interest rate.
- where costs are incurred on behalf of customers from whom the Group is reimbursed.
- where amounts are collected on behalf of third parties, where the Group is, in substance, acting as an agent only; or
Revenue, which includes interest income and fee income is recognised to the extent that it is probable that economic benefits will flow to the Group and that revenue can be measured reliably. Expenses are recognised in the income statement on an accrual basis.
Interest income and interest expense are recognised in the income statement as they accrue, using the effective interest method.
GENEVA FINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008 3. Significant accounting policies (continued)
f)
g) Financial Instruments
Basis of recognition and measurement
Financial assets at fair value through profit and loss
Available for sale financial assets
Loans and receivables
Cash and cash equivalents
Other receivables
Recognition and derecognition of financial assets and financial liabilities
Assets in this category are measured at amortised cost using the effective interest method and include finance receivables.
Cash and cash equivalents include cash on hand, bank current accounts, cash on deposit that are readily convertible to known amounts of cash which are subject to an insignificant risk of changes in value. They are brought to account at the face value and interest is taken to the income statement when earned.
Other Receivables include prepayments and sundry debtors, taxation receivables and other loans receivables.
The Group classifies financial instruments into one of the following categories at initial recognition: Financial Assets or Liabilities at Fair Value through Profit or Loss, Available for Sale, Loans and Receivables, Held to Maturity, and Financial Liabilities measured at amortised cost.
Some of these categories require measurement at fair value. Where available, quoted market prices are used as a measure of fair value. Where quoted market prices do not exist, fair values are estimated using present value or other market accepted valuation techniques, using methods and assumptions that are based on market conditions and risks existing as at balance date. A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows expire or if the Group transfers them without retaining control or substantially all risks and rewards of the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contract are extinguished.
Assets in this category are measured at fair value. Gains and losses from fair value
remeasurement (excluding interest and dividends) are included in operating revenue in the income statement. The Group has not classified any assets in this category.
Available for sale financial assets are measured at fair value, with changes in fair value recognised directly in shareholders equity. The Group has not classified any financial assets in this category. The Group recognises a financial asset or liability on its balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial asset or liability. The Group derecognises a financial asset from its balance sheet when, and only when, (i) the contractual rights to the cash flows from the financial asset expire, or (ii) the Group has transferred all or substantially all of the risks and rewards of ownership of the financial asset and no longer controls the financial asset. The Group derecognises a financial liability from its balance sheet, when, and only when, it is extinguished.
GENEVA FINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008 3. Significant accounting policies (continued)
g) Financial Instruments (continued) Held to maturity investments
Financial liabilities at fair value through profit or loss
Other financial liabilities
Other Payables
h) Offsetting Financial Instruments
i)
Impaired Assets:
Restructured Assets:
Assets acquired through the enforcement of security
The Group offsets financial assets and financial liabilities and reports the net balance in the balance sheet where there is a legally enforceable right to set-off and there is an intention to settle on a net basis or to realise the asset and to settle the liability simultaneously.
Assets in this category are measured at amortised cost. The Group has not classified any financial assets in this category.
Liabilities in this category are measured at fair value. Gains and losses arising from the fair value remeasurement are included in the income statement. The Group has not classified any liabilities in this category.
This category includes all financial liabilities other than those designated as Fair Value through Profit or Loss. Liabilities in this category are measured at amortised cost and include deposit and savings accounts, term facilities, debentures and subordinated loans and notes.
Other Payables include interest payable on deposit and savings accounts, term facility ,debentures and subordinated loans and notes accounts payable and accruals, taxation payable and employee entitlements.
A restructured asset is any asset for which the original terms have been formally changed to grant the counterparty a concession that would not otherwise have been available, due to the
counterparties difficulties in complying with the original terms. Past-Due Assets:
A financial asset on which a counterparty has failed to make a payment when contractually due and is not a restructured asset or impaired asset.
The Group does not acquire assets through the enforcement of security. Where repossession of security occurs the assets remain owned by the borrower and any realisation proceeds are applied immediately to the outstanding debt.
Finance receivables
An impaired asset is an asset for which an impairment loss is required in accordance with NZ IAS 39 paragraphs 58 to 62, but is not a restructured asset.
Finance receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and not classified as available-for-sale and comprise advances, finance leases, and hire purchase contracts. Finance Receivables are initially recognised at fair value including transaction costs that are directly attributable to the issue of the advance, lease or contract. They are subsequently measured at amortised cost using the effective interest method, less any impairment loss.
GENEVA FINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008 3. Significant accounting policies (continued)
i) Finance receivables (continued)
Where impairment losses recognised in previous periods are subsequently decreased or no longer exist, such impairments are reversed in the income statement.
For those receivables that are assessed collectively, the required provision is estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the collective pool. The historical loss experience is adjusted based on current observable data. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the impact of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.
Impairment is assessed initially for assets that are individually significant and then on a collective basis for those exposures not individually known to be impaired.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (ie. on the basis of the Group's grading process that considers asset type, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtor's ability to pay all amounts due according to the contractual terms of the assets being evaluated.
The provision for credit impairment (individual and collective) is deducted from finance receivables in the balance sheet and the movement in the provision for the reporting period is reflected in the income statement as an impaired asset expense.
Impairment of finance receivables
· Initiation of bankruptcy proceedings; and
When a finance receivable is uncollectible, it is written off against the related provision for finance receivable impairment. Subsequent recoveries of amounts previously written off are taken to the income statement.
· Deterioration in the value of collateral.
The estimated individual impairment loss is measured as the difference between assets carrying amount and the estimated future cash flows discounted to their present value at the original effective interest rate. As this discount unwinds during the period between recognition of impairment and recovery of the written down amount, it is recognised in the income statement. The process of estimating the amount and timing of cash flows involves considerable management judgement. These judgements are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
· Delinquency in contractual payments of principal or interest;
Finance receivables are regularly reviewed for impairment loss. Credit impairment provisions are raised for receivables that are known to be impaired. Finance receivables are impaired and impairment losses incurred if there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the loan and that loss event (or events) has had a reliably measurable impact on the estimated future cash flows of the individual finance receivable or the collective portfolio of finance receivables.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss includes:
GENEVA FINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008 3. Significant accounting policies (continued)
j)
Buildings 3% SL
Computer equipment 20% SL
Furniture and fittings 20% SL
Office equipment 20% SL
Leasehold improvements 10% SL
Motor vehicles 20% SL
k)
Fixed assets are initially recorded at cost. Land and buildings are subsequently stated at a valuation as determined by an independent valuer. The basis of valuation of the land and buildings is fair value and disposal costs are not deducted. Land and buildings are revalued at least every three years.
Fixed assets and depreciation
Land is not depreciated. Depreciation on other fixed assets is provided on the straight line method at rates calculated to allocate the cost less estimated residual value over the estimated economic lives of the assets.
Any revaluation surplus arising on the revaluation of land and buildings is transferred directly to the revaluation reserve. A revaluation deficit in excess of the revaluation reserve for land and buildings is recognised in the income statement in the year it arises. Revaluation surpluses which reverse previous revaluation deficits recognised in the income statement are recognised as revenue in the income statement.
Intangible assets and amortisation
Software is amortised using the straight-line method over its expected useful life to the Group. The period of amortisation is 5 years.
At each reporting date, the software assets are reviewed for impairment against impairment indicators. If any indication of impairment exists, the recoverable amount of the assets are estimated and compared against the existing carrying value. Where the existing carrying value exceeds the recoverable amount, the difference is charged to the income statement.
Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation, are not capitalised.
When a fixed asset is disposed of, any gain or loss is recognised in the income statement and is calculated on the difference between the sale price and the carrying value of the asset.
Intangible assets comprise costs incurred in acquiring and building software applications and computer systems (referred to as software).
GENEVA FINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008 3. Significant accounting policies (continued)
l) Income tax expense
m)
n) Leased assets
o)
The amounts expected to be paid in respect of employees' entitlements to annual leave are accrued at current salary rates.
Employee entitlements
Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset are transferred to the Group are classified as finance leases. Finance leases are capitalised recording an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual value. Leased assets are amortised over their estimated useful lives. Lease payments under operating leases are charged as expenses in the years in which they are incurred.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised.
Deposits and Savings Accounts, Debentures and Subordinated Loans and Notes
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
These debt securities are initially recognised at fair value plus transaction costs and subsequently measured at amortised cost. The interest expense is recognised using the effective interest method as explained in accounting policy (c).
GENEVA FINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008 3. Significant accounting policies (continued)
p) Borrowings
q) Capitalised expenses
r) Share capital
s) Distributions
t)
u) Fair value estimates
Cash and cash equivalents
These assets are short term in nature and the carrying value is equivalent to their fair value. Other receivables
These assets are short term in nature and the carrying value is equivalent to their fair value. Finance receivables
Other payables
These liabilities are short term in nature and the carrying value is equivalent to their fair value. Goods and services tax
Finance Receivables have fixed interest rates. Fair value is estimated using a discounted cash flow model based on a current market interest rate for similar products after making allowances for impairment.
Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Dividend distributions to the Group's shareholders is recognised as a liability in the Group's financial statements in the years in which the dividends are approved.
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently state at amortised cost; and the difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
Direct expenses, comprising direct and incremental costs related to the origination of finance receivables are initially recognised as part of the cost of acquiring the asset and written off as an adjustment to its expected yield over its expected life using the effective interest method. The write off is to interest income as part of the effective interest rate.
Revenues, expenses, assets, receivables and payables are stated with the amount of goods and services tax ("GST") included. The net amount of GST recoverable from, or payable to, the Inland Revenue Department ("IRD") is included as 'accounts payable and accruals' or 'prepayments and sundry debtors' in the balance sheet.
Cash flows are included in the cash flow statement inclusive of GST. The GST components of cash flows arising from investing and financing activities, which are recoverable from, or payable to, the IRD are classified as operating cash flows.
Financial instruments classified as fair value through profit or loss are presented in the Group’s balance sheet at their fair value. For other financial assets and financial liabilities, fair value is estimated as follows:
GENEVA FINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008 3. Significant accounting policies (continued)
u) Fair value estimates (continued)
v) Segment reporting
w) Cash and cash equivalents
x) Comparatives
Deposits and Savings Accounts, Debentures and Subordinated Loans and Notes
To ensure consistency with the current year, all comparative figures have been restated where appropriate for the changes resulting from the adoption of NZ IFRS.
Debentures, Unsecured Notes, and Borrowing liabilities have fixed interest rates. Fair value is estimated using a discounted cash flow model based on a current market interest rate for similar products.
For the purposes of the cash flow statement, cash and cash equivalents include liquid assets and amounts due from other financial institutions with an original term to maturity of less than three months and bank overdrafts repayable on demand.
Business segments are distinguished components of the Group that provide products or services that are subject to risks and rewards that are different to those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and rewards that are different to those components operating in other economic environments.
Business segments are the Group's primary reporting segments. For reporting purposes the Group has one reporting segment, Consumer Finance. The Group operates in primarily in one geographic segment, New Zealand.
GENEVA FINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008
4. Critical estimates and judgements used in applying accounting policies
Credit provisioning
An explanation of the judgements and estimates made by the Group in the process of applying its accounting policies, that have the most significant effect on the amounts recognised in the financial statements are set out below.
These financial statements are prepared in accordance with NZ IFRS and other authoritative accounting pronouncements. Not withstanding the existence of relevant accounting standards, there are a number of critical accounting treatments which include complex or subjective judgements and estimates that may affect the reported amounts of assets and liabilities in the financial statements. Estimates and judgements are continually reviewed and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The collective provision is estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the collective pool. The historical loss experience is then adjusted for the impact of current observable data.
Provisions for impairment in customer loans and advances are raised by management to cover actual and expected losses arising from past events. Losses for impaired loans are recognised promptly when there is objective evidence that impairment of a loan or portfolio of loans has occurred. Impairment losses are calculated on individual loans and on loans assessed collectively. Losses expected from future events, no matter how likely, are not recognised. The amount of the impairment loss is recognised as an expense in the income statement.
The calculation of impairment provisions includes consideration of all expected cash flows associated with the loan. This includes any expected cash flows from realisation of security and interest and takes into account any costs expected to be incurred, including security realisation costs, legal and
administration costs. Individual provisions
· Loans subject to individual assessment to cover losses which have been incurred but not yet identified; · For homogenous portfolios of loans that are not considered individually significant (e.g. less than $50,000).
An individual provision is raised where there is an expectation of a loss of principal, interest and/or fees and there is objective evidence of impairment.
At each balance date, the Group reviews individually significant loans for evidence of impairment. All relevant information, including the economic situation, solvency of the customer/ guarantor,
enforceability of guarantees, current security values and the time value of future cash flows are taken into account in determining individual provisions. At a minimum, individual provisions are reassessed semi annually, upon receipt of a significant asset realisation or when there is a change in customer circumstances/business strategy.
Collective provisions
A collective provision is calculated for:
GENEVA FINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008
4. Critical estimates and judgements used in applying accounting policies (continued)
5. Interest income 2008 2007 2008 2007 $000's $000's $000's $000's Bank Accounts 627 728 627 728 Finance Receivables 35,201 37,904 35,201 37,904 Impaired - collectively 6,570 3,657 6,570 3,657 Impaired - individually 24 - 24
-Total interest revenue 42,422 42,289 42,422 42,289
6. Interest expense
Deposits and Savings Accounts 191 276 191 276
Term Facility 3,816 20 3,816 20
Debentures 10,839 11,790 10,839 11,790
Shareholders’ Subordinated Loans - 194 - 194
Subordinated Loans 1,876 1,772 1,876 1,772
Other - 621 - 621
Total interest expense 16,722 14,673 16,722 14,673
7. Other revenue
Commission and Brokerage Income 607 2,416 607 2,416
Other 2,098 3,523 1,916 3,344
Total other revenue 2,705 5,939 2,523 5,760
Collective provisions (continued)
For individually significant loans, historical loss experience used to calculate the collective provision is determined by taking into account historical information on probability of default. The collective provision on homogeneous or portfolio managed receivables is calculated by applying an expected loss factor to the outstanding balances in each loan portfolio. The expected loss factor is determined from internal historical loss data.
Group Company
Management regularly reviews and adjusts the estimates and methodologies as improved analysis becomes available. Changes in these assumptions and methodologies could have a direct impact on the level of credit provision and credit impairment charge recorded in the financial statements. Credit provisioning (continued)
The long-term historical loss experience is reviewed by management and adjustments made to reflect current economic and credit conditions as well as taking into account such factors as concentration risk in an individual portfolio. In addition, management recognise that a certain level of imprecision exists in any model used to generate risk grading and provisioning levels. As such an adjustment is applied for model risk.
GENEVA FINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008
8. Operating expenses
2008 2007 2008 2007
$000's $000's $000's $000's Other operating expenses includes the following:
Auditor's remuneration
- Audit of the financial statements - 31 March 2007 33 64 33 64 - Audit of the financial statements - 31 March 2008 118 - 118
-- NZ IFRS conversion 62 - 62
-- Moratorium related fees 55 - 55
-- Tax Fees 43 45 43 45
- Other 44 88 44 88
Depreciation (15) 1,185 1,479 1,288 1,376
Amortisation (16) 459 246 459 246
Fixed asset write offs 1,795 - 1,795
-Provision for fixed asset write offs 1,663 - 1,663
-Directors Fees 48 30 48 30
Lease Expense 50 35 50 35
Loss on sale of fixed assets 32 - 32
-Rent 1,434 1,299 1,434 1,299
Restructure costs 780 - 780
-Moratorium related expenses 626 - 626
-9. Impaired asset expenses
Bad debts written off 3,173 2,917 3,173 2,917
Increase/(decrease) in collective provision 9,577 3,629 9,577 3,629
Increase/(decrease) in specific provision 150 - 150
-12,900 6,546 12,900 6,546 10. Taxation (benefit)/expense
Net (loss)/profit before taxation (11,161) 5,173 (11,280) 5,029
Prima facie taxation @ 33% (3,683) 1,707 (3,722) 1,660
Non-deductible expenses 18 28 18 28
Loss off sets (261) - (213)
-Restatement of deferred tax for change in tax rate 642 - 642 -(3,284) 1,735 (3,275) 1,688
Comprising: Current (203) 848 (194) 801
Deferred (3,081) 887 (3,081) 887
(3,284) 1,735 (3,275) 1,688
Deferred tax balances have been adjusted to take into account changes to the tax rate form 33% to 30%. The current year deferred tax charge has been booked at 30%. There are no significant un-recognised deferred tax assets and liabilities.
Included in Prepayments and sundry debtors is $71,000 paid to the Auditors relating to the capital reconstruction.
Group Company
