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Record result for UDC Finance

UDC CEO Wayne Percival

UDC Finance has posted a record net profit after tax of $61.6 million for the year to 30 September 2017, a 5 per cent increase on the previous financial year.

Total lending increased 13 per cent to $2.91 billion. Motor vehicle lending increased by 28 per cent, up $261 million, commercial lending and equipment dealer lending both increased by 4 and 7 per cent, respectively.

“UDC has delivered another very good result, reflecting growth in our loan portfolio across a range of industries, continued improvement in credit quality and careful management of costs,” said UDC CEO Wayne Percival.

“Continued strength of the economy has seen record new car sales, healthy investment in new equipment in agriculture, forestry, construction and business services. Our focus remains on our core business of financing these requirements and understanding the needs of our customers.

“This momentum has continued, with UDC’s loan book passing $3 billion at the start of November.”

Revenue increased by $3.6 million, a growth of 3 per cent compared to the full 2016 year. Underlying revenue growth from lending has been even stronger, but this was offset by the cost of funds, lower prepayment revenue and lower fee income.

Costs remained under control, increasing only 3% during the year. Increased efficiencies have resulted in cost-to-income reducing to 26.1%.

Provisioned expenses of $5.9 million is a decrease of $1.5 million (-20%) on FY16. The overall quality of the lending book remains strong and there have been no individually significant write-offs in the period.

At $1.039 billion, debenture funding remains an important part of the funding mix but has declined by 35% from the prior year.

ANZ has increased the level of funding support with the limit on the facility increased to $2.7 billion effective from 13 November 2017.

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Half-yearly profits up for Heartland

Jeff Greenslade, managing director of Heartland New Zealand Ltd.

Jeff Greenslade, CEO of Heartland NZ

Heartland Bank’s profit rose 14 per cent to $29.1 million according to the company’s latest interim report published this afternoon.

The increase in profit was driven by strong growth across the household, business and rural divisions of the bank. Net finance receivables grew $221 million, or seven per cent, in the six months ending December 2016, which in turn resulted in a seven per cent growth of net operating income, valued at $5.3 million.

Earnings for the half-yearly period delivered an annualised return on equity of 11.6 per cent, which is 0.5 per cent high than the previous financial year.

The increased returns means the Heartland Board has declared an interim dividend of 3.5 cents per share. In total, share prices have risen 40 per cent in the last 12 months to $1.61.

Operating costs were down $1.1 million to $36 million, reflecting a five per cent drop in cost-to-income ratio to 43 per cent when compared to the previous corresponding period.

Higher write-offs in the motor-vehicle loan books and a growth in personal and motor-vehicle loans saw a $1.3 million increase in impaired asset expenses, up to $6.9 million for the half-year.

Funding and liquidity remains strong, with retail deposits growing $229.8 million to $2.5 billion in the first half of the 2017 tax year.

Heartland’s household division, which includes motor-vehicle loans, personal loans (including funds lent through the Harmoney platform), reverse and residential mortgages, performed strongly in the six months ending December 2016. Net operating income rose 7 per cent compared to the previous period.

Net motor-vehicle loan receivables continued to grow, up four percent to $794.5 million. Heartland remained optimistic about the growing motor-vehicle loan market in the report.

Meanwhile, net operating income for the business division grew nine percent, with net receivables increasing five per cent to $947.5 million during the six-monthly period.

The Open for Business platform saw particularly healthy results, up 142 per cent to $27.3 million.

The rural division alsoa saw an increase in net operating income, up six per cent from the previous corresponding period. Net receivables grew 12 per cent to $616.8 million, with growth attributed to term loans to existing and new customers across the sector.

The bank expects end-of-year net profit after tax to be at the upper end of their previous forecast of $57 to $60 million. The current financial year ends on June 30.

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Ford expects lower first-quarter profit

Ford CFO Bob Shanks has told investors that the company expects a lower earnings share and pre-tax profit in the first quarter, due to higher spending on commodities, investments and warranties, and a drop in sales volumes, particularly fleet sales.

Shares in Ford were down nearly one per cent at the news to (US)$11.66.

“We think we can do more with trucks, we think we can do more with utility vehicles, we can do more with performance and we’ve got plans in place to do that,” Shanks said at the presentation, which was live-streamed worldwide.

Shanks said U.S. sales should drop slightly to 17.7 million units, down from a record 17.9 million in 2016. Sales are expected to slip further in 2018 to 17.5 million.

Sales in China are also expected to dip from 27.5 million in 2016 to approximately 27.2 million.

Its pre-tax profit forecast for 2017 is unchanged at $12.8 billion, compared to $14.8 billion in 2016. Profits are expected to improve in 2018.

“We believe Ford’s announcement today is the initial confirmation of our investment thesis that pricing is deteriorating in North America and in select international markets, particularly China,” Buckingham Research Group analyst Joseph Amaturo said, according to Reuters.

This will “cause earnings and cash flow for Ford and GM GM.M to deteriorate and fall short of investor expectations and more importantly company guidance,” he added.

Sales of new Ford vehicles in New Zealand in the last three months have wavered, partially due to seasonal changes. Sales of commercial vehicles dropped 12.3 per cent and passenger cars dropped 2.73 in December.

In January, however, commercial sales were up 12.7 per cent and passenger sales grew 4.4 per cent compared to the previous year. Growth continued in February, which saw a 16 per cent rise in commercial sales and a 1.2 per cent increase in passenger sales.

Commercial figures are buoyed by the ongoing popularity of the Ford Ranger, which has a 19 per cent market share of commercial sales so far this year. The Rav4 and Escape SUVs –  the market segment coveted by Shanks – were the highest-performing passenger vehicles for Ford showing the taste for larger vehicles is extending beyond the U.S.

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Profit drops at AHG

The Australian Automotive Holdings Group (AHG) reported a $46.89 million after-tax profit for the second half of 2016, down 11 per cent on the previous corresponding period.

Operations revenue grew seven per cent to $3.15 billion, up from $2.93 billion for the same half-year period in 2015. This growth was eroded by an eight per cent increase in raw materials and inventory expenses to $2.36 billion. Other expenses, such as employee benefits, vehicle preparation and occupancy costs, also increased.

Automotive retail revenue remained static at $2.41 billion, compared to the corresponding 2015 period.

Market growth is currently varied across Australia. The eastern and northern states, including Victoria, ACT, the Northern Territory and New South Wales had increasing sales in 2016. Sales fell, however, in Queensland, Western Australia and South Australia.

Despite the lacklustre Western Australia market, AHG managing director John McConnell said the company saw “above-average” results in Queensland, and “strong automotive revenue and earnings growth in New South Wales and New Zealand.”

McConnell said Automative Holdings remains focused on growth and cost control and would “continue to monitor underperforming businesses with a view to turnaround or divest as required.”

Outlook is strong for the second half of 2017, although potential upcoming policy changes around automotive retail has the AHG board cautious of the future.

“The current ASIC [Australian Securities and Investments Commission] and ACCC [Australian Competition and Consumer Commission] reviews of finance and insurance commissions, once finalised, will most likely lead to industry‐wide changes to the revenue mix and cost base at dealership groups and the relative shares of vehicle sales margins, finance and insurance sales, aftermarket and vehicle servicing,” McConnell said.

“We expect these changes to commence across the industry after the current financial year with an extended transition period,” he added. “What we do not expect to change is AHG’s position as Australia’s largest automotive retailer.”

AHG has 110 dealerships across Australia and seven Holden, Nissan and Mazda dealerships in New Zealand.

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Heartland profits increase

Heartland Bank reported an after-tax net profit of $29.1 million for the six months ending December 31, a 14 per cent increase from the previous corresponding period. The increase of motor-vehicle loans resulted in a rise in net receivables, but relatively low income growth in the vehicle finance market.

One of the major movements was in household net receivables, which increased $106.1 million. Reverse mortgages increased $57.1 million, motor-vehicle loans $27.1 million and personal loans $29.9 million.

Despite the growth in household net receivables, particularly consumer receivables, net operating income only increased one per cent over the reported period. This is mostly due to lower earning rates on motor-vehicle and personal loans.

Heartland remained optimistic about continued growth of motor-vehicle loans, citing a lower costs and a competitive advantage over non-bank lenders in the vehicle finance market.

The bank noted higher levels of early repayments for motor-vehicle loans, which helped drive the net interest margin down to 4.4 per cent.

Impairment expenses, or diminishing asset values, in the household division has increased $2.2 million compared to the corresponding period. Heartland attributed this growth to higher write-offs in motor-vehicle loans, and a growth in personal and motor-vehicle loans. Impairments remain acceptable for motor-vehicle loans at 0.7 per cent.

An interim dividend of 3.5 cents per share has been set by the directors, and will be paid on April 7.

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Profit falls for GM

General Motors Co announced that net income dropped in the fourth quarter, and the company is forecasting a flat 2017 profit per share after two years of record profits.

GM lost $683 million to foreign currency exchange rates in the fourth quarter. $410 million stemmed from the declining value of the British pound following the vote to leave the EU. Net income fell to $2.4 billion, down from $8.6 billion a year earlier.

Stocks fell five per cent at the news to $(US)35.07.

As well as the strength of the US dollar against the British pound, the rising inventories of unsold vehicles in the US is also causing concern; in North America, GM’s largest market, inventories of unsold vehicles rose a third to 845,000 vehicles at the end of 2016.

Its North American adjusted profit margins declined to 8.4 percent in the fourth quarter, down from 10 per cent a year earlier. Adjusted US profit margins for full-year 2016 were 10.1 per cent, down from 10.3 per cent in 2015.

CFO Chuck Stevens told Reuters the company does not expect to break even in Europe this year, but will push to reach that goal in 2018. “We need to take renewed actions to get back on the path to a sustainable business,” he said. “And we will.”

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Mitsubishi profit falls

Mitsubishi Motor Corp’s operating profit fell 81 per cent in the latest quarter to $100 million, down from $527 million the previous year. Executive vice president and CFO Koji Ikeya announced that net income fell 74 per cent to $73.6 million in a statement on Tuesday.

Mitsubishi also lost $88.7 million in the quarter covering costs associated with its improper fuel economy testing of vehicles sold in Japan. Mitsubishi executives confessed to the cheating last year.

Global sales fell 11 per cent in the fiscal third quarter to 237,000 vehicles. Sales in Japan fell 24 per cent in the quarter from the previous year. Sales in most markets were weak, but the weakening yen lowered currency-related losses. Ikeya expects full-year operating profit of $12 million after a first-half loss of $38.2 million, previously forecasting a $32 million loss.

Mitsubishi said cost efficiencies resulting from its alliance with Nissan Motor Co Ltd would improve its bottom line this year, according to Reuters. Last October, Nissan acquired a 34 per cent controlling stake in Mitsubishi and promised to help its rival recover from the fuel cheating scandal.

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Hyundai records five-year profit low

Hyundai Motors failed to meet estimates and posted its lowest quarterly profit in five years, due mainly to the cost of heavy discounts on small sedans and a decrease in sales.

At its peak in 2011, more than 5 per cent of cars sold in the US were a Hyundai, according to Reuters. This was driven by the popularity of the Elantra and Sonata sedans. Recently, however, buyers have been more interested in other small sedans, such as the Honda Civic. The resurgence of SUVs in the wake of low oil prices globally has also hurt Hyundai sales figures.

Zayong Koo, Hyundai vice president in charge of investor relations, cited concerns that President Donald Trump could impose high tariffs on vehicles imported into the US at an earnings call on Wednesday. “We will continuously monitor the policy changes of the Trump government, and minimize its impact on our sales and profitability,” he said.

Last week, the Associated Press reported Hyundai Motors president Chung Jin Haeng announced the company was planning to invest heavily in US manufacturing. He also expressed interest in building the supply of Santa Fe and Tucson SUVs to the US market to capitalise on rising demand.

Hyundai Motor and its affiliates, including Kia Motors Corp, is the fifth-largest car maker globally and has recently struggled to penetrate the American market, with one of the lowest ratios of cars build in the US to cars sold. The company reported a fourth-quarter net profit of $1.2 billion, down 39 per cent from the previous year, and the lowest since the first quarter of 2012. According to Reuters, analysts expected a net profit of $1.8 billion. Shares dropped 3.1 per cent at the news, ending at 142,000 KRW.

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Ford posts $4.2 billion pre-tax remeasurement loss

In a report filed on Friday, Ford Motor Company has recorded a pre-tax remeasurement loss of $4.2 billion due to pension plans and post-retirement employee (OPEB) benefits. On an after-tax basis, the remeasurement loss is expected to reduce net income by about $2.8 billion in 2016.

It’s the first year Ford has used the mark-to-market method to account for employee benefits, which sees gains and losses measured in the year incurred rather than amortising them over years. The remeasurement is reported separately from yearly profits as an ongoing expense, and is not indicative of operating results from the industry.

The remeasurement means that underfunding of Ford pensions has increased; pensions were underfunded by $11.55 billion and OPEB plans by $8.2 billion at the end of 2015. This has grown to $12.4 billion and $8 billion respectively. Details of the plans’ assets and liabilities have yet to be released.

Full-year results are expected this Friday, and Ford projects the company will meet pre-tax profit expectations of $14.2 billion for 2016. This in line with 2015’s $14 billion pre-tax profit, which was recognised as a successful year despite a slowdown of growth in China.


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