Chief Executive Officer’s Report

"Despite 2015 being a difficult year in PNG Credit Corporation (PNG) Limited again achieved solid results."

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Chief Executive Officer’s Report

Despite 2015 being a difficult year in PNG Credit Corporation (PNG) Limited again achieved solid results. With the slowdown in the PNG economy continuing, low commodity prices and a lack of foreign exchange availability demand for both our core business of finance and property continue to be under pressure.

Credit Corporation (PNG) and its subsidiaries recorded a net profit after tax of K63.14 million for the year ended 31st December 2015, this is 158% above the 2014 result.

A positive adjustment of K13.30 million was booked against the value of the company’s shareholding in BSP and other listed companies compared to a negative adjustment of K34.42 million in 2014. Also an adjustment of K18.56 million was booked against the profit and loss account due to a further write down in the fair value of the group’s property portfolio.

Shareholders’ equity has continued to grow and has now reached K743.69 million while total assets have grown to a record K1.17 billion. Net asset backing per share has grown to K2.36 and our expenses to income ratio has been maintained at 37.1%.

 

Credit House

There continued to be delays in the timing of existing tenants relocating to other premises and this has translated into another successful year for the building, achieving an operating profit before tax of K7.82 million for 2015. One floor of the building was vacated in April 2015 and this allowed us to carry out a full refurbishment of the floor to a new, modern base building standard, as well as updating the common floor amenities throughout the building. The common floor amenities update was largely completed during the year, with the final touches on a few of the floors being completed in early 2016.

Credit House is now a fully refurbished building and although there is a fair amount of new space available in the market, we believe the building is well positioned to compete for good corporate tenants to take it through the next phase of its existence. Tenants can be expected from the new major gas projects being widely discussed, if they commence in 2016, otherwise from the relocation of existing tenants from other buildings.

Having said that, now that the relocation of tenants is complete, we project that the released space will remain vacant for at least the first half of the year as the refurbishments and upgrades are being completed and this will result in significantly reduced income in 2016. We have taken a conservative approach to the impact this will have on the company and booked a write down of K10.54 million in 2015.

Era Dorina

The executive rental market in Port Moresby remained flat in 2015 and this resulted in reduced occupancy rates
throughout the year. The company posted an operating profit of K12.31 million in 2015, compared to K15.20 million in 2014. This also resulted in a write down of K8.02 million. The market outlook in 2016 remains the same, unless the next major gas projects commence during year.

Era Dorina Estate continues to be the accommodation of choice for executives with families residing in the city and we will be focussing on developing the family friendly facilities within the estate in 2016. This will complement the significant investments we have made in relocating the property management office to the site, upgrading the security systems and the ongoing refurbishment of the units.

We believe the major issue that will impact the city in 2016 will be the lack of water resulting from the impact of the El Nino weather phenomenon and are taking steps to address the issue. The severity of El Nino, the fact that the Sirinumu catchment remains the same size despite the rapid growth of the city in the past 10 years and the little to no rainfall in the catchment during the limited wet season all make for a bleak outlook for water supply in the city.

Whilst the overall performance of the property is satisfactory, the Board and management are monitoring the business and operational environment very closely and will take prompt action to counter possible adverse impacts.

Era Matana

The company name was changed from Ela Makana Developments Limited to Era Matana Limited in 2015 to clearly identify the property, whilst retaining the traditional link with the area in the word “Era” which means turtle in the local language. This also retains a connection with Era Dorina Estate which is on the same street.

Construction on the site continued well throughout 2015 with a revised completion date of August 2016. The project is well advanced and we do not expect any further delays or foresee any issues that may impact the project.

The residences around the project and the city authorities will also benefit as we have had to upgrade the services in the area including sewerage, stormwater and Ela Makana Street itself at our own cost, despite requests for counterpart funding. It is disappointing that the city authorities do not see it as necessary to partner with developers in long forgotten areas of the city to upgrade deteriorating or nonexistent infrastructure.

We remain confident that the fantastic panoramic views from the site, the well designed apartments and the large and well appointed amenities will make Era Matana a sought after executive residential address once completed.

Era Matana Pool & Entertainment Area.

Credit Corporation Finance Limited

The challenges of 2014 have continued into 2015 for Credit Corporation Finance and unfortunately 2016 does not look to be much better. With a continuing softening of the Mining and Petroleum sector, a lack of foreign exchange, severe drought in the Highlands region and a government that seems unable to pay its bills on time, 2015 has been a difficult year for the finance company.

Whilst net receivables have grown to K265.44 million for the year compared to K249.81 million for 2014, provision for doubtful debts has increased to K17.70 million compared to K11.88 million for 2014. The company achieved a profit before tax of K10.64 million down by 28% on the 2014 result.

Non-performing assets have increased for the year to slightly above the 3.5% general industry standard. This increase was anticipated but with the continuing inability of Government to pay its commitments on time and further weakening of the PNG economy the arrears position will be under pressure.

Company C.E.O. Robert Allport addressing clients and guests at the “Futures Funded” Marketing Campaign Launch.

We have a sound and adequately capitalized balance sheet with a net asset position of K106.07 million. This is a 1.99% increase over last year’s position of K103.97 million. Total assets increased to K341.97 million, an increase of 8.07%. The Capital Adequacy ratio for 2015 was recorded at 37.1%

2016 will be a challenging year with the current level of economic activity in Papua New Guinea, a highly competitive asset finance market and a lack of foreign exchange. However, we are confident that we can maintain our market share and continue to maximise shareholder returns.

The launching of the Company's "Futures Funded" Campaign.

Credit Corporation (Fiji) Limited

2015 proved to be a very successful year for Credit Corporation (Fiji) Ltd, with the company continuing to improve on its bottom line performance on the back of a stable Fiji economy. The company recorded an operating profit before tax of F$8.92 million (K11.73 million) for the year, 13.6% up on the prior year’s result. A record net after tax profit of F$7.12 million (K9.36 million) was recorded for the year, a 10.7% improvement over 2014’s result and above expectations.

In 2015 the company’s lending volumes exceeded F$60 million (K84.59 million) for the first time in its history. This milestone was achieved in the face of increased competition through the entry of two new licensed finance companies.

Competition has led to some impact on lending margins, however the contraction in margins has been more than offset by increasing business volumes.

The company’s balance sheet remains strong, with total assets of F$115.6 million (K162.98 million) and shareholder’s funds of F$35.18 million (K49.59 million) at as at 31 December 2015. The company remains well capitalised with a Capital Adequacy ratio at 32.7% at year end.

At the time of writing, Fiji has recently suffered major devastation through the impact of Tropical Cyclone Winston. With major damage to many areas of Fiji, economic growth in 2016 is expected to be dampened. Understandably a major slowdown in business post Cyclone Winston is anticipated, however hopefully this will prove to be a short term situation and business will return to normal by mid-2016.

Credit Corporation (Solomon Island) Limited

Solomon Islands reported yet another profitable year in 2015, earning an operating profit before tax of SBD11.13 million (K4.12million), slightly down by 3.42% compared to 2014 result of SBD11.52 million (K4.26 million).

This is considered a strong result despite some challenges experienced throughout the year.

Going forward, we forecast a 5% growth in our business in 2016 which aligns with the anticipated country’s economic growth of circa 3% in 2016.

We expect another profitable year in 2016.

Credit Corporation (Vanuatu) Limited

The Vanuatu operation has had a very difficult year with Cyclone Pam, a devastating Category 5 cyclone striking the country in March. This has impacted negatively on the 2015 results with the company recording an operating profit of Vatu 35.35 million (K955,820) a decrease of 44% over the 2014 result of Vatu 63.47 million (K1.72 million).

Outlook

Whilst Credit Corporation (PNG) Limited is well positioned with an excellent business, a strong balance sheet and dedicated staff 2016 will be a difficult year. However, with the support of all at Credit Corporation I am confident that we will adapt to the challenging economic conditions and continue to create shareholder wealth in the years to come.

Robert Allport
Chief Executive Officer