Chief Executive Officer's Report
Chief Executive Officer
Our business performed exceptionally well in 2012, achieving a record core underlying profit in line with the guidance we provided. The growth of the Papua New Guinea economy, arising largely as a result of the ongoing US$19 billion Exxon Mobil led PNGLNG project has continued during 2012. This growth has laid the foundation for another highly successful year with our core business of finance and property enjoying continued demand and earnings growth. Whilst this demand is expected to level out during 2013 the Company is well positioned with a growing business and a very strong balance sheet.
Credit Corporation (PNG) Limited and its subsidiaries recorded a record core operating profit of K80.79 million for the year ended 31 December 2012, 9% above the 2011 result. The Group recorded a net profit after tax of K106.93 million for the same period, 154% above the 2011 result.
We are at last seeing an improvement in the value of our Bank of South Pacific Limited (BSP) shares on the Port Moresby Stock Exchange. After three years of heavy losses it is pleasing to see that the sum of K21.94 million was booked to the profit and loss account due to the increased value of our BSP shares. Hopefully the Bank’s long running "Transformation and Modernisation" exercise will soon be at an end and shareholders will see some real value from their BSP shareholding.
Shareholders’ equity has continued the growth of the last few years, and has now reached K711.02 million while total assets have grown to a record K1,008.94 million. Net asset backing per share is K2.23 as at 31 December 2012 and our expense to income ratio has increased slightly to 34.4%. All in all, an excellent year.
During 2011, the Board initiated a comprehensive 5 year Strategic Plan with the assistance of accounting firm KPMG. This Plan covers all areas of the Group and, along with the Risk Management Review by accounting firm PWC that took place in 2010, will be one of the drivers of the Company's growth in the years to come.
During 2012, the Company’s On Market Share Buy Back Scheme that was introduced during 2010 was extended to the end of 2013. The Buy Back has proven to be popular with shareholders and besides stabilising the fluctuations in the Company’s share price on the Port Moresby Stock Exchange, it has enabled shareholders to sell their shareholding at a fair and reasonable price. Over 80% of our shareholders hold under 20,000 shares and the Buy Back has enabled them to sell their shares into the scheme with no brokerage or other fees.
Credit House limited
Credit House produced its most successful result in 2012 posting a net profit before tax of K7.6 million. The revaluation of the building in October 2012 set the value of the building at K61.87 million which more than justifies the capital expenditure of the major refurbishment of the building.
We expect rental rates to remain static with the new commercial space in the market, but we believe Credit House remains an attractive commercial address and will be able to maintain good occupancy rates into the future. Older buildings in the CBD that have not invested in renewing their systems and services will find it increasingly difficult to compete in the market and we expect market activity will largely be based on existing tenants moving to newer space.
Era Dorina Limited
Era Dorina Estate enjoyed another successful year in 2012 posting a net profit before tax (after property revaluation) of K18.94 million. This was an increase of 8.5% on the previous year’s performance and continues a trend of strong performances in an increasingly competitive market.
The revaluation of the property in October 2012 produced an increase of 37% on the book value and demonstrates strong asset appreciation.
Despite rental rates peaking in 2012, we believe Era Dorina Estate provides a unique and attractive product in the executive residential accommodation market, and we believe the Estate will continue to maintain high occupancy levels.
The construction of the Stage 5, twenty one-bedroom studio apartments is progressing well and we expect the project will be completed in October 2013.
Ela Makana Developments Limited
We concluded the purchase of Ela Makana Developments Limited in November 2012, acquiring a large block of land in close proximity to Era Dorina Estate.
A master site plan has been drafted and we expect to be able to construct a new executive residential estate on the site consisting of between 50 and 60 executive residential apartments, a swimming pool, gymnasium and entertainment area. Detailed plans and costings are being developed and a final decision will be made at the completion of this process.
Land in the city is scarce and this is a long term strategic investment that will allow us to expand the property portfolio in the future.
Credit Corporation Finance Limited
Credit Corporation Finance Limited has had a record year and has again made a substantial contribution to the profit of the Group. Net operating profit before tax for the period was a record K21.11 million. The PNGLNG project has had a large influence on the PNG economy and Credit Corporation Finance Limited has benefited immensely from this huge project. However with the construction phase of the project drawing to an end, the growth that we have experienced over the last few years will slow considerably. .
Credit Corporation (Fiji) Limited
The Fiji operation enjoyed another profitable year in 2012 despite challenging local conditions. Net profit after tax of FJD5.20 million (K5.86 million) saw improvement over the prior year’s result of FJD4.74 million (K5.34 million), due to a reduction in the rate of company taxation. Whilst trading performance was solid, increased provisioning for bad and doubtful debts was necessary resulting in an abnormally high charge against profitability.
Natural disasters in Fiji caused a degree of disruption to the operations of the Company and its borrowers and this coupled with a very competitive asset finance market resulted in a reduction in business volumes from the previous year.
There are signs of an improving Fiji economy, with increases in household and business spending and in capital investment, with Government initiatives in terms of increased funding for rehabilitation of roads and bridges expected to be positive for the growth of our Fiji operation.
Our profit in the Fiji market will be boosted through the opening of our new Nadi branch in mid 2013.
Credit Corporation (SI) Limited
Credit Corporation (SI) Limited recorded an operating profit before tax of SBD12.09 million (K3.23 million), which translates to an 83.18% increase over the 2011 result.
Total dividend payment of SBD6.4 million (K1.72 million) was paid out in 2012.
We maintained a strong and growing balance sheet and the quality of our loan portfolio is very good. The default level was maintained below 3% throughout the year and cost to income ratio has been maintained at 20% throughout the year
Credit Corporation (Vanuatu) Limited
Credit Corporation Vanuatu recorded a profit of Vatu 19.94 million (K0.44 million), compared to the 2011 profit of Vatu 37.50 million (K0.84 million). The lower profit is due to the sluggish economic conditions that prevailed during the year.
Growth in the transport sector, our core area of business saw a significant decline due largely to low commodity prices and slowing down of activities in the construction industry. The tourism sector continued to expand with increased numbers of visitor arrivals. Trading conditions were often difficult during the year with a slow moving economy and high liquidity in the financial markets saw a downward trend in interest rates. The commencement of major donor funded projects in and around Port Vila is expected to generate economic growth. Tourism activities will continue to ensure future growth is sustained, however we expect current subdued trading conditions to continue into 2013.
Credit Corporation (PNG) Limited is committed to long term sustainable growth and the pursuit of strategic opportunities will enhance this growth. 2013 has started on a positive note but with the PNGLNG project construction phase nearing completion, the Company will face challenges due to decreased demand for both our rental accommodation and financial products. 2012 has been an excellent year for the Company, and with the help of all at Credit Corporation during 2013, I am confident that we can meet the challenges that lie ahead.
Chief Executive Officer