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Warehouse warns impairment highly likely

NZ NewswireNZ Newswire 25/11/2016 Fiona Rotherham

The board of The Warehouse Group has told shareholders that an impairment of goodwill in its financial services business is "highly likely" after a weaker-than-expected first quarter trading in the new division.

Chair Joan Withers, who stood for re-election at the annual meeting in Auckland on Friday after being appointed in September, said the board was in the process of reviewing the outlook for financial services and an adjustment to its expected breakeven in 2018 was likely along with the impairment.

Withers said it was too early to say the board should be re-thinking its strategy on entering that business.

Chief executive Nick Grayston said the focus for financial services was to start leveraging the scale of the group's retail businesses and continue to drive growth to achieve scale.

He said the below-expectation performance from financial services in the first quarter resulted from lower active accounts from the lending book it bought from Westpac, which increased the risk of a non-cash goodwill impairment for the first half of the 2017 financial year.

Warehouse Money was launched a year ago offering credit cards, insurance products and a pre-paid mobile brand. The stated aim was to grow its lending book to $600 million within five years at which point the financial services arm would add $30 million to earnings before interest and tax. The financial services arm made $20.3 million in revenue in the 2016 full-year and an operating loss of $3.3 million.

Last year the board changed the dividend policy to allow any profits from the financial services group to be ploughed back into building up its lending book. The dividend policy now pays out between 75 to 85 per cent of adjusted net profit after tax of the retail group only.

Withers told shareholders the board had to "balance the appropriate investment in the business with delivering an appropriate return to shareholders."

The Warehouse shares are currently trading at $2.88.

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