Warehouse Group branching out into finance

The Warehouse Group chief executive Mark Powell announced the establishment of a finance services...
The Warehouse Group chief executive Mark Powell announced the establishment of a finance services division yesterday. Photo by NZ Herald.
The move by The Warehouse Group to become a leading retail finance company made more sense than some of its previous strategic decisions, Forsyth Barr broker Suzanne Kinnaird said yesterday.

The group announced yesterday it had added a ''strategic priority'' of becoming a leading finance service company within five years, including the acquisition of 100% of Diners Club New Zealand for about $3 million.

Ms Kinnaird said the acquisition of Diners Club brought additional expertise and supporting infrastructure.

''This makes more sense to us than previous strategic decisions such as moving into Australia. If The Warehouse can execute, we expect it to add value.''

The group's current finance book - operated by third parties and joint ventures - was about $400 million and The Warehouse was aiming to grow that to $600 million in five years, she said.

The shares were in a trading halt while an equity raising of $115 million, made up of $100 million placement, at $3.23 a share, and $15 million shareholders purchase plan, was undertaken.

The Warehouse founder, Sir Stephen Tindall, indicated he and his foundation would take up 50% of the placement.

Brokers expected there to be a ''solid uptake'' of the remaining offer.

The announcement also signalled a name change, with group executives now referring to The Warehouse Group as TW Group.

Group managing director Mark Powell said the group, through its retail brands, offered a range of financial services products through a joint venture and various third party arrangements.

The acquisition of Noel Leeming and the reshaping of the group changed its potential scale in financial services.

''With the current volume of receivables generated and the opportunity for further growth, it is now the right time for TW Group to pursue its own `captive' financial services business.''

The Diners Club purchase would provide a team of more than 50 experienced people, core infrastructure, a premium card product, an existing customer base and a receivables portfolio.

There would be a development of a range of products including a scheme card, a premium credit card, instalment products and insurance.

Also, there would be recruitment of leading consumer finance executives to lead and develop the financial services business.

During the first half of 2015, the group would roll out a range of new products. It was expected the financial services division would lose up to $3 million after tax in 2014 and 2015 as the business base developed.

Mr Powell said the group had reviewed several options and believed starting its own captive business was the best way of realising the potential value for shareholders.

''This is a five-year journey but we are excited by the opportunity it presents.''

Other changes being considered including the implementation of a dividend reinvestment plan that could be in place for the 2015 interim dividend.

The group would also modify its dividend policy and target a payout of between 75% to 85% of adjusted reported profit.

The next two financial years were likely to be transitional in terms of a percentage payout and to provide shareholders with certainty, TW was targeting a minimum dividend of 19c per share a year for both of those financial years.

Mr Powell said the minimum payout was subject to no significant changes in trading, ensuring it was meeting its obligations under the bank and bond covenants and being able to provide ''appropriate levels'' of funding for strategic initiatives.

At a glance
- Establishment of a finance services division with the purchase of Diners Club NZ for $3 million.$100 million capital raising at $3.23 a share.$15 million shareholders purchase plan.
- Sir Stephen Tindall takes up about half of the offer.
- Premium credit card, scheme card, instalment products and insurance to be offered.


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