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YBR running at a loss amid ‘structural shift’

by Reporter4 minute read

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Yellow Brick Road has posted a net loss in its full-year financial results, with the group also reporting that its funding negotiations with a major bank have been “terminated”.

The financial services provider has released its full-year 2018 (FY18) financial results, reporting a net loss after tax of $700,000 from a net profit of $1 million in FY17.

YBR’s executive chairman, Mark Bouris, noted his disappointment, but he was pleased with the group’s revenue growth, which increased by $9.5 million to $230.7 million.

“I’m particularly pleased with the growth in revenue through our mortgage and wealth businesses, the improvement in cash earnings and our investments for the future,” the executive chairman said.

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Mr Bouris attributed YBR’s net loss to a “structural shift” in the mortgage market, citing tighter regulation.

“The fundamentals of the business are good. We have put in place the foundations for our mortgage and wealth businesses to grow strongly in the coming years,” Mr Bouris said.

“A structural shift in the mortgage market means credit conditions imposed by banks have tightened. That’s impacted on the 2018 profit, but it also provides opportunities in the future.”

Mr Bouris added: “The last few years have been about putting the building blocks in place to be in a position to start securitising mortgages in the future.”

However, the group has also announced that negotiations to secure a $300 million residential mortgage-backed security wholesale facility with an unnamed major bank have been “terminated”.

Earlier this week, Mr Bouris said that YBR had always sought to secure such funding for its lending business, Vow Financial, adding that the timing of the negotiations were pertinent when considering “gaps” in the market.

“We have been building towards entering the securitisation market for a number of years. In fact, it was always our intention to do so once we achieved a substantial distribution business, which we have via our YBR-branded ‘shopfront’ franchisee business and Vow independent broker business,” the executive chairman said.

“The power of this distribution, coupled with our own credit and funding capacity, will be formidable, and the timing could not be better given the present and foreseeable gaps in the market in certain categories of mortgage products and the renewed interest in the supply of money coming from the debt capital markets to fill these gaps.”

YBR also noted that the successful negotiation of the $300 million facility would be subject to the completion of “all necessary due diligence”, which included obtaining “all necessary credit and other approvals required” and finalising “definitive legally binding transaction documentation”.

Despite the breakdown in the proposed transaction, YBR has said that it plans to “reopen negotiations with other major banks and financiers”.

In a statement, YBR added: “The company emphasises the securitisation program remains a priority goal for the company in respect of which the establishment of a warehouse facility is the first major step.”

YBR’s announcements follow news earlier this month that investment company Mercantile OFM (a wholly owned subsidiary of Mercantile Investment Company), offered YBR an off-market takeover bid to acquire all of the ordinary shares in the group for 0.09 cents. The offer is not subject to approval by YBR shareholders in a general meeting.

It would allow YBR shareholders to sell all of their YBR shares at a cash price that represents a 3.2 per cent discount to $0.094.

The offer is conditional on Mercantile OFM acquiring a relevant interest in more than 50.1 per cent of YBR shares on issue and no prescribed occurrences.

While Mercantile OFM does not hold a relevant interest in the company, its parent company, Mercantile MVT, and its associates hold more than 56 million shares and have voting power of 19.97 per cent.

[Related: Mercantile offers YBR takeover deal]

YBR running at a loss amid ‘structural shift’
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