A sharp rise in the value of the New Zealand dollar against the Japanese yen has eaten into the earnings for second-hand car dealer NZ Automotive Investments (NZAI).
NZAI owns the nationwide chain of 2 Cheap Cars. Photo: Facebook / 2 Cheap Cars
The company, which owns the nationwide chain of 2 Cheap Cars, said a combination of circumstances have resulted in the currency's rise, which have affected its foreign exchange hedging position.
"Due to external economic factors including the war in Ukraine, weaker economic sentiment in Japan, and further bond buying by the Bank of Japan, the New Zealand Dollar
has strengthened against the Japanese Yen in recent weeks," the company said in a statement to the stock exchange.
It said it would take a loss of $700,000 on the hedging contracts, cutting its underlying net profit for the year ended March to between $1.7 million and $1.8m from its previous guidance of $2.3m - $2.7m.
There would be some offset in the bottom-line figures with a $900,000 gain on the value of its leases, resulting in a full year actual profit of $2.6m to $2.7m compared with forecasts of about $3.2m to $3.6m.
The company said it was required to book the forex hedging loss this financial year even though the cars would not be delivered until the new financial year.
A rise in the New Zealand dollar against the yen would normally make goods and services bought there cheaper, but companies doing significant business protect themselves from currency fluctuations by taking out hedging contracts, a form of insurance to lock in exchange rates.
In March the New Zealand dollar rose more than 9 percent against the yen, touching its highest level since June 2015.