Geneva eyes opportunities

Geneva Finance is preparing itself for the predicted economic downturn to bring “challenges and opportunities” after its half-year pre-tax profit dropped to $3.4 million.

The unaudited figure for the six months to the end of September 2022 was down by $600,000, or 15 per cent, from the same period a year ago.

David O’Connell, managing director, says the drop was largely driven by Covid-19 interruptions on lending volumes and higher costs of funds following the rising interest rates over the past 12 months.

“While the profit result for the six months is disappointing, the factors driving this outcome are being addressed,” he explains. 

“In the coming period, we expect to see the benefits of the investments made in sales and our IT systems. Initially the benefits will be seen in lending volume growth, then as the receivables ledgers grow flow into group profitability. 

“The forecast economic downturn brings both challenges and opportunities. With our strong balance sheet, and solid earnings record over the last few years, the board are determined to deal with the former and take advantage of the opportunities as they arise.”

Geneva’s announcement to the NZX on November 29 shows revenue for the half year came in at $23.8m, an increase of $3.3m or 16 per cent compared with April-September 2021, while total net profit fell 21 per cent to $2.6m.

Total group assets increased by five per cent to $160m and operating costs grew by 11% to $10.7m. The company’s equity to total assets ratio is 24.8 per cent versus 24.3 per cent in the prior year.

O’Connell, pictured, says the company’s strategic direction remains unchanged with the focus on its core businesses of motor vehicle and personal loans together with insurances related to these activities.

Geneva Financial Services

The company’s lending business recorded a pre-tax profit of $1.9m, down $800,000 or 30 per cent from the same half-year period in 2021. 

“We are now seeing the impact on profitability of impact of the changes to the lending rules and Covid interruptions, both of which negatively impacted lending volumes last year and for the first six months of this year,” notes O’Connell. 

He adds rising interest costs also reduced interest margins over the period and the current rising living costs are impacting lending approvals. 

Despite the challenges, asset quality was maintained and the receivables ledgers are appropriately provisioned. Provisioning levels are due be reviewed at year end “once the full impact of current rising costs can be measured”. 

Quest Insurance 

Quest reported a pre-tax profit of $2.5m, up four per cent from a year ago, and maintained premium growth over the period with gross premium climbing 30 per cent to $19.1m.

However, higher claims costs, particularly for comprehensive motor vehicle products, mitigated much of that benefit. 

Operating costs rose $300,000, or 45 per cent, mainly due to increased costs associated with regulatory compliance, while cash on hand increased $4.7m to $25.2m.

Federal Pacific Tonga

Geneva Finance owns 60 per cent of this business, which achieved a pre-tax profit of $600,000 in the half year for a drop of 26.6 pr cent on the same period last year. The group’s share amounted to a $300,000 pre-tax profit, or $200,000 after tax. 

“The result was mainly due to Covid lockdowns combined with the natural disasters earlier in the year,” explains O’Connell. “Lending volumes has picked up as Tonga recovers and we expect lending to return to prior levels.”

Stellar Collections

Stellar, including the debt litigation business, reported a breakeven result, down $200,000. O’Connell says the debt collections and debt litigation business is taking longer than expected to recover from the interruptions caused by Covid. 

“It is expected that the current economic environment will create opportunities for this business in the coming months.”

Geneva Capital

The invoice factoring arm of the group notched a $100,000 profit for the half year, compared with a $300,000 loss a year ago.

The business has been restructured, with poor-performing segments being exited, and is expected to move into sustainable profitability in the coming six months.

Its after-tax unaudited financial result for the period was a profit of $2.6m, down $700,000 or 21 per cent.

Sales investment

O’Connell says the current economic environment is challenging with rising living costs putting pressure on consumers’ affordability and spending.

However, “it also offers opportunities in terms of increases in market share through investment in people and systems which Geneva is making”.

In respect to the sales opportunity, he notes Geneva has increased its investment in the sales team with the creation of two new positions, a dedicated head of sales and lending and a dedicated head of insurance. 

“Previously this function was combined,” he adds. “We also see this segregation of roles as providing benefits in terms of increasing our compliance capabilities for both the lending and insurance operations as the level and complexity of regulatory review and monitoring continues to increase.”