Geneva ready to ‘bounce back’

Geneva Finance is confident it can “bounce back from a difficult result” after pre-tax profit for the 2023 financial year fell 42 per cent from the prior period to $4.8 million.

In dollar terms, the unaudited figure was down $3.5m year on year. The group notes lower lending in the first half of the year in conjunction with the increase in cost of funds were the primary contributors to the drop.

David O’Connell, managing director, adds the decline was further exacerbated by the claim costs associated with the January’s Auckland floods. 

“In addition, during the year the board increased investment in group governance structure(s), which while increasing costs in the current year will provide ongoing benefits to the group going forward,” he says.

Geneva’s total assets increased 12 per cent during the year to the end of March 2023 to stand at $174m. The company’s equity to total assets ratio was 22.2 per cent versus 24.3 per cent in the 2022 financial year.

Revenue totalled $50.3m and was up 18 per cent or $7.6m, while operating costs rose by 16 per cent, or $3.2m, to $22.7m. 

The climb in operating costs was largely driven by increases in additional regulatory costs, investment in governance structures and additional claim costs associated with the recent weather events.

The group’s lending and invoice financing businesses’ securitisation facility of $75m was drawn to $73.6m at balance date. The facility limit was increased to $80m after year-end.

The after-tax unaudited financial result for the period was a profit of $3.5m, down 41.5 per cent, or $2.5m.

O’Connell, pictured, says the current economic outlook will bring challenges as rising costs and high inflation put pressure on consumers, dampening demand for motor vehicles and associated services. 

“However, this environment also brings opportunities as competitors increase focus on asset quality, product profitability and less on volume growth, creating niches that our lending and insurance operations are adept at servicing.”

Geneva Financial Services

The lending business recorded a pre-tax profit of $2.8m, which was down 47 per cent, or $2.5m, on the previous financial year.

The ongoing and regular increases in the official cash rate flowed into the cost of funds and were the primary cause of the decline in profitability of the division. 

“While this was mitigated by passing on the rate increases, the impact of this action will largely be visible in the March 2024 year,” explains O’Connell. 

“Lower lending volumes in the first half of the year were driven by lower motor vehicle sales and regulatory changes; in particular the interpretation of ‘affordability’ under the responsible lending code. 

“In contrast, the second half of the year delivered good lending growth as a result of both a restructuring of this operation and increased clarity from the regulator around the interpretation of the code.” 

As with the increase in the interest rates referred to above, the benefits of the increased lending growth will mainly be seen by the end of the current financial year. 

Geneva notes the asset quality of receivables remained strong through the current challenging economic conditions, which was a pleasing result. The net receivables ledger balance at period end was $91.2m.

Quest Insurance Group Ltd

Quest reported a pre-tax profit of $4.4m, down six per cent year on year.

It maintained strong premium growth over the last financial year with gross premiums of $39.3m, up 29 per cent. However, higher claims cost, particularly from the Auckland floods and to a lesser degree claims from Cyclone Gabrielle mitigated much of this benefit. 

Operating costs were up $200,000, or 28 per cent, on last year, mainly due to increased costs associated with regulatory compliance. Cash on hand at year-end amounted to $31.7m, up $6.8m on last year.

Federal Pacific Tonga

This company is 60 per cent owned by the Geneva Group and notched a pre-tax profit of $1.5m, a drop of 1.3 per cent. Geneva’s share amounted to a $900,000 pre-tax profit, or $600,000 after tax.

Stellar Collections

Stellar, including the debt litigation business, reported a $100,000 annual loss, which was down $200,000 from a year earlier when it achieved a $100,000 profit.

The impact of Covid-19 on the debt litigation business was more severe than first anticipated, however, Geneva says changes are being made to this operation to restore the business to pre-pandemic profitability.

Geneva Capital

The invoice factoring section of the business reported a $9,000 loss compared with one of $200,000 in the prior period. 

O’Connell says: “This business operation has been restructured and the result includes a goodwill impairment provision. The board will review the operations in the coming financial year.”

Looking ahead

Geneva has entered into a new head office lease commencing June 2 for new premises at 3 Te Kehu Way, Sylvia Park, Auckland, and the strategic direction for the group remains to strengthen its core businesses of finance and insurance.

“The year’s result was disappointing and was an outcome of both the increases in interest rates and the impact of the Auckland floods,” says O’Connell. 

“The former has been addressed and the latter is ‘one of those things’ that the insurance operation will absorb and grow through. 

“The board is confident that its continued investment in the business infrastructure together with improvements in systems and people have positioned the business to bounce back from a difficult result and move the business back into sustainable profitable growth.”