MTF post-tax profits up 38%
MTF Finance has reported a jump in profits after tax of 38.3 per cent on the back of an unrealised gain on fair value of financial instruments for the 2018/19 financial year.
The fair-value gain was driven by a change in accounting treatment and totalled $4.4 million compared to a $900,000 loss last year. Commission paid to shareholder originators increased by six per cent to $42.5m.
Underlying profit after tax, which removes the volatility of unrealised fair-value movements for a more consistent measure, dropped by 8.6 per cent to $8m from $8.7m largely due to losing administration fees earned through the non-recourse venture with Turners-owned Oxford Finance.
And sales decreased by $83.3m – or 13.9 per cent – of which $71.3m the company attributes to two events.
“Firstly, the non-recourse product offered in with Turners was discontinued,” say chairman Stephen Higgs and Glen Todd, chief executive officer, in their annual report. “Non-recourse created record-breaking sales volumes in 2017 and early 2018. Demand for the product dropped after tighter underwriting criteria was introduced, which ultimately led to the termination of the product.
“Secondly, key shareholder Turners Finance continued its integration strategy into its automotive group, diverting its recourse finance business away from MTF Finance with sales for the year dwindling to $600,000 compared to $42.4m in the previous reporting period.
“Replacing lost business has been a priority this year. In November 2018, MTF Finance teamed up with Trade Me Motors to enable buyers to easily engage with a finance option on consumer listings. This initiative was rolled out in January 2019 and has transitioned to a nationwide collaboration to deliver sales of $12.6m and create a digital channel for future growth.
“Sales for the second half of the year increased by four per cent on the first half, showing encouraging signs of performance recovery following the termination of the non-recourse product.”
MTF Finance’s operational expenses were “well-controlled” for a two per cent rise on last year as well as being under budget with a ratio against average total assets under management of 2.6 per cent compared to 2.8 per cent for the year ending September 30, 2018.
Total assets increased by $36m – or by 4.8 per cent – to $78m, of which $14.7m related to finance receivables and $22.6m to a temporary rise in cash in restricted bank accounts as a result of the timing of the new securitisation trust issuance.
Change in accounting standards led to the reassessment of assumptions for determining credit risk. This resulted in a $5m reduction in credit risk. The result of this has seen the fair value of finance receivables and NPAT increase accordingly.
The board approved a final dividend of 8.51 cents per ordinary share to be paid on December 2. Total distribution for the period will be 14.51c per share compared 15.32c in 2018 – or $3.3m compared to $3.5m.
“During the year, MTF Finance began a transition to more agile work methods to ultimately deliver our strategic plan in a more timely and efficient manner,” say Todd and Higgs. “This has required additional resource investment from the company.
“The board and management are committed to this change, and expect further investment over the coming year to embed this new approach, which will result in business growth, greater efficiency and improved profitability.
“The new environment has challenged us to rethink our strategic objectives for the 2020 financial year and beyond. Our focus will be on outcomes rather than output, aligning the business to objectives with key measurable results to ensure greater execution.
“Our customer-centric outlook will underpin everything we do to achieve our vision to be recognised and trusted by New Zealanders as their preferred finance company. We exist to support our shareholder originators to deliver on our purpose, to help New Zealanders get the things they want through, responsible, accessible lending. Our engagement with originators is imperative to ensuring we deliver the tools and products that enable them to exceed customers’ expectations.”