Quest’s profits climb
Quest Insurance Group, which is part of Geneva Finance, has reported a normalised pre-tax profit of $8.4 million for the 2023/24 financial year.
That represented a 100 per cent jump from $4.2m reported in 2023. After a tax-subvention payment of $2.7m was made to Stellar Collections, previously owned by Geneva, to utilise available tax losses, Quest’s final pre-tax profit was reduced to $5.7m, but still up by 36 per cent on the prior period.
Quest’s written premium increased to $46.3m, up by 18 per cent from $7m. Investment income of $1.9m rose $1.2m and 187 per cent from the prior year, driven by higher deposit rates and increased cash on-hand. Cash of $39.3m was up by 24 per cent from $7.6m.
“Quest’s financial performance showed continued growth and strong financial health,” states the company in an announcement to the NZX.
“The increase in normalised pre-tax profit and investment income, coupled with robust premium growth and enhanced liquidity, now positions Quest well for the coming year.”
Geneva Finance’s overall unaudited full-year, pre-tax profits came in at $3.6m. That represents a decrease of $969,000 compared with last year’s restated profit.
The decline was primarily due to the adverse impact of higher funding costs, which went up by $2.8m and 51 per cent, and increased impaired asset expenses to the tune of $4.7m.
A number of large one-off costs were also incurred as part of the company’s organisation-wide strategic review.
These included goodwill write-offs for the debt litigation and invoice-financing businesses, staff-exiting costs, moving to new premises, and various compliance and governance-related costs. These combined to adversely impact 2023/24’s results.
‘Challenging’ environment
Pre-tax profit reported by Geneva Financial Services, which is the group’s automotive lending business, decreased by $1.1m from 2022/23 to $1.7m.
“The primary reasons for this reduction are the higher cost of funds compared to the prior year and increased impaired asset expenses,” reports the company.
“Despite the overall profit decline, there was an interest-margin improvement in the latter part of the year as the positive impact of new lending interest-rate adjustments balanced out funding rate increases.
“The current challenging economic environment has led to an increase in receivables arrears, necessitating additional provisioning.
“The directors have assessed the year-end provisioning levels and consider them to be adequate. The net receivables ledger increased by $8.3m, reaching $99.2m by the end of the period.”
Group costs not included in operations results amounted to $6.4m, which was up by $2.5m.
Federal Pacific Tonga, 60 per cent owned by the group, reported a pre-tax profit of $1.8m, up by 21 per cent. The group’s share amounted to $1.08m and $800,000 after tax.
Stellar Collections, including debt-litigation business MFL, reported a $1.3m profit for the period. This included the $2.7m tax-subvention payment from Quest. The normalised result was a $1.4m loss. The board's decision to exit debt-litigation operations led to a $700,000 goodwill write-off.
Geneva Capital, the invoice-financing division, reported a loss of $500,000. This included a $400,000 goodwill write-off after it was decided to exit this business.
The after-tax unaudited financial result for the period was a profit of $1.8m, down $1.5m. The difference between the pre-tax and after-tax variance was “mainly due to the non-tax-deductible goodwill write-offs incurred in the year”.
Total group assets increased to $196m, up by $21.1m or 12.1 per cent, while its ratio of equity to total assets was 19.2 per cent in 2023/24 compared with 21.9 per cent in the previous year.
Revenue totalled $63.6m for an increase of $13.2m or 26 per cent. Operating costs rose by 16 per cent to $26.3m, up by $3.6m. This included funding-cost increases, NZX-related, legal, compliance, relocation and staff-exiting costs.
The group’s securitisation facility of $100m was drawn to $81.6m as at balance date. Stellar’s bank-facility balance was $2.3m, which is being repaid in equal repayments that started in July 2023 and will be repaid by the end of July 2025.
Wholesale investor debt funding increased to $17m and includes loans from directors and shareholders. Quest’s credit ratings issued by AM Best were reaffirmed on September 21, 2023. Its financial strength rating is “B outlook stable” and its issuer credit rating is “bb+ outlook stable”.
Key events and highlights cited by Geneva Finance for 2023/24 include the company moving into new premises at Sylvia Park shopping centre in Auckland, and Quest’s net premium income increasing by $8.9m and 29 per cent.
The group’s cash resources rose to $47.1m, up by 21.9 per cent, assets climbed to $196m or by 12.1 per cent and equity dropped to $37.5, down two per cent.
Summary & outlook
David O’Connell retired on August 11, 2023, after a 17-year tenure, and Malcolm Johnston was appointed managing director.
This leadership transition was followed by the launch of a strategic review looking at opportunities to streamline operations, which has led to the group’s strategy refocusing on the core business operations of lending and insurance activities.
As a part of the group’s strategic shift, it has exited and sold its debt-litigation operations, MFL, and announced the closure of GCL, its invoice financing business. Goodwill associated with these businesses has been written off in the current financial year.
The company says: “Looking forward, the board remains positive that the strategic refocus will provide a clearer direction for the New Zealand lending operations and, as a result, its performance should improve even under the current economic conditions.
“Quest’s continued growth and increasingly improved performance coupled with an enhanced liquidity position provides a positive outlook for the coming year.”
