Motor Trade Finance first-half profit flat as shareholder returns chew up earnings gains

Imported cars parked at Port of Auckland. Photo by Lynn Grieveson

Motor Trade Finance reported flat first-half profit as the commissions and fees paid to its shareholder originators soaked up increased earnings from a rapidly expanding loan book.

Net profit was unchanged at $4.4 million in the six months ended March 31 form the same period a year earlier, the Dunedin-based company said in a statement. Earnings before commissions and other gains climbed 10 percent to $26 million, lagging behind the 11 percent increase in amounts paid to its shareholder originators of $36 million. MTF originators are made up of a network of 261 dealers that sell motor vehicles in conjunction with financial services, and 43 MTF franchises which only sell financial services.

"The growth MTF has experienced in recent times is unprecedented and while we expect to continue to grow, we anticipate this growth to slow significantly over the coming months," chief executive Glen Todd said. "Our strategic focus on customers and originators will be key in driving our long-term success and we are confident this approach will underpin our performance as we approach the next stage in the economic cycle."

Auto-lender MTF has benefited from the country's successive years of record new vehicle sales as a strong currency keeps imported cars cheap, economic growth has generated new jobs, and low interest rates heightened the allure of financing big-ticket items.

The lender's loan book expanded to $651.2 million from $566.3 million a year earlier, helping generate a 12 percent gain in net interest income to $29 million. MTF identified $6.6 million as a collective credit risk, about 1 percent of gross loans, which was unchanged from a year earlier.

The company drew down $618.8 million of its securitisation facilities as at March 31, giving it a further $134.5 million of available funding.

Todd said MTF is contacting customers to work out how it can lift client loyalty and retention, which will be the firm's focus for the rest of the year and into 2019.

"This is an ongoing commitment to our customers and is vital if MTF's offering is to remain relevant to a consumer base who have rapidly rising expectations of companies they choose to engage with," he said.

The firm paid an interim dividend of 2 cents per share on April 30.

MTF's $40 million of NZX-listed perpetual preference shares last traded on May 17 at $62.70 per $100 face value. The notes pay annual interest of 4.43 percent.