Higher funding costs hit Latitude's bottom line

John Kavanagh

The “unprecedented size and speed” of the Reserve Bank’s cash rate increases played a big part in Latitude Group’s poor financial performance last year, along with “elevated” credit card and loan repayments, the company reported in its 2022 annual results.
 
Latitude said the cash rate increases drove funding costs “immediately higher”. It has re-priced its products but the full impact on its asset yield will only come this year.
 
Elevated credit card and loan repayment rates have depressed Latitude’s receivables since COVID started. Growth returned in the second half of last year – the first period since the June half in 2020 when it has had growth in receivables.
 
The company might also have conceded that it made a poor decision gearing up in the buy now pay later market, which has been a disappointment.
 
Latitude’s net interest income fell 12.9 per cent to A$675.8 million in the 12 months to December last year. Over the past two years net interest income has fallen 23.2 per cent.
 
Net profit fell 77 per cent from $160.3 million in 2021 to $36.3 million last year. The company’s preferred measure, cash profit from continuing operations, was down 23 per cent to $153.5 million. The cash profit includes adjustments for amortisation of acquisition intangibles, amortisation of legacy transaction costs, restructuring costs and an impairment reflecting the decommissioning of redundant platforms.
 
The company said the fall in net interest income was due to a contraction in the net interest margin – a direct result of higher fund costs.
 
Finance costs on borrowings increased 29.7 per cent to $216.3 million. Latitude has drawn-down borrowings of $5.9 billion and available funds of $1.3 billion in its warehouse facilities.
 
The loan impairment expense was $119.5 million – up a little from $116 million in 2021. 
 
Total operating expenses detailed in the income statement rose 8.6 per cent to $507.6 million. According to the company’s results commentary, operating expenses fell by 9 per cent to $331.8 million, thanks to investments in productivity and simplification. The difference was not explained.
 
The company’s Australia and New Zealand pay division was the hardest hit, while the money division suffered a more modest fall.
 
Pay includes credit cards, buy now pay later and sales finance. Divisional earnings fell from $259.6 million in 2021 to $184 million last year.
 
Money includes personal and auto loans. Divisional earnings fell from $120.7 million in 2021 to $102.3 million last year.
 
The value of gross receivables grew 2 per cent to $6.5 billion. The company said elevated repayment rates started to normalise in the December half. The receivables book is still well below the peak of $6.9 billion in June 2020.
 
Growth in volume came from cards primarily, thanks in large part to the return of overseas travel. The company said the interest-free segment (BNPL) was “slow”.
 
With the release of its results, Latitude announced that the executive general manager of its money division, Bob Belan, will take over as chief executive from the outgoing Ahmed Fahour in April. Fahour had previously announced his plan to leave the company in August.
 
Belan was the founder of Symple Loans and he joined Latitude after it acquired Symple in 2021. He has had a 20-year career in financial services, including roles at American Express and JP Morgan Chase.