MTF distributes $25.0 million to shareholders
Motor Trade Finances Limited
Half year ended 31 March 2008
15 May 2008
MTF distributes $25.0 million to shareholders
The directors of Motor Trade Finances Limited (MTF) are pleased to report a solid result, in a period when finance companies have come under considerable scrutiny, because of underperforming assets and difficulty funding in domestic retail and offshore wholesale markets.
Key performance indicators
Transacting shareholders received $22.8m (last year: $23.4m), through their participation in MTF, in the half year to 31 March 2008, including $6.9m (last year: $5.5m) in fees and payment waiver premium, paid directly.
• new loan sales
increased by 6.9% to $232.6m (last year:
• total assets increased by 6.5%, to $620.3m
• expense, as a percentage of average total assets, was 1.78% (last year: 1.75%)
• return on assets was 7.9% (last year: 8.8%)
Dividends of $2.2m (last year:
$1.3m) were paid to perpetual preference shareholders.
NZ IFRS results
The half year accounts are prepared under New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS).
Under NZ IFRS, profit after tax and before distribution of preference shareholder dividends is $1.27 million (last year: ($0.61 million)). Distribution to transacting shareholders appears in the income statement, rather than the statement of changes in equity and there is a fair value gain of $1.075 million, arising from the recognition of finance receivables and interest rate derivatives at fair value. These changes, and others required under NZ IFRS, make no difference to the underlying profitability or cash flow.
Sales have held up well in a period that we predicted would be difficult, while interest margin and expense have decreased and increased respectively, because of matters over which we have very little control.
Interest margin has come under pressure from rising interest rates and credit margins that have increased significantly, because of the sub-prime mortgage crisis.
Changes to accounting and treasury systems required to meet NZ IFRS have required IT, treasury, accounting and external adviser resources well out of proportion to the benefits derived, resulting in increased costs in most expense categories.
The balance sheet remains sound, with capital, including perpetual preference shares, of $51.8m and a capital percentage of 7.9%.
MTF has not been immune to the effects of the sub-prime mortgage crisis. At the date of writing, securitised loans are funded by bills of exchange, provided by banks, under a revolving liquidity facility.
The sub-prime crisis has changed funding for the short to middle term and we are evaluating a number of options, to ensure that MTF remains efficiently funded.
All credit measures remain within target, with current arrears levels lower than the period end and continuing at the lower levels that we have experienced in recent times.
Our focus remains on motor vehicles, with less than 4% of our book in business equipment and marine loans. Given a slowing economy, we will not expand further outside motor vehicle lending until we are confident that the economic outlook and our experience provide us with a solid base for expansion.
MTF had 58,000 loans outstanding at 31 March 2008, with an average balance of $10,000, spread throughout New Zealand, primarily in provincial areas, where our transacting shareholders are more likely to know the borrower and be able to react if the loan does not perform. All loans are managed and guaranteed by the transacting shareholders. MTF monitors the performance of each transacting shareholder and each portfolio of loans on a regular basis and carries out regular reviews of lending policy and process.
There is no doubt the economy is under pressure and we do not expect to see any relief in the next twelve months. Although new business is ahead of last year, at the time of writing, we anticipate that this will soften over the winter. It is inevitable that we will see some pressure on arrears and we are confident the controls we have always had in place will ensure that our customers and our transacting shareholders will manage through any down turn.
MTF has been lending on motor vehicles since 1971 and the experience of our staff and shareholders and the diversity in our loan book are our major strengths. Our loan assessment system, Rapid, focuses primarily on the borrower and has proven to be a very accurate predictor of loan performance. Our transacting shareholders, primarily motor vehicle dealers, who carry the ultimate credit risk, are business people who understand how to run a business and how to manage credit. Our credit management system provides daily updates on loan performance and, monitored by experienced support staff in Dunedin, ensures that any loan failure is acted upon diligently and for the benefit of all parties.
We expect funding to continue to be difficult. MTF is not a retail issuer and we have strong support from our bankers. Of paramount importance is the quality and diversity of our loan book, which continues to generate strong cash flows, which enable MTF to meet its liabilities as they fall due and to continue to write new business.
We remain optimistic about the future. Our focus will remain on simple, cost efficient distribution, supported by a nationwide network of dedicated business people and customers who get value for money.