Release Date: February 20, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Latitude Group Holdings Ltd (ASX:LFS, Financial) reported a significant turnaround in performance, with a 59% year-on-year increase in cash profit before tax, reaching $155 million.
- The company opened 265,000 new customer accounts in 2024, a 22% increase year-on-year, supporting its product cross-sale strategy.
- Interest-bearing receivables grew by 11% year-over-year to approximately $5 billion, the highest level since 2019, with net interest margins up 75 basis points to 10.5%.
- Latitude Group Holdings Ltd (ASX:LFS) signed several new marquee partnerships in 2024, including Amazon and David Jones, enhancing its retail partner network.
- The company declared an unfranked dividend of $0.03 per share, equivalent to a 47% payout of after-tax profits, reflecting strong financial performance.
Negative Points
- Despite the positive financial results, the company's 90-day past due metric increased marginally by 10 basis points year-on-year to 1.35%, indicating some credit risk.
- Operating expenses increased by 4% in 2024, driven by inflationary pressures and investment in growth initiatives.
- The company's tangible equity ratio closed at 7.1%, which, while above the target range, may indicate limited room for further leveraging.
- Latitude Group Holdings Ltd (ASX:LFS) faces potential challenges from increased competition as interest rates are expected to ease, which could pressure margins.
- The company anticipates a slight uptick in net charge-offs in the first half of 2025 due to seasonality and normalization of credit losses.
Q & A Highlights
Q: How is the demand for the interest-free plan expected to evolve over the next 12 months given the current environment?
A: Bob Belan, CEO, noted that there are two main opportunities for growth: finding new marquee partnerships and increasing volumes with existing partners. The company is also exploring new categories for the interest-free proposition beyond traditional sectors like electronics and home furnishings.
Q: With revenue yield back to pre-COVID levels, how will cash rate cuts impact pricing and competition?
A: Bob Belan emphasized the importance of maintaining strong margins and returns on assets. While competition may increase as rates decrease, the company aims to grow assets at the same or higher yields. Stefano Tognon, CFO, added that pricing actions and funding strategies from 2024 will continue to support margins in 2025.
Q: Do you expect charge-off rates to normalize back to mid-3% in 2025 given recent book growth?
A: Stefano Tognon stated that while there is some seasonality, the company expects a slight uptick in net charge-offs in the first half of 2025. The overall charge-off rate for 2024 was 3.3%, close to historical averages, and the company anticipates normalization around this level in 2025.
Q: Are the higher operating costs in the second half a new base, or should some lumpiness be expected?
A: Stefano Tognon explained that the $12 million investment in growth is expected to continue, though not necessarily at the same level each period. The company remains committed to investing in growth while ensuring profitability recovery.
Q: How does the company plan to manage costs while investing in growth?
A: Bob Belan highlighted the agile management approach, making investment decisions based on business performance. The company aims to capitalize on high-yielding growth opportunities while maintaining a focus on cost discipline and improving margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
