Financial services group Latitude has confirmed a statutory loss of $98.2 million in the first half of 2023, made up of $76 million in pre-tax costs related to a major cyber breach that struck the company earlier this year.
The breach, which occurred in mid-March and affected nearly eight million customers, had a “clear impact” on business operations, said Bob Belan, Latitude’s managing director and chief executive, “severely affecting the company’s first half performance”.
“For a period of six weeks, new originations stopped, receivables declined, pricing actions were paused, and collections activities were significantly disrupted,” Belan said during a presentation to shareholders.
By the end of June, however, with systems restored, “[origination] volumes were back to pre-incident levels, planned pricing changes were implemented, and incremental actions by our collections team led to a material decline in delinquency rates which had spiked during the period that our systems were offline,” he said.
Belan praised the “extraordinary” efforts of Latitude staff in “quickly but safely restoring our systems and rebuilding our business momentum”.
“The last six months have been the most difficult in our company’s history, and the intensity of this period is frankly quite challenging to describe. That said, our company, our people and our business model remain resilient.”
Slightly down on its original estimates in May, cash net profit after tax hit a modest $7 million, down $86 million year-on-year.
Overall loan origination volume was down three per cent year-on-year to $3.6 billion (and down 15 per cent compared to the 2H’22), with Latitude blaming the downturn in large part on the business disruption related to the cyber incident.
Pre-cyber incident, in January and February, Latitude said its originations were up 12.5 per cent year-on-year.
Delinquency jumped notably following the cyber incident, blamed largely on delays to collections activities after systems went down, Latitude said, while increased inflationary pressures on consumers also appeared to affect late payment rates.
In April, late payment rates hit a peak of 5.24 per cent for upwards of 30 days past the due date (up from 2.73 per cent in July 2022), and 2.53 per cent for upwards of 60 days past due (up from 1.36 per cent in July 2022).
Belan said the company would “continue to invest in systems security and enhancements to protect our assets into the future”.
Symple integration success
Among the few positives of the H1’23 reporting period, Belan noted the “exceptional” progress made in integrating Symple’s business and technology stack.
Symple, a personal lender, was bought out by the Latitude Group in 2021 for $200 million.
The Latitude chief confirmed that “all new personal loans and auto loans are now being originated on the new Symple platform”, adding that the lender is in the process of “decommissioning high-cost legacy systems” – a project it expects to complete by the end of this year.
Latitude estimates that it has spent upwards of $16 million on the integration program, which includes the decommissioning of the combined Genesis/ICBCs platforms and their replacement with the all-cloud-based Q2 platform.
Belan flagged a number of benefits in adopting Symple’s modernised technology stack, including “a better broker experience” and a “better customer experience”, which he said has led to improved overall conversion rates.
“All of that allows you, for the same number of applications, to deliver more written volume.”
Additionally, for the first time in its 20-year history, it has allowed Latitude to create variable rate products for personal and auto loans – meeting a prevailing shift in consumer demand away from fixed rate loans, said Latitude chief financial officer Paul Varro.
“We’ve seen a large shift in mix from fixed to variable in this interest rate cycle. So, it’s really good timing that we were able to flip over to the Q2 acquisition,” Varro said.
“The integration of the whole [Symple] portfolio – roughly $2.5 billion across Australia and New Zealand – has allowed us to deliver some cost synergies.”
Belan added that the company is now in a “privileged position on the money side of our business” as a result of the transition from legacy technology onto Symple’s stack.
“That affords us a number of new opportunities to expand the product set and better service the needs of customers here as well as in New Zealand, as evidenced by a significant take up in the variable rate loan that we’ve seen since that was launched around the middle of next year.”
He added: “We have to continue to pay attention to what consumers are interested in, how the market is shifting and make sure we adapt our product set to meet those needs. But as it stands, I think we’re quite well positioned on that front.”