Record earnings for Turners
Turners Automotive Group has delivered record earnings for the financial year to March 31 to underscore its resilient earnings platform, the value of diversification, and integrating the activity and annuity elements of its business.
Despite economic challenges and soft consumer demand, the company achieved its target for the 2024 financial year a year early.
It’s also “well placed” to exceed its 2024/25 target of $50 million in net profit before tax (NPBT) and has announced its new medium-term target for $65m NPBT in its 2028 financial year.
Revenue for 2023/24 came in at $417m, up by seven per cent, while earnings before interest and taxes amounted to $58.6m for a 12 per cent increase. NPBT was $49.1m – up by eight per cent, and NPAT was $33m for a rise of 1.5 per cent.
Earnings per share came in 37.7 cents with a final dividend of 7.5 cents per share declared. The full-year dividend was 25.5 cents per share for a gross yield of nine per cent per annum based on a share price of $4.10.
Key business highlights
● In Turners’ automotive segment, profit climbed by 27 per cent and made up more than 50 per cent of group profits. Results were driven by two new branches opening, improved sourcing, retail optimisation from wholesale auctions to retail, growing brand strength, operating efficiencies and solid organic growth across the network.
● Its finance segment has weathered the interest-rate shock as the company “deliberately sacrificed” some top-line growth over the past two years to focus on higher-quality borrowers, “positioning the segment well as interest rates ease”. Net interest margin is expanding following an inflection during 2023/24’s second half and “rate headwinds will now turn into tailwinds”. Meanwhile, arrears remain “significantly below” industry benchmarks.
● The insurance segment increased its contribution to profit “as a well-tuned business with robust policy sales, well-managed claims and improved investment returns”. Notably, claims-cost inflation was offset by reduced frequency of claims.
● The credit management business “has turned a corner with debt load recovering in line with a tightening economy, particularly in SMEs”. The business is well-positioned for growth as the economy tightens and debt-value load continues to increase.
The company says a strong culture remains a key advantage with Turners ranking in the top five per cent of consumer businesses globally using Peakon, an employee engagement tool, while 50 per cent of the team took up an employee share-scheme offer.
Gaining market share
Turners says its results for the 2024 financial year demonstrated strong earnings in challenging conditions – thanks to its resilient, diversified business model – and it’s well-placed to implement its next phase of development and growth.
Group revenue rose by seven per cent to $417m, delivering a record NPBT of $49.1m – up by eight per cent on 2022/23.
The automotive retail segment achieved another year of 20 per cent-plus growth with segment profit up 27 per cent to $31.8m.
Although the finance segment’s profit was down, revenue continued to grow. In addition, further progress was made improving loan-book quality and rebuilding lending margins.
Insurance continued its steady growth of recent years with 15 per cent profit growth. Credit management expanded of a low base, recording nine per cent more profit.
Todd Hunter, chief executive officer, says: “We’re pleased to continue to deliver another record result for shareholders.
“Our business is founded on delivering great experiences for our customers. We continue to innovate, gain market share and improve margins across all segments.
“In addition to the continued expansion of our activity businesses (auto retail
and credit management), our annuity businesses (finance and insurance) have gained momentum.
“This underscores the benefits of our diversification strategy and ensures the resilience we need to grow through all phases of the economic cycle.
“Our auto-retail segment again excelled and is now entering a build phase for our next growth push. Our finance segment has weathered the interest-rate shock, continued to improve its credit scores and is back into growth mode.
“Our insurance and credit-management teams continue to finely tune these businesses to market-leading positions with future opportunity as the economic cycle tightens.”
Chairman Grant Baker adds: “This is an outstanding result for the business in light of the economic backdrop.
“The strength of our brand and distribution networks means we are ever-more accessible and trusted by customers, offering strong adjacent opportunities. The resilience of our diversified model leaves us well-placed for what comes next in the economic cycle.
“Our leadership position and strong balance sheet mean we can continue to invest for our next phase of growth even in tough times, so we remain ahead of the market as conditions begin to improve into the next year and beyond.
“We continue to remain focused on returns to shareholders, and strengthening our platform for growth as we implement our roadmap to NPBT of $65m at financial year 2028.
“The economic conditions New Zealand is faced with are challenging, but I have confidence in the team to keep delivering.”
Focus on automotive
Turners’ automotive retail segment notched up a year of strong growth off the back of improved local sourcing of vehicles.
Revenue was up by seven per cent to $298.6m to lift profit contribution to $31.8m, up 27 per cent on 2022/23. This was founded on continuing to develop a “very strong brand”, sourcing stock “smarter” and improving systems efficiency.
Some one-off impacts from the Auckland Anniversary floods and Cyclone Gabrielle affected the early part of half-year of 2023/24, such as higher levels of sales from damaged and end-of-life vehicles plus replacements.
Central to automotive retail’s profit growth has been a continued migration from auctioned vehicles into expanding retail-channel sales, which generate higher revenues and add-on sales opportunities compared to vehicles sold through auction.
This segment is sourcing more owned stock and is increasing its retail capacity through branch expansion.
Total “owned” unit sales grew by five per cent in 2023/24 to about 25,300 vehicles. The number of vehicles sold at auction in also rose – by seven per cent to 19,800 units.
Branch expansion, local sourcing and increased brand awareness is driving higher sales. Tina from Turners “continues to prove effective in the market and popular with customers”.
The segment is now entering a “build phase” for its next growth push. A Timaru branch and Napier’s branch expansion were completed in the 2024 financial year.
The development pipeline for 2024/25 includes Tauranga-Tauriko, Hornby in Christchurch and Burnside at the Christchurch Airport precinct. However, the timing of these mean their impact will only be fully felt in the 2026 financial year.
Branches in Christchurch’s city centre and Greerton, Tauranga, are planned for financial years 2026 and 2027 respectively.
Eyes on insurance
Turners’ finance segment achieved steady revenue growth in the past financial year, up by six per cent to come in at $62.4m, while NPBT dropped by 18 per cent to $12.2m.
The high interest-rate environment continued to bite. However, by the reporting period’s second half, the segment was back in growth mode.
Net interest margin has stabilised and returned to growth. This inflection confirms the segment has weathered the interest-rate shock and is now well-placed when the rate cycle begins to ease.
The company’s relentless focus on quality means premium lending was 50 per cent of its total loan book as of March 2024.
Credit policy was further tightened through the financial year with the consequence that average borrower credit scores continued to improve. As a result of the focus on quality, “consumer loan arrears continue to track at half the levels of the wider market”.
The segment has maintained a conservative position on the possible impact on credit losses from unemployment, increasing its economic overlay provision to $2.3m compared $2m in 2022/23.
The insurance sector
Turners’ insurance division continued to make gains in 2023/24 with distribution networks delivering significant value. Revenue came in at $46.1m, up by six per cent, and NPBT was $14.3m for a 15 per cent jump.
Inflation continued to increase the cost of claims, but this was offset by lower frequency of claims due to people working from home and the cost of living encouraging more use of public transport.
Indications are that “we are nearing the end of claims inflation phase”. Loss ratios strengthened due to further improvements to risk pricing.
Autosure introduced two new categories of vehicle during the 2024 financial year to further optimise pricing for risk.
The business now has “building blocks” in place to address a substantial opportunity in the private car-selling market with 50 per cent of used cars in New Zealand being sold private to private.
Managing credit
Turners’ credit-management business has continued to recover well, building back through improved marketing and benefitting from higher demand as cashflow pressures emerge in the wider economy.
Revenue in 2023/24 was $9.8m for an increase of six per cent, while NPBT totalled $3.1m – up by nine per cent.
Debt value loaded increased by 14 per cent to $18m versus in the 2023 financial year. Lower repayment amounts and extended payment arrangements were a
feature of 2023/24 due to diminished customer capacity. The payment bank is being rebuilt as debt load increases.
The business is “well positioned” to make further gains as New Zealand’s credit metrics continue to deteriorate. “They are now at their worst level in seven years, suggesting debt-load levels will increase over coming years.”
Looking ahead
Turners expects New Zealand’s trading conditions to remain challenging throughout the six months ending September.
However, it expects to see a recovery in the second half of the year and its near-term focus remains on exceeding its goal of $50m NPBT for the 2025 financial year.
Having met its financial year 2024 target a year early and remaining on-track for its 2025 target of $50m target, Turners has now announced its roadmap to $65m NPBT for its 2028 financial year.
The growth model is underpinned by five key areas with the two in automotive retail. These are branch expansion and retail optimisation – the transition of unit sales from wholesale auctions to retail.
As for finance, the company is aiming for growth in premium lending as the economic cycle eases and interest costs start to reduce.
With insurance, it wants to grow market-share gains and direct-to-consumer distribution opportunities.
When it comes to credit management, the aim is for growth from rebuilding the payment bank as debt load increases.
Given the uncertain economic outlook, the mix of activity and annuity-based revenues remains a core strength for the business as it grows towards its future goals.
The anticipated deterioration in economic conditions during the 2025 half-year, combined with cycling against a high-growth 2024 half-year comparative period arising in part from extreme weather events, means Turners expects the 2025 half-year to be “testing”.
Its near-term focus remains on exceeding its $50m in NPBT goal in 2024/25 despite the economic backdrop. Beyond that, Turners is well-placed to continue to make strong progress thanks to the resilience of a diversified business model – activity and annuity, and what it says is a clear strategy for further growth.
