Turners breaks half-year profit record

Turners Automotive Group has announced a record net profit before tax of $25.7 million for the first half of the current financial year, with its success largely driven by growth in its auto retail division.

The company says the result for the six months to the end of September was up by 10 per cent from $23.4m in the same period a year ago despite material macro challenges.

It adds, in a statement released to the NZX on November 22, that this demonstrates the resilience of Turners’ diversified business “underpinned by a strong team culture and a focus on implementing an effective strategy for organic growth”.

Todd Hunter, chief executive officer, notes the standout performance came from auto retail, where profit jumped 62 per cent to $18m. 

The division increased its volume and market share as the used-car segment has grown by six per cent year-to-date. Turners now has increased confidence it can achieve its target of securing a 10 per cent share of the market.

“Meanwhile, the number of dealers in the market is down 18 per cent from the 2017 peak,” continues Hunter, pictured. 

“As market conditions stabilise, we are well placed to continue our strong growth underpinned by our network expansion as well as our agile sourcing strategy that is driving additional sales. 

“We are also supporting emissions reductions by focusing on low-emitting vehicles and have achieved a 39 per cent reduction in emissions for cars imported by Turners between 2019 and 2023.”

Other key figures in the group’s half-year results were revenue climbing 16 per cent to $214.2m, earnings before interest and tax rising by the same percentage to $30.2m, and net profit after tax increasing by eight per cent to $18.5m.

Earnings per share were up by seven per cent to 21.2 cents per share and the firm’s fully imputed dividend for the second quarter was declared at six cents per share.

As a result of the latest numbers, Turners has reaffirmed the guidance it issued to the market in October that the result for the whole 2024 financial year is expected to be ahead of what it achieved in 2023.

It explains three out of four divisions – auto retail, insurance and credit management – were well ahead of last year on profit contributions.

It adds headwinds for its finance division from rising interest rates may become tailwinds as the interest rate environment improves, which will lift margins.

Hunter says: “Despite challenging macro conditions, Turners has demonstrated it has the right strategy to maximise opportunity through the cycle and is well-positioned as market conditions start to improve and the interest rate environment stabilises.

“We expect to continue this momentum into our second half to deliver a full-year result ahead of last year, reiterating the guidance we provided in October.”

Auto retail

Revenue for this section of Turners came in at $156.1m for the half-year, up by 20 per cent from a year ago, while its profit jumped 62 per cent to $18m.

Its market share continued to improve and retail unit sales were up eight per cent to around 10,100, while wholesale auction unit sales climbed by four per cent to about 9,800 vehicles.

The total number of owned units sold was up year-on-year by 10 per cent and the overall margin on owned cars increased by 66 per cent. Meanwhile, the average cost of a unit in inventory was down eight per cent to $8,300 per unit.

Damaged vehicle sales were also on the up, increasing 31 per cent as a result of the tail end of weather events seen at the start of 2023 as well as old vehicles in the fleet reaching end of life.

Turners claims agile sourcing of units is also driving additional sales. “Vehicle sourcing capability continues to improve through lead generation, frontline tools, and pricing strategies,” it explains.

Grant Baker, chairman, says: “Not only has the used car market proved resilient, but we are seeing signs of an improving interest rate environment. Net interest margin has stabilised and will expand once the OCR rate cycle reverses.”

Finance

Revenue was up by three per cent to $30.2m as the loan book started to grow again off the back of stronger consumer lending, but profit for the division fell by 44 per cent to $5.1m.

Net interest margin has stabilised and has started growing, with this trend expected to gather pace as a reducing official cash rate cycle begins.

Controlled lending through Turners’ own and direct channel was up 24 per cent in the half year to $47m.

Insurance

Revenue grew five per cent to $22.7m and profit was up 14 per cent to $7.1m as market share gains drove growth in policy sales. 

Mechanical breakdown insurance premiums were up three per cent on the prior year and claims cost inflation was offset by a reduction in claims due to motorists driving less.

Credit management

Revenue hit $5.3m in the half year, up by eight per cent form a year ago, and profit made a 29 per cent leap over the same timeframe to $1.8m.

“The current NZ-wide arrears level is now tracking above 2018 levels after coming off historic lows, a trend expected to worsen over coming months,” says Turners.

Debt value loaded increased by 32 per cent to $83.7m as market-wide credit metrics continued to deteriorate, with the debt load of small and medium-sized enterprises (SME) up 45 per cent year on year.

Debt value collected was up 10 per cent to $20.5m with cost-of-living pressures resulting in longer settlement arrangements to address outstanding debts.

Third-quarter update

Turners gave an oversight of how the third quarter of the financial year – October through to the end of December – was tracking.

In auto retail, it says volumes and margins are holding up well in car sales and damaged vehicle volumes are still strong.

For finance, the economic environment is reducing SME’s cash buffer for shock events and the expectation is arrears will increase if the unemployment rate lifts.

Oxford still holds an economic overlay provision buffer of $2m, which is unchanged from March 2023, while net interest margin and profit has stabilised.

Claims continue to track below expectations for the insurance division, but investment returns are improving and policy sales are holding up well.

As for the credit division, the corporate debt load was recovering slower than expected, but SME debt load was increasing quickly. Turners notes New Zealand’s credit metrics continue to deteriorate.