Turners delivers record earnings

Turners Automotive Group has reported record earnings for the year to March 31, 2021, and is predicting its profit will increase further in the current financial year.

A resilient used-car market helped the brand rebound strongly from the disruptions of Covid-19 when lockdowns effectively reduced the financial year to a 10-month trading period.

The company’s net profit before tax (NPBT) for the 2021 financial year was $37.4 million, which was 29 per cent more than in the previous 12-month period.

Net profit after tax was $26.9m, an increase of 28 per cent, while revenue slipped 11 per cent to $296.5m over the same timeframe.

In an announcement to the NZX and a presentation to shareholders on May 25, Turners says its response to the impacts of the health crisis, including acceleration of its digital plans and cost management strategies, saw profit increase in three of its four segments. 

Profit grew by 50 per cent in insurance, 30 per cent in finance and 11 per cent in automotive retail. The only drop came in the group’s credit management business, where year-on-year the numbers slumped 22 per cent.

Todd Hunter, chief executive officer, says: “Our team has responded incredibly well to the pandemic in the first half of the year. Their high levels of engagement combined with the diversified nature of the business, ensured we were well positioned as we moved out of the lockdown. 

“As a group, we have continued to build quality customer experiences, improving the quality of the work environment for our people, which will deliver quality returns for our shareholders. Our growth plans are working and the exciting thing is there is more to come.”

Financial results

Underlying NPBT at the end of March was $34.3m, up 19 per cent from a year ago. 

Earnings for FY21 were 31.4 cents per share (cps), an increase of 29 per cent. A further six cps dividend has been declared for the final payment of FY21, taking FY21 dividends to 20cps.

Grant Baker, chairman, says Turners remains committed to delivering a “strong and sustainable yield” to shareholders. 

“Initiatives worked on over the last two to three years are really starting to come together and most importantly are delivering results, even during the disrupted period of 2020,” he explains. 

“Our company is in a real position of strength and we feel very confident in our growth plans. Margin expansion and market share gains are helping deliver the bottom-line growth that we knew was possible. 

“Our business has never been in better shape, and the mix of diversified earnings is delivering the consistent growth plus yield that shareholders are looking for.”

Auto retail

The company’s auto retail division saw revenue slip 11 per cent to $201m, while NPBT rose by 11 per cent to $15.4m.

Turners notes the drop in revenue reflects the sale of fewer units because of national and regional lockdowns. 

“Volumes have recovered in the second half of the year and improving margins have been a significant driver of profitability,” its announcement to the NZX says.

“Margin expansion is due to a number of buying initiatives and a result of tight supply of cars nationally, due to supply constraints for new cars. 

“Reducing the cost base was a key priority out of lockdown. The used car market has demonstrated resilience, not just rebounding after lockdowns, but through the economic cycle.”

The company details that margins on retail channel sales have been substantially higher than auction sales, and margins on “owned” fleet have improved due to a number of buying improvement initiatives, more retail sales and a constrained supply of used cars nationally. 

Having a diverse range of sources for supply is also described as a “competitive advantage”. Turners plans to increase its brand spend in FY22 to attract more domestic supply with the goal of a $1,500 profit per vehicle sold. 

Finance division

The company notes its finance sector is a significant contributor to group earnings and in FY21 revenue was up five per cent to $47.9m on the previous year and NPBT soared 30 per cent to $15.8m.

It says it is continuing to gain market share in the high-quality borrower segment of customers, providing more than 45 per cent of the new loans written each month in the premium risk tier. 

“Targeting high-quality borrowers means arrears are at record low levels with consumer arrears at 4.2 per cent and commercial arrears at 1.8 per cent.”

Insurance

Insurance revenue fell five per cent to $41.9m because of Covid-19 lockdowns. However, NPBT grew 50 per cent to $9.4m on higher margins, reduced claims, lower overhead costs, and the finish of amortising the acquired premium portfolio as part of the Autosure acquisition from Vero in 2017. 

Credit management

Revenue in the credit division tumbled 29 per cent to $12.8m, with Turners attributing the drop to the impact of Covid-19 and the “market-wide conservatism with respect to debt collection during the first phase of the pandemic”. NPBT also slipped 22 per cent to $5.1m. 

“The division is working closely with referrers to manage and improve customer outcomes as we operate in an environment where bad debts are likely to increase and debt collection services will see increasing demand,” the company says.

Growth plans

Turners says it is confident of delivering growth over the next three years, with a focus on four key areas.

• Retail optimisation across people, property and process, which will include expanding the physical branch network with two new sites already acquired in Rotorua and Nelson.

• Vehicle purchasing decision-making using data and tools to help identify new sourcing opportunities and ensure consumers are maximising opportunities.

• Growing premium lending within finance.

• Continued investment in digital and improving its omni-channel customer experience.

Outlook and guidance

Turners explains April and early May 2021 has seen a continuation of the positive momentum the company has enjoyed over the past 10 months. 

Its April 2021 financial results are “materially ahead” of April 2019, which is a more comparative period because there was no pandemic to deal with.

The company says it expects the automotive market to remain supply-constrained for 12-18 months due primarily to impacts on the new-car supply chain. 

Other forecasts include that new lending in the finance business will be strong, arrears will continue to improve, and new insurance policy sales will be buoyant. 

The announcement adds: “Shareholders should expect to see a further improved result in FY22 and accordingly a corresponding increase in FY22 dividends.”