Turners grows in downturn

Turners Automotive Group produced a record net profit before tax (NPBT) of $26.9 million for the six months to the end of September, despite what it describes as a significant retail downturn and extremely challenging macro market conditions.

The figure was up by five per cent from $25.7m in the same period of 2023 and the company has reaffirmed previous guidance that it is on track to exceed a $50m NPBT target for the 2025 financial year. 

Net profit after tax for the half year was $19.3m, up four per cent, and group revenue of $209m was down two per cent, driven by a six per cent drop in auto retail. 

However, the total was “somewhat offset” by increases in finance, insurance and credit management. 

As for earnings before interest and tax (EBIT), this rose three per cent to $31m. 

Turners has revealed segment profits for its divisions, with finance climbing 59 per cent from a year ago to $8.1m, insurance was up eight per cent to $7.7m and credit management grew two per cent to $1.8m.

Those increases offset an 18 per cent decline for auto retail, which clocked a profit of $14.7m.

The group notes a downturn in consumer sentiment put pressure on vehicle prices, reducing margins during the six months, but it says the market is now showing signs of recovery.

Over the half year, Turners says its auto retail division gained increased market share from its enhanced brand and growing footprint.

Figures released on November 25 show its buy-now sales were up nine per cent to about 11,050 units and  wholesale auction units rose three per cent to about 10,050 vehicles.

As prices dropped the overall margin on owned vehicles fell 28 per cent for the six months.

Consumer lending was up in the finance division and commercial lending down as the company’s credit policy tightened to focus on cars, vans and utes and move away from trucks and machinery lending. 

Todd Hunter, chief executive officer, says Turners produced a strong result for the half year overall, which demonstrated its approach to having a diversified business model was proving effective. 

“During one of the deepest downturns in New Zealand retail, that required us to reduce used car prices between March and August to meet the market, the agility and resilience of the business showed through with the natural stabilisers of our annuities businesses in finance and insurance, offsetting the pressure on auto retail. 

“This demonstrates that our strategy to build a business that can grow and deliver value through the cycle is paying off,” he adds. 

“This result reflects not only the effectiveness of our diversified model, but also the quality and skill of our team which responded in an agile fashion to market conditions to ensure that, while margins were squeezed in auto retail, volumes were slightly up and we continued to grow market share and deliver value for our customers.” 

Earnings per share for the half year were 21.8c and the board has declared a dividend of 7c per share for the second quarter. 

Grant Baker, chairman, says: “Growing profit in this environment is a considerable achievement, and Turners has demonstrated it can improve returns to shareholders over time thanks to its consciously-developed, diversified business model that offers upside in downturns as well as periods of economic expansion. 

“We have more than doubled dividends over the past decade, continuously striving for record results, as well as continuing to invest for future growth. 

“We have considerable opportunity still before us as a trusted partner for customers in the life cycle of vehicle ownership.” 

Key drivers of half-year result

• Auto retail: volumes up but margins on owned stock down as market demand weakened sharply, prompting a material pricing contraction from March through August, although this is now recovering. 

• Finance: The interest rate environment is becoming a tailwind in finance with net interest margin rebuilding, and arrears of 2.8 per cent performing better than market levels of 6.4 per cent. 

• Insurance: Gross written premium was flat on the same period a year ago but margins continue to improve. Claims ratio is being well managed. Claims cost inflation has dissipated. 

Q3 update

• Auto retail: Vehicle pricing strengthening and vehicle margins improving. 

• Finance: Arrears performing well and originations starting to lift. Benefit of easing official cash rate still to come in the second half of the year. 

• Insurance: Claims continue to track below expectations, with policy sales holding up well.

• Credit: Corporate debt load recovering slower than expected, but small and medium-size enterprise debt load increasing quickly. NZ-wide credit metrics continue to deteriorate, which amounts to a tailwind for second half. 

Outlook

Turners says the second half of the financial year is expected to be more positive for all divisions.

It explains there are signs the sharp pricing contraction for auto retail between March and August may be over and the market is shifting to improved trading and margin conditions. 

The pipeline of branch expansion opportunities is also growing and the development phase of new branches is progressing well but the incremental benefit won’t accrue in the current financial year. 

“A strong auto retail business is proving to have a great halo effect for finance and insurance,” the company notes. 

“The interest cycle is moving into a phase that will provide a tailwind for finance. The strength of the Turners brand continues to grow, along with continuous improvement in systems, technology and people. 

“Our acquisition of My Auto Shop, as well as distribution agreements in insurance, is proving there is opportunity for considerable further leverage across the network.”