Announcement
HALFYR: TRA: TRA delivers a solid 28% increase in net profit after tax
08:30am
TRA
27/11/2018 08:30
HALFYR
PRICE SENSITIVE
REL: 0830 HRS Turners Automotive Group Limited
HALFYR: TRA: TRA delivers a solid 28% increase in net profit after tax
Company Announcement
27 November 2018
Turners Automotive Group delivers a solid 28% increase in net profit after
tax
o 28% increase in net profit after tax with strong outperformance from
the insurance business offsetting a country-wide slowdown in the automotive
retail sector
o Further quarterly dividend of 4cps declared taking total half year
dividends to 8cps
o Continued focus on optimising real estate assets delivers $3.4m gain
from the sale of Wiri holding
o Industry-wide headwinds emerging in the automotive retail sector with
a potential downside impact of 5 - 10% to forecasted FY19 pre-tax profits if
current market conditions persist
o On-Market Share Buyback of up to 5% of issued shares announced with
current share price considered undervalued by Directors
Turners Automotive Group has delivered a 28% increase in profit for the six
months to 30 September 2018, driven by a continuing outperformance from the
insurance business and a $3.4m gain on the sale of an Auckland property,
offsetting headwinds in the Auckland automotive retail market.
Operating revenue was $164.6m for the period, in line with the previous year,
with the cost of goods sold decreasing by 9% to $65.3m. This reflects more
sales on consignment through Turners' auctions and therefore less owned
stock.
Total revenue of $168.3m includes $3.4m from the sale of the property in
Wiri, Auckland in September 2018, which has been leased back in line with
Turners' property strategy.
Net Profit Before Tax (NPBT), which is the basis for Turners' full year
guidance, increased 18% to $16.8m, with Net Profit After Tax (NPAT) of
$12.9m. Earnings per share were up 14% to 15.19 cents per share for the half
year. Shareholder equity increased to $217.3m as at 30 September 2018.
The Board has declared a further quarterly fully imputed dividend of 4.0 cps,
taking half year dividends to 8.0 cents per share. This is in line with
Turners' enhanced dividend policy of a payout ratio of 50% to 60% of NPAT,
with the Board expecting to declare full year fully imputed dividends of a
minimum 17 cents per share.
Chairman of Turners, Grant Baker, commented: "The business has shown some
resilience through tough market conditions in Q1 and bounced back strongly in
Q2. The diversified revenue streams have really demonstrated their value
through the first half of this year. However, market conditions, particularly
in the used import car market, remain challenging and pressure is being
placed on vehicle margins right across the industry. Within the key market of
Auckland we have seen a material reduction in demand which we attribute to
the cost pressures being experienced by many people across the Auckland
region in fuel prices, rents, and other household costs.
"If October market conditions continue to be the environment we are working
in, NPBT could be impacted by 5 - 10% from our previous guidance range of
$34m to $36m."
Trading Performance
Turners operates an integrated business helping retail and wholesale
customers across three divisions - Automotive Retail, Finance and Insurance,
and Debt Management Services. This model provides a number of advantages,
from the ability to offer an end-to-end customer journey and higher margin
transactions in controlled channels, through to better customer
relationships, diversification of earnings and a balanced mix of annuity and
transactional revenue.
Automotive Retail (Turners Group, Buy Right Cars): Revenue $111.8m down 1%,
Op profit $8.0m down 9%
Unit sales and market share have grown in both the Turners and Buy Right cars
business in the first half. Turners Group delivered an improved year on year
result, while Buy Right Cars delivered a lower than expected result due to
pressure on margins and volumes.
The import market is facing headwinds with challenges on both the demand and
supply side. The number of used imports is down and landing costs have
increased due to stricter controls following the stink bug issue. This is
primarily affecting Buy Right Cars, which has a higher proportion of import
sales.
Demand in the highly competitive Auckland market, where 9 of the 10 Buy Right
Cars sites are located, has also weakened, with pressures from increased
living and fuel costs. A range of initiatives are in place to drive customers
instore and leverage the high consumer trust in the Turners' brand.
Investment is being made into expanding and optimising the national retail
network, training and development of sales staff, and digital initiatives to
offset the softer conditions and drive sales. New sites in Wellington City,
New Plymouth and Hamilton are all expected to contribute to operating profit
in the second half of FY19.
The challenging conditions will inevitably lead to consolidation in the
dealer market which will provide Turners with further opportunity in the
medium term, as both Turners and Buy Right Cars focus on building market
share.
Finance (Oxford Finance): Revenue $21.6m up 21%, Op profit $5.4m down 2%
Excluding the MTF channel, Oxford Finance performed well in the half year,
with the focus on higher quality lending delivering volumes ahead of budget
and the prior year. The primary impact on results was the impairment levels
for MTF non-recourse loans which have been higher than anticipated. Stricter
lending criteria have been introduced and MTF lending processes and credit
scoring systems have also been reviewed to ensure robustness, with changes
made progressively over the past six months. While the performance of the
non-recourse loan offer has been disappointing, MTF's network of over 300
dealers and franchisees remains an attractive channel for Oxford Finance.
The network of dealers selling Oxford Finance products continues to grow with
an additional 120 dealers on-boarded in the first half. Improvements to the
Autoapp online loan approval platform are making it easier and faster for
dealers and customers to gain a response on loan applications.
From September, all loans originating through Turners Cars have been directed
into Oxford Finance. This will see circa $4 million a month of high quality
lending directed into Oxford, with the benefit to the wider group meaning
more margin and an improving risk profile.
Insurance (Autosure): Revenue $25.7m up 15%, Op profit $6.4m up 144%
The insurance business continues to go from strength to strength following
the acquisition of Autosure in FY18. Good progress is being made on claims
costs and ratios, and premium is growing as risk is more appropriately
priced.
The focus is on identifying further opportunities for claims efficiencies and
cost reductions. Fintech will play an important role in this and Autosure
insurance products are now being integrated into AutoApp digital finance
selling platform, making it easier for dealers to transact both insurance and
finance products through the one system.
Debt Management (EC Credit Control): Revenue $9.3m down 9%, Op profit $3.1m
down 10%
The softer half year result was primarily due to the loss of a large
Australian customer which has insourced its collections services.
There has been solid growth in the New Zealand corporate debt market from
both new and existing customers, with debt load up 20% on FY18. In addition,
record monthly sales of SME products are being seen. The Australian debt
market offers a significantly larger opportunity but is more challenging, and
additional resource is being put into Australia to improve penetration.
Technology is enabling more efficient and effective debt collection, such as
the dialler technology and the development of a debtor scorecard to assist
with improving collection results.
Funding and Capital Management
Turners has strong and diversified funding arrangements in place, with
headroom for forecast business growth. The securitisation warehouse has
recently been extended to $200m, and the new banking syndication with ASB and
BNZ is working effectively. Pleasingly, the replacement three year bond
programme was fully subscribed to $25 million.
The Board continues to consider that Turners' share price does not reflect
the fundamental value of the business and is not consistent with valuations
from analysts or other independent advisors. Therefore, the company is
announcing its intention to undertake an On-Market Share Buyback programme of
up to 5% of shares on issue.
Grant Baker commented: "The Board believes the purchase of company shares,
which are priced significantly below their intrinsic value, is an appropriate
use of capital and will be of benefit to shareholders. We are confident in
the long term prospects for solid and improving group earnings resulting in
increasing balance sheet strength. This positive outlook supports the Share
Buyback initiative"
CEO Comment
CEO of Turners, Todd Hunter, said: "The building blocks put in place in FY18
have created a simplified and more effective business with common operating
and funding platforms.
"We are continuing to realise the benefits of our integrated business model
and are investing into training and development, fintech, product innovation
and the customer experience. We have a wealth of valuable data within our
business and are leveraging this to engage with our customers, deliver better
service and identify new opportunities to do what we do better.
"The investments we are making into people, property and our businesses will
deliver further benefits in the second half and even though we have some
market dynamics which are currently problematic, we are building market
share, growing our footprint, and improving our customer offering which gives
us real confidence in our strategy and long term prospects."
ENDS
About Turners
Turners Automotive Group Limited is an integrated financial services group,
primarily operating in the automotive sector www.turnersautogroup.co.nz
For further information, please contact:
Todd Hunter, Chief Executive Officer, Turners Automotive Group Limited Mob:
021 722 818
Media Liaison and Assistance: Jackie Ellis, Mob: 027 246 2505
End CA:00327417 For:TRA Type:HALFYR Time:2018-11-27 08:30:34
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