Announcement
MKTUPDTE: TRA: TURNERS MAINTAINS FY20 PROFIT GUIDANCE: FOCUS ON C-19 PLAN
09:45am
TRA
31/03/2020 09:45
MKTUPDTE
PRICE SENSITIVE
REL: 0945 HRS Turners Automotive Group Limited
MKTUPDTE: TRA: TURNERS MAINTAINS FY20 PROFIT GUIDANCE: FOCUS ON C-19 PLAN
TURNERS MAINTAINS FY20 PROFIT GUIDANCE: FOCUS ON C-19 PLAN
Despite a heavily disrupted March, Turners still expect the FY20 result to be
within previously stated guidance of $28-$30m net profit before tax. Prior to
the emergence of COVID-19 the group was on track to report at the high end of
its earlier market guidance.
Chief Executive Officer Todd Hunter says the group is well-positioned, and in
the immediate term, its first priority is to support staff, customers,
suppliers, and other stakeholders through the Covid-19 lock down. The Board
and management have specific experience guiding Turners through the GFC and
the expansion of the business in the years following. Leadership is
proactively planning for a range of future scenarios, including the potential
of an extended lock down and prolonged slowdown, with obvious attention being
given to the cost base.
Key points:
o Turners still expects the FY20 result to be within previously stated
guidance of $28-$30m net profit before tax.
o Turners expects adverse impacts on 1H21. It is too early to quantify these
impacts. However, Turners had robust momentum in each of its businesses going
into this situation and a solid financial position.
o The Board has deferred the company's Q3 dividend as a precautionary
measure, which would normally have been paid around the end of April.
o The group continues to operate well within its bank covenants. Turners just
confirmed an extension of its securitisation warehouse facility with BNZ to
$250 million (previously $200m) and has unrestricted cash of $20m+ and
further funding headroom if required. There are no renewals on debt until
2021.
o Turners benefits from being a purposefully diversified business, with
different business cycles. For example, annuity revenues from finance and
insurance help offset the short-term decline in the activity-based revenue
businesses of auto retail and credit management.
o Three of the group's four businesses (Oxford Finance, DPL Insurance, EC
Credit Control) are confirmed as "Essential Services" under the financial
institutions classification and are largely operating remotely.
o Turners are working proactively with landlords to reduce rent payments over
the time of the lock down which has largely been received positively by
property owners. Government stimulus programs will also make a substantial
difference. All opex and capex plans are being reviewed.
o As well as the clear risks, this new dynamic environment could offer
opportunities for the group, given its leading position in the used vehicle
ecosystem, the potential for rationalising of company fleets post-lockdown,
and activity from customers reducing vehicle costs. EC Credit Control will
prosper during this time given its counter cyclical features.
Focus on people and planning
Mr Hunter said that the group's immediate focus was continuing to support our
customers, our team and their families, and various stakeholders through the
immediate Level 4 period, whilst supporting the country's efforts to stave
off the threat of pandemic. Our customer focus has been working with clients
of Oxford Finance to find manageable solutions for their loan repayments over
this difficult time.
As a leadership group we have been working tirelessly over the last few weeks
to develop a robust plan that enables us to address the immediate challenges
that COVID-19 represents, a big part of which has been shifting our employees
where applicable to a work-from-home model, which is now fully activated. We
are now focused on near-term challenges and broader resiliency issues during
the virus-related shutdowns and the economic knock-on effects.
Turners is taking decisive and immediate action on significant cost savings
and structural cost reductions, as well as seeking relief aided by government
stimulus programs. Aided by government contributions, the group has committed
to its teams that they will be paid 100% of their base salary over the 4-week
initial COVID-19 lockdown period. Most staff will also take some annual leave
over this time.
Concurrently we are in the process of developing a solid plan around getting
'back-to-business' as the virus evolves and the knock-on effects become
clearer. This extends to re-imagining what the world post Covid-19 could
potentially look like and how we position as a group for any such changes.
It is still too early to know exactly what the COVID-19 situation will mean
for Turners, the automotive industry and the broader economy, but the group
is adapting quickly to remain robust and to be in a position to realise any
new opportunities that emerge from a disrupted market.
Funding in good shape
Ahead of an expected economic downturn, the group remains in a solid
financial position, operating well within its bank covenants. Turners has
just confirmed an extension of its securitisation warehouse facility with BNZ
to $250 million (previous limit $200m) which supports the lending in Oxford
Finance. Turners has unrestricted cash of $20m and further funding headroom
if required. There are no renewals on debt until 2021. We would like to
acknowledge the continued support our bankers BNZ and ASB.
Diversification and experience enhances organisational resilience
As a diversified business, Turners is fortunate that annuity revenues from
finance and insurance help offset the short-term decline in the
activity-based revenue businesses of auto retail and credit management.
Turners are geographically spread throughout NZ, particularly in the Auto
Retail business, which gives us confidence about our ability to operate if
more localized lockdown scenarios occur.
We are fortunate to currently have senior executives at CEO and GM levels in
each of our businesses, plus a number of current directors on our board, who
not only guided these same companies through the GFC but have been actively
involved in their profitable expansion since that time. Crucially for the
group, each of our four businesses come into the current crisis in a far
stronger position than pre-GFC, both in terms of operating strength and
financial position.
Substantial investment in recent years into our technology platforms, and our
large online audience provides an ability for the group to operate better
than many of its competitors in a situation of partial or repeated lockdowns.
Auto Retail
While management expect the Auto Retail business to be significantly impacted
during 1H21, its reliance on a domestic NZ customer base, and its focus on
used cars (traditionally less discretionary than new cars) means that it has
previously demonstrated relative resilience in a downturn. Further, Turners'
greater business diversification and geographical spread, coupled with its
stronger funding position should offer a comparative advantage versus the
rest of the industry.
Turners expects its proportion of consignment sales is likely to grow in the
period post the lockdown as certain businesses seek to downsize and liquidate
vehicle fleets and consumers consider down grading or lower cost vehicles.
Approximately 50% of cars sold currently are consignment vehicles and this is
a part of our business we can easily scale.
Auto Retail is on hold during the lock down however we are awaiting approval
from MBIE to deal with businesses and people who provide essential services
to New Zealanders including key Government departments and DHBs.
The launch of Turners car subscription business Carly has been delayed until
after any lock down period and will be re-programmed for launch after the
environment stabilises. We expect both that the available supply of cars to
the platform from 3rd party vendors will increase significantly, and that
there will be greater consumer appetite for a more flexible, capital-lite
alternative to owning a car.
Insurance, Finance and Credit
Turners insurance business is inherently strong with premiums for policies
paid up front, and the likelihood of a more benign claims environment during
any partial or full lockdown stages. DPL Insurance holds reserves of over
$55m in cash or short term bank deposits.
The Finance business has focused on higher-quality lending in recent years
and is now a more robust business that is well-placed post shut down. The
average Veda score (credit risk metric) for new consumer loans written in the
11 months to Feb 20 is 568 compared to 534 in FY19. Finance can also rely on
Turners own retail channel for new business.
Turners expects EC Credit Control to experience greater demand and growth in
a counter cyclical environment, as it did after the GFC when there was a
demand surge over the medium term. Commission income in the two years
following the GFC increased significantly over pre-GFC levels, over 90% for
the NZ market and 60% for the Australian market serviced. It is also worth
highlighting that EC Credit Control has not purchased debt and only collects
on a contingent basis meaning it is very cash generative.
Dividend and summary
The Board has as a precaution deferred the company's Q3 dividend which would
normally have been paid around the end of April, and this will be reviewed at
a future date as the outlook becomes clearer in line with the group's future
planning.
The Board and Management own and directly control over 28% of the issued
shares so there is a very high alignment of interests and strong sense of
urgency to manage this situation well. Overall, despite some very real
challenges arising from this situation, the group remains in a strong
financial position, and is moving quickly not only to address the risks of a
prolonged slowdown but also to position ourselves for opportunities to grow
our business as NZ recovers.
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:00350973 For:TRA Type:MKTUPDTE Time:2020-03-31 09:45:56
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