Announcement

HALFYR: TRA: Turners delivers robust earnings despite COVID disruption 09:09am 
TRA
25/11/2020 09:09
HALFYR
PRICE SENSITIVE
REL: 0909 HRS Turners Automotive Group Limited

HALFYR: TRA: Turners delivers robust earnings despite COVID disruption

Company Announcement

25 November 2020

Turners delivers robust HY21 earnings, despite COVID disruption

o Group revenue 14% lower at $148m
o Reported NPBT increased 26% to $18.7m
o Underlying NPBT down 11% to $13.1m
o Reported NPAT increased 25% to $13.4m
o Used car market proved resilient, rebounding strongly for `high trust'
Turners brand
o Robust annuity earnings from Finance and Insurance validates diversified
business model
o Diversified business with 'high trust' brands supported robust earnings
o Progress accelerating for transition to digital offering, reducing costs,
increasing resilience and enhancing the customer experience
o NPBT guidance for FY21 to be toward the upper end of guidance of $28m to
$31m, conditional on no significant further lockdowns
o Projected FY dividend 17.0 cps at mid-point of guidance

Turners Automotive Group (NZX: TRA) delivered robust earnings in HY21 despite
a disrupted operating period, with the used car market rebounding after
COVID-19 lockdowns, and the Group's diversified annuity businesses in Finance
and Insurance supporting resilience and contributing to strong and
sustainable yield.

Todd Hunter, CEO, said: "Given the tumultuous start to the year with a Level
4 COVID-19 lockdown, and high levels of uncertainty, we are delighted with
how our team responded to improve our ability to operate in pandemic
conditions, as well as improving the resilience of the business to sustain
strong yields. Our diversified business, and the quality of our trusted
brands, proved robust in the face of market uncertainty, and enabled us to
accelerate our strategic plan to lead in the digital space and strengthen our
national position in Auto Retail."

Financial results
Reported NPBT, which is the basis for Turners' full year guidance, increased
26% to $18.7m with net profit after tax (NPAT) of $13.4m, up 25% on the same
period last year. Underlying NPBT was down 11% to $13.1m, with a
reconciliation of reported and underlying numbers available on slide 9 of the
investor presentation, also published today.

Earnings per share for HY21 were 15.7 cps, up 27% on the previous year.
Following the suspension of dividends during lockdown, the Board resumed
dividend payments with a Q1 dividend of 4.0 cps. A further 4.0 cps has been
declared for Q2, taking HY21 dividends to 8.0 cps. This reflects the dividend
policy adopted by the Board last year to pay-out 60-70% of net profit after
tax (NPAT).
Grant Baker, Chairman, commented: "Our commitment to delivering strong and
sustainable yield to shareholders remains a clear focus for the company. It
is pleasing to see the benefits from our strategy of a diversified business
showing results and our focus on building a quality business for our team,
our customers and our shareholders. Despite some real challenges this year so
far, we have not only built further resilience, but made progress with plans
to strengthen our position in our key markets in the long term as well as
reducing cost and improving our systems and operations. Obviously, market
conditions remain somewhat uncertain as the COVID-19 pandemic continues
around the world, but this necessity to stress test our business has not been
without reward."
Results by division
All parts of the business contributed to the first half profit, and this
diversity means the company is well-placed, assuming no further major
COVID-19 disruption, to achieve NPBT toward the upper end of guidance
provided at the annual shareholders meeting.

Auto Retail: Revenue $96.1m - 17%, NPBT $7.8m +6%
The Automotive Retail division revenue was 17% lower at $96.1m, reflecting
suppressed activity during lockdown, but also a strong rebound since. A focus
for the half was on COVID-19 recovery and cost management. Volumes have
recovered since, but the main driver of improving profitability in the months
since lockdown has been margins. Margin expansion is due to a number of
buying initiatives and by tight supply of cars nationally, due to the supply
constraints in "New" cars.

Whilst there was a substantial disruption early in the half, the used car
market has demonstrated resilience, not just rebounding after lockdowns, but
through the economic cycle as customers consider lower cost options. The
company continues to benefit from a diverse geographic footprint (which was
well demonstrated during the recent partial lockdown in Auckland.) Turners
diversified sources of supply and trusted brand position is proving highly
valuable in times of uncertainty.

Finance: Revenue $23.2m +2%, NPBT $7.6m +18%
The Finance division contributed strongly to the first half, with annuity
earnings helping during lockdown. Finance sales also showed a solid rebound
following lockdown. Revenue for HY21 was $23.2m, up 2% on last year. NPBT was
$7.6m up 18% of the year prior, as Oxford benefitted from higher margins,
lower accruals and greater cost efficiencies.

Remarkably, less than 70 customers (0.29% of customers) are currently in
hardship status. The division's focus on high quality borrowers has seen
record low levels of arrears reflecting the risk-pricing strategy over recent
years, and the business is well-placed for the second half of the year to
continue its expansion. Oxford has built a material buffer in arrears
provisioning to allow for any unemployment increase in future months.

During the period, premium risk tier lending increased to over 50% as shown
in the presentation also released to the market today. Finance continues to
be a strong performer within the group, and it is notable that Finance's
profit contribution over recent years has grown significantly, from 24% in
1H19 to 33% in 1H21.

Insurance: Revenue $21.1m -5%, NPBT $4.5m +74%
Insurance revenue decreased 5% to $21.1m due to the impact of lockdowns.
However, NPBT was up 74% to $4.5m on higher margins, reducing overhead costs
and the finish of amortising the acquired premium portfolio as part of the
Autosure acquisition from Vero in 2017.

The division contributed to the overall result and cashflow via annuity
earnings during lockdown, with premiums taken up front. Progress was made on
building out distribution, as well as continued investment in digital and
system integration. As with Finance, the division continues to focus on
quality, as was evidenced with combined claims ratios improving, from 69% in
1H19 to 59% in 1H21 and AM Best upgrading its credit rating and financial
strength rating for Insurance.

Credit Management: Revenue $7.0m -29%, NPBT $3.0m -17%
Credit management revenue decreased 29% to $7.0m, and the impact of COVID-19
was visible in market-wide conservatism with respect to debt collection
actions during the first phase of the pandemic. NPBT was also down 17% to
$3.0m

The division remains an important part of the diversification strategy,
offering a hedge for any potential cyclical downturn ahead. The division has
been successful in managing cost in a reduced debt load environment and
maintains strong relationships with debt lenders. The business expects to
load more debt over coming months, following a hiatus period during and post
lockdown, during which lenders prioritized managing reputation over
collections. A similar pattern was experienced post the GFC, before a busy
collection period began.

A transition to a digital-based business is continuing. The division is
working closely with referrers to manage and improve customer outcomes as we
go forward into an environment where bad debts are likely to increase and
debt collection services will see increasing demand.

Digital strategy bearing fruit
Right across the Group, the expansion of the digital strategy over several
years is bearing fruit and contributed greatly during the period under
review. This was accelerated as part of the COVID-19 response where no or low
contact transactions and customer service was required. COVID-19 added useful
impetus to momentum within the business to move to digital platforms and
lower-cost, easy-to-use self-provisioning models for customers. We see an
opportunity to achieve market leadership in digital across all business
sectors, further increasing resilience, lowering cost, and improving customer
experience.

Outlook and Guidance
Although the strong market rebound post-lockdowns has been pleasing, the
business remains focused on agility and the ability to manage uncertainty
while the COVID-19 pandemic remains rife throughout the world. The stress
test that COVID-19 provided has proved the benefits of the Group's strategy
of diversification, digital leadership, national distribution and the
development of trusted brands.

For every month since June, group operating profit has been well above levels
in FY20. Meanwhile, a number of reductions to the fixed cost base will
deliver ongoing benefits over the years to come.

In terms of Q321, key themes have continued, including:
o Auto: continued supply constraints, better-than-expected demand
contributing to margin improvement on owned inventory,
o Finance: strong new lending, with arrears at historic lows,
o Insurance: strong sales of new policies, and claims ratios improving; and
o Credit Management: debt loads to increase as corporate customers reinitiate
collections actions

Building on continued robust performance thus far in Q321, the Board expects
to achieve toward the upper end of its FY21 NPBT guidance of $28m to $31m, as
supplied to the market at September's ASM. This assumes that there are no
significant further lockdowns in New Zealand in FY21. At the mid-point of the
guidance range, this could yield a full year dividend of 17.0 cps, according
to the Board's dividend policy.

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:00363850 For:TRA Type:HALFYR Time:2020-11-25 09:09:02

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