Wednesday 20th September 2017
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Turners Automotive Group told shareholders at today's annual meeting it expects to lift its full-year pre-tax earnings by as much as 26 percent as it benefits from a series of recent acquisitions and increasing vertical integration.
New Zealand's largest second-hand vehicle retailer said trading so far this financial year is in line or slightly above board expectations and it anticipates pre-tax earnings of $29 million to $31 million in the year ending March 31, 2018, up from $24.6 million in the 2017 financial year.
"We have a clearly defined strategy and a growing portfolio of strong businesses," said chairman Grant Baker. "We operate in a growth sector. Automotive sales continued to increase with 2016 being the highest year of New Zealand vehicle registrations recorded in the past 10 years and with that comes a corresponding uplift in demand from automotive finance and insurance products."
The company is benefiting from a series of acquisitions, including the Buy Right Cars Group in August last year and the Autosure Insurance business in December.
Within the automotive retail unit, which accounts for two-thirds of earnings, it continues to focus more on selling to retail versus wholesale customers, which is driving yield improvement, it said. Including the benefit from the acquisitions, pre-tax profit in the automotive retail unit is up an annual 60 percent in the first four months of the year. If that benefit is stripped out, the pre-tax profit is 21 percent higher.
Within the insurance unit, pre-tax profit, including the benefit from Autosure, is up 547 percent. Without Autosure, it is up 36 percent in the first four months of the financial year versus the same period a year ago.
Within the finance division, pre-tax profit is currently up 13 percent and it expects the positive impact of a growing finance book to bolster performance in the second half of the year.
Baker said Turners' strategy is focused on growth and "the size of the automotive market opportunity is significant." He noted the industry is "very fragmented and even in some areas where we are one of the larger players such as vehicle sales we still only hold a small percentage, well under 10 percent market share," he said.
The company said it is "constantly looking at organic growth opportunities and assessing mergers and acquisitions," he said and noted the Turners is "well positioned for this growth" with a strong balance sheet.
He pointed to the recent capital raising where the $25 million placement was fully subscribed. It also includes a $5 million share purchase plan that will close on Oct. 4. The New Zealand Shareholders' Association had said it would seek answers from the Turners board about its choice of process to raise $25 million at a 10 percent discount without providing "substantive and relevant reasons for their actions".
The company "needed to move quickly to ensure we secured funds for the expected growth, said Baker. "The board felt it was the best mechanism to raise the money in the time frame we needed the funds and to provide 95 percent of our shareholders with the opportunity to apply for their pro rata application," he added.
Approximately 75 percent of the funds will be used for the growth of the finance book, currently growing at about $10 million of receivables every month, he said. "It is growing very, very fast and you need capital to do that," he said. The remainder will be used for investment in strategic dealer and property acquisitions to growth Turner's distribution network.
The shares rose 0.6 percent to $3.17.
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