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Turners Automotive lifts annual profit 13%

Monday 29th May 2017

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Turners Automotive Group lifted annual profit 13 percent after it acquired Buy Right Cars, expanding its vehicle retail unit.

Profit increased to $17.6 million in the year ended March 31, from $15.6 million the previous year, the Auckland-based company said in a statement. Pre-tax earnings increased to $24.6 million, ahead of its forecast range of $24 million to $24.5 million, and up from $21.6 million a year earlier. Revenue rose 48 percent to $252.4 million while expenses lifted 53 percent to $227.8 million.

The company's automotive retail unit, which accounts for two thirds of earnings, boosted operating profit 54 percent to $15.4 million as revenue lifted 64 percent to $193 million. Its Turners retail business is generating better margins and providing more finance opportunities by selling more vehicles to retail customers rather than dealers, and the automotive unit is also benefiting from the acquisition of Buy Right Cars in July 2016.

"Both businesses are performing strongly with Buy Right Cars performing above expectation, and starting to originate a strong flow of consumer loans into the finance division," the company said in a statement. "Further retail business acquisitions are expected as Turners looks to grow its share of the second-hand vehicle market."

Turners said it's also expanding its trucks and machinery business as it looks to build a specialised retail network, replicating its model in the car market. It now has sites in Tauranga and Palmerston North and is about to sign a lease in Hamilton, adding to its existing dedicated trucks and machinery locations in Auckland and Christchurch.

The company's second-largest division, its finance arm which arranges vehicle loans to customers, lifted operating profit 4 percent to $10.2 million as revenue advanced 10 percent to $26.8 million. Turners said a partnership with Motor Trade Finance which launched in December is building quickly and is expanding its reach into the motor vehicle finance sector.

Turners said its debt collection service is growing its market share in Australia and New Zealand, with new corporate and small-to-medium business clients won during the year. Operating profit lifted 3.5 percent to $6.2 million as a focus on loading higher quality debt resulted in lower debt loads but 9.4 percent more debt collected.

The company's insurance unit bucked the improving trend, with operating profit declining by a third to $928,000, even though revenue increased 49 percent to $13.7 million. While the company increased the number of policies it sold, it said the low and stable interest rate environment had impacted its life insurance reserves. It also faced more claims in its general insurance products saying claims ratios of 59 percent in the latest year were in-line with market norms, while the 32 percent ratio experienced in 2016 was unusually low. Its acquisition of the Autosure Insure business, finalised on March 31, will bring scale to the insurance unit and is expected to add earnings before interest, tax, depreciation and amortisation of $5.5 million this year, it said.

Turners will pay a final quarter dividend of 4.5 cents per share on July 21, taking the annual dividend to 14.5 cents, up from 13 cents the previous year. 

Its shares last traded at $3.86, having gained 30 percent the past year. The company reiterated it intends to undertake a foreign-exempt compliance listing on the Australian stock exchange in the 2018 financial year, giving it access to a larger capital market to support its growth.

Turners noted it expects to grow existing businesses by 10 percent this year, and any merger and acquisition activity would be in addition to that. It said the full benefits of its securitisation programme, which will reduce the cost of its funding, would be realised from this year.



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