- Turners Automotive experienced a 1% drop in group revenue due to the slowdown in sales in the last six weeks of FY2020. Underlying NPBT up 11%.
- 3 out of 4 businesses reported organic growth in FY2020. By May 2020, all four businesses of TRA were profitable.
- Followed the approach of React, Rethink and Rebuild in response to COVID-19-induced lockdown.
COVID-19 no doubt has impacted most of the businesses due to the slowdown in the economic activities. However, it is vital how one makes the best use of this time to convert the challenging situation into an opportunity. An example is Turners Automotive, which by the end of FY2020 experienced challenges in its business and noted a drop in its net profit. However, by May 2020, the Company was successful in making all its business profitable.
With this backdrop, let us look at TRA’s FY2020 results and the Q1 FY2021 highlights. But before that, let us get acquainted with the Company.
Turners Automotive Group (NZX:TRA)
Turners Automotive Group was formed by the merger of Turners Auctions (New Zealand's largest vehicle and machinery retailer) and Dorchester (the leading consumer finance and insurance business).
Presently, Turners is the leading auction house & vendor of second-hand cars, trucks & machinery in New Zealand.
FY2020 Results; NPBT grew 11%; revenues down 1%
On 18 June 2020, the Company released its FY2020 results for the period ended 31 March 2020 and provided an update on Q1 recovery. The Company was in the limelight as it registered a drop in its NPAT by ~8% as compared to the previous corresponding period. The shares had settled at NZ$2.2 on 18 June, up by 11.11% from its previous close.
On 24 June 2020, the stock was trading at NZ$2.130 (at 1:57 PM NZST), an increase of 0.95%.
A Glance at the FY2020 results for the period ended 31 March 2020:
Despite the early impact of COVID-19 in the last six weeks of FY2020, the Company reported a growth in its underlying profit. The Company, during the start of FY2020, made efforts to push for organic growth. Three out of four businesses of the Company were able to achieve organic growth and TRA was on track to accomplish that in the fourth business as well until COVID-19 pandemic happened. Still, the Company reported decent results. Following are the key highlights:
- Net profit before tax was as per the pre-COVID-19 guidance at NZ$29.1 million.
- Underlying net profit before tax improved by 11% (NZ$28.8 million) compared to FY2019.
- Group revenue slipped by 1% to NZ$333 million.
- Final dividend in Q4 including Q3 declared at 6 cents per share. Total dividend declared for FY2020 was 14 cents per share which were 17 cents in FY2019.
- Reported EPS declined 7% to 24.4 cents per share.
- TRA noted substantial gains in its finance, insurance & credit management businesses.
- Impact in the auto retail was seen because of the COVID-19-induced slowdown in the last six weeks before the closure of FY2020.
- Substantial market share gains within the framework of a softening used car market.
Automotive retail: In the automotive retail segment, TRA’s revenue was NZ$224.9 million, and segment profit was NZ$13.8 million.
Finance: Revenue from this segment improved by +4% to NZ$45.7 million. Also, the segment profit improved by +10%. Underlying segment profit which was NZ$10.3 million in FY2019 increased to NZ$12.1 million.
Insurance: Revenue from this segment dropped by 9% to NZ$44.1 million, and the segment profit by 25% to NZ$6.2 million. Underlying segment profit which was NZ$5.2 million in FY2019 increased to NZ$6.2 million.
Credit Management: Revenue from this segment declined 1% to NZ$17.9 million, while segment profit increased by 3% to NZ$6.5 million.
A Glance at the Q1FY2021:
Auto Retail: In Q1 FY2021, Auto Retail segment was fully operational with sales more robust than anticipated.
Finance: Credit policy strengthened for new lending and arrears performing well.
Insurance: New sales policy sales recovering and the applications tracking below expectations.
Credit Management: SME debt load building and larger corporates would resume in June 2020.
Key Themes in FY2021:
- Speed-Up market share gains.
- Use high trust brand
- Diversified and integrated business
- Digital business
- Balance sheet capacity supports growth
TRA during COVID-19; Approach to lockdown
TRA followed the approach of React – Rethink - Rebuild amid COVID-19.
During the lockdown period, TRA ensured the survival of the business and followed “cash is king” approach. It avoided a dilutive capital raise and prepared for opportunities.
The team at Turner reacted in a positive way amid COVID-19. During April 2020, the business was hit hard where the revenue declined by 57% as compared to the same period in 2019. However, the Company was able to recover back in May 2020. In April 2020, 3 out of 4 businesses were profitable; however, in May 2020, all its four businesses were profitable. Group profit apart from the government wage subsidy was a loss of NZ$424,000, which got improved to NZ$1.58 million in May 2020. In June 2020, the overall is progressing ahead of June 2019.
Below are some of the priorities of the Company at the closure of March 2020.
- Ensure that its people and customers are safe.
- Made sure that its business could survive and at the same time emerge from a three-six months lockdown.
- Try to avoid dilutive capital raise and position itself in a place to take advantage of the opportunities that would arise.
ALSO READ: Transportation sector in NZ amid COVID-19
FY2021 YTD Updates:
- Launched 100% online car selling “BuySafe”. During level 4 lockdown, TRA was able to sell 600 cars.
- Continuing marketing expenditure with a focus on Turners “trusted brand”.
- Processed 1,500 hardship applications during level 4. At present, there are less than 5% of the customers who required a more extension.
- Arrears in finance book witnessed improved over April and May 2020 and are at a historically low level.
- Insurance claim dropped significantly during Level 4 and Level 3, tracking ~80% of the levels during 2019.
- SME debt load rising & corporate debt load projected to be huge once they begin releasing debt for collection.