Turners Automotive Group Limited (TRA) Earnings Call Transcript & Summary

Good morning, everyone. Welcome, and thank you for joining us at the 2020 Annual Meeting of Shareholders of the Turners Automotive Group. My name is Grant Baker, and I'm the Chairman of Turners. The notice of meeting and the 2020 annual report and financial statements have been circulated and have been made available to shareholders. A quorum is present, so therefore, I declare the meeting open. Now I don't think anyone needs me to tell them that we're operating in unprecedented times. This meeting being online is definitely a reflection of that. Nonetheless, this is an exciting time for the business as we are so well positioned for uncertain times, and we'll come to this in more detail as we go through our meeting later on. Before we do that, I do need to run through some housekeeping items. Today, that isn't about emergency exits and toilet locations, it's to explain how the online meeting process works. We hope you'll participate today using these systems, and we hope it's not too long before we can again meet in person. Thank you for your patience and adaptability. Today's meeting is being held online by the Lumi platform. This allows shareholders, proxies and guests to attend the meeting virtually, watch the live webcast and ask questions and submit votes. To ask a question, look for a speech bubble icon as shown towards the middle of the slide. Click on that, and it will open a new screen. At the bottom of their screen, there's a section for you to type your question. Once you finish typing, please hit the arrow symbol to send. Please note that while you can submit questions from now on, we won't address them until the relevant time in the meeting. Please also note that your questions may be moderated if we receive multiple questions on one topic. Finally, due to time constraints, we may run out of time to answer all your questions. If this happens, we will answer them in due course via e-mail or posting responses on our website. Accordingly, I encourage you to get in early to ensure that your question gets answered at the end. Voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, I will also shortly open the voting for all resolutions. At that time, if you're eligible to vote at the meeting, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There's no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting closed. I now declare voting open to all items of business. The polling icon will soon appear, so please submit your votes at any time. This will give you a warning I move to close the voting near the end of the meeting. Please note that when we return to that section of the meeting, I'll go over this again for those wishing to vote. I'd now like to introduce my fellow directors who are with me on this online meeting. Firstly, Paul Byrnes, our Deputy Chair; Matthew Harrison; Alistair Petrie; John Roberts; Antony Vriens; and online from Singapore, Martin Berry. It has been a busy and challenging period for your Board, and may I thank all of our directors for their contribution this year and for all their hard work to position the business for the future? The company is really fortunate to have a Board comprising directors who are very hands-on and entrepreneurial on behalf of the business, and we go the extra mile beyond formal matters to support and guide where needed and, most importantly, to create value. Also with us in today's meeting are Todd Hunter, our CEO; and Aaron Saunders, the company's CFO. Following my Chairman's presentation, I'll ask Todd to give us an overview of the operation of the business and provide his perspective. There are a number of our senior managers and staff on the platform today as well, so welcome to you all. Also in attendance today are the company's auditors, Staples Rodway; legal advisers, Chapman Tripp; and other advisers. Thanks to all these firms that provide valuable services to Turners. Today, you'll hear presentations from myself and Todd on our strategic direction, the opportunities available to us and our progress towards achieving our goals. Todd will also update us on our digital strategy and innovation. Following the presentations, there will be an opportunity for discussion and any questions you may have. We will answer questions on the resolutions at the time the resolutions are proposed. In addition, there will be a further opportunity at the end of the meeting for you to ask other general questions about the company and our operations. So let me now give you a perspective on the year just gone and where we stand as a company. Obviously, 2020 has been a year of challenges for our nation, and we continue to operate in conditions of great uncertainty and volatility. However, as the saying goes, never waste a crisis, and we haven't, and we certainly aren't passively sitting back. While we have to be aware of risks, we also see significant opportunity. The COVID-19 global pandemic and its impact on New Zealand has had the effect of stress-testing a lot of our thinking and planning. As revealed, some features of our business were actually pretty exciting for your Board and for our shareholders and stakeholders. My observations can be divided into 2 areas: first, I'll reflect on the Turners Group and where we're at as a company; secondly, I'll talk to you about our resilience and the fact that we're making progress, building an even more robust business in these uncertain times. So let me take stock of where we are as a business and, while we have some significant advantages in terms of the business sectors in which we operate, the market conditions we face and the skills and experience we have in the business. In the year under review, we've made further progress in our mission to continue building a business of real quality. There are 3 components to this. Firstly, we're leveraging on a position of trust in sectors where low trust is often prevalent. Our high-trust brands, particularly in the used car market and related services, give us a strong advantage. We're continuing to build trust amongst all our stakeholders, including you, our shareholders and our debt holders as well as customers to achieve leading positions in all our market segments. Secondly, by operating a diversified business and driving performance in each part of the business, we have created a robust, resilient business model with [ mad risk ] and attractive earnings and dividend over the long run. We have significant diversification in both geography and business type, which has served us well in 2020. We have the third highest dividend yield on the NZX, and we have realized that investors have become more focused on sustainable yield this year, and we continue to strengthen our business model to improve this resilience while still targeting future opportunities. Finally, we're building on our economies of scale to win in the digital space because we know this is key to future success. This is a key competitive advantage, which we can expand on or, as some would say, one of our moats. This is certainly something that COVID has reinforced. If you can't offer a customer experience centered on digital or virtual experience, then you're vulnerable. We've pivoted strongly in this direction several years ago and, for example, we've almost doubled our annual technology investment over the last 3 years. And talking about a transformed business. So we've updated the slide from last year to underscore our focus on performance and delivery over the long term and to show how we're building up sustainable earnings and dividend growth. The business has changed a lot over the past decade and particularly in the last 5 years. And as I outlined last year, the bringing together of Dorchester and Turners has enabled us to create this diverse and complementary business group. We continue to be somewhat frustrated that the underlying strength and potential of the business isn't fully reflected in our share price. However, we're trying not to lose sleep over this. We can't control or set the market price, but what we can control is our business strategy and planning and executing the plan to continue to build profitability, and thus, good dividends for our shareholders. This slide takes a closer look at our sustained improvement in earnings and dividend performance. We wanted to aggregate this into 3-year periods to take out some of the noise from year to year and show you the underlying trend. This is how I tend to look at things on a multiyear view, and the results for Turners do speak for themselves. We reintroduced dividends for our shareholders in fiscal year '14 and gross dividend yield for the past year has been around 10%. In fiscal year '20, we announced a total dividend of $0.14, fully imputed, which we see as a very reasonable outcome, given all the uncertainties and a number of companies suspending dividends. As the dividend per share shows, we've succeeded in rebuilding the business earlier this decade, and we've now created a stable and growing dividend stream. This is also reflected in our confidence to recently expand our dividend policy to between 60% and 70% of net profit after tax. Having built a robust diversified platform, we're now in a position to execute against very ambitious targets. We want nothing short of being New Zealand's best place to buy and sell vehicles with continually high customer satisfaction. Our group today is very different from the business we invested in 10 years ago and also very different from the original Turners Auction business, which sold its first car at auction in 1967. We are New Zealand's leading used vehicle retailer, and the Turners brand is highly trusted. We have 37 sites from Whangarei to Invercargill. And on average, we sell a car every 6 minutes. So while this meeting's on, we'll have sold another 10 or 15 cars. Increasingly, we can be a one-stop shop for customers interested in buying or selling vehicles through the complementary business units we have in finance and insurance. This diversified group structure is proving itself more than ever in the conditions we now face. Our strategic review of Oxford last year and subsequent testing of the market for both Oxford and EC Credit showed us that the value of these assets is maximized within our current structure. That value has been further demonstrated as we navigated a market disrupted by COVID. Our annuity businesses, like finance and insurance and credit, have underpinned fluctuations in the auto market, which is not immune to economic cycles. However, although the used vehicle market is subject to economic cycles, it's worth noting that compared to many other retail categories, it's a relatively stable and resilient business. A considerable amount of used car sales is a structural feature of the economy and household expenditure. And as we've said many times, New Zealand's old fleet drives ongoing churn. Indeed, some drivers of activity are amplified in tougher economic times as people look to buy used rather than new cars or look to downsize what they have tied up in their vehicle. The next few slides summarize just how the benefits of our group structure became evident during COVID. This is what I mean by a real-life stress test of what our strategic review was already telling us. Firstly, Auto Retail. Although COVID impacted consumer confidence in retail in general, we discovered that the resilience of the used vehicle market was real as customers continue to dispose of and renew vehicles either for personal or fleet use, even throughout levels 2, 3 and 4. Our geographical diversification of recent years as well as our high trust brand in this sector both proved their worth. We're building a significant property holding as well that's used within the auto resale sector. The venue of our finance operation was also underscored during COVID. In particular, the work we've done over the past couple of years to improve the quality of the loan book meant that so far during this crisis, we've seen very good performance for arrears. Indeed, as you'll see later, we've actually approached record lows for arrears over recent weeks. And as mentioned, the benefits of the business with annuity earnings at a time of volatility came even more clearly under focus. The strength of our insurance offer was another feature of this period. We have a very strong brand and have improved our distribution with even further opportunities in the future through digital technology. Again, the annuity earnings from insurance renewables were very valuable during lockdown with recurring premiums paid upfront, locking in earnings for the period. We had already identified our credit management business as an area of opportunity, and COVID has further reinforced this. Credit management, aside from being complementary to our other services, tends to be countercyclical and, therefore, a good defensive business in any economic downturn. We have a strong relationship with our debt loaders, and this is also part of the business that can benefit from our digital strategy. We have already seen significant improvements in collections from improvements made in our online offering. What all of this showed us during unprecedented times is that we've built a resilient business group that's robust even in difficult market circumstances. Now turning to what underpins this resilience. The used car market itself, although not immune from economic cycles, is resilient with about 1/4 of the cars in New Zealand turning over each year and hundreds of thousands of cars needing to be replaced over the coming years. We now have a diversified business. As I noted earlier, COVID showed how important this was with our annuity earnings, balancing short-term interruptions in vehicle sales due to COVID levels. This reduces risk and also provides stability in terms of the earnings and dividends. We have high trust brands. In an industry where trust can be found wanting, Turners is a standout brand. This matters to consumers and particularly in times of uncertainty. We've embraced the digital journey, and COVID underscored just how important this is. It's already a competitive advantage, and there's lots more we can do in the future to drive that advantage home. We have a strong and sustainable yield. And finally, we're fortunate to be led by an experienced management team and an experienced Board of Directors. With around 4 million cars registered on New Zealand roads, around 25% of these turn over each year. That's around 1 million vehicles a year that change hands. New Zealand has an aging fleet of cars, around 1 million cars of more than 20 years old, and the scrapping age is dropping due to the cost of repairs and tougher warrants. This means hundreds of thousands of vehicles will need replacing in the coming years, providing a steady structural underpinning for demand. In an economic downturn, consumers often release capital from vehicles, which often can be second biggest investment after their home, by trading down. On the flip side, we've also seen in recent months, with overseas travel forgone due to COVID, some kiwis are also upgrading to new cars and even to luxury cars if their spending allows. Basically, a change of circumstance often results in a change of cars, and hence, dynamic times can support transaction volumes for used cars. We don't mind whether people are trading down or up as long as they're trading. And a lot of the used car market is structural and needs both with buying and selling of cars happening throughout the cycle. An important feature of our diversity is our geographic reach. In an industry of traditionally small local players lacking long-term substantial brands, we have a real opportunity to establish a strong national footprint that let our trusted brands win market share. We benefit from economies of scale in many ways, including marketing, supply chain and funding. Our 37 sites nationwide means we can optimize inventory, and it means we can have flexibility in the event of future regional lockdowns. I've talked about our proven group structure. It provides a purposely diversified business, as this slide shows. As you can see compared to 2017, we now have a better spread of earnings from a range of businesses. There's still lots of opportunity in Auto Retail, and we have stable annuity revenues from finance and insurance. Credit management provides a countercyclical dimension. This reflects in the very deliberate strategy we've been working towards and provides a strong and lower-risk platform from which to pursue future growth. The quality of our brand and the trust these brands enjoy amongst consumers is one of the most important factors in our resilience. Turners is consistently New Zealand's leading Auto Retail brand and was New Zealand's most trusted used car dealer in the 2020 Reader's Digest Trusted Brand award. The fact that we sold 600 vehicles during the Level 4 and Level 3 lockdowns using 100% online sales demonstrates this trust. This ability to sell uninspected vehicles online and at scale offers enormous opportunity. In times of uncertainty when consumer spending is under pressure, occupying a trusted position in our business space is vitally important and offers significant competitive advantage, especially as we advance into the digital space. Todd will talk more about this later, but I wanted to quickly commend the team on its progress this year towards further advancing our digital advantage. We've continued to invest in the infrastructure required to deliver an excellent customer experience in the digital and online environments. We are completely outspending our competitors in this area and, more importantly, delivering tangible business outcomes. As well as being able to provide existing services in this new environment, we've also been able to expand our offerings as shown by the launches of both BuySafe and Turners' car subscription during this time. Our future focus is optimizing our digital marketing and also increasing value from our assets by better understanding of customer data as well as vehicle and technical data. We are moving very quickly and effectively in this space. Our teams achieved a rapid delivery of systems to react to revenue opportunities, competitor activity, regulation changes and innovation. Examples include CashNow developed in just over 3 months, and it was on budget; Turners Live with automated actions for damaged vehicles developed in just over 3 months and also on budget; and extending Auto App Direct, a new direct lending platform to offer white labeling for partners. We've also introduced lots of process automation right across the business to improve productivity, reduce cost and better manage risk. Our resilience is also reflected in our sustainable dividend stream, reflecting our stable underlying business model and strong earnings. We thank you for your patience and understanding when we deferred our Q3 dividend due to the level 4 lockdown, and we were pleased to be able to then announce a final $0.06 per share dividend, which in the circumstance -- in the circumstances, we regard as very reasonable. Subject to underlying business performance, we intend to maintain our current dividend policy of 60% to 70% of net profit after tax in the year ahead. We're pleased with our progress to build a stable, sustainable business that offers reliable earnings and dividend into the future. Clearly, COVID makes the beginning of a new, more challenging business environment. However, our group has the benefit of leadership that's managed these business units through the GFC. So business disruption and tougher economic environments aren't new to us. Be assured, your Board remains extremely vigilant with respect to risks and challenges facing the business as well as areas of opportunity. This was borne out during the most challenging weeks of this year when your Board met regularly and kept in constant communication with our executive team. During this time, our executives went out of their way to make themselves available to both debt and equity holders. In times of challenge, we see it even more important to front up. Finally, the fact that our Board and management collectively hold around 30% of shares in the company means there's a high degree of alignment with shareholder interest. In closing, may I thank shareholders for your ongoing support and interest in the company? We're well advanced in building a high-quality business with a reliable and diversified earnings capable of success throughout the cycle. The quality of our brands and our ability to earn and maintain consumer trust is a key asset. Our diversified business model, including annuity earnings from finance and insurance as well as ongoing demand for used car sales as New Zealand's fleet ages and is renewed, provide risk optimization and robust earnings. And our rapid move to digital right across the business both future-proofs our operations as well as offering new and innovative opportunities. While it's been a challenging year and while we continue to face challenges in the coming months and years, what is happening is that the stress test of COVID demonstrated we're on the right track in terms of strengthening and diversifying our business for the future. I'd now like to invite our CEO, Todd Hunter, to review operations and strategy for each business unit in more detail. Thank you, Todd.

Thanks, Grant. And may I start by thanking the Board and all the directors on behalf of my team for their support and their guidance throughout this exceptional year for the company. And on behalf of the wider Turners team, thank you to you all for being with us today and for continuing to support the company. As Grant has highlighted, although we are in challenging times, there have been a number of silver linings from the cloud of COVID for our company, including the stress testing of our strategy and the opportunities that arise in a disrupted market, particularly as we assured our leadership in the digital and data space. Today, I'm going to spend a small amount of time looking back on the FY '20 year and then get to an update on FY '21 year-to-date by business unit. My focus is on year-to-date, as I know most of you will have looked at our FY '20 results and will be more interested in how we're tracking since April. After my company review, I'll then speak a bit more about some of our digital initiatives before handing back to Grant for the formal business of the meeting. Firstly, on FY '20 results, we had a solid year and, importantly, we delivered in line within guidance. No one had any time to rest on any laurels at the end of the financial year in March, as by then we were in Level 4 lockdown, and our new year began like no other we can remember. This slide summarizes our results, which I'm sure many of you will have already gone through, so I won't dwell here for long. Our ability to deliver an underlying net profit before tax of $28.8 million, up 11% on the previous year and to maintain revenue at $333 million despite COVID starting to impact in the last couple of months in February and particularly in March underscores the solid track the company has been on. We've built up a valuable, resilient, diversified business over recent years, as Grant has already outlined. Looking back on a quick FY '20 summary by business unit. As you'll see in the second column on the slide, in Auto Retail, we continued a 2-pronged strategy of optimizing our network of sites and enhancing our digital presence, which led to gains in market share offsetting a softening used car market. The finance business had an excellent year. This reflects our increasing focus on lending to high-quality borrowers, and we continue to improve our reporting and data analytics and finance and, accordingly, have never had more transparency and control over risk and pricing. Similarly, our insurance business continued improvements in risk pricing and reduction in claims loss ratios. Again, this was enhanced by new software system, in addition to procurement initiatives. Key distribution partnerships have also been crucial in the improved performance. Our Credit Management business was largely flat year-on-year with a small decrease in debt load, offset by improved collections. Credit continues to benefit from integrations into other platforms, most notably Xero and MYOB. Now in terms of what we learned during FY '20, which you'll see in the third column of this slide, the lessons from FY '20 are that our combination of annuity earnings and activity-based sales businesses does indeed provide resilience as shown during an unexpected and thorough stress test. Also, our willingness to both act quickly to improve flexibility on costs and overheads as well as derisking the finance and insurance business pays dividends quite literally. However, these financial initiatives were carefully balanced versus the need to take care of our team. Our recent employee engagement scores give me a sense of pride personally and of our leadership that we did the right thing by our wider team during a very stressful time for all. I'll add further that it's times like this you realize the mutual pragmatism and capability of all of your team. And I can assure you we are very well placed going forward with the talent within the business. It's a very heartfelt thanks for me to all our staff for getting through what is a tough year on the personal front whilst continuing their professionalism at work. It has been an unbelievable effort from you. Many of the changes we worked through in FY '20 have proved vital in dealing with lockdown and our post-lockdown rebuild. Our strategy has put us in a good place -- as good a place as we could be, although there is still more to do, particularly in the digital and data journey. During the year, we discovered the resilience of our business as never before, and this required us to do 3 things. Initially, we had to react. We focused on the safety of staff and customers, rapidly establishing work-from-home arrangements and immediately worked on cost reduction plans. We also kept a tight watch on performance, establishing daily reporting on critical KPIs. We then moved into our rethink phase. We worked closely with funders and other partners and suppliers. We focused on the customer experience, 100% online being the goal wherever we could and contactless delivery. We quickly looked at our cost base and pulled the levers early to position ourselves for what would be a tougher environment. By reacting and rethinking, we were able to rebuild. We have more disciplined cost control right across the business. We have accelerated our digital transformation, and we are moving to seize the opportunity to build market share in all our businesses despite the uncertain times. We really have our eyes on the prize and our heads up for the opportunities that will inevitably present themselves in disruptive and uncertain times. That's all I'm going to say about our FY '20 results, although there will be time for questions, if you do have any, on those results. And as Grant mentioned, you're able to ask those questions at any time via the Lumi platform. In the meantime, the whole world changed in March, and I know your focus, like ours, is now on the business -- how the business is faring in this dynamic environment. As we enter Q2 of this year, we see Auto Retail back to being fully operational with sales stronger than expected, and with our finance, insurance and credit businesses all performing well with strong prospects. Back in early April, we modeled a range of different scenarios for the business. Obviously, given the uncertainty of the time, the range was very wide. However, due to better-than-expected economic conditions, coupled with the business pragmatically controlling what it could control, we are pleased to report that the business has recovered much faster than our best-case scenario planning suggested back in April. Before talking in a bit more detail about each business unit, here is an overview of how we're tracking year-to-date. This graph shows the picture pretty dramatically, charting the group's profit before tax by month year-to-date. From our lows in April, we have, however, recovered quickly and strongly. In Auto Retail, we are back to being fully operational with sales stronger than expected. Meanwhile, car margins have bounced back strongly due to supply constraints. In finance, we are seeing credit quality improve further with our tightened credit policy, and both new lending strong and arrears are performing well. Our insurance business has seen new policy sales recovering and claims tracking below expectations. Our Credit Management business is well positioned as SME debt load builds with larger corporates being cautious about taking [ directions ]. I'll look at the business units in a bit more detail, starting with Auto Retail. As you can see from the graph, we've seen a strong recovery since our April low point. COVID had a temporary impact before a strong rebound in June and July. But naturally, August sales were impacted again by the second lockdown, particularly in Auckland. However, we were much better positioned than some of our competitors given our national footprint, and we were able to move inventory around as required. Finally, vehicle margins have been good. This is a combination of that better demand coupled with supply constraints. The lack of availability of Japanese imports, a function of both Japanese domestic supply constraints, coupled with the structural change due to the new [ EEC ] restrictions that impacts the $8,000 budget segment of the market. This is now being compounded by supply chain challenges in new cars as well. For Auto Retail, a key focus this year is to optimize our network rather than focus just on pure expansion. After a strong period of growth, New Zealand used vehicle market has plateaued. The number of registered dealers continues to decline from a peak in 2017. Our strength is that around half of our stock is sourced locally versus imports, for which margins are stronger. The challenge is to win market share even in a flat or declining market, where even more pressure will be on smaller dealers, and we're confident we can continue to do this. As a reminder, during the GFC, we saw a 15% decline in the number of dealers. In regard to new sites, we intend to be choosy. It's about finding the right sites at the right price. We have a clear view of what works for us after several years of experimentation, and we know that our sweet spot is around 10,000 square meters. This is one of the reasons to exit the flagship Penrose site, which is no longer optimal for the new omnichannel world of car sales. As we do this, though, there's a significant opportunity to improve returns. We are also building up a significant property portfolio, which over time will deliver further capital growth. You can see a photo there of our new Dunedin operation, which opened in May 2020 and is a really good example of our strategy in action. Retail unit sales are up 37% (sic) [ 34% ], August year-to-date, and gross profit per unit is up 27% (sic) [ 43% ]. Our team have been well led through the move and embraced the new branch and the increase in customers that are coming in. In finance, we're building a strong challenger brand in auto finance, and post-lockdown lending has been very good. The quality of our lending continues to increase with premium. It's the best quality risk. Premium business now accounting for more than 50% of our new business each month. Our digital and data push is also evident here with our data-driven risk pricing and 100% digital loan process bringing benefits. Another feature of the period was our working hard with customers also in hardship from lockdown. An initial cohort of around 7% of our customer base were processed for hardship applications. So that's either a payment holiday or reduced payments of some kind during level 4 and the early part of Level 3. We currently have fewer than 1% of our customer base in hardship. As you can clearly see in the left-hand chart, we have undergone a concerted effort to improve the quality of our loan book. That is the lever that we have deliberately engineered and are now reaping the benefits of. As a result, you can now see on the right-hand side, arrears are at all-time lows over recent months. This is despite an environment of substantial economic uncertainty. However, we are always prudent, and you may recall, we booked additional provisioning of $1 million at year-end to allow for the impact of an increase in unemployment rates. Insurance sales rebounded strongly post lockdown, in line with better-than-expected car sales. Our claims loss ratio continues to improve, a combination of better underwriting, new risk pricing and, of course, less driving, meaning less mechanical issues during lockdown. Here, we have a strong focus on digital distribution. For example, we recently directly integrated into Marac Finance's dealer application system and MotorCentral's dealer management system. Our new portfolio management system is providing greater agility in product and pricing, and improved discipline for cost and claims management. This optimization approach is similar to the benefits that we are realizing in the finance business. We have increased the regularity of claims payments to support workshop partners, and this is very important for our workshop partner relationships. Pleasingly, our improved systems and better cost performance as well as sales rebound means our year-to-date profit is significantly ahead of where we were by August 19. In terms of credit management, we know there are emerging opportunities, even though corporate debt recovery remains subdued. Nobody wants to be seen as the bad guy right now. However, as we get further into the cycle and bad debts increase, we anticipate increased activity. Nonperforming debt is expected to build, which ECC is well placed to respond to. We expect this will happen early in 2021. Lockdown has been a good reminder of the value of the annuity payments component of this business which has held up very well. We continue to become more cost-efficient using digital processes, including the Xero/MYOB integration in building digital self-service channels for our dealers. Let me summarize our focus of FY '21 by business unit. In auto, we'll focus on retail optimization while continuing to build the Turners brand on and off-line. In finance, we'll continue to get more efficient and cost-effective through data-driven risk pricing and moving further towards 100% digital loan process and customer experience. In insurance, we'll strengthen our sales integration and distribution partnerships. And in credit, we'll work closely with corporates to manage their reputational risk as the nonperforming debt continues to build and ECCC comes into its own. Overall, we'll continue to focus on looking after our team, better managing inventory levels and continuing our journey into the digital and data space to which I will now turn. As our Director, Martin Berry, outlined at last year's AGM, technology presents a massive opportunity for the Turners Group, whether it be in digitizing key operational processes or back-end processes or unlocking the huge potential in our data assets to better understand and manage our customers. With thanks to the team's strong focus in our investment in these areas over the last 12 months, we were well positioned to deal with the uncertainty that COVID threw upon us, when many of our competitors and even new car dealers were not. I wanted to update you on this as this remains a core focus. This year, I'd like to give you some tangible examples of what our team has already achieved in the digital space and the business outcomes that translates to. Our first example of digital innovation is BuySafe. We're in a position in our auto business to take advantage of our digital assets in ways many of our competitors cannot. As a team, we continue to work hard on building consumer trust and strengthening our overall value proposition to enable customers to buy with confidence. And what has been a huge litmus test for our readiness as a company to embrace what will one day become a digital-first strategy, Turners was able to rapidly roll out its 100% online buying, contactless buying process in the first week of Level 4 lockdown. Without our team's efforts to build for the future, this simply would not have been possible. BuySafe includes a 5-day money back guarantee, developed in consultation with our vendors that now applies to all retail vehicles sold to consumers, creating yet another point of difference in the market for Turners. Consultants are trained to provide virtual inspections of vehicles, and customers can purchase online and then obtain the vehicle via contactless handover at branch or at home. In fact, we had a really good example of this in Whangarei during Level 4, with a doctor who needed a second vehicle for his family as he was required to travel to Auckland, and that was all transacted online with a contactless handover at the branch. We used this during April 2020 and had achieved 20% market share that month. Since then, most people have reverted to more traditional modes of purchasing, but it remains another option for people and a proven solution if we do have further lockdowns. Our second example of digital innovation is how we are using data to optimize pricing for cars we are purchasing, the objective being to improve the margins that we make on the cars that we own. In FY '20, we sold nearly 15,000 cars that we had purchased locally, of which just under 26% were sold at a loss. So we lost money on 1 in 4 cars. That total loss equating to just under $3 million. Would point out that the 3 out of 4 cars we did sell for a profit, we made about $10 million. A proof-of-concept has been developed using cloud-based AI and machine learning technology to build a vehicle profitability production model. Using historical sales data, we have been able to build a model and predict the likelihood that a car will make a profit at the price the Turners' buyer is considering paying. The model is now being developed for production and will be implemented into the pricing tool our car buyers use in early 2021. If the probability prediction is low, it will warn the consultant via the CashNow app as a traffic light system and provide a profitable price range. The red-lighted cars would need to be approved by a more senior buyer before we progress the offer. Our target is to be able to reduce total loss cars to below 20%, thus, with a potential to save hundreds of thousands of dollars. We continue to work on other data and tech initiatives to hone and improve our buying, which is a critical discipline in the business. Our third example of digital innovation is our customer data platform. We can also use data to better understand our customers and improve our service and communication with them. Most of the 100,000 people who visit turners.co.nz each month remain anonymous. Around 10% to 12% would fill in some kind of application for finance, booking a test drive or booking a valuation for their car. The rest, around 90%, we don't really understand whether these customers are coming to Turners to buy, to sell, to trade in or what their specific needs are. By implementing a customer data platform, we can deploy marketing automation, which means we can communicate faster and in a more relevant way with our customers. This will improve conversion rates and improve customer satisfaction by delivering customers what they need and when they need it. At the same time, we expect to significantly reduce our own customer acquisition and retention costs. We expect the results to be a big step towards creating a true omnichannel experience for our customers, leading to improved customer experience, improved lead generation and conversion, and improved customer life cycle engagement. This is a substantial opportunity to grow our business and reduce cost. The example on the slide are those people that do not book a time when they go through the process of a vehicle valuation and appraisal, and they will then get an e-mail inviting them to book or to call our contact center almost within an hour of that process finishing, and that is all automated. The fourth example is our 100% online loan sign-up process, another really good example of our efforts to digitalize our processes and provide a better customer experience. We launched the loan origination process in July, and it is now possible to complete all the paperwork remotely which previously has been very challenging. Impressively, since launching in late July, we have seen 40% of loans using this service. This really does demonstrate the utility of the solution, and naturally, we've had excellent feedback from users and originators. Our final example of digital innovation is Turners subscription. This is our monthly car subscription that customers can start or stop to suit their lifestyle. Showing our commitment to build for the long term and embrace potential risks and opportunities for our business, we are really pleased to be launching Turners subscription service. Personally, I'm very proud of this one as it shows how future-focused we are as a group, even though -- even through challenging times, and that we are willing to be an early mover or embracing potential changes to consumer behavior. It is going to be interesting to see the uptake of subscription during a massive upheaval for New Zealand as the product is well suited to customers who are undergoing change. We believe this can be a helpful product to navigate short- to medium-term arrangements for transport, and particularly, if people want to temporarily switch out of using public transport. As you may recall, this is a white label product, and we have a 10% stake in Collaborate Corporation in Australia, the technology provider. This is an example of our willingness we're suitable to use a partnership strategy and to embrace a disruptive position to generate innovation. I hope that provides an overview of our digital and data journey, which is producing really exciting opportunities for the business. Again, we see this as a key point of competitive advantage given the fragmented nature of the auto retail industry in particular, an area in which our competitors struggle to keep up. We are determined to extend our advantage this year when others are cutting back. And accordingly, our digital budget was ring-fenced and protected when we went through the cost rationalization exercise earlier in the year. Let me now turn to the outlook for the year ahead. As Grant said, it has been an extremely challenging start to the year. But after the lows of April and May -- probably actually take that back to March, April and May, the business has responded strongly and rebounded well. As everyone is aware, there is still uncertainty about the environment, but there are some signs that the downturn in the domestic economy hasn't been as bad as first feared. And in this regard, we are fortunate that our exposure is to this domestic market rather than international tourism or other markets. We are yet to see the full effects of the economic slowdown flow through. However, the business has momentum, and this is providing some optimism about H2. We are targeting FY '21 net profit before tax to be in the range of $28 million to $31 million. Please note, this is conditional upon no further substantive lockdowns occurring before year-end. The indicative full year dividend at this level of net profit before tax would be a fully imputed $0.17 per share-based on the current policy. Directors have declared a Q1 dividend of $0.04 per share, which will be payable in late October. And this is a good time to remind everyone that our dividends are paid quarterly. What is also clear to us is that there is enormous opportunity for our business during this time of disruption and uncertainty. We will continue to invest in building out our competitive advantage in all parts of our business and in helping to deliver a quality business for our customers and our shareholders. I would like to thank our team right around New Zealand and Australia for their support and commitment. I feel very proud to be part of such a passionate and dedicated group of people. Thank you very much for your attention, and I'll now hand back to Grant with the business of the meeting.

Thanks very much, Todd. Now checking with the question moderator if there are any questions on the resolutions as we come to them. But in the meantime, are there any questions on the presentation or the results?

That's all right. Refresh my screen. Sorry. Okay. First question. How many years will this car subscription business need to become a profitable scale? So I think that's [indiscernible] how successful it is really and how much uptake there is, but I don't know if you've got any further comment on that, Todd?

I mean I'd just say that, really, it's going to depend on the demand. I mean the good thing is we're in a fortunate position that we have access to a large number of cars across the country. We're starting at a relatively modest number, and we'll grow from here. But we are being careful around the amount that we're going to invest. But we're confident that we -- based on the feedback that we've had from customers and what we're seeing in Australia, that there will be a good level of uptake.

Second question, what is the break -- if I put this up here. What is the breakdown of Turners' own unit sales and the consignment unit sales in fiscal year '20? And what is the outlook for FY '21?

The breakdown in FY '20 was roughly 1/2. So 1/2 owned, 1/2 consigned. I think the outlook for FY '21, at this point, it would probably be around the same. The balance may tilt slightly more towards consignment than owned. We'll just have to sort of see how that plays out.

Roughly 50-50?

Roughly 50-50.

Yes. All right. Another question. I think this might be good one for you, Aaron. With the $13.8 million operating profit in the Auto Retail business in FY '20, it seems the TrueCar sales profit was well below $10 million, actually, $7.4 million, if I'm correct, after deducting insurance commission and loan fee income. Can you please explain the profit compositions and key profit growth dynamics going forward within the Auto Retail sector?

Sure. So the way the Auto Retail business makes money is that we -- if we're selling a car on consignment, we take a commission from the vendor and a buyer's fee from the buyer. If we're selling a car that we owned, we charge ourselves similar internal fees, but also because we're at risk with that vehicle, we make a margin on that vehicle. So the combination of those consignment selling fees and the margins that we make on the 50% of cars that we sell that we owned account for roughly 50% of Auto Retail's profits. There has been a significant upsell opportunity in terms of selling finance to buyers who need to finance the purchase in a flexible way and to people who want to protect themselves against potential future mechanical issues or issues repaying loans. So there's a significant profit component in all auto retail businesses associated with finance and insurance. And the opportunity that we see ahead of us is to switch more sales out of wholesale and into those retail channels to give us more finance and insurance sale opportunities. And the balance of profit in Auto Retail comes from the damaged vehicle business, which is where we sell damaged cars on behalf of insurers largely. So that we have quite a significant business around the country and around about 1/2 of that market selling insurance write-off vehicles. So that's around 15% of Auto Retail revenues, and the remaining 15% comes from trucks and machinery sales. So again, typically, that's consignment sales, so we have a fee structure income through that business. And periodically, we might buy low-value items of plant or trucks to resell, but there would be a 95% consignment business, so fee structure business.

Thanks, Aaron. And the last question here so far. And I'll pass this one on to you, Todd, because I know it's something you've done a lot of work on. But how are you gaining assurance that your diverse digital platforms are and will remain secure from cyberattacks?

Well, it's an area that we have been very focused on for a number of years. And we've certainly seen a lift in sort of activity in that area. We're fortunate to have some very, very capable people on the team here who have ensured that we have all the necessary protections in place and support from some very good partners as well. I mean you may have seen in one of Grant's slides that we've got a big project underway right now to invest in an off-site data center that gives us redundancy across 2 different sites. And it's a few that kind of [ plank ] in our protection strategy. So we feel we're in a good position, touching the wood here, but we are constantly reviewing it and making sure that we're staying up to date with all the layers of protection that we need.

All right. Thank you, Todd. All right, that's the last of the questions. So talk to you about the voting process for the formal part of the meeting. So a quick reminder, again, about the online voting process. As we move through these resolutions, if you're eligible to vote at the meeting, a polling icon will appear. You can see the icon near the middle of my slide. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There's no need to hit a submit or enter button as the vote is automatically recorded. Please submit your votes anytime, and I'll give you a final warning before I move to close the voting. I'd like now to move to the resolutions before the meeting. These were notified in the notice of meeting and explanatory notes have been provided. Only shareholders, proxy holders or corporate representatives of a shareholder may vote on today's resolutions. There are 3 resolutions before the meeting today. First resolution is that Baker Tilly Staples Rodway be reappointed as auditors of the company and that the directors be authorized to fix the auditors' remuneration; resolution 2 is that John Roberts, who retires by rotation and has offered himself for reelection be reelected as a Director of the company; and Resolution 3 that Matthew Harrison, who retires by rotation and has offered himself for reelection, be reelected as a Director of the company. If you have any questions in regard to these resolutions, please send them in now. In the meantime, I'll invite John Roberts and Matthew Harrison to speak to the meeting in support of their reelection. Let's start with John, and then move to Matt. So John, you ready?

Thank you, Grant. Yes. Good morning, everybody. My name is John Roberts, and I have been an Independent Director with the Turners Automotive Group now for the past 5 years. I'm also a Director of DPL Insurance, Chair of the Audit Committee for both companies, and sit on the credit and lending committee for Oxford Finance that was chaired by my colleague Matt to my right. Involvement with this company, to be honest, has been nothing short, in my personal view, of brilliant. Being part of the organization and having the ability to work alongside my co-directors and the executives to help shape the strategic direction of the company and thus observe the corresponding growth has been a great privilege and a very rewarding experience. I've also been able to bring my 30-odd years of experience in credit and risk management and communications to the table to add value in such areas and insights with the migration of the finance company's loan application process to comprehensive credit reporting, which, as Todd explained, has greatly streamlined our loan application process for both wholesale and retail customers and dramatically improved our risk profile for the type of loans we're approving. I've also been involved in brand building discussions around many of our business units on how we can improve our brand positioning, presentation and engagement with our many customers. Outside of Turners, I'm also Vice Chair of the Centrix Group, who is New Zealand's leading credit reporting agency. This could be very close to what's happening in the banking and finance sector and enables us to leverage early insights into our thinking for the finance and insurance business. I am personally a shareholder in Turners and firmly believe that my interest in this company are reliant of those of our shareholders. I'd really like to continue this journey with Turners and would appreciate your support to enable this. Thank you.

Thank you, John. And Matthew?

Thanks, Grant. Firstly, just like to say good morning to everyone. It is a -- sorry, camera 1 over here. It is a strange time doing COVID meetings. Obviously, talking to a camera is part of that. My name is Matthew Harrison, and I've very proudly been a member of the Dorchester and now the Turners Board since 2012. I came to the Board after I sold my business EC Credit Control to the Dorchester Group. Look, I'm deeply passionate about the Turners business and the various business units. I have a passion for cars as some people would know and certainly enjoy that side of the Turners business, but also thoroughly enjoy the EC Credit side of the business, which obviously I have a lot of experience with finance and insurance. I like to think I've got a pretty good operational understanding of each of those units. I'm currently Chairman of the Lending and Credit Committee, and I simply enjoy my role with that committee. And I believe that we have successfully guided our ship through the very rough waters of COVID over the last few months, and certainly, the sort of record low arrears that we currently have, I think, is a good sign of that. I think that business is very well placed moving to the future and the changes that we've made with credit scores and so on has certainly proven its worth. I also sit on the advisory boards for Turners Certified and EC Credit Control, which I very much enjoy. That, obviously, involves regular meetings with the senior management team here at Turners and DC. And I think I do add some value to those boards as well. Being quite a large shareholder in the business, both representing myself and family members, I certainly believe that my interests are aligned with all shareholders of the business. We, obviously, are trying to maximize our profit and dividend growth and, as a Board, that's what we've been doing and, certainly, that's what my focus is. I'd like to think I add value to the Board as a whole and look forward to your support in today's voting. Thank you.

All right. Thank you, Matthew. So now is the time to ask any questions you want to ask online. So far, we have none, but we'll just give you a minute or 2 to do that and move to finalizing the meeting.

Can we keep going, Grant?

Yes. My notes say wait for 60 seconds, but if something comes through, we'll come back to this. Moving on to the proxy votes, many shareholders who are not attending this meeting have voted by proxy. I wish to advise that proxies have been received are 32,491,209 shares, being 38% of the total shares on issue. Ladies and gentlemen, that concludes our discussion on the items of business. In a couple of minutes, I will close the voting system. Please ensure that you've cast your vote on all resolutions. I'll now pause to allow you time to finalize those votes. In the meantime, let me check if there's any final questions that we can deal with while we are waiting for the final minute of voting. [Voting]

There no more questions, but we'll give it 60 seconds. All right. It's a shorter 60 seconds, but I'll say voting is now closed. And the result of these votes will be released to the stock exchange later today. That brings the formal part of the meeting to a close. Therefore, I call the 2020 annual meeting of shareholders closed. Thanks for your attendance today and thanks, again, for your patience in participating in an online meeting. I hope it's not too long before we can, once again, meet face-to-face and share some savories. In the meantime, we continue to work hard to ensure your company continues to grow and develop its potential. Good afternoon to you all. Thank you.