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

Good morning, everyone. Welcome, and thanks for taking the time to join the call today to join Aaron Saunders, Group CFO; and myself, Todd Hunter. So today, we'll go through the full year results, and then we'll open up the call for Q&A at the end. [Operator Instructions] Today, we'll go through the FY '22 results. The segment results and then talk a little bit about what's looking forward. But we're really pleased with the year that we've just completed. It's another record result for the business. Our track record is showing, I think, just how robust our business model is, and we are ready for what's next. We've had another really strong year of growth with 15% growth in profit before tax in FY '22. If we go back to FY '19, which is we really started a number of our key strategic initiatives. We've grown profits organically 48%. A retail optimization is working, branch expansion plans are delivering results and our derisking by focusing on quality and finance insurance has positioned us well, and our investments in digital are paying off. I mean clearly, there are New Zealand and global economic challenges over the next 12 to 24 months, but we still see opportunities to grow our auto and retail market share in particular. We're thinking about the challenges that might come at us, and we're acting already. Pleasingly, FY '23 started positively and despite still being impacted by omicron, our April 22 results are ahead of April '21. This slide is designed to show the progress that we've made in a number of critical areas over the last 3 years. Our retail momentum has gained traction as can be seen through our auto retail market share numbers. But the thing that this enables us growth in finance conversions, margins and units sold that we own. The improvements in the quality of our loan book are very obvious as are the changes we've made to our insurance pricing and claims management. The focus on these metrics is what is driving the much-improved outcome for shareholders, demonstrated through the EPS numbers and the dividends paid. On to the overview, net profit before tax is up 15% and what has again been a year impacted by Delta lockdowns and the impact of omicron. Used vehicle supply has certainly eased up since FY '21, but overall remains below historic supply levels. Consumer demand was better than expected during the Level 3 lockdowns last year but worse than expected in the Omicron outbreak. We've continued to make gains in margin and market share in auto, and our geographic and earnings diversification have delivered again. It's always interesting to reflect on the progress over a slightly longer time period in the last 12 months. We do get quite caught up in the week. Let's just go over the month that's just gone. But we are really pleased with our progress, and I'm really proud of that track record of continuing to deliver for our shareholders. These are exactly the type of growth that we want to share with investors in our business. On the used car market, overall used car transaction levels have tracked well below pre-pandemic levels. So you can see here on the graph on the top left the last few calendar years marked out there. We're still expecting a supply-constrained market for the next few years due to the impact of semiconductors, disruption to material supply and the impact of government regulation. Registered dealer numbers are at the lowest point in the last 5 years, down 14% from the peak in 2017, and we are expecting this to track down further, mainly due to the challenges in supply and the impact of government regulation. No doubt, there will be a few questions about EVs and hybrids. Our Turners subscription offering, which is where we are investing in EVs in hybrids, has gained the momentum. We now have more than 100 cars out concurrently on subscription, nearly half of these vehicles, EVs or hybrids. We believe subscription can provide an important role in helping to improve access to EVs and make it cost effective for consumers to try before they buy. EV and hybrid sales, as you can see from the graph, continue to grow through our auto retail network, but obviously subject to some supply constraints. The focus of our ESG strategy FY '22 is deliberately focused on the social aspect, with the obvious focus on our customers and staff safety during the lockdowns. Our employee engagement results have been a priority, particularly given the wider pressure and the economy on retention and recruitment. We've introduced customer experience measures across all parts of the business as part of our good customer outcomes focus. And we've also successfully dealt with over 2,000 COVID hardship accounts. It successfully rehabilitated all, but a handful of these. Just a few comments on the FY '22 results before we go into the divisional breakdowns. EBIT is up 11% to $47.7 million. Net profit after tax of $31.3 million is up 16% on the same period last year, and underlying net profit before tax was up 29% to $4.1 million. Earnings per share for FY '22 were $0.364 cents per share, up 16% on the same previous year. And directors have declared a further $0.07 per share dividend for the final payment, which is payable in July, and takes FY '22 dividends to $0.23 per share, and this reflects the dividend policy to payout ratio of 60% to 70% of net profit after tax. Although the year was still disrupted, revenue was up 14% to $345 million with auto retail being the major contributor with new branches and more owned stock flowing through that business. The net profit before tax bridge demonstrates the benefits of the group's resilience and reduced earnings. Profit rose in each of the 3 largest businesses, representing 94% of divisional operating profit. Profit grew 26% in insurance, 14% in finance and 23% in auto and retail. Credit management business was down on last year's result as consumer arrears track down, and clients issued no communication instructions to defaulters during the lockdown. There were a number of one-off COVID-related impacts to profit over the year. Underlying earnings have increased from around $34 million in FY '21 to over $44 million in FY '22, an increase of 29%. And as mentioned earlier, given the strong performance over the year, directors have increased final dividend to $0.07 per share. And based on the current share price, this gives a very attractive gross yield of more than 8% per annum. The notable balance sheet changes from last year are the growth in Oxford receivables and the corresponding increase in borrowings and the acquisition and development of the Rotorua and Nelson retail sites. Inventory levels have remained stable as we improved processing times and overall turn. Things to note in funding is that we have repaid our corporate bond with a new lower-cost term loan from ASP during the year. We've also commenced the process to term out our securitization warehouse to third-party funders, and we're targeting a transaction in the first half of this financial year. I also like to remind shareholders that more than 80% of our borrowing relates to the finance receivables in Oxford. The 3 core businesses of auto retail, finance and insurance have all been able to build market share, improve their customer experience and have delivered double-digit growth in earnings. Meanwhile, credit management continues to be challenged by historically low market-wide consumer arrears. Although in the latter part of FY '22 and the beginning of FY '23, we have seen this start to change. Auto retail has been both a margin and market share growth story. Gross margins on owned fleet have continued to improve up over 8% in FY '22 over FY '21. And this is due to a number of buying improvement initiatives, more retail sales and constrained supply of used cars initiative. Our market share has grown off the back of our retail optimization and expansion strategy with retail sales up 6% on the prior year. And of course, this has improved our retail market share. We launched a new branch in Rotorua during the year and redeveloping the site and developing a brand-new site in Nelson as well. We've also secured new sites in Timaru and Napier and are working on further opportunities as we speak. Sourcing of vehicles in the local market has been a top priority. And our investment in the very popular Tina from Turners brand campaign has helped build our inventory of locally owned cars with owned inventory sales up 25% on FY '21. Another goal, as you've heard about from us previously, is to increase our finance conversion rate. And this further realize the synergies of our related businesses. Despite the disruption caused by the CCCFA changes in December '21, we have improved our finance conversion rate to just under 33% from 30.6% last year. Our property portfolio is continuing to grow as well. With the sites we have under development plus new sites we have committed to, portfolio was just under $100 million. I think importantly, for shareholders, substantial unrecognized gains on this portfolio of around $19 million, adding further value for shareholders. We have a number of new opportunities in play right now and look forward to updating you on those when we can. Just a couple of quick updates on Rotorua and Nelson. So if you do remember now Rotorua is a 7,500 square meter site Berry Springs Road. So we're mid development at the moment. So see the photo on the left is the concept drawing, and the photo on the right is development taken from a week or so ago. So we should be fully operational there by the beginning of October, and project is on budget and on time, which is fantastic. Nelson is also coming along really well. So we own a 6,000 square meter site there. And again, we should be fully operational there by October. And key staff and stock are in the process of being secured at the moment and very much looking forward to seeing the site open down there. Just moving on to finance. Our risk pricing model focus on premium borrowers has been very successful over the last few years, but particularly the last 12 months with our loan book growing 28% to $423 million. Premium borrower lending now accounts for well over 50% of our monthly lending, and we were pleased with how the Oxford business navigated the December '21 CCCFA changes. Arrears continue to track down at historically low levels. However, the business is still retaining at year-end COVID-19 arrears provision buffer to allow for any further degradation in relation to COVID. This slide highlights the continued growth in our premium borrower segment and how this has positively impacted the average credit score, as you can see on the right-hand graph. We've continued to review and tighten our credit policy over the last 3 years with the most recent change in December '21. Whilst market-wide arrears have been low. These structural improvements to our loan book will benefit us in a potentially challenging economic environment as well. In regard to pricing, we've been very proactive in regard to the base pricing that we see in the market. Our strategy is to proactively reviewed pricing to mitigate the impact and ensure we are well placed to grow with interest rates stabilize. We are currently tracking slightly ahead of the OCR in terms of overall movement, but we do expect net interest margin to reduce over the next 12 months as we manage the tension between market share and margin and absorb the cost of restructuring our wholesale lending from BNZ to third-party funders and this is to set us up for future growth. In insurance, we've seen strong market share gains in our digital distribution agreements that helped drive strong policy sales with gross written premium up 6% on FY '21 despite the impact of the lockdown periods. Our digital distribution arrangements are working well with MTF, Marac Finance and Motorcentral, all using the Autosure API, and there is a good pipeline of these opportunities ahead. Claims costs are down 1.2% on FY '21. However, parts price inflation and labor rate increases are offsetting our own parts procurement initiatives and less vehicle movements that we've seen in the lockdown periods. The credit management business continues to have low debt load levels due to the historically low consumer arrears and corporates working back into recovery action post pandemic. Debt load in FY '22 is down 54% on pre-pandemic levels, which gives you some indication of just the material shift in the market. And unsurprisingly, debt collected is down 35%. This is a significant hit to the credit management revenues. Although debt load is down, we are seeing positive signs in debt recovery rates due to the new resolutions connection strategy that was implemented during FY '21 and '22. Also, the payment arrangement commitments are being met more often under this new resolution collection strategy. But the economic environment expected to deteriorate, we expect debt load levels to increase as a result. Our company continues to extend its competitive moat and build scale. As we head into an economic environment that will offer different challenges and opportunities, the business has already been significantly derisked. The work we have done on local sourcing of vehicles, building quality into the finance book, adding distribution to insurance means the business is positioned to withstand or potentially take advantage of some of these changing conditions. Furthermore, one of the most attractive aspects of the used car market as it is a needs-based purchase and therefore, more resilient and less affected by economic conditions. There are challenges on the horizon, however. And whilst the pandemic uncertainty has decreased, New Zealand's economic uncertainty has increased. And there are a few potential challenges on the horizon. We thought it was worthwhile calling these out as well as what we have already started doing to mitigate the impact and what we still have to do. The challenges largely center around the rapid increase in interest rates and inflation, the supply chain challenges, recruitment and retention of people and the regulatory environment. Why we want to reassure you is we understand the issues, we've already taken action, and we are well placed to minimize their impact. In the short term, these are our key work streams to support growth in auto retail, stock acquisition and improving our speed to sale will unlock through the growth. And finance, it is continuing to target premium lending and manage margins and pricing closely. In insurance, we continue to expand our digital distribution. And in credit management is about reaching more SMEs by improving our lead generation capability. These areas remain our key focus in the medium term, and we know these things. These focus areas have been working for us. Retail optimization and branch expansion in auto and vehicle purchasing and decision-making around supply. Margin management and focus on premium lending and finance and continuing to invest in digital initiatives and build out our omnichannel customer experience. We're very pleased with the progress we've made against our $45 million target by FY '24. And if it wasn't for lockdowns and omicron, we believe, this target would have been achieved this year. Like many others, we are expecting the broader economic environment to moderate the rate of growth we have experienced over the last 3 years. And we have updated our 3-year roadmap, which now has us targeting to be above $50 million of pretax profit in FY '25. The main growth engine will come out of auto retail with modest growth from finance, insurance and credit management. Auto retail growth continues to come from our retail optimization strategy and branch expansion. We feel we have a clear pathway to 10% market share. Headwinds in finance are offset by growth driven out of direct lending and improvements in distribution. Insurance growth will come from direct and digital distribution. And like last year, this gives some indication of what the growth pathway looks like, which we think is useful for shareholders. Finishing up with the outlook. Despite the Omicron impact still being felt, year's starting well. April '22 results are ahead April '21. The uncertainty still exists though. In auto retail, we expect to see upside from our new branches in the second half and the supply-constrained market to continue primarily due to the impacts of the new car supply chain and government regulation. With the rapidly changing interest rate environment, our priority in finance shifts to margin management. In insurance, we expect new policy sales to be buoyant based on our distribution and market share gains and claims ratios to stabilize. Lastly, in credit management levels of bad debt recovery are slowly starting to build. We are confident that we have good growth prospects in auto retail and insurance. Finance margins will be impacted in the short term as we deal with the rapidly changing interest rate environment. And credit management is expected to perform better as the economic conditions worsen and the resultant impact on consumer arrears. Before we finish, we'd like to acknowledge the efforts of our team, from our Board of Directors and the operational teams who deliver day in and day out for our shareholders and for our customers. This group of people has been totally committed and prepared to go above and beyond. And we're very lucky to have such a talented and hard-working group of people in this business. Looking beyond FY '23, we remain confident about the growth over the medium to longer term, and we've updated the 3-year rolling target to have the business crossing over $50 million of profit before tax by FY '25. Overall, we are ready for what's next. And I think the business is in the best shape it has ever been. We'll now open up for questions. So if you raise your hand or just type into the Q&A, we'll handle it that way.

Okay. Richard has asked a couple of questions, actually. So what effect will the government's plan to subsidize EV purchases for low-income households by leaving them scrap the petrol cars have on Turners. Well, I would say that is a positive thing for our business. As you heard and I talked about before, there is a massive cohort of cars in the New Zealand vehicle fleet, which are effectively at the end of the economic life. So anything that encourages those cars to leave the fleet and be replaced with lower emitting cars is a good thing. And it's a good thing for our business because our business is based on June. I mean we think we've got a role to play in helping transition the fleet into EVs and hybrids, but really, we are largely ambivalent about what people are demanding. So we will source those cars and hopefully, they create an opportunity for us to sell them a new one. But also, we are working with the government around what we can do to help take those cars out of the fleet as well. So we have a business that we largely operate for the insurance companies here in New Zealand, where we sell their damage and end-of-life vehicles through 2 parts to [indiscernible] vehicles. And so there's a role for us to play in helping ensure that those cars don't end up back on the roads of New Zealand as well. So overall pleasant. Few questions from Richard. Is there a risk that other state decisions by government could leave to us with a large number of ICE vehicles that they are unable to sell due to a push to remove ICE cars from the road in order to reduce emissions targets. Do you want to answer that? Aaron?

Yes. I think that the government's plan has been reasonably well signaled and then is to progressively clean up the fleet from an emissions point of view. So really, I see the targeting cars entering the country rather than cars that are already in the country. And that kind of makes sense, both from an economic and a political standpoint because the manufacturer vehicles be that EVs or ICE cars essentially accounts for 40% to 50% of their lifetime carbon emission. So it has probably been able to use up what we've got rather than to perhaps bring in more in higher emitting vehicles, and that seems to be the strategy that the government is following.

And I think it's fair to say, Aaron, this fleet transition is going to take quite a long time. So the risk of us being kind of given the Turners' stock so quickly, there's actually zero risk of us facing some seismic shift in the market. So I think the answer to that question is there is no risk, Richard, around that. And will the low supply of affordable EVs mean that there will still be strong demand for ICE vehicles over the next few years. And I think kind of that last question answers the second question at some level. And it's very difficult to supply affordable EVs near mutually none of these cars being sold in Japan, many more hybrids, but very, very few EVs, and that is the main source for us of sort of new used EVs into the country. So yes, my expectation is that ICE cars will still be a part of the mix in hybrids for many, many years into the future at this stage. Just continuing on here on the questions. Question from [ Rory ]. How much of Oxford receivables are derived from Turners Auto customers versus external dealership customers? So that's about 20% for the Turners Auto retail network and 80% from third-party dealers and brokers, Rory. And what sort of growth are you expecting from Oxford from external dealerships? Do you want to answer that?

Yes. I mean I don't anticipate that ratio will change materially over the next few years. We are sort of targeting our focus on that direct business, but that will be a slow build. And I would expect that the growth probably moderates a little from what we've experienced over the last couple of years in terms of the portfolio simply because of the portfolio effect of a higher base of receivables means you get higher repayments and therefore, need to lean more to continue to grow. But essentially, I don't see a material shift, maybe the amount of business we sourced internally through the group or directly to existing customers goes to 25%, up from 20%, but that's probably the difference we're talking about.

Okay. Just moving on. [ Kieran ] has asked a question while the used car market seems to be fairly volatile in the new car market through periods of economic downturn, it does seem to decline to some extent as discretionary spending dries up. Do you expect this to be the case for the auto retail book through FY '23 and FY '24. And have you seen any change in vehicle leads recently, now we are past the peak of the Omicron outbreak. Okay. So I think there's a couple of things going on, Kieran. Yes, you're right. It does seem to come off a bit. Certainly, nowhere near the levels of the new car market. What we find through our business is that the demand is still there, but the price point that people are looking at comes down as they look for vehicles that they can fit into their own cost of living on situation in scenario. So yes, our expectation would be that demand for higher-priced vehicles will come off, but demand for less expensive vehicles will probably build. And so we think a lot about that in terms of the sort of stock that we target to buy in the business. The other point that I would make is that roughly 40% to 50% of our business is on consignment. So from a big lease companies and government departments. And those vendors have to meet the market. So that is a good thing in terms of, one, it's not our working capital tied up in that stock. But two, they are the ones that are having to meet the market. And they do have sort of time to sale kind of KPIs and things. So we typically find that being in that space to meet the market quite quickly. Another question from Kieran. Commented on the presentation that EVs and hybrids now make up around 4.5% of your overall auto sales. And obviously, this will be expected to grow going forward as consumers are incentivized to makeshift. Are you able to add any color around the average selling price of these secondhand vehicles, while the demand looks like from consumers and any changes you are making to insurance policies to account for the risk of battery replacement in these vehicles? Do you want to answer that one?

Yes. So starting with the battery question. Typically, batteries don't fail, they just wear out. So you use them up essentially. And we don't ensure for wear and tear or something being used up. So we do take a risk in terms of an absolute failure, but we also have implemented some reasonably conservative policy limits, which protect us in that sort of rare event. Typically, I mean there's 2 sources for us. In particular, for hybrids, we do bring in some cars from Japan still. And increasingly, those are your smaller hybrid-type vehicles. The Japanese went down a hybrid development path rather than an EV development path. And so there's an element of them now the Japanese manufacturers playing catch up. But essentially, there's a reasonably significant installed base of hybrids in Japan and a very, very small base of EVs. So the cars that we import are in that $10,000 to $15,000 range. The other hybrids and EVs that we get are your ex corporate lease vehicle, which will come off the fleet between 3 and 40 years old. I know that's definitely more expensive. So those will be in that sort of $15,000 to $30,000 range. But we get a reasonable mix out of our own sourcing initiatives out of Japan and locally and of the newer stuff from the big lease company as a government department. So corporates and the government have a big part to play in this fleet transition, in that they -- we expect that they will increasingly pivot their fleets towards EVs or certainly towards hybrids and EVs. And when those units come to market in 3 or 4 years' time, they will enable us to essentially significantly boost the proportion of those vehicles that we sell. But to some extent, we have an opinion on what we get back from those large fleets as well as what we can source either locally or [indiscernible]. Is is clear?

Yes, that's great. Other question here from Kieran. Tax rates and finance have increased from FY '21, but are down from the 36% number at the half year. What initiatives do you currently have in place or increasing attachment rates in the finance book? And how do you see attachment rates tracking through FY '23? Yes, that's spot on here in terms of the impact from half 1 to half 2. And really that is just simply about the impact of the CCCFA changes, particularly around the way that affordability is assist. And I'd put it simply there has just been an adjustment period as we -- as those new regulations have been implemented because essentially, borrowers were being assisted on the bank statements and affordability prior to the loan when most people would simply adjust a level of discretionary spending after the loan has been taken out. So yes, our expectation, I mean -- also just to give you a bit more color around that. Attachment rates kind of post December 1 change dropped to between sort of 20% to 25% immediately after and then have just slowly kind of built back up to just over 30% now. So yes, I think our expectation is that we would see those slightly improving through the year would be our assumption.

Yes. There's 2 things going on as the people will modify their behavior and become more comfortable providing more information to enable them to borrow in that vehicle, but that takes a little bit of time. But also the government has committed to reviewing the impacts of that legislation just to ensure that the unintended consequences perhaps are rounded back.

Just another question from Kieran. In Oxford Finance, the equity to total assets ratio was 23% in FY '21. Given you have significant book growth, where does the ratio currently sit? And do you expect that you'll need to raise equity at any stage to continue growing the book?

So the answer to that is no. That's not part of our plan. We plan to be able to fund this growth organically through retained profits, but also initiatives that essentially mean we can be more efficient in our deployment of capital in Oxford. So there's no planned or anticipated equity raise to support further growth in Oxford. We believe we'll be able to do it organically.

Thank you for your comments, Roger. And a question as well, have you locked in Tina under a long-term contract. And the answer to that is yes, we have. So Tina has been an incredible success for us. Just amazing connection to you both internally in the business and obviously, externally as well. We have many, many people wanting to book appointments for when Tina is working and what they would like here to [ book a CECU ] car and buy the car of them. But yes, she has done a great job, and we have recognized that and differently locked her in. Just another question around what's driving the fall and registered dealers, is this a continuing trend? And how does this impact tuners in the future? Do you want to take that one?

Yes. I think predominantly, supply has become and will probably become more difficult in the future. So essentially, a lot of small dealers' source all of their inventory out of Japan, and it has become harder to get vehicles out of Japan due to changing regulations here, but also supply chain disruption reducing new car sales in Japan through the pandemic. There's just a whole bunch of things that have made it much harder to be a small kind of corner store type of car dealer in New Zealand. And our kind of analysis a few years back suggested that we were over deal-ed compared to perhaps other markets such as Australia and North America, and that's proven to be the case. And we would expect to see more and more of those smaller dealers exit the market over the next sort of 3 to 5 years.

Okay. That has come to the end of the questions that we've seen in the Q&A. Anything else, people would like to cover off now is the time. Just give it a couple of more seconds and see if there's any other questions to come in. Okay. It looks like -- okay, a couple of final questions here. From [ Holly ], a number of manufacturers are shifting from a franchise to an agency sales model. Do you anticipate any impact from this on Turners as a result of traditional dealerships possibly pivoting towards the used car market? Short answer is no, Holly. Toyota have implemented that agency model here in New Zealand. And there has been, obviously, the Mercedes move in Australia has been well publicized. But no, we don't expect any impact on Turners as a result of that. Just a few questions from Grant Lowe. I get your question Grant, market share up to 10% from 6.5% by FY '25. Is that the sort of time frame we're talking about the 10%? Yes, not broadly, I think might be slightly longer than that, and some of it depends on the property acquisitions that we can make, the suitable sites, we can find. But yes, that's sort of broadly the target. To what extent has margin compression assumed by FY '25? I think, Grant, you're talking about the GP, the gross margin on the on the cars we own, I think. Maybe we can take that offline anyway, Grant. Finance. Net profit before tax of $80 million to $90 million. Receivables have lifted significantly over the past 12 months and more annualized underlying growth before things muted. What are the assumptions underpinning this in terms of receivable growth and then payments, et cetera? Do you want to take that?

Yes, sure. So yes, we assume that receivable growth will slow, perhaps back to FY '21 levels, in part due to the portfolio, I think, but also there is a squeeze on margins across sort of auto lending at the moment, just with interest rates moving so fast so quickly. So to give you an example, the 2-year swap rate is up 3%. We've moved our pricing ahead of the market, but we are sort of only up about 1.7%. So we're anticipating a bit of a margin squeeze over the next sort of 12 to 18 months at Oxford and the tempered some of that profit growth. And notwithstanding that, we are very confident in the future of Oxford and that we have an offering that resonates with our customers. So yes, we're sort of looking through what's probably 12 to 18 months to book prices every 18 to 24 months, and we're about 6 months in. So we're looking through a period of tightened margins over the next 12 months.

Grant, just allowed you to talk if you want to unmute yourself.

Can you hear me okay?

Yes, that's much better.

Those questions were my notes to self, which you got pretty raw forms. So I was going to miss out there for a minute. Yes, so the focus of those couple of questions was really that FY '25 bridge. And I think you sort of answered the finance one. But just in terms of the auto retail, so adding $5 million of NPBT over the 3 years with the market share lifting materially from 6.5% to 10%. I guess that implies a gross profit dollar decline in terms of gross margins on the vehicles that you sell. Would that be fair way to think about that?

No, we look at it in a slightly different way, Grant. And we're still selling sort of around about 40% of our vehicles and wholesale. So even if we deliver no more unit sales, we see a path to essentially selling more of those units at retail. And at sort of fairly high level, we make an extra $1,000 for every unit we retail compared to units we outsell. So we're not so much seeing necessarily overall unit growth of 50%, but we're seeing some unit growth as we open up new branches, but more that we pivot a bunch of our existing sales out of wholesale and into retail.

Got it. Okay. Right. And just a couple of others for me. In terms of the insurance side of things, revenue was down obviously slightly, but profits were up implying that sort of that's OpEx driven primarily. You've called out the opportunities in the distribution channels and the like. Where have you added distribution in the period? Where are you sort of planning that distribution left going forward? How should we think about insurance revenue over the next 12-plus months?

Yes. So I guess our expectation is for high single digits of growth. I mean, the main reason for that revenue drop has been that when cars are sold or car sales dropped significantly during lockdown, there's nothing to attach policy sales to essentially. So yes, we're kind of confident that, that growth will return to the insurance business as long as the economy doesn't go into lockdown again.

Got it. So looking forward, so that will unwind obviously, if there is no further lockdowns or whatever the dynamic have to dissipate. But in terms of the distribution opportunities that you've...

Well, I mean, there's a couple of significant finance companies that we're working with at the moment essentially to roll out our application program interface or API into their origination systems, which basically makes it easier for the dealer or broker to sell our products alongside as part of your offering by those clients' businesses.

Got it. Okay. And just in terms of net interest margin, obviously, interest rates are going up at the moment in your hedging policy had to lead some exposure in the short term. You sort of called out that net interest margins can be expected to decline over the next 18 months. What sort of -- how would you sort of describe that? Obviously, with the -- you're looking to term out some of this lending, which presumably is marginally lower cost, although I appreciate that that's as much a gearing issue as much as anything. You've also called out that competitors are competing aggressively. Can you give us just a bit more color around the likely extent of that compression, how much of that's related to the hedging and short-term sort of stuff and how much sort of more longer term, and how much of it sort of relates to those aggressive as you described it, competition?

So I mean if I draw parallel, Grant, to the mortgage market, 2-year mortgage rates have pretty much followed swap rates. So they are up around about 3% over the last 12 months. And auto lending from our experience is up only about half of that in pricing terms. So you've got this delta of around about 1.5%, which is kind of flowing through, I think [indiscernible] margins. So yes, that's primarily the challenge for us is that the market hasn't repriced perhaps as quickly as the mortgage market and the swap rates here.

Is there anyone else who would like to ask a question. [Operator Instructions] I think we have dealt with everything on there. As always, we've come to a natural conclusion, I think. Okay. Well, thanks, everyone, for your time. If there are any further questions, feel free to contact Aaron or I directly. Contact details are at the back of the presentation deck and the earnings release, and we look forward to catching up with you soon. Thank you.

Thanks, everyone.