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

Okay. Good morning, everyone. Welcome to the call today and for taking the time. With me is Aaron Saunders, our CFO. I'm Todd Hunter. I just wondered if someone could raise their hand just to make sure they can hear us okay and see the presentation. Great. Thanks, everyone. Appreciate that. It's good we're coming through loud and clear. Okay. So today, we'll go through the full year results, and then we'll open up for Q&A at the end. And just like we've done previously, people could just use the raise your hand function and then we can open you up for audio from there. We're not going to go through every slide in the pack. It's reasonably lengthy as no doubt you've already seen. And there is a bit of additional information that we put into the appendix, just some of the slides that we've used over the last few years just for continuity. But we're happy to take questions on any of the material at the end. So yes, let's crack into things. Yes. Look, it's been another outstanding year for Turners Automotive Group, and this caps off a really great decade for the group. I think our formula of a great employee experience plus great customer experience leading to a great shareholder experience as well and truly being proven up. Our business has almost tripled in profits over 10 years and shareholders have been rewarded with excellent dividend growth, as you can see from these graphs and share price growth. And I think the last 12 months, in particular, have been such a strong proof point for how resilient this business is and the growth plan that we still have to continue with. FY '25 is our fifth record result in a row and despite the very challenging macro environment, the business was operating within. It certainly was a year of 2 halves, and you will see that reflected in the pack. Our team did an amazing job of reacting to the challenges that were thrown at us and the team have remained focused and motivated throughout the year. Our final dividend has been declared at $0.09, taking full year dividends to $0.29 per share. A slide that you would have seen before, but something that we do like to remind people about and talk about is the fact that this team here at Turners remain really engaged on what we're trying to achieve as a company. Our people are a huge part of what makes us successful, and we are very proud of the fact that we have over half of our team enrolled in employee share scheme. The combination of engagement plus that ownership mindset is very, very powerful for creating strong alignment. Okay. I'm just going to hand over to Aaron now to talk through the results.

Thanks, Todd, and good morning, everyone. Highlights, obviously, last year were 10% growth in profit before tax, which is our preferred measure, and that equated to a 17% increase in net profits after tax to $38.6 million. And with the growth in profits, as Todd pointed out, we've been able to reward shareholders with an increase in the dividend to $0.29 per share, up 14% on the prior year. In terms of revenues, as pretty well signaled at the half year that it was a challenging environment in Auto Retail. So revenue dropped there, reflecting that challenging first half and also with a higher proportion of lower value cars sold and fewer damaged and end-of-life vehicles. Finance revenue growth reflects our efforts in repricing the loan book and some growth in the overall receivables. Some modest Insurance revenue gains came from higher levels of policy sales and repricing and Credit Management revenue increased of higher levels of debt loaded. In terms of net profits, again, Auto profits decreased due to that difficult first half. We have seen significantly improved momentum, as vehicle pricing has stabilized and margins improved over the course of the second half, with profits over the second half ahead of the second half of FY '24. The Finance result benefits from strong discipline around credit quality and lower arrears and an increase in net interest margin from gains made on funding arrangements. Insurance result reflects improvements in risk pricing, higher investment returns, lower claims ratios and a disciplined control of costs. Corporate costs have come down largely due to lower interest and other funding costs. This is a great graph. CAGR on dividends is 14% over this 11-year period. I'd like to point out that our dividend reinvestment plan will continue for the final FY '25 dividend, and that gives shareholders the option of converting their dividend to shares at a discount of 3%. And always a reminder for those, who aren't currently shareholders that we pay out around 60% to 70% of profits after tax, and we pay a quarterly fully imputed dividend. In terms of the balance sheet, inventory levels are down due to faster stock turn and our strategy to acquire lower-priced cars to really reflect where demand in the market is. Finance receivables reflect some growth in the loan book and borrowings have mirrored the increase in the loan book and also further investments in property, plant and equipment. We have completed developments of new sites in Napier, Tauranga and Christchurch. Our funding is optimized for growth. The key message here really is that our banks are super supportive. We have funding capacity in place to support current committed branch expansion plans and also to support Oxford lending over the next 12 months. I'll now hand you back to Todd.

Thanks, Aaron. Okay. Let's just sort of do a quick flyover of the segments now. So Auto, as Aaron said, Auto Retail revenue and profit down for the year, just pure and simply reflecting that New Zealand's economic downturn and that tough consumer environment in that first half in particular, but good improvement in margin and volumes sold through the second half. Overall sales volumes [ for us for cars ] were up 3% year-on-year. And I do want to point out that this is the second highest operating profit contribution from Auto in the history of the company. So just to put that result into some perspective. I think one of the things that has gone really well is our disciplined approach to stock management. And I think this graph demonstrates very well the challenge we had in the first half with vehicle margins -- and that really was just because of such poor levels of customer demand that we were having to aggressively discount to achieve the sales volumes and make sure that we weren't holding on to stock for too long. This disciplined approach to stock management positioned us well for when the market stabilized and we could rebuild margins in the second half. The used car market itself, so talking about the New Zealand market now, slowly recovering. I think I'd emphasize the word slowly here with overall transaction levels up 1% across our financial year. Quite a change with used imports being sort of 21% down in terms of the numbers that were registered FY '25 versus FY '24. So there are a few changes going on that, that is largely due to government regulation. And registered dealer numbers continue to decline. So they're down sort of around 2% year-on-year. We're really -- so just talking about property and branch expansion plans now, we're really pleased to have completed the branch -- largely completed the branch expansion plan in Christchurch. We'll have our second branch probably opening this week right, Aaron. Yes. So that's 2 of the 3 projects are completed and the third one should be a couple of months away. And also in the last 12 months, we've completed a new commercial site in Tauriko, just out of Tauranga and doubled the size of our Invercargill operation. So we've made really good progress over the last 6 months. We also have a number of live conditional offers out there. So we've got 3 sort of live conditional offers that we're working on at the moment. And obviously, a number still in the pipeline that we're working on too. And that brings us now to a total of 17 of our sites that we own at a cost on the balance sheet of just under $130 million. That's a photo of the new Hornby branch in Christchurch. I'll play a little video at the end, which just gives you a bit of an overview of the branch there and a bit of insight into sort of how these projects are coming together now. And for those of you who would have seen the new Tina from Turners campaign, we launched that in May. So we're very excited to add some new content. It's been -- we've sweated the '21 content for 4 years. So we've done a pretty good job, I think, of getting bang for buck there. So yes, we've taken the sell us your car song that we've been playing on the radio for the last 12 months. Initial feedback has been very positive. We think we're in quite a unique position at the moment that we're pushing hard on our advertising spend when others are very much pulling back. And despite the media attention that Tina has had about moving to us to [ sell more ], she is still very available for work for us. So no concerns there from our side. Now I thought I'd just give you a couple of quick data points. So I looked this morning on our YouTube channel, our 60-second version of that ad has now gone through 1.1 million views on YouTube. And the average viewership for that ad for 60 seconds is 56 seconds. So essentially, we're getting people watching that whole ad. The 90-second version has had over 700,000 views. So we're getting very, very good cut-through on this new content, which is great to see. The Finance book has been a very strong performer for us in FY '25. We have continued to maintain our discipline around credit quality. I'm sure everyone is pleased to hear that. And we're seeing further improvements in overall kind of lending quality metrics off the back of that. And despite the challenges in the economy, we're still seeing some loan book growth, which we're pleased to see. So we're growing the book and improving quality at the same time. And the ledgers weighted average interest rate is up and loan arrears continue to perform materially better than the market average. Let's go into that now. So again, it's no surprise with our focus on bringing better quality borrowers into the loan book, our arrears levels have outperformed that of the market. Well, I mean, what I would say is we haven't been immune to the pressure in the economy and unemployment increasing, and you can see that in our hardship numbers. So hardships March '24 were at 58 and hardships this year at 111. But they're still running at very low levels given the size of our consumer book of around 28,000 customers. So yes, we can see little signs of it, but certainly, it's no concern for us because of our focus on quality. And we're really pleased with the net interest margin gains that we've made. It's increased further, obviously, as cost of funds have stabilized, and it reflects the discipline that we've applied in repricing the loan book as well. What I would say is the pace of recovery is expected to slow and medium-term run rate NIM should consolidate around that 6% level. One of the other areas at Oxford that we've been really focused on is sort of operational efficiency and a combination of system enhancements, cutting out lender-intensive low-quality lending and process adjustments have really enabled us to do more with less. And we've seen that through cost-to-income ratio dropping to 60% from 65% and loan conversion rates are up to sort of just over 50% for the first time. So what we're looking to do is really kind of create a system that auto approves as much of the lending as possible, subject to certain conditions like providing us bank statements and things down the track. We have a much higher conversion on that auto approval rate if we can get that positive right from the get-go. But all of this is ultimately enabling strong operating leverage for us. We can tip more on the top and do more with less. Insurance has had strong policy growth and premium growth across all our insurance portfolios and particularly the key distribution partnerships are continuing to deliver significant value. So that's those large dealer and finance broker relationships that we have. I think the other highlight is our comprehensive motor insurance portfolio. So this is the portfolio underwritten by Suncorp has increased by 25% over FY '24. So we're seeing a really good growth in that comprehensive motor vehicle book without taking any of the risk on it, which is excellent. And we've also launched our new digital platform. So this is enhancing the ability for us to sell particularly mechanical breakdown insurance policies directly and through relationships like the NZ, AA, where we've established a partnership with them. So really good work done to launch the platform and some encouraging early signs. Claims ratios have come down in the last year, reflecting the great work our team does, but also the focus we apply to risk pricing. So it's a big part of kind of how we manage that we manage the right return for the risk that we're taking. And over the last 12 months, we've moved from effectively 6 risk categories to 14 over FY '25, which is allowing us to much more accurately price the risk that we're taking on in that mechanical breakdown insurance book. In Credit Management, we've continued to see the business rebuild from that sort of low point in FY '22. Revenue is up 5%, profits up 11%, and we've continued to see the debt load building in line with what you would expect to see from the tightening economy, particularly in the SME space, but also seeing it come through in the corporate debt load now as well. We've recently onboarded a major new corporate customer, and we're seeing material increase in the first referred debt that we get from particularly some of the banks. So we're expecting to see some credit benefit from the tailwinds of that struggling -- the struggling New Zealand economy for the next 2 to 3 years. That's what the -- that's what this business experienced through the GFC. And you can see from this slide, these are the payment arrangements that we have in place with some of our clients is rebuilding really nicely. And despite the challenges in the economy, our team have done a super job of keeping that promise to keep rate. So that's effectively the commitments around those arrangements has stayed steady at 77%. Okay. So just to touch on My Auto Shop. So a reminder that we purchased just under half of My Auto Shop last September, and we've been very busy supporting Richard and the team there to grow and initially focused on setting up My Auto Shop to work very closely on some of our branch sites with them helping to service and prepare vehicles that we are getting up for sale, and that's created some really great operating efficiencies for our branches by not having to move as many cars off site. And we're also now moving to rebrand the business. So that process is now underway. So we're rebranding that business to Turners' servicing and repairs and about to start focusing on cross-selling into the Turners' wider customer base as well. So yes, I think -- I still think it's a very exciting opportunity for us, and there's a lot going on and the opportunity to be that scale player in a very fragmented market is very much live for us. We've used this risk table over the last 6 reporting periods to just help people understand how we are thinking about the risks and what we're doing to mitigate those. I think really the speed of economic recovery is the main risk to call out at this stage. I think it's now clear to everyone that the recovery is taking longer than we perhaps initially thought might happen last year. And clearly, interest rates are going to need to track lower than we initially thought. So overall, we're very comfortable with the risks and the strategies that we think we've got in place to deal with them. Just a few comments to sort of finish up on the trading outlook. So yes, I think once -- while New Zealand's economic recovery is expected to be gradual, Turners anticipates continued strong progress towards our medium-term goal of $65 million over the next 12 months. The business will continue to benefit from the tailwind of reducing interest rates as will the New Zealand economy, which will translate into more robust demand for cars ultimately. We also expect to see material benefits from our new branches in Christchurch and our other branch expansion plans. So that will deliver us ongoing market share gains and the branch rollout for Auto Retail will deliver that as well. There's supportive conditions and continued efficiency gains for our annuity businesses in Finance and Insurance and increasing operating leverage across the group, which provides a solid foundation for continued profit growth. Our team have worked incredibly hard to ensure that some of the toughest economic conditions we have faced didn't derail our growth strategy. We -- with Auto Retail now firmly back in growth mode and some really strong results in the second half of FY '25, we enter FY '26 with some strong momentum across all our divisions. And we believe we're on track to reach that FY '28 target earlier than inspected -- earlier than expected. So there is a lot to feel good about the business, I think. Okay. We'll open up for questions now. So well, I just get back here. So Grant Lowe, if I go to you first.

Can you hear me okay? Just a couple for me. Just around the -- good to see the margins on the vehicles improving. I think at the first half result, you were talking about early signs of recovery and talking about the average price point for the vehicles that you were sourcing and selling. Can you talk a little bit more around where you're seeing that average price point like sort of in the second half and then also on the go forward, how you're thinking about that?

[ Do you want to ] take that.

Yes, sure. Hi, Grant, how are you? We're still operating in an environment, where demand is still at the lower end of the spectrum. But we -- yes, we're increasingly more confident in buying and retailing higher-value cars. So prices, they may have moved 5% to 10% from where they were in the first half, and we just see a gradual climb out of that, part of the -- I guess, of challenge and depression between April and July of last year.

Yes, right. Okay. And then I guess it's sort of related to this. But in terms of the Finance book, sort of adding low single-digit growth in the period as you sort of signaled. And then how are you thinking about that going into the current financial year? You sort of -- in the outlook, you mentioned solid book growth in FY '26. Just sort of looking to understand what that means.

Yes. That it probably means low double digits, Grant, so 10% plus.

James -- James Lindsay, can you -- you should be able to unmute yourself hopefully. Hello, James. Can you unmute yourself? Let's try there. Is that you -- can you -- yes, James. Okay. Let's try some reason it's not working, James. I'm not sure why. Let's try you, Kieran. Can you unmute yourself?

Can you hear me okay? Yes. Just a couple of questions from me. Firstly, in terms of your transition from the auction to the retail sales channel in Auto, you originally set the target of getting to 70%, I think it was by FY '26. It seems to be making quite slow progress there, hovering around the 51% level. Can you just talk us through what the barriers have been and whether you think the 70% target is still achievable?

Yes. I mean, clearly, the progress is much slower than what we had originally anticipated, as you kind of pointed out, a couple of challenges. One is in the last 12 months, we bought a lot more, what I would call end-of-life cars that just haven't been suitable for putting through the retail channel. I think it's sort of -- I think it reflects the types of cars that people were wanting in terms of those lower value units. And consequently, they had quite low-value units to sell back to us. So a lot of those made their way through to the damage and end-of-life business. So that's one challenge. I think that will sort of correct itself over time. I'm not expecting us to kind of be overweighted in that category of car going forward, be it we'll buy any car. But ultimately, we want more to go through that retail channel. And the kind of progress that we've made with the lease companies has been slower than we would have hoped for. So yes, I think the 70% goal probably is looking optimistic at this point. We'll -- I think first goal needs to be kind of 55% and then 60%. So clearly, I think 70% by the end of FY '26 is not going to happen.

Great. And then just in terms of FY '26, no guidance issued at this stage, but can you just help us understand how you expect that growth to come through for the year ahead just by division, where should we be looking for the growth?

Well, the 2 biggest businesses, Kieran, are the [ Auto Retail ] business and Oxford Finance. So I think by definition, the lion's share of growth will come from those 2. But we are expecting that, that momentum that we saw in the second half across all the companies in the group will continue. So yes, I mean, whilst we're heading into winter and it feels like things are still a bit scratchy out there, it's only 9 months since the first interest rate cut and the transmission mechanism is probably a bit longer than that. So certainly, I'd expect generally across the economy, things to be picking up come spring time. And in the meantime, we'll continue to look at opportunities. We see good momentum across all of our businesses at the moment. And yes, broadly speaking, Auto and Finance are probably where we see the bigger opportunities, but we should see growth across the board.

And then final question, just in terms of the pipeline of sites ahead, you've added a few into the pipeline on the slides. But thinking longer term, how many more infill opportunities and new sites do you think are out there for Turners just in terms of long-term growth prospects?

Well, we certainly feel that we are underrepresented in the Golden Triangle. So the Auckland, Hamilton, Tauranga geography, in particular, we feel has quite a lot of opportunity still for us. We only have one Auto Retail site in Wellington. So there's definitely further opportunity there. We probably see ourselves with 4 sites in Christchurch at maturity. So there's another site to come there. So it feels like we've got still 4 to 5 years of rolling out sites and particularly infilling in Auckland, Hamilton and Tauranga here.

James Lindsay, do you want to have another go? [indiscernible]. Okay. Thanks, James. We've got your questions in the Q&A. Okay. First question is what's changing that is providing more confidence in your FY '28 targets? And can you talk to how much from the servicing and repairs is aiding this in the 3 new sites you were looking at? You want to take that?

Yes.

Yes.

Yes. I think we're expecting, James, that the environment will be a bit more benign and that interest rates are still going to come down a bit further and probably stay lower for a bit longer. So that gives us quite a bit of confidence. We've got about 70% of our debt hedged. So we're a beneficiary of the floating 30% whenever rates -- whenever rates come down. So it feels like we're operating from a better base with a longer runway of rates possibly slightly below neutral, whilst the economy in general recovers further. But broadly speaking, we've been heartened by the performance of our Auto Retail business, in particular, and what felt last year at times like more difficult conditions than the middle of the GFC. So I think we've got a lot more confidence about the momentum, particularly across Auto and Finance over the next sort of 2 to 3 years.

Do you want to talk about servicing?

Yes. So we still see that opportunity as a focus on building market share. We haven't forecast any profits out of that business through to FY '28. We'll just focus on continuing to build. I mean, we do expect to make profits, but this year will be about getting consistently breaking through breakeven. And then, yes, we'll kind of see where we land from a market share perspective. But I suspect there will be a trade-off between profitability and market share growth in that business for a bit longer.

Okay. I'll just go on to the second question for you, James. So regarding the large new credit management customer, any indication of what sort of debt load could be expected into FY '26? Yes, that will -- it will build because it's -- the arrangements we will get from that customer are typically long-term arrangements. So we will earn our commission as that payment arrangement bank sort of builds for that customer, but there should be somewhere between $100,000 and $200,000 of extra revenue off the back of that customer over the next 12 months. So reasonably material for the EC business. And can you talk through your view of corporate debt with the pipeline and the 3 new sites you're looking at?

Yes. So in particular, we've got 1 -- well, we've got 2 purchase -- conditional purchase offers in market at the moment. And 2 of the larger sites will be leasehold so the land in Drury and in Takanini will both be lease deals. And then Whanganui and one other unnamed site at this stage, we're looking at a purchase. So probably talking about a spend of around about $15 million to $16 million across the 2 sites we're looking at buying if they go ahead. And obviously, leases will be at good sort of market terms on the other 2. So we're still quite relaxed. If a lease deal is a better deal for the business in the medium term, then we'll happily enter into that. Alternatively, if we think we can add more value by owning the site long term, then we'll follow that path.

Okay. Just moving on to the next question in the Q&A, which is from [ Yuri yourself ]. So [ Yuri ], you've asked, can you please elaborate more on how you have achieved the rebound in average margin per car from sort of $700-ish per unit to $900 per unit to $1,000 per unit from the first half to the second half? Yes. I mean, perhaps I can just answer quickly, and Aaron can add any comments he wants to. I mean, in the first sort of 4 months of the year, we went through -- the market went through quite a pricing transition. So prices for a vehicle or a type of vehicle were dropping quite fast. And we were having to -- and that was just simply off the back of poor demand. Demand was leaking in the car market. And so, we were having to apply bigger discounts than we ordinarily would in a stable pricing market. And as soon as pricing stabilized, which started happening sort of from probably late August through to September, and we could see demand stabilizing at a level we were able to buy at better pricing, plus we applied quite a bit more discipline around the discounting that we were doing inside the business as well. So it was really a combination of those 2 things. Anything else? No, no. Okay. Let's just go back to here. So David, hopefully, you can -- David also you can unmute yourself and ask a question or two.

Yes. Thanks, Todd. Hopefully, that's worked.

Yes. That sure, it has. Perfect.

Todd. I just have one simple question, if I may. And I think it's a follow-up to what Grant asked earlier. In the half year pack, you had a bullet point telling us that the average buy now sales price for owned stock fell by 11% in the first half to $11,600. Do you know the number for the second half and the movement and what that means from a full year perspective, please?

Let me just bring that up, David. Yes. So I did the analysis on a full year perspective. So the full year perspective looks like we are down $800 on the full year FY '24 on a per unit basis. So plus GST, you're close to $1,000 down for the full year. So...

What sort of...

Give or take, we've recovered half of the delta over the second half.

So if it was $11,600 at the half year, I think that implied it was like [ $13,000 ] at the first year '24. What was the full year number for FY '24 that you're down $1,000 on?

Units or dollars.

Dollars per owned vehicle through the buy now channel.

Yes. So that should -- that's probably close to [ 600 ] down. Probably best if I just go through those numbers again, David, and drop you a note rather than...

Yes, sure. Okay. And sorry, just the other question I had, and we catch up later. But just the split of the impairment charge within the finance company heavily weighted to the second half. Should we be concerned that things are more worrying for you from that perspective given that increase that's come through relative to the first half?

No, I don't think so. I think we've probably taken a more conservative stance in terms of making those decisions earlier, which may -- well, which has brought forward some of those write-off decisions. It is unusual. It's quite a difference, and it normally isn't that seasonal. But looking at the arrears today, David, we don't -- yes, we don't see that concern.

Right. [ Heiko ], did you want to ask a few questions? Could unmute yourself you do or as if you don't.

Hello. Can you hear me?

Yes, we can. Yes.

Fantastic. Yes, sorry. This is amazing new technology. Yes. I guess -- well, first, thank you for the presentation and congratulations to the results. And I guess, yes, just a couple of questions when looking at the presentation. I noticed this trend of inventory down. And I guess you said yourself, well, the markets ask for cheaper cars. And I assume this means they are as well a little bit older and maybe a little bit smaller. And I was just wondering what this trend means for your Insurance business. So do you expect higher costs for older cars to be repaired or -- is this something you thought about?

Yes. Well, I think that the granularity we've introduced into our risk pricing, Heiko is probably to bear that in mind. There comes a certain age, where we won't insure a car for mechanical breakdown insurance just because the propensity to break down goes up. But broadly speaking, we're happy with the risk pricing we've got in place in that business and that we are selecting vehicles that aren't going to behave in an unrepresentative fashion. So -- it's something to know. And it's something that's happening across the broader population of vehicles in New Zealand. Vehicles continue to age in New Zealand. And there comes a time when those vehicles get to their last owner, and we're unlikely to be insuring those vehicles for mechanical breakdown. They're more likely to -- the next move is more likely to be to a scrapper.

Yes. I think the other comment I'd make, Heiko, is that I think this is a moment in time. It reflects the kind of broader macro environment that people are wanting to spend less on vehicles. I mean that will change as the economy improves. People will spend more on vehicles. So I don't think it's necessarily a kind of a lasting sort of influence over our Insurance portfolio or our stock portfolio for that matter.

So does this mean at the moment you insure less of your cars?

No, it hasn't changed that. But I think as Aaron said, we've done quite a bit of work around our risk pricing in that Insurance portfolio. So we've actually introduced higher premiums for older cars that have done more mileage. So we want to try and ensure as many cars as we can, but we just want to make sure that we understand the risk and we're pricing for it accordingly. And I think we are doing -- well, I know we are doing a better job of that now than what we were a year ago.

Okay. Yes. Now the other question in this context, I guess, if we look at the strength, yes, you're selling older cars. And I guess I'm wondering where you see the end game. And -- so that's not saying you're doing anything wrong. It's just wondering how the future might look. So...

Yes. I mean -- yes, it's an interesting comment. I mean, ultimately, what we sell reflects what was sold new into this country 3 to kind of 12 years prior and also reflects the kind of used import profile of cars coming into the country as well. So if I look at the number of hybrids in particular and some electric cars, the proportion of hybrids and electrics that we sell are much higher than what it was a year ago, 2 years ago, 3 years ago when they're coming through at kind of record levels. I mean largely, that's due to the hybrid used imports. They are by far and away the biggest proportion of those cars. But ultimately, this business works on people cycling vehicles and cycling the vehicles that are in the country. So yes, I guess, to some degree, our stock profile will just simply reflect the average stock profile of the fleet in New Zealand.

So how is the Tesla business going?

Well...

That's a question for Elon, I think.

Yes. I mean, yes, the -- I mean, yes, I mean, residual values on electric cars are a challenge. And we don't own any or very few. We've got a few old leases I think and probably not even got any left anymore. But yes, that is a challenge for the owners of those cars. Richard -- [ Richard Cote ] did you want to ask some questions? Go ahead. I can see you unmuted yourself, Richard. We just can't hear you. If the microphone is not working the other way to do that would be just to ask a question through the Q&A function just by typing in a question if that -- it's a better way. Richard, while we're waiting for you, I've just seen a couple of other questions come in. So just a question from [ Greg Mayne ]. [indiscernible] Greg. Are you expecting any changes in your funding sources going forward? Can you remind us of your provisioning policy given the Centrix data is indicating potentially another tough year for consumer arrears. Do you want to take that, Aaron?

Yes. Yes. So we provision based on historic behavior, largely a function of how long loans are or aren't in arrears. And as loans get longer with that payment, then the provision percentages go up over time. Typically, we write off loans if we haven't had a payment over 120 -- between 120 and 150 days, we'll write that loan off, subject to the -- our ability to contact that customer. So we feel that we're pretty spot on in terms of provisioning. We're still carrying forward about $1.9 million of economic overlay, which is essentially a buffer against further kind of challenges in that space. So unemployment is running at 5.1%, depending on who you listen to, it will go to 5.3% or 5.5%. We feel we're pretty conservatively provided for that situation. And we do -- just to the second or third part of your question, do we get any contribution on sales using finance that is provided by other financiers? Yes, we do get an origination fee or introduction fee on business that doesn't meet our criteria. And around funding sources, yes, we'll probably look to continue to diversify funding over the next couple of years. I think there's quite a bit of appetite amongst financiers for good growing businesses.

Okay. Thanks, Greg, for that one. Just a couple of follow-up questions from James Lindsay. Following on from Grant's question, can you talk to if you expect any further gains on second half '25 margins in FY '26 Auto Retail or just stabilization on Q3, Q4 performance? I'd say stabilized, right? Yes. Stabilized performance, James. Okay. Richard, I'm not sure if you've got your microphone to work or not, but we can't hear you. I don't know if you want to give that another crack or yes, if you wanted to just ask a question through the Q&A, be the other option. Okay. Well, it doesn't look like that's working as we might have hoped for. Okay. It looks like we've got to the end of people, who wanted to ask a question. I guess now is your opportunity. If there's any last questions, people wanted to type into the Q&A, now is your chance. I was just going to finish up for those who want to stay on is probably about a minute video. Just to show you a quick overview of our new branch in Christchurch in Hornby. So bear with me for a second. This video might be a little jumpy, but hopefully, it should come through okay. [Video Presentation] Okay. That's the new branch in Hornby, 15,500 square meters. Yes, we're very proud of that development. The team moved in about 3, 4 weeks ago

Yes.

Yes. So all going well. And yes, I think the strategy of us being closer to our customers is absolutely paying off. I know the sourcing leads, the cash now leads, so that's where we buy cars off, people have certainly risen off the back of being closer to people. So I think the strategy of acquiring more stock is definitely going to pay off in Christchurch. Okay. That's a wrap for us. Again, if you have any further questions, please reach out to Aaron or I. Our details are on the back of the presentation. Apologies for the error that a few people have pointed out to us this morning, the bottom of the main announcement. We failed to update the time of this call, but yes, we'll get that right next year, and hope you have a great day. So thanks, everyone, for your interest.

Thanks, everyone.

Cheers.