Turners Automotive Group Limited ($TRA)

Okay. Good morning, everyone. My name is Todd Hunter, Group CEO for Turners Automotive Group. I've got Aaron Saunders beside me, our Group CFO. So we'll crack into things, given it's 10:30. We'll try and rip through these slides reasonably quickly and get to the Q&A, which I know is a part that you all want to get to. So let's crack into things. I want to sort of start with a big picture, and I suppose these would be the key messages that I'd like you all to take away with. Obviously, we're super proud of the -- another record year for Turners. Delivered in what has been a pretty challenging circumstances. But the key point I want to reinforce from the outset is that, our diversified model has proven to be resilient through the cycle. And I think we're going to get an opportunity to prove that yet again. And we're certainly entering FY '27 very well positioned and well funded for the next phase of growth. Probably just a couple of other things that we've stayed on the front foot of our expansion plans, continuing to build the platform, not just protect the base. And as we've sort of -- as we've indicated through the pack, we've seen conditions soften until late March and April. We had a record Q4 or actually a record quarterly performance for profit for the Group in Q4. But the softening kind of occurred sort of late March and into April. But what we've done is really just redeployed the same playbook, the same battle-tested playbook that we have used in 2024 and 2025. So we're in good shape. Just going to flip through a couple of slides here and really just get to -- I wanted to pause on culture engagement quickly. We continue to include this slide, so shareholders can see how seriously we take this aspect of our KPIs. Employee engagement remains very strong, and we have meaningful skin in the game through the employee share scheme that we run. The business continues to develop our leadership people internally as well. And that matters because execution is a difference between average and excellent and particularly in a multidivisional business like Turners and particularly, in a very distributed business like Turners we rely on our people to do a great job for our customers and execute well. So that's why we give this the focus we do. Okay. Turning now to the results. I mean, these are all sort of well laid out. So I won't spend any time here. Just getting on to the revenue bridge. Auto retail revenue increases. We sold a much higher proportion of owned vehicles. So we had a reduction in our consigned vehicles, but we more than sort of made up for that by purchasing more vehicles, and the commercial revenue strengthened as that economy improved through FY '26. Finance revenues have increased off the significant growth that we've had in the loan book and insurance revenue has increased off improved policy sales. The slight negative is that credit management revenues decreased due to that lower debt load largely driven by system projects within the large referral client base. But overall, a good increase in revenues from $414 million to $451 million. On the net profit bridge, auto retail profit reflects those sort of new branches, a high proportion of owned vehicles and improving gross margins. And it's certainly worth noting, as you can see later on that the second half was much stronger than the first half as confidence improved. Finance benefited from disciplined credit quality, low arrears and strong growth in the loan book. Insurance continued to refine our risk pricing and growth in that direct-to-consumer channel, in particular, and credit management, lower debt load has led to lower commissions. The dividend remains a core feature of the Turners proposition. We've declared a final dividend of $0.09 per share, taking the full year to $0.33, which is 14% up on last year. And our message is simple here. We aim to provide shareholders with a reliable and growing cash return, while retaining enough capital to fund our growth. Really just a few things to call out here. Inventories up that sort of reflects a real focus we had on building supply and that sort of second half of the year. So that became before Christmas and lead into Q4. We were really focusing on our conversion rates there to support the improving demand that we were seeing. And in -- obviously, the finance receivables are up. And in property, plant and equipment have increased due to the developments that we bought on stream over the last 12 months. And then just noting the intangible asset down, which is due to the EC Credit Control goodwill write-down of $7.5 million. Yes. I think funding is an area that's been a key focus here for Aaron and his -- well he and his team have done a lot of great work here over the last year, and I think positioned us really, really well. So during the year, we've termed out our $200 million securitization warehouse in our first public transaction, it's a huge success. We've also extended our syndicated banking facilities sort of post our year-end, but again, another significant sort of step forward in terms of the way we're funding this business. So it's increased our capacity and reduced our costs. I think the warehouse turnout and the extension of the syndicated banking facilities are a real sign of confidence from our funders and ultimately, reflect very positively on the risk profile that these funders attribute to our business. So I think it's a really big tick from the funders, which is great. Okay. We'll move on to the segment results now. Auto Retail revenue up 10%, profits up 12%, market conditions very challenging in that first half, but improved in the second half. We've given our sourcing initiatives, a huge amount of focus, as you would have heard from us previously, certainly around the way we've been managing stock and being disciplined around stock management has really set us up very well for that performance in the second half of the year. Our focus remaining -- going forward remains on pricing optimization, disciplined discounting and ensuring where we keep stock turning at the right speed. And our competitive edge remains around our strong brand. Turners Campaign continues to work very well for us, being agile around our sourcing and repositioning stock quickly to where demand in the market is and delivering that all as efficiently as possible. So we still focus closely around the costs that we're incurring right across the business. Strategically, our biggest opportunity absolutely remains expanding that branch network, and we've kept the momentum up there despite the kind of backdrop. Used car market showed slow signs of recovery. So used car change of ownership is up 3% in FY '26. And whilst used import registrations were down 7% last year, we've seen some changes from the government in terms of the relaxation of the clean car standards and certainly strong demand for small hybrids as we've kind of got into this whole Middle East conflict period. So we've seen quite a strong increase and imports coming into the country in April, which is good to see. Yes. We're big believers in disciplined stock management, and that is one of the keys to consistently strong margins. There are times where we go through pricing transitions. We had demand in the market shifts, and we're going through one of those now. But our disciplined focus around aging stock turns, speed to sale and simply meeting the market helps us maintain margins and be well positioned as conditions improve. And the key message we want to take away is that we've built the systems and the discipline to manage through the cycle and then accelerate as demand recovers. Our local sourcing is a really important strategic capability for the group, and we continue to grow the number of units that we source locally. And a big part of that is related to our branch expansion, but also doing a better job of the conversion of the opportunities that we're getting. So owned units up around 9% over the last year, so to around 29,000 units. And we continue to see the benefits of that balanced local sourcing with the imports. In the recent fuel price shock and related increase in demand for hybrids is a really good example of where that used import market becomes very useful for us again. Branch expansion remains a sort of multi-decade sort of strategy for us in multi-decade kind of commitments, and obviously, are a core part of how we're growing the Auto Retail division. We now own 23 of our sites with a carrying value of around $164 million. And we're continuing to see opportunities to purchase sites at attractive valuations as we move through the interest rate cycle and our pipeline is building very well, as you can see here. So no new branches scheduled to come on stream in FY '27. But we have 4 new branches and 2 replacement sites on schedule for FY '28. And work is continuing in this year, as you can see from the right-hand side of the slide. We thought it would be really useful to just look quickly at what's happened in Christchurch. And I suppose the rationale for additional branches in Christchurch was always to be closer to our customers, so to move from the single branch and the center of Christchurch to 3, spread across the city was enabling us to be closer to customers and generate more sourcing leads for people who want to sell us their car. And with multiple locations operating through part of the year, and we didn't have them all on stream through the entire 12-month period and comparing to that single branch for the whole of the 12-month period, we've seen a 15% increase in our lead generation for people wanting to sell us their car. And that's led to a 22% increase in cars purchased locally in the Christchurch region. So huge success in creating that operating leverage that we're aiming to replicate as that network expands and we locate branches closer to key population catchment area. So a really good case study of the strategy in action and delivering exactly what we thought it would or we hoped it would. Okay. I'll move on to finance now. We are back in growth mode, as you can see from the graph here. The funding is in place to support that growth and the business continues to generate great operating leverage for us. We're very disciplined around the credit quality that is a nonnegotiable for us, and we are selectively growing the book in areas where we think the returns are attractive. Total receivables up 27% and new lending was up just over 50% for the year. And I think we added 2 people to that Oxford Finance team through the year. So you can see the sort of operating leverage that we're able to generate. Arrears continue to perform well. We think credit quality is a key differentiator for us and is core to our lending strategy. Total arrears were 2.5% at March 26, down from 3% last year and tracking at sort of well below half of what the industry sort of average is in the auto loan segment. Hardship applications and -- or sorry, hardships improved through the FY '26 period, as you can see from the table on the bottom right there. We have seen a small lift in applications through April and May and currently tracking at around 115 hardships so far in May in total. So there has definitely been a lift as things have got tougher for people. On margin, FY '26 delivered the highest net interest margin in the last 3 years, and I think it is worth noting that we are prepared to trade away some margin to continue our growth path where it makes sense strategically and where returns remain attractive on a risk-adjusted basis. So we really do want to see that growth continue. Unsecured lending, whilst it's still a very small part of our overall ledger, it got a bit of attention at our Investor Day. So we just wanted to give people an update here. And from our perspective, the unsecured portfolio is tracking very, very well. We're limiting unsecured loans to those higher quality clients. So they -- we only do these loans for our top 2 risk tiers and their book is growing well, but as you can see, well under 5% of our total lending. Arrears tracking well below our forecasted levels in this period. And remember that we were able to run -- sense check these losses against the wider population of unsecured loans with the Centrix team before we embarked on this strategy. So the objective here is to generate risk-adjusted returns that are incremental to our secured lending and that those returns are certainly helpful in stabilizing our overall margin profile. Okay. Just shifting on to insurance. Yes, this is the think James Hill described it as the steady eddy of our group, I'd say, stable and consistent. In distribution networks, very, very important for us here, and we're continuing to build our digital direct capability. Claims cost inflation is being well managed despite sort of supply chain pressures and MBI loss ratios have eased up very slightly, but remain very consistent with long-term trends sort of around that 58% -- 57% to 58% level. Our digital distribution is really gaining some momentum, as you can see from the graph here. During the year, we've strengthened our capability. We've introduced a new MBI product for that private to private car market. We've also added new partners who are reselling our products now online. So that's VTNZ, Gaspy, and Quashed, and that's added to the New Zealand Automobile Association. So the message for us is that Digital is now a meaningful, scalable channel alongside our partnership distribution model. Turners Servicing and Repair is still scaling up here, and we're building this as our sort of fourth growth pillar, leveraging the Turners brand, expanding the customer base and growing the network. We've now rebranded to Turners Servicing and Repairs. We've got some big cross-sell opportunities that we're just kind of working into now into our existing customer base, including selling service plans with vehicles and just service offers into the existing Turners and Autosure customer base, and we're building out our network model, including mobile mechanics and leveraging partnerships such as VTNZ. Credit Management FY '26 referrals debt load referrals were constrained just because of several large clients placing temporary holds on deep referrals while they went through major system implementations and some of those system implementations are still ongoing at the moment. We're expecting debt loads to reinitiate sort of over the next quarter or so. But as a result, revenue down 17% and normalized segment profit down to $1.8 million. Okay. Probably the sort of key part of the slide that everyone is interested in. We've kind of upgraded the sort of risk view that we have. So funding and interest rate movements remain a key focus for us in terms of how we manage our risks, and that's given the inflation story emerging in New Zealand. And recession risk has increased in our view. But a reminder, again, we have the playbook to keep our agility in inventory sourcing, continued credit discipline and conservative provisioning. So we feel like we're well placed to manage those risks. And for those that were part of our Investor Day back in March, this is not new news, but we wanted to remind people of the new 5-year target that we have of $100 million profit before tax by FY '31. So we've already exceeded our prior targets, and we just want to note that the $65 million target, which was for FY '28 is that we're on track to achieve that a year earlier than we planned. If you want to get more color here, certainly go to that Investor Day presentation where there's a comprehensive background and build to how we get to the $100 million. Just talking about March, April, we mentioned before, our fourth quarter was exceptionally strong. And while March started strongly, it sort of progressively got weaker. April is always a reasonably challenging month just because of the seasonal aspects of it. You've got Easter and Anzac Day and school holidays and it's always a short month. So -- but that softness has definitely been amplified by the geopolitical uncertainty. So in Auto Retail, we've implemented that same tough macro playbook that we used in FY '24 and FY '25, and ironically, it's almost about the same time in those years. So FY '24, I think we still had Adrian Orr talking up interest rate hikes in sort of May and then FY '25 we had Liberation Day sort of around the same time, and all of those things had a similar impact to what we're seeing now. So yes, our strong cost focus, more selected buying, positioning our inventory for weird demand is focusing on those smaller engine vehicles and cheaper cars, including increasing our purchase of hybrids. That is our playbook. It's our battle hardened playbook from '24-'25. In finance, book growth has remained a standout and credit discipline remains nonnegotiable as I mentioned before, a small increase in hardship applications through April, but originations are still being pretty strong, and insurance continues to perform well, benefiting from the annuity growth and stable claims. And we're still pushing hard around our branch rollout strategy. We don't take the foot off the pedal there despite what's happening in the macro environment. We continue to invest kind of no matter what we're seeing around us and that pipeline is building very nicely. Just to conclude on the outlook, we're expecting strong progress towards our FY '28 goal over this year, supported by the full year impact of those Christchurch branches and Invercargill as well and the benefit of the much larger finance book as we start the year in a better position there. Yes, and Auto focus on inventory positioning, maintaining high stock turn. So we're ready to accelerate when the macro environment improves, and finance continued focus on credit discipline and making sure we're managing our margins well. And insurance in premium holding up really well. Stable claims ratios and continued contribution from those new partnership distribution arrangements that we've got and in servicing and repairs a focus is around the network expansion cross-selling into the Turners database and leveraging a partnership that was set up with ATNZ. So I think overall, Turners remains a well-diversified, very well-funded group with clear growth levers across each division. So we are certainly confident for the next period ahead. Okay. Well, we'll just stop here and open things up for questions. So if I could just keep you to raise your hand and then I can unmute you. So James Lindsay, should we start with you?

Well done. A few questions. And then if anyone else throws a hand up, I'll stop as well. But maybe just on that $1 million economic overlay, just what would need to happen to get that used? I mean obviously, the arrears is at sort of 2.5% and been reasonably flat for a while. But what would that need to sort of spike to get that $1 million sort of as being used somewhat?

The way I see that working, James, as -- well, particularly if unemployment rate increases further as a result of the Middle Eastern conflict and the oil price shock, then that will ultimately lead to higher arrears. So that sort of overlay will become normalized into the main body of the provision.

Got it. And maybe just you talked about softer trading conditions over April. Just sort of can you give us some -- maybe some more color with regard to that and where you're seeing it?

Yes, definitely. Yes. I mean it's -- well, essentially, it's in the auto business. We're still seeing good growth in finance, stable performance in insurance, but the primary sort of activity-based retail business, in particular, has seen a drop off from March, a noticeable drop off. So volumes are down. Margins are back at the levels they were in sort of April to June 2024. There's definitely been a hit to demand in the short term.

Yes. Got it. And then obviously, you've talked about your strong finance book and insurance is going along well as well. Just interested in the sort of attach rates that you've had on those. And will that softness in auto retail has an impact on the sort of finance growth for this year?

Yes. I don't think so, James. I mean attach rates tend to be pretty consistent. We tend to sort of be in that low 30s to mid-30s kind of number. But it bounces around a bit month-to-month, but you can kind of almost bank on that. Yes, I mean, at the margins, I mean, if you kind of think about finance, about 15% of the origination comes out of a Turners branch. So we are -- about 10% is direct and then the balance is third-party dealers and brokers. And the broker strategy that we've implemented is working very well. So we'll get -- as the branch network continues to expand, we get benefit of the halo effect of that into Oxford. But it's as much as the work that we do in that third-party community of dealers and brokers that drives growth for us.

Yes, good. And then sort of going back to auto retail and the sort of comments that you made about margin. Obviously, with transactions in the period that reported was up 3% and revenue up 10% and the margin was strong. And from Slide 20, that was obvious in the last 6 months of the period. Can you just go back to what you were saying about where you think margins would go to now? And if you got a view about them being down on -- in '27 versus '26?

Well, we've got a view on what's happened in April, largely in the first couple of weeks of May, James, and that is that margins are much closer to the levels we saw in sort of April, May, June 2024. So that's $150, $200 a unit down on where they were in the fourth quarter of FY '26. So yes, I mean, this is a place we have been before. The economy went into recession, I think in that winter period in calendar 2024, it just feels a little bit like that again.

Yes, I think, I mean, James, what I would say is that we are definitely going through a pricing transition at the moment, just like we did in 2024 and 2025. And so you always see some downward pressure on margins as you go through that transition. And it essentially is once you reach an equilibrium, so once demand kind of sorts itself out, margins will start to build again, and there is always a seasonal kind of aspect to our margins in Q1 and Q2. And so it's not -- I mean certainly we're not. Let's not judge a year on kind of 6 weeks as you can see from that Slide 20, you can see a rebuild in the second half in most years.

And how -- I mean, you talked about your inventory building a little bit, still relatively low in comparison to sort of longer-run history. But just how are you thinking about the tightness of the market? Has that held up margins more than it would have if they were much more normalized?

I think -- yes, I mean, in that sort of -- I mean we started rebuild -- well, we started trying to convert more of those sourcing leads sort of back in October last year because we sort of felt like demand was building and therefore, we wanted to have the cars to kind of sell into that demand. And the guys did a really good job of that. They really focused around kind of things that they could do to drive those conversion rates up, and we're quite successful in that. So yes, I mean, I don't think there's any reason then -- I don't think there's been a massive shortage of supply. I think we're getting better at anticipating what is happening in the market. We talk regularly about the kind of mix 2 to 3 months and what we see happening and thinking about how we need to position ourselves to either take advantage of an opportunity or potentially mitigate risk.

Yes. And then just on insurance. Can you give us sort of an indication about what the mix is of MBI versus your sort of partner in general insurance?

So in terms of premiums, MBI is 70-odd percent of the premium base, James.

That's good. And then last one for me, and I see David's hand is up as well. So just with regard to the unsecured finance book, obviously I assume like quite different broker partnerships that you've got there. Just interested in sort of the number and what's the strategy about trying to build that out to develop that segment?

Yes. I mean, the broker relationships for us, you tend to get a high degree of crossover between brokers selling auto loans and selling personal loans. They are products that kind of go hand in hand. And for us, there was a very little work we had to do from a system point of view to be able to accommodate lending in the personal lending space. So it was kind of a sensible extension of our product. So figuratively if you think about our strategy, it's to build up this customer base of high-quality customers and we want to do more things with those customers. So yes, they're just the same brokers, and we do -- team are doing a great job. I think we talked about at the Investor Day, we've got our senior lenders going spending time in their businesses working with their business managers and loan brokers on -- at the call phase, giving them input around our credit policy and how we think about things and getting them to think as much like us as we do around these loans. And that strategy is working very well.

And then just checking the like-for-likes on '26, you had that slide with regard to your consumer arrears versus the auto loan industry. Does that include your -- titled that consumer, that includes the unsecured as well? Or is that just the auto loans?

That's just auto loans.

Okay. Got it. Yes. Okay, cool. And so -- but is that the same 31 days plus like-for-like that you've got on Slide 28?

It's one day arrears.

I think it's plus 3 days arrears. David, I'll just unmute you. So you should be good to go now.

I had 2 very boring questions, and I apologize in advance. Could you just talk to the what looks to me like a fairly dramatic decline in the corporate costs that's come through in the year just finished. You've been sort of double digits for several years and down to $7.7 million, I think, this year.

Yes. There's a couple of things happening here, David. One, there's been a benefit of the interest rates coming down over the last what is it, now 18 months. But also, we -- as we kind of build out this property portfolio, we essentially allocate a market amount of that interest to property. So you mean that with interest, which was all kind of in corporate as we develop properties when those properties move into the use of the auto retail business, we allocate some of an appropriate amount of debt to the properties themselves. So in the auto business, it's less about rent and more about interest and depreciation, which you'll see in those segment numbers.

I see. That's helpful. And just secondly, I didn't catch the numbers, but clearly, I understand the number of branches in auto has increased year-on-year in FY '26. Could you just explain why the D&A charge in all across the group, but in auto, in particular, has gone backwards in the year just finished, relative to '25?

Yes. So there was a big -- the big change in auto and '26 was the move out of that largest branch that we had in Christchurch. So there was significant fit out that we depreciated over the period of our 10-year in that location. And obviously, that dropped off. We got amortized -- depreciated to 0 at the time the lease expired in July. So we had a big drop off there. And we're replacing that with essentially longer-term assets that are depreciated over a longer time period. These are the land on buildings that we occupy. So I think that's a big chunk of the change there.

Great. Thanks, David. Is there anyone else who wants to ask us some searching questions? Jake, you should be able to open your mic.

Just quickly for me. Did you see any sort of spike in end-of-life activity or replacement vehicle demand from some of the flooding in Wellington in April?

Yes, we have, Jake, and that will flow through into this financial year. Sort of in the order of a couple of hundred units, not the thousands that we saw in 2023 in Auckland.

Right. And is that just because of your sort of network coverage or just they're not being the same number of vehicles on the roads at the time?

Just not the same number of vehicles involved in that particular location. Kieran, we're opening you up now.

Just one from me, and apologies if you've already covered it off, but there seems to have been a reasonable improvement on the amount of ex overseas vehicles being registered, post the changes of the clean car standard. So just curious if you're seeing any sort of benefit as a result of that, whether it's your competitors sourcing less locally or more sort of funneling into the end-of-life division as cars are replaced?

Yes. I think interestingly, we are seeing kind of a decent size increase into the salvage business at the moment for that damage in the end-of-life business. So whether that's part of it? It could be. I mean, I think more broadly, more used imports into the country is probably good for the fleet because you're cleanly taking out a much older car to replace it. That is to be a good thing and it's certainly good for the Oxford and Autosure business because those are more sort of opportunities outside of the Turners network to finance and insure and it probably does take some pressure at the margins of the local sourcing as well. So yes, overall, I think it's a positive for the business. Okay. Is there anyone else who would like to ask a question before we wrap things up? Scanning through the Teams, it looks like we're probably reached a natural conclusion here. So yes, thanks very much, everyone, for your time this morning, and we'll catch you all soon. And please if there are any other questions, just feel free to reach out to Aaron and I directly. Thank you. Have a great day.

Goodbye, everyone.