Turners reports record profit, says high interest rates will bite

Turners Automotive has reported record earnings for the 2023 years. Photo / File

A diversified Turners Automotive reported record earnings for the March year but said the impact of higher interest rates may affect future years’ earnings.

The company’s earnings before interest and tax (ebit) came to $52.2 million, up 9 per cent on the previous year, while its net profit for the year rose 4 per cent to $32.6m.

“While the company notes that the interest rate cycle may impact the timing of its 2025 target of $50m net profit before tax, it continues to achieve strong results in challenging conditions and to strengthen its position for the next upcycle,” Turners said.

Revenue came to $389.6m, up 13 per cent.

The company declared a final dividend of 7.0c, bringing the total to 23.0 cps, matching last year’s and equating to a gross yield of 8.5 per cent a year based on a share price of $3.75.

Record earnings in auto retail and insurance divisions more than offset headwinds in the finance division.

Interest expense was materially up 110 per cent to $13.3m, reflecting increases in the official cash rate (OCR).

“However, this impact was mitigated by finance margin management and regular pricing increases,” the company said.

Turners said it was positioned for the next stage of the New Zealand credit cycle.

The company said it had demonstrated earnings resilience despite tough economic conditions, including rapid interest rate rises, and lingering impacts of the Covid-19 pandemic in the first half.

Profit grew by 28 per cent in automotive retail to $25m and 9 per cent in insurance to $12.6m.

“Finance division’s profit was down 17 per cent to $15m due to rapid OCR increases that saw credit quality, regulatory compliance and margin management become the priority during the year,” it said.

Chief executive Todd Hunter said two of the three major divisions continued to perform strongly while the third, finance, was well positioned as market conditions change.

Turners Automotive chair Grant Baker. Photo / File

“Turners is increasingly seen as the leading brand in the used car market and as the number of used car outlets across New Zealand continues to contract, we see further opportunity to consolidate our position,” he said.

“While we are weathering tough economic conditions, we expect these headwinds to intensify before we are through the current inflation cycle.

“However, we are well-positioned and will continue to look for organic growth opportunities to further our lead in what are uncertain and rapidly changing market conditions,” he said.

Chairman Grant Baker said the record result was achieved at a time when retail generally had been under pressure.

“The used car market is needs-based and stable through downturns, as we envisaged,” Baker said.

“Our diversified business is well-placed to deliver further growth as well as offering solid returns to shareholders.”

In the finance business, quality and margin management remain key priorities in the near term, with a drag on earnings, especially until peak OCR is reached.

“After the OCR peak, we will again focus on growth initiatives and expect net interest margin to start expanding again.

“We expect sales in our Insurance division to be buoyant based on our distribution and market share gains, and claims ratios to be stable. Credit Management is expected to perform better in the coming year as consumer arrears worsen and bad debts begin to be called in.”

“Looking beyond 2024, we remain confident that our 2022 –2025 growth model is broadly on track,” Baker said.

However, the timing of peak OCR could affect the timing of achieving its 2025 earnings target.