Turners Automotive Group Ltd · NZX:TRA
Turners Automotive — Investor Day (October 2020)
56 slides from Turners Automotive's investor day presentation, Oct 28, 2020
Slide 1: NZSA Meeting October 2020
For personal use only TURNERS AUTOMOTIVE GROUP NZSA Meeting 1 • OCT 2020 NZSA MEETING 28 October 2020
Slide 2: Meeting Agenda
Meeting Agenda For personal use only 1. Turners Overview – Todd Hunter 2. Auto Retail Division – Greg Hedgepeth 3. Finance Division – Todd Hunter 4. Insurance Division – James Searle 5. Credit Division – Dave Wilson 6. Capital & Funding – Aaron Saunders 7. Questions and Answers – All 2 • OCT 2020 NZ
Slide 3: Building quality …
For personal use only Building quality … 3 • OCT 2020 NZSA MEETING
Slide 4: A Transformed Business
A Transformed Business For personal use only As at March YE FY10 FY15 FY20 Shareholder Equity ($m) (3) 121 223 Total Assets ($m) 109 329 708 NPBT ($m) (18) 19 29 Dividend per Share (cps) - 10.0 14.0 Market Capitalisation ($m) 4 202 118 Note - $118m valuation as at 31 March 2020 Numbers adjusted for
Slide 5: Robust improvement in earnings and dividends
Robust improvement in earnings and dividends For personal use only TRA has one of the highest dividend yield on the NZX 1 Source: NZX. Based on rolling 12 month gross div (net div + imps) divided by share price at 14 September 2020. Excludes three NZX-listed higher yields (LIC (because co-op); NWF (
Slide 6: What is our ambition for Turners?
For personal use only What is our ambition for Turners? To be New Zealand’s best place to buy and sell vehicles with continually high customer satisfaction 6 • OCT 2020 NZSA MEETING
Slide 7: The rationale for the group's structure is now proven
For personal use only The rationale for the group’s structure is now proven The Strategic Reviews for Oxford and EC Credit determined that the group was most valuable in its current structure Consumer brands Wholesale/B2B brands 7 • OCT 2020 NZSA MEETING
Slide 8: Benefit of Auto business became clearer in COVID
For personal use only Benefit of Auto business became clearer in COVID Business unit What we liked pre-COVID? What we like post COVID? • Used cars is a large resilient market • Used cars have demonstrated • Leading “trust” brand resilience Auto retail • Diversified sources of supply • Geographical d
Slide 9: Benefit of Finance business became clearer in COVID
For personal use only Benefit of Finance business became clearer in COVID Business unit What we liked pre-COVID? What we like post COVID? • Challenger brand • Annuity earnings helpful in lockdown Finance • Promising signs from de-risk strategy • Arrears proven to be robust • Pricing risk differently
Slide 10: Benefit of Insurance business became clearer in COVID
For personal use only Benefit of Insurance business became clearer in COVID Business unit What we liked pre-COVID? What we like post COVID? • #1 brand in niche insurance • Annuity earnings helpful in lockdown • Promising signs from de-risk strategy • Premium taken up front • Improvements in distribu
Slide 11: Benefit of Credit business became clearer in COVID
For personal use only Benefit of Credit business became clearer in COVID Business unit What we liked pre-COVID? What we like post COVID? • Strong cash flows • Payment bank stickier than expected Credit Management • Capital light business • Counter-cyclical, defensive • Data and web opportunity • Str
Slide 12: Resilient and well placed for an uncertain environment
For personal use only Resilient and well placed for an uncertain environment COVID was a stress-test, but we exceeded expectations 1. Used car market is resilient 2. Diversified business 3. High “trust” brands 4. Digital is a competitive advantage 5. Strong and sustainable yield 6. Experienced manag
Slide 13: Market - The used car market is resilient and robust
1. Market - The used car market is resilient and robust For personal use only • COVID had a temporary impact, before a strong rebound in June and July NZ Used car change of ownerships • August impacted by second lockdown, AKL sales 120,000 dropped most (c.1/3 of population) 100,000 • Net migration h
Slide 14: Geographic diversification
2a. Geographic diversification For personal use only Our 37 sites nationwide offer a unique advantage • Geographical diversification allows the business to redeploy inventory • Advantage if there are any localised lockdowns or regional demand differences • Online sales / click n collect at any branc
Slide 15: Business diversification
For personal use only 2b. Business diversification Turners Group is a purposefully diversified business Each business has different business cycles: • Stable annuity revenue (finance + insurance) helps offset short-term drop in activity-based revenue (auto retail + credit). • Credit management is co
Slide 16: Brand - leverage the high trust Turners brand
For personal use only 3. Brand - leverage the high trust Turners brand Trust is even more important in a time of uncertainty • Most trusted brand: Turners is consistently 2020 Readers Digest Trusted Brand Award: NZ’s leading used auto retail brand NZ’s most trusted used car dealer. (independent mark
Slide 17: Digital advantage
For personal use only 4. Digital advantage Continue to invest in this crucial competitive advantage • Maintained headcount of Technology team: 26 FTE (Applications 15,Infrastructure/Operations11) • Major investment and resource commitment in high redundancy data centre spread between 2 sites (AKL +
Slide 18: Attractive + defensive dividend yield
5. Attractive + defensive dividend yield For personal use only TRA has a high dividend yield • Q3 dividend (payable April-20) was deferred as a precaution due to Dividend per share (cents)2 uncertainty of L4 lockdown 0.18 0.170 0.16 0.155 • Final FY20 6.0 cps dividend paid July-20 0.145 0.140 0.14 0
Slide 19: "Through the cycle" experience
For personal use only 6. “Through the cycle” experience Team has alignment with shareholders, and plenty of experience, including the GFC • Board and management own just under 30% of shares in the company - high degree of alignment with shareholder interests • Each business unit has key executives /
Slide 20: Building a quality business
For personal use only Building a quality business • Quality of our trusted brands • Purposefully diversified business model • Risk optimisation • Extending our competitive advantage for digital 20 • OCT 2020 NZSA MEETING
Slide 21: Our business
For personal use only Our business Finance Auto Retail Insurance Credit Management 21 • OCT 2020 NZSA MEETING
Slide 22: Auto Retail Division
For personal use only Greg Hedgepeth Auto Retail Division CEO Auto Retail Division 22 • OCT 2020 NZSA MEETING
Slide 23: Auto Retail – What do we do in the business?
For personal use only Auto Retail – What do we do in the business? New Zealand’s favourite place to buy & sell vehicles (~33,000 cars p.a.) CARS Division (80% of sales): • Transition from auction/wholesale to retail/consumer … better yield and cross-sell to Finance and Insurance • ~50% of cars sold
Slide 24: Auto Retail - Today
Auto Retail - Today For personal use only #1 6 mins Turners sell 1 car every 6 NZ’s largest buyer and NZ’s #1 most trusted used minutes, which equates to seller of vehicles vehicle dealership brand over 100 cars per day 24,000 31 $43m Damaged vehicles sold on Locations in NZ from Worth of Trucks & M
Slide 25: Auto Retail – Why are we good at it?
For personal use only Auto Retail – Why are we good at it? • Experience – We have been doing this for over 50 years. We constantly learn, fine tune & evolve. • Size – We are by far the biggest and we are located in almost every city across NZ • Brand – Kiwis know Turners and they trust us in a marke
Slide 26: Auto Retail – What do we do differently?
For personal use only Auto Retail – What do we do differently? • Diversification of locations and supply – mix of locations nationwide. • Diversification of supply – mix of consignment + owned stock (from multiple supply sources). • Customer Driven – we have a relentless focus on our customers. • Sc
Slide 27: We continue to optimise our network
We continue to optimise our network For personal use only Our focus this year is on continued retail optimisation New Dunedin operation (opened May 2020) Continue to optimise retail network Transition from wholesale to retail (eg. exit Penrose, open Mt Richmond and Westgate) Rationalise sub-scal
Slide 28: Some examples of our Digital First approach
Some examples of our Digital First approach. For personal use only Example 1: Diagnostic Scanners Example 2: Buysafe program We can run diagnostics on any vehicle. • Rapid deployment of contactless 100% online buying Ensure vehicles are ready for sale, reduces future issues. process in 1st week of l
Slide 29: Questions
For personal use only Questions 29 • OCT 2020 NZSA MEETING
Slide 30: Todd Hunter, Group CEO
For personal use only Todd Hunter Group CEO 30 • OCT 2020 NZSA MEETING
Slide 31: History of Oxford Finance
History of Oxford Finance For personal use only Oxford Finance includes the former Dorchester and Southern Finance businesses 1992: Venture Pacific Ltd rebrands as Dorchester Pacific Ltd 2014: Dorchester Pacific purchases Oxford Finance Dorchester Pacific acquires Turners Group 2015: Dorchester Fina
Slide 32: Finance Today
Finance Today For personal use only $291m $40m $251m Gross receivables less Commercial ledger less Consumer ledger less impairments impairments @Sept-20 impairments @ Sept-20 @ Sept-20 95 12% 193 Number of customers in Ledger has grown over $30m Average number of dealers and hardship from Sept 2019
Slide 33: Summary of origination channels
Summary of origination channels For personal use only Oxford Finance distributes via a diverse range of channels Turners Origination Channels New Lending by Channel FY21 YTD ($000s) • Turners Auto Retail 19.7 • 3rd party consumer – via 400+ dealers and brokers across NZ 20% 5.2 • 3rd party commercia
Slide 34: Strategy
For personal use only Strategy Focus on providing a competitive product, that meets needs of introducers + customers Strong, diversified introducer relationships • 400+ originator relationships • Investment in market leading online portal, AutoApp • Introduction of auto-scraping of bank account data
Slide 35: Credit scores improve; arrears decline, market share increases
Credit scores improve; arrears decline, market share increases For personal use only 10.0% 9.0% 8.0% 1. High quality Turners Auto-Retail origination tracking ~2% total arrears with ledger size of $55m 7.0% 6.0% 5.0% 2. Introduction of Centrix Credit Rating (CCR) Apr-19 Oct-19 Jul-19 Aug-19 Sep-19 Fe
Slide 36: Questions
For personal use only Questions 36 • OCT 2020 NZSA MEETING
Slide 37: James Searle, Insurance Division CEO
For personal use only James Searle Insurance Division CEO 37 • OCT 2020 NZSA MEETING
Slide 38: Insurance – What do we do in the business?
For personal use only Insurance – What do we do in the business? We help Kiwis with motor vehicle, loan protection and life insurance solutions • Distributed through licensed car dealers, finance companies & brokers, life insurance advisers and online • Head office in Auckland (incl. claims and oper
Slide 39: Insurance Today
For personal use only Insurance Today 6,000+ 3,252 200,705 Number of insurance Mechanical Breakdown Insurance Number of active policies as at policies sold per month policies sold per month Sept 20 $34.5M 1,887 $24.6M Monthly average number of Value of new polices sold in FY20 claims paid out in FY2
Slide 40: Insurance – Why are we good at it?
For personal use only Insurance – Why are we good at it? We’re passionate about cars and love being part of the motor vehicle industry. This means we’re driven to protect customers throughout their ownership journey. • 34 years ago we were one of the first players in this industry and continue to be
Slide 41: Insurance – What do we do differently?
For personal use only Insurance – What do we do differently? • Our value proposition is based on service and quality • Expertise and economies of scale in vehicle repairs delivers value for customers • Our premium rating and underwriting controls are more refined • Network: We have an extensive appr
Slide 42: Questions
For personal use only Questions 42 • OCT 2020 NZSA MEETING
Slide 43: Dave Wilson, Credit Division CEO
For personal use only Dave Wilson Credit Division CEO 43 • OCT 2020 NZSA MEETING
Slide 44: The debt collection process
The debt collection process For personal use only SME customers load via Corporate clients load debts web portal or directly via Debt load from SME and Corporate Customers by file transfer or csv file Cloud Accounting App Debtors run through dialler system Run debtors against FOCUS to generate FOCUS
Slide 45: Credit Management Today
Credit Management Today For personal use only $178.7m 3,176 $64.1m Corporate debt load in FY20 Number of SME clients loading Amount of money collected from debt FY20 debtors FY20 472 31.1% 32.7% Number of SME clients who The average recovery rate for The average recovery rate for have loaded debts v
Slide 46: Credit – Why are we good at it?
Credit – Why are we good at it? For personal use only • Debt Recovery – represent all major trading banks and finance institutions in New Zealand as well as many major household brands. • Terms – Typically we’re on a debt collection panel which uses “champion challenger” model - debt gets allocated
Slide 47: Credit – What do we do differently?
Credit – What do we do differently? For personal use only • A large sales force operating across NZ and Australia, Sales Force NZ – 11 we can provide expertise on the ground Australia – 25 • We do more than just debt collections…we are experts on all facets of credit management 1,972 Terms of Trade
Slide 48: Questions
For personal use only Questions 48 • OCT 2020 NZSA MEETING
Slide 49: Balance Sheet and Funding
For personal use only Balance Sheet and Funding Aaron Saunders Group CFO 49 • OCT 2020 NZSA MEETING
Slide 50: Balance sheet
For personal use only Balance sheet • Cash boosted by pre-emptive drawdowns as we entered $Millions FY20 FY19 L4 lockdown and uncertainty around timing Cash and cash equivalents 32.8 15.9 Financial assets at fair value 65.0 66.3 • Inventory increase reflects COVID-19 slowdown and Inventory 44.4 38.9
Slide 51: Balance sheet has capacity to support growth
For personal use only Balance sheet has capacity to support growth Funding Mix ($M) as at Sept 30 Limits Drawn • Our balance sheet is a major competitive advantage, which Finance Receivables Funding will enable continued growth in a consolidating market. Securitisation 230 182 Banking Syndicate 60 4
Slide 52: Capital Management and Dividends
For personal use only Capital Management and Dividends Dividend per Share (Cents) Dividends fully imputed from FY17 onwards • Given April and May trading has been better than 0.18 0.17 0.17 expected, directors have declared the FY20 Final 0.16 0.155 dividend incorporating the deferred Q3 dividend @
Slide 53: Summary+ Overall Q&A
For personal use only Summary+ Overall Q&A 53 • OCT 2020 NZSA MEETING
Slide 54: Our focus for FY21
For personal use only Our focus for FY21 Auto Retail • Cost discipline – property and people • Continue to invest in promoting the Turners brand - build market share • Retail optimisation – Exit Penrose and launch Westgate, Mt Richmond Finance • Keep improving credit quality through data driven risk
Slide 55: FY21 outlook
For personal use only FY21 outlook • The business has rebounded strongly since lockdown and demonstrated resilience • The business has momentum and YTD trading provides some optimism into 2H21 • Targeting FY21 NPBT to be in the range of $28m to $31m. • This is conditional upon no further substantive
Slide 56: For personal use only
For personal use only 56 • OCT 2020 NZSA MEETING
Turners Automotive Group — Investor Day (October 2020) on 6ix