Turners may shed Oxford Finance, EC Credit in bid to simplify business
By Paul McBeth
May 29 (BusinessDesk) - Turners Automotive Group may sell its Oxford Finance and EC Credit debt collection units as it attempts to streamline the business. It has already ditched the Buy Right Cars brand at a cost of $4.3 million.
That brand write-off led to Turners reporting a net profit of $22.7 million in the year ended March 31, down from $23.4 million a year earlier. Excluding that charge, pre-tax earnings rose 8 percent to $33.6 million, beating the downgraded guidance provided in April. Revenue increased 2 percent to $336.6 million.
Turners has largely finished a review of its business and it says it will streamline its operations and brands to focus on what it does well, remove risks from the group, and accelerate growth in the most capital-efficient way possible.
"This new strategy enables the business to target significantly increasing its market share in its core business of automotive retail and participate in adjacent opportunities in the sector," it said in a statement. "There is a strong desire to invest in the brands and businesses where Turners has already achieved a leading position."
The company sees auto retail as its core strength. It believes the fact New Zealand's ageing fleet will need replacing over the next decade provides a tailwind for the company.
Turners has hired First NZ Capital to review its Oxford Finance lending unit after finding that building a loan book was very capital intensive and not necessarily the best use of the auto group's resources. While that may include selling the business, Turners intends to keep a close relationship with the lender.
The company said it will also review its EC Credit business in the next 12-24 months.
Both divisions were part of Dorchester Pacific's acquisition spree in the wake of New Zealand's finance sector collapse. Dorchester managed to avoid failure in 2010 with the help of the Business Bakery, and expanded through acquisitions, culminating in an $82 million purchase of Turners Group and adoption of the Turners brand.
The group is now valued at $211.1 million, based on its market capitalisation, with the shares recently at $2.43.
The board still sees that as undervalued and bought 3 percent of the firm's issued stock in a buyback programme in the lead-up to the results period. It will revisit the buyback programme in the near-term.
The board declared a fourth-quarter dividend of 5 cents per share, payable on July 18, with a July 9 record date. That takes the annual return to 17 cents, up from 15.5 cents a year earlier. The board also plans to return more of its earnings under a new dividend policy, lifting the payout ratio to 60-70 percent of net profit, from the current level of 50-60 percent.
"The board believe the change in strategic direction will help reduce the complexity of the current business structure and enable focus on the core automotive retail business which will generate more capital-efficient growth and value for Turners’ shareholders," it said.
Turners' auto retail arm was the biggest contributor to the group's earnings and revenue. Operating profit rose 10.2 percent to $18.3 million on a 1.1 percent increase in revenue to $225.7 million. The company's national network offset the impact of a slowing Auckland market.
The finance arm reported a 5.5 percent decline in earnings to $11.1 million on an 11 percent increase in revenue to $44.2 million. The drop in earnings was due to $7.9 million of impairment provisions for Oxford Finance and the decision to stop new non-recourse lending with Motor Trade Finance. Turners' finance receivables were largely flat at $290 million from a year earlier.
The insurance unit more than doubled earnings to $8.2 million on a 3 percent increase in revenue to $48.5 million. Earnings were bolstered by a $3 million gain on the sale of an investment property.
The EC Credit unit's earnings rose 4 percent to $6.3 million on a 3 percent decline in revenue to $187.2 million. It's still growing market share in New Zealand, but lost a corporate client in Australia, where it said conditions were tougher.