Good morning, everyone. Welcome, and thanks for taking the time to join the call today. To join Aaron Saunders, our Group CFO, and myself, Todd Hunter. Today we'll go through the full year results, and then we'll open up the call for Q&A at the end. People can either use the Raise Hand function or just type a question into the Q&A, and we'll repeat the question and answer it that way. Or we can open up the audio as well. Either is fine. Okay. Today we'll go through the FY 2022 results, the segment results, and then talk a little bit about what's looking forward. We're really pleased with the year that we've just completed. It's another record result for the business.
Our track record is showing, I think, just how robust our business model is and, you know, we are ready for what's next. We've had another really strong year of growth with 15% growth in profit before tax in FY 2022. If we go back to FY 2019, which is when we really started a number of our key strategic initiatives, we've grown profits organically 48%. Our retail optimization is working, branch expansion plans are delivering results, and our de-risking by focusing on quality and finance insurance is positioned as well, and our investments in digital are paying off. Clearly, there are New Zealand and global economic challenges over the next 12-24 months, but we still see opportunities to grow our auto retail market share in particular. We're thinking about the challenges that might come at us, and we're acting already.
Pleasingly, FY 2023 started positively, and despite still being impacted by Omicron, our April 2022 results are ahead of April 2021. This slide is designed to show the progress that we've made in a number of critical areas over the last three years. Our retail momentum has gained traction and, as can be seen through our auto retail market share numbers. The thing that this enables is growth in finance conversions, margins, and units sold that we own. The improvements in the quality of our loan book are very obvious, as are the changes we've made to our insurance pricing and claims management. The focus on these metrics is what is driving the much improved outcome for shareholders, demonstrated through the EPS numbers and the dividends paid. On to the overview.
Net profit before tax is up 15% in what has again been a year impacted by Delta lockdowns and the impact of Omicron. Used vehicle supply has certainly eased up since FY 2021, but overall remains below historic supply levels. Consumer demand was better than expected during the level three lockdowns last year, but worse than expected in the Omicron outbreak. We've continued to make gains in margin and market share in auto, and our geographic and earnings diversification have delivered again. It's always interesting to reflect on the progress over a slightly longer time period in the last 12 months. We do get quite caught up in the week that's just gone or the month that's just gone.
We are really pleased with our progress and are very proud of our track record of continuing to deliver for our shareholders. These are exactly the type of growth that we want to share with investors in our business. On the used car market, overall used car transaction levels have tracked well below pre-pandemic levels. You can see there on the graph in the top left, the last few calendar years marked out there. We're still expecting a supply-constrained market for the next few years due to the impact of semiconductors, disruptions in material supply, and the impact of government regulation. Registered dealer numbers are at the lowest point in the last five years, down 14% from the peak in 2017.
We are expecting this to track down further, mainly due to the challenges in supply and the impact of government regulation. No doubt there will be a few questions about EVs and hybrids. Our Turners subscription offering, which is where we are investing in EVs and hybrids, is gathering momentum. We now have more than 100 cars out concurrently on subscription, with nearly half of these vehicles EVs or hybrids. We believe subscription can provide an important role in helping to improve access to EVs and make it cost-effective for consumers to try before they buy.
EV and hybrid sales, as you can see from the graph, continue to grow through our auto retail network, but are obviously subject to some supply constraints. The focus of our ESG strategy in FY 2021, FY 2022, sorry, is deliberately focused on the social aspect, with the obvious focus on our customers and staff safety during the lockdowns. Our employee engagement results have been a priority, particularly given the wider pressure in the economy on retention and recruitment. We've introduced customer experience measures across all parts of the business as part of our good customer outcomes focus. We've also successfully dealt with over 2,000 COVID hardship accounts and successfully rehabilitated all but a handful of these. Just a few comments on the FY 2022 results before we go into the divisional breakdowns. EBIT is up 11% to NZD 47.7 million.
Net profit after tax of NZD 31.3 million is up 16% on the same period last year. Underlying net profit before tax was up 29% to NZD 44.1 million. Earnings per share for FY 2022 were NZD 0.364 per share, up 16% on the previous year. Directors have declared a further NZD 0.07 per share dividend for the final payment, which is payable in July. That takes FY 2022 dividends to NZD 0.23 per share. This reflects the dividend policy payout ratio of 60%-70% of net profit after tax. Although the year was still disrupted, revenue was up 14% to NZD 345 million, with auto retail being the major contributor, with new branches and more owned stock flowing through that business.
The net profit before tax bridge demonstrates the benefits of the group's resilience and diversified earnings. Profit rose in each of the three largest businesses, representing 94% of divisional operating profit. Profit grew 26% in insurance, 14% in finance, and 23% in auto retail. Credit management business was down on last year's result as consumer arrears tracked down and clients issued no communication instructions to defaulters during the lockdown. There were a number of one-off COVID related impacts to profit over the year. Underlying earnings have increased from around NZD 34 million in FY 2021 to over NZD 44 million in FY 2022, an increase of 29%. As mentioned earlier, given the strong performance over the year, directors have increased that final dividend to NZD 0.07 per share.
Based on the current share price, this gives a very attractive gross yield of more than 8% per annum. The notable balance sheet changes from last year are the growth in Oxford receivables and the corresponding increase in borrowings, and the acquisition and development of the Rotorua and Nelson auto retail sites. Inventory levels have remained stable as we improve processing times and overall turn. Things to note in funding is that we have repaid our corporate bond with a new lower cost term loan from ASB during the year. We've also commenced the process to term out our securitization warehouse to third-party funders, and we're targeting a transaction in the first half of this financial year. Also, I'd like to remind shareholders that more than 80% of our borrowing relates to the finance receivables in Oxford.
The three core businesses of auto retail, finance, and insurance have all been able to build market share, improve their customer experience, and have delivered double-digit growth in earnings. Meanwhile, credit management continues to be challenged by historically low market-wide consumer arrears. Although in the latter part of FY 2022 and the beginning of FY 2023, we have seen this start to change. Auto retail has been both a margin and market share growth story. Gross margins on owned fleet have continued to improve, up over 8% in FY 2022 over FY 2021. This is due to a number of buying improvement initiatives, more retail sales, and constraints on supply of used cars nationally. Our market share has grown off the back of our retail optimization and expansion strategy, with retail sales up 6% on the prior year. Of course, this has improved our retail market share.
We launched a new branch in Rotorua during the year and are redeveloping the site and developing a brand new site in Nelson as well. We've also secured new sites in Timaru and Napier and are working on further opportunities as we speak. Sourcing of vehicles in the local market has been a top priority. Our investment in the very popular Tina from Turners brand campaign has helped build our inventory of locally owned cars, with owned inventory sales up 25% on FY 2021. Another goal, as you have heard about from us previously, is to increase our finance conversion rate. This further realizes the synergies of our related businesses. Despite the disruption caused by the CCCFA changes in December 2021, we have improved our finance conversion rate to just under 33% from 30.6% last year.
Our property portfolio is continuing to grow as well. With the sites we have under development, plus new sites we've committed to, portfolio is just under NZD 100 million. Importantly for shareholders, there are substantial unrecognized gains on this portfolio of around NZD 19 million, adding further value for shareholders. We have a number of new opportunities in play right now and look forward to updating you on those when we can. Just a couple of quick updates on Rotorua and Nelson. If you do remember, Rotorua is a 7,500 sq m site, Fairy Springs Road. We're mid-development at the moment. You see the photo on the left is the concept drawing and, the photo on the right is, development taken from a week or so ago.
We should be fully operational there by the beginning of October and the project is on budget and on time, which is fantastic. Nelson is also coming along really well. We bought a 6,000 sq m site there. Again, we should be fully operational there by October. Key staff and stock are in the process of being secured at the moment. Very much looking forward to seeing the site open down there. Moving on to finance. Our risk pricing model and focus on premium borrowers has been very successful over the last few years, but particularly the last 12 months. With our loan book growing 28% to NZD 423 million. Premium borrower lending now accounts for well over 50% of our monthly lending.
We were pleased with how the Oxford business navigated the December 2021 CCCFA changes. Arrears continue to track down at historically low levels. However, the business is still retaining at year-end a COVID-19 arrears provision buffer to allow for any further degradation in relation to COVID. This slide highlights the continued growth in our premium borrower segment and how this has positively impacted the average credit score as you can see on the right-hand graph. We've continued to review and tighten our credit policy over the last three years with the most recent change in December 2021. While market-wide arrears have been low, these structural improvements to our loan book will benefit us in a potentially challenging economic environment as well. In regards to pricing, we've been very proactive in regard to the base pricing that we set in the market.
Our strategy is to proactively review pricing to mitigate the impact and ensure we are well-placed to grow when interest rates stabilize. We are currently tracking slightly ahead of the OCR in terms of overall movement, but we do expect net interest margin to reduce over the next 12 months as we manage the tension between market share and margin and absorb the costs of restructuring our wholesale lending from BNZ to third-party funders. This is to set us up for future growth. In insurance, we've seen strong market share gains, and our digital distribution agreements have helped drive strong policy sales with gross written premium up 6% on FY 2021, despite the impact of the lockdown periods. Our digital distribution arrangements are working well with MTF, Merit Cars and Motorcentral all using the Autosure API, and there is a good pipeline of these opportunities ahead.
Claims costs are down 1.2% on FY 2021. However, parts price inflation and labor rate increases are offsetting our own parts procurement initiatives and less vehicle movements that we've seen in the lockdown periods. The credit management business continues to have lower debt load levels due to the historically low consumer arrears and corporates working back into recovery action post-pandemic. Debt load in FY 2022 is down 54% on pre-pandemic levels, which gives you some indication of just the material shift in the market. Unsurprisingly, debt collected is down 35%. This is a significant hit to the credit management revenues. Although debt load is down, we are seeing positive signs in debt recovery rates due to the new resolutions and collection strategy that was implemented during FY 2021 and FY 2022.
Also, the payment arrangement commitments are being met more often under this new resolution collection strategy. With the economic environment expected to deteriorate, we expect debt load levels to increase as a result. Our company continues to extend its competitive mode and build scale. As we head into an economic environment that will offer up different challenges and opportunities, the business has already been significantly de-risked. The work we have done on local sourcing of vehicles, building quality into the finance book, adding distribution to insurance, means the business is positioned to withstand or potentially take advantage of some of these changing conditions. Furthermore, one of the most attractive aspects of the used car market is that it is a needs-based purchase and therefore more resilient and less affected by economic conditions.
There are challenges on the horizon, however, and while the pandemic uncertainty has decreased, New Zealand's economic uncertainty has increased. There are a few potential challenges on the horizon. We thought it was worthwhile calling these out, as well as what we have already started doing to mitigate the impact and what we still have to do. The challenges largely center around the rapid increase in interest rates and inflation, the supply chain challenges, recruitment and retention of people, and the regulatory environment. What we wanna reassure you is we understand the issues, we've already taken action, and we are well-placed to minimize their impact. In the short term, these are our key work streams to support growth. In auto retail, stock acquisition and improving our speed to sale will unlock further growth.
In finance, it is continuing to target premium lending and manage margins and pricing closely. In insurance, we continue to expand our digital distribution. In credit management, it's about reaching more SMEs by improving our lead generation capability. These areas remain our key focus in the medium term. We know these focus areas have been working for us. Our retail optimization and branch expansion in auto and vehicle purchasing and decision-making around supply. Margin management and focus on premium lending and finance, and continuing to invest in digital initiatives and build out our omni-channel customer experience. We're very pleased with the progress we've made against our NZD 45 million target by FY 2024. If it wasn't for lockdowns and Omicron, we believe this target would have been achieved this year.
Like many others, we are expecting the broader economic environment to moderate the rate of growth we have experienced over the last three years. We have updated our three-year roadmap, which now has us targeting to be above NZD 50 million in pretax profit in FY 2025. The main growth engine will come out of auto retail with modest growth from finance, insurance, and credit management. Auto retail growth continues to come from our retail optimization strategy and branch expansion. We feel we have a clear pathway to 10% market share. Headwinds in finance are offset by growth driven out of direct lending and improvements in distribution. Insurance growth will come from direct and digital distribution. Like last year, this gives some indication on what the growth pathway looks like, which we think is useful for shareholders. Finishing up with the outlook.
Despite the Omicron impact still being felt, the year has started well. The April 2022 results are ahead of April 2021. The uncertainties still exist, though. In auto retail, we expect to see upside from our new branches in the second half, and the supply-constrained market to continue primarily due to the impacts on the new car supply chain and government regulation. With the rapidly changing interest rate environment, our priority in finance shifts to margin management. In insurance, we expect new policy sales to be buoyant based on our distribution and market share gains, and claims ratios to stabilize. Lastly, in credit management, levels of bad debt recovery are slowly starting to build. We are confident that we have good growth prospects in auto retail and insurance.
Finance margins will be impacted in the short term as we deal with the rapidly changing interest rate environment. Credit management is expected to perform better as the economic conditions worsen and the resultant impact on consumer arrears. Before we finish, we'd like to acknowledge the efforts of our team, from our board of directors and the operational teams who deliver day in and day out for our shareholders and for our our customers. This group of people has been totally committed and prepared to go above and beyond, and we're very lucky to have such a talented and hardworking group of people in this business. Looking beyond FY 2023, we remain confident about further growth over the medium to longer term, and we've updated the three-year rolling target to have the business crossing over NZD 50 million of profit before tax by FY 2025.
Overall, we are ready for what's next, and I think the business is in the best shape it has ever been. We'll now open up for questions. If you raise your hand or just type into the Q&A, we'll handle it that way. I'll just stop sharing this. Let's see. Go to the Q&A. Okay. Richard C. has asked a couple of questions, actually. What effect will the government's plan to subsidize EV purchases for low-income households by letting them scrap their petrol cars have on Turners? Well, you know, I would say that is a positive thing for our business. As you've heard Aaron and I talk about before, there is a massive cohort of cars in the New Zealand vehicle fleet which are effectively at the end of their economic life.
Anything that encourages those cars to leave the fleet and be replaced with lower emitting cars is a good thing. It's a good thing for our business because, you know, our business is based on turn. I mean, we think we've got a role to play in helping transition the fleet into EVs and hybrids, but really we, you know, are largely ambivalent about what people are demanding. We will source those cars and hopefully they create an opportunity for us to sell them a new one. Also we are working with the government around what we can do to help take those cars out of the fleet as well.
We have a business that we largely operate for the insurance companies here in New Zealand, where we sell their damaged and end of life vehicles through to parts dismantlers and wreckers. You know, there's a role for us to play in helping ensure that those cars don't end up back on the roads of New Zealand as well. Overall, a positive. Further question from Richard. Is there a risk that other snap decisions by government could leave Turners with a large number of ICE vehicles that they are unable to sell due to a push to remove ICE cars from the road in order to reduce emissions targets? Do you wanna answer that, Aaron?
Yeah. I think that the government's plan has been reasonably well signaled, and that is to, you know, progressively clean up the fleet from an emissions point of view. Really I see them targeting cars entering the country rather than cars that are already in the country. You know, that kinda makes sense both from an economic and a political standpoint. The manufacturer of vehicles, be they EVs or ICE cars, essentially accounts for 40%-50% of their lifetime carbon emission. It is probably better to use up what we've got, rather than to, you know, perhaps bring in more and higher emitting vehicles. That seems to be the strategy that the government is following.
I think it's fair to say, Aaron, that this fleet transition is gonna take quite a long time.
Yeah.
The risk of us being given we turn our stock so quickly, you know, there's basically zero risk of us facing some seismic shift in the market.
Yeah, that's correct.
Yeah. I think the answer to that question is there is no risk, Richard , around that. Will the low supply of affordable EVs mean that there will still be strong demand for ICE vehicles over the next few years? I think kind of that last question answers the second question at some level. It is very difficult to supply affordable EVs. There are virtually, you know, none of these cars being sold in Japan. Many more hybrids, but very, very few EVs. That is the main source for us of sort of new used EVs into the country. Yeah, my expectation is that ICE cars will still be a part of the mix, and hybrids for, you know, many, many years into the future at this stage. Just continuing on here, on the questions.
Question from Rory. How much of Oxford receivables are derived from Turners Automotive customers versus external dealership customers? That's about 20% from the Turners Automotive retail network and 80% from third-party dealers and brokers, Rory. What sort of growth are you expecting from Oxford from external dealerships? Do you wanna answer that?
Yeah. I mean, I don't anticipate that ratio will change materially over the next few years. We are sort of targeting our focus on that direct business, but that will be a slow build. I would expect that the growth probably moderate a little from what we've experienced over the last couple of years in terms of the portfolio, simply because of the portfolio effect of a higher base of receivables means you get higher repayments and therefore need to lend more to continue to grow. Essentially, I don't see a material shift. Maybe the amount of business we source internally through the group or directly to existing customers goes to 25%, up from 20%, but that's probably the difference we're talking about.
Okay. Just moving on. Kieran has asked a question. While the used car market tends to be far less volatile than the new car market through periods of economic downturn, it does tend to decline to some extent as discretionary spending dries up. Do you expect this to be the case for the auto retail block through FY 2023 and FY 2024? And have you seen any change in vehicle leads recently now we are past the peak of the Omicron outbreak? Okay. Yeah, I think there's a couple of things going on there, Kieran. Yeah, you're right. It does tend to come off a bit. Certainly nowhere near the levels of the new car market.
What we find through our business is that, the demand is still there, but the price point that people are looking at comes down as they look for vehicles that, they can fit into their own, cost of living kind of situation and scenario. Yeah, our expectation would be that, demand for higher priced vehicles will come off, but demand for, less expensive vehicles will probably build. You know, we think a lot about that in terms of the sort of stock that we target, to buy, in the business. The other point that I would make is that roughly 40%-50% of our business is on consignment. From the big lease companies and government departments. Those vendors have to meet the market.
That is a good thing in terms of, one, it's not our working capital tied up in that stock, but two, they are the ones that are having to meet the market and they do have, you know, sort of time to sale kind of KPIs and things. Yeah, we typically find that vendors in that space meet the market quite quickly. Another question from Kieran. Commented on the presentation that EVs and hybrids now make up around 4.5% of your overall auto sales, and obviously this will be expected to grow going forward as consumers are incentivized to make the shift.
Are you able to add any color around the average selling price of these secondhand vehicles, what the demand looks like from consumers and any changes you are making to insurance policies to account for the risk of battery replacement in these vehicles? Do you wanna answer that one?
Yep. Starting with the battery question, typically batteries don't fail, they just wear out. You use them up essentially, and we don't insure for, you know, wear and tear or something being used up. We do take a risk, but in terms of an absolute failure, but we also have implemented, you know, some reasonably conservative policy limits which protect us, in that sort of rare event. Typically, I mean, there's two sources for us. In particular for hybrids, we do bring in some cars from Japan still and, you know, increasingly those are your smaller hybrid-type vehicles. The Japanese went down a hybrid development path rather than an EV development path. There's an element of them now, the Japanese manufacturers playing catch up.
Essentially, there's a reasonably significant installed base of hybrids in Japan, and a very small base of EVs. The cars that we import are in that sort of NZD 10,000-NZD 15,000 range. The other hybrids and EVs that we get are, you know, your ex-corporate lease vehicle, which will come off the fleet between three and four years old, and those are typically more expensive. Those will be in that sort of NZD 15,000-NZD 30,000 range. We get a reasonable mix out of our own sourcing initiatives out of Japan and locally and of the newer stuff from the big lease companies and government departments.
You know, corporates and the government have a big part to play in this fleet transition in that, you know, we expect that they will increasingly pivot their fleets towards EVs or certainly towards hybrids and EVs. When those units come to market in three or four years' time, that will, you know, enable us to essentially significantly boost the proportion of those vehicles that we sell. To some extent, we are dependent on what we get back from those large fleets, as well as, you know, what we can source either locally or out of Japan. Is that clear?
Yeah. Yeah, that's great. Thanks, Aaron. Another question here from Kieran. Attachment rates and finance have increased from FY 2021 but are down from the 36% number at the half year. What initiatives do you currently have in place for increasing attachment rates in this finance book, and how do you see attachment rates tracking through FY 2023? Yeah, that's spot on, Kieran, in terms of the impact from half one to half two. Really that is just simply about the impact of the CCCFA changes, particularly around the way that affordability is assessed. I'd put it simply that it's just been an adjustment period as those new regulations have been implemented.
Because essentially borrowers were being assessed on their bank statements and affordability prior to the loan, when most people would simply adjust their level of discretionary spending after the loan had been taken out. Our expectation, I mean, oh, sorry, just to give you a bit more color around that. Attachment rates kind of post that December 1 change dropped to between sort of 20%-25%, sort of immediately after, and then have just slowly kind of built back up to sort of just over 30%, now. Yeah, I think our expectation is that we would see those slightly improving through the year would be our assumption.
Yeah. There's two things going on, isn't there? People modify their behavior and become more comfortable providing more information to enable them to borrow on that vehicle, but that takes a little bit of time. But also the government has committed to reviewing the impacts of that legislation just to ensure that the unintended consequences perhaps are wound back.
Yeah. Good point. Just another question from Kieran. In Oxford Finance, the equity to total assets ratio was 23% in FY 2021. Given you have significant book growth since then, where does the ratio currently sit, and do you expect that you'll need to raise equity at any stage to continue growing the book?
The answer to that is no. That's not part of our plan. We plan to be able to fund this growth organically through retained profits, but also initiatives that essentially mean we can be more efficient in our deployment of capital in Oxford. There's no plan to anticipate an equity raise to support further growth in Oxford. We believe we'll be able to do it organically.
Great. Thanks, Aaron. Roger, thank you for your comments, Roger, and a question as well. Have you locked in Tina under a long-term contract? The answer to that is yes, we have. Yeah, Tina has been an incredible success for us. Just amazing connection to her, both internally in the business and obviously externally as well. We have many people wanting to book appointments for when Tina is working, and what they would like her to assess her car and buy their car off them. But yeah, she has done a great job and we have recognized that and have definitely locked her in. Just another question around what's driving the fall in registered dealers. Is this a continuing trend?
How does this impact Turners in the future? Do you wanna take that one?
I think predominantly it's supply has become and will probably become more difficult in the future. Essentially, a lot of small dealers sourced all of their inventory out of Japan, and it has become harder to get vehicles out of Japan due to changing regulations here, but also, you know, supply chain disruption, reducing new car sales in Japan through the pandemic. There's just a whole bunch of things that have made it much harder to be a small, kinda corner store type car dealer in New Zealand. You know, our kind of analysis a few years back suggested that, you know, we were over-dealered compared to perhaps other markets such as Australia and North America.
You know, that's proven to be the case and we would expect to see more and more of those smaller dealers, you know, exit the market over the next sort of three-five years.
Okay. That has come to the end of the questions that we've seen in the Q&A. If there's anything else people would like to cover off, now is the time. Just give it a couple more seconds and see if there's any other questions to come in. Okay. A couple of final questions here from Ollie. A number of manufacturers are shifting from a franchise to an agency sales model. Do you anticipate any impact from this on Turners as a result of traditional dealerships possibly pivoting towards the used car market? Short answer is no, Ollie. Toyota have implemented that agency model here in New Zealand.
There has been, yeah, obviously the Mercedes move in Australia has been well publicized. No, we don't expect any impact on Turners as a result of that. Just a few questions from Grant Low. If I get your question here, Grant, market share up to 10% from 6.55 by FY 2025. Is that the sort of timeframe we're talking about, the 10%? Yeah, look, broadly, I think. Might be, you know, slightly longer than that, and some of it depends on the property acquisitions that we can make, the suitable sites we can find. Yeah, that's sort of broadly the target. To what extent is margin compression assumed by FY 2025?
I think, Grant, you're talking about the GP or the gross margin on the cars we own, I think here. Maybe we can take that offline anyway, Grant. Finance net profit before tax of NZD 80 million-NZD 90 million receivables have lifted significantly over the past 12 months and will annualize. Underlying growth therefore seems muted. What are the assumptions underpinning this in terms of receivable growth and then payments, et cetera? Do you want to handle that?
Yeah. Yeah, sure. Yeah, we assume that receivable growth will slow, you know, perhaps back to FY 2021 levels, in part due to the portfolio effect, but also, yeah, there is a squeeze on margins across sort of auto lending at the moment just with interest rates moving so fast, so quickly. To give you an example, the two-year swap rate is up 3%. We've moved our pricing ahead of the market, but we are sort of only up about 1.7%. Yeah, we're anticipating a bit of a margin squeeze over the next sort of 12-18 months at Oxford, and that's tempered some of that profit growth.
Notwithstanding that, you know, we are very confident in the future of Oxford and that we have an offering that resonates with our customers. We're sort of looking through, you know, what's probably 12, 18 months. We've got three phases every 18-24 months, and we're about six months in. We're looking through a period of tight margins over the next 12 months.
Hey, Grant, I've actually just allowed you to talk if you wanna unmute yourself.
Oh, hi guys. Can you hear me okay?
Yeah. Yeah, that's much better.
Sorry. Those questions were my notes to self, which you got in pretty raw form. Thought I was gonna miss out there for a minute. Yeah. The focus of those couple of questions was really that FY 2025 bridge, and I think you sort of answered the finance one, but just in terms of the auto retail, you know, adding NZD 5 million of NPBT over that three years with the market share lifting, you know, materially from 6.5%-10%. I guess that implies, you know, a gross profit dollar decline in terms of gross margins on the vehicles that you sell. Would that be a fair way to think about that?
No, we look at it a slightly different way, Grant, and, you know, we're still selling sort of around about 40% of our vehicles at wholesale. Even if we deliver no more unit sales, we see a path to essentially selling more of those units at retail. You know, at sort of fairly high level, we make an extra NZD 1000 for every unit we retail compared to units we wholesale. We're not so much seeing necessarily overall unit growth of 50%, but we're seeing some unit growth as we open up new branches. But more that we pivot a bunch of our existing sales out of wholesale and into retail.
Got it. Okay. Right. Just a couple of others from me then. In terms of the insurance side of things, you know, revenue was down ever so slightly, but, you know, profits were up, implying that sort of that's OpEx driven primarily. You've called out there, you know, opportunities in the distribution channels and the like. Where have you added distribution in the period and where are you sort of planning that distribution lift going forward? How should we think about insurance revenue over the next 12+ months?
Yeah. I guess our expectation is for high single digits of growth. I mean, the main reason for that revenue drop has been that, you know, when cars aren't sold or when car sales drop significantly during lockdown, you know, there's nothing to attach policy sales to essentially. Yeah. We're kind of confident that that growth will return to that insurance business, so long as the economy doesn't go into lockdown again.
Got it. Looking forward, that will unwind, obviously assuming there's no further lockdowns or whatever that dynamic starts to dissipate. In terms of the distribution opportunities that you've sort of-
Oh, yes. Well, I mean, there's a couple of, you know, significant finance companies that we're working with at the moment essentially to, you know, to roll out our application program interface, our API, into their origination systems, which basically makes it easier for the dealer or broker to sell our products alongside, you know, as part of their offering, via, you know, via those finance businesses.
Got it. Okay. Just in terms of net interest margin, obviously interest rates are going up at the moment and your hedging policy, you know, has left some exposure in the short term. You've sort of called out that, you know, net interest margins can be expected to decline over the next 18 months. How would you sort of describe that? Obviously, you know, you're looking to term out some of this lending, which presumably is marginally lower cost, although I appreciate that that's as much a gearing issue as much as anything. You've also called out that, you know, competitors are competing aggressively. Could you give us just a bit more color around, you know, the likely extent of that margin compression?
How much of that's related to the hedging and short-term sort of stuff, and how much of it is sort of more longer term? How much of it sort of relates to, you know, those, you know, aggressive, as you've described it, competition?
I mean, if I draw a parallel, Grant, to the mortgage market, you know, two-year mortgage rates have pretty much followed swap rates, so they're up, you know, around about 3% over the last 12 months. Auto lending, you know, from our experience is up only about half of that in pricing terms. You've got this delta of around about 1.5%, which is kind of flowing through, I think, everyone's margins. Yeah, that's primarily the challenge for us is the market hasn't repriced perhaps as quickly as the mortgage market and the swap rates have.
Okay. Thank you. That's all for me for now.
Thanks, Grant. Okay. Is there anyone else who would like to ask a question? We can unmute you if you raise your hand or ask it through the Q&A. I think we have dealt with everything on there. Feels like we've, yeah, come to a natural conclusion, I think. Okay. Well, thanks everyone for your time. If there are any further questions, feel free to contact Aaron or I directly. Contact details are at the back of the presentation deck and the earnings release. We'll look forward to catching up with you soon. Thank you.
Thanks, everyone.