Good morning, everyone. We're at 10:30 AM, so we'll get things underway. Hopefully, everyone can hear us loud and clear. Might just get someone to maybe raise their hand on the call using the raise hand function. Great. Good to see you, sir. Thank you very much. That's good to see. Lots of raised hands. That's good. Welcome, everyone. Thanks for taking the time to join the call today. With me here is Aaron Saunders, the Chairman and Group CFO. Today, we'll go through our full year results and then open the call at the end for Q&A. If people can use the raise hand function. When we get to that point, we can then open up the audio for the people who want to ask questions.
The image you see on the front here is the new Turners Westgate branch in West Auckland, one of the newest branches in the network. This was also the filming set for our new brand ads featuring Tina from Turners. A little fun fact for the morning. Let's just push on here. We'll go through the following today, the FY2021 results, the segment results, and then look forward. We feel we've had a real step change in our business performance in FY2021 with a 19% increase in underlying profit before tax. Many of the changes we've made over the last two to three years are really starting to get traction. We'll be going into the plan for growth in the second half of the presentation.
Including that FY 2022 started positively and using a more normal comparative before COVID struck, we are materially ahead of trading in April FY 2019. Early signs but we've seen very consistent results from the business divisions. Reflecting on the last 12 months, our team has responded incredibly well to the pandemic in the first half of the year. The high levels of engagement, combined with the diversified nature of the business, ensured we were well-positioned as we moved out of the lockdown. As a group, we've continued to build quality customer experiences, improve the quality of our work environment for our people, which we believe will deliver quality returns for our shareholders. Our growth plans are working, and the exciting thing is there is more to come. We are targeting the headline business at NZD 45 million in net profit before tax within three years.
Net profit before tax is up 29%, what has effectively been a 10 months trading period due to the various lockdowns. Used vehicle supplies remain constrained through the year due to the new car supply chain issues, and our view is this will continue for some time. We've seen margin expansion in auto retail due to a number of sourcing initiatives, and this remains a key area of focus for us going forward. The finance book has continued to improve as we write better and better quality loans. We've delivered a record profit for the business and a record dividend payout for shareholders. Just looking at the results snapshot, net profit after tax of NZD 26.9 million is up 28% on the same period last year. Underlying net profit before tax was up 19% to NZD 34.3 million.
Earnings per share through FY 2021 were NZD 0.314 per share, up 29%, and a further NZD 0.06 per share dividend has been declared for the final payment of FY 2021, and this will be payable in July. This takes full-year dividends to NZD 0.20 per share, and this reflects the dividend policy to pay out ratio of 60%-70% of net profit after tax. Although it was a disrupted operating period, FY 2021 revenue was down 11% to NZD 296.5 million. We had a strong response from the business, including the acceleration of our digital strategy and rigorous cost management, saw three of the four segments with profit strongly. Only credit management was down on last year's result, with a number of our corporate and bank customers reluctant to pursue debt aggressively over the COVID-19 period.
Demonstrating the benefits of the group's diversified annuity and activity businesses, profits rose 50% in insurance, 30% in finance, and 11% in auto retail, all helping contribute to a strong and sustainable yield. Profit in the credit management business was down 22%. Sorry about that. A disrupted operating period saw FY 2021 revenue down 11%, three of the four segments were directly impacted by the hard lockdown in April and May and the later regional lockdowns to a lesser extent. Credit is down on last year's result, with a large number of our corporate and bank customers reluctant to pursue debt aggressively over the COVID-19 period. Demonstrating the benefits of the group's diversified annuity and activity businesses, profits rose 50% in insurance, 30% in finance, 11% in auto retail. Profit in the credit management business was down 22%.
We were early on our cost reduction plans, and a number of the changes we've made in the business over the last few years put us in a position to be able to take advantage of the opportunities. True to form, on COVID forecasting, the one business we thought was going to benefit the most from the pandemic, credit management, ended up being challenged the most out of our four businesses. Goodness, this is very sensitive. Barbara, do you mind? I'd like you to read through this stat.
Sure.
Turn to the actual table.
Here's another one.
There we go. Thanks. Just talking about the reconciliation from reported net profit to underlying net profit, there were a number of one-off COVID related impacts to profit in the first half, which you can see in this table. The key takeaway from this table is that second half operating profit has no one-off adjustments and reflects our expected run rate of NZD 3 million plus operating profit per month. Underlying earnings have increased from around NZD 29 million in FY 2020 to nearly NZD 34.5 million in FY 2021, an increase of nearly 20%. Let's just go back through. Hang on, I've got this working now, I think.
Okay.
Yeah. No, that's good.
You can just.
That's good. No worry. We've got our slide changing sorted. Given the strong profit performance over the year, and particularly in the second half, directors have increased the final dividend to NZD 0.06 per share, giving a total of NZD 0.20 per share payout for FY2021 . This equates to a payout ratio of 64%, almost right in the middle of our payout policy of 60%-70%. Based on a share price of NZD 3.75, this gives a very attractive gross yield of 7.4%. On the balance sheet, the reduction in cash balances reflect the precautionary levels we were holding as we went into lockdown last year. Inventory levels have reduced over the year as we've improved stock turn, and we have a historically low age stock position.
Finance receivables have grown nicely due to the great work going on in Oxford Finance. Our borrowing does reflect some de-leveraging that occurred post-lockdown, offset by funding to support the growth in Oxford Finance lending. Turners funding remains at conservative levels with plenty of headroom to support our growth plans. We've increased the size of the securitization warehouse from NZD 250 million to NZD 300 million, which you should take as a strong vote of confidence from their detailed credit analysis and scrutiny. I also want to point out that three-quarters of our total debt relates to the finance business. We are very comfortable with that given the quality of the lending and the conservative capital position within Oxford Finance. We have plenty of capacity from a capital and funding point of view to keep Oxford Finance growing.
The focus of our ESG strategy in FY 2021 has mostly been on the social aspect, with the obvious focus on our customers and staff safety and welfare during the height of the pandemic. We have implemented Peakon during the year, which is an employee engagement survey, which gives our people a regular opportunity to give us their feedback and gives us excellent information on a whole range of topics, including employee engagement. In the chart on this slide, you will see the positive improvement in scores since launch, and I'm really pleased with the high levels of engagement right across the business. We're also doing a lot in the current business to help old and end-of-life cars off the road. With Turners Subscription, we'll be putting a serious investment into increasing our electric vehicle fleet over the next six months. Now go into the segment results.
You will see from this slide that finance and insurance were the most improved, with finance becoming the highest contribution to group net profit before tax and insurance profit growing by 50% year on year. These were the key streams of work completed by division over the last 12 months. We successfully completed the exit of our main Penrose Super site and set up two new branches at Westgate and Mt Richmond in Auckland. A huge achievement from our operational teams to get this done on budget and on time. I certainly want to salute their efforts in getting these important pieces of work completed. In finance and insurance, we'll keep adjusting our risk appetite and pricing and look for new areas of distribution in both finance and insurance.
Group wide, we've continued to push hard on developing and delivering our digital initiatives, and I'm very pleased with the discipline shown in cost management right across the business. Just going into each of the divisions in a little more detail, starting with auto retail. COVID lockdowns have had a significant impact on sales during the year. The counter to this was margins on our own fleet have improved in FY2021 over FY20. As you can see in the chart on the left, sales through our Buy Now retail channel have tracked up to around 60% versus 50% a couple of years ago. This will continue to increase, and we are targeting 70%. Our diversified sources of supply have been a real competitive advantage, particularly as the used car supply chain in Japan was impacted so significantly.
There was a lot going on in the network with exiting the largest site and setting up new branches, and these decisions have been completely validated by the early superior performance of these new sites. We see this retail optimization strategy as delivering repeatable and dependable outcomes that go straight to our bottom line. Inventory levels have remained consistent through the second half of the year at around NZD 30 million, which is around 30% down on the peak of April 2020. As we outlined in the Investor Day presentation in April, we've identified five key focus areas in auto retail that will generate the growth we desire. Firstly, sourcing. We're investing a lot of time and resource into ways we can improve this capability in our business. Every car we buy is worth another NZD 1,500 in profit to us. Secondly, our retail optimization strategy is progressing very well.
As well as optimizing and upgrading our current footprint, we're aiming to add at least one to two new sites per year, and we already have our next two sites locked in, which I'll show you shortly. Thirdly, finance and insurance add-on sales continue to be a big opportunity, with still roughly 40% of our sales going down the auction lanes, we have a significant revenue opportunity with these add-on products by shifting those sales into the retail Buy Now channel. Fourthly, in lead management, we invested in technology and training to improve our conversion rates in both marketing and sales leads. For every 1% lift in sales leads, that will give us approximately another 1,000 sales. There is a substantial payback and opportunity for us here. Finally, we will continue to invest in our brand. It is already strong, the most trusted used car brand in New Zealand.
It has high awareness, we believe that there is further opportunity to invest in it and develop it into one of New Zealand's most loved brands, like Whittaker's or Air New Zealand. We've just launched a new campaign featuring Tina from Turners, and the initial traction and feedback has been extremely positive. Now I'll just quickly show you the two new sites that we've secured. We've purchased a 7,500 sq m site on Fairy Springs Road in Rotorua. This is a high-profile site that's being currently run as a Kia franchise yard. We hope to have this up and running while we redevelop the main building on the site in Q2 into a big blue Turners showroom and office. That's just a quick photo from the road frontage there.
As you can see, it's on a major traffic road, four lanes of traffic, and handily placed right next door to a large Countdown supermarket. In Q2 this year, you should see that up and running as we redevelop the main building on the site there that you can see. The other site that we've secured is in Nelson. We've secured a 6,000 sq m corner site right in the center of Nelson City. This will require some demo works and redevelopment of an existing building to get it ready for a market launch. We expect this branch to come onstream at around Q1 of FY 2023. The site is situated on St. Vincent Street in Nelson and is located handily between a PlaceMakers and a Harvey Norman store there. Plenty of traffic coming down that road, which is good. Moving on to finance.
The finance division has gone from strength to strength over the last 12 months, that claimed group bragging rights by being the number one business division by profit within the group over the last 12 months. Revenue for FY2021 was NZD 47.9 million, up 5% on last year. Net profit before tax was NZD 15.8 million, up 30% on the year prior. Again, this was both a record and indeed the highest contribution of any segment. Oxford continued to gain market share in the high-quality borrower segment of customers, providing more than 45% of the new loans written each month in the premium risk tier. Targeting high-quality borrowers means arrears are at record low levels, with consumer arrears at 4.2% and commercial arrears at 1.8%.
Importantly, our expectation is that arrears will continue to improve, given that the weighting towards newly introduced premium loans grows as a percentage of the book. We'll show you that on the next slide. Meanwhile, to be prudent, Oxford has continued to take a conservative position on arrears provisioning and retained a COVID-19 buffer to allow for any unemployment increase in future months, despite the fact that the economy has tracked surprisingly well over the last couple of quarters. This slide is a graph of new lending over the last two years, which highlights a few things. Firstly, we stopped lending during the lockdown in April and May last year, and you can see the impact that obviously had on new lending.
The second thing is the significant increase in monthly lending in FY2021 over FY2020, and also the orange portion of the bar shows you the portion of premium tier quality business that we are writing each month and how that has increased over that two-year period. The improvements we've made, key to the improvements we've made to the Oxford Finance are structural improvements that we're embedded in and are now optimizing. We are very confident there is more to come here. Three key things have been driving down our arrears. High-quality loans being originated at the front end through early adoption of comprehensive credit reporting has assisted in helping us target that premium risk business.
There's been a huge amount of great work done by our credit collectors and recoveries team working the back end, and we've established a customer services team, which has allowed our credit collectors to really focus on their core roles of dealing with customers who are in default. Moving on to insurance. Insurance revenue decreased 5% to NZD 41.9 million due to the impact of the national and regional lockdowns. Gross written premium increased for the whole year due to a number of key competitive wins, market share gains, and risk pricing adjustments. Despite the lockdowns, ended up being 2% ahead of FY2020. Segment profit was up 50% to NZD 9.4 million, which was another segmental record and the highest growth of any segment.
This was driven by high margins, reduced claims, lower overhead costs, and the finish of amortizing the acquired premium portfolio as part of the Autosure acquisition from Vero in 2017. Progress on building our distribution over the year included two sizable system integration projects completed with Marac Finance and MTF Finance. Combined claims ratios improved from 69% in FY 2020 to 60% in FY 2021. Credit management revenue decreased 29% to NZD 12.8 million due to the impact of COVID-19 and the market-wide conservatism with respect to debt collection during the first phase of the pandemic. Many large corporate customers only recently once again began initiating collection actions. Despite total debt load being down 47%, the team have done a great job on the debt that we did have to work with segment profit only down 22% to NZD 5.1 million.
The management team are working closely with debt referrers to manage and improve customer outcomes as we operate in an environment where bad debts are likely to increase and debt collection services will see increasing demand. We've now seen lenders who were previously prioritizing reputation over collections now reinitiate debt load and collections work. We actually experienced a very similar pattern in the industry post the GFC, this was merely a precursor to a busy collection period starting. Shift to looking forward. A key part of our earnings growth relates to structural improvements we've made in the business to build quality. We've made a number of changes over the last two to three years where we're already seeing major benefits. We believe we've found the right formula, more importantly, we will continue to further optimize these levers into the future.
Retail optimization is the first one, where we're focused around property and customer experience being optimized for our retail consumer. The second area is around vehicle purchasing decision-making, providing diagnostic tools and use of other data tools to improve on the percentage of profit-making vehicles we purchase. The third area is premium lending. We will continue to use comprehensive credit data to implement new risk pricing strategies, attracting higher quality borrowers. Whilst there's lower margins, this will be offset by much lower impairments and losses. In the last areas, we will continue to invest in digital initiatives, in particular, enhancing the omni-channel customer experience we provide in auto retail. FY2022 specifically, these are our work streams. In auto retail, stock acquisition is the single most important area of investment. Strategically, this is where our competitive moat becomes even wider.
In finance, simplifying and automating as much of our lending process to ensure fast turnaround on our credit decisions will be priority number one. In insurance, continuing to expand our distribution is the top of our work stream list. In credit management, investing in data initiatives to improve contact rates will be the most important area to work on. It was important to be clear with shareholders on how we think about allocating capital in the business for supporting these growth plans. We've received very clear messaging from existing shareholders that they want to see yield and growth, but growth supported from the existing capital base. Our focus is on organic growth, which will be funded out of retained earnings and initiatives to make ourselves more capital efficient. Capital allocation will be broadly prioritized across the following categories.
Footprint expansion and auto retail can be funded largely through debt or leased premises and floor planned finance for inventory, but some capital investment is required for the fit-out of the new retail sites. In property, we feel that this de-risks the auto business through controlling strategic sites. It provides more control over the cost base, but provides opportunity for long-term capital growth. At the moment, all our properties are on balance sheet at cost. In Oxford Finance, the growth requires capital alongside the debt to grow receivables and earn profits. Lastly, we'll focus the capital into digital initiatives across the group. Whilst a large portion of that is OpEx, there's always some capital required to be allocated to support the growth and future-proofing of the business. We wanted to communicate our view around the next two to three years.
We really feel we've reached an inflection point midway through FY 2020. Since then, we've seen a steep change in the business as the initiatives that we've put in place have got traction. The key strategic investments, initiatives, and changes that have been completed over the last three years are starting to deliver. We're very happy with the momentum and the plan and feel confident there is more to come. The next two slides give shareholders some insight into how we are thinking about the growth trajectory internally and which divisions the growth will come from. Within three years, we're targeting profit before tax of NZD 45 million, and using our existing dividend policy, this will equate to a dividend payout of around NZD 0.24 per share.
In particular, the auto retail and credit management businesses are highly cash generative, which gives us the opportunity to deliver growth and yield for our shareholders. The main focus areas for growth will be auto retail and finance, with retail optimization helping to deliver margin expansion and market share growth. Finance growth will come from distribution expansion and direct lending. We are confident that if we deliver the growth, the combination of higher earnings and an expanded valuation multiple should better reflect the value we are delivering for shareholders and the quality of the company we are building. Just on outlook now, April and early May have seen a continuation of the positive momentum Turners has enjoyed over the past few months. Our April 2021 financial results are materially ahead of the more comparative period of April 2019.
In auto retail, we're expecting the supply-constrained market to continue for another 12-18 months. This is primarily due to impacts on the new car supply chain. New lending in the finance business will be strong, our expectation is our arrears will continue to improve due to the structural increase and the amount of low arrear premium lending. In insurance, we expect new policy sales to be buoyant and claims ratios to stabilize. Lastly, in credit management, debt recovery is returning as corporate customers start to get back to business as usual. Putting all this together, shareholders should expect to see a further improved result in FY 2022, and accordingly, a corresponding increase in FY 2022 dividends. We'll update on more specific FY 2022 guidance over the coming months.
Before we finish, I'd like to acknowledge the efforts of our team, from our board of directors and right through to the operational teams who deliver on a day in and day out basis for our customers and for our shareholders. This group of people have been totally committed and prepared to go above and beyond in difficult circumstances. It really has been a fantastic group of people to be involved and to be working alongside with. I also want to thank those landlords and business partners who extended a helping hand during the early part of the lockdown. It was greatly appreciated. Finally, a quick hello to a couple of shareholders in my hometown of Kerikeri, Jeff Christensen, and also to Bill and Pam Hunter, otherwise known as Mum and Dad. Thank you for your support.
Finally, we recently hosted an investor morning for fund managers where we gave further details on our growth model I've discussed today. If you're interested in finding out more, please refer to our recent investor presentation, where you'll find a link to that on recent NZX announcements. That was on the 14th of April for those who want to go and have a look at that. I will now open up for questions. Barbara, could you pass me down that mouse, please?
Can you hear me?
I'm too far away.
You're getting the opening [objects].
Do you want to just read it out? Sorry, I'll just pull that back. There we go. Sorry, we just might just stop the share there. How did we go?
Read this? Your presence in Auckland and Christchurch is lower than expected given the market size. What plans do you have to extend your presence?
Do you want to comment on that, Aaron?
Yeah, definitely.
Maybe just reread the question.
Yeah. Your presence in Auckland and Christchurch is lower than expected given the market size. What plans do you have to increase your presence? In Auckland, I think it's fair to say we're happy with the number of sites. There's still some optimization to do around location. We'd like to have a bigger presence in South Auckland. We're actively canvassing the area between Manukau and Takanini, just looking for options for bigger sites in that area. Probably the other option we would look towards in Auckland is something to access the Hibiscus Coast, so somewhere around Orewa, Whangaparaoa, maybe Millwater. Yeah, Auckland, happy with the number of sites, acknowledge that the distribution could probably be better, and that's something we're working on. In Christchurch, I think, yeah, the model can support more sites.
We've got a very successful site quite close to the CBD at Detroit Place. I think given the growth in Christchurch post the earthquake recovery, we could probably support another one to two sites there. We are looking in Christchurch as well at the moment.
Thanks, Aaron. If anyone wants to ask questions on the call, maybe if you could just raise your hand and I can unmute you. Or you can type it into the Q&A.
Thank you.
Yeah. Thanks, John, for that note. Hi, Grant, can you hear us?
Yeah. Can you hear me okay?
Yeah. Coming through.
I don't want to take up a lot. After the update today, in April, I've not too much of a question around the roadmap to-
Hey, Grant, could you just talk a bit closer? You're just fading in and out a bit.
Can you hear me okay or is it coming up now?
We've got you up on full volume, but you're quite low volume.
Right. Well, it's actually not really the matter. It's around the NZD 45 million. Can you just give a breakdown of how much of that is driven by existing improvements that you've made, additional retail sites and the like, and how much is reliant on improvements that you've currently got underway?
Did you get it, Aaron?
Yeah. I think I caught that, Grant. If I can paraphrase, how much of that increase in profits through to FY 2024 is based on initiatives we have underway already, and how much is still to come? I would say that with the purchase of sites in Nelson and Rotorua, we're looking at, I guess about half of the auto retail improvement being in a sense in train now, so about NZD 1.7 million through opening up in those two sites and optimizing our Auckland footprint. In terms of Oxford, really in Oxford, we are assuming continued ledger growth at a rate of around about NZD 40 million, so just over 10% a year for the next few years. We've got the capacity to deliver the bulk of that, and we feel like we've got the distribution to deliver that as well.
Marginal improvements in insurance, which will come from simply a continuation of the market share gains we've experienced over the last 12 months. We're assuming premium growth in insurance of around about 3% a year over the next three years. In EC Credit, it's really a recovery to the debt load levels that we were enjoying pre-COVID. Again, not a particularly aggressive target there, but really just building back up to where we were in that business in 2020.
Okay. Thanks. I'll leave it there.
Thanks, Grant.
Thanks. Grant, do you have any other questions?
Not at this stage. I'll catch back with you later in the day.
Okay, great. Any other questions from anyone? Just raise your hand, and then I can unmute you if you'd like to ask a question. Using the raise hand button down the bottom of your screen on Zoom. Looks like everyone's happy with what they've heard. We'll take that as a positive. Okay, unless there's any other questions. Oh, here we go. It's to John Harrison. Hello, John.
Oh, hi, Todd. Hi, Aaron. Congratulations on a fantastic result. I've just got a few quick questions. On slide 12, you show NZD 60 million worth of property. What is the realistic value do you think of that property? Because you've been purchasing for the last two years at quite a rate, and I wondered if that's a bit conservative.
Yeah. Thanks, John. As Todd alluded to, we're carrying the property at cost. Valuations have come in at the end of March, around about 20% above that carrying value.
Okay, 20%. On slide 13, you showed NZD 3 million to MTF receivables. I thought we were out of that.
Yeah. That's just the rundown of the book, John. It's probably another 12 months for that receivables book to run down to zero.
Okay, in 12 months, it's all gone.
That's right. Yep.
Okay. On slide 24, you note that you are carrying an arrears position buffer, I don't know what it is. Can you give me an idea as to the amount in dollars?
Yeah, sure. You may recall from this time last year, we carried a COVID buffer of NZD 1 million, and that was essentially to acknowledge that there were people who were probably gonna come under pressure, particularly in tourism, hospitality sectors. We've continued to carry that buffer, at the end of March this year, and we've added another NZD 400,000 to it relating to a number of the accounts that entered hardship during that period. We've sort of worked through the rationale for that with our auditors, and I guess their feeling and ours was that a number of those people, whilst they may have recovered their position, were certainly financially a bit more stressed than perhaps the balance that I mentioned. We're now running with a provision buffer of about NZD 1.4 million, in excess of what our standard provisioning model would indicate.
Well, that's very conservative. On slide 35, you mention about the markedly improved April. Have you got a figure you can give us so we can compare to last year? April last year, of course, was under COVID-19.
I think what we can say is April is normally a reasonably challenging month, John, because of the timing of Easter and Anzac Day and the school holidays. It almost becomes like a December/January in terms of the statutory days. Pleasingly, this year it was in line with our run rate over the last six months, which is in excess of NZD 3 million a month.
Right
What we can say is it's behaved exactly like a March, which is traditionally a much stronger month. We're pretty happy with that.
Okay. Well, that's wonderful. I assume that because you're so conservative, we can look forward to another three profit upgrades in the next 10 or 12 months. Congratulations. What a wonderful year for you both and for the board and of course the shareholders.
Thanks, John.
Thanks.
Appreciate those comments.
Thank you.
Okay. Okay, any other questions anyone would like to ask before we wrap up? Now is the time to raise your hand using the button at the bottom of the screen. Okay, I think we'll finish things there. Thank you for your time this morning. Hope that's been useful. Obviously, if there are any other questions that people have, please feel free to get in contact directly with Aaron or I. Contact details are on the last page of the presentation. Otherwise, enjoy your day and thank you very much for your time.