Segment Net Profit Picture: FY2018 Perspective
Quote:
Originally Posted by
Snoopy
A company that operates across disparate divisions can sometimes be better understood by seeing what happens when those divisions are separated out into virtual stand alone companies.
FY2017 (as presented) |
Automotive Retail |
Collections NZ |
Collections Aus |
Finance |
Insurance |
Corporate & Other |
Total |
As Declared (Check) |
EBT (as reported) |
$15.397m |
$6.006m |
$0.239m |
$10.156m |
$0.928m |
($8.095m) |
$24.631m |
EBT (corp costs apportioned) |
$9.266m |
$5.590m |
($0.071m) |
$9.306m |
$0.540m |
|
$24.631m |
Tax @ 28% |
($2.595m) |
($1.565)m |
$0m |
($2.606m) |
($0.151m) |
|
($6.917m) |
($7.057m) |
NPAT |
$6.671m |
$4.025m |
($0.071m) |
$6.700m |
$0.389m |
|
$17.714m |
$17.609m |
Note: Corporate costs have been apportioned according to divisional revenues.
That looks quite nicely balanced, particularly when you consider the new 'Autosure' acquisition will substantially boost insurance earnings in the coming year. But as an exercise, let's make the segment change to the finance market business, by transferring the interest revenue from Automotive Retail back to finance. This is representative of what Turners themselves did as recently as FY2015.
FY2017 (Snoopy adjusted) |
Automotive Retail |
Collections NZ |
Collections Aus |
Finance |
Insurance |
Corporate & Other |
Total |
As Declared (Check) |
EBT (as reported) |
$15.397m |
$6.006m |
$0.239m |
$10.156m |
$0.918m |
($8.095m) |
$24.631m |
EBT (interest revenue adjusted) |
$11.936m |
$6.006m |
$0.239m |
$13.617m |
$0.928m |
($8.095m) |
$24.631m |
EBT (corp costs apportioned) |
$6.046m |
$5.590m |
($0.071m) |
$12.527m |
$0.540m |
|
$24.631m |
Tax @ 28% |
($1.693m) |
($1.565)m |
$0m |
($3.508m) |
($0.151m) |
|
($6.917m) |
($7.057m) |
NPAT |
$4.358m |
$4.025m |
($0.071m) |
$9.019m |
$0.389m |
|
$17.769m |
$17.609m |
Suddenly the picture looks less balanced, with finance making up over 50% of the group's profits. It also highlights the contribution of the NZ Debt collection business, which in reality contributes almost as much to the bottom line as the much higher profile 'Automotive Retail' segment. Once corporate overheads are tacked onto the Australian debt collection unit we can see it is not profitable, an observation I find surprising. I do hope that Turners management know what they are doing over there.
I wonder how vulnerable the business is to the Auckland property slowdown? Will the Auckland car market, that Turners have so heavily leveraged themselves into with the 'Buy Right' cars acquisition hold up? Remember that profits can fall in Automotive retail by $1.026m and yet still remain flat on the books, because 'Buy Right' cars was not owned by Turners for all of FY2017.
A company that operates across disparate divisions can sometimes be better understood by seeing what happens when those divisions are separated out into virtual stand alone companies.
FY2018 (as presented) |
Automotive Retail |
Collections NZ |
Collections Aus |
Finance |
Insurance |
Corporate & Other |
Total |
As Declared (Check) |
EBT (as reported) |
$16.550m |
$5.845m |
$0.224m |
$11.735m |
$5.731m |
($8.952m) |
$31.133m |
EBT (corp costs apportioned) |
$10.511m |
$5.496m |
($0.029m) |
$10.675m |
$4.480m |
|
$31.133m |
Tax @ 28% |
($2.960m) |
($1.538)m |
$0m |
($2.999m) |
($1.251m) |
|
($8.748m) |
($7.773m) |
NPAT |
$7.611m |
$3.958m |
($0.029m) |
$7.676m |
$3.229m |
|
$22.445m |
$23.192m |
Note: Corporate costs have been apportioned according to divisional revenues.
That once again looks quite nicely balanced. But we must remember as well as 'Autosure' being in insurance for the first time, I believe the insurance division includes a $2.664m one off insurance settlement contribution.' As an exercise, let's make the segment change to the finance market business, by transferring the interest revenue from Automotive Retail back to finance. This is representative of what Turners themselves did as recently as FY2015 (and plan to do again from FY2019) .
Note: 'Automotive Group Retail Interest Revenue' was listed as $9.311m (AR2015 p49). But 'Interest Revenue' is not profit. If we use a profit fudge factor of 0.456 (The actual factor that worked in FY2015) then the adjustment we need to make works out at:
0.456 x $9.311m = $4.246m.
This comes off the 'Automotive Retail' earnings and goes on the 'Finance' earnings.
FY2018 (Snoopy adjusted) |
Automotive Retail |
Collections NZ |
Collections Aus |
Finance |
Insurance |
Corporate & Other |
Total |
As Declared (Check) |
EBT (as reported) |
$16.550m |
$5.845m |
$0.224m |
$11.375m |
$5.731m |
($8.952m) |
$33.133m |
EBT (interest revenue adjusted) |
$12.304m |
$5.845m |
$0.224m |
$15.981m |
$5.731m |
($8.952m) |
$33.133m |
EBT (corp costs apportioned) |
$6.514m |
$5.496m |
($0.029m) |
$14.672m |
$4.480m |
|
$33.133m |
Tax @ 28% |
($1.824m) |
($1.539)m |
$0m |
($4.108m) |
($1.254m) |
|
($8.725m) |
($7.773m) |
NPAT |
$4.690m |
$3.957m |
($0.029m) |
$10.564m |
$3.226m |
|
$22.408m |
$23.192m |
Suddenly the picture looks less balanced, with finance -still- making up around 50% of the group's profits. It also highlights the contribution of the NZ Debt collection business, which in reality contributes almost as much to the bottom line as the much higher profile 'Automotive Retail' segment. Once corporate overheads are tacked onto the Australian debt collection unit we can see it is not profitable, an observation I still find surprising. Yet at the Turners roadshow presentation, we learned that the strategy is to try and use a successful record of debt collection with the Aussie owned banks in NZ, and sell the same deal to their parent banks in Australia. Turners think this will pay off big time if they can crack it!
Profits from Retail sales are up. But $1.026m of that might have been expected with 'Buy Right' cars under ownership for the full year. We have been told the first year with Buy Right Cars under Turners control was disappointing. This table allows us to estimate the quantitative effect of that, assuming unchanged sales from the rest of the Automotive sales outlets
$4.690m - $4.538m = +$0.152m
That means that Buy Right Cars must have contributed (at least):
$0.152m - $1.026m = $0.874m less than expected over the FY2018 financial year.
SNOOPY