With the full 'Turners Automotive Group' result due out next week, time for some historical context.
The table below is my answer to the question: "What would the combined profits of 'Turners Limited' have looked like if the merger of DPC and TUA was in place back in FY2012?"
The financial years of DPC and TUA did not match up. However, TUA was definitely on a growth path before DPC took a cornerstone stake. So for FY2014, a financial year which for DPC ended on 31st March 2014, I have added the 1st July 2013 to 30th June 2014 financial year results for TUA. It seemed better to add the slightly higher (constructed) 1st July to 30th June 'annual figure', rather than rely on the lower January to December full year TUA figure 'as published' (Both options contain an unavoidable 3 month timing mismatch due to TUA and TNR having different reporting dates). This involved reconstructing results from the half year TUA reports, to time shift the published 'full year TUA results' forward by six months. The earnings results are generally expressed in EBIT terms as a starting point.
I have also assumed that the capital structure of DPC was in place for the whole period of analysis. This means that the total liabilities on the TUA balance sheet must be funded by borrowing at the DPC 'parent borrowing rate' (see my post 1398).
There are two years (FY2014 and FY2015) of 'Turners Limited' results, where 'Turners Auctions' is included as a equity accounted investment. I have removed this 'equity accounted investment income' from the 'other income' of 'Turners Limited' in both cases. Instead I have included the full year equivalent results of Turners Auctions in both instances, consistent with assuming everything was already combined by FY2012.
I am modelling all tax to be paid at a rate of 28%. Turners Limited is now paying tax at 28%, and, barring any unforseen lending market market meltdown, will continue to do this into the future. Turners Auctions was paying tax at the 28% rate before the Turners Limited takeover. Dorchester was not paying tax because of previous tax losses being carried on the books. In my hypothetical 'early takeover' scenario, as shown in the table, I have ignored Dorchester's past tax losses (they are all used up today for future comparative purposes anyway) and assumed the combined DPC and TUA paid tax at 28% historically. It is best to do this if your objective is a fair comparison with present day earnings, undistorted by the effect of 'past tax losses' on 'historical comparative earnings'.
Five Year History of Turners Limited: Operational NPAT
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
EBIT (Turners Auctions :TUA) |
$7.342m |
$7.948m |
$9.117m |
|
|
less TUA Liabilities x TNR Interest |
$33.272m x 0.12 = ($3.993m) |
$36.423m x 0.098 = ($3.570m) |
$45.634 x 0.151= ($6.891m) |
|
|
equals EBT (Turners Auctions) |
$3.955m |
$4.378m |
$2.226m |
|
|
add EBT (Dorchester) |
($1.543m) |
($0.133m) |
$4.892m |
|
|
EBIT (Turners Limited) |
|
|
|
$26.387m |
$32.987m |
|
EBIT (Turners Auctions) |
|
|
|
$5.829m(*) |
|
|
add back Turners Auctions acquisition costs |
|
|
|
$0.675m |
|
|
Interest Expense (Turners Limited) |
|
|
|
($7.381m) |
($11.436m) |
|
less tax paid equity accounted TUA income |
|
|
($0.721m) |
($0.742m) |
|
less one off paper gain self-caused by TUA takeover |
|
|
|
($7.098m) |
|
equals EBT (DPC+TUA) |
$2.412m |
$4.245m |
$6.397m |
$17.670m |
$21.551m |
less tax at 28% |
($0.675m) |
($1.189m) |
($1.791m) |
($4.948m) |
($6.035m) |
equals NPAT (DPC+TUA) |
$1.737m |
$3.056m |
$4.606m |
$12.722m |
$15.517m |
----------
(*) 'Turners Auctions' was absorbed into 'Turners Limited' on 20th November 2014. This was during the FY2015 Turners Limited financial year which ended on 31st March 2015. Turners Limited FY2015 contained 365 days. For 234 of those days from 1st April 2014, 'Turners Auctions' was an equity accounted investment. Note 18 in Turners Limited AR2015 shows an equity accounted contribution to profit of $0.742m up until 20-11-2014. If we annualise this contribution, assuming a constant earnings rate throughout the year, then we get an annual earnings contribution from this 19.85% strategic stake in TUA of:
$0.742 x 365/234 = $1.157m (EBIT) for that 19.85% stake
This means that 100% of TUA must be making an EBIT of:
$1.157m / 0.1985 = $5.829m
---------
SNOOPY
P.S. Not entirely convinced my table is consistent, but it seemed to make sense as I was compiling it!