Why thl’s FY25 Loss Signals a Strategic Reset for Growth

FY25 Financial Overview

thl’s FY25 results reveal a challenging year marked by a statutory net loss of NZD 25.8 million, a sharp reversal from the prior year’s profit of NZD 39.4 million. This loss primarily stems from significant one-off non-cash impairments related to goodwill and deferred tax assets in the USA and UK divisions. When these items are excluded, the company’s underlying net profit after tax stands at NZD 28.7 million, down 45% from FY24, reflecting a bottom-of-the-cycle earnings environment.

Revenue from the sale of services, mainly rentals, increased by 10% to NZD 486.5 million, supported by an 8% growth in the rental fleet to 8,564 vehicles. Despite this growth, the group’s return on funds employed (ROFE) declined to 6.9% from 10.0% the previous year, with overseas divisions notably underperforming against targets.

Operational Highlights and Divisional Performance

New Zealand operations delivered a solid performance with a ROFE of 16.2%, stable rental yields, and a 22% increase in average rental fleet size. The opening of the Waitomokia Auckland site consolidates operations and supports future growth. In contrast, the Australian division faced a 46% EBIT decline, largely due to losses in its Retail Sales division and manufacturing challenges, despite an 11% increase in rental revenue.

North America and UK & Ireland divisions both reported negative ROFE, with North America impacted by soft macroeconomic conditions, increased depreciation costs, and weaker tourism demand. The UK & Ireland division is undergoing a strategic review, including potential divestment options to release capital for higher-return markets.

Capital Management and Dividend Policy

thl exercised capital discipline by reducing Australian retail inventory by over NZD 35 million and cutting net fleet capital expenditure by NZD 22 million compared to FY24. Net debt closed at NZD 492 million, with management expecting this to peak and decline in coming years as fleet growth moderates and earnings improve.

The company declared a final dividend of 4 cents per share, bringing the full-year dividend to 6.5 cents, representing approximately 50% of underlying NPAT. This payout ratio sits at the midpoint of thl’s policy range, signaling confidence in the balance sheet and future cash flows.

Strategic Initiatives and Outlook

thl is actively pursuing strategic initiatives to address underperformance in key divisions. These include cost reduction programs, manufacturing efficiency improvements, and the acceleration of the North American synergy project enabled by tariff-free RV movements between the USA and Canada. The Australian Retail Sales division is focused on inventory rationalisation and profitability improvements, while the UK & Ireland division’s strategic review may lead to capital reallocation.

Looking ahead, thl aims to exceed NZD 100 million in annualised net profit after tax within three to four years. This ambitious target relies on a 25% growth in rental hire days, stable rental yields, modest vehicle sales margin improvements, and a reduction in net debt by over NZD 100 million. The company plans to moderate fleet growth, focusing investment primarily in New Zealand and Australia, while driving operational efficiencies and cost savings.