– By Caroline Falls –
Eclipx, one of four fleet management and leasing companies listed on the Australian stock exchange, last week announced a big loss for 2019, as it made writedowns on several businesses it described as non-core.
The company reported a statutory loss after tax of $341.5 million for the year ended September 30, compared with a $53 million profit a year earlier. Most of the losses related to one-time costs, but earnings also turned down. Eclipx reportedly paid $8 million to rival McMillan Shakespeare for costs associated with failed merger talks earlier in the year.
Eclipx is going back to basics and shedding businesses it acquired as recently as 2016 when it was in the midst of a diversification strategy under the leadership of CEO Doc Klotz. Management of the company changed in May 2019, when Klotz and other directors resigned in the wake of the failed merger. New appointments, including Julian Russell as CEO, were made on the same day. The stated plan now is to reduce debt, and get out of low-margin products.
“Non-core business, including those sold during the second half of FY19, were a substantial drag on group earnings,” Eclipx said in a statement to the ASX. On the upside, it said growth in its novated consumer business in Australia was a financial highlight.
“Eclipx’s FY19 financial performance was very disappointing, principally due to the underperformance of our non-core businesses,” said Gail Pemberton, chair of Eclipx’s remuneration committee.
Since May the group has sold three of five businesses it earlier identified as non-core, cutting debt some $82 million. The three sold include AreYouSelling (an online buyer of used cars), Commercial Equipment Finance Australia and GraysOnline (online auction and retail company). Other non-core units up for sale include Right2Drive and Carloans.com.
“The return to core means Eclipx is a simpler business where head office infrastructure and costs can be reduced and processes across the core business can be streamlined as the business moves to a singe lease platform,” Eclipx said in its financial results report. “These initiatives allow the group to decrease its costs to serve and implement best practice in customer service to grow margins and profits.”
Eclipx also released an update on its simplification strategy. Its stated priorities are: divesting non-core businesses; strengthen balance sheet; attain 45 percent group cost-to-income by September 2021 from about 76 percent in March 2019; renew executive team; and, refocus core business along the lines of disciplined capital allocation.
Eclipx said it is considering brand consolidation of its three core businesses: FleetPartners, Fleetplus and FleetChoice. Other noteworthy shifts in the strategy document include an increase in financial warehousing capacity in anticipation of growth, and an effort to refocus on core businesses by cutting lower-margin products and reducing corporate distraction.
The merger talks with rival McMillan Shakespeare, which ended unsuccessfully earlier this year, were no doubt a major disruption.
Eclipx has identified its existing corporate customer base provides expansion opportunities and that it should seek to increase its position in the growing novated market. It said its fleet platform has a leading market share. The company also highlighted a big improvement in its NPS rating to an excellent 54 from 38 just six months earlier. NPS stands for net promoter score, and measures customers’ likelihood of recommending a business’ services. Any number above zero is good, and anything above 50 is excellent.
Eclipx abandoned paying out any dividends to shareholders.