– By Caroline Falls –
McMillan Shakespeare has copped a substantial impairment charge in its latest financial results leading it to a net profit decline. And, the results show mixed metrics across the business in its key fleet and asset management and salary packaging services.
The group cut the value of goodwill, brands, dealer relationships and customer lists by almost $15 million. It made another charge of $6.2 million for amortisation of the same.
“Goodwill was retested for the current reporting date following performance under expectations to date,” McMillan Shakespeare said in a report of its account for the half year ended December 31, 2017.
This led to a 14 percent fall in aftertax profits to $34.9 million. However, underlying earnings rose 5.3 percent to $44 million from $42 million a year ago. The company said underlying earnings, which strips out new businesses so that you can compare like with like, was its preferred measure. Underlying earnings per share increased 6.1 percent to 53.7 cents from 50.6 icents in the corresponding period a year earlier. It’s worth noting that this is more than double the ratio it was four years ago.
Elsewhere in McMillan’s first-half 2018 results, the accounts showed employee expenses rose 16.9 percent to $40.1 million from the same half a year earlier. Another widely watched measure — return on equity was little changed at 23.5 percent. First half dividend was declared at 33 cents, compared with 31 cents a year ago.
Among McMillan’s three key business arms, the group remuneration services operated under Maxxia and RemServe brands improved: revenue grew 9.3 percent to $99 million; novated lease customers grew 7.2 percent to 61,000 and the number of salary packaging customers rose 10 percent to 326,800.
Asset management divisions in Australia and New Zealand flatlined, with revenue up 1.4 percent to $91.5 million on a 1.8 percent drop in the number of assets managed in the region to 21,600. A little over half those earnings is from principal and interest, about one-third is from sales of leased assets and about 16 percent is derived from maintenance and tyres services. In the UK, the number of assets under management rose 8.7 percent 18,200. Asset management brands include Maxxia, CLM and Interleasing.
In the retail financial services arm, where brands Presidian and United Financial Service offer vehicle finance, insurance and warranty broking claims rose and margins narrowed. Revenue for the unit fell 12.5 percent to $48.9 million, and while costs were also down, the margin narrowed to 15.5 percent from 19.9 percent a year earlier. The company blamed a few headwinds for that including market and regulatory uncertainty and market impacts on insurance sales and commission rates.
In other noteworthy takeaways from the report, McMillan said it had developed a program (Beyond 2020) to cut operational costs with a key performance indicator being to improve the cost-to-serve ratio from 53 percent to 40 percent. One of the means to achieve ths is to increase the use of robotics to execute customer self-service options. There’s lots of scope with 330,000 customers generating 715,000 phone calls and 840,000 manual requests. Another cash builder will be standardising product offerings, the McMillan financial report said.
The Beyond 2020 program is going to “revolutionise the sales activity system via automation,” the report said.
The company said its joint venture with Disability Services Australia — PMP, a National Disability Insurance Scheme plan management provider — was on track to contribute profits in the current year. McMillan noted it’s the only truly national plan management provider in the $22 billion funding sector which has as many as 416,000 participants.
It said it is looking for strategic acquisitions to plug into its UK-based Maxxia broking platform. Maxxia, a financial intermediary, has arranged some $750 million in finance loans.
Among future outlook statements McMillan Shakespeare pointed to its conservative financial position — $48 million cash in the bank, just $1.2 million in net debt and a gearing of 44 percent — to fund growth and shareholder returns.
It ended its statement to the exchange on a cautious note, with a list of “risks and sensitivities”, notably “loss or repricing of major customers” sitting among everday concerns: regulation of consumer insurance and lending products; consumer action; acquisition and integration risk; second-hand car prices and remarketing earnings; new and used car sales; interest rates; policy and regulatory change; and, general economic conditions and consumer confidence.
