McMillan Shakespeare (MMS) fell more than 7% at one stage yesterday after it became the latest company to downgrade earnings.
The company – which is a salary packager and car fleet leasing specialist, warned of a below expectations full-year profit and surprised by admitting to an asset management problem in the UK that will cost nearly $4 million.
The company said underlying profit after tax would be about $87 million to $89 million, compared to market consensus of about $92 million which was unchanged from a year ago’s figure.
The company also said that this estimate did not include other issues mentioned in yesterday’s statement. These were the UK problem and the RFS warranty issue. Seeing that will have a collective cost of more than $22 million, the actual net profit will be down sharply on 2017-18.
In fact, the statutory result could be down around $60 million for the year to June 30.
MMS also said that its salary packaging division had faced challenging conditions in the retail car market, and its Australian asset management business had experienced an increase in contract extensions, delaying end of contract income.
That’s similar to the problems that have hurt its rival and one-time merger partner, Eclipx. Its shares eased 0.7% to 1.35 yesterday.
In addition, its UK fleet management business is taking a one-off hit of $3.7 million after a customer went into administration and returned many vehicles prematurely.
The division had entered into a series of short-term contracts that allowed the vehicles to be returned without the customary contract break fee, McMillan Shakespeare said.
“Whilst this is an extremely disappointing outcome, we have conducted a thorough review of our asset management exposures and adherence to our procedures, and are confident this is a one-off issue,” it said.
McMillan said further it would write off the remaining $18.2 million in goodwill associated with Presidian Holdings, the warranty and insurance, and roadside assistance business that it acquired in 2015 for $115 million. Eclipx also wrote off the value of two recent acquisitions, including the GraysOnline business.
“Due to the changing regulatory environment, we are currently executing a plan to further enhance the design and distribution of our warranty products,” McMillan Shakespeare said.
“Given the inherent uncertainty associated with the regulatory environment, the MMS Board has decided to write-off the remaining goodwill of $18.2 million associated with this business in our FY19 financial results.”
McMillan also said it had surplus capital and excess franking credits and was considering the best use for this capital, including further acquisitions.
It had also begun a process to start an off-market share buyback process of up to $100 million during the December half of the year.
That buyback is aimed at keeping shareholders happy by supporting the shares in coming months because of the problems in Australia are expected to continue with car sales weak and wage growth under continuing pressure.
