McMillan Shakespeare Updates FY20 Profit Estimate
McMillan Shakespeare Limited (ASX: MMS) has on the 29th of June updated the status of operational profitability approaching the end of the financial year, in the context of COVID-19 impacts. Affected areas are group remuneration services, asset management services, and retail financial services, with the company giving an update on financial positions.
MMS expects that underlying net profit after tax for 30th of June 2020 to be around AUD69 to AUD72 million, of which does not consider statutory profit. The financial results release will be on the 19th of August 2020. A contributing factor is the approach two-thirds of the AUD320 million senior debt facilities that were due to expired in March 2021, having been extended to March 2022, with the rest due in March 2023 and March 2024.
The retail financial service aggregation has seen a reduction in finance originations and yields due to the COVID-19 pandemic. This minimisation is due to increased competition in the automotive industry and a decline in car sales, which reduced the expected statutory profit after tax by AUD30 to AUD35 million.
Impacts from this macroeconomic environment come to have an 80 per cent rate of originations compared to the same month last year. Thus, the division will be reviewing warranty products available and introducing new products during FY20. A new recording method to see revenue and sales recorded evenly over a more extended period instated, seeing an AUD10 million charge to FY20 statutory profit.
As of the 29th of June, new asset management financing in Australia and New Zealand have felt the effects of the pandemic. A new strategy to maximise extending and restructuring customer lease agreements has minimised financial impacts. The most reviewed division is the UK group, with restructuring geared towards balance sheet restoration and fleet management. The management structure in the UK will become reduced to mirror this new strategy. FY20 statutory profit after tax will be reduced by around GBP8 to GBP10 million due to write-down of intangibles and restructuring costs.
Fortunately, the group’s salary packaging business continues to be unaffected by the COVID-19 with inquiry levels and new novated leases seeing a rise during May and June. Compared to the same month last year, there has been an 85 per cent level of activity recorded. This result is unsurprising due to multiple factors such as lower insurance penetration, lower interest rates, reduced volumes, and changes in the mix of funders.
Under the MMS umbrella is Plan Partners – a financial specialist whose operations remained resilient during COVID-19 and continues to grow and be profitable. MMS has reached an agreement to acquire a 25 per cent interest in Plan Partners from its joint venture partner. Capital to fund the $8 million deal will come from cash reserves, and the acquisition faces completion on the 30th of June 2020.The pandemic has impacted MMS along with other similar businesses, yet MMS looks to have a plan in place to restructure and grow past these effects.
By Caroline Wong
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