I think Jeffery maybe should have waited another month or two before publishing his first piece and maybe done a little bit more work
With the onerous leases for some unknow reason he has only gone back 1 and a half years, even though he notes that original provision was raised in 2014 (worth noting that following the half year the provision should be close to zero – which makes cleaner accounts).
As detailed in every set of accounts published by GXL an adjustment was been made for these leases. The point raised in the half was the adjustment was too much, not that it was new. Adding back the prior year adjustments results in the following.
|
Column 1 |
Column 2 |
Column 3 |
Column 4 |
Column 5 |
Column 6 |
Column 7 |
Column 8 |
Column 9 |
| 1 |
|
|
|
FY14 |
FY15 |
FY16 |
FY17 |
H1FY18 |
H1 Annualised |
| 2 |
Reported Underlying EPS |
(cents) |
|
24.0 |
34.3 |
35.3 |
37.0 |
20.7 |
|
| 3 |
|
|
|
|
|
|
|
|
|
| 4 |
Onerous Leases Adjust |
A$m |
|
0.0 |
1.8 |
2.1 |
2.2 |
3.5 |
|
| 5 |
Per Share |
(cents) |
|
- 0.0 |
- 1.6 |
- 1.9 |
- 1.9 |
- 3.0 |
|
| 6 |
|
|
|
24.0 |
32.7 |
33.4 |
35.1 |
17.7 |
35.47 |
I would assume by his comments on software he doesn't have lots of experience on deploying ERPs, CRM, warehouse management software. As many of you know these projects take years to implement with the objective that the software deployed delivers long lasting benefits. Whilst subjective is 15 years a little too long – maybe, 5 years too short absolutely, maybe a middle ground of 10 years is a sensible place. See impact below.
Jeffery notes in his report -
The sceptics tell me the next step will be to write off those capitalised IT costs, non-cash of course. Brilliant !! he is correct. As per page 3 of the 9 May 2018 trading update, GXL advised that they would take a charge between $8-$9 million. Whilst disappointing it has been reported, but no benefit in reduced amortisation is noted.
Between taking the amortisation to 10 yrs and accounting for the $8.5mill of project write offs, the impact in amortisation is a rounding error.
|
Column 1 |
Column 2 |
Column 3 |
Column 4 |
Column 5 |
Column 6 |
Column 7 |
Column 8 |
Column 9 |
| 1 |
|
|
|
FY14 |
FY15 |
FY16 |
FY17 |
H1FY18 |
H1 Annualised |
| 2 |
Reported Underlying EPS |
(cents) |
|
24.0 |
34.3 |
35.3 |
37.0 |
20.7 |
|
| 3 |
|
|
|
|
|
|
|
|
|
| 4 |
Onerous Leases Adjust |
A$m |
|
0.0 |
1.8 |
2.1 |
2.2 |
3.5 |
|
| 5 |
Per Share |
(cents) |
|
- 0.0 |
- 1.6 |
- 1.9 |
- 1.9 |
- 3.0 |
|
| 6 |
|
|
|
24.0 |
32.7 |
33.4 |
35.1 |
17.7 |
35.47 |
| 7 |
|
|
|
|
|
|
|
|
|
| 8 |
Amortisation |
10 |
yrs. |
- 0.6 |
- 0.7 |
- 0.8 |
- 0.4 |
|
|
| 9 |
Projects W/O |
8.5 |
mill |
- |
0.1 |
0.3 |
0.5 |
0.3 |
|
| 10 |
|
|
|
24.0 |
32.3 |
33.1 |
34.8 |
17.7 |
35.4 |
Whilst we are on the 9 May trading update what is far more important is -
Greencross has commenced a review of its head office and operating cost base with targeted reductions of between $10 million and $13 million in annual operating costs. Simon Hickey noted “The Company is taking immediate and decisive action to reset its cost base. This drive for increased efficiency will include a streamlining of the existing management structure and a Company-wide review of staffing levels. I expect this review to be completed and implemented by 1 July 2018.
Let’s assume a mid-point of $11.5 million that equates to 6.8 cents per share (after tax). With an implementation date of 1 July, I would have thought that this would be worthy of inclusion in the report as it makes the EPS per share increase to 42.2cents (ie 35.4c for the annualised half (simple x2) plus 6.8). Note 42.2c is after excluding the onerous leases adjustments and one could argue that they shouldn’t be excluded - that would see another couple of cents added.
Even assuming 42.2c this compares to Jeffery’s number of 16c for annualised (x2) number of 32cents. That is a
huge difference.
I really don’t understand the objective of publishing this report, but I wish Jeffery the best for month three.
