Q Supplementary Information

Transcription

1 Q Supplementary Information as at December 31, 2018 This supplementary information should be read in conjunction with the corporation's Management Discussion & Analysis dated December 31, In this document, the Company uses a number of terms and ratios (including Before-tax adjusted operating income and tangible leverage ratio ) which do not have a standardized meaning under IFRS and are unlikely to be comparable to similar measures presented by other organizations. A full description of these measures can be found in Element s Management Discussion & Analysis that accompanies the financial statements for the most recent quarter or year, which have been filed on SEDAR ( Element believes that certain Non-IFRS Measures can be useful to investors because they provide a means by which investors can evaluate Element s underlying key drivers and operating performance of the business, exclusive of certain adjustments and activities that investors may consider to be unrelated to the underlying economic performance of the business of a given period. Element Fleet Management Corp.

2 FORWARD-LOOKING STATEMENTS DISCLAIMER The following pages provide information ("Supplementary Information") management believes is relevant to an assessment and understanding of the consolidated financial condition and consolidated results of operations of Element Fleet Management Corp. (the Company or Element ) (formerly, Element Financial Corporation) as at and for the three- and twelve-month periods ended December 31, 2018, and should be read in conjunction with the Company s Q4 and year-end Management's Discussion & Analysis and audited consolidated financial statements and accompanying notes for the year ended December 31, All numbers are in millions, unless otherwise specified or for per share amounts. Additional information relating to the Company is available on SEDAR at and on the Company s website at CAUTIONARY STATEMENT THIS ANALYSIS HAS BEEN PREPARED TAKING INTO CONSIDERATION INFORMATION AVAILABLE TO MARCH 6, CERTAIN STATEMENTS CONTAINED IN THIS REPORT CONSTITUTE FORWARD LOOKING STATEMENTS. IN SOME CASES THE FORWARD LOOKING STATEMENTS CAN BE IDENTIFIED BY WORDS OR PHRASES SUCH AS MAY, WILL, EXPECT, PLAN, ANTICIPATE, INTEND, POTENTIAL, ESTIMATE, BELIEVE OR THE NEGATIVE OF THESE TERMS, OR OTHER SIMILAR EXPRESSIONS INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, INCLUDING, AMONG OTHERS, STATEMENTS REGARDING ELEMENT S TRANSFORMATION PLAN, GROWTH PROSPECTS AND OBJECTIVES, OPERATIONS AND ABILITY TO DRIVE OPERATIONAL EFFICIENCIES, ASSETS, BUSINESS STRATEGY, COMPETITION AND COMPETITIVE POSITIONING, ABILITY TO CREATE VALUE FOR SHAREHOLDERS, THE EVOLUTION OF ELEMENT S BUSINESS AND THE FLEET MANAGEMENT INDUSTRY, THE AVAILABILITY OF FUNDS FROM OPERATIONS, CASH FLOW GENERATION AND CAPITAL ALLOCATION, BUSINESS INTEGRATION, TECHNOLOGY AND INTELLECTUAL PROPERTY INCLUDING THE XCELERATE PLATFORM, STRATEGIC ASSESSMENT, STRATEGY FOR NON-CORE ASSETS INCLUDING 19TH CAPITAL, BUSINESS OUTLOOK AND OTHER EXPECTATIONS REGARDING FINANCIAL OR OPERATING PERFORMANCE AND METRICS. SUCH STATEMENTS REFLECT OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO INHERENT RISKS, UNCERTAINTIES AND NUMEROUS ASSUMPTIONS, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC CONDITIONS, OPERATIONAL CAPABILITIES, TECHNOLOGICAL DEVELOPMENT, RELIANCE ON DEBT FINANCING, DEPENDENCE ON BORROWERS, INABILITY TO SUSTAIN RECEIVABLES, COMPETITION, INTEREST RATES, REGULATION, INSURANCE, FAILURE OF KEY SYSTEMS, DEBT SERVICE, FUTURE CAPITAL NEEDS AND SUCH OTHER RISKS OR FACTORS DESCRIBED FROM TIME TO TIME IN REPORTS OF ELEMENT, INCLUDING HEREIN AND IN ELEMENT S CURRENT ANNUAL MD&A AND ANNUAL INFORMATION FORM, WHICH HAVE BEEN FILED ON SEDAR AND MAY BE ACCESSED AT BY THEIR NATURE, FORWARD-LOOKING STATEMENTS INVOLVE NUMEROUS ASSUMPTIONS, KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES, BOTH GENERAL AND SPECIFIC, WHICH CONTRIBUTE TO THE POSSIBILITY THAT PREDICTIONS, FORECASTS, PROJECTIONS AND OTHER FORMS OF FORWARD LOOKING INFORMATION MAY NOT OCCUR OR BE ACHIEVED. MANY FACTORS COULD CAUSE OUR ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT MAY BE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AND READERS ARE CAUTIONED THAT THE LIST OF FACTORS IN THE FOREGOING PARAGRAPH IS NOT EXHAUSTIVE. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD ASSUMPTIONS UNDERLYING THE FORWARD- LOOKING STATEMENTS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS INTENDED, PLANNED, ANTICIPATED, BELIEVED, ESTIMATED OR EXPECTED. ACCORDINGLY, READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS OR INTERPRET OR REGARD FORWARD-LOOKING STATEMENTS AS GUARANTEES OF FUTURE OUTCOMES, AS NO FORWARD-LOOKING STATEMENT MAY BE GUARANTEED. EXCEPT AS MAY BE REQUIRED BY APPLICABLE CANADIAN SECURITIES LAWS, WE DO NOT INTEND, AND DISCLAIM ANY OBLIGATION TO UPDATE OR REWRITE ANY FORWARD-LOOKING STATEMENTS WHETHER ORAL OR WRITTEN AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. Q Element Fleet Management Corp. Supplementary Information 2

3 TABLE OF CONTENTS Section Content A. TRANSFORMATION PROGRAM 1.0 Transformation progress in Transformation overview 1.1 Actioned and targeted (to-be-actioned) Op Inc improvements Delivery and anticipated delivery of $58 million of Op Inc improvements actioned in Actioned Op Inc improvements vs. delivered Op Inc improvements 1.2 Anticipated timing of one-time investments in our transformation program B. FINANCIAL INFORMATION 2.0 Financing business 2.1 Core end-of-period net earning assets 2.2 3Q18 4Q18 Core end-of-period net earning assets growth 3.0 3Q18 4Q18 Core SG&A walk 4.0 Consolidated leverage ratios 5.0 Consolidated free cash flow C. TAX ASSETS 6.0 Value of consolidated tax assets All figures are in millions of Canadian dollars unless otherwise noted. Q Element Fleet Management Corp. Supplementary Information 3

4 Transformation Program Definitions "Actioned" "Op Inc" "Delivered" "Run-rate" A profitability improvement initiative has been actioned when Element has taken all steps required for the initiative to deliver value. The value of an actioned initiative is the run-rate value of the resulting profitability improvement to be delivered. Operating income before tax. Profitability improvement is delivered as each dollar of cost savings or revenue increase is reflected in Element s Op Inc. The maximum potential annual value that a profitability improvement initiative can deliver. Q Element Fleet Management Corp. Supplementary Information 4

5 TRANSFORMATION PROGRAM 1.0 Transformation progress in 2018 Following the completion of our comprehensive strategic assessment in Q3 2018, we announced a 27-month client-focused transformation program on October 1, As of December 31, 2018, we have actioned approximately $58 million of transformation initiatives, $18 million more than the $40 million we targeted for Some examples are: We have improved the accuracy and timeliness with which we bill our clients. Historically, billing inaccuracies were a pain point for clients, who from time-to-time would be back-billed for services received but not properly billed by Element. These back-billings were often forgiven or discounted, resulting in material revenue leakage. As part of our transformation, our client billing processes and systems have been overhauled to ensure accuracy and timeliness. Clients are thrilled with the results. And we were able to action ~$11 million of revenue improvement in 2018 from our efforts. We procure billions of dollars of products and services on behalf of our clients from a broad array of suppliers. Given our scale, we have been able to use our buying power to negotiate better terms and conditions, saving our clients money and improving their experience. To date, this has also resulted in $9 million of actioned direct cost savings (and counting) for Element. Every single day, our goal is to consistently deliver the superior experience our clients expect of Element. In 2018, we brought our leaders and managers closer to our clients and to the front-line Element employees who serve them by simplifying our organization from 9 to 5 layers of supervision. This simplified structure ensures client feedback reaches decision-makers quickly and efficiently on a daily basis. In turn, decision-makers have the necessary information and authority to empower front-line employees to maintain that superior level of client experience and deliver consistently, day-in and day-out for our clients. Revenue growth Direct cost savings Operating expense reductions Reven 10.9 Strateg 9.1 Interes 1.2 Impro 3.1 ved Org. si 33.8 Total 58.1 The significant progress we made on our transformation initiatives in 2018 has built strong momentum for 2019; we are going "back to basics" this year, focusing our business on delivering a consistent client experience and creating value for our shareholders. Q Element Fleet Management Corp. Supplementary Information 5

6 C$mm TRANSFORMATION PROGRAM Transformation overview $9,500 Gross billings Gross #### Direct #### Net rev [874] Oper [486] ating % Direct costs Our transformation program is designed to improve Element s pre-tax operating income by approximately $150 million on a run-rate basis by the end of In the provision of financing and services to our clients, Element collected over $9.3 billion of billings in 2018, approximately $8.5 billion of which represents the direct costs of financing, goods and services our clients receive. The remainder is net revenue, from which we pay the Company s operating expenses. Of the $150 million in profitability improvements our transformation is designed to deliver, ~$30 million will be core revenue growth, ~$20 million will be the result of direct cost savings (0.2% of our direct costs), and the remaining ~$100 million will be operating expense reductions. e.g. ~$30M Revenue assurance Client retention Go-to-market e.g. ~$20M Strategic sourcing Supplier review and optimization Rebate and procurement management Net revenue e.g. $0 Operating expenses ~$100M Org. simplification Process automation Process streamlining & simplification Q Element Fleet Management Corp. Supplementary Information 6

7 C$mm C$mm TRANSFORMATION PROGRAM 1.1 Actioned and targeted (to-be-actioned) Op Inc improvements 150 Actioned Targeted Our transformation is off to a great start, with $18 million more run-rate savings actioned than targeted Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 2Q20 3Q20 4Q20 FY20 Quick wins Back to basics Build for the future Delivery and anticipated delivery of $58 million of Op Inc improvements actioned in 2018 C$mm 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 2Q20 3Q20 4Q20 FY20 Revenue growth Direct cost savings Opex reductions Op Inc improvement Actioned Op Inc improvements vs. delivered Op Inc improvements 150 Actioned Delivered Our actioned initiatives in 2018 will deliver $48 million of Op Inc improvements (~$0.09 EPS) in Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 2Q20 3Q20 4Q20 FY20 Quick wins Back to basics Build for the future Q Element Fleet Management Corp. Supplementary Information 7

8 C$mm TRANSFORMATION PROGRAM 1.2 Anticipated timing of one-time investments in our transformation program We plan to invest approximately $150 million to fund our transformation program before the end of In 2018, we made ~$39 million such one-time investments. 150 Actioned Op Inc improvements Transformation investments Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 2Q20 3Q20 4Q20 FY20 Quick wins Back to basics Build for the future Q Element Fleet Management Corp. Supplementary Information 8

9 Financial Information Q Element Fleet Management Corp. Supplementary Information 9

10 FINANCIAL INFORMATION 2.1 Core end-of-period net earning assets Local currencies, billions 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Mexico (MXN) Australia and New Zealand (AUD) Enterprise + Mid-market in US and Canada (USD) Q18 4Q18 Core end-of-period net earning assets growth Value 3Q18 NEA 12.3 Activations 1.5 FX 0.8 Amortization (1.0) Sales (0.4) 4Q18 NEA 13.2 Q Element Fleet Management Corp. Supplementary Information 10

11 FINANCIAL INFORMATION 3.0 3Q18 4Q18 Core SG&A walk 3Q Salaries 1.7 Benefits 1.1 Bonuses 1.2 G&A -2.0 Transformation Q Actual G&A decrease was $2.1 million, $0.1 million of which is captured in $1.7 million of transformation savings. 2. Transformation savings is comprised of $1.6 million in salary savings and $0.1 million of G&A. 4.0 Consolidated leverage ratios 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Financial leverage 3.6x 3.5x 3.5x 3.5x 3.6x 3.6x 3.9x 3.6x Tangible leverage 7.7x 7.4x 7.5x 7.7x 7.9x 7.8x 9.6x 7.8x 12.0x 10.0x Tangible leverage Financial leverage 9.6x 8.0x 7.7x 7.4x 7.5x 7.7x 7.9x 7.8x 7.8x 6.0x 4.0x 3.6x 3.5x 3.5x 3.5x 3.6x 3.6x 3.9x 3.6x 2.0x - 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Q Element Fleet Management Corp. Supplementary Information 11

12 FINANCIAL INFORMATION 5.0 Consolidated free cash flow C$mm (except free cash flow per common share ) 1Q17 2Q17 3Q17 4Q17 FY17 1Q18 2Q18 3Q18 4Q18 FY18 Before-tax adjusted operating income Add/(subtract) cash revenue/(expenses) and non-cash expenses/(revenue) (12.4) (4.1) 0.6 (18.2) (34.2) (3.9) Cash from operations Subtract required cash expenses: Sustaining capital investments Preferred share dividends Cash taxes paid Free cash flow As a % of before-tax adjusted operating income 60% 64% 80% 41% 62% 63% 79% 61% 93% 74% Weighted average number of common shares o/s (mm) Free cash flow per common share Q Element Fleet Management Corp. Supplementary Information 12

13 Tax Assets Q Element Fleet Management Corp. Supplementary Information 13

14 TAX ASSETS 6.0 Value of consolidated tax assets C$mm (except tax asset value per common share) FY17 FY18 Gross non-capital tax losses 3, ,043.3 Value of tax losses using a statutory tax rate of 26.7% ,043.0 Value of depreciation tax shield (818.0) (701.8) Value of other tax assets Value of tax assets Weighted average number of common shares o/s (mm ) Tax asset value per common share Q Element Fleet Management Corp. Supplementary Information 14