Element Fleet Management Corp
TSX:EFN
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Element Fleet Management Corp
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Thank you for standing by. This is the conference operator. Welcome to the Element Fleet Management Fourth Quarter and Full Year 2018 Financial Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] Element wishes to remind listeners that some of the information in today's call includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties, and the company refers you to the cautionary statement and risk factors in its most recent MD&A and AIF for a description of these risks, uncertainties and assumptions. Although management believes that the expectations reflected in the statements are reasonable. It can give no assurance that the expectations of any forward-looking statements will prove to be correct. Element's earnings release, financial statements, MD&A, supplementary information document and today's call include references to non-IFRS measures, which management believes are helpful to present the company and its operations in ways that are useful to investors. A reconciliation of these non-IFRS measures to IFRS measures can be found in the MD&A. I would now like to turn the call over to Jay Forbes, President and Chief Executive Officer. Please go ahead.
Thank you, operator, and good evening, everyone. We've made excellent progress on the transformation we announced on October 1, and we're eager to update you on the great start we have enjoyed. We're also pleased to discuss our solid fourth quarter earnings, which, yet again, demonstrate the underlying strength of the platform and show encouraging signs when it comes to both organic growth and client retention. I'll start by reviewing the transformation progress we've made thus far. Following that, I'll turn it over to Vito to discuss the details of the quarterly results, and then I will discuss our transformation plans for 2019 before we open up the call to questions. As you will recall, the transformation plan we announced 5 months ago has 3 major areas of focus: Strengthen the balance sheet, reposition 19th Capital, and transform Element's core business. And we couldn't be happier with the receptivity be received at that time from our investors, our clients and our employees. That said, I constantly remind my colleagues here at Element that this warm reception and support is nothing more than hope. Our stakeholders hope we have the right strategy, and that we're committed and capable of executing the same. To turn this hope into confidence will require meaningful tangible progress. Beginning in Q4, and carrying it through 2019, it's all about instilling confidence. Confidence in our strategy, confidence in our business, confidence in our future. And we earn that confidence by doing what we said we're going to do, realizing the outcomes that we set forth for each of these 3 areas of strategic focus as exemplified by our fourth quarter accomplishments. Let me step you through some of these accomplishments, starting with strengthening the balance sheet. As part of the strategic plan, we said that we will take actions to solidify our investment grade balance sheet in the near term. To do that, we raised $345 million of common equity in October at a price that was very close to market, one of the tightest discounts in Canada last year for a bought deal. As a result, we had $1.2 billion of orders for stock to give you some sense of the demand. We said we would reduce our dividend to retain cash. We did that, decreasing it by 40% and using the capital instead to fund our transformation. We said we would institute a dividend reinvestment program to further retain cash and we have done so. We said we would sell our interest in ECAF and excess real estate. I can tell you that the sale our Eden Prairie, Minnesota real estate closed yesterday, and the sale of our interest in ECAF is underway. We've refinanced our ABS assets to create an additional $160 million in borrowing base as we said we would. And we said that by taking the aforementioned actions, the $345 million of convertible debentures maturing in June will be funded in advance of maturity with a combination of new debentures as well as our own resources. We are well on track to accomplish this with both sufficient existing liquidity and access to capital markets. Our ongoing dialogue with our investment bankers has assured us that the market remains fully open to us, and readily accessible for a variety of funding alternatives. Expect us to close the loop on that refinancing in the relative near term. Finally, given the strong interest we've received regarding financings and the strengthening financial position we're seeing go forward, we are advancing our thinking as the June 2020 convertible debenture and the refinancing options that are opening up for us. The cumulative result of these actions will be lower leverage and lower financing risk. The balance sheet is much stronger and will continue to strengthen through 2019. Now let's turn our attention to our early successes repositioning 19th Capital. We said we would deal decisively with 19th Capital, and we have. A new leadership team is in place. They have constructed a detailed plan to run off the portfolio, while exiting the idle truck assets and are successfully executing the same. The business essentially broke even in Q4. We expect to recover as much as $100 million of the $260 million of residual value of the business by the end of 2019. We haven't seen anything that would cause us to reassess our $260 million valuation of the business and regarding the pace of recovery of our investment in 2019, while we're seeing good cash returns of the disposition of idle assets to date, we need to manage carefully the pricing impact of both economic and demand trends in the Class 8 market as we further dispose of our trucks. Let us get another quarter under our belts, and it'll give you a better view as to how our cash recovery is unfolding. I can also tell you that we've had offers for parts or all of the portfolio, but nothing at this point that is sufficiently compelling to deter us from our current focus on realizing the carrying value of this asset over a reasonable time frame. In summary, the repositioning of 19th Capital is advancing according to plan. Now let's turn to the core of Element, our fleet business. The fleet business is also tracking nicely to plan, improving the client experience, winning new business, retaining the book of business we have, generating strong profitability, all the while making great progress on the transformation program. Let me provide some highlights starting with the transformation program. Wanting to launch the transformation program in the fourth quarter with a series of quick wins to build confidence and to build competency, we identified approximately 50 initiatives that we would undertake to generate $40 million of action run rate profitability improvements. By December 31, we had in fact completed 65 projects and actioned $58 million of quick wins, a 45% increase over target. This $58 million of actioned items will translate into $48 million of pretax profitability improvement, approximately $0.09 EPS improvement, realized in 2019. And it also goes a long way to helping us hit the $100 million target we have set for ourselves for 2019. For those of you that might have wondered whether the $150 million of run rate probability improvements were real, we have identified with specificity, the $150 million, and created 17 work streams that will allow us to achieve this permanent reset of our pretax profitability. We've also actioned nearly 40% of the $150 million improvements within 3 months of announcing this plan. And we have 75% of our onetime investment funds available to us to secure the remaining improvements. The $150 million of profit improvements are very real and realizable. Let's shift towards -- to discuss our client experience, which is the central focus for entire transformation program. We can now confidently state that the worst of client attrition is behind us. We can say this with assurance because we've designed and implemented a very granular data-driven understanding of client attrition, which has in turn allowed us to introduce a sophisticated process to measure, monitor and mitigate attrition. This process allows us to proactively prevent attrition by identifying and assessing triggers that signal the propensity of a client to consider an alternative service provider. These triggers are a series of internal and external factors that we monitor, and they provide us with this early warning system that in turn allows us to intervene and address any issue long before they might give rise to a client defection.Having solidified the base upon which we will grow by addressing this attrition, we can now talk a little bit more about growth. We are seeing promising signs of organic growth in our core earning asset base. On a constant currency basis, net earning assets at period end are up 2.5% quarter-over-quarter and 1.6% year-over-year. We're renewing accounts, we're growing with our clients, and we are stealing business from our competition. All of the things you would expect a business that is getting healthier, and doing a better job of delivering for its clients. Strengthening the balance sheet, 19th Capital is on its way to an orderly exit and the core platform being stabilized through client retention, organic growth and wholesale transformation. A great finish to 2018 and an even better start to 2019. So what does this mean to the bottom line? Let me turn it over to Vito to discuss our financial performance in more detail.
Thank you, Jay, and good evening, everyone. I'm pleased to review the financial highlights of the quarter. I'll focus my comments primarily on Q4 core adjusted earnings, our transformation initiative, and our balance sheet. You'll also find more information in this quarter's news release, our newly released supplementary information document, our MD&A, and of course, our audited financial statements. Core adjusted earnings. As Jay indicated, it was another solid quarter for us with core adjusted operating income in Q4 of $99.2 million. These results are very much in line with our expectations, and consistent with our Q3 results. And I might add, $3.8 million greater than those of Q4 2017. A $99.2 million core adjusted earnings in Q4 translates to an after-tax adjusted operating income of $0.17 per common share, and they do reflect the impact of dilution from our October equity raise of approximately $0.02 per share. For the fiscal year 2018, our core after-tax adjusted operating income per share aggregated to $0.70, $0.02 lower than fiscal 2017. The fleet business generated net revenue of $220.8 million in Q4, an increase of $0.7 million over Q3 2018. Our service and other revenue of $135 million, increased $3.7 million from Q3 2018, reflecting primarily seasonal tire and maintenance volume increases. Net interest and rental revenue of $198.9 million reflect an increase of $9.9 million and $31.6 million over Q3 2018 and Q4 2017, respectively, highlighting robust originations, growth during Q4, and the impact of a weaker Canadian dollar, as well as in comparison to the year-ago period, a higher interest rate environment. Interest expense in Q4 2018 increased to $113.1 million from $100.2 million and $86.9 million in Q3 2018 and Q4 2017, respectively, reflecting the same factors affecting net interest and rental revenue as well as a onetime gain of $4 million during the third quarter of 2018 related to the settlement of an interest rate swap. You'll recall that. Let me touch on a couple of other key metrics for Q4, all of which, in our view, reflect a stabilizing and improving platform. Our NIM was 2.69%. Average earning assets were $12.8 billion, up from $12.7 billion in Q3 and $12.3 billion in Q4 2017. Total earning assets at period end were $13.2 billion, up from $12.3 billion in Q3 and $12.2 billion in Q4 2017. The positive movement in assets reflects robust originations during the quarter and favorable exchange rates. Turning to expenses. Adjusted operating expenses this quarter were $121.6 million, an increase of $900,000 from $120.7 million in Q3, and a decrease of $4.3 million from $126 million in Q4 2017. Included in these numbers is a $600,000 quarter-over-quarter increase in depreciation, reflecting the increased investment in IT infrastructure during the integration period. Let's now turn our focus to the transformation program. As Jay mentioned, we're off to a strong start, en route to our expectation of achieving $150 million in annual pretax operating improvements. Through the end of calendar year 2018, we actioned $58 million in run rate profitability improvements, $18 million more than anticipated. This wave included the implementation of 65 initiatives, including organizational simplification, strategic sourcing, revenue assurance, and improved procurement. Through calendar 2018, we estimate that these initiatives contributed in aggregate $6.1 million to our operating results, including $4 million in Q4 2018. This 2018 progress positions us well for our stated plan to achieve $100 million by the end of 2019 and $450 million by the end of 2020. Our confidence in these goals, strengthens with each project, and we're pleased to confirm these plans. Now turning to our investments to achieve these improvements in operating income, we're pleased to report that there are no changes to our expectations here. We have through calendar year 2018 invested $39 million, largely made up of people-related and professional fee. Again, our supplementary information outlines the periods in which we expect to make these investments through 2020. To reiterate what we said last quarter, we expect our operating expenses to decline meaningfully as we move through our transformation time line. On to the balance sheet. Strengthening the balance sheet and lowering leverage remains key priorities. The company views both financial and tangible leverage as key indicators of the strength of our financial position. As at December 31, 2018, the company's financial leverage ratio was 3.56:1 and the company's tangible leverage was 7.79:1. Element has nearly $5.6 billion in available liquidity at year-end to fund ongoing originations. Together with strong access to capital, we remain well-funded and in an excellent position to meet our financial obligations and objectives and execute our business strategy. You'll recall that coming out of our strategic plan announcement, our investment grade credit ratings were reaffirmed by the rating agencies, and we expect our balance sheet to strengthen further over time. Lastly, I am pleased to confirm our 2020 guidance in regards to after-tax adjusted operating income per share in the range of $0.90 and $0.95, based on the U.S. dollar equal to CAD 1.32. With that, I'll turn it back to you, Jay.
Thanks, Vito. As we bring this part of the call to a close, let me first speak to 2019 and our goals for transformation this year. We referred to 2019 as the year of back to basics when we announced our plan and its 3 waves of change. The second wave includes over 25 projects. Together, they are anticipated to take us to the $100 million of pretax run rate profitability improvements actioned by the end of this year. Two overarching themes for the back to basics phase are simplification and automation, and will include enhancing our ordering system to provide a simpler better service, improving revenue assurance where we've already actioned $11 million of profitability improvements and believe there's more available. And using our scale and our ability to direct purchasing to generate better supplier efficiencies. With $58 million of the $100 million targeted for 2019 already in hand, we're feeling very good about realizing our stated ambitions for actioned run rate profitability improvements by year-end. There's one more transformation initiative that I'd like to spend a few minutes on as we -- as I believe it's going to have a profound impact on the performance of this business for years to come. We have instituted a new performance management system, the balanced scorecard, and to emphasize its importance, we've adopted this as a basis for assessing the 2019's bonus program for all our apparent leaders including the executive team. Having seen firsthand, the ability of the balanced scorecard to promote alignment, engagement and accountability at other organizations undertaking large-scale transformations, I think, it will be an equally important tool for us. The balanced scorecard distills our large complex strategy into a single page of strategic objectives and measures of success. And through this transparency, we're able to provide great clarity as to our priorities. The scorecard will ensure we deliver across our 4 dimensions for our clients, for our business, for our people, and for our investors. We began the rollout of our scorecard in January, first to our senior leaders and more recently to a broader cross-section of our staff in our Minnesota and Mississauga locations, and we'll be taking this, the balanced scorecard to all our locations, driving home the importance of this and the centrality of it to our vision. And as I said, it will be the basis on how our leaders are compensated, including me. If we don't deliver on our objectives along those 4 dimensions, we will see it on the scorecard, and we will feel it in our compensation. As my leadership team knows full well, I love this topic and could talk about it at a great length. Instead, in the interest of keeping this call to manageable time, I would encourage you to read my letter to shareholders in which I share some additional views in more detail. So to recap the themes of this call. We said in October that we were going to do 3 things: strengthen the balance sheet, deal with 19th Capital, and begin to transform our business, and that is exactly what we've done. As far as growth in 2019, the pipeline is building. Our platform is attracting new business, and our focus on retention means that we can solidify the base upon which we would build. I can tell you, as I sit here, most of the way through this first quarter, I'm elated with how well the transformation process is launched. 2018 got us off to a great start and 2019's back to basics phase is progressing well. And we have over 2,600 talented, energetic and resolute colleagues to thank for embracing this new client-centric strategy and making it a reality. Based on a stronger client retention, organic growth prospects and solid progress on the transformation, as Vito noted, we are reiterating our adjusted EPS guidance for 2020 of $0.90 to $0.95. In the months ahead, we'll continue to look for ways to refine the business and our strategic plan, to reflect our learnings and the advances we have made since October. In particular, we'll give further thought as to how we can best balance our goals of profitable growth, higher ROE and deleveraging. For example, one area we will explore is how we might use indication more regularly and strategically to optimize our balance sheet and support our growth ambitions. We'll have more to say on that as we progress our work over the next month or 2. So all in all, it's been a very eventful few months, but for all the right reasons. And with that, let's open it up to questions.
[Operator Instructions] Our first question comes from Geoffrey Kwan of RBC Capital Markets.
My first question was just looking at the earning assets line. So Jay, it sounds like -- or maybe if you can clarify, it sounds like attrition is, it sounds like it's back to normal. And then from the origination side, is there any color you can provide in terms of on the new wins like number of clients, kind of potential size, but also from your existing clients what's their tone on call it the originations in terms of their outlook?
Geoff. So as we noted, the worst of client attrition is indeed behind us. And in large measures, given that much more granular understanding that we have been able to develop through the institution of new practices. And as a consequence of that, we are seeing indeed good growth in terms of renewals, good growth in terms of cross-selling opportunities to existing clients, and some very interesting client wins. I was in Minnesota, a week ago, Friday, for a client pitch, an organization that we used to do business with 10 years ago. And very much like our chances of securing that as we go forward and happy to say that we just got word, the first of this week that ANZ has won one of its largest clients that it's ever had in its history. So all kinds of very good data points that the organization, again, is retaining the book of business that we have, able to penetrate that book of business through up-sell and cross-sell opportunities, and at the same time, win mandates away from the competition.
I'm sorry, would you say then attrition is back to normal and then from your existing clients, just their optimism in terms of kind of growing their fleets?
Yes. I would say to you the clients are absolutely taking notice of the transformation and for all of the good reasons. They're seeing faster decision making in their organization, and as a consequence, quicker resolution of outstanding matters. They're seeing greater engagement, active participation by the senior leadership on their accounts. They're enjoying far more frequent communication from us. And they're seeing tangible improvements in the consistency and the capability of our services. To put some numbers around that. We would've put in place more than 350 system enhancements in 2018, which would have been 3x the number that was done in 2017.
Okay, perfect. And then just my other question. Vito, the core NIM yield in the quarter was 2.69%. It looks like it was pretty clean, just wondering if you have any insights as to, is this a number in and around that might be stable over the near term? Or are there factors that might drive it to other direction?
Yes. We don't -- there's -- the interim funding goes through the account. We didn't call anything out in our disclosures. So -- and we have tried to stay away from guidance when it comes to NIM because of a myriad of factors, but I'd leave it with that Geoff, it's a pretty good number there.
Our next question comes from Tom MacKinnon of BMO Capital.
I've got a question with respect to your supplementary information package. And I'm just trying to get -- on page 11 of that as we go through this SG&A walk, which I find very helpful. If I look at the salaries, benefits and bonuses that were incurred in the quarter, the $1.7 million plus $1.1 million, plus $1.2 million that's $4 million on a base of $80 million. So how are we to interpret that? Does that mean if you're working at Element Fleet that every quarter your salaries and benefits and bonuses will be 5% greater than they were in the previous quarter? Or -- I understand that your -- you've got some initiatives here for cost cutting. But what I'm trying to do is, try to just a model what these things would've looked like before you put in these cost cuts. So have I got this right here? Or is -- if you can add some color with respect to that?
Thank you. It's Vito here. I'm happy to provide some color, and I'm glad that the feedback we're getting on the supplementary is positive. And in many ways, it is giving exactly that, which is giving you increase visibility to things that we anticipate your questions around, and that's the focus of all this supplementary disclosure. On an aggregate basis, first of all, I think the point here is, we are moving from $114.5 million to $114.8 million. We look at SG&A sort of obviously an aggregate, this doesn't include the depreciation. So overall, call it, a small increase quarter-over-quarter. And of course, that includes the impact of the transformation. So -- but we wanted to call out specifically the drivers of the deltas, if you will, all the different components. So I would caution you not to take $4 million on the base of the $80 million. I think that's not appropriate. What you're seeing there first of all is $1.2 million on the bonuses, of course, it hits the salary lines, but that's reflective of a year-end adjustment. Effectively, we're accruing at a certain number through the first 3 quarters, the number ended up being different as our eventual payout. And accordingly, the Q4 bears the impact of -- the full year impact of that adjustment. So clearly, weighs on Q4 heavily compared to the Q3 base. Similar with respect to benefits, the $1.1 million is really a full year true up from a perspective of where you're getting your actuarial information and your claims experience. So not -- we don't expect that number to be a one point million -- $1 million increase quarter-over-quarter. The salaries number, the $1.7 million is probably the most reflective analogy back to your quarter-over-quarter example. I would say a couple of things there that affected it. FX was about a 1/3 of that number quarter-over-quarter. When you look at the average FX rate in Q4, which was CAD 1.32 versus CAD 1.30-ish in Q3. You also had some growth in Mexico that impacts our quarter-over-quarter salaries. And also another one is allocation. So as the noncore business becomes a smaller component of our business, the core business picks up a little bit more allocation, the -- obviously, the brunt, as you would expect of our overall corporate costs as well. So those are the big drivers clearly as we move forward here into Q1 and onwards and full bear of the $58 million actioned factors into our lined items, you will clearly see these numbers reduce quarter-over-quarter.
Okay, that's great. And before we kind of worked in the transformational OpEx adjustments, how do you think we should be looking at -- we should look at the SG&A? Or is this total OpEx number moving year-over-year? Like would it have gone up in the 3% to 4% range year-over-year and then we layer on these OpEx improvements that you're talking about?
Yes. We are looking at obviously an aggregate. And I again, refer you to the front part of the supplementary where we share with you, where we believe the $150 million is going to fall, and OpEx is a big component of that clearly, the largest component of that. So clearly, as we move through, we would expect that -- our aggregate OpEx lines, in aggregate, would go down. You're going to have clearly inflation taking the other way. You are going to have FX variances obviously impacting it. And so those are important. So we're going to shy away from line-by-line guidance if you -- and bring you back to the $150 million, and of course, our 2020 EPS guidance.
Our next question comes from Paul Holden of CIBC.
So first question is regarding impaired receivables on the core fleet business, not a number we're accustomed to seeing. It's not large, but there is a bump in the quarter. And so I want to ask, if you can provide any more detail, be on the fact that it's related to a single client?
Yes. It is related to one single client. When we talk about an impaired receivable, impaired is not meant to be interpreted as an expected, we don't expect a significant loss there. We've taken a $1 million provision in respect to that client. And this is in relation to a client in Australia, that's gone into restructuring.
Okay. That's helpful.
And Paul, may be just -- this is -- maybe reading between the lines of your question, this is one-off and an anomaly. We have not seen any type of degradation in terms of loan performance in the portfolio.
Got it. That's helpful. Next question would be regarding the refinancing of the convert. So I just want to make sure nothing has changed here versus the original plan, which said that you had $195 million in hand, and needed roughly $150 million to sort of bridge the gap. Just want to make sure that $195 million number has not changed? And then second, the real estate sale that you highlighted, does that go towards bridging the $150 million gap, and if it does, can you give us a sense of by how much?
Yes. The sale of the real estate in Minnesota was envisioned as part of the $195-ish million cash internally generated, that will result in kind of a core need of $150 million of refinancing.
Got it. That's helpful. And then I'll just sneak in one more, if I can. And that's going back to the sup pack in the disclosure. Just want to make sure I understand it correctly. So it shows -- if you look at the bridge on finance receivables for the quarter, it shows negative sales of $0.4 billion. So just want to make sure I understand that, it's kind of net attrition in the quarter? Or how do I look at that number?
Yes. Attrition and syndications would be a part of that. It's a relatively minor number, but syndications would also contribute to that.
Our next question comes from Brenna Phelan of Raymond James.
So I wanted to start on earning assets as well. If we look at that lock, would you say that this is seasonally representative quarter, the ratio of activations versus what was originated in the quarter and the amortization as well as the attrition, syndication line could -- would it be fair to sort of extrapolate similar ratios moving forward based on what you originate?
Yes. That's a great question, Brenna. I think you can do that. I mean, I think through Jay's remarks, you would have heard obviously that we're very pleased with the activity in the quarter. And we expect that to sort of continue as we move forward here. But I think overall, the theme of what you're describing holds true.
And then just on that same page, it looks like the growth in Mexico has been extremely strong over the past little while. Do you have some visibility? Is that an area you intend to focus on? Is that embedded within some of the gross revenue growth components of the transformation plan?
Actually, it would be more along the organic growth that we spoke of. So the transformation plan itself deals more around revenue assurance and the launch of go-to-market and mid-market. And so the growth that we had experienced in Mexico and continue to experience in Mexico should be viewed more in the context of inherent organic growth in the platform. We have an excellent leadership team in Mexico, led by David Madrigal, and he has assembled a first-rate group of individuals that have a dominant position in the marketplace and cater to large multinationals operating in Mexico as well as large domestic organizations in fulfilling the fleet service needs. And this is a market that is still very much in the development phase. So there's still a fair proportion of that market that has the fleet services in-house. And so there's a real good opportunity for us as market leader to help convey the benefits of using an outsource provider like ourselves.
Okay, great. That actually ties into my next question, which is relative to when you initially established a guidance, focusing on that $0.90 to $0.95 of core earnings. Would you say that the organic growth that you've seen over the past 2 quarters, or particularly this quarter, is that in excess of what you -- your sort of base case that was embedded in your outlook?
I would say, it was consistent. So our 2020 EPS guidance encompasses our assumptions around both organic growth as well as the productivity enhancements. And so what we have been seeing is consistent with the expectations that grounded us on that $0.90 to $0.95 EPS guidance.
Okay. And then just turning to the increase in the borrowing base in your ABS assets. Could you just elaborate on that other bit? Is that just a lower level of collateralization and are there any change to the financing term?
Yes. We had the -- we had a ABS facility that had been originated at the time of the GE acquisition, and we had effectively stranded equity in that facility. And so we just refinanced the assets and extracted that $160 million of borrowing base as a consequence.
Our next question comes from Jaeme Gloyn of National Bank Financial.
First question is on the client attrition. Just looking at that, I guess, $400,000 on the $12.3 million. That represents about a 3% rate. Is that -- how would that compare to, let's say, quarters over the last, I don't know, 6 to 8 quarters when attrition was an issue, just looking for a sense of the improvement we've seen so far?
Sorry, we're not going to -- we don't have that with us there. And so can't respond to that at this time.
Okay. Maybe I'll ask it differently then. Where would you expect to see that once you're fully through the probability plan?
Yes. I mean there's many things. I'll take you a little back to some of Jay's comments around exploration. NEA, net earning assets, are a very important component, they're one indicator. Clearly, -- I mean, I think, there's a lot of things when you're looking at asset growth and that you got to consider including interim funding, our syndication strategy and whatnot. So I think it's premature at this point for us to give you a definitive view, as it relates exclusively to NEAs. We probably need to take it up on a level or 2 from there, and we'll do that in the quarters to come.
Okay. Fair enough. A couple of clarification questions then. Just around Geoff's question on the core NIM yield of 2.69%. I believe you mentioned, there was a clean number. I'm just wondering how you're thinking about the swap income gain that occurred during...
Yes. Karen Martin is with us. And maybe Karen, would you like to take that one?
Hi, Jaeme. It's -- I would say the onetime swap gain is just what it was. It was a onetime swap gain when we -- as Jay said, when we wound down or -- yes, when we -- so when we gained the $160 million out of the securitization program that we brought back onto our balance sheet, we actually, at that time unwound swaps that we had with that and realized a $4 million gain mark-to-market on those -- on that program. So it really is a onetime.
And Jaeme, just to be clear, that's not in our Q4, that's something that we had to hurdle over, that was a Q3 gain.
Yes. Yes. Just not expected a comeback in at all. And then the last question I have is just around the timing of delivered versus actioned. If you could just sort of speak to some of the factors that are at play in terms of what creates the lag?
Yes. So as we communicated, absolutely delighted with the progress that we had with our quick wins initiative and the actioning of $58 million of pretax run rate profitability improvement. That will translate into $48 million of -- in year realization in 2019 for a $0.09 lift in EPS. The reason why not all of the $58 million actioned manifests itself in profit improvement in 2019 is due to the nature of the profitability improvements. So let me give you the most basic example on that is through the simplification initiative that we had. When we exit an employee with notice, that constitutes an actioned item. The employ is no longer on the payroll, that's a delivered benefit. So anything that was actioned in terms of employee exits in 2018, where the employee is no longer in -- on the payroll in 2019, you'll see that flow through directly. And you can expect the vast majority of the benefits that we have highlighted here from organizational simplification will actually flow through from 2018 as actioned to 2019 as realized. Revenue assurance. So when we have identified a source of a leak and the accompanied fix that constitutes an actioned item. When the revenue was restored, it's delivered, and we will see that translate into a profit uplift. And again, for the most part, you'll see that flow through from 2018 to 2019. The stuff that has a longer gestation period in terms of its impact, are the types of initiatives wherein they're tied to an underlying asset. And thus, we need to -- that improvement gets then tied to the amortization of that underlying asset, which is 41 months on average. So if we, for instance, negotiated a -- an OEM rebate on a vehicle, then that rebate gets realized over the life of the vehicle lease on average 41 months. And so you'll see a little bit of it in 2019, little bit of it in 2020, '21, and finish up in 2022. So that is the reason for the -- not all of the $58 million manifesting itself in terms of profit improvement in 2019.
Jay, I am just going to jump in perhaps. Just for emphasis, I do want to ensure that we're interpreting that chart $1.1 million to accurately, because we had a few inquiries. So that is mapping, as Jay has alluded to, but just for point of emphasis, the entire $58 million through the 2020 period. So as you look at that, effectively, what we're seeing is that through FY '19 as the quarters depict there, the $58 million actioned at the end of calendar 2018 will effectively have a profit improvement of $48 million run rate through fiscal year '19. That number -- the impact grows to $54 million through '20. So it's not additive. You shouldn't add the $48 million plus the $54 million. Effectively, what we're seeing is, fiscal year '20 will benefit an incremental $6 million related to that $58 million actioned items. So just -- that's an important distinction obviously. And as folks are looking up top, the Chart 1.1, and we're giving guidance as to our view of where we expect to be at the end of FY '19 and FY '20 from a prospective of actioned initiatives at that point, $100 million, you can use the experience we're giving you in 1.12 (sic) [ 1.1.2 ], if you want to extrapolate when we believe those actioned items were flow through the P&L. Hopefully, that's helpful?
Our next question comes from Mario Mendonca of TD Securities .
Just a quick question, again, going back to the margin. Was there any effect there from the allocation of the converts -- the convertible to the fleet business? Or is that no longer a distinction you're making?
Mario, we do continue to allocate some interest expense to the noncore business. We allocated less in the business as we're moving forward, clearly related to the business being a smaller component. But it would not be material to the NIM analysis in any way, shape or form.
Got it. And is there anything -- and I think you've answered this in a couple of ways. But just to be clear, is there anything of that top line -- because it came in a fair better than I was looking for, maybe others as well. Is there anything in the top line that you wouldn't expect to play out as early as next quarter?
Again, no guidance. There's interim funding. There is -- through the reported NIM line you have, your amortization of [ MOCO ]. So you got a bunch of things related to cash and how they come, but nothing that we felt worthwhile to call out to the community at this point in time.
And then on originations. They look very good, up 24%, 25% year-over-year. Was there any big win in the quarter that would have led to that?
We are enjoying, as I mentioned, we are enjoying strong renewals and opportunities to go deeper into fleet positions with existing customers combined with some nice wins. So again, we have a lot of work to do with the transformation program. We have but a quarter under our belt, 2 more years to go. But the organization has responded brilliantly. And we've seen it in terms of both clients and prospective client reaction to same. They are staying with us and absolutely eager to join us as the opportunities arise.
So you wouldn't consider then the 25% year-over-year increase to be unusual, that something that this organization is now capable of delivering, like consistently, would that be fair to say?
You know, again, it -- a number of factors at play, but yes, we would not hold that out to be the norm.
Not the norm?
Not the norm.
Our next question comes from Jeff Fenwick of Cormark Securities.
Just wanted to follow-up on some of the questions we've had around just understanding that layering-in effect of the cost savings. And I'm wondering if it might be just helpful or if you'll be able to, at some point, contemplate giving us something like an OpEx ratio or an efficiency ratio that might help us understand how those factors are going to blend into things like we saw in this quarter in terms of spending on growth versus the offset of savings and how the two are going to net out? And so is there any thought about moving towards giving some guidance on both sorts of ratios that might help us better understand the margins of the business going forward?
Yes. Let us take that away. This was the first cut of the supplemental. We tried to be responsive to some of the queries that you have provided in the past and to provide an additional level of detail and insight that might be helpful to you as you build your models and better understand the initiatives that we have underway. Always looking for additional ideas and methodologies to portray this information in a way that furthers understanding. So let us take that away and happy to chew on it to the extent that we can provide that and provide it in a way that is meaningful for you then only too happy to do so.
Our next question comes from Paul Holden of CIBC.
So I do have one final question. Again, it's going back to the sup pack which is very useful. On the disclosure on the tax assets. So you show the value of the tax assets, year-end is $366 million or $0.93 a share, which is relatively significant versus the current share price. So how should we think about that? Because that $0.93 that gets realized by shareholders over time through additional free cash flow? Or is there another way to approach that value?
Yes. Thank you for calling that out. The information we provide there is exactly the information that is in our financial statement note and sometimes when you're in a financial statement note, it's easy to get lost, and clearly, pulling this forward. And really, what -- when you look at our cash tax position as a company over the next several years, we expect cash taxes to be in the neighborhood of $40 million to $50 million. And so when we think about free cash flow -- and most of those taxes, quite frankly, are non-income taxes, the biggest component of it is our tax on -- Part VI.I tax on our pref shares. So I think when the community and ourselves are doing our cash flow forecasting, we thought a very notable item to point out that irrespective of the effective tax rate and our statutory rates, the nature of our business and the tax laws are such that the -- we will have minimal cash taxes effectively over the foreseeable future here.
[Operator Instructions] Our next question is a follow-up from Brenna Phelan of Raymond James.
So I just wanted to start with the supplemental and looking at that action schedules. So the direct cost savings that are coming through, $8.2 million based on what was actioned within that $15 million already as a percentage of the total $20 million that you expect to see from that line. When taken in the context of being 0.2% of your total spend, how is that trending? Are you seeing when you're having these negotiations, are they going as you thought they would? And do you think -- are your suppliers generally receiving these discussions well? And do you think that's an area that could continue to build potentially?
Yes. We've been very pleased with the open dialogue that we've been able to establish with our suppliers. Given the scale of the operating platform, given the reach across a wide swath of geography and given the ability to direct client spend, we have been able to have very constructive conversations with our strategic suppliers with regards to programs that will benefit both our customer and our shareholders. So I've been very encouraged with the early results and see nothing that will deter us in terms of our ability to realize our targeted savings from that aspect of the transformation program.
Okay. And then just turning to -- in the commentary in the MD&A on service revenue, calls out $5.9 million lower gains on sales in the ANZ business. Can you size what a quarterly revenue contribution from gains on sales looks like in that business?
It's not something that we disclose today. Again, as you can tell by the work that is being done and conveyed through the supplemental, some of the changes that we made to disclosures in the MD&A and even in the financial statements, we are looking for ways to better provide you with better information. And I know Vito is hard at work already, thinking through Q1 disclosures, the format of those disclosures and the content of those to, again, better aid you in understanding our business in a manner that you can properly assess same. So again, we'll take that away as to be considered as part of that process.
This concludes the question-and-answer session. I'd like to turn the call back over to Mr. Forbes for any closing remarks.
Again, thanks ever so much for joining us this evening and much appreciate it. And should there be anything else that you require, don't hesitate to reach out.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.