Turnaround expert Jay Forbes unveiled his fix for leasing company Element Fleet Management Corp. on Monday by announcing plans to improve customer service, wind down a troubled division, slash the dividend and raise $300-million in an equity offering.
Element is North America’s largest commercial vehicle financier, with a portfolio of more than a million trucks and industrial equipment. Mr. Forbes was hired as Element’s chief executive in June to fix a business that was built through a series of acquisitions, including the 2015 takeover of General Electric Co.'s fleet business, and was experiencing growing pains and losing clients.
Bradley Nullmeyer, Element’s previous CEO, retired in February.
Mr. Forbes took the top job after Element’s board of directors concluded a strategic review that failed to find a buyer for the company. He is former CEO of Manitoba Telecom Services Inc. and three other companies that overcame significant operational challenges.
“We have embarked on a transformational reset of Element’s business, with a renewed focus on our customers and on improving productivity,” Mr. Forbes said in a news release on Monday.
He outlined plans to boost annual profits by $150-million over the next two years by improving client service and streamlining Element’s structure. The company will invest $150-million in its systems and in revamping its work force to achieve this goal, spending that will be funded in part with a 40-per-cent reduction in Element’s quarterly dividend to 4.5 cents.
Element also said on Monday that it will take full control of 19th Capital Group, a truck-leasing business based Indianapolis that was formerly a joint venture with another finance company. Element will wind down the business over the next three years. 19th Capital has a significant inventory of idle trucks, and Element plans to dispose of these vehicles. Fleet will take a $360-million after-tax charge as it shuts down the business. “Over its short history, 19th Capital has meaningfully underperformed expectations," Element said in the release.
To ensure the company maintains an investment-grade credit rating, Element said that it has raised $300-million by selling shares for $6.60 each to a syndicate of investment banks led by CIBC World Markets, BMO Nesbitt Burns and Barclays Capital Canada Inc. The money is earmarked for paying down debt.
Element’s stock price peaked at $15 in 2015, after the GE acquisition, and has since declined steadily, closing on Monday at $6.70 a share.
Four months after arriving, Mr. Forbes has introduced more than 80 separate initiatives aimed at improving operations and posting long-term profitability. To simplify Element’s structure, the company said it is reducing the nine layers of organization between the CEO and customer-facing employees to five levels of management.
The company said the initiatives now underway are projected to generate earnings of 90 cents to 95 cents per share in fiscal 2020; the company earned 19 cents per share in fiscal 2017.