Govr TGA has had a few years of disappointments, and each time...

Govr

TGA has had a few years of disappointments, and each time it has tended to hold the DPS by increasing the payout ratio in an attempt to flag that all is well with the underlying performance. This recent matter requiring the $4m provisioning may be the straw that broke the camel's back. Had it not followed the NCML fiasco, the customers-overpaying their commitments fiasco, and the disappointing results of both the unsecured loans initiative and the Rent-Drive-Buy initiative, management may well have held the DPS steady, other things being approximately equal (e.g., if the tempo of network change were steady).

Changing to a spoke-and-hub model for the distribution net work has been trialled, and found to be commercially sound – the model delivered more revenue per catchment area, lower rental costs per transaction, improved turnover, and widened the customer demographic in a way that suited TGA. I recall 10% improvement being mentioned in this regard, but I have forgotten what exactly was stated. Consequently, there is no issue with the viability of the idea, but while the transitioning occurs, it incurs expense and it requires funding. The original strategy was to consider changes as shop leases expire. An expected increase in the tempo of change may be because:

• the tempo of shop leases expiring is known to be increasing, or
• now knowing the advantages, TGA wishes to increase the number of change for each lease expiry, or
• both reasons are at play.

The last-straw reason in Paragraph 1, and the network-change reason in Paragraph 2, may collectively justify cutting the DPS. By how much and for how long is another matter.

Had the previous senior management impaired the NCML goodwill years earlier, and reduced the DPS as a consequence of sticking to a reasonably consistent payout ratio, the need to decrease the DPS now would have been lessened. The point I want to make is that the current senior management are not responsible for what happened in past years, and for now, I thing the current team will fix the historical problems.