Latest UK business update 

After posting better than expected 1H FY18results in February 2018 - with EBITDA (excluding UK VAT provisions) of A$4.3mup 79% YoY, and with management guiding to a strong second half in an 18 AprilGoldman Sachs Small and Mid-Cap Conference, we were expecting SPZ to poststrong full-year results. 

The 17 May UK Business Update cameas a shock. An internal audit uncovered non-compliance in HR and operationalcontrols at the UK-based Parking Management division. This led to the immediatesacking of the UK Managing Director and the CFO, and the interim appointment ofSPZ’s CEO and MD Paul Gillespie as UK’s MD. In addition, SPZ stated in the Mayupdate that it expected a combination of poor weather in 3Q FY18 and delays inthe roll-out of new managed sites in 4Q FY18, to negatively impact the issuanceof breach notices in the second half of the financial year (with issuances inthe June quarter expected to be some 25% below initial expectations).

 A follow up update released today (14 June)confirms that following an internal and thorough independent review,management’s conduct, whilst inappropriate, did not involve any illegal orcriminal activity. In addition, SPZ continues to operate in full compliancewith the rules and regulations of the British Parking Association and Driverand Vehicle Licensing Agency (DVLA). The update states that “the Board has beenswift and response in its response and now considers the investigation to be completeand is pleased to refocus SPZ on executing the Company’s growth strategy in itsUK business”.

 The update also added further detail totrading conditions in the UK. Management is guiding to 2H FY18 parking breachnotices of ~185k and underlying 2H FY18 EBITDA of between A$2-2.4m.