Bungled FBT changes hurt novated lease specialist

McMILLAN Shakespeare, the novated leasing specialist that saw its share price plummet last year after the Rudd Government sprung a radical overhaul of how cars were taxed, says it has bounced back.

However, it has come at a cost, with the publicly listed company posting a 12 percent slide in after-tax profit to $55 million, with the blame laid squarely at the feet of the bungled fringe benefits tax (FBT) grab by the previous Labor government.

The planned tax, which would require leased car owners to record actual kilometres travelled rather than assuming an average annual distance, effectively slammed the brakes on the novated leasing industry until it was repealed late last year by the newly introduced Abbott-led coalition government.

Despite the hardship, the company has paid its highest-ever full-year dividend of 52.0 cents.

As well, its share price that plummeted to almost $6 has since rebounded to sit at around $11 in early trade today, but still well off the $18 high it was trading at shortly before last year’s proposed change to FBT laws was announced.

Documents filed with the Australian Stock Exchange today reveal that McMillan Shakespeare believes it has “fully recovered” from the July 16, 2013 changes to novated leasing benefits that would have penalised workers using company-sponsored vehicles.

The company said the slide in its profit was entirely due to the “FBT temporary disruption”, which reduced revenue from novated leasing, bumped up expenses after McMillan Shakespeare decided to keep employees on rather than sack them, and an incurred a $1.4 million one-off cost associated with administering the change.

“Business and staff proved very resilient in the face of proposed FBT changes,” the company said.

“[The] proposed FBT changes caused considerable confusion in respect of tool-of-trade vehicles (move from statutory to operating cost method) – customers elected to delay replacements,” it said.

“Uncertain economic conditions meant [a] significant number of lease extensions rather than investing in new assets ie. fewer cars returning for remarketing.”Hard-hit were end-of-lease profits, which were down almost 20 percent compared with a baseline figure benchmarked against the 2010-11 financial year.

Meanwhile, the value of fleet assets grew from $307 million in the 2012-13 financial year to $334 million last financial year.

Helping things, the company said, was the addition of another major bank, with McMillan Shakespeare now counting three of the four big Australian banks among its list of clients.

According to the company, the 2014-15 financial year should be another one of “profitable growth in all lines of our business”.

However, it remains wary, flagging that government policy development – and in particular changes to fringe tax benefits – is still a risk for the company.