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McMillan Shakespeare ‘lost’ on tax change impact

Hard bargain: Shares in novated lease specialist McMillan Shakespeare plummeted after the company relisted on the Australian Stock Exchange this morning.

Novated car lease specialist can’t weigh up what tax law changes will cost it

25 Jul 2013

THE company that last week hauled its shares off the Australian Stock Exchange in response to the government’s fringe benefits tax shake-up finally has an answer on the impact those changes will bring – it has no idea.

Novated car leasing specialist McMillan Shakespeare late yesterday issued an announcement to the stock exchange after it was refused another week-long suspension from trading by the market regulator.

It said the company did not have enough time to fully assess the impact of the legislative change, which removes an automatic 20 per cent assumption that a leased or salary-sacrificed car’s use is for private purposes, on its earnings for this financial year.

“As previously announced by MMS, on July 16, 2013 the federal government proposed legislative changes to the treatment of fringe benefits tax on vehicles,” it said.

“As the industry’s stakeholders were not consulted on the proposed FBT changes they have taken MMS by surprise, and as a result MMS, its employees, its shareholders, and its customer base of not-for-profit institutions, charities and public and private sectors find themselves in an uncertain business, investment and service environment which MMS considers is not likely to be resolved with sufficient certainty or clarity until after the outcome of the federal election.

“... Given the uncertainty caused by the proposed legislative changes and their impact on MMS, the company is not currently in a position to provide any guidance on any final dividend payment for the year ended June 30, 2013.”

Shareholders could have expected around 25 cents a share when the company presents its results for the 2012-13 financial year later this month.

McMillan Shakespeare said early accounts showed the company can expect to announce after-tax earnings last financial year of up to $62 million based on a healthy year of trade.

However, the company’s revenue included more than $100 million in pre-tax earnings from the branch of the business that covers the novated leasing of cars.

“The company is currently undertaking work to further understand the GRS (Group Remuneration Services segment, which provides salary packaging and novated leasing products to the not-for-profit, charity, state and federal government and private sectors) margin impact from the proposed legislative change as well as any potential impacts the proposed legislation may have on the carrying value of the company’s assets,” it said.

“Given the significant change in the value proposition of a novated lease for an employee MMS is not in a position to forecast potential future demand.

“The Company is fortunate to have a dedicated and talented team of staff. Based on current cash headroom and until there is more clarity in regard to the legislative outcomes the company intends to retain all permanent staff including those who are directly engaged in originating novated leases.

“The company is actively managing paid and unpaid leave to minimise the financial impact on the company during this time.

“Should the proposed legislative changes not proceed, MMS will have a team with the requisite skills to maintain a strong competitive position.”

McMillan Shakespeare shares plummeted once trade in the company reopened on the Australian Stock Exchange this morning, losing more than $8.50 in early dealing to stand at $6.85. A week ago they were above $18.

This follows a sharp 15 per cent fall early last week as investors scrambled to react before the company’s shares were suspended from trade in response to the sweeping tax law changes.

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