– By Caroline Falls –
McMillan Shakespeare, the pioneer of Australia’s salary packaging industry and now also a leader in novated leasing and fleet management services, said all its business segments, including its new retail vehicle financier, contributed to growth in revenue and profit for the year ended June 30.
“In Australia our salary packaging and novated leasing business enjoyed another record profit,” said Mike Salisbury, CEO of McMillan Shakespeare, adding customer numbers increased thanks to organic growth, a lid was kept on costs and a raft of contract wins helped bolster profit and revenue.
The number of salary packages managed by various McMillan Shakespeare brands, including Maxxia and Remserve, increased 12,800 to 293,000 in the year ended June 30. Novated leases under management rose 800 to 55,800.
“Improving our customers’ access to workplace benefits has always been what makes our business tick, and we estimate that Maxxia and RemServe now deliver salary packaging services to 45 percent of Australia’s public health employees,” Salisbury said. New client wins included two health organisations in NSW – Mid North Coast Local Health District and South Western Sydney Local Health District. The company retained large contracts with Victoria-based Peninsula Health, and the governments of Queensland, Tasmania and South Australia.
Salisbury also singled out the company’s asset management business as a key driver of profitability, saying it delivered a 19 percent increase.
The Australian Stock Exchange-listed company posted an underlying profit of $87.2 million for the year ended June 30, up 25.3 percent from a year earlier. This figure strips out one-off costs associated with acquisitions. Its revenue rose to $503.2 million, up 29.9 percent from a year earlier. Underlying earnings per share rose to $1.051 cents a share, up 17.2 percent. The company declared a final fully-franked dividend of 27 cents, taking the full-year payout to 63 cents.
Drilling down to the company’s three key segments, headline earnings from group remuneration services, or GRS, grew 8.1 percent to $58.7 million, asset management underlying profit increased 31.9 percent to $15.3 million, and the new retail financial services business, or RFS, indicated a four-fold growth in earnings to $14 million.
In 2015, McMillan Shakespeare started offering consumer vehicle finance, establishing the RFS business unit. It houses the 2015 acquisitions of Presidian Holdings and United Financial Services.
“In recent years we have articulated our diversification strategy to create value for our shareholders and customers by becoming a leader in adjacent and complementary sectors,” said Salisbury.
Offering retail finance allows McMillan Shakespeare to capture some of the almost one-third of people who approach the company about novated leasing, but change course and purchase a vehicle by other means.
Salisbury said the more recently acquired UK-based Anglo Scottish Asset Finance business contributed a maiden profit ahead of expectations.
He said the company’s customer education program differentiates it from rivals in the marketplace. McMillan Shakespeare ran some 20,000 educational activities, including 5,552 individual consultations. “We put our people into worksites spanning metropolitan, regional and remote locations every day,” Salisbury said, adding, “It … will sustain our competitive position and earnings growth in the years to come.”
In addition, for the year ahead, McMillan Shakespeare pointed to three initiatives to drive growth, namely Maxxia Plus (cross-selling platform), enhanced technology and selective acquisitions.
New business wins, including being appointed to the NSW Government’s panel of vehicle leasing providers, was a highlight during the year and will underpin growth in FY-17, Salisbury said.
He said an evaporation of uncertainty about tax treatment of novated leases had also lifted confidence in the sector.
“Exposure to regulatory risk was reduced as both major political parties … confirmed no change would be made to the FBT treatment of novated leases,” Salisbury said.
A couple of years ago, the company’s finances were shook up by uncertainty about fringe benefit tax arrangements, particularly changes proposed by the former Labor Federal Government which never came to pass.
The cloud on the horizon for now, though, is the expiry of one major contract, which McMillan Shakespeare has re-tendered for. If it retains the business, McMillan Shakespeare, said new terms won’t be as advantageous and will see its underlying earnings reduced by as much as $650,000 a month.
The company didn’t disclose the effect on its business if it doesn’t win the contract. News of the major contract being up for grabs and the significant deterioration in earnings for McMillan Shakespeare even if it hangs onto the client, drove a slump in the company’s share price late last week, from $14.65 to $12.33.
