– By Caroline Falls –
Listed novated lease and fleet management group McMillan Shakespeare posted a rise in revenue and profit for the six months ended December 31, but it admitted it was a tough slog.
Things like a slackening appetite by lenders to fund credit, reduced insurance penetration and lower interest rates cutting revenue were among the headwinds cited by McMillan Shakespeare in its financial results presentation. Market competition, a soft car market and narrowed margins also made it hard work to realise positive numbers.
The headline figures for profit — underlying net profit after tax and amortisation, which takes out one-off activities like costs of its abandoned takeover bid for rival Eclipx — showed a 10.3 percent rise to $37.8 million, compared with the first half of the previous year. The widely watched measure of earnings per share rose 9.1 percent to 46.8 cents a share. Revenue crept up one percent to $270.4 million.
“The results demonstrate our ability to perform well despite challenging business conditions,” Mike Salisbury, McMillan Shakespeare’s CEO, said in a webcast briefing to investors.
Certainly, its new business Plan Partners — a service that manages and tracks finances related to the National Insurance Disability Scheme for recipients and providers — helped deliver positive numbers. That business doubled its size with some $417 million in accounts under management.
Novated leasing was also one of the highlights, with growth of 9.7 percent to 71,600 customers, compared with the same period a year earlier. McMillan Shakespeare is also big in the salary packaging services area and grew this activity by some five percent to about 358,000 packages.
It’s worth noting that the lift in novated leases issued was remarkable against the backdrop of negative growth in new car sales. In the six-month period we’re concerned with here, new car sales in Australia dropped to 508,000, from 548,000 in the same period a year earlier and compared with 590,000 in 2018. Still the yield for McMillan Shakespeare in the novated business narrowed.
The fleet management business contracted 2.8 percent to 43,543 vehicles and assets in the six months. This was mostly in the Australian market, and partly in the U.K. where a general election caused uncertainty and delayed purchasing decisions, Salisbury told investors and analysts. Customers had also tended to extend leases rather than replace assets, cutting money making opportunities for McMillan Shakespeare.
“Indicators are the market is to remain subdued for the near term,” the company said in a presentation on the results. “It also announced a strategic review into its U.K. business, with all options on the table, including divestment.”
McMillan Shakespeare also warned of continuing rocky conditions — lacklustre business and consumer confidence, poor funder credit appetite and regulatory uncertainty around warranty and insurance products.
“The first half results have started tracking in the right direction,” said Salisbury, adding, “Without any further distraction the business will deliver a stronger second half.” The company maintained its guidance for the full-year ending June 30 for an UNPATA of $83 million to $87 million.
A note of caution though is that novated lease growth is vulnerable.
“If new car sales have reached a new level (of decline), then we wouldn’t expect to see novated lease growth as strong in the second half as we have seen in the first”, said Mark Blackburn, McMillan Shakespeare chief financial officer, when answering a question on the webcast.
McMillan Shakespeare has three main business units: asset management (brands include Interleasing, Maxxia, Justhonk and Eurodrive), group remuneration services Plan Partners, Maxxia and RemServ), and retail financial services (Presidian, nfc, and United Financial Services).
— Caroline Falls is a freelance reporter, writing for Australian and international publications. She can be contacted at carolinefalls@gmail.com.
