25/07/2013 - 15:42

Dramatic fallout from FBT decision

25/07/2013 - 15:42

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Fleetcare boss Nigel Malcolm.

Three fleet leasing companies in Perth are seeking an urgent meeting with Prime Minister Kevin Rudd when he visits Western Australia on Friday, as the share price of the country’s largest salary packaging company was smashed today by investors. 

McMillan Shakespeare Group's share price was cut by 43 per cent after it came out of a trading halt this morning.

It said the Rudd government's planned changes to fringe benefit tax (FBT) laws would have a “material adverse impact” on the company’s earnings.

However, it added that the political uncertainty surrounding the changes meant it was not in a position to provide any earnings guidance.

The company was critical of the proposed changes, which abolish the 28-year-old practice of being able to rely on the statutory formula method to quantify the amount of FBT payable on employer-provided motor vehicles.

The proposal is “creating disruption within the industry and is expected to lead to an unknown and unquantifiable decrease in demand for novated leases and an adverse impact to the business overall”.

The proposed change has also adversely affected fleet leasing businesses, with Fleet Network and Fleetcare having already announced major redundancies.

Nigel Malcolm of Fleetcare, Eric Cain of Fleet Network and Mark Iriks of Easifleet have contacted the prime minister’s office requesting a meeting in Perth tomorrow to discuss the changes.

Mr Malcolm said the government did not consult the industry before making its announcement.

“From all that they’ve said since the announcement it seems to those of us in the industry that they don’t understand the devastating impact the changes will have on businesses,” he said.

“This is not just about drivers of salary-packaged cars having to pay an average extra $1,400 a year. 

“The cost to businesses that provide their staff with a car, as part of their package, will be $4,000 a year per vehicle.”

McMillan Shakespeare and Easifleet have declared they will not be laying off any staff, despite the uncertainty facing their businesses.

Easifleet said it has decided not to select any of its 25 staff members for redundancy or even contemplate axing until more clarity is provided by the government, or until Mr Rudd announces an election date.

“We refuse to bow heads, assume the worst case scenario and give up,” Easifleet managing director Mark Iriks said.

“We expect that this lunacy will be over either when the government decides that they’ve made a huge mistake, or after the election if the coalition forms government.”

McMillan Shakespeare said it intended to retain all permanent staff, including those directly involved in originating novated leases.

The company said it was able to retain staff because it has cash reserves of $57 million.

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

MMS shares were trading at $18 before the policy announcement. They fell quickly to $15.36 last week, before going into a trading halt.

After emerging from the week-long trading suspension, the share price crashed to a closing price of $8.80 today, after hitting an intra-day low of $6.75.

The company’s request for an extension to its trading halt was rejected by the Australian Stock Exchange.

Chief financial officer Mark Blackburn said McMillan would suspend all communication with investment analysts, shareholders and the media until after the election "unless the position becomes clearer prior to then".

McMillan is expecting a net profit of between $61 million and $63 million for the year to June 2013, representing a 15 per cent increase on the prior financial year.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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