Company Interview / Cost-of-living pressures a boon to MMS's leasing business

Key points:

A 159% increase in McMillan Shakespeare's full-year net profit after taxRise in consumer activity within Electric Vehicle sector buoyed by favourable legislation and drop in prices. Launch of Ollie, their new brand targeting small and medium-sized business enterprise market.

Rob De Luca, CEO of McMillan Shakespeare, outlines the company's solid financial performance, revealing an impressive 159% surge in its full-year net profit after tax to $83.5 million. Rob attributes this surge to robust growth in both revenue and profit lines, bolstered notably by the strong performance of McMillan Shakespeare's Novated lease business. The firm has experienced increased demand due to rising cost of living pressures, a factor that has led more Australians to leverage their leasing services.

Rob underscores the significance of the electric vehicle (EV) sector to the company growth. The firm has witnessed a rise in vehicle availability which promises to support consumer uptake. Moreover, the drop in prices of electric vehicles, instigated by automotive giants like Tesla, is anticipated to enhance consumer activity within the sector. Enthused by the surging demand for EVs, backed by EV-friendly legislation introduced in 2022, Rob foresees sustained growth in this area over the next year.

The CEO further highlights the launch of Ollie, a new brand aimed at the small and medium-sized business enterprise market. Perceiving a demand for this service in the market, Rob is hopeful Ollie will eventually contribute substantially to the firm's overall performance. He speaks glowingly of their plan and support service business, referencing a 10% increase in customer numbers over the past year. Lastly, Rob responds to concerns about potential fraud, assuring measures are in place to safeguard against such practices, including continued investment in technology and integrity checks.

Full unedited transcript below:

0:11

And let's get into salary packaging and notated leasing firm Millen Shakespeare, which is a reported a near 159% increase in full year net profit after tax to $83.5 million, the company says. Ongoing cost of living pressures meant more Australians were drawn to its leasing services, notably its electric vehicles. Fleet revenue rose 11.5% to $525.8 million. A final dividend of $0.78 per share has been declared, taking the full year fully franked dividend to $1.54, which is a jump of 24.2%. Let's get now more from the CEO of Macmillan Shakespeare, Rob DeLuca. Good to have you with us, Rob. You must be impressed with these results. Thanks, Juliet. Great to be here. Yeah. Really pleased with our performance over FY 24. As you alluded to, we had really strong growth both at our revenue line and our profit line. And I think in part driven by the strong performance of our Nevada lease business, um, our group Remuneration

1:11

Services, which you alluded to provide salary, packaging and innovative leases. And in a period where they've been heightened cost of living pressures, it's a great way for people to, you know, increase the use of their take home pay. So you expecting to see the same as we kick off full year 25, particularly as it does look like we're going to have these higher for longer interest rates.

1:34

We've certainly cooled out in our outlook. Um, continued cost of living pressures for consumers and inflationary pressures more broadly across, you know, businesses. So we expect that to play some part in terms of the outlook for FY 25. Uh, a big part of our business is obviously the performance of our Nevada lease business, which is dependent upon auto supply. We've seen an increase in vehicles over the last 12 months after a period of challenges. Uh post-Covid. Um, so we're seeing increases in car availability across the market, which I think will support, obviously, consumer take up. There's also an increased pricing competition for vehicles as well. We started to see that late in the last financial year with price drops from electric vehicles like Tesla, and we expect that to continue in the next 12 months, which is a great outcome for consumers. What sort of demand are you seeing in terms of pickup for EVs, particularly given as well the FBT exemption and the push to

2:33

net zero? Yeah, well, certainly last year we saw a significant growth in the demand and uptake of electric vehicles. You know, our orders during the period were up with 43% of all of our total innovated lease, new sales, and our sales were 41% of all new innovated leases. So strong demand, I mean, two years ago, those numbers were more like 2%. So the EV legislation that's been in place since the late 2022 is really fueling great, strong demand for electric vehicles. We expect over the next 12 months more makes and models to come into the Australian marketplace. Uh, somewhere in the vicinity of about 40 new electric vehicles, and close to 70% of those should get the benefit of the legislation as well. So we see that demand continuing over the next 12 months. More recently, we've started to see a bit more uptake from plug in hybrids with some new vehicles that have landed in the Australian marketplace. So we see

3:33

that being a proportion of the take up of electric vehicles. You also saw it launched a new brand Ollie. Tell us about that and how you expect that will add to your revenue in full year 25? Yeah. Really excited. Excited about Ollie, our new brand. It's, uh, it's an offering for the small and medium sized business enterprise market. So the employees of that market who historically haven't had the the access and the benefit of innovated leases. So we saw, uh, after doing some research, the the need and the demand in the market for a proposition to this sector. Um, we believe the size of the market from a service perspective is around $160 million. So over time, we see that to be a great contributor to our performance. Obviously, starting off a very low base, we launched it in May and really pleased that we've had over 100,000 visits to our website, and in a short period of time, it really demonstrates the the proposition around

4:33

electric vehicles as well, where almost 70% of our orders in this product were for electric vehicles. So in FY 25, we expect that to continue to grow as we roll out the product and increase our marketing in that sector and over time, see that a good contributor to our performance. What sort of growth are you seeing in customer numbers, and can you point as well to what you're seeing from participants of the NDIS? Yeah, certainly in the in our plan and support service business, we saw just over 10% increase in customer numbers over the 12 months, which is a strong result. Um particularly given that the NDIS participant growth was just over 8%. So we grew faster than the overall scheme in terms of participant growth. Um, we've seen a lot of changes in the NDIS. The legislation that was passed last week, um, sees some reforms in this space. Nothing that impacts us from a business perspective. But over time we see this business to be a good

5:33

contributor to our overall McMillan Shakespeare results. And what about in terms of what you're saying with some of the concerns about fraud and conflicts of interest, what sort of, I guess, capital are you putting towards that to ensure that there isn't any of that happening in full year 25? Yeah, certainly a big part of what plan manager's roles is, is to try and stop fraud and protect the participants. We've continued to invest in our technology and our integrity checks. And during the period, you know, we continue to increase the number of invoices that came through that we withheld for payments to to investigate further. Um, so a big part of our business and our investment in our platform is around fraud management, protecting participants and helping reduce costs of the scheme. During the period almost $90 million in savings. The scheme was contributed by our ability to support our participants getting their services and supports at a lower price point than the price guide. Now, we mentioned that

6:33

the full year dividend has been increased by 24%, a good return for shareholders there. On the back of your big jump in profit, do you think you can kind of maintain that kind of growth for shareholders? Well, we've got a dividend policy in place that we want to pay between 70 and 100% of our profits. And certainly this period we made a decision to pay out 100% of our normalised unpaid,

6:59

um, and so each year will continue to look at the performance of our business and the cash that we've been generating and, you know, aim to continue to pay within our dividend policy. So really pleased for the outcome for our shareholders over the last 12 months in terms of the increase in our dividend paid, both at an interim level and full payment.

7:19

Uh, Rob, let's just talk about the overall market. I mean, year to date you've done quite well. How do you think you're faring, though? The market sort of is punishing companies that don't push it out of the gates. I guess with their results. Your share price down about 2% today.

7:35

Yeah. Look, we we certainly thought FY 24 was a great result across the board. You know, we had growth across all three of our segments and overall increase of 11.5% in revenue. And you alluded to really strong profit growth. Um, but obviously the market conditions we're operating within at the moment continue to be quite challenging in terms of cost of living pressures, inflation, still concerns about interest rates, uh, for many consumers. And so that's something that weighs, I think, on everybody's mind. I think the the benefit of our proposition across our group remuneration services, that people can actually take advantage of their pre-tax dollars in terms of their pay and get the benefits of salary packaging and able to finance leases through new weighted, um, pre-tax. So that's a great proposition during these challenging economic conditions for consumers. And you've mentioned that that does help you in terms of the innovated leases, but more importantly, in terms of how your overall business is faring amidst the challenging

8:35

economic cycle, what are you seeing? Are you going to have to cut costs? Are you cutting staff or how is Macmillan Shakespeare faring? Well, we've got a strategy that focuses on three areas. And the first one is around excelling in customer experience. The second is really around driving technology enabled productivity, and the third is around broadening our competency led solutions. You know, we continue to drive that as our strategy, which is investing in experience for our customers. But also we've got a number of initiatives looking at how do we become more productive, how do we use technology to automate processes to reduce our costs to serve our customers, and also looking at how do we actually provide better digital solutions for our customers so they increase their self-service. And for us, if that continues, obviously, then we should see benefits from a profitability perspective, margin perspective, whilst at the same time delivering really good outcomes for our customers.