When the COVID pandemic hit last year, McMillan Shakespeare stopped its dividend payment and announced a wage freeze for staff. A year later they have reinstated the dividend, received a significant benefit from the strong used car market and are returning to growth with a number of strategic initiatives.
Novated leases increased 2.2% against a backdrop of the limited supply of new vehicles, increased retail prices with carry-over of sales orders increasing to over five times historical levels.
Compared to FY2019, the total number of used fleet vehicles sold in FY2021 was down 83% but the profit was up 189%. It was continually mentioned during the investor presentation that these results were abnormal and not expected to continue beyond the current financial year.
The ANZ Asset Management business reported 30 new client wins and the retention of a number of customers. However, when responding to a question during the investor presentation, it was mentioned that they had ended an association with a large customer due to their credit position which contributed to a reduction in total fleet numbers.
Mike Salisbury, CEO and MD at McMillan Shakespeare Group, talked a lot about the market conditions that impacted the results while reinforcing the continued improvements on business operations and key strategic initiatives including the investment in digital.
“These conditions whilst favourable are abnormal. We believe that these conditions will normalise throughout the second half of the financial year (FY22) as supply returns to more traditional levels in the fourth quarter”, Salisbury said during the investor presentation.
“Order to delivery periods have increased and the level of price discounting by retailers has reduced. This lack of supply of new cars increased demand for used vehicles, reducing available stock and pushing prices to record levels”.
“Importantly the lack of supply has not reduced the demand, our order rates remain higher than the same time last year, customers are simply having to wait longer for a delivery”.
The digital investment involves enhancing the customer experience, improving productivity and maintaining growth opportunities.
Introduction of an enhanced digital live chat functionality substantially increased novated lease leads, with more than 80,000 customer interactions recorded, a 30% increase on FY21. A range of new online education and engagement hubs were established, with live streaming and video-on- demand used to replicate the traditional on-site experience of approximately 20,000 customer engagement sessions
An interesting statistic provided during the investor Q&A is the ‘vehicle order to deliver ratio’. Salisbury said that pre-COVID the number of vehicles ordered and delivered in the same month was 80%. The current ratio is 50%.
One analyst asked if dealerships were favouring retail buyers and causing stock shortages for fleet and novated lease buyers. Salisbury said they had predicted that some deliveries will be pushed into the first half of 2022 after speaking with car dealerships on their preferred national panel and vehicle manufacturers. He confirmed that they don’t have challenges supplying cars through their dealer channel when stock is available, getting the cars into the country is the issue.
Another analyst asked about customers switching to second-hand cars for novated leases because of the supply shortage on new cars. Salisbury said there had been an increase in the popularity of used cars but not from switching. It’s customers adding a second novated lease.
Overall the results were similar to the other publicly listed fleet management and leasing companies with the used car prices providing a short term spike in profits and a focus on building foundations for future growth.