SG Fleet, Australia’s largest fleet management and novated leasing company, announced their results in February for the first half of the financial year. There were many positive signs supporting the great results despite no material growth in the total fleet size due to continuing delay in new vehicle deliveries.
SG Fleet Group Limited reported a Net Profit After Tax (‘NPAT’) of $29.7 million for the six-month period ended 31 December 2021 (‘1H22’), a 16.6% improvement on the prior corresponding period (‘1H21’). At an Underlying level, NPAT was up 54.3% on 1H21. Reported and Underlying NPAT include an $8.1 million and a $9.0 million four-month contribution respectively from the LeasePlan Australia and New Zealand businesses (‘LeasePlan’), which were acquired on 1 September 2021.
Used vehicle profits
There was less talk about the profits being made from used vehicle sales, though Vehicle Risk Income (VRI) was almost double the same period last year thanks to the extra contribution from LeasePlan. Profits from disposals made up the largest portion even with a decline of 22.7% in sale volumes.
A lack of new car deliveries continue to push up used vehicle prices with another peak being reached in December 2021. Mr Blau indicated a gradual softening of used car prices in late 2022 but did not expect the prices to return to pre-COVID levels at any stage. Any changes will be linked to new car supply which is expected to take years to normalise because of the current backlog of production which is not just related to semi-conductor issues.
Pipeline grows
The demand of new vehicles in Australia continues to be strong with the SG Fleet pipeline as of 31st December 2021 for Corporate vehicles increasing to 9,304 and the Novated pipeline was 4,395. Both represent significant increases from a year ago (almost four times bigger).
At the investor briefing SG Fleet’s Chief Executive Officer, Robbie Blau, provided some background to explain challenges facing car manufacturers globally with a graph showing that new car production volumes are not forecast to return to normal until 2024. Mr Blau cited the situation in the United Kingdom where Volkswagen had advised that all of their production spots for 2022 were already booked.
The future
Overall the SG Fleet business appears solid as the world exits the pandemic with the LeasePlan integration going well, a proven ability to win tenders which will increase market share, and a suite of products to cross sell to new and existing customers.
“Our Corporate businesses in Australia, New Zealand and the UK continued the strong performance delivered during the COVID-19 period and Novated demand is growing steadily. Supply disruption still dominates our operating environment and this impacted our ability to deliver the increasing number of orders won in this and earlier periods. A significant proportion of this order pipeline will consequently be delivered in future periods,” Mr Blau noted.
In tandem with the supply constraints, used vehicle values remained exceptionally strong throughout the period, but lower disposal volumes as a consequence of extensions and inertia limited their contribution to end of lease income.
The Australian Corporate business saw little change in its operating environment and continued its strong performance from the previous period. A significant number of new accounts were signed up and the business secured several large contract extensions, in some cases for longer time periods and a wider range of services. Customer penetration gains were a general feature of the period, with a particularly strong interest in electric vehicles.
“Our customers are increasingly moving their fleets from ICE vehicles to hybrids or EVs,” Mr Blau said. “This has been a pattern for some time in the UK, where penetration levels are much higher, and more recently in Australia and New Zealand. We have established a leadership position in the EV space and we are providing an integrated, full lifecycle solution for EVs to a rapidly growing number of government organisations, as well as to blue chip companies invarious industries,” he commented.
In the Novated channel, enquiry levels and orders have now been growing strongly for some time. Total orders, including those from LeasePlan customers, are up 34.5% on 1H21. As with the Corporate channel, actual delivery of a significant proportion of vehicles is delayed because of supply issues and lead times.
“Our combined team has signed up an impressive number of new employer accounts, and this gives us access to a significantly larger pool of eligible employees. We have been particularly successful in introducing Novated into existing Tool-of-Trade customers. Significant potential also exists in terms of accessory upsell with existing LeasePlan drivers,” Mr Blau noted.
“We anticipate that we will start to see a gradual normalisation in our operating environment, particularly from a supply perspective, at some stage in the 2023 financial year. This will allow us to catch up on the significant amount of deliveries resulting from the strong tender win ratios we have been reporting over the past few periods,” Mr Blau said.
“The Company is emerging stronger from a challenging macro environment. We are in an excellent position now to enhance efficiency and pursue multiple growth avenues, and we have set a clear path to achieve those objectives,” he concluded.
P.S. During the investor briefing it was mentioned that SG Fleet delivered 2,900 vehicles to a customer involved in parcel delivery during the second half of 2020. Wow! Australians certainly did embrace online shopping over the last two years.
