Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SG Fleet Group Ltd (ASX:SGF, Financial) reported a nearly 20% growth in underlying profit after tax.
- The company achieved record orders and deliveries, particularly in the corporate and novated funded fleet segments.
- A special dividend of $0.15 per share was declared, bringing the total dividend for the year to $0.3393 per share, more than double that of last year.
- The integration of LeasePlan is on track, with expected synergies of about $20 million.
- Strong growth in electric vehicle (EV) orders, with battery EV orders up 32% and plug-in hybrid orders up 69%.
Negative Points
- The order pipeline reduction has been slower than anticipated, with a return to pre-COVID levels expected to take another 1.5 to 2 years.
- Used vehicle values did not drop as early or as materially as expected, impacting end-of-lease disposal income.
- Operating expenses grew faster than desired, with an 8.2% increase in average headcount and significant investments in technology.
- Interest on corporate debt is expected to increase by $7 million in FY 2025 due to the unwinding of an interest rate swap.
- The economic conditions in New Zealand remain subdued, impacting vehicle registrations, particularly in the passenger segment.
Q & A Highlights
Q: Morning, Rob and Kevin. First question, just around your novated lease business. You spoke a lot about obviously that's driving a number of ways. I just want to get a sense of your view on yields on the novated leases into next year. And there's just been some I guess, competitor commentary on the impact of price competition in EVs in particular, which is obviously very well known fact that we just wanted to get an idea of how your business is handling that cutting.
A: I think a couple of points there and Kevin jump in if I'm missing anything and EVs are still process ahead of normal off vehicles. So we still continue to see higher margins on those vehicles. And all we were pointing to the fact that they're, you know, they're normalizing somewhat. So we are very positive on that front in addition, as I've said over the last few periods, we are not banking our future solely on EVs. And I think that would be a somewhat irresponsible strategy for our customers actually because remember, all of these EVs have to come back into the market at some point. So we very much selling sales to our customers. We also sell to a corporate customer who has a higher salary than it than a government sort of employee. So sales remained very interesting to them off. Vehicles remain very, and we still have a really good spread over our overall fleet. So we remain positive on our margin opportunity in that book and over the time. I'm also important to note that, as we've said for a number of years. We feel that our we our interest margins are in that business are very, very sustainable. And if not, then have some upside by Serco and a very different place to some of our competitors in the market. So we're not seeing competitive pressure on pricing at all quite the country actually, given where we price.
Q: Got it. Thanks. And then just kind of extending that into hybrids. I'm just wondering if you've got any thoughts on the possibility of of an extension from an FET exemption for the hybrid specifically. And I guess either way, what would the impact be on your innovative business if it's not extended?
A: Look, I think I think, firstly, to be clear, we're only talking about plug-in hybrids and just for those on the call. Look, our feeling is and again, I'm giving you an SEC view. I can't speak for the government. We are talking to the government about their views on this, it would be very responsible in and for a number of reasons to extend there, the plug-in hybrid opportunity and the reasons all of our numerous, they are seeing that there are a number of markets where pure EV just doesn't work. You can't shut pure EV down rural people's throats because where do they charge them and how do they get the distance they need in them, but plug-ins are very obvious solution for that. Plug-in hybrids are an obvious solution for use where range anxiety on fully battery electric vehicles are a problem and plug-in hybrids are a solution for people that are transitioning into EV and aren't quite there yet. So it would make sense for an extension there. I'm not sure whether we'll achieve that or not. And we are talking to government. We think it's a sensible way forward. The bottom line is if it's not achieved, it will drive a lot of people back into pure electric again, because a lot of people are taking advantage of the legislation. There is no doubt about it. If you look at the shift out of pure retail sells on from the dealers in our world into Nevada. You can see that shift. And so what does it mean for our business? It probably doesn't have a real effect on demand in our business at all. But we think a more balanced approach would be the ability to sell normal hybrids, plug-in hybrids and sales all of the above. And we've certainly seen that be the case in the U.K. In the U.K., plug-in hybrids have been a very successful sort of transitional road to full electric as well as the right asset for certain use cases. I hope that answers your question, Paul, that does. Thank you.
Q: And then just the last one from me. Just a I guess, a general one on your on your cost base. So you're clear in your outlook statement there in terms of some technology costs increasing into the final phase of the migration. I guess just want to understand your kind of your view on your overall OpEx base? Is it really kind of an increase of the current base into the next year before it starts reduction reducing or was this sort of a first half second half and timing that we should be aware of.
A: But I just wanted to kind of understand the drivers, if you want to answer the detailed question, then I just want to make a general point on the write-off. The yes, it's not really a first half second half issue and the costs will be elevated and throughout FY 25 and then post the SAP migration, that's where the synergies and the cost cuts will come through. I think I think two points in that full effect is they'll be somewhat elevated. It's not a massive jump up. It's just that by remaining elevated, they've been elevated for some time now we could be too smart for half about this and get external consultants to come in and do it and normalize the hell out of that number. The truth is we're doing it in-house because we want the capability. We want that digital capability in the business, and then we'll come down the capability massively when we have to. So so that's the reason why we're calling it out. But we are we've set a program. We're at the final stages of that program. It's on track. It's on time as we speak today are never going to be, and I'm even going to over promise in that regard. We all know our technology migrations are, but right now, we feel like we've got a program that's achievable and doable, and we're just trying to execute very well and efficiently.
Q: Morning, Scott. Kelly money already highlighted and I think some I think some of the questions that I just to clarify, the 7.3 million interest cost, is that a post-tax impact or a pre-tax impact that pretax, but getting that I guess in terms of the and guidance or the outlook commentary, I guess that accounts for the majority of the, I guess, the headwinds into FY 25 relative to the FY. 24 base group?
A: Yes. Look, there's a lot of moving parts, but that's a key part of. Yes. Summarizing assuming that you're expecting a decline in interest costs, a modest increase in the OpEx base and a decline in end-of-lease income, which will, I guess, offset continued growth in the I guess the fleet and novated learning spaces. Electric Boat has a lot of decline of interest costs and the increase of the interest cost? Yes, the interesting thing is making it as of end of lease. And the reason we're saying it's up and down because there will be an increase in disposal volumes as deliveries come through. But against that
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
