SG Fleet Group Limited (SGF) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the SG Fleet Group Limited 2020 Full Year Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Robbie Blau, CEO. Please go ahead.

Good morning, and thank you for joining us today. My name is Robbie Blau, CEO of SG Fleet. With me today is Kevin Wundram, our CFO. I'll refer to the slide numbers as I go through the presentation. If you could please turn to Slide 3 for a quick overview of the period. This has obviously been a unique reporting period. During March, everything started to change for the world and for us as a business. I appreciate that this has made it very difficult for investors and analysts to get a sense of how we were tracking through the period and what we can expect for the current period. So to give you as much insight as possible, I will review the performance of our businesses in 2 stages. Firstly, I'll talk about the January to March period, and then April to June when COVID-19 really had an impact. Now after Kevin goes into more detail on the numbers, I'll come back and give you an update on activity levels and trends since the start of the current financial year, which has certainly been much more positive. I will also talk to you about what the current environment means for SG Fleet over the longer term and how we are placed to make further progress in this environment. What I will say emphatically is that this has been a period where service and value-add has come to the fore more than ever. As we did during the GFC, we pulled out all the stops to be there for our customers, and this has -- and this sort of commitment folds long-term loyalty in our view. I can honestly say that we've hardly missed a beat when all this started happening, continuing to support our customers and our staff from day 1. We didn't scale down operationally, and we didn't go into hibernation as a result of COVID-19. Quite the opposite. Our customers have responded extremely positively to our commitment to service continuity because it's not an experience they've had across the board. I think it's fair to say that we strengthened our position and our longer-term outlook in the process. I think also, and very importantly, and this theme will come through the entire presentation, this environment has again confirmed the benefit of being a leader in both the corporate tool-of-trade and novated spaces. The good showing of our tool-of-trade business has stabilized our overall performance and has kept us on a strong footing throughout the events of this year. This is strong evidence of the resilience of the company and our business model. The tool-of-trade performance also, once again, confirms the structural trend towards outsourcing, something we believe will accelerate as business will look for efficiencies more than ever. As a result of COVID, we are also seeing the mobility landscape evolve more quickly than before. And I'll talk in detail to some of those trends through the presentation as well. Kevin will provide more detail later. But at a headline level, we've reported underlying NPAT of $36.8 million compared to the $48 million to $51 million guidance we provided in February before the impact of COVID-19. In fact, we were well on track to deliver that guidance until COVID hit. I should also emphasize this figure excludes any job keeper payments, so it's a clean and true number. Our fleet balance grew 2.4% year-on-year, and in the context of COVID, by 1.5% from the first to the second half. If you could please turn to Slide 4 for a snapshot of the Australian business prior to COVID-19. For the tool-of-trade business, this was very much a continuation of the first half, healthy opportunities pipeline, some good wins and generally positive activity levels across the board. As in the previous period, competition was largely rational, but decision processes continued to be lengthy. We spoke about product diversification and penetration in February, and I'll come back to that a bit later. In a nutshell, that trend has continued strongly. The wins achieved during the third quarter, as indeed was the case for the fourth, were across a wide range of industries and segments, including large corporate, educational institutions and local government. Overall, funded tool-of-trade deliveries, including extensions during the third quarter, grew by about 1% on the previous corresponding period. Weakness in private new car sales continued at the start of the calendar year, and this inevitably impacted novated new business deals. We were also still in the midst of the revamp of our insurance product portfolio at that stage. During the period, we increasingly used online applications and technologies to educate eligible employees on the merits of novating, and the response to this was very encouraging indeed. The signing up of customers was a clear positive during the entire half year period, with a significant number of very sizable wins in the private sector where we dominate, but also increasingly in government. I'll come back to tell the success rates later on. Probably worth noting also that overall, the novated space continued to be quite competitive from a rate perspective during the period. Turning to the fourth quarter and my comments on the impact of COVID on Slide 5. As we mentioned in our update during that period, our immediate focus was on ensuring the wellbeing of our employees and our customers. We immediately activated our business continuity plan and rolled out a number of additional initiatives to minimize any disruption to our operations and service delivery. As I said earlier, we truly didn't stutter for a moment, and we were able to maintain service levels throughout. We were there for our customers, and the entire team worked together to address their most immediate needs. This cooperation extended to our panel of funders who remain very much open for business and mindful of our customers' needs during this unique time. While we took all necessary precautions and adopted a very careful approach to costs, sourcing, expenditure and workload management, we did not face a cash flow crisis at any stage during this period. Obviously, the fact that the majority of our net revenues earned over the life of the asset contributed greatly to this fact. We also voluntarily reduced remuneration across the organization, starting at Board level and going all the way through the organization. I have to say I was very positively surprised by how quickly our workforce adapted to the work-from-home environment as well. The other positive was how quickly our teams' thinking and approach adjusted to the COVID environment, both in terms of the processes we had to put in place, but also in terms of a profound understanding of the changing needs of our customers. The business development team switched to web presentations, which were all well received. Clearly, the work-from-home environment had an impact on decision-making time frames but things improved somewhat in June, and we saw an increasing number of customer setups that month, and a significant number of new proposals went out from both the tool-of-trade and consumer businesses. Not surprisingly, given the uncertain economic environment, extensions increased significantly by about 31% over the period. This was driven by corporate and novated customers opting not to enter into new leases as yet, our own efforts to properly manage the volume of returning vehicles in a strange secondhand vehicle environment as well as the ability to deliver new vehicles in what was sometimes a patchy new vehicle environment. The high level of extensions obviously impacted funding commission. But it must be remembered, we retain those customers in our books, and we should convert the extensions to new deliveries over the coming period and in the future. And now, our online disposal setup avoided the main issues associated with using external auction houses, which for some time stopped operating. We also employed some very innovative methods to make use -- better use of return vehicles. For example, we offered them package as many leases to those customers, which needed extra capacity in the environment. That product was up and running in a very short time and was a successful innovation in our business, which I'll talk a little more to a little later. In New Zealand and the U.K., disposals were temporarily halted all together. This means our stock of secondhand vehicles increased in April and May and then started to stabilize again in June. Disposal volumes were down by about 35% for the full fourth quarter period at a group level, but by June volumes were actually up slightly on the same month last year. As to values, once we went into lockdown, secondhand dealers pretty much stopped buying overnight, and this inevitably reflect -- was reflected in the secondhand vehicle prices. Inevitably, average disposal profits were significantly lower for the quarter. But again, there was an improving trend as the quarter progressed, and we've certainly seen significant improvement through the start of this year. Certain segments were less sensitive to the COVID situation, such as light commercial, which benefited from the spike in home delivery. And again, having a balanced portfolio was very helpful to us in that regard. Late in June, we saw the market bounce back, as I've just said, very strongly, particularly in small passenger vehicles as people shied away from public transport, and were keen to pick up a second vehicle as a transport alternative. Please turn to Slide 6 for a closer look at each of our businesses during this period. The fourth quarter has been a real revelation for our tool-of-trade business in terms of the appreciation shown by our customers for the value we add for them. While the world was in turmoil, activity in this business was largely maintained, helped by exposure to sectors that continue to operate as normal, such as government, utilities and transport. In fact, a number of our customers saw their own activity levels increasing during COVID, and that also drove up their need for vehicles. The opportunities pipeline remained very healthy. And as I'll show in a minute, we again won more than our fair share of new business. We also started our “We are here to help” campaign, which sought to address the most pressing needs of organizations during the COVID period, particularly in terms of cash flow management. We offered a refinancing product. We're pretty hard on the offer of sale and leasebacks to our customers. There were short-term lease products available, fleet optimization tools. And of course, for those who have not outsourced before, the option to outsource the management of their vehicles to us became a real alternative. Overall, the funded tool-of-trade deliveries, including extensions during the fourth quarter were up 9.2% of the period's previous corresponding period. Not surprisingly, the experience in our novated business was different altogether. Inquiry level started to decline in mid-March, and this decline accelerated once the country went into lock down at the end of that month. Signs of recovery were seen during May when inquiry numbers doubled on the previous month, albeit off a low base. Obviously, any deliveries resulting from these inquiries will mostly occur in the current period. Throughout the period, private new car sales declined sharply with April down almost 50%. Numbers did bounce back markedly in June. I think it's important, though, to note that we've not seen any evidence that the bounce back was as a consequence of people utilizing government grants to purchase cars. I think for the long term and for the outlook in the current year and for the future, that is a really important point that I'd like each of you to take away today. We haven't seen a spike in spending that's caused by these government grants, and so we don't expect to see a decline coming when the grants go away. In fact, we think as the normalization happens, we should see an uptick rather than the opposite. So I suppose that's a positive to take out of the fact that we didn't directly benefit from government grants. Consumer confidence remained patchy during the period, again depending on which sector you were employed in, but obviously, some people started losing their employment. We saw impact in that space, primarily by our exposure to the airline industry, all of Qantas, Jetstar and Virgin are customers of ours, and the requirement for those employees to stand down a large part of their workforce or place them on leave without pay, certainly had an impact. Our immediate focus when that kicked in, in March, was to support those customers in hardship. And we worked hard with our funding partners to arrange alternatives or payment holidays where possible for those drivers. Our operations team worked extra hard to find good outcomes for those customers, and they certainly received well-deserved praise from those customers for the fantastic job they did. Importantly, other than that specific industry, we did not experience a large volume of customers finding themselves unable to continue with the novated lease commitments. Customer engagement continued in a digital format where possible with a heavy focus on financial well-being. A number of content hubs were created to provide drivers with related tips. As the quarter progressed, interest in this content and advice accelerated as people got used to interacting more online. Similarly, webinars presenting the merits of novated leasing also saw higher audience numbers during this period. While driver interest was impacted by the COVID environment, it's interesting to note that customers continued to tender their businesses, both customers and new companies, so new opportunities. As with tool-of-trade, the new business pipeline was healthy, and our win rate was very strong. Overall, fourth quarter novated deliveries, including extensions, were down by 33.6%. Obviously, a very large number, which clearly affected the financial performance, which you saw for the year. This reflected our greater presence in the private sector where job security and therefore, consumer sentiment was more volatile over that period. The decline was also as a result of patchy inability to deliver stock at times during the period, but largely, it was about security and customer confidence. Turning now to Slide #7. In the U.K. at the start of the year, overall confidence continued to improve after the elections. A significant level of new opportunities emerged and we saw an improvement in the secondhand market after a lackluster first half. We had a number of good wins in recognition of our product and service offering, and we're also successfully moving some panel business to sole supply, which is a key strategic focus for us in that business. We created a new marketing channel, and specifically at the local SME segment, and we quickly signed up more than a dozen customers who will be generating vehicle orders on a regular basis. Another focal point has been the public sector where we are focusing mainly on the Crown Commercial Services framework, which we are a part of, and we obviously have a view to becoming a key part there in that sector. In terms of penetration within existing customers, the cross-selling of our Motrak product, which is our U.K. telematics solution, was very strong, and we saw an improvement in our short-term hire solution in the third quarter. We currently have about 1/3 of our corporate clients using our short-term hire services, including SME customers, their proportion increases to about 80% or 4 out of 5 customers. The trend in the U.K. during the peak COVID period has not been dissimilar to the experience I've described here in Australia, although, of course, the U.K. had to introduce far more stringent response measures. The COVID effect started to manifest itself by mid-March and the lockdown was announced on the 23rd of that month. Private vehicle and fleet registrations immediately dropped as a consequence. Some signs of return to business as usual were seen in late May, and then in June, some restrictions began to be lifted. Our business moved to a full work-from-home environment in late March, and again, our immediate focus was on helping our customers while ensuring the safety of our staff. And a number of our staff are also put on furlough. As was the case in Australia, we were seeing an encouraging more extensions as disposals had to be temporarily halted because of the lockdown. By April, secondhand vehicle sales have come to a complete standstill in the U.K. Volume and prices started to recover in early June, and by the end of that month, we were seeing a particularly strong used vehicle market across both cars and vans, and I'll talk a little later about it when I talk about the current period, but that trend has again continued strongly. Throughout the period, the business continued to deliver vehicles to essential user customers, take orders and implement new contracts. New opportunities continued to materialize in March and April, and we took full advantage, effectively winning our largest-ever fleet management contract during this lockdown period, which is a game-changing size fleet in context of our business in the U.K. and has potential for additional services such as funding, short-term hire and salary sacrifice. We also received a large vehicle order from a leading European parcel carrier, reflecting the surge in online shopping. This order will transition into a wide scope sole supply agreement with this large and important customer over the coming period. Effectively, the business closed the half year period with its strongest order bank since January 2019. Supply is, of course, still an issue, but with dealerships reopening in June, this is now normalizing. We are now working through the process of the delivery shortfall and making sure we can fulfill those for our customers. Turning now to Slide #8 for a look at New Zealand. The third quarter in New Zealand was very much a progression of the previous reported period. The large Northpower contract, which we won last year, went live without any issues, and we had another good win in the utility space. Secondhand vehicle values and volumes were strong until late March and then came to an abrupt halt as the experience I described in the U.K. The lockdown came in the last week of March, and again, new registrations virtually came to a halt by mid-April. Our business continuity plan was activated, and we temporarily halted disposals. By June, signs of a recovery in residual values emerged. Despite all the turmoil, our activity levels remained very stable helped by our strong presence in the public sector, which was less affected by the lockdown as you would expect. Sale-leasebacks, in particular, proved popular, and we had a few good wins with that process. To some extent, mirroring the Australian situation, tender activity was strong, and we are actually seeing the highest level of tendering for quite a few years in our New Zealand business. In summary, we are now back to business as usual, subject to last week's temporary adjustment given the small outbreak there, and our people had all returned to the office. Again, clearly, some of them are working from home again on a temporary basis. I think if the country can stay its path and get through the current blip that it's going through, this may well be the first economy globally that we see returning to normal. And that certainly was the feel we were getting from activity levels pre last week's blip. Please turn to Slide #9 now. I'm just giving you a snapshot of the impact of COVID, but I think it's really important to recognize that our business has made some further substantial progress on a number of fronts during the period. You'll recall that in February, we gave you a snapshot of tender activity and product penetration levels. I'd like to give you an update on these measures because they demonstrate what I said earlier, namely that we hardly missed a beat during this challenging period with these strategic initiatives. Tender activity levels in the second half remarkably were higher than in the first as the sales pipeline continued to build for both corporate and novated. As to our success rate, we won 40% of the corporate tenders we participated in and a whopping 69% of the novated ones compared to market share of around 20%. You can add to that, as in the previous period, a large number of unchallenged contract renewals and extensions. Follow that, we will see the benefits of these wins in F '21 deliveries. Both win percentages are up on the first half. As to product penetration, we also continue to make good progress in that area. 6 months ago, 36% of our customers took up 2 or more products. That percentage now stands at 42%. If you narrow that down to the large top 40 customers in our business, that percentage went from 75% to 88%, with more than half of these customers taking 3 or more products, up from 38% 6 months ago. Telematics penetration continues to increase, and Bookingintelligence, our asset management solution, is now projected to see close to 1 million system transactions in calendar 2020, a massive increase and a real validation of that product. This growth trend has accelerated over the past few months, and I'll point out later why we think this is happening and why the trend will continue. The number of customers using this product has also doubled in the reported period to nearly 100, and this includes at least 1 of our large government customers. Moving now to Slide #10. Evidence that we made further progress in the last 6 months can be seen in the continued diversification of our products and services range. Some examples of that are the stepped-up activity levels in the Carly vehicle subscription product and the development of our 3- to 6-month minilease product. I'll come back to Carly a little later. In combination with our car sharing solution, and of course, the more standard lease products, we're effectively building a capability to provide greater flexibility for customers as their requirements become more variable from short ride to multiple mobility solutions. In a nutshell, we are working towards providing a convenient on-demand service to cater for whatever specific mobility requirements our customers may have at any given point in time. And of course, this also gives us access to a wider pool of customers. Other examples of product development include our repair portal partnership with DingGo. We have now developed a fleet product in the space, and several fleets are now using the platform. And of course, there's the ever-evolving space of zero-emission vehicles. I mentioned in February that our U.K. business had won the innovation in Green Travel award for the eStart product, a significant development in a market where battery electric vehicles represented 4.7% of new vehicles registered in the second half period. In Australia, we saw strong growth in the hybrid fleet. We also continue to develop our full leadership and market credibility position in that space through continued engagement with customers, states and federal government and the number of research organizations. Some of you may have heard about the launch of the -- project, which gathered significant media attention last month. This is a globally first-of-its-kind research project, which is looking into how EV's, electric vehicles, can transfer excess power back into the electricity grid. SG Fleet is a key partner of the consortium driving this initiative. Effectively, this could lead to the vehicle asset generating a revenue stream, which, of course, would have a massive implication for our future business model and the business model of our customers using business vehicles. In short, the leasing and mobility landscape is evolving in a number of directions, and we're developing our products across all of these. I'll now hand over to Kevin for a look into the financials, and I'll then come back to you to give you an update on how we have traveled so far in the current period, and how we see the environment shaping future demand trends in our space. Thank you. Over to you, Kevin.

Thanks, Robbie. If you could please turn to Slide 12. It goes without saying that this has been a challenging year. Prior to COVID, the company was already bearing the impact of lower new vehicle deliveries and changes to our add-on insurance portfolio. During COVID, new vehicle deliveries declined materially, and there was significant disruption to our end-of-lease disposals. In Q4, our net revenue dropped by 42% versus pcp. However, notwithstanding this decline in revenue, the company was not entitled to the job keeper wage subsidy and accordingly, the P&L does not include any benefit from this program. The reason for this is because the job keeper regulations referenced the decline in GST turnover rather than accounting revenue. And due to the nature of our products and our customer base, we have not seen a material reduction in our GST turnover. We have been and will continue to engage with the ATO and treasury to establish where the discretion can be applied in order to accommodate us. Turning over to Slide 13 and looking at the fleet size. In total, the fleet grew by about 2.4% or 3,300 vehicles for the year to end on roughly 143,000 vehicles under management. Turning to Slide 14 and looking at the fleet mix. As a result of the unfunded contract wins during the period, the fleet mix is now 57% funded, 43% unfunded versus 61%, 39% in the prior year. Over to Slide 15 and looking at the key categories of revenue. Management fees were impacted by a reduction in the average funded fleet of 2.6% versus pcp. As we previously reported, maintenance income continues to be impacted by the decline in the number of fully maintained vehicles as customers continue to opt for doing charge or budgeted maintenance products. The management and maintenance income line was not materially impacted by COVID-19 due to a tenuity nature. Turning to additional products and services. On a number of occasions, we flagged the changes to our insurance product and the impact of these changes were factored into the earnings guidance that we previously provided. In the first half, we rationalized the insurance product portfolio, exiting some products, tightening margins on others as well as changing the revenue recognition profile on some products to an annuity basis. During Q4, this line item was impacted by the material reduction in the number of vehicle deliveries. In the pre-COVID period, our funding commission income felt the impact of the ongoing soft retail car sales environment, the continued elevation of credit rejections as well as margin pressure. In Q4, new funded deliveries fell by 42% and the volume of extensions grew by 31% versus pcp, which had a significant impact on the finance commission earned in that period. Turning to Slide 16. In the pre-COVID period, end-of-lease income was resilient in Australia and New Zealand but relatively soft in the U.K. During COVID, we experienced a reduction in the number of returning vehicles due to the growth in extensions. In Australia, we held fewer disposal auctions. And in the U.K. and New Zealand, auctions were suspended completely for a period. There was obviously a significant drop in demand, too. These factors combined to cause a 35% fall in disposal volumes and a significant drop in average disposal profit in the fourth quarter compared to pcp. Net rental income was impacted by lower short-term rental volumes in the U.K. and the lead up to their elections. And then during Q4, short-term rental demand dropped off significantly, causing a 35% drop in short-term rental income versus pcp. Our fleet management costs were lower due to the reduction in the number of fully maintained vehicles -- particularly fully maintained commercial vehicles. During the COVID period, we saw the lower maintenance costs due to reduced vehicle usage. This line item was also impacted by an increase in the inventory impairment provision as a result of the market conditions in Q4 and the additional inventory balance held at 30 June compared to pcp. Please turn to Slide 17 for a look at the net revenue position after deducting direct costs. On an overall basis, net revenue declined by 17.6% due to the factors explained on the previous slide. The reduction in new deliveries and changes to the insurance product portfolio have resulted in an increase in the proportion of annuity income in the business and has shifted the weighting of net revenue towards the corporate channel, which are both positive for the business. Looking at the OpEx on Slide 18. Operating expenses increased due to our continued investment in technology. In Q4, we had to book a negative fair value adjustment of our investment in Collaborate due to the fall in their share price, notwithstanding the underlying growth in their subscription numbers. Employment costs reduced as a result of the salary reductions implemented during Q4 as well as due to an overall reduction in the number of FTEs. There were a number of redundancies late in the year, and next year's P&L will see the benefit of that. Total redundancy costs for the year amount to $1.3 million. Turning to Slide 19 for an update on our securitization project. The results presented today have not been materially impacted by this project. The only impact has been a small increase in headcount due to increasing the size of the treasury and credit teams. We postponed the go-live of securitization because we diversed project management and development resources to manage the impact of COVID-19. Go-live is now planned for the first half of the new financial year. The Warehouse Trust has been established and some transaction documentation executed. The key technical item to be completed prior to go-live is the credit decisioning system, and that is close to final. Our aim is to originate the first lease in a few months' time, and from then on, there will be a gradual ramp-up of our volumes. As previously stated, our aim is to get to the point where 1/3 of our origination provides securitization and the balance via a select number of P&A partners, but it will take several years to get to this target. Looking on the balance sheet and the dividend on Slide 20. The group has net corporate debt of $26 million versus $38.8 million 12 months ago. Our corporate leverage stands at 0.3x, and our total leverage, including the lease portfolio segment, is 0.9x. Cash conversion came in at 118% of EBITDA. In the light of the current economic environment, we have temporarily reduced our full year dividend payout ratio to 60% and declared a fully franked final dividend of $0.03053 per share. In combination with the first half amount, this brings the total dividend for the 2020 financial year to $0.09996 per share. I'll now hand back to Robbie.

Thank you, Kevin. I'll now spend some time giving you a snapshot of the current period to date on Slide 22. Firstly, across the group, our people started to return to the office environment. This is obviously happening gradually in line with the different requirements and guidelines in the geographies in which we operate. But what has been really heartening to see is the mood in our offices. People are upbeat about returning, morale is high, and we all clearly just want to get on with it. As mentioned earlier, towards the end of the fourth quarter, a number of factors were driving a rebound in the secondhand vehicle market. From a demand perspective, people are preferring not to use shared or public transport and have been looking for secondhand vehicles. And from a supply perspective, lower new car sales over the past few months means less trade-ins of secondhand vehicles. This has resulted in a strong improvement in disposal returns with some segments, in fact, performing better than they did pre-COVID. We faced a slight disruption of supply of new cars as well as some parts and accessories, but we're managing that, and all that may mean is that deliveries are slightly stretched out over the period, but it certainly is being well managed. So for many of the orders we won during the second half, that may stretch out some deliveries over the current period. I think the other important point is the wins I talked about late in the last period have continued at the start of this first half. We've had a couple of significant new contracts signed across a number of industries as we start the year, and the pipeline in both of our businesses continues to be strong and more opportunities arise each week. I'll come back to this when we talk about emerging demand trends, but there's no doubt in my mind, that COVID is making a lot of organizations think about their mobility management approach with potentially a greater reliance on nonpublic transport and the ability to outsource. I think a lot of companies are thinking about handing over management to specialist outsourced providers in order to extract greater efficiencies from their assets. In addition, tight cash flow means a number of customers are discussing sale and leaseback arrangements with us. And of course, there are a number of companies that need more vehicles, such as those in the home delivery space. So we've seen a spike in demand for delivery bands across all of our geographies. Retail consumer confidence in July continued to run in a two-track environment. Victoria has seen a decrease in customer appetite to take on additional financial commitments with a renewed lockdown and Leads there slipped by about 10% during July. Interestingly, as people have settled in again to the lockdown, we've seen an uptick again over the last 10 days or so in confidence and order numbers in that market. However, the rest of the country has certainly shown signs of cautious optimism and growth. Lease and order numbers are tracking ahead of our initial expectations this year, and they'll remain. But important to say they remain vulnerable to any volatility in sentiment and COVID. Funded delivery levels continue to strengthen further in July in all states by Victoria. We continue to work with drivers who've been impacted by the job losses in the airline industry. And I don't think we've seen the end of that yet. As you all know, that's still playing out certainly in the Qantas and Jetstar environment. Overall, the outlook for the year ahead has noticeably improved in our view. Although, as I said, we are operating in a very dynamic environment, and we'll need to see how the COVID situation continues to impact new car demand. In that context, while we are clearly more positive, it is hard for me to give you a high guidance with any degree of certainty. Moving now to Slide 23 for a look at the U.K. and New Zealand since the start of the year. The U.K. government has obviously injected a large amount of cash into the economy to support recovery. It's also announced a 5-year plan to inject about GBP 640 billion into public infrastructure including roads, schools, hospitals and social housing. These all sectors, which we are well exposed to through the supply chain, and we expect to see benefit in our business out of this investment. On the secondhand vehicle front, sales were particularly strong for this time of year, and we achieved better margins than expected. We have most of our staff back in the office since early August in the U.K. market. The first task at hand has been fulfilling a big month of deliveries and responding to what is a fuller pipeline of opportunity than we ever expected. The deliveries are coming out of large wins from the reported period and are, of course, dependent on the supply. We are confident that they will be largely executed during the current period. In terms of further business development, we are currently seeing significant opportunities in extending contracts and adding additional services for customers looking to reduce and manage costs more effectively. In addition to a large order from a multinational parcel company, we've relaunched our courier lease product to the many smaller delivery firms that are responding to the spike in home deliveries, we expect to see good results out of that initiative as well. As millions of people around the globe have now had the online shopping experience for the first time, we believe this demand trend is likely to become a permanent feature across all of our geographies, and obviously benefits us in respect to customers we have in that space. We are also actively pursuing a number of tenders in the newly client commercial channel, as I alluded to earlier. I should also mention that early last month, our business there picked up a well-regarded business of a year award, recognizing its contribution to the economy in the local region. Turning to New Zealand, as I mentioned earlier, a number of opportunities in the New Zealand market is -- the number of opportunities, I'll say, in New Zealand market is currently higher than we have ever seen. Companies are conducting business reviews and assessing where and how greater efficiencies can be achieved. I think we've also started seeing an interesting trend there in the last few months, which is worth calling out. As we have won bigger customers and can demonstrate success with those customers, we've seen a number of customers who we couldn't win in a tender cycle 3 or 5 years ago because we didn't have the runs on the Board, actually approaching us for our services because they now feel the credibility factor's in place. And I think that's going to benefit us over the medium and long term as well in that market. So as we've now -- as I said, we have a demonstrable and quantifiable track record in that market, particularly with large fleets, I think we are -- we will see large numbers of tender requests coming through in that market. Hopefully, the little COVID episode they've had in the last week or so will calm down. It will be back to business as usual, and we can get on with it in that market. Turning now to Slide #24. I'd like to say a few words about the trends we've seen coming out of the COVID environment. On this slide, what I try to do is compare these trends with our existing product and service offerings. I would have mentioned some of these in my F '20 review earlier because we've been marketing these products in the second half as well. The current shift away from public or shared transport towards single occupancy transport modes that support social distancing favor the use of a closed pool of vehicles for the tool-of-trade environment over reliance on public or shared transport because vehicle hygiene can be managed and external exposure is significantly reduced. It also leads to a renewed preference for owned or leased personal vehicles or flexible short-term single vehicle arrangements like our minileases or the Carly subscription service or short-term hire in the U.K. to replace reliance on public transport or ride share. These are for both new and secondhand vehicles, importantly. Some early evidence of that demand can clearly be seen in Carly subscription numbers in the fourth quarter, which were up 43% on the previous quarter. Similarly, our minilease product really took off during the period. The greater focus on vehicle and trip safety, including hygiene in the tool-of-trade context is driving demand for sanitization checkpoints incorporated into our Fleetintelligence fleet management solution and the Inspect365 vehicle inspection product that we are marketing. It's also driving aftermarket demand for vehicle sanitization kits. For the second reason, contactless processes are now being favored, and DingGo now offers customers the ability to get their repair process completed without the need for any personal contact. This has no doubt helped DingGo achieve its best months ever in June and July. With millions of people having their first online shopping experience as a consequence of COVID, the growth in e-commerce will only accelerate, as I mentioned earlier. The implications of that in terms of last-mile delivery volumes is driving demand for vehicles from parcel companies, as we saw in Australia and the U.K. during the fourth quarter. For smaller delivery firms, many leases and subscription services using new and secondhand vehicles will also help cover seasonal peak periods. As people come to a greater acceptance of movement tracking to contain or eliminate health emergency, telematics devices and recorded bookings of pool vehicles via our systems such as Bookingintelligence are becoming more and more common, and the statistics are bearing that out, as I alluded to earlier. We believe we'll see this drive a further acceleration in our telematics and Bookingintelligence product. And again, as I've called out since early April, we've seen this trend play out already. In terms of the economic impact of COVID, as I've said a few times, many organizations are now considering the first step towards outsourcing their fleet and funding requirements to help manage their cash flows and achieve greater efficiencies by dedicating fleet management to a specialized provider such as ourselves. We have seen that over the past few months and increased demand for sale and leaseback arrangements, for example. The uncertain outlook is also driving demand for more flexible, shorter-term arrangements, such as minileases as earlier has spoken about. These are just a few examples. And while our products are not solely designed for that purpose, they do cater for trends that are now inevitably accelerating, and that is an endorsement of our innovation approach and the flexibility that we have shown with at our price. If you could now turn to Slide 25 for a summary of today's presentation. In Australia, our corporate business started off the period with the continued successful pursuit of the many opportunities coming out of the pipeline. When COVID struck, we stepped up our game further and responded positively to the increased demand for assistance from existing and new customers. Clearly, our consumer business felt the brunt of COVID on top of an already lackluster start to the period. New business dried up quickly but started to recover, and this recovery has stepped up over the past 2 months. Promisingly, customers continued to show interest throughout, and we won a majority of tenders we pursued in that space. As the U.K. woke up from its Brexit lethargy, it immediately went into shutdown again in late March. But despite this, or in the case of our parcel delivery customers, because of this orders flowing at a rapid pace, and we ended the period with the largest order book ever, this task is now to fulfill these. As you know, New Zealand went early and hard on COVID, and that business has now fully returned to normal, again, subject to the little blip last week. Thanks to our exposure to the public sector, activity levels were largely maintained, and the opportunity pipeline is fuller than ever in that market. Across the group, we made further significant progress in terms of tender win rates and product penetration helped by the continued diversification of our products and services offering. As I said earlier, the leasing and mobility landscape continues to evolve, and we are increasingly capable of delivering solutions across all requirement scenarios. As to the outlook, July has seen progress across a number of fronts, residual values recovered strongly, and the trend has continued in August. Interest in novated continues to recover and in the corporate business, we face the problem of having to scramble for supply rather than where we're going to find orders. We've seen a similar scenario in the U.K. and we certainly are working hard to get that supply through the pipe. As I mentioned earlier, opportunities are at a high in New Zealand and the need for greater fleet efficiency is driving broadening interest for our services in that market. Importantly, activity levels in our business are not dependent on the current government stimulus initiatives, and if anything, we see an uptick as normalization happens rather than the other way around. Our broad customer portfolio has helped us insulate from the full impact of the crisis in certain industries, and many of our key customers operate in areas that are, in effect, being relied upon more in the current environment. Longer term, I believe that being present for our customers and being able to really help and demonstrate value-add in a challenging environment rather than reducing service levels has given us a massive reputational boost in our markets. As I mentioned earlier, SG Fleet has gone through this before during the GFC, and that became a defining moment in our growth path. And I hope that we can again learn from this experience and deliver the kind of service and product to our customers that allow us to accelerate our growth alongside them. As we can see from the activity levels in tool-of-trade, COVID is accelerating the structural trend towards outsourcing as many companies are thinking harder about efficiencies. I think we do have a track record to show we can help in this regard. And again, we are very well placed to do that. In conclusion, we've seen a 2020 financial year in which we've weathered both COVID and the restructuring of our insurance product portfolio. It's been a tough year, but the base has been reset. And we see an extremely positive long-term scenario for our business. There is no doubt we are now in a much stronger position than we were 6 months ago. In the immediate future, not everything is settled yet as we saw last month, so it will continue to be difficult for us to put a credible outlook on our performance for the current period. Caution is still required for the time being. But by a dramatic worsening of the external environment, we are certainly targeting growth in the current year, certainly well above system growth. Longer term, we are accelerating our progress, and we are very well placed to strengthen our leadership position in our industry even further. That's all from me. Thank you all for your time. Acknowledging it's been a longer presentation than usual, but I really did want to try and give you a flavor for what has been 3 very different sort of periods. Happily, the most positive period being the period since the end of the year, and I hope you've got the flavor from us about that. So again, once again, thank you, and happy to take all of your questions now.

[Operator Instructions] Your first question comes from Tim Lawson with Macquarie.

Just a couple of quick ones. In terms of the provisions, Kevin, you talked about the $2 million. Just expand on your comments that you've added to that provision on your balance sheet. You talked about it being $12 million.

Yes, correct. I mean, yes, as a result of COVID, we obviously had to increase a number of our provisions. Our stock and residual value provision went up by 20%, $2 million. And then on top of that, we increased our total expected credit loss provision by another $1.2 million. So all up, an increase in provisions that we could attribute to COVID of about $3.2 million.

Okay. And can you just...

And I think probably just -- Tim, probably worth adding that, as Kevin and I said, we've certainly seen improvements towards the end of the period and into the new period. So we're obviously hoping that, that's conservative.

Yes, okay. And can you just remind us where you're at on cost? I mean you mentioned in your previous releases where Board, management and staff have taken between what -- I think it was a 30% and up to 20% of the staff reduction in remuneration. Can you just remind us where that's ended up and what the sort of run rate is going forward with regard to those changes?

So that's normalized for the new year. And -- but obviously, we will continue to work hard to contain costs and take further costs out of the business, but the actual salary levels have normalized in the year.

Right. So they've normalized from the 1st of July or they've normalized during the FY '20 period?

1st of July.

1st of July.

The first pay runoff in this regard to be exactly precise, so Tim, yes.

Yes, okay. All right. That's great. Just on New Zealand, you've got -- you're sort of reporting the segment numbers, the revenue is down a little bit over 25%, but the EBITDA is down only sort of -- just a bit more than mid-single digit. Can you just talk through why that was? Australia looks more normal revenue -- EBITDA is down more than revenue, but New Zealand looks like sort of flipping around?

Yes. I mean it really hinges period-to-period on which method of funding is predominant. So it's more sort of off-balance sheet or on-balance sheet that could impact the swings between revenue and EBITDA.

Okay. All right. And when you initially announced the sort of funding changes with the move to a securitization program and the product changes in insurance, you called out sort of an impact on earnings, I think it was. Can you just talk us through what the outlook for that is with the sort of timing of those insurance changes and that then sort of rolling through, and now the move towards being more active on that securitization side and what that means for the earnings outlook?

Yes. Look, thanks, Tim. And as I alluded to, I think, on the first slide, we were on track to sort of delivering the guidance, which we raised, which was taking those 2 impacts into account. Less impact of securitization this period because we slowed it down, obviously, given COVID and a whole lot of other initiatives that had to be resolved. But then the insurance impact has worked through the business now. We will see a normalized insurance set of income come through over the years. It's obviously now spread over the life, which is a positive thing for the business, as Kevin alluded to. So we think the base has now been well reset. There will be a small impact for securitization this year as we start bringing it through to the income statement. But again, in the sense of us not being able to give you higher guidance because we're still in Australian environment, there'll be swings and roundabouts there. And certainly even taking the impact of securitization into account, we intend to deliver a strong growth in the context of the environment through this year.