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

Thank you for standing by and welcome to the SG Fleet Group Limited 2021 Half Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Robbie Blau, CEO. Please go ahead.

Thank you very much. Good morning, everybody, and thank you for joining us today in what's another busy results week for all of you. My name is Robbie Blau, I'm the CEO of SG Fleet. As usual, together with me today is Kevin Wundram, our CFO. I'll refer to slide numbers as I go through the presentation. If you could please now turn to Slide #3 for a quick overview of the period. Clearly, like you've heard from most company's reporting, the first half of 2021 still stands very much in the context of COVID-19. Disruptions continue to occur, notably during the Victoria lockdowns and the lockdowns in the U.K. But despite all of that, I'm really happy to report that the good performance we delivered in the second half of 2020 has ensured that we were able to make further progress during the first half of 2021. And actually, that progress went beyond what we expected halfway through the period. At the headline level, we achieved a net profit after tax of $25.4 million. That was well above the $22 million to $24 million guidance range we provided at last year's AGM. End-of-lease income, which was already strong earlier in the period significantly outperformed our owned forecast right at the end of the half. As previously advised, we did not receive any JobKeeper payments so this is a clean result, so to speak. Strong performance of our Corporate business in Australia as well as the Corporate business in the U.K. and New Zealand helped offset the anticipated low deliveries in the novated business during the third quarter. Again, as a group, we benefited strongly from the diversification and the natural head of our business portfolio -- natural hedge, should I say, apologies of our business portfolio. Orders did recover in the novated business as the period when on, and this has continued so far in the second half. In fact, leads are now higher than in the previous corresponding period, so a positive outlook for us in that space. Despite new vehicle supply constraints, and I'll talk a little more about those as the presentation goes on, and a material number of early terminations in our novated book in the most affected COVID industries such as airlines, we still saw some growth in the fleet numbers, which is obviously pleasing in the context of the environment. As the supply issue dissipates, we'll start to see the positive impact of the business won over the past year flow into the current and future periods, and I'll talk more about business won, but we've had another strong period in that regard. Our Board has declared an interim dividend of just over $0.07 per share. This is a return to our standard 65% payout ratio and evidence of our confidence in the outlook for the business. Please now turn to Slide #4 for a recap of the period in our Australian Corporate and for tool-of-trade business. As we reported in August, this business has just powered right through the worst of COVID-19. Although the economic activity and resulting demand were impacted in certain segments, our diversified customer and product portfolio and our strong position in the essential services and government spaces have meant that our business was able to turn in a strong second half in 2020, and this has very much continued in the first half of 2021. Fleet additions in the parcel delivery space, in particular, were of an unprecedented size. As I've mentioned before, the booming online shopping is unlikely to abate after COVID, so larger fleets are here to stay in the segments in our view. The flip side of this strong performance, and I would call this a luxury problem, but one we all have to deal with currently is that everybody is scrambling for new vehicle stock. We're obviously keen to fill the large wins we've had over the past 12 months, but the reality for some time is that deliveries will continue to spill into future periods. Fortunately, for us, we've always carefully nurtured our very strong relationships with our business partners and the dealer groups we deal with. And there's no doubt that this has helped us source a significant amount of available stock from dealers, particularly in the high demand like commercial space. And this certainly did help during the half, and hopefully, it will help dissipate some of the stock shortages as we go forward. The shortage of stock has, of course, also meant very strong secondhand car values and resulting end-of-lease income. As I pointed out before, RVs effectively creates a natural hedge in our business when secondhand or new supply dries up. In that vein, sale and leasebacks have again proven a very popular option, and we've signed a number of large deals in that space during the period. Our belief is that sale and leasebacks will remain attractive in the current environment where many companies are still addressing cash flow challenges and making sure that their balance sheets are healthy. On the product front, we continue to make good progress with customer penetration, and I'll come back to that in a minute. An example of that is our booking intelligence asset management solution, which continues to thrive. One particular installation of that solution, which I talked about in August, will generate close to 1 million transactions this year for us, and this number will continue to grow strongly. In summary, a strong performance from our Corporate business. A lack of supply has stopped this from translating to higher fleet growth to some extent, however, this is only a timing matter, and we'll certainly start catching this up in later periods as vehicle supply starts to loosen up. Turning now to Slide #5 for a look at our novated business. The novated business, the period has very much been a game of 2 halves. The July to September quarter demand was still affected by COVID, particularly in Victoria. But as restrictions were lifted, we saw inquiries and subsequently orders starting to rebound toward pre-COVID levels or better in the second quarter, in line with overall new vehicle sales. As was the case in the Corporate business, supply challenges stopped us from fully benefiting from this in terms of actual delivery numbers. The outcome of all of this has been that total deliveries for the period were down in this business on the previous corresponding period. However, the current pipeline of orders yet to be delivered is very strong and even more promisingly, lead numbers are currently higher than in the previous corresponding period, a very encouraging indicator for us indeed. So as supply improves, we should see a strong catch-up effect. As reported in August, we worked very hard with our lenders and with drivers in industries most affected by COVID, such as the airline sector, to manage the impact of redundancies on novated leases. While we were able to help out many with payment holidays and alternative arrangements, unfortunately, some drivers had to early terminate their leases, which did affect total fleet numbers in the half, as I mentioned before. I need to say that as the period has passed, we've worked through a lot of these issues. And we feel that we're now in a stable place with those industries. We think we're in a place where we're ready to go forward. But it certainly was a challenging period for some of those industries. In terms of ongoing business, our TradeAdvantage trade-in service, which I talked about a lot at the last half, benefited from a wider rollout into our total business and greater penetration across the wider business. And again, that's been another success story product-wise for us over this period. While direct customer contact has started to make a return, digital marketing has obviously increased during the COVID period, and we do believe it will prove to be one of the ways forward regardless of the environment we find ourselves in. In addition to the obvious cost advantages of marketing this way, our teams have really risen to the initial challenges of being able to market to and assist customers through digital platforms. This shifting platform has come hand-in-hand with a changed focus in terms of content, with a greater prominence of educational content aimed at communicating the cost and flexibility benefits of novated leases. Feedback from our sales staff suggests that customers have initially and increasingly valued us as a partner in managing household costs by taking care of this major expense item, their family car and educating them about the benefits of this product. Again, we believe this is a trend that will be with us long into the future. So in conclusion, an improving outlook for our novated business as the period progressed, with positive outcomes delayed by supply issues as was the case, as I said, in our Corporate business. However, some of the silver lining that as a business, we've been able to improve our reputation further by providing customers with advice and help they needed through these challenging times, and you'll see that in the strong NPS scores on the slide. We certainly will reap the benefit of all this in future periods. If we could now turn to Slide #6 for my comments on the U.K. business. Obviously, the macro situation in the U.K. has been far more challenging than in Australia and New Zealand. We've had multiple lockdowns to contend with. We've had a stop-start economy and limited certainty about the outlook for the year, particularly as Brexit was looming. Having said all of that, not industries -- not all industries suffered equally. And as I'll point out in a minute, there's some evidence that the mood in the U.K. is certainly improving as the Brexit situation has become clearer. And as hopes increase that the current vaccination program will help to control COVID. As most of you are aware, they're through about 1/4 of the population as of, I think, yesterday evening, they've vaccinated about 15 million people. So in my conversations with our team there and with customers and with suppliers, we certainly are getting a definite shift in mood and hope that, that will change things up. Obviously, coupled with that, the U.K. government has very aggressively supported the economy via a range of stimulus programs, totaling almost GBP 1 trillion, and that certainly should benefit some of the industries that we operate in. And we're seeing that. We're seeing some of the sectors that we sell to start to pick up activity levels. And those sectors are certainly starting to anticipate a return to normality. So for reasons similar to those that I've already explained in the Australian business, secondhand car values are very strong in the U.K. This has obviously benefited us, resulting in strong growth when compared to pcp in that business. So that, coupled with a strong delivery pipeline, which we've managed to deliver despite some of these lockdowns has translated into a strong half for us in that business. As was the case in the previous period, our focus has been strongly on maintaining service continuity as much as possible in ensuring that our staff and customers are safe and well looked after. And this, again, has been beneficial to us. I don't think the experience of our customers has been that across the board in our industry. I think we've seen some of our multinational customers drop the ball a bit, and that's created an opportunity for us. We worked very hard to fill deliveries in that space. And for the wins we achieved in the second half of 2020, and as I said, we've been somewhat successful doing that. Inevitably, there has been challenges with new vehicles in that space. Manufacturing of vehicles and parts has been disrupted in some regions in Europe, as you're all aware, and we will have to work through that during the coming period. As we've seen in Australia and New Zealand, cash flow management is front of mind for many of our customers during these difficult times. And this has, obviously, again, led to strong interest in sale and leasebacks in our U.K. business as well. On a further positive note, we've made significant inroads and progress in terms of upsell of a wider range of our products and services, both as part of our new wins and to existing customers. Adding short-term hire services, our Motrak telematics solution and our Novalease salary packaging offering, amongst other things to a lot of existing customers. In fact, we launched about 15 Novalease schemes -- sorry, my apologies, we won about 15 Novalease schemes. Some of them are still being launched during the period. And these will be launched -- these are being launched and will be launched progressively. And together, they should add about 40,000 eligible staff to the total eligible pool of drivers for us in that market, which is obviously a significant number in the context of our U.K. business. As I also previously mentioned, our business has embarked on a very SME-focused campaign. This has been successful despite the tough environment. It's very focused on regionally at the moment in geographically close to where we operate. We will start spreading our tentacles in that regard across the U.K. as we see the success of that initiative, and that's gone very well as well. So that's really a summary of what's gone on in the U.K. business over the period. But I think before I move off the U.K., I really do want to make a point that I'm extremely proud of the way our U.K. leadership team and staff have continued to address the challenges they face. It's been very different to our context here in Australia, lockdowns, start-stop and the team has really done a great job of both managing their own mental health and growing the business and looking after our customers in the process. And I think that has significantly enhanced our reputation and our standing in that market and will stand us in good stead for the future. Moving now to Slide #7, where I'll talk about our New Zealand experience. As a lot of you would be aware, very contrasting fortunes here in comparison with the U.K. New Zealand responded early and hard to the COVID crisis and so far seems to be reaping the benefits of that both in economic terms and in terms of the disruption to their lives. Probably a bad day to say that, given the temporary lockdown there right now. But generally, it's gone very well for them. Vehicle registrations were somewhat impacted relative to 2019, but some of that is actually related to stock shortages rather than the COVID issue. But it does look like that market, subject to what's gone in the last few days, are close to a back-to-normal sort of environment. As I said, there will be some stock shortages there as in the other markets. As reported in August, tender activity is as strong as ever. We are seeing a somewhat competitive environment in terms of pricing in some areas. But in some areas, we're seeing it being completely about product and service, and those are the areas we're focusing on. Our business there is largely operating on a business-as-usual basis with very limited COVID-19 impact, as I've said. In addition to the ongoing pursuit of opportunities, and we do have a very busy pipeline at the moment, including some very interesting government department opportunities, which are exciting. We see balance sheet optimization efforts manifesting themselves as in the other markets and a greater appetite there for sale and leasebacks and for funding fleets that were originally just managed fleet. So 2 big opportunities for us in that market. As you know, conversion to funded fleets and sale and leasebacks has been a strength of ours in that market. And so we will certainly try and take full advantage of this demand trend. We were also very successful in retaining one of our key large marquee customers in that market, and this was on a very long-term contract, the retention. It was through a fiercely contested RFP. Again, I want to emphasize that we did not win that on price. We were not the cheapest contender in that RFP. We won it on the base of the quality of the services that we've provided up to now to that customer and have committed to providing going forward. So our service offering is being understood by customers there, and it was a very pleasing win in that regard. That win has certainly confirmed our standing in the market and our ability to punch above our size in that market. And obviously, that will be helpful to us when we're trying to win other prospective customers. Please turn to Slide 8 for a quick update on tender activity and product penetration trends. This is a slide you've now seen for a number of periods. Proudly, this reflects a consistent and ongoing upward trend. We certainly will certainly work very hard to make sure that continues. Tender activity levels in the first half of 2021 were again higher than in the previous period. And amongst those pursued, we again increased our success rate across Australia and New Zealand. Corporate business, we won 44% of tenders against 40% in the second half of 2020 and 27% in the first half of 2020. In the novated business, we held our win rates steady at about 69%, an impressive win rates by anybody's standards. Obviously, both of these win rates are well in excess of our current market share in those segments. Add to that, many renewals that we signed without our customers going to tender, and you get a sense that there's real strong growth in the customer book, add to that product penetration that I've started to talk about, which will add further growth. So all in all, a successful period from a point of view of customer growth and acquisition. Close to half of our customers now take up multiple products. This was about a third to 2 periods ago. Previously, we saw mostly the large accounts taking up a wide range of products. Pleasingly, we're now seeing our small to medium-sized customers opting for a more comprehensive service arrangement and product suite. This is a large opportunity for us going forward. Clearly, I think this all confirms the trend we've been observing and talking about for some time that our customers appreciate the increasingly innovative product suite and -- product and service suite that we offer and are putting their money where their mouths are and taking these products up. I'll come back later to provide an update on developments in our business. And I'll now hand over to Kevin to take you through the numbers. Thanks, Kevin.

Thanks, Robbie. If you could please turn to Slide 10. This period has really demonstrated the benefit of having a diversified fleet because the challenges that we've experienced in the novated space have been well and truly offset by an exceptional performance on the corporate side. novated orders and deliveries were obviously materially impacted during the lockdown, but in the first quarter of the financial year, novated orders started to normalize. Then in the second quarter, novated orders were back at pre-COVID levels. However, new vehicle supply constraints have impacted our deliveries and resulted in the material buildup of our pipeline. The upshot of all of this is that new novated deliveries are 17.1% down versus pcp. This naturally has [ flown ] impact to a number of our income lines. Corporate side has performed well with significant growth in deliveries to customers in the parcel delivery space, together with some meaningful sale and leaseback transactions. Margins on Corporate deliveries don't compensate for the delayed novated delivery, but the exceptional end-of-lease performance has more than offset this and has enabled us to deliver growth in NPAT of 3.9% versus pcp, ahead of our guidance range. Turning over to Slide 11 and looking at the fleet size. The fleet grew by 419 vehicles in the 6 months to December, with growth obviously constrained by the limited supply of new vehicles in the market. The impact of COVID-19 on our novated customers generally and, in particular, those in the airline which industry has resulted in a significant increase in early terminations, which has caused our novated fleets to reduce by 2,283 units over the 6-month period. In unit terms, this was offset by strong growth in the Corporate sector, albeit at lower funding margins. Turning to Slide 12 and looking at the fleet mix. Strong corporate deliveries referred to on the previous slide has increased the operating lease portion of the fleet to 43% compared to 40% 12 months ago. The novated portion of the fleet now makes up 31% versus 34% a year ago. Over to Slide 13 and looking at the key categories of revenue. Management fees grew as a result of the growth in the average fleet under management. Offsetting this was the fact that we deferred more maintenance income to the balance sheet this period versus pcp. This was as a result of the fact that vehicles are still being underutilized due to COVID-19. And as such, we are incurring less maintenance expense, and we only recognize maintenance income when the related maintenance expense has been incurred. As previously mentioned, novated deliveries are down 17.1% versus pcp. This has a direct impact on the additional products and services line through lower accessory sales, insurance income, procurement rebates and TradeAdvantage volumes. It also has a material impact on funding commission. In relation to additional products and services, I should also point out that Q1 of the prior comparative period had the benefit of the tail impact of the insurance products that we exited. Turning to Slide 14. End-of-lease income has benefited very materially from the current market conditions with strong demand for and limited supply of secondhand vehicles sending pricing to record levels. Disposal volumes were marginally lower than pcp, but nevertheless, end-of-lease income came in 143% up on pcp. Net rental income was impacted by lower short-term rental volumes and tighter margins in the U.K. We also had fewer vehicles in inertia as customers locked in formal extensions instead. Touching on fleet management costs, as already mentioned, vehicle maintenance expenses were lower as a result of reduced vehicle utilization in the COVID-19 environment. This line item was also impacted by lower accessory cost of sales due to the softer novated deliveries. Please turn to Slide 15 for a look at the net revenue position after deducting direct costs. On an overall basis, net revenue was up by 1.3% due to the factors explained on the previous slide. The exceptionally strong used vehicle market has doubled the proportion of end-of-lease income to 26% from 13% in the pcp and has increased the contribution from the corporate sector from 52% to 64%. Looking at the OpEx on Slide 16. Operating expenses were slightly lower as a result of lower technology costs and reduced travel and entertainment. Offsetting this somewhat were the costs incurred in setting up the securitization warehouse. And just touching on the balance sheet and dividend on Slide 17. The group has net corporate debt of only $1.1 million at present versus $43.2 million 12 months ago. This position is artificially low because our cash balance is artificially high at present. This is because our customers, in general, but novated customers, in particular, have been utilizing their vehicles a lot less than normal because of COVID-19. This has resulted in a large increase in our vehicle maintenance funds and contributed to the strong cash generation number, which came in at 137% of EBITDA. We expect it to return to historic levels over time. Our total leverage ratio, including the lease portfolio, stands at 0.6x. Our securitization facility went live in December 2020 and the first vehicles have now been delivered. The use of securitization will grow modestly in the second half but is not expected to have a material financial impact this year. The Board has decided to revert to a dividend payout ratio of 65% and has declared a fully franked final -- fully franked interim dividend of $0.07192 per share. I'll now hand back to Robbie.

Thanks, Kevin. On Slide '19, I'd like to briefly revisit some of the observations we made in August regarding the trends we saw emerging out of the COVID-19 environment. Most, if not all of these, have manifested themselves in terms of demand for our services. One interesting trend that has emerged as a consequence of the reluctance to use shared transports and the move to the work-from-home environment is a greater use of personal vehicles for work-related transports, the so-called grey fleets. We already have significant experience with the management of such fleets and associated work, health and safety issues, both in the U.K. and here in Australia, and we'll be applying that expertise across these new opportunities. We've seen a lot of demand from our corporate customers, particularly the large customers to help them manage these fleets -- these grey fleet issues. I think it's a big health and safety question, and it needs proper management, and we certainly do have that expertise, and we see a real business developing out of that over the coming years. I'll come back to the trends observed at Carly and DingGo in a moment. But again, we've certainly noticed an uptick in interest in short term and more flexible arrangements by our customers. Again, adding those to our suite of products just means we can provide a wider range of services to them and look after their -- more of their transport needs. Again, for us, this is in addition to our existing range of longer-term leases. It's not a replacement for. It's part of the continuum. Finally, as I observed multiple times earlier, the expansion of e-commerce has boosted the demand for delivery vehicles and a renewed focus on balance sheet optimization has clearly led to greater interest in outsourcing, sale and leasebacks and greater fleet efficiency. I think the important point I'd like you all to take out of that slide is that COVID has triggered or accelerated these trends. But the resulting requirements and demand will continue to be present long after the pandemic has been brought under control. This is a permanent demand shift in our view, and it's just accelerated a lot of the things that we've been talking about for multiple years. As I just mentioned, let's have a look on Slide 20 at how Carly and DingGo, 2 of the ventures in which we have invested, have fared in this environment. One thing that is very clear in terms of COVID-related demand shift is a greater focus on value and flexibility, and we've seen this [ cloud ] in our own business as well as at Carly and at DingGo. You may have heard that a number of OEMs have struggled with their car subscription services offerings. And the good performance of Carly shows that apart from a niche market of car, sort of aficionados who want a particular make or model. The future of car subscription lies in the ability to provide a solution that gives customers the ability to easily switch between types and brands of cost-effective vehicles. It's about a flexible cost-effective service. And so while some luxury brands were trying this model to attract new drivers to their markets, with the ultimate objective of driving actual sales, Carly's model is to offer a solution that can address frequent changes in demand, transport needs and financial situation for its customers. Accordingly, it's not surprising to see how quickly Carly has been able to position itself as is a key player in what we think is a new mobility environment, which subscription will play a role in. There's no doubt that the vehicle subscription space is attractive. And that it has a place in our continuum and here to stay. I think it's important to note that in the short term, though, Carly is facing the same constraints as others in our field, namely access to vehicles. This has short-term limited growth opportunity. But again, it will return to normal. As I've said, it's a temporary problem. We certainly are seeing the demand, which is the important thing at this stage. Similarly, the COVID crisis has accelerated the growth and expansion of DingGo. The repair portal was the first to introduce a digital contactless repair solution. This has been welcomed by all of their customers and in particular, the corporate customers. There's been a massive growth in their corporate customer book aligned with their partnership with us. About 2/3 of fleet repairs are now following this contactless process. And despite the disruption caused in the panel [ beading ] industry by some of the lockdowns, DingGo has managed to expand its national network to about 400 repairers. We think that's probably the largest repairer network in the land now. We've also, during this period, integrated DingGo into our own service offering, giving all of our customers instant access with secured data sharing and integrated billing, which can be viewed through our fleet intelligence portal. This has seen a number of our customers become interested in taking up the product. The total number of users grew by about 115% over the period to about 11,000. Feedback from our customers has been extremely positive, very high satisfaction ratings and significant repair cost savings for our customers. For the July to December 2020 period, total revenue in that business almost doubled with exponential growth in fleet repairs as the Corporate solution was introduced, as I said. All of this in an environment where vehicles were actually racking up less miles. So actual repair numbers in the full market were actually down. And so a great outcome for this business, and we continue to see a very strong future for this product. If you could now turn to Slide 21 for some comments on our own innovation space. As you'll know, government support for the introduction of low or zero-emission vehicles varies from country to country. And in Australia, even from one state or territory to the other, with the ACT firmly taking the lead in our Australian market here. I've been referring to electric vehicles every 6 months now for some time, but there are certain definite signs now that we are witnessing a global shift towards greater acceptance and penetration of this drivetrain. Joe Biden's intent to move the U.S. federal fleet to locally manufactured EVs alone is groundbreaking, given the thinking in that country until very recently. Add to that in the U.K., the government is announcing that every new car and van registered from 2035 will need to have zero-emission at the tailpipe. You can see where the trends are heading. We are, of course, somewhat behind that share in Australia. But the debate is raging, and it will only ever go in one direction. And the only question is at what speed and exactly what it will look like. 2 weeks ago, you would have read about the Australian government's intent to drive the uptake of low-emission vehicles by promoting the uptake in fleets. They are certainly saying to business and to fleet providers like us that we need to partner with the government to make sure that electric is taken up in a bigger way. I think the government will have to do more to make this really successful. My views are well-known in this regard. I think we do need more government support than we have. But certainly, we are seeing much more interest and much more uptake. We've been working with some state governments to help them develop a mechanism by which fleet managers could play a role in supporting fleet takeup. Those discussions are continuing. We've been well positioned for some time in this space taking the lead in our industry with our eStart zero-emission vehicle transitioning solution. I've also talked about in the past that we're participating in the revs electric vehicle to grid services project and the work being done in the ACT around hydrogen-powered vehicles is being well supported by us. In fact, hot off the press, we registered the first 20 hydrogen vehicles in Australia last week for a large client of ours. They are Hyundai Nexo vehicles. We're very excited about the prospects of what that means for our market, and we'll certainly be watching that closely. We've shown our eStart product to a number of government environmental working groups. And increasingly, a lot of our customers are asking us to map out ZEV targets for them to be reached within the next decade. So I think this business is going to go from strength to strength. About 5.2% of our total fleet now consists of low-emission vehicles. This is -- the vast majority of those are still hybrids. I think pure electric is still a challenge in this country for the reasons I've outlined a few minutes ago. But those numbers have grown very substantially in the last 6 months. I mean they've almost doubled. Remembering that the stat I gave you last reporting period was that our U.K. business is nigh on 10%. So the trend is certainly growing. Our leadership position in the space really does put us in good stead when demand inevitably does start to increase. So I think an exciting prospect to go forward. If you would now turn to Slide #22 for the conclusion of today's presentation and some words regarding our outlook. In summary, as you've heard, our Australian Corporate business continued its progress from the previous period, helped further by a very supportive RV environment. In the novated business in Australia, the impact of COVID was still felt in the first 3 months of the period. But inquiry levels recovered in tandem with consumer sentiment. Demand picked up significantly in the latter half of the period with order levels approaching pre-COVID levels in the final months. And as I mentioned, leads are now tracking ahead of pcp. Throughout the COVID period, we saw a steady improvement in our Promoter Scores as we stood by our customers, which bodes well for our future, as I said. In both businesses, further growth in vehicle numbers has been somewhat delayed by supply disruptions. This is purely a timing issue. We will resolve these issues. It's just a matter of when. I think it's important to distinguish between these lags and what we talked about through the COVID period where there was lack of demand for orders because people are unsure about the future. Here, we're sitting with a very strong order book, just a question of delivery, and it's important that you make that distinction. The U.K. continued to make great progress despite the harsher conditions there. And in New Zealand, as I said, the impact of COVID on our business has been significantly limited. We continue to be very successful with our tenders and with contract renewals and our widening projects and services ranges being better and better received by a growing number of our customers. COVID might have triggered some of this demand. The resulting trends in terms of requirements is very much here to stay in our view. I think we're seeing the fruits of many years of work on this product development. It's not a new trend. It's just taking off. Our investments are performing well, and we continue to develop next-generation solutions together with those partners as well as internally, including a leading position in the low vehicle emission space -- sorry, low-emission vehicle space, pardon me. As to the outlook for the second half, we anticipate a strong period, obviously, subject to trends continuing. There are some unknowns, but our current feeling is that a strong period is what we will deliver. At this stage, we believe the current residual value environment will continue certainly through the third quarter, and we think, through the fourth quarter as well. While the supply issues will remain, our focus will be on getting new orders in. And judging from the very strong pipeline in both our Corporate and novated businesses, we have plenty of opportunities to do exactly that. All in all, we're confident that New Zealand and U.K. will also make good progress during this period. In addition to all of this, operationally, we continue to implement a wide range of process improvements and the cost benefits of this will increasingly come through over future periods. All in all, taking into account the strong first half performance, we do want to say that it's unlikely we'll see our typical first half, second half split. But as I said, we do expect a very good second half. Thank you all for your time. That does conclude the formal part of the presentation. We are happy to take your questions now.

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

Just on the end-of-lease income, it's all pretty clear. Just a couple of questions. The revenue in the sort of segment or in the detail looks like it's broadly flat and the costs are down, which has driven that higher income. But I think then, Kevin said that the units were only marginally lower. So I'm just trying to understand sort of how that plays out.

Do you want to take that one, Kevin?

Yes. No, it's -- I mean, the -- it's all -- the volumes were pretty similar. This is all about average profit being much higher than what it was previously.

Yes. But how does that not, therefore, translate into higher sort of revenue per sale? It seems like it's just come through because it's lower cost per sale?

Well, I think if you -- I mean if you compare it to, say, end-of-lease revenue at $112 million for the first half versus pcp at $100 million. I mean that is your -- that's the $12 million delta.

Okay. That hasn't moved sequentially though?

Sorry. What did you say, Tim?

It doesn't seem to have moved sequentially.

How do you mean sequentially?

So, I'll take it off-line. That's fine. The -- well, sorry the gross end-of-lease income in the first half of '20 was $113 million and the first half '21 is $112 million. That's what I'm just trying to focus on. That's what the disclosure showed unless the disclosure has changed?

Yes. Look, the only change that's been made is the recertification of TradeAdvantage, we took that out of end-of-lease income and moved that into additional products and services. And that's because it's not really end-of-lease income because it's not really -- it doesn't relate to operating leases. It's more on the finance lease on novated side.

That's clear. And that may help with the second question as well. I mean the commentary, Australia, New Zealand and U.K. is quite clear. But when I look through the segment notes, it doesn't seem that, that has played out in the way you reported the segment? Is there some change there?

No, no change in the segment, I mean, obviously, the U.K. made -- also had a very strong end-of-lease income performance, which drove the overall group performance. We also had strong end of lease in Australia, but offsetting that in Australia was below in novated deliveries.