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

Ladies and gentlemen, thank you for standing by, and welcome to the SG Group Limited 2022 Half Year Results. [Operator Instructions] I would now like to hand the conference to Robbie Blau, CEO. Please go ahead.

Thank you. Good morning, everybody, and thank you for joining us on what's a busy reporting day. My name is Robbie Blau. I'm the CEO of SG Fleet. And as usual, Kevin Wundram, our CFO, is alongside me. We have a lot to talk about today, as it's been a very exciting half for our company. So I'm going to jump right into it. As usual, I'll refer to the slide numbers, as I go through the presentation. Please turn to Slide #3 now for a quick overview of the period. The first half of the 2022 financial year has accelerated the progress we made in the previous periods. Our corporate channel saw strong momentum across all countries, growing its customer book further. With innovation really coming through and the customers -- the companies, my apologies, we have invested in, in recent years, growing their businesses, upsell of products and services has also progressed significantly. In the Novated channel, we've seen steady growth for a couple of periods now. Both channels have continued to face supply constraints. And while this benefit of used vehicle values, an ability to deliver has meant that the beneficial impact of our growing order book will spill into future periods. This result includes 4 months of performance of the LeasePlan ANZ business, which we acquired on 1 September. I'm really pleased to say that its performance has exceeded our expectations. The integration process has run exceptionally well, with teams coming together quickly in the pursuit of growth for our combined business. The ability to tap into new expertise and the significantly-improved scale of our business are already yielding benefits, from a competitive positioning perspective. It also supports our ability to achieve cost and efficiency improvements, including from a procurement point of view. We are in an excellent position to pursue multiple growth avenues, as we all emerge from what has been a difficult macro environment, and we've set a very clear strategy to achieve that objective. Please now turn to Slide #4 for a recap of the period in our Australian Corporate or tool-of-trade channel. By and large, there's been little change in the operating environment in the first half. And the same factors, including the macro situation, which I will refer to a little later, are still in play. Despite some COVID impact, our BDM teams have taken full advantage of in-person and virtual contact opportunities to pursue the continuous stream of new opportunities arising. 6 months ago, I reported that SG Fleet's Australian Corporate channel continued its strong performance in the previous period. And this pattern has continued in the first half of this financial year. A significant number of new tool-of-trade accounts were signed up in the period and an even higher number have been awarded verbally and are now at contract stage. Again, we had a number of large contract extensions, with some of these including longer contract terms and the inclusion of Novated services. Greater customer penetration has been a feature of the period, with strong interest in all things EV-related, our Bookingintelligence product, our DingGo partnership, Inspect365 and our driver safety products. We've also transacted the first TradeAdvantage deals in the LeasePlan book, and I'll talk more about the cross-sell through the whole presentation. We've added zero-emission vehicles to government lease rate [indiscernible] for the first time, and corporate customers are increasingly moving their fleet from pure ICE vehicles to hybrids and EVs. Existing SG Fleet and LeasePlan customers attended a very successful EV drive day in South Australia late last year, and interest in our EV solutions really spiked as a consequence of that event. We've now integrated the two sales teams across the businesses and all new businesses placed under the SG Fleet brand. The relationship managers for the existing LeasePlan customers have also not missed a beat since the acquisition. We'll talk about the upsell potential in the LeasePlan book a little later in the presentation. Significant progress has already been made in the 4 months of ownership included in the first half period, in particular with Bookingintelligence, which is already currently being trialed by multiple LeasePlan customers. LeasePlan safety solution was recently launched and is doing very well with a number of accounts already signed up and many others starting trials. Overall, the customer transition process has run very, very smoothly, and the response from existing customers has been very positive to the acquisition. Moving now to Slide #5 for a look at the Novated channel. As of the Corporate channel, the Novated teams are also being brought together, adding about 12,000 vehicle units to our Novated business. The operating environment, obviously, still continues to feel the occasional impact of COVID, but consumer confidence is definitely on the up. Inquiry levels have now been growing strongly for some time. Order growth within the SG Fleet book, excluding the addition from LeasePlan, was 13%, so pure organic growth. The number was significantly higher, if you include LeasePlan. Obviously, as with the Corporate channel, actual delivery of a significant proportion of these vehicles and orders is delayed because of supply issue and lead times. And I will talk in detail about this a little later as well Kevin in his presentation. But that has not stopped the combined teams from notching up an impressive number of new employer accounts, approximately 50 during the half, and this gives us access to a significantly larger pool of eligible employees, as we go forward in our Novated business. We've also been particularly successful in upselling Novated into existing corporate customers. Significant potential also exists, in terms of accessory upsell, within the existing LeasePlan book. I'll come back to that, when I talk about penetration growth, a little later in the presentation. If you can now turn to Slide #6 for my comments on the New Zealand business. The operating environment in New Zealand has inevitably been impacted by the continued lockdown measures. So while the economy does motor on within these restrictions, all business have effectively been conducted virtually for a very long time now. Nevertheless, there are including a couple of very high-profile RFPs. Within the SG Fleet channel, we had a significant win with the uncontested long-term renewal of what is a very major government contract of ours. The customer requested and received an exemption from the normal RFP process, based on our service levels and its satisfaction with SG Fleet over the last 10 years, obviously an exceptional result. It's very, very rare if ever that governments do that and don't actually go back to a public tender. It really does show the quality of the relationship we have with some of those customers. Obviously, our aim is to instill that same service ethic across the full customer book that we've acquired and achieve the same great outcomes. We also continue to be successful with converting accounts from managed-only to funded. We're working hard on achieving the same outcome in the existing LeasePlan book, where we have identified multiple conversion opportunities, including [ buy ] sales and leasebacks. As was the case in Australia, the vehicle safety management tool saw strong interest, as safety compliance is very topical in that market as it is in all markets we operate. Promisingly, existing LeasePlan customers returned a marked uptick in NPA scores in our annual survey there, confirming the positive reaction we saw elsewhere in the customer book to the acquisition. Turning now to Slide #7 and our U.K. business. The U.K. is obviously somewhat further down the COVID recovery path, with most of the workforce now having returned to the office. The number of new business opportunities continues to grow in our U.K. business. And given our strength in those areas, I'm happy to report that once again, low-emission vehicles, light commercial assets and consumer leases have been areas of particularly strong growth. Pure electric vehicles accounted for more than 1/3 of our deliveries in the period, and that percentage is even higher for passenger cars. Our customer win rates remain high across both tool-of-trade and Consumer. A particular highlight in the half has been our ability to convert managed-only customers to funding, as I referred to in the New Zealand business, as well as introducing consumer leasing into existing tool-of-trade accounts, so a very successful period for cross-sell in that business. We've also converted a number of panel arrangements to sole supply in our favor, thanks to the positive response to the services we already provide those panel customers, again a massive opportunity for penetration. That concludes the operational reviews on the first half. I briefly referred in all of the slides to the supply chain situation in all of our markets, and I'll now provide an update on that on Slide #8. While Kevin will be providing more detail on deliveries and pipeline in a moment, I'd like to make a few comments about how the supply chain situation has evolved and what this has meant for used vehicle values. As you can see from the chart on this slide, global production of new vehicles fell by over 15% in 2020 and remained at that level in 2021. Current estimates indicate that a return to 2019 production levels will take a further 1 to 2 years. However, that will not mean a full normalization of supply, as a significant shortfall needs to be made up for existing order backlog. Anecdotically, I'll give you an example. In our U.K. business, Volkswagen has told us not to place a single order for the rest of this year. The allocation and build slots are done. And that shows you what kind of makeup is going to have to come in the world, when things do start to normalize. For us, that means the continued strong demand in our Corporate book and the strong growth in our Novated book. Deliveries will start to catch up, but the pipeline, we don't think will shrink in a meaningful way anytime soon. Inevitably and despite strong order growth, this impacted our fleet numbers during the period, and the rewards for the business' strong performance over the past few periods will somewhat be pushed out into future periods. As responsible fleet managers, we help our customers manage the supply shortages by implementing extensions where required. In the reporting -- reported period, this resulted in a doubling of Corporate lease extensions in SG Fleet channel, when compared to the previous corresponding period. That's massive. Obviously, with the business growing its book, if we cannot deliver, we also cannot get back all the vehicles that we were expecting to come off lease, and this, in turn, impacts disposal volumes. For SG Fleet, on a stand-alone basis, disposals were down about 23% on pcp, limiting the positive impact of continued strong used vehicle values. Now, that's a pushout of the return of those vehicles. We will get them back but obviously at a later stage. But turning to used vehicle values for a moment. Vehicle -- values were, in fact, stronger on average than in the second half of 2021, with new peaks reached in December at over 40% in excess of pre-COVID prices -- sorry, I think I said than in the second half of 2021. I meant, in the first half of '22, so 40% up on pre-COVID. Given the continued supply chain challenges and the considerable amount of time it will take for production to fully catch up, we only anticipate a very gradual softening of prices, possibly starting in the fourth quarter of the 2022 calendar year at the earliest. The lack of supply over the last few years also means that fewer used vehicles will come back into the market, even when supply starts to normalize over the coming years. And so we don't anticipate that used prices will go back all the way to pre-COVID levels at any stage. In other words, used vehicle prices will still be somewhat elevated, when we start to catch up on our deliveries. That's all I wanted to say about, sort of, the macro environment, right at this moment. I'll hand over to Kevin now for a closer look at the numbers, and then I'll come back and talk about our strategic initiatives over the coming periods. Thank you.

Thanks, Robbie. If you could please turn to Slide 10. The results presented today include LeasePlan from the beginning of September, i.e., for 4 months. We presented the LeasePlan contribution separately. But I should point out that the stand-alone results of LeasePlan will become less and less meaningful over time as we integrate. In particular, since we are no longer originating leases for new customers in the LeasePlan entities, these leases are all being written in SG Fleet. Much like the previous half, the results for this half were materially impacted by the shortages of new vehicles, which has elevated used vehicle pricing to unprecedented levels. However, notwithstanding the stock shortages, we've been able to organically grow most of our revenue lines this year. I'll talk to these in a few slides. The exceptional performance from end of lease income has allowed us to report 19% organic growth in underlying NPAT for the year. On top of this, the LeasePlan business has outperformed the projections on which the acquisition would model. You will notice as we go through this presentation, and we've made changes to the revenue and direct cost categories in the P&L. This was primarily to better map the LeasePlan revenue streams with the SG Fleet revenue streams and also to try and better group those revenue streams that have the same primary driver as well as to separate annuity income streams from transactional ones, wherever possible. If you could turn over to Slide 11 for a look at the Corporate fleet movement. Organically, SG Fleet's new deliveries reduced by 54.5% versus pcp. The part of the reason for that was that in the pcp, we delivered a large batch of 2,900 vehicles into one of our parcel-delivery customers. If we adjust for that, our organic corporate delivery is reduced by 26% this reporting period, which was driven by the stock shortages. These stock shortages have forced our customers to extend their existing leases. And as a result, on an organic basis, extensions were 103.5% higher than pcp. The shortages have also triggered a very material increase in the order pipeline, which in total stands at 9,304 vehicles, which is more than 3x what it was 18 months ago. It's fair to say that if we had not experienced the new vehicle stock shortages, we would have seen organic growth in the overall fleet size. Turning to Slide 12 for the Novated fleet movements. On an organic basis, Novated orders grew by 13.4% and deliveries by 10.2%, which was very pleasing. Including LeasePlan, our Novated order pipeline stands at 4,395 vehicles at the end of the year, which is 4.5x what it was 18 months ago. Touching on the Lite Fleet on Slide 13. The Lite Fleet is a combination of the unfunded fleet, as we previously reported, together with what we used to refer to as the ancillary fleet, which were those vehicles on which a reduced suite of products and services are provided. Over time and with the acquisition of LeasePlan, the line between unfunded fleet and ancillary fleet has become blurred. As such, going forward, SG Fleet will [indiscernible] fleet units and disclose the combined balance as Lite Fleet. The Lite Fleet balance stood at 145,000 vehicles at the end of December. We often get asked as to why we offer this product and whether it's profitable. Some of the reasons why we offer it is because it is a way of initially getting in the door with the customer, and we have demonstrated our ability to then grow the number of services over time. In addition, it is often a way to immediately dislodge a competitor by being able to take over the management of the entire fleet while the units funded by a competitor run down. Of course, our primary goal is to convert these units into funded units, which then improves the economics exponentially. Now, whilst the conversion into a funded fleet is often a slow burn, the improved economics make it well worth the wait. If you could turn to Slide 14 for a look at the individual net revenue streams, you will note from the top of each slide, we have explained what is included in each revenue stream. I won't go into that now, but the information is there, if required. On an organic basis, net rental and finance income grew by 72.7%, driven by growth in the number of vehicles in inertia, which in turn is caused by the lack of new vehicle stock. With the LeasePlan acquisition, we now have 52,000 vehicles funded on the balance sheet, with a total book size of 1.4 billion. Over to Slide 15 and touching on the net mobility services revenues. As a result of the new vehicle stock shortages, our total fleet size has reduced by 2% in organic terms, excluding LeasePlan. And as a result, the growth in net mobility services revenue was limited to 0.4% versus pcp. As mentioned above, if we have not experienced the new vehicle stock shortages, we would have seen organic growth in overall fleet size. LeasePlan contributed $8.7 million to this revenue line item for the 4-month period. Turning to Slide 16. Net additional products and services revenue grew by 2.8%, driven primarily by growth in Novated delivery. This line item was adversely impacted by supply disruptions to accessory stock, which was offset to some extent by a very strong performance from TradeAdvantage both in volume and margin terms. Over to Slide 17 to look at finance commission. The finance commission reduced by 8.1% versus pcp, driven by a reduction in P&A-funded new deliveries as well as an increase in the overall proportion of extensions in the P&A volume. Please turn to Slide 18. Consistent with previous periods, end of lease income benefited materially from the current market conditions, with strong demand for and limited supply of used vehicles, sending pricing to record levels. However, in this period, volumes were materially lower due to the increase in the number of extensions and vehicles in inertia. On an organic basis, SG Fleet had 22.7% fewer operating lease disposals, pcp. But notwithstanding this, we were still able to deliver organic growth in end of lease income of 48% due to the strong market pricing. Please turn to Slide 19 for a brief look at the fleet and credit provisions. These provisions increased materially as a result of bringing on the LeasePlan balance sheet. There was no material P&L impact as a result of provision movements in the period. Over to Slide 20 for a look at operating expenses. There's been quite a material increase in OpEx versus pcp, even on an organic basis. Part of the reason is that the employee costs were artificially low in the comparative period as a result of just coming out of the first COVID-19-related lockdown. Like a lot of other businesses, we have seen an uptick in our staff turnover ratio and increasing wage cost pressure. Our technology costs have increased because a lot of the developments in progress at the moment relates to Software-as-a-Service solutions, and these are expensed, were historically the type of development would typically have been capitalized. It goes without saying that we will have a keen focus on operating costs in the next few years, as we seek to maximize all synergy opportunities. Turning to Slide 21. The net impact of all the items discussed on the previous slides is that we were able to grow underlying EPS by 23.5% versus pcp, we've declared an interim dividend of $0.0832 per share, which is an increase of 15.7% versus pcp. Our payout ratio is always based on reported NPATA, i.e., cash earnings per share. However, for this period, we have decided to increase the payout ratio, so that the dividend was not adversely impacted by the deal costs incurred during the period. On Slide 22, we've presented the detailed P&L. I've spoken to the key line items already so I won't spend more time on this. Please turn to Slide 23 for a look at the balance sheet. Obviously, the balance sheet was materially impacted by the LeasePlan acquisition, but it remains in a very strong position with corporate leverage of just 1.1x operating EBITDA. At the completion date of the acquisition, we were able to fund a greater portion of the LeasePlan lease portfolio in the securitization warehouse as a result of there being fewer ineligible assets than originally expected. This eliminated the need for the vendor finance facility and also reduced the corporate debt required from the acquisition. In January 2022, we utilized $75 million of our surplus cash to further reduce debt. Finally, please turn to Slide 24. Cash generation continues to be strong, coming in at 102% of EBITDA, helped along by exceptionally strong end of lease income. I'll now hand back to Robbie for an operational update.

Thank you, Kevin. On Slide 26, you'll see an overview of the various trends and projects we have mapped out for the coming 5 years and beyond. We hope that this provides you with a good sense of where and what SG Fleet will be in the medium to long term. I've already provided some comments on the supply situation earlier in the presentation. And on the next few slides, I'd like to delve a bit deeper into the main revenue and efficiency drivers of our business and how they'll evolve over the coming years. We continue to maintain the strong momentum in our businesses. And at the same time, we are managing the extraction of many exciting benefits that we are reaping from the LeasePlan acquisition, including revenue opportunities and the contribution it will make to our overall drive to improve cost efficiencies, as Kevin has talked about. In addition, we have our ongoing innovation efforts and how they help us grow our offering and achieve higher penetration within a continuously growing customer book. This is further supported by selective investments in additional innovative capabilities. Of course, all of this occurs in the context of an industry that we believe is likely to see further consolidation over the coming years. On Slide 27, we map out some of these trends and projects from the perspective of how they contribute to our profitability over the coming years and as we emerge from the COVID years in a very strong position. There are, of course, the business-as-usual revenue and efficiency components. We'll continue to drive growth, including from the capabilities we are investing in such as Carly and DingGo. And we'll continue to focus on cost control and digitization, as I will demonstrate a little later. Over the next 5 years and beyond, we will see additional developments that will shape the way we grow and operate. We are obviously well underway with the integration of the LeasePlan acquisition. And while the majority of cost synergies will be extracted in years 2 and 3, we are already leveraging our greater scale and generating benefits now, as I'll explain in a minute. This acquisition is already fundamentally changing how we operate as well as our competitive position. In the lead up to the full synergy extraction, we also anticipate that we'll start to see a gradual normalization of our operating environment, particularly from a supply perspective. This will allow us to catch up on the significant amount of deliveries resulting from the strong tender win ratios we've been reporting over the past few periods. Of course, as we accelerate these deliveries, we'll also see a corresponding uptick in disposals as the current high level of extensions will start to abate. At this point, we anticipate that the conclusion of the LeasePlan integration will coincide with and indeed further facilitate the acceleration of growth in our mobility services range. As I'll explain later, innovation in that space is being stepped up. And as we have seen in the past year, demand for our expertise in the EV space is growing rapidly. All in all, a lot is already happening as we speak, and the buzz amongst the combined team is really palpable. Turning to Slide 28 for a detailed update on the LeasePlan integration. Work on various areas has progressed rapidly. And many of our teams, both on the business development front and the shared services side, have now been integrated fully. The integration includes the executive team for which we have now realized head count synergies, and we have integrated reporting lines. This best-of-breed approach has been paying dividends across the board. Customer satisfaction has improved further, supporting acquisition, retention and penetration. All new business origination now occurs solely under the SG Fleet brand, as I said earlier. On the infrastructure front, we are moving all staff onto the same software, operating and telephone systems. Those previously working at our South Melbourne office have now moved into LeasePlan South Wharf offices, and various offices elsewhere across Australia and New Zealand will be brought together during this calendar year. Scale efficiency is also being generated by integrating processes across many functions in the business. Our pricing and credit approval processes have been harmonized, and the new securitization program has now been running successfully for a few months. Our increased scale is also being exploited to the fullest for business development purposes. The sharing of available processes and resources is significantly improving our ability to compete for business as well as the experience of existing customers across the book. It is obviously also generating significant benefits from a procurement perspective. I'll come back to the revenue-generating potential of the acquisition shortly. Looking ahead, we will continue the integration of our teams, expand our offering further, harmonize processes and complete the infrastructure and system migrations over the coming few years. Turning now to Slide 29. As I pointed out earlier, cost and efficiency improvements form an integral and continuous part of our efforts to enhance the profitability of the group. When we first announced the LeasePlan acquisition, we also emphasized the significant benefits enhanced scale would bring in terms of our efficiency drive. We are only at the very early stages of fully leveraging our increased scale, starting with improving our procurement and supply negotiation power to lower products and services costs and ultimately, improve our competitive position. At the same time, our greater scale will progressively help us achieve greater internal efficiencies, process improvements -- sorry, and process improvements as we make progress with the reduction in the number of back-end systems, culminating with the full system integration in the coming years. This integration will facilitate consolidated cost control measures across the group as well as measurable improvements in productivity. Enhanced process automation and digitization is and will continue to form a large part of this, and LeasePlan's expertise in robotic process automation will give an invaluable boost to our previous efforts in this space. As I mentioned before, digitization will not only allow us to improve the customer experience, but it will also yield significant cost benefits. We are confident of being able to demonstrate these improvements in hard dollars and cents in coming years, and we are setting targets to improve our overall cost-to-income ratio as well as continue to bring -- sorry, as we bring the businesses together. Turning now to Slide #30 and the second component of our profitability drive: revenue growth. I've spoken to you in the past about the 3 key drivers of revenue in our business, structural trends towards the outsourcing of fleets, the ability to grow the customer's market share via incremental tender win rates, and the ability to widen the range of products and services our customers take up, in other words a greater share of customer wallet. The percentage of corporate registrations outsourced to providers such as SG Fleet has increased over the past decade. And as we reported in 2020, the efforts of organizations to address the COVID impact by improving cash flows and fleet efficiency has supported this trend even further. Over the last few periods, we've produced -- we've provided you with multiple data points showing how we've been capturing market share by winning more than our fair share of tenders we pursue, and how we've increased the average number of products and services our customers source from us. Our offering has grown steadily as we have ramped up our in-house innovation and invested in selective capabilities and the value add we create for customers. And as a consequence, their stickiness has increased dramatically in parallel. I will come back to innovation in a moment. Importantly, we've also been very successful in the conversion of managed-only customers to leasing, as I've mentioned earlier. And we do believe exposure to managed-only as important, as Kevin said in his presentation. It provides us with additional insight into the vehicle risk we manage, and it is, as we have shown, a very fertile hunting ground for leasing customers. As I mentioned when speaking to the previous slide, the leverage we obtain from the LeasePlan acquisition is not limited to cost efficiencies alone. We also see a very clear and large opportunity for our combined tenders team to lift average win rates to those we've reported at SG Fleet in recent years. We are generating similar gains from a customer penetration perspective. We've instantly gained access to additional products and expertise from the LeasePlan team, allowing us to sell a wider product range to existing SG Fleet and LeasePlan customers as well as to the many new opportunities we are targeting with our combined sales team. With regard to the format, it's worth noting that historically, penetration rates in the LeasePlan book have tended to be lower than that at SG fleet, particularly amongst larger customers. So we certainly see upside potential there. As we speak, we are actively cross-selling all the products that did not require a system conversion upfront, such as Bookingintelligence, Carly, DingGo and telematics, and the LeasePlan customer response has been very positive indeed. In fact, Bookingintelligence, in particular, has seen strong interest, with a number of LeasePlan customers already trialing the product. As you'll understand, we're excited to be able to tap into all this potential as the integration continues. We've demonstrated our progress in these areas for some time now, albeit that the supply issues have stopped us from reaping all the benefits yet. And now we've been able to add another layer of growth potential to this opportunity. Turning now to Slide #31 for a quick revisit of a few innovation topics. I've touched on these in previous briefings, basically talking about electric vehicles and our evolution towards the provision of full Mobility-as-a-Service. As I mentioned, innovation and the broadening of our product and service offering towards higher value add is one of the key drivers of revenue growth, and its importance will only grow in the future. We've established a leadership position in the EV space quite some time ago with the launch of eStart. And as you'll know, there's been a massive acceleration on this front in the past year or so. Our offering has now evolved, and we provide an integrated full life cycle solution for EVs just as we do for more traditionally powered vehicles, from sourcing and managing both vehicles and infrastructure solutions to disposal of these assets. We are currently providing these services to a growing number of blue-chip companies in various industries as well as starting to provide to governments, as I alluded to earlier, further cementing these very strong existing relationships and in some cases opening entirely new doors with this product range. At the same time, it's become the starting point for a number of other innovations and applications that will be a part of a long-term fundamental change in mobility. This is not only in the fleet context but also for individual drivers, and we're currently also developing and offering targets at our novated and benefits market. Our expertise in this area has been boosted significantly by our learnings from our U.K. business, where EVs appeared in a more -- much more meaningful numbers much earlier on. At the end of the 2021 financial year, 10% of our U.K. fleet was hybrid and 10% was pure EV. Only 6 months later, these percentages have increased to 13% and 18%, respectively. That's a massive movement. That means we now have hands on whole-of-life experience with EVs, including in terms of maintenance management and residual value setting. This will be a unique asset for us in the Australian and New Zealand markets where EV penetration is starting to grow more rapidly off what is a low base, helped by government incentives over the past 6 to 9 months. Not surprisingly, given our market position in this space, this has also led to cooperation requests from the major EV infrastructure players and manufacturers. As I explained 6 months ago, our current products and services offering is rapidly evolving into a Mobility-as-a-Service, or MaaS, capability. I spoke about the increased use of Bookingintelligence in that context. We're also scaling up the Carly service as subscription is playing an increasingly important role in the MaaS environment. An area that has seen increased interest in recent time is also that of micro mobility. We view this space as a core feature of our MaaS road map and accordingly, have made a small investment in the Australian born but now multinational start-up, Zoomo, which provides a fully integrated -- a fully vertically integrated, should I say, e-bike and cargo solution. Zoomo's e-bikes are a suitable transport option for a number of our customers in various industries and not just in courier and delivery. There's also a significant retail market for Zoomo's bikes, and we will certainly explore this potential via our novated and benefit channels, both here and in the U.K. market. This investment is in line with our strategy to invest in know-how and expertise in areas that help us build a comprehensive and multimodal MaaS solution. It's an exciting space, both in terms of transport efficiency and sustainability, and I look forward to the learnings that will come from this cooperation. I'd like to conclude with a few brief customer case studies on Slide #32 to demonstrate how the various drivers I talked about earlier, outsourcing market share gains and increased penetration, create growth for us. They'll also demonstrate that growth is not necessarily dependent on increases in fleet numbers. These examples show the typical progression after signing a new customer, with the demonstration of our capabilities in the initial offering gradually resulting in a much greater take-up of additional products and services over time. This progression is also made possible by continuous innovation and the development of our own offering. In the first example, in Australia, following the initial fleet management and leasing agreements, we see the addition of telematics, often the first additional product chosen as it helps achieve greater fleet efficiencies. In 2020, we then see the addition of our minilease product, which we developed to address COVID-related demand preferences and shortages. Last year, we then introduced novated leasing to this customer, followed by the DingGo repair reporter solution. And since the LeasePlan acquisition, we've been working on bringing the customers' Australian accounts together with the New Zealand one, which was previously owned by the LeasePlan business. In line with what I just mentioned, we also then saw a greater focus on sustainability, leading to ongoing discussions regarding improved vehicle selection, including EVs, and the use of telematics to further improve emission levels. The New Zealand case study is an example of how a customer, after being managed-only for a couple of years, follows our advice to access efficiency improvements by also introducing leasing. Both Kevin and I have talked about this topic in this presentation and in many presentations before, and here are 2 very live examples of success in this area. You would have heard me mention conversions from managed-only to funding, as I said, on a regular basis. And in this case, the results in first funded vehicles we actually delivered during the period under report. Currently, that customer is also looking at one of our fuel management solutions. Again, a great example of the appeal of managed-only accounts as a stepping stone for greater penetration. The U.K. case study is another interesting example of this. In fact, the customer previously had a managed-only agreement with a large competitor of ours, and this competitor decided they didn't want to be in the managed-only space. So as they moved away from unfunded fleet management, we took over the fleet management of this fleet, which we briefly shared with another provider after a change in ownership of the target. Due to our very strong performance, we we're then handle the sole supply of the unfunded fleet and then a sole supply funding role over the next 3 years for a 3,300-unit fleet. That's a big fleet in the context of our U.K. business. And I'm pleased to say that orders for close to 1,000 of those units have already been received. We're also looking to offer our Novalease product to their customers' employees. So again, you can see how the cross-sell sort of develops as we embed the relationship. And these are just some brief examples how increased penetration manifests itself with customers, and how that increase to a great extent driven by our ability to innovate and bring new solutions to our market. Clearly, with our long-standing customers, this process has been running for more than a decade, and this explains why all of our top customers now take multiple products from us, as I've pointed out earlier. Moving now to Slide #33. In summary, despite the supply environment impeding our ability to translate continued strong order growth into revenue, the first half of the '22 financial year has been a very strong period for us. The corporate business has continued their performance, and demand in novated is growing strongly as well. The integration of LeasePlan, which, as I said, performed better than anticipated, is progressing very well. Both channels will benefit from a stronger competitive position as a result. Over the past 5 months, we've made very good progress with combining the best of SG Fleet and LeasePlan for our customers but also in terms of our internal processes. We continue to innovate and digitize in order to play a leading role in the new mobility environment, and extract the benefits from a cost perspective as time progresses. Our company is definitely emerging stronger from a challenging macro environment, and we've set a clear strategy to create growth from multiple streams as well as enhance efficiency. Thank you all for your time today. We will now take your questions.

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

The new disclosure is great, so well done with that. You talked -- you gave us a couple of examples of where sort of LeasePlan is sort of benefiting, like scale efficiencies and you talked through the sort of office combinations, et cetera. But you've noted that it's exceeding expectations. Would you call out something in particular where it's ahead of what you'd expected?

Yes. Look, as you'd expect, Tim, it's in exactly the same pace as we're in ahead. It performed well in end of lease income. But on a general basis, we found the customers more receptive to the acquisition than we expected. There were 1 or 2 customers that we had some nerves about, as we talked about, when we announced the acquisition. Those are bedded down well. The team has bedded down exceptionally well. So a lot of the soft things that will make the integration successful ultimately are going really well. The teams are working together. There's a lot of cooperation. And that's been in a difficult time where lots of people are not even in the office. And so through what has been a challenging macro time, we've really been able to accelerate those softer issues. But as well, there are a lot of things in their back end and internal process that we think are fantastic. There are a lot of things in their HR regime that we think are fantastic, things that we'll adopt across the group. So all in all, we've seen progress in both the soft and hard things. So both financially and, of course, the very important people and culture and process pieces.

Okay. Just on your production, your global auto production chart, look, just eyeballing that, it looks like you're sort of saying that volumes may be back until -- to 2019 levels until 2024. What's the sort of source of that? Is that you? Or is that coming from a consultant? How are you getting that data together?

Tim, look, we're consistently talking to all the manufacturers. We're looking at formal research that's coming out of consultancies. We're looking at the formal information coming out of manufacturers. And I can tell you firsthand without -- not anecdotally, January was worse than end of last year from a delivery perspective. It's not getting better quickly. Supply chains are clogged up, and it's not only semiconductors. It's factories. It's getting assets into the country. It's -- the backlog is getting bigger. You heard the example I gave with Volkswagen in the U.K. Now that's not a big issue for us in our big business here in Australia and New Zealand because Volkswagen is not a massive fleet sort of asset here. But the constraints are very real and are going to take time to wind back. And the manufacturer themselves are giving, in different time frames, this information. It's not consistent across every manufacturer. And don't get me wrong. We're delivering a good proportion of our vehicles, as you can see, but it's not near what we need to deliver.

Yes. And you made a comment that you thought there might be some moderation in used car pricing sort of fourth quarter this year maybe slipping into sort of first half '23. Is that around expectation of some improvement in the new car market? Or is this some...

I think my general thesis on this is when we see some improvement in the new car market, we're going to see more cars coming back. So we should see some adjustment. But I don't see a massive adjustment anytime soon. And even when production normalizes, I don't see the adjustment going back to pre-COVID levels because there's a shortage of second hand in the world because there hasn't been new fleet delivered for a number of years.

Yes, yes. And you just do your market consolidation comment...

Sorry, sorry. The short answer to your question, yes. It's related to when the supply chain starts to ease up, yes.

Yes. Okay. And just your comment on market consolidation. You said you expect there to be more. Just can you expand on that? Is there areas that you can...

Sure. I think there have been 2 massive global deals in the last -- since we last spoke, the LeasePlan tie-up and then a massive tie-up in the U.S. As Mobility-as-a-Service becomes a bigger feature of our world and providing a subscription-type product and usage-type products becomes a bigger feature of our world, this becomes a big boys' game. And so the investment in technology that needs to be made, the benefit of scale is massive in that kind of environment. And we're starting to see it globally. I mean it's happening in these 2 deals that happened in the last 6 months.

And does that M&A happen domestically while the end of lease remains elevated? Or is that just a difficult thing to get agreement that...

It's interesting. We managed to navigate that matter when we bought the LeasePlan business. LeasePlan managed to navigate that matter when they sold their business to Societe Generale. So -- sorry, that deal is not closed, but there's an announced transaction, as you know. And so yes, I think there's a way to manage all of that if need be to answer to your question.

And we've obviously got the contribution for the period that you've owned LeasePlan. And you break out the abnormal, which is obviously the right thing to do. Is there anything in particular there that seasonality that wouldn't suggest you're just going to sort of pro forma sort of gross up of that number for a second half '22 contribution? Is there something else going on there that we should be aware of?

Tim, the key thing to be aware of is the volume of secondhand disposals in the second half is expected to be lower because of the continued growth in extensions and inertia. So I wouldn't be simply annualizing that number.

The next question is from Richard Amland from CLSA.

A couple of quick questions. Can you provide a little bit of just insight as to what you consider the normal environment, admitting that we're not in one right now. But on a combined basis, what a normal environment for net VRI going forward. You've done $47.6 million in the half. Clearly, that's elevated, but what's a sort of a steady state sort of number?

Look, it's -- the profit per vehicle are elevated by a few thousand dollars. And it's about a per vehicle thing. It's not about a number because it all depends on deliveries and what's coming back in every half. But the question is not just for just the VRI number because remember, when that number comes down, deliveries go up. So we're making all the income we make from delivering. So it's not a one number comes off and nothing else changes. The real question is what is a normal -- is the VRI at the moment a net positive? And we think it is a net positive, but not by a massive number. Probably 6 to 9 months, we would have told you it was by a much more massive number. So it is a net positive but not by a huge, huge number.

So I mean, the implication from that is you're on a run rate of, let's call it, $95 million this year. You'd be -- you're comfortable setting a market expectation that maybe a normal number now is sort of in the 80s rather than 60s or 50s?

We're not giving any market guidance.

Okay. I'll just flag that, that is a big challenge for investors. And is one of the comments that we received back from investors is that the EOL volatility between yourselves and Eclipx is something that gives them concern. Anyway, next question, can you confirm that the interest on the lease book was about $19.2 million for the half, and that's total interest less the corporate borrowings?

Yes. Correct. Those numbers will be split out, yes.

And that implies that the cost of the lease book is roughly 4.5% per annum. Is that about ballpark?

Look, you can do the math, and we're not going to disclose the exact cost of fund.

Okay. And can you remind us of the terms of if we're heading into a rising rate environment, what the broad terms of the lease facilities -- lease finance facilities are?

So it's a 2-year warehouse. And so we'll be looking to refi that before that time. And obviously, the -- we're hedging the book as we transact every month, and we hedge the full book on acquisition.

When the 2-year -- when does that commence, at deal completion? Is it from September?