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

Good day, and welcome to the SG Fleet Group Limited 2023 Half Year Results Conference Call. [Operator Instructions] And finally, I would like to advise all participants, this call is being recorded. Thank you. I'd now like to welcome Mr. Robbie Blau, CEO, to begin the conference. Mr. Blau, over to you.

Thank you. Good morning, everybody, and thank you for joining us in what seems to be a busy reporting day today. My name is Robbie Blau. I'm the CEO of SG Fleet. With me as usual today is Kevin Wundram, our CFO. I'll refer to the slide numbers as I go through the presentation. If you could please turn now to Slide #3 for a quick overview of the period. Our last presented to you in late October at our AGM, and the patterns I reported at that time remain largely in place. In fact, I was thinking about sort of in 1 line to try and describe sort of the environment we find ourselves in. And I think that's really about a strong market. We're operating in a strong market in our business in an economy that's uncertain. And the supply chain environment that remains somewhat uncertain for us. So it's the balance of those elements that I think I'll talk a lot about today. Business opportunities continue to arise at a very steady pace, and we've again been able to translate these into customer wins and orders over the period. Our Novated channel, in particular, has seen a surge in interest for our products during the period, reaching a new high in inquiry levels and in the process. Some of that is driven by the FPT legislation that I'll talk about a little later. But we have been making good progress on the inquiry levels in our Novated business period-on-period for some time now. So we're happy to see that coming to fruition. Unfortunately, though, while supply of some models has improved, and I'll spend a fair bit of time talking about that logistics environment during this presentation. The mainstream verticals that our tool of trade and most of our Novated drivers are looking for do remain in scarce supply. This obviously affects delivery levels. The upside of that, of course, is that used vehicle values have stabilized at levels near the record seen in early 2022. In summary, large order pipeline again mean locked in revenue will be delivered in future periods for us. Our longer-term strategic direction has been validated by the fleet management evolution we are witnessing. And this continues to translate into further innovation activity, not in the least in the EV space, where we have, of course, seen some fundamental changes here in Australia, as I mentioned in a few months ago. The LeasePlan integration continues on its path, and we were again able to extract a number of benefits in terms of scale, product range and penetration and operational processes. While we continue to deal with the challenges of a unique macro environment, tight vehicle supply as well as higher wage costs and staff turnover, the first half has been, again, a good period for us in which we have demonstrated the strength of our competitive position and our ability to translate this into positive business outcomes. Please now turn to Slide #4 for a recap of the period in our Australian corporate [Technical Difficulty]. Little has changed in the corporate channel during the period and progress has continued. Again, there is plenty of business to be won out there, and what has largely remained a very rational market from a competitive perspective, but translating our wins and growing order book into deliveries remains a key challenge. Supply and as a consequence of the power frame to deliver on orders have stabilized for less in demand vehicles, as I said earlier, in the final months of the period. But high-demand vehicle availability remains very, very challenging. I'll come back to what this has meant for our order book and pipeline in a few minutes. As I mentioned in October, sale and leasebacks are a particular focus for us as they allow us to grow our fleet despite the supply issues that I've referred to. During the period, we optimized how we structured these sale and leaseback offerings to our customers, and this has resulted in an increased pipeline of corresponding opportunities to introduce organizations through the concept of fleet card sourcing. Another area we have made good progress within the first half has been the commercial segment, an area that often doesn't get enough of a fair mention. In fact, commercial orders were strong throughout the 2022 calendar year. On the product front, we've seen continued growth for a number of our products such as the Inspect365, safety inspection tool, telematics, the DingGo portal and the upgraded booking intelligence asset management solution. In fact, orders for telematics applications have been very, very strong in this half, particularly from government's accounts. While responding to this demand has been complicated somewhat by a shortage of microchips, it doesn't seem to have [ coding feedback ] in any way. Booking intelligence continues to be a popular add-on for many customers with booking transactions growing about 30% on the prior corresponding period. So again, seeing really good growth coming through in that product. Legacy LeasePlan customers, in particular, are very keen adaptive of this technology platform. I'll speak more about our growing product range and technology initiatives a little later in the presentation. Turning now to Slide #5 for a look at our Novated channel. Largely mirroring the fortunes of the corporate channel, Novated again made good progress, winning new accounts and attracting additional driver interest. Increased prospecting activity also built up the opportunity pipeline, the outcomes of which we will see in the second half. Last year, I mentioned we were optimizing our lead generation approach and integrating that approach across SG Fleet and LeasePlan customers. This has given us more sophisticated and personalized driver targeting improved customer engagements and enhance digital communications. There is no doubt that the strategy was instrumental in the channel recording its best ever customer inquiry rates on record. The recent government announcement of an FBT exemption for Novated leasing of low-emission vehicles also -- has also led to a dramatic increase in demand for EVs, in particular. And aftermath of this announcement, customer requests for quotes on these vehicles has risen sharply. Converting these inquiries into delivered units remains challenging due to continuing supply shortages. As a consequence, the order pipeline grew again in this period. I'll come back to both supply and EVs in a moment. The supply disruption also creates activity tests for our customer service people, which combined with staff shortages that everyone is currently experiencing has inevitably led to some service bottlenecks, which we are managing very actively at the moment. These customers benefited from the rollout of additional products such as the minor damage repair and carbon offset products that we sell in our SGP channel during the period. And as was the case with previously introduced product that was trade advantage, the response has been very strongly deep. If you can now turn to Slide 6 for our comments on the New Zealand market. And I'll start by saying that thankfully none of our people or any of their property was damaged in this morning's Cyclone. So I'm very grateful for that. But aside from the natural issue that New Zealand dealt with over the last few weeks, business there continues to exhibit encouraging signs on its own front, the general economic environment seems to be more encouraging and we certainly are seeing stronger corporate investment in household spending. That certainly all helps our cause over there. In line with that, tender activity in both the private and public sectors has remained very healthy. As in previous periods, interest in electric vehicles forms a significant component of tenders in that market. Similarly, private EV registrations have been boosted by the clean air discount scheme which some of you may know about in the New Zealand market. This essentially consists of rebates and fees based on CO2 emissions for eligible new and used vehicles. I think it's probably important to say that whereas competition was very rational in the previous period in New Zealand and much like we've seen in Australia remains net rational in Australia. We've seen some irrational competitive behavior, a very aggressive competitive pricing in the New Zealand market over the last 6 months. And we don't believe it's sustainable for long. In the context of supply of new vehicles remaining tight and used vehicle values stabilizing at a high level, we just don't see how irrational behavior continues. We're disciplined in the pursuit of new business in that context. And at times, we avoid getting involved in tenders where we know it's all about pricing and the pricing from competitors will be irrational. And our focus has massively been on retention of existing customers, and that has been a very successful strategy for us over the period. As taken previous reports, customers are looking at their fleet management in the context of broader sustainability and corporate responsibility agendas now, and this continues to drive interest in our mobility and EV products in all of our markets, but we're seeing a strong uptick in the products in the New Zealand market, given our bigger size in that market. Now I think importantly, we're not seeing this limited to the private sector, we're seeing RFPs from government departments for our eStart and e-managed solutions. That's a big opportunity for us in the New Zealand market, and they are the biggest buyers of fleet assets in net market for government. And as in the case in Australia, rolling out our additional products to legacy LeasePlan customers continue to [Technical Difficulty] some upside of the continuing period in that area as well. Turning now to Slide #7 and our U.K. business. I think some of the concerns about the state of the economy inflation, including energy costs that we saw in the earlier part of the last period really started to abate towards the end of the period. This was reflected in better-than-expected consumer spending at the year-end. We certainly continuing in this period to see that caution abating, and I think returning to normal. And I think, again, the main feature of that market continues to be the very strong take-up of low- and zero-emission vehicles. And obviously, that's helped by the continuing favorable benefit of a strategy in the U.K. market. Supply has remained catching that market as it has in this in the New Zealand market. Some markets have improved, but generally, it's been patchy and difficult. Overall, used values have held up near record levels in that market as well. We're spending a lot of time with existing and prospective customers talking about consistent long-term mobility efficiencies and that goes beyond the life of a typical lease term there. And this is obviously part of a trend towards meeting environmental and sustainability objectives like I've talked about in Australia and New Zealand, and an organization they will rather than just looking at fleet. And I'll touch upon this later when I talk about our own ESG approach, but that gives us the opportunity to partner with our customers in the pursuit of these objects, and it's something we regularly spend time talking to customers about, providing them with solutions that look beyond just the car and van as activity for transport option. Our investment in Zoomo is a good example in that regard, and I'll talk a little bit about that later. Managing this process in partnership is also encouraging what are normally panel customers to convert us to solve supply customers because they're looking for a more realistic solution from us, and this is obviously a benefit to us and the customer. On the consumer side, interesting in our Novalease product has picked up significantly towards the turn of the year, and that has carried on in this period. And this obviously, as I said, reflects the more positive results we've seen at end of the period. We've had a number of good wins for that product, both for new customers and as add-ons to existing customers. So certain customers taking more than 1 product. It's a very significant strategy of ours in that market, and it's paying off. The scheme is one in previous periods were launched during the first half and a larger number will be put in place during the current half. So some good upside to come in that business. We're confident that a significant number of these new opportunities will translate into wins. And so all in all, we're targeting further gains in the U.K. business in the financial year-end. I'll now spend some time recapping on the various comments I've made about supply, order pipelines and used vehicles and new vehicle. Turn to Slide 8. In a nutshell, a little has changed since I reported on this topic at our AGM in October. By enlarge, suppliers continue to be problematic, particularly for the type of vehicles that are typically in demand for [Technical Difficulty]. Lead times for key fleet models, particularly the in-demand hybrids has actually worsened in the half, now it's not got better. And I'll address in a few minutes in some press -- same opposite if you can give me a moment. It's clear that we are some way away, in my view, from seeing global manufacturers catching up with the 3-year COVID backlog and then meeting the demand that we've seen since then. Drop-off in production at the start of COVID also means that normal supply of relatively young used vehicles is drying up, and that supports our used vehicle model even further. There also continues to be a global shortage of vehicle components and aftermarket equipment with market remaining a major issue. In Australia, that has been compounded further by logistics and transport issues some of those core on weather events we had. And I am aware that you would have seen media reports in recent weeks claiming the end of the higher used car prices. And what I want to say in that regard is, and while we're not seeing the end of the high use price -- used car prices continuing into this period, we're seeing levels near where they were peaking 22%, maybe 10% off, and we're also not seeing supply issues abating. I mean the main models that we try and deliver, I'll use TIs as an example. There are some tone models that are quoting 2 year time frame. Pre-order are stuck into sell new vehicles with 2 electronic keys because it's a way to get microchips into the vehicle to do something else. It's just lot of abating for mainstream. Yes, there's some master models you can go and buy out of the dealer right now. You can check and buy from European markets out of dealer, but not the mainstream sort of vehicle that we talk about. I'm going to talk to you about a pipeline of 15,000 or 17,000 vehicles in a few minutes. That sort of volume that we can't get out of the mainstream manufactured. So I think the press is making mainstream statements about what is the French sort of relieve, and I just want to make that point. But I think from our side, what are we actively doing to address the issues, that's the important question. So we're actually selectively preordering now on EVs and certain high-demand vehicles that we absolutely know we've got more demand for in supply. While deliveries are up on the previous corresponding period, and Ken will talk about that in his financial presentation, order backlog has increased further, meaning that again, the positive financial impact of this growth will be pushed into further periods. It's interesting for some corporate accounts that we've won in the first half, we may be sitting down now with customers planning a delivery schedule, but the treaties we may not deliver a vehicle to a newly one corporate customer for 12 or 18 months, that's a scenario we've never seen before in our industry. So both tool-of-trade and order pipelines are now lengthening at a constant pace since late 2020, I probably sound like a broken record about this. Our tool-of-trade pipeline stands close to 11,000 assets now. That's 15% up on December 2021, almost 4x what it was pre-COVID. Novated segment stands at about 6,000 assets. That's about 35% on December '21 and about 5.5x what it was pre-COVID. So about a 17,000 vehicle delivery pipeline to be delivered over the coming periods. I think it's probably important for me to say that the growth in pipeline materially exceeds the decline in total fleet, demonstrating that we would be achieving strong fleet growth in a normalized environment. Again, while it's frustrating that we need a longer time to deliver these vehicles, the pipeline light is the outcome of positive new order flow we booked in past periods, and that comes back to my comment that we're operating in a strong market in an uncertain environment. At the back end of the vehicle life cycle, the delivery delays are obviously keeping extensions at elevated levels, remarketing volumes lower than -- are lower than usual because we're not getting the vehicles back and used vehicle prices are at near record levels. Used value saw some improvements early in the first half, but have since stabilized, as I said, at about 90% of previously reached peaked at an average for us and there's obviously on the vehicle types. So very strong values were also seen in the truck segment in Australia. As I mentioned, we had a strong [Technical Difficulty]. We continue to take advantage of our unique remarketing model and our strong dealer relationships to achieve these great results from the limited use stock, and that is returning for sale. The big question on everyone's lips is, of course, when will things return to normal. Part of the first question is what is normal. As we've said before, we don't believe that pre-COVID used values on the norm anymore. We think for a number of structure and long-term reasons, which I won't bore you with, again, they won't return to those levels. But that certainly will come down from where they are on now. And we think that adjustment period is prolonged again. So again, the same very, very unreliable crystal ball that I had 6 months ago and 12 months ago, I certainly can't see them stabilizing in [Technical Difficulty]. And so -- or sorry, getting worse, that certainly will stay stable. I apologize, they won't decline. So we've seen stabilization in some makes and marks on the fleet, but supply issues continue to be difficult. And as I said, we think values will hold up some time yet. I'll now hand over to Kevin to talk about the numbers, and I'll come back to talk about the strategic initiatives later. Thanks.

Thanks, Robbie. If you could please turn to Slide 10. In this period, notwithstanding the new vehicle supply challenges, we've seen growth in new vehicle delivery. This has been driven by our practice of encouraging customers to take orders for replacement vehicles far in advance of a LeasePlan there. The growth in new vehicle deliveries has driven a material increase in the volume of returning end of lease vehicles, which in turn has resulted in strong growth in vehicle risk income. The used vehicle market remains exceptionally strong, albeit office recently. Our operating expenses continue to be impacted by the current labor market conditions and ongoing technology investments. The net result of the above is underlying NPAT, grew by 8.7% versus H'22. You should note that the results presented today includes a full 6 months of lease span whereas the PCP results is 4 months. If you can turn to Slide 11 for a look at the corporate fleet movement. New deliveries grew by 22.9% versus [Technical Difficulty] and we saw proportionately few extensions than in previous periods. The business continues to take more orders that can be delivered, and the result is that our pipeline in the corporate channel grew to an all-time high of 10,700 vehicles. The corporate fleet size has reduced versus PCP as is a Novated fleet, which I'll talk on the next slide. The fleet size reduction is due to the buildup of orders in the pipeline, together with the fact that the LeasePlan business had several customers that run off that were lost prior to the acquisition. That will take a few more years to wash through. Turning to Slide 12 for the Novated fleet movement. Novated deliveries grew by 3.1% and Novated orders grew by 7%. At the end of the year, we have some 5,900 Novated orders in the pipeline, 35% higher than [Audio Gap]. Touching briefly on the Lite Fleet on Slide 13. The Lite Fleet ended the year on close to 128 vehicles, which is 1.7% up line. Turning to Slide 14 for a look at the individual net revenue streams. Net rental and finance income grew by 34.6% as a result of growth in the on-balance sheet fleet following the LeasePlan acquisition. Our on-balance sheet book is now close to $1.5 billion, covering almost 52,000 vehicles. 39% of our total funded fleet is now funded on the balance sheet. Over to Slide 15 and touching on net Mobility Services revenue. We were able to grow net mobility services revenue by 3% during the period, notwithstanding a small reduction in our overall fleet size. Please turn to Slide 16. Net additional products and services income grew by 7.6%, driven by the growth in new funded deliveries. The certain accessory sales continued to be impacted by supply shortages. Over to Slide 17 to look at Finance Commission. New funded deliveries increased by [ 12.1% ] in total. However, the majority of this origination was directed to on-balance sheet funding and off-balance sheet funding actually fell by 8%, which contributed to a falling finance commission. Our margins were largely stable in ANZ, but in the U.K., the margins were impacted by the sudden spike in spot price beginning of the second quarter. Please turn to Slide 18. End-of-lease vehicle risk income grew by 24.5% as a result of the growth in operating lease disposal volumes. The used vehicle market remains exceptionally strong, albeit off the peak that we saw in the middle of last year. Please turn to Slide 19 for a brief look at the fleet and credit provisions. There has not been any material movement in the residual value or inventory impairment provisions during the period. We did, however, top up the expected credit loss provision primarily due to an increase in overdrawn driver fund balances due to increased vehicle utilization as well as the increase in fuel prices. Over to Slide 20 for a look at OpEx. Employment costs increased by 15.7% versus PCP driven by the increased headcount from the LeasePlan acquisition, coupled with the impact of current labor market conditions and record levels of staff turnover, both of which are causing material wage cost pressure. Technology costs have also increased materially due to our continued investment in our infrastructure and platform. Turning to Slide 21. Based on a 65% payout ratio, the board has declared an interim dividend of $0.0891 per share fully franked, which is an increase of 7.1% versus the prior period. On Slide 22, we presented the detailed P&L, but because I've spoken to the key line items I'd like to spend more time on this. Touching on the balance sheet on Slide 23. Balance sheet remains in a strong position with corporate leverage of 1.5x, a slight decrease in the position we reported at the end of the financial year. Please turn to Slide 24. Looking at our funding arrangements, we now have 39% of the lease portfolio funded on the balance sheet versus 35% at the time of the LeasePlan acquisition. As previously stated, our target funding is 50% on-balance sheet, 50% off-balance sheet, and we're making good progress towards that. We turn our attention to the key funding events of the foreseeable future, the Autonomy 2021 Warehouses for both Australia and New Zealand mature in September this year. During the coming months we'll commence the process of extending those facilities. At the same time, we'll also be looking to extend our corporate debt facilities for a further period. Turning to Slide 25. We've received a number of questions about the group's exposure to interest rate risk. On this slide, we've presented a heat map in this regard. I won't take the details now. You can read that in your own time, and we're happy to take any follow-on question. Finally, please turn to Slide 26. Cash generation came in at 102%, which is in line with [Technical Difficulty]. I'll now hand back to Robbie for an operational update.

Thanks, Kevin. I'll start with a quick recap of the 5-year horizon diagram we introduced a year ago, please turn to Slide 28. The filing of this component remains unchanged with 1 or 2 exceptions. Firstly, following the announcement late last year, EV take-up and demand for related services have significantly accelerated. And that's particularly in our Novated channel, and I'll talk a little bit more about that a couple of slides. The second is the time that it will take for vehicle supply to normalize, as I say, I have a very, very unreliable crystal board in that regard. And I think that certainly is pushing up again. And so the upside of that is that new vehicles continue to hold up strongly. Unfortunately, the downside is we can't deliver on that [Technical Difficulty] pipeline. We think that's going to extend out, as I said at least another year. All other components are on schedule. We firmly remain on strategy to grow the business continuously. I'll turn now to Slide 29 for an update on the lease plan integration. The various project streams within our integration of LeasePlan are progressing very well. The current focus remains on extracting the benefits we get as we continue to bring 2 great businesses together. These benefits are being realized predominantly at this stage in the areas of product, process and supply arrangements. This is where the scale and the adoption of the best of both worlds approach by having the biggest impact in our business. The product value proposition analysis is nearing completion and where findings have been confirmed, we've already rolled out the changes that will fundamentally strengthen our offering to both legacy LeasePlan and SG Fleet customers, obviously, any newly on business. For example, we've taken the best from LeasePlan start electric EV product and using that to further develop our own estate and e-managed solutions, which are being rolled out to these plant and SG Fleet customers. Booking Intelligence has already seen a strong take-up from legacy LeasePlan customers, and we're now adding the SG Fleet telematics and Inspect365 products to that opportunity. In the Novated channel, the addition -- in addition to the trade advantage remarketing service, which we launched some time ago into the legacy LeasePlan customer base, we will now also offer minor damage repair and carbon offset as optional add-ons to LeasePlan customers. As we continue to build our offering, we are seeing an immediate impact in terms of penetration amongst LeasePlan customers. During the first half period alone, helped by the introduction of our expanded offering, the percentage of LeasePlan top accounts that take up multiple products has risen from [ 56% to 68% ]. Obviously, our aim is to increase that percentage to the levels achieved amongst SG Fleet customers, where about 96% of top accounts take up multiple products. So there's certainly room for some upside there over the coming years. We currently also -- we're currently also optimizing our remarketing models and extracting the pricing benefits of SG Fleet's unique disposal approach across all of our disposals. Importantly, in terms of our business development impact, we continue to align the best expertise and processes across the combined sales and customer relations teams to generate further improvements in our business development. This will further improve our tender success rates as well as our ability to upsell products to existing customers and boosting penetration. It will also enhance, of course, our customer experience, which is the overall objective. At the same time, we're utilizing our enhanced scale to align preferred supply networks across the board to target improved terms. All of these initiatives run in tandem with the technology and systems integration work, which is currently underway, and as I said before, that is where the ramp-up on this [Technical Difficulty]. Turning now to Slide 30 for a look at our innovation activity, which is, of course, driving the expansion of our offering across both brands. Our ultimate objective with our innovation strategy is to pull fleet management into the future across every solution and service we provide and build our products and services range to provide a truly integrated mobility solution for our customers. Of course, digitization is a core enabler of that strategy. Thanks to the LeasePlan acquisition. We now have the largest fleet management data sets across Australia and New Zealand at our disposal, that's obviously a very, very useful tool for us when we're thinking about product development. We use this advantage to develop better, more efficient, higher value-add products and services. These will fundamentally ultimately change the way organizations and individuals manage them as it needs over the coming years. During the reported period, we transitioned our traditional accident management services to a digitized approach under the DingGo banner at first in the industry. This service integrates claims, replacement vehicles and other accident-related needs into a customizable digitized process management and reporting portal. The service has now been rolled out to SG Fleet and LeasePlan, tool-of-trade customers and is truly transforming their experience. Due course, it will also be offered to Novated customers. Another mobility solution we invested in car lease going from strength to strength, turning in its best quarterly results ever last month with a year-on-year revenue increase of over 70%. We are now also exploring a similar offering for our New Zealand customer base. Conversations with customers in Australia and the U.K. continue about the introduction of Zoomo e-bikes into their fleet -- I was referring to that earlier when I said to you that U.K. customers are talking to us about solving mobility solutions beyond just cars and vans, a very active conversations going on there. In due course, we will also launch a Zoomo product into the Novated channel. We're seeing more and more of our Novated customers saying to us, provide other clean solutions for our staff members as a tool for attention and acquisition. And so we're looking at some interesting opportunities in that space. DingGo, Carly, and Zoomo, I think, are great examples of our strategy to make selective and targeted investments and then leverage these new product sets to our customer base, growing both our opportunity and opportunity of those investments. Moving now to our homegrown innovation. eStart continues to evolve with the addition of lease plans start to electric know-how regarding home charging stations, as I mentioned earlier. We're now adding a capability to manage and process charging activity and charge cords called eManage. EV drivers have multiple options to charge their vehicles, a standardized approach to reporting invoicing is a key requirement for organizations running significantly. We are able to provide a service, thanks to our strong relationships with a multitude of charging providers. Again, it's taken a number of years to build that base, but we're there now. Both eStart and eManage are now also being offered to LeasePlan customers, pleasingly. I mentioned, we already launched booking intelligence upgrade, Inspect365 and telematics earlier in the presentation. But I think it's important to note that upgrade top booking intelligence solution has received a very warm reception from both SG Fleet and LeasePlan customers. And this includes major government accounts and transaction rates again rose, as I said on the previous period by about 35%. Our Inspect365 safety solution is getting a refresh and will also now be offered to the LeasePlan book and to New Zealand customers. Telematics is another opportunity to digitize traditional operational and maintenance processes, and we're investigating a number of AI-driven applications that can help anticipate breakdowns in the places needs. So that sort of will take telematics to the next level. As I mentioned earlier, government in particular, is increasingly a big user of Telematics. We've seen unprecedented flurry of orders to manage units from our big government customers. Again, the greater the data set, the more powerful this tool will become for us over years. We've also continued to set a benchmark in terms of innovating and adding value and building flexible solutions for our customers, and we'll continue to do that in this period. Our ultimate objective is for our customers to see us as an integrated one-stop shop for all things mobility. And with the examples on this slide makes up as we continue to progress strongly towards [ net all ]. I mentioned eStart and eManage and given the developments in the EV space here over the last 6 months or so. I want to spend a little bit of time on that topic on Slide 31, [indiscernible]. The introduction of the federal government legislation providing an SPG attention for Novated zero or light emission vehicles under the -- all fold under the electric contract threshold has led to a dramatic increase in consumer increase in types -- sorry, customer interest you say, in these types of vehicles. That has obviously manifested itself mostly in our Novated channel at this point. Since the launch of the initiative, the percentage of customer inquiries for eligible vehicles has increased about fourfold and net in a few months period. There is no doubt that this burgeoning interest is more than an incentive-driven temporary phenomenon. I think it's driven as much by the incentive as by people wanting to move their mindsets and bind behavior to a keen and cleaner means of transportation. I think it's really to come front of them. We've seen that in the U.K. for a number of years, and we certainly are seeing a share. And given our leadership in that space, we look to capitalize on the demand. And particularly, as I said, the government's incentive is bringing a new set of consumers and customers to the concept of Novated lease. And that's important. It's increasing the pool for us, not just swapping people from [Technical Difficulty]. The real acceleration hasn't even happened yet, the way it's happened in the U.K. And so, again, we'll see much opportunity over the coming years. But I'll note just as an aside that pure EV is now top petrol vehicles in terms of new vehicle registrations in the U.K. That's how far pendulum has actually swung. I know you've all, again, read in the press about massive increases in EV passenger car numbers on our roads. But important to note that 1 of the massive increase -- increased from about just under 2% to just under 3%. It's not real in numbers. A large number of those are actually tested because tests are managed to deliver about 15,000 or 20,000 vehicles in the country over 2022. And it's important to note that most tests that don't fall under the luxury car tests sort of threshold. And so that's not driven by the new legislation. That opportunity is still largely to play out. So once supply of other models is easier, we will see a massive opportunity in that space. And it's probably worth noting that supply in the general EV market is even more difficult [Technical Difficulty]. So we expect to see a strong kick out in the order book yet to come in that space. I think let's turn to the corporate channel for a moment. And while sustainability agendas and environmental agendas are certainly increasing our corporate minds, the tool-of-trade EV picture is somewhat different, at least here and in New Zealand. Because of the requirement for significant numbers of these assets and a fit-for-purpose assets from a cost perspective and also still some resistance around the charging infrastructure, which I must say is absolutely getting better. The work we're currently doing is mostly planning for the corporate fleet. There isn't an opportunity for big corporate fee to actually convert it yet. There's just not the assets in the country bottom line. And so while we are spending a lot of time on planning, the majority of the EVs in our fleet are still Novated leases, and whereas in the U.K., 2/3 of those are tool-of-trade. And actually, the same distinction applies in our light commercial fleet. In the U.K., these account for about 1/3 of EVs in the fleet were in Australia and New Zealand, they account for about 2% to 4% of the EVs in the fleet. So you can see the opportunity that lies before us. Obviously, given the strength in the commercial segment, we will target that gap in coming years, and I know there's been a little bit of pressure in the last few weeks about light commercial EV like commercials. They still have to prove themselves in the market. It's all very well to put a lot of commercial up there that got a range of [indiscernible]. Those ranges are all provided without a payload on the bank and that you put a payload on the bank that have or goes to [indiscernible], so people have to be comfortable that, that actually fit for purpose before the EV that surge most. Many Australian organizations are stick to planning, and so using our eStart and eManage solutions to plan for those customers is proving very successful. Some of you may have read late last year in the media about our DingGo back tall, which is a great example of us using that debt net consultancy to get big customers going the EV strategy. We're also starting to take bulk EV orders, as I said earlier, for some government agencies, both federal and state at both entities, both levels or government or time to lead by top, but again, limited to what they can get supply wise. So lots of interest from the Novated customers, interest from corporates, difficult to deliver on that yet and lots of interest from governments in the EV space. Obviously, our experience and expertise that we've got in from the U.K. market will help us lead in that space here in Australia and in New Zealand. Again, as I mentioned earlier, we've got a preordering strategy to deal with supply challenges, including in this segment. Let's see what materializes. I'll now spend a bit a few moments talking about our ESG strategy on Slide 32, if you'll indulge me just for a few moment. We way adopted an approach at SG Fleet to helping our customers achieve their sustainability objectives given the importance of our key business, transport in that regard. And we are obviously best placed to deploy our fleet management expertise in support of that effort. An example of that was the best business car Eco initiative award that we recently won in the U.K. for our eStart solution as well as our continued involvement in the REV program here in Australia. This goes beyond the rollout of EVs, and it's also an integral part of our efforts to maximize the efficiencies of our customers conventionally powered fleet. In terms of usage, consumption of fuel, tires and other elements that can have an impact on the environment. That partnership approach also relies on us doing the right thing within our own organization and in recent years, we've stepped up our efforts to improve our own ESG performance. The first half of the 2023 financial year, we launched the CSC strategy with a corresponding action plan, which is essentially the execution of that strategy. So we actually are putting our money where our worth is. While various ESG initiatives and practices have always been part of our approach to corporate social responsibility, the former line and board approved group strategy actually enhances our performance as well as our contribution to all of our stakeholders, our investors, our staff, our customers, business partners and the communities in which we operate importantly. On the slide, you'll see some examples of the initiatives and achievements during the period, including our continued participation in the tire products ship scheme which aims to drive sustainable outcomes for end-of-life tires, which pointed out earlier, a significant consumable in the vehicle life cycle. We have planned carbon neutrality in Australia and the U.K. and are close to doing so in New Zealand, and we continue to support our environmental initiatives in the country in which we operate. We've also taken active on in various community initiatives supporting [Technical Difficulty] owned businesses. And wherever possible, we take the best care of our own people that goes without sale. If you could turn to Slide 33 now for a summary of today's presentation. In summary, we continue to see and successfully pursue a strong flow of new business opportunities in our tool of trade business. Novated channel is seeing more interest than ever before, helped us small measure by our revamped lead generation approach and by the legislation that I talked about earlier. New Zealand continues positively and tender activities remains very healthy. The U.K., some of the concerns about the state of economy that we saw early in the last half had abated, and we're seeing a significant number of new opportunities, which we think will produce a positive outcome in the second half. We're also targeting further improvements in the year-end. The strong order growth has meant our order pipeline has lengthened significantly further, meaning that the success of our business is not fully reflected in the first half delivery and revenue. Activity seems to be stabilizing somewhat in terms of used vehicle values, the continued supply issues need us to believe that the adjustment period will lengthen further, as I said, the various projects stream within the LeasePlan integration are progressing very well, and we continue to be really, really happy with both the acquisition and the products we're making with the acquisition. We've continued to focus on extracting the benefits we get from bringing these businesses together, as I've said, and that will continue. Our strategy remains to build our products and services range to provide a truly integrated mobility solution for our customers with digitization, a core enabler in that strategy. Part of this will, of course, increasingly be the deployment of our expertise. In the EV space, as I've said, we've continued to face the challenges of tight vehicle supply and higher wage costs, staff turnover. I think you're probably hearing the second 2 from every presentation you go into, but we are actively addressing those issues and managing the service bottlenecks that resulted from orders that as I said earlier in the presentation. We've been able to never got a challenging and ever-changing macro environment as well as successfully progressive transformational integration during this period and at the same time, delivered a good order growth for successive period. These secured orders will result in deliveries in future periods, and we'll continue to target further progress both in terms of customer wins and product penetration. That's all from me in the formal part of the presentation. Thank you all for your time, and happy to take all questions now.

[Operator Instructions] And your first question comes from the line of Tim Lawson of Macquarie.

Just 2 for me. Just on the inventory balance down versus June number, is that just with the number of units you are holding at June and just we're going to clear through. Just wondering whether that's cleared and whether we're sort of back to a normal level on that, please?

Yes, it has washed through now and the inventory is at a pretty normal level.

Okay. That's great. And then just in terms of used car pricing, I appreciate, Rob, you're talking about maybe staying stronger for longer. Can you just talk about any sort of data points or historical sort of benchmarks you've got the used car prices in sort of economic periods of economic weakness?

Look, it's very hard to point to historical data, Tim, because this environment -- this COVID and post-COVID environment is an entirely new one. We've never seen a supply chain disruption like this ever in the history of our industry. So it's simply related to -- sorry, and there are a couple of new sort of phenomenon -- well, I suppose you -- they're not new phenomenon. They are new indications of oil phenomenon, I suppose, by the change in vehicles to EV. So I've talked about this before, but I'll repeat the reasons why we don't think it's going back to old levels. The first is simple supply and demand. And it's going to take a very long time to catch up with the backlog of demand. As I said, there have been very few vehicles built over 4 years now. So not only are you delivering current demand when supply gets back to normal, but you've got to catch up old demand. That means there'll be less vehicles coming to the market because over the 3 or 4 years because people can't get the news. So that holds our prices there. The second phenomenon is new car price inflation. So we've never seen a period of demand of supply constraint and new car price inflation converging like this. So every new car price inflation in Australia is running between 10% and 15% depending on the mark. That's -- it's acceptable in our industry. We don't see elasticity in our industry, people buy cards, all the manufacturers put up the prices at the same time. So we don't see a shift out of our product. That's a benefit to us in 2 -- for 2 reasons. One, we see upside in the use continuing because of the relativity of the pricing. But two, we actually fund a higher value capital assets. And third is the move to ICE. So what happens historically, and this I can point to data in our own business over 20 years that we've been in the business and the data probably goes back 40 years, whenever there is a change in technology or manufacture pulls out of the market or there's a massive supply change outside of just supply/demand. What you see is the scarcity of those assets becoming very valuable to a different buyer -- used buy and then a third tier use buyer. So we saw that when Mitsubishi left this market. We saw that when Holden left this market. We're seeing that now with the changeover from ICE to petrol. We saw it with diesel leaving the U.K. market. It just becomes a different buyer that could never afford that asset when it was brand new in its first life cycle of use that now wants to drive it at vehicle end. And so asset prices hold up for longer for those gas assets, so to speak.

Your next question comes from the line of Allan Franklin of Canaccord Genuity.

Just a question in and around the EVs. And just to understand, Robbie, how you're thinking about pricing that through? And I guess, follow on to the commentary that you've just given. When it comes to EVs, pricing them over that 3- to 4-year period getting comfort that there will be a market on the other side of it. And to what extent do you need to refurb or do anything additional to the EVs when they're coming out the other side into secondary markets?

So look, we are very comfortable that certainly the first round of secondary markets is very well covered. Warranties extend those periods. These vehicles have less movable parts. So we're very comfortable around secondary market, and that's actually the only way that there will be massive proliferation of EVs into the market. And actually, government is very actively sponsoring a secondary market in that space. One of the reasons why government want to get ahead of order EVs into their own boxes so that they can get them back into the secondary market to increase EV penetration over time. So very comfortable with the secondary market. I will comment, though, that in the case of Tesla, we are very, very cautious about how we set all these, and is an irrational -- sorry, irrational probably a wrong word, but there's a pricing methodology there that changes at -- you've seen a reduction in prices a few weeks ago. And we certainly don't want to be caught up by that. So in pricing Tesla, we will always be conservative. But that's not a comment about electric vehicles. That's a comment about Tesla's ability to move its pricing around at its will.

Okay, helpful. And just on the extensions and I guess just the seasoning of customer orders as they're coming through. Is there any risk that the extensions are sort of pushing into around now where some of those books are getting old and/or the maintenance costs that you had to take on are getting heightened.

Those issues are taken into account when we're extending in the pricing around the extension. So absolutely, as vehicles get older, they need more maintenance, but you can assume we're pricing for that and making margin on that, a healthy business for us. But yes, it's a very good question, Allan.

And then just on the sale and leaseback side, you're obviously alluding to sort of some positive momentum there. Any sort of additional color or examples you might be able to sort of provide? Are we talking to small fleets, midsized fleets and sort of how long does it take you for mixes flow through?