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

Thank you for standing by, and welcome to the SG Fleet Group Limited Annual General Meeting. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Reitzer, Chairman. Please go ahead.

Thank you. Good afternoon, ladies and gentlemen. My name is Andrew Reitzer, and I am the Chairman of SG Fleet Group Limited. On behalf of the Board and management, I would like to welcome you to the 2023 Annual General Meeting of the company. This AGM is being held virtually via the Lumi platform. All attendees can watch a webcast of the meeting online. In addition, shareholders and proxies have the ability to ask questions and submit votes. It's now 3 p.m. and I'm advised by the company secretary that there is a quorum present, and I now declare the meeting open. Before we commence the formal business of today's meeting, I would like to introduce the directors and management who are participating in the meeting today. We have Robbie Blau, our CEO and Executive Director; Kevin Wundram, our CFO and Executive Director; Cheryl Bart AO, our nonexecutive director; Edwin Jankelowitz, nonexecutive director; Peter Mountford, nonexecutive director; Tex Gunning, nonexecutive director; and Tawanda Mutengwa, our company secretary. You can read the full details of the directors' backgrounds in our 2023 annual report. Also in attendance is Glenn Maris, representing the company's auditors, Ernst & Young. Now I'd like to turn to the formal items of the business. The minutes of the Annual General Meeting held on 25 October 2022 were signed and are tabled for the information of shareholders. The purpose of this meeting is to consider and vote on the resolutions set out in the notice of meeting dated 22 August 2023. The notice of meeting has been sent out to all shareholders in accordance with the Corporations Act. I'll take the notice of meeting as read. Online attendees can submit questions at any time. [Operator Instructions] Please note that, while you can submit questions from now on, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated or if we receive multiple questions on one topic, amalgamated together. Voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. At that time, if you are eligible to vote at this meeting, a new voting tab will appear. Selecting this tab will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There's no need to hit submit or enter a button, as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting closed. I'd now like to ask our CEO, Robbie Blau, to present to shareholders.

Thank you, Mr. Chairman. Good afternoon, everybody. My name is Robbie Blau. I'm the CEO of SG Fleet. Thank you for taking the time to participate in our 2023 Annual General Meeting. I'll start with an overview of our performance during the 2023 financial year, and I'll then go into more detail on our various businesses. I'll also briefly talk to you about our performance since the end of the reported period and how the operating environment has evolved since I last presented to investors just over 7 weeks ago. Our performance in the 2023 financial year benefited from continued strong order growth, as well as an improvement in several areas, including better supply levels, particularly later in the period, and a stabilization in the labor environment. Novated saw the positive impact from the EV government initiatives announced in the first half, but tellingly, ICE vehicle interest grew as well, leading to unprecedented activity levels in that channel. We started to see some improvements in supply towards the end of the period, but mainstream vehicles remain scarce. In line with that, used vehicles in the vehicle types that make up our operating lease fleet stayed strong. The delivery environment improved somewhat, yet our order pipeline again grew further as strong new business growth outpaced the delivery environment. To optimize the benefits we are getting from the LeasePlan acquisition, we decided after the end of the reported period to reprioritize the Australian system migration steps of the integration process. This will ensure we continue to give our customers the best possible service experience. In summary, positive momentum was maintained across all businesses, and in some markets and channels we saw an acceleration towards period end. Now to an operational review in our Australian corporate business. Generally, the business environment of our corporate channel remained stable. Tenders continue to come to market on a regular basis and completion -- sorry, I apologize, and competition was largely rational. As in previous years, many of our existing customers simply renewed or extended existing contracts. Our win rates remained very healthy, both with existing full-service accounts and with organizations that moved from managed-only to financed or were new to outsourcing. Whereas in previous periods this meant we were simply adding volume to the pipeline, in the second half the supply improvements in some areas meant that we were also able to increase deliveries noticeably. This trend improved throughout the period, with the corporate business achieving its best delivery numbers in the fourth quarter since about 2 years ago. While this is, of course, great news, business growth has been strong so deliveries again couldn't keep up with orders, and the pipeline grew further. This highlights the future positive impact of a continued improvement in deliveries. Once again, we saw increased interest in the value-add services we offer to our customers, in particular, telematics and the DingGo accident and repair management platform. Not surprisingly, demand for our eStart transition solution grew further, as EV interest surged on the back of a number of government initiatives. Moving now to an operational review of our Australia novated business. In the novated business, we reached new highs in terms of leads in the first half, and this trend just accelerated in the second half, helped by strong EV interest. EV quoting increased fivefold on the first half, but more pointedly went up by 14x between the first and the third quarter of the financial year. In the quarter about 40% of all novated quotes were for EVs. At the end of the period, we had 9x more EVs in the novated fleet than in the 2022 financial year, actually outscoring hybrid totals for the first time. EV quite only partially replaced ICE quotes, which showed strong growth as well. This confirmed that we have -- what we have flagged previously, namely that the boom in EV interest is not a simple substitution for ICE interest but a genuine addition to our potential customer pool. As was the case in the tool-of-trade business, thankfully, we were able to deliver on this demand a bit more easily as the period progressed, with fourth quarter delivery numbers exceeding the previous high set in the first quarter of the 2022 financial year. To an operational review of our New Zealand business. The impacts of the natural disasters created a fairly muted economic environment in New Zealand during the period, yet tendering activity largely continued at the same pace across corporate and government business. Throughout the year, we remain focused on expanding the services we provide to existing customers in this market. This did not stop us from adding some new accounts across a range of sectors. The strong sustainability focus in New Zealand and our recognized EV expertise also helped us to some good wins for our eStart solution, as well as a number of further opportunities in this space. Turning now to our United Kingdom business. In the U.K., some of the 2022 concerns about interest rates continued to abate during the year. This led to a steady improvement in corporate sentiment as more opportunities emerged, our business was able to step up its own win activity. This came in the shape of continued conversion of panel arrangements to sole supply, the addition of vehicle units to additional -- to existing customer fleets, and noticeably, another period of significant success for our Novalease consumer product. Following the Business Car Best Eco Initiative award we received for the eStart solution in the first half, we won the FleetNews Leasing Company of the Year award in the sub-20,000 vehicle category, a great result for our business and very appropriate recognition for our team in the U.K. I'll now give you an update on how we've traveled through the first quarter of 2024. Business activity during the current financial year has continued where it left off. The trends we were seeing in the financial -- in the final quarter of 2023 have continued into this period. In Australia, both the corporate and novated segments have continued their strong performance. We again had a number of large tool-of-trade contracts renewing or extending, and in novated, lead generation and orders remained very healthy indeed. Helped by some improvement in supply, we've been able to deliver on the growing order bank a bit more easily during the quarter. In New Zealand, we're seeing an uptick in tender and new business activity, and we've taken advantage of that with some good wins across a number of industries. The government's interest in eStart, which I mentioned earlier in my review of the 2023 financial year, resulting in us signing off on a major new EV transition project in that sector. The SME segment in this market is also showing some good growth, and interest in EVs has been boosted in anticipation of possible further changes to the Clean Car Discount scheme. The business mood in the U.K. has continued to improve and our business there is making further progress in line with that. We have kicked off the introduction of another large van fleet for one of our customers on the back of our recognized expertise in light commercial in that market. Recognition was also received for our Novalease salary sacrifice product, with yet another award, this time for Car Scheme Provider of the Year. As I mentioned, there's been some improvement in supply, although it is still limited to some manufacturers and vehicle types, and the wait times for in-demand vehicles such as hybrids remain quite long. As orders continue to grow at a healthy rate, this supply improvement is yet to make a meaningful difference to our order pipeline, which is stabilizing at around the 15,000-unit mark. We are seeing used vehicle values holding steady after the typical marginal winter softening. More deliveries, obviously also equates to an uptick in disposal volumes at those relatively stable values. EV demand has shown no signs of slowing during the past quarter, with EVs in the Australian fleet increasing a further 39%. The vast majority of that increase is coming through novated, where we had the strongest quarter yet for EVs, which accounted for 1/3 of orders. We are not expecting a meaningful impact on this from the changes to New South Wales incentives, or on long-term EV trends in the U.K. following the policy changes announced over there. After the LeasePlan warehouse refinancing in the previous financial year, we also successfully extended our syndicated corporate debt facility, again achieving improved terms in doing so. As flagged in August, the reprioritized LeasePlan integration is now proceeding as planned, with the New Zealand system integration progressing well and on track for completion around the middle of next calendar year. All other work streams are also progressing as planned. That concludes my review. Thank you for your attention. I will now hand back to the Chairman.

Thanks, Robbie. We will now move on to the items of business that are set up in the notice of meeting. As this is a shareholders' meeting, only shareholders, their proxies, attorneys and authorized company representatives are entitled to speak or vote at this meeting. Details of valid proxies for each resolution will be displayed on the screen. As set out in the notice of meeting, the Chair intends to vote all available proxies in favor of each item of business. The first item of business is to receive and consider the financial report of the company and the reports of the director and auditor for the financial year ended 30th of June 2023. As there's no resolution required to be put to the meeting in respect to this item, I welcome any questions or comments on this item. No questions? We'll then move on to item #2. This relates to the adoption of the remuneration report for the financial year ended 30th of June 2023. The remuneration report is set out in the 2023 annual report. The Corporation Act requires listed companies to put a nonbinding resolution to shareholders to adopt the company's remuneration report. In addition to my responsibilities as Chairman of the company, I also chair the Nomination and Remuneration Committee. The main role of this committee is to assist the Board in fulfilling its corporate governance responsibilities and to review and make recommendations in relation to the remuneration arrangements for its directors and executives. The matter of remuneration is a very important one, and accordingly, we adhere to strict principles when determining the nature and amount of remuneration. The objective of our reward framework is to ensure reward for performance is competitive and appropriate for the results achieved. The framework aligns executive reward with the achievement of strategic objectives; and the creation of value for you, our shareholders. It also conforms to best market practice for delivery of reward. The performance of the group depends on the quality of its directors and executives. Our remuneration philosophy is to attract, motivate and retain high-performing quality executives. Our remuneration framework has been structured to meet competitive and complementary to the reward strategy of the group. As indicated at our full year results announcement, the company is implementing a number of initiatives to build a stronger business going forward. These initiatives will lead to positive changes in our revenue profile. However, the change in profile will render our current incentive plan structure as ineffective. And accordingly, the Nomination and Remuneration Committee is assessing alternative structures, which will be implemented in due course. Further detail on our remuneration practices is contained in the remuneration report section on Pages 29 to 39 of the 2023 annual report. I move that the remuneration report, which forms part of the directors' report for the financial year ended 30th of June 2023 be adopted. I welcome any questions or comments on this item.

There are no phone questions for this resolution.

No question? Thank you. And the valid proxies are now shown on the screen as follows: 97.47% for, 2.42% against and 0.11% open. Please note that the voting exclusion as described in the notice of meeting applies to this item of business. We'll now move to item #3, which relates to the reelection of Kevin Wundram, as a Director of the company. Mr. Wundram retires by rotation and being eligible, offers himself for reelection as a director. Details of Mr. Wundram's experience is set out in the notice of meeting. The Director Mr. Wundram, abstaining, recommend that shareholders vote in favor of the reelection of Mr. Wundram, as a Director. I now move that Mr. Wundram be reelected as a Director of the company. I would like to open the floor to questions and comments on this resolution.

There are no phone questions for this resolution.

Thank you. The valid proxies are shown on the screen, 93.94% for, 4.68% against and 0.38% open. We'll now move to item #4, which relates to the grant of options and performance rights to the Chief Executive Officer. It is proposed that approval will be given for all purposes, including ASX Listing Rule 10.14 to grant the company's Chief Executive Officer, Robbie Blau, options and performance rights to a maximum value of $739,477 as his long-term incentive award for the financial year ended 30th of June 2024, under the company's equity incentive plan on the terms set out in the explanatory notes in the notice of meeting. Further details relating to this resolution are set out in that notice of meeting. I now move that the grant of the company's -- to the company's Chief Executive, Robbie Blau, options and performance rights to that previous number as his long-term incentive award for the financial year ended 30th of June '24 be approved. I'd like to open the floor to any questions or comments.