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

Good afternoon, ladies and gentlemen. My name is Andrew Reitzer, and I'm the Chairman of SG Fleet Group Limited. On behalf of the Board and management, I would like to welcome you to the 2024 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 just past 3 p.m. 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; Kevin Wundram, our CFO; Cheryl Bart Non-Executive Director; Edwin Jankelowitz, Non-Executive Director; Peter Mountford, Non-Executive Director; Tex Gunning, Non-Executive Director; and our Company Secretary, Tawanda Mutengwa. You can read full details of the Directors' background in the 2024 Annual Report. Also in attendance is Joshua Pearse, representing the Company's Auditors, KPMG. I would now like to turn to the formal items of business of the meeting. The minutes of the Annual General Meeting held on 17 October 2022 were signed and are tabled for the information of shareholders. The purpose of this meeting is to consider and vote on the resolution set out in the Notice of Meeting dated 5 September 2024. The Notice of Meeting has been sent out to all shareholders in accordance with the Corporations Act. I will take the Notice of Meeting as read. Online attendees can submit questions at any time. To ask a question, select the messaging tab at the top of the Lumi platform. [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. Finally, due to time constraints, we may run out of time to answer all your questions. If this happens, we will answer them in due course by e-mail or posting responses on our website. Voting today will be conducted by way of 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 would appear. Selecting this tab will bring up a list of resolutions and present your voting options. To cast your vote simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting close. I will now ask our CEO, Robbie Blau, to present to the shareholders.

Thank you, Mr. Chairman. Good afternoon, everybody. My name is Robbie Blau, CEO of SG Fleet. Thank you for taking the time to participate in our 2024 Annual General Meeting. I'll start with an overview of our performance during the 2024 financial year, and we'll then go into more detail on our various businesses. I will also briefly talk to you about our performance since the end of the reporting period and how the operating environment has evolved since I last presented to investors in August. This has been an exceptional year for us with underlying profit after tax gain close to 20%. Orders and deliveries again achieved new highs in both the Corporate and Novated funded fleet grew materially. During the year, we were anticipating a drop-off in used vehicle values as supply and deliveries improved. But as the months passed, we did not see that occur as early or as materially as expected. The increase in revenue generated by the strong deliveries more than offset the modest adjustments in end-of-lease disposal income. While we are confident earnings will remain strong, lower used vehicle values in combination with a couple of other factors, will see us return to what I call a more normal environment and revenue profile in the current financial year, with the LeasePlan integration on track, this will, of course, be followed by the extraction of the associated synergies. Our confidence in the continued success of this model and our growth potential was evidenced by the decision to declare a special dividend of $0.15 per share, bringing the total dividend for the year to $0.3393 per share more than double that of the 2023 financial year. Our business development teams in the Corporate channel were extremely busy and the structural demand drivers that have had a positive impact in previous years remained present. This brought more organizations to outsource fleet management or funding for the first time, often via sale and leasebacks in the case of financed assets. Helped by improving stock availability, this drives strong growth in deliveries in this channel. While for some models, we still have orders to fulfill that date back 2 years, we are gradually clearing the supply challenges of the past few years. In line with that, extensions and inertia started to drift lower. We also continued to make good progress with widening our products and services offering take-up by our customers -- sorry, and take-up by our customers was very encouraging. In the 2020 financial year, we reported that about 42% of our customers took 2 more products from us. Four years later, this has become the norm in the SG Fleet book with about 85% of customers taking multiple products. In the legacy LeasePlan book, that figure stands at 47%. As LeasePlan's SAP platform creates some limitations to upsell in that book, completing the system migration will instantly free up significant potential to increase product penetration across a significant part of our combined customer book. Performance of our Novated channel during the year confirmed novated leasing has remained front of mind for -- as a product for both drivers and employers. Employees are increasingly recognizing its financial appeal and the employers see that novated leasing is a must-have employee benefit that can conveniently be provided and managed by a third party. As a consequence, we were able to sign up a large number of new employers. Overall, leads again grew significantly over the previous period and orders grew throughout the year. Customers new to novated leasing accounted for a significant portion of that growth. Further new business opportunities continue to arise at a significant pace. While the EV incentives have undoubtedly attracted attention to this product, we saw increased driver interest across all vehicle types. The incentives also led to significantly greater interest in plug-in hybrids. Including hybrids, low- and zero-emission vehicles accounted for the majority of Novated orders in the second half of the 2024 financial year. Orders for internal combustion engine vehicles, however, remained strong. New Zealand economic fortunes were mixed during the year. Although this was reflected in slowing vehicle registrations, particularly in the passenger segment, these conditions had little impact on our business. New business development and tender activity remained strong during the period. We saw 1 particular competitor in this market acting fairly irrationally in terms of pricing. Nevertheless, we're successful in retaining existing customers that went to tender and we picked up additional wins across a range of sectors. In some cases, as part of trans-Tasman arrangements. We have a firmly established presence in the government sector in New Zealand, and this again allowed us to present a number of additional solutions to existing customers in that segment, including sale and leasebacks. In the U.K., the mood turned more positive as the year went on. There was definitely a feeling that things were settling down and investment picked up again. Car registrations increased on the back of that. Our business there sped on the steady course we have seen for a few years now, and we saw a healthy stream of opportunities. We signed up new accounts for both tool-of-trade and for Novalease and extended a number of sole supply arrangements for multiple year periods. At the same time, upsell with existing customers continued at a steady pace. Short-term hire solutions in particular attracted strong interest. I'm now turning to business activity since the start of the current financial. By and large, the trends we were seeing in the final quarter of the 2024 financial year continued into the current period. In Australia, our business development teams continue to be a busy endeavor, and the opportunities pipeline remains very full. The environment remains muted in New Zealand, but as was the case in the second half of the 2024 financial year, we continue to maintain our position in that market. In the U.K., the gradual improvement in the economic environment, we flagged in August, has continued. We have registered a number of further wins and new business activity is definitely picking up over then.New vehicle supply across all 3 countries continue to improve, albeit with some remaining shortages in certain vehicle types. This has allowed us to maintain elevated delivery levels. Despite this, the order pipeline in the Corporate channel remains elevated at about 3.2x what we would consider normal levels. In Novated, we've progressed a bit further, and we are at about 2.5x normal level. In other words, the catch-up will continue for some time yet. As to used vehicle values, the pre-COVID seasonality has returned to pricing, and we saw some softening over the final quarter of FY '24, but prices were higher again in the first quarter of the current financial year. Overall, values have continued to come down, albeit to a limited extent. So disposal profits continue to be well above the levels seen pre-COVID. The LeasePlan system migration remains on track. We completed the New Zealand leg of the migration successfully and on time. We are entirely on 1 single platform over New Zealand. We are taking the learnings of the successful process and are now focusing entirely on the Australian SAP migration. Shareholders will recall that we flagged about $20 million in pretax run rate synergies from the LeasePlan acquisition back in 2021. Over the past 3 financial periods, we were able to deliver about $5 million in synergies. We confirm that we will deliver an additional $20 million in pretax run rate synergies post the SAP migration. In other words, we expect to deliver the $20 million in addition to the synergies already achieved over the past few years. We would also like to reiterate that we remain comfortable with the UNPATA guidance provided at the FY '24 results announcement. That concludes my review. Thank you for your attention. I will hand back to the Chairman now.

Thank you, Robbie. We will now move on to the items of business that are set out 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 Directors and Auditor for the financial year ended 30th of June 2024. As there is no resolution required to be put to the meeting in respect to this item, I welcome any questions or comments on this item. There are none. So we will now move on to the next item. Item 2 relates to the adoption of the remuneration report for the financial year ended 30th of June 2024. The remuneration report is set out in the 2024 annual report. The Corporations 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 confirms to market best practice for delivery of those rewards. The performance of the group depends on the quality of its directors and executives. Our remuneration policy is to attract, motivate and retain high-performing quality executives. Our remuneration framework has been structured to be market 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. Further details on our remuneration practices are contained in the remuneration report sections on Pages 37 to 50 of the 2024 annual report. I move that the remuneration report, which forms part of the Directors' report for the financial year 30 June 2024, be adopted. I welcome any questions and comments.

Mr. Chairman, we have a question from Mr. Stephen David Main, which is as follows. Did any of the 5 main proxy advisers; ACSI, Ownership Matters, Glass Lewis, ISS and ASA issued a voting report on our company as of today's AGM? If so, did any of them recommended vote against any of today's resolutions, including on the remuneration report? If so, what reasons did they give and will you disclose the proxy votes before the debate on each resolution. So shareholders can ask questions about the reasons if there any [indiscernible] votes.

If you could allow...

If I can respond on behalf from the Chairman, we're not allowed to disclose these reports. These reports are made available to investors who pay for those services. If anyone wants to gain insight in those reports, they would have to approach the issuers of those reports.

Thank you. If there are no further questions, I will now advise the position on the valid proxies. These are now showed on the screen. Votes for 98.47%, against 1.37% and open 0.16%. Please note that a voting exclusion as described in the Notice of Meeting applies to this item of business. We will now move on to the next resolution. Item #3 relates to the reelection of Edwin Jankelowitz as a Director of the company. Mr. Jankelowitz retired by rotation and being eligible, offers himself for reelection as a Director. Details of Mr. Jankelowitz' experience are set out in the Notice of Meeting. The Directors, Mr. Jankelowitz abstaining, recommend that shareholders vote in favor of the election of Mr. Jankelowitz as a Director. I now move that Mr. Jankelowitz be reelected as a Director of the company, and I'd like to open the floor for questions. I believe we do have one.

We have a question from Mr. Steven David Main, which is as follows. How old is Edwin and is he intended to serve a full 3-year term having first joined the Board in 2015. Can you comment on the strength of this independence and cite any examples in the boardroom where he stood up for minority shareholders? Does he have any history with either region group or our long-term Chair, Andrew Reitzer, and what was the process that led to his appointment in 2015?

Ed, would you like to answer the first part?

I'm 81 years old. I believe that my capacity is such that I could serve the full 3-year term.

Okay. In terms of the second part of the question, yes, Edwin and myself have a long working history, although that didn't necessarily play any part in his appointment. And when I was the CEO of Metcash, he was the CFO. And as part of Board succession and working through the skills in the Board, I can't remember how many years ago.

No, no, 2015.

2015, a vacancy opened on the Board. We did a search and of all the candidates that we had, Edwin obviously came up with the strongest skills in terms of being able to fill that role and acting as -- taking over and acting as Chair of the Audit Committee. In terms of part of the question that says acting on behalf of the minority shareholders, every single time any discussion is had that all Directors participate, but specifically, Edwin very, very much in the interest of all shareholders. Without going into any detail, I can guarantee that. If there are no further questions -- no further questions, no. I advise the position of the valid proxies on the screen, for is 89.1%, against 10.6% and open 0.28%. We will now move on to the next item. Item 4 relates to the reelection of Tex Gunning as a Director of the company. Mr. Gunning retires by rotation and being eligible, offers himself for reelection as a Director. Details of Mr. Gunning's experience are set out in the Notice of Meeting. The Directors, Mr. Gunning abstaining, recommended that shareholders vote in favor of the reelection of Mr. Gunning as a Director. I'll now move that Mr. Gunning be reelected as a Director of the company. Are there any questions?

We have one question from Steve David Mayne. It has been unusual to have the CEO of Region Group, Peter Mountford; and CEO of LeasePlan, Tex Gunning, both serving on this Board, along with our CEO. Do they have the time to attend to all Board duties and have they considered having someone else represent their organizations on this Board? Would Robbie comment on what it is like to have 2 other industry CEOs sitting on this Board?

I'll certainly take that one. So first, it's important to point out that Mr. Gunning is the retired CEO of LeasePlan and he is no longer the CEO. And is a Non-Executive Director and it's very, very helpful for me to have the kind of industry knowledge that Mr. Gunning has accessible to me from a global competitive perspective, from an industry perspective. And so it's -- he certainly brings very much value add to this Board.

Thank you. So the valid proxies are now shown on the screen. Votes for 89.7%, votes against 9.9% and open 0.28%. We'll now move on to the next resolution. Item 5 relates to the ratification of KPMG's appointment as Company Auditor. It is proposed that having received ASIC consent for EY to resign as the audit of the company and KPMG having been nominated by a shareholder and consenting in writing to act in the capacity of Auditor of the company for the purpose of Section 327B and 327C of the Corporations Act 2001 and for all other purposes, shareholders ratify the appointment of KPMG as Auditor to the company and then the Directors be authorized to fix the remuneration of auditor. Further details relating to this resolution are set out in the Notice of Meeting. I move that the appointment of KPMG is ratified. Are there any questions?

We have a question on Mr. Stephen David Mayne, which is as follows. Did we conduct a full tender last year before deciding to replace Ernest & Young with KPMG for the external audit? Who audits our South African parent company and could new audit signing partner, Joshua Pearse, from KPMG offer up some observations as to why $590 million in claims and assets on the balance sheet and at such a discount to the current market capitalization of $923 million. Would the Chair and CEO have a view about this as well.