Thank you for standing by, and welcome to the FleetPartners Group FY 2022 half year results presentation. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Julian Russell, the CEO. Please go ahead.
Thank you, operator. Good morning, and thank you for joining our first half 2022 results presentation. Today, we are presenting to another record set of results for the group. We've seen absolute outperformance across every line item. I'll cover the highlights shortly and then hand across to Damien to go through the financials and the relative strengths of our operating model. We will then briefly update on our outlook before taking questions. First, let's start with the performance highlights on slide five. This is the best six months operating performance in our group's history. NPATA was up 58% to AUD 62.1 million. The group delivered positive jaws again, namely 26% revenue expansion and 2% cost reduction. For the first time ever, we've delivered a balance sheet with no net debt.
As a result, we intend to return up to AUD 40 million in the form of an on-market share buyback. Our financial outperformance was complemented with strong new business writings growth of 19% across the group. These growth rates reflect the ongoing implementation of our strategy and the foundations that we've put in place. I'll address this in more detail shortly, but first, let's have a look at the results starting on slide six. This profit bridge shows three underlying drivers of the 58% growth in NPATA in the period. First, NOI pre-EOL. This was up AUD 4.8 million or 9%. The second driver was end of lease income, again, at record highs. The third driver was a reduction in our interest costs from lower corporate debt.
The cash generated from our outperformance has enabled our capital management strategy, which is outlined on slide seven. We've restored our balance sheet to a net cash position, taking net debt down by AUD 263 million over the last three years. In FY 2021, we returned AUD 56 million through our buyback. For 1H 2022, we are targeting up to AUD 40 million. That's nearly 50% above the 1H 21 buyback number. Our restored balance sheet provides maximum flex, flexibility to us to pursue incremental opportunities. One such example is a strategic pathways program, which is summarized on slide eight. To recap, strategic pathways is designed to grow new business in three underpenetrated target markets, being corporate, novated, and small fleets. While we're only 18 months into execution, we have made good foundational progress in each of our target markets.
This is evidenced in strong new business writings outlined on slide nine. Our fleet businesses have really outperformed internal expectations in the half. Australia delivered new business writings growth at 37%, while New Zealand did 33%. Small fleet is tracking well and is now approximately 40% of new, New Zealand's new business writings. In Australia, small fleet has grown materially off a lower base, reflecting its more recent establishment. As it relates to novated, new business writings were disrupted by weaker sentiment around supply constraints, as well as the initial emergence of Omicron. As a result, we saw a 3% decline in our novated leases. However, this still outperformed the broader market, which was down 4%. We have a continued focus on growing new business writings and enhancing our profitability across all segments. This will continue to be supported by our digital offering.
Now, before I hand over to Damien to go through the financials, let me touch briefly on our recent ESG achievements over on slide 10. ESG and sustainability are central to our group's strategy and values. In March 2022, the group proudly became one of 12 new organizations in Australia to receive a citation from WGEA as an employer of choice for gender equality. In the same month, the Australian Institute of Company Directors ranked our group equal number one in the ASX 300 for female board representation, a privileged position for our group to be in. The group also retained its Climate Active status granted last year, proudly the first fleet management company to have achieved this. In summary, we've made significant progress across our group and implemented strong strategic foundations to drive profitable growth.
We see some great strategic opportunities in front of us and our restored balance sheet provides us with maximum flexibility to take on these emerging opportunities. Now with that, I'll pass it across to Damien to talk through the financial performance.
Thank you, Julian, and good morning to everyone. I want to open my comments this morning by repeating Julian's message that this is the best six-month performance in our group's history. Starting with new business writings on slide 12 and at AUD 277 million, the fleet business is up 35%, surpassing pre-COVID levels. What underscores this impressive result is the fact that it was achieved in the face of the ongoing supply shortage during the half. Despite this supply headwind, this double-digit growth was delivered by the commercial intensity of our sales team. Underpinned by the strategic pathways framework, a combination of recent customer wins and around AUD 24 million in sale and leaseback transactions drove this growth. We also saw growth in small fleets, which is promising. Finally, our order pipeline grew during the half and now sits at 2.5 times pre-COVID levels.
Therefore, while the new business result is impressive, it was bettered by the volume of new orders we banked in the same period. Our novated business wrote AUD 91 million and saw a 3% decline in total units. To put some perspective around the decline, the novated industry as a whole fared worse with a 4% decline in total units. However, as we exited the half, novated new business writings in March were the highest in 8 months. This provides confidence the business is entering the second half of 2022 with momentum. Turning to slide 13 on UMOF, and a key message is that we saw UMOF grow for the first time in two years. To stop UMOF declining and return to growth, the business needs to write about AUD 360 million in new business writings each half.
As such, at AUD 368 million, AUMOF grew 1% sequentially, half on half. VMOF is at 93,000 units, down 2%. That's because the business continues to exit less profitable managed-only fleets. Our focus is on increasing the penetration of fully maintained operating leases and profitable novated leases. As a result, we have seen an increase in our NOI pre-EOL and provisions to AUD 1,717 per unit, up 11%. Let's turn to slide 14 on our income statement. The key takeaway from this slide is that the business has outperformed on every line. This is no more evident than net operating income pre-EOL and provisions. At AUD 79.4 million, it is up 9%. This margin expansion is driven by higher NIM, higher management fees from elevated lease extensions, and higher maintenance profits from lower fleet utilization.
End of lease income is AUD 51.4 million, up 60%. This was driven by an 8% increase in the number of vehicles sold and a 48% increase in profit per vehicle, which now sits at AUD 8,813. Provisions at AUD 2.8 million as a result of releasing the management overlay relating to COVID. We now follow the same framework that was in place prior to the pandemic. That sums to an NOI of AUD 133.6 million, up 26%. Moving to operating expenses, which are AUD 38.6 million, down 2%. We still expect OpEx for the full year of AUD 80 million, with it being weighted towards the second half of FY 2022. Therefore, the sum of the above path comes to an EBITA of AUD 95 million, up 43%.
Finally, to close out this slide, at the bottom of the table, NPATA is AUD 62.1 million, up AUD 23 million or 58%. Moving to slide 15, the key takeaway from this slide is about the further strengthening of Eclipx's balance sheet. Net assets ended the half at AUD 614 million, which is a 7% increase from September 2021. Other highlights worth noting include cash at AUD 82 million, which is up 7%. This is after using AUD 28 million for the share buyback and AUD 21 million to repay corporate debt. You can see in the liability section, corporate debt now sits at AUD 75 million. What's more important is that Eclipx now has zero net debt. Inventory is at AUD 16 million, down 35%.
Selling conditions were much more favorable in March 2022 versus September last year, as lockdowns that disrupted sales back then were lifted by March. Returning to my earlier comment about cash, we now turn to slide 16 and the business' cash flow. Another pleasing element of Eclipx's operations today is its cash generation. The net cash flow for the half was AUD 7.7 million, and after adding back non-operational items such as CapEx, corporate debt repayment, and movement in share capital, the cash generated by the business increases to AUD 77.7 million. Comparing that against an adjusted NPATA of AUD 64.2 million, the cash conversion for the half equals 110%. As we have seen over the last 18 months, the main driver for a cash conversion being north of 100% is the tax shield driven by the instant asset write-off.
This is expected to provide a cash benefit to the business until late FY 2024 at the earliest. Before I close with our expectations for FY 2022, I would like to address three common questions about our business today. They are. As vehicle supply normalizes, what is the impact to Eclipx's earnings? 2, how will rising interest rates impact Eclipx? And thirdly, how will cost inflation also impact Eclipx? Let's have a look at the next few slides to answer these questions. While there are significant scale and underwriting barriers to our industry, the business model itself is really quite simple. As you can see in the graphic here, we provide three solutions to our customers packaged as one simplified product. These solutions include asset-backed vehicle financing, in-life vehicle services, and vehicle disposal. Vehicle financing makes a significant contribution to our revenue.
However, it is important to note that the majority of our NOI pre-EOL is generated by the services that you see in the middle of the slide. Therefore, Eclipx is a service-based business with best-in-class funding capability. This enhances our profitability and increases the defensiveness of our earnings. Which takes me to slide 19. As illustrated on the chart on the left, our NOI pre-EOL and provisions is stable and predictable through time. This is the source the vast majority of our revenue, in fact, 88%-92%, is from vehicle financing or servicing, which are locked in for the duration of every lease. Not only is it a business model that produces annuity-like income, it also has a low credit loss given the business critical nature of the assets we provide.
Therefore, when you have a defensive, stable and predictable revenue model and you add a disciplined focus to cost management, which the business has now had for three years, it results in double-digit EBITA growth, which you can see on this slide. With the stable and predictable nature of our revenue model in mind, let's turn to slide 20, which looks at the first question around E-Eclipse's earnings once vehicle supply normalizes. Let me start by saying that predicting the timing of when vehicle supply normalizes is still very speculative in nature. With that said, we do not see this happening before the end of this calendar year. This is a busy slide, so rather than stepping through it in detail now, I'll happily take questions about this analysis during the Q&A section of today's call or of course, when we meet in the coming days.
Therefore, hitting the highlights. The top half of the slide looks at NOI pre-EOL and provisions as a percentage of UMOF and what that looks like in dollar terms once things normalize along the 7.5%-7.75% range. The difference between this NOI range and the 8.15% we saw this half is due to two key factors, being higher management fees from elevated lease extensions and higher maintenance profits from lower fleet utilization. This table also illustrates the new business writings required to achieve the corresponding levels of UMOF. The bottom half of the slide shows that once new vehicle supply comes back online, we expect end of lease income to settle at around AUD 2,200-AUD 2,500 per unit.
This price reduction will be partially offset by an increase in the number of vehicles sold. The precise timing and impact from the normalization of vehicle supply is hard to predict. However, we believe this slide provides helpful information as you think about our earnings outlook. Let's turn to slide 21 on managing interest rate risk. This slide explains that we have three sources of funding. Principal and Agent or P&A, where we take no interest rate risk, warehouse funding and asset-backed securitization or ABS. The interest rate we pay in our warehouse and ABS can be broken into a base rate and a funding margin above the base rate. Starting with base rate risk. In our warehouse, we hedge this out from the start of each lease until the end, and these hedges continue through our ABS programs.
The group's conservative approach to hedging at lease origination ensures there are no speculative positions with regards to base rates in our funding. Turning to funding margin. Within the warehouse, these are typically repriced annually. For ABS transactions, these are set at issuance and locked in for the entire term. For illustrative purposes, a ±10 basis points movement in funding margin would have about a 4 basis points impact to our NOI. Three points to emphasize about this impact include, 1, the impact steps down over time as the warehouse back book repays. Two, there is no impact to the front book of the warehouse because changes to funding margins are fed into the pricing of new leases. Three, there is no impact to our ABS as ABS funding margins are locked in at issuance.
Therefore, in light of this overview of our interest rate risk, we are clearly comfortable with our position through any rate cycle. Let's now turn to slide 22, where I'll conclude my section by reaffirming our FY 2022 expectations and address the third question around cost inflation. Consistent with past presentations, we don't provide guidance on NOI. Our expectation is that NOI pre-EOL provisions to directionally follow the same trend as average UMOF. Noting, however, that as we illustrated on slide 20, when vehicle supply begins to normalize, we expect NOI to settle to a range of 7.5%-7.75%. End-of-lease income is hard to predict. Once new car supply begins to normalize, used car prices should begin to fall. However, end-of-lease income will be somewhat cushioned by an increase in the number of cars we sell.
With respect to provisions or temporary measures taken in response to COVID have now been removed with a normal level of provisioning expected going forward. Looking at our OpEx and notwithstanding the fact that we are certainly feeling the inflationary pressure impacting all industries at the moment, we reaffirm our AUD 80 million OpEx expectation. Our track record of being disciplined around cost management, driving productivity gains, and simplifying our operations provides us with confidence to reaffirm this expectation. All other NPATA items are expected to be relatively stable. My closing comment is that the business has produced another strong financial performance this half. In some respects, this is undeniably fueled by the positive impacts from the current trading environment. However, in a period that was disrupted by lockdowns, Omicron, and an ongoing shortage of vehicles, the business has delivered strongly on its strategy.
Eclipx is very well poised for the remainder of the year ahead and equally well-positioned for when vehicle supply eases. With that, I'll now hand back to Julian to close out on our second half outlook and to take questions.
Thanks, Damien. Let's turn to slide 24 to wrap up this morning's presentation before taking your questions. Above all, we're very happy with the strength of this result, the financial position and the direction of the group. The operating environment remains solid and our customers remain very active, as does tender activity. Global vehicle supply continues to be the ongoing theme. As Damien mentioned, we don't see these issues normalizing before the end of this calendar year, which will continue to benefit EOL income. Our group order pipeline is at 2.7x pre-COVID levels. We expect these to gradually convert into new business writings and therefore recurring NOI in due course, really reinforcing our confidence about the future. Putting it all together, the team have done exceptionally well in a tough environment. For me, the following set of metrics represent the highlights. We have no net debt.
We've extended our buyback by another AUD 40 million. Our new business writings growth is ahead of our own internal expectations. AUMOF is up for the first time in many years, supporting future NOI. Our NOI before EOL is growing and our OpEx is down, and importantly, NPATA is up 58%. We have the foundations of strategic pathways in place, and our task now is to deliver sustained, profitable growth while continuing to lift our commercial and operational intensity. We see some great strategic opportunities in front of us, and while it remains early, this result highlights that our momentum is certainly building. Now, with that, I'll pause and pass across to the operator to take questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Richard Amland from CLSA. Please go ahead.
Hi, good morning, guys. Was just hoping to get, sorry. The Australian New Zealand fleet new business writings looks very, very strong. Can you guys give us some further commentary in terms of price and volume mix? Yeah, to what extent was price rise helping out with that versus just injections of volume? Then, in light of vehicle supply constraints, how are you guys able to drive the volume? What I suspect must be volume gains. Can you add some color on those two things?
Yeah. Good morning, Richard. It's Damian. In terms of what drove the growth in the first half for us for FleetPartners Australia and New Zealand, there's a combination of three things. Firstly, just new customer wins. We obviously, you can see the results increase the commercial intensity over the last 6 months, and we saw the benefit of that come through to that new business writings line. The second one was just existing customer activity. We're coming up now to 12 months since we really started getting on the front foot with our customers about ordering in advance of when they normally do. Customers that ordered 12 months ago were getting deliveries this half, so that obviously helped.
Thirdly, we did about AUD 24 million worth of sale and leaseback transactions. The beauty of those are you're not relying on new car supply for that. It's obviously existing fleets. There's a combination of all three which sort of drove that. In terms of price has held up, so none of that growth that we saw there was to do with price. The second half of your question. Sorry?
Please continue.
Can you just repeat that second half of your question?
I guess I'm surprised at the volume, the implied volume gains given the constraints in the market and, yeah, access to vehicles. Can you give us any color on, in terms of how you've been successful, you know, getting vehicles and, you know, is that likely to continue?
Yeah. No easing in new car supply constraints that we saw in the first half. In fact, between January and March, arguably, it actually got harder. The reason why we were able to achieve this growth was really because, as I said, these cars were ordered 12 months ago, so they obviously took a long time to get here, but they arrived. The second one was the sale and lease back transaction. This is where our customers own the fleet themselves, or they lease them from a competitor. They move across to us, we buy those cars off them and lease it back to them.
Right. That's it for the moment. Thanks, guys.
Thanks, Richard.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Chenny Wang from Morgan Stanley. Please go ahead.
Yeah. Hi, good morning, guys. I just maybe want to touch on the sale and leaseback. Can you provide us with just a bit more color on what those transactions are related to? You know, are they coming from new customers or, you know, from the existing customers that, I guess, as you mentioned, have shifted their fleets across? Also maybe some color on what drove that behavior in the first half.
Yeah, yeah, sure, Chenny. But the AUD 24 million in sale and leaseback was across two main customers. They're relatively new customers. One of them just signed a sole supply with us. One of them, they own the fleet themselves, which made it a lot easier. The other one who actually was leasing the fleet from a competitor, but they wanted to move the fleet across because it obviously makes sense for one FMO to manage their entire fleet. We were able to execute on that, and that's what, you know, obviously drove the new business writings there.
Got it. No, that's helpful. Then maybe I can just touch on one of the questions asked earlier around the fleet NBW, new business writings up materially. I mean, you know, your UMOF is also up a bit, but your VMOF, so on the vehicles bit still went backwards. In your response, you said that, you know, it's got nothing to do with price. Maybe it's just me that's gotten this a little bit confused, but does this mean that there's been some churn where, you know, you're getting sort of new business writings up, but then the existing base from a units perspective, you know, there's been some churn on that, hence VMOF, let's call it, you know, basically flat?
Yeah. With VMOF and UMOF, they don't always move in the same direction. A simple explanation for that is often when a car comes to the end of its lease and we replace it'll come off that say AUD 17,000 at the end of the lease, and then the new lease will come on and say AUD 40,000. In that scenario, you know, your VMOF, the number of units is flat, but your UMOF, your assets, has actually grown. That's part of what you're sort of seeing going on there. You're seeing assets up 1%, half on half. VMOF's still down slightly. The second part of it is as we sort of said, if you know, we don't participate in customers who just have unfunded fleets.
What we'll see is just natural little bit of attrition in our sort of space 'cause we're not looking to refill that pipe.
Got it. No, that's helpful. Yeah. It's basically replacing the depreciated-
Asset. Yeah.
a depreciated asset with a new car.
Exactly.
Got it. Cool. Just maybe last one from me, just on the cost. I know you guys are reaffirming the AUD 80 million OpEx expectations for FY 2022, but I guess as we sort of think into FY 2023, should we base that off the second half 2022 run rate? Like would that be a good guide in terms of where costs, the cost base should land for next year?
I think that'll probably be a little bit too high. You know, we still, our expectation is for this year to be at 80. But the second half for us will be a little bit skewed because of some timing of the cost that we thought were gonna land this half, but we'll land next half. It'd be sort of ahead of your skis if you sort of annualize that run rate for the second half for us. It won't be double. It'll be some. It'd probably be more than 80, but less than twice the run rate for the second half for us.
Got it. No, that's helpful. Thanks, guys.
You're welcome.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Paul Buys from Credit Suisse. Please go ahead.
Morning, guys. First question, just on the fleet new business side also. You mentioned some recent customer wins. I guess I was just curious to hear how you would describe industry growth versus, I guess, FleetPartners market share gains and your own specific performance, just to sort of stack that up and understand it.
Yeah. Hi, Paul. It's Julian here. Thanks for that. Look, I think in terms of the industry growth, there's obviously been a lot of change in the industry in recent times and obviously we're just focused on running our own race. So we've obviously invested pretty heavily in our front end and lifted that sort of commercial intensity as a result of sort of strategic hires we've made. And you know, obviously, this is probably the early signs of us bearing fruit on that. I can't comment on our competitors. Obviously, some of them are public, some of them are private, but the disclosure is pretty good from all of them, so I think you can sort of see how they're tracking.
We do feel like we are winning market share based on the customers that we're winning and beating out, as Damian mentioned, from you know somebody who might be dealing with on a on a supply and then we take over their fleet or if we just win you know head to head against the competitors. We do feel like we've lifted that commercial intensity and you know there's no really good industry source of data for commercial fleet but we you know indicatively you know from if we add it all together we feel like we are gaining some market share.
Thanks, Julian. Then on the small fleet side, which is, I guess, you guys have articulated a, you know, focus there for some time now and probably somewhat disrupted by COVID, but now obviously new business growing strongly. Where do you see that going as a, you know, potentially as a percentage of book or whatever metric you're looking for? How do margins and risk on small fleet compare to your larger fleet?
Yeah, look, it's you know, I suppose with small fleet, I mean, we see a huge addressable market there. We're only a very, very small fraction of it, including one or two of our peers who play in that space as well. You know, like I think I've said to you before, it's probably in our interest that our competitors actually do play in that place 'cause there's plenty of field to play on. In terms of the customer base that we see in there, you know, there's traditional SME, but I suppose you'll see. We do see very large multinationals come through the broker channel and come through us, but their credit is in many cases very, very strong. We've naturally priced for that risk.
The margin in smaller fleets is pretty good. The cost that you put against it because it's not as heavily serviced as a, you know, a double A-rated corporate, you can generate a pretty good sort of return and the cost for effort is a bit lower. It's not no frills, but it's pretty good. We're pretty happy with that. You can see in New Zealand, that business was established probably about four or five years ago, and it's become a reasonably large part of that portfolio, probably reflecting the nature of the composition of the New Zealand economy in terms of relative size as well. That's at a 1-20 car fleet. In Australia, as you said, Paul, we're only just started 18 months ago.
COVID wasn't very helpful to us in terms of getting it going. You know, our technology is getting rolled out at the moment, and it's you know, we like the space. It's pretty hard to pin the tail on the donkey in terms of where we're gonna end up, but we feel pretty good about that space for growth.
Got it. Thanks, Julian. Last one from me. Just on your novated lease book. You spoke about, you know, obviously slightly different trajectory on timing, I guess, in terms of versus fleet new business. You've still got a very strong order book pipeline. Some of your peers have put some quantification around that excess order book in terms of, you know, potential revenue, kinda call it excess revenue that might drop through. Do you guys have an idea of what that would look like for you?
Yeah, the way we think about it, Paul, is really just around what asset growth that the novated book's gonna produce for us, and then therefore the NOI pre-EOL off the back of that. We're less transactional, like, against some of our peers 'cause they all fund through P&A. You know, obviously, their funding commissions are driven off the back of that. On slide 20, we've got a page there which sort of talks about NOI as a percentage of the AUMOF. The best way we think about it is, you know, once we see our new business writings growing higher than AUD 720 a year, that'll grow AUMOF. Then off the back of that, we've got the percentages there in terms of translating that into an NOI number.
Okay, got it. Thanks, guys. That's all for me.
Thanks, Paul.
Thanks, Paul.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Russell for closing remarks.
Thanks, Matt. Look, thanks everyone for joining the call. Appreciate your support and, you know, finally, just thank the team at FleetPartners who's done a phenomenal job to get us to the position we're in. Really happy with the progress we've made, and we're very excited about the future and the strategic opportunities that we see right in front of us right now. Thank you again for joining, and look forward to catching up with everybody in the next coming days and weeks. Thanks.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.