The SG Fleet Group Ltd (ASX: SGF) share price slumped 7.2% lower today following the release of fleet management company's first-half results.
SG Fleet is a provider of fleet management services to the corporate and government sectors, as well as salary packaged vehicles for customers' employees. The company operates primarily in Australia but also has a presence in New Zealand and the United Kingdom.
Stalling growth in challenging market conditions
For the half-year period ended 31 December 2019, SG Fleet reported a net profit after tax (NPAT) of $24.5 million. This represented a 16.6% decline on the NPAT recorded in the prior corresponding period (pcp) of H1 FY19.
In terms of sales, total revenue came in at $250.2 million which was a marginal increase of 0.6% on the pcp.
SG Fleet commented that revenue was impacted by lower vehicle deliveries and changes to its add-on insurance portfolio. This included the conversion of some of its products from up-front to annuity income products. According to the company, the impact of changes to the insurance products was greater than expected.
Reported earnings per share came in at 9.35 cents, while SG Fleet declared a fully franked interim dividend of 6.943 cents per share.
SG Fleet further commented that it is facing a number of external pressures, including from the credit environment and poor motor vehicle sales. As a result, the improvement seen at the start of the reported period in the company's consumer novated area hasn't carried through into the second quarter for FY20.
Rather, consumer sentiment, private new car sales, and the credit environment weakened again late in the second quarter, which impacted SG Fleet's financial performance.
Operations update by geography
In the release, SG Fleet commented that its Australian Corporate business continued to see a strong pipeline of opportunities. The company added, however, that tender decisions took longer to materialise. Therefore, both the longer decision timeframes and continued high levels of extensions impacted vehicle delivery numbers during the period.
The underlying performance SG Fleet's UK business was reported to be positive again during the period. In saying that, the weakness in demand for short-term rentals and a challenging residual value environment in the lead-up to the British election weighed negatively on some of the business' continued operational progress.
In New Zealand, the company commented that business confidence was subdued but activity remained positive. SG Fleet continued to pursue emerging opportunities during the period which resulted in winning the Northpower contract, one of the largest fleets in the country.
Management commentary
Commenting on SG Fleet's half-year results, CEO Robbie Blau said, "It is a challenging time for our industry and the way we generate revenue and profits is clearly shifting. There is no doubt that the Corporate tool-of-trade business in our diversified portfolio is helping us counteract some of the headwinds in the Consumer space and we believe this presents an opportunity to strengthen our position and emerge from this period a more resilient business."
