Interim results for the six months ended 30 September 2018.

Revenue and operating profit were slightly behind our expectations for the six months ending 30 September 2018. The main reasons for this were:

• Vehicle manufacturers struggled to get their product through the new CO2 emissions testing regime (Worldwide Harmonised Light Vehicle Test Procedure or ‘WLTP’ for short). As a result at times during the period less than half of the models usually available in the UK for order by our clients were available for sale. This reduced both order take and delivery of new vehicles significantly.
• A knock on impact of this lack of vehicle supply across the whole UK market was that a significant number of vehicles which ended their primary term in the period which would ordinarily have been sold during the period were extended as customers could not replace older vehicles with new vehicles. This meant that the number of end of lease vehicles which we sold was significantly reduced and profits from their sale were pushed into later periods.
• Political and economic uncertainty caused an increased level of caution in our customer base when placing orders.
• Lack of visibility over future taxation policy for company cars also caused some loss of orders.

Cash generation was in line with previous first half results and we have plenty of liquidity in committed, but undrawn facilities.

Operational highlights

Throughout the six month period:

• The total funded and managed fleet size has increased from 122,000 to 133,000 vehicles in the six months leading to 30 September 2018.
• Following significant investment, ZenAuto, our consumer leasing business, was successfully and seamlessly launched during the period. Momentum in this business has been strong, with orders increasing month-on-month.
• Our rental and outsourced business services operations grew strongly and profitably.
• We continued to invest in our HGV leasing and fleet management business and we are confident that we have an excellent platform for growth.
• We formally launched our ‘group proposition’ to customers through which we serve all of our customers HGV, LCV and car requirements under one roof, from one day rentals through to 8 year plus leasing for some of the heaviest equipment. This is a key market differentiator for us.
• We continued to focus on our cost base, completing initiatives which delivered £1m annual run rate cost savings in the period.
• Our customer retention statistics were exceptionally good.

Outlook

Over the next six months we expect to see modest growth in the HGV leasing division and continued growth in the rental, outsourced business services and also in the consumer division as a result of the significant investment in ZenAuto. We have invested heavily in our businesses and are clear on our strategic focus. When political and economic uncertainty eases we are well positioned to take advantage of improving conditions.

Commenting on the results, Tim Buchan, group chief executive, said:

“Our acquisition of the HGV leasing business last year and development of ZenAuto, our consumer leasing product, materially differentiates us from our competitors and ensures we can derive revenue from all UK auto segments. I fully expect us to achieve continued organic growth in our core corporate markets as well as to further develop our consumer model.

Current auto industry government policy, including complex transition to real world emissions (WLTP) as well as lack of visibility on Benefit-in-Kind taxation rates, have created temporary headwinds but we remain confident that Zenith can continue its long and distinguished track record of profitable growth.”