Full year results for the period ending 31 March 2019.

In the year to 31 March 2019 Zenith Automotive Holdings Limited consolidated accounts reported an EBITDA (operating profit before amortisation of goodwill, depreciation of tangible & intangible assets and exceptional items) excluding the operating loss of £3m to set up ZenAuto, our retail business, of £59m. This is a fall of 6% from the previous year’s £63m. The previous year was a 436 day period. As a result of the timing of the acquisitions it included a comparable 12 months of trading activity.

The fall in the year was due to two main factors

• In CVL, our HGV business, operating profit fell by £2m mainly due to vehicles being extended rather than returned; this impacted residual value profits.
• The remaining fall of £2m in our core business is due firstly to a deferral of residual value profits to future periods as customers extended their leases on vehicles while they wait for the outcome of the current economic uncertainty and benefit in taxation visibility, and secondly, a reduction in the salary sacrifice fleet as a result of changes in the tax treatment of these vehicles and the lack of visibility of Benefit-in-Kind (BiK)rates on company cars resulting in a gradual movement away from company cars to taking a cash benefit.

For the above reasons this was a difficult trading year. However, we have maintained our very low levels of customer attrition, invested in ZenAuto, our retail operation, which we believe is an exciting opportunity for the business, and integrated our car, van and HGV vehicle operations to provide a proposition which we believe will be very attractive in the market. There are a number of full electric vehicles which are launching over the next year. These will be more tax advantageous from a BiK perspective and this, together with an expected return to more normal visibility over a number of years of BiK rates, we believe will help the company car market.

OPERATIONAL HIGHLIGHTS

There were a number of headwinds outside the control of Zenith which impacted the business in the year:

• Vehicle manufacturers struggled to get their product through the new CO2 emissions testing regime (Worldwide Harmonized Light Vehicle Testing Procedure – WLTP). 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 have expected to have been sold during the period, were extended. 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. This has been resolved post year end.

The business has continued to enhance its reputation as a high quality service provider which meets, in an innovative and imaginative way, the requirements of the market and its customers in particular.

We have been focused on enhancing this during the difficult trading period.

• The total funded and managed fleet size has increased from 122,000 to 138,000 vehicles.
• Following significant investment ZenAuto, our consumer leasing business, gained momentum during the period 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 management business and we are confident that we have an excellent platform for growth.
• We started to see the benefit of our group proposition to customers through which we serve all of our customers HGV, van and car requirements under one roof, from one day rentals through to 8 year plus leasing for some of the heaviest equipment.
• We continued to focus on our cost base, commencing initiatives which will deliver £3m annual run rate cost savings in the period.
• Our customer retention statistics continue to be exceptionally good.

We are increasingly able to differentiate our service proposition helping us secure high quality new business and the directors are confident that the Group can continue this going forward.

We have extended our securitisation funding facilities to both retail and HGV markets in the year.

The move to our new headquarters at Kirkstall Forge in Leeds in the prior year, and the continued adoption of flexible and agile working practices, is a significant step forward in our ability to attract the highest quality talent to our business and retain the best people.

We were delighted that our headquarters was highly commended in the Top Tech Yorkshire report and the first commercial building in Yorkshire to receive a Wired Platinum certification for connectivity.

During the year our office was recognised as the national best office space of the year supporting our belief that this is a great place to work.

OUTLOOK

Our view is the fundamental growth drivers of the market remain highly positive, being:

i) increasing outsourcing of the management of corporate fleets, and

ii) increasing leasing, as opposed to buying, of vehicles by consumers, whether directly or via salary sacrifice schemes

Of the 40 million vehicles in the UK today, Zenith’s strategy to develop adjacent heavy commercial vehicle and consumer markets now puts the Group in a strong position to grow the business, from city cars to heavy commercial vehicles across corporate and consumer markets. In our opinion Zenith is the leading UK proposition with management, technology and funding capabilities in every market segment.

Our corporate vision is to be the benchmark by which quality service is measured within our industry. We are accelerating the pace of investment in systems, infrastructure and people, having recently approved multi-million pound investment programmes in these areas which will enable us to continue improving our service levels to customers and keep us at the vanguard of innovative service delivery.

The business has a robust base from which to continue to build and we have many exciting opportunities with both new and existing customers which we expect to be able to develop in order to further drive the creation of shareholder value.

Over the next year Zenith will continue to focus on developing the brand, systems and market for the consumer product and integrate fully the heavy commercial vehicle operations into the business to enhance the corporate offering.

The full audited consolidated accounts for Zenith Automotove Holdings Limited for the year ended 31 March 2019 can be found here.