Onward SG FLEET GROUP LIMITED ABN 40 167 554 574 Annual Report 2022 OUR AMBITION To be a trusted partner in shaping the future of sustainable mobility OUR PURPOSE To solve our customers’ mobility needs and aspirations ABOUT SG FLEET GROUP SG Fleet Group Limited is a leading provider of integrated mobility solutions, including fleet management, vehicle leasing and salary packaging services. We deliver highly efficient products and services to meet our customers’ needs in a socially, environmentally and ethically responsible manner. SG Fleet operates in Australia, New Zealand and the United Kingdom. The company employs over 1,100 staff worldwide and has approximately 270,000 vehicles under management. SG Fleet listed on the Australian Securities Exchange in March 2014. The company has a unique position in the marketplace, built on the experience and product expertise of its team, its innovation capability, and a customer-centric approach to service delivery. We actively contribute to the global discussion about the future of transport and shape the new mobility landscape in cooperation with all levels of government, as well as leading corporates. SG Fleet continuously evolves its highly advanced fleet management capabilities and flexible mobility solutions, and selectively invests in new technologies and business models that are changing the way we move. In the 2022 financial year, the company acquired the Australian and New Zealand businesses of LeasePlan Corporation to create a highly compelling fleet management and leasing offering across the region. SG Fleet also continued to build its integrated mobility capabilities, investing in eBike solutions provider Zoomo and progressing the development of a number of new products and services by its Innovation Team. CONTENTS About SG Fleet Sustainability statement Chairman’s report CEO’s report Directors’ report IFC 04 14 15 19 Auditor’s independence declaration 41 Financial report Shareholder information Corporate directory 42 98 100 1 NPAT (UNDERLYING) 39.3% 51.6 36.7 FY20 FY21 FY22 $71.9m A Year in Numbers FINANCIAL1 NET REVENUE 58.0% 198.2 172.3 FY20 FY21 FY22 EPS (UNDERLYING) 12.3% 19.14 13.88 $313.0m DIVIDEND 20.2% 12.58 10.00 FY20 FY21 FY22 21.50cps FY20 FY21 FY22 15.13cps OPERATIONAL INCREASE IN NUMBER OF ZERO EMISSION VEHICLES MANAGED3 128% VEHICLES UNDER MANAGEMENT2 ~270,000 REPAIRS MANAGED2 450,000+ KILOMETRES TRAVELLED BY MANAGED FLEET3 FUEL AND TOLL TRANSACTIONS PROCESSED3 3.2 billion+ 10 million+ 1. Includes acquired LeasePlan businesses contribution from 1/9/2021 2. Group 3. Australia Annual Report 2022 2 LeasePlan ACQUISITION OF LEASEPLAN AUSTRALIA / NEW ZEALAND On 1 September 2021, SG Fleet acquired the Australian and New Zealand businesses of international fleet management and leasing company LeasePlan Corporation NV. LeasePlan ANZ has operated in the region for over 30 years. At the time of the acquisition, the business had six locations in Australia and three in New Zealand, employing approximately 430 staff and managing over 100,000 vehicles. LeasePlan ANZ offers a products and services range similar to that of SG Fleet. Its customer base is diversified across a range of industries and the business has always been recognised for its strong service culture. The acquisition included an international alliance agreement with LeasePlan Corporation NV to share business opportunities and exchange know-how, a unique advantage in the Australian and New Zealand markets. TRANSFORMING FLEET MANAGEMENT AND LEASING IN THE REGION The bringing together of the SG Fleet and LeasePlan ANZ businesses has created an industry leader in fleet management and leasing across Australia and New Zealand. The merged entity employs over 1,100 staff and manages approximately 270,000 vehicles. The businesses are combining expertise and strengths across different customer segments and product types, extending the depth and quality of SG Fleet’s customer base and introducing new products and services to the business portfolio. “ The bringing together of the SG Fleet and LeasePlan ANZ businesses has created an industry leader in fleet management and leasing across Australia and New Zealand.” Our in-house Innovation Team has introduced recently launched products to the joint sales force and LeasePlan ANZ’s existing offering has been made available to SG Fleet customers. The increased scale created by the acquisition and the sharing of available processes and resources significantly improve our ability to compete for business and enhance the customer experience. SG Fleet and LeasePlan ANZ staff have moved into shared offices. Cultural alignment between the two businesses is exceptionally strong, facilitating a best-of-breed approach that taps into the additional knowledge and expertise now available. SG Fleet intends to grow the combined business and deliver a comprehensive suite of products and services, together with best-in-class service, to its customers across the region. SG Fleet Group Limited Innovation DRIVING DECARBONISATION A customer survey conducted in 2022 by SG Fleet found that fleet managers identified decarbonisation as the single largest impact on the operation of corporate fleets. A significant proportion also reported setting sustainability objectives in their organisations. Not surprisingly, the advent of electric vehicles was seen as the most ground-breaking transport innovation and interest in low- or zero-emission propulsion has continued to grow at a rapid pace. As a leader in the EV space, we are expanding our services from a pure focus on facilitating the introduction of EVs to a more holistic approach to decarbonisation of transport and the setting of emission reduction targets. Our advice will incorporate recommendations on other vehicle characteristics influencing emission levels, such as tyres, while our expertise in driver training will allow us to promote trip planning and driving techniques that will help our customers achieve their environmental objectives. SG Fleet will also continue to develop light touch/low cost safety management and emission reduction solutions for non-fleet drivers. To support the development of this industry-leading expertise, we are actively fostering the ‘future of mobility’ knowledge of our own people with the roll-out of an EV and charging e-learning module on our online training platform. ESTART EVOLVES The expansion of our role and expertise in assisting our customers with their decarbonisation approach is also reflected in the continued evolution of our eStart EV transition solution. In addition to the provision of the eStart service to a widening range of customer segments, including small and medium enterprises, it will evolve from a fleet management EV tool into a broader premium offering delivered by specialist consultants. 3 The next-generation eStart provides comprehensive facilitation of decision-making in the pursuit of any organisation’s broader sustainability ambitions. The service will offer a flexible menu of options and a tailor-made transition plan to solve our customers’ specific needs and aspirations. ZOOMO SG Fleet is rapidly evolving its products and services offering into a full Mobility-as-a-Service capability. During the 2022 financial year, the company took a strategic stake in Zoomo, which is breaking new ground in the micro-mobility world with its eBike offering. Micro-mobility is seen as a sustainable and efficient solution for last mile delivery and personal transport. We will be introducing Zoomo as a viable mobility alternative to our corporate and government customers, as well as through our novated leasing channels. Together with the company’s asset management tool Bookingintelligence and the subscription services provided by Carly, Zoomo’s solutions will play an important part in how SG Fleet will shape the future of mobility. “ Zoomo’s solutions will play an important part in how SG Fleet will shape the future of mobility.” Training Program Change Management EVC Deployment Customer Goals Workshop EV Deployment Transition Plan Annual Report 2022 ESG STRATEGY DEVELOPMENT SG Fleet determines its sustainability reporting categories by considering the nature of its business operations, which are predominantly the provision of services in an office-based environment. During the 2022 financial year, we undertook an ESG Materiality Assessment to further optimise how we determine our key ESG risks, how we approach the management of these risks, and how we report on our risk management in the yearly Sustainability Statement. Environmental, Social & Governance Strategy 4 Sustainability statement SG Fleet’s approach to long-term value creation for all of its stakeholders is driven by the principle that industry-leading environmental, social and governance behaviours should be integrated into daily business practices. The company established a Sustainability Committee, governed by a Charter, in 2019. In 2021, SG Fleet issued its first Sustainability Statement. The 2022 Sustainability Statement outlines the relevant actions taken by the company during the 2022 financial year with respect to the ESG risks identified as material in the Group ESG Strategy. KEY HIGHLIGHTS DEVELOPMENT OF Group ESG Strategy CLIMATEACTIVE Carbon neutral certification1 ISO 27001 INFORMATION SECURITY MANAGEMENT CERTIFICATION 1. Australian operations SG Fleet Group Limited 5 “ SG Fleet re-prioritised a number of ESG-related initiatives to harmonise the approach of the acquired entity with its own.” LEASEPLAN ACQUISITION On 1 September 2021, SG Fleet acquired the Australian and New Zealand businesses of international fleet management and leasing company, LeasePlan Corporation NV. As part of the integration of this acquisition, SG Fleet re-prioritised a number of ESG-related initiatives to harmonise the approach of the acquired entity with its own. As a result, work on the initial certification for the ISO 20400 Sustainable Procurement and the ISO 26000 Social Responsibility standards was paused to focus on the introduction at group-level of ISO standards already present in parts of the combined business. This includes the ISO 14001 Environment Management and the ISO 45001 Health & Safety Management standards. The harmonisation process continues in the 2023 financial year. The acquisition integration also led to the temporary pausing of a number of other ESG-related initiatives earmarked for the 2022 financial year, such as the exploration of recycled waste collection options and the introduction of indigenous education programs. These initiatives will be re-started in the 2023 financial year. This process included the following steps: – Development of an initial risk universe To ensure a comprehensive assessment of all possible ESG risks, SG Fleet developed a risk register based on the categorisation defined by the Global Reporting Initiative (GRI). A number of categories specific to the environment in the geographies in which we operate were added to these standards, as well as those linked to reporting requirements in these countries. The resulting risk register included 36 ESG categories. – Stakeholder materiality assessment SG Fleet reached out to both internal and external stakeholders to gather data about the perceived importance of the 36 ESG risks to each stakeholder group and the impact of the management of these risks on stakeholders’ assessment and decisions with respect to the company. – Reporting requirements SG Fleet took into consideration risks related to specific reporting requirements, even if these risks would not normally be perceived as material from a stakeholder’s perspective. The findings of this process were recorded in a risk materiality matrix, which outlines the risks most relevant to our stakeholders and our business. In some instances, risks that would be deemed less material from the perspective of the company’s business activities were identified as material from the perspective of certain external stakeholders and accordingly were retained as a key risk for the purpose of the ESG Strategy. The ESG Strategy was reviewed and approved by SG Fleet Group Limited’s Board after the end of the 2022 financial year. From the 2023 financial year onwards, a yearly Action Plan will be developed prior to the start of each financial reporting period. This Action Plan will detail the execution of the company’s ESG risk management, in line with the ESG Strategy. Annual Report 2022 6 ENVIRONMENT “ The Australian operations of SG Fleet obtained ClimateActive certification as a carbon neutral organisation during the reported period.” 22% REDUCTION IN SCOPE 1 AND 2 EMISSIONS SG Fleet ensures its day-to-day operations minimise resource consumption, waste and emissions. In addition, we work with our customers, business partners and suppliers to assist them with their environmental impact reduction initiatives. SG Fleet’s ESG Materiality Assessment identified the following environmental risks as material to the company: – Levels of emission impacting the environment Risks that are perceived as relevant to the wider community, even if not directly material to SG Fleet due to the nature of its business, are: – Other environmental risks, such as energy consumption levels and waste EMISSIONS As an office-based services company, SG Fleet does not produce meaningful levels of CO2 in its day-to-day business operations. The company only operates a small internal fleet of vehicles and the provision of its services does not generally require significant travel or transport. We view it as our duty to deploy our knowledge and help others reduce the impact of their transport activities and make a positive contribution to the environment. SG Fleet continuously explores options to further cut emissions across Scope 1 and 2 and, where under the company’s control, Scope 3. In order to reduce the use of consumables, measures have been introduced to lower the amount of printing. This resulted in a 57% reduction in paper usage, equivalent to ca. 7.4 tonnes of CO2 emissions. Emission reduction efforts have also targeted excessive air travel, although during the reported period, the return of business activity post-COVID-19 led to an increase in air travel over the preceding year, adding 104 tonnes in CO2 emissions. Road mileage by our staff (excluding commuting) was reduced by 5%, a reduction of CO2 emissions by ca. 19 tonnes. Where motor travel is essential, we seek to increase the use of low- or zero-emission vehicles. Total Scope 1 and 2 emissions were reduced by 22% during the reported period. Total emissions per FTE related to fuel and energy usage, air travel, and paper consumption were reduced by 40%1. With regards to customers, we offer the eStart Zero Emission Vehicle Transition Planning service, which plans and executes the transition from internal combustion to lower emission vehicles for our customers’ fleets. In the reported period, the number of electric vehicles in the managed fleet increased by 128%. We also ask all our preferred suppliers to develop and submit their strategies and initiatives to reduce emissions. The Australian operations of SG Fleet obtained ClimateActive certification as a carbon neutral organisation during the reported period. Future Focus SG Fleet aims to lower its GHG emission intensity ratio by putting in place additional initiatives to reduce overall emissions from company-owned resources, purchased energy and applicable Scope 3 categories. We aim to increase the percentage of zero-emission vehicles in our own fleet and have put in place a group EV strategy to further promote take-up of zero emission vehicles amongst our customers as well as in the wider community. Our goal is to help change behaviours across all of our stakeholder groups (customers, employees, business partners and suppliers) in terms of emissions awareness and mitigation. 1. All year-on-year comparisons exclude emissions and energy consumption data from the businesses acquired during the reported period SG Fleet Group Limited 7 25% REDUCTION IN ENERGY CONSUMPTION “ Our objective is to obtain 100% of our electricity from renewable resources” ENERGY CONSUMPTION WASTE SG Fleet’s energy consumption is largely limited to the operation of its office and warehouse locations, including lighting, power sources, and heating. We are transitioning some of our office operations, such as lighting, to more energy-efficient solutions. In the reported period, the lighting transition process was completed, resulting in a 25% net reduction in energy consumption overall. We currently obtain 94% of our electricity from renewable, green resources. Where possible, the company explores opportunities with its landlords to further improve the sustainability of its office locations. SG Fleet has an Environmental Impact and Performance Policy and holds ISO 14001 Environmental Management certification for parts of its business. Future Focus SG Fleet aims to lower its energy intensity ratio by putting in place additional initiatives to reduce overall energy consumption, including the adoption of ‘smart working’ set-ups. Our objective is to obtain 100% of our electricity from renewable resources as the business grows. SG Fleet will also move to a group-wide ISO 14001 certification. SG Fleet does not produce meaningful quantities of waste for packaging or other purposes, but our aim is to further minimise waste generation in the conduct of our business. Where waste is generated, for example in the operation of offices, we explore opportunities to divert waste from disposal via the process of recycling triage. Future Focus In cooperation with our employees, we will investigate options to further reduce waste generation and optimise our disposal process, particularly in the areas of paper, food and equipment disposal, and the use of water. SG Fleet will also cooperate with its suppliers to pursue similar objectives. OTHER ENVIRONMENTAL ASPECTS While due to the nature of its business, SG Fleet does not utilise a meaningful amount of packaging materials or consume and discharge significant amounts of water, we do approach the management of any materials and water consumption as an integral part of our overall environmental approach. Accordingly, we continue our efforts to minimise associated impacts. As an office-based business located in urban areas, SG Fleet’s activities have a negligible direct impact on natural habitats. Future Focus During the reporting period, SG Fleet explored the extent to which its suppliers are minimising their impact on the environment. This assessment identified a wide range of approaches of varying effectiveness. Moving forward, we intend to introduce minimum environmental standards for the selection and engagement of suppliers to promote impact reduction initiatives in our supply chain. Annual Report 2022 8 SOCIAL As part of SG Fleet’s recruitment process, vacancies are evaluated for their suitability for flexible work arrangements and for arrangements other than full time. Eligible employees are able to participate in a ‘Purchase Annual Leave’ program to assist with balancing family commitments. We have also introduced employer-funded parental leave, a sick-leave donation program, and Wellness Days in addition to annual leave entitlements. Future Focus SG Fleet will continue to implement strategies that support role and work flexibility, including the adoption of workplace arrangements and approaches that reflect a greater awareness of the social impacts of working conditions. OCCUPATIONAL HEALTH AND SAFETY Safety in the workplace is of paramount importance to SG Fleet. We view a safe and welcoming environment as an essential prerequisite for the wellbeing and productivity of our employees. In addition to providing our staff with a healthy work environment, we conduct regular e-training on a range of topics that can impact their wellbeing. These modules include sexual harassment prevention, work health and safety awareness, workplace bullying and occupational violence, and COVID-19 awareness. SG Fleet also has a Group Exposure Control Policy. In addition to risk mitigation education, we encourage our staff to proactively look after their physical and mental wellbeing. We provide access to a range of staff wellness benefits and activities. SG Fleet holds ISO 45001 OH&S Management certification for parts of its business. Future Focus We intend to investigate other occupational health and safety aspects (with an increased focus on mental health), within the workplace and in support of our employees’ wellbeing outside the workplace and at home. SG Fleet will move to a group-wide ISO 45001 certification. “ We have introduced Wellness Days in addition to annual leave entitlements.” SG Fleet respects and seeks to further the interests of its customers, its employees and the wider communities in which we operate. Our culture is one of trust, respect, care and responsibility, and we aim to apply this in all our interactions with every individual, as well as with community groups. SG Fleet’s ESG Materiality Assessment identified the following social risks as material to the company: – Working conditions (employment) and training – Diversity, non-discrimination, and equal opportunity – Occupational health & safety – Customer privacy and data security Risks that are perceived as relevant to the wider community, even if not directly material to SG Fleet due to the nature of its business, are: – Forced or compulsory labour in the company and its supply chain (Modern Slavery) – Human rights – Support of indigenous communities WORKING CONDITIONS SG Fleet’s success as a business and its ability to deliver excellence in services and products to its customers relies on a motivated workforce. Providing a positive work environment and optimal work conditions is an essential component of our efforts to support our employees. SG Fleet Group Limited 9 “ SG Fleet is a complying employer with the Workplace Gender Equality Agency.” As at 30 June 2022, the company’s workforce was made up of 46% women and 54% men. SG Fleet complies fully with the Workplace Gender Equality Act (2012) and is a complying employer with the Workplace Gender Equality Agency. We conduct regular e-training on equal employment opportunity. Future Focus SG Fleet continues to work towards a diverse workforce, including balanced gender representation at Board and Senior Management level. The company intends to widen its diversity focus to other areas, in addition to gender, and ensure that a more diverse representation also translates into actual inclusion of more diverse opinions. NON-DISCRIMINATION We celebrate the diverse range of cultural backgrounds and experiences of our employees and provide a work environment that is free from discrimination. In addition, SG Fleet is committed to ensuring no discrimination occurs against customers, suppliers, and other stakeholders. SG Fleet’s Code of Conduct stipulates compliance with the letter and spirit of a full range of anti-discrimination laws to establish a workplace free from any kind of discrimination. The company conducts regular e-training on discrimination to reinforce awareness and correct behaviours. Future Focus SG Fleet will continue to improve relevant education as well as enhance the necessary processes to identify and address related incidents. We will also investigate initiatives that will help break down perceptions that foster discrimination. TRAINING SG Fleet is committed to supporting the continued growth of its people. We have a reputation within the industry of developing the best available talent and expertise. Upskilling our staff is essential in order to retain our industry leadership position. SG Fleet’s staff are given access to internal and external development opportunities, such as training programs and courses. Mentoring arrangements are also in place for appropriate roles and functions. All staff receive regular performance and career development reviews. Future Focus SG Fleet will investigate opportunities to extend the range of its current training structures, both in terms of training topics and the ability of staff to access training. We will also implement initiatives to optimise the onboarding and continued education process. DIVERSITY AND EQUAL OPPORTUNITY SG Fleet’s business success is built on the expertise of its people. We recognise the importance of being an inclusive employer and have a strong commitment to equal opportunity and diversity, with a focus on gender diversity. Diversity drives the company’s ability to attract, retain and develop the best talent, create an engaged workforce, deliver the highest quality of service to customers, and achieve sustainable growth. Annual Report 2022 10 SOCIAL CONTINUED MODERN SLAVERY STATEMENT 2021 FORCED OR COMPULSORY LABOUR SG Fleet does not tolerate any form of enslavement or exploitation and we are committed to ensuring measures are in place to minimise the risk of modern slavery in our business and in our supply chain. The company has voluntarily put in place a Modern Slavery Policy, which outlines our overall approach to combatting modern slavery. In the reporting period, this included a comprehensive survey of approximately 10,000 suppliers to identify any modern slavery risks, as well as the review of the modern slavery statements of our preferred suppliers. No significant risks, issues or causes of concern were identified through this process in the 2022 financial year. SG Fleet issues Modern Slavery Statements overviewing its initiatives during the respective reporting periods in Australia (pursuant to the Modern Slavery Act 2018 (Cth)) and the United Kingdom (pursuant to the Modern Slavery Act 2015 (UK)). Future Focus SG Fleet intends to adopt a more robust supplier assessment methodology to optimise the process by which it identifies modern slavery risks, as well as how any identified risks are investigated and addressed. In addition, SG Fleet will introduce an assessment of its suppliers’ performance against a number of other social criteria, and, where possible, work with its suppliers to achieve better outcomes across a range of related aspects. HUMAN RIGHTS As an office-based services company, SG Fleet’s direct exposure to the risk of human rights infringement is limited. The company does however expect partners in its supply chain that are more likely to encounter human rights issues to take necessary measures to mitigate against this risk. Our Supplier Code of Conduct stipulates our expectations with regard to the conduct of suppliers in terms of modern slavery risks, the treatment of labour and human rights generally. “ We are a proud member of Supply Nation, which aims to promote and support procurement through indigenous organisations and create a more inclusive economy, and we currently source a number of goods from these businesses.” SG Fleet’s approach to ensure responsible internal conduct with respect to human rights centres on the training of staff on related topics, such as modern slavery, non-discrimination, and diversity and equal opportunity. Future Focus SG Fleet will continue to investigate the need for additional human rights-related employee training. We also intend to introduce supplier selection criteria that take into account human rights management and behaviours of potential suppliers. INDIGENOUS COMMUNITIES SG Fleet is committed to furthering wherever possible the cause of Aboriginal and Torres Strait Islander and other indigenous communities in the geographies in which it operates. In addition to offering employment opportunities, the company actively supports indigenous business ventures. We are a proud member of Supply Nation, which aims to promote and support procurement through indigenous organisations and create a more inclusive economy, and we currently source a number of goods from these businesses. In the reported period, SG Fleet directed 2.0% of its spend1 to indigenous organisations, up from 1.2% in 2019, the year in which the company joined Supply Nation. Future Focus SG Fleet is aiming to build the right perspective amongst its leadership and its people to work towards an effective and impactful Reconciliation Action Plan in the future. We will also put a greater emphasis on supporting indigenous businesses and employment where practical and viable. 1. Eligible spend SG Fleet Group Limited 11 WHEELCHAIR RUGBY AUSTRALIA Photo Credit – Stephen Tremain NORTHLAND EMERGENCY SERVICES TRUST LOCAL COMMUNITY CHRISTMAS SUPPORT CUSTOMER PRIVACY To be able to create value for its customers and conduct its business in an efficient manner, SG Fleet needs to collect and process certain personal and business information. The way we collect, use and retain this information is governed by strict protocols and detailed processes. SG Fleet complies with all applicable privacy laws in each jurisdiction in which we operate and processes customer information in accordance with its privacy policies. Our Personal Data Protection Policy sets out how we protect the personal data we collect. The awareness of the importance of customer privacy and the need for secure handling of data is reinforced at the individual employee level through regular staff updates and continuous training via our e-learning portal. In the reported period, no incidences of loss of customer data were recorded. The SG Fleet Group has ISO 27001 Information Security Management certification. Our people also contribute generously by collecting donations or by volunteering in their own communities or for charitable activities of their choice. Wherever possible, we look to deploy our mobility expertise to the advantage of organisations or individuals who have limited access to transport or to support road safety initiatives. During the 2022 financial year, we supported a wide range of initiatives, including NSW Wheelchair Sports and Wheelchair Rugby in Australia, the Northland Emergency Services and Auckland Rescue Helicopter Trusts in New Zealand, and local community Christmas initiatives in the UK. NSW Wheelchair Sports and Wheelchair Rugby (Australia) SG Fleet has been supporting NSW Wheelchair Sports for a number of years, providing vehicles to transport para-athletes and their equipment to and from events, including the marquee GIO Down Under 10K Race in Sydney on Australia Day. Future Focus Further enhancements of SG Fleet’s relevant processes will be introduced as the cyber security environment continues to evolve. The company will also further enhance staff data security awareness. OTHER SOCIAL ASPECTS SG Fleet interacts with local communities in Australia, New Zealand, and the UK as a significant employer and as a purchaser of goods and services. We firmly believe that we have a responsibility to the communities in which we operate, as well as people elsewhere, to give back and make a positive contribution in other areas wherever we can. Northland Emergency Services and Auckland Rescue Helicopter Trusts (New Zealand) Northland Emergency Services Trust on-duty pilots and engineers use vehicles provided by SG Fleet to conduct their vital emergency rescue work. We also provide the Auckland Rescue Helicopters Trust with a small fleet of essential vehicles, including two Rapid Response units, which allow the Trust to deliver emergency services both from the air and on the ground. AUCKLAND RESCUE HELICOPTER TRUST LOCAL COMMUNITY CHRISTMAS SUPPORT (UNITED KINGDOM) SG Fleet supports a number of initiatives across a wide range of areas. As a company, our community contribution comes in the form of financial support, and the provision of goods or vehicles. In the UK, our people raised money for Cancer Research and The Alice Charity. We also collected gifts and food items for the Hobs Moat Community Café to help local families in need over the Christmas period. Annual Report 2022 12 GOVERNANCE “ We have a number of policies in place to instil and promote ethical behaviour across the organisation, as well as our supply chain.” Across our organisation, we ensure we adopt responsible business practices and policies in all aspects of our operations. As a listed entity, SG Fleet Group Limited also reports against the ASX Corporate Governance Council’s Principles and Recommendations (4th Edition) via its Corporate Governance Statement. This statement describes the rules, systems and processes we have in place to manage our company and our operations in a responsible manner. In addition to the requirements set out by the ASX Corporate Governance Council, we have a number of policies in place to instil and promote ethical behaviour across the organisation, as well as our supply chain. SG Fleet also ensures its people are aware and observant of these policies by conducting regular e-learning sessions. SG Fleet’s ESG Materiality Assessment identified the following governance risks as material to the company: – Business ethics and conduct – (Presence of) whistle-blower policy – Supply chain management – Anti-corruption and bribery – Anti-competitive behaviour – Risk and crisis management BUSINESS ETHICS AND CONDUCT Our people are expected to conduct themselves in a manner consistent with the company’s standards and in compliance with all relevant legislation. SG Fleet’s Code of Conduct outlines how we expect our representatives to behave and conduct business in the workplace on a range of issues. It includes legal compliance and guidelines on appropriate ethical standards. Future Focus SG Fleet will continue to review its Code of Conduct as required, further improve the processes in place to ensure adherence to the Code, including training, and optimise how it addresses any breaches. WHISTLE-BLOWER POLICY SG Fleet is committed to ensuring that serious misconduct or malpractice is identified and addressed appropriately. We believe that the ability to raise related concerns is an important mechanism to ensure that the company functions efficiently and in accordance with its own principles of conduct. SG Fleet has adopted a Whistle-blower Policy in accordance with the Corporations Act. The Whistle-blower Policy encourages whistle-blowers to raise concerns and reportable conduct, where there are reasonable grounds to support such action and to ensure that serious misconduct or malpractice is identified and addressed appropriately. Future Focus SG Fleet’s Audit, Risk and Compliance Committee will continue to review its Whistle-blower Policy annually, and further improve employee awareness of and access to the whistle-blower process. SUPPLY CHAIN MANAGEMENT We view it as our responsibility to promote ethical behaviour not just within our business operations, but also at supplier level. SG Fleet takes great care in selecting suppliers of goods and services and we expect our suppliers to operate to recognised national and international standards, and appropriate codes of practice. SG Fleet Group Limited 13 “ The company aims to maintain its reputation of having a high standard of ethical behaviour in conducting business and to behave with integrity in all dealings with competitors and customers.” In order to do so, we have put in place a Supplier Code of Conduct and a Procurement Policy. These policies set out the requirements we expect from our suppliers in the areas of: ethical business practice, anti-competitive conduct, labour and human rights, work health and safety, environment, and confidentiality of information. Future Focus SG Fleet continuously explores opportunities to optimise its supply chain management process, including in terms of the expected qualifications and behaviours of suppliers. The company intends to pursue ISO 20400 Sustainable Procurement certification in the future. ANTI-CORRUPTION AND BRIBERY SG Fleet prohibits bribery and corruption in any form, whether direct or indirect, and in any country in which it operates. We have adopted an Anti-bribery and Corruption Policy, detailing our commitment to conducting business activities with integrity and ensuring measures are in place to prevent bribery and corruption. The company expects its employees to demonstrate honesty, integrity and fairness in all aspects of their business dealings and exercise a high standard of professionalism and ethical conduct in all their activities. We promote employee awareness of and compliance with its policies against bribery and corruption through appropriate dissemination of our own procedures, policies and training programmes. Future Focus SG Fleet will continue to review its Anti-bribery and Corruption Policy as required, further improve the processes in place to ensure adherence to the Policy, including training, and optimise how it addresses any breaches. ANTI-COMPETITIVE BEHAVIOUR The company aims to maintain its reputation of having a high standard of ethical behaviour in conducting business and to behave with integrity in all dealings with competitors and customers. SG Fleet’s Code of Conduct stipulates the behaviours required to meet its standards in terms of responsible business practices. We actively monitor for any breaches of the Code. In the reported period, no actions or issues occurred in respect of anti-competitive behaviour. Future Focus SG Fleet will continue to review its Code of Conduct as required, further improve the processes in place to ensure adherence to the Code, including training, and optimise how it addresses any breaches. RISK AND CRISIS MANAGEMENT The presence of effective risk management structures and processes is essential for the continued conduct of SG Fleet’s business operations. We maintain a combined Audit, Risk and Compliance Committee as a subcommittee of its Board, as well as a dedicated internal audit function. The Committee reviews the company’s risk management framework and internal control framework, while the internal audit function provides the Board and management with independent and objective assurance on the effectiveness of governance, risk management and internal control processes. Future Focus SG Fleet will continue to review its risk management approach and processes, in line with the evolving nature of its business and its operational environment. OTHER GOVERNANCE ASPECTS Visit the Governance section of our Investor Centre to read our Corporate Governance Statement, which covers a number of additional governance aspects. UN GLOBAL COMPACT During the 2021 financial year, SG Fleet became a signatory to UN Global Compact, committing to its corporate responsibility initiative and its principles in the areas of human rights, labour, the environment and anti-corruption. In the reported period, the company lodged its first UN Global Compact Communication on Progress report. Annual Report 2022 14 SG Fleet Group Limited Chairman’s report This has resulted in exceptional customer win and retention rates and greater penetration of our products in existing accounts. We are constantly adding to the range of solutions we provide and our innovation team again made good progress with the development of products that will shape the fleet management and leasing industry for years to come. Combined with selective investments, such as the one in eBike micro-mobility provider Zoomo this year, this will fundamentally enhance your Company’s capability as a mobility-as-a-service provider. The 2022 financial year has also been a period during which electric vehicles, or EVs, gained more prominence in the public debate. While our UK business already has considerable exposure to zero-emission vehicles, EVs have until now remained a relatively rare sight on Australian and New Zealand roads. Your Company has played a leading role in recent years in the facilitation of fleet transitions to low- and zero-emission vehicles and recent government initiatives will undoubtedly lead to a further increase in demand for our EV expertise, both from companies and from individuals planning to salary package an EV. Many organisations come to us for assistance with the objective of decarbonising their transport requirements. We believe we must lead in this regard and our involvement does not stop with the provision of our expertise in this area. As a responsible corporate citizen, we believe industry-leading environmental, social and governance (ESG) behaviours should be integrated into our daily business practices. During the 2022 financial year, your Company developed an ESG strategy that will shape the way we approach the management of ESG areas that are material to our business. Shareholders can read about our progress against this objective in our annual Sustainability Statement. Your Company has a clear vision for the future. We continue to monitor the market environment, improve our efficiency, innovate to lead, look for every opportunity to excel further in how we serve our customers, and, of course, integrate the acquired LeasePlan business to further strengthen our competitive position. In the 2022 financial year, we set a clear path to achieve all of these objectives and maintain our momentum as a profitable, growing organisation. I look forward on reporting to you on our progress in future years. My thanks go to everyone at SG Fleet. Our management team and our people have demonstrated that our achievements in previous years were built on lasting fundamentals, which will continue to underpin our position as an industry leader. I would also like to thank the Directors of the Board for their efforts in guiding your Company. Most importantly, I thank you, our Shareholders, for your continued support as we take full advantage of the opportunities we created this year. “ This year has witnessed a transformational event for your Company in the shape of the LeasePlan Australia and New Zealand acquisition.” Andrew Reitzer CHAIRMAN 15 August 2022 Sydney Dear Shareholder I have the pleasure of presenting you with the SG Fleet Group Limited Annual Report for the year ended 30 June 2022. The 2022 financial year started with major COVID-19 lockdowns in place in Australia and New Zealand. This did not stop your Company from making further progress across the board, helped by the resilience of our people and their remarkable ability to adjust the way we work and the way we service our customers. While COVID-19 may remain a feature of our world for years to come, as an organisation, we have demonstrated over the past two-and-a-half years that we always remain focused on what matters most to all of our stakeholders, creating value in a responsible manner. The growth we achieved during the 2022 financial year is clear evidence of the value we continue to add for our customers. The resulting revenue and profit growth marks the second year of our progress since we faced the challenges of 2020. I am pleased to report that this allowed your Board to declare a combined 2022 financial year dividend of 15.13 cents per share, an increase of 20% over the prior year. As foreshadowed in my previous report, this year has witnessed a transformational event for your Company in the shape of the LeasePlan Australia and New Zealand acquisition. The acquisition was completed on 1 September 2021 and has brought together two of the most highly regarded businesses in the region. That shared reputation has been reflected in the speed and efficiency with which the two groups of people have come together in terms of culture and service ethic. The strength of our people has been a prominent feature of our progress in recent years and our ability to learn and improve in the face of many challenges has undoubtedly been boosted by the expertise of the LeasePlan team. Your Company’s customers have responded very positively to our broadened offering of products and services as well as to the service enhancements we have been able to implement. SG Fleet Group Limited CEO’s report “ It was pleasing to see that we were able to accelerate the progress made in the previous financial year. This demonstrates that the Company is operating efficiently and consistently achieving its goals.” 15 The ability to tap into new expertise and the significantly improved scale of our business are already yielding benefits from a competitive positioning point of view. They also support the Company’s ability to achieve cost and efficiency improvements, including from a procurement perspective. With innovation coming through steadily and the companies in which we have invested in recent years growing their business, upsell of products and services also progressed significantly. Not surprisingly given recent developments, interest in electric vehicles and our EV expertise picked up further and the Company is actively innovating to further enhance its competitive advantage in that space. The further progress we made during the 2022 financial year and the strong contribution from the LeasePlan ANZ business resulted in a further significant uptick in the Company’s financial performance. Total net revenue for the full financial year was $313.0 million, up 58.0% on the previous year. Net profit after tax for the reported period was $60.7 million, up 39.0% on the previous year. Underlying net profit after tax, which excludes $11.2 million in costs related to the LeasePlan ANZ acquisition, was $71.9 million, a 39.4% improvement on the 2021 financial year. Underlying earnings per share amounted to 21.50 cents, up 12.4% on the previous corresponding period. In both half year periods, results were impacted by the shortage of new vehicles, which in turn elevated used vehicle pricing to unprecedented levels. The supply shortage also meant that customers were forced to extend their leases, resulting in fewer vehicles returning for disposal. Because of the continued growth in demand, the shortages triggered a material increase in the order pipeline, in both the Corporate and the Novated channels. On an organic basis, in other words, excluding the impact of the LeasePlan ANZ acquisition, net rental and finance income grew by 64.6%, driven by the increased number of vehicles in inertia, which was in turn caused by the lack of new vehicle stock. The Company’s total net rental and finance income was $62.7 million, compared to $16.1 million in the previous financial year. Net mobility services revenue for SG Fleet reduced by 2.3%, however, including LeasePlan ANZ, this revenue category was up 29.8% to $87.1 million. Net additional products and services revenue grew by 2.0%, primarily as a result of the growth in novated deliveries. Including the $13.8 million contribution from LeasePlan ANZ, total revenue for this category was $47.5 million. Finance commission reduced by 11.9% on the previous corresponding period. This was primarily the result of a reduction in principal & agency-funded new vehicle deliveries. Dear Shareholder I am pleased to report on the financial performance of SG Fleet Group Limited for the year ended 30 June 2022. My review of this financial year will refer for comparison to the financial figures for the year ended 30 June 2021. Where appropriate, reference will be made to the organic performance of the Company, excluding contributions from the acquired LeasePlan ANZ business. It should be noted that the Company introduced a number of changes to its financial disclosures at the 2022 half year results to provide investors with additional insight into its performance. Detailed financial data can be found in the full annual report. PERIOD-ON-PERIOD PROGRESS CONTINUES DESPITE EXCEPTIONAL ENVIRONMENT The operational environment in the 2022 financial year continued to produce unusual challenges, in the form of manufacturing and supply chain disruption, labour pressures, and the way we conduct business interactions. In that context, it was pleasing to see that we were able to accelerate the progress made in the previous financial year. This demonstrates that the Company is operating efficiently and consistently achieving its goals. All of our businesses maintained the momentum built up in previous periods. The Corporate channel continued to grow its customer book, while in the Novated channel, we saw continued growth in enquiry levels throughout the period. Both channels again faced supply constraints and while this benefited used vehicle values, the inability to deliver meant that the beneficial impact of the growing order book will continue to spill into subsequent periods. The 2022 financial year results include ten months of contribution from the LeasePlan ANZ business, which was acquired on 1 September 2021. Its performance has exceeded our expectations. The acquisition integration process has run exceptionally well, with teams coming together quickly in the pursuit of growth for the combined business. Annual Report 2022 16 “ By accessing the expertise of the combined business, we have been able to adopt a best-of-breed approach and this has been paying dividends across the board.” Consistent with previous periods, end of lease income benefitted materially from the used vehicle market conditions. However, in the reported period, operating lease disposal volumes were 27% lower than in the 2021 financial year due to the increase in the number of extensions and vehicles in inertia. Nevertheless, the Company was still able to deliver organic growth in end of lease income of 23.9%. Total net vehicle risk income, including a $24.6 million contribution from LeasePlan ANZ, was $91.2 million, up 63.4% on the previous year. Operating expenses increased materially, to $170.2 million, as a result of the LeasePlan ANZ acquisition, higher employee costs in comparison with the COVID-19 lockdown periods, and an increase in technology costs in connection with the development of software-as-a-service solutions, which previously would have been capitalised. SIGNIFICANT NEW BUSINESS ACTIVITY IN CORPORATE CHANNEL There was little change in the operating environment of the Corporate channel and competitive activity remained mostly rational throughout the year. Similarly, the improving performance of the channel was a continuation of the momentum built in previous periods. Despite some COVID-19-related disruptions, our business development teams took full advantage of in-person and virtual contact opportunities to pursue the continuous stream of new opportunities arising. A significant number of new corporate, or tool-of-trade, accounts were signed up in the reported period. Tender win rates remained stable at a high level. Cash flow management continues to be a major focus of our customers and this generated sale and leaseback opportunities from both new and existing customers. In the existing customer book, retention levels were very strong, with some contract extensions including longer contract terms and a wider range of services. Greater customer penetration was a feature of the 2022 financial year, with strong interest in the Company’s BookingIntelligence asset booking system, the DingGo repairer platform service, Inspect365 and driver safety products. An ever-increasing environmental focus also drove interest in all potential decarbonisation avenues, including electric vehicles. The customers added as part of the LeasePlan ANZ acquisition also responded well to the SG Fleet product set and our innovation initiatives. An impressive number of new employer accounts were signed up during the period, giving the Novated channel access to a significantly larger pool of eligible employees. Progress at employer and driver level was helped by extending best-practice lead generation and employee engagement methodologies into the teams servicing existing LeasePlan customers. Significant potential was also identified in terms of accessory upsell to existing LeasePlan drivers. NEW ZEALAND ACTIVITY REBOUND DRIVES NEW OPPORTUNITIES Early in the 2022 financial year, the continued lockdown measures in New Zealand clearly impacted the operating environment. Since then, tender activity has recovered strongly and new business opportunities continued to emerge. There has been a particular focus on mobility technology and electric vehicles in this market. Competition for available business was largely rational. However, supply issues remained throughout the period, affecting our ability to deliver on the growing order book. The New Zealand business continued to be successful with converting accounts from managed-only to funded, including via sale and leasebacks. Similar opportunities were also identified in the existing LeasePlan book. The business was very successful in retaining existing corporate and government customers and adding new business in a number of industries. Progress in the SME segment was particularly pleasing. As was the case in Australia, the LeasePlan customer base in New Zealand responded well to the SG Fleet product set and innovation. UK POST-LOCKDOWN PROGRESS CONTINUES The UK business entered the 2022 financial year further down the COVID-19 recovery path, with most of the workforce returning to the office at the beginning of the period. The number of new business opportunities and resulting orders continued to grow, which in turn inevitably led to further growth in the business’ order pipeline. The supply situation in the UK worsened during the second half, with most makes and models having extremely lengthy lead times. Customer win rates remained high across both the tool-of-trade and consumer channels. A particular highlight was the conversion of managed-only customers to funding, as well as the introduction of our consumer products to existing tool-of-trade customers. Low emission vehicles, vans, and the Novalease salary sacrifice product were areas of particular growth for the business. By the second half, electric vehicles accounted for more than a third of deliveries. Within the existing book, further penetration was achieved by introducing additional products and services to our customers. IMPROVED CUSTOMER ENGAGEMENT SUPPORTS CONTINUED STRONG NOVATED DEMAND LEASEPLAN ANZ ACQUISITION DELIVERS SIGNIFICANT BENEFITS The operating environment of the Novated channel continued to feel the occasional impact of COVID-19 at the start of the financial year, but, supported by high employment rates in Australia, customer enquiries steadily grew to their highest levels in almost four years. However, the supply situation meant that delivering vehicles against the orders received was still a challenge. The integration of the LeasePlan ANZ business from the date of acquisition on 1 September 2021 has confirmed all synergy expectations. By accessing the expertise of the combined business, we have been able to adopt a best-of-breed approach and this has been paying dividends across the board. Operationally, the Company saw a clear impact from the integration work done to-date and this improved its efficiency and competitive positioning. SG Fleet Group Limited “ The combined business really started hitting its stride and I look forward to maintaining that momentum and accessing the full potential of our strengthened market position in future periods.” Rapid progress has been made with the integration since September. Initial phases of the process were rolled out during the reported period with the introduction of common premises and shared services and the start of the implementation of a group-wide products and services structure. The operational integration progressed well and continues as I write to you. The Company has been able to take advantage of its greater scale and has realised the synergies expected at this time. Initial benefits of its enhanced scale were also extracted in terms of operational efficiency, revised procurement arrangements, and enhanced automation and digitisation. The sharing of available processes and resources significantly improved our ability to compete for business as well as service existing customers across the book. LeasePlan ANZ customers were introduced to the SG Fleet product set and the Company’s innovation capability and their reception continues to be very positive. Take-up of newly available products has been very strong, leading to a further improvement in customer satisfaction. This in turn supported acquisition, retention and penetration of accounts. EXPANDING RANGE OF MOBILITY AND EV SERVICES Innovation and the broadening of the Company’s products and services offering towards higher value-add are some of the key drivers of revenue growth and their importance will only grow in the future. During the 2022 financial year, the Company expanded its range of mobility services with an investment in eBike solutions provider Zoomo, and further developed its electric vehicles and EV-related services expertise. Together with the Bookingintelligence asset booking tool and the subscription services provided by Carly, Zoomo’s solutions will play an important part in how we will shape the future of mobility. A feature of the reported period was the rapid acceleration of interest in low- and zero-emission vehicles, in line with a greater focus on the management of environmental risks across the globe. The Company has gathered considerable expertise with electric vehicles in the UK and has deployed that unique knowledge to customer acclaim in all its geographies. Penetration of EVs in corporate fleets increased steadily during the year, while interest in the Novated channel accelerated more rapidly. We successfully deployed our expertise and our relationships with manufacturers and charging providers to cater to this emerging demand. The greater environmental focus amongst corporates and governments also drove interest in the Company’s eStart solution, with customers increasingly requesting assistance with their fleet emission management efforts. During the period, we evolved eStart into an integrated approach to decarbonisation of transport and the setting of emission reduction targets. An initial trial of this product received very positive feedback. 17 The Company’s investment in micro-mobility provider Zoomo is in line with its strategy to invest in know-how and expertise in areas that help us build a comprehensive and multi-modal Mobility-as-a-Service solution. During the second half of the financial year, we worked with Zoomo to develop a value proposition for both the corporate and novated channels, which will be rolled out in the 2023 financial year. A STRENGTHENED MARKET POSITION The Company has emerged stronger from a challenging macro environment. Despite the continued impact of the supply disruption on our ability to turn strong order growth into revenue, the 2022 financial year has again been a period of strong progress. The Australian Corporate channel continued to build its customer book and widen its products and services range, and the Novated channel saw further growth in demand. In New Zealand, business activity rebounded after a period of strict lockdowns and, in the UK, we continued to go from strength to strength. The integration of the LeasePlan ANZ business, which performed better than anticipated during the period, progressed very well. The Company took advantage of the positive results of bringing two exceptional organisations together and the combined business is delivering strongly on the potential that the acquisition created. These outcomes will become more impactful as the integration progresses. Our innovation efforts continue in order to play a leading role in the new mobility environment. Selective investments and the further expansion of our EV solutions range during the year perfectly place the Company to deploy its industry-leading expertise as corporate customers and novated drivers increasingly move towards more efficient and environmentally-sound transport solutions. We continue to maintain the strong momentum in our businesses, and at the same time we are managing the extraction of the exciting benefits we are reaping from the LeasePlan ANZ acquisition, including revenue opportunities and the contribution it will make to our overall drive to improve cost efficiencies. As the 2022 financial year progressed, the combined business really started hitting its stride and I look forward to maintaining that momentum and accessing the full potential of our strengthened market position in future periods. My sincere thanks and appreciation go to my Executive team and my colleagues across the Group. In a year that brought two great businesses together, we remained focused on delivering the best service to our customers and creating a positive work environment for our people. The combination of these strengths has firmly placed us in a unique position in our industry and I would like to thank you, our shareholders, for supporting us as we continue on our journey to improve the value we create for all of our stakeholders. Robbie Blau CEO 15 August 2022 Sydney Annual Report 2022 18 Contents Directors’ report Auditor’s independence declaration Statement of profit or loss Statement of other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of SG Fleet Group Limited Shareholder information Corporate directory 19 41 42 43 44 45 46 47 90 91 98 100 SG Fleet Group Limited Directors’ report 30 June 2022 19 The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘Group’) consisting of SG Fleet Group Limited (referred to hereafter as the ‘Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2022. DIRECTORS The following persons were Directors of the Company during the whole of the financial year and up to the date of this report, unless otherwise stated: Andrew Reitzer (Chairman) Robert (Robbie) Blau Cheryl Bart AO Peter Mountford Edwin Jankelowitz Kevin Wundram Tex Gunning (appointed on 1 September 2021) Graham Maloney (resigned on 6 April 2022) Colin Brown (alternate for Peter Mountford) Details of the Directors are set out in the section ‘Information on Directors’ below. PRINCIPAL ACTIVITIES During the financial year, the principal continuing activities of the Group consisted of motor vehicle fleet management, vehicle leasing, short-term hire, consumer vehicle finance and salary packaging services. DIVIDENDS Dividends paid during the financial year were as follows: Final dividend for the year ended 30 June 2021 of 5.393 cents per ordinary share paid on 9 September 2021 (2021: Final dividend for the year ended 30 June 2020 of 3.053 cents) Interim dividend for the year ended 30 June 2022 of 8.318 cents per share paid on 10 March 2022 (2021: Interim dividend for the year ended 30 June 2021 of 7.192 cents) CONSOLIDATED 2022 $’000 16,039 28,446 44,485 2021 $’000 8,004 18,855 26,859 On 15 August 2022, the Directors declared a fully franked final dividend for the year ended 30 June 2022 of 6.811 cents per ordinary share, to be paid on 8 September 2022 to eligible shareholders on the register on 25 August 2022. This equates to a total estimated distribution of $23,293,000, based on the number of ordinary shares on issue as at 30 June 2022. The financial effect of dividends declared after the reporting date are not reflected in the 30 June 2022 financial statements and will be recognised in subsequent financial reports. 2022 Annual Report 20 Directors’ report 30 June 2022 REVIEW OF OPERATIONS The profit for the Group after providing for income tax amounted to $60,732,000 (30 June 2021: $43,705,000). The fleet size of the Group as at 30 June 2022 was 267,867 (30 June 2021: 138,797). Refer to Chairman’s report and Chief Executive Officer’s report for further commentary on the review of operations. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 1 September 2021, the Group acquired 100% of the ordinary shares in LeasePlan Australia Limited and LeasePlan New Zealand Limited. The acquisition consideration of $626,003,000 was settled by way of cash consideration of $273,000,000 and scrip consideration valued at $129,307,000. In addition to the acquisition consideration, as part of the transaction, excess cash in the statement of financial position and capital invested in the Lease Portfolio totalling $223,696,000 was repaid to LeasePlan Corporation bringing the total amount transferred to $626,003,000. There were no other significant changes in the state of affairs of the Group during the financial year. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR Apart from the dividend declared as discussed above, no other matter or circumstance has arisen since 30 June 2022 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Likely developments in the operations of the Group and the expected results of those operations are contained in the Chairman’s report and Chief Executive Officer’s report. ENVIRONMENTAL REGULATION The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. INFORMATION ON DIRECTORS Name: Title: Andrew Reitzer Independent Non-Executive Director and Chairman Qualifications: Bachelor of Commerce and a Master of Business Leadership from the University of South Africa Experience and expertise: Andrew has over 40 years of global experience in both the retail and wholesale industry. He has served as the Chief Executive Officer (‘CEO’) of Metcash Limited between 1998 and 2013. Prior to his appointment as CEO of Metcash, Andrew held various management roles at Metro Cash & Carry Limited and was appointed to lead the establishment of Metro’s operations in Israel and Russia and served as the Group Operations Director. Other current directorships: None Former directorships (last 3 years): Special responsibilities: Non-executive Chairman of Webcentral Group Limited (ASX: WCG) – resigned on 10 November 2020 and Non-executive Chairman of Amaysim Australia Limited (ASX: AYS) – delisted on 6 April 2021 Chairman of the Nomination and Remuneration Committee and Chairman of the Innovation and Technology Committee Interests in shares: 94,461 ordinary shares in the Company SG Fleet Group Limited 21 Name: Title: Qualifications: Experience and expertise: Robert (Robbie) Blau Executive Director and Chief Executive Officer (‘CEO’) Bachelor of Commerce (Accounting and Law), Bachelor of Laws (Cum Laude) from the University of the Witwatersrand, Higher Diploma in Tax Law from Johannesburg University Robbie was appointed CEO of SG Fleet in July 2006 and has significant experience in the fleet management and leasing industry. Robbie has overall responsibility for the strategic development of the Group and manages its relationships with financial services partners. Previously, Robbie was Managing Director of Nucleus Corporate Finance in South Africa, which he founded in 1999. During his time at Nucleus Corporate Finance, Robbie advised South African listed entity Super Group Limited on corporate advisory and strategic projects. He also spent a year working with the Operations Director of South African Breweries Limited and practised as a commercial attorney for five years at Werksmans Attorneys in South Africa. Other current directorships: Carly Holdings Limited (ASX: CL8) Former directorships (last 3 years): None Special responsibilities: Member of the Innovation and Technology Committee Interests in shares: 7,862,588 ordinary shares in the Company Interests in options: 2,050,061 options over ordinary shares in the Company Interests in rights: 179,535 performance rights over ordinary shares in the Company Name: Title: Qualifications: Experience and expertise: Cheryl Bart AO Independent Non-Executive Director Bachelor of Commerce and Bachelor of Laws from the University of New South Wales, Fellow of the Australian Institute of Company Directors Cheryl is a qualified lawyer and company director with experience across industries including financial services, utilities, energy, renewable energy, television and film. Cheryl previously worked as a lawyer specialising in Banking and Finance at Mallesons Stephen Jaques (now King & Wood Mallesons). Cheryl is currently a director of Shaw Australia Pty Ltd, Chairman of Tilt Renewables and Chairman of TEDxSydney. Cheryl is past Chairman of ANZ Trustees Ltd, the Environment Protection Authority of South Australia, the South Australian Film Corporation, Adelaide Film Festival and the Foundation for Alcohol Research and Education (‘FARE’). She is the 31st person in the world to complete The Explorer’s Grand Slam, and is a Patron of SportsConnect. Cheryl has also previously been a director of Football Federation Australia, ME Bank, The Prince’s Trust Australia, Australian Himalayan Foundation and Invictus Games Sydney 2018. Other current directorships: Audio Pixels Holdings Limited (ASX: AKP) Former directorships (last 3 years): Special responsibilities: None Member of the Audit, Risk and Compliance Committee, member of the Nomination and Remuneration Committee and member of the Innovation and Technology Committee Interests in shares: 30,665 ordinary shares in the Company 2022 Annual Report 22 Directors’ report 30 June 2022 Name: Title: Qualifications: Experience and expertise: Peter Mountford Non-Executive Director Bachelor of Commerce and Bachelor of Accountancy from the University of the Witwatersrand, Chartered Accountant, Higher Diploma in Taxation from the University of Witwatersrand and MBA (With Distinction) from Warwick University Peter is the nominee for Super Group Limited, has over 25 years of senior management experience and since 2009 has served as the CEO of Super Group Limited. Prior to becoming the CEO of Super Group Limited, he served as the Managing Director of Super Group’s Logistics and Transport division and later its Supply Chain division. Peter’s experience also includes six years as the CEO of Imperial Holdings Limited’s Consumer Logistics division and as Managing Director of South African Breweries Limited’s Diversified Beverages. He is currently a Director and vice Chairman of The Road Freight Association in South Africa and Bluefin Investments Limited (Mauritius). Other current directorships: Super Group Limited (JSE: SPG) Former directorships (last 3 years): Special responsibilities: None Member of the Audit, Risk and Compliance Committee and member of the Nomination and Remuneration Committee Interests in shares: 580,000 ordinary shares in the Company Name: Title: Qualifications: Experience and expertise: Edwin Jankelowitz Non-Executive Director Bachelor of Commerce from the University of the Witwatersrand, Chartered Accountant (South Africa) Edwin has spent over 40 years in corporate offices and has been Chairman of a number of listed companies. He was a member of the Income Tax Special Court in South Africa for 20 years. Prior to joining the Group, Edwin was Finance Director of Metcash Trading Limited and Metcash Limited from May 1998 to January 2011, and a Non-Executive Director of the company until August 2015. Edwin held the positions of Finance Director, Managing Director and then Chairman at Caxton Limited from 1983 to 1997. Edwin was a consultant in business management and tax between 1980 and 1983. Edwin was with Adcock Ingram Ltd from 1967 to 1979 in the Head Office and was promoted over time to Group Company Secretary and then Finance Director. Other current directorships: Former directorships (last 3 years): None None Special responsibilities: Chairman of the Audit, Risk and Compliance Committee (effective from 6 April 2022) Interests in shares: 23,000 ordinary shares in the Company SG Fleet Group Limited 23 Name: Title: Qualifications: Experience and expertise: Kevin Wundram Executive Director, Chief Financial Officer (‘CFO’) and Head of Risk Bachelor of Commerce from the University of the Witwatersrand, Honours Bachelor of Accounting Science degree from the University of South Africa, Chartered Accountant Kevin has been CFO of SG Fleet Group since July 2006 and has significant experience in the fleet management and leasing industry. He is responsible for the effective management of the finance, treasury, risk and corporate governance functions across the Group. Prior to joining the Group, Kevin was responsible for special projects at Super Group Limited, including the execution of acquisitions, disposals and due diligence. Kevin was also a member of the management committees of the Automotive Parts, Commercial Dealerships and Supply Chain Divisions. Prior to joining Super Group, Kevin worked in the audit and corporate finance divisions of KPMG South Africa for six years. Other current directorships: Alternative Director for Robbie Blau at Carly Holdings Limited (ASX: CL8) Former directorships (last 3 years): None Special responsibilities: Member of the Innovation and Technology Committee Interests in shares: 803,713 ordinary shares in the Company Interests in options: 768,773 options over ordinary shares in the Company Interests in rights: 67,326 performance rights over ordinary shares in the Company Name: Title: Tex Gunning (appointed on 1 September 2021) Non-Executive Director Experience and expertise: Tex is an Economics graduate of Erasmus University and since 2016 is the Chief Executive Officer and Chairman of the Managing Board of LeasePlan. Previously, he served on the supervisory board of TNT express from 2011-2013 to subsequently become the CEO of TNT Express between 2013 and 2016 which was later sold to Fedex in 2016. Tex has also served as CEO of Vedior between 2007 and 2008 after which the company was sold to Randstad. Subsequently he lead for 5 years the merger of the ICI paint division with Akzo paint, restructuring and selling the US business to PPG. Tex has 25 years of experience with Unilever, of which 7 years as President East Asia Pacific. Tex currently serves as a supervisory board member of various entities including Erasmus University Trustfonds, The Nexus Institute and World Life Fund Netherlands. He is also chairman of the Board of The Amsterdam Canal festival and the World Economic Forum Climate Sector Leader Auto. Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: None None None None 2022 Annual Report 24 Directors’ report 30 June 2022 Name: Title: Qualifications: Experience and expertise: Colin Brown Alternate Director for Peter Mountford Bachelor of Accounting Science degree from the University of South Africa (‘UNISA’), Honours Bachelor of Accounting Science degree from UNISA, Certificate in the Theory of Accounting from UNISA, Chartered Accountant (South Africa), Master in Business Leadership degree from the UNISA School of Business Leadership Colin provided support services to Super Group Limited’s treasury activities in Johannesburg from June 2009 to February 2010, and was appointed to the Super Group Limited’s board as CFO in February 2010. Prior to that, Colin was CFO and a member of the board of Celcom Group Limited, a business in the mobile phone industry and previously listed on the Alternative Exchange (‘AltX’) of the Johannesburg Stock Exchange (‘JSE’). Colin has also held the Financial Director position at Electronic Data Systems (‘EDS’) Africa Limited and Fujitsu Services South Africa, both multi-national companies in the information technology services industry and Bluefin Investments Limited (Mauritius). Other current directorships: Super Group Limited (JSE: SPG) Former directorships (last 3 years): None Special responsibilities: Alternative director and member of the Audit, Risk and Compliance Committee for Peter Mountford Interests in shares: 122,639 ordinary shares in the Company ‘Other current directorships’ set out above are current directorships for listed entities only and exclude directorships of all other types of entities, unless otherwise stated. ‘Former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and exclude directorships of all other types of entities, unless otherwise stated. COMPANY SECRETARY Tawanda Mutengwa (Bachelor of Laws (with distinction), University of Witwatersrand, Master of Laws, UNSW, AGIA) has held the role of company secretary since 10 December 2019. Tawanda first practised law at Bowman Gilfillan in South Africa before taking on legal, governance and secretariat roles at Macquarie Bank, Chubb Insurance, Elanor Investors and most recently at PwC Australia. MEETINGS OF DIRECTORS The number of meetings of the Company’s Board of Directors (‘the Board’) and of each Board committee held during the year ended 30 June 2022, and the number of meetings attended by each Director were: BOARD OF DIRECTORS AUDIT, RISK AND COMPLIANCE COMMITTEE NOMINATION AND REMUNERATION COMMITTEE Attended Held Attended Held Attended Held Andrew Reitzer Robbie Blau Cheryl Bart AO Peter Mountford Edwin Jankelowitz Kevin Wundram Tex Gunning Graham Maloney 8 8 7 8 7 8 7 4 8 8 8 8 8 8 7 4 – – 4 4 4 – – 3 – – 4 4 4 – – 3 6 – 5 6 – – – – 6 – 6 6 – – – – SG Fleet Group Limited 25 INNOVATIONS AND TECHNOLOGY COMMITTEE Attended Held 2 2 2 2 2 2 2 2 Andrew Reitzer Robbie Blau Cheryl Bart AO Kevin Wundram Held: represents the number of meetings held during the time the Director held office or was a member of the relevant committee. Colin Brown did not attend any meetings in his capacity as an Alternate Director during the financial year. REMUNERATION REPORT (AUDITED) The remuneration report, which has been audited, details the Key Management Personnel (‘KMP’) remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. KMP are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: – Principles used to determine the nature and amount of remuneration – Details of remuneration – Service agreements – Share-based compensation – Additional information – Additional disclosures relating to KMP PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms to market best practice for delivery of reward. The Board ensures that executive reward satisfies the following key criteria for good reward governance practices: – competitiveness and reasonableness; – acceptability to shareholders; – performance linkage/alignment of executive compensation; and – transparency. The main role of the Nomination and Remuneration Committee (‘NRC’) 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 NRC comprises two independent Non-Executive Directors and one Non-Executive Director and meets regularly throughout the financial year. The CEO and CFO attend certain committee meetings by invitation, where management input is required. The CEO and CFO are not present during any discussions related to their own remuneration arrangements. The performance of the Group depends on the quality of its Directors and executives. The remuneration philosophy is to attract, motivate and retain high performing, quality executives. The remuneration framework has been structured to be market competitive and complementary to the reward strategy of the Group. The reward framework is designed to align executive reward to shareholders’ interests. The Board has considered that it should seek to enhance shareholders’ interests by: – having economic profit as a key component of plan design; – focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value; and – attracting and retaining high calibre executives. 2022 Annual Report 26 Directors’ report 30 June 2022 Additionally, the reward framework should seek to enhance executives’ interests by: – rewarding capability and experience; – reflecting competitive reward for the achievement of strategic objectives and contribution to growth in shareholder wealth; and – providing a clear structure for earning rewards. In accordance with best practice corporate governance, the structure of Non-Executive Directors and executive remunerations are separate. Non-Executive Directors’ remuneration Fees and payments to Non-Executive Directors reflect the demands that are made on, and the responsibilities of, these Directors. Non-Executive Directors’ fees and payments are reviewed annually by the NRC. The NRC may, from time to time, receive advice from independent remuneration consultants to ensure Non-Executive Directors’ fees and payments are appropriate and in line with the market. The Chairman’s fees are determined independently to the fees of other Non-Executive Directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to determination of his own remuneration. Non-Executive Directors do not receive retirement benefits, share options or other cash incentives. The remuneration of Non-Executive Directors consists of Directors’ fees and committee fees. The Chairman of the Board attends all committee meetings but does not receive committee fees in respect of his role as Chairman or member of any committee. ASX listing rules require the aggregate Non-Executive Directors remuneration be determined periodically by a general meeting. The most recent determination was at the Annual General Meeting held on 12 February 2014, where the shareholders approved the aggregate remuneration be fixed at a maximum of $1,000,000 per annum. Non-Executive Director fees (Directors’ fees and committee fees) (inclusive of superannuation) are summarised as follows: Name – Position Andrew Reitzer – Independent Non-Executive Chairman Cheryl Bart AO – Independent Non-Executive Director Peter Mountford – Non-Executive Director Edwin Jankelowitz – Independent Non-Executive Director Tex Gunning – Non-Executive Director Fees per annum $210,958 $123,938 $123,375 $138,600 $100,000 Executive remuneration The Group aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components. The executive remuneration and reward framework has four components: – base salary and non-monetary benefits; – short-term performance incentives; – share-based payments; and – other remuneration, such as superannuation and long service leave. The combination of these comprise the executive’s total remuneration. Total Fixed Remuneration (‘TFR’) consisting of base salary, annual leave, superannuation and non-monetary benefits, is reviewed annually by the NRC, based on individual performance and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the Group and provides additional value to the executive. SG Fleet Group Limited 27 SHORT-TERM INCENTIVES The short-term incentives (‘STI’) program is designed to align the targets of the business units with the performance hurdles of executives. The STI program has a non-financial component and a financial component. NON-FINANCIAL COMPONENT OF STI The non-financial component comprises 20% of the STI and the financial component 80%. An individual performance gateway applies in relation to the award of the STI. For an executive to receive payment under the STI program, their performance must be assessed as being fully satisfactory. This includes their individual contribution to the Group’s organisational culture and demonstrating and upholding the shared values that underpin the Group’s purpose and ambition. Upon successfully passing through the performance gateway, in order to earn the non-financial component of their STI, the Executive is appraised according to the achievement of key performance indicators (KPI’s) as well as the achievement of key strategic initiatives. KPI’s include productivity and product profitability measures. Key Strategic Initiatives are defined annually as part of the Group’s strategic planning and each year an assessment is made of the achievements against the initiatives set twelve months before. Strategic Initiatives include for example, new product development, significant technology and business systems development, innovation, customer wins and internal efficiency initiatives. GROUP PERFORMANCE AND LINK TO REMUNERATION – FINANCIAL COMPONENT OF STI At the beginning of each year, the NRC sets the growth target for the business units and for the Group as a whole for the purpose of the STI. A minimum profit growth gateway of 60% of the target growth rate applies in order for an executive to be entitled to the financial component of the STI. The performance condition for the financial component of the STI is based on the annual growth rate (‘CAGR’) of the Group’s earnings per share (‘EPS’). EPS is determined by dividing the Company’s NPAT (‘net profit after tax’) by the weighted average number of ordinary shares on issue during the financial year. The growth achieved for the year, and the achievement against the performance conditions for the purpose of the STI is determined by the Board in its absolute discretion, having regard to any matters that it considers relevant. To determine EPS for the purposes of the STI, the Board typically exercises its discretion to adjust the EPS for the impact of non-recurring or significant transactions. The STI is subject to a 12 month payment deferral in equity in respect of 25% of amount determined as payable. LONG-TERM INCENTIVES Long-term incentives (‘LTI’) are typically granted annually to KMP (‘Participants’) in order to align remuneration with the creation of shareholder value over the long term. LTI include long service leave and share-based payments. LTI awards to Participants are made under the Equity Incentive Plan (‘EIP’) and are currently delivered in the form of share options and performance rights (‘LTI Instruments’). The number of LTI Instruments granted is based on a fixed percentage of the relevant Participant’s TFR and is issued to the Participant at no cost. LTI Instruments currently granted to KMP typically vest over a three year period although from time to time the Board may approve a two year vesting period when deemed appropriate (the ‘Performance Period’). The 2020 LTI offer will be assessed over a Performance Period of 1 July 2020 to 30 June 2022 with vesting to occur in August 2022 if the performance conditions are met. The 2021 LTI offer will be assessed over a Performance Period of 1 July 2020 to 30 June 2023 with vesting to occur in August 2023 if the performance conditions are met. The 2020 LTI and 2021 LTI to the Executive Directors were approved by the shareholder’s at the Annual General Meeting held on 27 October 2020. The 2020 LTI and 2021 LTI were granted to KMP other than the Executive Directors on 25 November 2019 and 28 October 2020 respectively. The 2022 LTI offer will be assessed over a Performance Period of 1 July 2021 to 30 June 2024 with vesting to occur in August 2024 if the performance conditions are met. GROUP PERFORMANCE AND LINK TO REMUNERATION – LTI The performance conditions for the LTI Instruments are based on the compound annual growth rate (‘CAGR’) of the Group’s earnings per share (‘EPS’). EPS was selected as the performance condition for the LTI since it is a measure of economic profit and is a key driver of the share price which is a key component in delivering sustained growth in shareholder wealth. The CAGR, and the achievement against the performance conditions for the purpose of the LTI is determined by the Board in its absolute discretion, having regard to any matters that it considers relevant. To determine the EPS CAGR for the purposes of the LTI, the Board typically exercises its discretion to adjust the EPS for the impact of non-recurring or significant transactions. The Performance Period and applicable performance conditions for any future LTI opportunities will be determined by the Board and specified in the relevant offer document. 2022 Annual Report 28 Directors’ report 30 June 2022 For the current LTI offers, the percentage of options that vest and become exercisable, if any, is determined by reference to the vesting schedule, summarised as follows: CAGR of EPS over the Performance Period for 2020 and 2021 LTI % of options that become exercisable Less than 3% 3% (Threshold performance) Between 3% and 7% Nil 60% Straight-line pro-rata vesting between 60% and 100% 7% or above (Stretch performance) 100% CAGR of EPS over the Performance Period for 2022 LTI % of options that become exercisable Less than 4.8% 4.8% (Threshold performance) Between 4.8% and 11.2% Nil 60% Straight-line pro-rata vesting between 60% and 100% 11.2% or above (Stretch performance) 100% Any LTI Instruments that remain unvested at the end of the Performance Period will lapse immediately. The Participant is entitled to receive one share for each right that vests. The Participant is entitled to receive one share for each option that vests and is exercised. The Participant must exercise any vested options within 3 years of vesting. After 3 years, any unexercised options will lapse. The Board may make an equivalent cash payment in lieu of providing shares to the participant. Any cash payment is at the Group’s discretion only. The Board may determine to implement a cashless exercise arrangement under which, in lieu of paying cash, the Board may permit a participant to pay the exercise price by forfeiting some of the vested options or forgoing some of the shares that would otherwise be allocated to the participant on exercise. The LTI Instruments do not carry dividends or voting rights prior to vesting and exercise. Participants must not sell, transfer, encumber, hedge or otherwise deal with the options. The EIP provides the Board with broad ‘clawback’ powers if, amongst other things, the Participant has: acted fraudulently or dishonestly, engaged in gross misconduct or has acted in a manner that has brought the Group into disrepute; or there is a material financial misstatement; or the Group is required or entitled under law or Company policy to reclaim remuneration from the Participant; or the Participant’s entitlements vest as a result of fraud, dishonesty or breach of obligations of any other person and the Board is of the opinion that the incentives would not have otherwise vested. If the Participant ceases employment for cause, the unvested LTI Instruments automatically lapse unless the Board determines otherwise. In other circumstances, the LTI Instruments will remain on issue with a broad discretion for the Board to vest or lapse some or all of the LTI Instruments. The Board will ordinarily lapse LTI Instruments in the case of resignation. Where there may be a change of control event, the Board has the discretion to accelerate vesting of some or all of the LTI Instruments and the Board will notify the Participant of the date on which any vested but unexercised options will expire. Where only some of the LTI Instruments are vested on a change of control event, the remainder of the LTI Instruments will immediately lapse. The EIP also provides flexibility for the Group to grant, subject to the terms of individual offers, restricted shares. USE OF REMUNERATION CONSULTANTS During the financial year 30 June 2021, the Group engaged Egan Associates to perform a remuneration benchmarking review for Executive Directors and other KMP. The benchmarking review report was issued during the 2022 financial year and was part of the NRC and Board review and deliberation. Based on the recommendations of the review, the NRC approved increases in the remuneration of the Executive Directors and other KMP in recognition of their additional responsibilities arising out of the LeasePlan acquisition. The effective date of these remuneration adjustments was 1 January 2022. Egan Associates was paid $30,780 for the services. There was no remuneration consultants appointed for review of Non-Executive Directors remuneration. An agreed set of protocols were put in place to ensure that the remuneration recommendations would be free from undue influence from KMP. These protocols include requiring that the consultant not communicate with affected key management personnel without a member of the NRC being present, and that the consultant not provide any information relating to the outcome of the engagement with the affected KMP. The Board is also required to make inquiries of the consultant’s processes at the conclusion of the engagement to ensure that they are satisfied that any recommendations made have been free from undue influence. The Board is satisfied that these protocols were followed and as such there was no undue influence. VOTING AND COMMENTS MADE AT THE COMPANY’S 2021 ANNUAL GENERAL MEETING (‘AGM’) At the 2021 AGM, the shareholders voted to approve the adoption of the remuneration report for the year ended 30 June 2021. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. SG Fleet Group Limited 29 Total $ 207,610 121,971 97,500 121,417 119,823 83,333 DETAILS OF REMUNERATION AMOUNTS OF REMUNERATION Details of the remuneration of the KMP of the Group are set out in the following tables. The KMP of the Group consisted of the Directors of SG Fleet Group Limited and the following persons: – Andy Mulcaster – Managing Director, Australia – Geoff Tipene – Managing Director, New Zealand – Peter Davenport – Managing Director, United Kingdom SHORT-TERM BENEFITS Cash salary and fees $ Deferred bonus from previous year $ Current year bonus $ 2022 POST- EMPLOYMENT BENEFITS LONG- TERM BENEFITS SHARE- BASED PAYMENTS Non- monetary $ Super- annuation $ Leave benefits $ Equity- settled $ Non-Executive Directors: Andrew Reitzer (Chairman) Cheryl Bart AO Graham Maloney* Peter Mountford Edwin Jankelowitz Tex Gunning** Executive Directors: 188,738 110,884 97,500 121,417 108,935 83,333 – – – – – – – – – – – – Robbie Blau (CEO) 1,098,791 348,619 863,255 Kevin Wundram (CFO) 546,315 136,872 317,059 Other KMP: Andy Mulcaster Geoff Tipene*** Peter Davenport*** 473,677 102,213 226,800 287,419 342,654 57,814 22,877 126,965 145,608 3,459,663 668,395 1,679,687 – – – – – – – – – 22,429 2,315 24,744 18,872 11,087 – – 10,888 – – – – – – – – – – – – – 23,568 23,568 74,951 41,137 836,300 3,245,484 313,612 1,378,563 23,568 36,868 165,388 1,028,514 8,654 – 101,497 604,778 – 1,861 108,186 623,501 120,205 154,817 1,524,983 7,632,494 * Represents remuneration paid until resignation on 6 April 2022. ** Represents remuneration paid from appointment on 1 September 2021. *** Total remuneration in local currency paid to Geoff Tipene amounts to NZ$644,118. Total remuneration in local currency paid to Peter Davenport amounts to £339,591. 2022 Annual Report 30 Directors’ report 30 June 2022 SHORT-TERM BENEFITS Cash salary and fees $ Deferred bonus from previous year $ Current year bonus $ 2021 POST- EMPLOYMENT BENEFITS LONG- TERM BENEFITS SHARE- BASED PAYMENTS Non- monetary $ Super- annuation $ Leave benefits $ Equity- settled $ Non-Executive Directors: Andrew Reitzer (Chairman) Cheryl Bart AO Graham Maloney Peter Mountford Edwin Jankelowitz Executive Directors: 182,652 107,308 120,000 117,502 100,459 – – – – – – – – – – Robbie Blau (CEO) 1,043,629 (23,917) 781,365 Kevin Wundram (CFO) 510,984 (13,046) 279,551 Other KMP: Andy Mulcaster Geoff Tipene* Peter Davenport* 430,070 269,907 300,866 4 3 400 189,787 116,314 133,188 3,183,377 (36,556) 1,500,205 – – – – – – – – 29,183 2,013 31,196 17,352 10,194 – – 9,544 – – – – – – – – – – Total $ 200,004 117,502 120,000 117,502 110,003 21,694 21,694 25,244 12,092 641,739 2,489,754 240,652 1,051,927 21,694 8,097 9,584 – – 11,363 55,109 34,004 35,988 706,248 457,508 483,818 110,269 58,283 1,007,492 5,854,266 * Total remuneration in local currency paid to Geoff Tipene amounts to NZ$490,573. Total remuneration in local currency paid to Peter Davenport amounts to £267,987. Colin Brown (Alternate Director) received no remuneration during the year ended 30 June 2022 and 30 June 2021. SG Fleet Group Limited 31 Non-Executive Directors’ salaries are 100% fixed. The fixed proportion and the proportion of remuneration linked to performance of Executive Directors and KMP are as follows: Name 2022 2021 2022 2021 2022 2021 FIXED REMUNERATION AT RISK – STI AT RISK – LTI Executive Directors: Robbie Blau Kevin Wundram Other KMP: Andy Mulcaster Geoff Tipene Peter Davenport 37% 44% 52% 52% 56% 44% 52% 65% 68% 65% 37% 33% 32% 31% 27% 30% 25% 27% 25% 28% 26% 23% 16% 17% 17% 26% 23% 8% 7% 7% The proportion of the cash bonus paid/payable or forfeited is as follows: Name Executive Directors: Robbie Blau Kevin Wundram Other KMP: Andy Mulcaster Geoff Tipene Peter Davenport CASH BONUS PAID/ PAYABLE CASH BONUS FORFEITED 2022 2021 2022 2021 98% 70% 56% 56% 56% 74% 53% 42% 42% 43% 2% 30% 44% 44% 44% 26% 47% 58% 58% 57% 2022 Annual Report 32 Directors’ report 30 June 2022 SERVICE AGREEMENTS KMP are employed under individual employment agreements. The agreements are continuous (i.e. not of a fixed duration) unless otherwise stated. These agreements provide for a total compensation including a base salary, superannuation contribution and incentive arrangements; variable notice and termination provisions; provisions for redundancy. Details of these agreements are provided below: ROBBIE BLAU – CEO – Total fixed remuneration (‘TFR’) of $1,174,497 per annum, which includes base salary, statutory superannuation contributions and any salary sacrifice arrangements – Participate in the STI with a maximum STI opportunity of 98% of TFR – Participate in the LTI with a maximum LTI opportunity of 60% of TFR KEVIN WUNDRAM – CFO – TFR of $603,922 per annum, which includes base salary, statutory superannuation contributions and any salary sacrifice arrangements – Participate in the STI with a maximum STI opportunity of 70% of TFR – Participate in the LTI with a maximum LTI opportunity of 45% of TFR OTHER KMP – Other KMP have employment agreements setting out the terms and conditions of their employment. The agreements are not of a fixed duration – Total compensation inclusive of a base salary and statutory superannuation contributions and any salary sacrifice arrangements – Eligibility to participate in the STI with a maximum STI Opportunity of 56% of TFR – Eligibility to participate in the LTI with a maximum LTI Opportunity of 30% of TFR TERMS OF STI PAYMENTS: STI payments are granted to Executive Directors based on specific financial targets and an appraisal of the executive’s performance and KPI’s. The growth achieved for the year, and the achievement against the performance conditions for the purpose of the STI is determined by the Board in its absolute discretion, having regard to any matters that it considers relevant. To determine EPS for the purposes of the STI, the Board typically exercises its discretion to adjust the EPS for the impact of non-recurring or significant transactions. The STI determined annually for each of the above KMP is subject to a 12 month payment deferral in equity in respect of 25% of the amount determined as payable. TERMS OF TERMINATION: In general the contract is terminated by providing 4 weeks’ notice by the Company and 3 months’ notice by the KMP. The KMP have no entitlement to termination payments in the event of removal for misconduct. SG Fleet Group Limited 33 SHARE-BASED COMPENSATION ISSUE OF SHARES There were no shares issued to Directors and other KMP during the year ended 30 June 2022 as a result of the exercise of options as part of compensation (2021: Nil). OPTION HOLDING The number of options over ordinary shares in the Company held during the financial year and at the date of this report by each Director, members of the KMP and other employees of the Group, including their personally related parties, is set out below: Options over ordinary shares Robbie Blau Kevin Wundram Andy Mulcaster Geoff Tipene Balance at the start of the year 2,653,020 994,882 472,288 290,526 723,551 271,332 168,750 103,197 Peter Davenport 310,322 108,468 Total Directors and other KMP Non-KMP 4,721,038 1,375,298 1,299,593 389,730 Total options 6,020,631 1,765,028 Granted Exercised Expired/ forfeited/ other Balance at the end of the year 3,376,571 1,266,214 641,038 393,723 418,790 6,096,336 Expired/ forfeited after 30/06/2022 Vesting after 30/06/2022 Balance at the Directors’ report date – – – – – – (1,326,510) 2,050,061 (497,441) 768,773 (191,038) 450,000 (116,984) 276,739 (126,657) 292,133 (2,258,630) 3,837,706 1,689,323 (148,585) (377,716) 1,163,022 7,785,659 (148,585) (2,636,346) 5,000,728 – – – – – – – – – – – – – – – – OPTIONS: The terms and conditions of each grant of options over ordinary shares affecting remuneration of Directors, KMP and other employees in this financial year or future reporting years are as follows: Granted Exercised Expired/ forfeited/ other Balance at the end of the year Expired/ forfeited after 30/06/2022 Vesting after 30/06/2022 Balance at the Directors’ report date Balance at the start of the year 960,980 1,823,951 3,235,700 – – – – 1,765,028 6,020,631 1,765,028 Grant date 25/11/2019 (a) 28/10/2020 (b) 28/10/2020 (c) 26/10/2021 (d) Grant date of options 25/11/2019 (a) 28/10/2020 (b) 28/10/2020 (c) 26/10/2021 (d) – – – – – – – – – – 960,980 (148,585) (812,395) 1,823,951 3,235,700 1,765,028 – – – (1,823,951) – – – – 3,235,700 1,765,028 7,785,659 (148,585) (2,636,346) 5,000,728 Vesting date and exercisable date Expiry date Exercise price 15/08/2022 14/08/2025 15/08/2022 14/08/2025 14/08/2023 13/08/2026 12/08/2024 11/08/2027 $2.35 $1.68 $1.68 $2.93 Fair value per option at grant date $0.70 $0.45 $0.46 $0.60 Options granted carry no dividend or voting rights and can be exercised only once the vesting conditions have been met until their expiry date. The share option plan is subject to a service condition and a performance condition. The performance condition is based on the compound annual growth rate (‘CAGR’) of the Group’s earnings per share. 2022 Annual Report 34 Directors’ report 30 June 2022 PERFORMANCE RIGHTS HOLDING: The number of performance rights over ordinary shares in the Company held during the financial year and at the date of this report by each Director, members of the KMP and other employees of the Group, including their personally related parties, is set out below: Performance rights over ordinary shares (LTI) Robbie Blau Kevin Wundram Andy Mulcaster Geoff Tipene Peter Davenport Total Directors and other KMP Balance at the start of the year 222,904 83,589 40,452 24,886 26,576 64,186 24,070 14,970 9,155 9,622 398,407 122,003 Non-KMP 1,470,591 612,787 Total rights (LTI) 1,868,998 734,790 Granted Vested Expired/ forfeited/ other Balance at the end of the year Expired/ forfeited after 30/06/2022 Vesting after 30/06/2022 Balance at the Directors’ report date – – – – – – – – – – – – – – – – 287,090 107,659 55,422 34,041 36,198 520,410 – – – – – – (107,555) 179,535 (40,333) (15,995) (9,795) (10,605) 67,326 39,427 24,246 25,593 (184,283) 336,127 2,083,378 (53,354) (501,167) 1,528,857 2,603,788 (53,354) (685,450) 1,864,984 Performance rights over ordinary shares (STI) Balance at the start of the year Granted Vested Expired/ forfeited/ other Balance at the end of the year Expired/ forfeited after 30/06/2022 Vesting after 30/06/2022 Balance at the Directors’ report date Robbie Blau Kevin Wundram Andy Mulcaster Geoff Tipene Peter Davenport Total Directors and other KMP Non-KMP Total rights (STI) – – – – – – – – 80,145 28,615 19,414 12,753 14,335 155,262 247,207 402,469 – – – – – – – – – – – – – – – – 80,145 28,615 19,414 12,753 14,335 155,262 247,207 – – – – – – (80,145) (28,615) (19,414) (12,753) (14,335) (155,262) (26,024) (221,183) 402,469 (26,024) (376,445) – – – – – – – – SG Fleet Group Limited 35 PERFORMANCE RIGHTS The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of Directors, KMP and other employees in this financial year or future reporting years are as follows: Granted Vested Expired/ forfeited/ other Balance at the end of the year Expired/ forfeited after 30/06/2022 Vesting after 30/06/2022 Balance at the Directors’ report date Grant date LTI 25/11/2019 (e) 28/10/2020 (f) 28/10/2020 (g) 26/10/2021 (h) Balance at the start of the year 590,916 147,888 1,130,194 – Total rights (LTI) 1,868,998 – – – 734,790 734,790 STI 08/09/2021 (i) – 402,469 – – – – – – – – – – – – 590,916 147,888 1,130,194 734,790 (53,354) (537,562) (147,888) – – – – 1,130,194 734,790 – – – 2,603,788 (53,354) (685,450) 1,864,984 402,469 (26,024) (376,445) – Grant date of rights 25/11/2019 (e) 28/10/2020 (f) 28/10/2020 (g) 26/10/2021 (h) 08/09/2021 (i) Vesting date and exercisable date 15/08/2022 15/08/2022 14/08/2023 12/08/2024 01/07/2022 Expiry date Exercise price N/A N/A N/A N/A N/A $0.00 $0.00 $0.00 $0.00 $0.00 Fair value per right at grant date $2.46 $1.55 $1.47 $2.33 $2.95 Performance rights granted carry no dividend or voting rights and will vest when the performance conditions have been met. The performance rights are subject to a service condition and a performance condition. The performance condition is based on the compound annual growth rate of the Group’s earnings per share. 2022 Annual Report 36 Directors’ report 30 June 2022 ADDITIONAL INFORMATION The earnings of the Group for the five years to 30 June 2022 are summarised below: Revenue Profit after income tax Dividends paid 2022 $’000 2021 $’000 2020 $’000 2019 $’000 886,771 482,080 452,896 509,722 60,732 44,485 43,705 26,859 36,381 43,159 60,462 47,035 The factors that are considered to affect total shareholders return (‘TSR’) are summarised below: Share price at financial year end ($) Basic earnings per share (cents per share) 2022 2.15 18.16 2021 3.00 16.22 2020 1.60 13.88 2019 2.95 23.20 2018 $’000 515,207 67,455 46,440 2018 3.70 26.30 ADDITIONAL DISCLOSURES RELATING TO KMP SHAREHOLDING The number of shares in the Company held during the financial year by each Director and other members of KMP of the Group, including their personally related parties, is set out below: Balance at the start of the year Received as part of remuneration Additions Other* Ordinary shares Andrew Reitzer Cheryl Bart AO Graham Maloney* Peter Mountford Edwin Jankelowitz Tex Gunning Colin Brown Robbie Blau Kevin Wundram Andy Mulcaster Geoff Tipene Peter Davenport 94,461 30,665 31,487 580,000 22,688 – 122,639 7,862,588 803,713 617,618 6,525 360,074 10,532,458 – – – – – – – – – – – – – * Other represents 31,487 shares held at resignation date. This concludes the remuneration report, which has been audited. Balance at the end of the year 94,461 30,665 – 580,000 23,000 – 122,639 7,862,588 803,713 617,618 6,525 360,074 – – – – 312 – – – – – – – – – (31,487) – – – – – – – – – 312 (31,487) 10,501,283 SG Fleet Group Limited 37 SHARES UNDER OPTION Unissued ordinary shares of SG Fleet Group Limited under option at the date of this report are as follows: Grant date 28/10/2020 26/10/2021 Expiry date Exercise price 13/08/2026 11/08/2027 $1.68 $2.93 Number under option 3,235,700 1,765,028 5,000,728 SHARES UNDER PERFORMANCE RIGHTS Unissued ordinary shares of SG Fleet Group Limited under performance rights at the date of this report are as follows: Grant date 28/10/2020 26/10/2021 Vesting date Number under rights 14/08/2023 1,130,194 12/08/2024 734,790 1,864,984 SHARES ISSUED ON THE EXERCISE OF OPTIONS There were no ordinary shares of SG Fleet Group Limited issued on the exercise of options during the year ended 30 June 2022 and up to the date of this report. SHARES ISSUED ON THE EXERCISE OF PERFORMANCE RIGHTS There were no ordinary shares of SG Fleet Group Limited issued on the exercise of performance rights during the year ended 30 June 2022 and up to the date of this report. 2022 Annual Report 38 Directors’ report 30 June 2022 MATERIAL BUSINESS RISKS The Board approves the Group’s Risk Management Policy and Risk Appetite. This provides a strong foundation from which the Group can successfully deliver on its strategic priorities. The Group’s Risk Management Policy and Risk Appetite Statement guide management to proactively identify, monitor and manage the existing and emerging material risks that could impact the Group. Risk-aware decision making is embedded within the Group’s key processes. The following table sets out the material business risks, in no particular order and excluding generic risks, that could adversely affect the Group’s future business, operations and financial prospects. Risk description Risk Mitigation Vehicle residual values The Group may inaccurately predict future market movements in used vehicle values. Used vehicle values are currently materially inflated due to disruptions in new vehicle supply. The Group expects used vehicle values to normalise at some point, which will cause a reduction in vehicle risk income. The timing of this normalisation is uncertain. New vehicle supply The Group is dependent on a predictable and reliable new vehicle supply chain in order to deliver vehicles and originate leases within a reasonable timeframe from the date the customer places an order. The current disruption to new vehicle supply limits the Group’s ability to do so, which adversely impacts customer satisfaction and revenue generation. In a time of rising interest rates, extended delays in new vehicle deliveries can adversely impact the profitability of some of the Group’s products. People The Group’s performance is largely dependent on its ability to attract and retain talent. Loss of key personnel could adversely affect financial performance and business growth. The current tight labour market conditions make recruitment and retention more difficult than is ordinarily the case. In addition, remuneration costs are increasing materially. Economic conditions In the current inflationary environment, the Group is exposed to the risk that it is unable to pass cost increases on to customers thereby adversely impacting profitability. The rising interest rate environment may adversely impact consumer sentiment and the demand for leasing. – The Group uses advanced statistical modelling underpinned by extensive data and overlaid with deep industry expertise to set vehicle residual values. – Multiple residual value risk mitigation strategies are employed during the life of the lease, including lease restructures and extensions. – Contractual incentives are in place with customers to align interests in optimising residual value performance. – The Group’s disposal model assists in achieving above-market end-of-lease disposal results. – When new vehicle supply is restored, income on new vehicle deliveries will increase, which will to some extent offset the decline in vehicle risk income. – New vehicle order lead-times have been adjusted to account for the supply chain disruptions. – The Group frequently engages with manufacturers and dealers on the status of production lines and shipping. – Additional resources and technology have been deployed to keep customers informed at regular intervals of the status of their deliveries. – Competitive remuneration structures to attract, motivate and retain talent. – Succession planning to develop or attract talent for sustainable growth. – Employee engagement surveys to identify areas for improvement and support retention. – Performance management processes to help identify, develop and grow talent in line with the Group’s values. – The planned development of a comprehensive employee value proposition. – Increased focus on individual, manager and leadership development. – Robust controls are in place to manage headcount growth and remuneration adjustments. – An operating model review is being conducted to identify optimisation opportunities. – Pricing is reviewed periodically. – A deal committee structure is in place to set pricing for new customer opportunities. SG Fleet Group Limited 39 Risk description Risk Mitigation Credit Historically, the majority of the Group’s funding for its lease portfolio was provided under principal & agency funding arrangements in terms of which credit risk is borne by the underlying financier rather than the Group. The introduction of securitisation funding, combined with the acquisition of the LeasePlan ANZ business, means that the Group now has a material credit risk exposure in its own right. Funding The Group’s operations are dependent on having access to competitively priced funding for lease portfolio assets. This funding is secured using two primary funding models, principal & agency and securitisation warehouses. A loss of access to funding or a material change to the terms of our funding could adversely affect the Group’s ability to attract or retain customers. The Group’s securitisation warehouses typically have two-year terms. At the expiration date, the Group is exposed to the risk that financiers may not have the appetite to extend the facility. If this occurs, the facility will enter an orderly amortisation phase, but no new business could be originated under the relevant facility. The Group is also exposed to the risk that the funding cost of the securitisation warehouses increases at the point of facility extension. An increase in funding costs would impact the profitability of the back-book as well as the ability to originate new leases at competitive pricing. Integration project execution The Group is undertaking a large-scale, multi-year, integration of the LeasePlan acquisition. This project includes an organisational restructure and multiple system migrations. Delays or failures in the execution of this project could adversely impact the Group’s operations and the achievement of synergy targets. Regulatory Demand for novated leases is driven by the tax concessions available to lessees under existing fringe benefits tax (‘FBT’) legislation. Changes to the FBT legislation may adversely impact the attractiveness of novated leasing, which would impact the profitability of the Group’s novated leasing channel. Cyber security/data privacy A successful cyber-attack could compromise the technology platforms used by the Group and could result in the exfiltration and loss of information or breach of data privacy laws and/or customer agreements. – The Group has an experienced credit team that operates within a robust credit policy and delegated lending authority framework. – The credit policy, and any changes thereto, are approved by the panel of financiers. – Appropriate segregation of duties is in place, both within the business and on the credit committee. – Annual reviews are performed on corporate customers. – Robust credit decisioning systems are in place. – Comprehensive portfolio parameter limits are in place together with monthly monitoring and reporting. – The Group has a diversified funding structure, with multiple funding partners. – Interest rate risk is hedged in accordance with the contractual maturity of the underlying leases. – The Group is consolidating its operations onto a single ERP system, which will allow originations to be funded using a variety of funding models and financiers. – The integration project is overseen by a Steering Committee that meets fortnightly. The Steering Committee monitors progress and makes key decisions in relation to the integration. – Sub-committees are in place to manage each detailed integration stream. – Robust project management processes are in place for all system migration processes. – Appropriate budgets are in place to adequately resource each project. – The Group has diversified its lease portfolio to reduce the proportion of novated leases. – The Group invests in product development to increase the leasing value proposition beyond the tax concessions. – The company is a member of the National Automotive Leasing and Salary Packaging Association (NALSPA), which is a body formed to communicate the economic benefits of existing FBT policy settings. – A security operations centre is in place that actively monitors the Group’s logical environment for malicious activity 24/7/365. – Robust Infosec and data privacy policies and processes are in place in line with international cybersecurity standards. – Regular penetration testing, vulnerability management controls and patching of all critical IT assets are in place. – Training in data privacy and security is conducted on a recurring basis. 2022 Annual Report 40 Directors’ report 30 June 2022 INDEMNITY AND INSURANCE OF OFFICERS The Company has indemnified the Directors, executives and employees of the Company for costs incurred, in their capacity as a director, executive or employee, for which they may be held personally liable, except where there is a lack of good faith. The Company’s subsidiary, SG Fleet Australia Pty Limited on behalf of the Company paid a premium in respect of a contract to insure the Directors and executives of the Company and of any related bodies corporates defined in the insurance policy, against a liability to the extent permitted by the Corporations Act 2001. INDEMNITY AND INSURANCE OF AUDITOR The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. The Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. NON-AUDIT SERVICES Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 34 to the financial statements. The Directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services as disclosed in note 34 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: – all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and – none of the services undermines the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as an advocate for the Company or jointly sharing economic risks and rewards. OFFICERS OF THE COMPANY WHO ARE FORMER PARTNERS OF KPMG There are no officers of the Company who are former partners of KPMG. ROUNDING OF AMOUNTS The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 immediately follows this Directors’ report. This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the Directors Andrew Reitzer Chairman 15 August 2022 Sydney Robbie Blau Chief Executive Officer SG Fleet Group Limited Auditor’s independence declaration 41 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of SG Fleet Group Limited I declare that, to the best of my knowledge and belief, in relation to the audit of SG Fleet Group Limited for the financial year ended 30 June 2022 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Rachel Milum Partner Sydney 15 August 2022 ©2022 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 27 2022 Annual Report 42 Statement of profit or loss For the year ended 30 June 2022 Revenue Interest revenue calculated using the effective interest method Total revenue Expenses Mobility services cost of sale Vehicle risk cost of sale Additional product and services cost of sale Rental and finance cost of sale Other direct costs Depreciation and amortisation Impairment of intangible assets Finance costs Employee benefits expense Occupancy costs Technology and communication costs Other expenses Total expenses Profit before income tax expense Income tax expense Profit after income tax expense for the year attributable to the owners of SG Fleet Group Limited Basic earnings per share Diluted earnings per share Note 5 CONSOLIDATED 2022 $’000 2021 $’000 886,121 481,580 650 500 886,771 482,080 (19,376) (284,111) (35,635) (11,545) (12,675) (202,611) (55) (52,410) (136,442) (3,515) (22,318) (16,946) (17,262) (199,264) (27,040) (11,093) (10,541) (32,899) – (11,551) (80,942) (2,439) (10,947) (14,560) (797,639) (418,538) 89,132 (28,400) 63,542 (19,837) 60,732 43,705 Cents 18.16 17.99 Cents 16.22 16.17 6 6 6 7 43 43 The above statement of profit or loss should be read in conjunction with the accompanying notes. SG Fleet Group Limited Statement of other comprehensive income For the year ended 30 June 2022 Profit after income tax expense for the year attributable to the owners of SG Fleet Group Limited Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation difference for foreign operations Effective portion of changes in fair value of cash flow hedges, net of tax Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of SG Fleet Group Limited 43 CONSOLIDATED 2022 $’000 60,732 (8,816) 32,193 23,377 84,109 2021 $’000 43,705 1,277 2,271 3,548 47,253 The above statement of other comprehensive income should be read in conjunction with the accompanying notes. 2022 Annual Report 44 Statement of financial position As at 30 June 2022 Assets Cash and cash equivalents Restricted cash Finance lease, trade and other receivables Inventories Derivative financial instruments Prepayments Investments in financial assets at fair value through profit or loss Leased motor vehicle assets Property, plant and equipment Intangibles Right-of-use assets Income tax refund due Deferred tax Total assets Liabilities Trade and other payables Derivative financial instruments Employee benefits Provisions Lease portfolio borrowings Borrowings Lease liabilities – right-of-use assets Vehicle maintenance funds Contract liabilities Income tax Deferred tax Total liabilities Net assets Equity Issued capital Reserves Retained profits Total equity CONSOLIDATED 2022 $’000 2021 $’000 Note 8 9 10 11 12 13 14 15 16 17 18 7 7 19 20 21 22 23 24 25 26 27 7 7 28 29 61,613 168,820 623,221 48,496 44,094 20,982 6,556 967,019 8,443 630,965 27,846 5,675 – 2,613,730 201,605 29,512 66,303 10,719 – 7,522 2,627 94,176 5,461 401,006 8,690 – 4,328 831,949 199,596 100,793 688 22,809 23,418 1,199,266 292,392 27,319 190,805 62,341 – 44,697 2,063,331 550,399 505,968 (90,113) 134,544 550,399 1,877 10,967 13,691 65,041 124,519 9,015 82,542 40,617 4,701 – 453,763 378,186 376,661 (116,772) 118,297 378,186 The above statement of financial position should be read in conjunction with the accompanying notes. SG Fleet Group Limited Statement of changes in equity For the year ended 30 June 2022 Consolidated Balance at 1 July 2020 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Issued capital $’000 291,370 – – – Contributions of equity, net of transaction costs (note 28) 85,291 Share-based payments (note 44) Other changes Dividends paid (note 30) Balance at 30 June 2021 Consolidated Balance at 1 July 2021 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments (note 44) Dividends paid (note 30) Balance at 30 June 2022 Contributions of equity, net of transaction costs (note 28) 129,307 376,661 (116,772) Reserves $’000 (122,581) – 3,548 3,548 – 2,321 (60) – Reserves $’000 (116,772) – 23,377 23,377 – 3,282 – – – – – – Issued capital $’000 376,661 – – – 505,968 (90,113) 45 Retained profits $’000 101,451 43,705 – 43,705 – – – (26,859) 118,297 Retained profits $’000 118,297 60,732 – 60,732 – – (44,485) 134,544 Total equity $’000 270,240 43,705 3,548 47,253 85,291 2,321 (60) (26,859) 378,186 Total equity $’000 378,186 60,732 23,377 84,109 129,307 3,282 (44,485) 550,399 The above statement of changes in equity should be read in conjunction with the accompanying notes. 2022 Annual Report 46 Statement of cash flows For the year ended 30 June 2022 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest and other finance costs paid Income taxes paid Net cash from operating activities Cash flows from investing activities Payment for purchase of subsidiary, net of cash acquired Payment for investments Proceeds from disposal of lease portfolio assets Acquisition of lease portfolio assets Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Payments for intangibles Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Share issue transaction costs Proceeds from borrowings Repayment of borrowings Repayment of lease liabilities – right-of-use assets Other payments Borrowing costs paid Dividends paid Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents CONSOLIDATED 2022 $’000 2021 $’000 Note 982,803 (654,340) 650 (46,981) (52,106) 230,026 (455,812) (4,863) 299,607 (483,512) (4,015) 616 (4,244) (652,223) – – 1,837,871 (1,352,077) (6,546) – (11,444) (44,485) 423,319 1,122 231,117 (1,806) 42 41 15 15 16 17 28 42 42 42 30 532,624 (387,012) 500 (11,551) (19,039) 115,522 – (2,746) 28,520 (73,316) (3,980) 161 (3,397) (54,758) 86,329 (1,483) 53,581 (47,906) (4,696) (60) – (26,859) 58,906 119,670 111,115 332 231,117 Cash and cash equivalents at the end of the financial year 8,9 230,433 The above statement of cash flows should be read in conjunction with the accompanying notes. SG Fleet Group Limited Notes to the financial statements 30 June 2022 47 NOTE 1. GENERAL INFORMATION The financial statements cover SG Fleet Group Limited as a Group consisting of SG Fleet Group Limited (the ‘Company’ or ‘parent entity’) and the subsidiaries it controlled at the end of, or during, the year (the ‘Group’). The financial statements are presented in Australian Dollars, which is SG Fleet Group Limited’s functional and presentation currency. SG Fleet Group Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 2, Building 3 20 Bridge Street Pymble NSW 2073 During the financial year, the principal continuing activities of the Group consisted of motor vehicle fleet management, vehicle leasing, short term hire, consumer vehicle finance and salary packaging services. The financial statements were authorised for issue, in accordance with a resolution of Directors, on 15 August 2022. The Directors have the power to amend and reissue the financial statements. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. NEW OR AMENDED ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. BASIS OF PREPARATION These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). Historical cost convention The financial statements have been prepared under the historical cost convention, except for certain financial instruments measured at fair value through profit or loss. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. PARENT ENTITY INFORMATION In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 38. PRINCIPLES OF CONSOLIDATION The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of SG Fleet Group Limited as at 30 June 2022 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the Group has control at the end of, or during the year. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of common control subsidiaries is accounted for using the common control method. The acquisition of other subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. 2022 Annual Report 48 Notes to the financial statements 30 June 2022 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED OPERATING SEGMENTS Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM are responsible for the allocation of resources to operating segments and assessing their performance. FOREIGN CURRENCY TRANSLATION The financial statements are presented in Australian Dollars, which is SG Fleet Group Limited’s functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into the entity’s functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian Dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian Dollars using the average exchange rates, which approximate the rate at the date of the transaction, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. REVENUE RECOGNITION Revenue is recognised when it is probable that the economic benefit will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the ‘expected value’ or ‘most likely amount’ method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are initially recognised as a contract liability. Mobility services income Mobility services revenue includes the products and services required to keep a vehicle on the road in a safe and compliant manner. This revenue category includes income from registering and insuring the vehicle, providing assistance in the event of a break-down or accident, telematics and safety inspections. It also includes income from car-share bookings. This is an annuity income stream which is primarily driven by the funded fleet size and brought to account over time due to continuous performance obligations received by customers over the term of the lease. Additional products and services Additional products and services revenue is generated by products that are not typically related to keeping the vehicle on the road and mobile. This revenue category includes products such as accessories, redundancy protection, Trade Advantage and rebates. This income stream is largely transactional in nature and the key driver is the volume of funded deliveries coupled with penetration rates. Revenue from the sale of additional products and services is recognised when it is received or when the right to receive payment is established and the performance obligation has been satisfied. Specifically, upfront establishment fees levied to the customer to establish the contract for the services to be provided for the term of the contract, are recognised over the term of the contract. Revenue related to the waiver of the lessee’s wear and tear obligations is recognised at the point in time, being at the end of the lease term. Finance commission Finance commission is the income earned on leased vehicles funded off balance sheet. This income stream is largely transactional in nature, has no direct costs and the key driver is the volume of funded deliveries. Introductory commissions earned are recognised in profit or loss in full at a point in time, being in the month in which the finance is introduced to the relevant financier. Trailing commissions earned for the collection and distribution of ongoing customer rentals to the financier are recognised over time. Vehicle risk income Income earned after the expiry of the lease is recognised when it is received or when the performance obligation, being the sale of vehicle, transferring the risk and reward to the end buyer, has been satisfied and the right to receive payment is established. The gross selling price of the vehicle is recognised as vehicle risk income and the value of the vehicle at the end of the lease period payable to the financier, is recognised as vehicle risk cost of sale. SG Fleet Group Limited 49 Rental and finance income Rental and finance income is the income earned on leased vehicles funded on the balance sheet. Rental income is generated by operating lease vehicles, short-term rental vehicles as well as subscription vehicles. Finance Income is generated by finance lease vehicles. The cost of sale related to this income stream is operating lease depreciation, direct interest and short-term hire costs. This is an annuity income stream, and the key driver of this income stream is the size of the on balance sheet funded fleet. Rental and finance income is recognised overtime over the lease term. Other income Other income is recognised when it is received or when the right to receive payment is established. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. INCOME TAX The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: – when the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or – when the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities, and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. SG Fleet Group Limited (the ‘head entity’) and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the ‘separate taxpayer within group’ approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. FINANCE, TRADE AND OTHER RECEIVABLES Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. For finance lease and contract purchase agreements see the ‘Leases – Group as lessor’ accounting policy. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. INVENTORIES End-of-term operating lease assets are stated at the lower of cost and net realisable value. Cost comprises purchase and delivery costs, net of rebates and discounts received or receivable. Net realisable value is the lower of (i) estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale and (ii) cost less residual value provision. 2022 Annual Report 50 Notes to the financial statements 30 June 2022 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. DERIVATIVE FINANCIAL INSTRUMENTS Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. At inception of the hedge relationship, the Group documents the economic relationship between hedging instruments and hedged items including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The Group documents its risk management objective and strategy for undertaking its hedge transactions. The Group has elected to adopt the general hedge accounting model in AASB 9. This requires the Group to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. Where derivative instruments do not qualify for hedge accounting, changes in the fair value are recognised immediately in profit or loss. Cash flow hedges Cash flow hedges are used to cover the Group’s exposure to variability in cash flows that is attributable to particular risks associated with a recognised asset or liability or a firm commitment which could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income through the hedging reserve in equity, whilst the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred out of equity and included in the measurement of the hedged transaction when the forecast transaction occurs. When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative deferred gain or loss in equity at that time remains in equity until the forecast transaction occurs. When the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were classified in equity are immediately reclassified to profit or loss. PROPERTY, PLANT AND EQUIPMENT Plant and equipment are stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment over their expected useful lives as follows: Leasehold improvements five years Computer hardware and office equipment three to eight years Motor vehicles four years Leasehold improvements are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. For leased motor vehicles see the ‘Leases – Group as lessor – leased motor vehicles assets’ accounting policy. LEASES Group as lessee At inception of a contract, the Group assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration, and the Group obtains substantially all the economic benefits of the use of the assets. The Group has elected to apply the practical expedient to account for each lease component and any non-lease components as a single lease component. Right-of-use assets The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of lease incentives received, any initial direct costs incurred, and an estimate of costs required for dismantling and removing the underlying asset, site restoral and asset restoral. Right-of-use assets are subsequently measured applying a cost model such that the asset is depreciated and impaired as required or adjusted for any remeasurement of the lease liability. Where the lease transfers ownership of the asset to the lessee by the end of the lease term, or if the cost of the asset reflects that the lessee will exercise a purchase option, the lessee shall depreciate the right-of-use asset to the end of the asset’s useful life, otherwise, the assets are depreciated to the earlier of the end of their useful lives or the lease term using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term represents the non-cancellable period of the lease and includes periods covered by an option to extend if the Group is reasonably certain to exercise that option. Lease terms shall only be revised if there is a change in the non-cancellable period or there is a reassessment upon a significant event or a change in circumstances that is both within the control of the lessee and affects whether or not the lessee is reasonably certain to exercise an option. Lease terms range from 1 to 14 years. In addition, the right-of-use assets are periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. SG Fleet Group Limited 51 Lease liabilities – right-of-use assets The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. Lease payments comprise fixed lease payments less incentives receivable, variable lease payments, residual value guarantees payable, exercise price of purchase options where exercise is reasonably certain, and any anticipated termination penalties made over the expected term of the lease which includes optional periods where option exercise is considered reasonably certain. Variable lease payments include those dependent upon an index, interest rate or market but are included only using the index or rate existing at commencement date. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Variable lease payments include rent concessions in the form of rent forgiveness or a waiver as a direct consequence of the Coronavirus (COVID-19) pandemic and which relate to payments originally due on or before 30 June 2021. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or there is a change in lease term such as if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or to the profit or loss to the extent that the carrying amount has been reduced to zero. Interest on the lease liability and variable lease payments not included in the measurement of the lease liability are recognised in profit or loss. The Group has elected to apply the practical expedient not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases are recognised as an expense on a straight-line basis over the lease term. Group as lessor A lease is classified as a finance lease if it transfers all the risks and rewards incidental to ownership of the assets. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of underlying assets. Amounts due from customers under finance leases and contract purchase agreements are recorded as receivables. Finance and contract purchase receivables are initially recognised at an amount equal to the present value of the minimum instalment payments receivable plus the present value of any unguaranteed residual value expected to accrue at the end of the contract term. Interest income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the contracts. Group as lessor – leased motor vehicle assets Full maintenance lease assets are stated at historical cost less accumulated depreciation. The cost of full maintenance lease assets includes the purchase cost including non-refundable purchase taxes and other expenditure that is directly attributable to the acquisition of the assets to bring the assets held-for-use in the lease asset portfolio to working condition for the intended use. The depreciable amount of the asset is depreciated over its estimated useful life of two to five years on a straight-line basis. Lease rentals receivable and payable on operating leases are recognised in profit or loss in periodic amounts over the effective lease term on a straight line basis. INTANGIBLE ASSETS Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method of amortisation and the useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Goodwill Where an entity or operation is acquired in a business combination, that is not a common control transaction, the identifiable net assets acquired are measured at fair value. The excess of the fair value of the cost of the acquisition over the fair value of the identifiable net assets acquired is brought to account as goodwill. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Customer contracts The customer contracts acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their finite useful lives of ten years. Software Significant costs associated with software are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite useful lives of between two and eight years. 2022 Annual Report 52 Notes to the financial statements 30 June 2022 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED IMPAIRMENT OF NON-FINANCIAL ASSETS Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. TRADE AND OTHER PAYABLES Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. CONTRACT LIABILITIES Contract liabilities represent the Group’s obligation to transfer goods or services to a customer and are recognised when a customer pays consideration, or when the Group recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the Group has transferred the goods or services to the customer. BORROWINGS Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. MAINTENANCE DEFERRED INCOME LIABILITY Maintenance income is recognised for each performance obligation at the point in time when the service is provided and the obligation is completed. Maintenance costs are expensed when incurred. FINANCE COSTS Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. PROVISIONS Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Residual values The Group has entered into various agreements with its financiers that govern the transfer of the residual value risk inherent in operating lease assets from the financier to the Group at the end of the underlying lease agreement. These agreements include put/call options, sale direction deeds and guaranteed buyback arrangements. The residual value provision is created on an onerous pool basis to cover future shortfalls on the disposal of these vehicles. Assets are grouped into homogenous groups which are then analysed further into maturity pools. A provision is raised for a maturity pool if the forecast loss on disposal of the assets in the pool exceeds the future fee income that the pool will generate between the reporting date and the maturity date. Maturity pools in a net profit position are not offset against maturity pools in a net loss position. EMPLOYEE BENEFITS Short-term employee benefits Employee benefits expected to be settled within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for employee benefits not expected to be settled within 12 months of the reporting date is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date based on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. SG Fleet Group Limited 53 Share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions is measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions is recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore, any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award are treated as if they were a modification. FAIR VALUE MEASUREMENT When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. VEHICLE MAINTENANCE FUNDS Vehicle maintenance funds represents amounts collected from customers for vehicles under management, with such amounts subsequently used for payments for ongoing vehicle maintenance expenses such as fuel, service cost, registration and other charges. Any unused amounts at the end of the lease period are refunded to the customers. ISSUED CAPITAL Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. DIVIDENDS Dividends are recognised when declared during the financial year and are no longer at the discretion of the Company. 2022 Annual Report 54 Notes to the financial statements 30 June 2022 EARNINGS PER SHARE Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of SG Fleet Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. COMPARATIVES Comparatives in the financial report have been realigned to the current period presentation. For clearer presentation, the Group has reclassified $1,322,000 prepaid borrowing costs under liabilities within borrowings compared to the 30 June 2021 presentation under prepaid assets. The Group has realigned/ reclassified the revenue and expense categories disclosed in note 5 and the statement of profit or loss due to the LeasePlan acquisition. There has been no effect on the comparative period results, net assets or equity due to the reclassification. ROUNDING OF AMOUNTS The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET MANDATORY OR EARLY ADOPTED Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2022. The adoption of these Accounting Standards and Interpretations is not expected to have any significant impact on the Group’s financial statements. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED BUSINESS COMBINATIONS The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. SG Fleet Group Limited 55 INCOME TAX The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on the Group’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. NOTE 4. OPERATING SEGMENTS IDENTIFICATION OF REPORTABLE OPERATING SEGMENTS The Group is organised into geographic operating segments: Australia, New Zealand, United Kingdom and Corporate. These operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers (‘CODM’)) in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments. The CODM reviews EBITDA (earnings before interest, tax, depreciation and amortisation). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. The information regarding products and services are detailed in note 5. INTERSEGMENT RECEIVABLES, PAYABLES AND LOANS Intersegment loans are initially recognised at the consideration received. Intersegment loans receivable and loans payable that earn or incur non-market interest are not adjusted to fair value based on market interest rates. Intersegment loans are eliminated on consolidation. MAJOR CUSTOMERS There are no major customers that contributed more than 10% of revenue to the Group. NOTE 3. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. CORONAVIRUS (COVID-19) PANDEMIC The Group has applied significant critical judgements in the preparation of the financial statements, incorporating the Board’s best estimates of the foreseeable impact of COVID-19 on the Group’s statement of profit or loss and other comprehensive income and statement of financial position. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the Group operates. REVENUE FROM MOBILITY SERVICES As discussed in note 2, the Group estimates the mobility services income to be recognised for each performance obligation at a point in time when the service is provided and the obligation fulfilled. These calculations require the use of assumptions, including an estimation of the profit margin to be achieved over the life of the contract for each performance obligation. GOODWILL The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units, to which goodwill belongs, have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Refer to note 17 for further information. RESIDUAL VALUES As discussed in note 2, the Group has entered into various agreements with its financiers relating to residual value risk inherent in operating lease assets being transferred to the Group at the end of the underlying lease agreement. A provision is raised where the forecast loss on disposal of the assets in the pool exceeds the expected future fee income that the pool will generate. The expected future income is estimated based on past experience and likely market conditions at the time of disposal of the assets. 2022 Annual Report 56 Notes to the financial statements 30 June 2022 NOTE 4. OPERATING SEGMENTS CONTINUED OPERATING SEGMENT INFORMATION Consolidated – 2022 Revenue Revenue from contracts with customers Rental and finance income Total sales revenue Interest income Total revenue EBITDA Depreciation and amortisation Impairment of assets Finance costs Profit/(loss) before income tax expense Income tax expense Profit after income tax expense Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities Consolidated – 2021 Revenue Revenue from contracts with customers Rental and finance income Total sales revenue Interest income Total revenue EBITDA Depreciation and amortisation Finance costs Profit/(loss) before income tax expense Income tax expense Profit after income tax expense Assets Segment assets Total assets Liabilities Segment liabilities Australia $’000 New Zealand $’000 United Kingdom $’000 Corporate $’000 Total $’000 480,685 187,762 668,447 333 668,780 251,401 (139,713) (55) (39,235) 72,398 61,176 60,790 121,966 291 122,257 67,678 (45,841) – (10,084) 11,753 59,508 36,200 95,708 26 95,734 30,723 (17,057) – (3,091) 10,575 – – – – – (5,594) – – – (5,594) 601,369 284,752 886,121 650 886,771 344,208 (202,611) (55) (52,410) 89,132 (28,400) 60,732 2,083,931 352,992 176,807 1,675,983 258,607 128,741 Australia $’000 New Zealand $’000 345,822 12,277 358,099 497 10,173 3,094 13,267 2 United Kingdom $’000 79,624 30,590 110,214 1 358,596 13,269 110,215 82,459 (15,566) (8,003) 58,890 4,403 (2,587) (1,081) 735 27,253 (14,746) (2,467) 10,040 647,988 17,233 166,728 324,507 11,696 117,560 – – 2,613,730 2,613,730 2,063,331 2,063,331 Corporate $’000 Total $’000 – – – – – (6,123) – – (6,123) – – 435,619 45,961 481,580 500 482,080 107,992 (32,899) (11,551) 63,542 (19,837) 43,705 831,949 831,949 453,763 SG Fleet Group Limited 57 Australia $’000 New Zealand $’000 United Kingdom $’000 Corporate $’000 Total $’000 453,763 Consolidated – 2021 Total liabilities NOTE 5. REVENUE Revenue from contracts with customers Mobility services income Additional products and services Finance commission Vehicle risk income Other income Other revenue Rental and finance income Revenue DISAGGREGATION OF REVENUE The disaggregation of revenue from contracts with customers is as follows: Timing of revenue recognition Revenue transferred at a point in time – upfront Revenue transferred over time Revenue transferred at a point in time – end of life Revenue from external customers by geographic regions is set out in note 4 operating segments. CONSOLIDATED 2022 $’000 2021 $’000 106,500 83,124 31,832 375,333 4,580 601,369 284,752 886,121 84,393 60,007 36,113 254,984 122 435,619 45,961 481,580 CONSOLIDATED 2022 $’000 2021 $’000 58,715 182,142 360,512 601,369 58,983 131,349 245,287 435,619 2022 Annual Report 58 Notes to the financial statements 30 June 2022 NOTE 6. EXPENSES Profit before income tax includes the following specific expenses: Depreciation Leasehold improvements Computer hardware and office equipment Motor vehicles Leased motor vehicle assets Right-of-use assets Total depreciation Amortisation Customer contracts Software Total amortisation Total depreciation and amortisation Impairment Intangibles – customer contracts Finance costs External borrowing costs for corporate debt External borrowing costs for lease portfolio Net interest paid or payable on interest rate swap contracts Cash flow hedge ineffectiveness Net foreign exchange (gains)/losses Interest on lease liabilities – right-of-use assets Interest on lease make good Total finance costs Net fair value loss Net fair value loss on investments Superannuation expense Defined contribution superannuation expense CONSOLIDATED 2022 $’000 2021 $’000 112 1,950 624 175,515 7,697 185,898 12,616 4,097 16,713 58 1,412 186 16,326 5,071 23,053 5,796 4,050 9,846 202,611 32,899 55 – 12,243 37,456 2,362 (288) (162) 711 88 5,270 4,772 – 991 21 433 64 52,410 11,551 934 1,861 10,138 5,398 SG Fleet Group Limited NOTE 7. INCOME TAX Income tax expense Current tax Deferred tax – origination and reversal of temporary differences Aggregate income tax expense Deferred tax included in income tax expense comprises: Increase in deferred tax assets Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Entertainment expenses Non-deductible expenses Difference in overseas tax rates Adjustment recognised for prior periods Assessed loss Income tax expense Amounts charged directly to equity Deferred tax assets Tax losses not recognised Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit at statutory tax rates 59 CONSOLIDATED 2022 $’000 32,825 (4,425) 28,400 2021 $’000 23,354 (3,517) 19,837 (4,425) (3,517) 89,132 26,740 53 2,493 29,286 (1,398) 734 (222) 63,542 19,063 7 2,265 21,335 (1,119) (331) (48) 28,400 19,837 CONSOLIDATED 2022 $’000 2021 $’000 13,084 587 11,483 2,871 10,134 2,534 The above potential tax benefit for tax losses and temporary differences, relating to United Kingdom, has not been recognised in the statement of financial position. 2022 Annual Report 60 Notes to the financial statements 30 June 2022 NOTE 7. INCOME TAX CONTINUED Deferred tax asset/(liability) Deferred tax asset/(liability) comprises temporary differences attributable to: Amounts recognised in profit or loss: Allowance for expected credit losses Contract liabilities Employee benefits Accrued expenses Provisions Property, plant and equipment Prepayments Intangibles Amounts recognised in equity: Transaction costs on share issue Derivative financial instruments Deferred tax asset/(liability) Amount expected to be recovered after more than 12 months Amount expected to be settled after more than 12 months Movements: Opening balance Credited to profit or loss Charged to equity Additions through business combinations (note 41) Exchange differences Closing balance CONSOLIDATED 2022 $’000 2021 $’000 1,647 7,315 6,825 4,677 4,205 (25,861) (5,536) (27,942) (34,670) – (10,027) (10,027) (44,697) – (44,697) (44,697) 4,328 4,425 (13,084) (41,203) 837 (44,697) 355 4,907 3,286 2,849 3,469 (3,281) (1,701) (7,236) 2,648 345 1,335 1,680 4,328 4,328 – 4,328 1,435 3,517 (587) – (37) 4,328 SG Fleet Group Limited 61 CONSOLIDATED 2022 $’000 5,675 5,675 2021 $’000 – – CONSOLIDATED 2022 $’000 – – 2021 $’000 4,701 4,701 CONSOLIDATED 2022 $’000 61,613 61,613 2021 $’000 201,605 201,605 CONSOLIDATED 2022 $’000 27,388 11,185 130,247 168,820 168,820 2021 $’000 28,723 405 384 29,512 29,512 Income tax refund due Income tax refund due Amount expected to be recovered within 12 months Provision for income tax Provision for income tax Amount expected to be settled within 12 months NOTE 8. CASH AND CASH EQUIVALENTS Cash at bank Amount expected to be recovered within 12 months NOTE 9. RESTRICTED CASH Secured deposits Securitisation collection and capital accounts Securitisation reserves Amount expected to be recovered within 12 months Secured deposits represent bank account balances held as security as required under certain lease portfolio funding and insurance agreements. Cash held in bank accounts within the securitisation warehouses can only be used to service the obligations of the warehouse in accordance with the transaction agreements. These restricted balances are not available as free cash for the purpose of operations of the Group. 2022 Annual Report 62 Notes to the financial statements 30 June 2022 NOTE 10. FINANCE LEASE, TRADE AND OTHER RECEIVABLES Trade receivables Less: Allowance for expected credit losses Finance lease receivables Less: Allowance for expected credit losses Amount expected to be recovered within 12 months Amount expected to be recovered after more than 12 months CONSOLIDATED 2022 $’000 173,672 (1,218) 172,454 451,938 (1,171) 450,767 623,221 340,262 282,959 623,221 2021 $’000 67,033 (783) 66,250 53 – 53 66,303 66,303 – 66,303 ALLOWANCE FOR EXPECTED CREDIT LOSSES The Group has recognised a loss of $1,626,000 (2021: reversal of credit loss $69,000) in profit or loss in respect of the expected credit losses for the year ended 30 June 2022. The ageing of the receivables and allowance for expected credit losses using the simplified method is provided for above are as follows: Consolidated Not overdue 0 to 30 days overdue 30 to 60 days overdue 60 to 90 days overdue 90 to 120 days overdue Over 120 days overdue EXPECTED CREDIT LOSS RATE CARRYING AMOUNT ALLOWANCE FOR EXPECTED CREDIT LOSSES 2022 % 0.19% – 38.30% 36.20% 49.10% 26.50% 2021 % – – 39.25% 39.40% 53.08% 52.72% 2022 $’000 613,818 8,438 2,028 644 143 539 2021 $’000 53,103 12,286 649 188 177 683 2022 $’000 1,166 – 777 233 70 143 625,610 67,086 2,389 2021 $’000 – – 255 74 94 360 783 Movements in the allowance for expected credit losses are as follows: Opening balance Additional provisions recognised Unused amounts reversed Exchange difference in foreign subsidiary Closing balance CONSOLIDATED 2022 $’000 783 1,626 – (20) 2,389 2021 $’000 838 – (69) 14 783 SG Fleet Group Limited NOTE 11. INVENTORIES End-of-term operating lease assets held for disposal Less: Provision for impairment Amount expected to be recovered within 12 months NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS Interest rate swap contracts – cash flow hedges Amount expected to be recovered after more than 12 months Refer to note 32 for further information on fair value measurement. NOTE 13. PREPAYMENTS Prepayments Amount expected to be recovered within 12 months 63 CONSOLIDATED 2022 $’000 48,511 (15) 48,496 48,496 2021 $’000 10,968 (249) 10,719 10,719 CONSOLIDATED 2022 $’000 44,094 44,094 2021 $’000 – – CONSOLIDATED 2022 $’000 20,982 20,982 2021 $’000 7,522 7,522 NOTE 14. INVESTMENTS IN FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Investments in listed equity securities Investments in other companies Amount expected to be recovered after more than 12 months Refer to note 32 for further information on fair value measurement. CONSOLIDATED 2022 $’000 648 5,908 6,556 6,556 2021 $’000 1,297 1,330 2,627 2,627 2022 Annual Report 64 Notes to the financial statements 30 June 2022 NOTE 15. LEASED MOTOR VEHICLE ASSETS Lease portfolio assets – at cost Less: Accumulated depreciation Less: Impairment Amount expected to be recovered within 12 months Amount expected to be recovered after more than 12 months CONSOLIDATED 2022 $’000 1,033,549 (66,266) (264) 967,019 387,386 579,633 967,019 2021 $’000 121,718 (27,116) (426) 94,176 9,350 84,826 94,176 RECONCILIATIONS Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2020 Additions Disposals Revaluation decrements Exchange differences Depreciation expense Balance at 30 June 2021 Additions Additions through business combinations (note 41) Disposals Revaluation decrements Exchange differences Impairment Depreciation expense Balance at 30 June 2022 Leased assets $’000 64,115 73,316 (28,520) (212) 1,803 (16,326) 94,176 483,512 883,626 (299,607) 2 (19,117) (58) (175,515) 967,019 SG Fleet Group Limited 65 NOTE 16. PROPERTY, PLANT AND EQUIPMENT CONSOLIDATED Leasehold improvements – at cost Less: Accumulated depreciation Computer hardware and office equipment – at cost Less: Accumulated depreciation Motor vehicles – at cost Less: Accumulated depreciation Amount expected to be recovered after more than 12 months 2022 $’000 1,564 (991) 573 11,266 (7,015) 4,251 4,023 (404) 3,619 8,443 8,443 RECONCILIATIONS Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2020 Additions Disposals Exchange differences Depreciation expense Balance at 30 June 2021 Additions Additions through business combinations (note 41) Disposals Exchange differences Depreciation expense Balance at 30 June 2022 Leasehold improvements $’000 Computer hardware and office equipment $’000 408 37 – 10 (58) 397 299 5 – (16) (112) 573 2,331 2,225 – 5 (1,412) 3,149 2,120 1,135 (181) (22) (1,950) 4,251 Motor vehicles $’000 428 1,718 (80) 35 (186) 1,915 1,596 1,299 (435) (132) (624) 3,619 2021 $’000 966 (569) 397 8,528 (5,379) 3,149 2,235 (320) 1,915 5,461 5,461 Total $’000 3,167 3,980 (80) 50 (1,656) 5,461 4,015 2,439 (616) (170) (2,686) 8,443 2022 Annual Report 66 Notes to the financial statements 30 June 2022 NOTE 17. INTANGIBLES Goodwill – at cost Customer contracts – at cost Less: Accumulated amortisation Less: Accumulated impairment Software – at cost Less: Accumulated amortisation Amount expected to be recovered after more than 12 months CONSOLIDATED 2022 $’000 519,547 140,424 (44,708) (125) 95,591 29,070 (13,243) 15,827 630,965 630,965 2021 $’000 357,880 60,012 (32,493) (70) 27,449 25,605 (9,928) 15,677 401,006 401,006 RECONCILIATIONS Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2020 Additions Exchange differences Amortisation expense Balance at 30 June 2021 Additions Additions through business combinations (note 41) Disposals Exchange differences Impairment of assets Amortisation expense Balance at 30 June 2022 Goodwill $’000 356,465 – 1,415 – 357,880 – 165,732 – (4,065) – – 519,547 Customer contracts $’000 33,029 – 216 (5,796) 27,449 – 81,878 – (1,065) (55) (12,616) 95,591 Software $’000 16,328 3,397 2 (4,050) 15,677 4,244 21 (12) (6) – (4,097) 15,827 Total $’000 405,822 3,397 1,633 (9,846) 401,006 4,244 247,631 (12) (5,136) (55) (16,713) 630,965 Goodwill acquired through business combinations have been allocated to the following cash-generating units (‘CGUs’): Australian CGU United Kingdom CGU New Zealand CGU Total CONSOLIDATED 2022 $’000 441,493 49,852 28,202 519,547 2021 $’000 305,771 52,109 – 357,880 SG Fleet Group Limited 67 IMPAIRMENT TESTING FOR GOODWILL The impairment test was based on a value-in-use approach. The recoverable amount was determined to be higher than the carrying amount and therefore no impairment loss was recognised. Value-in-use was determined by discounting the future cash flows based on the following key assumptions: – Cash flows were projected based on actual operating results and the four-year business plan. Cash flow beyond Year 4 was projected at a growth rate of 0% (2021: 0%) for the three CGUs; – Revenue growth was projected at 7.1% (2021: 6.2%) per annum for the Australian CGU, 8.3% (2021: 5.9%) per annum for the United Kingdom CGU and 8.1% (2021: Nil) per annum for the New Zealand CGU; – Direct costs were forecast based on the margins historically achieved by the business; – Overheads were forecast based on current levels adjusted for inflationary increases; and – The Company’s pre-tax weighted average cost of capital was applied in determining the recoverable amount. The discount rate of 9.29% (2021: 8.24%) was used for the Australian CGU, 7.29% (2021: 6.19%) for the United Kingdom CGU and 9.01% (2021: Nil) for the New Zealand CGU. The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external and internal data sources. SENSITIVITY ANALYSIS Management estimates that any reasonable changes in the key assumptions would not have a significant impact on the value-in-use of intangible assets and goodwill that would require the assets to be impaired. NOTE 18. RIGHT-OF-USE ASSETS Right-of-use assets – at cost Less: Accumulated depreciation Amount expected to be recovered after more than 12 months CONSOLIDATED 2022 $’000 49,589 (21,743) 27,846 27,846 2021 $’000 23,744 (15,054) 8,690 8,690 The Group leases office premises under agreements of between 3 to 10 years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. The Group also leases motor vehicles and equipment under agreements of between 1 to 5 years. RECONCILIATION Reconciliation of the written down values at the beginning and end of the current financial year are set out below: Consolidated Balance at 1 July 2020 Additions Disposals Exchange differences Depreciation expense Balance at 30 June 2021 Additions Additions through business combinations (note 41) Exchange differences Depreciation expense Balance at 30 June 2022 Office premises $’000 11,289 1,099 – 92 (4,367) 8,113 13,511 12,920 (176) (7,234) 27,134 Motor vehicles $’000 693 461 (12) 2 (610) 534 256 – (1) (393) 396 Others $’000 137 – – – (94) 43 305 38 – (70) 316 Total $’000 12,119 1,560 (12) 94 (5,071) 8,690 14,072 12,958 (177) (7,697) 27,846 2022 Annual Report 68 Notes to the financial statements 30 June 2022 NOTE 18. RIGHT-OF-USE ASSETS CONTINUED For other AASB 16 lease-related disclosures refer to the following: – note 6 for details of interest on lease liabilities and other lease expenses; – note 25 and note 42 for details of lease liabilities at the beginning and end of the reporting period; – note 31 for the maturity analysis of lease liabilities; and – consolidated statement of cash flows for repayment of lease liabilities. NOTE 19. TRADE AND OTHER PAYABLES Trade payables Accrued expenses Amount expected to be settled within 12 months Refer to note 31 for further information on financial instruments. CONSOLIDATED 2022 $’000 178,958 20,638 199,596 199,596 2021 $’000 83,869 16,924 100,793 100,793 Trade payables include residual values payable to financiers, which are secured by the underlying operating lease asset and security deposits of $27,632,000 (2021: $28,741,000). NOTE 20. DERIVATIVE FINANCIAL INSTRUMENTS Interest rate swap contracts – cash flow hedges Amount expected to be settled after more than 12 months CONSOLIDATED 2022 $’000 688 688 2021 $’000 1,877 1,877 Refer to note 31 for further information on financial instruments. Refer to note 32 for further information on fair value measurement. NOTE 21. EMPLOYEE BENEFITS Annual leave Long service leave Amount expected to be settled within 12 months Amount expected to be settled after more than 12 months CONSOLIDATED 2022 $’000 11,606 11,203 22,809 21,472 1,337 22,809 2021 $’000 5,251 5,716 10,967 10,012 955 10,967 SG Fleet Group Limited NOTE 22. PROVISIONS Lease make good Residual value risk Other provisions Amount expected to be settled within 12 months Amount expected to be settled after more than 12 months 69 CONSOLIDATED 2022 $’000 4,785 11,492 7,141 23,418 11,177 12,241 23,418 2021 $’000 1,105 11,686 900 13,691 5,564 8,127 13,691 LEASE MAKE GOOD The provision represents the present value of the estimated costs to make good the premises leased by the Group at the end of the respective lease terms. RESIDUAL VALUE RISK PROVISION The provision is to recognise the future liability relating to residual value exposures as described in note 2 and note 3. The Group has entered into agreements with its lease portfolio financiers under which the residual value risk inherent in operating leases is transferred from the financier of the asset to the Group at the end of the lease. Under these agreements, at the end of the contractual lease term for each vehicle, the Group is obliged to pay the guaranteed residual value amount to the financier. The Group then sells the vehicles and realises a profit or loss on sale. Secured deposits have been issued to lease portfolio financiers as security for these obligations. An amount of $11,492,000 (30 June 2021: $11,686,000) has been recognised as a residual value provision, calculated on an onerous pool basis, to cover potential shortfalls on the disposal of these vehicles. OTHER PROVISIONS The provision represents the potential loss arising from overdrawn vehicle running cost accounts in relation to novated leases. MOVEMENTS IN PROVISIONS Movements in the provision during the current financial period is set out below: Consolidated – 2022 Carrying amount at the start of the year Additional provisions recognised Additions through business combinations (note 41) Exchange differences Unused amounts reversed Carrying amount at the end of the year Lease make good $’000 1,105 2,115 1,729 (32) (132) 4,785 Residual value risk $’000 11,686 – – (71) (123) 11,492 Other provision $’000 900 – 6,419 (90) (88) 7,141 2022 Annual Report 70 Notes to the financial statements 30 June 2022 NOTE 23. LEASE PORTFOLIO BORROWINGS Lease portfolio borrowings – non-securitised Lease portfolio borrowings – securitised Amount expected to be settled within 12 months Amount expected to be settled after more than 12 months Refer to note 31 for further information on financial instruments. CONSOLIDATED 2022 $’000 65,193 1,134,073 1,199,266 443,495 755,771 1,199,266 2021 $’000 64,241 800 65,041 17,162 47,879 65,041 LEASE PORTFOLIO BORROWINGS – NON-SECURITISED The lease portfolio borrowings are secured by the underlying funded assets and lease agreements, together with secured deposits. These facilities are interest-bearing and are repaid monthly in accordance with the contractual amortisation schedule of the underlying assets. LEASE PORTFOLIO BORROWINGS – SECURITISED During the previous financial year, the Group established a $100 million limited recourse securitisation warehouse trust with commitments from external financiers totalling $92.5 million. During the current financial year, as part of the LeasePlan acquisition, the Group established additional limited recourse securitisation warehouse trusts to bring the total commitments from external financiers in relation to securitisation warehouse trusts to $1,361 million as at 30 June 2022. All amounts owing to parties to the warehouse are secured by fixed and floating charges over all assets of the warehouse, including cash balances, lease receivables and related leased motor vehicles. The financiers to the warehouse have no recourse to the Group, other than in relation to their responsibilities as originator and servicer of assets to the warehouse. As at 30 June 2022, the Group had utilised $1,134 million of securitised lease portfolio borrowings. NOTE 24. BORROWINGS Bank loans Capitalised borrowing costs Amount expected to be settled after more than 12 months Refer to note 31 for further information on financial instruments. CONSOLIDATED 2022 $’000 299,723 (7,331) 292,392 292,392 2021 $’000 125,841 (1,322) 124,519 124,519 SG Fleet Group Limited TOTAL SECURED LIABILITIES The total secured liabilities are as follows: Bank loans Lease portfolio borrowings – non-securitised (note 23) Lease portfolio borrowings – securitised (note 23) 71 CONSOLIDATED 2022 $’000 299,723 65,193 1,134,073 1,498,989 2021 $’000 125,841 64,241 800 190,882 CORPORATE BORROWINGS During the financial year, the Group increased its bank loans and ancillary facility limit by $175 million to $300 million as at 30 June 2022. The facility is secured by fixed and floating charges over the assets of the Group as well as composite guarantees and indemnities issued by the Group and certain subsidiaries of the Group. The interest comprises a base rate plus a variable margin and all loans are repayable in full on the maturity date being 31 August 2024. FINANCING ARRANGEMENTS The Group has access to the following lines of credit: Total facilities Corporate borrowings Lease portfolio borrowings – non-securitised Lease portfolio borrowings – securitised Used at the reporting date Corporate borrowings Lease portfolio borrowings – non-securitised Lease portfolio borrowings – securitised Unused at the reporting date Corporate borrowings Lease portfolio borrowings – non-securitised Lease portfolio borrowings – securitised CONSOLIDATED 2022 $’000 2021 $’000 356,721 197,838 1,360,552 1,915,111 313,244 65,193 1,134,073 1,512,510 43,477 132,645 226,479 402,601 186,572 87,029 92,500 366,101 137,602 64,241 800 202,643 48,970 22,788 91,700 163,458 2022 Annual Report 72 Notes to the financial statements 30 June 2022 NOTE 25. LEASE LIABILITIES – RIGHT-OF-USE ASSETS Lease liabilities – right-of-use assets Amount expected to be settled within 12 months Amount expected to be settled after more than 12 months NOTE 26. VEHICLE MAINTENANCE FUNDS Vehicle maintenance funds Amount expected to be settled within 12 months Amount expected to be settled after more than 12 months NOTE 27. CONTRACT LIABILITIES Contract liabilities Amount expected to be settled within 12 months Amount expected to be settled after more than 12 months Reconciliation Reconciliation at the beginning and end of the current and previous financial year are set out below: Opening balance Additions through business combinations (note 41) Transfer to revenue – included in the opening balance Increase in cash received excluding amounts recognised as revenue during the year Closing balance CONSOLIDATED 2022 $’000 27,319 7,134 20,185 27,319 2021 $’000 9,015 3,592 5,423 9,015 CONSOLIDATED 2022 $’000 190,805 89,172 101,633 190,805 2021 $’000 82,542 27,729 54,813 82,542 CONSOLIDATED 2022 $’000 62,341 38,071 24,270 62,341 40,617 43,320 (56,639) 35,043 62,341 2021 $’000 40,617 21,124 19,493 40,617 37,905 – (18,822) 21,534 40,617 SG Fleet Group Limited 73 NOTE 28. ISSUED CAPITAL CONSOLIDATED 2022 Shares 2021 Shares 2022 $’000 2021 $’000 Ordinary shares – fully paid 341,984,920 297,396,370 505,968 376,661 MOVEMENTS IN ORDINARY SHARE CAPITAL Details Balance Shares issued Shares issued Share issue transaction costs, net of tax Balance Date Shares Issue price 1 July 2020 262,159,900 13 April 2021 29,247,880 30 April 2021 5,988,590 – 30 June 2021 297,396,370 $2.45 $2.45 Shares issued on acquisition of LeasePlan ANZ (refer note 41) 1 September 2021 44,588,550 $2.90 Balance 30 June 2022 341,984,920 $’000 291,370 71,657 14,672 (1,038) 376,661 129,307 505,968 ORDINARY SHARES Ordinary shares entitle the holder to participate in any dividends declared and any proceeds attributable to shareholders should the Company be wound up, in proportions that consider both the number of shares held and the extent to which those shares are paid up. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. SHARE BUY-BACK There is no current on-market share buy-back. CAPITAL RISK MANAGEMENT The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. The Group monitors capital on the basis of its gearing ratio. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debts. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. The Group is subject to certain financing arrangements covenants and meeting these are given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. The capital risk management policy remains unchanged from 30 June 2021. 2022 Annual Report 74 Notes to the financial statements 30 June 2022 NOTE 29. RESERVES Foreign currency reserve Hedging reserve – cash flow hedges Share-based payments reserve Capital reserve CONSOLIDATED 2022 $’000 (8,554) 31,697 5,902 (119,158) (90,113) 2021 $’000 262 (496) 2,620 (119,158) (116,772) FOREIGN CURRENCY RESERVE The reserve is used to recognise exchange differences arising from translation of the financial statements of foreign operations to Australian Dollars. HEDGING RESERVE – CASH FLOW HEDGES The reserve is used to recognise the effective portion of the gain or loss of cash flow hedge instruments determined to be an effective hedge. SHARE-BASED PAYMENTS RESERVE The reserve is used to recognise the value of equity benefits provided to employees and Directors as part of their remuneration, and other parties as part of their compensation for services. CAPITAL RESERVE The reserve is used to recognise contributions from or to SG Fleet Group Limited and its controlled subsidiaries by shareholders. MOVEMENTS IN RESERVES Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2020 Foreign currency translation Share-based payments Movement in hedges – gross Deferred tax Other changes Balance at 30 June 2021 Foreign currency translation Share-based payments Movement in hedges – gross Deferred tax Balance at 30 June 2022 Foreign currency $’000 (1,015) 1,277 – – – – 262 (8,816) – – – (8,554) Cash flow hedge $’000 (2,767) – – 3,203 (932) – (496) – – 45,277 (13,084) 31,697 Share-based payments $’000 359 – 2,321 – – (60) 2,620 – 3,282 – – Capital $’000 Total $’000 (119,158) (122,581) – – – – – 1,277 2,321 3,203 (932) (60) (119,158) (116,772) – – – – (8,816) 3,282 45,277 (13,084) (90,113) 5,902 (119,158) SG Fleet Group Limited NOTE 30. DIVIDENDS DIVIDENDS Dividends paid during the financial year were as follows: Final dividend for the year ended 30 June 2021 of 5.393 cents per ordinary share paid on 9 September 2021 (2021: Final dividend for the year ended 30 June 2020 of 3.053 cents) Interim dividend for the year ended 30 June 2022 of 8.318 cents per share paid on 10 March 2022 (2021: Interim dividend for the year ended 30 June 2021 of 7.192 cents) 75 CONSOLIDATED 2022 $’000 16,039 2021 $’000 8,004 28,446 18,855 44,485 26,859 On 15 August 2022, the Directors declared a fully franked final dividend for the year ended 30 June 2022 of 6.811 cents per ordinary share, to be paid on 8 September 2022 to eligible shareholders on the register on 25 August 2022. This equates to a total estimated distribution of $23,293,000, based on the number of ordinary shares on issue as at 30 June 2022. The financial effect of dividends declared after the reporting date are not reflected in the 30 June 2022 financial statements and will be recognised in subsequent financial reports. FRANKING CREDITS Franking credits available for subsequent financial years based on a tax rate of 30% CONSOLIDATED 2022 $’000 80,312 2021 $’000 59,104 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: – franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date – franking debits that will arise from the payment of dividends recognised as a liability at the reporting date – franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date The franking credits above excludes exempting credits. 2022 Annual Report 76 Notes to the financial statements 30 June 2022 NOTE 31. FINANCIAL INSTRUMENTS FINANCIAL RISK MANAGEMENT OBJECTIVES The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Board has overall responsibility for the establishment and oversight of the risk management framework. The Audit, Risk and Compliance Committee, a sub-committee of the Board, has responsibility for managing risk. The Committee reports to the Board on its activities. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. MARKET RISK Foreign currency risk The Group is not exposed to any significant foreign currency risk, except for translation of financial assets and liabilities of foreign subsidiaries into the presentation currency. Price risk The Group is not exposed to any significant price risk. Interest rate risk The Group’s main interest rate risk arises from its borrowings and cash at the bank, both of which carry variable rates of interest. The Group policy is to ensure that at least 60% of Group corporate borrowings are hedged into a fixed rate for the term of the borrowing (unless approved by the Board). Non-securitised lease portfolio borrowings (other than where used to fund leases in inertia or informal extension) are required to be hedged using an amortising swap profile that reflects the expected repayment profile of the borrowings. Securitisation borrowings are similarly required to be hedged using an amortising swap profile that reflects the expected repayment profile of the borrowings, in compliance with parameters agreed with the financiers to the securitisation. As at the reporting date, the Group had the following variable rate bank accounts and other facilities after impact of hedging instruments: Consolidated Cash at bank Securitisation accounts Secured deposits Bank loans Net exposure to cash flow interest rate risk 2022 Balance $’000 61,613 141,432 27,388 (55,000) 175,433 2021 Balance $’000 201,605 789 28,723 (25,168) 205,949 An official increase/decrease in interest rates of 200 (2021: 50) basis points would have a favourable/adverse effect on profit before tax and equity of $3,509,000 (2021: $1,030,000) per annum. The percentage change is based on the expected volatility of interest rates using market data and analyst’s forecasts. Derivatives interest rate swap The Group has entered into interest rate swap contracts with the following notional/principal values as at 30 June 2022: – $324,722,000 (2021: $106,696,000) of bullet swaps maturing in September 2024 with a weighted average fixed rate of 1.02% (2021: 1.91%) in respect of corporate debt borrowings; – $2,895,000 of amortising swaps with tenors of up to 3 years and a weighted average fixed rate of 0.79% in relation to non-securitisation borrowings; and – $1,174,357,000 of amortising swaps with tenors of up to 5 years and a weighted average fixed rate of 1.31%, in relation to securitisation trusts. SG Fleet Group Limited 77 CREDIT RISK Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates and forward-looking information that is available. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. LIQUIDITY RISK Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. Typically, the Group ensures that it has sufficient cash or facilities on demand to meet expected operational expenses for a period of 90 days, including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Financing arrangements Refer to note 24 for details of unused borrowing facilities at the reporting date. Remaining contractual maturities The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. 2022 Annual Report 78 Notes to the financial statements 30 June 2022 NOTE 31. FINANCIAL INSTRUMENTS CONTINUED Consolidated – 2022 Non-derivatives Non-interest bearing Trade payables Interest-bearing – variable Bank loans Interest-bearing – fixed rate Bank loans Lease portfolio facilities – non-securitised Lease portfolio facilities – securitised Lease liabilities – right-of-use assets Total non-derivatives Derivatives Interest rate swaps net settled Total derivatives Consolidated – 2021 Non-derivatives Non-interest bearing Trade payables Interest-bearing – variable Bank loans Interest-bearing – fixed rate Bank loans Lease portfolio facilities – non-securitised Lease portfolio facilities – securitised Lease liabilities – right-of-use assets Total non-derivatives Derivatives Interest rate swaps net settled Total derivatives 1 year or less $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 178,958 – – 1,403 1,403 55,701 3,134 22,771 442,918 7,810 656,994 – – 3,134 20,491 291,194 6,369 322,591 688 688 246,289 26,181 434,713 14,153 777,037 – – – – – – 9,748 1,446 11,194 – – 1 year or less $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 83,869 – 435 25,386 1,811 18,831 52 3,382 101,579 19,159 826 1,595 108,380 148,545 – – 1,877 1,877 – – – 29,963 – 2,466 32,429 – – – – – – – 2,045 2,045 – – Remaining contractual maturities $’000 178,958 58,507 252,557 69,443 1,178,573 29,778 1,767,816 688 688 Remaining contractual maturities $’000 83,869 25,821 103,390 67,953 878 9,488 291,399 1,877 1,877 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. SG Fleet Group Limited 79 NOTE 32. FAIR VALUE MEASUREMENT FAIR VALUE HIERARCHY The following tables detail the Group’s assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Unobservable inputs for the asset or liability. Consolidated – 2022 Assets Investments in listed equity securities Investment in other companies Derivative financial instruments – Interest rate swap contracts Total assets Liabilities Derivative financial instruments – Interest rate swap contracts Total liabilities Consolidated – 2021 Assets Investments in listed equity securities Investment in other companies Total assets Liabilities Derivative financial instruments – Interest rate swap contracts Total liabilities There were no transfers between levels during the financial year. Level 1 $’000 648 – – 648 – – Level 2 $’000 – – 44,094 44,094 688 688 Level 3 $’000 – 5,908 – 5,908 – – Level 1 $’000 Level 2 $’000 Level 3 $’000 1,297 – 1,297 – – – – – 1,877 1,877 – 1,330 1,330 – – Total $’000 648 5,908 44,094 50,650 688 688 Total $’000 1,297 1,330 2,627 1,877 1,877 Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. The carrying amounts of trade receivables and trade payables approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial instruments. VALUATION TECHNIQUES FOR FAIR VALUE MEASUREMENTS CATEGORISED WITHIN LEVEL 2 AND LEVEL 3 Unquoted investments are recorded at fair value, which reflects the recent cost of investments. The Group does not consider the market value of the investments to have significantly changed since the acquisition date. Derivative financial instruments have been valued using observable market rates. This valuation technique maximises the use of observable market data where it is available and relies as little as possible on entity specific estimates. 2022 Annual Report 80 Notes to the financial statements 30 June 2022 NOTE 32. FAIR VALUE MEASUREMENT CONTINUED LEVEL 3 ASSETS AND LIABILITIES Movements in level 3 assets and liabilities during the current and previous financial year are set out below: Consolidated Balance at 1 July 2020 Purchases Balance at 30 June 2021 Purchases Balance at 30 June 2022 Other investments $’000 330 1,000 1,330 4,578 5,908 NOTE 33. KEY MANAGEMENT PERSONNEL DISCLOSURES COMPENSATION The aggregate compensation made to Directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments CONSOLIDATED 2022 $ 2021 $ 5,832,489 4,678,222 120,205 154,817 110,269 58,283 1,524,983 1,007,492 7,632,494 5,854,266 NOTE 34. REMUNERATION OF AUDITORS During the financial year the following fees were paid or payable for services provided by KPMG, the auditor of the Company: Audit services – KPMG Audit or review of the financial statements Other services – KPMG Tax services Corporate advisory CONSOLIDATED 2022 $ 2021 $ 1,345,382 569,410 102,300 136,071 238,371 84,017 1,390,214 1,474,231 1,583,753 2,043,641 SG Fleet Group Limited NOTE 35. COMMITMENTS – OPERATING LEASE RECEIVABLE Committed at the reporting date, receivable: Within one year One to two years Two to three years Three to four years Four to five years 81 CONSOLIDATED 2022 $’000 226,520 150,225 127,924 94,165 44,109 642,943 2021 $’000 19,849 12,725 9,398 5,031 939 47,942 Future minimum rentals receivable includes contracted amounts for motor vehicles under non-cancellable operating leases between one and five years. NOTE 36. CONTINGENT LIABILITIES The Group has entered into agreements with its lease portfolio financiers under which the residual value risk inherent in operating leases is transferred from the financier of the asset to the Group at the end of the lease. Under these agreements, at the end of the contractual lease term for each vehicle, the Group is obliged to pay the guaranteed residual value amount to the financier. The Group then sells the vehicles and realises a profit or loss on sale. Bank guarantees, letters of credit and cash lock-ups have been issued to lease portfolio financiers as security for these obligations. An amount of $11,492,000 (30 June 2021: $11,686,000) has been recognised as a residual value provision and an amount of $264,000 (30 June 2021: $426,000) has been recognised as an impairment provision respectively, calculated on an onerous pool basis, to cover potential shortfalls on the disposal of these vehicles. The Group has executed certain guarantees and indemnities, as well as fixed and floating charges over the assets of the Group in favour of funders as security for banking and lease portfolio facilities provided to the Group. NOTE 37. RELATED PARTY TRANSACTIONS PARENT ENTITIES SG Fleet Group Limited is the parent entity. The ultimate parent entity is Super Group Limited, incorporated in South Africa and listed on the Johannesburg Stock Exchange. SUBSIDIARIES Interests in subsidiaries are set out in note 39. KEY MANAGEMENT PERSONNEL Disclosures relating to key management personnel are set out in note 33 and the remuneration report included in the Directors’ report. TRANSACTIONS WITH RELATED PARTIES There were no transactions with related parties during the current and previous financial year. RECEIVABLE FROM AND PAYABLE TO RELATED PARTIES There were no trade receivables from or trade payables to related parties at the current and previous reporting date. LOANS TO/FROM RELATED PARTIES There were no loans to or from related parties at the current and previous reporting date. 2022 Annual Report 82 Notes to the financial statements 30 June 2022 NOTE 38. PARENT ENTITY INFORMATION Set out below is the supplementary information about the parent entity. STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Profit/(loss) after income tax Total comprehensive income STATEMENT OF FINANCIAL POSITION Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Retained profits/(accumulated losses) Total equity PARENT 2022 $’000 344,738 344,738 2021 $’000 (5,831) (5,831) PARENT 2022 $’000 8,592 1,044,773 – 295,732 716,356 32,685 749,041 2021 $’000 – 543,068 4,698 223,587 587,049 (267,568) 319,481 GUARANTEES ENTERED INTO BY THE PARENT ENTITY IN RELATION TO THE DEBTS OF ITS SUBSIDIARIES The parent entity and its subsidiaries are party to a deed of cross guarantee under which each company guarantees the debts of the others. No deficiencies of assets exist in any of these subsidiaries. Refer to note 40 for further details. The parent entity has also provided guarantees and indemnities for bank facilities. Refer to note 24 for further details. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2022 and 30 June 2021. Capital commitments – Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2022 and 30 June 2021. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: – investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity; and – dividends received from subsidiaries are recognised as other income by the parent entity. SG Fleet Group Limited 83 NOTE 39. INTERESTS IN SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: OWNERSHIP INTEREST Name SG Fleet Solutions Pty Limited SG Fleet Holdings Pty Limited SG Fleet Investments Pty Ltd SG Fleet Management Pty Limited SG Fleet Australia Pty Limited SG Fleet Salary Packaging Pty Limited NLC Pty Limited NLC Finance Pty Ltd NLC Insurance Pty Ltd Vehicle Insurance Underwriters Pty Ltd LeasePlan Australia Limited SMB Car Sales Pty Limited* SG Fleet Finance Pty Limited* Beta Dimensions Pty Limited* Fleet Care Services Pty Limited* NLC Administration Pty Limited* Kerr Reinehr Group Pty Limited* NLC Services Pty Limited* SG Fleet NZ Limited LeasePlan New Zealand Limited SG Fleet UK Limited SG Fleet UK Holdings Limited Fleet Hire Holdings Limited SG Fleet Solutions UK Limited Fleet Hire Limited* Car Salary Exchange Limited* * Subsidiary deregistered or dissolved during the year. Principal place of business/ Country of incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand New Zealand United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom 2022 % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% – – – – – – – 100% 100% 100% 100% 100% 100% – – 2021 % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% – 100% 100% 100% 100% 100% 100% 100% 100% – 100% 100% 100% 100% 100% 100% 2022 Annual Report 84 Notes to the financial statements 30 June 2022 NOTE 40. DEED OF CROSS GUARANTEE The following entities are party to a deed of cross guarantee under which each company guarantees the debts of the others: SG Fleet Group Limited (holding entity) NLC Insurance Pty Ltd SG Fleet Solutions Pty Limited* SG Fleet Holdings Pty Limited* SG Fleet Investments Pty Ltd* SG Fleet Management Pty Limited* SG Fleet Australia Pty Limited* SG Fleet Salary Packaging Pty Limited* NLC Pty Limited* NLC Finance Pty Ltd* Vehicle Insurance Underwriters Pty Ltd LeasePlan Australia Limited* SG Fleet NZ Limited LeasePlan New Zealand Limited SG Fleet UK Limited SG Fleet UK Holdings Limited Fleet Hire Holdings Limited SG Fleet Solutions UK Limited By entering into the deed, the entities (denoted above by an asterisk (*)) have opted to obtain relief from the requirement to prepare financial statements and Directors’ report under Corporations Instrument 2016/785 issued by the Australian Securities and Investments Commission (‘ASIC’). The above companies represent a ‘Closed Group’ for the purposes of the Corporations Instrument, and as there are no other parties to the deed of cross guarantee that are controlled by SG Fleet Group Limited, they also represent the ‘Extended Closed Group’. The statement of profit or loss, statement of other comprehensive income and statement of financial position for the Closed Group are the same as the Group and therefore have not been separately disclosed. NOTE 41. BUSINESS COMBINATIONS ACQUISITION OF LEASEPLAN AUSTRALIA AND LEASEPLAN NEW ZEALAND (‘LEASEPLAN ANZ’) On 1 September 2021, the Group acquired 100% of the ordinary shares in LeasePlan Australia and LeasePlan New Zealand. The acquisition consideration of $626,003,000 was settled by way of cash consideration of $273,000,000 and scrip consideration valued at $129,307,000. In addition to the acquisition consideration, as part of the transaction, excess cash on the balance sheet and capital invested in the Lease Portfolio totalling $223,696,000 was repaid to LeasePlan Corporation bringing the total consideration transferred to $626,003,000. The fair value of 44,588,550 ordinary shares issued to settle part of the consideration was based on the listed share price of the Company on 1 September 2021 of $2.90 per share totalling $129,307,000. The rationale for the acquisition is to deliver additional scale across operations, funding and procurement, resulting in significant efficiencies which will enable the delivery of a highly competitive offering to customers. The goodwill of $165,732,000 is attributable to the expected synergies and cross-selling opportunities that will arise from the acquisition, the future growth prospects of new products and initiatives together with the skill base and operating processes within the acquired entity. Management estimates that the acquired business contributed revenues of $392,873,000 and profit before tax of $28,113,000 (excluding acquisition costs) to the Group for the period from 1 September 2021 to 30 June 2022. If the acquisition occurred on 1 July 2021, management estimates that the contribution for the period to 30 June 2022 would have been revenues of $467,436,000 and profit before tax of $35,053,000 (excluding acquisition costs). In determining these amounts, the profit of LeasePlan ANZ for the period 1 July 2021 to 31 August 2021 was included based on the legacy lease portfolio funding arrangements and capital structure in place at the time and excludes interest on additional acquisition debt and amortisation of customer contracts. The values identified in relation to the acquisition of LeasePlan are final as at 30 June 2022. SG Fleet Group Limited Details of the acquisition are as follows: Cash and cash equivalents Finance and trade receivables Inventories Leased motor vehicle assets Property, plant and equipment Right-of-use assets Customer contracts Software Trade payables and other payables Contract liabilities Provision for income tax Deferred tax liability Employee benefits Other provisions Lease liabilities – right-of-use assets Vehicle maintenance funds Lease portfolio borrowings Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid or payable to vendor SG Fleet Group Limited shares issued to vendor Repayment of excess cash on balance sheet and capital invested in Lease Portfolio Acquisition costs expensed to profit or loss* Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total amount transferred Less: shares issued by Company as part of consideration Less: cash and cash equivalents acquired Net cash used 85 Fair value $’000 40,884 569,786 8,011 883,626 2,439 12,958 81,878 21 (84,825) (43,320) (8,905) (41,203) (9,729) (8,148) (12,958) (92,704) (837,540) 460,271 165,732 626,003 273,000 129,307 223,696 626,003 9,485 626,003 (129,307) (40,884) 455,812 * The acquisition costs in relation to the LeasePlan acquisition of $9,485,000 ($8,054,000 net of tax) (2021: $8,994,000) have been expensed in the statement of profit or loss during the financial year. An amount of $4,905,000 (2021:$3,783,000) is included within finance costs and $4,580,000 (2021: $5,211,000) in other expenses. 2022 Annual Report 86 Notes to the financial statements 30 June 2022 NOTE 42. CASH FLOW INFORMATION RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FROM OPERATING ACTIVITIES CONSOLIDATED Profit after income tax expense for the year Adjustments for: Depreciation and amortisation Impairment of intangibles Net fair value loss on investments Finance costs – non-cash Net loss/(gain) on sale of non-current assets Share-based payments Leased motor vehicles – fair value decrements Net movement in fair value of derivatives Change in operating assets and liabilities: Decrease/(increase) in finance lease, trade and other receivables Decrease/(increase) in inventories Increase in income tax refund due Decrease/(increase) in deferred tax assets Decrease/(increase) in prepayments Increase in trade and other payables Increase/(decrease) in contract liabilities Increase/(decrease) in provision for income tax Decrease in deferred tax liabilities Increase in employee benefits Increase/(decrease) in other provisions Net cash from operating activities NON-CASH INVESTING AND FINANCING ACTIVITIES Additions and disposals to the right-of-use assets Leasehold improvements (lease make good) within right-of-use assets Shares issued in relation to business combinations (note 41) 2022 $’000 60,732 202,611 55 934 5,435 12 3,282 56 (6) 12,868 (29,766) (5,675) 4,328 (13,460) 31,726 (21,596) (13,606) (9,590) 2,113 (427) 2021 $’000 43,705 32,899 – 1,861 – (81) 2,321 212 63 (11,557) 5,622 – (2,448) 319 33,059 2,712 4,311 – 1,401 1,123 230,026 115,522 CONSOLIDATED 2022 $’000 12,066 2,006 129,307 143,379 2021 $’000 1,548 – – 1,548 SG Fleet Group Limited 87 CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES Consolidated Balance at 1 July 2020 Net cash (used in)/from financing activities Non-cash additions and disposals Exchange differences Balance at 30 June 2021 Net cash (used in)/from financing activities Non-cash additions Changes through business combinations (note 41) Exchange differences Balance at 30 June 2022 NOTE 43. EARNINGS PER SHARE Lease portfolio borrowings $’000 57,854 5,675 – 1,512 65,041 310,794 – 837,540 (14,109) Bank loans $’000 125,140 – – 701 125,841 175,000 – – (1,118) Lease liabilities – right-of-use assets $’000 12,039 (4,696) 1,548 124 9,015 (6,546) 12,066 12,958 (174) Total $’000 195,033 979 1,548 2,337 199,897 479,248 12,066 850,498 (15,401) 1,199,266 299,723 27,319 1,526,308 Profit after income tax attributable to the owners of SG Fleet Group Limited CONSOLIDATED 2022 $’000 60,732 2021 $’000 43,705 Number Number Weighted average number of ordinary shares used in calculating basic earnings per share 334,410,975 269,507,503 Adjustments for calculation of diluted earnings per share: Options over ordinary shares Performance rights over ordinary shares 1,519,527 1,574,641 163,585 640,867 Weighted average number of ordinary shares used in calculating diluted earnings per share 337,505,143 270,311,955 Basic earnings per share Diluted earnings per share Cents 18.16 17.99 Cents 16.22 16.17 2022 Annual Report 88 Notes to the financial statements 30 June 2022 NOTE 44. SHARE-BASED PAYMENTS The Group has a share option plan and performance rights to incentivise certain employees and Key Management Personnel. The share-based payment expense for the year was $3,282,000 (2021: $2,321,000). SHARE OPTION PLAN The share option plan is subject to a service condition and a performance condition. The performance condition is based on the compound annual growth rate (‘CAGR’) of the Group’s earnings per share. Set out below are summaries of options granted under the plan: 2022 Grant date Expiry date 25/11/2019 28/10/2020 28/10/2020 26/10/2021 14/08/2025 14/08/2025 13/08/2026 11/08/2027 Exercise price $2.35 $1.68 $1.68 $2.93 Balance at the start of the year 960,980 1,823,951 3,235,700 – 1,765,028 6,020,631 1,765,028 Granted Exercised Weighted average exercise price $1.79 $2.93 $0.00 $0.00 $2.05 – – – – – Expired/ forfeited/ other – – – – – Balance at the end of the year 960,980 1,823,951 3,235,700 1,765,028 7,785,659 Expired/ forfeited/ other (1,138,772) – – – Balance at the end of the year – 960,980 1,823,951 3,235,700 (1,138,772) 6,020,631 – – – – – – – – – – 2021 Grant date Expiry date 25/10/2017 25/11/2019 28/10/2020 28/10/2020 14/08/2023 14/08/2025 14/08/2025 13/08/2026 Exercise price $3.66 $2.35 $1.68 $1.68 Balance at the start of the year 1,138,772 960,980 – – 1,823,951 3,235,700 2,099,752 5,059,651 Granted Exercised Weighted average exercise price $3.06 $1.68 $0.00 $3.66 $1.79 The weighted average share price during the financial year was $2.55 (2021: $2.07) per ordinary share. Outstanding options exercisable as at 30 June 2022 was nil (2021: nil). The weighted average remaining contractual life of options outstanding at the end of the financial year was 1 year (2021: 2.5 years). SG Fleet Group Limited 89 PERFORMANCE RIGHTS The performance rights are subject to a service condition and a performance condition. The performance condition is based on the compound annual growth rate of the Group’s earnings per share. Rights do not carry a right to receive any dividends. If rights vest and are exercised to receive shares, these shares will be eligible to receive dividends. Set out below are summaries of performance rights granted under the plan: 2022 Grant date 25/11/2019 28/10/2020 28/10/2020 08/09/2021 26/10/2021 2021 Grant date 25/10/2017 19/09/2019 25/11/2019 28/10/2020 28/10/2020 Vesting date 15/08/2022 15/08/2022 14/08/2023 01/07/2022 12/08/2024 Vesting date 18/08/2020 01/07/2020 15/08/2022 15/08/2022 14/08/2023 Balance at the start of the year 590,916 147,888 1,130,194 Balance at the start of the year 101,927 153,573 590,916 Granted Exercised Expired/ forfeited/ other Balance at the end of the year 590,916 147,888 1,130,194 402,469 734,790 3,006,257 – – – – – – – – – – – – – – 402,469 734,790 1,868,998 1,137,259 Granted Exercised Expired/ forfeited/ other Balance at the end of the year – (101,927) (144,382) (9,191) – – – – – – – – 590,916 147,888 1,130,194 – – 147,888 1,130,194 – – – – – – 846,416 1,278,082 (144,382) (111,118) 1,868,998 Performance rights exercisable as at 30 June 2022 was nil (2021: nil). The weighted average remaining contractual life of performance rights outstanding at the end of the financial year was 12 months (2021: 33 months). For the options granted during the current financial year the Black-Scholes valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Vesting date Share price at grant date Exercise price Estimated volatility Dividend yield Risk-free interest rate Fair value at grant date 26/10/2021 12/08/2024 $2.67 $2.93 50.00% 5.10% 0.69% $0.600 For the performance rights granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date 08/09/2021 26/10/2021 Vesting date 01/07/2022 12/08/2024 Share price at grant date $2.77 $2.67 Exercise price $0.00 $0.00 Dividend yield Fair value at grant date 4.65% 5.10% $2.950 $2.330 NOTE 45. EVENTS AFTER THE REPORTING PERIOD Apart from the dividend declared as disclosed in note 30, no other matter or circumstance has arisen since 30 June 2022 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. 2022 Annual Report 90 Directors’ declaration 30 June 2022 In the Directors’ opinion: – the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; – the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; – the attached financial statements and notes give a true and fair view of the Group’s financial position as at 30 June 2022 and of its performance for the financial year ended on that date; – there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and – at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 40 to the financial statements. The Directors have been given the declarations required by section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer. Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Directors Andrew Reitzer Chairman 15 August 2022 Sydney Robbie Blau Chief Executive Officer SG Fleet Group Limited Independent auditor’s report to the members of SG Fleet Group Limited 91 79 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Independent Auditor’s Report To the shareholders of SG Fleet Group Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of SG Fleet Group Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: •giving a true and fair view of theGroup’s financial position as at30 June 2022 and of its financialperformance for the year ended onthat date; andcomplying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: •consolidated statement of financial position as at30 June 2022;•consolidated statement of profit or loss, consolidatedstatement of other comprehensive income,consolidated statement of changes in equity, andconsolidated statement of cash flows for the year thenended;•notes including a summary of significant accountingpolicies; and•Directors’ Declaration.The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Company in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. 2022 Annual Report 92 Independent auditor’s report to the members of SG Fleet Group Limited 80 Key Audit Matters The Key Audit Matters we identified are: •valuation of goodwill;•recognition of residual value riskprovision;•measurement of deferred maintenance income; and•acquisition accounting for thepurchase of LeasePlan Australia andNew Zealand.Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Valuation of goodwill ($519.5m) Refer to Note 17 to the Financial Report The key audit matter How the matter was addressed in our audit Valuation of goodwill is a Key Audit Matter due to: •the size of the balance (being 24% oftotal assets);•the high level of judgement involvedby us in assessing the inputs to theGroup's annual assessment of theimpairment model, and the higherestimation uncertainty continuingfrom the business disruption impactof the COVID-19 global pandemic;and•the acquisition of LeasePlan Australiaand New Zealand during the financialyear, necessitating our considerationof the Group’s allocation of goodwillto the CGUs to which they belong.The significant forward-looking assumptions the Group applied in its value in use model are: •forecast cash flows, which can varybased on a number of factors suchas the number and fleet size of newcustomer wins, residual values,industry growth projections andinflation expectations. The Groupoperates across differentgeographies with varying marketpressures, which increases the riskOur procedures included: •assessing the appropriateness of the value in usemethod applied by the Group to perform theannual test of goodwill for impairment against therequirements of the accounting standards;•assessing the integrity of the value in use model,including the accuracy of the underlyingcalculation formulas;•assessing the accuracy of previous Groupforecasts to inform our evaluation of forecastsincorporated in the model. We considered factorssuch as the number and fleet size of newcustomer wins, residual values, industry growth,inflation experienced and historical trends wherevarying market pressures existed across differentgeographies and how they impacted thebusiness, for use in further testing;•working with our valuation specialists inassessing the Group's discount rates againstpublicly available data for a group of comparableentities and independently developing a discountrate range considered comparable using this data.We adjusted this range by risk factors specific tothe Group’s Cash Generating Units (CGUs) andthe industry it operates in;•challenging the Group's cash flow forecast andgrowth assumptions, including those related toSG Fleet Group Limited 93 81 of inaccurate forecasts; and the discount rates, which are complex in nature and may vary according to the conditions and environment the specific cash generating units (CGUs) are subject to over time. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. fleet size and growth assumptions across different geographies as well as supply chain constraints, using our knowledge of the Group and its industry. This included comparing the Group's growth assumptions to external data, such as industry growth projections and inflation expectations across different geographies; •considering the sensitivity of the model byvarying key assumptions, such as discount ratesand forecast growth rates, within a reasonablypossible range. This allowed us to identifyassumptions with a higher risk of bias orinconsistency in application, and to assess thepresence of indicators of impairment; and•assessing the disclosures in the Financial Reportusing our understanding obtained from ourtesting and against the requirements of theaccounting standards.Recognition of residual value risk provision ($11.5m) Refer to Note 22 to the Financial Report The key audit matter How the matter was addressed in our audit The recognition of the residual value risk provision is a Key Audit Matter due to the significant audit effort and high degree of judgement applied by us in assessing the Group’s residual value risk provision. The Group has entered into agreements with financiers which requires the transfer of the asset ownership and the associated residual value risk inherent in operating lease assets from the financier to the Group at the end of the operating leases. The determination of the probable residual value risk provision is based on the Group’s judgement in determining shortfalls on the disposal of these assets once ownership is transferred to the Group. It also takes into account market conditions and macroeconomic factors, such as inherent volatility of the asset’s disposal value due to changes in market conditions between the balance date and Our procedures included: •assessing the accounting treatment of the Group’sresidual value risk provision methodology against therelevant accounting standards;•testing the key control for the Group's residual valuerisk provision process being the quarterly evaluationand authorisation of the residual value calculation bysenior management;•comparing the market conditions and economicfactors underpinning the Group's determination of theprobable residual values against published marketreports and statistical economic information, a keydeterminant in the residual value risk provision, foruse in further testing. Our procedures includedcomparing the continuing impact of supply chainissues on used car sales prices against publiclyavailable industry literature and other credibleinformation;•assessing the Group's ability to accurately estimateresidual values at the end of the lease term bycomparing the historical residual valuation of a sample81 of inaccurate forecasts; and the discount rates, which are complex in nature and may vary according to the conditions and environment the specific cash generating units (CGUs) are subject to over time. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. fleet size and growth assumptions across different geographies as well as supply chain constraints, using our knowledge of the Group and its industry. This included comparing the Group's growth assumptions to external data, such as industry growth projections and inflation expectations across different geographies; •considering the sensitivity of the model byvarying key assumptions, such as discount ratesand forecast growth rates, within a reasonablypossible range. This allowed us to identifyassumptions with a higher risk of bias orinconsistency in application, and to assess thepresence of indicators of impairment; and•assessing the disclosures in the Financial Reportusing our understanding obtained from ourtesting and against the requirements of theaccounting standards.Recognition of residual value risk provision ($11.5m) Refer to Note 22 to the Financial Report The key audit matter How the matter was addressed in our audit The recognition of the residual value risk provision is a Key Audit Matter due to the significant audit effort and high degree of judgement applied by us in assessing the Group’s residual value risk provision. The Group has entered into agreements with financiers which requires the transfer of the asset ownership and the associated residual value risk inherent in operating lease assets from the financier to the Group at the end of the operating leases. The determination of the probable residual value risk provision is based on the Group’s judgement in determining shortfalls on the disposal of these assets once ownership is transferred to the Group. It also takes into account market conditions and macroeconomic factors, such as inherent volatility of the asset’s disposal value due to changes in market conditions between the balance date and Our procedures included: •assessing the accounting treatment of the Group’sresidual value risk provision methodology against therelevant accounting standards;•testing the key control for the Group's residual valuerisk provision process being the quarterly evaluationand authorisation of the residual value calculation bysenior management;•comparing the market conditions and economicfactors underpinning the Group's determination of theprobable residual values against published marketreports and statistical economic information, a keydeterminant in the residual value risk provision, foruse in further testing. Our procedures includedcomparing the continuing impact of supply chainissues on used car sales prices against publiclyavailable industry literature and other credibleinformation;•assessing the Group's ability to accurately estimateresidual values at the end of the lease term bycomparing the historical residual valuation of a sample2022 Annual Report 94 Independent auditor’s report to the members of SG Fleet Group Limited 82 future date at which the assets will be disposed. It is the Group’s policy to recognise a provision if the forecast sale proceeds of the asset are less than the residual value payable to the financier. This requires us to use our judgement when considering the Group’s assessment, as the ultimate sale proceeds are subject to the condition of the asset and market conditions at the end of the lease. of vehicles to the actual sale proceeds received from previous disposals from comparable vehicle classes; and •comparing a sample of the current residual valuationof the motor vehicles against the current market valueof these motor vehicles using recent external auctionprices achieved for comparable assets.Measurement of deferred maintenance income ($62.3m) Refer to Note 27 to the Financial Report The key audit matter How the matter was addressed in our audit The measurement of deferred maintenance income is a Key Audit Matter due to the audit effort and judgement involved in assessing the Group's estimations, which includes consideration of key inputs to the Group’s internal pricing cost and margin calculations, and supplier costs. It is the Group’s policy that periodic payments received from customers for maintenance services are initially recognised on the balance sheet as deferred maintenance income. Revenue is subsequently recognised when maintenance work is completed, and supplier costs incurred. The amount released from deferred maintenance income and recognised as revenue is determined based on the stand-alone selling price of the maintenance service provided. Our procedures included: •assessing the Group's revenue recognition policyagainst AASB 15 Revenue from Contracts withCustomers requirements;•assessing the historical accuracy of the Group'sestimates of life of contract costs by comparing pastestimates to actual costs incurred;•analysing vehicle maintenance costs and developingexpectations of maintenance expense which is a keyinput to the stand-alone selling price of maintenanceservices. We used our knowledge of the Group, thecomposition of the Group’s fleet (e.g. vehicle makes,types and condition), and other key metrics such asnumber of vehicles in the fleet and compared this tothe maintenance expenses recorded by the Group;•developing expectations of the deferred maintenanceincome per vehicle and comparing this to the deferredmaintenance income recorded by the Group; and•assessing the additions to deferred maintenanceincome by comparing a sample of entries to theunderlying maintenance services billed to customersand against the amount specified in the lease.SG Fleet Group Limited 95 83 Acquisition accounting for the purchase of LeasePlan Australia and New Zealand Refer to Note 41 to the Financial Report The key audit matter How the matter was addressed in our audit The Group completed the acquisition of LeasePlan Australia Limited and LeasePlan New Zealand Limited for a total consideration of $626 million. Accounting for the purchase is a Key Audit Matter due to the: •size of the acquisition and thereforethe impact on the Financial Report;and•the high level of judgement andcomplexity relating to the valuationand purchase price allocation (PPA).The Group engaged an independentvaluation expert to advise on theidentification and measurement ofacquired assets and liabilities, inparticular determining the allocationof purchase consideration togoodwill and separately identifiableintangible assets.These conditions and associated complexity in accounting for the acquisition and disclosures required by accounting standards required significant audit effort and involvement of senior team members. Our procedures included: •evaluating the methodology used for the acquisition,including fair value accounting adjustments to thetangible assets and liabilities acquired, againstaccounting standards requirements.•working with our valuation specialists to assess andchallenge key assumptions used in the PPA to identifyand value separate assets by:•assessing the objectivity, competence andexperience of the Group’s independent valuationexpert;•comparing inputs used by the Group’sindependent valuation expert with the Group’sstrategic plans and approved business forecasts;and•evaluating the Group’s significant judgementalassumptions such as identification of separateidentifiable intangible assets and the approach andmethodology for valuing the intangible assets.•assessing the adequacy of the Group’s disclosures ofquantitative and qualitative considerations in relationto the business acquisition based on ourunderstanding of the acquisition and the requirementsof accounting standards.2022 Annual Report 96 Independent auditor’s report to the members of SG Fleet Group Limited 84 Other Information Other Information is financial and non-financial information in SG Fleet Group Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: •preparing the Financial Report that gives a true and fair view in accordance with AustralianAccounting Standards and the Corporations Act 2001;•implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and•assessing the Group and Company’s ability to continue as a going concern and whether the useof the going concern basis of accounting is appropriate. This includes disclosing, as applicable,matters related to going concern and using the going concern basis of accounting unless theyeither intend to liquidate the Group and Company or to cease operations, or have no realisticalternative but to do so.Auditor’s responsibilities for the audit of the Financial Report Our objective is: •to obtain reasonable assurance about whether the Financial Report as a whole is free frommaterial misstatement, whether due to fraud or error; and•to issue an Auditor’s Report that includes our opinion.Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. SG Fleet Group Limited 97 85 Report on the Remuneration ReportOpinion In our opinion, the Remuneration Report of SG Fleet Group Limited for the year ended 30 June 2022, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 11 to 22 of the Directors’ report for the year ended 30 June 2022. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Rachel Milum Partner KPMG Joshua Pearse Partner Sydney 15 August 2022 Melbourne 15 August 2022 2022 Annual Report 98 Shareholder information 30 June 2022 The shareholder information set out below was applicable as at 31 July 2022. DISTRIBUTION OF EQUITABLE SECURITIES Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel EQUITY SECURITY HOLDERS TWENTY LARGEST QUOTED EQUITY SECURITY HOLDERS The names of the twenty largest security holders of quoted equity securities are listed below: BLUEFIN INVESTMENTS LIMITED LEASEPLAN CORPORATION NV CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD (DRP) J P MORGAN NOMINEES AUSTRALIA PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NETWEALTH INVESTMENTS LIMITED (WRAP SERVICES A/C) NATIONAL NOMINEES LIMITED ROBERT PINKAS BLAU MISAMADA NOMINEES PTY LIMITED (MISAMADA A/C) MDJZ FERNANDES PTY LTD (MDJZ FERNANDES A/C) SHEVIN PTY LIMITED (THE SHEVIN A/C) SCOTCH INVESTMENTS PTY LTD (SCOTCH INVESTMENTS A/C) INSYNC INVESTMENTS PTY LTD (WEEKLEY SUPER FUND NO 1 A/C) PETER MOUNTFORD MULCASTER SUPER FUND PTY LTD (MULCASTER SUPER FUND A/C) NCH PTY LTD MACDONALD GILBERT BELL TARK FAMILY HOLDINGS PTY LIMITED (TARK FAMILY A/C) MRS ANNIE MARGOSSIAN-KENNY & MR SCOTT ANDREW KENNY (KASM SUPERFUND A/C) ORDINARY SHARES Number of holders 503 583 335 501 44 1,966 315 % of total shares issued 0.06 0.48 0.74 3.74 94.98 100.00 – ORDINARY SHARES Number held 182,028,160 44,588,550 31,925,496 14,014,463 10,495,057 9,505,466 7,857,937 6,422,539 5,961,523 1,901,065 1,330,845 779,732 610,000 595,565 580,000 567,204 469,407 465,960 441,253 390,618 % of total shares issued 53.23 13.04 9.34 4.10 3.07 2.78 2.30 1.88 1.74 0.56 0.39 0.23 0.18 0.17 0.17 0.17 0.14 0.14 0.13 0.11 320,930,840 93.87 SG Fleet Group Limited UNQUOTED EQUITY SECURITIES Options over ordinary shares Performance rights over ordinary shares 99 Number on issue 7,785,659 3,006,257 Number of holders 10 88 The following person holds 20% or more of unquoted equity securities: Name Robbie Blau Class Options over ordinary shares Number held 3,376,571 SUBSTANTIAL HOLDERS Substantial holders in the Company are set out below: BLUEFIN INVESTMENTS LIMITED LEASEPLAN CORPORATION NV VOTING RIGHTS The voting rights attached to ordinary shares are set out below: ORDINARY SHARES Number held 182,028,160 44,588,550 % of total shares issued 53.23 13.04 ORDINARY SHARES On a show of hands every member present at a meeting in person or by proxy, attorney or corporate representative shall have one vote and upon a poll each share shall have one vote. RESTRICTED SECURITIES Class Expiry date Fully paid shares held by LeasePlan Corporation NV Escrowed to 1 September 2022 Fully paid shares held by LeasePlan Corporation NV Escrowed to 1 September 2023 Number of shares 22,294,275 22,294,275 44,588,550 SHARE BUY-BACK There is no current on-market share buy-back. 2022 Annual Report 100 Corporate directory Directors Andrew Reitzer – Independent Non-Executive Chairman Robbie Blau – Chief Executive Officer Cheryl Bart AO – Independent Non-Executive Director Peter Mountford – Non-Executive Director Edwin Jankelowitz – Independent Non-Executive Director Kevin Wundram – Chief Financial Officer Tex Gunning – Independent Non-Executive Director Colin Brown – Alternate Director for Peter Mountford Company secretary Tawanda Mutengwa Notice of annual general meeting The annual general meeting of SG Fleet Group Limited will be held virtually at 3:00 pm on Tuesday, 25 October 2022. Further details will be provided in the Notice of Meeting. Registered office and Principal place of business Level 2, Building 3 20 Bridge Street Pymble NSW 2073 Share register Auditor Telephone: +61 2 9494 1000 Facsimile: +61 2 9391 5656 E-mail: globalenquiries@sgfleet.com The Registrar Boardroom Pty Ltd Level 12, 225 George Street, Sydney, NSW 2000 Telephone: +61 2 9290 9600 E-mail: enquiries@boardroomlimited.com.au Website: www.boardroomlimited.com.au KPMG International Tower 3 300 Barangaroo Avenue Sydney NSW 2000 Stock exchange listing SG Fleet Group Limited shares are listed on the Australian Securities Exchange (ASX code: SGF) Website www.sgfleet.com Corporate Governance Statement The Directors and management are committed to conducting the business of SG Fleet Group Limited in an ethical manner and in accordance with the highest standards of corporate governance. SG Fleet Group Limited has adopted and has substantially complied with the ASX Corporate Governance Principles and Recommendations (Fourth Edition) (‘Recommendations’) to the extent appropriate to the size and nature of its operations. The Group’s Corporate Governance Statement, which sets out the corporate governance practices that were in operation during the financial year and identifies and explains any Recommendations that have not been followed and ASX Appendix 4G are released to the ASX on the same day the Annual Report is released. The Corporate Governance Statement can be found on the company’s website at http://investors.sgfleet.com/ Investors/?page=Corporate-Governance-Statement. Enquiries investorenquiries@sgfleet.com SG Fleet Group Limited