Zenith has reported long lead times faced by fleets for new vehicles are beginning to shorten, but deliveries remain below expectations.

The leasing company says that the continuing squeeze on new car supply chains resulted in a lower than expected number of deliveries, leading to fewer end-of-contract terminations as customers were less able to replace their vehicles.

In quarter three (Q3), termination volumes in corporate were down 26% year-on-year and down 6% on Q1, but up 10% on Q2.

Zenith believes that this is a deferral of activity and income to later periods, not a permanent change.

Its order book decreased to 14,300 units at the end of Q3, with gradually improving supply, while its order intake, it says, has been slightly lower in Q3 compared to the prior quarter.

Publishing its financial results for the third quarter, Zenith revealed that its total fleet size remained at 168,000 vehicles, though the funded fleet, which generally carries higher margins, increased by about 2,500 units to 74,000.

For the quarter ending December 31, 2022, turnover year-on-year grew by £35.6 million to £163.9m, with Zenith reporting gross profit of £37.4m up 12.8% year-on-year.

Profit growth, it says, was driven by high residual value (RV) profits, a growing fleet size and increased rental activity.

Adjusted EBITDA (excluding ZenAuto) grew by £0.7m to £20.1m year-on-year.

Year-to-date, as of the end of December 31, gross profit was £108.9m up 8.8% year-on-year; with strong profit growth in consumer, driven by growth in ZenAuto’s fleet.

Adjusted EBITDA (excluding ZenAuto) was down 0.6% or £0.4m year-on-year with increases in gross profit from trading being offset by increases in operational expenses.

It also reported a strong balance sheet with cash position of £8.2m and an undrawn credit facility of £65.0m, giving liquidity of £73.2m.

Zenith CEO, Tim Buchan (pictured), said: “The macro environment continued to be in a state of turmoil, but the group’s strategy of concentrating on long-term and profitable contracts with credit-worthy customers continues to deliver predictable and stable earnings against the difficult economic backdrop.”

He continued: “I was delighted to see our funded fleet size increase across all three divisions; these fleets deliver the long-term high-quality earnings around which we have built our business.

“It was great to see supply chains start to free up following the Covid pandemic, semiconductor shortages, and the impact of the war in Ukraine on manufacturer supply chains.

“Encouragingly, we saw high volumes of deliveries of new vehicles and leases to customers, with record highs in November and December, normally seasonally quiet months.”

ZenAuto and the salary sacrifice segment of corporate saw lower orders as a result of shifts in consumer confidence, reports Zenith. Although, it acknowledged this has been mitigated to a large extent by the continuing, favourable benefit-in-kind (BIK) taxation for battery electric vehicles (BEVs).

BEVs now represent more than a quarter (27%) of the corporate fleet and approximately 56% of its order intake in the quarter.

Buchan said: “We have a good mix of business across the group. So, while the resale prices of second-hand electric vehicles have been in the news recently, I am reassured by the blend of traditional fuel types that will form the majority of our vehicle disposals over the next two years.

“I am also confident that the BEV markets will reach equilibrium.

“This change will be assisted by a growing understanding of the lower costs of maintaining and fuelling electric vehicles, alongside what we hope will be falling electricity prices and much greater investment in charging infrastructure across the UK. Indeed, we are already seeing an early return of buyers for these second-hand BEVs.”