Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue increased by 27% compared to the first half of 2023, reaching $148.5 million.
- EBITDA grew by 20% year-on-year to $56.2 million, with a slight margin improvement.
- Smartgroup achieved a high level of cash flow conversion at 108% of NPATA.
- The company declared an interim dividend of $0.175 per share, fully franked.
- EV orders now account for 42% of total new car orders, indicating strong growth in this segment.
Negative Points
- Operating costs associated with the South Australian Government contract were $3 million, impacting margins.
- No material profit contribution is expected from the South Australian Government contract in 2024.
- Depreciation and amortization expenses increased by 37% due to higher capitalized IT development costs.
- The company faces ongoing competitive pressures in contract renewals and admin fee pricing.
- The balance sheet funding pilot for fleet vehicles is still in the evaluation phase, with no clear long-term strategy yet.
Q & A Highlights
Q: Just interested in, I guess, what you're seeing in lead conversion, what you think you need to do that cost base and what it's bringing through on lead conversion and how ultimately you're looking at that margin delivery?
A: We have carefully monitored our resourcing levels. Our cost base is one where if there's increased demand, we need to increase resourcing to meet that demand. In the short-term, we view 40% as a threshold range for EBITDA margin. In the medium term, we want to target margin improvement. Our lead generation is holding up well.
Q: Does that imply that the orders that you're taking are on lower car values as those lower EVs price points come through? And how does that fade into the July update where orders are up?
A: We are not seeing any material shift in vehicle size. The latest update into July indicates that things remain relatively robust and similar to what we've seen in the first half. Yield is holding up well.
Q: Are we expecting that you are straight away writing novated leases with the South Australian contract?
A: Yes, we commenced servicing that contract from the 1st of July, supporting salary packaging and novated leasing orders. We are also supporting the current novated leasing book and any South Australian Government employees who want to refinance.
Q: Can you talk about the average amount financed per vehicle?
A: The average amount of finance has held up pretty well, moderately ahead across the whole book, about 1% up half-on-half.
Q: Can you talk to expectations going forward for advertising and marketing costs?
A: We have taken steps to more proactively engage with our clients and improve our approach to digital marketing. This is one of the drivers of successful demand generation that we've created in the half and will be an ongoing focus. We are very focused on ensuring a good return on that investment.
Q: What's the group's vision for the size of the balance sheet funding pilot ultimately?
A: Through the course of next year, we will be in a better position to assess the success of the pilot. We need to get further down the track and see what plays out in terms of the end of life on that pilot before making any commitments to ramp up.
Q: Can you talk about the yield on a $40,000 EV versus a $60,000 EV and comparing it to ICE vehicles?
A: Higher NAF equals higher yield. EVs generally have a higher price point, which will change as more affordable makes and models come to market. We are seeing that yield is holding up well.
Q: Is there anything to suggest that the South Australian contract wouldn't support a 40% margin in calendar year 2025?
A: We won't give specific targets, but we aim to keep to the 40% threshold and will look to make the most of the South Australian Government contract into next year.
Q: Can you give us a sense of which segments new customer wins are weighted towards?
A: We have had wins across all industry segments, including some good wins in the corporate segment in the first half.
Q: Can you give us a sense of the contribution of plug-in hybrids to your new vehicle orders in the first half and in July?
A: In the first half, plug-in hybrids made up 10% of vehicle orders as a subset of the 42% that we quoted on EVs. Trading in July is very similar.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
