Company Interview / EVs plug-in profits

Key points:

SmartGroup Corp posts 18% net profit rise, 27% revenue increaseFocus on electric vehicle uptake and strategic digital investmentsDivested Healthy Workforce Solutions, focusing on core leasing and fleet services

SmartGroup Corp (ASX: SIQ) has reported an 18% rise in net profit, with revenue up 27%. Smartgroup (ASX: SIQ) CFO Jason King emphasises strong electric vehicle uptake as a significant growth driver. He notes consistent growth across both electric and combustion engine vehicles.

SmartGroup's (ASX: SIQ) recent success is bolstered by strategic priorities, including enhancing digital offerings and infrastructure. Jason highlights key client wins, such as a good relationship with the South Australian government. Continued investment in digital remains a focus.

Jason mentions the divestment of Healthy Workforce Solutions to hone in on core business areas like Novated leasing, salary packaging, and fleet management. He is optimistic about continued EV growth and stresses the importance of improving operating efficiency.

Full unedited transcript below:

0:00

Well. Smart Group has reported an 18% rise in net profit for the half revenue, jumping 27%. Earnings were up 20% on the previous corresponding period. And to get us the story behind those figures, smart Group CFO Jason King joins me now. Jason, hi. Welcome. You know these numbers inside and out, no doubt. So what's the highlight for you today?

0:23

Yeah. Thank you for having me. Look, we're relatively pleased with the half that we've had. Clearly the highlight is the revenue story and rapid uptake in electric vehicles. So, uh, electric vehicle uptake is really underpinned a lot of the growth that we've had over the last year. And as you said, 27% up on revenue and 16% up on the impact number. But beyond that, uh, the growth has really continued into the more recent times. So we've seen continued growth, not just in EVs, but also in the, uh, the ES, the combustion engine side of our business. So it's good that we're getting balanced growth there. And then whilst we've been adapting to this increased demand, we've also been able to deliver on many of the strategic priorities that we'd set for ourselves. So really focused on enhancing our digital proposition, making a lot of investment in the back end on improved infrastructure. Uh, and also some relatively meaningful client wins for us over the last six months. So in particular

1:24

built a very good relationship with the South Australian government, and we're happy to deliver to them a transition over in the last six months. Um, and beyond that, really just looking to service the clients more generally and continuing to invest in the digital proposition. So, uh, very happy with the steady progress that we've made in the last six months. Okay. Vehicle supply, is it getting easier out there? Is that helping you to to grow?

1:48

Yeah, absolutely. It's helping in a couple of respects. So, uh, our business for a long time, uh, had an order pipeline backlog. So we were doing deals, but the the supply was meaning that the settlement between the order, uh, and the actual delivery of the vehicles was quite lengthy. So we've seen some improvement on that front. Uh, it was previously around about 80 days on average, and it's come down to 65. That's important for us. It's more efficient. This short of that time frame is from our point of view. It involves less rework and less drag from our perspective. But I think more importantly, from the customer's perspective, uh, what we are essentially doing is helping them find the right vehicle for their budget. And so the increased supply just gives us more options. It's meant that there's been more discounting, more perceived value from the client's point of view. And that's really helped us. So it's definitely a good thing. We'd like to see further improvements in vehicle supply. We're not quite sure how that will play out, but we're anticipating it should continue to

2:47

improve. Okay, so you had vehicle lease orders rising and you just told us that it's been a pretty solid start to this new period. Was any concrete financial guidance provided at the results? Forgive my ignorance. No. That's okay. No, we haven't provided formal guidance on the outlook. What we have said is that the most recent trading that we have had continued to be robust. Um, we are aware of, I think the, the macroeconomic pressures and the narrative that's out there about cost of living and that's, that's definitely a real thing. Uh, what we're finding for our particular customer segments, though, is that we tend to service employer clients that, uh, tend to be in in larger and more defensive areas of the economy. So a lot of health care professionals, uh, you know, teachers, nurses, uh, other public servants. Um, and what we're finding is that relatively robust areas of demand for those clients. So we're aware of,

3:47

um, the potential cost of living pressures that are coming. But from our point of view, salary packaging in particular is a great option for people under, um, you know, we all have budget pressures, but if if you're looking at salary packaging, it's a great way to maximize your take home pay.

4:05

Now, there was a divestment of the Healthy Workforce Solutions. Um, I think it was just in July. What was that and why was that undertaken? Like strategically, what's happening at the business then?

4:20

Yeah, correct. So we did announce the divestment of that business. Um, our broader strategy more recently has been to really focus on, um, the core businesses of Nevada leasing, salary, packaging and fleet. The healthy workforce business was a consulting business really focused in the healthcare sector. Um, we were happy to find, I think, a more appropriate home for that business and happy with the commercial outcome that we got there. It wasn't included in these results, and it was relatively minor in the overall scheme of things. Um, but that is just part of the strategy alignment that we've been undertaking and divesting a couple of smaller businesses that were on the periphery. Mhm. Okay. Um, now, I don't know, being CFO, if you've got all the answers to this one because I think it's, you know, an open, open question right across the board. But you know EV has been a big contributor, a big driver of business. Um, are you banking on that demand continuing because we're starting to hear, you know, that hybrids are actually the preferred

5:20

option. You know, that it's not going to be an EV nirvana for quite some time. Um, what's your view?

5:28

Yes. Um. You're right. We don't have a crystal ball. Uh, and certainly plug in hybrids have been an important part of the mix recently, so they have grown fairly rapidly. Um, our outlook, if we look at comparable markets in terms of EV uptake, tends to suggest that once you reach a certain sort of critical mass when it comes to the percentage penetration of electric vehicles, that you tend to get further growth. So things like word of mouth, uh, improved infrastructure and just awareness of the option, uh, does tend to help. So we would expect that EVs will continue to grow. I think in terms of the policy support that EV is currently getting, uh, it is definitely helpful. Uh, and it's an area that has led to, I think, some fairly successful public policy outcomes. And that is due to continue for, um, at least until, I believe, sort of early 2027. Got it. Okay. So your key priority, I mean, these results have been bedded down. I will say you've got a,

6:28

you know, quite a lot of by ratings or minutes by cities of by Morgans has upgraded to an ad Bell Potter Bible. I'm doing your work for you, aren't I? Macquarie's got an outperform rating on the stock, but, you know, you have to stay firmly focused on what's to come. So what is your priority right now?

6:47

Yeah. Look, it's it's a continuation of the things I spoke about there at the beginning. Right. So we are trying to find the balance, and we think we're achieving the balance between getting things right for the delivery, for our customers here and now, but also focusing on the investment program. And that investment program is really around improving the operating efficiency of the business, improving the customer experience in the front end, and improving the digital delivery that we have. That's a program that's going to be ongoing for some time, and we hope that that will lead to more scalability in the business and more efficient growth as we continue to grow. But as I said, really looking to make sure we continue on the pathway of delivery of those items whilst serving the customers here and now and continuing to grow on the profitability side as well.