– By Caroline Falls –
Smartgroup, a listed fleet management and novated lease provider, has announced double-digit growth in both revenue and profit in 2018, but it’s a dramatic slowdown from the year earlier.
One reason for that is acquisitions. It made only one last year — Fleet West in January 2018. compared with three in the previous 12 months — Aspire, RACV’s Salary Solutions and AccessPay.
Fleet West is a specialist fleet management provider, managing about 2,800 vehicles for more than 180 clients. Adding clients is a boon for Smartgroup, which has integrated the Fleet West brand and operations into its own. That’s because a lot of Smartgroup’s growth is coming from cross selling to clients. Bringing 180 new clients of one service — fleet management — onto the books gives Smartgroup the opportunity to sell them their other key products — such as salary packaging services, payroll administration, share plan administration, and workforce management.
Some 164 of Smartgroup’s clients used two or more of its service offerings as at December 31, up 10 percent from June 2018.
“In addition to growth across all key financial and operational metrics, our continued focus on customer service has gained recognition from our clients, customers and the industry,” said Seven Billimoria, Smartgroup CEO in a press release about the full-year results.
Looking at the headline figures from the annual results release, net profit after tax rose 22 percent to $78 million in calendar 2018, compared with a 46 percent rise to $64.1 million a year earlier. The 2018 profit reflects an 18 percent increase in revenue to $241.8 million from $205.4 a year earlier.
Smartgroup continues to grow novated leases. In the calendar year 2018 novated leases grew by 2,750 to 65,250, all through organic growth, and not via acquisitions or major new client wins. It’s worth noting that this total figure represents a doubling of Smartgroup’s novated leases since its IPO, or initial public offering, when it had 32,500.
Some 24,100 of the additional novated leases since 2015 have come through acquisitions. Smartgroup has made nine acquisitions since being listed on the Australian Stock Exchange — Autopia, Selectus, RACV Salary Solutions, Aspire and AccessPay among them, as well as acquiring a 50 percent stake in Health e-Workforce Solutions. Other brands in the Smartgroup stable include: Smartsalary, Smartleasing, Smartequity, Advantage Salary Packaging, PBI Solutions, and Salary Solutions.
Smartgroup has increased its novated leasing volumes despite private new vehicle sales falling over the course of 2017 and 2018. While novated leasing yields remained relatively stable over the 2016-2018 period, Smartgroup said there has been a recent drop-off due to a shift to lower-priced vehicles and to diminished sales of extended warranties.
The slowing in sales of extended warranties is because of a reduced need by fleet and vehicle buyers to take them since most major vehicle manufacturers are offering five-year warranties as standard compared with three-year warranties not so long ago. Smartgroup predicted this to have a negative impact of as much as $2 million in the the current calendar year.
The company also grew its fleet management footprint. At the end of 2018, it had 22,900 vehicles under management, up from 17,500 the year earlier. A large part of that growth was thanks to buying Fleet West in January last year. The company attributed the remaining 2,600 vehicles added to its management service as organic growth. The Fleet West brand, operations, technology and people have been integrated into its own Smartgroup’s Smartfleet brand.
A notable new addition to the group’s balance sheet is the line accounting for lease liabilities. This follows the adoption of the standard AASB16 which became mandatory on January 1 of this year. Smartgroup adopted it early. The standard is based on a new global accounting standard requiring operating leases to be recorded on the balance sheet — a significant change for fleet management. To this end, Smartgroup has recognised $11.5 million of leased premises and equipment, and an associated $15.6 million of lease liability as at 31 December, 2018.