Reading through the results announcement for salary packaging and novated lease specialist Smartgroup, we didn’t find anything revealing. They are working hard on several initiatives to set the foundations of a post-COVID recovery and future growth. They are also building a large order book for novated lease vehicles that may not get delivered until 2022.
Novated leases orders have recovered to pre-COVID levels and settlements (deliveries) last quarter were 4% higher than the same period in 2021 with digital leads increasing thanks to a redesigned website and an improved savings calculator.
Smartgroup CEO Tim Looi said: “We have seen good momentum from improved business conditions, including success in winning new clients and renewing existing key client contracts. In particular, our strong renewal rate is a testament to the hard work of our team, the service we offer our clients and the loyal relationships we foster.”
They recorded strong organic growth of approximately 13,000 additional salary packaging customers during H1 2021 and now manage a total 373,500 packages. This was achieved despite client on-site sales activities being restricted due to COVID-19 outbreaks. Approximately 8,500 of these packages were introduced from a new health sector client onboarded in April this year.
Future revenue was secured with Smartgroup delivering a 100% success rate in renewing or extending all of the top 20 contracts falling due this calendar year. And their largest client, Department of Defence, which has been with Smartgroup since 1999, renewed for five years, inclusive of extensions.
New lease vehicle orders increased to pre-COVID levels in Q2 this year. However, vehicle supply disruptions have resulted in longer lead times, building a pipeline of future settlements. Despite supply constraints, leasing settlement volumes were up 2% on pcp and 4% on H2 2020. As a result of these supply issues, novated leases under management were down slightly to 65,600 and managed fleet vehicles grew modestly to 25,100.
The three key strategic priorities of the Smart Future program are optimising customer experience, enhancing digital platforms and streamlining operations. This includes, amongst other projects, redesigning client and customer portals, migrating to cloud infrastructure and software, investing in business automation and enhancing data analytics capability. The program will take three years to deliver, with an estimated spend of $5-$6 million per annum.
Smartgroup CEO Tim Looi said “I am pleased with how we performed in the first half of the year and also positive about the future growth of Smartgroup, underpinned by the Smart Future.
“While the current economic disruption brought on by the COVID-19 pandemic is likely to negatively impact vehicle orders, Smartgroup’s business is in good shape operationally and we are well positioned for recovery and continued growth in orders when lockdowns ease.”
The investor presentation included graph showing the number of employees within the existing customers of Smartgroup. They estimated there is between 900,000-1,200,000 cars owned by these employees and only 60,000 have a novated lease with Smartgroup. This demonstrates the significant opportunities for novated leasing and salary packaging within their existing clients which would be similar for all novated lease providers.