I'd now like to hand the conference over to Mr. Scott Wharton, CEO. Please go ahead.
Great. Thank you, Darcy, and good morning, everyone. And thank you for joining us on the call today. My name is Scott Wharton, and I am the Managing Director and CEO of Smartgroup. Joining me on the call today is Jason King, our Chief Financial Officer. First, I would like to acknowledge the traditional owners of the land on which I'm speaking to you, the Gadigal people of the Eora Nation. As this event is broadcast nationally, I would also like to acknowledge the traditional custodians of the various lands on which you all join this call. I recognize their continuing connection to land, waters, and culture, and pay my respects to their elders, past and present. Turning to slide three. Today, I'll start by providing some of the key highlights of 2024 and a recap of Smartgroup's investment proposition.
I'll then talk through the progress we have been making across our strategic priorities. Jason will then take you through the full-year performance in more detail. To conclude, I will provide a brief outlook. Now, let's turn to slide five of the investor presentation. Smartgroup delivered a strong financial and operational performance in 2024. Revenue increased 22% versus 2023 to a record $305.8 million. This was underpinned by higher novated leasing volumes driven by demand-generating activities and improving vehicle supply. Our service proposition and strong customer experience enabled Smartgroup to retain clients and attract new ones. We continue to make targeted investments to generate and meet additional novated leasing demand. We also continue to invest to deliver our strategic priorities and become a simpler and more digital business, growing through great customer service and experience.
EBITDA of $ 118.7 million was up 18% on PCP, and EBITDA margin was 39% in the full year. Importantly, our second half 2024 EBITDA margin was 40% as planned. NPATA increased by 15% to $ 72.4 million. Smartgroup also delivered operating cash flow conversion at 108% of NPATA. Our strong financial performance and high level of cash generation have enabled the board to declare a final fully franked dividend of $ 0.20 per share. In addition, the Board also declared a fully franked special dividend of $ 0.11 per share as a further return to shareholders. Together with the $ 0.175 per share interim ordinary dividend declared in August 2024, this brings fully franked dividends to $ 0.485 per share, representing 90% of 2024 NPATA. We continue to grow salary packaging customer numbers, novated leases under management, and fleet-managed vehicles to record numbers. Jason will expand on this shortly.
In 2024, our proposition generated solid novated leasing demand for both electric and internal combustion vehicles. EVs accounted for 44% of our total new car orders, including plug-in hybrids at 13%. While the EV share of our novated lease portfolio is growing, ICE vehicles remain an important and growing part of our business. In 2024, the number of ICE new car lease orders increased 12% compared to 2023. Pleasingly, yield increased 7% versus 2023, driven by a high proportion of new car leases versus refinances, supply chain renegotiations, and vehicle mix. Yield management will remain an ongoing focus. We're also making solid progress against our strategic priorities announced in our results last February, and I'll speak about this later. But in short, we are well on track to achieve our ambition of delivering smarter benefits for a smarter tomorrow. Now, let's turn to slide six.
We are proud to have received an 11.5 ESG risk rating from Sustainalytics, placing Smartgroup at the 95th percentile globally. We were also ranked in the 93rd percentile worldwide in the S&P Global Sustainability Assessment. In addition, Smartgroup was again recognized as an Employer of Choice for Gender Equality by Workplace Gender Equality Agency. We have held this citation since 2021. Smartgroup was also recognized by Institutional Shareholder Services as a leader in ESG practices and received an ESG Prime Responsible Investment rating from them. These outcomes recognize the importance of ESG and diversity and inclusion to Smartgroup and our clients. Moving to slide seven, we believe our investment proposition remains compelling. Smartgroup is uniquely placed to continue to deliver strong growth and sustainable shareholder returns. Smartgroup is a leading employee services and fleet solutions provider with a client base that employs over 2 million Australians.
Our existing client base represents a significant growth opportunity. During 2024, we provided services to 541,000 of those over 2 million people and managed 106,000 vehicles across novated leasing and fleet. The group has significant recurring revenues and long-term contracts with clients in attractive and growing segments like government, health, education, and not-for-profit. Our offerings are even more relevant to our customers during tough economic times when people are looking for ways to make the most of their take-home salaries. We have a track record of revenue growth and a resilient and scalable earnings base with strong cash flow conversion. Smartgroup's investment proposition to shareholders is underpinned by our capital-light business model. This model means that we carry relatively low levels of vehicle residual value risk.
Combined with our strong balance sheet and high free cash flows, this means that we can pay fully franked dividends to shareholders at the same time as we are investing for growth. The operating environment is favorable for Smartgroup. Cost-of-living pressures are impacting many Australians, and Smartgroup's products and services are well-positioned to help Australians with those pressures. In addition, improving vehicle delivery timeframes and the Federal Government Electric Car Discount Policy are also positive for Smartgroup. Finally, we have articulated a clear set of strategic priorities to drive profitable growth into the future. We are focused on our customers and our core businesses of salary packaging, novated leasing, and fleet, while investing in digital and technology to accelerate growth and deliver on scale efficiencies. Turning to slide nine, before I joined Smartgroup nearly two years ago, what stood out for me was the growth opportunity available to the company.
We are a leading provider of salary packaging and novated leasing to government, not-for-profit, and health segments in Australia, where we have a strong defensible position with long-term contracts. We have done a great job winning and retaining contracts across the segments in which we operate. However, we strongly believe that we can increase penetration in our existing client base through better awareness, improved customer service, and market-leading digital assets. This means further growing uptake of our services by customers that work for employer clients already with Smart. We also see an opportunity to use our scale to further expand across all segments, acquiring more clients not currently with Smartgroup. We are excited about the potential for growth in the corporate segment, which currently represents 3% of our salary packaging customers, but more than 15% of our total eligible employees.
Our value proposition is resonating with corporates, and we have welcomed many new clients in 2024. We also strengthened our focus on the small and medium business segment through our Autopia brand, which has been part of Smartgroup for almost a decade. Autopia has over 1,000 small to medium-sized business clients, offering them a simple solution to easily access novated leasing, and it will continue to be a focus for the group going forward. Turning to slide 10, which recaps Smartgroup's strategic priorities and focus areas communicated last February. First, Smartgroup is focused on delivering an efficient and digital salary packaging offering that makes the most of our scale. To do that, we are investing in simplifying and consolidating our core technologies and processes, including moving to a single brand, Smart.
Second, we are extending our leadership in novated leasing, including through EVs, meeting the increased demand and interest as we continue to enhance our market-leading proposition. Third, we are innovating our proposition to meet the changing needs of our customers and clients. We are doing this by expanding our offering to unlock more value for our clients and customers. We are also scaling our benefits program to provide more ways for customers to improve their financial well-being. Finally, we are continuing to invest in fleet capabilities and our balance sheet funding pilot for fleet vehicles. Through this pilot, we are meeting a key need of our clients. We will continue to closely monitor residual values, in particular, given current elevated vehicle values and the changes to fleet happening across Australia. These areas of focus are positioning Smartgroup strongly for the opportunities ahead.
One of Smartgroup's strengths is how deeply we care about our customers. We continue to build on that and create a culture that is relentlessly focused on enhancing client and customer experience. With that strong culture and by harnessing technology, we are delivering smarter experiences and smarter products for our customers and clients and continually finding ways to work smarter, to be more agile and responsive to their needs. Turning to slide 11, since we announced our strategic priorities last February, we have been working hard to deliver. I am pleased to report that in 2024, we made solid progress as we positioned Smartgroup for the opportunities ahead. In the first year of our strategy, we focused on our core business and prioritized investments in customer experience and digitization of customer-facing processes. We also made improvements in digital marketing to reduce our acquisition cost and expand the customer funnel.
As we move into the second year, our focus will also be on enhancing the efficiency and scalability of our business. We successfully launched our single brand, Smart, a clear shift to simplify client and customer channels for our products and services. During the year, we transitioned our Advantage brand clients and customers and consolidated our Smartl easing and Smarts alary brands to Smart. This reduced our number of brands from six to four. We will continue to progress the brand consolidation as part of our simplification efforts. In November, we also launched smart.com.au, our new digital customer home. This new platform features a modern design, improved navigation, and enhanced functionality. We have delivered customer service automation and efficiency improvements in 2024. Examples include implementation of AI-enabled multilingual chat support for our customers and new technology which improves the effectiveness of our customer interactions by our contact centers.
Innovations like these helped us achieve efficiency improvements, including increasing the number of packages per operations FTE by 10% in 2024. These initiatives are delivering improved customer experience and helping attract more clients. As a result, we grew our salary packaging customers by 12% and more than doubled new client wins in 2024. Importantly, our Net Promoter Score also grew more than 10%. In novated leasing, we delivered strong improvements. Our enhanced car leasing portal continues to delight our customers, making it simpler and quicker to customize quotes, apply for credit, and order a car. It has also increased digital conversion compared to the first version of the portal. As a result of our digital investments, we saw a significant increase in revenue generated through our digital channels in 2024. We continued building strategic partnerships to address our customers' evolving needs.
For example, in the second half, we partnered with digital energy management company Intellihub, introducing their home energy offering for our customers, which includes solar, battery, and chargers. We remain committed to anticipating our customers' needs and forging partnerships that truly resonate with them. Our Smartr ewards platform, which we progressed rolling out through the year, is valued by our customers and clients with over 30,000 users accessing the platform in 2024. In fleet, we expanded our fleet offering to larger clients and continued to grow our self-funded fleet pilot. We have also made various operational improvements to our systems and processes based on feedback from our clients. During the year, we divested two non-core businesses, allowing the group to further focus on our core of salary packaging, novated leasing, and fleet, which present attractive growth opportunities.
Finally, we appointed new executives bringing additional capabilities as part of an operating model reset. This new operating model will drive further focus on performance and growth. Turning to slide 12, our investments aligned with our strategic priorities are helping accelerate sales and attract greater interest from new clients. In addition to providing an improved customer experience, over time, these assets will allow us to continue to expand and improve our digital marketing presence, customer conversion, and efficiencies in operations. I want to share two examples of what we have delivered in the past 12 months. The first example is smart.com.au. Our new customer digital home makes it easier for customers to engage with us on their salary packaging and novated leasing needs, how they want and when they want.
As I previously mentioned, in 2024, we saw an increase in revenue generated through digital channels, and our NPS increased by 10%, reflecting the great experience our customers are having interacting with us. Moving to slide 13 is another example, our enhanced car leasing portal. The latest version of the car leasing portal represents a dramatically improved digital experience for our customers, allowing comprehensive feature display, car comparisons and customization, all the way through to financing and credit application. As I previously mentioned, this new version has increased digital conversions in 2024. Aligned with our strategic priorities, we will continue to invest in our digital assets. I'll now hand it over to Jason to talk through the key drivers of our financial performance in more detail.
Thank you, Scott, and good morning to everyone on the call. Before covering our 2024 results, I wanted to take this opportunity to expand on how we are thinking about the market opportunity Scott spoke of and how we believe Smartgroup will be able to create value through our scale and ongoing investments.
As we focus on continuing to enhance our customer experience and expand our market presence, we will be creating additional operating leverage for the benefit of both us and our clients. This operating leverage comes in several forms. Firstly, we are focused on winning additional clients to leverage the existing scale of our platform and our relationship management teams that already serve 500,000 customers. Secondly, we are focused on the organic opportunity to expand our penetration of the existing client base with our packaging and benefit offerings to leverage the great work of the operations teams that are already in place to support these clients.
And finally, we are focused on expanding our products and services to better meet customer needs, as we have already outlined in our strategic priorities, in order to increase retention and further leverage our customer base. We believe we are making steady progress on each front and that these improvements will ultimately drive improved financial returns over the medium term. With that in mind, I'll move to slide 16 to cover our performance in 2024. In 2024, we delivered growth across all our key product lines. Our active number of salary packages increased 12% to 445,000 in December 2024. Novated leases under management continued to grow, reaching 74,300 leases under management, an increase of 22% year on year. Our fleet business is performing well, reaching 32,300 managed vehicles.
Our funded leasing pilot program continues to resonate with our clients, and we expanded the pilot from around 530 vehicles in December 2023 to around 750 vehicles now. Throughout this pilot, we continue to closely monitor residual values while supporting existing clients' needs. On slide 17, demand for novated leasing continued to be strong in 2024. We are seeing that supply in the electric vehicle market is continuing to expand and that there is increasing competition between manufacturers in this market segment, including EV manufacturers offering models at more affordable prices. This and increased awareness of the benefits of novated leasing resulted in EVs accounting for 44% of all new car novated lease orders for the year, including plug-in hybrids at 13%. We have seen that in the second half of 2024, there was an acceleration in demand for plug-in hybrids.
In that period, EVs represented 45% of all new car novated orders, of which plug-in hybrids were 17%. We note that plug-in hybrids will no longer benefit from the federal government electric car discount policy after the 31st of March this year, although they will continue to be available for novated leasing. Importantly, the number of internal combustion engine vehicles ordered in 2024 increased 12% versus the prior comparable period. This highlights the attractiveness of novated leasing for all types of car purchases. ICE vehicles represented 56% of new orders in 2024. Our investments in digital and customer experience are intended to make novated leasing easy and simple for all vehicle types. Moving now to slide 18.
Late in 2023, we began taking some deliberate steps to differentiate our service offering, including stronger engagement with our clients, uplifting digital marketing, and strengthening service levels in our contact centers and vehicle sales teams. And these are all delivering great results. Financing a vehicle through novated leasing is a very compelling proposition. Therefore, our focus has been on building awareness of Smartgroup's service offerings. Our pipeline of future revenue was $ 12 million at the end of December 2024 compared to $ 18 million in December 2023. Our novated leasing business has shown strong growth. In 2024, new lease vehicle orders were up 25%, and total settlements, which include new, used, and refinanced vehicles, were up 20% year on year. A higher proportion of new car leases, coupled with supply chain renegotiations and shifts in vehicle mix, resulted in a 7% improvement in yield year on year.
In 2024, new novated leases represented 82% of total novated settlements compared to 78% in 2023. In the second half of 2024, yields were generally stable at 2% higher than the first half. We continue to focus on yield management in 2025. Now, briefly turning to slide 19, delivery timeframes are improving, but they remain above historical levels. As I mentioned, there is good availability for existing EV models, with new models expected throughout the coming year. For ICE vehicles, we continue to experience some variation in availability across makes and models. Turning to the P&L on slide 20, you can see that 2024 NPATA increased 15% to $72.4 million off the back of strong revenue growth. We were able to increase revenue as a result of both volume growth and yield improvements. In 2024, revenue grew 22% to $305.8 million. Total expenses increased 10.2% to $73.2 million.
This increase was primarily driven by specific investments to generate demand, increase capacity to support higher volumes, and further strengthen our customer service. We will continue to adjust resourcing to meet demand levels as required while driving for efficiency and scalability. During the year, we also progressed our strategic priorities and implemented the South Australian Government contract. We previously disclosed that the South Australian Government contract implementation costs was approximately $ 3 million in the first half and that we anticipated this client would not have a material earnings impact in the 2024 year. While we typically did not comment on the economics of specific contracts, we are pleased with our delivery for this large client. The transition was successful, and the financial outcomes for us are as we anticipated. We're looking forward to continuing to deepen our partnership with the South Australian Government into the future.
EBITDA grew 18% to $ 118.7 million, and EBITDA margin was 39%. Importantly, as Scott mentioned earlier, second half EBITDA margin was 40%, which is in line with 2023. EBITDA margin remains a key focus for management. The statutory NPAT result of $ 75.6 million is higher than the NPATA of $ 72.4 million, as NPATA has been normalized for the gains on disposal of the two non-core businesses during the year. Depreciation and amortization expenses increased 36% in 2024 as a result of higher capitalized development costs and growth in our on-balance sheet fleet funding pilot. As mentioned in the half-year results, the amortization of acquired intangibles is now negligible. Slide 21 highlights our continued strong cash conversion at 108% of NPATA, which is in line with expectations. Capitalized IT development costs were $ 12 million for 2024 in line with guidance.
During the year, we invested in digital and technology to deliver our strategic priorities. While the delivery of the South Australian Government contract accelerated some of these initiatives, the delivery of these investments will benefit the business more broadly. We expect 2025 technology CapEx to be similarly in the range of $ 11 million-$ 13 million. As part of our balance sheet funding pilot for fleet vehicles, we increased the number of clients we are funding to around 40 in 2024, from around 30 in 2023, and have increased the number of funded vehicles to around 750. We continue to carefully monitor this pilot in the context of changing motor vehicle residual values. Our fleet offerings are resonating with our clients, and we continue to invest in our capabilities here.
Our balance sheet on slide 22 shows that we ended the year with a conservative net debt position of $ 45.4 million and 0.4 times leverage. In 2024, we also successfully increased and extended our existing corporate debt facility. The key movements in the balance sheet include the increase in our intangible assets of $ 12.7 million, arising predominantly from our continuing technology investments, and the $ 6.2 million increase in vehicle assets arising from our fleet pilot. I would also note a change in the application of accounting policy gave rise to an increase of $ 103 million in both assets and liabilities relating to client funds accounts. As assets and liabilities increased by the same amount, there was no P&L impact from this policy change. The business is well positioned at the end of 2024.
Our low net debt and strong cash generation provide us the flexibility to invest for growth while delivering dividends to shareholders as per our stated policy, which I will now turn to. As many of you would have seen before, slide 23 articulates our capital allocation approach to ensure that we deliver long-term sustainable growth and maximize shareholder value. Our strategic priorities provide significant opportunities for Smartgroup's medium and long-term growth. To ensure we make the most of these opportunities, we will continue to invest in core and digital technologies as well as customer experience improvement initiatives. These necessitate allocating sufficient capital to ensure we can execute well. Similarly, we will maintain flexibility to take advantage of potential acquisitions, partnerships, and other organic growth opportunities.
It is our intention to pay fully franked dividends in line with our current policy of 60%-70% of NPATA, and we will look to return excess capital to shareholders whenever appropriate. We are guiding for 2025 that technology CapEx will be in the range of $ 11 million-$ 13 million, similar to 2024. We expect CapEx to remain at current levels in the short term as we deliver our strategic priorities before returning to more normalized levels. Consistent with this capital allocation approach and factors including our solid returns and cash generation and our meaningful ongoing investments in the growth of the business, the Board has declared a final fully franked dividend of $ 0.20 per share. In addition, the board has also declared a final fully franked special dividend of $ 0.11 per share.
Together with the $ 0.17 per share interim ordinary dividend declared in August 2024, this brings fully franked dividends to $ 0.48 per share, representing 90% of 2024 NPATA. This special dividend shows Smartgroup's commitment to its capital allocation policy of returning capital to investors where prudent, while ensuring we continue to invest for growth. Finally, as evidence of our disciplined approach to capital management, you can see from the chart on this page our continued delivery of strong returns on equity for our shareholders, which is currently 29% after tax. With that, I'll hand back to Scott.
Thanks, Jason. Moving to slide 25, and in summary, in 2024, Smartgroup again delivered strong operational and financial results. We delivered record customer numbers across salary packaging, novated leasing, and fleet. As Jason mentioned, our strong financial performance and strong cash flows have enabled the board to declare a final fully franked dividend of $ 0.20 per share and a fully franked special dividend of $ 0.11 per share. We made solid progress on our strategic priorities, including launching our new digital customer home, smart.com.au, as well as our enhanced car leasing portal, both delivering improved functionality and better customer experience.
We also expanded benefits through strategic partnerships, including Qantas and Intellihub. Turning to slide 26, moving forward, we will continue to focus on Smartgroup's strategic priorities and invest in our core technology and capability to drive growth. Although these investments are impacting costs in the short term, they will lead to even better customer experience and client retention and attraction. Over time, they will also enable us to scale and lower our cost to serve and cost to acquire.
In January, leasing orders and settlements were slightly up compared with PCP. We remain cautiously optimistic for the year ahead and continue to monitor consumer sentiment, macroeconomic conditions, and the competitive landscape. In the medium term, we anticipate improving revenue per customer through digital and the introduction of additional services. Our focus in the medium term will also be on driving operating leverage by implementing cost management and efficiency programs. These initiatives will strategically position Smartgroup for sustained profitable growth, enhancing value for our shareholders. A big thank you to Smartgroup's customers, partners, and of course, our team. Thank you also to our investors for your ongoing support. I'll now hand back to Darcy for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two . If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Scott Murdoch from Morgans Financial. Please go ahead.
Thank you. Good morning. Can we just start with, I guess, contract contribution? I know that you don't like to call out specifics around contracts, but these two are both, I guess, material and announceable. Just firstly, South Australian Government, you hit your financial targets. Now that's bedded down. Can you just give us an idea of the scale benefits and if there's any meaningful incremental contribution coming through there in the year ahead? And then secondly, obviously, the most recently announced Monash Health, I guess, an idea around expected sort of packages lease numbers coming through and any net sort of contribution expectation for the year ahead?
Right. Thanks, Scott. Just on the SA Government, as we said, we didn't expect any material contribution to outcomes last year as far as earnings. That being said, we also shared last year that we expected it to be a slow but steady ramp up through the course of the year, so as we step into this year, again, we don't, as you touched on, disclose specifics of individual contracts. But what we did disclose, obviously, is the South Australian Government has around 110,000 employees. We transitioned over just over 35,000 packages, and we're very focused now on both supporting increased uptake across the entire South Australian workforce. And we're working very well with the South Australian Government on that, and certainly, as part of that, it's not just about expanding our salary packaging. We're very focused on novated leasing also.
And with respect to Monash, again, I think further disclosure to be made, not expecting a material contribution in the first half of the year, but yes, significant contracts. And we're very focused on working with Monash to launch that really well and support what we believe is an opportunity to increase uptake further in their workforce.
Okay. Thank you. Just want to get your thoughts, I guess, on the lease order environment at the moment and how you're thinking about that, how it's coming through at the moment, just with respect to, I guess, like-for-like demand, your ability to sort of drive extra demand through digital and the like, and just what your expectations are around the end of the policy for the PHEVs after April.
Yeah. Great. Thanks, Scott. I mean, as we disclosed this morning, as far as overall dynamics, January was slightly up on PCP.
We also shared this morning where we are cautiously optimistic about the year ahead. There's a lot of moving parts. We just have to open the paper every morning to see that, and obviously, changes in macroeconomic conditions, changes in and around consumer sentiment more locally, those are all things which we've got a keen eye on, which could impact the year for us. Yeah, and with respect to the ending of the FBT incentive at the end of March, my comments there as I made before, albeit we won't be able to provide the EV incentive as such after the end of March, we can still provide novated lease to our customers for plug-in hybrids. So I think there'll be still a proportion of customers who want a plug-in hybrid, and we'll support them through novated lease.
That being said, as you saw from our numbers this morning, through the course of last year, there was a step up in the proportion of our customers that took plug-in hybrids. Certainly, some of that would be attributed to the incentive being available, so we'll monitor that keenly through the course of the year, and as I said, remain focused on supporting our customers, irrespective of whether they're getting an EV post the end of March and get the incentive or want to progress with a novated lease. As we also touched on this morning, one thing that's very encouraging for us through the course of the year was, of course, we were able to grow the total novated leasing book, including our carbon-emitting cars, and I think that comes back to the key point for me.
I think we're doing a good job at increasing awareness, especially in the context of a cost of living crisis in the country, that a novated lease is a really good cost-effective way to get into a car. By the nature of our customer base, as you know, they're teachers, they're nurses, not-for-profit workers, etc. And the majority of those people need a car to get to work. So I think for us, the name of the game is keeping on doing what we're doing, as you touched on, both on our digital activities. So we've taken steps last year. We'll take more this year in making sure our digital assets enable an easy, simple way for our customers to engage with us and understand what the opportunities are. I mean, one example we touched on this morning is the addition of multilingual chat.
Many of our customers work in those sectors. English isn't their first language. So that's just one example of steps we've taken in digital to make it easier for customers to engage with us and increase their awareness and understanding. So that, I think, combined with our ongoing focus in the more traditional means of educating our customers in the field, all that together, our aim will be to continue the awareness lift that we achieved through the course of last year.
Okay. Thank you. And I'll just ask one quick one on a similar few things you've mentioned there around digital assets. I think on the call you mentioned that your revenue generated through digital assets was up. Just interested in, I guess, what level of revenue you're now deriving through sort of direct digital touch with the customer. Obviously, that's more likely to be the portal, just what efficiency and volume the portal is providing.
Scott Jason, sorry. I mean, just to tackle that question at the highest level. So the growth we're experiencing through the investment in the digital marketing and the new digital home is important. It's probably the growth area of the business. We don't sort of split out publicly the channels. But if you think about the journey that we're on, we still have the traditional marketing channels, including our customer education, our field sales teams. But the increasing focus is really on the digital side of things. So where we're seeing new orders coming through, we're really looking for that to be the core driver of that volume.
Yeah. And it's going to that slide that Jason referred to in his presentation, which showed the overall addressable market and then the growing penetration. Stating the bleeding obvious, given the size of the country and the breadth of our customer base, getting to all our potential customers, of which now there's over 2.3 million, doing it digitally is the most efficient and effective way to do it. So the better we get at that, the more we'll invariably see increased uptake. That being said, our customer education and physical field sales activity remains really important to us because what the clients really value, us being able to be in the lobby of their office or a hospital or running education sessions for their team members, both around salary packaging and related employee benefits and novated leasing.
Thank you. I'll allow others to ask questions. Thank you.
Thanks, Scott.
Thank you. Your next question comes from Paul Buys from Canaccord Genuity. Please go ahead.
Morning, Scott, Jason. First question just on your novated lease yields. Obviously, a strong outcome for FY2024. Just looking to FY2025, you guys showed that your new leases proportionately were up, which is fairly good. You also called out manufacturer EV price competition, which could have a detrimental impact on yields. I guess I'm just looking for a bit of color in terms of what you're aspiring to in the year ahead. Are you aiming for further growth, or is it more a case of trying to hold current levels?
Yeah. Thanks, Paul. Good question. I think as we said at the half year, we're expecting yields would remain relatively steady, and whilst I think the exact number for this half is sort of a 2% gain, I think we'd still characterize that as relatively steady. Going forward, I don't think we'll continue to focus on the yield management, but there aren't any obvious channels where we'd be driving immediate uplift in yield. So I think the messaging remains the same that our expectation is subject to that proportion of new sales versus refinances. It should be relatively steady.
Got it. Thank you. And then just a point of clarification, and you're just chatting a bit about it to Scott, but just on the Fed side, my read there, just to clarify, it sounds like you have seen what could be a little bit of pull forward ahead of the Fed incentive expiry or a bit of kind of elevated activity ahead of that coming off. Is that correct? You'd characterize it like that?
There's definitely elevated activity. Whether it's pull forward, hard to say. It could potentially be pull forward. We'll just have to keep monitoring it over the coming couple of months.
Yeah. Got it.
As I touched on, and the outlook, Paul, it's definitely a risk for the year that we're tuned into.
Understood. Okay. Thank you. And then just the last one from me. You called out in the outlook commentary for the medium-term cost management and efficiency program. Just interested if you can elaborate a little bit on where you see some opportunities there.
Yeah. Sure, Paul. So it's essentially the outcome of the investment program that we're undertaking. And as you know, it's a multi-year investment program. And we're doing something that's reasonably substantial. So we've talked about today the digital home and the digital assets that we've launched this year.
As we go into next year and beyond, we'll be continuing to focus on improving digital on the customer-facing side, but expanding also into more of the back-of-house efficiency side of things through digital support, so it'll all add up over time. We don't give guidance over exactly what that'll result in terms of EBITDA margin, but as we've always said, we are focused on EBITDA margin, and really, the point of the investment is to drive that efficiency and that scalability so that as we continue to grow the top line, we'll have more dropping through to the bottom line.
Got it. Okay. Thanks, guys. That's all from me.
Thanks, Paul.
Thank you. Your next question comes from Tim Lawson from Macquarie. Please go ahead.
Thanks, Scott. Thanks for taking my questions. Just maybe a follow-up on the fleet questions you're getting. In terms of the buys, those vehicles, do you have a feel for how many are covered by traditional FBT incentives versus the EV-specific?
In the PHEV space specifically, Tim?
Yeah.
Yeah. I think when we talk about the percentage penetration, then we're really talking about the ones that are attracting the EV discount. So it's the vast majority.
Right. But don't both groups attract the EV discount, and some will have it continue?
So PHEVs won't have the EV discount continue, but they will still have the novated leasing benefits continue more broadly. So we can continue to offer novated leases for plug-in hybrids.
Yeah. Okay. Are you seeing any how much sort of volume order mix change you're seeing as we approach the end? And can you clarify whether you need the order in or you need the vehicle delivered before the end of March?
So I guess specifically, to take the second question first, the ATO did provide revised guidance that said that it does need to be delivered before the end of March. In terms of mix, it's been relatively consistent over the last several months.
Right. So what you saw up to December half, you've sort of seen continue into the current year?
Well, I mean, January is obviously a tough one because a lot of people are on holidays, and it's hard to draw distinctions based on January numbers, but we haven't seen anything materially different from January.
Okay. And then just can you remind us on the supply chain renegotiations, if there's any sort of annualization of that to come through from was it fully in the first half and just the contribution for a full year, any impact on that?
Yeah. So I think the majority of that really was coming in the second half of 2023. So it's broadly already annualized through the 2024 results.
Yeah. Okay. Thank you.
Thank you. Your next question comes from Phil Chippendale from Ord Minnett. Go ahead.
Good morning, Tim. Thanks for your time. I just want to touch on the EBITDA margins. You were basically at the 40% mark in the second half of calendar 2024. Do you think that's a fair sort of number for us to assume over calendar 2025? And then I'm just wondering about sort of the first half versus second half. Typically, you do have a stronger second half period. So perhaps it dips a little bit below that level in the first half and then improves in the second half. Is that a fair statement?
Good morning, Phil. Yeah. As I said before, we won't give out guidance or a target on EBITDA margin. That being said, obviously, we're very focused on it, and in the medium term, as I said before, off the back of our investment program, aligned to our strategic priorities, one of the outcomes we're after in the medium term is to see increased scalability in our business and translate that through to ideally a level of volume and sensitivity for operations and indeed also EBITDA margin improvements. That being said, this year, as I said before, we sort of view that sort of 40% range as where we want to try and keep things. So, albeit there's a long way to go in the year at this point, that's the sort of frame we have in mind for this year.
Okay. Thanks. Then just wanted a comment on sort of your lead indicators for demand. I mean, you said the volumes were up slightly in the month of January. But just sort of looking at the forward indicators, how are those sort of shaping up at the moment, noting that the plug-in hybrids have to be delivered by the 31st of March? I mean, that's obviously not very long. So I would expect that that's coming through in terms of those lead indicators.
Yeah. Look, obviously, we disclosed January is slightly up on PCP. We made a disclosure this morning about the forward-looking indicators. I think what I'd draw your attention to is the outlook slide where there's a lot of moving parts this year. All right and so we are working really hard to build momentum for the year.
But there are a number of uncertainties to play out for us. And one of which you touched on is what the impact will be of the plug-in hybrid incentive coming off, which, as I think Tim alluded to, that perhaps there could be some pull forward there. But all that will wash through in the next few months is a lot of better ideas.
Okay. Thanks. That's all from me. I'll jump back in the queue.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Scott Hudson from MST. Please go ahead.
Yeah. Good morning, gentlemen. A couple of questions. Firstly, the yields through the, I guess, the second half of last year, are you still seeing a differential between EVs and ICE vehicles in the yield, or has that normalized?
It's still similar, I think, Scott. So we still have some differential in terms of the net amount financed for those vehicles. EVs are still slightly higher. And I think similar to the narrative over the last year, I think we're doing a better job of getting product attachment rates to EVs outside of Tesla, given their direct sales model. So on the whole, EVs are probably trading a little bit higher in terms of yield if we're to break it down. Even though we don't give the exact numbers, the underlying trend sort of looks that way.
Okay. Thank you. And then is the increased availability of lower-priced EVs, is it starting to activate maybe some of that part of your employment base that is a little bit more price-sensitive?
Yes. I think it has been helpful. As I talked about before, Scott, we have a very big presence in health, education, not-for-profit sector, government. Not surprisingly, especially across the living crisis, those customers are price-sensitive. They don't just look at the economics of the novated lease. They should do a look at what the cost of the vehicle is that they're taking on. As I say, the second biggest decision you're making in your life as far as buying something is going to be after your house is your car. People are very tuned into the pricing.
From our standpoint, drops in prices and availability of different makes and models at lower price points is helpful. Yeah, the good news is this year we will see more lower-price cars come to market, like the Kia EV3, the GAC AION V . So for our customer, both given the nature of it, it's a good thing.
I might just add to that, Scott. We didn't talk to the appendices in the presentation, but there is some information there about improved penetration of EVs in some of those sectors. So if you'd like to take a look at it.
That's helpful. Thank you. In terms of the, I guess, the cost impost that you called out in relation to the South Australian Government sort of through the first half of 2024, is there any, I guess, cost relief that we should expect into 2025, or has that headcount just been allocated to service the South Australian Government?
Well, in terms of the costs that we announced, there was an element there of servicing costs and an element of project implementation costs. Again, while we don't sort of break it all out, clearly the implementation is now completed. And what we spoke to around the overall economics of the SA Government contract was it landed where we thought it would land, which was not having a material earnings impact. So we won't have project costs into the future. A s Scott already said, we're looking to continue to service our client and expand penetration there. There will be some benefit on cost side. But that was straight into the - sorry, go on.
Have those project costs been reallocated, or is it a net cost out into 2025?
Yeah. So I wouldn't say it's been reallocated. If you look at the total expense base for the second half, it's effectively in there. We've moved on in terms of our OpEx base from the first half being very project-focused to more of the digital focus and really changing the operating model of the business. So it's been a substantial shift from H1 to H2.
Yeah. And I think just to remind us, Scott, in the first half, there wasn't the fully loaded service costs for South Australian Government, which are now baked in the second half, and that'll be flying through in this year as well.
Okay. As you head towards the federal election, do you have any concerns that if the Coalition were to win the election, that we could see an end to the EV incentives prior to the plan review in FY2027?
Great question. Obviously, that's something we're keenly interested in and engaging with all sides of government through our industry body, NALSPA. Obviously, can't speak for the government, and we'll watch that closely. But I'd anticipate that the EV incentive would remain in place as planned at the moment through till 2027 when the stated review is. And whoever holds government, I think, will look dispassionately at the incentive at that point in time.
Understood. Thank you very much.
Thank you. Your next question comes from Jenny Wong from Morgan Stanley. Please go ahead.
Yeah. Morning, guys. Thanks for taking my questions. Maybe just a quick follow-up, just in terms of the OpEx for this year. Obviously, you guys had integration costs and also service costs for onboarding the SA contract. Recently, you guys did win Monash. It doesn't look as big, but still quite meaningful. So just wanted to get some clarity on how we should think about potential integration costs for that onboarding.
Thanks, Jenny, for the question. So you're right. The Monash contract isn't as big. It won't involve as much. There will be some degree of implementation costs to make sure that we land that transition effectively and we give good service there. That won't be kind of an ongoing feature. I think if I speak more broadly about OpEx, just to elaborate on the previous point, broadly speaking, half one to half two, OpEx was stabilized. It was a little bit up. You'll be able to see that in the numbers, with, in particular, increased marketing costs. And we've also been shifting, I guess, the focus of the cost base away from the sorts of projects, more towards the capability build. So headcount peaked sort of midway through last year, but we're continuing to invest on the technology side.
The salaries budget increased by a minor amount in the second half as we continue to build that capability. Advertising expense went up as well as we continue to drive what is fairly accretive sort of digital acquisition. Without getting too hung up on the cost attached to individual contracts in the business, that's the broader theme, I would say.
Yeah. Changes to one add-on I'll give on Monash for context. I think if you look at South Australian Government implementation, that was highly complex across multiple agencies. But Monash, albeit a reasonable size client, is relatively simple. For instance, there's no need to do a tech build specifically to support that in the same way we did for South Australia. That being said, obviously, we need to adjust our resourcing levels to support customer education activity, for instance.
Got it. No, that's super helpful. And then maybe just in terms of major contracts up for renewal next 12 months for you guys, can you update us on where that's at? And then also if you could comment on any major pipeline that you see that's also up for renewal that you're potentially contending for next 12 months, just so we have a good idea after, I guess, some of the contract moves that we've seen over the past few years.
Yeah. No, great questions. Yeah. Look, last year was a really important year for us because we had a number of important renewals that went through, and we were able to retain all those clients. There's quite a high volume of renewals that came through across important clients.
This year, as like any other year, there's a certain number of contracts coming through for renewal, none that I would classify as either a concern or major. That being said, we obviously are taking them for granted and working really hard with those clients on those renewals. On the second part of your question, yeah, I mean, there's obviously going to be a lot going on in the market this year as far as opportunities for us. I mean, you can find this information on websites as to what RFPs are up in the government and health sector. So for instance, quite excited at the moment about there's an active RFP for Grampians Health in Victoria. Also, Transport for New South Wales has been another example of an active tender at the moment. But yeah, we're obviously positioning ourselves as best we can for those opportunities.
And certainly, last year we had good success based on the investments that we made in digital that really resonated with new perspective clients. And that was definitely a feature for the likes of Monash as well as customer service improvements that we implemented through the course of the year. So fingers crossed.
Yeah. And then maybe one more, just in terms of I think it was slide 15, just kind of spelling out, I guess, the customer penetration and lifetime value. Obviously, I guess both metrics are kind of trending in the right direction. I'm sure you guys want that to continue into the future. But maybe help us understand where you think you can drive both to. Are there any kind of medium-term targets or even long-term targets that you can share with us? And then also any commentary on timeframes would be helpful too.
That's a great question, Jenny. Look, suffice to say that internally we've got objectives we're working to around all those metrics, but we don't disclose those.
Got it. And then, sorry, if I could just sneak one more question in. I feel like I ask you guys this every half, which is just on fleet. And I guess it looks like it's being expanded again. But yeah, just kind of your latest thoughts on the fleet side.
Yeah. Great question. Glad you raised it. We're going back to our strategic priorities. When I started nearly a couple of years ago now, we did a big review, and we made a very deliberate choice, as I've shared before, to stay in fleet. There was a path we could have gone on where we, as you've seen, we've divested our payroll business and our health consulting, our Health-e-W orkforce.
We could have divested fleet as well and just focused on the mode of leasing and salary packaging. However, we actually actively decided that fleet's a great business for a whole range of reasons, including many of our clients, especially in the salary packaging space, value the fact that we can do both for them. So for us, it is in focus as an area of potential growth for us, and we'll continue to make targeted investments this year and beyond.
Got it. Thanks, guys.
Thank you. Your next question comes from Paul Buys from Canaccord Genuity. Please go ahead.
Hi guys. Sorry, just one quick other one. It's just your EV sales pipeline is a bit down from where it was, but still about pre-COVID. Just interested, some of the fleet and the data players are calling out kind of a similar sort of trend there, but saying that where the pipeline is now is probably what they see as the new normal, given supply chain has changed, but it's probably kind of settled. Just curious to see your views on that. In other words, is a somewhat above pre-COVID level actually the new normal going forward, or do you actually see that you can draw down a bit on that a bit further?
Yeah. Good question, Paul. I mean, I think essentially, yes. So it seems to be stabilizing. I think we mentioned earlier there's really good availability on the EV front. I f you break down that pipeline, it's the ICE vehicles that hold it up a little bit. And in particular, there's just a few ICE vehicles that are quite popular that hold it up. But it has stabilized. And we're certainly not banking on it getting lower. And also just sort of point out, obviously, we're a much bigger business than we were pre-COVID. So just our order pipeline quite naturally will be larger.
Okay. Thank you. That's fair. Thank you.
Thank you. Your next question comes from Hayden Nicholson from Bell Potter. Please go ahead.
Yeah. Morning, guys. Can you hear me?
Yes, I do. Go ahead, man.
Good stuff. Yeah. Look, just sort of circling back to the outlook and some of the lead indicators. I mean, you're able to maybe just reframe it in a different way. Just give us a bit of color on the exit rate in terms of orders and settlements because it kind of looks like sequentially in the second half, settlements up like 5% and orders up 9%. How'd that kind of develop through the latter of the second half? You able to comment there?
I think generally relatively consistent. We did witness in the market a little bit of discounting activity from certain OEMs and some good deals happening in the latter part of the year. I wouldn't say that was overly material, and as we said before, it's hard to really glean much from January because it is a bit of a disruptive month, so I wouldn't say there's anything we'd want to call out there in terms of shifting trends.
But in terms of the outlook, I think we are aware of the broader market environment, potential disruption of the period that we're entering into at the moment with the political cycle, changes to Feds, the debate about interest rates, and a whole lot of external factors to Smartgroup. So we're aware of those. But in terms of the data coming into the latter half of the year, there wasn't anything really there that jumped out to us as being a shift in demand trend.
Yep. And just sort of quickly following on from that, any reason why those orders are outstripping the settlements, I mean, building into the second half as well?
Well, I think we're doing a really good job on marketing. So as the pipeline has come down to some of the older settlements, we're sort of clearing out that part of the order pipeline, as we said, sort of $ 6 million decrease year on year. We are focused on the demand generation activities as well. So the team's doing a good job in terms of both digital and direct sales and focus on the new order pipeline and continuing to build the business.
Yep. Just finally from me, another quick one building on from Jenny's question. In your view, what's been driving? I mean, a lot of the contract wins are competitor-based. Any comment around quite a high cadence, especially in that area versus historically what you've been winning?
Yeah. I think probably two dynamics apply. One definite observation over the past couple of years, Hayden, is that the market more generally has been enlivened to the benefits of salary packaging and the novated leasing off the back of the EV incentives. Number one. Number two, I think related to that also, HR teams, whether they be government or corporates, are very tuned into the cost of living challenges in the country, and salary packaging and novated leasing is a fantastic way for employers to give their employees a benefit, which costs them as an organization nothing to provide. Through us, they facilitate those benefits through to their employees.
So, I think those dynamics, combined with, I think, the work that we've done on what we've talked about today, our digital proposition, our customer service, which we've spent a lot of time and effort improving, as you touched on today, our Net Promoter Score was up at 10% last year, which is fantastic, which means our customers are increasingly liking even more the experience they get when they engage with us, and that's leading to us being able to differentiate, I think, well within a market where there's more interest in bringing on a salary packaging and/or novated leasing provider or look at making a shift, so that's all been positive for us. I mean, that all being said, as we touched on in the outlook today, last year was last year. This year is this year.
And I think we're in a different economic environment as far as the macroeconomic conditions this year and a lot of unknowns for us. So I sort of balance those positive comments just with my cautious optimism for the year ahead.
Thank you. That is all the time we have for questions today. I'll now hand back to Mr. Wharton for closing remarks.
Great. Thank you, Darcy. And thank you, everyone, for your interest in Smartgroup. And we look forward to speaking with many of you over the coming days. Have a good day.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.