I would now like to hand the conference over to Mr. Scott Wharton. Please go ahead.
Right. Thank you, Ghislaine, and good morning, everyone, and thank you for joining us on the call today. My name is Scott Wharton, and I'm 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 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 3, today I'll start by providing some of the key highlights of the first half of 2025 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 half-year performance in more detail. To conclude, I'll provide a brief outlook. Now let's turn to slide 5 of the investor presentation. Smartgroup reported strong financial results with solid operating momentum in the first half of 2025. Revenue increased 7% versus the first half of 2024 to $159.1 million, and total expenses increased 4% to $89.5 million. The strong revenue growth was underpinned by higher novated leasing volumes driven by demand-generating activities and new client wins. We also continued to invest to deliver our strategic priorities. We are becoming a simpler and more digital business, growing through great customer service and experience. EBITDA of $63.6 million was up 13% on PCP, and EBITDA margin was 40% for the half-year, an improvement of 2 percentage points on PCP.
NPATA increased by 12% to $38.1 million. Smartgroup also delivered return on equity of 30.7%, an improvement of 1.9 percentage points on PCP. Our strong financial performance and high level of cash generation have enabled the board to declare an interim fully franked dividend of $0.195 per share, representing 69% of NPATA. Turning to slide 6, during the half, Smartgroup continued to retain and attract clients by investing in client relationships, market-leading service, and customer experience. We continued to grow salary packaging customer numbers, novated leases under management, and fleet-managed vehicles to record numbers. Jason will expand on this shortly. Our proposition generated solid novated leasing demand for both electric and internal combustion vehicles. In the first half of 2025, EVs accounted for 48% of our total new car orders, including plug-in hybrids at 12%.
While the EV share of our novated lease portfolio is growing, ICE vehicles remain an important and growing part of our business. In the first half of 2025, the number of ICE new car lease orders increased 9% compared to the first half of 2024. Smartgroup remains actively focused on managing yield while also growing volumes. In the first half of 2025, leasing yield was relatively stable compared to the first half of 2024. We are also making strong progress against our strategic priorities, and I will speak about this later. In short, we are well on track to achieve our ambition of delivering smarter benefits for a smarter tomorrow. In sustainability, we are proud to have received an 11.1 ESG risk rating from Sustainalytics, placing Smartgroup at the 96th percentile globally. We were also ranked in the 85th 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. These outcomes recognize the importance of ESG and diversity and inclusion to Smartgroup and our customers. Turning to slide 7, our investment proposition remains compelling. Smartgroup is uniquely placed to continue to deliver strong growth and sustainable shareholder returns. Smartgroup is the 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. In the last 12 months, we provided services to around 570,000 of those people and managed over 110,000 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.
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 and credit 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, the federal government electric car discount policy is also positive for Smartgroup.
Finally, we've 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 management services, while investing in digital and technology to accelerate growth and drive scale efficiencies. Turning to slide 9, this slide recaps Smartgroup's strategic priorities and focus areas as communicated to the market in February last year. Smartgroup is committed to delivering smarter benefits for a smarter tomorrow by executing on its strategic priorities. Our strategy has four priorities. The first is centered around digital and technology investments that improve customer experience and drive operational efficiencies in our core salary packaging business. The second priority is focused on leading innovative leasing, where we have seen tremendous growth since embarking on our strategy. The third will broaden our product range to meet our customers' growing needs.
Finally, we are making deliberate investments in our fleet management services business to strengthen its competitiveness and profitability. Turning to slide 10, this slide outlines our strategic roadmap. While our strategy focuses on the four strategic priorities, we have deliberately phased execution. The first phase focuses on growth and demand generation to take advantage of our environment and build our leadership position in novated leasing. We have also invested in our front-end digital assets to enhance customer experience and fuel growth. The second phase, which commenced this year, is focused on building a scalable business platform. This phase includes investments in consolidating our brands, removing duplication of operations, modernizing our technology, and automating processes. As a result, we anticipate EBITDA margin to be in the mid-40% during 2027. Beyond 2027, with sustained investment, we see opportunities to further elevate business performance.
For example, we have already appointed a Chief AI Officer to accelerate both near-term and longer-term automation and AI opportunities. Our third phase focuses on innovation of propositions to meet evolving customer needs and enrich our employee benefits offering. We have made good early progress. For example, new novated leasing distribution partnerships with BMW Financial Services, Stratton Finance, and Qantas. Expanding our employee benefits proposition with IntelliHub and Finspo, we will continue to develop our product offering to meet evolving customer needs and strengthen our value proposition. Turning to slide 11, a key focus of our roadmap is digital transformation, and I wanted to provide some examples. We have now renewed the majority of our front-end digital assets, improving customer experience and expanding our digital reach. As I mentioned in our full-year results, in 2024, we launched our enhanced car leasing portal.
The car leasing portal represents a dramatically improved digital experience for our customers and has increased digital conversion. Last year, we also delivered smart.com.au, a new customer digital home, making it easier for customers to engage with us on their salary packaging and novated leasing needs, how they want and when they want. In the first half of 2025, we have delivered our new digital salary packaging sign-up journey, marking a significant milestone in our platform modernization. This digital asset enhances customer onboarding by offering an improved experience that simplifies the sign-up process. Feedback has been positive from participating customers and is supporting growth of salary packaging penetration into our eligible customer base. As we focus increasingly on the second phase of our strategic roadmap, improvements will include a new app, migration of our technology infrastructure to cloud, and consolidation of our brand to simplify operations.
Over the last year, we have also improved our digital product and technology capabilities in our team to ensure we continuously enhance our digital assets. These capabilities will ensure that our products remain market-leading and continue to meet customer needs into the future. Moving to slide 12, which highlights some examples of what we have delivered against our strategic priorities in the first half. Our new digital customer home, smart.com.au, attracted over 2 million total users since launch at the end of 2024, educating and enabling our customers to easily find the information they need to understand our products and services. Our value proposition is resonating with clients. We have welcomed many new clients across all segments in the first half of 2025, more than doubling new client wins compared to the first half of 2024.
We also made good progress in the application of artificial intelligence and have established a targeted approach to harness its value. For example, in recent months, we have been able to quickly analyze over 128,000 service calls. Amongst other things, this has allowed us to better understand customers' needs and design innovative solutions. Innovations like these helped us achieve efficiency improvements, including increasing the number of packages per operations FTE by 20% in the first half of 2025. In novated leasing, we delivered strong improvements, record customer numbers, as well as ongoing enhancements to our car leasing portal. We continued building strategic partnerships to address our customers' evolving needs. These included, as mentioned earlier, BMW Financial Services, Stratton Finance, IntelliHub, and Finspo. We remain committed to anticipating our customers' needs and forging partnerships to build a service offering that truly resonates with them.
In fleet, we continue to make targeted investments to support our expanded fleet offering to larger clients, and we continue to grow a self-funded fleet pilot. We've also made various operational improvements to our systems and processes based on client feedback. Turning to slide 13, before I joined Smartgroup 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 segment 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 our 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. This includes strengthening our focus on the small and medium business segment through our Utopia brand, which has been part of Smartgroup for almost a decade. Utopia has over 1,000 small to medium-sized business clients, offering them a simple solution to easily access novated leasing. Moving to slide 14, Smartgroup is well-positioned and is unlocking value through scale and disciplined investments. As we continue to enhance customer experience and expand market reach, we are creating operating leverage that benefits both our clients and shareholders. 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 over half a million customers. In the first half of 2025, we grew our eligible customer base by 7% compared to the first half of 2024. Secondly, we are focused on the organic opportunity to expand our penetration of the existing client base with our packaging and benefits offerings to leverage the great work of the operations teams that are already in place to support these clients. We are succeeding in improving our penetration rate. In the first half of 2025, active customer penetration had a relative improvement of 13% compared to the first half of 2024. Our approach for driving penetration is working well and gives us a clear pathway to growth. I will share more on this shortly.
Finally, we are focused on expanding our products and services to better meet customer needs, as we have already outlined in our strategic priorities. This will increase customer lifetime value. In combination, improvements in total eligible customer base, customer penetration, and product uptake have underpinned the 24% growth in novated leases under management we have seen over the past year. We're making strong progress on each front, and these improvements will drive improved financial returns over the medium term. Moving to slide 15, I wanted to briefly share some more context on how we are succeeding at improving our customer penetration rates. This slide showcases real client examples of where we are deepening customer engagement and driving the results that we just discussed. We find that penetration varies between each industry segment according to the benefits available for that segment.
However, we also observe significant variation in client penetration rates within industry segments. We're now actively unlocking this latent potential, leveraging tailored strategies to maximize growth in our existing clients. The core of our new approach is enhanced account management, which has enabled tighter alignment with client needs and more customized solution delivery. In parallel, we are co-developing with clients activation and education initiatives to elevate customer understanding and engagement. These initiatives are being reinforced by targeted enhancements to our product marketing, as well as new approaches to digital marketing and customer data and analytics. As a result, we are seeing steady improvements in customer penetration across our existing client base. Some representative examples include Client A, a not-for-profit in New South Wales with around 1,500 employees, saw a 7% relative improvement in active customer penetration since June 2024.
Client B, a hospital in Victoria with around 5,000 employees, achieved a 10% relative uplift during the same period. Client C, a corporate in Queensland with around 6,000 employees, recorded a 21% relative improvement. These gains underscore the effectiveness of our customer and client approach and give us confidence in our ability to continue to improve penetration across our entire portfolio over time. 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. I will start on slide 17 to cover our performance in the first half of 2025. In the first half, we continued to deliver broad-based growth across product lines, customer segments, and vehicle segments. Our active number of salary packages increased 20% year- on- year to 484,000. Novated leases under management continued to grow, reaching 80,000 leases under management, an increase of 24% year- on- year. Our fleet business reached 32,400 managed vehicles, an increase of 6% year- on- year. Turning to slide 18, our novated leasing business continues to show strong growth. In the first half of 2025, new lease vehicle orders were up 19%, and total settlements, which include new, used, and refinanced vehicles, were up 8% year- on- year. Smartgroup remains actively focused on managing yield.
In the first half of 2025, leasing yield was down 1% compared to the first half of 2024. We are seeing good availability of 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. Delivery timeframes continue to improve in the half-year, and on average are now 39 days. We do not currently see vehicle supply as a constraint on our business. Our pipeline of future revenue was $13 million at the end of June 2025, compared to $12 million in December 2024. Moving to slide 19, demand for novated leasing continued to be strong across all vehicle types. Combustion engine vehicles remain an important part of our business, and in the first half of 2025, ICE new vehicle orders increased 9% compared to the first half of 2024.
The federal government electric car discount policy for plug-in hybrid vehicles ended on the 31st of March this year. As a result, PHEV demand accelerated in the first quarter of 2025. Following the end of the discount policy for PHEVs, demand has reduced but was offset by increased interest in battery electric vehicles. Orders for plug-ins and battery electric vehicles grew 46% and 32% year- on- year, respectively. Turning to the P&L on slide 20, you can see that NPATA for the first half of 2025 increased 12% to $38.1 million compared to the first half of 2024, off the back of sustained revenue growth. Revenue growth was driven by novated leasing demand and new client wins. In the first half of 2025, revenue grew 7% to $159.1 million. Similarly, net revenue grew by 8% to $153.1 million.
Product costs declined by 9% year- on- year due to reduced attachment rates of vehicle aftermarket products. Total expenses increased 4% to $89.5 million. This increase was primarily driven by specific investments to generate demand and partially offset by reductions in administrative and corporate expenses. We will continue to ensure the company operates efficiently while differentiating and proving our competitive position. EBITDA grew 13% at $63.6 million, and EBITDA margin was 40%, an increase of 2 percentage points on PCP. EBITDA margin remains a key focus for management, as Scott mentioned earlier. Our expectation is for continued improvements in this measure in the medium term as a result of the delivery of our roadmap. 2026, in particular, is expected to be a significant year of technology investment and change delivery for the organization.
Depreciation and amortization expense increased 31% in the first half of 2025 as a result of higher capitalized IT development costs and growth in our on-balance sheet funding pilot. Slide 21 highlights our continued strong cash conversion at 138% of NPATA. This was impacted by favorable timing of working capital movements and tax payments. Capitalized IT development costs were $4.5 million in the first half of 2025. During the year, we continued to invest in digital and technology to deliver our strategic priorities. As Scott mentioned earlier, we have taken steps to enhance our digital and technology delivery capability. Our delivery rhythm will accelerate in the second half of 2025, and technology CapEx will be in the range of $11 million - $13 million for the full year, as previously communicated.
As part of our balance sheet funding pilot for fleet vehicles, we increased the number of clients we are funding to around 50 in the first half of 2025, from around 30 in the first half of 2024, and have increased the number of funded vehicles to approximately 830. We continue to carefully monitor this pilot in light of evolving residual values. In parallel, we are progressing the review of our fleet business strategy. We remain confident that fleet represents a compelling opportunity for Smartgroup, and we will provide further updates to the market as appropriate. Our balance sheet on slide 22 shows that we ended the half-year with a conservative net debt position of $41.6 million and 0.3 times leverage. The business is well positioned.
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'll 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 implementation 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. Other returns to shareholders may include special dividends or share buybacks. As mentioned, 2025 technology CapEx will be in the range of $11 million - $13 million. We expect CapEx to remain at current levels in the short term as we deliver our strategic priorities before returning to a more normalized level. 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 an interim franked dividend of $0.195 per share, representing 69% of NPATA.
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 for the last 12 months was 30.7% after tax. With that, I'll hand back to Scott.
All right, thank you, Jason. Moving to slide 25, and in summary, in the first half of 2025, Smartgroup again delivered strong financial results and solid operating momentum. We delivered record customer numbers across salary packaging, novated leasing, and fleet. The data mentioned our strong financial performance and cash flows have enabled the board to declare an interim fully franked dividend of $0.195 per share. We continue to make strong progress on our strategic priorities communicated in February last year, with a clear roadmap guiding our execution. 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. In July, leasing orders and settlements were in line with PCP, and July yield remained resilient. During the half-year, we continued to execute on our strategic priorities.
Some of the short-term uncertainties have eased, however, we continue to monitor customer sentiment and the broader economic environment. Our recently announced partnerships have received a positive response from clients and customers, validating our strategic direction and unlocking new channels for scalable expansion. As Jason noted, 2026 will be a significant year of technology investment and change delivery. This will position the group to realize the scale benefits associated with our priorities, and we are targeting EBITDA margin to be in the mid-40% during 2027. Sustained investment, including automation and agentic capabilities, we see continued opportunities to further elevate business performance beyond 2027. Through continued strong execution of our strategic priorities, Smartgroup is well positioned 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 Ghislaine 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 are on a speakerphone, please pick up your handset to ask your question. Your first question is from Phillip Chippindale with Ord Minnett Ltd. Please go ahead.
Hi team, thanks for your time. Well done, a great result. Just firstly, on the novated numbers, you had a really strong first half, you know, in organic terms. Can you just talk to us about sort of what were the driving forces here? I mean, obviously, you know, you entered some new partnerships, but they were sort of towards the back end of the half, I think. Was this really about perhaps some new client wins that you'd had, or was this more about the penetration story that you sort of alluded to earlier in the presentation? Do you think the doors are still open?
Yeah, thanks, Phil. Good question. A little bit of both new client wins, but also, because we obviously, as we disclosed, we had, for example, one great win with Monash Health earlier this year. Also, as you alluded to, it's the penetration story. As we highlighted, we've been working hard the past couple of years at getting better at digital marketing, getting better at how we're doing our account engagement and joint planning with clients to educate their employees on, amongst other things, novated leasing. It's a combination of the two factors coming through in the results in the half. I think, to the second point you made around partnerships, we've started to see some early impact of those partnerships, but that's really something we see as an opportunity for the future.
Okay, thanks. Just touching on the novated yield, I think it was down about 1%. Can you just sort of talk to the driving factors here? I think you pointed to the new car percentage overall was up slightly. Generally, that's a bit of a tailwind, but you know, not that the yield was different to my expectations, but can you just talk to what was sort of holding that back?
Hi Phil, it's Jason. If I break down the components there, I think, yes, the mix did shift, as you mentioned, a little bit towards new car purchases. NAF was relatively consistent. Yield does jump around a little bit according to different mix of products. I think, as I mentioned, the product attachment rate did dip during the half, but that's something that we are focused on. We have attended to it, and more recently, we've seen some good improvements on that front.
Okay, great. Just on this 2027 target of getting to the mid-40s, to generate an incremental, let's just call it around 75% of EBITDA margin. Is this really going to be a sort of a fixed cost leverage story? I can see that you're clearly bringing in some capital-light revenue streams as well, like the mortgage broking referral item that you referred to in the presentation. Could you just sort of unpack for us what's going to lead to that significant step up?
Yeah, so I'm sure as you appreciate, when we're talking about margin, there's more than one thing that goes into it. Fundamentally, what we are talking about here is scale and efficiency. The reason we are focused on that target coming through in 2027 is because the depth of initiatives that we are focused on delivering in 2026. We remain focused on growth, so that goes to your point, Phil, about scale. We will continue to focus on growing the top line, particularly if supportive market conditions continue. Also, with the delivery next year, we're really focused on doing that in an efficient and scalable manner. With what we're planning through the roadmap that Scott details, we think we can do so in a more efficient way. The incremental margin that we'll be achieving should be resulting in overall margin expansion.
Yeah, just to add to that, Phil, as you touched on in the presentation, our digital investments are delivering good customer outcomes. That's obviously been very much in focus in the first phase we talked about today. We will continue to focus on our digital investments, and we expect that will, in particular, start to accelerate even more into 2027.
Okay, great. Thanks, guys. I'll jump back. Thank you.
Your next question is from Tim Lawson with Macquarie . Please go ahead.
Hey guys, thanks for taking my questions. I really have two follow-up and one new question. Just in terms of the margin commentary around FY 2027, just thinking about, can you help us think about how the trajectory looks between now and then? Does it require investment over the next 18 months to get to that mid-40% EBITDA margin, or are there things you can do now to see that trajectory move in that direction from this point?
Yeah, hi Tim, it's Jason again. I'd say it is very much dependent on the delivery over 2026. There is a lot in the pipe at the moment as far as our change delivery in our technology investment, and it's off the back of those initiatives that we feel that we can make these gains. We're talking less here about incremental gains and more about some, you know, fairly impactful projects that we are working on in the business. Hence, that's why we're talking about this target being something we're looking at for some period of time during 2027.
I think the state of that, Tim, as we've talked about before, whilst we're stepping through our transformation and especially the technology-related changes that we're stepping through, we expect the EBITDA margin to be in the range we're in now. That acceleration, to Jason's point, once we step through next year, assuming our market conditions stay where we think they will, that's when we'll see the acceleration into 2027 in our EBITDA margin.
Okay, and then just a follow-up question on the yield question from earlier. Do you think you can improve, you sort of spent that you're focusing on yield, but can you sort of hold yield up if you get more cheaper vehicles coming through? I'm specifically thinking about like lower priced EVs.
I mean, lower priced EVs would be a headwind for yield, but overall, I think we are reasonably comfortable with where it stands at the moment. There are a lot of different levers that we look at when we're looking at yield management. We can't necessarily affect the NAF because that's based on consumer preference. Based on what we're seeing in the book at the moment, we feel yield is relatively resilient, but we're going to have to continue to focus on it. One of the things that will play out potentially is that as we expand our distribution channels, yield may move, but that will be as a result of overall revenue increase, so still a positive outcome.
Okay, and just a final question, it was a new question. In terms of just leasing demand, you've obviously called out settlements up 8% and orders up 19%. Could you just talk through the gap between those two? You did comment on supply as well.
Yep, I mean, supply has been relatively favorable. The average days, I think I mentioned, has improved to 39 days. If we look at this half in particular, the order pipeline has increased modestly, so it's gone up by about $1 million in terms of how much revenue we've got sitting in the pipe. Probably the other factor to point out is when we're talking about new vehicle orders, that clearly excludes refinance activity. The gap between growth in your new vehicle orders and growth in your settlements is always a little bit muted because of the constant nature of refinances.
Okay, that's great. Thank you.
The next question is from Scott Hudson with MST . Please go ahead.
Yeah, good morning. Sorry, just a couple of follow-up questions on the margin profile. Am I understanding correctly that FY 2026 margins are unlikely to be materially different to current levels, and then there's a step change into 2027? Is that how we're thinking about things?
Yeah, hi Scott, thanks for the question. Yeah, essentially that's correct. I mean, our view is that margin expansion is a result of the investments we're making and the successful delivery of the initiatives that we've got in the roadmap. Given the amount of things that will be dropping all the way through 2026, we're really focused on improvements thereafter.
I guess your comments around hitting mid-40s, and I think you said during FY 2027, am I correct in assuming that you won't be averaging a 45% or mid-40% margin for the full period? It's a sort of level you'll get to in that calendar year?
We expect to get to that run rate, subject to how quickly we can execute.
At some point during FY 2027.
Correct.
Yeah, okay. Could I just maybe talk about the, I guess, the demand backdrop? I mean, it looked like the first half of the calendar year was very strong from both an EV, sorry, a battery electric vehicle and a PHEV volume-wise looking at industry sales. I mean, do you feel like you're getting the full benefit of that demand backdrop at this point?
I mean, we had a couple of broader comments on the overall market. Obviously, look at the VFAX data that we look at as well. In the first half, we're pleased with what we're able to do as far as grabbing demand against the dynamics that we saw in the first half. Pleasingly, though, and this goes to the outlook for the outlook statements we made, post the election, more stability in the economy, interest rates obviously being cut, increase in consumer sentiment. We actually said looking into the second half, an easing of some of the uncertainties that we talked about, or that we flagged that we were watching closely at the full year results in February.
As far as the demand backdrop for us, we see as opportunity both to keep doing what we're doing well, which is grabbing a bigger slice of the pie, I'll live in the VFAX data progressively. Secondly, also we actually see that the conditions are looking like they're pointing in a positive direction in the second half as well.
Yeah, Scott, I think if you look at our, when we look at internal benchmarks around market share, obviously the first half of 2024 we were doing quite well. We did have the tailwinds with the change in market dynamic around EVs. We still are picking up our fair share of market growth if we look at those numbers in the first half of 2025. Clearly, we're going to remain focused on doing more than that and want to pick up for the market share as Scott mentioned.
Lastly, in terms of the mix of vehicles that you are leasing, are you seeing more activation given some of the lower price point EVs that are coming into the market?
Great question, Scott. You asked the question, absolutely. That's a positive for us. More makes and models available on the market at better price points is positive for us, given the nature in particular of our customer base, which is health, education, government, not-for-profit sectors. Obviously, we have a big corporate segment as well, but we're very deep in those segments where being able to offer a better range of lower price point vehicles creates in itself a better ability to actually generate demand in our customer base. If you look at the promotions we put out regularly to our customer base, they are very focused on deals that have come through also from the OEMs who are obviously competing themselves increasingly heavily in the market, given the dynamics that we've talked about already.
Overall for us, more makes and models at lower price points is a good thing for us because it'll help generate and drive more volume, given the nature of our customer base. Within the context of a cost-of-living crisis in the country, being able to put great savings forward for customers is a positive also.
I think it's also helpful that we're seeing more models from recognized brands or enhanced variants from recognized brands. You know, BYD or Tesla have come out with model variations that have been quite popular.
Understood. Thank you very much.
Your next question is from Richard Amland with CLSA . Please go ahead.
Hi, good morning guys. I've got two questions. I'll start with the easy one first. Advertising and marketing spend has been going up. That's fine. How do we think about that going forward in terms of are you guys looking at it in nominal dollar figures or are you looking at it as a percentage of revenue? How should we think about, you know, how quickly that grows from here, please?
Yeah, really good question, Richard. I think the way we think about it internally is that the advertising spend is for us highly accretive, given what we earn from the incremental customer. It is probably something that is a little bit more than a percentage of revenue. As you continue to expand your market presence and expand your volume that you're generating through digital and performance media, there is an element of diseconomies of scale to a point. It is definitely not a fixed spend. It's a variable spend. There may be a little bit of inefficiency in that as we continue to grow.
Okay, should we, the market, be thinking about it accelerating or lag or starting to sort of taper?
It's very closely correlated with revenue. It's very much input cost into what we're doing on the revenue side.
Okay, thank you. That was the quick one. The harder one, I'm a little bit surprised that the top line revenue growth in outsourcing admin wasn't higher. I'm looking at the net organic adds and leases of, you know, call it 5,700 in first half 2025 versus 3,500 in first half 2024, which implies significantly, you know, a greater increase in activity than the settlement volume growth that you guys show on slide 18 of 8%. I feel like I'm missing something in terms of why revenue wasn't higher. Yeah, it ties into the yield argument, but it just feels like something else, you know, I'm not getting something. I guess, you know, is commission rates going up? Does that figure into it? Is there something that we've left off the table? Mix shift is going to new vehicles. That should be a positive. NAF is flat.
That's, you know, flat. Product attachment rate has dropped a little bit. In terms of that net new adds, I would expect more impact than that total settlement volume of 8% and an 8% revenue gain.
Yeah, thanks, Richard. Look, I think probably one of the main factors just to call attention to is when we're winning larger, large clients that are transitioning the client base into us and we're taking on the management of what we refer to as the car park. We don't earn immediate revenue from some of that stuff. It's basically inheriting a backbook. When we've had, say, South Australian government was a large client that we won over the last 12 months. There have been others like Monash Health that we've won. We inherit the customer. We inherit the car park. We will be able to monetize those in due course, but that may be, I think, potentially contributing to the gap that you're looking for there, if I've understood the question correctly.
The South Australian government contract shouldn't impact, in terms of first half 2024 to first half 2025, in terms of just activity, new lease activity in those two periods. I'm not sure that the SA contract would actually hit that, but perhaps I can take it offline. I don't want to drag everyone else through it, but on the basis of the activity, I thought that the revenue would have been a bit stronger.
Yeah, I mean, we only really talk to the balance sheet side. We don't publish the flow numbers when it comes to leases, but very happy to kind of take that question further if needed.
Okay, thank you.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. The next caller is Hayden Nicholson from Bell Potter . Please go ahead.
Yeah, hey guys, just two from me. Quick one first, you know, just focusing on margin again. Like any call outs there in terms of upfront contract costs? I mean, I know on the PCP you had SA. You know, you've highlighted Monash. Just thinking about, you know, margins, you know, still tuning up, but being around 40%. Any chance that, you know, actually underlying we're seeing some momentum here that's not really reflected because it's one-offs or not the case?
Definitely less so than last year. I think we've got a very capable operations team now that's able to onboard successfully large clients and do so with a good customer experience. I think SA Gov was a particular exception when it comes to onboarding because it was such a large client, and frankly, it was many different departments, so almost like onboarding many clients at the same time. More recently, we're able to absorb the transitions of new large clients without having to have a project framework around it. It is more of a BAU activity, so it doesn't necessitate us having extra costs around it.
I'll be one thing we'll remind you, Hayden, on the first half of the year with SBT year-end, we do have additional costs come into the business to provide capacity to deal with SBT year-end processing as a standard thing every year.
Yep, and then just second and lastly, you know, and coming back to the orders, you know, obviously EV's down, but you know, still holding there. How are you thinking about this, you know, moving forward? Are they going to drop away completely given the value proposition, or do you think it'll hold while the rest of the book grows? Just, you know, looking for some guidance around that.
Yeah, that's really interesting to watch what's happened with BEVs during the half. Obviously, with the incentive coming off, there was a, as you expect, there was a rush on BEV orders in the first quarter and then dropped away. We've seen actually an overall remix, as we touched on overall, obviously volumes are up, combustion engine vehicles are up, but there's been a remix with BEVs effectively between BEVs and combustion engines when we kind of look at the numbers. Overall, I think for BEV, I'd expect it to probably normalize where it was, I expect probably where it was 18 months ago or so because the back end of last year was definitely skewed with that sort of run-out sale mentality. I think also as people knew that the incentive was ending and importantly also their marketing was highlighting that to customers.
All right, great, thanks for that. I'll jump back in the queue.
There are no further questions at this time. I'd now like to hand the call back over to Mr. Wharton for any closing remarks.
All right, thanks Ghislaine, and thank you everyone for your interest in Smartgroup and look forward to speaking with many of you in the coming days. Have a good day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.