Smartgroup Corporation Ltd (SIQ) Earnings Call Transcript & Summary

Thank you, Bella. Good morning, everyone, and thank you for joining us today on the call. My name is Tim Looi. I'm the Managing Director and CEO of Smartgroup. And joining me today on the call is Anthony Dijanosic, our Chief Financial Officer; and Sarah Haas, our Chief Operating Officer. We'll provide an overview of financial performance for the full year to December 2022, our key operational performance, our progress on Smart Future and what we're seeing in the demand for electric vehicles. First, I'd 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 broadcasted nationally, I would also like to acknowledge the traditional custodians of the various lands on which you all joined this call. I recognize their continuing connection to land, waters and culture and pay my respects to their elders, past, present and emerging. Now let's turn to Page 3 of the investor presentation. Now 2022 has been a mix year for Smartgroup as we managed through another year of challenging headwinds in the form of vehicle supply chain disruption, a tight labor market, high inflation and a rapid rise in interest rates. Despite these challenges, the business has had a steady operational performance and continue to achieve multiple successes throughout the year. We achieved this by focusing on service excellence and by launching multiple digital interaction tools to better engage customers. In November 2022, the federal government approved the electric vehicle discount policy. This has had a positive effect for our business, and we will give an update today on what early signs we are seeing for electric vehicle demand within our client base. The summary of 2022 is as follows: first, we delivered NPATA of 61.2%, which is at the top end of the guidance range we gave several months ago. So revenue is at $224.7 million which is 1% higher than the prior corresponding period. Meanwhile, EBITDA and NPATA are lower than pcp, which reflects the continued car supply constraints and higher operating costs. Second, we've been able to generate strong leasing interest and demand throughout 2022. Leasing leads grew by 14%, with digital being the most significant growth channel. We also recorded a further 25% growth in the excess new vehicle -- excess new lease vehicle order pipeline. Third, we are seeing some strong interest in demand in electric vehicles. This is due to the passing of the federal government electric vehicle discount policy late last year. In Q4 2022, EV quotes have risen 270% comprised 15% of the total novated leasing quotes. Fourth, we continue to make good progress on the Smart Future program. During 2022, a number of new digital assets were delivered, including the new Smartsalary website and salary packaging calculator. We recently went live on Phase 1 of our Car Leasing Portal. It's early days, but we're pleased with the results so far. These digital tools are enabling our customers to interact with us digitally 24/7, 365 days a year. And finally, our capital light business model means we generate a strong level of free cash flows. After-tax operating cash flows, we're at 117% of NPATA. This strong financial position has allowed us to declare a final ordinary fully franked dividend of $0.15 per share and a special fully franked dividend of $0.14 per share. This brings a total dividend for the 2022 year to $0.46 per share, fully franked, representing a payout of 100% of NPATA. Now turning to Page 4. We recorded an increase in uptake of salary packages to 379,000. This is despite the loss of a large client. Our novated leasing car park declined to 57,700 and from both the loss of the large client and also the continued constraint in car supply. A long lead time for vehicle delivery has resulted in the car park being artificially low due to cars being held in a pipeline as well as more customers choosing to pay out their lease at term in. When car supply normalizes, we expect to see more cars being delivered and customers choosing to change over the current vehicles for new vehicles. This should return the cap back to growth. And lastly, on the right, our fleet managed vehicles have seen some organic growth in spite of vehicle supply constraints. Our funded lease pilot program continues with a small number of vehicles held on balance sheet supporting a dozen clients. Now turning to Page 5. Now through 2022, we have seen positive novated lease lead momentum. Total leads for the year are up 14% on the prior year, driven by an increase in digital leads of 20%. These statistics demonstrate that customer interest continues to remain strong. At December year-end, our backlog of opportunities for open lead is 50% higher than the prior year. We estimate these incremental open leasing leads worth approximately $2 million to $3 million of revenue, assuming normal conversion rates. There's no doubt our main novated lease -- our main novated funder exiting the market in the year resulted in significant operational disruption. Our team at Chambers had to do far more work engaging with customers and reworking credit approvals with new funders. Combined with resourcing challenges, this impacted our ability to convert on the higher lead volume we saw. It's great that we now -- we have now completed these transitions, we are left with a more diversified innovative funding portfolio, providing better business and customer outcomes. During the year, [indiscernible] seen strong and rapid rise in interest rates. This resulted in some customer hesitancy in decision-making as well as a reduction in credit approval rates by around 2 to 3 percentage points. This has ticked backed up in the last several months, and we're seeing good order levels in early 2023. Historically, pre-COVID-19, new novated leases as a percentage of total leases sat at around 78% to 80%. This ratio has fallen in the last 3 years to 74%. This was initially due to the uncertain impact of COVID and then due to a lack of car availability. Despite this new low -- despite this lower new lease proportion, leasing yields increased by 4% during the year, as a result of higher vehicle value and an improvement in attachment rates for products. Now turning to Page 6, please. This graph shows the increase in the time frame for the average vehicle order to delivery for Smartgroup's top 30 car models. As you can see, we have seen a significant increase in the time frame over the last 24 months. There was a little change to the vehicle delivery time frame in the second half of the year however, there is some variance by make and model. The current average delivery time frame for our top makes and models is much longer than the prior period and pre-COVID. This lengthy and also changing delivery schedules have caused additional work in our sales pipeline management in the form of credit reapprovals and logistical work. Given the continued delays we have been and we'll continue to increase resourcing to meet this additional workload. Moving to Page 7. This graph shows vehicle orders are still running above vehicle deliveries. We've also seen the decision time frame for customers to order a car extending by around 20%. Delayed revenue from this excess vehicle order pipeline is at a record $15 million which represents high-margin future revenue. This revenue will be recognized as and when vehicle supply returns and those vehicle settlements are completed. At this stage, we expect supply constraints to continue into Half 1, 2023. Now turning to Page 8. We continue to play our part in a broader community. Our strength as a business comes from a diversity, experience and the skills of our team members. We continue to support and encourage diversity as a powerful and distinct part of our culture. We retained our Workplace Gender Equality Agency citation for the third year, and we were also recognize, for the fourth year, as an Inclusive Employer by Diversity Council Australia. Both a testament to our focus and efforts over multiple years. In 2022, we were proud to commit to our first formal sustainability strategy, including a range of initiatives and targets. We have made a commitment to reach net 0 carbon emissions in our direct operations by 2030, and to roll out a range of initiatives to play our part in driving uptake of electric vehicles in Australia. Smartgroup service performance was again recognized by the Customer Service Institute of Australia, the peak body for service quality. And the work done by the Smartgroup Foundation reinforces our commitment to supporting the not-for-profit sector and the communities that we work with and service. The foundation, in its fourth year, supported 17 organizations and their grassroots projects. Now turning to Page 10. We have made good progress on our Smart Future deliverables. Now since Smart Future was announced, we have redesigned internal incentive schemes to better align it with customer outcomes and deliver the foundational platforms on which our digital experience, the APIs and data tools will be built. We've also improved our digital tools to enable better customer interaction and engagement. Our leasing calculator visitation to lead conversion rate improvement, and we've already seen an uplift worth $4 million of revenues per annum. We launched an integrated appointment booking system in half 2 2022, and initial data already shows an uplift in novated leasing quote on the field sales channel. Our Smartsalary website salary packaging calculator were launched midyear, we have seen increased views as well as increased engagement as measured by time on pages. And just last week, we rolled out, to specific clients, our Car Leasing Portal. Enabling customers to interact with us after ours, expanding the sales opportunity pipeline. Pending a successful trial, we will then launch it to a larger customer base. I will now hand over to Sarah Hass, our Chief Operating Officer. Sarah has been with Smartgroup, coming up to almost a decade now, and she's responsible for novated leasing function. I'm optimistic about the customer interest in electric vehicles that we're seeing. I will let Sarah take you through our early observations and conclusions.

Thanks, Tim. Turning to Page 12. The introduction of the Federal Government Electric Car Discount Policy in November 2022 will provide substantial savings to our novated leasing customers. We're excited to help our customers as they start their journey into an EV and we are well prepared to ensure that their transition is seamless, simple and cost-effective. While it has only been a short time since the legislation was passed, we have already seen strong demand coming from all segments of our client base. You can see from the top graph, the EV quotes in Q4 2022 approached 16% of all quotes compared to low single-digit percentages 12 months ago. Just as importantly, we are seeing increased demand for EVs across all client segments with a strong acceleration of interest in Q4 2022, particularly from corporate and government customers as represented in the bottom graph. Hospitals and PBIs are also showing strong interest, and we expect that level of interest to increase when the available range of EVs increases and the price points for EVs reduced. We are pleased with both the level of interest and intent shown by customers in the early days. Given the time frame for progressing interest to commitment is measured in weeks, our quote to order conversion rate for the interest shown so far will only be known in Q2. On Page 13, there are some interesting and early client specific observations coming out of the EV statistics that I want to share with you. Traditionally, the participation rates for salary packaging in corporate and government clients have been mixed. What we have seen in quarter 4 and into the new year is that this corporate client, a large financial institution and this large government clients have experienced an increase in total novated leasing quotes of 79% and 51%, respectively, versus the prior corresponding period. While total novated leasing costs have increased, EVs as a percentage of total quotes for these 2 clients have also increased from single-digit proportions to almost 30% for the corporate client and 15% for the government client. The legislation has only recently passed but we are confident that electric vehicles will activate more engagement with new customers in segments that have traditionally been passive in their interest and engagement. At present, the electric vehicle price points are somewhat higher than our traditional novated leasing cars. On Page 14, you can see a number of the new electric vehicle makes and models that we expect in 2023. The increase in availability over the next and future years will bring more choice in vehicles and price points to consumers. Together with the electric car discount policy, the savings from GST and our procurement power, this will make ownership of EVs more affordable. I will now hand you to Anthony, our CFO, to take you through the financials.

Thank you, Sarah. Turning to the profit and loss on Page 16, you will see that we achieved modest revenue growth despite continuing global vehicle supply issues and with some restrictions to on-site client sales activity still in place for much of the first half of the year. The 4% improvement in novated leasing yield referred to earlier by Tim offset 2% lower settlement volumes. As disclosed at the half year, 2022 revenue also includes $1.8 million of one-off items related to the successful transition of our primary novated lease funding provider to other financiers. I would note that for the 2021 year, we also called out a similar level of significant one-off revenue items. The revenue booked excludes the $3 million increase in open vehicle orders as we only record revenue on settlement of novated leases. Our open access order pipeline now represents $15 million of future revenue for which most costs have already been incurred. Our total order pipeline is around $19 million. We again started seeing some revenue come through in the form of interest on client accounts which contributed around $1.8 million in the year. Our operating EBITDA margin remained strong at 42%. At the half year, we stated that some cost inflation was coming through on the staff cost line arising from a mid-2021 group-wide pay review and from increased market rates for new and replacement roles. We were also seeing cost inflation evident in the other overhead line, both of which continued in the second half of the year. To address some of these inflationary pressures, we have commenced a targeted cost review that will be actioned progressively in 2023 while continuing to invest in the sales areas to meet the current high levels of leasing demand. I also draw your attention to the amortization line and the add-backs below the net profit after tax line. These have reduced as acquired intangible assets are now largely fully amortized. Both of these lines will then be negligible in 2023. Page 17, again highlights our high cash conversion. During the year, we negotiated an upfront payment of future performance fees from St George on completion of the transition of novated funding to other financiers. Excluding this one-off payment, operating cash flow generation would have remained high at 104% of NPATA. As mentioned earlier, we're now earning a modest amount of interest income on our client floats. As a result of increases in the RBA cash rate, which is shown as interest received from operations. $9.2 million of Smart Future costs were capitalized during the year with $6.4 million of that in the first half. The level of capitalization reduced as we shifted to our new program delivery model. As the year went on, we are increasingly able to implement a more cost-efficient model reducing our use of expensive third-party IT resources. We also continue to provide a small amount of on-balance sheet fleet funding as a pilot for a handful of clients. We have now funded a little over 200 fleet vehicles and a seamless offering resonate with those clients. The balance sheet on Page 18 shows that we ended 2022 with a small net debt position following payment of just under $40 million in special dividends in March. The 2022 final ordinary and special dividends declared amount to around $38 million to be paid in this March. With that payment, we forecast our net debt position to remain low at around 0.6x EBITDA. Now Page 19 sums up well the strength of that business model. From 2020 to 2022, we declared fully franked dividends of around $1.62 per share funded from our strong and consistently high cash flow. In the last 3 years alone, we have paid out over $200 million in fully franked dividends, representing around $300 million in shareholder value when factoring in franking credits. That is despite the significant impact, the lack of vehicle supply is having on our earnings. I'll now hand back to Tim.

Thank you, Anthony. Turning to Page 21. And in summary, but we're pleased to deliver NPATA at the top end of our guidance. While we still record revenue growth, our profitability has been adversely impacted by the continued car supply constraints and higher operating costs. So we are currently undertaking a targeted cost review to address some of these inflationary pressures. And we're off to a pleasing start for 2023 and our year-to-date financial performance is in line with the prior year. We had strong leasing lead growth throughout 2022, and this leasing lead volume has continued in the start of 2023. This elevated level of open novated lease interest represents a good opportunity for continued momentum for the year. With the electric vehicle discount build passing late last year, we have seen strong initial demand and interest coming from across all of our client base. Most notably, we have seen elevated interest and engagement with clients and customers that historically have low interest and [ high ] participation. That together with the expected increase in range, supply, price points of new EV makes and models, electric vehicles are expected to be a positive for our business. We have delivered strong foundations for the Smart Future program. In 2022, we further enhanced digital customer interaction tools, and we're seeing good customer engagement with them. We're pleased with the early indicators from the recently launched car leasing portal with self-service digital tool will enable customers to progress their interest after hours will be reviewing and then rolling out this digital tool to a remaining client base over 2023. Finally, our capital light business model continues to generate strong cash flows with conversion at 117% of NPATA. This has enabled us to declare a total of $0.46 per share of fully franked dividends for the year, reflecting a payout of 100% of NPATA. Now it's important to note that over the last 3 years, our financial results have been challenged by vehicle supply delays. Despite this, we have returned approximately $300 million back to shareholders in the form of fully franked dividend and franking credits as well as maintaining a very conservative balance sheet. While 2022 has not seen the improvements in motor vehicle supply that we had hoped for we are proud of what we have achieved. We continue to generate high-quality earnings from a diversified client base and the business performed well operationally with further external recognition or service levels. Now looking forward, we are well positioned for the future. Improvements at a vehicle supply will release revenue from the order pipeline as well as reduced operating costs and the increasing demand for electric vehicles will create a positive momentum of Smartgroup. The continued investment in smart future assets will lead to better experience and engagement, lowering our cost to serve and our cost to acquire. Now before closing this teleconference and asking for questions, I want to acknowledge the news released today at ASX this morning about my decision to retire. After 14 years of service, the last 3 as CEO, I am immensely proud of the organization that Smartgroup has become and excited about its future. I will remain in this role until a suitable successor comes on board to ensure a smooth transition and I look forward to seeing many of you in the coming days. Thank you, and over to you, Bella.

[Operator Instructions] Your first question comes from the line of Scott Murdoch from Morgan Stanley.

Scott Murdoch from Morgan's. Just if I can start, well, maybe firstly, Tim, well done on your tenure at Smartgroup. It's been a very successful long tenure. Just under the -- onto the questions. I guess, maybe can we delve into the conversion a bit here, leads up 22% in the half and orders down 3%. Clearly, there's been some conversion pressure. Can you just sort of run us through, I guess, how that's played out through the half and where you're exiting on that lead conversion and any improvement that you've seen?

Yes. No, sure, of course. Scott, thanks for the question. So quite clearly, we -- in Half 2 last year, we were coming off a transition from our primary funder and if you think about it, right, where almost 9 out of 10 deals were dealt with the one funder, and we had to transition that pipeline of deals through our process to a couple of other funders so that has caused immense work and immense double handling. Then when you throw in the increasing interest rates, right, that happened from May onwards, again, right, the workload is quite a bit. Clearly, what we haven't done was convert as well as we could have done during that transition. We were a bit short in staff back then, right? And obviously, that double handling, triple handling did not help. I'm happy to say as we exit 2022, we are seeing a good number of backlogs, right? The backlogs are now well staffed by our team. We're recruiting a couple more people to come on board to make sure we handle these open -- as we call them open orders and open opportunities to land -- the customer sentiment has been hampered as well. We're seeing the time frame extend by about 20%, right? So I think it used to be from around about 1.5 months, right, is when we when we traditionally see someone go through the process, is now extended to about 2 months, right? So by that said, right, we will know in the next couple of months, right, what's happened to all these open orders and I think with the additional resourcing and focus we have on it, we will land a good portion of them.

Okay. Just on the spike in leads and obviously, that sounds like it's continued into this calendar year. Can you sort of give us an indication is that all EV led? Is there actually increase in leads in traditional ICE vehicles? Or is it all EV led? And then second part of that, assuming that it's a vast majority of EVs, have you actually got the ability to execute all that, given the availability of EVs and the range of EVs. Can you actually convert them? Is there stock there to convert?

Yes. Look, EV has certainly been of interest, right, Scott. But you got to understand the tax effectiveness of EV is still relatively unknown throughout our customer base. I just spoke to a really large technology corporation yesterday actually, and they were not aware of it. So this is a pretty large organization, and we're now talking about doing a series of presentations to educate their staff. So certainly, the uplift in novated leasing lead is partially driven by lease by electric vehicles, but certainly, I think overall, as we look into it, it's both for combustion engine vehicles and also EVs.

Okay. I'll just ask one more because I know there'll be plenty on the line. Just with the contract loss, that is old news around DET, can you just, I guess, give us a better feeling of what the net impact of that contract loss has been? You've obviously had some package wins through the half, but just a bit of a recap understanding of what that contract loss means financially into the new year because I guess your January statement reflects that you're in line with the pcp. And correct me if I'm wrong, the pcp was better than the half that you've just delivered. So I guess it implies the earnings run rate is sort of picking up from what we've seen here in the second half.

Yes. The 2 things I want to tell you, Scott. There's the first one is that Education Victoria left us at the end of October, right? So for November, December, January, February and ongoing, right? We're not going to see the leasing leads and retail orders, we would have seen historically. I'm pretty happy to say that despite the loss of Education Victoria, which is a large client for us, it contributed, I think, around $11 million of revenues. Despite that loss, right, our leasing vehicle orders have been maintained, right, throughout those periods. Again, January, early February, still early days, but we have been able to make up that gap, right, in January throughput.

Okay. I'll allow others to ask.

Your next question comes from the line of Tim Lawson of Macquarie.

Just a couple. Just in terms of the results, obviously, filled just slightly over the top end. Is that just the way the numbers sort of fell out when you put them together? Or is there something to call out that you thought you did better in the end of November and December than you'd expected?

Yes, I think the only thing to call out was that we had good number of resources, a good number of focus -- sorry, a lot of focus on making sure we settle those vehicles in November, December. Right? I think the effort being put in by our staff to make sure that we handle our customers quickly and promptly has meant that we were selling more cars than we -- at the top end of the right -- so that's simply...

I think the other thing to call out is, obviously, we've been holding to deliveries of motor vehicles. And certainly, when -- obviously, that's been very hard to predict over the course of the last couple of years. So in terms of what was delivered in the last part of the year, is probably slightly above what we'd anticipated.

Yes. And just on -- I think, Anthony, you mentioned capitalization, can you just talk about the capitalization of games sort of first half, second half and what is sort of right to do?

Yes, sure. So the bulk, I'll refer to Smart Future specifically. So the bulk of that, so about $9 million was capitalized for the full year and a bit over $6 million of that was in the first half. So as called out, and we called this out, I think, midyear as well, that we were looking to change the delivery model when we first embarked upon Smart Future, the intention was always that we have external health but primarily internal resources developing and delivering. We certainly found it difficult to find those internal resources in a very tight labor market. What we saw, I guess, earlier in the year was some of the IT resourcing, the labor market was a bit improved. And we started to shift more towards the delivery model that we always wanted to have, which was using externals for their expertise, but really developing the internal capability to deliver those digital assets. And so that's a reflection that reduced CapEx level in the second half is a reflection of that change in model.

Okay. That's great. Just a few more quick questions. Just the sort of portfolio runoff rate in novated leases. Is that sort of higher-than-normal despite sort of credit assessment being a bit tougher, people paying out more loans than you would expect? Or is that the sort of normal runoff right?

Yes. Look, it's certainly higher than normal Tim. Look, we internally, we have this metric, what we call a retention rate and our retention rate for cars coming to end of life has certainly decreased, right? So it's a very simple reason for that when -- because of the lack car availability, no one is happy to wait for 6, 9 months for the car that they want when -- a new car anyway. And so they pay it out. So and after a couple of rounds of refinancing, the residual gets to be a very, very low number and then they pay it out. So I think -- but I think that is temporary thing, right, as we get more cars back on the table as EVs get more traction, we'll see that retention rate tick up.

Okay. And just 2 more quick questions if I could. Just some about the yields, I think Sarah called out attachment rate. Maybe just talking a little bit more about the improvement in yields you're seeing?

Yes. So certainly, it's related to both higher vehicle values and to improved product attachment rates. Now in terms of EV, so there's high -- a spike in order levels -- in quote levels, et cetera, and we'll know the impact on order levels going forward. But certainly, that's not playing a real part in the yield numbers that we're reporting. These yield numbers are based on settled transactions. So definitely, EVs have a higher average price, but that's not what is driving that increase in the yield. It is both those new higher car -- sorry, higher new car prices as well as improvements in the attachment rates of product.

Okay. That's great. And if I can, maybe a quick question to Tim, I appreciate you've been in the seat for a long time, over 10 years. With the supply back to improve, hopefully, and Smart Future underway, can I ask why now?

Yes, it's always hard, right, Tim, to work out when you want to go. I think the position where I came from was that I think the business is in a really, really good state. The foundation is laid out. The path is laid out as well. We've got a good mix of new talent and existing talent and the macros look good, right? So the transition itself of leadership will take a little while. So I won't be gone tomorrow. I'll certainly still be here. And until such time the new person starts, we find them and start. And I will be -- I'll be making sure the business is well run and executing on what we want to do so.

Your next question comes from the line of Paul Buys of Credit Suisse.

My first question, just on Smart Future and just kind of taking a step back to the original objectives that you guys set out when you commence that program of the $15 million to $20 million uplift by CY '24 commencing second half '22. Just want to get an understanding overall of how you feel regarding the timing and quantum against those original financial objectives? You called out, I think, $4 million revenue uplift from the lease calculator, which certainly shows that some of the stuff starting flow through as you expected for CY '22. But just, I guess, wanting to see how it's going versus your expectations? And I guess also what kind of contribution came through into last year?

Yes. Paul, so why don't I start then I'll hand over to Anthony, right? So certainly Smart Future, I think when we did that plan, we said, look, at the moment, how do we get better customer experience. We know we had a strong service levels. But making sure we have a good customer experience program on top of that means that we can get better referrals. As you know, referrals convert a lot higher than just [indiscernible], so I think that's part of it. The other part was that when you look through our customer, our client base, we have 3,700 clients across all sectors. Some of these clients don't contribute a lot. They should contribute a lot more but the scaling of this -- of our reach was always going to be difficult and we needed to make sure that we use digital to scale. And of course, lastly, how do we simplify our business. So those are the 3 pillars that we want to address. Certainly, Smart Future. The first phase of it was making sure that we map out a good journey for our customers to go through. So that's been done. The second bit really was around building the digital tools to make sure that interaction is sound and solid. So that work is partially done. Certainly, the car leasing portal has been delayed because it is a good tool, right, but it's a complex tool. That's been delayed, but we're seeing good early signs. Now as to the sort of numbers we put out there for $20 million, Anthony will talk to it, I'm confident that we'll get those numbers for sure. But I think some of those numbers have been reinvested back in the business, whether it's in the form of discounts to customers or higher wages and former inflation. Anthony?

Yes. Thanks, Tim. So you're right, Paul. So we did call out that we expected to start seeing an uplift from Smart Future in the second half of 2022. Now obviously, the leasing calculator was one of the early things that we put in place. The problem, obviously, is you can see pipe growth, real pipe growth, but the car supply means it takes a long time, and effectively, it's not hitting revenue as we anticipated when we started. We also called out early -- or midway through last year that we said, all right, due to the change in delivery model, et cetera, what we're going to be doing with -- doing something with more sustainable costs, and we expected the program would basically take about a year longer than we'd initially anticipated. So that hasn't changed. But I think what we're seeing at the moment in terms of some of the things we've delivered late this year, the booking tool has been something that has went live in July, but there's a 4-, 5-month implementation period where all of the bookings are used on that, et cetera. So we've got some initial data that we're really happy with. As Tim mentioned, we're looking at a 15% uplift in quotes from that field channel, which has been helped immensely by that booking tool. And also the Smartsalary packaging calculator and website. So the calculator itself went live in October. And that's a really powerful education tool for customers to get comfortable with salary packaging. So again, we've got early signs that, that's been engaged with really, really well. And certainly, as Tim said, the car leasing pool with that was one asset that we're expecting really big things from it was delayed. So it's been delayed and delivered later than we were hoping. But that's now in place and rolled out to a pilot group of clients. And so we are confident in the Smart Future assets generating the benefits that we first set out back in May 2021.

Got it. Then something else that you -- I think it was some stage last year, it might have been in the first half. I think you called out at some stage a little bit of kind of customer drop off in the rising rate environment, it might have been, like I forget if it was the first half or the prior second half. It seems given everything you've described in the numbers you've shown on leads and orders since then, the that kind of -- that hasn't continued. And it feels like that sort of order book stickiness is back where it used to be. I just wanted to confirm that or get your thoughts on that?

Yes, yes. I think the -- this is what it is, right, Paul. So when the rates start rising from May onwards, you're talking about someone getting a requote, it used to be like a 6% lease rate, right? And suddenly, we call them up and say, "Hey, listen, your car is ready for delivery, we're going to requote you and make sure you get a new interest rate for your lease comes at 9%". So that is a pretty big sticker shock, yes? And that's so we saw a lot of customer hesitancy there. Now moving forward where we are today, when we requote your interest rate did not have a 300 to 400 basis point move, right? It's a lot less than that. So that's -- a lot of it -- a lot of that -- a lot of impact, probably right, that sticker shock impact has passed. And I suppose it's just no more consumer expectations, right?

Makes sense. And then last one, just, I guess, on -- any comments you can make on new opportunities in the pipeline. Obviously, there's some large contracts out there for retender which are unknown in the marketplace. But just interested on your thoughts broadly on the opportunities? Or are you more focused on increasing conversion within your existing customer base?

Going to do both, right, Paul. We're going to do both. Big focus on increasing conversion. We know that there are -- the assets that we've built, efforts we've put in have led customers to a lead. So we're going to make sure we convert those leads and we're doing that. Now in relation to the tenders and everything else out there in the marketplace, look, we're one of multiple salary packaging companies that are interested in it. How we go -- we're competitive, I hope, and we'll see how we go.

Got it. Okay. And Tim, just want to echo comments made earlier and wish you best for your next stage, but that's all for me guys.

Your next question comes from the line of Phil Chippindale of Ord Minnett.

A couple of my questions have already been asked. But just on the CapEx, just looking at calendar '23, I haven't seen any references in the materials to sort of guidance levels for CapEx spend in '23. Can you talk to perhaps what you're thinking on Smart Future but perhaps to the aggregate as well, I think total CapEx last year was around $10.4 million.

Yes. So the bulk of that, as you're aware, was related to Smart Future that will have $10 million with [ fund mill ] of other CapEx. Certainly, as I said, the second half CapEx was $3 million and that was due to a shift in the delivery model. So that shift in delivery model is one that we're intending to be a long-term one. So certainly, we're not expecting the levels of capitalization that we saw in the first half of last year to be the run rate for 2023. In as far as other CapEx, we always have a certain amount of CapEx expenditure, whether it be on computer equipment or fit-outs, et cetera. They're relatively immaterial, and we don't see that changing significantly.

Okay. Just on the lead to order conversion. I just wanted to circle in on the EVs. Are you seeing the same gap emerge between those leads coming in on EVs to orders as you are seeing in the ICE segment? Tim, you made a general comment earlier, but just more specifically, I just wonder if consumers are using this as an information gathering exercise in part for the potential consideration for the first EV to go for -- to get that lead to generate a quote, but maybe you see the numbers and sort of decide something else?

I think, Phil, there certainly is both, right, by the way. And what is really, really important for us is for them to see the numbers. But when you see the numbers, and you're ready to change it for a car or you're thinking about change it over a car, it makes good sense, right? And then the process goes to, well, what kind of car do you want to have that's EV and isn't available? So for us, our focus is very much on the customer interaction to make sure we get them through that stage of understanding what an EV is firstly? What are the myth busters that we have to go through? But certainly, we have seen some good interaction, right, and good engagement with customers. Now it's still early days, right, because the process itself from getting a lead to all the way to a vehicle order does take a number of weeks, right? We will know much better in the course of probably the next 2 or 3 months about what that true conversion rate looks like. But at this stage, I think our team is pretty positive on it.

[Operator Instructions] There are no further questions at this time. I turn the call back over to Tim Looi.

Thank you, Bella. Listen, everyone, thank you for spending the last 45 minutes with us. I look forward to seeing you all during a road show and thank you very much for your continued interest in Smartgroup and your support. Thanks very much.