Smartgroup Corporation Ltd (SIQ) Earnings Call Transcript & Summary

[Audio Gap] As this event is broadcast nationally, I would also like to acknowledge the traditional custodians of the various lands on which others are joining the webcast. I recognize their continuing connection to land, waters and culture and pay my respects to their elders past and present. It is now 11:00 a.m. nominated time for the meeting. I have been advised by the company's secretary that a quorum is present, and so I'm pleased to declare the meeting open. This year's AGM has been convened as a physical meeting only. We're also providing a video webcast of the meeting for shareholders who would prefer to view the proceedings of the meeting remotely, and I welcome all of our shareholders who are now logged on to the webcast. The notice of meeting was made available to shareholders and lodged with the ASX on 9th of April 2025. I propose to take that notice as read. Joining me here in Sydney today are Anne McDonald, Non-Executive Director and Chair of the Audit and Risk Committee; Carolyn Colley, Non-Executive Director and Chair of the IT and Innovation Committee; Deborah Homewood, Non-Executive Director and Chair of the Human Resources and Rem Committee; Ian Watt, Non-Executive Director and Chair of the Environment, Social and Governance Committee; Mark Rigotti, Non-Executive Director; Scott Wharton, Managing Director and Chief Executive Officer; and Sophie MacIntosh, on my right, Group Executive, Legal Risk and Corporate Affairs and Joint Company Secretary. Karen Hopkins, the audit partner from our auditor, KPMG, is also present here today and will be available to answer questions from shareholders at the appropriate time in the meeting. I will now make some brief comments about the company's performance in 2024 and so far in 2025, before handing over to Scott to take you through these matters in more detail. I remind shareholders that our 2024 annual report is available from the Investors section of our website. As many of you would be aware, this was my first 12 months as Smartgroup Chair following Michael Carapiet's retirement as Chair in May last year. In February 2024, we welcomed Mark Rigotti to the Board. Mark is the Managing Director and CEO of the Australian Institute of Company Directors and was formerly the Global CEO of Herbert Smith Freehills. Mark has been a great addition to the Board. We continue to review the skills mix and Board composition to ensure it is fit for purpose to guide Smartgroup over the years ahead. It has been my pleasure to work with my fellow Board of Directors to support Scott and the management team in implementing the first full year of our strategic priorities. These priorities are positioning Smartgroup for continued growth and a bright future. Moving to the highlights of the last financial year. 2024 was a positive year for Smartgroup. The company delivered strong revenue and profit growth. Our strategic priority is progressing well, and we have been making consistent operational progress while implementing long-term growth initiatives. Our financial results were strong, and we made significant investments in areas to drive growth and improve future operational performance. We recorded revenue of $305.8 million EBITDA of $118.7 million and NPATA of $72.4 million. Revenue was 22% above 2023, with EBITDA and NPATA also up 18% and 15%, respectively. Operating cash flow generation remained strong at 108% of NPATA, and statutory net profit was $75.6 million. We saw significant increases in our customer base in 2024. Our salary packaging customer numbers, novated lease numbers and fleet vehicles under management reached all-time highs, confirming our solid market position and reputation in the sectors in which we operate. Our digital marketing initiatives, improved customer experience, an ongoing favorable regulatory environment have generated more leads this year than ever before. We also rolled out great innovations like our enhanced car leasing portal, which delivered strong outcomes in 2024. As a result, novated leases under management continue to grow. reaching 74,300 vehicles, an increase of 22% over last year, the previous year. The federal government's electric car discount policy was introduced in November 2022, with the clear intention of making electric vehicles more accessible and affordable for working Australians. By reducing upfront and ongoing ownership costs, the policy seeks to accelerate the transition to electric vehicles, significantly reducing emissions in the transport sector and supporting Australia's broader climate goals. Since the policy introduction, electric vehicle adoption has significantly increased, rising from just 3.8% of new vehicles sales in 2022 to 9.5% by the end of 2024. The increase in EV sales since the policy's implementation underscores its effectiveness in achieving these intended outcomes. Passenger cars and light commercial vehicles contribute over 10% of Australia's total emissions. The shift in market share towards EVs is an important step towards Australia meeting its net zero emission targets. At the end of 2024, electric vehicles represented 44% of new vehicle orders for Smartgroup, up from around 11% in June 2022. Our teams have been working diligently to ensure that we are well positioned to support our customers in taking advantage of these benefits and transitioning into electric vehicles to support a low-emissions future for Australia. Importantly, this policy has brought increased awareness of novated leasing generally and has been a welcome tailwind for the industry. The result of the recent election has brought clarity to the debate on the Labor Party's policy regarding electric vehicles and their place in the country's energy and climate transition, providing support to future investment and growth in the sector. Salary packaging remains an attractive market where we have a strong competitive position with recurring revenues and an entry point into novated leasing. We were pleased to have secured and renewed a significant number of large- and medium-sized organizations as clients throughout 2024, including the transition of the South Australian government contract, that commenced on 1st of July 2024. This reinforces our position as a leading provider of salary packaging and novated leasing services to Australian governments. In 2024, our active salary packaging customers increased 12% to 445,000 in December 2024. In fleet, we grew vehicles under management to 32,300 in 2024. And continue to expand our self-funding pilot to strengthen our capabilities with around 750 vehicles funded as at 31 December 2024. Caring for others and for the planet is a smart way to do business. In 2024, Smartgroup again demonstrated its ongoing commitment to pursuing strong social agenda alongside our commercial goals with several ESG initiatives. In 2024, we invested nearly $250,000 in local communities by donating to 21 charitable initiatives, spanning financial education, support for marginalized communities and climate change solutions. Importantly, our Scope 1 emissions decreased by 15%, while Scope 2 emissions fell by 43%. As Australia continues its energy transition journey and tackles rising living costs, we will be working even more closely with our clients to help them support their employees. Scott will provide additional observations regarding our ESG highlights shortly. And you can also find more information about our sustainability strategy and other highlights in our sustainability report, which is again available from Smartgroup's Investor Centre on its website page. 2024 was the first full year delivering on our strategic priorities, and we have made strong progress. We strive to deliver smarter benefits for a smarter tomorrow by simplifying benefits. So they work smarter for our clients and their employees, our customers. We enable our clients to attract and retain great teams. We add real value to the lives of their employees, and together, help build a more sustainable Australia. Again, Scott will provide more details about our strategic priorities in his presentation. Since listing in 2014, Smartgroup continues to deliver good returns for shareholders, both in capital appreciation as well as fully franked dividends. We have returned approximately $577 million to shareholders in fully franked dividends. And our market capitalization has increased from approximately $160 million to approximately $1.1 billion as at 30 April 2025. This slide demonstrates a strong history of value that Smartgroup has delivered to its shareholders over this period. I also briefly wanted to highlight our approach to capital allocation, ensuring 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 that we make the most of these opportunities, we will continue to invest in core and digital technologies as well as customer experience and 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% to 70% of NPATA. And we will look to return excess capital to shareholders whenever appropriate. 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 declared a fully franked final ordinary dividend of $0.20 per share. In addition, the Board also declared a fully franked special dividend of $0.11 per share. And 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. 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 in our business 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 a strong return on equity for our shareholders, which is currently 29% after tax. And that's an envious number. I would like to thank Scott, the entire management team and all of Smartgroup's dedicated employees for their hard work and commitment throughout 2024. I would also like to thank our loyal clients, suppliers and shareholders for their ongoing support and to take this opportunity to acknowledge my fellow Non-Executive Directors, who have continued to apply their experience and insights to guide Smartgroup strategy and direction. I will now hand over to Scott.

Thank you, John, and good morning, everyone. I will first talk about Smartgroup's investment proposition to shareholders. Following that, I'll provide some more details about our strategic priorities and the progress we have made to date. I will then recap our 2024 financial results and provide more recent updates on our business and trading for the first quarter of 2025. 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 for 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 means, in this model, 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 time frames 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. This slide recaps Smartgroup's strategic priorities and focus areas communicated in February 2024. 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're 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 for 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 and be more agile and responsive to their needs. 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 position 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 Smartleasing and Smartsalary brands to Smart. This reduced our number of brands from 6 to 4. We will continue to progress the brand consolidation as part of our simplification efforts. 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 improved the effectiveness of our customer interactions by our contact centers. Innovations like these helped us achieve efficiency improvements including increasing the number of packages for operations full-time equivalent employee 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, which measures customer satisfaction, also grew more than 10%. In novated leasing, we delivered strong improvements. Our enhanced car leasing portal continues to delight our customers, make 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 Smartrewards 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've also made various operational improvements to our systems and processes based on feedback from our clients. During the year, we divested 2 noncore businesses allowing the group to further focus on our core of salary packaging, novated leasing and fleet, which present attractive growth opportunities. And 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. 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. Our new customer, digital home, smart.com.au, makes it easier for customers to engage with us on their salary packaging and novated leasing needs, how they want and when they want. Our enhanced car leasing portal, the latest version of the car leasing portal, represents a significantly improved digital experience for our customers, allowing comprehensive feature display, car comparisons and customization, all the way through to financing and credit application. Similarly, we have commenced the rollout of our refreshed digital salary packaging customer journey. For example, the improvements or simplify the customer sign-up process and reduce the required time. We remain committed to continuously evolving our digital assets to ensure they remain at the forefront of the industry, delivering exceptional value and convenience to our customers. I will now provide some highlights of our performance in 2024, together with an operational update. Before I go into the 2024 highlights, I wanted to highlight the growth opportunity available to Smartgroup. 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've 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 our market-leading digital assets. This means further growing uptake of our services by customers who 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 of more than 15% of 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 debated leasing, and it will continue to be a focus for the group going forward. I also wanted to expand on how we are thinking about the market opportunity 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 0.5 million 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 in order to increase retention. We believe we are making steady progress on each front and that these improvements will ultimately drive improved financial returns over the medium term. 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 enables Smartgroup to retain clients and attract new ones. We continue to make targeted investments to generate and meet additional novated leasing demand. We also continued to invest to deliver our strategic priorities and become a simpler and more digital business growing through great customer service and experience. of $118.7 million was up 18% on 2023. And EBITDA margin was 39% in the full year. Importantly, our second half 2024 EBITDA margin was 40% as planned. During the year, NPATA increased by 15% to $72.4 million. Smartgroup also delivered operating cash flow conversion at 108% of NPATA. As John mentioned, we continued to grow salary packaging customer numbers, novated leases under management and fleet managed vehicles to record numbers. In 2024, our proposition generated solid novated leasing demand for both electric and internal combustion engine vehicles. As of 31 December 2024, electric vehicles accounted for 44% of our total new vehicle orders, including plug-in hybrid vehicles at 13% of new vehicle orders. While the electric vehicle share of our novated lease portfolio is growing, internal combustion engine vehicles remain an important and growing part of our business. In 2024, the number of internal combustion engine new leased has increased 12% in compared to 2023. Pleasingly, yield increased 7% versus 2023, driven by a higher proportion of new car leases versus refinances supply chain renegotiations and vehicle mix. Yield management will remain an ongoing focus. As I mentioned earlier, we are making solid progress against our strategic priorities and are on track to achieve our ambition of delivering smarter benefits for a smarter tomorrow. As John mentioned, during the year, we continued to progress our sustainability strategy, achieving a number of milestones and exceeding our goals in some areas. We published a comprehensive sustainability report every year that's available at Smartgroup's Investor Centre. 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 95th 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. Late in 2023, we began taking some deliberate steps to differentiate our service offering, including stronger engagement with our clients, uplift in digital marketing and strengthening service levels in our contact centers and vehicle sales teams. These improvements are all delivering great results. Our novated leasing business continued to experience stable demand in the first quarter of 2025 and continued to grow. Average monthly new lease orders were up 21% compared to the first quarter of 2024. Average monthly total settlement volume, which includes new, used and refinanced vehicles was up 9% compared to the first quarter of 2024. Compared with the second half of 2024, this also represented a 9% increase in monthly average new lease orders and a 1% increase in average monthly total settlement volume. A higher proportion of new car leases, coupled with supply chain renegotiations and shifts in vehicle mix resulted in a 4% improvement in yield versus the first quarter of 2024, and was steady when compared to the second half of 2024. Vehicle delivery time frames have continued to improve this year. Our pipeline of future revenue was around $12 million at the end of March 2025, in line with December 2024. Given the end of the fringe benefits tax exemption for plug-in hybrid electric vehicles at the end of March, there was heightened demand for them in the first quarter of 2025. This resulted in new lease settlements representing 86% of total novated volume in the first quarter of 2025 compared to 82% in the second half of 2024. Importantly, although no longer exempt from FBT, plug-in hybrids will continue to be available for novated leasing. The electric vehicle discount policy remains available for battery electric vehicles and novated leasing remains available for all vehicle types. As expected, in April 2025, we saw a drop in demand for plug-in hybrid vehicles, while demand for internal combustion engine and battery electric vehicles remained stable. We expect that there will be a change in vehicle mix over the coming months, but importantly, anticipate that overall demand for novated leasing vehicles will remain stable. 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 electric vehicle manufacturers offering models at more affordable prices. This and increased awareness of the benefits of novated leasing resulted in electric vehicles accounting for 51% of all new vehicle orders in the first quarter of 2025, including plug-in hybrid vehicles at 21% of all new vehicle orders. Total EV new vehicle orders increased 45% in the first quarter of 2025 with plug-in hybrid vehicle new orders increasing 177% compared to the first quarter of 2024. In the first quarter of 2025, the number of internal combustion engine vehicles ordered increased 4% compared to the first quarter of 2024. This highlights the attractiveness of novated leasing for all types of car purchases. Internal combustion engine vehicles represented 49% of new orders during the quarter. Our investments in digital and customer experience are intended to make novated leasing easy and simple for all vehicle types. Moving forward, we will continue to focus on Smartgroup's strategic priorities and invest in our core technology and capability to drive growth. During the first quarter of 2025, leasing demand remained stable, and we grew salary packages, novated leases and fleet vehicles under management. The first quarter of 2025 average monthly revenue grew 10% and compared to the first quarter of 2024 and was in line with the second half of 2024, supported by plug-in hybrid vehicle demand. We continue to focus on customer experience. And as a result, recently, we have been successful in winning Monash Health and Grampians Health in Victoria. We were also added to the Tasmanian government and transport for New South Wales leasing panels. And we have also won new corporate clients. Our focus in the medium term will also be on driving operating leverage by implementing cost management and efficiency programs. We remain cautiously optimistic for the year ahead. We have all witnessed the market and economic volatility emerging from recent tariff policy decisions out of the U.S. At this stage, these decisions have not significantly impacted Smartgroup's operations. However, we continue to monitor external factors, including consumer sentiment, interest rates and geopolitical impacts on vehicle supply chain. As I previously highlighted, we are executing well on our strategic priorities and expect technology and digital CapEx to be between $11 million and $13 million in 2025. In the first quarter of the year, we delivered new partnerships with Intellihub's Enreal and also BMW Financial Services. These initiatives will strategically position Smartgroup for sustained, profitable growth, enhancing value for our shareholders. In closing, I would like to thank our Chair, Directors, the executive team and all Smartgroup team members for your hard work and commitment in 2024. And to our clients, customers and, of course, our shareholders, we'd like to express our gratitude for your ongoing support.

Thank you, Scott. We will now move to the formal part of the meeting. I will start by explaining the arrangements for asking questions and voting on the formal items of business. As this meeting has been convened as a physical meeting, shareholders may only raise questions today from the floor. Only shareholders and proxy holders holding yellow voting cards or blue nonvoting cards will be entitled to ask questions from the floor. Visitors holding red visitor attendance cards are not entitled to speak at this meeting. If you wish to raise a question from the floor, could you please hold up your yellow or blue card when I call you to ask your question, could you please move to the microphone in the center of the room and identify yourself. And if you are a proxy or a representative of another shareholder, the name of that shareholder. You may then ask your question. I ask all shareholders asking questions from the floor to keep your questions short and to the point, so that as many shareholders as possible have the chance to ask their questions. We also ask shareholders not to ask more than 2 questions at a time. In the notice of meeting, we invited shareholders who are unable to attend the meeting in person today to lodge questions online before the meeting. I understand from our Company Secretary that no questions were lodged online before the meeting. We reserve the right to rule out questions that do not relate to the business of the meeting. And we will also not answer questions that are substantially similar to questions that have been already answered. Otherwise, we will endeavor to answer as many of the questions asked as possible. In accordance with the company's constitution and as stated in the notice of meeting, as Chairman I have determined that voting on each of the resolutions will be conducted by a poll rather than a show of hands. And in accordance with the company's constitution, the Board has determined that shareholders entitled to vote on a resolution at this meeting may exercise a direct vote on that resolution. The Board has approved rules governing direct voting, which are available on the Investors section of the company's website. Shareholders were given the opportunity to exercise a direct vote before the start of this meeting by lodging the voting form that accompanied the notice of meeting. Shareholders were also able to use the voting form to appoint a proxy to vote on their behalf at this meeting. As set out in the notice of meeting, I will vote all directed proxies in accordance with the directions provided by the shareholders, and I will vote all undirected proxies in favor of all resolutions. Shareholders and proxy holders who are attending the meeting in person today and who have not exercised a direct vote before this meeting, should have received a yellow voting card on entry to the meeting. If you did not receive a yellow voting card, please see the representatives of MUFG Corporate Markets who are located at the registration desk just outside this room. Shareholders and proxy holders holding yellow voting cards will be invited to cast their votes on all resolutions by completing the voting cards and placing them in the voting boxes. Representatives of MUFG Corporate Markets will circulate the voting boxes after all the resolutions have been discussed and before the poll closes. Shareholders will be asked to consider the 6 resolutions set out in the notice of meeting dated 9th of April 2025. For each proposed resolution, I will introduce the resolution. There will be an opportunity for shareholders to ask questions on the resolution in line with the process I have just described. I will then put the resolution to the meeting and display a slide showing the total direct votes and proxy votes received on that resolution before this meeting. As I previously explained, voting on each resolution will be by poll. The poll for each resolution is now open and will close 5 minutes after the end of this meeting. The results of the poll on all resolutions will be released by the ASX company announcements platform and made available on the company's website as soon as possible after the close of the meeting. The first item of formal business is to receive and consider the company's financial statements and reports for the financial year ended 31 December 2024 as set out in the 2024 Annual Report. This item of business does not require shareholders to vote on a resolution or to formally adopt the reports. Shareholders or their proxies may comment or ask questions about the financial statements and reports or about the management of the company. Shareholders may also ask questions of the company's audit at KPMG. In relation to the conduct of the audit, the preparation and content of the audit report, accounting policies adopted by the company and the independence of the auditor in carrying out the audit. I will now address any questions relating to this item of business or any general business questions. Are there any questions from the floor? Please.

[ Brian Ellison ], shareholder. Thank you, Scott, for your presentation there. One thing that I was curious about is you mentioned, I think the reduction in value of the electric vehicles, particularly the Teslas. And I'd just like you to give us a bit more information on how that might affect the resale value when you come to stop -- come to the end of their term of being leased.

Yes, great question. Thank you. So a few points to make there. So firstly, we think that the increased number of new lower price -- lower-priced EVs in the market is good for us as a business because it will stimulate more demand. And given our customer base, which are teachers, nurses, not-for-profit workers, having a greater variety of low-priced vehicles is great from our standpoint. So the overall arching point I'd make. Second thing I'd say is, by the nature of novated leasing, there's a set government depreciation schedule that we work to that is very conservative for our customers in their repayments. So we actually see that there's a relatively low risk against that depreciation schedule for our customers with the resale values at the end of lease. That being said, one of the many great things about Smartgroup is that we don't actually take the -- ultimately the residual value risk for the vehicles as well because we have a funding panel that those EVs in this example, would go out to and sit on their balance sheet, not on ours. But we're very tuned in to residual value risk for our customers. We think that we're taking the right steps to make them aware of that risk. And we also think, as I said, that the depreciation schedules that are built into our leases afford them an appropriate level of protection. But yes, overall, though, back to the broader point, I do see prices coming down progressively for EVs, and more EVs come into this market, and I do think that will be great for Smartgroup.

Do we encourage the use of hybrids because of the more user-friendly characteristics? And it seems to me that they have much more of a future than the EVs.

Yes, great question. I think -- take a step back. If you look at -- one thing we studied quite carefully is more mature markets around the world that are ahead of Australia on EV adoption. So if you look at, for example, Norway or California, the -- once you get past the 10% new vehicle order number being EVs and battery EVs, in particular, you see an acceleration of battery EV purchases, and that's because, stating the obvious, word of mouth. People talk to each other and demystify battery EVs because they'll know someone who has one. But back to plug-in hybrids, I think over the coming years, in particular, while national infrastructure continues to improve around charging, especially for some areas of Australia, in particular, regional areas, plug-in hybrids remain a really great vehicle option for our customers. So back to what I touched on in the speech, albeit for plug-in hybrids, the FBT exemption ended end of March, we anticipate because you can still get a plug-in hybrid through a novated lease that there will continue to be a good level of demand there. But over time, if you fast-forward, yes -- it's hard to crystal ball these things. Fast-forward 10 years, we've got strong national infrastructure at that point, hopefully, which knows a focus of the new labor government around the nation, combined with no doubt, ongoing advancements in battery technology, where the range is just getting longer and longer and longer. There's definitely a world there were plug-in hybrids won't be the go to for anyone in Australia, it will ultimately battery EVs. But for the next 3 to 5 years, I think, remain an important option for us to have for our customers, especially in regional areas.

Good morning, [ Ray Pedley ], shareholder. One of the things I've heard is that the residual value on electron -- electric vehicles is 0 on a lease. Is that true?

No. On electric vehicle, the residual value -- it's actual value you can sell it for. No, we don't see that at all. No. People are able to resell their vehicles for a lot more than 0, yes.

Well, there's 2 factors, one is initial high price, and that's coming down with all the imported Chinese cars, which, in my opinion, is -- yes, I'd be very reluctant to buy one. So like the old-fashioned cars, the petrol cars, that's a reliable residual, but -- and then the other thing that worries me about EVs, not so much the hybrids, is I keep hearing of all these fires with batteries and how the fire brigade has got to get special equipment because like a normal fire, they go to and it's out in 5 minutes, whereas electronic batteries takes them 24 hours at least. That, to me, is not a very good thing for EVs.

Yes, really good observations. I mean a few things I'd say there. Firstly, you're right. The residual values of EVs have been more under pressure over the past couple of years due to a range of reasons, including increased competition. So combustion engine vehicles, their residual value is holding up better for customers. I would expect that will sort of normalize over time, especially as more EV makes and models come to market at lower price points, and you'll see more equilibrium over time between what you'd expect from a residual value from a combustion engine vehicle as it would versus an EV. The other factor that's been driving the dynamics in the sector over the past 3 or 4 years, as you know, is just the global supply chain constraints, where there's been this distortion on delivery times between different makes and models. But yes, back to the point I made earlier, for our customers, we're confident that we disclose and educate our customers well through the sales process on what the risks are, depending on the make and model that they buy. And importantly, also that the depreciation schedules within the novated lease are appropriately conservative. And they are -- we follow the ATO's own guidelines on what those depreciation schedules should be. Yes. And with respect to the safety around EVs, again, that is a question that comes up with our customers, and we educate them with facts around that. I'd say that, notwithstanding, there have been examples of EV fires, as a percentage, it's a fairly low number.

My name's [ Andy Derek ]. I'm the proxy for Stephen Mayne. Firstly, thanks very much to the Board and management. It's been a good year. You've done a great job, so I tip my hat to you all. First question, why, unlike the vast majority of the ASX 300, are we not holding a hybrid AGM? Naturally, the second-best outcome would be everyone driving their Smartgroup leased vehicles to the AGM. But for the 9,000-odd individual shareholders, would it not be best practice to have a hybrid? And we're very lucky to have what I think is quite refreshing, a Board that doesn't sit on other ASX 300 companies. And Mark, we're very privileged to have the CEO of the Australian Institute of Company Directors, would it not stand that best practice would be to hold a hybrid AGM?

Okay. Maybe...

I'm happy for the Chair to answer that. Or would you like me to...

Yes, that's fine. No, that's fine. Thanks. Thanks. Thanks, Andy. So we -- if we go back over the last couple of years and have a look at what we did do. When we were in lockdown for COVID, when we actually couldn't have a meeting, we went complete virtual. So we did that, and that actually worked quite well. We then -- for the years -- a couple of years that followed, we had a hybrid meeting. And what we found was a couple of things. One is that no questions were asked from anyone outside of the shareholders' meeting. So we got no questions beforehand, and we've got no questions during the meeting, during the hybrid sort of structure of the meeting. And so what we thought was that because it costs us a fair chunk of money to actually hold the hybrid and because we weren't getting much of any input from any of the shareholders regarding the utilization of the hybrid, it costs us money, so we sort of thought, okay, this year, we won't do it. But I think we have an open mind. I mean we are a company that tries to sort of do best practice. But frankly, we've heard from no other shareholder that they want a hybrid meeting, and so this is the route we adopted. If it's the case that shareholders in other states really want to have a hybrid meeting, then we can consider that, and we would happily do that. I think in relation to Mark, I agree with you. He's a good addition to our Board. I'm sure he's going to blush, which is good. But he's doing a good job, and we're delighted to have him on the Board as are all the Board members. So I don't know if that dealt with the question. Very happy to sort of reconsider, it obviously costs the company more to have hybrid meetings, quite a good amount of money. But if shareholders truly are going to utilize that and see value in that, then we can certainly consider that for next year.

Looking forward to what's a hybrid meeting, you haven't answered that.

Sorry?

What is a hybrid meeting?

Yes.

A hybrid meeting is one where you're in person, but we've also got an interactive webcast effectively going of the meeting, where shareholders can ask questions live and actually submit their votes live.

Outside of the meeting.

And you've perfectly preempted my follow-up. I did detect a few right smiles, when I saw that no questions had been submitted prior for the written questions. But what is the actual cost of undertaking a hybrid AGM? Because naturally, shareholders or the company rather is paying MUFG to administer the meeting and webcast it live. I noticed the recording isn't available for last year's, but what is the actual cost?

We don't have a current quote.

We don't have a current quote because we didn't do it, so we didn't ask for it. I can give the [ straight one ].

Yes, I believe historically, I think it was about $20,000 to $30,000 extra, but I don't have a current quote. So...

Again, I come back to the same point. If shareholders -- if enough shareholders want to have this, then we're happy to do it. Obviously, it costs a bit more, but we can do that. I don't think we're stuck in the mud on these kind of concepts. And we've done it before. We can do it again. But it just struck us that it wasn't something that was achieving the value or the cost that we would incur to do it. So other questions?

Okay. As there are no further questions, we will now move to the next item of business. We now move to Resolution 1, which is the nonbinding and advisory vote on the company's Rem Report for the year ended 31 December 2024. The Rem Report is set out in pages 53 to 70 of the 2024 Annual Report. After the resolution has been moved, there will be time for comments, questions on the Rem Report. I now move that the Rem Report be -- of the company for the year ended 31 December 2024 be adopted. I will now address any questions relating to this item business. Are there any questions from the floor? Please.

[ Andy Derek ] as proxy for Stephen Mayne. Which of the main houses covered Smartgroup? And did any vote against any of the resolutions today?

So 3 -- the only 3? Three of the houses -- are you talking about the proxy houses?

Yes, ISS, Glass Lewis, et cetera, et cetera.

Yes. So ISS...

Yes, ISS, CGI Glass Lewis, Ownership Matters and ACSI.

All covered?

All covered us.

All covered it, and all voted for all the resolutions. Other questions?

Okay. As there are no further questions, I will now put the resolution to the meeting. The direct votes and proxy votes received for this resolution as shown on this slide. Okay. We will now move to Resolution 2, which is for the reelection of Mrs. Carolyn Colley as a Director. Carolyn retires at this meeting in accordance with the company's constitution and being eligible, offers herself for reelection. Information relevant to Carolyn's proposed reelection is set out in the notice of meeting, and I note that each of the other Directors supports Carolyn's reelection. Carolyn will now say a few words.

Thank you, John. And good morning, ladies and gentlemen. I joined the Board of Smartgroup in 2019, and it's a privilege to stand before you today for reelection. I hold a Bachelor of Economics, a diploma in Applied Finance and Investment. I'm a fellow of the Institute of Chartered Accountants Australia and New Zealand and a graduate of the Australian Institute of Company Directors. Over the past 6 years, I've had the opportunity to contribute to Smartgroup through being the IT of -- the Chair of the IT and Innovation Committee and a member of Audit and Risk, ESG and Human Resources Committee. These roles have enabled me to support Smartgroup's strategic direction with a strong focus on governance, innovation and technology. In addition to my role at Smartgroup, I currently serve as an Independent Non-Executive Director of Rabobank Australia, Count Limited, the ASX Clearing and Settlement Boards and Milford Asset Management in Australia or New Zealand. I also chair a not-for-profit organization, Liverpool Neighbourhood Connections. These positions enable me with valuable knowledge and experience in covering the evolving regulatory technology and investment landscapes across Australia and in the region. I remain committed to helping Smartgroup to create long-term value for shareholders and staff through robust governance and staying ahead of a rapidly changing environment. I would be honored to continue to serve the company and the stakeholders of Smartgroup in the years ahead. Thank you.

Thank you, Carolyn. I have the pleasure of moving that Ms. Carolyn Colley, who retires in accordance with article 10.3(a) of the company's constitution and being eligible, offers herself for reelection to be reelected as a Director of the company. I will now address any questions relating this item of business. Are there any questions from the floor? As there are no further questions, I will now put the resolution to the meeting. The direct votes and proxy votes received for this resolution are shown on this slide. We will now move to Resolution 3, which is for the reelection of Ms. Anne McDonald as a Director. Anne retires at this meeting in accordance with the company's constitution and being eligible, offers herself for reelection. Information relevant to Anne's proposed reelection is set out in the notice of meeting. And I note that each of the other Directors supports Anne's reelection. Anne will now say a few words.

Thanks, John, and good morning, everyone. I was first elected to the Smartgroup Board at the 2022 AGM, having joined the Board a couple of months prior to that. And it's been a real privilege to work with the company over the past 3 years and see the way it has grown and developed. A little bit of my background. Over the last 15 years or so, I have served on -- in various non-executive director and chair roles for a range of companies listed private, not-for-profit and government. In addition to my Smartgroup role at present, I'm also a Director of the Board of St Vincent's healthcare Australia, and I chair the Audit and Risk Committee for that entity as well. Some of my previous directorships have included GPT Group, SMART Infrastructure, Link Group. And I have chaired Water New South Wales and Specialty Fashion in the past. I have an economics degree, and I trained as a chartered accountant. My business experience over the last 35 years or so is largely in the area of finance, accounting, risk management and governance. And I've worked for a range of companies in Australia and international companies as well. So using that 35 years or so of experience and insights that I've gained during my career, together with my core skill set, I believe I can continue to contribute to the governance and growth of Smartgroup. I am very cognizant of the responsibilities you take on as a non-executive director, and my focus is always to try and govern for the long-term best interest of shareholders and stakeholders of the business. And finally, I can confirm that I have the time to commit to the role as a Director of Smartgroup. So thanks for your consideration. I'd be very pleased to serve as a Director if you choose to reelect me today. And hopefully, I can catch up with some of you after the meeting over a cup of coffee. Thank you. Thanks.

Thank you, Anne. I have pleasure of moving Ms. Anne McDonald, who retires in accordance with article 10.3(a) of the company's constitution and being eligible, offers itself for reelection, be reelected as a Director of the company. I will now address any questions relating to this item of business. Are there any questions from the floor? As there are no further questions, I will now put the resolution to the meeting. The direct votes and proxy votes received for this resolution are shown on this slide. We will now move to Resolution 4, which is to seek approval for the issue of securities under the company's short-term incentive plan pursuant to Paragraph B of Exception 13 in ASX Listing Rule 7.2. If that approval is given, securities issued under the plan during the 3-year period following the passing of Resolution 4 will be treated as having been issued under the exception to ASX Listing Rule 7.1. Detailed information about the plan, including a summary of the terms of the plan is set out in the explanatory notes to the notice of meeting as required by the ASX Listing Rules. In summary, if shareholders approve Resolution 4, then any issue of securities under the plan during the 3-year period after the AGM will not count towards the company's 15% limit on issuing equity securities without shareholder approval under ASX Listing Rule 7.1, provided that, firstly, there is no material change to the terms of the plan, and secondly, the number of equity securities issued under the plan after the AGM does not exceed the number of specified in the notice of meeting. This number is 6.7 million shares, which equates to just under 5% of the total number of ordinary shares on issue as at the date of the notice of meeting. The Board believes that the issue of securities under the plan assist in the reward, retention and motivation of eligible employees, links the reward of eligible employees to shareholder value creation and aligns the interest of eligible employees with shareholders by providing an opportunity for those employees to receive an equity interest in the form of options, performance rights and/or share appreciation rights. I will now address any questions relating to this item of business. Are there any questions from the floor? As there are no further questions, I will now put the resolution to the meeting. The direct votes and proxy votes received for this resolution as shown on this slide. We will now move to Resolution 5, which is for the approval to issue shares under the company's loan funded share plan to Mr. Scott Wharton, the company's Managing Director and CEO. Detailed information about the proposed issue of shares including a summary of the terms of the loan funded share plan is set out in the explanatory notes to the notice of meeting as required by the ASX Listing Rules. In summary, if shareholders approve Resolution 5 then the company will issue to Scott 834,189 ordinary shares, which will vest at the end of a 3-year vesting period ending on 31 December 2027, subject to the satisfaction of the performance hurdles and other vesting conditions described in the explanatory notes to the notice of meeting. The performance hurdles are based on total shareholder return and earnings per share over the 3-year vesting period, with vesting of 75% of the shares tested against the earnings per share hurdle and the remaining 25% tested against the total shareholder return hurdle. Any shares that did not vest at the end of the vesting period will be forfeited. If shareholders approve Resolution 5, then the company will also loan Scott an amount equal to the total issue price of all shares to be issued to him with the issue price taken to be the 20-day volume weighted average price of shares traded on the ASX up until today. Scott cannot sell any of the shares that vest at the end of the vesting period until any outstanding balance on that loan is repaid. The Board believes that the performance hurdles strongly align Scott's ability to derive any value from the shares with the company's financial performance and the interest of shareholders. I now move Resolution 5 as set out in the notice of meeting. I will now address any questions relating to this item of business. Are there any questions from the floor? As there are no further questions, I will now put the resolution to the meeting. The direct votes and proxy votes received for this resolution are shown on this slide. We will now move to Resolution 6, which is for the approval to issue 48,338 performance rights under the company's short-term incentive plan to Mr. Scott Wharton, the company's Managing Director and CEO. Detailed information about the proposed issue of performance rights, including a summary of the terms of the short-term incentive plan, you set out in the explanatory notes to the notice of meeting as required by the ASX Listing Rules. In summary, if shareholders approve Resolution 6, then the company will issue to Scott performance rights having a value of $381,000 comprising 50% of Scott's maximum potential short-term incentive entitlement for the 2025 financial year, subject to Scott meeting KPIs set by the Board. The achievement of these KPIs will be assessed by the Board at the end of the year. Details of the KPIs and the assessed achievement of each of them will then be reported in the company's rem report. No other performance hurdles or exercise conditions apply to the performance rights. I will now move Resolution 6 as set out in the notice of meeting. And I will now address any questions relating to this item of business. Are there any questions from the floor? As there are no further questions, I will now put the resolution to the meeting. The direct votes and proxy votes received for this resolution are shown on this slide. This ends the formal part of the Annual General Meeting, and I now declare the meeting closed. The poll will remain open for a further 5 minutes and with all the shareholders and proxy holders present, please now complete your yellow voting cards and place them in the voting boxes being circulated by representatives of MUFG Corporate Markets. The results of the meeting will be announced on the ASX company announcements platform and will be available on the company's website as soon as possible after the close of the meeting. Thank you for participating in our meeting today. And I know that the Smartgroup Board and management look forward to your continuing support in the coming year. Shareholders here at the venue are invited to join the Board for light refreshments in the foyer. Thank you very much.