Smartgroup (ASX:SIQ) share price hit by 25% fall in profit

The Smartgroup Corporation Ltd (ASX: SHG) share price dipped today after the salary packaging company reported its 2020 full year results.

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The Smartgroup Corporation Ltd (ASX: SIQ) share price dipped 2.1% lower today after the salary packaging and fleeting management provider reported its 2020 full year results.

Due to multiple factors impacting the company’s performance during 2020, most stemming from COVID-19, most metrics fell compared to the prior year. Subsequently, some shareholders appear to have been disappointed by the result.

The Smartgroup share price closed at $6.89 today.

What moved the Smartgroup share price today?

Salary packaging and high unemployment

Indeed, the two don’t go particularly well together. For much of 2020, the unemployment rate was above the average experienced throughout 2019. Due to this unprecedented period of COVID-induced redundancies and closures, demand for salary packaging was certainly impacted.

Compared to prior years, Smartgroup’s salary packaging customer numbers did not experience the same level of organic growth. However, the company did onboard a new health client in late 2020, resulting in an additional 3,500 packages, and added to the novated leasing panel for 4 government departments.

Speaking of novated leases, volumes of the vehicle leasing arrangement fell by 14% compared to the prior year as a result of the economic disruptions.

All of this equates to total group revenue declining by 13% to $216.3 million. On the bottom line, net profit after tax was impacted by 25%, falling to $22.9 million.

How is Smartgroup positioned now?

Smartgroup’s cash position at the end of December 2020 was $27.4 million. This is a decrease from $39.6 million at the end of 2019. However, it is worth noting that the company’s borrowings reduced from $60.4 million to $24.7 million. This places Smartgroup in a better position with respect to its debt leverage.

The company also achieved $4 million of annual cost savings following a restructure of its operational workforce.

Smartgroup remains optimistic on its 2021 outlook. The company noted its recent win of another health client, adding another 8,000 salary packages.

The company has also declared a fully franked final dividend of 17.5 cents per share, as well as a fully franked special dividend of 14.5 cents per share.

CEO Tim Looi provided the following statement on the full-year results:

As the pandemic took effect, we moved quickly to focus on providing high quality service to our customers remotely and implementing cost containment measures. This, combined with our simplification program, resulted in a good operational and financial performance for the year

The Smartgroup share price has fallen 5% in the last year. That means the S&P/ASX 200 Index (ASX: XJO) outperformed the company, with a fall of 1.3% over the same period.

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Motley Fool contributor Mitchell Lawler owns shares of SMARTGROUP DEF SET. The Motley Fool Australia has recommended SMARTGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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