COG Financial Services Limited (COG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the COG Financial Services Limited FY '26 Financial Results Webinar. My name is David Franks, and I am the Company Secretary of COG. Before I hand over to Andrew Bennett, the CEO of COG, and to Richard Balzer, the CFO of COG, just a few housekeeping matters. As you know, this is a webinar where Andrew and Richard are going to be doing a presentation along with Frank. And -- but we are taking questions, written questions. So questions can be submitted at any time. [Operator Instructions] Please note that while you can submit questions from now on, we will address them at the relevant time in the presentation. Please also note that your questions may be moderated. If we receive multiple questions on a similar topic, they will be amalgamated together. If for any reason we run out of time today, we will happily answer those questions via email or posting responses on our website. We will do our best to answer all the relevant questions raised, noting that we need to adhere to our ASX obligations as an ASX-listed company in respect to continuous disclosure. I would now like to welcome and hand over to Andrew and Richard for their presentation, and Frank will be joining us at different points in the presentation as well. Andrew?

Thank you, David. Well, I am Andrew Bennett, Group CEO for COG. On my left, I've got Richard Balzer, the Group CFO; and Frank Agostino, who is the Head of -- CEO of Paywise, our Salary Packaging business, will also be presenting a few of the slides today. Well, to quote a former politician, one-time Treasurer, and subsequently Prime Minister Paul Keating, "These are a beautiful set of numbers." All the key metrics are up on last year. Revenue up 9%, EBITDA to shareholders up 28%, final dividend $0.035 per share, taking the total for the year to $0.07 per share, and earnings per share before amortization $0.1563, up 27% on the prior year. Overall, it is an exceptionally good result and reflects the unrelenting work and dedication of the people of COG. It's a team effort. This reflects the successful execution of our strategy over the last 12 months. Or in other words, we've done what we said we were going to do, and we will continue to do so. So what's driving it? Group net assets finance through Salary Packaging and Broking & Aggregation is up 8%. So net assets finance is the aggregate of all the trucks, cars, bulldozers, excavators, novated leasing on motor vehicles that we've done through the period. Underlying group revenue up 9% and underlying group EBITDA up 28%. So turning to the bottom left, Salary Packaging is the biggest contributor here. Lease settlements up 66%. So that's the number of motor vehicles, the number of units that we've put through novated lease through our platform this year. Now part of that is fueled by that 66% growth is fueled by our acquisition partway through the period of Easifleet, but the majority of that is true organic growth, which is an amazing result. That -- our ability to deliver this result is a function of the significant investment in technology and people that we've made over the preceding years. We now have our own state-of-the-art proprietary software systems, which stands us apart from our competitors. On the other side of the page, our Broking & Aggregation net assets finance was up 5% compared to the prior period. Broking & Aggregation has a number of component parts. We have peer-to-peer lending, we have broking services, where we provide services to other brokers, and where we've aggregation, which is where the name suggests we aggregate businesses from a number of brokers to get better funding costs. Think of it like a buying group. And finally, we've our actual brokers, people who own client relationships and source finance or insurance for their customers. In the asset finance component, we had $8.5 billion of flow through the platform, which is up 5% on the prior period. Strong underlying EBITDA to shareholders. This slide sets out the segment results. You can see Salary Packaging up 88%, which again, has 3 components: true organic growth, the acquisition of the Easifleet business, and then last -- later in last calendar year, COG increased its ownership share of Paywise, which is our Salary Packaging business. Broking & Aggregation was flat. Lending, which is a minor part of our business, was down off the back of some prudential -- prudent loss reserve provisionings that we took. The other component you can see is down quite materially. What used to sit in that segment was our interests in 2 listed entities, Centrepoint Alliance and Earlypay, which we sold during the period, so those profits have dropped out of that segment. The chart on the left, the key one to focus on for the last 3 years is a 13% compounding average growth rate, 28% in the last year. Given where the business is, we've achieved that over the last 3 years, and we don't have any expectation that it's going to change in the future. Then on the right-hand side, the 2 charts, the EBITDA contributions of the various segments. The thing to call out there is the obviously significant jump in the contribution from novated. Last year in the FY '25 year, it was 41%. This year it's 60%, reflecting that the strong organic growth and the acquisition of Easifleet. Next slide here, we've had strong growth in earnings before share -- earnings per share before amortization. As I said, $0.035 per share, fully franked dividend, to be paid for this half, taking the total for the full year at $0.07. That gives us a payout ratio there you can see of 45.5%. So if you -- those of you who are existing shareholders, we made a couple of acquisitions in the last period. We used $12 million of surplus balance sheet cash. So we're just not paying out all our profits as dividend because we're building out cash reserves in the business for future M&A activities. Turning to my favorite slide in the deck. That's all good what's been before us, but that's all in the past. It's what's coming in the future. We're targeting better than 10% EBITDA growth in the coming year, and given what we've achieved in the last couple of years, that's a very reasonable claim to make. We have -- if we turn to what's going to drive that, firstly, Salary Packaging. There is abundant organic and acquired growth opportunities in front of us. Over time, average vehicle prices will continue to decline with the greater penetration of Chinese electric vehicles. As vehicle prices decline, this will obviously generate more demand, so it is going to become a volume game. We expect to see a doubling of our addressable market over the near-term. As at December 2025, there were 22.5 million registered motor vehicles and light vehicles in Australia. Of these, 257,000 were electric. So we are at only the start of this electric vehicle journey. Higher volumes will be at lower per unit profit. So the future environment is all about efficiency. We've proven that we can successfully compete against our larger competitors, and we are confident that this will continue. We continue to invest heavily in technology and processes to make our sales, delivery, and funding of novated leases and ongoing member management as efficient as possible. In addition, we continue to pursue more acquisition opportunities on the assumption that they are accretive to COG shareholders. Which brings me to capital management. The point to call out here is that we work to a 1:1 debt ratio, so debt equals to EBITDA at a maximum. So if EBITDA is roughly $70 million on a 100% basis, including minority interests in our minorities, we can borrow a maximum of $70 million. On this basis, as we sit here today, COG could borrow circa an extra $40 million. Together with surplus cash we have, we have future acquisitional firepower of circa $50 million. In Broking & Aggregation, we continue to invest in technology to improve productivity of our brokers. This reduces churn and attracts new brokers. I'll now ask Richard to talk through the financials in detail.

Thanks very much, Andrew. Look, taking the chance to explore a bit further on some of the points Andrew has already touched on, but we had good revenue momentum at the top of the P&L, clearly the fuel for the underlying business, and that strength has then played down the P&L. It was positive to see that that came both from an organic perspective as well as the acquisitive pieces that we had undertaken during the year. The second thing I would call out on this slide is just in relation to the EBITDA margin improvement. So there is certainly a mixed benefit for us given the growth in the novated business at slightly better margins. But we are continuing to work with Frank and his team on improving that and investing for the future as we go, while also scaling for today. In addition, the other callout I would like to make is just the shape of the EBITDA number. It grows at 100% at 14% down to the EBITDA to shareholders, obviously at 28%, as we've discussed. That effectively is primarily driven by the buyout that a lot of you will be aware of in September last year, which involved the equity raise of a minority in the novated leasing business, thus driving that shape. Finally, in relation to this slide, I think we take away the fact that down through the rest of the P&L, we've also continued to achieve strong results right through the bottom line. Look, a different way of looking at the EBITDA here. I think the 3 things that I call out, I go to the biggest one in the center straight off. We've had acquisitive and acquisition growth of minorities, basically in the novated business, as well as the strong contributions from our AAA Finance business within the broking space that we've now lapped the acquisition of that on. Secondly, Andrew has already touched on the sale of noncore assets back in May 2025, which is to the far right there. That $3 million effectively being recycled into other investments that have driven a lot of the $10.5 million you see there. And in addition, just reinforcing the fact that underlying to the business activity, there is organic growth going on outside those activities, which we, as we've called out, continue to -- expect to continue over time. We've just provided here a bit of an insight into the cash generation in the business through EBITDA, some visibility to our leasing costs, obviously, and then a range of items that are fairly typical for a business such as ours, tax paid into rent paid, and so on. You will note also the fact that the associates' investments that we had in EPY and CAF in the prior year generated revenue but didn't convert to cash. That cash being used to, as Andrew has already mentioned, fund the dividend we've invested this year into acquisitions. We continue to build a war chest for future deferred payments and acquisitions that we've upcoming.

Okay.

Yes. So this final slide, I just dwell here, just to call out the fact that we've had very strong performances. We've already heard out of our novated business. The way I think of that growth aspect is there is effectively 30% of that growth underlying is organic. There's the benefit of the Easifleet acquisition, and then there's the buyout of the minorities pricking us from there, the 30% underlying organically up to the 88%, which is good strong performance. The shape of this slide is very consistent with the shape you saw at the half year with the resegmentation in relation to Broking & Aggregation, and the movements between lending. Continuing to call that out to provide disclosures. All comparatives have been restated, as you can see, to provide comparability year-on-year. And we continue to show the long-term what our incentives now outside the underlying performance, having made that adjustment, also reflected in our half year. Thanks very much, Andrew.

Okay. Frank, over to you.

Thank you, Andrew, and Richard's taking you through the broader financial result. For Salary Packaging, it was a very strong year, as you can see on the screen. Revenue up 51%, EBITDA up 55%, and margin improved as well. So the important point for me, though, is the quality of that growth. As Richard mentioned, $15 million came from the existing business and $14.6 million came from the acquisition. So organic EBITDA growth was at 32%. So Easi has added to the scale, but the underlying business is growing strongly in its own right. And that hasn't happened overnight. We've been building foundations over a number of years: service, people, process, systems, and brand. So we're now starting to see the benefit of that work in the quality and the size of the opportunities we're being considered for. At the same time, we're continuing to invest in that technology, the data, the automation, and the AI, and the objective is pretty simple. Improve the customer experience and volume and allow the volume to grow faster than our cost base. I might get you to flick over to the next slide, Andrew. This slide gives you a sense of the scale behind that growth. Salary Packaging customers up 31%. Novated leasing customers almost doubled. Settlements up 66%. The obvious question is whether that can continue, and what gives us confidence is that some of the significant government and corporate clients that we've won 12 to 18 months ago, are only now starting to mature. So winning the employer is the very start. It takes time to build awareness and trust with the employees and then take-up grows. So some of the growth that you're seeing today is actually the result of contracts we've won well before this financial year. We've had lots of recent wins sitting behind those, and we continue to compete for new opportunities. So we win the employer once, but the take-up across the employee base can continue growing for years. So I suppose the 4 things I'd like you to take away, if I step away from the individual numbers, there's 4 things that I'd like you to take away from these 2 slides is we remain very positive about the industry and the runway ahead. There's still significant opportunities in Salary Packaging and novated leasing. We believe that the market remains structurally attractive. The second point is we've built the foundations to compete at a much larger scale. So the growth you are seeing today is several years of investment in our people, our processes, our systems, our service capability and brand. It just has not happened overnight. The third point is that we are taking market share in 2 ways. We're winning more employers, but we're also increasing our take-up across the employee bases we already service as those relationships mature. And the fourth point is that we believe we can scale the model better from here, whether that be better tendering, more sophisticated marketing, better use of our data, modern technology, automation and AI. So the objective is to grow volume faster than we can grow cost. Thanks, Andrew and Richard.

Thanks, Frank. Okay. So that is Salary Packaging. I will turn back now to Broking & Aggregation. Previously I said that the net asset finance was up 8% through our platform. So that's the value to $8.5 billion. That is the value of, again, all the trucks, tractors, excavators, bulldozers, scissor lifts, light commercial vans that we finance through our platform. But the revenue was up 3%, so there's bit of a -- our retention of it is not linear. The other part to note here is that even though we end up at effectively EBITDA to shareholders flat, the question I frequently get is, "Well, why is that?" Well, the aggregation component of the business has done well, but our peer-to-peer lender that we had was soft during the period, reflecting just slower activity in that segment. So that sort of cancels out that benefit and leaves us flat. So we've provided here a little bit more detail on this slide in terms of looking below the hood, so to speak, on the Broking & Aggregation businesses. The way we think about it is we break it up into sort of 2 broad overarching categories. On the left-hand side, we talk about financial intermediaries. So this is aggregation, our peer-to-peer lending business, Equity-One and Mildura Finance, which is our broking services. So the difference there is that they're service providers to different players in the group rather than actually being brokers themselves. On the right-hand side, you can see with this the actual retail brands that we've that people deal with across asset finance, which is QPF Finance Group, Linx, AAA Finance, Centrepoint Finance. And we also undertake insurance broking underneath within those brands as well. At the bottom there, you can see the relative EBITDA contribution of those groups. So the financial intermediaries is 43%, with the balance made up of insurance broking and asset finance broking. Lending, steady-state business, obviously slightly backwards on last year as a result of some increased provisioning for credit losses. Strong managed investment growth. You can see here in the top right-hand corner here, the table is the key part of it. You can see the growth in the investments in the Westlawn Managed Investment Scheme at $125-odd million, up from $61 million. Part of that is a movement from the Westlawn balance sheet into the off-balance sheet vehicle. That accounts for some of that increase, but there is real true organic growth in the MIS, which is pleasing to see. The other segment, which is the collection of head office costs, Board costs, registry costs, audit costs, all that admin sits in here. Again, the $2.6 million movement compared to last year is because in preceding years, we had the minority interest in Centrepoint Alliance and Earlypay sitting there, and those profits for equity are accounted into this segment. As Richard said, those interests have been sold and recycled the capital into our increased investments or our acquisition of Easifleet and our increase in our stake in the Paywise Salary Packaging business. This is sort of a conclusion slide. This is really a repeat of the slide earlier that I put up. We expect EBITDA growth of over 10% over the next 12 months. We've strong tailwinds in Salary Packaging with the continued government incentives for electric vehicles financed via novated lease. This, coupled with the declining car prices, will see significant growth in our addressable market. We continue to invest in our aggregation platform to solidify our position as the leading broker -- aggregator and broker. And it attracts -- it stops churn of existing brokers and attracts new brokers. And finally, our balance sheet is lowly geared and we have plenty of debt capacity with surplus cash to continue our acquisition pathway. In conclusion, the future looks bright and we will continue to strive to deliver on the opportunities in front of us. That's the end of the formal presentation. Are there any questions?

Thanks, Andrew. We do have some questions. I'll sort of break them as 2 topics. One's around share price and market capitalization. One's around more operational issues, so I'll do the operational ones first. Questions from Ian Munro at Ord. How have the broker margins trended throughout the second half in the FB&A segment? Have the margins rebased for the higher rate environment?

I think the question is, have we seen margin compression in the face of -- look, I think we've probably seen a tiny little bit, but not material. Like it's -- the activity's robust, and margins are broadly holding.

And within the novated leasing segment, are there any larger contract wins that are yet to contribute to the volumes?

I'll let Frank answer that. But we've won contracts during last year, but it takes a while for them to filter through, and we are always pitching and winning new work -- in the hopper to win new contracts. Frank, I will let you answer that one in more detail.

It's a very competitive industry. So what I am noticing now is Paywise has certainly been -- certainly in the conversation when a tender comes. So rather than -- and when I said in my presentation that a number of years ago, we had really had to bang down doors to get a seat at the table, now we are being asked to tender for things that we would never have had 3 or 4 years ago. That has come about because of the way that we've managed our big contracts. We've got access now, in our portfolio, W.A. government, Northern Territory government, Queensland government, ACT government and Tasmanian government. So some really reputable state government contracts that give us a lot of weight and capability to bring some of those other state government departments and larger corporates on as well. So the answer to your question is that these do take time to materialize, but we are constantly, more so now than ever, in the conversation when these tenders do arrive.

Frank, do you want to talk around our experience in W.A. gov?

Yes, I can do. And without giving away too much IP, our brand promise is a really simple one. It's highly personalized service and care in the fastest response times imaginable. So what we've noticed in our industry is that there are some gaps into the way what we call members are serviced. And our whole motto is around that brand promise and everyone from myself down and throughout the whole organization when we're dealing with our membership, treat them to highly personalized service and care in the fastest response times imaginable. So when we go out, we've got a model where it's very personalized and people go out to -- our account managers go out to site. And W.A. government, when we first bought Paywise, when COG bought Paywise, was about circa 20% market share. It's now within some agencies up around 70%. So we do share the panel in Western Australia, for example, across 2 or 3 other providers. And what we know is that that recipe works. So what we've started to do, and when I speak about laying the foundations over the last 2 to 3 years, it's exactly what we're doing in the other states, and that's why we're getting the traction we're getting, and that's why you're seeing the results you're seeing. Obviously, it doesn't happen overnight. It's been a long journey, but we're in a really fortunate position because we are. No disrespect to the other providers, but we've learnt from some of the mistakes that they've made, and we're able to capitalize in a world where technology's much easier to build. We've come from a low base. So coming from a low base, the trajectory has been quite fast, and more importantly, the people within the business are having a lot of fun doing it.

A final question from me was in relation to the targeted 10% EBITDA, the target or better than, for FY '27. Does that include contributions yet to be from announced acquisitions, or is this purely organic?

It's just organic on the runway. Acquisitions will add to it.

In respect to, once again, Salary Packaging, what was the market growth for Salary Packaging, and what was your organic sales growth for this segment? I think they're trying to ask.

I think they're saying, we took -- if you take Easifleet out of the acquired growth of Easi out of it. So I'll throw that to Richard.