FleetPartners Group Limited (FPR.AX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the FleetPartners' FY '25 Full Year Results. [Operator Instructions] I would now like to hand the conference over to Mr. Damien Berrell, CEO. Please go ahead.

Thank you very much, and good morning to everyone. It's good to be with you today to present FleetPartners' 2025 financial results. I'm pleased to be here today with our Chief Financial Officer, James Owens. Before we begin, I would like to acknowledge the traditional custodians of the land and waterways across Australia and pay my respects to elders, past and present. 2025 has been a pivotal year for FleetPartners, a year of genuine transformation. As a result, we take great pride in what FleetPartners has become today. Accelerate is now complete, and we are seeing early signs of its benefit, demonstrated by some of the KPIs James will present shortly. We delivered solid financial results this year with growth in AUMOF and NPATA pre-EOL despite an uncertain macroeconomic environment, which has led to a cautious approach amongst our customers. While new business writings was down against a record FY '24, our customer value proposition is resonating with fleet managers, which led to a pleasing amount of tender wins during the year. We've also generated high cash flow and strong capital returns. The continued strength of our balance sheet and cash flow generation has supported the Board's decision to increase our capital payout ratio range to 60% to 70% of NPATA. Finally, today, we announced the acquisition of Remunerator, which will significantly strengthen our salary packaging capabilities. Let's explore these points in more detail, starting with Slide 6 with the 2025 financial performance highlights. Two key messages emerge from today's results. First, FleetPartners remain a defensive investment underpinned by consistent performance. Despite subdued business confidence this year, we continue to grow assets and core income; thanks to the strength of our products and services. Second, our operations generate substantial positive cash flow, enabling strategic investments while maintaining disciplined capital management and shareholder returns. New business writings declined 16% year-on-year, reflecting the exceptional pipeline unwind in FY '24. Excluding this, new business writings was down 6%, driven partly by subdued business confidence. Nevertheless, VUMOF grew to $2.3 billion, up 2% to 3%, underscoring the resilience of our business model. Core income reached $169 million, growing 6%. Core income being what we previously referred to as NOI pre-EOL and provisions. NPATA pre-EOL was $41 million, up 9%, a strong result driven by disciplined expense management and the continued growth in VUMOF and core income. Finally, end of lease income was $61 million with EOL per unit at $5,880 and vehicle sales down 10%. A critical point to highlight is that at the current profit per unit levels, our portfolio has an illustrated embedded EOL income of approximately $250 million. Earnings per share rose 3% to $0.375, supported by our on-market share buyback program. Organic cash flow was $93 million, reinforcing FleetPartners' high cash flow business. This provides strength for investing in growth while maintaining disciplined capital management. I will talk to this in more detail later, but today, we are announcing two changes to our capital management framework. First is the increase in our capital payout ratio range to 60% to 70% of NPATA. Second, notwithstanding the success of our multiyear buyback program, the Board, after careful consideration of both market factors and the group's strong capital position, has concluded to end the buyback program and return capital via unfranked dividends. In this context, today, we announced a $29 million unfranked dividend at $0.136 per share, representing the midpoint of our payout ratio range. Finally and significantly, the dividend represents an 8.9% annualized yield. Let's turn to Slide 7. As announced earlier today, I'm delighted to share that FleetPartners have entered into an agreement to acquire Remunerator. Remunerator is a highly respected business with over 30 years of experience in salary packaging and novated leasing. Their deep expertise and strong customer relationships make them an ideal partner for FleetPartners. This acquisition strengthens our product offering, enabling us to deliver even more value to our existing customers. It also opens new growth channels for our Novated business, giving us access to segments of the market that was previously beyond reach without Remunerator's capabilities. In addition to these strategic benefits, the transaction is expected to deliver low single-digit EPS accretion on a pre-synergies basis with the deal completion anticipated in the first half of FY '26. We see this as an exciting step forward for FleetPartners, one that positions us for continued growth while enhancing the breadth and quality of services we provide to our customers. Let's turn to Slide 8 and the opportunity ahead for FleetPartners. FleetPartners operates in three significant, underpenetrated, high-returning target markets of large fleets, small fleets and novated. Each market benefits from distinct tailwinds. Large Fleets. In the current phase of the cycle, companies are increasingly turning to cost reduction to deliver earnings growth. The upsizing of fleet management is a popular option in that context. In the mid to long term, the transition to EVs calls for expertise, which fleet management companies are uniquely positioned to provide. With smaller fleets, we offer simplicity in a bundled pay-as-you-go product, a product that facilitates the shift away from vehicle ownership and into vehicle usage; a trend we see well established in other parts of the world like Europe. Finally, Novated, a compelling total cost of ownership proposition for individuals that continues to grow in public consciousness; thanks to the benefits of the electric car discount bill. Let's turn to Slide 9 about our strategic focus. Our strategic focus is simple: attract, retain, grow and profit. Attract new customers through focused industry targeting and an omnichannel distribution strategy, all propelled by strong commercial intensity. In 2025, we achieved several successful outcomes around this, including the launching of our small fleet online calculator, enhancing our automated credit scorecard, and teaming up much closer with several OEMs. We've retained existing customers with industry-leading service and by cultivating deep multilayered relationships. We are committed to continually raising our Net Promoter Score with no upper limit on our ambition. In the second half of 2025, we focused on strengthening our Novated relationships. Part of this effort included the recent upgrade to our Novated customer digital portal, another tangible benefit from Accelerate. We grew share of wallet by delivering a comprehensive suite of market-leading fleet products that support our customers' goals of productivity, safety and sustainability. Solid progress was made around this in FY '25, evidenced by the core margin expansion in both Fleet New Zealand and Novated. And finally, we optimized profit by continuing to maximize our operational leverage on the back of project Accelerate. Looking forward to FY '26, we have an extensive pipeline of initiatives that drive these priorities forward with a select few listed on the slide. Let's turn to Slide 10 on our ESG highlights before I hand over to James for the financial results. FleetPartners is deeply committed to ESG responsibilities. We continue to help our customers reduce their impact on the environment, along with demonstrating leadership in this space as evidenced by three achievements in particular. 60% of the Novated leases written in 2025 were electric vehicles. Our team conducted 126 customer sustainability reviews in FY '24, and we delivered a 42% reduction in our Scope 1 and 2 emissions in FY '22. We also advanced our social impact through volunteer work and fundraising. And finally, although we have much work to do, we have increased our representation of women in senior roles, a goal which is at the center of our commitment to diverse leadership. I'll now pass the call to James for the financial results.

Thank you, Damien, and good morning, everyone. Let me begin with Slide 12. As anticipated in our September trading update, new business writings reduced by 16% in FY '25. This outcome was in line with our expectation and reflects the exceptionally strong performance in FY '24, which benefited from the unwind of elevated order backlogs as new vehicle supply normalized. Excluding this pipeline unwind, new business writings were down just 6%, a result of subdued business confidence across Australia and New Zealand and the temporary impact of the Accelerate system cutover, challenges we have now fully resolved. Despite the lower new business writings, VUMOF continued its upward trajectory, growing 3%, excluding FX impacts and up 6% on an average basis. This demonstrates the underlying strength and durability of our business model. With the Novated funding transition now largely complete, balance sheet funding represented 80% of VUMOF at September '25, further enhancing the quality of our earnings. Turning to Slide 13. The growth in average AUMOF translated into a 6% increase in core income with core margin remaining stable. The anticipated margin reduction in Fleet Australia was offset by margin expansion in Novated and Fleet New Zealand. As expected, Fleet Australia margins will continue to normalize as highly profitable extensions are replaced by new business writings at typical margins. End of lease income remained robust at $60.7 million. While EOL per unit was 4% lower than the prior corresponding period, profit per unit, excluding EOL charges was up 2% on 1H '25. This reflects the ongoing stability in used car pricing. The number of vehicles disposed was 10% lower, consistent with the lower new business writings, which had a $7 million impact on EOL in FY '25. Provisions increased primarily due to the growth in balance sheet funded Novated leases and a temporary rise in arrears linked to the Accelerate system cutover. Overall, NOI was $223.9 million, just 1% lower than the prior year. Operating expenses were $91.5 million, up 3% and right at the midpoint of our expectations, reflecting disciplined cost management and the benefits of Accelerate alongside targeted investments to support future growth. Bringing these elements together, EBITDA was $132.4 million, down 4%. Importantly, NPATA pre-EOL was $41.3 million, up 9%, underscoring the strong underlying performance of the business. Turning to Slide 14. Used car pricing remains strong and stable as evidenced by the chart benchmarking average used vehicle prices to September '23. Demonstrating resilience of used vehicle pricing that we have mentioned, EOL per unit for FY '25 reduced by 4% compared to PCP, but 225 profit per unit, excluding EOL charges increased by 2% compared to 1H '25. Overall, EOL income was down 14% due to a 10% reduction in units sold as previously discussed. If the current stability in used car pricing persists, we expect EOL profit per unit to remain at these levels in the medium term. This is equivalent to embedded EOL income in the portfolio of approximately $250 million, which is expected to be realized over the next 5 years. While we anticipate a return to historical average levels over the longer term, this will be driven by new leases written to reflect current used car pricing with those leases not expected to reach end of term for at least 3 years. Crucially, the extended time frame for EOL normalization provides FleetPartners with an opportunity to continue growing AUMOF and core income, offsetting the longer-term normalization of EOL. Turning to arrears on Page 15. Our portfolio continues to demonstrate strong credit quality. For corporate customers, the vehicles we lease are business-critical revenue-generating assets. And for Novated customers, lease payments are made directly by employers, driving consistently strong credit performance even through challenging cycles. Underlying arrears were 45 basis points at September, slightly above the long-term average with an additional 15 basis points due to temporary administrative impacts in Novated following the Accelerate cutover. We expect arrears to return to long-term average levels over 1H '26 as the new system and processes are embedded. Despite these temporary factors, we remain highly confident in the composition and performance of our portfolio. Turning to Slide 16. FleetPartners continued to deliver outstanding organic cash generation, returning the business to a net cash position of $28 million at September '25. Organic cash generation was $93 million, representing a cash conversion ratio of 106%, a clear demonstration of our disciplined capital management. Turning to Slide 17. Our diversified funding platform remains a core competitive advantage, limiting our exposure to interest rate movements. For P&A funded leases, we have no interest rate exposure. For warehouse and ABS funded leases, we hedge base rates at inception and funding margins are locked in for the life of an ABS deal or reset annually for warehouses. Our successful $400 million Australian ABS deal in July and the warehouse extensions in September have further improved our cost of funds. With $515 million of undrawn warehouse capacity at September '25, we're exceptionally well positioned for growth. Our balance sheet is robust with a net cash position of $27.9 million and $65 million of undrawn revolver capacity. In summary, despite the challenging year, FleetPartners has delivered a strong set of underlying results in FY '25. With the Accelerate program now fully implemented, we're exceptionally well positioned for the future, ready to capture new opportunities and deliver sustainable value for our shareholders. I'll now hand back to Damien to discuss our investment case and outlook.

Thanks, James. Turning to Slide 19. FleetPartners business case is defined by clear growth opportunities, predictability, defensiveness and strong cash flows. As you have seen through the presentation, there is much to like about the opportunity in FleetPartners, but allow me to nominate five key areas. First, we continue to invest for growth in large underpenetrated addressable markets that offer attractive returns and feature high barriers to entry. Second, our confidence in growing and penetrating our TAM is underpinned by the compelling nature of our product proposition. We are market leaders in reducing the cost of vehicle ownership and our business-critical supplier for our customers, which span virtually all industry sectors. Third, our product proposition is supplemented by market-leading capabilities built from over 4 decades of experience. We are best-in-class at fleet management, funding, credit, vehicle maintenance and residual value underwriting. Fourth, our business model delivers stable, predictable and recurring earnings. 95% of core income is annuity-like in nature, embedded in every lease for an average term of 3.9 years. In addition, approximately 80% of leases remain on book from the start to the end of the year with those rolling off being replaced with new leases 90% of the time. And finally, we are a high-yielding business because of our strong cash flow generation with an implied dividend yield of 8.9%. It is these five fundamentals that ensure the group delivers consistent returns to shareholders, which brings us to Slide 20. Since FY '23, EPS has grown at a CAGR of 6%, largely driven by our share buyback program. Ignoring the impact from EOL, the underlying EPS based on NPATA pre-EOL has grown at 15%. Our strategy is clear: gain market share in high-returning underpenetrated segments of Large Fleets, Small Fleets and Novated; expand core margin by investing in products and services; and maintain strict cost discipline and leverage scale efficiencies post Accelerate. Let's turn to Slide 20. As mentioned at the top of the meeting, in a clear sign of the confidence in the group's strong capital position, the Board has increased our capital payout ratio range to 60% to 70%. In recent years, the group has consistently returned earnings to shareholders in the form of an on-market share buyback. Today's announcement, however, sees the group reverting to dividend for the first time since 2019. At $29 million or $0.136 per share, the dividend represents 65% of 2H '25 NPATA being the midpoint of our increased payout range. Finally, whilst today's dividend is unfranked, the Board expects to frank future dividends after September 2026. Let's turn to Slide 22 to look at the outlook before opening the line for questions. The operating environment remains subdued with the group looking to 2H '26 for momentum to build. Customers remain cautious, holding vehicles for longer, which impact new business writings and to a lesser extent, VUMOF. We continue to see strong interest in Novated, supported by the electric car discount. As a macro thematic, the transition to zero emission fleets continues to present a significant opportunity for the industry. Core margin is expected to remain stable. We anticipate some headwinds as portfolio extension levels returned to historical norms. However, we also see opportunities arising from maintaining our disciplined pricing approach and introduction of new Novated products. The group has a strong track record around cost management, and that will continue. OpEx is expected to be between $95 million to $96 million, $1.5 million relating to a reclass from share-based payments expense, with the remaining 2% to 3% increase driven by higher activity levels, investment in growth and cost inflation, all of which is expected to be partially offset by the full year impact of Accelerate benefits. Finally, we expect FleetPartners to continue to generate high cash flows, supporting consistent shareholder distribution. In closing, our resilient business model and strong cash generation has ensured consistent shareholder return over the last several years, an important strength to possess in the current macroeconomic environment. We are united by a clear energizing strategy that motivates our entire team to chase opportunities with confidence and ambition. And above all, management's focus is firmly fixed on executing the strategy and delivering sustained value for our shareholders. So with that, I'll now hand back to the operator to open the line for questions.

[Operator Instructions] Your first question today comes from Phil Chippindale with Ord Minnett.

A couple of questions from me. Just firstly on the acquisition. Can you just talk to the rationale around the packaging capability of Remunerator and how you think you can benefit on the back of that, please?

Phil, [indiscernible] there's probably two key aspects of the logic behind that in terms of the strategic fit. And so what Remunerator brings to us is a full suite of salary packaging capability. And so we see that as a way to sell that to our existing customer portfolio, but also it gives us access to parts of the Novated market that previously were out of reach for us, given the fact that a lot of the prerequisites to sort of go after that part of the market was to have that full suite of packaging. So for us, those strategic benefits means that, that add bundle to new growth channels for us in the Novated space.

Okay. In your materials, I think you mentioned earlier when you were talking, Damien, just around some potential extra products or new products that you're expecting to bring through on the Novated line. Can you just unpack that for us?

Yes. Sure. Like historically, with FleetPartners Novated business fleet, we haven't offered the same level of aftermarket products that our major competitors have. And part of that has been because of just the converse of systems that we had, and it wasn't worth introducing those given we were going to do the Accelerate project. But now that we've done that is behind us, there's a number of sort of core upmarket products, which the market offers that we know and we're looking to sort of introduce that over the sort of coming year.

Okay. And then last one for me, just on your outlook. You've spoken to sort of some macro uncertainty particularly for the customer side of things. Is that something that you're currently seeing in terms of volumes? Or is this more sort of leading indicators that sort of driven that commentary?

Yes. I think we see there's cautious behavior with our corporate customers in Australia and New Zealand. And that just leads to sort of delay in decision-making. They tend to just to extend their leases rather than take out new leases. We saw that through FY '25, and that's sort of the sentiment that we see exiting FY '25 going into FY '26. But that's -- so we expect that cautiousness and the subdued demand sort of continue in FY '26. That's the sort of near-term outlook. But in the long term, we're really confident in terms of how we set up for our partners, the sustained growth.