FleetPartners Group Limited ($FPR)

Thank you for standing by, and welcome to the FleetPartners Group Limited 2026 Half Year Results. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Damien Berrell, Chief Executive Officer, to begin the conference. Damien?

Thank you, and good morning. It's great to be with you today to present FleetPartners' FY '26 first half results. I'm joined today by our Chief Financial Officer, James Owens. Before we begin, I would like to acknowledge the traditional custodians of the lands and waterways across Australia and pay my respects to elders past and present. 1H '26 saw a positive start to the year for the group. We delivered NPATA growth and our seventh consecutive half of AUMOF growth. Momentum in new business writings is building on the back of a clear strategy and disciplined execution. Strong cash generation continued, enabling a fully franked interim dividend at a grossed-up yield of 13%. And finally, the business has proven resilience, positions us well to navigate ongoing macroeconomic and geopolitical uncertainty. Let's explore these points in more detail, starting on Slide 6 with our first half '26 financial performance highlights. There are 2 key messages that stand out from today's financial results. First, FleetPartners continues to present a defensive investment underpinned by consistent performance. Despite flat new business writings, we again grew AUMOF and core income and delivered a return to NPATA growth in 1H '26. Second, our operating model continues to generate substantial positive cash flow, which supports disciplined capital management and strong shareholder returns. New business writings were $367 million, down 1% or broadly flat on a constant currency basis. AUMOF reached $2.4 billion and grew 6%, while funded VUMOF grew 3%. Core income was $85 million, up 4%. This track average VUMOF growth, which meant core margins remained stable through the period. NPATA pre EOL was $19 million, up 7%, a strong outcome driven by higher core income and prudent expense management. End-of-lease income was $29 million with an increase in vehicles sold, offset by profit per unit down to $5,840. A critical point to highlight is that at the current profit per unit levels, our portfolio has an illustrative embedded end-of-lease income of approximately $240 million. Most importantly, NPATA returned to growth, up 2%. Earnings per share rose 9% to $0.185. And in a key demonstration of the Board's confidence in the group's balance sheet strength and future cash generation, 2 recent capital management return announcements have been made. In March, the Board announced an on-market share buyback of up to $20 million. And today, the Board announced a fully franked dividend of $26 million, marking the group's return to franked dividends for the first time in 7.5 years and another important milestone in today's results. This dividend equates to $0.119 per share and represents a grossed-up yield of approximately 13%. Let's turn to Slide 7 on our earnings trajectory. The group has delivered constant EPS growth at a 6% CAGR since FY '23 despite declining end-of-lease income over the same period. In 1H '26, this was driven by a 7% growth in NPATA pre-EOL, outpacing the normalization of elevated end-of-lease income, which was down 3% for the period. Our key focus for the business has been to grow AUMOF and therefore, NPATA pre-EOL at a rate that outpaces the headwind from the anticipated decline in EOL. Achieving that objective in today's result is encouraging and reinforces our confidence in the strategy that we have in place. I'll now turn to Slide 8, which explains how we are deploying capital to generate returns to shareholders. FleetPartners have announced $356 million of capital returns to shareholders since FY '21. To emphasize the significance of this, it equates to more than 50% of our current market capitalization. This represents a strong record of both the quality of our earnings and our disciplined approach to capital management. Over the last 12 months alone, we have deployed $109 million of capital to drive returns. That includes dividends, our buyback program, debt management, and the remunerator acquisition, all funded from strong cash flows this business generates. Taking a look at the waterfall, you can see the breadth of our capital deployment. We paid $29 million as a final dividend for FY '25 and a further $26 million through our buyback program. Both delivered in line with our 60% to 70% NPATA payout ratio. The Board has declared a $26 million fully franked interim dividend for FY '26. And as I have highlighted on an annualized basis, our grossed-up yield sits at approximately 13%. This underscores the Board's confidence in the balance sheet's strength and the future cash generation of this business. The message here is clear. We are generating strong, sustainable cash flows, and we are committed to deploying capital to maximize returns for shareholders. Let's turn to Slide 9. FleetPartners' strategy is focused on 3 significant underpenetrated and high-returning segments, Large Fleets, Small Fleets and Novated, presenting clear growth opportunities. Our 3 segments are strategically aligned, enabling the group to leverage shared capabilities at scale. We are investing across each segment. And as the next slide demonstrates, this is translating into momentum. Our path to further penetrate these markets is centered around 4 strategic pillars: Attract, Retain, Grow and Profit. Attract new customers through established fit-for-purpose solutions and leading capability across the full vehicle ownership life cycle; retain existing customers through genuine customer value creation and market-leading service proposition; grow share of wallet through add-on product penetration that creates incremental value for our customers and incremental income for fleet owners; and finally, optimize profit through enhanced process efficiency and strong financial discipline. Our strategy is delivering clear and measurable progress across the businesses, which you'll see reflected in the segment updates that follow, starting with large fleet on Slide 10. Strategic action is driving momentum in Large Fleets. Our value proposition is resonating with customers, and we are investing in digital, data and efficiency to strengthen our proposition further. Our confidence in the continued growth in this segment is supported by several positive lead indicators. First, we have approximately $25 million of sale and leaseback opportunities in the second half of FY '26. Second, our business development team is performing ahead of expectations, validating our competitive positioning and service offering in the market. And third, our new business writings pipeline is growing. April is now tracking 15% above the average for 1H '26, which gives us confidence in the trajectory of heading into the second half. Turning to Slide 11. In Small Fleets, our omnichannel strategy is producing double-digit growth in both Australia and New Zealand, which is a great result and confirms the approach we have been taking. Our direct channel is seeing the strongest results. Our expectation is that over time, the success we're building in direct will enable us to unlock larger scale distribution opportunities. So it is delivering growth today while also building the platform for future distribution scale. In terms of where we're investing, our focus is centered on 3 areas: accelerating growth through digital optimization, advancing automation across our credit capabilities to eliminate friction, and expanding our partnerships to open new channels and access new customers. Let's turn to the final segment, which is Novated on the next slide. In Novated, we are benefiting from investment and deliberate tactical actions that are supporting lead generation along with higher market demand for electric vehicles. At the end of April, our new business writings pipeline, excluding Remunerator, was 90% above the average for 1H '26. In the same period, the Remunerator integration made good progress and performed in line with expectations. Our immediate focus for the second half of the year is centered on leveraging the current strong BEV demand, driving NPS growth, optimizing lead generation, increasing conversion and retention rates, and expanding our eligible employee base through new client wins. Beyond this, we are investing in digital capability and operational improvement to deepen our value proposition. All of this to support what is a significant long-term growth opportunity in the Novated segment. Let's turn to Slide 13, on the 1H '26 strategy outcomes. This half, we made strong progress delivering several outcomes aligned to our strategic framework. Under Attract, we delivered AUMOF growth and are seeing momentum return to new business writings. We continue to execute against a strong pipeline of high conviction tender opportunities and completed the acquisition of Remunerator. Under Retain, we delivered several operational improvements, supporting strong customer NPS and saw strong customer retention, including the key contracts on Remunerator as part of the integration. Under Grow, we focused our efforts on introducing new and enhanced products across Large Fleets and Novated and uplifted our capabilities in heavy commercial vehicles. Finally, under Profit Pptimization, we are in a state of continuous improvement. This half, we continue deploying targeted AI initiatives to enhance customer experience, productivity and growth, including AI-enabled telephony system optimization, AI-supported legal documentation capability and AI-generated content integration. Looking forward to 2H '26 and beyond, we are confident in our strategy and how our pipeline of initiatives will drive these priorities forward. Let's turn to Slide 14. FleetPartners remain deeply committed to our ESG responsibilities, evidenced by our progress across the 3 pillars you see on this slide. On the environment front, we continue to support our customers' transition to cleaner fleets. We offer an end-to-end fleet electrification solution through our proprietary in-house emissions modeling, our whole-of-life cost and emissions optimization, and our policy-embedded EV charging solutions. Our expertise in this area has never been more important than it is in the current environment. In terms of managing our own environmental footprint, we are proud to have achieved Toitu net carbon zero certification for the fifth consecutive year across our New Zealand operations, a milestone that underscores the consistency of our commitment to sustainability. Turning to our people and communities. We received 2 important recognitions in the first half. WORK180 named FleetPartners as one of the top 101 workplaces for women in Australia for the third consecutive year. And we were reaccredited as an employer of choice for gender equality by WGEA. These recognitions reflect our ongoing focus on building a diverse and inclusive workplace. And while there is always more work to do, we are making meaningful progress. I'll now pass to James for the financial results.

Thank you, Damien, and good morning, everyone. Turning first to new business writings on Slide 16. During the first half, new business writings was flat on pcp, excluding FX, a significant improvement on the 13% decline we saw in the first quarter. Fleet Australia delivered new business writings growth of 6%, supported by increased customer ordering activity through the second quarter. In contrast, Fleet New Zealand saw new business writings decline 8%, excluding FX. Across both segments, the macroeconomic environment continues to be challenging with delayed customer decision-making resulting in higher extensions and inertia, which continue to weigh on new business writings. Importantly, though, this dynamic supports earnings stability and cash generation. In Fleet Australia specifically, momentum is benefiting from new customer wins flowing into the order pipeline and double-digit growth in Small Fleets. Novated new business writings were 2% below pcp, a substantial improvement on a 17% decline in the first quarter. There were a number of contributing factors, but encouragingly, February and March were the strongest new business writings months of the half for Novated. And in March, we saw outperformance across all vehicle types. Momentum is clearly building as we move into the second half with the outlook for the full year being marginal growth in new business writings. Turning to AUMOF on Slide 17. Closing AUMOF was up 6% on pcp with average AUMOF up 4%, reflecting the seventh consecutive half of AUMOF growth for the group. Balance sheet funded leases represented 78% of AUMOF, consistent with March last year with the modest reduction compared to September, reflecting the fact that Remunerator is 100% P&A funded. Excluding Remunerator and on a constant currency basis, AUMOF grew 2% organically, underscoring the earnings and portfolio growth can be delivered even during periods when new business writing is subdued, reflecting the defensive and resilient nature of the business model. Turning to the income statement. NPATA pre-EOL and NPATA grew 7% and 2%, respectively, driven by a 4% increase in average AUMOF and core income. End-of-lease income declined 3%, driven by 4% lower EOL per unit, partially offset by a 1% increase in units sold. Provisions reduced following elevated fleet provisioning in the prior period relating to a subset of electric vehicles. Operating expenses were $48 million, in line with expectations, reflecting cost discipline, the inclusion of Remunerator from December and the reclassification of a portion of remuneration costs from share-based payments to operating expenses. The 1H '26 result together with the buyback drove a 9% increase in cash EPS. Moving to end-of-lease income. EOL income per unit remained broadly stable at $5,840 for the half, around 4% lower than pcp, but slightly higher than the second half of FY '25. Units sold increased 1%, broadly consistent with fleet new business writings activity. Damien will speak to the broader macroeconomic outlook and its impact on the used car market shortly. Importantly, I want to note that while more recently, we saw some softening in demand for ICE vehicles, our average selling prices in April remained consistent with 1H '26 levels. Turning to credit quality on Slide 20. The underlying portfolio is performing strongly. However, we note 90-plus day arrears were temporarily elevated due to year-end seasonal effects compounded by resourcing changes, but remain low in absolute terms at 85 basis points. There are no indicators of structural deterioration in the underlying portfolio and progress has already been made in bringing arrears back towards longer-term averages with a reduction in arrears during April. Further supporting the strength of the portfolio, we note all financing exposures are secured against vehicles. Exposure to higher risk sectors remains limited and 72% of exposure to our top 20 customers is investment grade. Overall, we remain very comfortable with the credit quality of the portfolio. Moving to funding and balance sheet strength on Slide 21. We remain well positioned with diversified funding structures that support growth while limiting interest rate exposure. As at March, we had $343 million of undrawn warehouse capacity. Warehouse margins are set through to September and base rates are hedged at lease inception, insulating the portfolio from rate volatility. The group typically holds $250 million to $300 million of cash, generating interest income that offsets movements in corporate debt costs. Illustratively, a 25 basis point increase in cash rates would result in $0.5 million increase to annualized profit before tax. At period end, we had net cash of $4.5 million, no corporate debt maturities until October '28 and ample liquidity to fund growth and capital management. Turning to cash on Slide 22. The business generated $46.8 million of organic cash flow in the half with cash conversion of 113%. This reflects strong operating cash flows and the benefit of tax timing associated with Temporary Full Expensing. We returned $30.2 million to shareholders during the half through the buyback and final FY '25 dividend. As Australian cash tax payments recommence in the second half, cash conversion will moderate and is expected to be below 100% for the full year. Importantly, this is not expected to impact our target dividend payout range of 60% to 70%. Finally, capital allocation. Our framework remains unchanged. Fund new business writings growth efficiently, invest organically at returns above the cost of capital, preserve balance sheet strength and return excess capital to shareholders. Since FY '21, we have returned $356 million to shareholders through dividends and buybacks while continuing to invest for growth and completing the Remunerator acquisition. The Board has declared a fully franked interim dividend of $25.7 million and previously announced a buyback of up to $20 million, reflecting confidence in the balance sheet and future cash generation. With Australian cash tax payments recommencing in the second half, we remain disciplined and flexible but fully committed to delivering consistent, sustainable shareholder returns within our target dividend payout ratio range of 60% to 70% of NPATA. In summary, the first half demonstrates the resilience of the FleetPartners' business model. We're seeing growth momentum in pipelines and new business writings and continued AUMOF growth, which is translating into core income growth and strong cash generation, all supported by a very solid balance sheet. That positions us well to continue investing for growth while maintaining consistent capital returns to shareholders. I'll now hand back to Damien to step through the investment case and outlook.

Thanks, James. FleetPartners business case is defined by clear growth opportunities, predictability, defensiveness, and strong cash flows. As you have seen throughout the presentation, there is much to like about the opportunity in FleetPartners, but allow me to nominate 5 key areas. First, we continue to invest for growth in large, underpenetrated addressable segments 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 products and services are systemically important to customers across most sectors of the economy. 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 8% 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 13%. It is these 5 fundamentals that ensure the group delivers consistent returns for shareholders. Let's turn to Slide 26. While the geopolitical environment is highly unpredictable, we are actively managing the situation and are confident in our outlook. In relation to fuel supply and rising prices, the group has no direct exposure. On business confidence, we have been operating in a subdued environment for some time. And while this dynamic weighs on new business writings, the impact on AUMOF is far less pronounced, enabling continued core income growth. I would also like to reiterate that we have delivered strong pipeline growth despite this backdrop. As it relates to the used car market, we are seeing increased demand for EVs and slower demand for ICE vehicles. We expect this to be temporary with impacts mitigated for several reasons. First, there is limited to no EV start pursuits available for the FleetPartners portfolio of vehicles. Second, 30% of EOL income relates to charges, which have no exposure to used vehicle price movements. And third, given we maintain low used vehicle stock levels, we have the capacity to be selective around the timing of selling vehicles. Validating these points, the average sale price per unit in April was consistent with our 1H '26 levels. On funding and interest rates, funding availability and liquidity remains strong. And on credit, the portfolio remains sound, consistent with what James stepped through earlier. Overall, we are confident in the outlook of the business, irrespective of the geopolitical and macroeconomic environment. That brings me to the outlook on Slide 27 before opening the line for questions. FleetPartners remains resilient with momentum expected to continue building through 2H '26 as we target marginal new business writings growth for FY '26. Supportive of this is the update of the federal government as it relates to the Electric Car Discount bill. On Tuesday night, it was announced that there would be no change to the policy until April 2027, at which point a modest adjustment would be implemented. While still subject to parliamentary approval, we see the approach as sensible and supportive of continued strong demand for Novated leasing. Core margin is expected to remain stable against AUMOF growth. EOL outcomes are currently stable. And as discussed, there are several mitigating factors which support the outlook. The group has a strong track record of cost management, and that focus will continue. Our OpEx expectations are unchanged. Finally, FleetPartners will continue generating strong cash flows, supporting disciplined and consistent shareholder distributions. In closing, the group's 1H '26 result instills confidence in the outlook. There are 4 key points to leave you with. First, NPATA returned to growth with EPS growing 9%. Second, AUMOF grew for the seventh consecutive period. Third, our strategy is resonating, evidenced by the expansion of our order pipeline and the 2026 full year growth expectations for new business writings. And fourth, strong cash generation continues to support the creation of shareholder value. With that, I'll now hand back to the operator to open the line for questions.

[Operator Instructions] And your first question comes from the line of Phil Chippindale of Ord Minnett.

First question, just on new business writings overall. I mean you've given your guidance for the year that you're expecting marginal growth. But clearly, the first half was a tale of 2 quarters. I mean, new business writings in the first quarter was down around 13%, but you ended the period only down slightly, I think, 1% before FX. Clearly, that second quarter momentum has been really quite strong. And yet I would expect that the EV impact has only been sort of towards the back end of that quarter. So long story of trying to get to, what are you seeing right on the field at the moment? Clearly, I would expect that new business writings is continuing in April and into early May.

Thanks, Phil. Yes. So in terms of, I guess, just looking at the second quarter performance that we saw, what we saw is just our value proposition really starting to resonate with customers. So when I talked about in the presentation around our pillars for growth being sort of Attract and Retain, that's what really started to come to the fore for us. So our value proposition, our leading capabilities, we did a great job in terms of Retaining customers through just generating value for our customers, but also industry-leading service levels. And so we saw that across the corporate side. And then in Novated, we just had a lot more capability in the first half of FY '26 than we did last year given the technology change. And so we increased our commercial intensity around Novated and whether that was more marketing, more on-site visits, more webinars. We also dropped a new Novated [ folding ], which resonated really well as well with our customers and we saw that through the NPS. So just a confluence of more sort of activity on our side has sort of driven that into 2Q. And as you see in the presentation, we saw that come out with a really elevated pipeline levels across both Large Fleets and Novated.

Okay. Just turning to New Zealand. Clearly, a more challenging sort of environment there from a new business writings standpoint. What does that sort of look like for the next 6 months in the context of your overall guidance on that new business figure?

Yes. I mean, New Zealand has been tougher. The pipeline in New Zealand is up to a lesser degree than what we sort of see in Australia. With that said, the April orders numbers was the highest we've seen for over 12 months. But I expect that in New Zealand sort of probably -- marginal growth there as well is what we expect for New Zealand into the second half.

Okay. And then just pivoting to the Australian fleet business then on that second half sort of outlook. I guess part of my question is sort of -- you've obviously got a little bit of uncertainty on the macro side of things, interest rates and whatnot. So what are you seeing there at the moment in terms of that impacting your new business writing levels?

Yes. So just in terms of the macro backdrop, we sort of spoke about the fact that we feel like we're really resilient in most sort of geopolitical macroeconomic conditions. And that's just -- that's just because of the systemically important products and services to our customers, the revenue-generating assets, the tools of trade. What -- we're not seeing any sort of impact at the moment in terms of customer demand on the corporate side. I sort of spoke about the pipeline are up 15%. But in addition to that, we called out $25 million worth of sale and leaseback opportunities that if they come off, will drop in the second half of '26 for us. And so that also gives us confidence in terms of macro.

[Operator Instructions] And your next question is from the line of Chenny Wang of Morgan Stanley.

Can I just pick at the new business writings guidance for FY '26 of marginal growth? I think maybe some of this has come out in Phil's questions. But if I could just hone in a bit more, that guide was given at a time when you didn't have the visibility on the Novated tailwinds that -- on the significant Novated tailwinds that we're seeing today. So that piece of the pie has clearly gotten much better since when you initially issued that guide. So I'm just wondering if there are any moving parts that's maybe got a bit worse in your view? Or are we just staying conservative on that FY '26 guide for the time being?

Thanks for the question. Look, I think it really is just the increased uncertainty in the macro environment that we see today. From an internal perspective, we feel very confident. But yes, obviously just being conservative given the external factors that have certainly increased over the last couple of months.

Got it. And then maybe just on that and some of the data points you gave around April pipelines in fleet and Novated. Maybe just some comments on what conversion rates have looked like. I can kind of imagine with the system cutover last year, that would have impacted your conversion. But how should we kind of think about those conversion rates on a go-forward basis? Maybe some color on that relative to the first half of '26 as well?

I guess just to clarify, so the pipelines that we're talking about, they're confirmed orders. So there's no kind of conversion requirement on those. They're just orders waiting to be delivered and converted to new business writings. So -- and given the supply of vehicles is largely pretty good, we've obviously got a few in high demand EVs that are taking a little bit longer to come through, but not significantly so. So that's really just a measure of the activity that hasn't just quite yet made it through to new business writings.

Right. So it's just basically a timing mismatch when you say pipeline. So yes, but being clear, if all those vehicles were delivered that's effectively new business writings?

Correct.

Yes --

[indiscernible] point, it doesn't include the sale and leaseback opportunity those aren't included in the pipeline.

Got it. And then maybe just one last one. How should we think about core margins with that new business writings acceleration? Maybe there are some assumptions in terms of whether the strength continues or not. But yes, does that acceleration initially put some headwinds on your NOI pre-EOL margins? I think in the past, when you've had that, we've kind of seen those margins compress a little bit, especially as expansions ease. So yes, just some kind of color on how we should think about those margins into the second half.

Yes. Look, as we think about the second half, we've said that we think the margins will be pretty stable through the second half. You are right, Chenny, that when we see significant turnover of extended leases into new business writings, we get a bit of a headwind due to just the depreciation profile of the leases. But I don't think that will have a material impact into 2H potentially into '27.

And your next question is from the line of Shane Bannan of PAC Partners.

Just a small technical question. One of the add-backs you have in your reconciliation between NPATA and the statutory profit, is this amortization of software. Could you just inform us as to the nature of that? In other words, is that a -- that would largely you're investing behind that software category?

Yes. So that add back for amortization includes any amortization of internally generated assets and acquired assets. So all the amortization is added back in NPATA. So [indiscernible] that would have been the -- impact the cost of Accelerate.

Right. So basically, you're still investing behind the category --

Sorry, Shane, I didn't catch that

You're still investing behind the category?

Yes. I mean we have ongoing CapEx of around about $6 million a year is kind of what we're targeting at the moment for ongoing CapEx.

And that concludes our Q&A session for this time. I will turn the call back over to Damien for closing remarks.

Thanks, Paul, and thanks again to everyone for joining us here today. James and I look forward to catching up with most of you in the coming days. Have a great day.

This concludes today's conference call. Thank you all for joining us. You may now disconnect.