Thank you. Good morning, everyone, thank you for your interest in COSOL. For most of you, thank you for being a shareholder in COSOL. With me on the call today is our CFO, Anthony Stokes.
Hi, everyone.
Who, as you'll see in our announcement, has added the role of Chief Operating Officer to his duties. I'll explain more on that shortly. It's been a challenging 12 months for COSOL. The interim result released today bears that out. Revenue is down, EBIT has come right back. That solid upwards trajectory the company has been on since listing has also pulled back. What I propose to do this morning is to run through the factors behind the result, most importantly, what we've done about it, and how the operational performance is stabilizing and recovering. I'll get Anthony to take you through the details of what we've done to reengineer the operations and to set COSOL back on course for profitable growth.
We'll leave plenty of time for you to ask questions that you may have about the result and the road ahead for COSOL. We continue to believe that our future is positive for the company, and the strategies we're pursuing is correct, but there's been severe impacts on revenue and profitability, which we've learned from and which we've responded. Key factors behind the first half results were the end of two major contracts, one on the end of a long-running contract and the other, a termination. Other significant factors were underutilization of our people and a sales pipeline that was skinnier than should have been the case for an organization of our size. We've addressed each of these issues and a plan in place to take COSOL back to positive revenue and earnings growth.
Notably, among these changes is expanding Anthony's role, so he's got direct management and courage of our operations. This means better visibility on projects, hands-on control to protect and fatten margins, restoring utilization, and accelerating the full integration of the businesses that we've acquired in recent years. In addition to this, I will take ownership to rebuild the sales capability and grow the sales pipeline, which is crucial to deliver on our growth objectives. We are pleased with the early results, however, there's still a way to go. Make no mistake, this first half performance is deeply unsatisfactory and far below our expectations and that of our shareholders. We remain hugely committed to our strategy.
We firmly believe this is the pathway to long-term sustainable success for COSOL, but we're open about the fact significant changes were needed, and we needed to reengineer how we operate as a business. These are outlined on page seven of today's investor presentation, and I wanted to take you through a few key highlights, specifically, the rebuild of the Australian sales capability and a focus on expanding our momentum in the transportation sector, and the intertwined relationship between operations and financials for a business like COSOL, which supports our decision to expand Anthony's role to Chief Operating Officer to focus on cost management and the accelerated integration of the acquisitions. I'll hand over to Anthony to provide you with more detail. Anthony?
Thanks, Scott. Before taking you through the financial performance, I want to provide you an update in the way we report the business. You would have seen in the financial performance reports, we've now broken the business into three segments. Asset Management Services being our operationally focused business, which operates at a lower margin, but provides our key go-to-market activities predominantly in the mining sector. The other two segments being our underlying consulting business, being Data and Digital Consulting, which encompasses Managed Services, product and Product-led services, and the advisory business. More details of this can be seen on Slide 5 in terms of the components of the offering. Moving to Slide 9 to walk through our performance and the key impacts of what's happened. Asset Management Services revenue declined 5.7%...
AUD 5.7 million, a 26% decline. This was driven predominantly by the softening of demand in the coal sector, which has driven the lower earnings performance for that segment. We've worked well in the Western Australian component of the business. Demand has been steady, and we've operated across the markets, including taking opportunities in the hot commodities, including coal, gold. For the consulting services business, revenue was impacted, as Scott said earlier, by the termination of a Managed Services contract and the wind down of a major project.
The bigger earnings impact was the AUD 1.4 million margin erosion, driven by two items: the holding costs associated with consultants, with the mismatch of timing between new projects starting and previous projects ending, driving a circum million-dollar cost impact for the half, and the timing of right-sizing of the Managed Services cost base in line with the reduced revenue from the loss of the contract. Scott spoke earlier about these priorities and focuses. I can assure you the Managed Services cost base has now been right-sized, and we are focused on growing the revenue and optimizing the consultant base, based on the projects we have in front of us. Operating costs were controlled during the period. We did increase our operating costs in the U.S. business, which was a carry forward of the sales and capability investment we made in earlier of 2026.
As can be seen, this has resulted in two large Managed Services contract wins during the half. They both have large implementation programs and a multi-year ongoing Managed Services contract. Those programs have only started in the last part of the first half and will underpin the revenue for the U.S. business in the second half of the year. We continue to optimize our operating costs as we integrate and simplify the business. I would now like to take you to slide 13, where we provide details around the breakup of our revenue type for the consulting business. This slide shows the revenue breakup, both by type of service and also by industry type. This shows we have a relatively even mix of sources of revenue across transport, natural resources, and energy and water.
The other important component of this is that each industry is underpinned by contracted Managed Services and product and Product-led services revenue, providing the baseline for this performance. The growth in our transport and infrastructure revenue reflects the acquisition of Toustone and our focus on this growth. The focus remains to grow the base revenue around the Managed Services revenue, which provides us predictable revenue. That will underpin the ability to grow the business going forward. I'll now open up the call for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star and two. If you are on a speakerphone, please pick up your handset to ask a question. First question comes from the line of Gavin Allen. Please go ahead.
Good morning. thanks for that summary. Look, maybe some color, can we get a bit of flavor on how we think with all of that, with the changes you've made, how do we think about, the second half, the cadence in the business in the second half and into 27? Is there anything you can sort of provide us to sort of, I don't know, measure some of that?
Yeah. I think just in terms of that momentum there, Gavin, in terms of the Asset Management Services business, we're seeing that, you know, overarchingly, we're anticipating revenue growth on the first half.
Yep.
We see some recovery in the Asset Management Services towards the end of the half and see some growth in that in the second half, with the stability in WA and a bit of a recovery in the East Coast market there. We see that sort of growing back to, you know, towards the more normalized numbers. In terms of the overarching business, we're seeing some good sales activity in the second quarter, which leads to kickoffs in the second half of the year. We're seeing some good increases in utilization in February going through the period, we've got our natural seasonality for the second half in relation to our license renewals. We still see that uplift.
We've given some indications there around a positive growth half on half in both revenue and earnings. We look to as that strengthens up over the half, we look to provide further guidance during the early part of the fourth quarter.
Yep. With that in mind, in respect to your sales pipeline, anything in there chunky enough that you might be able to talk about, sort of news flow-wise?
Look, I think, Gav, the key one that we kind of spelled out through the conversation would be in the transportation space. We're seeing a number of and it's not just one, it's multiple key engagements in the expansion of the infrastructure and transportation space. You know, these are typically long-term engagements aligned with capital investment and capital expansion of infrastructure projects within Australia. Importantly, we're also seeing that transpire into the U.S. business as well. That's largely off the back of the Toustone acquisition that we made in December 2024, and now we're seeing that both locally, you know, that expansion both locally and U.S. as well.
Yep. Just thinking about some of the challenges you had in the first half, that would be, in your mind, just sort of, you know, cost and revenues, just getting those relationships right? Has something changed structurally in terms of competition, that impact how your sales pipeline looks to you?
Well, look, Gavin, it's a great question. I think, you know, one thing about COSOL is, we have great products and solutions, and we have a demand for those products and solutions, but we haven't executed from a sales perspective. It is a complex, you know, a complex solution sell. We're not selling widgets, and there's a level of sophistication that's required to deliver that growth, and quite frankly, we just need to do more of it. We had our challenges in the first half with respect to our sales function. We've had to make some changes in that space, and now we're rebuilding that. We expect that to positively contribute towards Q4 and then, more importantly, into FY27.
Thanks, mate. Just one last one. Just so, just on the Managed Services part of the business, you mentioned that you'd sort of thought that you've got that now right-size in terms of costs, which is good. How do we think about With that as the beginning point, what's that part of the business generating for you in terms of revenue now, and what can it sort of grow to with its current right-size cost base?
Yeah. You'll see there on slide 12, sort of sets that out pretty cleanly in terms of, you know, the baseline revenue now sitting at 11.6 for the half. We expect that to grow to sort of closer to 12 in the second half, based on our visibility and as things come online that are currently in implementation phase. We expect that to be a core sort of 10% annualized growth for 2027.
with the margin continuing to improve. We anticipate the margin to get closer to the 40% during the 2027 year.
Very good. Thanks, guys. I'll hand it on.
Thank you. The next question comes from the line of Bradley Keggs with South Coast Canned Foods . Please go ahead.
Yeah, a question for you guys. Given the you know the impact of AI and SaaS apocalypse in the last sort of two months, it seems like although it will impact COSOL's both consulting and software revenues, have you got any words around how, you know, might turn that to an advantage rather than a challenge or disadvantage?
Yeah. Hi, Brad. Thanks for that question. I think it's an important question that's having an impact on all markets and all organizations and how that gets leveraged for organizations like COSOL. What we're seeing, I think our first view of AI was how do we turn this into a revenue generation for COSOL? What we've realized over the past six months is that it's not, you know, there's an expectation that AI is embedded into almost all forms of delivery, whether that's services or software in the future, and I think we see that through the use of that in the retail and consumer markets. What we're seeing now, though, is that how do we drive that efficiency to deliver scale on behalf of the business?
You know, we've embedded AI into our operational side of the business and also into our delivery organizations, and we're starting to see that come through. We're embedding that into our software as part of a, you know, sort of like a table stakes position. You know, we have to have it. Do we charge more for it, and do we command a premium? It doesn't seem to appear that way. I think the second part, though, is there are productivity and efficiency gains for an organization like COSOL, and we see that in the tune of 20%-30%, and we're seeing that start to come to fruition now as we continue to roll out some of the, some of those capabilities.
I think the bigger question, does it impact COSOL as a broader business? Unless we take and embed that into our operational professional services business and make that part of our service, it will, but our intention is to get in front of that from a business point of view. Whilst, you know, human intervention is still a critical component of AI, it bodes well for COSOL in the near term.
Yep, thanks.
Thank you. Once again, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. The next question comes from the line of Bradley Keggs with South Coast Canned Foods. Please go ahead.
Yeah, sorry for that, seemed like there was a gap, so I'd grab it. The question probably directly to you, Scott. Look, it seems like the board remains small and one-dimensional, looking from the outside. Is there any view to changing that, how that may change down the track?
Brad, another good question. I think I'll answer that pretty straightforward. Right now we need sustainability and security in the business, given the results and the changes we're making to deliver on the expectations of the shareholders and drive the growth of the company. As we continue to grow out the business, like any organization, we'll need to look at how we expand the roles and the capabilities on the board. Right now our focus is on delivering the results and delivering confidence back to the shareholders, which, quite frankly, has been one of the challenges that we've had over the last 12 months.
Thank you.
Thank you. There are no further questions at this time. I'll hand back to Mr. Gowen for closing remarks.
Thank you for that. Look, thank you very much for your time today. I appreciate your support as a COSOL shareholder and your interest in COSOL. As I discussed earlier, this result is not an acceptable result. It's not an acceptable result for myself. We understand the challenges we had. We made those changes in the first half, and we're starting to see now the benefits of those changes flow through in the second half. You know, our job now is to execute on our strategy and our plans and deliver confidence back to the shareholders by delivering quarter on quarter, half on half results. Thank you for your time.