PEXA Group Limited

Thank you for standing by and welcome to the PECSA Group Limited 1H22 results conference call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr. Fern Ting, Group Managing Director and Chief Executive Officer. Please go ahead.

Good morning, and I'm pleased to welcome you all to PEX's results for the first half of financial year 22. I'm Glen King. I'm the PEX's Group Managing Director and CEO, and joining me is our CFO, Richard Moore. Today, we'll cover the PEX's Group's first half financial year 22 business highlights, financial performance, and provide a trading update, including an upgrade to our prospective FY22 forecast given our strong performance to date. Now, there is a presentation that has been distributed. I will cover some of those and I will talk to a particular slide. So those who are following the slides, I'm going to slide five. And probably the things to talk on here is pictures of leading Australian technology companies whose platforms are relied upon by financial institutions, property developers, legal and conveyancing firms and consumers across the country. Our PEXA exchange platform sits at the heart of the Australian property market, processing now 84% of property transfers and nearly 100% of all refinances nationally. The COVID pandemic has certainly driven a strong shift to digital, and despite lockdown across the country at various points of time, the property market in Australia has remained incredibly robust. In fact, as noted in our recent PEXA property and mortgage insights report, during calendar year 2021, buyers spent more than $688 billion on this running property market, up 57% on 2020. In fact, New South Wales took the lead for the highest aggregate value of sales elements in 2021, with $262 billion spent on property in the state during the year. And Queensland was a standout performer in 2021, recording the most sales elements of any state at $232,000, which was up 40% year-on-year. In fact, what we saw in 2021 was a total 617,000 new loans were taken out in 2021 to fund the purchase of property, which is also up 32% on the prior year. In short, it's been a very buoyant property market, and with the COVID pandemic, it's certainly accelerated digital transactions, and this has contributed to the strong text of performance in the first half of 2022. If I just give you a couple of lenses, We've certainly made great progress with our strategy around the PEXA exchange, PEXA insights, our international expansion and with peer exchanges. We've had a strong first half in terms of volumes, revenue and EBITDA, driven by the very strong Australian property market. We continue to execute on our clear strategy, enhancing the core PEXA exchange service in Australia, replicating it in new international tolerance title jurisdictions, appropriately extending into new services around insights and ventures, and continually building and strengthening our services to the PECSARIAN people, platform and brand. In the first half of this year, the core exchange continues to deliver on scale. We've introduced new PECSARIAN customers and members, new services and new document types and new jurisdictions. As I mentioned, the PECSARIAN International is tracking the plan in the UK and we gained commercial traction in Insights and Ventures, with both delivering new services to market. And in fact, we're excited to announce an investment in the exciting PropTech business for Anteca, which I'll cover in more detail later. Importantly, we've continued to focus on our people, on ESG impacts and initiatives, underpinned by our purpose, the PECSA's commitment to transform the property experience for everyone. We continually work with numerous stakeholders across the country, including regulators, to ensure that we get good industry reform. And lastly, as I mentioned, we're very pleased to confirm this morning that we're upgrading our prospectus FY22 forecast. Now, on slide six of our presentation, a couple of highlights here. At both the financial and operational level, we've had a very strong first half for the financial year 22. Our group revenue was up 46% year-on-year to $145 million. Our PECS exchange transactions were up 37% year-on-year to $2.1 million. The PECS exchange EBITDA was up 76% to $83 million, with our EBITDA margin up 10 points to 57%. And in fact, 84% of all property transactions now nationally pass through the PECS exchange. All of these metrics have performed ahead of our expectations So, as I mentioned, we're pleased to upgrade our FY22 financial guidance. Now, on slide 8 of the presentation, a couple of things. We have a clear strategy and we continue to execute on our strategy. We're enhancing the course change in Australia. We're replicating our services in new tolerance title jurisdictions. We're approximately extending to build deeper customer relations and providing new services. and we're continuing to invest in our people, platform and brand. This all underpins our commitment to transform the public experience for everyone. And to do this, importantly, as per our values. We look to innovate for good, we look to make things happen and make it count, and we're really strong about being better together with our customers, our stakeholders and our people. On slide nine, a couple of things I want to talk about here. we have established a leading and highly trusted tech platform, the Vexxer Exchange. And we are now leveraging our knowledge, experience, expertise and relationships with industry stakeholders and partners to pursue a number of growth opportunities across three key focus areas. Vexxer International, which is seeking to replicate our success with the exchange in Australia into new offshore markets. Vexxer Insights, which seeks to appropriately harness our near real-time, accurate and comprehensive property data from the exchange and other data sources to generate valuable, data-driven insights and services for industry, government, consumers and other stakeholders. And Peers Ventures, which seeks to build on Texas' digital and industry experience innovation and entrepreneurial culture and establish relationships to develop new business tech opportunities with partners for the benefit of consumers, businesses and the governments across the property sector. I'll cover some of these now in more detail across the following slides. On slide 10, the majority of land transactions now occur on the fixed exchange. Now buying a home is one of the most important purchases many people make in their lifetime. and it is PECSA's role to make their experience as efficient, safe and reliable as possible, increasing certainty to industry participants, home buyers and sellers alike. And we take that very seriously. The momentum for digital transactions continues to accelerate, with the PECSA exchange processing now more than 10 million property transactions since the platform's inception, equating to more than $2 trillion in property value. In the first half of financial year 22, Our total market volumes grew positively, with national transfer volumes up 23% and refinances up 43%, which delivered a total market growth of 24%. This, combined with PEXA share growth, drove PEXA volumes to record levels. We're a number one trusted provider. The platform of PEXA is trusted by the majority of all property lawyers and conveyancers nationally. as well as Australia's mortgage lending community, and is known for being safe and efficient. Now on slide 11, a couple of things to call out. As I mentioned, the PEX Exchange transaction volumes are up 37% year-on-year. Our transfer and market share increased to 84%, which is up from 78% on the equivalent period. We successfully launched into the ACT, a new jurisdiction now alive on the PEX Exchange platform. And we continually support the regulator in understanding the technical complexity of regulatory reforms such as interoperability. In response to our customer feedback, we've made more than 230 platform enhancements to the PEX Exchange, such as Vendor Surplus Auto Calculator. We've combined with ongoing enhancements and innovation to reinforce the trust we've built with our customers, lawyers, conveyances, financial institutions, who use Apexa Exchange every day. In fact, our Net Promoter Score remains as a leader, with plus 60 Net Promoter Score indicating strong satisfaction with Apexa Exchange platform. And that's across all our customer segments, from practitioners, property developers, banks and the broader industry. And that reflects in the strong brand trust that we've got, where we're rated 8.9 out of 10, which is number one in the sector. But we've got to keep going, and we will. To keep this momentum going, we're continually investing in our business. We're working, for example, with the banks to improve settlement certainty for consumers and speed up the refinance process. We're exploring new technologies such as mobile signing, so people have got more flexibility on where and how they sign. We're ensuring we continue this greater digital enablement across jurisdictions, We're looking to do more transactions on our platform, and we're looking to expand across new jurisdictions, and we're having an engagement with jurisdictions such as Tasmania. And we'll continue to work with the government and regulatory bodies on appropriate industry reform. Now, on slide 12, I'll talk a little bit about PEXA International. We are making good progress in the UK. The technology build is progressing and we've got our first lender signed up for our initial stages. In fact, payment integration testing with the Bank of England was completed alongside seven lenders, with the Bank of England committing additional testing slots for four more lenders in October 22. That shows now the seventh net settlement payment system to clear through the Bank of England. We've got agreements in place with Her Majesty's Land Registry and we've got good engagement with the Combined Communities through General Registry. Further to that, we're relying on some key advisory board members with expertise in particular markets. We've got 100 Pecterians now working on the Pecta project, based in the UK, Australia and India, and we expect to invest more than $30 million, OPEX and CAPEX, in FY22 on the Pecta international expansion. We're on track to go live with our commitment with a remortgage product in Q4 2022. In fact, we had some good coverage recently from the UK Prime Minister about our expansion into the UK. In our insights business, on slide 13, we're continually creating opportunities to create appropriate value for the PEXA access to real-time property data and insights to deliver efficient service. This year, we've delivered a number of PEXA property mortgage insight reports, providing unique insights into property settlement and mortgage markets, which are being well received by numerous stakeholders such as media, banks and our broader customer groups. We have also continued to develop and roll out our data and insight services to ensure efficient and effective services in the use of the Plexa Exchange – services such as Plexa Tracker and Plexa Planner. And we are developing new services which are currently in concept and we look to expand those throughout the year. In addition to that, we're also looking forward to exploring and accelerating a number of joint development partnerships to bring richer Insight services to market and positioning our operating model around data and Insights to greater scalability and to ensure that we're appropriately taking forward a number of emerging opportunities. And as part of this, I'm pleased today to announce Vector Insights, has made its first strategic investment in the exciting pop tech data company, LandChecker, and will stay in its 38% stake in this business. Now, on slide 14, a couple of points around LandChecker. LandChecker allows home buyers, developers and renovators to make informed property decisions faster, informing consumers about planning restrictions, planning permit applications such as plant pending developments, next door, planning restrictions such as heritage overlays and approximate land size boundaries and dimensions. The investment in LandChecker enriches the unique and timely property data that PECTA is appropriately looking to unlock for the benefit of consumers, government and industry through new services. We aim to provide richer service offering to our customers and we believe that the synergies between PECTA and LandChecker will enhance both our organisations in our service delivery. We expect to complete the land checker deal in late February 22. Now on slide 15, a little bit about peer expenses. We're excited that peer expenses continues to progress and certainly leverage our first mover advantage in the property sector tech market. Our peer expenses are already active in the property ecosystem. At present, we have a number of initial opportunities underway, including we've now launched a consumer app in partnership another organisation, to improve the moving and transition expense for home buyers. It's called SMAVA. We've invested in products that are designed to improve the workflow for property developers and streamline the property journey for consumers and agents, respectively. We've also launched a new small business service for legal and surveying community to make business services better and more efficient, and that's through Business Advantage, and we're providing consumers access to competitive home insurance product offerings through our investment with Honey. The exploration and implementation of these opportunities, among others, again is being supported by a highly skilled advisory board which considerable digital, data, sector and international experience. Our expectation is that both sector insights and peer will enhance the PEXA Group service and allow us to appropriately grow, diversify and extend further into the property tech digital sector and support, most importantly, our customers, members, partners, shareholders and the Australian economy. Now just briefly, I just want to talk about the PEXA culture of trust and our investment in the community. Given the critical role played by PEXA in the economy, It's important for the group to continue building and maintaining a culture of trust in the community. In fact, we are one of the most trusted brands in the sector. And I can tell you we don't take that for granted. We embrace our purpose of transforming the public experience for everyone and delivering through our values of innovating for good, better together, and making it happen and making it count. We take all that seriously. During the first half of 22, We set a new high watermark for trusts, achieving a brand trust score of 8.9 out of 10, which is rated by our members as number one in the sector. Pleasantly, we're known for constant innovation and high quality of services, traits that we value greatly. In addition, we value our persevering employees. And we're really pleased this year that we're named one of the best places to work in Australia, placing top three in the 2021 Best Place to Work Awards. And during the first half of the financial year 22, we're also privileged to continue to have a highly engaged Petroleum team, which translates directly to our customer experience. We continually invest in the community with active participation in sister work mentoring programs and our shared value partnership with Homes for Homes and through our diversity and inclusion and our environmental sustainability initiatives. In fact, on a diversity inclusion lens, on one metric, our executive team is 55% to 45% male and female respectively, and we expect to continue to do better in diversity and inclusion. As I get ready to hand over to Richard, I just want to mention a couple of things in terms of environmental sustainability. Our Pecturn people and our partners tell us that Pecturn needs to keep investing in areas such as homelessness, ensuring that we've improved the mental health of our people and the community just generally, and that we continually support environmental and sustainability. I can say that we are working on all these areas, and in fact, we were originally received a five-star resume rating which is up 8 points to 92 out of 100, which is an achievement which we're very proud of, which is something that we're going to continue to invest in, in areas such as carbon neutrality, investment with Homes for Homes, and also ensuring that we continually work on safe and affordable housing. And lastly, during this half, Vector has been recognised by numerous awards, and one example is our 2021 Ashton Media Fairs Awards excellence in customer service. And to wrap up, can I just say, when we talk about customer service, that's something that we rate very highly in the PECSA group. I'll now hand over to Richard, who will talk about our financial performance.

Thank you, Glenn, and it is great to be here today to talk through such a strong set of financial results. Before I start, I should say that all the figures in this financial section reflect a pro forma P&L, and they're to show the operating costs of PECSA as a listed company. What we do is we remove the one-off costs in the current financial year as a result of the listing, and we add back 3.2 million of public company costs into the prior period to make sure it's comparable with the current cost base of the company as a listed entity. And there is a bridge between the pro forma and statutory P&Ls in the appendix in slide 31. So on the results, PEX has delivered a very strong financial performance in the first half of 2022. Revenue is up 46% to $145 million. Operating costs are up just 19% year-on-year, and that's resulted in Apexa Exchange EBITDA up 76% to $83 million in the first half. EBITDA after the investment in the growth initiatives and one-offs up 71% to $75 million, and net profit after-tax has gone from a $4 million loss in the first half of last year to a $26 million profit. And our net profit after tax, excluding the non-cash amortization of intangible assets, or NPAT-A, is also up $30 million to $46 million. And that's our view of a strong cash NPAT. What that means is that financial metrics are also strong, with our gross margin increasing by 1.6 percentage points to 87.6, and our EBITDA margin on the exchange of 57% up 10 percentage points from the first half last year. So overall it's a really strong start to the financial year and now I'll go into some of the key drivers of that financial result. On slide 19 you can see revenue is a function of market size, market share and price. And as Glenn said the total market grew very strongly in the first half up 24% to 2.5 million transactions or billable events. And you can see that. There's a chart in the appendix on slide 29 that shows the total market. On top of that, Texas Exchange penetration, or our market share, grew 8 percentage points to 85%. And on the top left-hand chart on slide 19, you can see that by transaction type. Transfer penetration grew from 78% to 84%. Refile penetration stable at 98% to 99%. and other transaction types grew 16 percentage points to 71%. And combined that delivered an eight percentage point increase to 85% overall. So adding that eight percentage point increase to the 24% growth in the market means that the PEXA volume grew 37% to 2.1 million and you can see that in the top middle chart on this slide. We also saw an average price increase of $4 to $68, broken down as follows. We actually saw two CPI increases during the year because we held our FY20 prices through the first half of 21 to assist members and the community during the early stages of COVID-19. What that meant was that the FY21 price increase was implemented six months later on the 1st of January 21, and the FY22 increase was implemented as normal on the 1st of July 2021. The average price of transfers increased by $7 due to those two CPI increases and also the end of the discounting campaign in Queensland in FY21 that was used to drive awareness and uptake. That discount ended on the 30th of June 2021. So this, combined with a mixed shift towards higher value transfers, meant the total average price increased by $4 or 7%. So add that 7% to the 37% volume, and you see a 46% increase in PEXA exchange revenue. You can see that on that right-hand chart, from $98.6 million in the first half of 2021 to $143.9 in the first half of 2022. And it's also worth noting that we did see a 44% growth in exchange ancillary revenue, so that's the revenue not generated directly from these exchange transactions, and that grew to $1.6 million in the first half. On slide 20, we then look at gross margin and cost of sales. And our main cost of sales are lodgement support service fees. They are incurred when the workspace is set up, as it reaches out to the land registry to get bundled property information. It's charged in every workspace, whether it's a multi-party transfer, a two-party refi, or a single-party discharge, or other transactions. So that means when we do more transfers, the cost per transaction drops, which you can see in the top right-hand chart, down 6% to $8.54. The higher mix of transfers also improves the revenue per transaction, as I've just been speaking on the previous slide. You can see that on the top left-hand chart, up 7% to $68.40. And that combination means that our gross margin has improved to 87.6%, and our gross profit has grown 49% to $127.5 million. Slide 21 then shows our operating expenses, and we group these into three categories. general administration, sales and marketing, and product design and development. Our G&A costs, which cover our shared corporate teams, our board and exec realm, as well as properties and occupancy, increased by 15% in the first half of 2022, driven by corporate functions growing to support continued expansion, together with higher recruitment costs and the cost of our new long-term incentive plan. It's worth noting that the prior year was also understated due to COVID-19 impacts, and the first half 22 spend is up just 5% from the first half of 2020, i.e. two years ago, which equates to a 2.5% annualized gross rate. Both prior period expenses include an additional 3.2 million for costs incurred by PECSA as a public company, and that's done as a pro forma adjustment, so isn't in the statutory P&L. And obviously that allows for a more meaningful comparison to the first half of 22. Our sales and marketing spend increased by just 3% in the first half of 22, due to both this year and last being impacted by COVID-19. We were unable to host all of our regular practitioner events and also reduced our overall marketing spend. So these costs dropped by approximately 20% from the first half of 20, which was the last non-COVID impacted year. And finally, our product development expenses increased by 26% in the first half due to higher hosting costs driven by higher exchange volumes and investment in data management capabilities. You'll also see from the bottom chart that we capitalized a similar amount of product development spend, so a total cash spend on development of $24 million, or 16.6% of revenue in the period. Slide 22 then shows the benefits of scale flowing through the exchange. The chart on the left shows total costs, as well as cost per transaction. And the growth in volume combined with prudent cost control has resulted in a reduced cost per transaction down from $34 in the first half of 2021 to $30 in the first half of 2022. That has resulted in a very strong growth in PECSA exchange EBITDA, as you can see on the chart on the right, growing by 76% to $83 million. And we've also seen growth in our PECSA exchange EBITDA margin, which has grown by 10 percentage points from 47% to 57%. This is probably higher than our long-term expectations due to the high volumes in the first half. So in summary, from a P&L standpoint, a half of very strong revenue in EBITDA growth, which has allowed us to upgrade our FY22 key prospectus forecast. The final finance slide on 23 shows our first half 22 cash flow in a couple of ways. The chart on the left shows the movement in our cash balance over the year, and you can see started with a balance of $51 million of cash, generated $83 million of EBITDA, spent $22 on capitalized product development, and had an $8 million negative working capital movement. So excluding the impact of the IPO, we would have had approximately $93 million of cash in the business at the end of the year. As part of the IPO process, we paid offer costs of $23 million, had $6 million of negative working capital, and generated net IPO proceeds of $15 million, resulting in an actual cash balance of $78 million on the 31st of December. The table on the right side of 23 shows the pro forma cash flow, and you can see very strong free cash flow for financing tax of $45 million, which equates to a 60% free cash flow conversion. Before I close, I should add there are more details of the financials in the appendix, but now I'll hand back to Glen to run through our outlook and our guidance.

Thank you, Richard. I'm on slide 25, so a couple of things just to add. The financial year 21 momentum has continued into the first half of FY22, with PEXA volumes up 37% on the same period last year. We assume 60% of our full-year FY22 volume forecast from the prospectus against an expectation of 52%. PEXA volumes remain positive into the second half of FY22, with January PEXA volumes ahead of last year. Having said that, we do expect that the year-on-year growth rate will slow in the second half. given the exceptional strength of the fourth quarter in financial year 21, and uncertainty around potential interest rate increases. With that in mind, we've upgraded our second half volume forecast, with the midpoint of our guidance, assuming that text exchange volumes will be broadly in line with last year, at approximately 1.8 million transactions. And it's worth remembering, that was a record second half performance for our business, This results in upgraded FY22 guidance, with our revenue expected to be between $265 million and $275 million, compared to $247 million in the prospectus, and our purchase change EBITDA expected to be between $140 million to $150 million, which is compared to $126 million in the prospectus. I can also confirm that there will be no interim dividend paid for the first half of 2022. So on slide 26 in closing, overall it's been a very successful half for the PECSA group with strong momentum across our business. PECSA's technologies are relied upon by thousands of consumers, financial institutions, developers, lawyers and complainers nationally every day and our commitment is to safeguard that experience and it is something that is evident in everything we do. When you consider how fundamental poverty is to the economy, our role is significant. On that note, this poverty market remains buoyant, with strong refinance activity off the back of record low interest rates and speculation around rate rises. Internationally, PESA UK is making good inroads, and whilst there's still work to do, we are on track, with a re-mortgage product later this calendar year. Likewise, PEXA Insights and Peace Centres are making progress via strategic investments and creation of new products and services to address market needs. PEXA is committed to our community and to claiming a sustainable future which are central to our culture and it's a culture that is rewarded through high excellent employee engagement and record trust levels across the industry, and we remain committed to both these. Off the back of these strong results, again, I'm pleased to once again confirm an upgrade to the PECTA Group's FY22 prospectus forecast. I just want to thank again all our PECTA members, customers, shareholders and partners, and my PECTA colleagues and the team for the first half results. We're extremely grateful for the trust you provide us. I'll now hand over for any questions of Richard and myself. Thank you.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to care for your request, please press star 2. If you're on a speakerphone, pick up the handset to ask your question. Your first question comes from Josh Panarakis from Baring Joey. Please go ahead.

Hi Glenn and Richard. Thank you for taking my call. First question is just around the UK. So you've obviously given some good context around the progress in the banks. Can you give a little bit of extra colour around the nature and context of those seven banks and also the ones that are potentially filling the four slots available later in this year just with regard to their sizing potential percentage of the refi market or any other detail available?

No. First of all, thanks for the question. Look, I can't really give too much flavour. It's due to some of the confidential elements of commercial nature in our discussions. What I can say, it's a range of organisations in the market, and in terms of the four slots for October 22, we're in discussion with a number of organisations in that market as well. What I can say is that we've got good engagement across the FIs, and also the government regulatory bodies. And we are making good progress. In addition to that, we're engaging well with the broad conveyancing sector as well. And we're also working through numerous other dimensions, such as our potential partners as well. But again, it's a moving feast. Good engagement, good progress, but I can't give you any more praise than that.

Understand. Maybe just around that, in terms of the competitive environment, obviously you guys have a first-to-market position, but are you aware of any others that have uploaded payment schemes that are looking at doing similar things within this recent testing slot that was required from the real-time growth settlement system?

No. The short answer on that one is no. We're not aware of anyone who's progressed as well as what we had with the Bank of England. In fact, we've got that seventh scheme, which is... a good position to be in. There's always more work to do on that, but our testing has been good, but we believe we're in a good position. Fantastic.

Second question just around the base business in Australia. Perhaps for Richard, into the second half and the expectations you've given, can we get a little bit more context around the revenue mix expectations and just how we should also be thinking about the operating costs based into both the second half and on a go-forward basis for the Aussie exchange.

Yeah, can do, Josh. So I think the revenue mix, we're probably stabilising now in terms of the mix between transfer, refi and other. So I think that mix is a reasonable assumption to carry through to the second half. We will see more share in Queensland, so we might see an ever so slight shift towards transfers, but it's no longer particularly material. In terms of the cost base, I'd expect costs in the second half to be a little bit higher than the first because we are continuing to recruit and bring new people into the business. So that's why you'll see the guidance when it's there. We've assumed broadly at a volume level that the midpoint of the guidance is roughly where we were in the second half of last year, which was obviously a record for PEXA, with slightly higher objects. And that will explain the guidance as it moves down through revenue and EBITDA.

Fantastic. And in terms of, I guess, from a CapEx perspective, can we get a little bit of context about how you're thinking about investment across the various aspects of the business on a go-forward basis?

Yeah, absolutely. So we've talked a little bit about some of the investments that we've made in the first half, so you can see the CapEx that's in the chart. In terms of the total spend on CapEx across the growth initiatives, broadly speaking, that'll be somewhere around $30 million, $25 to $30 million in the full year. And you'll see across the exchange something similar in terms of total and total capex. So probably somewhere between 55 and 60 million of capex for FY22, which is, you know, in terms of what we said in the perspective, a little bit more because we are investing a little bit more in both the UK and in the core exchange. Great. Thanks, Scott. Thanks, Josh.

Your next question comes from Ed Hennin from CLSA. Please go ahead.

Hi, thank you for taking my questions. I've got a couple. Firstly, just following on the UK, can you just touch on when in 23 that other slots will be available for the initial 11 banks that have signed up beyond then for the first one?

Yes, so thank you, Ed, firstly, for the question on this. The first thing is we've got the seven slots at the moment and we've got financial institutions on those. We've got another four slots in October 22 and then we'll be in discussion with the Bank of England for the calendar year 23. So we've got seven now, four in 22, that's the 11th, and then we'll be discussing in 23 and 24 for other financial slots. One of the dimensions there is that There's only a certain finite number that the Bank of England will give and that's one of the areas of demand from financial institutions. If they miss out in these first areas, they may be at a competitive disadvantage.

And just on that, if you think about the UK landscape, there's six major home lending institutions and there's a decent tail running through there. Do you think you'll have enough slots to get at least, you know, the top 10 lenders through both this year and next year? How should we think about getting, you know, the larger part of the ecosystem through?

Well, that's a subtle way of asking the question that Josh asked earlier. I think in reality, you know, we're working and discussing with a number of the banks. You know, the first thing is we want to make sure the platform's up and running. that we're actually doing transactions through. And then from that, you know, as many of the large ones as we can get on board, we'll aim to get on board and prove the system. We always factored in that we did not necessarily need to get all the large ones on in the early instances. If you think again, in reality, in the Australian market, it took a number of years to get the institutions on, the jurisdictions, and get the volume done. So again, $23,000 with respect to volume in, $24,000 is actually to scale up even further with good revenue, particularly on the re-fire, re-mortgage, and $25,000 is around sale and purchase. So it's a staggered rollout. This isn't easy, but importantly, we're on track with the development and delivery.

All right. And just one final one on that before I tell on something else is if you think about 23 and it might be a little bit early for the slots, do you think you'll get some initial slots and then you potentially can get some more throughout the year with the BOE? How should we think about the potential opportunity to get more banks on board?

Well, again, it's a great point. So, again, if you just think of it on a couple of lens, There's seven that we're currently working with and another four later on in the year, which is year 11. There's quite a considerable amount of work just to lock in and make sure the system works, making sure the transactions are all flowing through. There's a lot of change in the financial institutions as well as extra amongst others. So that's the first thing to do. In terms of 23 and 24, using that, that is going to come down to a number of factors. One of those factors is what's the capacity of the Bank of England. They've got the RTGS upgrade. They'll have various constraints in terms of their system. But what we will be in, if this all goes according to plan, we'll be in a good first-mover advantage of having our platform up and the clients and institutions on, and those clients and institutions and consumers and conveyances benefiting from that service and system. That's going to be ongoing work, Ed.

No, that's great. Thanks for the cover. Just moving on to costs, can you just give us a feel of the increased DNA and also the increased costs as you need to ramp up engagement with conveyances and other players in the UK as we look into 23 and 24?

Yeah, so we've talked a little bit about the fact that we expect to spend $100 million over FY22 to 24 in order to bring this to life before we start generating sufficient revenue for the UK business to effectively pay for itself. So I think that's a reasonable benchmark. We're going to spend just over 30 this year. We haven't locked down our forecast for next year, but I can imagine we'll spend a bit more next year. And that will be across both OPEX and CapEx.

I'll just say, I think one of the important things is what Richard said, as we continue develop and explore the UK market, get in our platform and engage with the various partners, we also see different dimensions happen, which therefore allows us to actually change how we're going to do our financials and our forecasts in the future. And in reality, we've already seen this with even the recent announcements from the UK Prime Minister, saying that this is a bit of a flagship opportunity between Australia and the UK. So all these things contribute to our forecasts and future forward-looking dimensions.

And just, Richard, going back to, you know, you talked about the investment of 100 mil, but thinking about what actually goes through the P&Ls, you know, whether it's a DNA charge or whether it's increasing costs to the bottom line, how should we think about, you know, that versus what's capitalized and comes in over time?

Yeah, obviously what happens in the future is hard to talk about, but I can tell you in the first half, the $12 million that we spent was about $5 million of OPEX and about $7 of CAPEX. I think in the full year, we talked about spending just over $30. I would estimate somewhere between $11 and $14 of that will be expensed and the rest will be capitalised. And that's probably a reasonable mix to think about because the OpEx is coming from the team that's on the ground. As you said, we're dealing with not just the financial institutions but the conveyancing bodies as well. So there's a reasonable team there which will ramp as we become operational. And the CapEx is predominantly the technology build. underway so I think it will be a business that will be sort of 60% plus capex for a period of time and within those broad numbers we spoke about 30 million this year 100 million over the next three that's our current working hypothesis and then if you think about obviously the capex is to build the system but the system comes online in the calendar this year so therefore your DNA starts to go up

How long are you going to amortise that over? Obviously it's a long duration asset. Does that see material pick up in the DNA or is it just steady?

Yeah, we amortise our Australian platform over 15 years. We haven't made a final call on the UK because we haven't built it yet. But obviously if it's 15, it'll take a while for that to ramp up to material level. It somewhat depends on uptake before that decision is made.

Okay, that's good. And then just one last question. You talked about the PEXA exchange business, the EBITDA margin currently tracking over your long-term expectations. Roughly, what are your long-term expectations for that EBITDA margin in Australia?

I think we've said we expect the exchange to operate in the 50 to 55 range. And as I said, it's slightly ahead of that at 57 in the first half because we did have or we see a tremendous volume half. So I would model it somewhere in that 50 to 55 range.

Okay. No, that's great. Thank you for your time.

Your next question comes from Brandon Carridge from Macquarie. Please go ahead.

Hi. Good morning, everyone. Just a few questions from me. Maybe just starting on the volumes. that you touched on, Glenn, for the current half. So of that $1.8 million, I think it's fair to say you've probably got a very high degree of clarity over what's happening for much of the current quarter, so it's sort of four weeks out from now. So in that $1.8, what's the kind of implied drop-off in volumes that you're expecting in the fourth quarter, given the clarity that you would have over much of the volumes that you're going to be achieving in the third quarter?

I'll take that one, Brendan. So, yes, we do have clarity at the moment to mid to late March. We've got a sense for the third quarter. It is still ahead of last year at this point in time. We're seeing, obviously, similar market volumes that REA spoke about in their presentation. So, we are seeing the third quarter being ahead. Fourth quarter last year was a big jump, and you can see that on our guidance slide, where it went from sort of 820,000 transactions to almost a million. So we are currently, if you take 1.8 as being the number that's the midpoint of our guidance, that would assume that the fourth quarter is down a little on last year. But the guidance actually allows us between 1.7 and 1.9 million transactions. So the fourth quarter is still a bit of an unknown for us at this point in time. We chose that as a midpoint, as a line in the sand, you know, based on where we are in this quarter and the fact that, you know, it was a strong period for us last year.

Okay, that's helpful. Just on the penetration numbers, tend to be tracking well, but other seem to see quite a material spike up. Do you think that that penetration increase in the other line can be sustained at that sort of 70% or thereabouts and will continue to trend higher, or is there some sort of unique factors that drove that higher this period?

No, I think that's just the exchange getting more and more established within the ecosystem. So, yes, it should be able to go up. There are always some products that we're continuing to digitize, but I've got no reason to think that that 71% will drop in the future.

There's opportunities, obviously, with the... We still have growth in Queensland. We've grown HTT, small numbers, WA, these transaction types, but none that we haven't yet done as well. So there's still growth there.

OK, excellent. Just a very quick clarification on inflation. So just to clarify, what's the timing of the data that you use for your inflation pricing reviews and when do they flow through?

So we get the March year-end inflation number and apply it from the first CPI. So we will know next year's price increase whenever that CPI number comes out, which I think is in late April.

Okay. Yeah, I thought that was something to double-check. And then just a final one from me. Just with the potential M&A from your largest shareholder, can you provide, not sort of speculating whether deals go ahead or not, but Can you provide any colour just around Dye and Durham and any discussions that you may have had separately with them, just given their knowledge and expertise in the ease and balancing space, not just in Australia, but they've also got some exposure over to Canada and the UK as well?

Well, the first thing, we can't comment. It's got nothing to do with us. Reeves is a major shareholder in Dye and Durham. Brendan? In terms of discussions on markets just generally, again, any commercial discussions we have with any organisation is always quite technical. We talk with all different players in the UK, Australia, et cetera, in terms of what's going on in the marketplace just generally. So I can't really say any more than that.

Okay, that's fine. I might leave it there then. Thank you very much.

Thank you. Thanks, Brendan.

Your next question comes from Scott Russell from UBS. Please go ahead.

Oh, good morning, Glenn and Richard. I've got a few questions I was just going to pick up on the Diane Durham point. I hear that there are commercial issues there, but I guess the deal with Link creates an interesting dynamic for PEXA because they have aspirations in the UK and Canada, of course. Perhaps you can comment on what it means for your Canada aspirations, whether you're I think previously you were willing to look at Canada over a multi-year time horizon. Did this fast-track some plans there?

Again, Scott, I couldn't really... There's just a few speculators talking about dying, dying. I think that's something outside of my control, not appropriate. But I think that what I can say is that, you know, the UK market, we're progressing, as I said, according to plan, and we are doing the analysis. and exploring other opportunities but again they would have to be firstly consistent with our strategy and going to add value and secondly that we can execute on them appropriately and then thirdly we know what the market dynamics are. So there's numerous dimensions on all those but any more than that would be just pure speculative. What I can also though add In any ownership model, there's always first agreements, shell agreements in place, which there is at the moment. So, you know, a lot of that would be status quo.

OK. All right. Understood. Can I ask you a question about the land checker acquisition? You haven't disclosed the dollars that you've invested into this deal. I'm not sure if you can give us a ballpark on its materiality, the considerations. Just be interested in how you determine the 38% stake size and how you plan to monetise this over what sort of time horizon.

Let me just maybe talk about a couple of aspects and then Richard will just pick a little bit up in regards to the investment. But I can also just say on the investment, we have mentioned obviously the stake we've taken and that's the 38% and obviously RACV is the 51%. The residual is with the founders, so that's the first thing just to mention. In terms of the dollar element, which we'll pick an element of that, there are some commercial sensitivities, and that's one of the reasons why we've been a little bit softy in terms of providing the number, but we'll answer that in a second. Let's talk about the commercialities of it. There's probably a couple of dimensions there. It's a really interesting business. It's already got a customer base of around about... It's got reoccurring revenue coming in both in terms of once-off and subscription. It's also providing unique insights, as I mentioned, around planning, permits, heritage. It is quite attractive to, you know, I mentioned one segment being property developers. We believe that PEXA, LandChecker and RACV coming together to not only further enhance services to customer segments such as property developers and others, but also build broader areas of monetisation both in terms of insight and data services. But in addition to that, are providing services that can really help consumers, conveyances and others in making their decision at near real time. flagged on that is that when we did our prospectus, we always say that we believe the total adjustable market based on Fox and Sullivan in data and insights was around 400 million. What we're starting to unpack is that the market is rapidly changing around data and insights in terms of open data, new data services, and also services that can be used across numerous segments that were probably really ascertained for the degree that we are now starting to see. So in terms of the monetisation opportunity, we really only see upsides in that opportunity. We see this as a start of broader growth opportunities around diamond incisors generally. So you'll hear more. We've selected the full year. You'll hear more about... where we're progressing in this broader data insights business. Richard, do you want to touch on a number?

Yeah, so we haven't completed yet, and there's a couple of steps we need to do still. So we don't really want to go out with a specific number, but it's just under $10 million of the investment to get to 38%.

OK, I'll leave it there. Thanks, James.

Your next question comes from Angie Ellis from 8020 Invest. Please go ahead.

Hi, guys. Well done, Glenn and Richard, on the great results in very challenging times. I see you've got some great UK hires. I've been sort of tracking them on your LinkedIn, so well done with that. My question's about the PX venture. Yes. So, Mr. PX said, you know, I'm always sort of interested in what's going on with that, and I just wondered whether you're still offering the scholarships in this new year for the Entrepreneur Development Program and you know, just generally what's happening with PX Ventures and whether you're going to expand that into the UK and possibly Canada as well?

Oh, which is a great question. A couple of things on it. We're predominantly focusing PX Ventures and PX Ventures on the Australian domestic market first. We believe there's firstly considerable opportunity in this domestic market and then secondly, we've seen some very unique options for us to add value. So that's the first thing. What we have done in the domestic market with PEG Ventures, we've got our Launchpad service up and running, where we've had about 100 investment opportunities run through Launchpad. We've identified a number that we're currently testing or exploring. I mentioned a couple that are in the marketplace at the moment. We expect to progress a couple more in the second half. But what we're also doing, coming back to your point about scholarships and other types of partnerships, we are exploring other types of lateral opportunities with partners. So if I give you an example, slightly outside of these sentences, but illustrated with picture in science, we announced our partnership with the Melbourne Business School of the Centre of Business Analytics about a month ago. And what that aims to do is to ensure that Not only do we get access to unique data science skills, but we can also provide potential opportunities for postgraduates and graduates to work in the PECSA organisations generally. And we expect to continue to pursue those types of partnerships, not only in the second half of this year, but ongoing throughout. So that's probably the best illustration I can give you at this stage. You know, they're both new businesses, but we see potential good growth opportunities just generally in both those businesses.

Well, that's fantastic. A friend of mine actually runs that sense of a business analyst. I go to the annual conference, so I'll have to check if you're doing any presentations there. But with the scholarships, will you still be offering them in this new year? And you're still sort of doing that 50-50 split for sort of start-ups to do that program? Is that still going?

Yeah, we definitely are currently doing some further evaluation in the second half, and in fact, our chief data and analytics officer, Scott Butterworth, will be having a look at some of these in the second half as well. So, yep, I would expect you'll hear more about that throughout the year.

Yep, thanks, guys. Well done.

Thank you.

Your next question comes from Stuart Woolfield from Field Research.

Please go ahead. Can I... Gentlemen, just a bit surprised there's not been any questions about the timetable for interoperability. I see there you're saying you're committed to appropriate industry reform. There was a report pre-Christmas that you dropped out of the multi-party meetings on interoperability. Is that still the case?

No, well, first of all, thanks for the question. Now, a couple of things on it. We're still actively engaged with various government bodies that are on the industry reform. So that's continuing on. What we've said is, actually, we can't continue to do some more technical design work until we get some of the things worked through on some of the legislation elements. So, for example, timeframes, the economics, ensuring that we've got some good independent validation that this is going to work from a cyber perspective. You know, being a trusted organisation in this sector with, you know, 10,000 customers, for example, lawyers and conveyancers, you just can't rush these things. You know, I've been involved in banking and government for numerous years, so it's important to get it right. So what we've said to the government bodies, including Army, you know, we've got more work collectively to do before we can just keep trying to rush a bit of APIs in and integrating. You can't jeopardise someone's home for some rough elements. So we're still working through it. but we believe there's some higher priorities that we're asking ARNI to work on. And in fact, what I can say, Stuart, on that, the Institute of Conveyances and the Law Society and other bodies such as ABA, they're also starting to flag things we're going to work on together before we do rush of legislation or technical changes as well.

Got it. I'm always interested in that interplay between you being the incumbent in Australia but rolling out a platform in the UK. Do you get a sense that the regulators between the two countries are talking to each other and that there is a danger that if you're seen as playing hardball in Australia that it might impact your ambitions in other jurisdictions?

That's a great question as well and I think a couple of things that I would just add. The market is different, obviously in the UK, so you don't have an equivalent regulator in the UK. You have different bodies such as the Bank of England over there which is equivalent obviously to the RBA. But in saying that, one of the things that we've done in domestic market is proven that a platform that's up and running, a strong relationship, and we deliver consistently for, you know, all stakeholders. That's the third thing I just mentioned. The second thing is we're not playing hardball. We're playing very clear that we're representing something that's taken 10 years to get up and running, and we're a critical infrastructure in the sector. We're open to competition. In fact, there is competition, you know, in reality. But you've got to get it right. If you just take the ASX and TIEX, If you're not introducing profitability in that market, this is too complex. And here we're talking about someone getting a $1 million home for, you know, $100 transaction fee via VEXA. Let's not jeopardise that by rushing something that is going to cause some challenges. So we're not playing hardball. We've got responsibilities and we take them seriously.

That concludes our question and answer session and our conference for today. Thank you for participating.

Thank you.