PEXA Group Limited

Good morning.

I'm Glen King, PEXA's Group Managing Director and Chief Executive Officer. And joining me this morning is our Chief Financial and Growth Officer, Scott Butterworth. We're pleased to welcome you to PEXA's results for the 12 months ended 30th of June, 2023. Now, before I start, please note slide two contains the important notice disclaimer information. I'm going to move on to slide three. In the spirit of reconciliation, PECSA acknowledges the traditional custodians of country throughout Australia and their connections to land, sea and community. We pay our respect to their elders past and present and extend that respect to all Aboriginal and Torres Strait Islanders people today. We at PECSA accept the invitation to walk with First Nations peoples to a better future for us all and invite you to join the movement. Now I'm going to move to slide four. And this is the agenda for this morning. We will cover PEXA's FY23 business review, financial performance and provide some commentary on the company's outlook. At the end, both Scott and I will be happy to take any questions. Now moving to slide 5, before we go into further detail of the FY23 performance, I did think it was important to take you through some important context about the PEXA group. Now, for those who aren't aware, we began over a decade ago with a key mission to solve a customer imperative. Our first phase was to build a safe, national, reliable electronic platform by which the purchase, sale and refinancing of property could be facilitated smoothly, reliably and improving the overall customer experience. It was a government COAG-sponsored initiative, co-designed by industry, government and customers to provide what is now a world-leading property exchange platform that has set the standard, not just in the property market, but also other registry-like services. Our second phase was building out the PEXA Exchange platform to provide comprehensive coverage across most of Australia. From 2021, we successfully processed millions of property transactions through the PEXA Exchange platform. That's right, millions. And during this period, we also successfully listed on the Australian Stock Exchange. And we began our expansion of our property exchange platform into the UK. And we commenced our extension into additional property, digital product and service adjacencies. And now, as a PEXA group, we're now into our third and current phase, where we have grown our PEXA exchange platform coverage to 88% of the Australian market. And we've extended and scaled up our property digital adjacent services, which includes leading digital businesses, such as Value Australia and DotID. And we are now rapidly expanding our UK platform into a business with UK lenders on our platform. Plus, we're transitioning Optima Legal to the PEXA UK group and exploring opportunities with additional UK financial institutions. And all of this progress has contributed to our solid FY23 results. So now moving to slide six. And there are three key messages which I would like you to take away from today's PEXA Group results and presentation. Number one, the PEXA Exchange continues to deliver. It is a robust, resilient property platform and it's performed based on world-class digital infrastructure. In addition to that, as I mentioned, our Australian market share increased to 88% in FY23. And further to that, we've had disciplined cost management with margin improvement from 52.2% in the first half of FY23 to 55.1% in the second half of FY23. Secondly, Our growth businesses are delivering and building to scale. Our PexaGo platform is now live in the UK market and processing transactions. The rollout of the PexaGo platform is favourable to where we were in the Australian rollout. Our digital growth businesses are innovative, AI orientated, unique and beginning to deliver revenue and scale. And we have a sizeable uptake with a path for sustainable growth. And thirdly, disciplined approach to cost efficiency and capital allocation. We delivered efficiencies this year. We have focused on continuous improvements which we will extend in FY24 to deliver on our margin expectations. We have strong operating cash flow and our capital is continually deployed in a disciplined fashion to support strategic growth. PEXA is powering the property markets in Australia and is now underway as a business in the UK. So moving to slide seven, turning to the opportunities that are available to PEXA. We now have multiple diverse revenue streams across three core areas, each with a significant total addressable market. So firstly, the PEXA Exchange, our world-leading digital property registration and settlement platform in Australia, has a current revenue of $263 million against a total addressable market of $300 million. Our PEXA digital growth business seeks to develop property insight solutions that enrich our customer proposition. The current revenue is now $12 million, which is from next to nothing in FY22, against a total addressable market of $500 million. That's right, $500 million. And we now have leading digital property businesses, tech and brands, such as Value Australia, .ID, and our recently acquired business, Land Insights. We are excited about the business growth opportunity in these areas. And our third business unit is PEXA International, which seeks to leverage our unique IP to expand into major torrents title markets, starting in the UK, where our business is now operational through both our PEXA Go platform combined with Optima Legal's distribution potential. Our current revenue is now $9 million against a total addressable market of $750 million in similar major torrents title markets. Like digital growth, we are investing for growth and we have a customer presence through PEXA and Optima offerings in the UK. We have a clear and consistent strategy to execute and unlock these opportunities. Now moving to slide eight. Our strategy is anchored in our purpose, connecting people to place, which frames how we work and is underpinned by our values. A purpose that is values-based for our customers, our people, our community and our shareholders. A purpose that motivates our people. And our strategy is simple. deliver sustainable business growth by enhancing the PEXA exchange, extending further into the property ecosystem and our customers through product adjacencies, and expanding our core capability into jurisdictions with similar customer opportunities to solve, and evolving our operating model to underpin a productive and engaged professional team, build on values of better together, making it happen and count, and innovate for good. Now, over the next few slides, I'll touch on some key overview points about our business and strategy. So turning to slide nine and starting with the leading PEXA exchange platform. The exchange in the year continued to demonstrate resilience and robustness despite the property market headwinds. And it cemented its place as important national digital infrastructure with 88% market transactions, which was up on the prior year, with strong growth in ACT and Queensland, a positive customs score of 81, and 3.7 million transactions processed for the year. We're also now underway with Tasmania, exploring new Northern Territory, and we expect further transaction growth in WA. Now moving to slide 10. The strong capabilities we have built in the exchange has enabled us to appropriately extend into adjacent property products and service solutions through our digital growth business. Broad services that have now delivered 12 million of revenue, nine times year-on-year growth. And let me say, our guidance is that digital growth will break even at the operating EBITDA level for the month of June 24. Importantly, the scaling of our emerging digital businesses provides basis for further growth in Australia and the UK. Now let me take you through a few points on the UK as shown in slide 11. The UK business is building, scaling and operational. We have achieved this based on the Australian PEXA exchange learnings. We have built and had approved a new payment system integrated into the Bank of England, PEXA Pay. This payment system specifically supports property settlements in the market. We have nine banks tested on this payment system. Our PEXA Go platform, which is our settlements platform, has onboarded two financial institutions in the year, which are now successfully transacting remortgages. And it is important to distinguish there are differences between the Australian and UK markets. So, therefore, we acquired Optima Legal, which supports our ability to bring Remo volumes onto our Pexigo platform and understand how bulk conveyances operate and refine our solution to better support these customers. In terms of building scale and momentum in our UK business, I can also advise we are in discussions with some of the UK's largest lenders, some of which are already on the Optima Legal platform, such as Virgin Money, and Nottingham Building Society and some which are not, such as Metro Bank. We are not currently at liberty to disclose other lenders currently, but discussions are underway. So moving to slide 12 to illustrate the positive comparable position of the UK rollout when compared to Australia. While there are differences, we are trending well on our UK development to the equivalent time period when we were rolling out in Australia. And a few examples to call out. We have developed a PEXA Go platform that works. We have worked through the market dynamics and identified clear customer and regulatory imperatives for our PEXA platform. We have built scale and distribution potential through our UK acquisition. And we have managed to our financials and plan to deliver. We are pleased with our progress and the momentum we have underway in the UK. Now turning to slide 13 and briefly noting the FY23 market environment. As flagged at the half year, the results this year in the Australian property market were challenging due to the Reserve Bank's round of interest rate rises with house prices and transaction volumes receding from the highs in FY22. This was partially offset with the increase in refinancing activity, yet refinancing is has lower margins and fees for us on the Apexa Exchange platform. In addition to that, the UK market also saw a slowdown in prices and remortgaging activity. Yet, as illustrated on slide 14, we at Apexa proactively responded to the market conditions whilst building for future value. Part of our response included management actions targeting usage, productivity and pricing, which resulted in a positive impact. At the same time we continued to build for future value through growth investments which resulted in a $19 million impact on EBITDA. Now turning to a high level segment view of our performance. Starting with slide 15. This slide shows despite slowing markets we have achieved a solid and credible response. Our total group business revenue rose 1% to $283 million, with growth from our emerging digital growth and international businesses offering lower PEXA exchange revenues. Our exchange revenues did decrease 6% to $263 million due to challenging market conditions. However, and importantly, our second-half margins improved from 52.2% to 55.1%. Our PEXA digital growth delivered revenue of $12 million, as I said, a nine-fold increase year-on-year, and our PEXA international progress well with the acquisition of OptumLegal in the UK, delivering initial business revenues of $9 million. So turning to business review for FY23 on slide 16, we are pleased with the considerable momentum and a couple of call-outs. PEXA Exchange has achieved an average market share of 88%, up two percentage points. PEXA Digital Growth has commenced preparation for commercialisation of a number of businesses, including Value Australia Service, with a number of MOUs in place. And PEXA UK is progressing well, with a Group 3 mortgage offering in place, PEXA Go Live, and successfully launched with a number of financial institutions and a number of other financial institutions in discussion. In addition to this, we're also exploring other international markets. Now, going to slide 17, none of this would be possible without our people, customers, and the value we are providing to the communities in which we represent. And you can see the strength of PEXA through the highlights on this slide. For example, we have a highly engaged team as represented by a 77% engagement score and recognised through numerous industry awards. Now, going to slide 18, I'll now hand over to Scott to talk through our FY23 financial performance in more detail. As you will all be aware, Scott, who has worked as a CFO in major listed businesses in both Australia and the UK, was appointed to the role of Chief Financial and Growth Officer in May and assumed this role from 1 July. He is a highly credentialed finance executive, having been with Apexa Group since November 21, and has been instrumental in delivering our group strategy. He has added significant bench strength to the organisation. So over to you, Scott.

Thank you, Glenn, and thanks also to those who have joined the call today. Turning first to the performance of the overall PEXA group as outlined on slide 19, revenue for the group increased by 1%, or $3.6 million over FY22. This was achieved despite a net $15 million decline in exchange revenue with our emerging digital growth in international businesses, contributing $19 million of new revenue to the group. Operating expenses increased by $38 million over the period. To break this down a little, $22 million of this increase is associated with the businesses we bought in the period, ID, Optima and Value Australia. Around $12 million was driven by investing in the capabilities of our emerging businesses as they began to scale over the period. Additional cost growth was primarily driven by capitalisation effects and a range of smaller cost items and inflation. Pleasingly, our efficiency and productivity efforts generated in-year benefits equivalent to 3% of FY22's cost base. These movements have led to the group's operating EBITDA margin moving from 48% in FY22 to 35% in FY23. As previously outlined by Glenn, This represents the effect of investing in future value creation by the group, partially offset by strong management of key levers, whilst digesting the effects of macroeconomic uncertainty in our major markets. Before turning to the performance of our individual businesses, I want to address three items below the operating EBITDA line as set out on slide 20. Firstly, you will see that we have set out the specified items for FY22 and FY23. These are items that are sufficiently unusual and or non-recurring in nature that they should be separately called out. A full delineation of those items for FY23 and 22 is contained in the appendices on slides 40 to 41. However, as you can see, these items declined by $7.5 million over the year. This was primarily due to the non-recurrence of FY22's IPO costs partly offset by a range of M&A and related strategic costs incurred during FY23. Secondly, depreciation and amortisation increased by $8.5 million due to both our organic investment in our exchange and emerging businesses, as well as increases associated with businesses we bought in the period. Lastly, you can see a very large jump in our effective tax rate, which, together with the reduction in EBITDA, explains much of the decline in NPATA. This was driven by the need to write off certain non-cash R&D tax credits following links in specie distribution of its PEXA shares. I will now turn to the performance of each of our lines of business, starting with exchange, revenues, costs and CapEx on slides 21 to 23. Summarising the key themes, Firstly, as stated previously, exchange revenues declined by $15 million or 6% over the year. This was driven by a combination of declining market volumes, particularly during the second half, and an increase in the mix of lower revenue refi products. These market movements had the effect of reducing our revenues by the equivalent of $36 million. To partially offset them by the equivalent of $20 million, We benefited from repricing decisions made at the beginning of the year, as well as encouraging further exchange usage in the ACT and Queensland. We managed our cost base effectively, with a particular emphasis on managing our labour mix and driving efficiencies in our non-labour costs. As a result, despite the decline in revenues, we held the reduction in year-on-year margins to 1% and remained within our guidance range of 50% to 55%. Margins also improved sequentially in the second half. We increased our investment in the exchange by $11 million during the year. These investments resulted in improved resilience and cybersecurity, over 250 customer innovations, additional customer APIs, and the fulfillment of regulatory-related requirements. Slides 24 and 25 deal with the progress made by our digital growth business over the past year. Again, I'll summarise the key revenue, expense and CapEx themes covered by these slides. Revenues for digital growth increased by 10.3 million, or nine times over the period, mostly in the second half. Much of this was driven by the acquisition of ID, which gave us nine months of revenue during the year. It is pleasing that we've seen an acceleration of ID's revenue trajectory under PEX's ownership as the business takes advantage of the distribution and other resources that we can provide. Outside of ID, we have also had good initial traction with our suite of organically developed data and digital solutions, with their revenue increasing by 2.6 times relative to FY22. Costs did increase in this business over the year. reflecting about $8 million of costs added through acquisitions and additional costs representing investment in the capability of the business as it starts to grow. To partly offset this cost growth, we generated efficiencies equivalent to 17% of FY22's costs, and this helped to improve operating margins by nearly 390 percentage points over the year as the business started to scale. The increase in specified items for the period reflects the impact of restructuring activity and transaction and integration costs associated with investments and acquisitions made during the year. CapEx was largely flat over the period. However, the mix of capital expenditures did change over the year as we ramped down development for some of our existing organic products, commenced work on new products and started work on commercialising Value Australia. I turn now to the revenue expense and CapEx performance of our international businesses as outlined on slides 26 and 27. With the acquisition of Optima Legal, we've now started to generate revenue in this business for the first time. However, Optima's revenue performed at a lower rate than typical for the business. This was for two reasons. Firstly, there was a marked post-January slowdown in overall market remortgage activity as banks and consumers digested the effects of the Bank of England's changes to monetary policy. Secondly, as widely noted at the time, Capita PLC suffered from a range of technology related issues around the end of the third fiscal quarter. As a former member of the Capita Group still consuming Capita related services, Optima was also impacted by these issues. The combined revenue effect of these issues was around $5 to $6 million in the period, noting that we have lodged a claim for the Capita technology related issues with our insurers. Operating costs associated with our international activities increased by $22 million over the period. Around $14 million of this cost increase was associated with Optima Legal. The remaining cost uplift was driven by the spend on resources required to further build out our international PEXA Go platform, as well as undertaking business development and other related sales activities. Specified items increased by $8 million over the year. These mainly related to the cost associated with acquiring and integrating Optima Legal and the associated strategic positioning activities that we have undertaken. CAPEX increased by $6 million over the year, largely reflecting increased expenditure on PEXA Go. The cash effects of the group's performance are set out on slide 28. The group's operating cash flow generation was only $6 million lower than in FY22, despite the $27 million reduction in cash-adjusted EBITDA over the period. This was due to the favourable impact of net working capital movements as the effect of certain prepaid IPO costs incurred in FY22 were not repeated in FY23. Reflecting the investment's Noted earlier, CAPEX consumed about $67 million of our cash flows, up by $17 million relative to the previous year. Much of this was for the exchange and for international. We spent a further $52 million on investments, including $24.3