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Edited Transcript of IPH.AX earnings conference call or presentation 12-Feb-20 11:30pm GMT

Half Year 2020 IPH Ltd Earnings Call

SYDNEY Feb 27, 2020 (Thomson StreetEvents) -- Edited Transcript of IPH Ltd earnings conference call or presentation Wednesday, February 12, 2020 at 11:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Blattman

IPH Limited - CEO, MD & Director

* John Wadley

IPH Limited - CFO

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Conference Call Participants

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* Matthew Johnston

Macquarie Research - Analyst

* Michael Peet

Goldman Sachs Group Inc., Research Division - Executive Director

* Nicholas Caley

E.L. & C. Baillieu Limited, Research Division - Equity Research Analyst

* Sam Haddad

Bell Potter Securities Limited, Research Division - Industrials Analyst

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the IPH Limited Half Year Results to 31 December 2019 Conference Call. (Operator Instructions) I would now like to hand the conference over to Dr. Andrew Blattman, Managing Director and CEO. Please go ahead.

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Andrew Blattman, IPH Limited - CEO, MD & Director [2]

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Many thanks. Good morning, and welcome to the IPH Limited results presentation for the half year ended 31 December 2019. My name is Andrew Blattman, the CEO of IPH; and with me today is John Wadley, our CFO. John and I will provide details on our half year result.

Firstly, I'd like to thank you all for joining us for today's presentation and, of course, for your continuing interest in IPH. Before I begin the formal presentation, I would like to acknowledge and thank the IPH executive team and Board for their support and, of course, all our business units for delivering a strong result for the half. I would also take this opportunity to add a warm welcome and thanks to the former Xenith business units as we report their first result under IPH.

I'm pleased to say IPH continues to deliver on each of our strategic priorities. This includes the successful acquisition and integration of Xenith IP during the period, IPH's largest acquisition since listing. Over the years, we've demonstrated what I think is a strong record in successfully integrating acquisitions to create value for our clients, our people and our shareholders. For the Xenith acquisition, we are undertaking a considered and wide-ranging integration process. It's progressing well, on schedule and in line with expectations. I'm pleased to say that this process has not distracted the business from delivering a strong set of numbers for the half. That includes both our preexisting IPH business and the incoming former Xenith IP business. That's a credit to our people who continue to focus on servicing our clients every day. We will talk further about Xenith integration later in the presentation.

So moving into the presentation proper. Slide 3 is simply a table of contents. It sets out what we'll talk about today. I'll provide an overview of the operational highlights for the year. John will discuss the financial results in further detail before handing back to me to provide some commentary on our key markets in terms of filing activity for the year and a review of our operations. As I mentioned earlier, I'll also provide an update on the acquisition and integration of Xenith into IPH and conclude with some commentary about our business looking forward. And as always, we're happy to answer your questions at the end.

So moving to Slide 4 about IPH. It's a good overview of our business as it exists today. The slide demonstrates the scale and diversity of our business, especially post inclusion of the Xenith IP to the IPH Group. We operate 8 services firms from approximately 1,000 employees working from 27 offices throughout 8 countries in the Asia Pacific region. As we announced last November, Watermark will be integrated into Griffith Hack with effect from April this year. I'm pleased to say we maintain our #1 patent market position in Australia, New Zealand and Singapore, and the IPH Group is also a leading Australian trade mark group in Australia and New Zealand.

Slide 5, the highlights of half year '20. I'll step through some of these highlights, including our progress both at operational and financial level. The progress has been reflected in the strong competitive platform we have created for the business to continue to pursue our vision. It's a vision we've had from the start to be the leading IP services group in secondary IP markets. And I'll elaborate further on this in the next slide.

So in terms of operational highlights, we're very pleased with performance of the former Xenith IP business during the half. On a pro forma basis, revenue and earnings have increased. John will go into some detail on that in the next few slides. The enhanced performance of the former Xenith business is, of course, assisting in the overall improvement in the IPH Group performance for this half.

Pleasingly -- I mean very pleasingly, our Asian business continues to deliver double-digit organic growth. Asia, for many years, has been the growth engine of the group and has continued its strong momentum from last year, representing its fourth consecutive half of double-digit growth.

We have successfully completed the first 100 days of the integration of the former Xenith business into IPH. As I said earlier, this is the largest acquisition since listing. We're successfully delivering the key milestones in the integration process, and we are on track to achieve the synergies we estimated at the time of the acquisition. As always, we continue to leverage our network to grow our Asian business. That's reflected in the strong financial result as more and more clients access our offering across the region.

And finally, we continue to strengthen our corporate platform to underpin our growth strategy. During the half, I'm very pleased to say we've appointed a new Chief Operating Officer, a new Chief People Officer and designed and rolled out a group-wide IT services support structure. These are all key enablers which allow us to continue to deliver our strategy.

So in short, before passing on to John, I'm very pleased with the progress we are making in strengthening our business while also delivering strong results. And with that, I'll hand over to John, who'll take us through the financials in more detail.

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John Wadley, IPH Limited - CFO [3]

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Thank you, Andrew, and good morning, everyone. Firstly, a few preliminary comments which may assist in the interpretation of these results. Like most companies and observers, we are grappling with the introduction of the AASB 16 accounting standard and how to best present the most comparable picture. I'll remind you that for the IPH Group, the main impact of this standard is to replace lease costs, in our case predominantly premises costs, with a corresponding charge to depreciation and financing expenses. This has the impact of increasing reported EBITDA while it does not impact the cash flow.

The amount of lease expense recorded in the prior half was $3.4 million. The amount of depreciation and financing charges in the current period is $6 million, including the addition of 4.5 months of the Xenith Group. The total of these charges on an annualized basis for our current property portfolio will be $12 million, as previously advised. You will note from a review of our statutory accounts, the financial results for the corresponding prior period do not include the adoption of this accounting change as any transition impact has been taken through retained earnings as permitted by the accounting standard. With this mind, while the percentage increases on this slide are pleasing, the usefulness from a comparability perspective is limited as they are covered by the acquisitive impact of Xenith as well as the different treatment of lease costs in the relevant periods. For this reason, I will concentrate on the next slide and the like-for-like analysis.

Moving on to Slide 8. This presents a view of the results that they would have been under the old leasing standard, i.e., leasing costs have been included in the calculation of EBITDA. As this slide indicates, we have shown growth in all of our headline financial metrics against the prior comparative period. Unpacking the result, the main contributors have been the 4.5 months of acquisitive growth from the Xenith IP business, foreign currency tailwinds and organic growth from our existing businesses. Those factors have resulted in an underlying EBITDA of $54.9 million, up 36% on the prior comparative period. The contribution of the Xenith business to these results has been revenue of $48.8 million and underlying EBITDA of $9.5 million. The percentage increases are against the corresponding 4.5-month period in the prior year when the business was under Xenith ownership.

The comparatives on this slide are impacted by the average AUD-USD exchange rates in the relevant periods. The average in the first half of '19 was $0.724, while in the first half of '20, it has been $0.685. The strengthening of the USD by an average of $0.039 has the impact of improving reported results. This impact is removed in the like-for-like analysis on the next slide.

The key difference between the statutory numbers on the left and the underlying numbers on the right and the widening of the gap between these numbers is a result of the large amortization charge from the Xenith acquisition. The amount recorded in this period is $9.1 million, and this is expected to be $20.5 million on an annualized basis.

Underlying NPAT has grown by 31%, and the underlying diluted earnings per share has risen by 23% to $0.174 per share. I'll also highlight the interim dividend of $0.135 per share, a 13% increase on the prior year. This dividend will be fully franked as a result of the additional franking credits obtained through the Xenith acquisition. It is expected that the final dividend can also be fully franked.

Moving on to Slide 10, being the like-for-like revenue and EBITDA. The like-for-like basis eliminates the impact of acquisitions and the foreign exchange impacts I discussed earlier. On a group-wide basis, revenue grew by 6% and EBITDA by 14% on this like-for-like basis. The new business column in the table removes from the half year results the 4.5-month contribution of the Xenith business. This is a representation of the 4.5-month corresponding period prior to IPH ownership and does not include the additional contribution generated under IPH ownership. The Xenith business has performed in line with our expectations with an EBITDA contribution of $9.5 million. This has been delivered through the realization of corporate cost synergies, improvement of underlying business margins and our performance to budget, including as a result of litigation matters. Andrew will talk further on the Xenith acquisition and integration in later slides.

The next 2 columns to the right show the FX impact on both the balance sheet and the P&L. The currency adjustment column reflects the comparative advantage of the stronger USD throughout the first half of '20. As mentioned, the average Australian-USD exchange rate during half year '19 was $0.724, while in half year '20, it was $0.685.

The main contributor to the increase in the ANZ like-for-like revenue and EBITDA performance has been the year-on-year enhanced performance on the Xenith business. Revenue for the IPH legacy business in Australia and New Zealand on a like-for-like basis was flat against the corresponding period, reflecting its lower filings due to client activity and mix. However, as outlined at the AGM, the preexisting IPH ANZ EBITDA has improved, reflecting the prior operational integration of FAKC and Cullens with Spruson & Ferguson and a continued, solid performance from AJ Park, which has maintained its EBITDA margin from the prior year.

Also, as outlined at the AGM, Asia has continued its outperformance from the second half of last year, mainly resulting from the flow on activities of initial filings from the prior financial year and continued growth in filings across Southeast Asia, in particular in those jurisdictions requiring translations. Excluding the impact of foreign exchange on the revaluation of U.S. dollar debt, the group has had an increase in IPH legacy corporate costs of $800,000, reflecting investment in the IT function, increased D&O insurance costs and increased compensation of new executives added during FY '19. In addition, there were $600,000 of costs for the Xenith corporate office in the period since ownership, a reduction of $1.3 million compared to the prior stand-alone period. Corporate costs, excluding FX movements, are expected to be around $6 million in the second half.

Looking at Slide 11, the underlying NPAT and earnings per share. This shows the calculation of the underlying result, which is on a consistent basis with prior periods. It then shows further reconciliation from the reported half year '20 results to the pre-AASB 16 half year '20 results. The main adjustments to the statutory result in the current period include acquisition costs related to completed and potential acquisitions and restructuring costs related to postacquisition activities for Xenith Group. As mentioned earlier, amortization of acquired intangibles has increased by $12 million on an annualized basis as a result of the Xenith acquisition. The underlying effective tax rate is marginally higher at 27%, reflecting a higher proportion of earnings derived in Australia due to the Xenith acquisition.

Slide 12 on the cash flow. Cash conversion has improved against the prior period and remained strong. Improved metric is primarily reflective of the collection of receivables from Asia's strong second half of the prior financial year. Strong cash flows continue to support a high dividend payout, which is reflected in the payout ratio of the interim dividend, which is 83% of cash impact.

Slide 13 on the balance sheet. The main changes relate to the change in accounting standard and the acquisition of Xenith. The implementation of the new standard results in the recognition of a right-of-use asset and lease liabilities, which relate to deferred tax balances. The completion of the Xenith transaction resulted in the issue of $130 million worth of shares and the drawing of additional debt of $65 million. The acquisition accounting of Xenith increased goodwill by $120 (sic) [$112] million and recognized intangible assets of $135 million, again which relate to deferred tax balances. The balance sheet remains conservatively geared at 0.8x on a pro forma basis.

Looking at Slide 14, the impact of foreign currency. Based upon the USD profile in the first half, a $0.01 move in the AUD-USD exchange rate equates to approximately $2 million of revenue on an annualized basis. As mentioned previously, our first half results came through at an average of approximately $0.685 versus the comparable period of $0.724. A noticeable impact in the current period has been about the strengthening of the USD against the Australian dollar and also the strengthening of the Singapore dollar against the Australian dollar.

Finally, looking at Slide 15. This slide provides some context and shows the continued progression of the group since listing through both acquisition and organic growth. It also gives a flavor of the impact of the lower margins of a number of the acquired businesses, which has dampened the overall margin of the group.

I'll now hand back to Andrew to take a closer look at the business.

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Andrew Blattman, IPH Limited - CEO, MD & Director [4]

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Many thanks, John. I'm just moving into Slide 16, the market overview, more specifically Slide 17 on IPH Group global filings. In our past presentations, we've typically focused on filings in the home markets of Australia and Singapore, commentary on a selection of the more significant filings in other countries of the Southeast Asia region. And of course, we will present those in subsequent slides. However, I wanted to spend a couple of minutes to update you on the IPH Group filing trends across all markets, and I'll use Slide 17 to do this.

It gives you an appreciation of the scale of the business. The horizontal lines essentially show total patent market size in Australia, Singapore and New Zealand, while the bar charts show the -- our group filings. I think it's important to put that overall scale of group filings into context. Filing activity does extend well beyond Australia and New Zealand and the Southeast Asia patent markets. It also includes outbound filings and what I'll call local clients. And these local clients may include public sector research organizations, SMEs, all the way through to local inventors. And moreover, with the Xenith acquisition, the IPH Group is the largest filer of what we call international or PCT-type patent applications in Australia. These applications have the potential to multiply as they generate their own family of national applications all around the world when they're filed internationally.

So coming back to Slide 17. You can see IPH is a significant global filer. The annualized IPH Group patent filings are more than the total combined markets of New Zealand and Singapore and represent more than half the entire Australian patent market. And this scale, I think, is important as it mitigates any minor or periodic fluctuations in filings in certain markets.

So moving to Slide 18, the Australian patent market. As I've said in the past and many of you heard in the past, IPH is not a business that should ever be measured on a 6-month cycle. Patent filings are influenced by client activity and mix, which can vary from one period to the next. So while there may be fluctuations from one 6-month period to next, the longer-term fundamentals, including innovation requiring IP protection, remains supportive. Overall, the Australian patent market declined by 1.2% for the half compared to the prior corresponding period. The market, as you may recall, have expanded by 0.8% full year, last year in '19. And as I've said on many occasions in another forum, the medium-term growth rate is around 1.5%. IPH Group filings, including Xenith on a pro forma basis, declined by 3.5%. The reduction in filings reflects our client mix and filing activity compared to the prior period. We have not experienced any major client losses during the half, and indeed, IPH won 2 new major clients towards the end of calendar 2019 from which we can expect to see some increased filing activity reflected in the second half and beyond. IPH has maintained a #1 position with the combined group market share, including Xenith, on a pro forma basis of 36.9%.

Moving to the Singapore market on Slide 19. I'm pleased to report that the Singapore market continues to grow and IPH continues to hold the #1 market position. Overall, the Singapore market maintained its recent strength, growing by 5% for the year ended December 2019. This follows a 6.8% increase in filings for the previous year, calendar year '18 and reflects new entrants in the patent market in Singapore. IPH Group volumes were up 1.8% in calendar year '19 over '18, and we continue to hold the #1 patent market position in Singapore with 22.3% patents filed in calendar year '19.

Slide 20 is a favorite slide of mine, Slide 20. It reflects one of the reasons why our Asian business has experienced 4 consecutive halves of double-digit growth. What sets IPH apart from our competitors is the breadth and diversity of our operations across the region. This is important because we can -- while we can leverage scale and the scale that comes with this, the diversity of our country exposure provides balance and resilience and individual markets rise or fall and client number -- client filing patents vary. We continue to leverage our network across the region with increasing numbers of clients filing with us in multiple jurisdictions. During the half, our filing activity increased across almost all Asian jurisdictions, and this is a strong -- continuation of the strong momentum we experienced in the second half of FY '19. As you can see from this slide, we had excellent growth across other Asian jurisdictions with total patent filing growth of 27.5% for the half year compared to the prior corresponding period.

Just a note on this slide. The chart reflects where the filing is made by an IPH entity as the agent in each jurisdiction. There are often additional cases filed with legacy agents on behalf of IPH clients. In addition, in Vietnam and Philippines where we don't have a physical office, the work is performed by an IPH entity but an external agent is used to file with the relevant patent office.

We still have some more work to do in China. As I've said previously, we're a little subscale in China at present. As a consequence, our client base tends to be concentrated. With more client diversification, we would be less susceptible to the R&D cycles of individual clients in this jurisdiction.

At this point, I would like to make a brief comment about the coronavirus situation, specifically in China. IPH has a broad Asian business, including offices in Beijing and Hong Kong. We continue to monitor developments in relation to these issues, and of course, our primary focus, as always, remains on the health and safety of our people. We have business continuity plans in place, but inevitably, we expect there'll be some disruption to our business. We do not anticipate any significant loss of revenue as the majority of our clients, as you well know, are based in the primary markets of U.S., Europe, Japan and Korea. However, we may see an impact on revenue timing should our offices be disrupted. I would like to take this opportunity to thank all of our people in Asia, particularly our teams in Beijing, Hong Kong and Singapore and the IT groups in IPH and across our Asian business units who have worked to ensure we continue to deliver client services.

Slide 21, the trade mark market. The overall trade mark market in Australia was down 1.4% for the half compared to the prior period. IPH is the leading Australian trade mark group by market share of the top 50 agents with a market share of 21.6%, including Xenith IP on a pro forma basis. As many of you may be aware, trade marks is a smaller component of our business, accounting for approximately 19% of group revenue.

Operations in Slide 22. As I said at the start of the presentation, the successful acquisition and integration of Xenith IP has been a key highlight for the half and also a focus of management attention as we have worked to consolidate our expanded business. I'll now focus in more detail on how integration plans are progressing, including update on performance of the former Xenith businesses and synergies arising from their integration into IPH, Slide 23.

As you will be aware, we successfully acquired Xenith IP Group on 15 August 2019 by way of a scheme of arrangement. Our combined group now has a broadened Australian business, and our new businesses can leverage IPH's significant experience and geographic reach in the Asian region. This provides clients a comprehensive IP service offering across the region and strong career development opportunities for our people. The integration is certainly a significant program of work, and I'm very pleased with our progress to date.

As always, as a professional services business, our people are critical to our success. Therefore, a key priority was the launch of the IPH Employee Incentive Plan to all eligible employees across the former Xenith business. This was successfully rolled out in late 2019 and forms a part of our strategy to motivate and retain our people within the business. Also, IT services are integral to the growth of our business and therefore a key part of the integration progress -- process rather, has been bringing together 2 large IT teams and designing a new IT services structure to provide more agile and specialized IT services across the group. This process was completed in December 2019 and forms part of the group's broader IT and digital strategy.

Importantly, former Xenith business units now have direct access to our established Asia platform and high-quality IP services across the region. Just as we saw with the AJ Park acquisition, over the last 2 years, we are starting to see referrals from the former Xenith businesses across our network, and we expect that to increase over time as we fully integrate the businesses into the group. As you may recall, one of the key announcements we made late last year was integration of the Watermark business into Griffith Hack. This process is well underway. Watermark will collocate in Griffith Hack's Melbourne, Sydney and Perth offices from April 2020. This integration provides Griffith Hack clients with access to a deeper pool of IP experts in Australia, whilst Watermark clients will benefit from access to Griffith Hack's larger IP team, established systems and processes and expanded geographic footprint. The integration also provides enhanced career and development opportunities for both Watermark and Griffith Hack employees as they are part of a much larger business. As we announced at the time, the integration will provide annualized net financial benefits of between $2 million and $2.5 million from FY '21 onwards primarily from the consolidation of leased office space and corporate, administrative and operational efficiencies and improvements.

Slide 24. The slide provides an update on Xenith synergies and performance since acquisition. As we indicated at the time of the acquisition of Xenith IP and again at the Annual General Meeting, we expect to achieve cost synergies primarily from the removal of duplication of function, and these are estimated to be achieved over a 3- year period. We also indicated the level of synergies would be partially offset in FY '20 by the implementation of our staff incentive plan, which I just described. We remain on track to achieve net cost and revenue synergies after the staff incentive plan included of approximately $3.4 million in FY '20. These synergies, as previously advised, are separate to those arising from the integration of Watermark into Griffith Hack.

I'm pleased to report that the performance of the former Xenith business units in the first half has been enhanced as being a part of the IPH Group. At the top line, revenue was up 8% on a pro forma basis, including increased revenue from a significant litigation matter, which I'll remind you and as described in other presentations tends to be more lumpy in nature. Very pleasingly, earnings were up 50% on a pro forma basis. This reflects corporate cost synergies of $1.3 million, margin improvement of $0.5 million and the contribution of litigation matter. As I've said earlier, we've also seen the start of cases being referred through our Asian network, including filing case into Hong Kong, China and our other Asian jurisdictions, and we look forward to increasing traction in this regard.

Slide 25 is our strategic priorities as we will finish up with a brief summary going forward for FY '20. Our immediate focus remains on continuing the successful integration of Xenith into IPH, including integration of Watermark into Griffith Hack. We continue to focus on maintaining our leading position in Australia, New Zealand and Singapore and, as always, ongoing margin expansion. We will continue to leverage our Asian network to expand organic growth -- organic revenue opportunities and market share in these high-growth markets across the region. We look to drive further market penetration and sales in our WiseTime product while investing in our digital platform development. And as always, we continue to evaluate potential international acquisition opportunities in core secondary IP markets.

So in wrapping up, this concludes IPH's half year '20 results presentation. I'm very proud of the achievements for the half, and I would like to acknowledge the hard work and contribution of all our people across the group. And of course, many thanks to all of you for your continued interest and support. And back to our moderator to help us field some questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Michael Peet from Goldman Sachs.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [2]

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Just looking back at Slide 20, when I look at those Southeast Asian countries and Asian countries, particularly sort of Indonesia, Malaysia, Thailand, can you just sort of comment on how much of that growth is the market growth versus the growth that you're seeing from clients wanting to file in multiple jurisdictions?

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Andrew Blattman, IPH Limited - CEO, MD & Director [3]

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Look, thanks for the question, Michael. It's sometimes a bit hard to tell what the total market is in some of those jurisdictions. I mean Australia and Singapore, you can -- Australia, you almost get real-time knowledge of market size as -- through the Xenith patent office database and similarly in Singapore although there is a delay. That's why we always report it on the calendar year as opposed to financial year because there is a bit of a lag in Singapore. But in the rest of those countries, it's sometimes very difficult to see what the entire market is. So we don't give market share positions because we don't -- we might -- it might take us 2 years to get the full feel for the -- what the total market is. But certainly, there must be some growth in the market and -- but a lot of it from -- we see from our previous year's filings to the next is terrific growth, but I can't really tell you what the total market is until I get maybe the World Intellectual Property Organization figures, which may come out in -- with a 2-year lag.

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Operator [4]

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The next question comes from Matt Johnston from Macquarie. The next question comes from Sam Haddad from Bell Potter Securities.

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Sam Haddad, Bell Potter Securities Limited, Research Division - Industrials Analyst [5]

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Just related to that first question in Asia, just in terms of your outlook there, you previously flagged that you expect growth to moderate in the second half. Is that still the case? And just give us sort of some color around that, please.

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Andrew Blattman, IPH Limited - CEO, MD & Director [6]

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I think the second half, we have a strong -- as you know, Sam, a strong comparative to the previous period. Look, we're hoping to maintain our momentum going forward, of course. There is a complication of the coronavirus, which is -- we think has the potential to have some disruption. Our client base is not local Chinese applicants typically. It's more from the primary markets, U.S., Europe and Japan and Korea. So we think there may be an impact on revenue timing as opposed to revenue per se, but it's hard to get a feel for what that is at this point. But we're certainly aware we've got a strong comparative period from last year.

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Operator [7]

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Your next question comes from Matt Johnston from Macquarie.

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Matthew Johnston, Macquarie Research - Analyst [8]

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Sorry, guys. I think I got cut off. Just my question around Xenith, now that you've got it in your hands, do you see any further potential synergy upside? And maybe just a quick comment around other further M&A opportunities.

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Andrew Blattman, IPH Limited - CEO, MD & Director [9]

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We're really pleased, Matt, with the progress we've made to date with Xenith and the support we're getting from the Xenith business to be frank. I mean it's an excellent result that helped deliver for IPH. And we're always looking for improvements, of course. And once you stop doing that, you may as well shut the shop. But yes, in international acquisitions, I've said that there's opportunities there and we continue to scan. You'd probably recall the commentary we made with respect to the Watermark into Griffith Hack. We said full year synergies come back to that -- the XIP opportunity. I'll refer you to some earlier comments and I think it's in -- I think Slide 23. We'll have $2 million to $2.5 million, we think, for the FY '21, which is separate to the $3.4 million we referred to in the Xenith opportunity. So we're still on track for all of that. Now whether we get more out of it, time will tell, but that's -- our approach is to optimize every business we have.

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Operator [10]

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Your next question comes from Nick Caley from Baillieu.

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Nicholas Caley, E.L. & C. Baillieu Limited, Research Division - Equity Research Analyst [11]

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Just a couple of quick ones, I'm sorry. Just what's the time line? Can you just remind me the time line, how long before Xenith is fully integrated?

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Andrew Blattman, IPH Limited - CEO, MD & Director [12]

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Yes, Nick, we got you. We got you loud and clear. What we said we'd be bringing in Watermark into Griffith Hack from April with a full integration from July in terms of operating systems and billing platforms, but now it's the period for the synergy capture is over 3 years.

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Nicholas Caley, E.L. & C. Baillieu Limited, Research Division - Equity Research Analyst [13]

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3 years. Okay. That's fine. And just the outlook for franking, just a little -- so do you think you can frank beyond this year to 100%? Or is it just this year?

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John Wadley, IPH Limited - CFO [14]

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That's what we're committing to at this stage. I mean it's probably going to be larger than the 50% or 60% previous guidance because we've got more of that proportion of income or our profits here in Australia.

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Operator [15]

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Your next question is a follow-up question from Michael Peet from Goldman Sachs.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [16]

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Just following up. Just what are you seeing coming down the pipe from the primary markets on the PCT side? And how do you explain the -- so a little bit of softness there in the local market in terms of -- or Australia in terms of filings versus the longer-term average?

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Andrew Blattman, IPH Limited - CEO, MD & Director [17]

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Look, when we look at the WIPO figures on PCT filings, it's pretty steady. It's been pretty steady for a long time. In the primary markets like the U.S. and Europe and Japan, there's no long-term decline or anything. The Australian position, look, it goes -- it's been up and down over the last 3 years but it's never significant. As I said in my presentation, the long term -- or the medium- to long-term growth in Australia since the late '90s has been about 1.5%. It's not a high-growth market at any time, and this is one of the reasons why we thought consolidation wasn't [hard] to take. But we don't see any -- say, no major client loss from us. We see some client cycling through their own R&D patents but nothing that gives us any great pause.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [18]

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No sort of issues with the trade wars or slower economic growth globally that's sort of making the markets a little bit softer at the moment?

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Andrew Blattman, IPH Limited - CEO, MD & Director [19]

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Well, the only thing with trade -- well, the outcome and trade in -- with China, no, you're more of an international trade expert than I am possibly, Michael, but I would have thought one outcome might have been an increased certainty in filing into China. But of course, that doesn't account for coronavirus, which may have some disruption in that. But when there's greater certainty of IP protection in a market that size, you would think you would see greater flow of cases into. Now as I said, our China business is a little bit subscale for -- needs to get a little bit bigger, and that's one of the things we do focus on as well.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [20]

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Just to follow up on that. So do you need to make another acquisition, you think, to really get that up?

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Andrew Blattman, IPH Limited - CEO, MD & Director [21]

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We're always looking for opportunities, Michael.

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Operator [22]

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Next question is a follow-up question from Sam Haddad from Bell Potter Securities.

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Sam Haddad, Bell Potter Securities Limited, Research Division - Industrials Analyst [23]

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Just on your -- on the 2 smaller businesses, WiseTime and Glasshouse, what are you seeing in terms of the opportunity for Glasshouse? And when do you think -- can you give us some sort of time line in terms of WiseTime as to when you'll see that become profitable? I understand you've been investing in marketing to grow that business. Just give us an update on that, please.

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Andrew Blattman, IPH Limited - CEO, MD & Director [24]

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Glasshouse is a business we're getting to know and have been for the last -- well, since August, more and more getting comfortable with the business and understanding the business. WiseTime is something that we've been happy to invest in. We refocused -- as you know, Sam, we refocused it with some divestments of 3 other products within the general practice, inside group as it was some 3 or 4 years ago. So now we're fully focused on WiseTime. But we're seeing opportunities come through. We're seeing good pipeline there. It's -- as time moves on and the core business of IPH gets bigger, the underlying business of WiseTime and Glasshouse is comparatively smaller. But we still think there's opportunities there and that's something that we'll continue to pursue.

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Sam Haddad, Bell Potter Securities Limited, Research Division - Industrials Analyst [25]

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And just one final question. On your corporate cost, just some guidance on the full year given the expanded business.

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John Wadley, IPH Limited - CFO [26]

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So I think I said in the presentation, it's going to be $6 million in the second half, and so just double that.

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Operator [27]

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(Operator Instructions) There are no further questions at this time. I will now hand back to Dr. Blattman for closing remarks.

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Andrew Blattman, IPH Limited - CEO, MD & Director [28]

--------------------------------------------------------------------------------

Well, thanks very much, everyone. I've got nothing further. So I'll probably catch up with some of you in the next few days, John and I, as we make rounds. But of course, as always, thanks for your interest and continuing support.

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