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Edited Transcript of REA.AX earnings conference call or presentation 8-Aug-19 11:00pm GMT

Full Year 2019 REA Group Ltd Earnings Presentation

Aug 14, 2019 (Thomson StreetEvents) -- Edited Transcript of REA Group Ltd earnings conference call or presentation Thursday, August 8, 2019 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Graham Curtin

REA Group Limited - Executive Manager of Financial Reporting

* Janelle Hopkins

REA Group Limited - CFO

* Owen James Wilson

REA Group Limited - CEO & Director

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Conference Call Participants

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* Entcho Raykovski

Crédit Suisse AG, Research Division - Research Analyst

* Eric Pan

JP Morgan Chase & Co, Research Division - Analyst

* Eric Choi

UBS Investment Bank, Research Division - Director and Australian Telco and Media Lead Analyst

* Ivor Ries

Morgans Financial Limited, Research Division - Senior Analyst

* Kane Hannan

Goldman Sachs Group Inc., Research Division - Research Analyst

* Lucy Huang

BofA Merrill Lynch, Research Division - Analyst

* Paul Mason

Evans & Partners Pty. Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the REA Group Limited Full Year Financial Results for 2019. (Operator Instructions)

I'd now like to hand the conference over to your first speaker today, Mr. Graham Curtin. Thank you. Please go ahead.

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Graham Curtin, REA Group Limited - Executive Manager of Financial Reporting [2]

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Good morning, everyone. My name is Graham Curtin, Executive Manager of Group Finance, and I'd like to welcome you all to the REA Group's 2019 Full Year Results Presentation. Today, we'll hear presentations from our CEO, Owen Wilson; and CFO, Janelle Hopkins. Owen will talk about our overarching financial performance, business developments, the state of the Australian property market and our customer and consumer highlights. He will then hand over to Janelle to talk through our financial results in more depth. Following this, we'll be happy to take any questions you may have.

With that, I'll hand over to Owen to start the presentation.

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Owen James Wilson, REA Group Limited - CEO & Director [3]

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Thanks very much, Graham. Good morning, everyone.

REA Group has delivered a strong result in a year of unprecedented market conditions. Financial highlights include revenue growth of 8% to $874.9 million, EBITDA growth of 8% to $501.2 million and NPAT growth of 6% to $295.5 million. The Board has declared a final dividend of $0.63 per share fully franked. This represents a total dividend of $1.18 per share for the 2019 financial year, an increase of 8% on the prior year.

Revenue growth was driven by an 8% increase in the Australian business. This was due to the resilient performance of the Residential and Developer businesses, both of which faced challenging market conditions, particularly in the second half. The results also reflect the full year contribution from the Hometrack business.

Our continued growth was achieved despite significantly lower residential listing and new development project commencements throughout Australia. Total residential listings declined 8% for the year with declines of 18% in Sydney and 11% in Melbourne. Various factors contributed to the unfavorable market conditions, including state and federal elections and much tighter lending conditions.

While the listing declines have continued into FY '20, the conditions for recovery in listings are certainly present; we've had 2 interest rate cuts, the retention of negative gearing and the relaxation in lending requirements by APRA.

We're also seeing a very healthy increase in buyer activity on realestatecom.au. Inquiries for properties for sale have grown 25% year-on-year. And in July, we had our highest ever number of visits. So it feels like the buyers are back. Janelle will provide you with more insights into the market conditions in her presentation.

I'm very pleased with our performance when you consider these have been some of the toughest market conditions we've ever faced. It's a testament to the caliber of the people at REA who underpin everything we do.

Our results illustrate the clear value we continue to deliver to our customers and consumers. This is evidenced by the record levels of customers signing up to our Premiere All in our latest contract renewal.

As you can see on this slide, our strength is our ability to connect our customers with the largest and most engaged audience of property seekers in Australia. With an average of 60 -- 76.8 million visits to realestate.com.au across all platforms each month or nearly 3x more than our nearest competitor, it is clear our audience is deeply connected with the experiences we provide.

Our realestate.com.au app is Australia's #1 property app with more people using it to find a niche property than ever before. App launches increased 21% during the year to more than 29 million launches each month. The time people are spending on our app each month is nearly 5x more than our nearest competitor. And our total depth app downloads grew 14% during the year to 9.1 million. These numbers paint a compelling picture that consumers remain passionate of our property. They also recognize that realestate.com.au is a go-to destination for the best content, deepest insights and richest market data.

Our results also demonstrate the strength of our strategy. We are well positioned to continue to deliver superior value with our customers and consumers. Our underlying strategy remains the same to have the best property marketplaces in all of our locations.

We've changed the way we represent our strategy with the wheel demonstrating the interconnection and interdependence between our 3 core objectives: To provide individual, proactive and lifelong consumer interactions, or IPL, as we refer to it; to provide the richest content, data and insights to empower our customers and consumers in their decision-making; and to deliver the deepest customer value through innovative products that drive great leads and great ROI. As I've mentioned in our half year results briefing, our IPL program of work continue -- focuses on staying connected with consumers in between their property transactions.

One of our strengths is the ability to understand our audience. If we're going to be the only place for property, we need to provide consumers with highly personalized experiences throughout their entire property journey. Australians are holding onto their properties for longer. The length of time between buying and selling is now 10 to 12 years on average. We want to provide value beyond their traditional transactions of buying, renting and selling, and we're constantly looking for ways to extend our relationship with our customers -- our consumers, sorry, whether we -- they need advice on their mortgage, renovation tips or access to lifestyle content, or it might be through up-to-date valuations and rich insights about a property or neighborhood.

Looking at some of our consumer highlights for the year, we've made great progress. The number of logged in users on realestate.com.au grew by 9%. More than 1.2 million properties are now being tracked, demonstrating highly engaged consumers and potential buyers. We're the #1 place for rent in Australia with more than 4x the number of monthly visits through our rent section compared to our nearest competitor. More than 29,000 tenant verifications have been purchased by consumers since we launched this product in December, while 1form, our digital rental application tool, received more than 3 million applications, up 13% year-on-year. And Flatmates.com.au, Australia's biggest share accommodation site, continues to grow, welcoming over 450,000 new members to our community this year.

Our agent ratings and reviews feature experienced strong uptake, more than 18,000 verified agent reviews have been published since the launch in February. And during the year, we received a staggering 11 million visits from the people specifically looking for an agent.

Our customers remain the lifeblood of our business. It is critical that they not only see REA as a partner of choice, but we continue to deliver unparalleled value through the number and quality of leads we provide.

Agent Match, our product designed to connect customers with quality of indoor leads, is gaining momentum, now converting 20% of leads into listings and delivering great ROI to our customers.

In June, we launched Agent Reach, a new end-to-end digital marketing solution. Reach is designed to help sales agents and agencies build a new sales pipeline, boost their reputation and stay top of mind with local property owners. While it's still very early days, we're already seeing good uptake and positive customer feedback.

We recently launched an enriched leads trial, providing deeper insights into the leads we provide our developer customers. We also enhanced our developer project profiles, introducing recommended listings and a new video functionality, which saw a 67% uplift in video views. 1 in 5 agencies signed up for our newly designed eBrochure product, which increases listings' exposure by setting highly targeted e-mails to users who are showing interest in a specific suburb or area. And when it comes to improving the way our customers interact with us, we launched a new self-service customer platform, Ignite. More than 2,600 customers have already signed up to Ignite, making it quick and easy for them to review campaign performance in real time while on the go.

Reaching people beyond listings continues to be integral to our strategy, and we're doing this in several ways. We launched an exciting new partnership with the AFL, bringing together 2 of Australia's greatest obsession, property and football. This has created enormous potential to drive loyalty with our existing consumers and engage new audiences throughout the season.

Our development of editorial and video content has seen terrific results with over 52 million visits for our news, guides and lifestyle section. The production of 1,300 unique videos resulted in 6.4 million video views, up 45% year-on-year.

Our focus on Financial Services continues to be strengthened. realestate.com.au Home Loan has received more than $1.8 billion in online applications since launch in October 2017 and more than 12,500 unique visitors turn to our finance content hub every day.

On July 1, we acquired the remaining interest in Smartline. Through Smartline and our own realestate.com.au Home Loan-branded brokers, we've had over 400 brokers in markets helping people finance their next property. And as we progressed our goal of becoming Australia's property data powerhouse, Hometrack is now the single source of all property data on realestate.com.au.

Turning now to our global business. And as you know, our footprint spans 3 continents with businesses in Australia, Asia and North America. Our global investments provide access to some of the world's largest and fastest-growing property market.

In Asia, we improved our audience positions in Malaysia and Indonesia, as you can see on this slide, while our Squarefoot business in Hong Kong achieved audience leadership for the first time in June this year, which is really exciting. iProperty became the first major property portal in Malaysia, offering a native language search experience. This means we're now able to reach the 69% of the local population. Its primary language is Bahasa. Loan Care, our home finance tool, has seen more than 320,000 visits since its launch in March this year. And the team integrated WhatsApp in their experiences across Malaysia, Indonesia and Hong Kong.

Our investments in North America and India continue to perform well. Move increased its revenue by 7% to USD 484.1 million. realtor continued to grow its monthly unique users across web and mobile sites, averaging 72 million unique users in the fourth quarter, a 14% year-on-year growth. In October last year, Move acquired Opcity, which is a lead-generation platform matching buyers and sellers with real estate professionals.

As we continue to sharpen our focus on lead generation in Australia, we're looking forward to collaborating with the team and continuing to share insights.

Turning to our investment in India, where we have a 13.5% stake in the property sites PropTiger, Makaan.com and housing.com. The business delivered a revenue increase of 54% for the full year, and we continue to see strong audience and listings growth. In April 2019, the business acquired FastFox, a technology-enabled rental brokerage company, helps people find their next home.

I'll now hand over to our CFO, Janelle Hopkins, to go through the financial results. Over to you, Janelle.

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Janelle Hopkins, REA Group Limited - CFO [4]

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Thank you, Owen, and good morning, everyone.

REA Group has delivered a strong result in 2019 given the challenging market conditions, particularly during the second half. Revenue from core operations grew 8% to $874.9 million. This reflects the solid performance from our Residential business in Australia, which also grew revenue 8% despite facing headwinds throughout the year. Full year EBITDA from core operations grew 8% to $501.2 million, reflecting the strong revenue performance, the inclusion of Hometrack and a lower rate of cost growth from prior periods.

Pleasingly, our margin remained strong at 57%. NPAT growth from core operations were 6%. The NPAT results from core operations are different from the reported NPAT as the number of one-off items have been excluded. These are set out in the table at the bottom of Slide 13.

The key items excluded from the core results in 2019 are the $173.2 million reduction in goodwill for the Asia segment and the $15.7 million reduction in the carrying value of the investment in our India business, Elara. I'll speak more to these in the coming slides.

Market conditions were particularly challenging this year for our businesses. On this slide, we've set out the changes in listing volumes by quarter and dwelling commencements for the past several years. There were some substantial declines in residential listing volume, especially during the second half, with Melbourne and Sydney experiencing the largest declines in the past 20 years.

According to the BIS Oxford forecast, the decline in new dwelling commencements is expected to continue throughout FY '20 and is currently forecasted to be 19% down. These factors are expected to result in lower revenue growth in the first half of FY '20 due to strong comparatives in half 1 last year.

On this slide, we've set out the various components of our EBITDA growth. The main driver of revenue growth has been the continued strength of the depth listing products in the Residential business, particularly our Premiere All products. The revenue growth reflects the price change, which came into effect in July 2018, higher Premiere penetration and higher total depth penetration.

We also had strong growth in our Commercial and Developer businesses despite the challenging market conditions, making this result particularly pleasing. I'll talk through these results and the inclusion of Hometrack, which you can see coming through the media data and other revenue, in a bit more detail on the next slide.

Total operating expenditure grew 7%, reflecting the continued investments in product innovation, the inclusion of the Hometrack business and variable costs associated with higher volumes of our Audience Maximiser product in Australia. Overall, operating expense growth was lower than the rate of revenue growth for the full year.

This slide shows our revenue by line of business and category. Firstly, the revenue by category demonstrates the success of our premium listing strategy with depth revenue across the various businesses driving our strong revenue growth. The ongoing success of our Premiere All product has been the key to delivering growth in a challenging market.

The Commercial and Developer businesses achieved 6% revenue growth and were impacted by the significant drop in the number of new project commencements during the year. The decline in volume was offset by new customer acquisitions and increase in the duration of project profiles and an increase in commercial depth penetration.

Media, data and other revenue increased 16% to $110.2 million due to the inclusion of Hometrack and greater display advertising from developers as a result of longer project durations. This was offset by lower media revenue due to reduced advertising spend in key segments and lower inventory as a result of the increase in Premiere penetration.

The Hometrack Australia business, which was acquired in June '18, delivered on the previous FY '19 revenue guidance of between $14 million and $16 million and EBITDA between $6 million and $7 million.

The Financial Services business was impacted by tough lending conditions and resulted in a reduction in revenue year-on-year. The tightening of credit policies, reduced settlements in the market and the Royal Commission made broker recruitment more challenging. The impact of these market conditions will continue to influence settlement volumes for the remainder of the calendar year due to the lag between applications and settlements.

As Owen mentioned previously, we acquired the remaining 19.7% Smartline minority interest on July 1 for $16 million, which was a reduction from the contingent consideration held on our book at the half year.

I've already spoken about the success of our premium listings products, and this slide shows both the penetration and mix of depth listings in the Residential business. There is no scale on this graph, but the relativities between the categories offer scale.

Despite the headwinds the Residential business faced this year, both our total and Premiere penetration reached an all-time high. This graph illustrates the continued improvements in the level of depth penetration as well as an increase in the total percentage of Premiere listing, clearly demonstrating the superior returns these products provide to agents and vendors. The improved mix during the second half is pleasing given the considerably weaker listings environment in Sydney and Melbourne.

In addition to the increased depth penetration, we also saw a stronger contribution from residential products such as Audience Maximiser and Tenant Verifications.

In FY '20, the Australian Residential business will have the benefit of price increases, which came into effect on 1 July 2019, plus stronger levels of both Premiere and total depth product penetration on the back of the latest Premiere offering.

Moving to our international businesses. The Asian business comprised of iProperty and our Chinese listing site, myfun.com, contributing $48.6 million of revenue for the year, an increase of 10% and EBITDA of $7.4 million. Market conditions remain challenging as there've been changes in market dynamics. As mentioned at the half year results, we expect to continue our -- to increase our investment in the business to further strengthen our market position and innovate our consumer experiences.

Shifting to our investment in the U.S. Move completed the acquisition of Opcity during the year, which contributed to additional operating costs and increased our share of losses for the period. The acquisition has also contributed to Move's 7% revenue growth for the year.

And finally, Elara's business continues to strengthen with revenue increasing by 54% for the year and a 32% increase in combined traffic to all 3 platforms, driven by strong increases in average acquisitions. At 30 June 2019, the group recorded a $15.7 million reduction in the carrying value of its investments in Elara due to the deferral of near-term returns despite significant revenue growth.

On this slide are our operating jaws. As previously forecasted, our jaws remained open for the full year. However, inverted during the second half, where listing volumes declined significantly. Looking forward, we continue to target positive jaws for FY '20 with the rate of revenue growth expected to exceed the rate of expense growth. However, this will not be the case in every quarter due to the stronger listing comparatives in half 1 FY '19 and the different timing of expenses over the year.

While we are continuing to invest in growth initiatives, planned efficiency gains and strong cost management will significantly reduce the cost -- rate of cost growth in FY '20. Excluding the benefit of AASB 16, we expect full year cost to be flat year-on-year. CapEx as a percentage of revenue has been fairly constant for many years. This represents the continued investments in product innovation Owen spoke to earlier.

The implementation of AASB 16 will see some significant changes to the way in which businesses account for leases. For REA, this means we expect to recognize an additional $8 million to $11 million in depreciation and amortization expense whilst reducing our normal rent operating expenses by similar amounts. We also anticipate recognizing an additional $2 million to $4 million in finance costs, resulting in an overall negative impact to NPAT as our lease costs are front ended.

Turning to our cash flow slide. We delivered a strong operating cash flow of $379.4 million for the year, which is the addition of the first 3 bars on this graph. We repaid $120 million of our syndicated facility in December with the remaining $240 million due in December 2019. We envisage a portion of this will be repaid and a portion will be refinanced. After the repayment of debt and the outflows from CapEx and dividends, the cash balance at 30 June was $137.9 million.

I will stop here. Operator, if we could please now open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Kane Hannan from Goldman Sachs.

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Kane Hannan, Goldman Sachs Group Inc., Research Division - Research Analyst [2]

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Just a couple for me, please. Just on the FY '20 cost outlook. Can you just talk a bit more about the magnitude of the cost savings that you're expecting from those efficiency gains -- sorry, a bit more detail around where they're coming from. And then just confirming, so your cost guidance into FY '20, they were made after the accounting adjustments we'd be expecting in FY '20, ballpark of sort of $365 million versus $375 million this year? And then just on the Agent Match product. I think there's a comment in the slides around you're converting about 20% of leads into listings. So interested in what your conversion expectations were for that product when you set the $200 price point. And then also where you think that conversion rate could get to over time?

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Owen James Wilson, REA Group Limited - CEO & Director [3]

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So in terms of the expense guidance, what we've said is that if you exclude the impact of AASB 16 that we're targeting cost to be flat. If you include the impact, and obviously, the cost -- the reported cost will be down year-on-year. I'd have to clarify that.

In terms of the Agent Match conversion, it is tracking above what we expected when we launched the product, to be frank. Thus, the quality of the leads that are coming off of the site are excellent. And in terms of the charging for those agents who are not on Premiere All, we absolutely have commenced that. You had a question in the middle there, Kane. Can you repeat that one?

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Kane Hannan, Goldman Sachs Group Inc., Research Division - Research Analyst [4]

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So it's just a bit where those efficiency gains are coming from and probably the magnitude of them, if you're talking about continued investment. Are we talking a reasonable sort of cost down program? Or how should we be thinking about that?

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Owen James Wilson, REA Group Limited - CEO & Director [5]

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Okay. Coming from right across the P&L. In this market, we've been pretty rigorous on cost management. But it is true that we are constantly looking to reshape the organization to be faster and more efficient. I don't think there's been a year that I've been here that we haven't, in some way, tweak our structure and to deliver efficiencies, and we're doing more of the same in this environment.

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Operator [6]

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Our next question comes from Eric Pan from JPMorgan.

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Eric Pan, JP Morgan Chase & Co, Research Division - Analyst [7]

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Considering that you're only putting through a high single-digit price increase for the year, if we were to see double-digit listings declines for the full year, can we still expect positive jaws? Will you have the ability to pull back even more on marketing costs, for example? And then -- and just a follow-up on the Agent Match, how many leads are agents getting on average?

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Owen James Wilson, REA Group Limited - CEO & Director [8]

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So in terms of the outlook on revenue and further costs, I mean we -- we've said before, most of our costs are quite rare. We have marketing, and we can allow our staff members to [get leads] following recruitment. We have assumed negative listings in the first half just because it's a comparative to last year. So that's already in our outlook statement, Eric. And the extent that it stays sound at these levels for the rest of the year, then we would look to take further action, but we just don't envisage that happening. When you get to the second half, the comparables are very favorable for us.

And as I said in my commentary, we believe the conditions there are for the market to come back. The buyers are definitely back. You're seeing auction clearance rates very high, albeit of a low number of auctions. It's just been there clearly on our side and speaking to the banks, they're back lending. The capacity of borrowers today versus 12 months ago for the same-level income has definitely increased because of the changes in the APRA regulations. So we feel confident that it will come back at some stage. But because if we're being quite conservative because of the tougher comparatives in the first half, we're assuming they'll be negative for the rest of this half.

In terms of Agent Match, are you -- I assume you talk about how many leads each agent gets.

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Eric Pan, JP Morgan Chase & Co, Research Division - Analyst [9]

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Correct.

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Owen James Wilson, REA Group Limited - CEO & Director [10]

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Yes. It varies. It depends on the consumer. Most consumers want to speak to more than 1 agent. And so they'll typically pick up to 3 and usually 2 leads the agents. And as I said on the call, what we're finding is we're getting a 20% conversion rate on those leads.

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Operator [11]

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Our next question comes from Eric Choi from UBS.

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Eric Choi, UBS Investment Bank, Research Division - Director and Australian Telco and Media Lead Analyst [12]

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Just have 3 so -- mostly a follow-up to the previous questions. First one, just on the listings. Would you had assumed, I guess, that minus 19% national listings decline you're seeing now? Are you sort of assuming that continues across all the first half '20? And then I just wonder whether you're already budgeting for negative jaws first half but potentially positive your second half. That's the first question. And then just secondly, just on a follow-up on Agent Match lead again. I'm actually was wondering how much the overall number of system leads being delivered now are and sort of the main funnel points that are delivering those leads. And then just the last question on Move. I think News Corp called out an improved profitability contribution from Move into FY '20, but then I sort of look at your first half versus second half phasing, and it looked like it got worse. So maybe if you can just help out -- help us out with what those profit contributions could look like into FY '20?

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Owen James Wilson, REA Group Limited - CEO & Director [13]

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Thanks, Eric. Look, in terms of listings, they are tracking down at that kind of minus 19% level at the moment. We are starting to see growth on our side, but also just in terms of the feedback from agents that they are expecting [Prem] to return listings. So no, we're not assuming this level of reduction for the entire half. So as I said, we do expect to be down on average for the half, and it will vary. And in some states, the feedback that I'm hearing from our customers that they're expecting quite a positive spring, whereas Sydney, in particular, is probably not as buoyant and Melbourne is sounding a lot more positive. So it's very hard to predict. Look, we have said this before with any certainty. There aren't a lot of great leading indicators, but our assumption is negative for the half.

And in terms of our guidance, then, what we've said is that we're having positive jaws the full year, but there won't be the case in every quarter. And the more likely quarters to be negative, obviously, where the listings are going to be weakest. So that's our guidance on there.

In terms of the lead, it's coming from the Agent Match part of the site. It's the really only one way -- one place you can contact the agent on the site, and so that's the part of the funnel is coming from. What we do, do, though, we do nudge consumers. So as they're moving around the site, if it's pretty clear that they're looking for an agent or they're looking to sell sections, for example, then we will encourage our consumers to move into the Agent Match part of the site, and then ideally, trying to let an agent through that methodology.

Now in terms of Move, I might hand that one over to Janelle.

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Janelle Hopkins, REA Group Limited - CFO [14]

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Thanks, Owen. In relation to Move FY '20, consistent with what the News Corp provided guidance, but we are expecting the overall results to improve, although we haven't provided any guidance on the phasing of when that will occur.

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Operator [15]

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Our next question comes from Entcho Raykovski from Credit Suisse.

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Entcho Raykovski, Crédit Suisse AG, Research Division - Research Analyst [16]

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I've got 3 questions as well. So the first one going to the usual chart on Page 17 where you've seen increasing penetration of the Premiere product. Just picking up on some of your comments now, just in absolute terms, has -- have the number of Premiere listings increased over the second half relative to the first half and a year ago? And can you give us an indication of what that was like in the fourth quarter?

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Owen James Wilson, REA Group Limited - CEO & Director [17]

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Entcho, as we've -- you've -- that -- these graphs are the proportion of listings. So it's the proportion of listing percentages or the proportion of listings that are Premiere.

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Entcho Raykovski, Crédit Suisse AG, Research Division - Research Analyst [18]

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Okay. Got it. So is it fair to assume that in 2H, you saw a decline in Premiere listings year-on-year?

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Owen James Wilson, REA Group Limited - CEO & Director [19]

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In absolute number?

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Entcho Raykovski, Crédit Suisse AG, Research Division - Research Analyst [20]

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Yes.

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Owen James Wilson, REA Group Limited - CEO & Director [21]

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No.

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Entcho Raykovski, Crédit Suisse AG, Research Division - Research Analyst [22]

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Okay. So you still saw some level of growth in the absolute number?

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Owen James Wilson, REA Group Limited - CEO & Director [23]

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Marginal.

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Entcho Raykovski, Crédit Suisse AG, Research Division - Research Analyst [24]

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Marginal. Okay. Got it. And then...

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Owen James Wilson, REA Group Limited - CEO & Director [25]

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Before, absolutely lower, given the reduction in listing volumes.

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Entcho Raykovski, Crédit Suisse AG, Research Division - Research Analyst [26]

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Got it. Okay. And then interested in -- I mean I appreciate -- maybe this is getting too granular around the guidance going to the first half of '20, but your expectations that, that Q4 trend continues around Premiere, or do you think that the 1H will see some Premiere growth year-on-year?

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Owen James Wilson, REA Group Limited - CEO & Director [27]

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I can only talk in proportion, Entcho. And what I can tell you is we've got record sign up. So when you -- when we publish this graph in H1 '20, the tower will be higher, and the portion of rate will definitely be larger.

We have been delighted and quite positively surprised, quite frankly, with the number of e-customers coming to Premiere All. And including some -- you've heard me speak about somewhere -- some larger customers who might have had a definite preference not to sign in prior years this time. So it's been a fantastic outcome.

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Entcho Raykovski, Crédit Suisse AG, Research Division - Research Analyst [28]

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Got it. So given some of those outcomes, do you think you now effectively have full penetration of the product of -- particularly given that you've given it another push this year? Or are there any other areas where you think geographically, in particular, still have an opportunity?

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Owen James Wilson, REA Group Limited - CEO & Director [29]

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No. There's still more to go. I mean there are still customers who haven't signed. There are still geographies underpenetrated -- well underpenetrated compared to the average, such as WA, for example. So no, definitely more to go.

And then on top of that, this is obviously a shout out, there's all the other listing products that are taking to market. So Audience Maximiser, eBrochure and the like, there's still very underpenetrated. So there's still a lot of growth.

But in terms of depth, I think we said this for a number of years, and you can just see this trend, you won't see dramatic movements in these bars. That will -- we expect to just see a gradual year-on-year increase, both in the heart of the tower and also the percentage that's red.

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Entcho Raykovski, Crédit Suisse AG, Research Division - Research Analyst [30]

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Okay. That's very useful. And just the final one from me. On the Smartline acquisition of the remaining 20%, was that -- I don't think that was the exercisable put option which was there. Could you give us some idea of the rationale given the mortgage market weakness?

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Owen James Wilson, REA Group Limited - CEO & Director [31]

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Yes. We're very excited by where we're headed with Financial Services. We're just seeing continued month-on-month improvement in both the application volumes coming off that site and the engagement with consumers. And we think now is the time that we've -- given we've got the certainty post the Federal Election of what the outlook is for commissions, car commissions for example, we think now is the opportunity to really go hard on Financial Services. And by taking out the minorities in that business, it just gives us greater flexibility to execute our strategy.

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Operator [32]

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(Operator Instructions) Our next question comes from Lucy Huang from Merrill Lynch.

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Lucy Huang, BofA Merrill Lynch, Research Division - Analyst [33]

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I've just got 3. So firstly, I'm just wondering if you can give us some color around the -- maybe the key states where you've increased your depth penetration relatively more significantly than the other region around the country, and maybe you can also talk about the competitive landscape and whether you're seeing an increasing competition across some of the states. And then just with my second question, I'm just wondering with the price increase plans for FY '20, whether the level of price increase is in line with what we've seen over the last few years, or has that been -- have you had to reduce that given the softness in the market? And then just one last question on the Developer and Commercial segment. So you saw pretty good growth considering the commencement decline. Just wondering if that's driven by price increases or purely depth penetration.

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Owen James Wilson, REA Group Limited - CEO & Director [34]

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So on depth by state, look, we did see new customers right across the country buy an app. If I had to call out 1 state that has been a standout, it would be Western Australia. We've spoken in the past, there's not a lot of -- there are no paid advertising in WA. And so it's being a lot harder to penetrate that market with it. But I got to say, we've had a very pleasing uptake in WA of our Premiere All contract. And what we're seeing there is what we're seeing in all the other markets. Soon as you get a few market leaders start to take up this contract, the others tend to follow. So I'd say WA has been the positive standout for us in that regard.

In terms of the FY '20 price increase, we've said high single digits on that. We said that at Q3. And so that was definitely taking into consideration the state of the market, and we felt that was a much more user-friendly price increase.

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Janelle Hopkins, REA Group Limited - CFO [35]

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And to your question around Developer and Commercial, we were pleased with the growth. It's predominantly a number of reasons. One, the extension of the project length of time. The projects have been on the sites, and we have had a number of new customers that have provided additional benefits to us.

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Lucy Huang, BofA Merrill Lynch, Research Division - Analyst [36]

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Okay. Wonderful. And sorry, just on the follow-up on the competitive landscape. So are you seeing any kind of competitive pressure or not really?

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Owen James Wilson, REA Group Limited - CEO & Director [37]

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Look, obviously, we've said (inaudible) . What we focus on is delivering value to our customers, provided with -- providing the most leads and the highest-value leads, that's what matters most to our customers. I think we're absolutely succeeding in that regard.

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Operator [38]

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Our next question comes from Ivor Ries from Morgans Financial.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [39]

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If I may ask 3 questions. One relates to Premiere All and another 2, Opcity -- others relating to Opcity and Elara. Just on Premiere All, I think Janelle mentioned that the uptake of Premiere All was expected to improve over the year due to a number of changes that were made in that package. I just wondered if you might be able to give us a bit of -- a bit more color on what sort of changes were made to the Premiere All package to make it more salable.

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Owen James Wilson, REA Group Limited - CEO & Director [40]

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I'm happy to take that one, Ivor. It -- we gave a number of pieces for example, in this market, we know that -- in the -- tough for our customers, we extended the payment terms, as an example, but we've also continued to provide free lease for Premiere All customers of the Agent Match for -- and that is best seen as hugely valuable. They are the main key changes.

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Janelle Hopkins, REA Group Limited - CFO [41]

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And we also increased the amount of time that could be on site from 45 to 60 days.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [42]

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Right. Right. Okay. Okay. So -- and the extending payment terms, was that a huge increase or just modest?

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Owen James Wilson, REA Group Limited - CEO & Director [43]

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Not a couple of weeks.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [44]

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Right. Okay. And just on my other question, just in relation to Elara, will that need another injection of capital this year?

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Owen James Wilson, REA Group Limited - CEO & Director [45]

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The funding of that is in place for the foreseeable future. Obviously, it is a cash-burning business because it's still growing off a low base in a very big market. So at some stage, it will require funding as to what form of the funding it takes with the debt of equity that will be decided by the board of Elara.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [46]

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Right. And just moving on to Opcity. Obviously, some of the losses that are being reported on Opcity relate to purchase price amortization rather than through sort of EBITDA operating losses. Wonder if you'd be able to quantify those for us.

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Owen James Wilson, REA Group Limited - CEO & Director [47]

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No. Those numbers aren't published, Ivor.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [48]

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Would you say that the Opcity purchase price amortization numbers were the main cause of the deterioration in the contribution from the U.S. operation?

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Owen James Wilson, REA Group Limited - CEO & Director [49]

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I can only say what News Corp have published about Opcity in that regard.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [50]

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Right. Okay. And am I right in reading their announcement that basically all people on the Move lead generator products are being moved across to Opcity now?

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Owen James Wilson, REA Group Limited - CEO & Director [51]

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No. That's not right.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [52]

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Right. Okay. But obviously, a large number of their clients are being moved across to the Opcity model?

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Owen James Wilson, REA Group Limited - CEO & Director [53]

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No. We're doing different strategies for different markets. And so I wouldn't -- it -- they vary by geography.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [54]

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Right. Right. But a higher proportion of agents will be on that revenue commission share deal going forward than there are now?

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Owen James Wilson, REA Group Limited - CEO & Director [55]

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Yes. I mean Opcity is -- has its own existing relationship with customers when it was acquired. And obviously, the introduction of Move clients to Opcity will increase that number.

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Operator [56]

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Our next question comes from Paul Mason from Evans & Partners.

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Paul Mason, Evans & Partners Pty. Ltd., Research Division - Research Analyst [57]

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Just a couple of questions for me. So the first one, I just wondered if you have any kind of aggregated feedback you could pass on, on sort of the level of off-market sales that are occurring without being advertised online at all as a proportion of total that you're hearing from your agents at large, whether that's kind of surging or now declining now that kind of a bit of energy come back to a property market?

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Owen James Wilson, REA Group Limited - CEO & Director [58]

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No. In fact, in this market, we are hearing that the preference is to actually advertise the property. And we are getting into a situation, though, where the buyers are definitely outnumbering sellers at the moment. And so that does create the conditions for off-market. But I think where the prices have come off, if you're going to get the best price, you want to going to -- you're going to want to attract the most buyers. And so it pays to advertise. So I don't think we're back where we were probably 3 years ago, we had a really hot market. And some [stock] who are having sort of 10% to 15% maybe on off-market transactions. That's definitely not occurring at the moment.

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Paul Mason, Evans & Partners Pty. Ltd., Research Division - Research Analyst [59]

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Just on your -- the changes to Premiere All. One of the changes that I've sort of received some feedback around is that exception budgets had increased. I just wondered if you could give us any feedback on what you're seeing in terms of the use of par exception budgets, assuming that the feedback I've got is accurate there, if it's not, if you can correct me as well.

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Owen James Wilson, REA Group Limited - CEO & Director [60]

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We didn't increase the number of exceptions you could get on your Premiere All contract. What we did do, though, and this was a very positive enhancement, is we made it a lot easier for our customers to get hold of those exceptions in terms of the automated process. But interestingly, having made it easier, and we give a reasonable number for the exceptions, there are very few customers who take that up to the full extent that they can.

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Paul Mason, Evans & Partners Pty. Ltd., Research Division - Research Analyst [61]

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And in the first half, you guys sort of called out relistings as a minor but meaningful contribution growth. Could you give us any color on, like, what you're seeing in relistings at the moment?

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Owen James Wilson, REA Group Limited - CEO & Director [62]

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I would be definitely prevalent, but as I said, the buyers, they're now outnumbering the sellers. And so you're seeing it in auction clearance rates, and you're seeing it -- if you get our e-mail on the weekly sales because we now report noninterest auction clearance rates, but the non-auction sales, [roughly] they're selling and the buyers are back. And so relisting revenue is not really a thing in this environment.

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Paul Mason, Evans & Partners Pty. Ltd., Research Division - Research Analyst [63]

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Okay. And just the last one. Last result, you guys called out that Audience Maximiser, all contracts were off of a small base but growing quite strongly. And this time around, you guys haven't quite made the same sort of comment. So have you guys especially just push Premiere All contracts, that's what the main priority in this round of recontracting? Or are you still seeing like a lot of growth in that Audience Maximiser all contract as well?

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Owen James Wilson, REA Group Limited - CEO & Director [64]

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Look, we don't just sell 1 contract at a time. And so the staff are -- the sales force is out selling all of our products to our customers. What is true, though, Audience Maximiser is a listings-based product. And so when listings are down, obviously, the purchase of Aud Max goes down with it. So in terms of the uptake of Aud Max, we're very pleased with that. Year-on-year, it's been very strong.

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Operator [65]

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We have no further questions at this time. I'll pass back to your speakers if they have any closing comments.

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Owen James Wilson, REA Group Limited - CEO & Director [66]

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Look, thank you, everyone, for dialing in today. Just to recap, REA Group has delivered a strong result in a year of unprecedented market conditions. The strength of our strategy and the way we're executing on it does position us well to deliver superior value to our customers, consumers going forward. So thank you for your time today, and I look forward to seeing many of you in the coming week.

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Operator [67]

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Thank you so much. Ladies and gentlemen, this does conclude today's conference call. Thank you for your attendance. You may now disconnect.