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Edited Transcript of REA.AX earnings conference call or presentation 6-Feb-20 9:30pm GMT

Half Year 2020 REA Group Ltd Earnings Call

Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of REA Group Ltd earnings conference call or presentation Thursday, February 6, 2020 at 9:30:00pm 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

* Fraser Mcleish

MST Marquee - Head of Australian Media, Online and Telecommunications and Telco & Media 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 - Executive Director of Technology

* Roger Samuel

Jefferies LLC, Research Division - Equity 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 Half Year Financial Results 2020 Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. 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, Group Finance, and I'd like to welcome you all to REA Group's 2020 half year results presentation. Today, we will hear presentations from our CEO, Owen Wilson; and CFO, Janelle Hopkins. Owen will talk to our overarching financial performance, the Australian property market and key strategic highlights. He will then hand over to Janelle to talk to our financial results in more detail. We'll then take any questions you may have.

With that, I'll hand over to Owen.

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

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Thank you, Graham, and good morning, everyone.

In line with expectations, REA Group's first half results for 2020 was impacted by the unprecedented market conditions we faced over the past 18 months.

National residential listings declined 14% over the 6-month period including listing declines of 17% in Sydney and 16% in Melbourne. New developer project commencements were down 30% over the half year period. Against this backdrop, our results demonstrate the resilience of our business and the collective strength of our portfolio. As you can see on this summary slide, despite the tough operating conditions, we've delivered a number of highlights during the half, and I'll talk to these points shortly.

Turning to our results from core operations for the half, revenue was $440.3 million, a decline of 6%. EBITDA before share of associates' losses was $272.1 million, a decline of 7%. And NPAT was $152.9 million, a decline of 13%.

Despite the challenging operating environment, the Board has declared a dividend of $0.55 per share, which is consistent with the prior period. This reflects our confidence in our outlook for the second half.

While listening declines continued into January, the evidence of a market recovery remains. Interest rates are at record lows and anticipated to move even lower. This, coupled with the relaxation in APRA's lending restrictions, has resulted in a strong rebound in the number of people borrowing.

We're also seeing home price gains in Sydney and Melbourne driving national values higher, while auction clearance rates are now back at the levels we saw before the market correction. And buyer and seller activity on realestate.com.au continues to increase. Inquiries for properties for sale grew over 30% year-on-year, and we have a monthly average of 1.5 million visits to the find agents section. These measures show that the Australian property market is recovering, and REA Group is well placed to benefit from this momentum.

Turning to our growth strategy. Fundamental to our success is our focus on 3 core objectives: firstly, providing individual, proactive and lifelong consumer interactions throughout people's entire property journey, not just when they're buying, selling or renting; secondly, we want to provide unparalleled customer value by delivering the most leads and the best leads to our customers through innovative products and experiences; and underpinning these objectives is our focus on providing the richest content, data and insights to empower our customers and consumers in their decision making throughout their property journey. Each of these objectives is interconnected and interdependent with the ultimate purpose of changing the way the world experiences property.

Our success is underpinned by having the largest and most engaged audience of property seekers. Our flagship site, realestate.com.au, continued to outperform the competition. During the half, we received an average of 84 million visits to realestate.com.au across all platforms each month or nearly 3x more than our nearest competitor.

Our superior mobile experience means people are using Australia's #1 property app, realestate.com.au, more than ever before. Consumers are spending more than 4x longer on our app each month than the nearest competitor, showing they are deeply engaged with the experiences we're providing. App launches increased 28% year-on-year with an average of nearly 35 million each month. And our total app downloads grew 12% during the calendar year to 9.5 million.

Looking at some of our consumer highlights for the half, and I'm very pleased with our progress. Our consumers are invested in our offerings. The number of active members increased 16% year-on-year. Our members are now tracking more properties than ever before. For our customers, this is another way we're creating opportunities for buyers and sellers to connect with agents and agencies.

In November, we commenced targeted seller messaging, helping consumers understand the value of their properties and more effectively connect with an agent. This resulted in traffic to the Track My Property and Find an Agent sections of realestate.com.au, increasing by 55%, delivering more potential leads to our customers.

Our rich history of being first to market with new product innovation continues. In August, we launched the ability for property news, data and insights to be accessed inside the realestate.com.au app. Our app users now have all the latest property information right at their fingertips with over 200 stories, videos and image galleries added each week.

The launch of a new open for inspection booking tool within the app has seen an additional 60,000 weekly bookings occurring. This functionality more effectively supports agents and property managers connect prospects to properties.

Looking at the rent section, realestate.com.au is the #1 place for rent in Australia. We had 3.6x more monthly visits to our rent section compared to our nearest competitor.

Our rent products continued to gain strong consumer traction. Tenant Verification is our first direct-to-consumer product. It supports rental applicants to put their best foot forward when applying for a new home and have their identity verified in advance. This product has experienced significant growth, with approximately 1,000 verifications currently being purchased each week.

1Form, our digital rental application tool, also experienced strong growth with 1.6 million applications received during the half, a 13% increase year-on-year.

Turning to our customers. Firstly, I'd like to thank them for their ongoing support. We recognize that it's our job to deliver the best value through the number and quality of leads we provide. This is even more important when our customers are also experiencing the same tough market conditions. During the half, we saw a record number of customers commit to our premium listing products across both buy and rent. Property Showcase, our product that allows customers to highlight their listings in the most exclusive search result positions, experienced strong growth in the number of contracts sold.

Agent Match, our product designed to connect customers with homeowners who are ready to sell, is providing more leads to agents to win their next listing. Match takes a consumer-first approach, delivering the best quality leads to our customers. By nurturing potential sellers throughout their research process, we put them in the driver's seat to choose their preferred agent. 30% of seller leads are now converting into listings, delivering great value to our customers.

In the media space, we've refocused our strategy on key property-related verticals and have signed major partnerships with leading brands over the past 6 months, including Youi, Origin Energy, ING and Allianz.

Our self-service customer reporting tool, Ignite, is making business easier for our customers. They can now track active listings performance, access campaign reports, respond to buyer inquiries and comment on agent ratings and reviews all from one central hub.

As of today, over 10,000 customers are now signed up to Ignite. Over the remainder of FY '20, we'll continue to add new features and functionality to make it even easier for customers to interact with us.

REA Group is proud to be launching our new industry event series, Prop20, to help support the growth and prosperity of Australia's property industry. A free national event series for all REA Group customers, Prop20 is our way of investing back into the industry to help our customers succeed.

We remain focused on providing value to people beyond the traditional property transactions of buying, selling and renting. Core to this is our investment in financial services. More than $2.3 billion in digital home loan applications have been received since launching in 2017.

Today, we're excited to announce a new brand for our Smartline mortgage broking business. Smartline Personal Mortgage Advisers will be the mortgage brand representing REA in the Australian market. The realestate.com.au home loans broker business will be integrated under the Smartline brand in the coming months.

One of REA's most powerful asset is our data. We continue to progress our goal of being Australia's leading property data company. Hometrack data powers the rich market insights we provide to our consumers and customers across all platforms and channels. Each week, 1.5 million personalized auction and sales result e-mails are sent to consumers, helping them make more informed property decisions.

We announced an exciting new content sharing partnership with news.com.au in August. This has resulted in traffic to the news section of realestate.com.au, reaching new highs with a 61% year-on-year increase.

Building on our successful relationship with the Sydney Swans, in August, we announced an exciting new 3-year deal with the club as a major partner. The partnership will see the realestate.com.au brand on the back of their playing [guernsey] and provide branding opportunities around their ground and across their digital platforms.

Now turning to our global businesses. Our investments across Asia, India and North America provide access to some of the world's largest and fastest-growing property markets. In Asia, we have the #1 property site in Malaysia, Indonesia and Hong Kong, with double-digit audience growth achieved in each of these locations.

In October, we announced a binding agreement with Singapore-based 99.co to form a joint venture. The transition of assets is on track to complete in March. The JV represents an exciting opportunity to rapidly increase our market share in the expanding growth markets of Singapore and Indonesia.

The ongoing disruption in Hong Kong has impacted the overall Asia segment results. And while the impact of the coronavirus is still unknown, we continue to monitor the situation closely to ensure the safety and well-being of our people.

Our investments in North America and India continue to perform well. Move, Inc., operator of realtor.com, increased its reported revenue by 2% to $244 million. realtor.com continued to grow its monthly unique users across web and mobile sites, averaging 59 million unique users in Q2 alone and 9% year-on-year increase.

Our Indian investment, where we have a 13.5% stake in Elara Technologies, delivered revenue growth of 25% for the half. Elara operates the property sites of PropTiger.com, Makaan.com and Housing.com. Combined traffic to PropTiger.com and Housing.com increased 34% while Housing.com grew listings by 90%.

Underpinning all that we do at REA Group is our people and culture. This is what sets us apart. In August, we are proud to be recognized as one of Australia's top 50 Best Places to Work, ranking sixth in our overall category. We launched our inaugural sustainability report in November, outlining our commitment to responsible and sustainable business practices.

We're passionate about building a diverse and inclusive workplace. We have equal gender representation within our executive leadership team, and 30% of our technology roles are held by women. This is well ahead of the global industry average.

We're also focused on providing career progression pathways for our workforce. Last month, we announced the promotion of Kul Singh to the position of Chief Sales Officer and a member of our executive leadership team.

Like all Australians, REA Group has been shocked and saddened by the overwhelming impact the bushfires have had on our local communities, the environment and wildlife. In addition to providing financial support to the Red Cross disaster recovery appeal and matching staff donations, we created a bushfire relief support package for affected customers in the affected areas. We'll continue to explore ongoing ways to help impacted customers and communities.

I want to hand over to Janelle to go through our financial highlights.

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Janelle Hopkins, REA Group Limited - CFO [4]

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Thanks, Owen, and good morning, everyone.

REA's result was delivered in particularly challenging market conditions. Revenue from core operations declined 6% to $440.3 million. This reflects the continued decline in new residential listing volumes and new project commencements.

Throughout the half, our continued focus on cost management and efficiencies gained from an organizational realignment resulted in a 4% reduction in core operating expenses to $168.2 million or 2% excluding the impact of AASB 16, the new leasing standard.

Despite the reduction in total operating expenses, we've maintained our #1 audience position and continued our investments in innovation and growth initiatives, which underpins the future success of the business.

EBITDA before share of associate losses was $272.1 million, a decrease of 7%, and the margin remained strong at 62%. The decrease in core net profit after tax of 13% to $152.9 million was driven by the decline in revenue and higher depreciation and amortization associated with the new leasing standard. The results from core operations are different to the reported NPAT as a number of one-off items have been excluded. These are set out in the table at the bottom of the slide.

We will now turn to trends in the Australian market. On this slide, we've set out the listings growth by quarter and dwelling commencements for the past several years. As Owen mentioned, national residential listings declined 14%, and new project commencements declined 30% over the half year period.

As you can see, the challenging market conditions throughout -- conditions continued throughout the half, with Sydney and Melbourne, 2 of the high-yielding cities, experiencing listing declines of 17% and 16%, respectively. We did begin to see signs of a gradual market recovery through the half with listing declines nationally, improving from 15% in the first quarter to 12% in the second quarter.

Moving to the developer market. The decline in new project commencements was significant for the half, down 30%. There are a number of factors driving these declines, including funding constraints, a reduction in consumer confidence due to inventory quality, particularly for apartments, and a reduction in foreign investment. The decline is expected to continue for the remainder of the financial year with BIS Oxford forecasting a 17% year-on-year reduction in total new dwelling commencements for the second half of FY '20.

As you can also see from this graph, BIS Oxford is forecasting an inflection point at the end of this financial year, which is also supported by CBA Research, which estimates that the construction downturn will bottom out in 2020, which may result in an apartment shortage against the backdrop of ongoing population growth.

On the next slide, we have set out the key components of the EBITDA movement. The main driver was the decline in national residential listings impacting the Australian residential depth business and the decline in new project commencements impacting the Australian developer and commercial and media businesses. The impact of these declines was partially offset by the residential price changes which came into effect in July and higher premier penetration across buy and rent. This demonstrates the resilience of our premium listing strategy despite the challenging market conditions.

Media, data and other revenue declined by 12%, primarily due to a reduction in developer display advertising due to lower new project commencements. Partially offsetting this, the average duration for developer display is now at 12 months, and we are seeing the benefit of this extension. In addition, we have continued to see growth in our data business.

Financial Services revenue declined 14% due to the timing of partnership payments and reduced mortgage settlements, which were influenced by lower listing volumes. Pleasingly, we have seen growth in submissions, which is a key indicator of future revenue growth.

Revenue growth in Asia was up 5%, driven by strong revenue growth in Malaysia, underpinned by improved customer acquisition and increased consumer audience. As Owen mentioned, the ongoing disruption in Hong Kong has negatively impacted the Asia segment results, and we are monitoring this closely for the impact on full year results.

Through strong cost management and an organizational realignment, we achieved a 4% reduction in total operating expenditure. We have reviewed all cost lines and achieved significant savings in staff and associated costs and other discretionary items. This has partially softened the impact of challenging market conditions on EBITDA.

The following slide shows both the penetration and mix of depth listings in the residential business for the half as well as prior periods. The graph has no scale, but the relativities between the categories are to scale. For those of you who like to get your ruler out, we have slightly adjusted this graph to remove listings that have been on-site for less than 3 days, gives a clearer view of penetration. We also note that significant listing declines in the key capital cities of Sydney and Melbourne impact our depth penetration as they are our most penetrated areas.

Pleasingly, we have seen continued growth in both total penetration and the highest-yielding listing product, Premiere, demonstrating the superior returns to agents and vendors.

Despite the challenging half, we are well positioned to benefit from the increase in our Premiere penetration when listings recover. During the half, we also saw stronger contribution from residential products such as rent depth and tenant verifications as well as add-on products such as Property Showcase.

Moving to our international businesses. The Asian business comprises iProperty and our Chinese listing site myfun.com. The Asia business contributed $27.2 million of revenue for the half, an increase of 5% on the prior period and an 11% increase in EBITDA from core operations before associates and joint ventures to $6.3 million. This result was driven by strong revenue growth in Malaysia, underpinned by improved customer acquisition, growth in add-on products and increased consumer audience.

Malaysia holds a leadership position of 1.7x the nearest competitor. As Owen mentioned, we are excited about the new joint venture with 99.co, which is anticipated to complete this quarter.

India represents a fantastic long-term growth opportunity. The business delivered strong revenue growth of 25% for the half while the EBITDA result reflects continued investment in technology and marketing.

Shifting to our investment in the U.S. Our share of losses from Move decreased for the half due to an increase in revenue from real estate revenues as well as a reduction in operating costs despite increased investment in Opcity. Please refer to News Corp's earnings release and conference call that is due to commence after the call for additional details and comments on Move.

The next slide illustrates our operating jaws. Revenue growth has been impacted by the market, and operating jaws are currently negative. Despite the challenging market, the rate of revenue growth is expected to exceed the rate of cost growth for the full year.

CapEx as a percentage of revenue is marginally higher than historical averages due to the continued investment in growth initiatives in spite of lower current revenues due to market challenges. Depreciation and amortization include previously acquired intangible assets and new product developments once they are launched.

The group has implemented AASB 16 during the half, which has reduced the operating cost by $4 million and increased depreciation and amortization and interest by $5 million. The table at the bottom of the slide summarizes the half and full year impact of AASB 16 on the group results.

Finally, moving to cash flow. The strong operating cash flows of $163 million for the half is reflected in the first 3 bars of the graph. The operating cash flows were offset by the acquisition of the remaining $19.7 million of Smartline in July and net repayment of $70 million debt relating to the $240 million syndicated loan facility offset by a new syndicated loan facility of $170 million which matures in December 2021. After these outflows and the shareholder returns in the form of dividends, the closing cash balance was $91 million at 31 December.

Turning to the outlook. Listings remain challenging with Australian residential volumes down 13% in January 2020 compared to January 2019, with declines of 7% in Sydney and 5% in Melbourne. We anticipate that more favorable listings conditions in the second half of FY '20 will deliver a stronger revenue outcome. While there are clear signs of a market recovery led by Melbourne and Sydney, full year revenue growth is dependent on improved listing conditions in the second half. The group will continue to invest in growth initiatives, while planned efficiency gains and strong cost management will result in a reduction in operating costs year-on-year. As a result, the rate of revenue growth is still expected to exceed the rate of cost growth for the full year.

We will now open for 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 the line of Kane Hannan from Goldman Sachs.

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

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Firstly, commercial and developer. Can you just comment on the phasing of the revenue growth for the first and second quarters and how we should be thinking about the second half run rate? And I think you start to comp extended duration and penetration.

Secondly, just on the competitive environment. On the audience, we went from over 3x the first quarter to 2.95x for the half. I mean I know that's a small change, but comment on what you're seeing from an earnings standpoint.

And finally, just the Agent Edge product. I think in the first quarter, you said you were monitoring that pricing structure very closely, given there's been a little bit of pushback. Just update us on how that's been going in the customers -- how that -- what are you expecting there.

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

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Okay. Your line was pretty unclear there, Kane. But I think the first one is around consumer developer phasing, which I'll let Janelle take. In terms of the competitive standpoint, the movement in the multiple for our audience, it's negligible movement. We have a clear lead, we believe. We had record audience numbers in October, both in total and in-app launches. And so we're very happy with our competitive position as it stands today.

I think you talked about the Agent Match product, which is the seller lead product, how is that going. We did trial. As you know, it's free for Premiere All customers right through to 30 June this year. We did trial charging on a cost per lead basis for non-Premiere All customers, and the reality is that was a reasonably jarring experience for the customers, particularly for leads that are just simple inquiries. Our customers do acknowledge these are good leads with 30% of them converting to listings, but charging on a per lead basis really intensifies the focus on some of those leads that are just simple inquiries. So we've ceased that trial, and we'll be coming out with a different monetization methodology from 30 June.

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Janelle Hopkins, REA Group Limited - CFO [4]

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In relation to commercial and developer, Kane, I would say the commercial business has been steady. The story line is really in relation to developer. As you noted, in Q1, we did flag there was new project commencements down 26%. It actually went down further in Q2 to 33%, so averaging out to 30%. We did see that benefit of the extended duration after 12 months primarily contributing. We started rolling over that after Q1. So as you heard me say in my speech, BIS Oxford are still expecting ongoing declines in the second half, and that will be challenging for us in the second half as well.

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Operator [5]

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Your next question comes from the line of Eric Pan from JPMorgan.

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Eric Pan, JP Morgan Chase & Co, Research Division - Analyst [6]

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Just 3 for me. Given the negative jaws in the first half and your high single-digit price increase for the year, what does listings need to do in the second half for you in order to get your positive jaws guidance for the year? Does it need to be up year-over-year? Or can it be down to single digits for you to meet your guidance?

And then secondly, January hasn't seen the rebound that we're sort of hoping for. What was the year-over-year decline in January of last year, and has the listings improve so far in February?

And then just lastly, what's been the magnitude of the impact on the protest in Hong Kong so far in terms of listings? And are you seeing any impact from the coronavirus so far?

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Owen James Wilson, REA Group Limited - CEO & Director [7]

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Okay. Look, in terms of the negative jaws, as we flagged in the guidance, in the ASX announcement, we do need a better listings market in the second half than we had in the first half to achieve that guidance. And we're pretty confident that, that will be the case. We shouldn't forget that we'll be cycling into a very weak comp in Q4. If you recall, Q4 last year, we had the election, and we had 2 4-day weekends. And so we're very confident that we're going to have a better listings environment in the second half than we had in the first half.

January listings were down. They were down 13% for the month. But you'll notice that the clients in Sydney and Melbourne were lower than they were in the first half. Sydney down only 7 and Melbourne down 5. It looks to us Melbourne and Sydney led us into the downturn, and it's pretty clear to us that Melbourne and Sydney are going to lead us out of the downturn.

January is not a very typical month because it's such a low listings environment. And our customers typically don't come back until after Australia Day. We have seen a surge in listings post Australia Day. And the anecdotal feedback from our customers, particularly across the Eastern Seaboard, is that their forward order book is looking pretty good. So that gives us some confidence around a much better listings environment in the second half.

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Eric Pan, JP Morgan Chase & Co, Research Division - Analyst [8]

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And lastly, the magnitude of the impact from the protest in Hong Kong.

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Owen James Wilson, REA Group Limited - CEO & Director [9]

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I'm sorry. Yes. In Hong Kong, it's quite weird in that if you look at our metrics in Hong Kong, they're all quite good. Customer acquisition, our audience was good. Actually, listings were up, but there is a lot less activity in the market. People are just very cautious. It's interesting, we've seen on our side here in Australia a big uptick in interest from Hong Kong in Australia. Searches for property in Australia out of Hong Kong are up 44% in the half. And in China -- more likely in the half, but in China, they're up about 25%, searches from China for Australian properties as well.

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Eric Pan, JP Morgan Chase & Co, Research Division - Analyst [10]

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And in terms of the coronavirus.

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Owen James Wilson, REA Group Limited - CEO & Director [11]

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Too hard to tell. It is going to have an impact on the economy in Hong Kong, absolutely. Our staff are working from home, and will do until the middle of February until we see how things pan out. Most businesses in Hong Kong are asking their staff to work from home. Public parks, swimming pools, all those things are closed. Schools are closed until the end of February. It is going to have an impact on the economy, no doubt. And whether it's a bigger impact versus the riots or not, it's yet to be seen.

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Operator [12]

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Your next question comes from the line of Eric Choi from UBS.

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Eric Choi, UBS Investment Bank, Research Division - Director and Australian Telco and Media Lead Analyst [13]

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I might try 3 as well if that's all right. First one, apologies, I know you guys are sick of this topic. But just on the revenue deferrals, can you just comment on whether that negative impact that we saw in the first quarter sort of normalized in the second? Or if you can quantify sort of impacts there were in the first half?

And then just secondly, on the cost growth. I noticed ex AASB 16, we're still sort of tracking maybe mid-single digit down in the second quarter. I know previously, we're sort of guiding to cost only marginally down ex AASB for the full year. Just wondering if there's any upside to that now.

And then just following up on Kane's question before on developer. Can I just confirm that in terms of the duration of the project profiles, we're sort of just kind of flat year-on-year at the moment, so therefore, there's still potentially a headwind to come from durations reducing still?

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Janelle Hopkins, REA Group Limited - CFO [14]

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Thanks, Eric. I'll take all 3 of those. So on deferral, the impact wasn't material at all for the second -- for the half. The impact was larger in Q1 due to the timing of listings in September, and the revenue base is only 1/4. By the time we got to the half, revenue base is larger, and it wasn't material, so minimal impact on deferral.

On cost growth, we did flag in Q1 that we would be down, and we -- our outlook is still confirming that we will be down full year including or -- and excluding AASB 16, so you will see cost reductions year-on-year.

And then finally, on developer, we are at 12 months now. So we cycled -- we've got the full benefit of the 12 months into Q1 of this year, but there will be headwinds as we have now cycled into that consistent 12-month period.

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Operator [15]

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Your next question comes from the line of Entcho Raykovski from Crédit Suisse.

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

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No surprise. Three for me. I'll start with Agent Match and just the comment that you've now ceased looking at price per lead. So how are you thinking about the monetization? Is it a matter of bundling it in with Premiere or other products? And is that realistically the best way to do it? And if so, realistically, do you think there'll be much of a contribution from the product in FY '21?

Just secondly, if I might also follow-up on developer, you've obviously talked about 30% down in new project commencements in the first half, but then you referred to that BIS Oxford number showing an improvement in the run rate. Are you expecting an improving run rate in developer? Or is that just their forecasting, and you're just setting it out because that's what they've given? Any color there would be useful.

And then just finally, media and other being down 12%. Again, you've spoken about developer weakness. Was there also any impact due to the lower available inventory? I know you've spoken in the past about Premiere listings increasing, and that's giving you lower media inventory. Or is it really just that developer weakness? And obviously, as a result, what should we expect into the second half?

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

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I might have a crack at those. Look, in terms of Agent Match, I think we've spoken previously that we do have a number of options available to us as to how we monetize that. We could bundle it into the Premiere offering. We could sell them separately in groups or via subscription. There are a number of mechanisms that we're working through at the moment. And obviously, we'll release that to our customers before we forecast that. But we are confident that -- of 2 things. One is that the feedback from customers is they are good leads. They convert to listings, and they convert to sales. And therefore, they do represent true value to our customers. And therefore, they are prepared to pay for them.

And so how we do that will be in a way that creates the least noise in the market. As I said, doing it on a lead-by-lead basis. A number of consumers do use that mechanism, the Agent Match mechanism, to make some very simple inquiries. And therefore, to be charging for those individually, it's a bit grating. And so any way we go forward, we'll be more, I think, bundled either separately as seller leads or maybe even with listings.

In terms of developer, we have put the forecast up. And I think our view -- the reason we talked to -- we do have the same view as BIS Oxford. We talk to our customers. It feels like that there are a number of new developments coming online in February, March this year. And I think everybody is watching to see how they perform. And if they go well, I think that will underpin our recovery in the developer market. And it's been down for nearly 2 years now. And as Janelle said, we do -- we have now reached a stage where they haven't constructed enough for the population growth. So the demand is going to be there.

I think the funding is coming back. The banks are becoming more relaxed about lending. And so all the signs point for recovery, where, in 2020, it reflects back to growth is anyone's guess. But anecdotally, customers are feeling a little bit more confident about this year than they were about last year.

And lastly, in media, it's a good question. It really is all developer that's caused that, the developer display. If you look at the, I'll call it, the core media business, for want of a better word, excluding developer display, they are actually up. And our focus on key partnerships, as I mentioned on the call, such as ING, Youi, et cetera, has delivered revenue growth for that business, which is really pleasing.

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

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Okay, that's great. And sorry, Owen, if I can try and pin you down on Agent Match. Given you're exploring these various options, should we be thinking of that as being an FY '21 contribution or probably a longer-dated -- a longer-dated impact?

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

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Yet to be determined, Entcho. The reality is the number of leads are where we think they will be in the long term. And so you may see a phased approach. You may see one approach will lead volumes to what we'd say lower than what the potential is, and it may morph into different methodologies.

So regardless of which way we go to market, it will be a, I think, a small impact on the P&L in FY '21.

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Operator [20]

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Your next question comes from the line of Lucy Huang from Bank of America Merrill Lynch.

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Lucy Huang, BofA Merrill Lynch, Research Division - Analyst [21]

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I just have 3 as well. So I just wanted to touch on, firstly, on costs again. So with the guidance of positive jaws. Where do you think cost-outs are likely to come from moving into the second half because it looks like spend on employees and marketing did continue to increase in the first half?

And then secondly, on the Financial Services business, are you able to elaborate on the lower partnership payments that you were talking about? And are you getting a sense that the business is growing their market share in the mortgage market?

And then just thirdly, if you can give us some commentary on trends in time to sell because the auction market is quite hot right now. So are you seeing time to sell decrease? And I guess moving forward into July, when you do negotiate new contracts, do you think you'll actually reduce the duration of the listings?

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Janelle Hopkins, REA Group Limited - CFO [22]

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Okay. Let me have the cost one. So on cost, we will -- as we have flagged that we will ensure that our cost jaws are positive versus revenue for the full year. We are looking across all line items, including salaries, we will see ongoing benefits from the organizational realignment that we undertook in the first quarter of this year into the second half.

Marketing is generally lumpy, so the phasing of marketing between first half and second half will continue to evolve. But the key thing is that the cost guidance is, for the overall full year, that we will be down including or excluding AASB 16.

On Financial Services, we do have that ongoing relationship with NAB. And it's really a timing issue around when the phasing of the partnership payments have come through this year versus last year.

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

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On time to sell, it is true that time to sell is coming down. There are more buyers than sellers in the market at the moment. And you can see that in the number of listings, and we can see it in the 30% increase in buyer activity on site. And so that will continue to come down. There's no plans to change the duration of the product at this stage.

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Lucy Huang, BofA Merrill Lynch, Research Division - Analyst [24]

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And sorry, just on financial services, again, are you seeing market share gains by Smartline in the market?

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Janelle Hopkins, REA Group Limited - CFO [25]

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I would say we're holding our market share in the market.

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Operator [26]

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Your next question comes from the line of Paul Mason from Evans & Partners.

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Paul Mason, Evans & Partners Pty. Ltd., Research Division - Executive Director of Technology [27]

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I was going to just ask one because most of them have been asked already. So just wondering if you can give us some color on the feedback you're getting from agents around the level of like not online properties for sale or something we'll refer to as off-market even though they're houses for sale. Have you got much feedback around movements, upwards or downwards, on that at all?

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Owen James Wilson, REA Group Limited - CEO & Director [28]

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It's a really hard one to track, Paul. Look, the term, some people use off-market. Some people call it off-portal. It is true that, we're aware, the buyers are kind of outnumbering the sellers. It does create an opportunity where people miss out at an auction, for example. The agent knows who they are, and they maybe remove a property with the underbidders from an auction, for example.

We're got to go at trying to measure this over time, and it would appear it's been fairly consistent. It's always been around our portal sales. And anecdotally, in some pockets, it seems to have increased in the last 6 months. But it's not a huge part of the market, and it's been there at roughly these levels, I think, for quite some time.

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Operator [29]

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Your next question comes from the line of Fraser Mcleish from MST Marquee.

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Fraser Mcleish, MST Marquee - Head of Australian Media, Online and Telecommunications and Telco & Media Analyst [30]

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Owen, can you just comment on the sort of the yield sort of impacts or improvement in the half? So I guess your residential revenue is up 6%, listings were down 14%. So you got about 8% yield improvement which is -- seems to be mainly on the price. So what's going on in that kind of depth and geographic mix? And should we just expect that to pick up again when that geographic mix starts to improve? That's my first one.

And just secondly, could you just also just comment on your longer-term views on Premiere penetration? I know you've always kind of said you think there's still a fair bit of headway. Can you just comment on that again?

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

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So on yield, you're right. I mean it's a combination of price on the level of depth penetration and -- but more importantly, in this half, on mix. So you saw a larger decline in the high-yielding cities of Melbourne and Sydney. And so that does have an impact on yield. If Melbourne and Sydney lead us out of this downturn, as it appears is happening, then we'll have the reverse of that in the second half. They'll push the yield higher. And then, as I said, it's a combination of price and the depth and location of the properties.

Longer-term views on Premiere penetration. I think we've always said that we're not going to see huge step changes in the quantum of Premiere penetration. We've got a record number of customers who are committed to debt for both buy and rent. And we do believe there is further to come. I'm not going to name names, but at least different things that add on Premiere that I think we'll benefit from it. And obviously, we're targeting them on an ongoing basis.

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Operator [32]

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Your next question comes from the line of Roger Samuel from Jefferies.

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Roger Samuel, Jefferies LLC, Research Division - Equity Analyst [33]

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Just got one question. Just on financial services, given what you just talk about in terms of your outlook for listings and new development, do you expect financial services to continue to decline in the second half and maybe grow in FY '21? What's your outlook for that business?

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Janelle Hopkins, REA Group Limited - CFO [34]

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I actually think we're quite optimistic about the Financial Services business, noting the fact that we have seen submissions being up year-on-year, and that is the lead indicator. The challenge with settlements in the first half has been in relation to that lower listings environment. If the listings environment improve in the second half, as we hope they do, that should benefit our ongoing submissions and settlements, so we're quite optimistic.

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Operator [35]

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Your next question comes from the line of Ivor Ries from Morgans Financial.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [36]

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Owen, just in relation to your competitor domain and their price rise in January, I just sort of wondered if you managed to work out what it -- how it works out to roughly how much they've raised their prices by, and what the reaction has been from the agent community to that?

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

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Yes. Reporting -- as we can see, a reasonably complicated pricing structure that is based now on the value of the property in various geographies across the markets they operate in. As we say at the top end, for example, in Sydney, there are some fairly hefty price increases in there, north of 15%, 16%, 17% in some areas. And at the bottom end, it looks like prices have possibly come down a little bit.

And in areas where they don't have depth, there's been some significant price changes. As I said, our customers don't typically come back online until post-Australia Day. The feedback we're hearing is it's pretty complicated to understand, and they're still trying to work it out. We've seen no discernible kind of movement in the market though so far, but January is not a very typical month.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [38]

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Yes. I don't know whether this is an accurate reflection or not, but just our weekly counts show that in January, there was a drop of their relative listings, relative to your total listings, did you notice that as well?

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Owen James Wilson, REA Group Limited - CEO & Director [39]

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No. I must admit I haven't looked at their listings for January yet. It's a bit early.

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Operator [40]

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There are no further questions at this time. I will now hand the conference back to today's presenters for closing remarks. Please continue.

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Owen James Wilson, REA Group Limited - CEO & Director [41]

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Look, thanks, everyone, for your time this morning. As I said earlier, it has been a resilient performance from REA Group in the face of some pretty tough market conditions. I look forward to seeing many of you in the coming days and next week. Thank you.

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Operator [42]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.