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Edited Transcript of ZML.AX earnings conference call or presentation 27-Feb-20 1:00am GMT

Half Year 2020 Zip Co Ltd Earnings Call

Mar 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Zip Co Ltd earnings conference call or presentation Thursday, February 27, 2020 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Larry Diamond

Zip Co Limited - CEO, MD & Executive Director

* Martin Brooke

Zip Co Limited - CFO

* Peter Gray

Zip Co Limited - COO & Executive Director

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Conference Call Participants

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* Andrei Stadnik

Morgan Stanley, Research Division - VP

* Jonathon Higgins

Shaw and Partners Limited, Research Division - Analyst

* Phillip Chippindale

Ord Minnett Limited, Research Division - Senior Research Analyst

* Richard Coles

Morgans Financial Limited, Research Division - Senior Analyst

* Sameer Chopra

BofA Merrill Lynch, Research Division - Head of Australian Research and Co-Head of Regional Telecom Research

* Timothy Piper

RBC Capital Markets, Research Division - 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 Zip half year results presentation.

(Operator Instructions) Please be advised that today's conference is being recorded.

I will now hand the conference over to your first speaker today, Mr. Larry Diamond. Thank you. Please go ahead.

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [2]

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Thank you, and good morning, and welcome to Zip Co Limited's first half results for fiscal 2020.

I'm Larry Diamond, the Chief Executive Officer of Zip. With me today is Peter Gray, the Chief Operating Officer; and Martin Brooke, our Chief Financial Officer.

Before we jump into the presentation, I just wanted to, on behalf of the Board -- it's been a very, very busy half, and want to thank the executive team as well as our great team of Zipsters and, of course, our retail partners who have supported the growth of our business.

In terms of the contents for today, we will go through the highlights, a quick business update across our 3 key growth areas. I'll look at the financial results and the outlook for FY '20. And apologies. It looks like the page numbers haven't come through. But if you're reading this on PDF, I'll read out some of the page numbers.

So just to do a refresh on Zip on Page 3. Our purpose is the freedom to own it. And really, this is all about giving customers the freedom to own the experience, own the moment, own their well-being. We, as a company, of course, own our responsibilities that come with issuing micro credit in real time; and then also culturally, how we've architected our company in terms of empowering troops and giving them the freedom to really push and change the game within the organization. And our mission, of course, is to be the first payment choice everywhere and every day. And we're really excited about that mission.

I thought I'd set the scene a little bit on Page 4. Zip was founded 6 years ago in 2013. And when we started, we saw a large opportunity to disrupt the fair -- the broken and unfair credit card. And when you look at this slide in particular, you can actually see this starting to come true. Credit cards are in decline, while debit cards, Buy Now Pay Later and interest-free digital wallets are enjoying soaring demand. If you look just in the last couple years, there's been around 2 million credit card account closures, and balances have declined by about $2 billion, which is about 3% per annum, with 1 in 2 Buy Now Pay Later customers cutting up their credit cards. So we're seeing this fallout with the unfriendly, unfair and interest-bearing credit card. And an interesting point happened last year, in 2019. In November of last year, we actually saw, for the first time, debit card payment volume overtake credit card and that's personal and commercial, about $337 billion versus $334 billion. And what we're seeing on the right here is, while we've seen the decline of the credit card, Buy Now Pay Later accounts have obviously increased significantly. There are about 6 million in Australia. And this millennial phenomenon has now moved into Gen Xers as well. And we see 1 in 5 are now using BNPL.

So while BNPL is a fast-growing category, if you look at Slide 5, we really are only at the infancy here. Things will change very, very quickly, but we are at the infancy. Zip in Australia has about 1.6 million accounts, but if you compare that to PayPal's 7 million; and credit card accounts in Australia, 15 million, you can see there's actually a long, long way to go. The Australian market is about $320 billion in retail. But if you include bills nonretail, it's actually over $1 trillion. And as you can see here, still only a small portion of the population are using these really exciting new ways of paying. And then as we cast our eyes globally, if you just look at retail dollars, that's about $22 trillion across most markets. So while it's incredibly noisy, it's getting a lot of awareness, we are still very much at the infancy and a big reason why we're still very focused on the Australian market and obviously beginning our journey globally.

On Page 6. So really, in contrast to the credit card, we're trying to provide a better, fairer digital alternative, one that is founded in interest-free terms, one that is founded in flexibility and a strong focus on responsibility. It's really important when we are issuing micro credit that we due diligence customers appropriately. And we've done ID and credit checks since inception. And while we create very seamless onboarding, it's really important that we make sure the right customers get on the platform and the right customers are using the products. Having said that, these products are getting really good traction in market. They provide a great mobile experience. Instead of the credit card being in your pocket, we sit where customers are at checkouts. And so we're obviously very excited about this space and believe we've got a long, long way to go.

In terms of the financial scorecard, on Slide 7, what you can see here is really strong growth a lot -- across a lot of the key metrics that we focus on. Revenue was up over 100% for the half at close to AUD 70 million. Transaction volume was also up close to 100%. That was up 95% to $965 million, and receivables, pleasingly, reached over $1 billion as well. Customers of 1.8 million were up 80% over the previous corresponding half. Retail partners across Australia and New Zealand of close to 21,000 were up about 66%. And our market-leading credit decisioning technology was able to deliver net bad debts of 1.68%, which was an improvement, actually, on the last half last year.

We set out a very clear strategy and plan at the beginning of FY '20, and we are delivering on those goals. Some of the key highlights just to touch on: We continue to focus on growth. And Zip delivered $70 million in revenue, which, as I mentioned, was up 103%; and we ended December annualizing at $2.3 billion.

The company also was able to deliver a cash flow breakeven result, which is a great result as we continue to invest for growth, and this is demonstrating the strong unit economics of the business. Our statutory adjusted loss was $20 million. There's a lot of noncash items that do flow through the P&L and Martin will take us through, but we're very focused on the cash result as our peers are. We're also able to sign a number of lighthouse brands. We had 4,700 retail partners join the platform. We saw Amazon launch with Zip as the first installment solution in Australia; other great retailers such as Big W, Optus and Ola. And this is really driving engagement for our customers. So customers that are joining us are coming into a much more exciting world. And we have a very exciting pipeline ahead in Australia and also increasingly overseas.

Globally, our strategic investments in QuadPay and Payflex are showing really, really strong growth. And we'll talk a bit about that later on the call. And on the global expansion, New Zealand has gone very successfully. It's up significantly since we acquired the business. And U.K. is getting ready for a launch in Q4. We've hired an MD. And we'll go through what's happening there but really excited about the global opportunity and the ability to now start cutting deals on a global stage with our retail partners.

And finally, on the funding side, we launched a world-first master trust program, and Pete will talk through why that was such a great and exciting result. And we raised $62 million in an oversubscribed placement and SPP in December.

I'm going to go through 3 key areas of the business. At the beginning of the year, we highlighted 3 key growth areas: focus on the core, product innovation and global expansion. And I'll step through each of these, and this will provide a business update for everyone.

So on Slide 11. It was a record half. Good momentum is building. So if we look really at the customer side around acquisition awareness and engagement, I'll just drill down into some of those. So on the customer front, acquisition is really being driven through a range of initiatives. Awareness, we had our first-ever brand campaign at the end of last year really to drive awareness across Australia. And after doing that work and increased retail networks, we've been able to lift brand awareness from 1 in 4 to 1 in 3 Aussies now knows it. A long, long way to go but heading in a really, really good direction. On the customer front, we were able to sign up 1.8 million customers. This year, we have big targets, but we've got even bigger targets over the next few years.

The customers that joined the platform spent -- about 140% growth in their transaction numbers year-on-year, which is a really great result when you look at the transaction dollar volume was up about 95%. So we're seeing much more increased frequency and much more engagement coming from that base. And you can see a 45% increase in the monthly transacting users just over the last quarter. Pleasingly as well, we're also seeing in store really starting to get a lot of traction, a much more seamless payments experience. And there's a few initiatives I'll talk to about that. And at the centerpiece of all of this is the Zip app. That is really the native experience that is driving really, really strong user engagement; still remaining a top 10 app in the Google and play stores and really, really healthy ratings.

On Slide 12, if we look at engagement. These numbers are really exciting for us. So we've seen about a 105% increase in app usage over the year. And as we know, app users transact 3.5x more than non-app users. So really important that we get users onto the Zip native mobile app. What's interesting as well is that new customers that are joining the platform are actually coming into a world that's a lot more exciting than those that joined previously. And so we saw a 25% lift in the cohorts that joined now, versus the cohorts that joined a year ago, in their engagement metrics. But having said that, even our older cohorts are transacting more frequently as they have more places to shop, such as Amazon, Optus, and we've seen a 33% increase in transactions per active, if we look at those cohorts.

On the merchant front, on Slides 13 and 14, we'd just like to quickly highlight we really see Zip as a credit card differentiator. Unlike a lot of the other Buy Now Pay Laters that are splitting it forward in the Australian market, we really have built an account concept and therefore can play in many, many categories, retail, auto, travel, bills as well, and we look to get into every day. So this breadth of addressable market, we're seeing play out and shows that we've got a long way to go on the addressable market.

On Slide 14. We were able to add 4,700 retailers to the platform. New Zealand is going really well. We've been able to sign Bunnings New Zealand, which was a relationship we had in Australia. And New Zealand is going really well with brands like The Warehouse Group, TheMarket which is their digital marketplace; and have just recently signed Mighty Ape as well. For Australia, companies like Carsales, Chemist Warehouse, freedom. So a lot of the big brands are really seeing enormous opportunity in the Buy Now Pay Later space, most of the retailers that we're talking to. This is a very, very topical conversation, and lead times are improving through the pipeline. We've also got a number of large merchants that we are in the final stage of negotiations with which we hope to announce in the coming months.

On Slide 15. While we build direct merchant relationships and have a direct acquiring business, we also build channel partnerships, and really embedding ourselves in the payment ecosystem is critical to serve Zip at every checkout across Australia.

3 noteworthy partnerships that we've been able to bring to life have been Adyen, Westpac and Tyro; Westpac and Adyen very much focused on the online space. And we've just recently accredited the integration with Westpac for their Qvalent system, which has access to 50,000 businesses, and we'll now be able to target that base. And setting Zip up at checkout is a really simple digital configuration. Also, in the period, we certified our Tyro integration. Tyro has 32,000 Australian retailers and is the fifth largest acquiring bank, and we hope to partner with them to offer Zip to their in-store customers. And Adyen has been a great partnership for us; and have really brought out a number of partners where, once we have a strong sales conversation, again configuration, plug-and-play to enable those merchants.

The other big piece to highlight on the technology front, on Slide [11], is we are planning for continued growth. We've had great growth over the last few years, particularly based on a number of transactions that are coming through the platform. This is a fraction of our ambitions over the next few years. So there's a continued program to invest in technology to prepare for growth and prepare for scaling. A lot of great work has gone in over the last 6 months, which has lifted our ability to process transactions simultaneously or concurrently, much faster response times and service levels to support not just our customers but also our retail partners. And if you look at our engineering workforce, just over the last year, they've grown from about 35 up to about 110. And we do believe it is a bit of an arms race, if you look forward over the next few years. Having great engineers is really important to be able to deliver quick solutions, respond to market conditions and build fantastic products.

And finally, on Slide 17. None of this would be possible without the investment in people and the Zipsters have done a great job over the last half year and should be incredibly proud. We're up to about 350 across the regions, being Sydney, Melbourne, Brisbane, Auckland, London now as well as in WA and South Australia. And pleasingly, we were able to really bolster our executive team. This was one of the big goals for us at the beginning of the year, to bring on great talent and experience to join our executive team. And really happy to bring on Hamish as Chief Commercial Officer; and our chief, people; Steve, Chief Customer Officer; and Patrick, chief, product. And these folks really bring -- really raise the bar and have brought enormous experience to Zip across a lot of successful payment companies, be that PayPal or marketplaces such as Uber -- sorry, eBay or technology companies such as Google. So we're really excited about the road ahead as this team forms and starts helping to grow the business.

On the product innovation front, the product and tech team have been incredibly busy, on Slide 19. We have a really strong focus to improve the payments experience. If we make it easy and we reduce friction, more transactions come through. And what you can see here are 3 really awesome user journeys. Through Amazon, we've been able to provide a one-click checkout. We've also rolled out a mobile SDK and a QR technology to improve the in-store payments experience. And really, our ambition is to make that moment between intent and payment feel like magic, and we're starting to see the fruits of this.

Another big focus on product was bills. Bills really is a major customer pain point. Bill smoothing and budgeting is a really, really good fit for the Zip product. It is a differentiator versus a lot of our other players and is really helping the customer. It's a powerful problem, and paying in interest-free installments really helps for customers. We're seeing really, really great traction. It is a large market, and we work with BPAY to facilitate those transactions. And this is all part of our strategy in the app to provide utility and jobs to be done to customers. On Slide 21, what you can see here is facial ID recognition, which the team is really excited about. We pioneered OCR and AI technology which allows verification and really for us to help on the identification of new customers but also help unblock accounts as well. And the results have actually been fantastic and really promising in terms of the speed to -- for customers to self-cure and to onboard. We are a digital company. Our customers are digital natives, and providing really seamless digital experiences across the entire journey is yielding great, great results. This is really fantastic, and we're looking to see that roll out across many, many other user journeys.

On Slide 22. So on the business front, it actually has been a really busy half. We are big believers in providing fair, interest-free installments and credit to small businesses that we believe have been locked out of the system. In the half, 2 big initiatives: We piloted Zip Biz and we integrated the Spotcap business.

Quick refresher. Zip Biz is an offering to small, medium-sized enterprises. It's a digital wallet up to $25,000 that lets small business pay in installments. The pilot has been really successful. It's validated a lot of our hypotheses around these products and services. And we've seen initial pilot group transacting around 3 times a month. And we think this is going to be a great fit not just for our existing merchants but also for many other small businesses in the market as they pay for everyday consumables. On the Spotcap front, we integrated that business last year. We're leveraging its real-time decision technology to power the credit technology on the Zip Biz side, and that's going really, really well. The business finished the half with receivables at just shy of $37 million; and really strong credit performance, credit losses between 2% and 3%. So we'll see a lot more coming out of the small business segment over the next 12 months, but really, really healthy results.

And finally, on global. We are, and as we spoke about last year at the AGM, really excited about the global opportunity. And for us to really push ahead globally, we've done a number of things. We acquired the PartPay global installment technology stack and have integrated that into the core Zip platform. And we also raised capital in December of just north of $60 million, some of which is to help us on scaling globally. And what you can see here is New Zealand has now been rebranded, and we'll jump into that, in Australia. U.K. will be launching soon. And investments in Payflex and QuadPay.

So drilling into the results. Zip is now live and operational in New Zealand, being led by our MD there, John O'Sullivan, doing really a fantastic job. We've successfully rebranded. We've functionally integrated. We've also managed to really port a lot of our Aussie relationships into New Zealand, and we see a lot more to come there. Customer numbers in the half grew just north of 80%; and the net transaction margin of just over 2%, with losses stable at 1%. So we've also hired a head of sales and more engineering talent as well. So that business has been integrated and is working really nicely. And we hope to double, triple that business over the coming future.

In the U.K., we hired Anthony Drury, who comes from PayPal, American Express and easyJet. He landed in that role in January, so just last month, and he's building out the sales and marketing team. Again, we're really excited about the U.K. opportunity. Some of our competitors have been there for a year or 2, quite focused on some particular sectors. But when you look there, you walk the streets, you look at other categories, there's an enormous opportunity set, not just on the retail front, on the banks and issuer front, and we see a huge opportunity there. Furthermore, a lot of the big retailers are still using high-interest-bearing, 30% APR consumer finance products bolted to their businesses. So we really do see a huge opportunity there. We think a lot of the retailers there are going to have to change the products that they offer to market to really keep up with this changing demand. So hoping for a launch in the next few months. And as you can see there, that market is 3x to 5x bigger than Australia. We've got a team there of just north of 15, getting ready for launch, and we have a number of global payment deals that are -- we're close to signing as well.

On Slide 26, our strategic investments in the Buy Now Pay Later players QuadPay and Payflex, which use our technology, are going really well. Payflex is in South Africa. South Africa is about a $67 billion market opportunity. And they've just recently launched in the last 6 months, but they're able to pick up Superbalist, which is one of the leading online fashion retailers owned by Naspers, and really have a first-mover opportunity in that market. A lot of great learning around emerging markets, we hope, will come from that area as well. QuadPay has also been doing really, really well. If you looked in the app store, last year, they were bumping up against some of their competitors; and really showing that they are innovating and delivering great customer experiences. They were also one of the first over in America to adopt virtual card technology, which has really helped with scale online and in store.

So thanks for that. I'll now hand over to Peter Gray, our Chief Operating Officer, who will go through a bit on the financial economics, credit and funding. Thanks, Peter.

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Peter Gray, Zip Co Limited - COO & Executive Director [3]

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Thanks, Larry.

I'm talking to Slide 28, in the unnumbered slide, the financial dashboard, which is effectively our cash dashboard, which is a great way that we measure the business. It's very important to call that the cash EBTDA was in line with our guidance and strategy. And we're continuing to invest in growth while maintaining cash flow breakeven. So we have previously stated that we wouldn't be looking to significantly increase the cash EBTDA in the short term and that we would maintain it above the cash flow breakeven line, where we chase grades or invest it for growth, I should say. We've seen a slight decrease to the revenue yield. We've made some conscious decisions to establish programs to accelerate customer growth. There's a touch of seasonality comprised in that number. The receivables effectively grew 27% in the last quarter, and typically, it takes a couple of months for repayments and yields to stabilize following such significant growth in that period. We have initiatives such as the global platform coming onboard and Zip Biz which will also assist in the yield profile, and we've seen a further penetration to everyday spend categories, which would typically be at the lower end of the yield spectrum.

In terms of the cash cost of sales. With the implementation of the Zip master trust and improved funding, we expect to draw the cost down up to 1.5% in the medium term. And cash operating costs will really be a great line item for us to drive down as we look to scale the business to about $1 billion, plus receivables, in the medium term.

Just moving on to the credit performance. The credit performance remains significantly better than industry benchmarks, and that's certainly in line with management guidance. As at the 31st of November (sic) [December], gross bad debts were at 1.91%. We've previously indicated we believe this is slightly lower than optimal for the business, so we'll probably expect to see that slowly increase to just north of 2%. Somewhere -- settling somewhere around 2.25% to 2.5%, we believe, is probably the optimum sort of bad -- gross bad debt number for our business. The net bad debts continued to perform very well. Just to recap, the net bad debt is gross bad debts less any recoveries that we receive on a monthly basis from previously written-off debt. 1.68%, that's a very strong metric when compared to either credit cards, other retail finance providers or other Buy Now Pay Later providers. And the arrears remains reasonably steady at 1.58%.

The repayment profile of the receivables is very, very healthy. This sort of placed us in a fantastic position with regard to how we might adjust our scorecard. We can quickly respond to any changes to our risk appetite or in economic conditions. The book continues to perform very well with approximately 1 in 100 customers late in any given month, again considerably better than any market comparables: with credit cards, about 1 in 6; other Buy Now Pay Later providers 1 in 6. And in terms of trying to visualize the quality of our receivables, the average credit score of a Zip customer is higher than the average credit score of a Zip -- [full bank] credit card applicant. Those results really are a testament to the investment we've made in our proprietary decision technology, and we continue to invest in that asset to deliver better outcomes for the business.

With regard to funding update, on Page 30, we were extremely pleased to launch the world-first BNPL master trust. When we say world first, it was the first sort of fintech offering in public markets that encaptured both regulated and unregulated credit assets in the same master trust. So it was a great outcome for the business. We've effectively identified the master trust program as the best structure to support our long-term growth ambitions. Via this vehicle, we're able to issue trust -- issue notes, I beg your pardon, as or when required to support the growth of the receivables. So we, to some degree, have significant control over our own destiny and flexibility as to how and when we issue those notes. We expect to receive significant cost benefits over time via this vehicle as we continue to build track record and grow the receivables, hopefully, in the region of 1.5% across the portfolio there. And as you can see from the slide, the weighted average interest rate dropped from 4.7% to 4.3% over the half. Very pleased also to receive the Australian innovative debt fund of the year, who said debt funding couldn't be sexy for this deal. So that was a great outcome for the business.

As you currently see, we have loans available in funding about $1.18 billion, and we have about $260 million available to support the growth in the current structures. It is most likely we'll issue a new series of notes out of the master trust in the coming quarter.

I'll just turn over to Martin Brooke, our CFO, to take you through the rest of the financials.

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Martin Brooke, Zip Co Limited - CFO [4]

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Thanks, Pete. I still don't think debt trading is sexy.

So overall, I believe we delivered on what we said we'd do for the half. We invested in growth, made cash flow positive and also invested in CapEx. As you'll note from the half year report, we acquired PartPay and Spotcap in the second quarter, and their results have not had a material impact on the half, reporting $3 million in revenue and EBTDA of $1 million.

As covered by Larry, portfolio income hit record levels, $69 million, an increase of 104% on the 6 months to December. Just as a reminder, portfolio income for Zip includes revenue on an accruals basis using the effective interest method. Merchant fees, establishment fees and monthly fees are recognized over the expected payment -- repayment profiles of Zip Pay and Zip Money, respectively, which is 6 and 12 months. These are added to a customer account but not recognized as income, are shown in earning and unearned future income and shown in the balance sheet as a reduction in gross customer receivables. Also, the revenues generated by PartPay and Spotcap is also recognized in the same manner using the effective interest method.

Cash cost of sales, which comprises interest, bank fees, data costs and net bad debts written-off, increased 106%. And cash gross profit 103% to a record $35 million. Cash gross profit was around 51% of portfolio income, which is consistent with last year. As Pete previously mentioned, we'd expect to see an improvement in this figure as we achieve reduced funding costs in the master trust and there are also a number of initiatives underway to decrease the unit costs of both bank fees and data costs.

Cash operating costs, excluding acquisition costs, increased $19 million. And the group reported positive cash earnings before tax, depreciation and amortization of $1.5 million.

Movement in the bad debt provision reflects increase in receivables. Within the main Zip portfolio, we provisioned consistently at the rate of 3.75 across the 6 months, whereas in the comparable half, the provision reduced from 4.57 to 3.97 across the 6 months, and therefore, that movement is a little lower than what would otherwise (inaudible). Amortized finance costs include the costs associated with entering the group's funding programs amortized over the term of those facilities and obviously include costs associated with amortizing the master trust entered into during the period. Share-based payments have increased largely due to the issuance of warrants to Amazon Australia. $6 million was recognized in relation to the 25% of the warrants invested on inception, and a further $600,000 relating to the remaining 75% that vest over the next 7 years based on the achievement of transaction volume hurdles. Those warrants are independently valued, and then they get recognized based [on investments or the] achievability of the transaction volumes. Value is quite high, really related to the fact that the Zip share price is quite volatile. So that leads into quite a high valuation. The balance of the increase reflects an increase in employee-related share-based payments, noting that all bonuses to employees are paid in shares. The acquisition costs, obviously, relate to professional fees for the acquisition -- incurred in the acquisition of PartPay and Spotcap.

Depreciation and amortizations increased due to the amortization of acquired intangibles following the acquisitions of PartPay and Spotcap, including $1.9 million relating to the write-off of the PartPay brand on rebranding to Zip. We essentially had to value that on acquisition and then write it off as we rebranded. Additional $400,000 was recognized amortizing group IT development and software, and $1 million depreciation on the right-of-use asset. The right-of-use asset is the creation of accounting standard AASB 16, whereby we have to report an asset on the balance sheet and a corresponding liability in relation to our long-term [lease impairment]. The asset is then depreciated.

Earnings before tax was a loss of $30.3 million and included a number of nonrecurring one-off items, which is added back in our adjusted loss before tax. And if you turn to the adjusted loss before tax slide, you can see we reported $30 million. Adding back acquisition costs in relation to PartPay and Spotcap of $2.3 million, the amortized write-off of the PartPay brand, $1.9 million; share-based payments in relation to the warrants to the Amazon borrowings on signing of $6 million, we get to an adjusted loss before tax of $20 million.

Looking in a little bit more detail into the cost base. Looking at the cost as a percentage of average quarterly receivables. Cash cost of sales have dropped from 8.5% to 8.2% (sic) [8.0%]. Interest costs have dropped 4.7% to 4.3% of average quarterly receivables. And the average overall interest rate on our funding program has dropped, Pete pointed out. We've also used funds from capital raised to fund receivables, which obviously impacts this number. Bank fees and data costs have dropped from 1.3% to 1.1% on the back of lower unit costs.

Net bad debt is better considered as a percentage of closing receivables, and Pete really covered the performance of our debt portfolio. For the 6 months, we wrote off a net amount of $11.2 million compared to $4.6 million in the corresponding 6. Bad debt recoveries are running at about 7%, which is a little bit lower than the previous corresponding period, but we only started actively seeking recoveries in mid 2008 and last year's recoveries were a little bit higher than the number we would expect on an ongoing basis. Also worth noting that Zip retains ownership of all debts written off, and we use the services of a third party to help in the collection process, paying a percentage of the amount they collect.

Head count, being the largest component of our operating costs, comprises 53 -- a little bit under 53% of cash operating costs. Permanent head count totaled 354 at the end of December, including casuals, up from 204 at the end of December '18. Included in that number, we have 50 employed with Spotcap and PartPay, obviously, acquired during the period. The group has invested and will continue to invest further in the product and technology teams, [data and risk] and sales and marketing teams. And Larry has covered off some of the initiatives that they've been working on during the period. And as pointed out, we've also invested significantly in the executive team to grow and develop its operating -- operations globally.

Marketing costs increased by $4.5 million. We launched a brand campaign during the 6 months, rebranded PartPay to Zip and also increased our promotional and other spend to maximize transaction volumes in the seasonally strongest quarter. Other operating costs include IT costs up $2.8 million and professional services up $1 million and really general increase in the cost base to support what is now a much larger business than it would have been the last 12 months ago.

Now if we look to the balance sheet.

Group reported cash of $39.1 million on the balance sheet at 31 December, of which $20.2 million was held in the account of trusts. We report that as restricted and is not available to the credit of the company. Typically, we do not retain cash on the balance sheet. We'd rather invest in receivables and, therefore, reduce the need to do external funding. However, as at 31st of December, we were in the process of deploying funds on a capital raise and held higher balances to ensure funds were available to fund transactions over the January sales period.

Due to the 31st of December being a Tuesday and 30th of June a Sunday, there are timing differences in both receipts and payments, reflected in other receivables and trade and other payables, whereby amounts recorded in customer receivables [but funds are not received are] payment made of balance date [basically]. Generally, we receive fund to make payments on the next working day, but we record in customer receivable on the transaction date. So there's a timing difference there that appears depending on the actual day of the year (inaudible).

Property, plant and equipment increased as the group fitted out an additional floor in Sydney. The right-of-use assets, I mentioned before, and associated lease liability related to the implementation of AASB 16. Other intangibles includes acquired intangibles of $12.5 million from the acquisition of Spotcap and $6.5 million from PartPay -- oh sorry, $12.5 million from both and a $6.5 million addition due to the group's investments in proprietary software applications, obviously, all net of amortization. It should be noted that we've valued the acquired intangibles provisionally, but we value those internally, and we will get an external valuation prior to 30th of June, and we'll report the external valuation in the accounts in the annual report to 30 June. Investment is our investment in Quad, and the investment in associates reflects investment in Payflex, net of (inaudible).

Deferred consideration relates to amount that we'll pay to the vendors of PartPay on achievement of transaction volumes over this financial year and the next. And these payments are settled in shares. Goodwill increased by $42 million on the acquisition of PartPay and $5 million on the acquisition of Spotcap, which explains the movement there.

Just turning to the cash flow. Generated a positive cash flow from operations of $6.7 million compared to $7.5 million in the previous year period. We fitted out an additional floor in Sydney, as I mentioned, and spent an additional $5.1 million invested in propriety software systems.

As we largely paid for the acquisition in Spotcap and PartPay in shares, when we then add it to the balance sheet, added a net $2.7 million in cash from acquisition. We paid $16.6 million to take our investment in Quad up to 15% and incurred 2 -- costs of $2.3 million on the acquisitions of Spotcap and PartPay we've covered up before. Movement in receivables is obviously supported by the movement in borrowings and proceeds from the capital raise. We raised $62 million from the capital raise and $0.2 million from conversion of options and carrying costs of $2.1 million. Borrowing costs relate primarily to the cost of establishing the master trust and the repayment of lease liabilities reflect -- the payment of lease liabilities reflects our property leases and is shown in (inaudible).

That's me. I'll hand you back to Pete.

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Peter Gray, Zip Co Limited - COO & Executive Director [5]

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Thanks, Martin.

I'm just talking now to the regulatory update slide in the 2020 outlook. The court was pertinent to include a slide just on the regulatory environment given that it's fairly topical and a fairly busy environment. You may have noticed we've taken a strong leadership position with regard to this. We're engaging actively with regulators. We played a strong role in the formation of the Buy Now Pay Later industry-specific code of conduct. We're also engaging with parliamentarians to ensure we endeavor to help shape the secretary's regulatory environment. We've briefly outlined some of the initiatives or activities that are going on with regard to if ASIC is engaging with the Buy Now Pay Later providers with regard to report 600. They've issued round 1 of report 600 at the end of 2018. They'll be providing a further update with regard to that report in the coming months. As touched on, we have -- the Buy Now Pay Later code of conduct is an industry participant's code of conduct that's currently on consultation. We believe that, that will be a strong starting point, but we will continue to implement our own, more robust and comprehensive standards. Obviously, the RBA is conducting a review into the payments landscape, and we also have participated recently in the Senate fintech inquiry, where we made a strong case for greater coordination between regulators endeavoring to provide an outcomes-based approach to regulation of fintechs. Overall, given our robust business model and processes, understanding we do ID and credit checks and ensure customers' financial position prior to entering into any relationship with them, we remain well placed in the current regulatory environment.

Just turn over to Larry to close.

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [6]

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Thanks, Pete.

So as we look at the year ahead, we obviously remain really focused on delivering our targets that we set for fiscal 2020, targeting 2.5 million customers and $2.2 billion in annualized transaction volume. And at the end of December, we were on track, annualizing at $2.3 billion and 1.8 million customers. The focus this year is really about acquisition, retention, onboarding lighthouse brands and starting to expand globally via lift, shift and scale strategy, and we're really excited about the road ahead.

So in closing, probably a few comments here. For us, we are executing on the strategy that we have set out. We like to set a very clear strategy, set out a strategic plan for the year, get buy-in from the executive team and then farm out across the group, and we've been doing exactly that. We've also been able to deliver really strong growth year-on-year. If you just look at the last 5 years, that's over 100% revenue growth year-on-year. And we've just seen that again in the half, $70 million for the recent half. And even though we are 6 years in and growth has been great, if you look at the penetration, it is still incredibly small, and the market opportunity before us, we assess as very, very large, not just in Australia but now globally. And so where we are today at the end of this financial year is going to be good, but we're really looking at the next few years and really believe that we can build a very significant business. We've got the team in place. The timing for Buy Now Pay Later has probably never been better. We're seeing all stakeholders lean in, not just retailers. We're seeing the banks and issuers. We're seeing schemes. And with the globalization and connectability of [tick], we're really excited about the road ahead.

So thank you all for listening in. I will now hand over to the operator to take any questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question today comes from Jonathon Higgins from Shaw and Partners.

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Jonathon Higgins, Shaw and Partners Limited, Research Division - Analyst [2]

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Just 2 for me. Firstly, just around the U.K. rollout. You've obviously spoken in regards to some timing for that rollout in the presentation. Are you able to give us just a little bit of color just around pricing goal on that rollout? And is it going to be an off-line and online thing that happens? And are you going to launch with a number of large partnerships? Or are you going to try to fill it out in a bit of a slow manner?

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [3]

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Yes. Thanks, Jon. Yes. So we are very much treating the U.K. as a good big opportunity and not really a go slow. I think what you see there is very much a start-up but with a VC firm having really raised the capital. So we're not treating it incremental. We are looking for kind of radical growth. And that's why, as I mentioned earlier, we've already got 50 on the ground there, focused on really getting into the market. We definitely hope to launch with a number of strong, strong brands. And our plan is to be online and in store. We are an omnichannel play. There's been a bit of work done over the last few months in, first, getting the right team together, which we've now done under Anthony Drury, and also doing some additional work on the technology platform that we built -- that we acquired via the PartPay acquisition. And that's getting ready as well. So we see the opportunity as significantly larger in Australia, and we're going to treat it seriously like that.

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Jonathon Higgins, Shaw and Partners Limited, Research Division - Analyst [4]

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Just second question, just in regards to just your targets. You're obviously well ahead in terms of your annualized transaction volumes, and you've got the 2.5 million number for the end of the financial year and obviously [ended as per] the last quarterly update. Are you able to talk towards where you expect to see the leverage in that customer number? Because it does imply, obviously, a pretty significant step-up from what we saw in the second quarter, excluding the sort of the acquired PartPay customer base. Just where you expect to get that. Because 2.5 million customers, that sort of your average transaction rates rolling into next year is obviously a pretty material number. And probably the second part of that question would be, are you seeing any sort of difference in the core competition in the Australian market with a couple of these players making moves around the various product sets with Klarna. Obviously, flex has launched a bit of a different product, et cetera.

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [5]

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Yes, sure. Yes. So look, I think the 2 points. We're still very focused on hitting the 2.5 million number. We've got a large number of initiatives that are in place, which we're not going to go into necessarily on the call. But certainly, there's also a large number of technology and product solutions as well as some pretty large retail partners that we are in the final stages of. And once they're on, we do expect some really exciting growth there. So we're still pushing pretty hard at the 2.5 million. And if you look at just the market opportunity, definitely PayPal accounts, certainly, and credit card accounts. We've got a long way to go. We've also now got a great chief on that side of the business, Steve Brennen, ex-Uber. He led there as well as PayPal, and he's firmly focused on that result.

In terms of competition, you mentioned Klarna. Look, I think it's great to see an Australian bank backing a foreign tech company to fight against 2 homegrown Australian tech stories. So that's really great to see, sarcastically, of course. But look, I think if we look at the competitive landscape, we do believe that our product in Australia, this account concept, is very differentiated. And if you look at the market, most retailers have put Zip and Afterpay, us, so it's been a fantastic success story in the [paying for]. And I really struggle to see how others are going to come close. I think Klarna is a bit late to the party. They'll try pretty hard with CBA, but I think Afterpay's going to have them over a barrel. And I think just more generally on the competitive landscape, if you look under the hood, some of the other peers don't -- we don't believe, have the focus on product and tech and customer as we do, the DNA and culture of the organization. So while there are products being released and lots of different brands out there, I think if you just remain focused on the customer, invest in product and tech with that differentiated strategy, we've got a really, really strong position. We have had Westpac on the register. That has been a little bit slow, but there's always -- if you look around, there's lots of areas for us where, if we look forward, we're really excited about.

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Operator [6]

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Your next question comes from Phillip Chippindale from Ord Minnett.

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Phillip Chippindale, Ord Minnett Limited, Research Division - Senior Research Analyst [7]

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Just a couple of questions from me. Firstly, just on the gift cards and the bill payments offering that you've got, can you give us a sense of how much of your TTV comes from those types of products?

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [8]

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Phil, it's Larry here. So look, I think the -- they do deliver good, good numbers, but obviously, we can't share the exact share. That's probably as far as we can go. I think [just] bills is -- bills are bigger than gift cards.

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Phillip Chippindale, Ord Minnett Limited, Research Division - Senior Research Analyst [9]

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Yes, I suppose the -- where I'm going with this is, if I look at the revenue yield that you guys have achieved over the last, well, like, 4 halves -- I think Slide 26 demonstrates it well, but that's continued to come down. I think Peter made the point that some of those lower-yielding products have had some of that impact. I guess I'm just trying to get a sense of how much of that TTV is coming from the low-yielding products. And then the lead into that is, what is it that's going to drive that yield to increase? Because you're obviously restating your medium-term target to 18%.

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [10]

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Yes. So I'll hand over to Pete. But I wouldn't go down that path because if you look at gift cards, I mean, gift cards have a much higher fee associated with the gift card market. It's anywhere from 3% up to [10%]. So it's that -- if you had just gift cards, you will have merchant rates of 5% to 10% and even higher. So I wouldn't look at it that path. But in terms of the overall yield, yes, Pete...

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Peter Gray, Zip Co Limited - COO & Executive Director [11]

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So for example, Phil, one of the initiatives we're looking at with regard to the yield is, obviously, we -- as Larry sort of touched on throughout the presso, is that we've done a really good job of getting customers to use us more and transact more. So one of the things that we're really focused on is how do we get them to repay faster. Obviously, that makes a material difference to the recycling of the capital, and that will be an upward shift in yield. Part of the reason that -- in terms of seasonality that we sort of drop slightly at this time of year is because customers are carrying slightly large balances. So that's some of the initiatives we've had in the arsenal. As the global story grows -- and these sort of products, they're naturally significantly higher-yielding products than perhaps the core Zip product. So there's a number of ways that we can sort of affect that number as we continually strive to scale to this $5 billion sort of receivable.

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [12]

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Yes. I think we're definitely -- if you kind of look forward next year or 2, we should see faster recycling of the book than we had in the past, based on all the initiatives that we have in front of us, which obviously improves yield.

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Phillip Chippindale, Ord Minnett Limited, Research Division - Senior Research Analyst [13]

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Okay. Secondly, can we just turn to the U.K. for a moment? I'm just trying to understand what your product aspirations are there in terms of rolling out the Zip brand. I'm just wondering a couple of things specifically. Are you looking to launch your Zip Money product in that marketplace? And then secondly, what about Zip Biz, is there sort of aspirations to have that offering in the U.K. as well?

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Peter Gray, Zip Co Limited - COO & Executive Director [14]

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So I'll take this one. So initially, I think, obviously, the PartPay or the nearly acquired Zip Pay is a [paying-for] product. So that will be the first launch piece. That's a proven model, to acquire customers in multiple verticals. And yes to the second answer. With regard to Zip Money, we see a huge opportunity for the Zip Money in the longer-dated high-purchase type items in the U.K. Again, it's a reasonably well-known and understood marketplace for a product like that, but there's no one sort of delivering it within the technology sort of fashion that we have in terms of the way we make -- utilize the credit decisioning platform we've built to deliver that product. So that's a huge opportunity for us. There is a very high-interest-rate retail finance market over there that is ripe for disruption with the correctly structured [interest for very] longer-dated stuff. And similarly, with Zip Biz, there's a huge utility for that product not only in Australia but globally as well. And what we're already seeing in terms of the value prop and the take-up from customers in Australia is that there's significant need for this sort of digital service which allows customers to make purchases but also spreads the cash flow burden of bills and invoices [as its] great utility. The usage of 3-plus times per month in terms of the use case for Zip Biz customers, we believe, will be very transferable to other jurisdictions such as the U.K.

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Operator [15]

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Your next question comes from Tim Piper from the Royal Bank of Canada.

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Timothy Piper, RBC Capital Markets, Research Division - Analyst [16]

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Just first one around the Zip Biz product. Can you just provide a little bit more detail around the pilot program you've run in terms of the breadth of merchants and the size of the merchants? And also, how many customers are you seeing elect to use the PartPay option in that product so far?

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Peter Gray, Zip Co Limited - COO & Executive Director [17]

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Tim, it's Pete. So we're seeing sort of a broad mix of very small enterprise businesses, from your local [farmer or trading] to sort of some medium-sized turnover businesses in the $3 million to $5 million sort of turnover range, sort of take up the product. Admittedly, it's very early days, but the results we're seeing are really promising. We're actually seeing a reasonably even split of customers electing to pay the balance in full under the up to 60-day term and in terms of an even number sort of carrying it over and using the PartPay feature. So it's probably too early days to sort of give you a strong steer on that one. But the flexibility is already being embraced. The customers are understanding the concept and the option very clearly. And again, similarly to -- on the consumer side, we've already tapped into a sort of a great market opportunity, and it's bills and invoices, in terms of spreading these cash flow loads that some small businesses are carrying.

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Timothy Piper, RBC Capital Markets, Research Division - Analyst [18]

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Okay, sure. Did -- Sorry. Did you say that Zip is a higher-revenue-yielding product?

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Peter Gray, Zip Co Limited - COO & Executive Director [19]

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Yes, I did.

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Timothy Piper, RBC Capital Markets, Research Division - Analyst [20]

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Okay. And sort of what's -- what would be the rough difference in revenue yield between a customer utilizing the PartPay option versus not?

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Peter Gray, Zip Co Limited - COO & Executive Director [21]

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In terms of the yield profile.

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Timothy Piper, RBC Capital Markets, Research Division - Analyst [22]

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Yes.

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Peter Gray, Zip Co Limited - COO & Executive Director [23]

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Yes. So it's pretty agnostic the way it's currently structured. It is still in pilot phase, so whether or not we tweak any of the pricing. But we would anticipate a yield across the portfolio in the mid-20s. So that's the sort of contextual difference that we're hoping that, that sort of product will deliver for us.

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Timothy Piper, RBC Capital Markets, Research Division - Analyst [24]

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Okay. So in the mid-20s. That's largely being driven by a high turnover in the book, is it, in that product.

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Peter Gray, Zip Co Limited - COO & Executive Director [25]

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That's one of the factors.

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Timothy Piper, RBC Capital Markets, Research Division - Analyst [26]

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Yes, sure. Okay. And just a follow-up on the U.K. again, just looking at how much some companies have spent investing and expanding in the U.K. And appreciate that you're in growth mode. I'm just looking at your cash EBTDA yield going forward. Does that stay positive?

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [27]

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Yes. So I think that's, U.K., we will be investing for growth. And I think we'll use some different tactics to what we've seen in market over there. I can't see us running silly checks to go on to checkouts that aren't going to yield a significant volume just to be there. So we are going to take a very different approach in the go to market. And so to get to a cash flow breakeven result for the U.K., it's probably a couple of years, I would have thought, and obviously keep Australia in the black.

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Operator [28]

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Your next question comes from Sameer Chopra from Bank of America.

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Sameer Chopra, BofA Merrill Lynch, Research Division - Head of Australian Research and Co-Head of Regional Telecom Research [29]

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Congratulations. Good set of numbers. I had 2 questions. One, is it possible to get some sort of color around how your brand is tracking on some of the newer merchants, people like sort of Amazon and Optus and Bunnings? Just want to get a sense around is Zip frequently used. What sorts of purchases are made? What sort of purchase size occurs on some of these sort of newer merchants? And my second question is, could you maybe guide us around how we should think about salary, marketing costs, other OpEx through the rest of FY '20 and into next year? What sort of pace of growth should we expect in these expense line items?

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [30]

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So we had -- so a couple of angles to that. We've had the...

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Unidentified Company Representative, [31]

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Performance on new merchants...

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [32]

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Expenses and performance on new merchants. So those are the two. I might tackle performance, and I'll hand over to Martin for the expenses. So I think, some of the examples that you've used: In the case of Amazon, we are the only option. And in Bunnings, it's us and Openpay. So I think what you're seeing is, I mean, the checkout experiences are a lot more sleeker than they were a few years ago in the case of Amazon. So conversion rates at that payment point are going up. And we've got more customers in the base now. So when we turn on a merchant, we're able to deliver immediate value to that retailer on day 1, and we've got quite an active base. So that's really, really strong. And I'd probably point to some of the steps we showed earlier around customers that are joining Zip now are coming into a world where they sign up. And we look at the funnel from sign up to add a card, make a first transaction, make a repayment, et cetera, et cetera. So we're seeing a much faster flow-through on those activities where they might sign up. If they come direct, they'd sign up at their payment method, and then much quicker, they're now shopping at our retail partners. They can see in the [app] we have. They can search. They can find, and that's getting a lot easier. In terms of share of checkout relative to peers, it's hard for us to know without asking our competitors. But anecdotally, I think we're doing a pretty good job at Bunnings, where we're side by side.

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Peter Gray, Zip Co Limited - COO & Executive Director [33]

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It's still early days, but -- for Amazon, obviously, but the likes of a Big W and Appliances Online, we're really starting to get a meaningful share of checkout and deliver some meaningful volumes to those businesses, and similarly with the likes of Bunnings as that relationship continues to mature.

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [34]

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Yes. And Bunnings obviously is going more digital. I personally think we've got -- the numbers are good, but we've got a long way to go in terms of really penetrating the in store. So Buy Now Pay Later has done a good job of penetrating online checkouts, getting to a target share of checkout. In store is obviously a lot more gradual, and that's for a whole raft of reasons, the ability to see, that you can use these products and services, the actual payments experience. So we're doing a lot of work this year on the in-store piece. You've seen QR. We've got a couple of teams working on that, which we think is going to yield some pretty good results. So even though it's accounts we've done well online -- but I would assess the opportunity is much bigger in store. On the expenses around head count or apart from it, Martin...

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Martin Brooke, Zip Co Limited - CFO [35]

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[Thinking on the] cost side is -- the simplest way to think about it is that we will continue to invest in growth. So we will invest in growth, with the objective of maintaining the cash EBTDA positive. So that will -- obviously, we've said it will imply increased marketing spend, decreased head count spend half-on-half...

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [36]

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I think, if we look at a lot of the people costs, engineering has gone up from [35 to 110] over the last year and a bit. We're doing some work now to also scale teams offshore. So building distributed teams in Vietnam and India. Not only do they provide a lower cost. They also provide a higher velocity. And so our Chief Product, Technology Officer has that one of his big initiatives. Space is obviously an issue in Australia but also growth and hiring. So that's going to -- you'll see more of that happening, which actually would probably reduce the overall average cost of engineering resources.

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Sameer Chopra, BofA Merrill Lynch, Research Division - Head of Australian Research and Co-Head of Regional Telecom Research [37]

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So sequentially, we can expect costs to keep growing, what, 20%, 30%, these kind of fixed OpEx, meaning not cost of goods sold? Do you think sequentially half-on-half these things will keep picking up...

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Martin Brooke, Zip Co Limited - CFO [38]

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(inaudible) modeling it in line with, I guess, the growth in revenue. So the model will be revenue is going to grow. Cost of -- cash cost of sales would stay at the same kind of level, maybe reducing. And then what then flows through, we'll be investing in growth but as the cash EBTDA remains around the breakeven or thereabouts.

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Operator [39]

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Your next question comes from Andrei Stadnik from Morgan Stanley.

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Andrei Stadnik, Morgan Stanley, Research Division - VP [40]

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Just wanted to ask, well, firstly, just around the comprehensive credit rules now being applied [with businesses with] credit cards. Do you think this has permanently increased the burden of taking out a credit card in Australia so the volumes, new volumes, credit cards will rebase to a much lower level?

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Peter Gray, Zip Co Limited - COO & Executive Director [41]

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Yes, I wouldn't suggest, Andrei, that the comprehensive credit reporting regime is necessarily impacting credit cards. I think what we've seen in Australia is a shift away from traditional credit products significantly more complex; high reliance on interest; and probably, to some degree, a large level of the increase of mistrust with the big 4 banks, which obviously came out as part of the royal commission. So I think it's more a shift on the basis of product construct simplicity. This concept of carrying large debt at high interest rates for long periods of time is probably outdated. And consumers are embracing solutions such as us because of the simplicity and the quick recycle period of the repayments, as opposed to anything to do with the comprehensive credit reporting regime.

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Andrei Stadnik, Morgan Stanley, Research Division - VP [42]

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And my second question, just in terms of integration with Tyro. Are there any incentives that fees, one-offs ongoing that you will be paying to Tyro for helping deliver, onboard merchants?

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Peter Gray, Zip Co Limited - COO & Executive Director [43]

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Yes. So obviously, there's a commercial relationship in place with Tyro for the integration piece. I think what we liked about them was that they actually have a proven model of being able to sort of roll out an alternative payment solution across their network. So Alipay, for example, would exist in 20,000 of their merchants. So we're hoping to sort of -- via that model in terms of this mass rollout across their network.

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Operator [44]

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Your next question comes from Richard Coles from Morgans Financial.

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Richard Coles, Morgans Financial Limited, Research Division - Senior Analyst [45]

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So to just try and reconcile some of the comments you're making on sort of growth and expense relative to your medium-term margins. I mean you have the medium-term cash EBIT margin 7%, say, sort of a 2- to 3-year time frame. But then you're making comments that you're obviously going to look to be cash flow positive in the U.K. maybe in a few years time and you're willing to invest in the business for growth, which everyone understands. So I guess, when you're giving those targets, are they really a 2- to 3-year time frame? Or are they -- are we talking more of a 3- to 5-year time frame on some of those medium-term financial dashboard targets?

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [46]

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Yes. Yes. So I think if you look at it, I mean, it's no surprise that we do need to invest for growth because the window is here. So I think it's really about our ability to invest and get the operating leverage coming through. We've got some big things in the horizon which we hope to secure. And you will start to see the operating leverage come through 100%. I mean we're really -- you can see just the weight of investment in product and tech. As those squads formalize, get more mature, you don't need to add more to the different parts of the customer experience. So the next year is investing for growth. We've got some pretty ambitious targets for the U.K. and the MD there is incentivized accordingly. So we hope to see some really strong results. But I think we need to be mindful that this is on a 3-year range. And a lot of the investment going in is for growth. We could take out a huge number of costs out of the business and you could be at that number overnight. So that's not really the challenge.

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Operator [47]

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There are no further questions at this time. I'll hand the conference back to your presenters for any closing remarks.

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Larry Diamond, Zip Co Limited - CEO, MD & Executive Director [48]

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Okay. Well, thanks all for your time. I think we've gone a little bit over. And as always, if there's any further questions, feel free to reach out to the company via the investors' line, and we'll be happy to ask any questions or have any of you over at the office to showcase the operations. Thanks so much.

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Operator [49]

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Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation. You may now all disconnect.