IPH Limited (IPH) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the IPH FY '20 Results Investor Conference Call. [Operator Instructions] I would now like to hand the conference over to Dr. Andrew Blattman, CEO. Please go ahead.

Thanks, Ashley. Good morning, and welcome to the IPH results presentation for the year ended 30 June 2020. As Ashley has indicated, my name is Andrew Blattman, I'm the CEO of IPH, and with me today is my colleague, John Wadley, our CFO. Thank you all for joining us for today's presentation and, of course, for your continuing interest in IPH. Today, John and I will provide details on our full year results. Before I begin our formal presentation, I would like to acknowledge and thank the IPH executive team and our Board for their support, and of course, all of our people across our business units for their contribution throughout the year. Our business has been somewhat disrupted by COVID-19, particularly in the last quarter, although thankfully, not to the extent of many other organizations. Our people have responded and adapt the world of this challenge, and at all times, continue to support our clients. At the same time, I've been very proud we've been able to continue to deliver on our strategic priorities, even in the middle of a global pandemic, whether this be the integration of Xenith into IPH, more specifically, albeit virtually, the integration of Watermark into Griffith Hack, the divestment of Glasshouse Advisory and the acquisition of Baldwins, again, subject to New Zealand commission approval on that one. And I'll speak to these further in the course of the presentation. So moving to I guess slide 3, the table of contents. As we've done previously, I'll provide an overview of the operational highlights of the year. John will discuss the financial results in further detail before handing back to me to provide some commentary on our key markets in terms of filing activity for the year and a review of our operations. I'll conclude with some comments on our business looking forward, and as always, happy to have and take your questions. So moving to Slide 4 about IPH. It's always good to recap the scale and diversity of our business. In my view, we're the leading IP business across the Asia Pacific region. We operate 6 brands, over 900 employees working throughout 8 IP jurisdictions in the Asia Pacific region across some 20 offices servicing more than 25 countries across the region. I'm very pleased to note that we have maintained our #1 patent market position in Australia, New Zealand and Singapore, and the #1 trademark position in Australia and New Zealand. Slide 5 talks about these highlights I referred to. We'll skip through these. I will speak to them at the operational level, as I say, and John will pick up at his financial. So looking at our scorecard slide, our Slide 6 operational highlights. In the challenging environment we found ourselves in the second half, particularly last quarter FY '20, we continue to deliver on our strategic priorities to pursue our vision to be the leading IP services group in secondary markets. While not without some challenge, we have successfully completed the introduction -- rather, the integration of Xenith IP to IPH. This was the largest acquisition since our listing, and we successfully delivered the key milestones in the integration process. What were they? That includes the integration of Watermark into Griffith Hack, the divestment of the R&D practice of Glasshouse Advisory and achieving the synergies we estimated at the time of the acquisition. As I said earlier, we've maintained our leading position in Australia, New Zealand and Singapore. And as always, we achieved margin expansion, particularly within the Xenith IP Group. Our Asian business remains the growth engine of the group and continued to reflect strong growth throughout FY '20. Our strategy to leverage our network across the region continues to result in increased client referrals from our Australian and New Zealand businesses. For example, AJ Park is the #1 client by revenue in our trademark business in Beijing and Hong Kong. And similarly, Griffith Hack is now one of the top 10 clients by revenue of our patent business in Beijing and Hong Kong. With the disposal of 3 of the 4 products from the Practice Insight business last year, we are now fully focused on WiseTime. And it's very pleasing to see the increased revenue growth and increasing customer base in that business. Our digital platform development is in progress, with multiple streams of work underway. Due to COVID-19, one of our IT resources were focused in the short term, of course, on ensuring business continuity. We have continued to progress our acquisition strategy. And as I said, we've done it in the global pandemic. We announced the proposed acquisition of Baldwins in New Zealand in June. And as I said earlier, this is subject to approval by the New Zealand Commerce Commission. Baldwins is a highly regarded firm in the New Zealand market, and the acquisition will give the merged business under AJ Park greater depth and provide clients with access to a complementary team of experienced IP professionals. We're very much looking forward to welcome Baldwins into the team. Overall, I'm very pleased with the progress we are making in strengthening our business in what has been a challenging, particularly, second half of the year. Slide 7, we've put in a slide there reflecting our COVID-19 experience. We did say in the last quarter in a couple of forum that we spoke at, we're experiencing some disruption as a result of COVID-19. But since, we implemented comprehensive COVID-19 response plans across all offices and always with a primary focus on the safety and well-being of our people, clients and communities. Our IT systems have proven strong. They have enabled all IPH staff to work remotely. Indeed, our China and Hong Kong office -- offices, rather, have operated remotely since late January just after Chinese New Year, followed by the Singapore office, which is, of course, our largest office, going remote in February, and the rest of us followed soon thereafter. Overall, we continue to follow and act on government advice in regard to the need to work from home, with a large portion of our workforce currently working remotely across most IP jurisdictions. Pleasingly, the IP offices of our larger markets, including Australia, New Zealand and Singapore, remained open during the pandemic. However, we did see patent office closures in some of our smaller markets in Southeast Asia. In the second half of the year, we experienced some slowdown in the workflow, new filings and instructions on existing matters, due to disruption amongst some clients and the general economic and market uncertainty as well as, as I say, the temporary closure of some of those IP offices outside of Singapore. However, the flow-on examination work from previous filings and the level of new filings maintained resulted in IPH not making any redundancies, stand downs or pay reductions for our staff as a result of COVID-19 impacts. Government assistance was not accessed in Australia or New Zealand. However, approximately $1 million in government assistance was received in various forms in Singapore, China and Hong Kong. Now I'll hand over to John, who will step us through the financial results in more detail.

Thank you, Andrew, and good morning, everyone. As we did at the half year, the next 2 slides, we have presented these financial highlights pre and post the implementation of the AASB 16 accounting standard to assist in the interpretation of the results. This is a transitional year, and we would expect next year to report on a post-implementation basis only. A reminder for the IPH Group, the main impact of this standard is to replace lease expense, in our case, predominantly premises costs, with a corresponding charge to depreciation and financing expenses. This has the impact of increasing reported EBITDA, while it does not impact the cash flow. The amount of depreciation and financing charges in the current period is $11.9 million, including the addition of 10.5 months of the Xenith IP Group. The total of these charges next year on an annualized basis for our current property portfolio will be approximately $11.2 million as a result of property rationalization. You will note from a review of our statutory accounts, the financial results for the prior corresponding period do not include the adoption of this accounting change as any transition impact has been taken through retained earnings as permitted by the accounting standard. With this in mind, while the percentage increases on this slide are pleasing, the usefulness from a comparability perspective is limited as they are colored by the acquisitive impact of Xenith as well as the different treatment of lease costs in the relevant periods. For this reason, I will concentrate on the next slide and the like-for-like analysis. On Slide 9, I'm pleased to report that as this slide indicates, we have shown growth in most of our headline financial metrics against the prior year. Unpacking the result, the main contributors have been 10.5 months of acquisitive growth from the Xenith IP business, foreign currency tailwinds and continued organic growth from our Asian business. Those factors have resulted in an underlying EBITDA of $114.5 million, up 28% on the prior year. The Xenith IP business contributed $21.2 million in EBITDA at an increased margin of a lower revenue base, predominantly through corporate cost savings. The comparatives on this slide are impacted by the average Australian-U.S. dollar exchange rates in the relevant periods. The average rate in FY '19 was $0.715, while in FY '20, it has been $0.67. Strengthening of the USD by an average of $0.045 has the impact of improving reported results. This impact is removed in the like-for-like slide we will review shortly. The key difference in this period between the statutory numbers on the left and the underlying numbers on the right has been the increase in noncash amortization of intangible assets as a result of the Xenith IP acquisition. The amount recorded in this year was $19.6 million, and this is expected to be $20.5 million on an annualized basis. Underlying NPAT has grown by $0.24, while statutory NPAT has grown by 4%. The more subdued year-on-year increase in statutory numbers against underlying numbers as well as the decline in diluted EPS is a result of this amortization as well as last year's balances containing a one-off accounting gain on the sale of 3 of the product businesses of Practice Insight. The underlying diluted earnings per share has risen by 16% to $0.367 per share. I'll mention the other points in the later financial slides, although I will highlight the fully franked final dividend of $0.15 per share, a 14% increase in the total dividend on the prior year. We anticipate that the dividends over the next year will also be fully franked. On to Slide 11. This slide provides context and shows the continued progression of the group since listing through both acquisition and organic growth. The adoption of AASB 16 in FY '20 has had the impact of increasing EBITDA of the combined group, excluding Xenith, by approximately $11.9 million as lease costs have now been treated as a financing costs. Moving on to Slide 12, being the like-for-like revenue and EBITDA. The like-for-like basis eliminates the impact of acquisitions and foreign exchange impacts I discussed earlier. On a group-wide basis, revenue fell by 3% and EBITDA by 1% on a like-for-like basis. New business column in the table removes from the financial year results, the 10.5% contribution of the Xenith IP business. This is a representation of the 10.5 months in the FY '19 year prior to IPH ownership and does not include any additional contribution or decrement generated under IPH ownership in FY '20. The Xenith business has delivered an underlying EBITDA contribution in the 10.5 months of $21.2 million compared to the comparative period of $17.8 million, reported growth of 19% and like-for-like growth of 7%. This improvement has predominantly been delivered through the realization of corporate cost synergies. The Xenith IP operating brands experienced a net decline in underlying earnings, largely as a result of the greater exposure to local Australian filers. In addition, Griffith Hack and Watermark have their largest offices in Victoria and have been subject to greater disruption from the COVID pandemic and also have had the distraction of merger integration. This decline excludes the previously disclosed outperformance to budget of one entity, including as a result of a significant litigation matter. The performance of these acquired businesses are the largest components of the 5% reduction in revenue, an 8% reduction in EBITDA in Australia and New Zealand. The IPH legacy businesses in Australia and New Zealand declined by 2% in revenue and 3% in EBITDA, reflecting lower patent and trademark filings in Australia as well as lower revenue from a number of legal matters on foot. The next 2 columns to the right show the FX impact on both the balance sheet and the P&L. The currency adjustment column reflects the comparative advantage of the stronger U.S. dollar throughout FY '20 as well as the strength of the Singapore dollar versus the Australian dollar. The strengthening of the Singapore dollar causes a tempering of the FX impact at the EBITDA line due to 30% of operating expenses being denominated in this currency. Asia has continued its outperformance from last year, albeit tempered by the impact of COVID-19, including some temporary IP office closures in the region. You'll recall that the business benefited from a significant client filing across several jurisdictions in the last quarter of the last financial year. Pleasingly, this result has been achieved despite this client's filing activity moderating in the current year. An increase in filings in countries requiring translations has also made a positive contribution. Excluding the impact of foreign exchange on the revaluation of the U.S. dollar debt, the group has seen an increase in IPH legacy corporate costs of $3.5 million, reflecting investment in the IT function, increased D&O insurance costs and increased compensation of new executives added through the -- during FY '19 and FY '20. In addition, there are $500,000 of cost on the Xenith IP corporate office in the period since ownership, a significant reduction compared to the prior stand-alone period. Corporate costs, excluding FX movements, are expected to be around $14 million in FY '21. Slide 13. This shows the calculation of the underlying results, which is on a consistent basis to prior periods with the addition of one new item. The impairment caption relates to the write-off of the Watermark brand on its merger into Griffith Hack as well as the write-off of the right-of-use asset on leases not required post integration. Other adjustments in the current year include acquisition costs related to potential and completed acquisitions and restructuring costs related to the Griffith Hack-Watermark merger and post-acquisition activities at Xenith. The underlying effective tax rate is close to previous levels at 25.3%. Slide 14 on the cash flow statement. Reviewing the cash flow statement, cash conversion has improved against the prior period and remained strong. Cash conversion in excess of 100% in the current year reflects the strong end to last financial year. This revenue is collected as cash receipts in the current financial year. Strong cash flows support a high dividend payout, which in the current year, was 82% of cash NPAT, consistent with the dividend policy. Slide 15 on the balance sheet. IPH remains in a strong financial position. The main changes relate to the change in accounting standard and the acquisition of Xenith. The implementation of the new accounting standard resulted in the recognition of right-of-use assets and lease liabilities with the related deferred tax balances. The completion of the Xenith IP transaction resulted in the issue of $130 million worth of shares and the drawing of additional debt of $65 million. The acquisition accounting of Xenith IP increased goodwill by $120 million and recognized intangible assets of $135 million with related deferred tax balances. As a prudent measure, the company drew down $20 million of its debt facilities in April. Subsequent to year end, $12.7 million of this balance was repaid. Gearing as at 30 June was 0.6x, and the group's debt facilities do not mature until February 2022. Slide 16 and the impact of foreign currency. Based on the USD profile in FY '20, a $0.01 movement in the AUD-USD exchange rate equates to approximately $1.9 million of revenue on an annualized basis. This is assuming the same USD profile is maintained. As previously mentioned, our FY '20 results came through at an average AUD-USD exchange rate of approximately $0.67 versus the comparative period of $0.715. An additional impact in the current period has been the strengthening of the Singapore dollar against both the U.S. dollar and the Australian dollar. We have previously spoken about the natural hedge of our USD loan against our significant balances of USD cash and receivables. This operated as expected in FY '20, whereby the existence of U.S. dollar debt tempered potential gains on the U.S. dollar assets. Should current spot rates persist, this would represent a headwind for our reported results in FY '21. I'll now hand back to Andrew to take a closer look at the business.

Good. Thanks, John. I'm now moving into Slide 17 and beyond, the market overview, and certainly into Slide 18, which reflects our global filings in the IPH Group. As I said, before we discuss the individual market filings, I think it's important to put the overall scale of our group filings in the context, and this is something I did at the half year as well. Our filing activity extends beyond incoming filings into our local markets that are primarily supplied by, what I call overseas applicants, which make up most of the Australian or Singapore patent filings. We also file externally on behalf of local clients, and we do so all around the world, either directly through the IPH network or external agents in jurisdictions we don't service. So looking at the graph on Slide 18. As we indicated in the first half, the IPH Group is the largest filer of international patent applications in Australia, which, as I say, is largely the vehicle for international entry of the local client, which in turn have the potential to multiply and generate their own family of patent applications around the world. Looking at Slide 18. The horizontal line show the total patent market size of each of Australia, these are FY '20 figures, Singapore's calendar year '19 figures and New Zealand FY '20, and the bar chart show the IPH Group filings. Annualized aggregate IPH Group filings in all markets are more than the total combined markets of New Zealand and Singapore and are more than 3/4 of the entire Australian market. This scale is very important as it mitigates the periodic fluctuations we may see in filings in certain markets. Moving to Slide 19, this is the Australian patent market. As we've said many times before, IPH is not a business to be measured on a 6-month cycle. Within the context of the COVID-19 pandemic, this is even more important to recall. Patent filings were influenced by client activity and mix, which can vary from one period to mix. So while there may be fluctuations from one 6-month period to the next longer-term fundamentals, essentially, innovation requiring IP protection remains very supportive. Overall, the Australian patent market declined by 0.6% for the year compared to the prior year. However, when you remove innovation patent filings, which you may recall, do not constitute a large part of IPH Group filings, and will themselves phase out in 25 August next year, the market declined by 1.5%. Moreover, in the final quarter, total patent filings fell 2.6%, reflecting the impact of COVID-19. IPH has maintained our #1 position with IPH's combined group market share, including the Xenith Group, of 36.5%. IPH Group filings, including Xenith on a pro forma basis, declined by 5.3%. In the overall market, filings by local filers fell more in percentage terms than international filers. And as you'll recall, our exposure to local filers increased with the Xenith IP acquisition. The decline in filing in Griffith Hack and Watermark was, in the vast majority, by local filers. And similarly, our preexisting IPH businesses also experienced a reduction in local filings. Moving to Slide 20, the Singapore patent market. We continue to be well positioned in this market with the ongoing benefit of our network effect. Additionally, innovative patent programs provided by IPOS, which is the Intellectual Property Office of Singapore, continue to be attractive to overseas clients. The Singapore market continues to grow, and IPH continues to hold the #1 market position. Singapore market expanded -- experienced, rather, strong growth up to 31 December 2019, in part, reflecting changes to Singapore patent examination process, which was essentially closing what was called the foreign route from 1 January 2020. That results in an influx of applications in December '19 that previous examination option. We have not seen any reduction in calendar year '20 filing to date from the previous period as a result of this change. The most recent data shows overall market growth in Singapore of 1.7% for the calendar year to June 30 compared to the prior corresponding period. IPH Group market share increased to 23.8% calendar year to June 30, and preliminary data indicates IPH Group of 1.9% growth in CY '20 June 30 compared to the prior corresponding period. So a good outcome in Singapore. Slide 21. Patent market across Asia. As I've always said, this forum is my favorite slide in our results presentations, and this continues to be the case for FY '20. As we have said consistently, what sets IPH apart from our competitors is the breadth and diversity of our operations across the region. This is important because while we can leverage the scale, the diversity of our exposure across jurisdiction provides resilience and balance in individual market's rise or fall, and client filing patterns may vary. In FY '20, we certainly continue to leverage our network across the region. You'll recall from my commentary this time last year, and again, at the AGM, that we had a very strong second half '19 in Asia, which included 1 client undertaking a significant filing program across multiple jurisdictions. Now removing the effect of that client filing activity, whom I might add, continue to file with the group, we still managed growth in Asian filings in the first 3 quarters of the year, growth of approximately 12%. This is due to the emergence of a number of new significant filers across the network, which essentially, may I say, backfilled that significant decline of FY '19. This is a good example of the sustainability of what we referred to as the network effect. Pleasingly, as you can see on this slide, we also had good growth in China, which I'll address on the next slide. I'm now on Slide 22. Now China represents a significant opportunity for the group, and we are continuing to build our business in this space. In FY '20, we had an increase in both patent and trademark filings in our Beijing and Hong Kong practices. Pleasingly, we saw a 7% increase in patent filings in the Beijing practice for FY '20. We are continuing to successfully leverage our network effect, and it's pleasing to see how our acquisition strategy is supporting this growth in client referrals. As I mentioned earlier, AJ Park is the #1 client by revenue of our trademark business in Beijing and Hong Kong, whilst Griffith Hack is now one of the top 10 clients by revenue of our patent business in Beijing and Hong Kong. Our service charges in Beijing, Hong Kong patent practices included a 14% service charge growth in Beijing over the prior year. We achieved this growth despite some disruption in instructions, particularly from the U.S. and the local client base due to COVID-19, let alone disruptions we experienced in Hong Kong from almost last September, through and continuing to the onset of COVID-19 around Chinese New Year. Slide 23 refers to the trademark market. While the overall trademark market in Australia increased by 0.7%, much of the growth was accounted for by what I would term self-filers. If these are excluded, the market actually declined by 3% for the year. And this increased trend towards self-filers is illustrated by the 8.3% increase in self-filed trademark applications from FY '19 to FY '20, with most of this increase in quarter 4 FY '20. IPH remains the leading Australian trademark group by market share of the top 50 agents with a market share of 21.3%. That's including the Xenith IP Group. As many of you will be aware, trademarks is a smaller component of our business accounting for approximately 17% of group revenue in FY '20. Slide 24 refers to the trends in the patent market. It's always good to put these things in a historical context. And we've seen disruption -- some disruption this year, of course. But our market is generally stable, and recurring nature of our work continues to provide a steady income stream. So let's look at what's happened in Australia over time. And if you examine this over the last 25 years, major disruptions have only occurred a couple of times. We had the so-called tech wreck in 2002; and the GFC, where the impact was felt in 2009, 2010; and many of you might recall the legislative change in April 2013 that pulled work out of 2014. Whilst we've still got a bit of uncertainty where COVID-19 will land, we think that GFC is probably a relevant comparison to today's events. Now based on our observations to date, we have not seen the impact of COVID-19 matching the decline we saw in the GFC, which is essentially a 9% drop, peak to trough, over those 2 years. Another metric that gives us comfort is the lapsing rates. That is where a client doesn't continue with the patent process. Lapsing rates are an indicator of client commitment to maintenance of IP already in the process pipeline balanced against their desire to reduce IP expenditure. Lapsing rates of Australian patent applications in the final quarter of FY '20 were in line with the quarterly averages of the last 2 years. This contrasts with the marked increase in lapping rates we saw during the peak of the GFC. We have not observed a significant decline in National Phase interest in Australia to the end of FY '20. As we think about future filing activity, I'd remind you that the U.S. patent applications are a useful indicator -- that's the U.S. PCT patent applications are a useful indicator of future patent filings. As you can see, these continue to be stable to the end of March 2020, which is the latest reliable data that we have. It's also important to understand that only about 16%, 17%, top of 18% of U.S. PCT applications ever enter into Australia at any time, and they tend to represent the core technologies, which the client needs to and wants to maintain. And as a result, they tend to be reasonably steady. This is evident when you compare the respective declines of Australian filings and U.S. PCTs during the GFC. The filing decline in National Phase applications entering Australia was significantly less than that of the U.S. PCT applications. Whilst these are, of course, comforting trends, there remains a considerable degree of uncertainty as to what will be the ongoing impact of the pandemic in the months ahead, and we will keep a monitor on that and advise the market of any material changes. Operations review, Slide 25. And Slide 26 really refers to our activity in sales. I'll start with an update on Xenith IP performance and synergies for the 10.5 months since we acquired them. We delivered net cost and revenue synergies of $3.5 million in FY '20, which is consistent with the guidance we've provided at the time of the acquisition and also at the half year results. These synergies included cost savings of $2.9 million with Xenith case flow to IPH Asia of approximately $0.6 million. In addition to synergies captured, the underlying operating businesses increased EBITDA compared to the prior year by a net $0.5 million. This amount included the previously disclosed significant litigation matter, which led to a nonrecurring EBITDA benefit in Shelston IP of approximately $1.5 million. I'll also specifically speak to the performance of Griffith Hack and Watermark. When we acquired Xenith in August '19, we committed to a 100-day review of the underlying businesses. As part of this review, we identified the opportunity to set up Griffith Hack and Watermark for future growth by bringing them together as 1 business under Griffith Hack. And as you're aware, we announced the intention to merge these 2 businesses in November 2019. As anticipated in an integration program of this size, the level of merger activity, together with the overall integration of the business in the IPH Group, has caused some disruption to Griffith Hack, including the former Watermark business. Moreover, the impact COVID-19, in part, possibly due to the greater local client exposure, and certainly, their larger Victorian presence, where restrictions have been greater, have potentially impacted these businesses more so than elsewhere in IPH. With the integration now successfully completed, the combined business is now well placed to deliver an improved performance in FY '21. The Glasshouse Advisory business EBITDA contribution also decreased year-on-year. And as you'll recall in May, we divested the R&D tax and incentive practice to Grant Thornton, with the remaining service lines closed. Our focus on FY '21 is on harnessing the potential of the Xenith IP brands as IPH businesses. Slide 27, more on Xenith IP integration. The major initiative, I guess, over the past 6 to 9 months was the integration of Watermark into Griffith Hack to create 1 firm operating in the Griffith Hack brand. Full integration, including IT systems, was achieved on schedule, as planned in July 2020. Both businesses are now operating under the Griffith Hack brand under 1 system. Due to COVID-19, teams have been virtually integrated with physical offices retained at this point. We continue to expect financial benefits of approximately $2 million from FY '21 primarily through the consolidation of leased office space and corporate, administrative and operational efficiencies and improvements. Slide 28 is AJ Park. Pleasingly, AJ Park continues to hold the #1 position for patents and trademarks in New Zealand. As I mentioned earlier, we are seeing wonderful referrals from AJ Park to IPH in Beijing and Hong Kong, particularly, which demonstrates the success of our acquisition strategy to leverage our network effect. We appointed a new Managing Director of AJ Park with effect 1 June, and a new AJ Park executive leadership team was appointed on 1 August 2020 with a new focus -- a renewed focus on direction and performance of the firm. We announced the proposed acquisition of Baldwins in June 2020. Baldwins will join the AJ Park business and operate as the 1 firm. AJ Park and Baldwins are complementary businesses in terms of their high quality and experienced teams, and we have no doubt the acquisition will provide additional depth of expertise to our clients. As I've said earlier, this transaction remains subject to clearance from the New Zealand Commerce Commission. Slide 29, investing in our people. We continue to focus on attracting, motivating, developing and retaining our people across the group. A key element of this is providing opportunities for continued career advancement, and we are pleased to be able to progress client-facing promotions for people in key parts of our business for FY '21. We're continuing to invest in leadership capacity, identifying talent and building our pipeline for succession planning. Effective from 17 August, this Monday, this week, our new Spruson & Ferguson Australia Managing Director commenced employment. This appointment comes from within the IPH Group, and we're delighted that we've been able to provide an opportunity for career progression and retain this talent within the group. Our employee incentive awards for FY '20 will be rolled out in line with our usual schedule. And as part of that, approximately $2.3 million in cash incentives and the same value in shares will be awarded to eligible employees across IPH, including employees within the former Xenith businesses. In that vein, I'm pleased to report that 97% of fee-earning employees eligible for incentive plan will receive an award for FY '20, and that's a terrific outcome. Slide 30 speaks to WiseTime. We achieved good revenue growth in FY '20 from a growing customer base, which included early adopter growth from small to medium-sized firms following the version 2 launch in September. And in the last quarter of FY '20, several large IP practices around the world have deployed or committed to deploy WiseTime to their firms. WiseTime has also been granted the core U.S. patent for creating an autonomous summary view of the user's attention into a private time line. So we're pleased with that outcome. Slide 32, looking ahead. I'm getting close to conclusion. We will continue to harness the expanded group and focus on Asia to leverage our network. We always maintain an ongoing focus on driving margin expansion. We've done that for generations and realizing operational efficiencies across the group. That includes realizing the benefits of our operating model synergies and consolidated corporate services. Attracting, motivating, developing, retaining people remains a focus. And we'll progress our digital platform development and continue to evaluate potential international acquisitions in core secondary IP markets. Slide 33. While we are navigating somewhat uncharted waters over the first half FY '21 due to the continuing global pandemic, IPH is a resilient business, with strong cash flow generation, a very solid balance sheet and no near-term refinancing commitments. We remain in a very strong financial position to manage through this current uncertainty. Yes, we are seeing some disruption from COVID-19, but we are a resilient organization. We've seen the strengthening in the U.S. dollar -- the Australian dollar, rather, recently, and this will have some impact on reported results. We continue to adopt a prudent approach to managing the business in a COVID-19 environment. These measures include tight controlled discretionary expenditure, and we have delayed decisions around most remuneration increases for FY '21 to later in this half. Our priority, as always, is the safety and well-being of our people. We expect to deliver approximately $2.5 million in synergies from Xenith's integration. As we discussed earlier, the FY '20 result included some nonrecurring legal case work with Shelton IP. So that wraps up the annual results presentation for FY '20. I would like to thank the hard work and the contribution of all of our people across the group. Many thanks to all of our supporters and shareholders for your continued interest. And of course, we're happy to take any questions. And with that, over to our moderator to start the process.

[Operator Instructions] Your first question comes from Michael Peet with Goldman Sachs.

Andrew and John, can you hear me okay?

Yes, we got you, Michael. Yes.

Just on the acquisition opportunities. Could you just elaborate a little bit more on where maybe you're prioritizing. And I think it's pretty difficult at the moment with COVID, but just what are the attractive markets? Or where do you feel you need to, firstly, fill out your existing sort of Southeast Asian presence? But apart from that, where else could you look for some bolt-ons?

Thanks, Michael. We've always been consistent in our theme on this, that the secondary space is what we like. And that could include anything from South Africa through the South America and Canada, in between. And these are opportunities that are available to us. We have -- we are in a number of discussions with a few people. The ability to do this in a pandemic is a bit harder, yes, but we've proven we can do it with the Baldwin's acquisition, again, subject to the Commerce Commission. But we have done that in the middle of the pandemic, and we've got a few other things that were underway before the pandemic started, and that's something that we'll continue to focus on. But it's really that whole secondary space without going into any specifics.

Yes, fair enough. And just on the outlook comment, obviously, you've always said don't look at it on a -- too closely on a 6-month by 6-month basis, and I don't want to get too tied up on that. But it did slow a bit into that second half, the underlying like-for-like growth. But as you enter this year, a bit of uncertainty and maybe currency headwind to start off with. So I'm just trying to think about first half, second half this year and how we should think about it?

Well I think the first half has got some uncertainty around it because we don't know when it will come out of the, essentially, the lockdown, and particularly in the context of our local business, the local business in Victoria with Griffith Hack and the old Watermark business having their primary offices there. What we have seen is probably a greater impact of the COVID-19 on the local market in terms of local clients, local filers, and the Xenith legacy businesses, I guess, particularly of Griffith Hack had more exposure to local markets than the preexisting IPH business, which were probably more foreign exposed. So I guess we do have some uncertainty in that first half. But ultimately, the history of the business will run through. I mean we've done this before. We've had -- these are 100-year-old businesses, Michael, which continue to deliver. And I don't expect anything different this time. We've seen the -- we showed you the outcomes of the GFC, which we think is the most comparable scenario to what we experience now. And at this stage, we haven't even seen the same decline. So I'm reasonably confident that IPH will continue to go along pretty well. Sorry, Mike?

Yes. No, I was just going to say, your cost base is, I guess, largely fixed if you back out the recoverables, but how much can you -- you've mentioned about keeping, obviously, a close eye on remuneration and things like that as you enter this period. But how much can you variable-ize things? Or is it -- are we pretty fixed here on the cost base?

I think as I mentioned in the presentation that over the first half, we're looking at remuneration kind of staying at as it is over the first half. I think we've kind of built in some of the cost savings over the course of the year in terms of the Griffith Hack-Watermark integration in terms of we brought some of those offices together, and we're going to get some rent out of that. Outside of that, your comment is probably fair that most of the cost base is relatively fixed.

Your next question comes from Matt Johnston with Macquarie.

Maybe just the first question on for me. Just in terms of the weakness in the fourth quarter, could you maybe provide some commentary around how that's trending into the first quarter of '21? And how it evolved from, I guess, March through to June, to just see if we can understand if that has recovered?

Well we haven't seen a significant decline in Australian National Phase filings at this point. We haven't. We have saw a, I guess, more of a decline in the local market, as I say, which we had a bit of exposure to, particularly in the Xenith businesses. So that's where we have our exposure to decline essentially. There's an ongoing uncertainty around the first half. Sure. But I don't think it's anything nearly as significant as what we saw in the GFC at this stage. So I'm, again, reasonably happy with how we're doodling along. And we've got some good things coming down the pipe. Hopefully, with the Baldwins opportunity with some -- which is a high-quality business at our hands, should go pretty well.

Okay. Great. And then maybe, if you could help me understand a bit better around the caseloads shifting up into Asia. Can you maybe provide a bit more detail about how you actually do that? And what the indication is from, I guess, the clients up there to actually go through that process? And how easy it is?

Well look, nothing is easy, Matt. But that's -- sorry. But I guess what we see is some high-quality clients, particularly in the international space, that have come over to us on this network basis, who, not only file 1 -- in 1 country, but file in 6 or 7. And look, the fact that we could backfill that large client from FY '19, I think was a terrific outcome. And that was just by 3 or 4 significant multinationals using the network. So now we're almost to the same level of filings we were with this wonderful -- which was unprecedented in FY '19 filings from a single client. And that single client, as I say, is still there. So I think we're very well pitched for Asia. In fact, what we're now in the process of, and this is one of our strategies, I guess, why we picked up XIP, in that the business units of Xenith have these similar wonderful relationships, albeit restricted to the Australian market. And our greatest challenge and the greatest opportunity is to leverage those relationships into Asia. Now I won't tell you -- I won't sound to trumpets until these things are landed. But that's a big part of our focus, it's to leverage that relationship, which sometimes goes back generations as it has done in the preexisting IPH business to put those clients into Asia. And that's where we're putting a lot of effort in BD and drawing on the relationships of those firms. So I think we're well placed on that, and that's one of our biggest opportunities going forward.

Okay. Great. And then the final one for me, just picking up around the acquisition opportunities. And I know you've been consistent here. But I guess as the globe is changing, I mean how pragmatic is it to go into, I guess, emerging continents like South America at the moment?

Look, everything has risk attached to it, I guess, in my life, but I don't necessarily think that that's our only opportunity, Matt. I mean, as I said, we're -- it's a broad church, IPH in terms of opportunity. And the secondary space is much larger than just South America. So I'm not, though, overly concerned about a restriction in opportunity at this point.

Okay. I guess the other way to ask it is, from an M&A perspective, from a strategy front, would it be de-risked if you actually go into this, the more developed, i.e., Canada?

Well some may say that.

Your next question comes from Sam Haddad with Bell Potter.

Just a question on A.J. Park. Just wanted to see how that's performed given New Zealand had some quiet strict lockdowns through the half and I understand AJ Park also has a local client focus.

Yes. Look, AJ Park, does have a local client focus, but the -- one of the beauties of its local clients, they've been quite significant. So -- that are outwardly faced. So I -- the quality of the local client base at AJ Park is almost second to none in the IPH Group business. So I think we're in good shape there. We've had the new executive team come in. And I think there's a lot going for AJ Park as they -- particularly if we can have successful outcome with our friends at the Commerce Commission, then AJ Park is well positioned for a wonderful FY '21. I'm very, very buoyant on AJ Park.

Right. That's interesting. So just reading through that, I suppose, drilling back to Griffith Hack. Was that -- pre your acquisition, that was sort of an underperforming business under XIP. I wonder if there's any legacy issues there? Or is it just -- is there anything further to read through in terms of the weakness in the fourth quarter?

No, I don't think -- other than the circumstance of the fill-ups, Sam, I mean XIP has had a difficult time in -- go back 18 months with uncertainty associated with -- with a merging with QIP, and with joining IPH, and then the integration of Watermark in the group. These are major events for a business to go through, and we've gone through it. And we've gone through it in the global pandemic, which also, under pretty strict lockdown, in some states, these are significant undertakings. And it's a great credit to the strength of that business that they continue to do pretty well. Now I think they're well positioned for FY '21. They've gone through a lot of difficulty. They've gone through a lot of change, extensive change for 18 months, and they're well positioned to go forward. The go-forward position for Griffith Hack, I'm very pleased with. And it's been a lot of change, a lot of uncertainty associated with lockdowns in Victoria where they primarily reside, but hopefully, we're seeing some light at the end of that tunnel. We've got a good business put together with wonderful clients. And I think it's -- let's see what they can do.

Okay. And just to get some more clarity in terms of the trends you've seen as you enter FY '21. Are you seeing a bottoming in those filings in the second -- in the months of June and July? Or is it -- or we still see month-to-month declines? Are we starting to see stabilization?

It's a little bit difficult for us in terms of June and July because it tends to be our softer part of the year anyway, thinking about our client base being through North America and Europe, their summer holidays, et cetera. So it's always the lower part of the year. So I think I would say we haven't seen any further levels of decline, but I think it's too early to say whether we've were bottomed, then we're on the way back up.

All right. And just final question in China. You spoke about opportunities there to scale the business. Just can you talk about how that business is performing? Is it profitable? And what the opportunities there in terms of acquisitions?

Certainly, I reflected some good growth in China this year. And you've been watching these slides for a fair bit of time, Sam, and it's nice to see a 7% growth in Chinese patent filings. And again, this is part of the network effect. These are clients that are coming into China, of course. We're servicing them throughout Southeast Asia as well on many occasions. I like where we're positioned there. Our acquisitions on the table in China, it's a bit harder, it always has been. But we're getting good organic growth in that business, and I can't see any change to that in the short term.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Dr. Blattman for closing remarks.

So look, thanks very much. I know it's been a long presentation, a lot going on, lots of things going on in IPH this year and under different circumstances to last year. But the business goes on. And that's the beauty of it. That's why it's investable. That's why it's in the state it's in. And I think it's going to be well positioned for FY '21. Thank you for your interest, as always, and your support. And I look forward to meeting many of you, although virtually, in the next few days. Thanks, everyone.

That does conclude our conference for today. Thank you for participating. You may now disconnect.