IPH Limited (IPH) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the IPH Limited H1 FY '23 Results Presentation. [Operator Instructions] I would now like to turn the conference over to Dr. Andrew Blattman, CEO. Please go ahead.

Many thanks, Anthony. And good morning and welcome to the IPH results presentation for the half year ended December 31, 2022. My name is Andrew Blattman, I'm the CEO of IPH; and with me today is John Wadley, our CFO. Thank you all for joining us for today's presentation and for your continuing interest in IPH. Before commencing the formal presentation, I would like to acknowledge and thank the IPH executive team and board for their support in the half and of course, all of our people across the group for their ongoing contribution during that period. I also want to particularly acknowledge and welcome our team in Canada as this is our first financial result with Smart & Biggar, now part of the IPH Group, great to have you on board and thank you for your terrific contribution. And moving into the content on slide 3. For today's presentation, I'll provide an overview of the operational highlights for the half. As always, John will discuss the financial results in detail before handing back to me to provide some commentary on our key markets in terms of filing activity and a review of our operations. I'll conclude with some comments about our ongoing strategic focus and how we are building a stronger platform for growth. As always, we will be happy to answer your questions at the end. Moving to slide 4 about the IPH Group. I'll give a quick recap about the IPH Group and I won't spend long on this slide as most of you know that we are. Of course, a significant change on this slide from this time last year is the Smart & Biggar whom we acquired in October last year. With that acquisition, we consolidate our position as one of the world's largest IP services groups in secondary IP markets with a presence now expanded beyond Asia-Pacific into the North Americas being the number one patent filer in Australia and New Zealand, Singapore, and now Canada and we are the number one filer for trademarks in Australia and New Zealand. Combined with Smart & Biggar, we now have more than 1,200 employees operating in 9 jurisdictions, servicing some 26 countries. Moving to slide 5, I will step through some of the highlights for our financial results. I won't steal John's thunder on detail, but I will give some of the highlights which are outlined in slide 6. Our results for the half demonstrates the continued momentum in our acquisition and integration strategy. This strategy has delivered a significant uplift in underlying earnings for the group with enhanced return to shareholders. The acquisition of Smart & Biggar and double-digit growth of Asia, together with the currency benefit has driven a 24% increase in underlying EBITDA to AUD 80.4 million. That's also resulted in a further lift in the interim dividend, up 7% to AUD 0.155 per share. We're very pleased with the performance of Smart & Biggar since we acquired the business last year. From a financial perspective, revenue and earnings for the first 3 months are in line with our expectations. From an integration perspective, we are pleased with our progress in incorporating the business into the wider IPH network and from a strategic perspective, we remain excited by the further opportunities this acquisition creates for IPH and our expanded network. I will discuss Smart & Biggar in more detail later in the presentation. Closer to home, and as we've indicated at our November AGM, I think it's fair to say that the integration of Spruson & Ferguson Australia and Shelston IP has caused some disruption to our domestic business. The first half FY '23 represents a full period of this integration for the prior half only had one month of this integration. While synergies have been delivered as expected, we have seen some disruption to organic growth in the integrated business. Or to some degree, that is to be expected in an integration of this scale, we recognize that a more concerted and focused effort is required to improve the performance of the Spruson & Ferguson Australian business and our other local businesses in Australia and New Zealand. In response, we are implementing a number of business development and digital initiatives to drive following growth and organic revenue in the Australian and New Zealand businesses. That includes business development initiatives to increase borrowings of existing clients. We are targeting larger clients of IP remits across multiple jurisdictions as part of our business development plans. We have also appointed a new Managing Director for the Spruson & Ferguson Australia business, Dr. Simon Potter, who started in December last year. Simon has been with Spruson & Ferguson for over 15 years and has been the chemical life science practice group leader for the last 5 years. A further highlight of the half is the progress of our digital transformation strategy to improve client service across the group and drive further efficiencies. Some of you recall at the AGM, we announced the IPH way, our new program to standardize and improve process across the group with a focus on increasing case management efficiency. We are also progressing other initiatives such as our new client portal digital platform, as well as a new CRM system. I will talk more about these initiatives later in the presentation. But in summary, we've delivered a solid result for the first half; underlying earnings up 24%, Smart & Biggar on track, Asia continued to deliver double-digit growth, initiatives to target organic growth in Australian businesses and progress in our digital and technology transformation. I'll now hand over to John to step through the financial results in detail.

Thank you, Andrew, and good morning everyone. Just to reiterate the solid result of a 24% increase in our underlying EBITDA for the half year '23, this reflects the 3-month contribution of Smart & Biggar's continued organic growth in our Asian business, as well as foreign exchange tailwinds. Unpacking these foreign exchange tailwinds, the average AUD-USD for half year '23 averaged AUD 0.671 versus AUD 0.732 in the prior half. As we have previously advised, a [ $0.01 ] strengthening in the US dollar equates to an approximate AUD 2 million increase in service charge revenue on an annualized basis. Our results were also impacted by the foreign exchange gains and losses recorded in our P&L, i.e., those derived from the revaluation of foreign-denominated cash and receivables, as well as banking receipts at a different rate than booked. For half year '23, this was a net gain of AUD 0.3 million compared to a AUD 2.1 million gain in the prior period. The lower recorded gain represents the strengthening of the AUD at December 31, 2022. Underlying NPAT has grown by 21% with underlying diluted earnings per share up by 16% to AUD 0.214 per share. Our ongoing strong financial position, continued cash generation and initial part period contribution from Smart & Biggar has enabled a further increase in the interim dividend, which was up 7% to AUD 0.155 per share and 40% franked. Moving on to slide 9, bringing our like-for-like revenue and EBITDA. The like-for-like basis eliminates the impact of acquisitions and the foreign exchange impacts I discussed earlier. As you will note that as yet, we have not included Smart & Biggar into this analysis. Once again, Asia was the standout for the group with a 9% increase in like-for-like revenue and 10% EBITDA as a result of filing growth, pricing, and increased patent office activity on previous filings. The slight decline in like-for-like revenue in the Australian-New Zealand business, primarily as a result of the decline in filing numbers. We called out previously some anticipated disruption and decline in filings from the integration of Spruson & Ferguson, and Shelston IP which occurred in December 2021. Despite the impact on the top line of this integration and previous integrations, they have delivered enduring benefits to the cost base. It should be noted that a portion of the EBITDA decline results from a return in travel costs post COVID. Without this increasing cost, the EBITDA decline in Australia-New Zealand would have been 4%. Taking all of these various factors into account, both group-wide revenue and EBITDA were flat on a like-for-like basis. Looking at slide 10, which shows the calculation on the underlying result. As noted at the year-end results from FY '23, accounting charges for share-based payments are no longer excluded from underlying EBITDA. A charge of AUD 2.1 million has therefore been included in the current half and also a charge of $3.8 million in the comparative half. The lower charge reflects an adjustment to accrue in line with the expected payout. Besides this change, the calculation is on a consistent basis with prior periods and reconcile of these through reported statutory half year '23 results. The main components include costs relating to the completion of the acquisition of Smart & Biggar of AUD 7.8 million, restructuring costs, predominantly the IPH way costs. This initiative was announced during the half year and IT SaaS implementation costs previously capitalized but now expensed under the change in accounting standards with AUD 0.5 million. The underlying effective tax rate was 25.5%, reflecting greater proportion of the results recognized in lower tax jurisdictions. Looking at slide 11 and the cash flow statement. Cash conversion remained strong at 85%. The measure is lower than the prior period due to several non-cash flows, which boosted the prior period as well as a number of working capital movements in the current period outlined on this slide. While the acquisition of Smart & Biggar has increased gearing, it remains within the previous indicated target range of 1.5 times to 2 times. Looking at slide 12, the balance sheet. The main balance sheet movements have been caused by the acquisition accounting of Smart & Biggar, reflecting a recognition of goodwill and the Smart & Biggar brand name, as well as customer relationships, which will be amortized over 10 years. On an ongoing basis, the total Group amortization charge is expected to be AUD 20 million in the second half and circa AUD 40 million annually. An increased borrowing level will result in an interest charge of circa AUD 20 million on an annualized basis. In slide 13 on the foreign currency impacts. As noted earlier, the group benefited from the strength of the US dollar and Singapore dollar versus the comparative period. While also noting the strengthening of the AUD towards the end of the half in the New Year and heading into New Year impacting the revaluation of foreign denominated assets. The group's exposure to USD remains broadly the same post the Smart & Biggar acquisition as it invoices of the vast majority of its clients in Canadian dollars. Further, USD invoicing is now a smaller proportion of the group's invoicing. Now handing back to Andrew to review the market.

Thank you John and now up to slide 14 where in the next few slides after that, I'll provide an update on the filing activity for the year. So looking in the Australian market at slide 15 first. And as we always remind you, filing activity should not be a system, a 6-month cycle. This is particularly true as we compare this half for the prior corresponding half. And just to be clear, we are referring to filings which exclude innovation patents both from a market and an IPH perspective. Those of you who followed the story closely over the last few years will recall that these were phased-out by the Australian government with the last day of filing on 25 August 2021. Overall total Australian patent filings in the first half FY '23 decreased by 4.3% compared to the prior corresponding half. This compares to a very strong increase in the first half FY '22 where filings increased by 9%. IPH Group filings ex innovation patent filings decreased by 7.7% for the first half of FY '23. As we called out at the AGM last November, there were 2 main factors contributing to our IPH Group patent filings for the half. As we indicated previously, the integration of Spruson & Ferguson Australia and Shelston IP, which was implemented on November 1, 2021, resulted in a reduction of filings. As I mentioned earlier, the first half FY '23 represents a full period of integration while the prior half only had one month of this integration. This current half will be the first period with the following imperative will be to the integrated Spruson & Ferguson, Shelston IP business, giving us some clear area going forward. Secondly, we also previously called out the group have had a strong patent filing growth for the first half of FY '22. For the first half FY '23, the group of ex patent filings are down on the prior corresponding period which is indicative of the overall market decline and also the fluctuated nature of individual client filing patents. So if we move to slide 16, the Singapore patent market, there's always a delay in obtaining final data which is why the calendar year-to-date September 30, 2022 data is preliminary. Additionally, the IP Office of Singapore has noted an increased lag in the filing data caused by recent system upgrades to the digital hub. On preliminary data, the Singapore, patent market decreased by 3% for the calendar year-to-date to September 30, 2022. This decline reflects the fact that one of the top corporate groups in Singapore, which happens to be an IPH client had a significant reduction in filings during this period. You'll recall, I'll be calling this client after a number of years with an increase and call out their decrease. Once again, this simply reflects the individual buying patents have increased. Excluding this group, the Singapore patent market increased by 0.3%. IPH Group filings were down 8.6% over the same period and as you would expect, that reflects that we will more significantly impact from a decline in filings from this one corporate group than the rest of the market. So excluding this client, IPH Group filings increased by 4.3% which is well ahead of the market growth on the same basis. The IPH Group maintained its number one patent market share of 23.4% in calendar year '22 year-to-date September 30, once again, a very solid result Singapore in maintaining our market leading position. Moving to slide 17, the rest of Asia and filing across our Asian network ex Singapore was steady on the prior period. Borrowings were lower in China while we experienced filing growth in Hong Kong, Indonesia and Malaysia. While filings were steady in this period, our revenue and earnings in Asia, better than from filings in prior periods as they progressed through the next stage of the patent examination process. Now once again, this demonstrates a recurring revenue stream of our business. IPH continues to be attractive to large clients. We continue to see multiple large clients following across a member of jurisdictions across our network. Looking at slide 18, the strategy slides, our next 2 slides will provide some further detail of Smart & Biggar and more focus on our digital strategy. So slide 19, as you recall, we successfully acquired Smart & Biggar on October 6 last year. This was IPH's largest acquisition to-date and one that has extended our remit beyond Asia-Pacific for the first time and significantly expanded our international reach. We are very pleased with the performance of Smart & Biggar since we took ownership last October. Revenue and earnings are consistent with our expectations at the time of acquisition with Smart & Biggar delivering revenue of AUD 30.3 million and underlying EBITDA of AUD 10.6 million for the period October 6 to December 31. Synergy expectations that we outlined at the time of the acquisition remain on track with an expected AUD 4 million to AUD 6 million in synergies to be achieved over the 3 years from acquisition. We have a strong record of successfully integrating acquired business into the IPH Group and we are bringing that expertise in integration of Smart & Biggar. I'm happy to say the integration is progressing well. We have established a joint IPH Smart & Biggar integration project team which is being led by our Chief Operating Officer who was relocating to Canada for 6 months to oversee the integration. The initiative of Smart & Biggar means IPH that has an even broader international offering across our network which is an important development and key differentiator as we pitch for global world. I'm very pleased to see that the bid work has contributed to over 80 international client referrals in those first 3 months. We're looking to expand this and we're currently implementing further infrastructure to facilitate global prospecting for work. And of course, having established Smart & Biggar as part of our network, this also provides us with a strong platform to participate in further growth opportunities in Canada which we continue to assess. So looking at the digital slides on slide 20 onwards, as one of the leading IP services groups in secondary IP markets, we've had a long history of being at the forefront of driving key initiatives in this sector. This extends now to harnessing digital technology as the future for IP. Our focus here is to enhance and simplify the way clients deal with our member firms. It's also focused on generating internal efficiencies across our businesses as we standardize and simplify our processes to deliver further margin accretion. And today, I'll highlight 3 specific initiatives we are currently implementing. And the first is the IPH way. This is a program to standardize, simplify and automate case management processes, templates, and systems. They bring efficiencies and establish one way of working across the IPH Group back-office. It also enhance our clients' experience from a consistent and simplified approach. As we disclosed previously, we expect annual ongoing net benefits between AUD 5 million and AUD 6 million from FY '25 as a result of this program. There'll be a one-off cost of approximately AUD 3 million in both FY '23 and FY '24 and these will be treated as non-underlying expenses. The next came off the rank is our client portal. The portal uses digital automation to simplify the onboarding and account migration process to deliver a comprehensive portfolio of the client IPH has as well as transparent task management tools and access to valuable IP intelligence. We're using smart technology to create a platform that provides our clients with a comprehensive view of their IP portfolio no matter how or with whom they originally filed. And managing IP assets is typically complex, but by using the digital automation we've got, we've built a much simpler, more comprehensive management tool for our clients. We've had a successful trial. We've now completed the phase rollout in the pool and we expect to rollout to be -- or commence the rollout of a broadly unexpected right to be completed by the end of FY '24. And thirdly, a group-wide CRM platform enables a stream wide collection of information that our clients and prospective and current. This allows each business unit to manage, develop, measure, and communicate in a scalable way, delivering an enhanced client experience to roll-out a new CRM will be completed by the end of calendar year 2023. So last slide, slide 22. Let me conclude with some final comments about our priorities for this year. As I indicated at the start of the presentation, our immediate focus is to drive filing growth organic revenue in Australia and New Zealand business, we need to do better here. Secondly, we will continue the integration of Smart & Biggar to ensure we fully leveraged the revenue, earnings, and strategic opportunity this acquisition provides the group. We will continue to deliver our digital strategy, including the initiatives I've just mentioned to enhance client service and generate further costs and operational efficiencies. And finally, we will continue to assess complementary acquisition opportunities in Canada and other core secondary IP markets. And of course underpinning all of this is a continued focus to operate in a disciplined manner and generating shareholder value. That's what we do. In closing, I would like to again acknowledge the hard work and the contribution of all our people across the group. Many thanks to all of you listening in today for your continued interest and support and I'll hand back to our moderator, Anthony, and John, and I are happy to, of course, take questions.

[Operator Instructions] Our first question will come from Marni Lysaght with Macquarie.

Just a few quick ones from me. I just want to get a sense of I guess your progress with assessing other opportunities globally for acquisitions and just also remind us of kind of the capacity you have in terms of leverage to fund that in terms of both debt facilities. And I know we do understand that the target gearing range is great, you've given us today.

Look, we think getting a foothold, the first position and the first-mover position in Canada was very important to us and of course, we're lucky to get a business the quality of Smart & Biggar, the number one player. We always get the number one and we've got that in the team now. We think there's other opportunities or just enjoyed the polar vortex last couple of weeks ago in Canada, but these things take time. We do things in a steady fashion, but we think there is opportunity there and we will continue to explore that in the Canadian market and then look beyond that. But John's champing at the bit to talk about these leverage opportunities.

Yes. So we have noted there, our current gearing of 1.6x. It's within -- we've talked about a target range of 1.5x to 2x, but able to go over 2x in an acquisition scenario, but given our great ability to generate cash, we would bring it back relatively quickly between that. So I guess depending on the size of the opportunity and mix between cash and IPH shares in terms of the consideration, we do have some capacity there on the balance sheet.

And just to follow up on that kind of when you do make regular meetings with your lenders, what are their impressions of I guess what you've been doing, and yes, I guess, their capacity and appetite to support that?

I think they look at IPH as a very steady business with great cash generation and has been supportive to-date and I don't foresee any problems with that into the future.

Just moving onto ANZ, how do we start to think about ANZ over the first half of calendar year '23? And given that obviously, there were some tough comps being cycled in the first half.

Well, look that's right, Marni. We are, as I said in the presentation, we are unclear now, and I have an expectation of over the team in ANZ, also this expectation to drive opportunity there, but the market is contracting a little bit and we will need to take a bit of market to do that, but that's the game we're in. And I look at the travel and the opportunities that the team have across all of value into businesses and there's a lot of activity going, but you never say when these things land, but certainly there's more focus now than ever.

And just one more from me. Just for the purpose of analyst modeling. Expectations around share based payments for the full year, it's come in at 2.1 times for the half. Are you still thinking around 5.1 times for the full year?

Some guidance there. I think on Slide 10, the second half charge, so we're including Smart & Biggar in that and around -- for the second half charge around AUD 4 million. That's because the first half did have a little positive benefit from. We now record that expense based upon our expected level of payout and that's based upon our historical levels of payout previously we grew for the full potential. But now we have history, we're able to accrue at the more accurate level.

Our next question comes from Scott Murdoch with Morgans.

Just on Australia to kick off with Spruson and Shelston merger. I know it's old news now but those impacts -- cycling those impacts of the share loss. Just wondering if you can just give us some, I guess full clarification now that the merger is well and embedded what some of those impacts were, were they loss of any referral relationships or just client losses? Just a better understanding of what that dip has been and if it is been.

Look, Scott, as I've always said, there's probably 3 and I focus on this and have them for a while. We've done, maybe it's 6 brand integrations now during my time as CEO in IPH. And this was our biggest with Shelston and Spruson, and what we typically see and what we saw again in this context was 3 aspects of that drive client loss. There's always a little bit of contentious or legal conflict across brand that we have been not giving up on both sides of contentious conflict. That's a lot in our business because there's not a lot of fix and changes matters in Australia and New Zealand, really some oppositions, more at the oppositional level of the patent office that would be that legal but still, it exists. The bigger one probably is a commercial complex where you've got Pepsi and Coca-Cola type conflict. We're not comfortable under one brand. We see a bit of that across the space. The Australian patent industry isn't huge in the context of a number of providers and which is the nature of the profession. So you do see that when you bring a large firm with a mid-size together and then the third one we typically see is a bit of pricing conflict with maybe smaller scale clients might feel the heat a bit under revised pricing of urban integration. They are less profitable clients anyway, but they do come off the markets here as a consequence. So they are the 3 stories, I guess we've seen in the 6 times we've done this is because of the scale of Shelston coming in the Spruson, it was just a bigger integration.

Andrew, just a segue on that pricing conflict. Have you actually -- obviously, a little bit of margin pressure and general cost inflation through the business. But have you put through any price increases across maybe focused on Australia or Australia and Asia price increases put through?

Yes, we always put a little modest tweak, Scott. It's something that we've done for -- since I've been in the profession. But it doesn't -- I guess, particularly in the context of our corporate clients, and we don't always get the price increase no matter what size are across the full book because the corporate clients who of scale are often on service agreements and pricing agreements, which may run for 2 -- on average 2 years. So, you might not get maybe even 3 years or some of them normally 2 years. So, you may not get them into year 2 or 3. So, you put them across, but you won't get the whole book across on the price increase at once.

You mentioned just in your address that you're targeting larger clients, I think that was in respect to Australia. You've always said it's very difficult to lose clients. Just interested in some more detail on the initiatives on how you expect to try to win some of these larger clients?

We've got our best people out there, Scott, and as John indicated, the channel cost has gone up. I don't know if anyone's flown recently, but some of those air fares give me the willies too. But we still we're pushing through now that we've got a lot of people out. We've got conferences coming into the spring season in Europe and North America, a lot of activity, some of our top people are going out in the next week. And the Chief Commercial Officer is dealing with opportunities all the time. So, I would say there's more activity in the next 6 months than I've seen, of course, in the last 3 years given all that's come off.

I'll just ask one more before getting back in the queue. Just on the Canada piece, obviously, we obviously have only owned it for a very short period of time, but just interested in what you can tell us around the filing dynamics both market and Smart & Biggar market share over the past 6 months. I'm sure you've seen all the data, how they're performing and how market is performing?

Yes. Look, it's not an easy one. As all these different patent offices around the world, their transparency is not always as consistent as you think. I mean, the one that's almost real time is Australia, but the rest of the world is not quite as real time in terms of seeing what market share is. So, I'm not sure we even see the 2022 figures at this point, certainly not the back end of it in Canada. So, as I say, our expectations have been fully met in terms of earnings. I see some of the wonderful clients they've got, but I can't really tell you at this stage in the context of the broader market. It's just not visible to us.

Our next question will come from Michael Peet with Goldman Sachs.

I just wanted to explore the strategy to sort of reinvigorate organic growth in Australia and New Zealand, a little bit more. Could you just give us a bit more color in terms of what sort of KPIs you're looking to achieve? Are you looking for market share growth? Is it margin? Is it all about? I mean maybe just a bit more color around that would be great.

Look, you can always get unprofitable clients on cheap pricing Michael, but that's not our game. And we're not there as a 2-for-1 deal. So, we're seeking the benefits of our network. I mean the clients we want to leverage of that are exposed across multiple jurisdictions. That's our strength. And that's where we first get the biggest bang for our marketing buck is in -- or it's not really marketing, I call it as BD, what we do. We don't do marketing. We do a bit of marketing but our focus is on BD. And that's exactly where we'll focus our efforts in the first instance. And then beyond that, there's thousands of private practice associate Fed work out of Europe, U.S., Japan, and it's a more disparate market that you just can harder to attack on an individual basis, but we'll continue to drive opportunity through our publications and our general presence in -- through digital marketing. And the CRM can play an important role in that, too, and across the group, we've been able to leverage as the CRM function of the IPH level down into each business unit, and that's a program which is rolling out now. So look, I think -- and we've had a number of meetings with the AUNZ Group getting our merger back on that space. It's important. But we're not in the cut price game.

And just a bit further on to the Spruson & Ferguson and Shelston IP merger. As you mentioned, you're just about to settle up a sort of more comparable period now starting this half. Should we expect market share to fall back a little bit, therefore, based on that you are still sort of feeling the effects of that during the first half of this fiscal year?

Well, look, it's always hard to predict where things will land because the buy cycle and some of these large corporates can be long, if they're a conservative bunch and moving IP assets is like moving the crown tills, you don't want to drop any of them. So they -- you need to provide a compelling opportunity. That's what we think we do, but sometimes the sales period can be longer. So, it's hard to predict, but we've done it before. We've moved market share in a 6-month cycle. If you can get a couple large corporates on board and that will be our focus, but it's a multipronged approach, as I say, and it's underway.

And just final one. I had just some comments about the sort of broader IPH network, the network effect. How many sort of are you seeing an increase in clients that are falling across multiple countries. And then just any color on that would be useful?

I think I might have bumbled something there about the Canadian story within the IPH, the AUNZ, and an Asian group, I think, sent in 80-plus applications into Canada. That's fantastic. And then we hope we're getting some back from the Canadian opportunity. And who knows as we continue [ stewing the party ] in Canada, it will be a bigger opportunity to leverage that further as well. And of course, there are some large corporate opportunities that come from the addition of another group to the network and whereas Smart & Biggar has clients aren't shared across some of the other business units or jurisdictions rather and it gives us an opportunity to talk to them about. As they say that it's not always as easy as a conversation, but the network is becoming more compelling as it gets larger and the cross-marketing opportunities and the cross referrals get larger as well. So, I think that is an important driver of our opportunity.

Our next question will come from Matt Johnston with Jarden.

Can you hear me okay?

Yes. Got you clear -- loud and clear, Matt.

Maybe just first one, just around the cash conversion, just around the timing of the acquisition and a bit of a jump in receivables. Would it be fair to assume in the second half that cash conversion should normalize to what IPH is used to?

I would like to think so. I think 85% is still a strong result. As you said, when you bring in a large business, particularly one with foreign denominated balances, it brings a lot of moving parts to the cash flow. We did point out a few things that perhaps bolstered the comparative period, like the comparative period was 111%. There was a few non-cash items or non-cash expenses there, including the impairment, which lowered the profitability while the cash flow is still the same. So, we've got a higher cash conversion measure. And then there was -- I pointed out on the slide, there are a few things on our net working capital. I think it has probably gone up a little bit in the accounting period. So, I would like to think that in the second half it would be reverting back to normal. Just pointing out that sometimes it can be literally a few payments on and around the year-end. We had a few customers who paid us in the first week of January or mid-January as opposed to in December and AUD 1 million there either way can be 2 percentage points on the cash conversion. So, while we're looking at it, I don't think it's anything of concern at this point.

And then maybe just a follow-up, now that you've got Smart & Biggar under the IPH strip. Is there anything we should think about that or anomalies where Smart & Biggar deploys more working capital relative to what IPH Group is used to that we should think about in the future?

It could only be potentially, we've pointed out that it has a greater proportion of legal book amongst its total business. So, to the extent that if on legal cases, there may be a longer period between building up and billing to the clients and also in the nature of legal cases, there may be somewhat of a reluctance of customers to pay until closer to the verdict. So, those factors could be at play there, but nothing specifically we've identified as yet.

Maybe just going to the Australian business, and I guess, the strategy to reinvigorate the growth there. Maybe just if I'm curious to understand, Andrew, maybe if you have, I guess, commercial conflicts when you make acquisitions, how big that opportunity is so you don't have those client crossover -- commercial or commercial conflicts?

We look at this before we do it in the context of the synergies against dissynergy. And that's why we do these integrations because the synergy out -- greatly outweighs that. Now you never quite know how clients will react. And it's not like we want to get there in a market centers the way a heads up on what we're doing. But we look at it from that -- in that context. But I think the important thing now is that noise is behind us in the Spruson & Ferguson integration. We did it for a reason that we supported by synergies against dissynergies. It's done. It's a year down the track. We've closed off the comparative period and now we're going to go forward. That's where we are. We're not in a revision mirror on this. So, it's a case of driving the network opportunity to feed the Australian market as well as Asia and Canada.

So, I probably didn't word that question properly. In terms of, I guess, the new business development, do you think you've run into conflicts where if you do pick up a large client and a success you might lose.

Well, we look at it through that lens before we direct that. Our BD is directed from the [indiscernible]. So we might be looking with a strong innovative pharma business, we're not chasing generics, for example. But that's just informing our BD decisions before we start. But there's plenty of opportunity out there, but there's a whole lot of clients that haven't experienced the benefits of the IPH Group.

Maybe just on Asia now, the good growth on the PCP, could you maybe give us some comments on how we should think about the second half because my sort of look on a like-for-like, the half-on-half looks a bit flat. So, how should we think about going into second half '23?

Well, I guess one of the important things that drove some of the opportunity in the first half in Asia was not so much new filings, given the fact that Singapore particularly saw the decline, albeit [ replicating ] that one client. But what we did see was the reinvigoration of each patent office in the region. You got to remember, some of these countries struggled, I think, with remote working in government offices given the fact that, it's only a part of our revenue that is filings. So, there's a whole next opportunity that comes on examination and multiple examination and responsive to examiner's reports have come through the cycle. That's the whole measure of our business, is this recurring revenue across multiple revenue opportunities in the cycle of a patent application. So, that came through. We're starting to come through with those offices re-establish themselves and their throughput increased. And I can't see that changing. There is a backlog of applications that were filed in the last few years that we couldn't be examined in difficult COVID period in terms of just the logistics of it all. They're now available. And that's certainly part of the reason why we're increasing our earnings in Asia.

And then I'll squeeze one last one in. So obviously, the Canada earnings was actually quite good, probably a bit of a buzz myself and some other expectations. Is that a good guide of I guess, the quarterly run rate?

That's a good business, this one, it's a good business. So, I think people don't realize how good it is. Now we have some integration we've got to do and there's some opportunity there. As I said, our COO is may be there in a couple of weeks for most of this calendar year and he'll support that business. Yes, as John said earlier, the only thing that's hard to get a handle on in the Canadian opportunity of Smart & Biggar is the fact that it does have litigation as part of that offering. It is closer to 30%, whereas our other business is much less than that. That's an offering that is lovely by nature. And it's hard to put that in a recurring story albeit when you look at the history, it's pretty recurring as it comes through the [indiscernible] business generally. But still, there is always variability in that that's greater than what the more annuities total revenue of the agency practices. But I will say the agency practice looks good and it continues heading in the right direction from what we saw for the first 3 months anyway. We love where it's going.

I guess just following from that. In part of the litigation part of that business, in the quarter, was part of IPH Group. Was there anything material to call out that helps the earnings?

No.

No.

Our next question will come from Sam Haddad with Petra Capital.

Just on China, can you talk about that the filings were down? Anything to call out there?

Nothing to call out, Sam. I mean China has had a difficult few years and it continues to be a jurisdiction of [indiscernible] in world politics. I'm no geopolitical expert, but I mentioned there's some challenges there that some of our client's experience. But no, similarly that's a business that has also had the benefit of filings for the last few years that are coming through to examination. And I will say that the rigor of examination in China is very strong. And we often see multiple examiners reports per application more so than we see in other jurisdictions. So, there's plenty of revenue left in China.

And just on time, just you didn't reaffirm the EPS accretion of 10%, but I assume that that's all on track.

Yes, we confirm we're happy with where it's at and nothing to the contrary.

Just on my other -- just sort of a big picture thinking question. You've spoken about the IP adjacencies and your interest in into that in that direction over time once you've had -- once you have enough scale. You're now in Canada, do you need to go into another region before you move into another adjacency? How are you thinking in terms of...

Look, who knows. I mean we'd like to, we're not finished in the traditional market yet, I think, and some things can run in parallel to a certain extent, but we still see plenty of opportunities in the traditional space. We do see actionable opportunities in adjacency. They are primarily PE owned, so they are actionable, but it depends on what cycle -- what part of the cycle of their funds that these things are at. And they're quite sizable, which I said before. But -- so we'll look at that, but we also we won't ignore the clear opportunities that we have for further consolidation in Canada and possibly elsewhere.

Are you in discussions with vendors elsewhere at this point? Or is it still just focused on Canada?

Well, we have lots, I've always said Sam, we have lots of friends. I make new friends every time we go to a new market, we made more friends. So, we're exploring and continue to explore.

And just final question for me. Just obviously, the Unitary Patent system comes into effect in Europe. I assume there's minimal impact from your end, but more of an impact if you are a small agent in one of those 4 European markets.

Yes. Yes. Look, I think the European -- the Unitary Patent that's been a difficult gestation that one. But it's anyway, it's going forward, but it doesn't really impact us. And again, as I've said, it's a primary referral market that's not really our space. And I've had plenty of inquiries from Europe, but I [indiscernible] say that well, it's just a market that would impact us too much on referral for us to enter. So, we wish our colleagues all the best there and -- but it's not really on our radar at this point.

Any readthrough of that where that could sort of other markets by following the same direction? Or is it too difficult?

Well, that's reflective of the European market, which is it's just a further advancement of the European Patent Convention in a way which is discrete to Europe. I think Asia would love to have a Southeast Asian or ASEAN Patent Convention, but they haven't. And there may be some time before they do. So, I think that's certainly be after my retirement, Sam, that one.

Our next question will come from Conor O'Prey with Canaccord Genuity.

My colleagues have asked all my questions, so I'll leave it at that.

Good on you. Nice to hear from you, Conor.

[Operator Instructions] We have one more question from Apoorv Sehgal of UBS.

Andrew, John, I jumped on this call very late, had some conflicts. So, if my questions have been asked, you can give very short answer, that's okay. First question, just thinking ANZ revenues and EBITDA in the second half. Just I guess, firstly, from a filing point of view, the comp should get easier, I suppose, into the second half, but also just wondering from a cost perspective, just the pluses and minuses we should consider for the second half ANZ?

So hopefully, if the filings come back a little bit, you'd hope that the top line increases with that. No in particular from a first half to second half perspective in terms of the cost base, I would think, perhaps we won't see that same increment in the second half, but nothing else jumps out in terms of changes in cost base.

And then just on the Shelston IP, I think in the past, you said there was AUD 1 million -- AUD 1 million of remaining integration benefits to get realized in the first half. Did that sort of come through? And is that all sort of done now?

Yes, I think that's the case. So potentially, that was the annualized salaries and potentially a piece of rent as well, which those actions were taken at the time. It just happened that the cost benefit flows through across periods.

I'm sure this next question would have been asked, but I'll ask it anyway. What sort of a price tailwind did you get over the half?

Sorry, what was the question?

Price tailwind did you realize in the half?

So, I think when we were talking back at the year-end results as a keen area of interest and I think we gave the response that normally potentially our prices between 3% and 5%. And maybe in this time, they've gone from maybe 5% to 7%. But Andrew reflected on the call earlier, that you can't go and apply those price increases to the whole revenue book because some clients will be on 2- or 3-year set term arrangements, particularly our larger corporate clients. And so you have to wait until those agreements roll off in order to see the full benefit of those price rises. So, it's difficult to estimate exactly what increment we have seen purely on the pricing.

One last question, please. Just on wage inflation in the first half. Any sort of color around that? And if that was an impact as well on the ANZ result?

Would have been. Again, we get that same answer back at the year-end results. We set our -- probably our salary or our largest cost base has increased maybe a little bit more than normal in terms of our salary increases, but we were able to then pass that on to some degree through the pricing to customers.

There are no further questions at this time. I'll now hand it back to Dr. Blattman.

Well, thanks, everyone. Thanks for your continued interest in IPH, a lot of questions today and look it reflects the wonderful coverage we're getting. So, we appreciate that. We appreciate your support. And I will talk to you, if some of you are still on the call in the next few days, and we'll see you [indiscernible].

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