PEXA Group Limited (PXA) Earnings Call Transcript & Summary

Good morning, and thank you for joining us at PEXA's 2025 Half Year Results Briefing. I'm joined by outgoing CEO, Glenn King; and Group CFO, Scott Butterworth to discuss the group's progress and performance over the past 6 months. At the end of the presentation, we'll open up the Q&A and I'll now hand over to Glenn.

Thank you, Hany. And on behalf of PEXA's team, I also thank you for your time today and for your interest in our company. So turning to Slide 3. Before we begin today's meeting, in the spirit of reconciliation and in line with PEXA's purpose of connecting people to place, I'd like to acknowledge the traditional custodians of country throughout Australia and their connections to land, sea and community. We pay our respect to their elders past and present and extend that respect to all Aboriginal and Torres Strait Islander peoples who have joined with us today. Now I'll spend some time touching on the group's highlights for the half. And as it is my last day as CEO, Scott will take the lead and provide a review of the operating financial performance for each business unit in detail, discuss our balance sheet settings, update on our guidance for the remainder of FY '25 and then take the questions. So let me start by turning to Slide 4. PEXA's strategic and operating position improved during the half as we executed against the priorities we have outlined in previous periods. In Australia, our leading critical infrastructure asset continued to deliver great outcomes for our customers and other property market stakeholders while also delivering a solid financial performance. We continued to leverage our IP into the U.K. as we build that market's only integrated digital backbone for property lodgement and settlement. Delivery of our unique multi-jurisdiction capable platform is on schedule. And we are preparing for the launch of sale and purchase product in the second half, subject to FCA approval. We continued to grow our lender pipeline to the point where we are engaged with all major U.K. banks and our cash usage in this market is starting to decline. The period also saw strong demand for digital solutions, innovative market-leading services leading to good revenue growth and improved margins as the business scales and extends PEXA's reach with existing and new customers across the property market. Our improved operating performance, cash generation and importantly the execution focus demonstrated by our team allowed us to strengthen our balance sheet. And this has underwritten the Board's decision to return up to $50 million to shareholders via an on-market buyback. Overall, I am confident we are now benefiting from a financially stronger group with a more robust strategic position. However, we still have more to do to realize the full value of the positions we are creating. Now these outcomes are reflected in the group's financial performance which is summarized on Slide 5. As you can see from the slide, we experienced a solid uplift in our operating performance in the half. Revenue grew by 12% on a pro forma basis relative to the prior comparative period. And with expense growth constrained to around 1%, our operating margins grew by 5.2 percentage points on a pro forma basis. However, as previously disclosed, our statutory results were impacted by nonoperating noncash items associated with taxation and investment impairments. Having said that, our improved operating performance and reductions in CapEx in each business meant that free cash flows lifted sharply during the period. As a result, we were able to repay $55 million of debt during the half and the balance sheet continued to delever. We are now operating below the maximum gearing levels contained in our capital framework. And as I've already noted, this has enabled the Board to approve an on-market buyback of up to $50 million. Of course, this result reflects the performance across our various businesses and how these outcomes feed up to the group result will now be taken by Scott, who will discuss this with you.

Thank you, Glenn. I'll start by turning to Slide 7 and providing some more detail about the group's performance. As I do so I'll remind you that the results for the group and for International are being presented on both a pro forma and as reported basis. The pro forma analysis assumes that we owned Smoove for all of first half '24. As you can see from the slide, the group experienced an 11% increase in pro forma business revenue compared to the prior comparative period, with improved revenue outcomes in each business. Operating expenses only increased by 1%, mainly reflecting the impact of prior period productivity initiatives, which have largely offset growth in salaries and supplier costs. This revenue growth combined with well controlled expenses led to a group operating EBITDA margin of 35.9%, up 5.2 percentage points on a pro forma basis. CapEx of $28.4 million was down $5.9 million from the prior comparative period due again to the impact of prior period productivity initiatives as well as reduced regulatory and product development spend. Due to these improved outcomes, operating cash flow increased to $44.8 million and operating cash flow yield rose 10 percentage points to 22%. Nonetheless, while group operating results showed solid improvement, statutory results were impacted by nonoperating items in the period. These are summarized on Slide 8, which I'll turn to now. Specified items increased relative to the prior comparative period. This was due to the previously disclosed minority investment impairment charge, which arose from the impact of adverse conditions and changing market priorities on the relevant investment. Excluding this charge, specified items declared -- declined year-over-year, mainly due to lower costs for restructuring and integrating acquisitions. Depreciation and amortization expense increased reflecting the impact of current and prior period capital investments as they are put into use across the business. Net interest expense ticked up modestly due to higher underlying interest rates as well as a higher average debt balance compared to last year. We'll dive deeper into the balance sheet details later. The tax charge was impacted by the derecognition of certain deferred tax assets during the period. I'll turn now to Slide 9 to explain more about our tax position. As you would appreciate, PEXA's legacy tax position is complex due to several changes in ownership and profitability since its inception. However, let me summarize the key points. In Australia, we are now generating taxable income, which results in a P&L charge, which is broadly equivalent to 30% of the operating EBITDA for the Australian geography. This expense doesn't translate to a cash tax payment to the ATO as R&D tax credits and carryforward losses are used to offset the liability. Around $18.9 million of tax credits were used for this purpose in the first half. The use of these tax credits is subject to various tests. Following Link's divestiture of its PEXA interests in early 2023, one of the tests we must apply each period is the same business test. This half, given the nature of the business undertaken by the group, we could no longer satisfy that test. This means that we had to derecognize a $19 million deferred tax asset. All same business tax credits have now been derecognized and we now have $67 million in Australian tax credits remaining. We expect to utilize them in future periods. The situation is a little different in the U.K. There we are continuing to generate tax losses for use in future periods. However, save for a deferred tax asset of $8.6 million, we do not include the resulting new tax credits in our financial statements. Instead, we've elected not to tax effect our U.K. losses for accounting purposes. Having reviewed the group's income statement, I'll turn now to a discussion of the operating and financial performance of each business unit. Turning to Slide 11, the Exchange saw modest market volume growth and a more favorable refinance mix compared to the prior comparative period. Given these conditions, we continue to make good progress with our custodianship of this critical piece of national infrastructure, which generates net benefits of $300 million per year for Australia's economy. Key achievements include launching in Tasmania, increasing our market share to 90% nationally with gains in Western Australia and Queensland, and maintaining high customer satisfaction through robust cyber resilience and system uptime. We've also improved integration with the property ecosystem by expanding our API suite, supported by contracts with leading property management system providers. Regulatory efforts are focused on preparing for a review of our pricing framework. We note ARNECC's recent interoperability review. We welcome their work and the further opportunity to work constructively with our regulators for the benefit of all stakeholders in the market. I'll turn now to Slide 12, which details the financial results for the Exchange. The business delivered a solid financial result underpinned by 9% revenue growth. This was driven by an increase in transaction volumes, a more favorable transaction mix and the impact of CPI-linked repricing. Despite incurring costs from investments in capability, absorbing the impact of the unwind of prior period one-off expense benefits and professional fees related to regulatory initiatives, the Exchange experienced positive expense jaws during the period. This was primarily due to the ongoing impact of productivity initiatives undertaken in FY '24. There was a relatively modest uptick in specified items, reflecting restructuring activity during the period. Capital expenditure declined compared to the PCP, mainly due to the cessation of work on interoperability, pending further guidance from the regulator. However, on an underlying basis, we continue to invest in the Exchange product, its security and resilience, including entering an important security services contract with Cyber CX, noting that this contract also provides benefits across the broader group. Turning now to Slide 13 and the international business, which is leveraging PEXA's IP into markets outside of Australia. As you know, we have started with the U.K. where we are building the backbone for the digital lodgement and settlement of property transactions. Whilst market conditions were mixed during the period with below trend remortgage volumes and higher sale and purchase activity, we remain confident in the U.K. opportunity. In this context, we welcome the U.K. government's announcement this month of initiatives which support digitalization of the U.K.'s property market. The matters we directly control in progressing this activity are going well. Development of the multi-jurisdiction PEXA Go platform remains on schedule with our sale and purchase product expected to be launch ready in the second half. Optima Legal's performance has improved through productivity initiatives and regained market share. Smoove is trading above expectations. Notably, the PEXA platform is performing as expected, having smoothly processed over GBP 100 million in remortgages for existing bank customers. However, progressing at the speed we would like also depends on factors outside our complete control, although we are working hard to influence them in our favor. I will mention 3 of these in particular. First, whilst our engagement with banks is positive, it is progressing more slowly than we would desire as they work through their stringent decision-making, risk management and procurement processes. I'll say more about this in a moment. Second, there are limited opportunities to test the connection between PEXA Pay and bank transaction systems via the Bank of England as it undergoes its real-time gross settlement system upgrade. To date, testing has been conducted successfully with 11 lenders. Another 4 slots are likely to be available in the first quarter of FY '26. Thirdly, we plan to include with the sale and purchase product a source account capability like that used in Australia. That feature requires FCA approval for which an application was made in 2024. The typical 12-month processing time could see approval of granted in second half '25, but that timing is ultimately determined by the FCA. I'll now go a bit deeper on aspects of our U.K. activity, starting with Slide 14, which summarizes our activity since entering the market in late 2020. Since then, we have launched our remortgage product and it is now capable of handling around 80% of flows in that market segment. Distribution reach has been augmented through the acquisitions of Optima Legal and Smoove. The next major milestone is the planned launch of the sale and purchase product in second half '25, subject to receiving FCA approval. This will provide access to a much larger transaction pool of $1 million to $1.1 million annual sale and purchase transactions compared to around 300,000 remortgage transactions each year. Upon launch, the sale and purchase product should cover 50% to 70% of potential flows, with additional extensions planned in FY '26 to increase coverage to around 80%. Importantly, as we move through this point, we should see good reductions in development expenditures as PEXA moves beyond FY '25 into the following 12 months, albeit some of this reduction will be reinvested in operating capacity as the business grows. Engagement with U.K. lenders is critical to executing our program and I'll now turn to Slide 15 to review our progress. The slide shows the various stages of our sales pipeline. The first 4 stages, from introduction to Bank of England testing, do not require written commitments from a lender, but may involve a lender expressing a pre-contractual intention to utilize the platform. Past these stages, the lender moves from intent to firm contractual commitment to onboarding. Our aim is to get all Tier 1 banks, these are the 6 largest U.K. lenders, through this pipeline as quickly as possible. At the start of this financial year, only NatWest had completed discovery. We continue to work with them constructively, but progress has been slower than expected due to factors such as changes in their senior leadership. However, and pleasingly, our engagement has expanded with active discussions now occurring across all Tier 1 lenders who collectively hold 72% of the U.K.'s mortgage market. 2 of these Tier 1 lenders have completed the internal approvals they need to proceed to the upcoming Bank of England testing slots. One further Tier 1 lender is also well advanced in progressing through their internal approval process. Progress is also being made with Tier 2, that is to say market share greater than 1% and Tier 3, that is to say smaller banks. With respect to the second lender we have previously mentioned, we remain constructively engaged. However, onboarding activity is currently paused due to strategic actions involving that institution. Despite these developments, we would have preferred faster progress through our pipeline. No doubt you are wondering about the causes of this delay. From our perspective, the elongated time frames appear due to the time required to navigate each bank's internal approval processes. For a transformative change to the U.K. property market, such as that offered by PEXA, it is understandable that potential bank customers are following rigorous decision-making, risk management and procurement processes before finalizing their commitments. PEXA is actively and energetically assisting banks through this process. Importantly, their interest and engagement remains strong and the case for platform adoption by them continues to be attractive. Additionally, once contracts are executed, PEXA is well positioned to support seamless platform adoption by lenders. Further progress updates will be provided to the market in due course. I'll turn now to Slide 16, which reviews the financial implications of these activities for International. Revenue grew 20% on a pro forma basis, reflecting Optima Legal's market share recovery and increased Smoove sale and purchase volumes. Pro forma OpEx growth for International was contained at 3.8% with ongoing platform and sales investment expenditure offset by productivity enhancements and Smoove cost synergies. Specified items mainly related to the Smoove integration, which is expected to complete by year end except for certain finance system activities. Specified items were sharply lower than first half '24 due to lower integration and restructuring costs. CapEx decreased 13% in first half '25 as Remo capability was largely completed, partially offset by increased investment in building a sale and purchase product. I'll turn now to Slide 17 and a brief discussion of Digital Solutions, which provides leading tools and insights to property professionals, enabling PEXA to broaden its reach across the property market. This half focused on improving distribution effectiveness. We reoriented ID sales away from a product led to a whole of customer approach and increased coordination between our specialist sales teams and proprietary channels, particularly in respect to Value Australia. While new business sales were down 29% relative to the PCP, this approach improved ID churn management and drove record first half revenues for ID, Value Australia and Land Insights. This includes additional revenue from a second major bank customer for Value Australia. The Send FX product for practitioner foreign currency transfers also saw good revenue growth. However, product traction was mixed. Value Australia was further developed to win new business, but while additional regulatory approvals were obtained for some Exchange data usage, PEXA is still not able to fully utilize this data across our various insight offerings. Work continues to obtain relevant approvals. I'll now turn to Slide 18, which describes the results for Digital Solutions. In short, during the half, we saw continued strong organic revenue growth and margin expansion as the business continued providing unique and innovative services and products, which resonated with existing and new customers. Over the remainder of FY '25, we will continue focusing on improving distribution effectiveness and modestly invest in additional solutions that enable more effective property related decisions and better transaction efficiency and experience for our customers. That concludes our review of business lines. I'll now turn to a discussion of key balance sheet and capital management items starting with Slide 20. This slide reviews our cash flows for the period. On the left, it shows our ending cash balance was $60.6 million after repaying $55 million in debt during the half year. This strong cash performance was due to higher earnings and increased cash conversion during the period as we reduced our capital expenditures. Working capital movements did negatively impact cash outcomes, largely reflecting the timing of expense prepayments and the unwind of deferred consideration for a prior period acquisition. Moving to Slide 21. The strong positive cash flows and operating performance in the first half positively impacted our balance sheet. Our net debt to operating EBITDA leverage ratio continued declining, dropping 1 turn to 1.9 turns since the first half of FY '24. Additionally, our times interest coverage ratio improved significantly compared to prior periods and now sits at 6x. At the end of the period our gross borrowings were $312 million on a spot basis. This is broadly offset by the interest-earning cash balances we hold in our own monies and source accounts, with these accounts providing a partial natural hedge in respect of interest expense exposure. As a result, the overall net interest expense for the group was relatively low during the half despite the increase in average debt compared to the prior corresponding period. Slide 22, which I now turn to, sets out the framework that we utilize for allocating capital and deploying it to maximize shareholder value. You would have seen it in previous periods. Our approach to financial management during the period and the balance sheet flexibility we now enjoy means that we expect to meet the FY '25 targets set out in purple on this page. Notably, we believe that we can operate well within the leverage range set out on the slide as well as achieving the other outcomes it contains. Given this, the Board has agreed to initiate a non-market buyback of up to $50 million. I'll turn to Slide 23 to provide some more insight into this decision. Our improved cash generation significantly reduced our net debt to operating EBITDA ratio as shown on the slide, with that ratio improving by about 0.5 turns per half over the past 3 reporting periods. Further deleveraging would be expected as the business generates cash in subsequent periods. As you would have seen from our capital management framework, this implies we would operate well within our maximum gearing target for the business. Given this profile, together with our anticipated investment needs, the Board has decided to return surplus cash to shareholders. An on-market buyback is the most efficient way to do this considering transaction costs and franking credit availability. To achieve this, the buyback announced today will be up to a maximum of $50 million. The buyback will commence in mid-March and our intention, subject to market and other relevant conditions, is to complete it before announcing our FY '25 results. As is typical with these programs, PEXA reserves the right to suspend or terminate the buyback at any time. Moving to Slide 25. We observed that economic conditions in Australia and the U.K. remain mixed despite recent interest rate cuts. However, we reiterate our guidance for all metrics. This includes the recently updated guidance for specified items and tax. Our specified items guidance reflects an expectation that we will settle at the higher end of the previously advised range as well as the impact of the minority investment impairment that occurred during the half. Our tax guidance reflects the higher-than-expected effective tax rate that we experienced in the first half as well as the impact of derecognizing deferred tax assets. This guidance excludes any interoperability asset impacts. We continue to hold that asset at its current value pending completion of the work notified in ARNECC's recent review. Our key priorities for the second half of '25 include our continuing preparations for New South Wales IPART's review of the Exchange's regulated pricing, noting that the previous review stated that our pricing was reasonable for all system stakeholders. We will work closely and constructively with all of our regulators on this matter and update the market as required. Other priorities for the next half include delivering and subject to FCA approval, launching our sale and purchase capability in the U.K. and advancing contracts with lenders in that market. Lastly, we look forward to supporting a successful onboarding for our new CEO, Russell Cohen, as he commences on the 31 March. I'll now wrap up by recapping the highlights for the half as set out on Slide 26. We achieved solid strategic operational and financial outcomes in first half '25. The Exchange continued to deliver and whilst we would have preferred to go faster, we are making progress in the U.K. as we grew our lender pipeline to the point where we are engaged with all major U.K. banks. We also drove further scale in the Digital Solutions business and our stronger balance sheet and free cash flow will enable us to return up to $50 million to shareholders via an on-market buyback. We are well placed to deliver on our guidance and we look forward to embracing Russell's fresh perspective as he starts in the business. I'll turn to Q&A in a moment, but before I do I want to acknowledge Glenn for his hard work and leadership across so many fronts over his past 5 years as PEXA's CEO. Whether dealing with interoperability, navigating COVID, shepherding the group's IPO through to completion or initiating the diversification of our business activities, Glenn has made a fabulous contribution to our group over the past 5 years. On behalf of all of us, we wish you the very best as you head off for your next chapter. It has been my absolute pleasure to work with you over the last few years. And with that, I'm happy to open the lines for Q&A.

[Operator Instructions] Your first question comes from Josh Kannourakis from Barrenjoey.

Great. First one, just in terms of the Exchange business, obviously, very strong operating result there. Can you give us a little bit of context just in terms of how we should be thinking about I guess the OpEx base going forward? You've obviously given some CapEx guidance there. But just in terms of some of the key projects, how comfortable you are with the OpEx base? And as we sort of look forward on a medium-term perspective, are there any other major projects or refresh across the platform that we should be considering?

Thanks, Josh, for your question. We don't have any plans for a refresh of the Exchange, but we do continue to invest in the products that remains current and capable for our customers firstly. And then secondly to make and importantly to make sure the product is cyber resilient for our customers. Now in terms of OpEx, I think we're through the rebasing exercise that we've seen in the last half where there was an unwind of some prior period one-off expense benefits. And we still think there's good opportunities to improve productivity in that part of the business and indeed across the group with automation and the like. Given all of that, I wouldn't necessarily see the margin going backwards in the second half and hopefully to see that, that margin continues to grow. Where it grows too, I think depends on the volume outcome. But I think beyond the end of this financial year, I'd still see the momentum -- sort of a momentum in the cost base, which is inflation or a little inflation and a little bit.

Perfect. No, that's very helpful. And then just one with regard to the U.K. So that was some good clarity around where things are up to. But just if we try and align, I guess, some of the timing around the sale and purchase are some of the live discussions and when you're talking to the big banks, are you sort of -- are you combining that process as well? And I guess what I'm trying to get at is what process would they have to go back to, to get the internal okay and approval to progress with that sort of next step? And are you doing that simultaneously?

Another good question, Josh. It varies a little bit by bank. Some of the banks, we are indeed joining together the sale and purchase conversation with the remortgage conversation for exactly the reason that you described. And actually when we're doing business case work with the banks looking at both the remortgage business case alongside the sale and purchase business case. Now some banks want to do things a bit differently. So some banks are looking at remortgage and then sale and purchase. As much as possible, we're trying to encourage banks to look at them as a joint proposition. And to be fair to them, I think as they get further into it, that does seem to be their line of thinking as well, because they can see that the real benefit is certainly in remortgages, but certainly a big step forward for them in the sale and purchase space as well.

Your next question comes from Elizabeth Miliatis from Jarden.

Just going to your Slide 14, it's a very useful slide. Just if you could touch on the test transaction, if you could give us an update on that? And then also just on the Bank of England test slots, it sounds like it will happen, I believe, in the September quarter of this year. That's a little later than we had initially expected. We thought it would happen March, April, May this year. And is that delay again just a function of RTGS upgrades? And is there any certainty that, that test slot will actually -- those test slots will actually happen this year? Or could they be delayed yet again?

Thanks, Elizabeth, for your question. I might start with the second of your question first and then I'll go back to the test transaction. In relation to the deferral of the testing slots, that's entirely a matter of the real time gross settlement program at the Bank of England. It probably wouldn't be the first bank IT program which has been delayed relative to expectations. Having said that, they do seem to be quite confident in their revised timetable. And the indications are that the testing slots will be available at the time frames that they have described to us and which we're relaying here. The only caveat I would put on that is that you never know what you never know as the programs unfold. In relation to your question on the test transaction, we've actually working with Hinckley & Rugby to find the right test transaction. They're committed to finding the right transaction for us. We want to make sure that it goes through the system successfully. Having said that, all of the testing that we've done for the platform to date doesn't indicate -- sorry, our own user testing and acceptance testing internally seems to indicate that the code is working as we expected it to do.

Okay. And it sounds like that test is imminent just based on where it's plotted in the time line.

Yes. We had actually hoped that we would find a transaction before today, actually, we just haven't found the right one yet.

Okay. Not a problem. And then just again on this slide, NatWest is sort of called out in the middle there from 2023, the initial engagement, verbal agreement, written agreement, et cetera. I mean, you noted that there are delays because of management changes there. But in terms of, like, that trajectory for other lenders, like, what would you hope for? Is that a good sort of rule of thumb? Maybe something 6 months or 12 months sooner? Like how should we think about that?

Yes. That's another great question, Elizabeth. I think we have learned a lot as we've gone through the process with NatWest. And in particular, I think we've learned a lot about who to engage with in an organization. A lot of our initial engagement was with the operations folks, which -- and you do need to engage with them. They're an important stakeholder. At NatWest, we've broadened that out to the product people and also to the risk people and the treasury people, all of whom are stakeholders in this change. So I think we've got a much better idea now how to navigate through an organization, albeit they are all different. The second thing, which I think we've got much, much better at off the back of the work we've been doing with NatWest is being really sharp about how we articulate the benefits of working through this platform change for them and being able to describe in quite granular detail for them the nature of the benefits and the payback profile associated with taking it up. Putting those 2 things together, I would definitely hope we would hope go through the other banks at a faster pace than we've been able to achieve with NatWest. But again, the caveat would be these are very large organizations with their own very stringent processes and what all we can do is try and work as hard as we can to navigate through them. We don't control the timing.

Your next question comes from Ed Henning from CLSA.

Just a couple of follow-ups. Firstly, just on the costs. Can you just talk about are there any more benefits rolling through from productivity, which you've already done? And on the cost result today, were there any one-offs in there that will reverse? Because you talked previously about you had some one-offs that kind of rolled that didn't reoccur, but is there any more of that or anything that will go back the other way? Or -- and how should we think about productivity that you've already done going forward in the cost base? First question, please.

Yes. Thanks, Ed, for your question. First of all, the productivity benefits that we did in FY '24, we're getting the full run rate benefit of those in first half '24. So we should -- sorry, '25. So we should continue to see that full run rate benefit flow through to second half '25. I think secondly, we've been doing quite a lot of work internally over the past 6 months on the next round of where we think productivity will arise from. A lot of the productivity changes we made last year were around operating model changes. We've subsequently been doing work on where we think we can derive productivity benefits from both automation, particularly using some of the new tools, which are becoming available very quickly and also for our nonlabor expenditure through our procurement activities. We've just kicked off another round of work to scope those hypotheses up into a much more detailed program. So we'd have more to say about what that looks like as we emerge from the second half. But we see productivity as a thing that we need to keep working on as a business, firstly. And secondly, that we think there's still quite some opportunity to change the cost base as we go forward. In terms of the one-offs, there's nothing -- there is a few small things in here, truing up a few provisions and the like, but there's nothing that material that should impact the trajectory in the next period.

And just to clarify, on working on further productivity work, will that require an uplifting cost or you're using some of the previous productivity gains to reinvest that to more stuff on productivity?

No. We think that at least at the moment, we're using our own people to design the program and also to execute it. A lot of the tools we've already acquired or actually are not that expensive in the scheme of it. So we don't really see very significant uplifting costs associated with implementing that program of work.

Okay. No, that's great. And then just a second question on the U.K. and there's kind of 2 parts to this. Firstly, you've given us great slide on Slide 15 about kind of where you are with some of the lenders. And you talked about you'd only -- a year ago, you'd only engaged with NatWest. Can you just talk about the progression more recently, like in the last half, how that slide has changed? Have you engaged with like 1 or 2 more lenders just to see how that's progressing in the more recent time frame? And then just secondly on the U.K., can you just talk us a little bit about -- operationally about Smoove and Optima? Optima seems to be losing a bit of market share if you look at the first quarter update, and there is a slide at the back, I can't find what slide it is. Just saying it's losing a little bit of market share. What's going on there? And Smoove, while it's doing really well, is that just a function of volumes coming back? Or is it operational revenue performance doing better there as well, please?

Great. Thanks, Ed. I might touch on your question about Smoove and Optima first and then come back to the question on lenders. Firstly, with Optima, the bottom point for Optima's market share was around about March, April of last year. And since then is actually, I think that bottomed at around about 800 basis points thereabouts. It's now running at about 15 percentage points of market. So it has clawed back a fair bit of market share over the last 12 months. We can also see that some of Optima's large competitors, one in particular, have lost about 500 basis points of market share over the past 6 months. So we think from a market positioning point of view, Optima has been going reasonably well. It has picked up some new business, particularly via Smoove, which is very pleasing. I think the other thing which we've been pleased about with Optima is that productivity continues to improve in that business. And so there's been a big step up in productivity over the last 12 months as we've rebased the labor line in that business. Having said that, we're still not satisfied that the business is generating sufficient returns for us, and that's one of our areas of focus in the U.K. is to ensure that we can make a better return out of that business. Bearing in mind that it has been very helpful for the reason that we bought it for in the first place, which was to open the doors for banks and help our distribution effort. With Smoove, it's benefited from 2 -- sorry, 3 sets of things. Firstly, the general uptick in sale and purchase volumes has been very, very helpful for that business. It's a very scalable business, as it turns out. Secondly, we've extracted synergy benefits attended upon its acquisition. So cost has come out of the business. And we've also been able to leverage another form of synergy, which is some of the capability in Smoove, we've been able to leverage across PEXA group in the U.K. more generally. The third benefit we've had with Smoove is a small improvement in what we call the attachment rate. So the rate at which search instructions are given compared to the volume of sale and purchase transactions. And search is actually quite a profitable business line for Smoove. So those 3 things together have helped the performance of the business. In relation to your question on the lenders sorry, Ed, did you have a question just before I go on the lenders?

Yes, just before you go on the lenders, the Optima side, like the first quarter you said it was 15.9%. You're now roughly at 15%. You talked about a peer losing about 5% market share. Is the market shifting to that more fee model? Or is like what's happening in the remortgage market at the moment, I know overall volumes are down, but I'm more interested in the market share of where that's shifting to?

Yes. There's been a couple of things there. One, as you say, rightly, the market is very suppressed relative to where it was 18, 24 months ago. Secondly, and pleasingly, we have seen some share come back out of the cash back type product into the fees assisted product, which is what we did expect to happen. It's not as low as at the time when we -- sorry, it's not as high as at the time when we bought Optima, but it has come back towards us, which is good. There has been a bit of share gain from some smaller players in the market who've taken share from 1 or 2 of the larger players. But equally we have had the benefit of swapping out some of the flow that was previously going via the Smoove platform to other practitioners and that's come on to the Optima books. So I think the real -- we see that structurally, we should be getting back to the natural market share that we had at the time when we acquired the business, which is in the range of 20% to 22% and we're working pretty hard to achieve that.

Okay. That's great. And then just on the slide on the -- yes, just on the lenders more recently, how has it changed? I know you talked about a year ago, you've gone from 1 to 6, but in the last 6 months, I'm just interested in how that's progressed and the conversations more recently?

The conversations have definitely been helped by the NatWest announcement in May or so of last year. The conversations have been very good, actually, particularly in the last 2 to 3 months. So just before and just after the Christmas holiday period. We're actively engaged with the senior product and other people in those -- each of those organizations and actively talking to them about how we can make use of the PEXA platform in an implementation sense in each of those organizations. So we're seeing good appetite for the discussions and that's certainly different to where we were 12 months ago and to some extent 6 months ago, where it was harder work to get the introductions that we wanted to get and the conversations that we wanted to get.

Your next question comes from Kieren Chidgey from UBS.

Just 2 questions. Maybe just one of them is leading on from Ed's question there on Slide 15, which is quite a useful slide. Yes, if you think forward to the end of this financial year or even the end of the calendar year, I mean, what would be a good outcome that you'd be sort of pleased with in terms of seeing progression in those Tier 1 colored dots? Yes, like what is a good outcome in terms of completing discovery and scope? Obviously, some of the Bank of England testing slots, as you've said, are sort of, maybe the September quarter and a bit outside your control, but sort of around the discovery and scope items. Just interested in how you'd assess progress there.

Thanks, Kieren. Look, there's part of me who would be only satisfied if we had dark circles in every row by June of next year. However, appreciating that we're dealing with large organizations that have their own processes, I think we would be very, very, very happy if we could get to the commitment stage with as many of those lenders as we possibly could. Now, that's not to say that that's possible, but that's what we'll be pushing for.

Okay. And the time involved in each of those stages, obviously, each organization is different, but based on the experience with NatWest or sort of the progress with some of the other lenders at the moment, like how should we think about sort of length of time for discovery and sort of scope and testing? And are they all one after the other or can any of that be done, obviously, progressively or concurrently, I should say?

There's generally overlap to a point across each of those phases, so they're not completely sequential. Broadly speaking, you can kind of think that there's probably a quarter -- sorry, if you sort of think about the line for introduction, you could probably start in the last quarter of that line, the discovery work and so forth for each of the other activities. The problem is the length of each of those lines is different per organization. So I can't really be definitive. But referring back to one of the earlier answers, we have got better at this through experience of NatWest and we do have a much better way of understanding who the right sorts of decision makers are in an organization and also the nature of the benefits profile work that we can do to help the decision-making in an organization.

Okay. Second question. Can I just turn back to the Aussie Exchange? You highlight, I think, on one of the earlier slides that the pricing review preparations are underway for that. Can I just sort of ask what's been involved in that? What further discussions have been had with regulators and sort of how you're thinking about the timing and the process that's likely to sort of occur on that front?

Yes. Thanks for that, Kieren. I can talk about -- I'll talk about the process firstly, in the preparation. I won't completely touch on the nature of the conversations we have with our regulators because as you imagine, they're confidential at this stage. But in terms of process, the New South Wales IPART review of our pricing is due to start no later than July of this year. If IPART goes through its normal process, it will call for submissions from interested parties. Clearly, we are an interested party and we will provide a submission to it. They will consider all of those submissions, release usually a draft report asking for comment. We'll provide another set of submissions in relation to their draft report and then they'll finalize their draft. We imagine that given Christmas holidays and other holiday periods during the course over the time from July onwards, we would imagine that a lot of that work is going to take the best part of 12 months from the middle of this year, in time for a new pricing schedule to take effect from the beginning of FY '27. So that's kind of the process that we can see so far. What I would say though is that a lot of that is us piecing together the pieces of the puzzle, because ARNECC has -- and IPART actually haven't released a formal calendar just yet. In terms of the work we have done, we've engaged a regulatory economics firm to work with us. We have tested some of the typical methodology that New South Wales IPART would use in circumstances like this, noting that actually a lot of their work with respect to them is on hard assets like ports and distribution assets and transmission grids, not on intangible assets such as that, which is operated by us. Given that mismatch, we think there's quite a lot of work for both ourselves and for IPART to do to test the right economic settings for an asset such as this. And that's the work we're working through at the moment with our regulatory economics colleagues. The other thing which we are doing is having conversations with ARNECC, but about the nature of the different tradeoffs that one needs to think about as you go through a pricing review and our overall obligations to maintain system security and resilience and making sure that ARNECC and other stakeholders in the system are aware of that and the impact that, that has on economics.

Okay. And just a final quick question on tax. Just interested in the sort of reasons behind the tax election you've made in the U.K. and so how we should think more broadly about tax from here?

So, I think, first of all, for the election there, Kieren, we don't -- to be honest, what we don't want to do is make the DTA bigger in the U.K. Given we've had a bit of noise over the last 18 months on DTAs, I'm keen not to replicate the experience. So I'm holding off adding to that DTA by not tax affecting the losses in the market. Having said that, from a tax point of view, as opposed to an accounting point of view, those losses remain available to us to offset against future taxable income. The way I would think about it is that at the moment, for modeling purposes, U.K. losses should not be tax affected, so they should just drop straight through without the benefit of the tax chart, the tax benefit coming back the other way. And that -- you should run your modeling on that basis, I think, until the business turns profitable and then start turning to an effective tax rate for the U.K. business, which is in line with the U.K. statutory rate.

Your next question comes from Tharan Jeyathasan from JPMorgan.

For my first question, I might just touch on international. It's been a key part of your story and lots of questions on the subject. There have been some challenges to your engagement of large banks in the U.K., but you have made progress. You finished your refi build and you've made reasonable progress on your S&P build. But just to cut through all the noise, what do we need to see for there to be meaningful transactions on the PEXA Go platforms? Would it be 2 large banks being integrated? Or -- yes, just some color would be helpful.

Yes. Great. Thanks for your question. Once we get -- say we take NatWest, which I think is around about 10% to 12% market share in the U.K. And each of the other banks in the top tier north of about 7% or 8% market share. Once you get 2 or 3 Tier 1 banks on platform, you're starting to see meaningful flow across the platform, particularly once you expand out of the remortgage space into the sale and purchase space, which is running at least 3x to 3.5x that of the remortgage volumes.

And I think you mentioned previously your platform supporting cash transactions, which doesn't require the involvement of any banks. So how does that fit into the picture?

Another great question. So around about 30% of the transactions for sale and purchase in the U.K. don't involve a mortgage. The purchaser has sufficient cash resources available to them to acquire the property without troubling the bank. Our one-sided product supports that situation as will the 2-sided product. The -- what we would -- for that to occur, a practitioner will -- at least one practitioner will need to be on platform. And this is where Smoove comes into play because Smoove gives us distribution into the practitioner space in the U.K. or at least a head start on that. So what we will also start seeing as we move through the sale and purchase launch is us not only talking about lender take up, but also practitioner take up.

Okay. Yes, that's helpful. So it does sound like that's perhaps a little more in your control. You have Optima Legal, I suppose. And I understand you have other conveyances you've been speaking to that are PEXA partners. So is there some kind of time line that you can speak to? Or how far progressed are you in your engagement with these practitioners?

We've had -- we're doing 2 sets of things in relation to our sale and purchase launch activities, leaving aside the FCA process. The first of those is actually just designing our launch program to make sure the proposition is crisp and the rollout program is getting clear. And I think we've probably got another 2-ish to 3 months of work to get that really crisp. As part -- secondly, and sort of as part of that, we've had started having exploratory conversations with some of the larger practitioners, not necessarily the bulk practitioners such as O'Neill Patient, [ NexTier ], those conversations have actually been involved quite some interests from those practitioner groups. What we want to do is, without trying to front run the FCA process is continue to build interest across that practitioner cohort, particularly those who have very strong relationships with us through the Smoove acquisition so that we can interest them and migrate in and migrate them to the PEXA product. The other thing which we are doing as part of that whole launch process is increasing our engagement with practice management system providers in the U.K. so that if it's helpful for practitioners, they can also benefit from APIs and the like between PMS platforms and PEXA platform.

Understand. Maybe just a second question on guidance. So you've reiterated your revenue growth guidance of 13% to 19%. You've come in at the upper end of that range. Can you provide some color perhaps around how we should be thinking about second half, given there's been a rate cut and maybe any color by division? Just on my rough numbers, if I was to assume the same run rate for PEXA Exchange and Smoove, I get to about revenue growth of about 15% for the second half. Do you -- is that about right? Do you see any risks or upside to the current direction of travel?

Maybe a few thoughts there. First of all, for the Exchange, the first half tends to be the stronger half than the second half. And that's largely because of the way the holiday seasons tend to work. And therefore, just generally shorter working days in the second half for that business. For the Insights businesses, particularly ID, it does work the other way. So the June quarter actually tends to be the strongest quarter for ID as local government clients finalize their buying decisions before they run out of budget on 30 June. The U.K., I think we're still learning the seasonalities there and it's been a little bit difficult to sort of to discern the seasonalities just given some of the choppiness in both remortgages and sale of purchase volumes over the last 24 months in that market. And that I think brings a bit to the sort of a statement we made when we were going through the slides, which is the economic outlook, both in Australia and the U.K. is mixed. And I think we saw that certainly in Australia when the Reserve Bank Governor was giving her briefing after the latest interest rate cut a couple of weeks ago. What we are uncertain about is that on the one hand, we definitely do have the benefit of interest rate cuts flowing through the economy. On the other hand, some of the other economic indicator -- and we also see very strong labor markets. So that's positive for housing markets. On the other hand, some other indicators in the economy are quite weak, including consumer confidence. So we just don't yet know exactly how that will land as we move through the second half. We think there's enough momentum in the economy, having said that, to reach the guidance that we've described. But I don't want to be more bullish than that. And I think I'd make the same comments in relation to the U.K.

Understand. That's very helpful. Maybe just one last question. You've mentioned again your interest in exploring different markets. You've mentioned New Zealand and Canada. Just want to understand what your thinking is here, what your kind of high-level strategy is? Are you thinking about acquisitions? What would you do differently from what you've done in the U.K.? And also maybe some comments on -- there was speculation around possible interest in Dye & Durham. So just any comments on that as well would be helpful.

Yes. Thank you. First of all, the platform we're building PEXA Go is multi-jurisdiction capable. And we think we have valuable IP that is available to be and should be leveraged into other Torrens Title markets. Both New Zealand and Canada are interesting to us for different reasons. New Zealand, because our large bank customers also have large operations in that market. So in the interest of making sure that our bank customers are well served, New Zealand is an interesting prospect for us. Canada is the next biggest Torrens Title market after the U.K., excluding Quebec. So both of those markets have involved us doing market exploration activities. In doing that, we are very conscious of what we've learned from the U.K., which is it's one thing to build a platform and I think we've done that quite successfully to date for the U.K. It's another thing to get distribution for it. And so we've been working very hard to build that distribution in the U.K. We would be keen to work a lot less hard on distribution as we go into different markets. And so an explicit part of our consideration set is finding the right partners for us to go into those markets with to help us underwrite distribution much earlier in our entry process. And I think that's our big learning from the U.K. In terms of organic versus inorganic, I think we can't really plan for the inorganic. Those situations either come or they go. And in any event, we'd only do them if they were on the strategy and if they were going to make money for us. I think for us, what we're focused on is understanding those markets and how they operate well and making relationships with other potential partners in those markets.

And maybe some comments on Dye & Durham as well, please.

What I would note is that the previous CEO, who was exited from the business just before Christmas, has popped back up again with a bid for the business. So I think the corporate governance issues around that business continue. I can also imagine that new Board and new management team or new CEO who's there is still trying to figure out what they've got. So I think it's a very difficult situation to call anything with Dye & Durham generally, and we wouldn't comment on any speculation about it.

Thank you. Unfortunately, that does conclude our time for questions. I'll now hand back to your speakers.

Well, thank you very much, everyone, for joining us today. We really do appreciate the interest that all people on the call and our shareholders more generally show in the company, and I would like again to thank Glenn for his leadership of our business and look forward to seeing you all over the next couple of weeks.

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