REA Group Limited (REA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the REA Group Half Year Results Briefing 2023 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alice Bennett, Executive Manager of Investor Relations. Please go ahead.

Good morning, and welcome, everyone. My name is Alice Bennett, Head of Investor Relations, and I'd like to thank you for joining REA Group's 2023 half year results presentation. Before we commence, I'd like to acknowledge the traditional owners of country throughout Australia and recognize the continuing connection to land, waters and communities. We pay our respect to Aboriginal and Torres Strait Island cultures and to elders, past and present. Today, you'll hear from REA's CEO, Owen Wilson; and Janelle Hopkins, REA's CFO. Owen will talk to our overarching financial performance and strategic highlights for the half. He will then hand over to Janelle, to talk our financial results in more detail. Following this, we will be happy to take your questions. With that, I will pass to Owen to get us started.

Thanks, Alice. I'd like to welcome everyone this morning and also acknowledge the traditional owners of country throughout Australia and pay my respects to elders, past and present. REA has delivered revenue and yield growth for the half in challenging market conditions, which saw significantly lower listings; partially, due to 8 consecutive interest rate rises; and partially, due to the very strong comps from last year; particularly in Q2. The result was underpinned by the strength of our Australian residential business and reflects the value that our customers place on our premium products and leading audience in a tougher market. REA India performed strongly, significantly increasing revenue, customers and audience. Looking at results from core operations for the half. Revenue was $617 million, an increase of 5%. EBITDA, excluding associates, was $359 million, a decrease of 2% and NPAT was $205 million, down 9%. The Board has declared an interim dividend of $0.75 per share fully franked. This maintains a level of dividend from the prior corresponding period, reflecting the underlying strength of our business. Before we move into the operational highlights, I'd like to spend a moment on market conditions. This has been an extraordinary period. The rapid successive interest rate hikes heavily impacted the Australian property market. Rising from emergency settings, established during the peak of the pandemic, these rate increases were the first in 11 years. The uncertainty around the future of interest rate movements has definitely caused some sellers to pause, impacting supply. The chart on the right shows the impact of major market events on listings over the past decade, beginning with APRA's macroprudential intervention into lending in 2014, followed by the Financial Services Royal Commission in 2019 and the global pandemic in 2020 and '21. Many vendors deferred the sale of their property during the pandemic, and you can see the surge in listings when lockdown ended. Listing volumes were starting to normalize, but the rapid rise in interest rates resulted in a big drop in activity as buyers lost the urgency to purchase and sellers hesitated. New national listings are down year-on-year and are currently tracking below 2018 levels. On the next slide, we have 2 views of the demand for property, which has softened from the peak but remains at healthy levels. Buyers have to contend with lower borrowing capacity, but it's clear it's not a lack of buyers impacting the market. The chart on the right highlights the incredible level of demand we saw in the first half of FY '22. During that period, interest rates were still at emergency low levels. And in Melbourne and Sydney, we were exiting long-term lockdowns. Pleasingly, buyer enquiries in the first half of FY '23 were 14% higher than pre-pandemic levels. The level of demand has actually increased in the first weeks of the second half. REA has remained focused on our key strategic priorities during the half. A number of significant highlights and milestones were achieved, as you can see on this slide. Our personalized data-driven consumer strategy saw a continued increase in Australians engaging with their member experiences. Premier depth penetration is at record levels as customers sought to maximize return on marketing investment and differentiate their campaigns. The Mortgage Choice integration is reaching its final stages and is on track for completion this quarter. Our property.com.au platform launched more than 30 new features aimed at addressing the challenges faced by prospective sellers and buyers. And globally, REA India continued to extend its audience leadership with a record number of visitors to housing.com. REA's strategic objectives remains consistent and clear. We have a compelling purpose to change the way the world experiences property by building next-generation marketplaces; delivering Australia's largest and most engaged consumer audience, coupled with Australia's leading property data to deliver superior value to our customers. We are laser-focused on our strategic priorities, and we have a strong platform for future growth across the Australian and global businesses. I'll provide highlights for the half from each of the 5 key areas outlined on this slide in the remainder of the presentation. realestate.com.au is Australia's #1 address in property in every market across the country. An average of 12.1 million Australians visit our site every month. Over half this audience use realestate.com.au exclusively, which means there are over 6 million Australians who can only be reached on our platforms. Our daily audience has grown at pace over the past 3 years, more than doubling in that time with 2.5 million people now visiting realestate.com.au on average each day. This is 3.5x bigger than our nearest competitor. Moving on to Slide 11. Our personalized consumer experiences see our loyal and engaged audience continue to return to our platforms. These experiences are designed to both stimulate supply and drive demand in our market. Our goal is to convert our audience into realestate.com.au members. As we know, members are 3x more likely to perform a high-value action. During the half, active members increased 20% year-on-year. Our property owner experiences such as tracking a property help stimulate high-value seller leads to our customers. With uncertain market conditions, seller leads were slightly down this half, but pleasingly, strong engagement with our owner experiences continues. One in 4 properties in Australia are now tracked on realestate.com.au, and we achieved a 50% increase in active property owner tracks year-on-year. As Australia's #1 destination for renters, our aim is to make renting simpler and more efficient. Our renter profiles helps tenants to put their best foot forward, while also simplifying the process for property managers. We saw a 300% year-on-year increase in the number of renter profiles on realestate.com.au during the half. The value of our audience and premium suite of products becomes increasingly important for our customers in tougher market conditions. They expect their marketing dollars to work harder and deliver exceptional value. We achieved record premier depth penetration and the positive response to the launch of Premier Plus continues as days on market increase, features such as Unlimited Premier, Coming Soon and Listings Bump have become even more valuable. Our "Build your brand" campaign focused on helping agents promote themselves and position their agency to stand out from the competition. Our ratings and reviews platform was used by over 70% of agents, who sold a property in the last 12 months. Finally, in Agency Services, we're continuing to see strong growth in our customer platform, Ignite. The self-service platform saw an increase in monthly active users of 97% year-on-year for the half. PropTrack has continued to build the strength of its brand and grow its market position. Our unique data is engaging more consumers. And during the half, we saw a 129% increase year-on-year in visits to our insights channel on realestate.com.au. I'm excited to announce that we're launching our real estimate campaign in the coming days, highlighting the valuation and experience on our sites, powered by PropTrack's AVM. The new campaign aims to acquire and engage property owners, accelerate membership growth and stimulate the seller market. We are incredibly close to our aim of achieving world's best practice AVM Accuracy. In 2022, PropTrack's AVM Accuracy has increased by 33%, and the consumer rating for the AVM increased 14% with almost 40% of consumers awarding it 5 stars. The successive interest rate rises and reduced borrowing capacity for buyers have impacted the performance of Financial Services. New loan commitments and settlements have softened, and the mortgage market is shifting to a significant wave of refinancing. Our continued investment in the Mortgage Choice brand and the strong value proposition offered as part of the REA Group continues to drive network growth and brand strength. The expansion of our broker network continued with 94 brokers joining Mortgage Choice during the half. The core integration of our Financial Services business is on track for completion this quarter. All of our brokers are now on our new customer relationship management system, which enables automated marketing and updates to their clients. We've built a strong foundation for property.com.au, which launched less than 12 months ago. The property -- the platform offers a data-rich property research experience for every address in Australia, and we are continuing to enhance the site on a monthly basis. Our first property.com.au generated leads were delivered to Mortgage Choice brokers and customers during the half. This was an exciting milestone as we take the initial steps towards monetization. It's early days, but this is a promising start, and I look forward to further expanding on these initiatives in the future. On the bottom half of the slide, you can see a sample of the 30-plus new features that have been delivered since launch. This includes a first-to-market execution of property boundaries, data on government overlays and zones and property market trends, which highlight how comparative properties have performed. In August, we launched the property.com.au marketplace, which is designed to boost vendor confidence and stimulate the market. Moving to our global businesses. India is one of the fastest-growing world economies with the country's economy proving resilient despite the global uncertainty. India's GDP growth remains extremely strong and is expected to be the highest among all major economies. The property market in India is very healthy. The establishment of real estate regulatory authority in India in 2016, which regulates new developments, followed by the impacts of the pandemic saw significant declines in new residential supply. During 2022, however, new supply surpassed the 2015 levels and strong demand is expected to drive continued growth in supply and sales. REA India increased its audience leadership during the half and Housing.com visits are now more than 1.6x the closest competitor. Driven by a strong focus on SEO, the improved mobile experience and targeted marketing, 19.3 million average monthly visits were recorded, up 36% year-on-year. Through effective marketing campaigns, Housing.com is now leading in spontaneous brand awareness. Our brand surpassed both MagicBricks and 99Acres in the half, increasing from 53 in April 2020 to 81 in December 2022. REA India realized a number of other key highlights, including the launch of Rent Protect in November. The unique product offers insurance on rental payments for a 12-month period and in the short time since launch, over 30,000 policies have been purchased on average each month. PropertyGuru delivered a 44% increase in revenue in the 9 months through September despite some headwinds in core markets from challenging economic conditions. PropertyGuru is expected to report its full year financial results on the New York Stock Exchange on the 1st of March. In North America, realtor.com revenues have come under pressure in the half, reflecting the more challenging macroeconomic environment in the U.S., which has led to a decline in leads. We recently confirmed that discussions have been taking place with CoStar Group concerning a potential sale of Move Inc. in which REA Group holds a 20% stake. As noted in our ASX announcement on the 25th of January, there is no guarantee that these discussions will result in a transaction. We do not plan to make additional comments regarding this topic, and we'll update the market when appropriate. Within our strategic agenda is our strong commitment to a sustainable future and business practices, which drive positive change. We continue to progress our environmental, social and governance goals and achieved some key milestones during the half. We're driven by our focus on an inclusive and great workplace for our people. We achieved 87% employee engagement in Australia for 2022, and we're delighted to launch a new partnership with the field to champion equity and inclusion in recruitment. REA India was also recognized by a Great Place to Work in India's top 3 workplaces for 2022 in the e-commerce category. In December, we're delighted to see REA Group included in the Dow Jones Sustainability Index. This places our organization in the top 10% in our industry, based on the corporate sustainability assessment. Before I hand over to Janelle, I'll make a few additional comments regarding current market conditions. As I mentioned earlier, increasing interest rates have impacted property prices and volumes. We expect to see further price declines as sellers will need to meet buyers who are adjusting to further reductions in borrowing capacity. These conditions were evident in January listing numbers and are likely to continue for the second half. Year-on-year listings for this half will also reflect the very strong prior period comparatives, particularly in Q4. While the market remains challenging, we should not lose sight of its underlying strength. We can see that buyers are still there and demand remains healthy, supported by strong fundamentals. Unemployment remains low, immigration is increasing, and there are early signs of wage growth. Each of these things supports demand. It is likely that the peak in interest rates will be close, if not already hit by the middle of this year. This will improve confidence and encourage activity in the market. This also coincides with us lapping some very low comparable volumes in the second half of this calendar year. REA remains well positioned in this environment given the value of our products -- we are very focused on our costs at the moment, but we're also firmly focused on delivering value to our customers and consumers through this cycle. I'll hand over Janelle to take us through the financials in more detail.

Thanks, Owen, and good morning, everyone. REA has delivered a solid result for the half in what was a very challenging market, Q2 in particular. From our core operations, revenue increased 5% year-on-year to $617 million. Operating expenses increased 15% to $258 million. EBITDA, excluding the results from our associates, was $359 million, down 2%, and the group delivered NPAT from core operations of $205 million, down 9%. The group results from core operations differ from reported statutory results with a number of one-off items excluded. On Slide 23, we provide a summary of the reconciliation between the core and statutory results. Turning to our Australian residential business and trends in the market. Residential revenues increased by 5% with an 11% increase in buy yield, a positive impact from deferred revenue, partly offset by lower listings. In the charts on the right-hand side, we have set out the quarterly changes in new buy and rent listing volumes. National new buy listings declined by 9% in the first half, with Sydney down 17% and Melbourne declining by 13%. While year-on-year growth rates continue to be distorted by lockdowns, it's fair to say that the 21% decline in the second quarter was softer than expected. The chart showing red listing highlights that this market remains challenged, impacted by continuing severe shortage of stock due to a high level of investment sales over the past 2 years and escalating demand as cities rebound from COVID-19 and overseas migration returns. Rent revenue increased due to the 5% price rise and improved depth penetration, partially offset by a 3% decline in rental listings. As we provide each reporting period, the following slide shows both the penetration and mix of depth listings in the residential business and the success of our premium listing products. There is no scale on this graph, but the relativities between the categories are to scale. The first half saw record premium penetration in all markets, reflecting the strong uptake of Premier Plus and continued growth of premium depth products despite the softening market. Total depth penetration increased year-on-year. However, as you can see from the chart on this slide, penetration was down modestly half-on-half. This reflects the sharp listing declines we experienced in the higher penetrated Sydney and Melbourne markets. Despite the challenging market, we achieved an 11% increase in buy yield. This was driven by the introduction of Premier Plus, the 6% price rise, year-on-year growth in depth and Premier penetration, partly offset by the significant negative geo-mix impact driven by the sharper declines in Q2 in Sydney and Melbourne listings. Turning to Commercial and Developer. Revenue for the year increased by 5% with strong growth in Commercial, partly offset by lower Developer revenues. Commercial revenues increased due to the high single-digit price rise from 1 July with continued growth in depth penetration. Commercial sales listings slowed. However, momentum for lease listing volumes continued during the half. The Developer business has remained challenged with project launches down 4% in the half. While Q1 launches were up, reflecting Melbourne and Sydney lockdowns in the prior year, Q2 returned to declines, down 17% year-on-year. Rising input costs, labor shortages and supply chain issues continue to create uncertainty, resulting in developers less willing to take new projects to market. Media, Data and Other revenue was flat at $49 million. We saw solid growth in our Data business, which increased 13% as PropTrack benefited from broadening our key relationships with the major banks and further monetization of our data and insights offerings. This growth was pleasing given the negative impact of volumes from declining property transactions. Media revenue was down with both Developer and other media display declining. And after several years of declines, Other revenues, which is largely flatmates.com.au improved year-on-year. Turning to Financial Services. Revenues declined 14% in the half to $35 million, impacted by the slowdown in residential market activity. Submissions were down 17% year-on-year and settlements down 11%. As Owen highlighted earlier, recruitment momentum post the relaunch of our combined brand has continued with total network increasing 6% year-on-year to stand at over 1,030 brokers at December 2022. And despite a challenged market for settlements, our loan book grew during the half to $87.7 billion. REA India has delivered an impressive performance during the half with revenue growth of 48% to $36 million. As the chart on the left-hand side shows, revenue was driven by growth in Housing.com's property advertising business, which benefited from strong customer growth and improved monetization from new depth products and continued expansion into Tier 2 markets. Revenue growth was also driven by our adjacency products on the Housing Edge platform, Rent Pay in particular. As we've flagged previously, REA India has continued to invest for future growth with operating costs up 50% year-on-year. This reflects higher headcount to deliver strategic initiatives and remuneration uplift in a still competitive labor market, increased brand spend to support audience awareness and increased COGS in line with strong growth in adjacency revenues. This has resulted in a core EBITDA loss of $23 million for the half, which is consistent with the previous guidance for increasing losses in India during FY '23 before starting to reduce from FY '24 onwards. Throughout the half, we increased our shareholding from 73.3% to 75% as we continue to fund business investment via equity injection with News Corp holding the minority interest. Moving to our strategic investments. Total associate contributions from core operations was a loss of $12 million in the first half, down from a gain of $2 million in the prior year. Move equity accounted contribution for the year declined to a loss of $7 million. Move's revenue declined by 10% with the market downturn, resulting in a 34% decline in overall lead volumes and lower transaction volumes. Move saw higher year-on-year employee and marketing costs as the business continue to reinvest to drive their core businesses and adjacencies. For more information on Move, please refer to the News Corp results release. In Southeast Asia, PropertyGuru contributed an equity accounted loss of $2 million to core group EBITDA and improvement on the $4 million loss reported in the prior period. On the next slide is our core operating jaws. As you can see, Australia jaws for the half were closed. The 7% core Australian operating cost growth is reflective of a number of key factors. In the prior period, we had lower than typical spend given lockdowns and COVID uncertainty. And in the current period, the main drivers were higher employee costs, which were driven largely below wage inflation and the impact of increased headcount from hiring in the second half of last year, increased marketing, primarily from the new Mortgage Choice brand refresh and the timing of certain other campaigns and increased spend on travel and events, which saw volumes returning to more pre-COVID levels. As we've highlighted earlier, the group continued to invest to support ongoing growth with investment focused on a number of new products and experiences across multiple lines of business. Some of the areas of spend included uplifting our core consumer experiences in both buy and the rent space to drive membership in Australia, continued enhancements to the PropTrack data products and improvements in REA India's consumer experience. CapEx to revenue was 9% in the half, and we would expect this to be at a similar rate for the full year. As a result of the continued investment, total depreciation and amortization is expected to be in the range of $90 million to $93 million in FY '23. Turning to our cash position. We ended the half with a strong closing cash balance of $142 million. The group delivered operating cash flows of $205 million, which is the addition of the first 4 blue bars on the graph. As you can see, the strong operating cash flow allowed us to continue to invest in the business, pay down debt and deliver strong shareholder returns in the form of increased dividends. During the half, we repaid $95 million of our syndicated loan facility. The group's total drawn debt was $319 million with $281 million of the facility undrawn. Before moving to the outlook, I wanted to call out a change we made to the treatment of MyFun. During the half, we decided to shut down the MyFun website. However, we continue to syndicate listings through the international sections of our site. We have reallocated the revenues from MyFun to the residential, commercial and developer lines of business in the current and prior year to be on a like-for-like basis. A reconciliation is provided on Page 37 of the deck. And finally, on current trading. January National residential new listings were down 9% year-on-year, with Sydney listings decreasing 16% and Melbourne down 15%. Year-on-year growth rates for the remainder of the financial year will reflect the strong prior period listing volumes. After delivering 11% Residential Buy yield growth in the first half, we continue to target double-digit yield growth for the full year. Financial Services operating revenues are likely to remain subdued in the second half with the slowing new lending market, driving lower submissions and settlements. The significant rollover of fixed rate loans presents an opportunity to partly offset this market softness. In the second half, it is expected that Australian operating costs will decline year-on-year with group costs marginally up on the prior corresponding period. Planned investment in REA India is expected to see EBITDA losses widen in FY '23, resulting in total group operating costs in FY '23 increasing high single digits. The volume of listings for the second half is difficult to predict. Depending on the level of decline against a strong prior period comparables, the target of FY '23, Australian positive operating jaws may not be achieved. The group expects combined contributions from associates to decline to a mid-teens loss in FY '23, reflecting the tougher market conditions for these businesses. And on a final note, as Owen highlighted earlier, rapidly rising interest rates have increased uncertainty of the listings environment and the broader property market. Against that backdrop, we will continue to focus on what we can control, enhancing the consumer experience and driving membership, delivering new products and solutions to our customers that drive value for them and as always, prudently managing our cost base whilst ensuring that we continue to invest for the future. I'll stop here. Operator, can we please now open the lines for questions.

[Operator Instructions] Our first question comes from the line of Eric Choi of Barrenjoey.

I had 3. Alice, should I go one by one. Maybe the first question, you guys have taken down the cost in jaws outlook for weaker listings. And I'm just wondering, Owen, if you're still as upbeat on doing a healthy price increase this July?

Look, we have taken that cost expectations down. As Janelle said, we are very firmly focused on our costs and expect to take further costs out in the course of this half. In terms of moving in July, the underlying proposition as to why we were increasing our price, the value we delivered to our customers and vendors still stands. And so we are on track for -- to communicate our price increase to our customers next month.

And then maybe shifting tack, second question, just wanted to check some math. So you guys are guiding to Australian OpEx down in the second half, but Australian jaws might still be flat for the full year. But to make that math work, it suggests listing declines need to be worse in the second half. And it feels like you guys are expecting sort of like a mid-teens listings decline in the second half in your flat Australian jaws scenario. Just wondering if I'm ballpark in the vicinity.

Whether jaws are slightly positive or slightly negative is going to depend on what you consider listing is going to be for the rest of the half. We are down 9% year-to-date. So you take the 7 months to January, it's 9%. And it's going to continue about that level into February. But noting that we do cycle a strong Q4 last year. So it's really hard to work out what might happen. We are hearing continued stories of investors selling at the moment. At some stage, with rents rising and prices falling, the rent yields are going to attract investors back to the market. And you're starting to hear stories of people wanting to downsize their mortgage in this environment. So that may drive some activity. So that outcome will definitely depend whether the jaws are slightly positive or slightly negative. But double teens for the full year is -- that would be a pretty extreme outcome.

And just the last one, maybe on costs. Just on the extra cost out, you guys have taken out of Australia. I guess just going around the track, it sounds like you've dialed back on sales staff and maybe some offshore tech headcount as well. So my question is, should we be capitalizing that lower selling cost base? Or do you think that headcount comes back pretty quickly, potentially next year, when listings come back?

No. Look, anything we do on headcount needs to be effectively permanent. There's no point making those sorts of changes because they're big decisions to reduce your headcount. It does -- some of it does involve dialing back some of our initiatives and reprioritizing. And so they'll always be on the drawing board. And we can flex and back up if the revenue environment allows that. But they're not costs that have to come back for any reason. And I'll just correct you there, it's not sales. We believe that our sales force is one of our competitive advantages, and it's not an area that we're looking for cost savings in.

Our next question comes from the line of Darren Leung of Macquarie.

I just have 2 on my end, please. So we can see the Premier take-up chart the take-up charters still up year-on-year results, but it looks like it's starting to flatten out on a quarter-on-quarter basis. So in addition to obviously the comments around the softer housing market. How should we think about the depth penetration pace so your growth pace going forward, in particular in the next 6 to 12 months? Or maybe if I ask the question another way, do you think that through the cycle target of that 10%, is that 10% through the cycle or is that 10% at the bottom of the cycle, please?

So Darren, when you look at the yield growth, and it's a half-on-half view, so you can see year-on-year, our overall depth penetration is up and our Premier penetration is up. When you look half-on-half sequentially, the second half that we've just experienced has been impacted by the substantially lower listings in Melbourne and Sydney, and that has had a negative impact. We do talk about our target of double-digit yield growth through the cycle. So -- but we don't quantify the size of that double digit.

Is there a risk that you fall below that 10% mark for the full year?

You mean in yield growth?

Yes.

No. We have reiterated our expectations that we are targeting double-digit yield growth for this financial year.

Yes.

And then the second one was, can you please remind us what the take-up of Premier Plus contracts were in July? And what do you think it will be getting into July 2023 at this upcoming contract renewal?

Darren, we haven't disclosed that number. It was a very healthy take-up for July. That product will become available again as part of this pricing round, and I expect an increased take-up going into FY '24.

Our next question comes from the line of Lucy Huang of UBS.

I just have 3 questions. Just maybe if I can just start off firstly with depth as well. Just wondering if you can give us some color in terms of the second quarter how depth growth had trended, say, versus the first quarter and maybe kind of what you're seeing right now in early -- in January and early February?

Yes. So on depth, you can see in that chart that -- and you can see what happened in the listing numbers. The depth growth did decline further in the second quarter than the first quarter, predominantly due to the mix of where the listings were occurring. And in January, that's fairly consistent, the listings are overall, as you can see, down 9%. Melbourne and Sydney are not quite as bad as what we saw in Q2.

There's been a slight improvement.

Slight improvement in depth.

And then just secondly, in terms of kind of the broking business. I guess we're starting to see a bit of a tick up in refinancing activities. So are you guys seeing that there're increasing signs of difficulties seeing customers refinancing their loans or starting to hit kind of mortgage stress and maybe that's an incentive for them to consider actually selling? Like are we starting to see those lines pick up in the business?

No, we're not seeing that in our broking business at the moment. It is fair to say, though, there are a significant number of lenders -- so borrowers who are going to switch from fixed to floating across April, May and June in particular. And so they're going to get a fairly big great shock. And that's when our brokers will be encouraging to look around and make sure they've got the best deal in the market. In terms of stress, it really depends on when you bought. So everyone is looking at these price declines. But the reality is in every single market, prices are still healthily above pre-pandemic levels. So the people who will be feeling stress are those who have either had an income reduction or hadn't planned for this increase. Now remembering that for the last probably 2 years, every lender was using 5% as a minimum kind of serviceability threshold. So they have to be able to service 5% -- now they're going above that. So that's where the potential stress might come from. I don't see a significant number of distressed sales happening in this half, in particular, but you might see people making a choice. And just so I'd rather have a smaller mortgage and let's make a change. But I think that would involve other factors, not just the interest rate.

And then just one last one from me, in relation to [ Lara ]. So I think you guys mentioned that your visits lead versus the nearest competitor is now at 1.6x. So at what level would you be comfortable in terms of that lead extending? And maybe is that a time when we can start to see a bit of pullback or moderation in sales and marketing spend in India?

1.6 is a fantastic position, given, when we bought the business, it was actually #3 in the market. So -- and for a while, it took us a while to actually get to one to parity. Now we've gone through. The other one, I think, is incredibly pleasing is the brand awareness. Again, if you look at those -- the charts in the presentation, we've come from a long way back. 1.6 is still not what I consider where we want to be. I look at our audience lead here, we're at 3.5x in Australia, and it's been that or higher for quite some time. So we're not done yet. But what I will remind you, and we've been pretty clear about this that FY '23 is peak losses in India, and we do expect that EBITDA loss to decline in next financial year. And we feel quite confident about that.

Our next question comes from the line of Kane Hannan of Goldman Sachs.

3 quick ones for me. Owen, maybe just start back on India, just given all it's being discussed then, you're saying obviously, losses coming down next year. Any sense in terms of whether we could see sequential declines in those losses into the second half? And then 2 quick ones, just the buy yield growth, Janelle, best guess of what the Melbourne Sydney drag was on that number, given the under jaw weakness that maybe unwinds into FY '24? And then finally, just any observations you guys have around the use of exceptions in your contracts during the half across the different regions. And maybe just so you can quantify the downside and what you think would happen to the buy yield if all agents were to maximize their exceptions?

I'll contend to the second half question for India, Kane, we haven't changed our guidance for this year. So the half-on-half, you're not going to see the commencement of that decline. But we have sat down with the team and started planning for next year. What -- again, what I will say about the business, they've delivered every single thing we asked them to do this year and more. So that's why my confidence is so high that you are going to see an improvement next year, but it will be next year, not this year.

Kane on geo mix, it was a substantial negative impact in Q2. So we're really pleased with that 11% buy yield growth factoring in that impact on geo mix for Melbourne and Sydney. It's very hard to -- we're not quantifying the exact impacts of that, but it was significant. And the use of exceptions, we -- it hasn't been a substantial uptick in the use of exceptions in the half.

No. Small uptick, Kane and a very small [indiscernible] using pay on sale, but it's very tiny.

I mean, could we see -- like if you -- everyone wants to maximize, they'll be running at 10%, make it go up to 20% in terms of what the contractually allowed or just trying to think about the downside risk.

Well, if they opt to go down to pay on sale, that's got a premium. That's actually at a higher price. Now of course, you don't -- we don't monetize that if they don't -- the property doesn't sell, but we know that it's around about 70% of properties sell. And that is the key part about this market that gets missed is, you talk to any agent. If they can get a listing, they can sell a property. So while days on site have expanded a little bit, properties are selling. And what you're seeing is sellers realizing that you've got to meet the market in this situation. The buyers have had their capacity reduced. And it's not too similar to stock market -- stock market, if you want to sell, you've got to hit the bid. So we're not seeing that exception because houses are selling.

Our next question comes from the line of Nick Basile of CLSA.

Just 2 questions from me. The first one on net operating cash flow and cash receipts. Just wondering if you can explain some of the detail there seems to be a bit weaker. I imagine that might have something to do with Financial Services. And then the second question, just on CapEx. I think you're guiding to the top end of the range you've had previously. So just interested in more context in terms of how you're thinking about investment across the business.

Yes. Look, on the cash flow, there's just the overall the challenging revenue situation. It has been a little bit impacted, but not substantially. And the other thing on cash flow is the impact of deferral, and that's a noncash item that impacts the cash flow for half-on-half. From a CapEx perspective, we have guided to the higher end of the CapEx to revenue range for this financial year, and that's predominantly because we've now included the increased investment that we're seeing in India and continuing to invest in our Financial Services business.

And it's also a function of revenue.