REA Group Limited (REA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the REA Group Limited Full Year 2023 Results 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, Head of Investor Relations. Please go ahead.

Good morning, and welcome, everyone. My name is Alice Bennett, Head of Investor Relations. I'd like to thank you for joining REA Group's 2023 full 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 respects to Aboriginal and Torres Strait Islander cultures and to Elders past and present. Today, you'll hear from our CEO, Owen Wilson; and Janelle Hopkins, our CFO. Owen will talk to our overarching financial performance and strategic highlights for the year. He will then hand over to Janelle to talk to our financial results in more depth. And following this, we'll be happy to take your questions. With that, I'll pass over 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 Group has delivered a resilient result in challenging market conditions with much lower listings than the very strong listings environment of FY '22. The result demonstrates the strength of our business and the depth of our value proposition as our customers continue to prioritize our premium products. Revenue growth was underpinned by the exceptional performance of our Indian business, which extended its leadership position. Turning to the group results from core operations for the year. Revenue was $1.183 billion, an increase of 1%. EBITDA, excluding associates, were $651 million, a decrease of 3% and NPAT was $372 million, down 9%. The Board is determined to pay a final dividend of $0.83 per share fully franked. Together with the interim dividend, this represents a total dividend of $1.58 per share for the 2023 financial year. Before we move into the business highlights, I'd like to touch on the property market conditions this financial year. FY '23 has been another extraordinary period for the Australian property market. Official interest rates are now the highest they've been since April 2012, following one of the largest and fastest rate increase cycles in decades. Interest rate uncertainty, reduced borrowing capacity and then a lack of supply impacted seller confidence, reducing the number of listings. The chart on the right shows the listing volumes for the last 2 years compared to the 6-year average. You can see that October and November this financial year were well below both the 6-year average and the high level of listings in FY '22. In more recent months, listings are starting to track more in line with the 6-year average. While supply challenges have been a feature of the market for much of the year, demand for property remains healthy. Buyer inquiry normalized during the year, following very high demand last year when interest rates were still at emergency levels. For the first time in 16 months, buyer inquiry levels returned to year-on-year growth in May. It's clear there is not a lack of buyers in the market. The reduced supply of listings, along with strong underlying demand has resulted in a more competitive environment for properties coming to market. Consequently, Australian house prices have steadily increased since February. Moving to new housing and the mortgage market. While underlying market fundamentals are positive, the graph on the left shows that the new housing market continues to face challenges. Cost increases and labor shortages have contributed to a continued downward trend in new home approvals. The graph on the right shows there's been a stabilization of new mortgage lending in recent months due to recovery in house prices and sales volumes. However, it is still well down year-on-year. Refinancing activity has strengthened with borrowers shopping for better deals as rate rises. This is expected to continue with a large volume of fixed rate mortgages set to expire during the remainder of FY '24. Moving to the group's business highlights. REA remains clearly focused on our key strategic priorities and we achieved a number of highlights. Our focus on delivering personalized member experiences continue to drive consumer engagement with 1 in 4 Australian properties now tracked via their owner on realestate.com.au. Our premium products, led by Premiere+, saw significant growth as customers recognized their superior value. Record depth penetration was also achieved in our commercial business. In line with our focus on removing friction for buyers and sellers, we moved to 100% ownership of the leader in vendor funding solutions, Campaign Agent. REA India again increased market leadership with a record number of visitors to the flagship site, Housing.com. REA's purpose is to change the way the world experiences property. We do this by delivering Australia's largest and most engaged audience, providing superior customer value and leveraging our data to extend our core and build next-generation marketplaces. We have continued to invest in our product pipeline and pursue opportunities that will support future growth in Australia and globally. I'll now go through the highlights for the year for each of the 5 key priorities outlined on the right of this slide. Turning to our audience highlights. realestate.com.au remains the #1 address in property across the country, delivering unrivaled value to our customers. Our leadership position positions REA with the most comprehensive view of the Australian property market and helps underpin the group's powerful data-led solutions, products and experiences. An average of 12.1 million Australians visit realestate.com.au every month with over half of these using our platform exclusively. The loyalty of our audience and the value in our personalized experiences have seen our daily audience grow at a rate of 3.6x faster than the nearest competitor over the last 3 years. Our consumer strategy is centered on converting our unparalleled audience into members. We know members are 3x more likely to perform a high-value action, such as tracking a property. In FY '23, we achieved 18% growth in our active membership base. Innovative decisioning technology determines what a consumer sees on our home screen and this personalization is further enhanced for members. Our property owner experiences help stimulate high-quality leads for our customers. And this year, we delivered a 37% increase in Property Owner dashboard visits. Supported by the real estimate marketing campaign, total property owner tracks now exceeds 3.5 million. This is an increase of 51% year-on-year. On Sunday, we'll launch a new multichannel marketing campaign as we continue to stimulate the seller market and drive demand heading into spring. As a digital business, innovative technology has always been at the heart of REA. We've been investing in artificial intelligence for a number of years and it powers many of our products and experiences. For example, AI powers PropTrack's Automated Valuation Models, leveraging over 1 trillion data points. This, in turn, drives the high accuracy levels of realEstimate. In June, we launched our first generative AI initiative on realestate.com.au, enhancing our suggested properties feature. This innovation leverages the Chat GPT API to display a top feature for each listing on the suggested property carousel. It's early days, but we've seen a 7% uptick in consumers engaging with suggested properties as a result of this initiative. As AI technology advances, we see exciting opportunities ahead. Moving to customers. Customers continue to embrace our premium offering with Premiere+ uptake underpinning residential revenue in FY '23. New value inclusions, such as listing optimization helped drive this uptake. Listing optimization dynamically reorders photos and prioritizes the most engaging visuals, driving deeper engagement with a listing. New agency profiles were introduced during the year and the enhanced agency search results page now includes rental performance, offering valuable insights for property owners. New reporting capabilities, more powerful insights and new tools help drive continued growth in our self-service platform, Ignite with monthly active users increasing 17% year-on-year. We've previously mentioned the launch of a new subscription in FY '24 and I'm pleased to say our new Pro subscription is on track for delivery in Q2. Our sales team will be out sharing Pro with customers in a couple of weeks and we're confident agents will embrace the new value offered. The new subscription will offer premium seller lead products, enhanced agency profiles and search capabilities. It will also leverage the most comprehensive supply and demand data to help build vendor confidence. I look forward to providing further updates during FY '24. We are rapidly progressing our goal of creating Australia's #1 property data, valuations and insights provider. PropTrack's market position grew during the year as our AVM became Australia's #1 property value estimate, reaching world benchmark standards in terms of accuracy. Leveraging REA's deep understanding of the property market, PropTrack is developing a suite of propensity models to help agents, lenders and brokers improve how they engage and retain customers. These models represent significant opportunities to deliver high-value leads for customers across our businesses. Turning to Financial Services. The results in our Financial Services business reflected challenging market conditions throughout FY '23. Successive rate hikes reduced borrowing capacities by approximately 30%, and the volume of transactions in the market also fell. We completed the integration of Mortgage Choice in Q3, grew our broker network and continued brand investment. In Q4, we launched an innovative new product offering in partnership with Athena home loans. Mortgage Choice Freedom, powered by Athena offers fair value home loans designed to help Australians pay up their mortgages faster. In FY '23, we will focus on building a strong foundation for property.com.au as we work towards becoming Australia's most comprehensive property research site. Since the platform was relaunched, we've added more than 35 new features, and the site finished the year with a 72% year-on-year growth in time spent on site. In June, property.com.au launched Property Coach, a concierge service offering consumers personalized support to help guide their property journey. Property Coach is designed to improve vendor confidence and drive more qualified leads to agents. The service also creates a natural opportunity to connect prequalified consumers to mortgage choice finance brokers. Moving to our global businesses. REA India delivered an impressive result in FY '23 with strong revenue growth driven by the core Housing.com business. The business continued its audience leadership with Housing.com achieving a record 19.7 million average monthly visits, up 28% year-on-year. Growth in Housing.com's broker and developer customer segments contributed to a 25% increase in customers. Customers have embraced the launch of new depth products, including Premiere or resale agents. Other new products launched, include Audience Maximiser and Commercial Listings. India's economy continues to grow rapidly and the property market is strong. PropertyGuru delivered a 25% increase in revenue in the 9 months to March and 16% in the March quarter. Strong performances in Singapore and Malaysia helped offset challenging market conditions in Vietnam. In North America, Move revenues came under pressure in FY '23, reflecting the challenging macroeconomic environment in the U.S. The drop in home sales has contributed to a decline in revenue, which was down 15% year-on-year. We achieved numerous key milestones across our environmental, social and governance goals throughout the year. Strengthening our environmental commitment and building on the group's existing 2030 emissions reduction targets, we are targeting Net Zero emissions across Scopes 1, 2 and 3 by 2050. We were delighted to submit the group's first Reconciliation Action Plan in June, and we look forward to continuing our RAP journey. In Australia, REA Group was again certified as a Great Place to Work for 2023. In India, we are pleased to see REA India rank third in the Great Place to Work 100 Best Companies in June, a significant leap from ranking 21st in 2022. Despite the weaker market conditions in FY '23, we have continued to invest in delivering additional value in all parts of our business. This investment creates very healthy growth opportunities in FY '24 and beyond. Specifically, we've completed our pricing conversations for FY '24 with an average national buy price increase of 13% from 1 July. Our strong pipeline of products and value creation will continue to drive yield growth, including new products such as the launch of our Pro subscription. PropTrack is in an exciting growth phase. In FY '24, it will drive significant value in our core business experiences while continuing to grow revenue. Mortgage Choice, having completed integration and invested in product, brand and network is well-positioned for growth as interest rates stabilize and the mortgage market improves. Similarly, we believe that population growth and limited supply, combined with a more stable interest rate outlook, will see the development cycle turn. Although, the timing for this remains unclear, we are confident this segment will eventually become a tailwind. In India, we are focused on extending our audience leadership while enhancing premium products and developing new markets to drive continued growth. AI is already leveraging our business and we believe there is significant opportunity for AI capability to support new products and experiences. While we can't predict what the market will bring this year, we feel well placed to deliver healthy growth in FY '24 and beyond. I'll now hand over to Janelle to take a deeper dive into our results and provide more color on current market conditions.

Thanks, Owen, and good morning, everyone. REA has delivered a resilient result for the year against the backdrop of challenging market conditions for a number of our businesses. From our core operations, revenue increased 1% year-on-year to $1.183 billion. Operating expenses increased 7% to $532 million. EBITDA, excluding the results from our associates was $651 million, down 3%, and the group delivered NPAT from core operations of $372 million, down 9%. The group results from core operations differ from reported statutory results with a number of one-off items excluded. On Slide 26, we provide a summary of the reconciliation between the core and statutory results. Turning to our the Australian residential business and trends in the market. Residential revenues declined by just 1%, highlighting the resilience of this business given FY '23 to one of the largest year-on-year declines in national listings that REA has experienced. The volume of decline was consistent with what we experienced during 2020 when we had the impact of both COVID and the Financial Services Royal Commission. After a solid start to Q1, which saw national new buy listings up 5%, the full year finished 12% lower, with Sydney down 18% and Melbourne declining by 15%. Despite this, we delivered 11% growth in buy yield, which came close to offsetting the volume declines. The chart showing rent listings highlights that this market remains subdued, impacted by continuing shortage of stock due to net selling by investors over the past 2 years and rising immigration. Despite a 1% decline in rent listings in FY '23, we grew rent revenue due to the 5% price rise and improved depth penetration. 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. We have now split out Premiere+, highlighting the very strong uptake we saw during the year and the fact that Premiere+ is now clearly our most penetrated depth product. The achievement of the 11% increase in buy yield was driven by the very strong take-up of Premiere+, the 6% price rise and year-on-year growth in overall depth penetration, partly offset by negative geo mix impact, reflecting the sharper declines in Sydney and Melbourne listings. Turning to Commercial and Developer. Revenue for the year increased by 4%, with strong growth in Commercial, partly offset by lower Developer revenues. Commercial revenues increased due to a high single-digit price rise and continued growth in depth penetration. Commercial sales listings were up modestly in FY '23 with growth in industrial, partly offset by lower retail listings. However, strong momentum for lease listings volumes continued during the year. The Developer business, however, has remained challenged with the themes we saw in the first half continuing into the second half with high input costs, labor shortages and supply chain issues creating uncertainty and resulting in developers less willing to take new projects to market. Revenues were impacted by the 18% decline in project launches during the year, although this was partly offset by a double-digit price rise for project profiles that we introduced in September '22. Media, Data and Other revenue was flat at $97 million. We saw solid growth in our data business, which increased by 7%, driven by higher valuations and data and insights revenue, partially offset by lower volumes. PropTrack's valuation revenues benefited from new AVM contracts and improved AVM accuracy, which drove higher performance-based pricing for some contracts. Media revenue was down with both developer and other media display declining. Other revenues, which is largely flatmates.com.au, improved 17% year-on-year. Turning to Financial Services. As Owen mentioned earlier, while we have seen some stabilization in total lending activity in recent months, levels us down significantly on the record FY '22 year. This has resulted in our operating revenues declining by 13% to $69 million. Settlements were down 13% year-on-year, although it's worth mentioning they were still up 10% on FY '21. And while submissions were also down 13% in FY '23, the rate of decline improved from minus 17% in the first half to minus 9% in the second half, with Q4 down just 5%. Net revenue declined by 8% to $61 million, negatively impacted by an $8 million valuation adjustment to expected future trail commission. This was due to faster loan run-off rates than we had assumed, driven by the high volume of refinance activity and a higher discount rate. Recruitment momentum has continued with our total network increasing 6% year-on-year to stand at 1,066 brokers. And despite a challenged market for settlements, loan book grew during the year to $88.1 billion. And against the backdrop of this tough market, we have tightly managed costs to deliver a flat operating EBITDA margin of 28% across the full year. REA India has delivered an excellent performance during the year with revenue growth of 46% to $79 million. We continued to see strong growth from Housing.com's property advertising business, driven by the launch of new depth products, a focus on upselling customers to higher yielding premium products, expansion into 3 new Tier 2 cities and continued customer growth. We also saw strong growth continue in adjacency products, such as Pay on Credit on the Housing Edge platform. As we've flagged previously, REA India has continued to invest for future growth with operating costs up 33% year-on-year. This reflects higher headcount to deliver strategic initiatives and remuneration uplift in a still competitive labor market, increased brand spend to consolidate our audience position and increased COGS in line with strong growth in adjacency revenues. This has resulted in a core EBITDA loss of $39 million for the year, 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 year, we increased our shareholding in REA India from 73.3% to 78% at 30 June as we continue to fund business investment via equity injections with News Corp holding the minority interests. Moving to our strategic investments. Total associate contributions from core operations was a loss of $16 million, down from a gain of $3 million in the prior year. Move's equity accounted contribution for the year declined to a loss of $6 million. Revenues were down 15% year-on-year with the market downturn, resulting in a 29% reduction in overall lead volumes and lower transaction volumes. This was partly offset by lower employee and discretionary costs. For more information on Move, please refer to the News Corp results release. In Southeast Asia, PropertyGuru contributed an equity accounted loss of $3 million to corporate EBITDA, an improvement on the $6 million loss reported in the prior period. PropertyGuru is expected to release its June quarter results on the 24th of August. Losses from the group's Australian investments increased to $7 million from $5 million in the prior period, reflecting accelerated investment for future growth by Realtair and Simpology. On the next slide is our core operating jaws. As we flagged at the Q3 results, Australia saw modestly negative jaws for the year. In a tough market environment, we've managed our cost base very tightly, limiting core Australian operating cost growth to just 1% year-on-year. This result is reflective of a number of key factors. We were able to limit employee costs, which you can see from the chart on the right is our biggest cost category to growth of just 1%. During the second half, we introduced active measures to slow hiring and selectively reduce some roles, which combined with lower incentive outcomes largely offset the impact of locked-in salary inflation. And technology costs increased 20% due to contract inflation across a number of our suppliers and higher data usage. These costs were largely offset by an 8% reduction in marketing spend. As we highlighted earlier, the group continued to increase investment during the year to support ongoing growth with CapEx of $118 million, increasing by 24%. Investment focused on a number of new products and experiences across multiple lines of business, including uplifting both our core consumer experience and customer value in the buy and rent space in order to continue to drive membership and leads in Australia, continued enhancement to the PropTrack data products, including improvements to the AVM, launch of realEstimate and soon to be launched propensity models and improvements in REA India's consumer experience with an aim for Housing.com to have the best app and consumer proposition in market. CapEx to revenue ratio at 9.6% was elevated during the year and above our long-term target range. This reflected continued investment, but also the fact that revenue was softer than anticipated. As a result of the investment over the last 2 years in both our Australian and Indian business to support future growth, we expect an increase in depreciation and amortization to within a range of $106 million to $114 million in FY '24, with a further increase likely in FY '25 as that investment is amortized. Looking forward to FY '24, we would anticipate CapEx to revenue to return to with our 7% to 9% target range, albeit likely towards the upper end of the range. Turning to our cash position. We ended the year with a strong closing cash balance of $260 million. The group delivered operating cash flows of $473 million, which is the addition of the first 4 blue bars on the graph. As you can see, the strong operating cash flows 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 year, 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 give you a bit more color on the Campaign Agent acquisition that Owen talked to earlier. In July, we moved to 100% ownership following the group's initial 27% investment in 2021. Campaign Agent will be consolidated from July '23, with revenues to be reported within our Media, Data and Other revenue lines. We have included Campaign Agent's FY '22 and FY '23 stand-alone P&L on Slide 42 in the appendix. We would expect the acquisition to be broadly EBITDA and EPS neutral to core earnings in FY '24. Including the $39 million purchase price and consolidation of Campaign Agent's existing $62 million of debt, we anticipate REA Group's net interest expense in FY '24 to be in the range of $15 million to $17 million. Finally, on current trading. July National residential new listings were down 5% year-on-year, while Sydney and Melbourne listings both increased by 9%. You might recall that Sydney and Melbourne led us into the listings downturn last year and they may be leading us out of it. As we've flagged previously, year-on-year growth rates in Q1 will reflect strong prior period listing volumes when listings were up 5%, with prior year volumes weaker in Q2, where listings were down sharply, declining by 21%. Residential buy yield growth is anticipated to grow double-digit in FY '24, primarily driven by an average national price rise of 13%. Full year positive operating jaws are targeted for the group in FY '24. Excluding M&A, core operating cost growth for both Australia and India is expected to increase high single-digits to low double-digits, reflecting employee cost increases and technology cost inflation. The consolidation of Campaign Agent is anticipated to increase group operating cost growth to low- to mid-teens. And as we have flagged previously, EBITDA losses in India are anticipated to be lower in FY '24 compared to FY '23. The group expects losses from combined contributions from associates in FY '24 to be modestly higher than FY '23, reflecting continued tough market conditions for these businesses and ongoing investment for future growth. And on a final note, while there's still a level of uncertainty in the current economic climate, we're excited about FY '24 and the many growth opportunities we have across all of our businesses. I'll stop here. Operator, can we please now open the line for questions.

[Operator Instructions] And our first question will come from Eric Choi from Barrenjoey.

Congrats on the '23 beat. I just had 3, and I'll buy them all at once. The first one, just on listings and costs. It feels like you set cost guidance with flat listings as the assumption. And I know that's your standard practice, but I'm just wondering is this a bit conservative given how strong current listings momentum is? Second question on India. That negative $39 million of EBITDA was probably a bit better than expected. And so, I'm just wondering if you guys have set an internal target for breakeven just doing some dirty math, revenues are growing 25% per annum, depending on what costs do, it feels like a breakeven in '25 or FY '25 could even be possible? And then just lastly on Property Coach. I guess there's a lot of -- there's been a lot of real estate agent chatter about Property Coach to be honest. And there's some concern that Agent Select takes a percentage of the agent commission. And whilst you don't own Agent Select today, maybe this is something that you could acquire in future like Campaign Agent. So I don't know, maybe if you could talk about the property.com, Property Coach strategy and how you sort of prioritize where those leads go between the red side, the green side and third parties?

Eric, I'll start off talking about listings, India and Property Coach. And to the extent that my comments on listings reflect cost guidance and Janelle will jump in on that. Our listings have started well in July. There's no doubt about that. Compared to June, there seems to be momentum in the market. Bear in mind, July, we're in the middle of winter, it's not the peak selling season and it is only 1 month. If you sat here this time last year, listings are looking fantastic. So, it's a very hard thing to predict looking forward. I think the best guidance you can give -- I can give on listings is that graph on Slide 6 of our presentation. It feels like we're now moving back more towards that kind of 6-year average number. And if you then rule that off last year, you'd see that we're expecting Q1 is possibly going to be slightly negative. Q2 will be very positive when we go back towards that 6-year average. And then the rest of the year, it looks kind of flat, maybe up in a couple of months. So look, net-net, we are working on a flat for the year. That's our prediction. It's a good start. And what's really pleasing about that good start is Melbourne and Sydney in the positive for all sorts of reasons because they're high yielding markets, et cetera. So, we're working on flat and that is definitely baked into the cost assumptions that we drive. So, to the extent that this momentum continues from July, then that will be a fantastic thing, but we don't assume that, particularly given what was happening this time last year. In terms of India, absolutely. Look, the result was strong and slightly better than we thought going into the year. We do have an internal target for breakeven. I can tell you it's not FY '25, that would be ambitious because we've said consistently that our absolute priority in India is keeping that #1 and growing that lead in India. So, keeping that #1 position and building out the best consumer experience. And so that's always going to be our focus, our primary focus. We flagged very confidently that we expect EBITDA losses to reduce next year, but breakeven in '25 would be very ambitious. And then on Property Coach, look, I've heard the chatter. The whole idea of Property Coach, if you recall, when we've talked about property.com.au., when we've looked at the market, on average, there's between 1 million and 1.2 million consumers every year who think about selling, only about 400,000 to 500,000 actually go on to take action. And the whole idea of Property Coach and property.com.au is to try and solve some of the reasons why consumers who think about it don't take action. Sometimes it's lack of information and property.com.au will help solve that by being the #1 research site, sometimes it's other reasons. And so Property Coach is designed to guide a hesitant consumer through that process and try and stimulate the market. And we've proven it works. Property Coach is delivering fantastic leads. We gave those leads to Agent Select as a trial because they have a similar process where it's actually a person-to-person conversion. And we also like Property Select because the leads go to principal, not the agent, and we know that principals like that. It was a trial. The trial proved that it works. We've ceased the trial. We don't have any leads going to gent Select anymore. We don't own any of Agent Select. And we've been really, really clear with our customers that we've never take percentage of commission and we don't intend to. Agent Select that was their model, but it's not ours. So, these leads will now go back into our Agent Marketplace experience and consumers will be directed to find an agent using our existing processes.

And Eric, just to add some additional color from a cost guidance and jaws perspective, as Owen flagged, yes, we have assumed flat and we are targeting open doors for the group and open doors for Australia. We have flagged high single-digit to low double-digit cost growth for both Australia and for India. Obviously, if the big swing factor and how open our jaws will be will depend on what happens on listings and throughout the year. But I would also say if listings are stronger than we anticipate, we would also potentially look at our investment slate and identify what opportunities we might bring forward as well. So, we'll continue to manage it throughout the year. But it's very early days.

[Operator Instructions] Our next question will come from Lucy Huang from UBS.

Can you guys see me now?

Yes. Thanks, Lucy.

I've got 3 questions as well. Maybe if I can first start off with Melbourne listings have recovered pretty strongly in July, up 9%. But just wondering if you can give us some color on, I guess, the depth benefit that you've seen from improving mix shift. Maybe I'll just start up with that one first, please.

Sure. Look, I've got to say I was surprised by Melbourne-Sydney in July, I've actually asked a lot of customers what's going on. It's -- I think it is a recovery in stock levels that are giving consumers the confidence of list because they can see things to buy. I think also, unfortunately, there's a lot of investor selling at the moment. Part of that is due to interest rate rises and people deleveraging, part of it is due to some of the new consumer laws in places like Victoria. When Melbourne and Sydney are growing faster than the rest of the economy, there's obviously a benefit for us in that. They are our highest yielding markets, very high penetration of Premiere+. And so the impact on yield in July was very pleasing.

And then just on the Pro subscription, just wondering if you can give us some color on the pricing structure that you're proposing to agents. And also with seller Leads, any color on how much they've grown through the course of this year. I think in the past you used to give a growth number on that one.

We won't be announcing the price of Pro today. Our sales teams have had their training, they're ready to go to market, and we'll be talking to customers before we make an announcement. We'd rather have them here from our sales team and other sources. I can tell you we're pricing it at a point where we believe the value that the product delivers far exceeds the price of buying it. So, we think it's a great proposition. In terms of our seller leads, we've seen a really healthy increase. The way we're tracking seller leads at the moment is as a proportion of buy listings, because typically, those 2 move in tandem. And we've seen our seller leads as a proportion of buy listings increase year-on-year, which is very pleasing. And we know they are good leads that convert to listings, they're still converting in the 30s. So, high-quality leads that represent real value to our customers.

And then just last one on Elara. I think the visitor share or visitor lead share in February was about 1.6x. It comes down a touch to 1.3x. Just wondering if you can provide some color on the momentum there and anything we need to be, I guess, worried about right now or on track.

Look, it bounces around a bit. And so, we're pretty happy with where we're at. We did see a couple of the competitors do some significant levels of spending to buy audience. A couple of them have March year-end. And so we saw a big spike in spend and a big spike in their audience in March. And then that subsequently fell away as they stop spending. We're more focused on organic audience growth. So, we're spending a lot of time on SEO to make sure we win there, and that's free audience. We're also you would have seen in the presentation, the fantastic increase in our apps and apps is organic traffic. So, with that in our consumer experience, they've been the main focus. But having said that, we're not going to hang back on marketing. We're going to continue to invest in marketing, but we think we've got that at the right levels at the moment.

Our next question will come from Kane Hannan from Goldman Sachs.

Maybe just Developer, just given the deterioration in project launches and then that chart in the pack, I mean, how do I think about the impact that might have on '24, whether the scope to accelerate revenue growth in Commercial and Developer next year? Or is it more of the same what we've seen this year in terms of the growth rates?

Look, Kane, Developer is absolutely in a challenged environment. I think you can see the impact of those developments being down 18% year-on-year. We think that it will turn, but we just don't know when it will be a drag on our revenue into FY '24. We put the price rise through in September 22, which was the first price rise we put through in Developer for the past 6 years, which gave us some protection and that will annualize through a little bit into FY '24, but Developer will be challenged. Commercial, we're pretty pleased with Commercial. We'll have another price rise that's gone through from 1 July, and we're seeing listings hold and our penetration increase. So, I think it will be a mixed story between Commercial and Developer for next year.

And the step-up in associate losses next year, I mean, I would have thought you had some benefit from our acquiring Campaign Agent. Just a sense of what's driving that step up, whether we can think about '24 as sort of peak losses? Look, we have flagged that associates losses will increase modestly in FY '24. It will be a combination of things. Campaign Agent was a very small negative drag on EBITDA, share of NPAT on those losses in FY '23. It's continued investment in growth in our Australian businesses, which is small plus also challenges in the market, particularly in the U.S., where when you heard -- if you were on the News Corp call, that market is still absolutely challenged in FY '24 and they are -- will continue to invest in marketing and some of the adjacencies, but they have also placed that will try and take some additional discretionary cost savings as well. So, those are the reasons for the modest increase we're expecting. And then lastly, just Campaign Agent being broadly EPS neutral. I mean are they playing a material improvement in its NPAT next year? Or is it more just relative to the group's overall NPAT?

Relatively to the group's overall impact.

And our next question will come from Darren Leung from Macquarie.

I've got 2 for me, please. Maybe just the first one on that 11% yield growth into FY '23. I just wanted to unpack that a little bit. Obviously, there's a 6% benefit from the price increase. But I wanted to sort of break out the contribution from Premiere+ please and just looking at the slide afterwards on Slide 28. It looks like that benefit should have been closer to the 7% to 8%. So, I'm just trying to get a feel for how much was Premiere+ versus the geographic mix in place?

Look, we're not disclosing the exact impact of the upside from Premiere+. But it's fair to say it was a substantial benefit. So, when we normally talk to the relativities of what drove the buy yield, that was the biggest one first and I flagged that the increase to Premiere+ as higher than a 6% price rise. So, it did give a substantial uplift for us in FY '23. And that has been -- and there also then was a 6% price rise plus the small increase in overall depth as well. Now that has been offset by the substantial negative geo mix in FY '23. It's probably fair to say, it's around about 5% he impact of geo mix in FY '23. So, we were a very healthy underlying yield growth for the business. So, we're very pleased with that. And you can see in that chart, absolutely now Premiere+ is our most penetrated product. And pleasingly, as we've gone through the pricing round, we've had additional sign-ups to Premiere+ in FY '24. Now, it won't be as big an impact because we obviously are already highly penetrated, but it will be a nice further uplift for us.

And that's probably a segue into my second question on FY '24, and I know we've had the double digits of yield increase previously. But when we think about guidance for yield in FY '24, all the comments you're providing around additional Premiere+ adoption, obviously, there will be the benefit of Premier Pro to some extent as well. And to your point on geographic mix where the market is going, it sounds like there'll be a tailwind there as well. Is it fair to say that you're being a little bit conservative and we should be thinking closer towards that mid-teens for yield growth into '24?

Look 13% is the average for all the products. We'll get a small uptick for the additional Premiere+, which now you said. If you look at that graph, given the penetration, it's way less than this year, but you've got to add on some for that. In terms of geo mix, we're not assuming any benefit. The negative that Janelle spoke about was really against the very hot strong Melbourne City markets in FY '22. And so effectively, what's happened is '23 has come back to more normalized levels and that's that negative year-on-year from '22 to '23, but we think it's kind of back to where it normally is and that's what we're assuming going into FY '24. So, we're not issuing any geo mix now. Obviously, if Melbourne and Sydney spend the whole year ahead of the rest of the country, that will have a tailwind, but we're not assuming that.

And our Pro will be in the subscription, which will be part of yield. However, we're not anticipating that to be a substantial revenue generator in FY '24.

And our next question will come from [ Enshu Rakowski ] from E&P.

So, my first question is -- but is also on listing volumes, but I'm quite interested in how you've seen listing volumes respond to any pauses in rate increases. I mean I'm conscious we go back to April, it was a weak month despite the pause at the time, but obviously, volumes in Sydney and Melbourne look a lot better in July. I'm just trying to establish, is there a risk that another rate increase just holds back in your recovery. So, some of that elasticity commentary would be helpful.

I think the prevailing view is that we can see the end of the cycle is probably underpinning some of the positivity that you're seeing. As I said, some of it is just more listings drives more listings. We had so many customers in kind of April and May saying that they had vendors sitting on their hands because they couldn't find something to buy. And so as more stock gets into the market, those people who then find something to buy will come to market. Whether we have no rate rises 1 or 2. I think most consumers have factored that in. And so another rate rise between now and increase another 2, even I don't think that's going to shock this market. The fact that we're as healthy as we are after 13 rate rises is would indicate to help the market. I still think demand is going to stay strong. Immigration is increasing. We can see that our buyer inquiries, they're still growing year-on-year and they're still ahead of pre-COVID levels. So, all of that points to a strong market and whether we get another rate rise, I don't think that's going to be impacted.

And then in India, there has been some slowdown in the revenue growth rate in the fourth quarter. I think you had 45% growth in the second half versus 63% in the third quarter. I guess my question is, was this a result of some pull forward of revenues into Q3? Were there any other factors impacting the business? Is there any sort of cause for concern as a result of that slow down?

No, it's essentially seasonality. You remember, in Q3, we had the Happy Home event as we call it over there, which is a bit of a boon for the business. It's the most successful event we do every year. We get a lot of revenue out of that. So that was in that number in Q3. And I think we flagged at that time that was abnormally high. And then as you head into monsoon, the market definitely slows down. So, it's a very seasonal business on a quarter-by-quarter basis in India.

And I wanted to ask a question about AI, given that you've spoken about your AI investment. And it's a fairly sort of open-ended question, but how do you think about AI as either a threat or an opportunity? I mean is it something that you almost need to continue to invest in just because there may be some threats out there? Or do you see an opportunity in terms of lower development costs as well down the track? If you could talk about that would be great.

Look, I see AI as massive opportunity for our business. You don't need much imagination to think about how you can change the way you present properties to consumers using AI and personalization. So, it's a combination of consumers telling us what they are looking for and thus knowing about our consumers and hen using AI to serve up better experiences for them. So, the opportunity seem aimless at the moment, and it's about which ones do you focus on first. So, if you go out 5 years now, the way we present properties to consumers, I think, will be incredibly different as a result of AI and ML. If you think about the way we do our business in here, again, AI presents an enormous opportunity. We're already experimenting in here using AI to code. Now we're doing that in conjunction with our codes. We code in pairs at REA, it produces the highest quality tech you can get. But it's not hard to going to imagine a world where you've got a pair of coders, one of them is AI and one of them is a human. So that will create, I think, enormous efficiencies and we can either use that to [ drive ] our cost base or to accelerate our product development.

And our next question will come from Roger Samuel from Jefferies Australia.

I've got 3 questions. First one, Owen, you mentioned that more listings drive more listings before and just trying to work out the sustainability of the recovery in listings. Can you tell us about the appraisal volume that you're seeing? People using PropTrack or the AVM tool to gauge how much their property is worth? Yes, what's the volume looking like? Is it up quite a lot year-on-year? Second question is on the restructuring cost of the business. How much do you expect to incur in FY '24, and if you can tell us about some of the noncore costs with the associates in FY '23 and a major of them? And lastly, I just want to clarify, my third question is just wanted to clarify the -- your guidance around interest cost of $15 million to $17 million. Is that a net number or is it a gross number?

Roger, look, in terms of the recovery of listings, it's a mixed bag across the country. So, what you're seeing in that July number, for example, is we're down 5%, but Melbourne and Sydney, the 2 biggest markets up 9%. And I think what we're seeing here, as Janelle said, Melbourne and Sydney lead us in to the decline. I was over in Perth and Adelaide recently, and they're a bit pessimistic because they are only just catching up with what's happened in Melbourne and Sydney, but they'll follow. And so, when I think about the sustainability, yes, the activity on our site would indicate there's a lot of people probably thinking of taking action. But we also get a great guide from our customers. And if you look around the country, I would say Melbourne and Sydney customers are quite buoyant about the outlook for spring. If you go over to Perth, they're quite pessimistic, albeit it is a very small market for us. And then it's mix between kind of Adelaide, Brisbane, et cetera. So, I think this recovery is real. As I said, I think we'll go back towards a more normalized trend of that 6-year average, which means we're in for a good Q2 because Q2 was pretty bad last year. And then who knows what happens in the second half. And I'll let Janelle take the restructuring and interest question.

Yes. So on interest, we'll cover interest first. So, the $15 million to $17 million, that's a net number, and it's really the annualization of the increased interest rates that we've seen flowing through into our existing Australian subordinated debt, plus the consolidation of our Campaign Agent debt, which we've played with $62 million. So, the 2 of those combined, that's part of that $15 million to $17 million. And restructuring, yes, we have booked a restructuring cost for -- in noncore for Australia and also in relation to associates, that was restructuring costs in relation to Move, where they looked at their headcount and took a substantial -- cut some of their headcount in the U.S. So in Australia, that's really a combination of back at the end of FY '22. We did an organizational restructure and we removed some roles in Q1 of FY '23. And then as we flagged, with what was going on in the market, we did look across the whole organization, particularly in the second half of FY '23 and identify roles that we deemed not mission-critical and we have removed those. It was a small number overall, but we think it was set us up to reduce costs where we needed to, but also, I would say we are still hiring roles, particularly in areas that we need to set us up for the future, things like in AI, cyber, those types of areas. That's what those costs are.

Any guidance for the restructuring cost in FY '24?

For restructuring, in particular or just general?

Yes. Just restructuring.

Restructuring, not expecting any major restructuring costs in FY '24.

And our last question will come from Siraj Ahmed from Citigroup.

Just 3 questions. The first one is a 2 part one just on yield, right? In terms of FY '24, over in general, you gave pretty good color on Premiere+ uptake. But you should be having a pretty good understanding of where debt should land for next year. I know there's exceptions and other things, but anything you can give us on that? I understand it shouldn't be as high as FY '23, but should we be thinking low- single digits to mid-single digits? And second part on that, interesting commentary on yield into '25, just confirming that are you thinking double-digit in '25? And is that price -- is it mainly going to be because of new products from this Pro, et cetera? Secondly, in terms of India, like [ Enshu asked ] mentioned, 25% growth, sort of 25% growth in 4Q. I understand that seasonality. But is that the way we should be expecting in '24? Or is there potential to step up because of new markets or adjacencies? And lastly, so lastly, in terms of the CapEx, just wondering that step-up in this year. Was that in addition to capitalize more, so the underlying OpEx was actually a bit higher? Just keen to understand how you thought about that.

I'll make sure we can try and get across all of those questions. So firstly, for depth for FY '24 and our expectations around yield. So, we've flagged we're expecting double-digit yield growth into FY '24. The makeup of that obviously will be the 13% average price. We will get some uplift from the mix benefit from the higher take-up of Premiere+. I would say overall debt is likely to be a very small contributor to FY '24 yield. And then the big swing factor will be what happens around geo mix. So that's probably what I would flag around our expectations around buy yield for FY '24. On CapEx, your question on CapEx. Look, we did have an increase in the absolute dollars of CapEx in FY '24, which was up 24%. The reason for that, there's a couple of things. Overall, we have not changed our CapEx to OpEx per project between this year and last year. Those ratios have not changed. But when you look at there's really 2 key factors. When you look at what goes into those capitalized costs is predominantly Australian technology labor. And when we look at our overall salary growth in FY '23, we did skew the size of the increases towards our Australian technology developers. So, those are higher proportion of those higher salaries are then flowing through into CapEx. And the other thing is really in India, where we have substantially increased our investment in India to support future growth. So that's why we are -- we did see CapEx being higher. We did flag that we do anticipate going forward into FY '24 our overall CapEx investment will increase, but it's likely to be more back in line with the target, which is our 7% to 9% CapEx to revenue ratio, although at the high end of the flagged.

I'll take the last couple of parts. In India, 25% in Q4, I think, I spoke to that. And the reality is that the percentage number will reflect the base each year. So, as the base goes up, you will see that percentage start to come down a little bit, but we're very -- the actual rate of growth is still very, very healthy. If you look into FY '25, I mean we've flagged double-digit yield growth and that through the cycle. We've already got -- starting to work on our planning for FY '25. We can't give any color on that. It will be a combination. We always said that the yield growth can come from a few areas. One is just price increases of like-for-like products, always with value. We always believe you should price to increase value or it might come from new products. So, this is a great example of that, where if you look at our yield growth, more of it came from a new product and customers choosing to yield up themselves effectively than price. So that mix and the way we deliver that will vary year-on-year. And this stage we are guided for double-digit through the cycle. So, you should expect that in FY '25.

And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Owen Wilson for any closing remarks.

Well, thanks, everyone, for joining us today. Marathon session, we've gone over time. So, thanks for sticking with us and I look forward to seeing you -- many of you in the coming days ahead. Thanks.

Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a great day.