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Thank you for standing by and welcome to the REA Group Q3 quarterly report Conference Call. [Operator Instructions]I would now like to hand the conference over to Mr. Owen Wilson, CEO. Please go ahead.
Thank you. Good morning, everyone, and thank you for joining the call to discuss the FY'19 third quarter results for REA Group. As you know, the quarterly numbers we published are quite limited, and we are, therefore, restricted to speaking about the numbers which have been published. I'll talk about our business developments this quarter. The state of the Australian property market, and our customer and consumer highlights. And then I will hand over to Graham Curtin, our Executive Manager of Group Finance, who will talk to the financial results in more depth.This quarter, REA has continued to deliver on our goal to create the best digital property related marketplaces. The Group's financial highlights and cooperation for the quarter ending 31 March 2019 include: revenue growth of 7% to $198.6 million, and EBITDA growth of 6% to $110.7 million. These results were driven by the Australian Residential and Developer business through the continued success of our depth products, and the inclusion of the Hometrack business. Our ability to deliver growth despite the significant market headwinds we faced during the quarter demonstrates the value we deliver to our customers and consumers as evidenced by record levels of depth penetration.It's been almost a decade since we've seen market conditions like these, particularly in Sydney. For the quarter, listings were down 9% nationally, including an 18% decline in Sydney, and a 12% decline in Melbourne. We have been very effective contributing to these declines. We had the election in New South Wales in March, followed by the long lead time into the current federal election campaign, and buyers are still finding it harder to secure finance.As mentioned in our ASX release, these unfavorable listing additions have continued into April. The timing of Easter and Anzac Day over 2 consecutive weekends, as well as the federal election campaign, circumstances that did not exist last year, have resulted in exaggerated declines for the month. Sydney remains the most challenged market with listings down 39% in April. These conditions will most likely result in exaggerated increase in April next year. As there's no Anzac Day holiday next year or the year after, unless you are in WA, not great for those of us who enjoy a long weekend but should be the best -- should be better conditions for property listings.With the banking Royal Commission now behind us, the elections taking place next weekend, and some commentators predicting an interest rate cut this year, we expect less uncertainty in the market as we enter the new financial year.We have committed to delivering value to our customers and to evolving our products and experiences. During the quarter agent ratings reviews by buyers, more than 10,000 verified reviews have now been uploaded to realestate.com.au, and more than 3,800 agents now have a review on that site. This is helping provide more transparency in the market for vendors looking to find an agent.Now Agent Edge suite of products are performing well. The number of leads generated by Agent Match has grown 65% in the half year results. And we've now started trialing Agent Reach to a small group of customers. We look forward to sharing more information about these at our full year briefing.We have now communicated the price changes affecting -- taking effect on 1 July to our residential customers. As part of the new Premiere contract, listings will be extended from 45 days to 60 days on site. In addition, Premiere customers can elect to receive leads through our Agent Match product for another 12 months at no cost, while non-Premiere customers will begin to be charged per lead in July.In Australia, realestate.com.au continues to be the #1 place for property with the largest audience of property seekers across the country. Average monthly visits for the quarter to realestate.com.au across all platforms were 3x that of our nearest competitor. And we achieved a record high in March with more than 84 million visits to realestate.com.au.Our investment in data and personalization has seen a continuing migration of our audience towards our native app experience and consumers continue to choose realestate.com.au to help find their next property. Our app has now been downloaded more than 8.8 million times. And average monthly app launches for the quarter have increased 22% to 31.7 million. And consumers are spending on average 4.6x more time on our apps and they are on our nearest competitors, and 19% growth year-on-year. This is a clear sign of a highly engaged audience.We continue to evolve our audience strategy to ensure we're connecting and engaging consumers at every step of their property journey. I'll quickly run through some of the highlights of this quarter. Influencing tenant verifications in December, we've now sold over 22,000 verifications direct to renters. Consumers now have the ability to track multiple properties through their myREA profile, as well as follow any off-market or on-market property.In flatmates.com.au, we launched a new first in market booking inspection structure, allowing members to set inspection times for their available rooms. In Spacely, we launched a new partnership with WeWork to bring a greater range of flexible, collaborative workplaces to Australians. And in Financial Services we've now exceeded $1.5 billion in applications.We've also announced a new partnership with the AFL, bringing together 2 of Australia's greatest obsessions, property and sports. This creates enormous potential to drive loyalty with our existing users and attract and engage new audiences throughout the season.Turning to Asia. In Asia, our success is evidenced by the growth in the number of visits to our platforms as well as the number of leads generated through our customers. Malaysia continues to be the market leader. In March, we saw a 53% increase in visits, maintaining our leadership at 1.4x more visits than our nearest competitor.We also delivered our highest number of leads through our Malaysian customers this quarter, since launching our new regional website in September 2017. We recently launched Loan Care, a new company finance tool to help Malaysians increase their chances of getting a home loan.In Hong Kong, since consolidating the 2 brands in December, we've seen significant growth. Our Squarefoot brand delivered 53% growth in audience and 33% more leads generated through our customers. This is a tremendous achievement.And in China, we've announced a new partnership between MyFun and 58 Group operator of Anjuke, one of China's largest online real estate listing platforms. This will enable us to expand MyFun's footprint across the country, connecting more Chinese buyers with global property. We're pleased with this momentum and remain confident in the great potential that Asia presents.The leadership team at REA is about to get even stronger. A few weeks ago we appointed Janelle Hopkins as Chief Financial Officer. She now will be joining our team along with Melina Cruickshank, our new Chief Marketing Officer.I will now hand over to Graham to talk through the numbers, and then we'll take some questions.
Thanks, Owen, and good morning, everybody. REA delivered a solid result in the third quarter ended 31 March 2019. Our revenue from core operations growth of 7% to $198.6 million reflects the continued strength of the Residential and Developer businesses, and the inclusion of the Hometrack business which was not included in the prior comparative period. This growth is very pleasing, given it was achieved in particularly challenging market conditions, including significant declines in new residential listing volumes, and continued declines in new project commencements.Despite these conditions, the residential business continue to deliver growth for the quarter, driven by the price changes that took effect on 1 July 2018, improved product mix and depth penetration, and the contribution from products such as Audience Maximiser.Commercial and developer revenue growth was driven by an increase in project profile duration, higher developer display advertising and an increase in commercial depth penetration. As noted before, this was achieved despite significant declines in the volume of project commencements. Media, data and other revenue continue to grow due to the inclusion of the Hometrack business, offset by reduced advertising revenue in key segments and lower available inventory as Premiere listings increased. The Hometrack business is expected to deliver the previous FY '19 revenue guidance of between $14 million to $16 million and EBITDA between $6 million to $7 million.As Owen mentioned previously, the Asia segments continues to deliver revenue growth and maintained its audience lead in Malaysia and Indonesia.Moving to Financial Services, tighter lending conditions and the continued uncertainty in the property market, reduced mortgage settlements across the industry. As a result, Financial Services revenue is lower than the prior comparative period. The decline in mortgage settlements is expected to continue for the remainder of the financial year and into the first quarter of FY '20.As per our half year guidance, our operating expense growth exceeded revenue growth for the quarter. This was due to the deferral of marketing campaigns from the first half of FY '19 to Q3, a continued investment in innovation and the inclusion of the Hometrack business.The strong revenue growth for the quarter delivered EBITDA growth from core operations, excluding associates and joint ventures of 6% to $110.7 million. The increase in EBITDA excluding associates and joint ventures also contributed to the increase in free cash flow for the quarter, in addition to positive working capital movements, including the timing of payments.Looking forward, market conditions are not expected to improve in the short term. With listing numbers impacted by consecutive long weekends over Easter and Anzac Day, as well as the federal election campaign. As Owen covered earlier, April residential listings declined 22% nationally, with Sydney down 39% and Melbourne down 35%.As a result of these unusual market circumstances, we expect Q4 to have a lower rate of revenue growth than Q3, while expense growth will also be lower than Q3. The rate of revenue growth is still expected to exceed the rate of cost growth for the full year. However, these growth rates will be broadly similar in the second half.I'll pass back to Owen for closing comments before we open for Q&A. No closing comments. I'll open for Q&A.
[Operator Instructions] Your first question that comes from Eric Choi with UBS. Sorry, I apologize, Your first question is from Fraser Mcleish with MST Marquee.
Just the, I guess, the obvious one, Owen. Just as you've been communicating your price rises, and it's slightly more variable looking in the past in terms of less of just a standard price rise. Could you just give us an idea of what the kind of weighted average is, please, going into next year?
Thanks, Fraser. As in prior years, we don't disclose an average number. And the reason being is that you said that the price changes do vary across the country and we don't want any of our customers dealing out wins or loses out of this. And if I had to characterize the quantum of the price rise, it is slightly lower than we've done in previous years. And that is a reflection of the market conditions. They're not being very sensitive to what's going on over there.
Okay, great. And just on yields improvement in the quarter. And was that much different from what we saw in the first half in terms of the price and depth penetration of mix drivers?
In terms of depth, as we said, we had record levels of depth penetration. And it's more of a of what we indicated in the past that in markets where the buyers aren't scarce, having the best product on the best portal makes absolute sense. And so it's been a quite a healthy uptick in our that Premiere penetration during the quarter.
Your next question comes from Eric Choi with UBS.
First one's just on Agent Edge. I think you mentioned Owen, we aren't demonetizing Agent Edge in FY '20, that'll be free until at least so far '21. I guess, should we more or less sort of thinking about Agent Edge can I guess make price increases together, should we be thinking -- if we do decide to monetize until FY '21, that there is probably a potential for those yield increases to be moderated such that you're still delivering sort of similar revenue delta in FY '21 as FY '20 if that sort of makes sense?And second question, just around costs and jaws guidance. Just want to confirm that, that jaws guidance is ex-associate losses? And then that we should sort of expect the same sort of associate losses, I think it's about $6 million in the fourth quarter as well?And then just a last question, just a follow on from Fraser's is, I recognize you are coming around the record levels of depth penetration, but just looking at the numbers, is it right to assume, I guess, that the percentage increase of the delta year-on-year in this period was probably a little bit slower than the previous period in terms of an increase in that red bar on treating and improving it and/or increasing depth penetration?
Okay, a few to get through there. In terms of Match, it is to be [ only creative ] Premiere All customers until 30 June next year. What we do after that, we haven't communicated to the market yet. And so it will be something that we consider in line with price and certainly price versus revenue for Match will be under the consideration thats there and the jaws do exclude associates. But again, considering that the associate loss should be roughly similar, there's no reason why that will fluctuate around significantly. And in terms of the delta, on Premiere All, are you referring to that is first half or the same quarter last year?
Same quarter last year.
I think it would be slightly higher delta.
Your next question comes from Eric Pan with JPMorgan.
Just to follow up on the Agent Match, you mentioned you will be charging it for non-Premiere customers. What will you be charging per lead? And then if listing volume continue to decline at this April pace of greater than 20% for the fourth quarter, does that -- would that potentially translate into a revenue decline in the fourth quarter on a PCP thinking about what you can do in -- with the other levers?
I'll take the first one on Agent Match in terms of pricing. So -- and for non-Premiere All customers, it would be a cap pricing per lead of $200, and it's a tiered pricing and across all other end customers.
In terms of the fee for revenue, if listings were running at that line of 22% for the quarter, then that would create a situation where revenue growth could be negative. We don't [ envision ] that to be the case. I think the extraordinary circumstances of the double long weekend coupled with school holidays, coupled with a federal election, that finishes next weekend. I think a lot of vendors are just holding off until post-election and [indiscernible] that being the case.
And just to follow up that cap pricing of $200, is that per listing?
Per lead.
Per lead?
Yes.
Your next question comes from Kane Hannan with Goldman Sachs.
Just 2 from me is all, please. Just in terms of that cost guidance and, of course, some change in jaws, please give a bit more detail around your cost base, the extent of the cost saving to how to make given this distinctive environment and what costs are being take out of the Finance and some of the other businesses given the performance?And then secondly, Commercial and Developer. Just comment on whether there is any change of course in your expectations for this business into the second half in '20 given the 3Q performance?
I mean as we've said before, our cost -- our main costs are staffing costs followed by marketing and today the latest that we can pull. And what the main one we can achieve that is following the rate of acquiring, which we have done and that will deliver a lower rate of cost growth in people as we apply. And into Q1 this year and also we did a fairly heavy marketing campaign in Q3 and that will be larger in Q4. In terms of Commercial and Developer they are really 2 very different markets and commercial market is actually reasonably going still. We're not these listings price did not decline and that could decline either. The Developer market is still very subdued and we're still seeing very high rates of declines in new project commencements. And still a lot of share price pocket out in the market to be cleared and we expect that to -- those conditions to continue and in line with sort of the deductible forecasts for the rest -- rest of this calendar year.
And so just on that cost the rate of hiring, the marketing spend, has that changed in terms of what you've spent in the quarter and the fourth quarter given this -- given the deterioration of listings? And you guys did some catch up given where the listing could be going and maybe we get some of the delta in to first half '20 or is that rate of hiring and marketing spend unchanged from what you're talking to in February?
No, we definitely made changes. we always predicted that April, May was going to be pretty vague, because we noted that business is going flat in these properties and have opening sections during [indiscernible] then elections always result in lower listings. So we had predicted that and forecasted that anyway and planned for lower costs. And so the conditions have been weaker than and we had anticipated then we've taken further action.
Your next question comes from Roger Samuel with CLSA.
Two questions for me. Firstly, you mentioned that the residential listings declined by 9% in this third quarter financial year '19. And yet your competitor mentioned that the decline was more like 13%. And so wondering what the difference is there between what you reported and what they experienced? And secondly, you made a comment that you're expecting less uncertainty in the new financial year. Do you expect listings to stabilize or perhaps decline further year-on-year?
Thanks, Roger. I think the difference between the number [indiscernible] compared to -- and us probably reflects the different geographic strengths. We're very strong in places like Adelaide, South Australia and Queensland and the listings declines haven't been as marked in those geographies and that would explain why we got a better situation than them. In terms of the uncertainty, I think some is being improved in regards to election to be over, the Royal Commission is over, although, I don't think the banks have loosened their lending requirements yet. We might see an uptick in activity in the next half, if there is a change in government ever in sort of last 6 months we can get a negatively geared property. It could be quite an attractive time to sell and a very attractive time to buy if you can get finance. So it's really hard to predict. And what I will say is that we won't see conditions like we're seeing in these current kind of 4 or 5 week period than that they might exist moving forward, it won't be as bad as what we saw in April.
Your next comes from Entcho Raykovski with Credit Suisse.
Couple of questions from me. The first one is just around the associate losses, which ramped up within that quarter. Can you just provide a little bit more data along where that came from? Was it move -- I know and you guys just spoke about Opcity investment failure today so was that the main contributor? And then secondly, on Premiere All you usually enter into 2-year contracts with agents. Could you talk to what you have contracted for year 2 of those 2 year contracts? And in particular, have you given yourselves a bit more scope to have higher pricing given that you haven't gone sort of high in FY '20?
So I'll take the second one in terms of the second year of the 2 year contract. And we have included a cap, which we communicated with the customers with -- and having disclosed to the market. And so there is a cap there in terms of our pricing. And I'll hand to Owen on the associated losses.
Yes. And we revised on the franchise associated losses reflect the acquisition of Opcity and the costs associated with that.
Okay. And if we're thinking even beyond the current financial year, should we expect those losses to continue as you invest in -- as you start investing in that business?
We're not -- we don't nothing in predictions.
Okay. And maybe if I can have another go at the pricing in year 2. Does it replace that cap which you spoke about, Graham, does it give you scope to be a little bit high in year 2?
No. We've given a price commitment for year 2, which is at a lower rate than the increase in FY '20. But as we said there I didn't actually, I am no longer apprised on that -- that's going on.
Your next question comes from Ivor Ries with Morgans Financial Limited.
Going around talking to real estate agents lot of them talk about their revenues being down 25%, 30% on same time last year. Are you witnessing any agents who are just collapsing and not able to renew their subscriptions?
No. In fact, looking at the raters uptake in the new Premiere All contract is incredibly blazing. We are way ahead of where we were at. And from last year and in fact it looks like we're going to get an increased uptake in the new Premiere All contract. I think we've had about 150 customers across the country who are not [indiscernible] but are very slow operators with very few listings and we've seen no significant signs of distress at this stage instead our customer cash flow, and we monitor, obviously, our data balances very closely. And so you're right and the revenues are down but I think we will tighten it out and from what we can see they all seem to be muddling through this market.
And going on to the Premiere All question. I mean obviously your penetration rate keeps increasing there. How long before you hit the inflection point where you can't realistically expect to get any more Premiere All? I mean how much more headroom have you got in Premiere All?
I think there is still a ways to go and I keep providing case pioneers kind of the example of where the whole market could go, [indiscernible] is the highest state for Premiere All penetration and it is significantly high there. And so I don't see any reason why the other states can't continue that. And really placing aspects of this wider standard of Premiere All contract since we are finally getting into WI with Premiere. And getting a very pleasing uptick way ahead of expectation. And that's the market where we're very underpenetrated there. So if I look nationally there are very -- various geographic pockets where there is still a long way to go. So I think this is [indiscernible] either.
[Operator Instructions] Your next question comes from Paul Mason with Evans & Partners.
Just wondering if you could give us bit of color on your highlight and future pricing in relation to the Premiere whether the pricing you put towards on the different user are broadly similar or whether there are much delta in that regard?
[indiscernible] going to on average a higher increase than the Premiere.
Your next question comes from Roger Colman with CCZ Equities.
Just on the expenses suburbs in Sydney and Melbourne can you give us some idea of the way you feel the huge difference gap is in premium rights [ PPI ] between yourself and your competitor? And what market share have you got in those premium suburbs that probably delivered like an 80-20 rule for profitability or whatever it is? And my second question is if News Corp sales recent publications is News Corp benefited your relationship with those recent publications.
The consensus is that kind of inner city, suburbs in Melbourne and Sydney and it is very hard to compare market share and they can't see our penetration and we can't see them, we do it anecdotally. In terms of pricing differentials, there are definitely suburbs in Sydney where our competitors' property products is more expensive than ours and vice versa, we are more expensive. The deltas between the 2 are typically not significant in the blue ribbon and the suburbs in Sydney. In Melbourne I would say there is -- are a few suburbs where they have a higher prices which we've identified.
All right, then the second question.
In terms of News Corp and their reason to pay, you have to talk to them about that. I don't know what their plans are there.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Wilson for closing remarks.
Thank you. We're very pleased with the continued growth that REA showed in conditions that clearly did not do us any favors during the quarter. And I'd just like to thank you all for joining us this morning and we look forward to speaking to you at our full year briefing in August [ and some ] beforehand. Thanks very much.
That does conclude our conference for today. Thank you for participating. You may now disconnect.