I would now like to hand the conference over to Mr. Roby Sharon-Zipser, Chief Executive Officer and Co-founder. Thank you. Please go ahead.
Thank you, Operator. Good morning, everyone, and thanks for joining us today for hipages Group's first half financial results for the six months ended 31 December 2024. I'm Roby Sharon-Zipser, the CEO and Co-founder of hipages Group, and joining me on the call is Jaco Jonker, our Chief Finance and Operations Officer. I'll start this morning's presentation on slide four with a brief overview of the company for those of you who may be joining us for the first time, before touching on the highlights from the first half. Jaco will talk through the financial performance in more detail before I'll provide some more color on our strategic evolution and the outlook for FY 2025. hipages is Australia and New Zealand's number one platform to connect homeowners with trusted tradies. Our purpose is to transform the trade industry, building better lives for everyone.
hipages began life as a marketplace business, but with the launch of our Single Tradie Platform last year, we continue our evolution to a software as a service business through the development of our hipages tradiec ore platform. This year, so far, we have reached several key strategic milestones, including in Australia migrating all tradie customers onto our new Single Tradie Platform, in New Zealand migrating all tradie customers to a full subscription model, and delivering continued ARPU growth in both markets driven by our enhanced value proposition. Alongside all of this, we delivered continued growth in recurring revenues, EBITDA, and free cash flow in the first half. Turning to the highlights on slide five, where you can see our momentum continued in H1 as we reached two very important strategic milestones. I'll talk more about this in a moment.
From a financial perspective, growth in recurring revenues, ARPU, and continued free cash flow generation shows the power of the operating model. With our balance sheet remaining strong and debt-free, this sets us up for a strong second half. Before I hand over to Jaco, I wanna take a moment to talk about our strategic executions in H1 on slide six, where we successfully migrated all Australian customers to our Single Tradie Platform. The team did an exceptional job to complete the platform migration in Australia and subscription model migration in New Zealand while continuing to deliver growth in our key financial and operating metrics. I can't overstate how significant these achievements are given the level of execution risk these types of migrations carry. I always say it's like rebuilding the engine of the plane while flying the plane.
I'm really proud of the team's efforts to get this done on a tight timeframe. As of today, all of hipages' 32,000+ customers have migrated onto the new hipages tradiec ore app, and about half of the customer base has migrated to the new pricing packages, with the remainder to roll over before the end of the calendar year. This is expected to progressively benefit our key metrics, and the early signs for engagement and retention are positive. During the half, we also launched a desktop version of the Single Tradie Platform to complement the app for those tradies who run their businesses on desktop. We also delivered Tap to Pay functionality in the app, which we know is an important feature for our customers.
In H2, we'll be focused on completing the migration of all customers to the new subscription model and implementing a go-to-market plan to drive increased adoption of the new functionality, which we expect will further boost engagement and ultimately retention. As you can see, it's been a busy first half, still plenty for us to deliver in H2. Sitting here today, I'm very pleased with our progress and confident in heading into the second half. Now I'll hand over to Jaco to talk you through our financial performance in more detail.
Thanks, Roby. I'll kick off by looking at the financial highlights for the half on slide eight, and I'll note all comparisons are versus the first half of FY 2024 unless otherwise stated. As Roby said, we are pleased to have seen continued growth in our key metrics in a half that was focused on strategic delivery and featured two significant migrations. Looking at the top line, MRR was up 14% to AUD 6.8 million, driving an 11% increase in recurring revenue to AUD 39.2 million. Total revenue grew by 9% to AUD 40.6 million, with operating revenue, which excludes the impact of rental income in the prior period, up by 10%. This revenue growth also reflects the non-renewal of our contracts with the New South Wales Department of Education, which removed circa AUD 600,000 of annual recurring revenue. This revenue was not scalable and not material to the business.
Moving down the page, EBITDA before significant items was up 4% to AUD 8.7 million, with the EBITDA margin of 21%, down one percentage point due to planned additional investment in brand marketing, including new creative assets that will not recur in the second half. Net profit after tax before significant items was AUD 0.1 million. As Roby mentioned, we generated free cash flow of AUD 1.2 million in the half, noting we define free cash flow as operating cash flow, less payments for capitalized development spend and leases. Looking at the key drivers at the bottom of the slide, the group subscription tradie count was 34,900 tradies, down 1%, with 1% growth in Australia to 32,300, offset by an expected decline in New Zealand tradies due to the impact of the transition to a full subscription model, which Roby will expand on in a moment.
Group ARPU grew by 9% to AUD 2,267, and the number of tradie homeowner connections, which is a reflection of marketplace activity, was up 4% versus the prior period to 1.4 million, which is a first half record. Our balance sheet remains strong, with closing cash and funds on deposit of AUD 22.5 million and no debt. On slide nine, you can see the positive trajectory of all our key metrics, showing the power of our operating model to deliver sustainable growth in revenue, profit, and cash flow. Slide 10 shows our strong marketplace activity, which remains at near record levels, continues to drive double-digit MRR growth, up 14% to AUD 6.8 million for the half year.
New business yields are at record levels, benefiting from the rollout of the Single Tradie Platform, with further upside to come as the remainder of our customer base migrates from legacy pricing models to new subscription packages by the end of this calendar year. For our existing customers, ARPU growth continues to be driven by ascensions to higher price packages in a highly active market, supported by dynamic lead pricing based on supply and demand in each trade category and geography. On slide 11, you can see how operating leverage continues to emerge and largely offsets the impact of increased investment in the half. As mentioned previously, there was planned additional marketing spend in H1, including the development of new creative assets to support brand initiatives that will be used beyond FY 2025, as well as some additional tradie-focused brand marketing to drive acquisition.
This additional brand spend will not recur in H2. Looking ahead to the full year, we expect marketing spend to be around 24%-25% of revenue. While sales employment costs increased by 12% in dollar terms, they are steady at 13% of revenue, reflecting reduced vacancy rates and the new roles established in our Manila operations. Operations and administration costs were down 3% on the PCP to 31% of revenue, reflecting our disciplined cost management and operating leverage, offsetting increased subscription and license costs. Slide 12 provides an overview of hipages' technology spend over time, with H1 reflecting our trajectory to continue to invest whilst reducing spend as a percentage of revenue.
As a reminder, the step-up in tech development spend in previous years was instrumental in our shift to a subscription model between FY 2020 to FY 2022, as well as to improve our matching engine and laying the foundations of our job management solution in FY 2023 through FY 2024. The FY 2025 tech development spend focuses on the continued development of the tradie platform alongside further marketplace optimization. It is expected to be 24% of revenue at full year, in line with H1. As we look forward, we will continue to invest to support the delivery of our roadmap and believe technology spend as a percentage of revenue will continue to reduce. Turning to an overview of hipages Australia on slide 14, where you can see that strong marketplace dynamics continue to drive exceptional experiences for our customers.
On the left, you can see connection volume, which occurs when a tradie claims a job, showing steady growth half on half. Here you can also see the seasonality in connection volumes, with demand in the first half typically lower because of the holiday period. On the right, you can see that the proportion of jobs being connected to a tradie remains near record levels at 84%, meaning we are delivering an exceptional experience for homeowners. On slide 15, you can see ongoing growth in ARPU for hipages Australia, which increased by 8% to AUD 2,374. Key drivers of ARPU growth were new customers joining the Single Tradie Platform at higher price points, existing customers migrating to higher price plans on contract renewal, and ongoing optimization of job lead prices, driving increased credit usage, ascensions, and lead pack purchases.
Slide 16 shows our continued growth in tradie numbers in Australia, with subscription tradies up 1% at a time when we increased subscription prices and migrated tradies to the Single Tradie Platform. We are really pleased to see this number continue to grow and expect further growth to come as Single Tradie Platform adoption increases and retention improves. Roby will speak about some important initiatives underway in the second half shortly. On slide 17, we highlight that the MRR retention has remained stable while we have consistently grown ARPU. Our focus remains on increasing the adoption of job management features to drive improved retention, and we are seeing encouraging early signs of high retention on first contract renewal from Single Tradie Platform cohorts. On slide 18, we look at the record awareness we have seen from our investment in multi-channel, always-on brand investment.
As I mentioned previously, the additional planned marketing spend in this half included new creative assets to support brand initiatives on both sides of the marketplace that will be used beyond FY 2025. We expect the level of investment as a percentage of revenue to drop back in the second half, but we'll continue to invest in our brand, which is a key differentiator for us in markets. With that, I will hand over to Roby to provide an update on our New Zealand operations, strategy, and targets.
Thanks, Jaco. Turning to our New Zealand business on slide 20, we delivered a key strategic milestone in our New Zealand business in the first half with the migration of all customers to a full subscription model at higher price points with a longer average contract length. Previously, the subscription product was a hybrid model, still partly commission-based with low commitments on average three months. Having implemented the same model change in our Australian business in 2021 through to June 2022, we knew that there would be some attrition as tradies were migrated onto the new subscription packages. It has not come as a surprise. Since completing the migration, we've seen New Zealand tradies begin to increase again, with over 200 new net tradie counts added to the platform since the end of H1.
What is also pleasing is that we have already seen an 18% lift in ARPU due to the new higher value tradie base, and we anticipate further ARPU growth as we leverage our experience from Australia to unlock significant upside opportunity. On slide 21, you can see how the transition to a full subscription model drives significantly enhanced value for tradies and consumers, with the number of connections per tradie increasing significantly over the prior corresponding period. We know from the Australian experience that subscription tradies are more active, contributing to greater value exchange and ARPU growth, and an overall more healthy marketplace. We anticipate that this high tradie engagement and activity level will also translate into greater propensity to ascend to higher price points in subscriptions. Before I close, I want to take your mind back to the strategic roadmap I shared at the beginning of the presentation.
This slide shows the current state of play, with 100% of Australian tradies now migrated to the new app. As I said, this is a huge achievement in itself. At the end of H1, 42% of our tradies had migrated to the new price plans. This number is more like 50% today. This reflects the significant yield opportunity from the rest of the migration through to the end of this calendar year. On the right-hand side, you can see that 2,900, or less than 10% of our Australian tradies, are regularly using the job management features on our hipages tradiec ore app. This means that over 90% of our customers currently either do not use or do not know about the enhanced value of the platform, reflecting a huge opportunity to educate and engage our customer base and drive significantly higher engagement and retention.
The early signs are promising, with our first renewal tradie cohorts showing positive early signs of improved retention. We're very focused on capturing this opportunity and rolling out a go-to-market to help our customers understand the value of the platform is key to driving this. I look forward to reporting back on this at our full year results in August. Finally, looking at our FY 2025 targets on slide 24, after a successful H1 where we delivered 10% operating revenue growth alongside two significant tech migrations, the group has updated its FY 2025 revenue target to AUD 83 million-AUD 84 million for the full year. The group's confidence in achieving this target is underpinned by the key technology and subscription migrations being completed and initiatives in place to drive increased engagement and retention in H2.
Expectations remain for EBITDA margin expansion of 1-2 percentage points from FY 2024 to 23%-24%, with increased confidence in the outlook for free cash flow resulting in a range of AUD 5 million-AUD 6 million, reflecting the power and flexibility of the group's operating model. I'd like to thank all of the hipages team for their huge efforts this year so far. They are key to our ongoing success. Thank you for listening, and I'd now like to open the line to questions.
Thank you. If you do wish to ask a question, please press the star key, then one on your telephone, and wait for your name to be announced. If you wish to cancel your request, please press the star key, then two. If you are on a speakerphone, please pick up the handset to ask your question. Thank you. Your first question is from Jules Cooper from Shaw and Partners. Go ahead. Thank you.
Hi, Roby. Can you hear me?
Yeah, we can hear you, Jules.
Excellent. All right. Thanks for that presentation. Just a question from me. I wondered if you could expand a little on the retention benefits you're seeing from those early renewals. Now, I know the pool is not large, but anything that you can share there would be helpful. When we're talking about go-to-market and improving the engagement with the business apps, what are you thinking there? Is that more sort of employee-driven, or are there digital tools that you can use? How are you sort of really thinking about executing on that over the coming months, given the opportunity?
Yeah, sure, Jules. I'll answer those two questions as concisely as possible. For everyone's benefit, obviously, the hipages tradiec ore rollout and adoption of more features in a system of records, so workflow management, quoting, invoicing, scheduling, payments is a critical feature to get more engagement with our customers outside of our core marketplace lead generation solution. If we can get more customers onto that platform using it more, best practice globally research says that your retention rates will improve, and obviously, that would be material for us. As you can see, we're getting close to about 3,000 customers actively using the product. We have quite a bit of work to do to get what the customers are actually paying for using the product.
Our focus was obviously a big technology migration, getting everyone in the app in the first half, which we successfully did, which is a big achievement. In terms of the cohort of customers, the way we operate is there are more customers that came up potentially for renewal in the period, but within the six-month first contract, we upgraded quite a lot of customers, and so their contracts have now been extended out for a longer period of time. On one hand, you could say that those customers were retained, but the customers that did not upgrade but did renew, the customers that we put on in April, May, June, last financial year, their renewals have come up. What we are seeing is very, very strong retention rates.
In terms of what we typically see for a normal customer that did not have job management, the retention rate is around 45%-50%. For customers that are, even though it is a small cohort, we are talking about 80-100 of them coming up for renewal on a monthly basis, their retention rates are above 70%. As you can see, that differential is significantly material for our business. That is probably the color I would like to give at this stage on that. As we start getting more and more customers, we hope to see that percentage improve even more as those customers use more and more of the features. I think that answers the first part of the question, Jules. I will move on to the second part in regards to how we are engaging with customers.
That is going to be a really big feature for us in the second half. For example, we know that if a customer uses the quoting feature, because it is a very, very nice, easy-to-use feature, the adoption of all the other features gets easier. More importantly, if a customer does a quote for a job that is not generated by a hipages lead but through maybe other means, maybe through their existing customer base or through other advertising channels that they may use, then the customer is going to be even stickier. Potentially also using our Tap to Pay functionality or a payment solution, it is even stickier again.
What we'll probably do in the business, and there's a team being put together and actually already starting actively engaging customers to use those features, is to put incentives, rewards, better onboarding, better engagement, acknowledgement of their capability as a business using some of those features on their business profile. A lot of that kind of stuff, that's been very effective in many businesses to get enhanced engagement adoption, looking at badging on customer profiles as an example of that, and creating a community around using the features to make their businesses easier to run. Those are some of the ideas and things that we'll be delivering on in the second half to improve engagement.
Thank you very much. Very generous with the color there, and it sounds very exciting. Thank you.
Thanks, Jules.
Thank you. Your next question is from Olivier Coulo n from E&P Financial Group. Go ahead. Thank you.
Hi, guys. Just on the New Zealand transition to a full subscription model, I guess, how has that gone relative to expectations? Now, you obviously have grown your total subscribers and some of them are only hybrid, so I imagine that you feel reasonably good about that. Yeah, how did you feel? Were you hoping to do better on the transactional tradies that have dropped out, or do you think you may pick them up over the coming months? The second part of that is, I suppose, how does the rebuild of that subscriber base look like in your kind of thinking?
Absolutely. That's a really good question, and thanks for that. It allows me to open up a little bit more detail on our New Zealand business. In Australia, we were a lead generation paper lead model for many, many years, and we had a little bit of a subscription model. We were getting quite low ARPUs, sub AUD 1,000 from customers, very similar to the New Zealand business. We've been trying to slowly migrate customers into subscription. The customer counts in the New Zealand business were challenging because we were trying to align the New Zealand counts to the way the Australian business does subscription counts. The way it worked in the past is if we had invoiced a customer one amount in the previous 12 months, that was included in the New Zealand subscription counts.
Now, because we've now got every customer paying us something every single month, that obviously reduces the counts. Optically, we're trying to be transparent in regards to how we recorded counts in the past, but it's not really the same. It's definitely apples and oranges when you compare the counts. Having a customer pay you every single month compared to a customer that may pay you once a year is a very different proposition. Giving all of that detail around what happened in New Zealand, it is an exact, almost exact replica. It's not we've done it better in New Zealand than what we did in Australia. I think if I remember when we were going back, this is just rough, but I think we were around circa close to 40,000 customers in Australia well before 2021 when you included every single type of customer.
When we went to full subscription, we fell below 30,000, and we've been building that up over the last few years. What happened in New Zealand is an exact replica of Australia, and you can already see the higher ARPUs coming through, and that will continue to grow at that kind of rate going forward for quite a while as we are doing it in Australia. In terms of what we're doing in New Zealand as well, what's different is New Zealand was a very self-service business model in the past where people just self-signed up, had to provide all their credentials. It was all self-service. We know for this category that the best model is to have a combination of self-service and operational sales capability. What we've built up is a sales capability to support a subscription business.
Some customers might find that subscription's a little bit more complicated, so we need to help them on that journey as they register into our platform. All of that capability is built now. The subscription model and the upside of longer subscription terms, the value from a longer subscription term is now built in. We're just scaling that all up as we speak. I mentioned in the presentation that we've already added a couple hundred more customers to that number. That's continuing to grow week on week on week because of that operational capability. I hope that answers your question, Ollie.
Yeah. No, that's a good one. Maybe if I can have one more. Just on Manila, what does that mean for your ability to drive those sort of initiatives and drive sub-growth across Australia and New Zealand?
Yeah, absolutely. Manila is an operation we set up about 10 years ago. We have about 80 people that work for hipages in our Manila office. What we did with connecting it to the previous question is we've opened up some roles in Manila to support our business in New Zealand. We also still have people on the ground. We'd like to work a bit hybrid, making sure that we have operational capabilities in the domestic country and also in Manila. Obviously, that gives you cost advantages, but more importantly, it gives us longer operating hours because of the extended time zones. You get about two to three hours extra time to operate having both locations running concurrently in a hybrid model.
Perfect. I mean, just a question on capitalization. I saw that that has come down. Has that been a big part of the driver of the upgrade to the free cash flow guidance?
I'll hand that to Jaco to answer.
Hi, Ollie. In terms of the capitalization, just to remind everybody, we typically look at technology spend as a whole. For us, the technology spend has been consistent. We have spent about 24% of revenue, and we expect that to be holding for the full year. We have not made any changes to the capitalization and the spend and capitalization. As I said earlier, we are still going to continue to spend to support rolling out our platform. In terms of the cash flow as a result, that is just really the operating leverage across the business that is generating that. It is not a particular area where we had to cut down. You will see that we have managed our operating expenses in line with that.
Okay. Appreciate it.
Thank you. Once again, if you do wish to ask a question, please press the star key, then one on your telephone, and wait for your name to be announced. Thank you. There are no further questions at this time. I'll now hand back to Mr. Sharon-Zipser for closing remarks.
Great. Thank you, operator. Only final remarks is thank you for everyone's time. Very pleased with the strategic milestones and the deliverables in the first half. Now we're going to do an acceleration in terms of the operating leverage in the business for the second half and deliver on those targets that we've set out to achieve. Appreciate everyone's time, and I'll look forward to catching up with people over the coming days and weeks. Thank you.
Thank you. That does conclude our conference for today. Thank you all very much for participating. You may now disconnect your line.