Thanks, Alfredo. Good morning, everyone, and thanks for joining the call. I'm pleased to be joined today by Kate Koch, who commenced as our CFO in October, as well as Malcolm McNab, our Head of Investor Relations, who also commenced with us in October last year. We're pleased today to be presenting our half-year results for financial year 2025. Kate and I will be taking you through these results by referring to the presentation we lodged with the Exchange this morning.
We'll talk in detail to the operational and financial outcomes for the half-year. We will refresh you on all the dynamics in the industry and our strategy to maximize IDP's growth and leadership position. And at the end of the presentation, we will, of course, be happy to take questions as usual. Starting with the highlights on page five. Now, we don't intend to read through these in detail.
What I will say is, if I zoom out to how we would characterize these results, the numbers are obviously very clear and reflect an environment where we both compare with a record prior comparative period and where we have seen the impact of regulatory tightening in key destination markets. In this context, as we had expected and communicated, volumes have come down. That's no surprise.
We'll talk later about the fact that they came down a bit more than we expected due to further regulatory changes during the half and how this informs our updated forward-looking view. If I look to the levers that we do control, we were particularly happy with the revenue result of AUD 475 million, down 16%, but obviously a lower decline than volumes due to the partial offset of average price increases across all business lines.
As announced last June, we are working hard to reduce costs to align with the short-term operating environment, with overhead costs coming in at AUD 168 million, which were better than expected and down 14%. The adjusted EBIT result of AUD 93 million reflected the declining volumes and the impact of the operating leverage of our business model, partially offset with cost reduction.
Lastly, we focused on working capital and cash this half, and we're pleased to see our cash conversion improve 18 percentage points on the prior year. The key message to take away from today's results is we're focused on optimizing the controllables, including maintaining a disciplined approach to cost management given the short-term headwinds, balanced with a focus on market share, yield, and product innovation to ensure we accelerate profitable growth when conditions improve.
Our global scale and increasingly unique offering means we are the leading player in large structurally growing markets. We see strong macro drivers continuing to underpin long-term growth with ongoing demand for international study and migration, albeit some cyclical headwinds linked to destination market policy settings. And we have a clear strategy and a disciplined approach to invest value creation for shareholders.
Turning now to slide six of the presentation, where I'd like to spend some time on the strong continued performance of those levers we're able to control. Firstly, in student placement, we continue to gain market share and outperform the broader market decline driven by our visa approval rates that are well exceeding industry averages. We expect this outperformance to continue. Second, you can see the outcome of disciplined management of the cost base to align with revenue conditions.
Key call outs here are overhead costs are down 14% and direct costs are down 9%, which should result in FY25 cost performance better than previously expected. Third, we see a strong increase in average price driven in part by the improvement in negotiated terms as our university partners recognize the value we provide and also the expansion of our S tudent Essentials product portfolio. Fourth, we're allocating capital to its highest returning uses, including in innovation, technology, and AI, and productivity improvements to drive efficiency and user experience.
And finally, we continue to position ourselves as a thought leader in the sector, leveraging our global data set and relationships to inform our key stakeholders, including governments, on navigating market conditions. This is all underpinned by our team's unwavering focus on the student experience and quality, and our Net Promoter Score remained above 70 and improved three points to an all-time high. We're very proud of the efforts of the IDP Global team on delivering this very strong result. I'd now like to hand you over to Kate to take us through the detail of the financials.
Thanks, Tennealle. Hi, everyone. I'm very pleased to be joining you this morning for my first results presentation since joining IDP, so let's start with the first half P&L on slide eight, which reflects the challenging market conditions we're currently experiencing. I'll focus my comments on constant currency growth, which is the far right column you can see on this page, but you can see in the second column from the right that FX went against us this half, further reducing revenue and EBIT performance.
As Tennealle mentioned, revenue of AUD 475 million for the first half was down 16% on the prior period. Student placement revenue was down 14% on 27% lower volumes, offset by a 14% increase in average price. Revenue from English language testing was down 19%, reflecting 24% lower volumes, offset by price increases across the network.
English language teaching performed well, with volume and price growth underpinning a 5% increase in revenue. And as we previously communicated, we closed our teaching operations in Vietnam during the half. We remained very focused on cost control. Direct costs were down 9% as we delivered savings from office productivity and automation.
Direct costs were unable to flex to the same extent as the volume decreases due to the short-term fixed nature of some of our office and technology costs, or what we'll refer to as the operating leverage of our business model. This was combined with a change in source country mix, where we saw a decrease in volumes from higher gross margin countries such as India and an increase in lower gross margin countries such as China.
Overhead costs were down 14% in the half to AUD 168 million, or nine% down, removing the impact of abnormal or non-recurring items. We've adjusted to these items in the reported EBIT and NPAT results, as we've done in prior periods, and you can find a full reconciliation of these on slide 24 in the appendices. This resulted in adjusted EBIT of AUD 92.7 million, which was 40% below H1 FY24 levels.
Net financing expenses increased AUD 2.9 million last year due to additional borrowings for working capital requirements. Our effective tax rate was down slightly to 27.7% from 28.3% last year, resulting in an adjusted NPAT of AUD 58.3 million, down 43% year on year. Now, turning to our costs on slide nine in a little more detail.
The management team at IDP is highly experienced in managing costs in a disciplined way to ensure the appropriate balance of responding to market conditions while also delivering long-term shareholder returns. The response to the current challenges is evidence of this. The team began managing the cost base more closely in December 2023 when signs of a slowdown in the sector emerged. Excuse me.
Our approach to costs has been twofold. For non-staff costs, we've trimmed expenditure, renegotiated contracts, and reduced usage across a number of areas, including travel, consultancy, technology, and marketing. This work is ongoing. Excuse me. In relation to staff costs, our restructuring program in June last year resulted in a reduction of our headcount by 5% this half, and we remain disciplined on new hiring and replacements.
These activities are designed to right-size the cost base for FY25 to balance our short-term and long-term objectives, given IDP is fundamentally a long-term growth company. Through the cycle, you should expect natural inflation to our cost base as we factor in incremental expenditure to further our strategy and to appropriately reward and retain our highly sought-after and experienced global staff.
Performance in adjusted overhead costs was better than expected this half due to these cost control efforts. Given the phasing of investment and reduction in prior period cost base and assuming no change in market conditions, overhead costs in the second half of FY25 are expected to be broadly in line with the second half of last year on an adjusted basis.
We'll continue to be flexible in our management of costs and will moderate expenditure within certain limits if conditions weaken further or increase strategic investment if conditions improve relative to our internal outlook. Due to the impact of policy announcement on the first half results, we expect a lower skew of our results to the first half than in the past. Now, turning to operational metrics on slide 10. As I've said, student placement volumes were down 27% in the half, with growth rates by destination reflecting policy changes and uncertainty related to those markets. Canada was down 43% due to further restrictions on immigration.
The USA was down 18%, driven by higher visa rejection rates. Australia was down 25% and the U.K. down 24%. We did see volume gains in New Zealand and Ireland, up 57% and 28% respectively, which, although fast-growing, remain relatively small markets.
The average pricing outcomes were a highlight of the result. For student placement, average price was up 14%. This increase reflects a combination of higher institution tuition fees combined with more students bundling our student essential services, together with improved commercial terms negotiated by our team as we experience strong demand for our services in the dynamic markets we're experiencing.
We mentioned in the FY24 results that in an environment where supply is potentially constrained, we'd expect clients to look to price to manage their economics and that this provides a supportive environment for our revenue, which is linked to tuition fees. This has played out for the first half, and we would broadly expect these supportive conditions to continue across the full year. Average prices in English language testing were up 6%.
As usual, we see some moving parts here, with an increase in underlying prices and the positive impact of changing mix, with the underperformance of the lower-priced Indian market a key contributor to the outcome, offset by the removal of the China royalty and negative FX impacts.
Thanks, Kate. We'll move now on to slide 11. Now, this slide is one we're most proud of. Here you can see the volumes for our student placement business in calendar year 2024 and reflecting strong outperformance relative to the broader industry decline. The chart shows IDP student placement volumes as measured by application processing fees, or APFs, relative to the overall market volumes as measured by the total student entry visas issued in each destination.
Here you can see that the industry declined by an average of 28% compared to the decline of 15% that IDP delivered. Our direct-to-student business model and reputation as the leading quality provider is underpinning our superior relative performance and rising market share. Onto slide 12. We shared our visa approval rates with you at our prior year results, and these continue to be well above industry average.
As market conditions shift towards quality and conversion, IDP's differentiated and highly trusted business model performs even more strongly, creating unique opportunities for market share gain. Turning now to English language testing volumes on slide 13. As we signaled at the prior full year results, the broader Indian market for study abroad and migration has experienced a material cyclical slowdown over the last 18 months. Indian IELTS performance primarily reflects these weaker-than-expected market conditions.
We've seen a confluence of factors across destination markets, and this has impacted testing volumes across the industry. The market has been impacted by the cyclical policy restrictions and uncertainty, as well as increased visa rejection rates. We have also seen a structural baseline adjustment with lower test taker rates due to the removal of the Canadian Student Direct Stream, or SDS, visa.
Increased competition has also clearly been a factor due to the opening up of the Canadian market to a limited number of additional tests from a previous monopoly structure. Now, while data on total testing volumes and therefore market size and share is not available, the chart on the right is looking at a directional proxy being international student visa application volumes. The chart highlights that the decline in IELTS volumes is broadly in line with the overall decline in study abroad market demand.
Our strategic focus during this period has been on, firstly, building brand and marketing leadership. For example, in the half, we've expanded global reach and significantly increased brand visibility by engaging 25 million people globally through our More People Succeed with IELTS campaign. We've scaled our channel partner engagement, and we've enhanced our product offering.
In the half, we saw a range of achievements, including improvements to the IELTS booking experience that contributed to an 8% increase in conversion. Now, these are just some of the examples of ongoing product innovation that will continue to improve the test taker experience for the existing IELTS products. In parallel, the partners have a longer-dated product roadmap, which includes more transformative improvements to the test. I'll now hand you back to Kate to take you through some more detail on our cost management approach.
On slide 14, you can see the gross profit margin and our EBIT and NPAT margins for the past seven years. If you look at the left, while gross profit margin is down this half as a result of the challenging volume conditions combined with the impact of country revenue mix, it is in line with or better than what we've achieved in other cyclical low points, for example, through the COVID downturn from the second half of FY20 to the first half of FY22.
On the right, you can see the EBIT and NPAT margins. And again, while down on the comparative period, they're also in line or slightly better than previous downturns. We continue to manage the business for long-term margin expansion and are experienced in navigating short-term shocks and cycles.
We expect, as we've seen in previous cycles, that the operating leverage of this business will recover as volumes return. If we move to slide 15, the balance sheet remains in a strong position. Net Debt, as of 31st of December, was AUD 196 million, and we had a net leverage ratio of around 1.1x EBITDA, so we have flexibility in the balance sheet to fund our capital needs. Our working capital requirements have grown over the past two years as the revenue mix has moved away from English language testing towards student placement.
Our testing business has negative working capital, given test takers pay in advance, while the student placement business requires significant working capital, given universities pay after the student commences their studies and often many months after we recognize the contract asset, particularly for the U.K. and Australia.
However, as you can see from the cash flow analysis in the appendices on slide 25, the rate of growth in working capital slowed this half from a decline with improved student placement collections performance. Our CapEx spend for the first half was AUD 24 million, a reduction from AUD 28 million in the first half of last year, and we expect spend to continue at around this rate for the second half to fund the various initiatives that support our strategy.
The directors declared an interim dividend of AUD 0.09 per share. IDP is a long-term growth company and will continue to invest both organically and inorganically behind our strategy. As we evolve the capital management approach of the organization, we'll continue to take into account our long-term investment focus, cash use priorities, and balance sheet position, and ensure our dividend appropriately reflects the operating environment. Thank you. I'll now hand back to Tennealle.
Thanks, Kate. Moving to slide 17, we talked at length about the changing regulatory settings in our prior full year results, and it's clear the sector has continued to see significant change and uncertainty, demonstrating very clearly the dynamic nature of the regulatory and policy settings in the sector currently. This slide provides a really simple summary of just the changes that have occurred since our last update and highlights some of the important upcoming events, including election cycles, given the political nature of the changes to policy settings.
So let me provide a brief overview of these, starting with Australia. The proposed cap legislation failed to pass in the Senate late last year. Ministerial Direction 111 was introduced to replace MD107, enabling priority visa processing for all institutions up to 80% of the previously proposed caps, essentially creating what we call a soft cap environment.
We've seen a restriction in postgraduate work rights, and in addition, there is uncertainty created by the upcoming Australian federal election. Moving to the U.K., a new Labour government has not wound back any of the restrictive policies put in place by the previous government, but they have shifted to a more positive and supportive tone towards the sector and to students more broadly.
The Graduate Route has been maintained, as have restrictions on dependent visas. This more positive rhetoric has been greatly welcomed and provides a more certain environment for prospective students. Turning now to Canada, student sentiment towards Canada remains poor. Demand for Canada has been impacted by the various changes that have occurred and the ongoing uncertainty regarding post-study work rights.
These changes include a reduction of the calendar year by further 10%, a reduction of the permanent and temporary resident targets, and restriction of spousal work permits, further restriction of postgraduate work rights, and removal of the priority visa processing stream in SDS. In addition, there is uncertainty created by the upcoming Canadian federal election. Lastly, the U.S. remains largely unchanged from a regulatory perspective.
However, U.S. visa rejections are up significantly, and the new government rhetoric around immigration restrictions is yet to be implemented as articulated policy. So if I take a step back and bring this all together for an updated view of the market for FY25, as I have just outlined, since our FY24 results were communicated, there has been further policy restrictions and increased uncertainty in the international student market.
Noting these changes and the increased uncertainty and assuming no further change, we now expect the market to decline between 20% and 30% in Financial Year 2025, with IDP expecting to outperform this broader market decline. Slide 18 shows that students are knowledgeable and responsive to policy stability and communication, and also that students are really pragmatic about which destinations they will consider.
The chart shows the relative increase in search traffic to the U.K. since their election last July, indicating improved sentiment given the more stable policy environment and the encouraging communication from the government that I just went through. Now, these metrics are consistent with the latest U.K. student visa data, which was released overnight. This shows that applications were up 13% in January.
Aligned with the increased sentiment and the relative strength at the top of the funnel, we see early signs of stabilization and positivity in our U.K. pipeline build for the key Fall intake. Now, clearly, the continued build over the next few months will be critical. However, assuming no additional policy change, based on these early trends, we do expect this year's U.K. Fall intake to grow relative to the prior Fall intake.
There's also been, as you can see on the chart, a small uptick in search share towards Australia since Ministerial Direction 111 was introduced. Now, again, it will be important to understand the impact of institutions reaching their soft caps in upcoming months. We are optimistic as other destination markets move through their election cycles and provide more certainty and clarity for students.
We will see a similar shifting of sentiment and focus from students to these markets. Moving now to slide 19, we continue to deliver our global strategy to ensure that we're well positioned to navigate these short-term challenges whilst having a clear focus on the long-term opportunity and our strategic objectives. Our strategy is anchored on our purpose, which is to transform lives through international education and centered around the three key pillars of reach, trust, and delivering exceptional outcomes.
I'd now like to turn to some of the key highlights from half one connected to each of these three strategic pillars on slide 20, starting with our student placement business. Under the first pillar, engaging with more people in more places. Across our physical and digital channels, we continue to expand our reach.
Our network scaling continued as we opened four new offices in key growth markets, and we saw around 200,000 IDP Live app downloads. As their most trusted partner, importantly, we strengthened our position with clients as their most trusted strategic partner. Our data and insights and our expanded product offering is of increasing value. This is reflected in our client portfolio with over 20 new clients and our 14% increase in average price, and under the third pillar, to deliver exceptional outcomes, we continue to invest in technology and AI to improve our student experience, driving a strong and growing Net Promoter Score.
Big achievements include the continued scaling of FastLane, which delivered over 13,000 offers and a strong NPS overperformance, and our Student Essentials product, which contributed to a 2% point increase of the average price increase.
In addition, we continue to explore multiple AI-powered pilots to enable internal efficiency and differentiated customer value. For example, we expanded the use of AI in our course recommendation engine. Across financial year 25 and beyond, the customer outcomes delivered supported by AI, including launching GenAI chatbot functionality in the lead generation, conversion, and schools outreach points of our student placement funnel, and launching GenAI diagnostic functionality supporting IELTS personalized preparation.
Moving now to our English language testing business, some of the key highlights from the half included. Under the first pillar of engaging with more people in more places, we continued our network expansion with six new test centers, and we made good progress in positioning ourselves in the China market with IELTS. IDP has established a strong cooperative relationship with a respected professional examination service provider in China.
And in half one, we conducted IELTS pilot tests in November and December, which performed strongly and received positive customer feedback and endorsement. We will continue with preparations for scaling the offering from an operations, technology, and regulatory perspective. Currently, the Chinese Ministry of Education is in the process of approving the official expanded entry of IDP IELTS into the Chinese market.
Our focus remains on leveraging the well-regarded IELTS brand and building an exceptional test taker experience, and we remain positive on the long-term market opportunity for China. Under the second pillar, as their most trusted partner, One Skill Retake is now accepted by over 2,200 organizations, up 22%. And lastly, to deliver exceptional outcomes, we delivered a refreshed IELTS preparation hub, including self-assessment tools and an IELTS podcast series, among many other improvements.
And we continue to drive improvements in the IELTS booking experience, which have contributed to an 8% increase in conversion. Turning to slide 22 to wrap up, we have shown in our half one results that we are well placed to navigate challenging market conditions in what continues to be an uncertain environment. Our focus on quality drives our continued market share gains and underpins everything we do.
Our experienced management team are focused on the levers we can control. We are maintaining a disciplined approach to cost given the short-term headwinds, but are focused on market share gains, on average price expansion, and on product innovation to ensure we accelerate growth when conditions improve. We have maintained our financial strength to emerge even stronger when volume growth returns.
Our global scale and increasingly unique offering means we are the leading player in large and structurally growing markets, and we have a clear and compelling strategy and a disciplined approach to investment to drive long-term value creation for shareholders. Finally, I would like to thank IDP's global leadership team and our broader global teams for their commitment and dedication for being there for our customers and clients when they need us most. Thank you all for your time today. Kate, Malcolm, and I will now be very happy to take questions. I'll hand you back to the operator to place them in queue. Thanks, operator.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press Star two . If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Tim Plumbe from UBS. Please go ahead.
Hi, guys. Can you hear me?
We can. Thanks, Tim.
Great. Great. I know there's probably loads of questions in the queue, so I'll leave it to two. Just the first one around FastLane, and apologies if I missed this. I've just been juggling a couple of different things. But can you give us an update in terms of how many unis have been signed, how you guys are thinking about accelerating that opportunity, and whether the current environment is the right environment to kind of leverage the networking effect that that could have?
Yeah, sure, Tim. So FastLane continues to progress well. I think we spoke about in the period, from an offers perspective, we're sitting at 13,000 offers, which is flat on same time last year, but that's off the back of declining volumes across the broader business. So continued really strong performance in a relative sense. The pleasing thing is the metrics that we were looking at in terms of the relative performance of FastLane continue to perform strongly. It's driving increased conversion and increased student NPS or satisfaction.
We continue to progress the number of clients that we're signing on. And do we have any details on that? No. We will provide further details on the number of clients signed up in the full year.
Got it. And then the second question, just in terms of your performance relative to the market over the last 12 months, very impressive. If you look at slide 28, it looks like the last six months have been a little bit closer in line with the market, a little bit better, but closer in line. When you're thinking about our performance relative to the market, do you think we should be thinking about IDP's performance over the last 12 months or a little bit more on a run rate basis, i.e., kind of the last six months?
Yeah, certainly. So we've included in the main part of the presentation the calendar year 2024 view. We believe it's a better representation of the underlying performance. And you can see in this period, IDP delivered a decline of 15%, and that outperformed the broader market decline of 28%. For transparency, we also provided, as you mentioned in the appendix, the split between half one and half two. But what you can see with that half on half view, and that does show a narrowing of our usual outperformance, is there are some short-term fluctuations in that data set, particularly for the Australia and U.K. destinations. That means it's better to look at calendar year.
But if I just pull out and explain what drove that narrowing of performance in the first half, really it was a result of the two key regulatory changes we saw in the Australia and U.K. destinations. So it was the impact of Ministerial Direction 107 in Australia and the change in dependent visa rules in the U.K.. So as a result of these changes, for the first half, what we saw is unusually high growth in source countries where IDP has a relatively low market share.
So just to bring this to life, an example of this unusually high growth was observed for the source country of China. In Australia, due to Ministerial Direction 107, which prioritized Go8 institutions, and in the U.K., due to the limited impact of the dependent visa change for China.
So to give you a sense of the impact of this, if it helps to back it out a little bit, the overall Australian market decline for half one excluding China was -14%, and the U.K. market decline excluding China was 23%. So that's the main change that impacted what we saw for half one. The other thing that we saw in addition, and this was for Australia particularly, due to the visa processing delays associated with MD107, we also saw a misaligned timing across reporting periods, across the half two for FY24 and the first half for FY25, of the IDP enrollment volumes and then the market visa issuance volumes, which came later due to those delays.
And so what we saw in the later half of half one, as MD 107 was removed and replaced by MD 111, we saw the Australian government working through visa backlogs associated with prior period enrollments, and this really elevated the Australian market size number. Now, all of this noise is evened out in the calendar year data. So if we have a look ahead, where to from here, which I think is what your question is, what we would say is due to the further announced policy changes with MD 111 coming in, as well as the baseline adjustment, we would expect the factors that we saw in half one to substantially normalize in the coming periods.
We strongly expect IDP to continue to grow market share in FY25 as these factors cycle through. So I'm encouraging you to look more back to what we saw across the calendar year rather than spending too much time with the first half numbers.
Understood. That's helpful. I'll jump back in the queue. Thank you.
Thank you. Your next question comes from David Fabris from Macquarie. Please go ahead.
Hi, Tennealle. Hi, Kate. Just another question on student placement volumes. I mean, how do you view the potential policy impacts if Australian and Canadian opposition governments win elections this year? I guess I'm looking for thoughts on how we think about FY26, balancing the fact that volumes are undershooting caps and some of the policy conversations that are coming from the opposition governments. Any thoughts would be helpful. Thanks.
Yeah, yeah, certainly. And look, you'll see as we've provided the overview on policy settings that we have called out the upcoming elections as part of the uncertainty we need to navigate. So generally speaking, we would expect more stable industry conditions once elections are behind us. The political debate that we've seen both Australia and Canada on immigration and international students has been disappointing.
It absolutely creates uncertainty for students, and we would expect that this negative rhetoric will continue until the elections occur across this calendar year. I think that the current government here in Australia, at least, has clearly articulated its position and objectives, and I guess the forward-looking statements that we've made, and we are positioning the company behind those facts and what's been communicated by the current government. But what I'd encourage you to do is to look to where we have navigated election cycles.
So look to what we've seen in the U.K. In the U.K., like in the U.K., we would expect a post-election environment in Australia and Canada that at the very least provides a more predictable operating environment for the industry. And so what are students looking for? They are looking for clarity and certainty on policy settings and stability in those settings. So we are expecting that there will be more uncertainty as we navigate that, but we're hopeful for stability to come on the other side.
Yeah, got it. Understood. Can we just jump into the China strategy and the economics? I mean, I guess what I'm thinking about here is, can you give us any thoughts around when that business might become accredited versus the royalty? And then any thoughts about the earnings prospects from there onwards?
Yeah, absolutely, so I'll just take a step back and talk about the strategy with China, and then I'll go into how we're thinking about it currently, so we spoke about this in the full year results. We've been looking at the China market for some time, and we believe it's the right time to alter our approach to the market, and we believe that a direct operation in China is a strategic move for IDP.
It's clearly aligned to our strategic pillar of expanding our reach and geographic presence by reaching more people in more places. It's well understood that China is the largest market for English language testing, and we always saw our absence from that market in a direct way from an IELTS testing perspective as a gap in our coverage.
So what we've been focusing on in the near term is establishing the necessary foundations to scale that testing network. Obviously, if you look ahead to phase two, we'll also be working through the synergies that would exist with our student placement operations in China to see how we can accelerate growth in that business line. But I think that's very much phase two. Phase one for us is that we are looking at how we build the foundations and scale the language testing operations.
So if I talk about what we've achieved in the first half, for the first half, we made progress aligned to our business plan, and we continue to engage with the Chinese government, who really pleasingly are taking a very encouraging view of our expansion into China.
What we would say, and I know we spoke about in the half, that the long-term business case continues to be very attractive. However, what we would say is the regulatory process associated with the approval for an official launch has slowed our launch and ramp-up plans to some degree. However, I really want to underscore that we remain confident in the long-term market opportunity.
Yeah, got it. Got it. I mean, but to be clear, then does that kind of suggest that the move is probably dilutive in 25 versus the royalty rather than maybe somewhat equal?
Yeah. So we always said that for 25. We expected that. So to be clear, the way that our ramp-up has worked, we commenced with an initial pilot that represented relatively small volumes across November and December, and we are now working through the go-to-market plan associated with a broader scale-up of that. So we had always intended that for FY25, it would not be accretive given the foregone royalty and the fact that we were entering in the second half.
Got it. Understood. I've got one last question. Look, are you able to make any further comments around the earnings skew in 25 across the halves? And then I guess as we roll into 26, should we be thinking about the 25 skew, or should we be thinking about a reversion in 26 to historical skew levels?
Yeah, certainly. I'm happy to provide a little bit more color there, David, and I'll hand over to Kate who can help us there.
Yeah, so David, what I'd say is the skew for the first half will be less of a skew than our previous couple of years. I'm sure you know what that is. In terms of FY26, I think it's far too early for us to be saying what we think, but of course, towards our full year results presentation, we'll have a lot more visibility. We'll have better visibility of what's happening, so you know, I would leave it until that time to start guessing about FY26.
Yeah. Understood. Thank you very much.
Yeah. Next question is from Josh Kannourakis from Barrenjoey. Please go ahead.
Hi, Tennealle, Kate, and Malcolm. A few quick ones from me. Just firstly, following on a little bit from the skew, but maybe going to a little bit more detail into the second half, it seems like there's a few timing issues there as well. And I think in the accounts, the contract assets have jumped quite considerably in that period. Should that give us a bit of confidence in what the sort of outlook is for the second half in terms of timing and when some of that revenue should drop?
Hi, Josh. It's Kate. There is a traditional build in our contract assets in the first half. So I think if you go back to last year, you'll see the same thing. So that's a kind of, if you like, seasonality point that happens as the contract assets build, particularly for the U.K. in the first half. So I wouldn't read anything additional into that, but it is definitely a pattern we saw this time last year as well.
Got it. Okay. No, that makes sense. And then secondly, just as a little bit of clarification following on from the last point in China. So I think previously the comments were largely weathering the headwind into 2025 and then earnings accreted to the previous license fee into 2026. Is that still the case, or is there some expectation of maybe a little bit of slippage on that front?
Yeah. So Josh, just to reiterate the point, we remain confident in the long-term market opportunity and business case, and we're on track to deliver that post some short-term delays in launch and ramp-up, so as the Chinese government has provided the approval for the official entry into the Chinese market, and so what we will do is, based on the learnings from our initial pilot phase, post-formal approval, we'll look to further refine our go-to-market strategy and our near-term ramp-up to deliver on the long-term business case, so long-term business case holds, long-term market opportunity holds, some short-term delays in phasing and ramp-up as we work through this process.
Got it. Got it. Okay. And in terms of clarity and on timing there, I imagine there's not a huge amount of direct visibility on when that's likely to occur as of now, or have you got any indications on whether it's sort of weeks, months?
Yeah. Yeah, certainly. So I'm sure you can appreciate the complexities of working through this, but we would be hopeful that we would be working through this in the next couple of months.
Got it, and then final one for me, just on operating leverage. I think your operating cost base came in a bit better than what people were expecting. You've given some context around that into the second half. As we think about a recovery over the medium term in the business, how should we be thinking about what sort of incremental costs should be going in? Are there any other more structural factors around your efficiencies or, as you mentioned, AI or other things that have sort of meant that operating leverage should come through? How should we sort of think about that margin profile as conditions improve?
Yeah, certainly. Look, I think it's too soon to talk about what that looks like in the FY26 period, but I might take a step back and just talk philosophically how we view the business, and so I think philosophically we view that we have scope to increase margins over the long term. Kate touched on this in her presentation.
There is natural operating leverage in the student placement business, and we're really only in the early stages of extracting productivity improvements through scale, but also, as you touched on, through technology and automation, so you heard me bring to life a little bit the work we're doing in student placement, looking through the potential for technology and AI to really support improving both user and customer experience, but also productivity.
In the short term, as Kate touched on, we're obviously looking to balance the need to respond to current market dynamics whilst also holding our focus on the strategic projects and the long-term opportunity because of the potential we see, particularly for our student placement business, to gain that natural operating leverage as volumes return in the medium to longer term.
Okay. Great. Thanks very much.
Your next question comes from Entcho Raykovski from E&P. Please go ahead.
Morning, Tennealle, Kate, and Malcolm. [crosstalk] So my first question is around SP in Australia, and you've obviously talked to some of the trends in the first half, which drove the relative underperformance if we compared to the market. But I'm just curious whether you still expect to outperform the market for Australia and SP for FY25, or whether the strength in China enrollments means that's fairly unlikely.
Yeah, certainly. So I can talk to that. And I think that, as we've touched on, if we go right up to the top, we're continuing to navigate a pretty dynamic policy environment in Australia in the lead-up to the election. And I outlined the changes we've navigated over the last six months.
Probably the key change I'd call out is the replacement of MD107, which clearly provided priority to Go8 universities and therefore benefited Chinese students who were strongly represented in these institutions, moving towards Ministerial Direction 111, which actually provides priority visa processing for all institutions up to 80% of the previously proposed caps. And so again, it's that navigation of the different policy settings and what that means for processing of visa volumes.
So the thing that I'd say as we look into half two is it's going to be really important to understand the impact of institutions reaching their soft cap that they have for their institutions set at 80% in the upcoming months. But what we've seen in the early stages, as we showed on the slide with the relative share performance across the top of the funnel, with the change in policy to MD111, we have seen a small uptick in the relative performance of Australia as students are seeing that as a more positive and transparent set of policy conditions that help them with their decision-making.
Okay. Great. Thank you. And then the second one, it is also volume-related. And I think you gave this to us six months ago when you were talking about the expected destination market declines. Just very broadly, how do you think each of the markets will perform now in 2025 versus the 20%-30% decline that you've pointed to?
Yeah, certainly. So at an aggregate level, we expect the market, as we said, to be down 20%-30% with IDP outperforming. Underneath that, we expect the smaller markets of New Zealand and Ireland will, in aggregate, show growth at an industry level again next year, but calling out that they are relatively smaller for us in the scheme of things. It's not reasonable to provide any more specific guidance at this point, given the changes that we're working through for the sector and the number of moving parts underneath the assumption for each of the destinations.
But what I would say on a relative basis is that we would expect the U.K. to be our stronger performer, followed by Australia and the U.S., and lastly, Canada, given the well-documented challenges that market is experiencing. The last - sorry.
So just the last thing I would say, though, I just want to stress, and I know I've said it a number of times here, that these statements that we've provided for the total market movement are, of course, predicated on no further major regulatory changes. There is a number of uncertainties in the outlook, including how Australia will manage the 80% soft caps that we spoke about and the upcoming elections in Australia and Canada, and so that 20%-30% assumes no further changes.
Okay. Got it. Understood. And then the final one is on IELTS. First half 25 gross margin was down to 41%. It was 45% in second half 24. Is the contraction the result of an uplift in the Cambridge fee primarily, or is it a mixed impact? And I suppose what I'm also trying to get to, what should we expect from a gross margin perspective in IELTS in the second half and beyond? Should that level of decline moderate? Thank you.
Yeah. Yeah, certainly. I'll get Kate to take that one.
So I think, Entcho, the short answer is there's quite a few factors playing out here. We have obviously underlying pricing. So sorry. number one, volume decline. And as you know, it's global volumes to India, which are really impacting our margin because they had a much higher gross profit rate than the rest of the network. The Cambridge fee increase is above our price increase. So that, again, dilutes our margin. And then we pay that in sterling. So the weaker Aussie dollar has also impacted the GP margin. So I'd say they're the kind of three key factors.
Okay. Got it. And is it too early to really give any specific guidance? Is it just dependent on how volumes track into the second half? And sorry, as an add-on, is the Cambridge fee impact likely to moderate to some extent into the second half and into 2026?
Yeah, it's a bit early to talk about volumes for us, but obviously. On the Cambridge fee, it is reset each calendar year. The impact will drop a bit, but it's still going up more than price in the second half. No, No, No, Not as much above the price as the first half, if that makes sense.
Yeah. Just a reminder with that Cambridge fee, that's an annual calendar year review linked to the historical U.K. RPI. Obviously, what we're cycling is a prior historical period of a more significant RPI increase in the U.K.. That moderates as we move forward, as you know.
Okay. That's clear. Thank you.
Your next question comes from Elizabeth Miliatis from Jarden. Please go ahead.
Good morning, and thank you for taking my questions. The first one's just around market share going into the second half of 2025. I know you've mentioned a few times now that you expect to take market share similar to on a calendar year basis across the three regions. So in terms of sort of, I suppose, the delta between IDP's volumes versus market, Canada seems to be similar, but obviously, there's none of these one-off factors impacting things.
So I would assume it's a similar sort of delta going into the second half. For Australia, should we assume that delta on a calendar year basis sort of maintains in the second half? And then just also on the U.K., your calendar year numbers for your volumes are actually down 26%, whereas the market was down 18%. So implying, obviously, market share loss. So how should we think about U.K. in the second half as well? Is it a market share expansion story or a contraction story?
Yeah, certainly. So what I'd encourage you to do is lift up and have a look at that outperformance on a whole-of-market basis. If you go back and look historically, and we've been sharing this data, you do see swings and ups and downs in each of the markets. But if we lift back up to what this business has demonstrated consistently over multiple prior historical periods, you can see that student placement has outperformed the market historically over many periods based on that focus on quality. And you can see that in the relative volume performance.
So I'll leave it to you to incorporate the historical view of the outperformance and the focus that we have in what's driving that in terms of our focus on quality, given your understanding of our relative performance and position in the market and our ongoing efforts to drive share. What that means in a whole-of-market basis.
Okay. And just to follow on to that, just in the U.K., are you taking sort of market share in these initial couple of months of this half?
It would be too early to make comments like that. As I said, what we're seeing in the U.K., and you'll recall for the U.K., what we see is the U.K. really has one major key intake being the fall intake. And so what's critical for us to build an understanding of is the pipeline build going into that fall intake. Now, we're very early on in that pipeline build, sitting in January, February.
But when we look at those early signs at the top of the funnel, so the relative strength in sentiment, that's flowing through to what we're seeing in terms of early signs around lead volumes and applications, we are seeing some positivity, which gives us the confidence to say that based on these early trends, assuming they continue, we would expect the U.K. fall intake to grow relative to the prior year intake. We're early in the pipeline build, and the next few months will be critical.
Yep. And just on a second question, just around price, obviously, the price that you guys are able to push through across student placements has been a constant source of upside. How are you guys feeling for the rest of the full year and indeed going into 2026? Should we continue to see double-digit price increases or a bit of a moderation? Thank you.
Yeah, certainly. So it's clearly average price up 14% underlying for student placement is a fantastic result. It reflects both the improving commercial terms, the higher tuition fees, but also the continued expansion of our Student Essentials product line. The drivers of that, as the quality player in the sector, we are seeing strong demand for our service, and clients are leaning on us more to help them navigate what is a very complex set of dynamic market conditions. We're also becoming more sophisticated in how we bundle our services for our strategic partners.
What I would say, if we look ahead, is the outlook for price remains favorable. As we mentioned in the full-year results, that in an environment where supply is potentially constrained, like what we're seeing now, we would expect clients to look to price to manage their economics.
This provides a supportive environment for our fees, which are strategically linked to tuition fees. This has played out in half one. You can see it in the numbers. We would broadly expect those supportive conditions to continue across the full year.
Thank you.
The next question comes from John Marrin from CLSA. Please go ahead.
Okay. Hi. Thank you. And thanks, guys. First of all, Kate, welcome. I think it seems like you're joining a garden party in a hurricane, so I'm sure that's fun. Tennealle, I'd like to hear more about how you're looking at dollar spend on data and AI projects on the tech side, both near-term and longer-term, of course. But I know you guys are dealing with a lot on the macro front, but you have to march forward on these strategic initiatives. So just curious about the spend there and maybe advancements or opportunities on IDP Live and the top funnel productivity that you're seeing with your agents and any evolution on that ecosystem strategy that seems to be unfolding.
Yeah. Thanks, John. A great question. And absolutely, it is critical for us in this time to get that balance right. So while we are cognizant of current operating conditions and managing cost in a disciplined way to reflect that, it is critical we continue to invest in our strategic priorities to, as you say, position ourselves for when volumes return. And a key part of that is AI. So this is an area we've focused on and really built out. In the first half, our focus was on efficiency and conversion.
And so you will have seen us looking at multiple AI-powered counselor and staff pilots, really focusing on how we can drive internal efficiency, how we can drive conversion improvement, and deliver value for both our students and counselors. So one thing we were quite proud of is increasing the use of AI in our course recommendation engine.
For us, that's really at the top of the funnel. I think anyone looking would see how quickly things are advancing here, and it's something that we are very focused on being at the forefront of. So for the remainder of FY25 onwards, in addition to focusing on AI as a key driver of efficiency and productivity improvements, we're also focusing on the customer outcomes that we're able to deliver being supported by AI.
And so we're piloting the use of GenAI functionality by way of chatbots in various parts in the student placement funnel. And so I touched on looking at these chatbots across things like our top-of-the-funnel lead generation, looking at how it can support conversion through the funnel, looking at early schools' outreach to build new lead channels. So really looking at how AI can support driving that conversion through the funnel.
On the IELTS side of the business, we're also looking at how AI can support the ecosystem that we are creating around preparation and tools in that support ecosystem, so really looking at a diagnostic to really enable personalized preparation and supporting our IELTS test takers as they prepare for the test. This is a really exciting space for us, and I think that you'll see as the result of these early pilots that we're doing, we continue to scale those forward.
Just to round out the conversation, the other thing that we are focused on and have started to look at is the potential for further leveraging automation and AI to support the efficiency of our back-end processes, and we think there's some real opportunities there, so we'll continue pilots in that space too.
That's great. Okay. And then just a couple more, actually. You had a big signing at NYU. I'm obviously interested to hear anything about New York. So just obviously, you got the regulatory or the policy headwinds in the U.S., but are you seeing any progress with clients or with anybody that you signed up recently?
Yeah, certainly. So we continue to remain focused on the US. As you touched on, the policy environment is a little complex. But what we tend to see, John, in that environment is the need for us to really support the sector as a thought leader becomes more important than ever. And so we have invested and built out our thought leadership in that space and continue to see it as a real opportunity.
We continue to see good progress on the US client portfolio builds. Across all new clients, we added over 20. Roughly half of those were in the US and another six in Canada. The big new clients that we saw in the half were Niagara College and British Columbia Institute of Technology for Canada. We're working on a couple of other big ones too globally that I've been sworn that I can't talk about.
So we land them, so I'm not going to say, but I was hoping to have them for the half. Hopefully, it's something I can talk to you about in the full year. But the U.S. for us continues to be a strategic priority. And I think as we've spoken about it, we're approaching the build of that portfolio in quite a targeted way. So we've segmented by demand, and we've got a list of target schools ranging from elite brands to clients who have particular demand profiles that really resonate with our existing student cohort.
We've got a target list of around 200 clients that we're working through in terms of looking to close. And we would expect, as we look to the full year 2025, that we'd expect to sign more new clients in FY25 than we did in FY24.
Okay. That's fine, dear. Okay. And then maybe just one more quickly. Just hearing that British Council is going to the government, talking about doing some more money and filling a hole in this budget, is there any opportunity there to sort of pick up some assets if they're selling?
Look, I think as we have a look at the role of M&A in our strategy, as Kate touched on, we've got a strong balance sheet, and we think about the role of M&A to support the inorganic growth and delivery of our strategy. We would be open to opportunities to simplify distribution across the language testing network. But I think, really, from a strategy perspective, our first focus in the partnership is to continue to look at ways in how we can accelerate product innovation and launch and delivery of new products into that space. So that's our first focus. And absolutely, that's where I'm spending a lot of my time with the respective CEO partners and the conversations I'm having.
Okay. All right. Great. Thanks, guys. Appreciate it.
Thanks, John.
Thank you. This brings us to the end of the question-and-answer session. I'll now hand back to Ms. O'Shaughnessy for closing remarks.
Thanks, everyone, for the Q&A today. Just to wrap up the call, while we continue to see uncertainty and restrictive policy settings in our sector impacting student volumes, I hope it's clear from the call today we are optimizing the controllables, including market share, cost discipline, average price growth, and innovation. And all of this is underpinned by our focus on quality. So the business is doing this while we're making significant progress on our strategic priorities.
And I was really pleased to hear in the Q&A that the focus and the recognition of the importance of that balance. And our strong view is that it's this combination that positions us even more strongly when student volume growth returns. So thanks again, everyone, for your questions, and enjoy the rest of your day.