Prior to assistance throughout the call, please press star zero. Finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Lisa Newns-Smith, Head of Investor Relations, to begin the conference. Lisa, over to you.
Thank you. Good morning, and thank you for joining us for PEXA's 2026 full-year results briefing. I'm joined today by PEXA CEO and Group Managing Director, Russell Cohen, and Interim CFO, Liz Warrell, who will discuss the group's performance for financial year ended 30th of June 2026. At the end of the presentation, we'll open up to questions. Before we begin, we acknowledge the traditional custodians of the land on which we meet today and pay our respects to elders past and present. I'll now hand over to Russell.
Good morning, everyone, and thank you for joining us today as we share our full-year results. As usual, I'll start by taking you through our FY 2026 highlights. Following that, I'll hand over to Liz, who will walk you through our financial results for the year in more detail. We'll wrap up by discussing our FY 2027 strategy and key focus points, and providing you with our FY 2027 guidance. At the end of our presentation, we'll be very happy to take any questions. Turning now to page four. I'm incredibly proud of our team for the performance we've delivered this financial year. We implemented significant cost efficiency measures in September last year in Australia, which, together with record Australian transaction volumes in Q2, drove strong operating leverage and EBITDA margin expansion. In the U.K., we were pleased to deliver NatWest remortgage implementation three months ahead of schedule.
Following go-live in late March of this year, NatWest is fully functional on the PEXA UK platform. As most of you are aware, the impact of our Australian regulatory environment was mixed this year. In March, ARNECC decided to conclude the interoperability program. On the same day, IPART released its proposed pricing methodology as part of its review of PEXA's service fees. Following this, in July of 2026, IPART released its draft report, and I'll go into this in more detail shortly. Lastly, we executed well against our strategic priorities by focusing on our core business and customer groups. We completed the strategic review of our digital solutions segment and have now substantially exited the portfolio. We launched our AML solution, PEXA Clear, to help real estate agents and conveyancers meet the new AML/CTF requirements, which commenced in July of 2026.
We are also in the final stages of preparations for the launch of a pilot in New Zealand, which will commence later this calendar year. Moving on now to our financial snapshot on page five. The results on this reflect the result from continuing operations. FY 2026 was a strong year for PEXA, with group revenue exceeding AUD 400 million for the first time, up 7% on FY 2025. Our EBITDA increased by 12%, and our EBITDA margin expanded to 37.3%, reflecting strong operating leverage as well as savings from our cost efficiency programs and continued cost discipline. Our net profit after tax, adjusted for acquired amortization, increased 35%, excluding significant and non-recurring items. Statutory NPAT from continuing operations returned to a profit of AUD 19.2 million, compared with a loss of AUD 65.6 million in FY 2025.
The Australian exchange continued to demonstrate excellent cash generation, with free cash flow up 39%. Overall, these results demonstrate strong underlying earnings growth and the continued improvement in the quality of our financial performance and execution. Turning to page six. I will now take you through the performance of each of our businesses, starting with Australia. FY 2026 was a strong year for the business, with revenue growth supported by record transaction volumes, particularly in December. The second half volumes remained relatively resilient. We saw changes in market sentiment impacting volumes in July 2026, which Liz Warrell will come back to later in the presentation. Operationally, we now serve customers in every state and territory in Australia. We launched remortgages in the Northern Territory in August 2025 and continued to build traction in Tasmania.
We are also pleased to see digitization advance in Tasmania, with the removal of the paper title requirement from 1 September 2026, and we are grateful to the Land Registry and other industry stakeholders who have collaborated to bring e-conveyancing to the state. We also continue to invest in Australia, with AUD 35 million in CapEx directed toward strengthening platform security, reliability, and resilience, enhancing our customers' experience, as well as developing PEXA Clear. Turning to page 7. As most of you would know, PEXA operates in a highly regulated environment. We are required to meet stringent service standards and maintain a comprehensive compliance regime of consumer protections, most notably our regulated exchange pricing, which has not increased by more than CPI since 2014. FY 2026 was a year of significant regulatory activity and scrutiny.
We participated in federal and state inquiries into e-conveyancing, which enabled us and other industry participants to share our view on significant industry issues. One significant development during the year was the conclusion of the interoperability program. Following the release in December of two independent reports commissioned by ARNECC, they decided not to proceed with the interoperability program as it was originally conceived. On the same day that decision was announced, IPART released its proposed methodology for its regular review of PEXA's exchange service fees. In July, IPART released its draft report recommending a 20% reduction in our regulated revenue from FY 2028, followed by CPI increases thereafter. As I said earlier, we strongly disagree with both the methodology and a number of the inputs IPART has used to arrive at their recommendation.
Let's turn to the next slide and give you some additional color on why we believe substantial changes are warranted to IPART's draft approach. The charts on this page come directly from our submission to IPART, in their response to their draft report. To support our own submission, we commissioned independent analysis from RBB Economics and four leading academics. You can read all of these materials on our Investor Relations website. Starting with chart one, on the top left, we share eight alternative approaches to assessing PEXA's initial asset base. This asset base is the primary driver of the proposed revenue reduction of 20%. Starting from the top of this chart, we have three views from expert economists. We also have the PEXA 2019 trade sale price rolled forward to adjust for inflation.
We just show the PEXA asset base consistent with how the tax office recognizes the asset base. We show an extension of IPART's own 2019 review of our prices. We show PEXA's asset base valued using the original investor risk premium. Lastly, we show PEXA's view, our calculation of the initial asset base with a series of what we believe are more appropriate inputs. Looking at this chart, two things stand out. First, the outcome under a building block methodology is highly dependent on the assumptions and inputs used. Relatively small changes in those inputs can have a very significant impact on the resulting asset base, such as the early rate of return, the useful asset lives, and the year of commencement of depreciation. Second, each one of the eight alternative approaches produces an initial asset base materially above IPART's draft calculation.
These divergences are significant and, in our view, need to be reconciled before such a substantial change to our pricing is made. Chart two helps explain why we believe the methodology itself is a poor fit for PEXA. PEXA has a different mix of capital and operating expenditure compared to a traditional physical infrastructure business. As you can see from the table, a traditional physical infrastructure business spends between 49% and 69% of its total expenditure on capital. Conversely, only 17% of PEXA's 2025 total expenditure was capital. This would result in PEXA realizing a significantly lower return on its total expenditure throughout the life of the asset compared to a physical asset. If IPART ultimately determines that a building block model should be retained, we have identified a number of material issues with the inputs it has used.
As chart three demonstrates, correcting those inputs would increase PEXA's initial asset base to between approximately 1.6x and 3.5 x IPART's draft assessment. Chart four provides another useful perspective. It compares the EBIT margins of the PEXA Exchange with a range of comparable businesses. This chart shows that PEXA's EBIT margins are comparable and, in many cases, lower than other familiar platform businesses in Australia. More importantly, we need to consider what this methodology means over the longer term. Our submission to IPART includes a hypothetical cash flow scenario using IPART's methodology and assumptions. If that framework were maintained beyond the current regulatory period, with all other factors held constant and no management intervention, the modeling shows PEXA becoming cash flow negative within the next decade. Clearly, that cannot be a sustainable, long-term regulatory outcome, and we don't believe this is what IPART intended.
PEXA Exchange is designated National Critical Infrastructure in Australia and requires continued investment to remain secure, resilient, and current. A significant fee reduction could compromise this critical Australian asset. We do not believe IPART intends to create an outcome that compromises the security and resiliency of e-conveyancing. We therefore believe there is a strong case for IPART to reconsider both the methodology and its key inputs ahead of the final report. Turning now to page nine, let's focus on PEXA Clear. This is a natural extension of our capabilities in Australia and a good example of the growth opportunities available to us outside the regulated exchange. PEXA Clear is our end-to-end AML/CTF compliance solution developed to help real estate agents, conveyancers, and legal practitioners meet the new obligations that commenced on 1 July 2026.
We've deliberately kept the pricing model simple and transparent, with no subscription fees or ongoing commitment. Customers pay only when they use the service. This pay-as-you-go model lowers the barrier to adoption, particularly for smaller real estate agencies and conveyancing practices, and allows customers to scale their use of PEXA Clear in line with their transaction volumes. While it is still early days, we've been encouraged by the strong interest in PEXA Clear from real estate agents, which is a new customer segment for PEXA in Australia. We expect revenue growth in FY 2027 to be modest as we build adoption and continue to develop the product. Over time, we believe PEXA Clear represents an attractive opportunity to solve a genuine customer need and extend our role across the broader property transaction ecosystem.
Turning to page 10, we'll move on to our international segment, which currently is represented by our U.K. business. As I mentioned earlier, we made important progress with NatWest during the year, delivering remortgage capability ahead of schedule and successfully scaling volumes following launch. I want to focus here on what this progress means for the broader U.K. opportunity. The successful NatWest implementation has demonstrated our platform operating successfully with a major U.K. lender and provided a proof point as we engage with other lenders and conveyancers. At the same time, we're seeing growing momentum across the government and industry to improve the U.K. home buying and selling process. That reform agenda is increasing the focus among lenders on modernizing transaction processes and strengthening the case for PEXA's proposition. Customer satisfaction has been high, providing further validation of the platform as we focus on driving broad industry adoption.
While we would have liked lender adoption of our U.K. platform to progress more quickly, we have established some important foundations. The technology is built and operational. NatWest is live, and we have received positive feedback from customers using the platform. With refreshed U.K. leadership, we are now adjusting our approach to place greater emphasis on our technology strength and execution quality. This includes working more closely with lenders and conveyancers to identify and remove practical barriers to adoption, and using our expertise to support the changes occurring across the U.K. property market as government and industry work together to improve the home buying and selling process. Turning now to page 10, we've spoken previously with you about the measured exploration of New Zealand as a potential growth opportunity. We've also been clear with shareholders about the criteria we will apply to any new market entry.
This entry should be capital-light. It should be de-risked through local partnerships wherever possible and supported by a regulatory environment conducive to digitization. New Zealand meets those criteria, and we are now in the final stages of preparing for a phased pilot. Phase 1 will focus on the purchaser's bank and solicitor. During the pilot, we will test a defined set of AI-enabled capabilities, including simplifying document review, preparing and executing electronic signatures, and automating communications throughout the workflow. This initial phase does not include lodgement or financial settlement. However, we have formulated the high-level solutions and partnerships should we progress past our pilot. We have deliberately structured the pilot this way to test the proposition and validate customer and industry demand before committing significant capital. We expect to be in a position to update the market on our progress at our first half 2027 results in February.
I will now hand over to Liz for a review of our financial results.
Thanks, Russell. We will start on page 13 with our core operating results. Consistent with the first half, in discussing these results, we will exclude discontinued operations and significant items, which are detailed on the following page. Unless otherwise stated, all comparisons are against FY 2025. Group revenue grew by 7% in the year, with growth across both Australia and international. As we discussed at the half-year results, our ongoing productivity and efficiency initiatives have continued to drive strong cost discipline. This enabled the group to continue investing in our international business for growth, while limiting group expense growth to just 4%. Pleasingly, this resulted in group EBITDA of AUD 152 million for the year, up 12%, with EBITDA margin expanding almost 2 percentage points to 37.3%. This flowed through to a core net profit after tax of AUD 26.3 million, up from AUD 9.2 million in FY 2025, representing an increase of 186%.
Now, turning to page 14, we show our reconciliations of our core to statutory results. As expected, significant items in FY 2026 were well below prior periods, contained to AUD 9.7 million, driven by redundancy and restructuring costs following our operating model changes in Australia. Importantly, the operating model changes delivered more than AUD 10 million in savings to the group in FY 2026. Net finance expenses were lower this year due to lower interest rates, combined with AUD 92.4 million in debt repayments during the period. Tax on core operations increased to AUD 3.7 million -AUD 27.3 million in FY 2026. As a result of the higher taxable earnings from the strong performance of our Australian business.
Discontinued operations from our digital solutions segment made a loss after tax of AUD 35.1 million for the year, largely as a result of impairments taken against these assets. Pleasingly, in Australia, we announced the sale of the last of these assets in August, with sale completion expected before the end of the calendar year. Next, I will take you through the financial highlights, starting on page 15, with Australia revenue and transaction volumes. Revenue growth of 8% in our Australian business segment was driven by record transaction volumes in the first half of the year, with volume remaining relatively resilient in the second half. We saw overall market penetration stay stable at 90% across the year, with small gains due to growth in Tasmania and Northern Territory, offset by lower penetration in other products. Lastly, we also put through our regulator-approved price increase of 2.4% from 1st of July 2025.
As I touched on earlier, while we did see transaction growth remain relatively stable in the second half of the year, let me unpack that further for you on the next slide. We thought, given the significant amount of press about the downturn in the Australian property market, we would share more about the drivers of PEXA's market volumes. Recently, we are seeing the Big Four banks in Australia call out declines in mortgage application activity of between 12% and 20%. In the exchange for the month of July 2026, we saw transfer volumes fall 15% versus July 2025, broadly consistent with what the banks are seeing. Historically, property transaction volumes are driven by a combination of macroeconomic drivers, including interest rates and adult population growth, combined with sentiment drivers such as house prices and growth in the ASX index.
In the first half of the year, a combination of lower interest rates, rising house prices, and first home buyer policy support helped drive record volumes in the exchange. In the second half, we saw this growth moderate as interest rates rose. As you can see from our monthly year-over-year volume growth in the appendix on slide 32, it was not until July 2026 that we saw a significant shift in momentum, with a 15% drop in transfer volumes. Consistent with this, we do expect to see a double-digit fall in transfer transaction volumes in FY 2027, driven by the elevated interest rate environment impacting affordability, negative consumer sentiment as house prices fall, and combined with the as-yet unknown impacts from the changes to negative gearing and capital gains tax.
We believe these tax changes will incentivize some investors to hold properties for longer, reducing the turnover rate and the volume of transfers. The unknown is, of course, whether this will be a short-to-medium-term impact or a structural shift. While investors may hold for the short-to-medium term, for many, the reasons to sell, such as freeing up capital in retirement, will remain. What we do know is that the annualized property transaction growth rate over the last 10 years has been about 2.4%, and over the longer term, we would expect the market to revert to this growth rate, with the unknown variable being potential structural shifts from the tax changes. Now we will turn to international revenue and volume on page 17.
Looking at international revenue, I did want to call out, excluding FX and the reduction in search revenue following the cessation of the low-margin contract, which was largely offsetting cost of sales, international revenue grew by 12.2%. This was reflected in strong margin growth, which increased by 15% for the year. This growth was as a result of price increases in Smoove, combined with stronger market volumes in the first half, which slowed in the second half, impacted by affordability and U.K. consumer confidence. As a result, sale and purchase volumes grew by just 1% in the second half versus second half 2025, significantly lower than the 15% year-over-year growth seen in the first half 2026. Conversely, remortgage volumes continued to recover, up 16% in the second half 2026 versus second half 2025, a result of an increase in fixed, rate mortgages maturing in 2026.
Moving on to slide 18, we will take a look at our costs. Group operating costs remained well controlled, growing just 4%, well below group revenue of 7%. As we have already mentioned, our cost efficiency and productivity programs remained a key focus during the year. Our operating model changes early in the period delivered more than AUD 10 million in savings during the year. These savings, combined with procurement savings and lower professional fees, resulted in just over AUD 19 million in efficiency savings for the year. These savings have been partially reinvested as PEXA continued to strengthen the Exchange's cybersecurity and resilience. We also continue to invest in our international expansion.
While our U.K. second half costs did not increase as expected, a result of taking a cautious approach to hiring in light of the slowing macroeconomic environment and pace of lender adoption, we did see an 11% increase in international costs for the year as we scaled the business. These results delivered a strong EBITDA growth in Australia, which was up 12%, with international EBITDA loss increasing AUD 3.3 million -AUD 41.1 million for the period. Looking ahead to FY27, we expect group EBITDA margins to decline, reflecting Australian macroeconomic headwinds, which Russell will touch on later. Moving to page 19. Following our strong operating performance, we saw free cash flows increase to AUD 93.5 million for the year, a 64% conversion, and up from AUD 67.2 million in FY25. On the right-hand side, you can see the breakdown of our CapEx spend by business segment and by investment category.
Capital expenditure in Australia for the period is slightly above FY 2025, reflecting investment in PEXA Clear, as well as investment in Exchange enhancements and security. International CapEx decreased AUD 3.4 million -AUD 16.5 million compared to the prior year, reflecting the sale and purchase bills largely being completed in FY 2025. We saw depreciation on amortization charges reduced by AUD 1.1 million for the year due to the runoff of aging Exchange and Smoove assets, partially offset by the impact of new FY 2026 assets. In FY 2027, we are expecting to see mid-single-digit growth in depreciation and amortization, with new assets coming online having a shorter average useful life than historical assets. Turning to page 20, we will now discuss capital management. The group repaid AUD 92.4 million in debt during FY 2026, reducing our leverage ratio to only 1x and increasing our interest cover to 9.6x, further strengthening our balance sheet.
This strength enabled us to renegotiate our existing debt facilities, negotiating more favorable margins and reducing our facility from AUD 500 million- AUD 330 million, while extending the average life of the facility to four years, with a combination of three, four and five-year facilities. As many of our investors are aware, PEXA has a deferred franking debit balance, which we must reduce prior to being able to pay a frank dividend. As we begin paying tax in FY 2026, the first year we have ever paid corporate tax in Australia due to historical losses, we expect to progressively reduce this balance over the coming years. In the meantime, we believe the most effective use of surplus capital is to continue paying down debt. Over time, as our capital position evolves, we will consider the most appropriate means of returning capital to shareholders.
With that, I will now pass back to Russell to take us through the conclusion and outlook.
Thank you, Liz. Turning now to our FY 2027 strategy on page 22. We started thinking about our strategy by focusing on our purpose. At its core, PEXA exists to connect people to place. That purpose underpins our strategy and how we think about our success. Success at PEXA has three dimensions. For our shareholders, it means protecting the strength of the Australian exchange, growing with discipline, and delivering returns from the investments we make. For our customers, it means making property transactions simpler, faster, and more secure, whether that is settling a home in Australia, meeting new AML requirements, or completing a remortgage in the U.K. For our people, it means creating an environment where they can do their life's best work, where our values guide how we operate and where everyone understands the role they play in delivering our strategy.
If we deliver for our shareholders, our customers, and our people, we will deliver on our purpose and create a stronger PEXA for the long term. On the next page, I will take you through how that translates into our priorities for FY 2027. First, we are focused on protecting and strengthening the Australian exchange, the engine room of our business. Our priorities are reliability, resilience, and customer service while continuing to expand digital coverage across Australia. We will also remain focused on regulatory compliance, working constructively with ARNECC and through the IPART process. Second, accelerate U.K. adoption. We have proven the technology through NatWest, and our focus now shifts firmly to adoption and transaction volumes. Our next major milestone is delivering sale and purchase with NatWest while bringing additional lenders and conveyancers onto the platform. Third, disciplined new business growth.
We want to grow, but we will be disciplined about where and how we invest, focusing on opportunities where PEXA has a genuine right to win. For PEXA Clear, the priority is now driving adoption and building a profitable business. In New Zealand, as I mentioned before, the priority is to test the proposition with customers and industry before committing significant capital. Fourth, people-powered growth. Delivering our strategy requires the best people, capabilities, and ways of working. We will continue strengthening our team through AI enablement, focused personal development, improving collaboration between Australia and the U.K., and building clearer career pathways. Together, these priorities give us a clear framework for FY 2027: protect the strength of our core business, grow with discipline, and execute against the opportunities we have in front of us. Turning now to page 24.
Given the current macroeconomic uncertainty that Liz Warrell has talked to, we thought it would be useful to provide greater transparency around the sensitivity of our EBITDA margins to Australian transfer volumes. The majority of our group revenue is currently generated by the Australian Exchange. While the collective revenue contribution from our growth investments is expected to remain modest in FY 2027, each represents an important long-term growth opportunity. These four scenarios illustrate the impact of different levels of transfer volume decline on our FY 2027 EBITDA margin, with all other factors held constant. In each scenario, we have assumed the same low single-digit growth in the Australian refinance and other transaction volumes. Importantly, the scenarios on this page are sensitivities and not guidance. They also do not reflect any management action to improve cost efficiency across the business.
Let me now address a question that I think investors should be asking of management, given the softer outlook for volumes and revenues. What are we doing about costs? As Liz Warrell covered earlier, in FY 2026, we took out 10% headcount out of the Australian business and delivered AUD 19.2 million in cost efficiencies. We do have further levers available to us, but we will not pull them to manage a short-term margin outcome while awaiting the final IPART price recommendation. While we have presented strong and well-supported arguments regarding IPART's proposed methodology, the final pricing outcome does remain unknown. When we have further clarity on the recommendation and on the implementation pathway proposed by ARNECC, we will come back to investors with more clarity on what this means for the future cost profile of the business.
Against this backdrop, any further cost efficiency initiatives will be carefully considered, balancing near-term financial performance with the capabilities, resilience, and investment required to support the business over the long term. We remain confident in the strength of the Australian Exchange, the opportunities across our newer businesses, and our ability to respond appropriately as market conditions evolve. I will now close with our guidance for FY 2027. We are guiding to group revenues of between AUD 385 million and AUD 415 million. The range reflects the significant macroeconomic uncertainty we are seeing in Australia. Given that backdrop, we believe it is appropriate to take a cautious approach to the year ahead. We expect our group EBITDA margin to moderate in FY 2027. Like other platform businesses, our business has a relatively high proportion of fixed costs, so lower Australian transaction volumes do have a direct impact on our operating leverage.
This will be combined with higher costs associated with productivity tools and targeted investments in PEXA Clear and our New Zealand pilot. Similarly, group NPAT from continuing operations is expected to decline in FY 2027, primarily reflecting lower Australian revenue together with these targeted investments. We continue to be disciplined in our approach to capital allocation, with CapEx expected to remain broadly in line with FY 2026. Importantly, our investment remains flexible and controlled. The level of spend will be linked to customer adoption in the U.K. and the outcome of the New Zealand pilot, so we will deploy additional capital as those opportunities are validated. In the U.K., we expect a modest reduction in cash outflow, with that improvement broadly offset at a group level by investment in the New Zealand pilot.
Reaching the upper end of our investment range would be driven by signing new U.K. customers, so additional investment would follow demonstrated commercial progress. Before we take questions, I'd like to thank shareholders for their continued support, our customers for the trust they place in PEXA, and our team members for their hard work and contribution throughout the year. In particular, I'd like to express my sincere gratitude to Liz, who has been a valuable thought partner to me and our broader leadership team, and a strong leader as we've navigated key priorities across the business. I wish her every success for the future. I'd also like to acknowledge those shareholders and investors who've engaged constructively with the ongoing pricing review, whether through submissions to IPART or by sharing their insights and perspectives.
We appreciate the time and effort you've taken to contribute to this important process and advocate for a fair and sustainable outcome. We enter FY 2027 with a clear strategy and a strong focus on execution. Thank you again for your time today, and we look forward to keeping you updated on our progress.
We'll now come back for questions.
If you wish to ask a question, please press star followed by a one on your telephone and wait for your name to be announced. That is star one if you wish to ask a question. Your first question can come from the line of Elizabeth Miliatis from Macquarie. Your line is open.
Good morning and thanks for taking my questions. The first one is just on the FY 2027 guidance. Are you able to give us color, perhaps at the NPAT line or at the NPAT line on exactly what you are capturing in there for New Zealand expansion and also perhaps AML/CTF?
Yeah, so look, it is all in there, Liz. We have not given out and we will not be giving out specific guidance on those businesses. What we will say, though, is, as you can see, the international cash outflows next year, look, we think it will be broadly flat, and that is inclusive of this additional investment in New Zealand. So it is, look, it is a relatively modest investment in New Zealand. Similarly, for AML for the year, the revenues we think will be reasonably modest, certainly as we start to grow the business. But again, it is not a significant cash outflow either.
Okay, thank you. Maybe just on IPART, obviously you have been engaging with them significantly. You have put forward some pretty compelling cases as to potential flaws in their calculations. How have they responded to the pushback? Is there any chance, given some of the things you are suggesting, fairly material, I would imagine, for them that the final report is delayed a little bit?
I'll take that one. Thanks, Liz. We put in our submission, and obviously there was an extensive public submissions we believe also went in. We have not received feedback on how IPART have viewed those submissions. I think they're going through their process to, I imagine, review all that information, our input, and other stakeholders, as well as the research that we commissioned, sort of challenging the idea of the building block model and some of the assumptions, particularly around PEXA's early years. We will expect to hear from IPART similarly on the schedule that they'll communicate with the public. The second part of your question, remind me again, what was that, Liz? Sorry
Just is there any recent discussion?
IPART was delayed. Yeah, sorry. Look, at this stage, we are unsure. We are operating on the timeline that has been shared previously, which is that we anticipate their final report will be published around the end of September and make its way to the New South Wales Minister.
Okay, thank you.
Your next question comes from the line of Ed Henning from CLSA. Your line is open.
Hi, thanks for taking my questions. I have just got one on the U.K. and then one on New Zealand, please. Starting with the U.K., can you just touch on a couple of things there? One, NatWest coming out in the third quarter. I imagine that is by March. Just to clarify that was fiscal year, not calendar year. Is that a slight delay? I thought it was due to come through at the end of this year, like the second quarter financial year. Just within that and thinking about NatWest, is it really important to get the other remortgage conveyances on board so then NatWest can get more of their volume to come through for remortgage to really show the benefits to potential mortgage holders? Can you just touch on how that is going, please, as a first question?
Yeah, thanks, Ed. Look, it is a slight delay, and it is really the delay is getting FCA approval. Moving into S&P, we do need, or sorry, NatWest actually needs some specific approvals that have been a bit delayed and will be delayed over Christmas, unfortunately. So that will push us out.
Yeah, the sale and purchase transaction for a lender in the U.K. is what is called a core or critical business process as designated by the regulator, Ed. NatWest, because they are changing that flow and their workflow, needs to get those approvals. So we will be ready to go in, we hope, March of next calendar year.
Yeah. Sorry, Ed, what was your second question?
Just more, if I think about the true benefits that NatWest are going to get, you know, if you look at Optima, they have got around 20% share. You know, you cannot really go and sing to everyone and say, "We can do a mortgage a lot quicker," unless you can get the other remortgage conveyances on board, because they only can do a small proportion through Optima. How is the conversations going with the other remortgage conveyances? Is NatWest, you know, I guess, leaning on them or trying to push down that path to get the other remortgage conveyances so they can get more of their volume to come through the PEXA channel? If it is.
Yeah, no, we absolutely are, Ed, and having some really good discussions. Absolutely, we are focusing on NatWest's other bulk conveyances. When we have got some more committed timelines there, we will definitely share them. At the moment, yeah, we are actively engaging on our pathways to integration.
Okay. No, no, that is great. Just one further follow-up on New Zealand, if I can. You know, you talk about, you know, just dipping the toe in and capital light, which is great. Can you just talk about how we should think about the size of the prize here for New Zealand if you do get if you do get adoption? Should we think of it like of a small state in Australia from revenue size-wise?
Ed, our solution in New Zealand is quite different to Australia from a technology perspective and a workflow perspective. When we are ready to share a little bit more on how it works, we will do so. From there, you can kind of size it up. I think, you know, the way to think about New Zealand for us is that we are building a new workflow process, a new workflow tool, primarily to service banks and lawyers to communicate securely and in a timely manner. It is AI-driven. For us, the proposition on how we charge and monetize is going to be a little bit different. That is all I am going to share for now. In terms of TAM, it will really depend on how the services are structured, which we are still working through in the pilot.
Okay, great. Appreciate that. Thank you.
Your next question comes from the line of Josh Kannourakis from Barrenjoey. Your line is open.
Hello, Russell and Liz, can you hear me okay?
Yeah.
Yep.
Good.
Awesome. Thank you. Just first one, just with regard to the guidance range and then linking that back to some of that helpful commentary you gave on the transfer sensitivity. I mean, obviously, it's very early on in the year. We've heard a lot of backdrop around the macroeconomic headwinds and tax changes. But is it implying transfers, you know, down closer to the 15% range at the midpoint? Is that how we should be looking at it? And how are you thinking about, you know, the backdrop in terms of, you know, refi activity as well into 2027 as you sit there today?
Yeah, look, it'll certainly be down double digit is what we'd expect at this stage. Look, at the moment, we've seen 15% in July, but it is only one month. And when you look at that monthly chart in the, you know, appendix, you can see that, you know, it can actually move, you know, month on month, and the sentiment can actually change fairly quickly. So look, we'll have to, you know, play that out over the year, but certainly, we're expecting double digit over the year. We think refis hopefully will be a little bit more, you know, hopefully get a little bit more growth from them during the year. But we will have to play that out, but it'll certainly be very modest.
Okay, that's great. Thanks, Liz. Just second question, just with regard to the U.K. So obviously, great that you're getting closer to NatWest despite the slight delay there. In terms of, I guess, the roadmap, there's been a fair bit going on and a number of players, you know, putting together a consortium at more the front end of the sort of offering around speeding up the efficiencies there. How are you interacting with some of the other players in the market and in terms of where you feel like you'll end up in terms of the best market fit as it's still focused on, you know, the back end settlement payment sort of handling? How we should think about the, I guess, the competitive environment over there. Thanks.
Yeah, thanks for that. So look, you're right.
The government's recent housing market reforms, I mean, they touch on a few elements, but the upfront data piece, which has been a problem for a number of years in the U.K. in terms of impacting the buying and selling completion journey, is a focus in this immediate period. In discussions with lenders, Josh, they're focused on the whole flow, to be candid. Upfront data, binding contracts, settlement, conveyancer digitization, electronic signatures, all of that fits into that superior customer journey. The knowledge they have of what PEXA's been able to drive in Australia is well known amongst both big and small lenders in the U.K. So upfront information, yes, is a top-of-mind issue for the lenders, but they're very clear on how it matches with the full PEXA proposition.
Got it. And just, I guess, just maybe a second point to that is just, though, do you see yourselves being potentially able to capture some of the upfront piece as well over time, or do you think it is more likely to be a partnership model with some of these other established players?
Josh, more likely to be a partnership model, to be candid. A lot of the upfront players right now, they do not offer an extension into lodgement and no financial settlement. So in order to make the whole end-to-end journey work, there would likely need to be a partnership model, potentially facilitated by a bank, unique to their flow, or PEXA forming a partnerships. We are working with a few different industry players to understand that right now.
Cool. Thanks, Russell. Cheers, mate.
Thanks, Josh.
Your next question comes from the line of Tharan Jeyathasan from JPMorgan. Your line is open.
Thanks, guys, for taking my questions. Perhaps just the first one around, I think IPART's preliminary view is that some of your ancillary services, such as PEXA Planner, PEXA Tracker, subscriber APIs, et cetera, sit outside the regulated ELNO services. So I'm just keen to understand how material these unregulated products are as, you know, as a proportion of your total revenue and margin pool and how fast they're growing, just in terms of how meaningful of an offset they could potentially be to any core price cut.
Yeah, no, thanks for the question. And look, if you look in our appendix on page 29, you can see we've got in there really that other revenue is the bulk of what we would call our agency revenues. So it's about AUD 5 million for the year. So look, it's not a particularly material number.
And in terms of growth, it's not an area that you can invest in possibly to grow those revenues faster than the rest of the group? Not sure how the economics work there.
Yeah, look, it is certainly an area that we are looking at, but, you know, the growth in those products would be modest.
Okay. Yeah, noted. The second question just around, I think in your hearing with IPART, you noted that the draft pricing changes would reduce cash flow in one year by 55% and that the 5% volume risk that IPART wants you to absorb, you know, hits the remaining taxes by another 25%. So in aggregate, that is like a, you know, kind of 60%-65% shift, which is not small. Just interested in how you are thinking about that. If we kind of apply that to your current cash, your current tax generation, it perhaps takes you below your cash outflow in the U.K. So, you know, if you take the base case or, let us say, worst case of no change to IPART, how does this impact your strategy in the U.K.?
Yeah. Look, you know, we will, of course, just have to wait and see what the final recommendation is from IPART and what that implementation is then. From ARNECC and Interoperability, of course. The other factor playing in there is that, you know, certainly in our submission back to IPART, we have put in a revised volume forecast. You know, not surprisingly, with the drop that we are expecting to see in the volumes this year, you know, where, you know, you would expect some of that, sorry, we should not say we expect, but certainly in our forecast, we have got some of that flowing through, which essentially means that, you know, some of that drop in the free cash flows, you are already going to see it in FY 2027. So it will not be quite as big a decrease if it was implemented as planned.
On the DVAM, look, sorry, which was that Demand Volatility Adjustment, we have actually recommended that we do not keep that. We do not think it is the right thing for the business long term. But, of course, it will just remain to be seen. Then as a result, our investment into the U.K., you know, look, we are certainly committed to the U.K. You know, we have certainly got enough liquidity and liquidity lines available to us as it stands.
Okay. Okay. Thanks for that. And perhaps just a last question around the conversations you are having with other large banks in the U.K. I think previously, the thinking was that we could see some other banks as fast followers post NatWest going live with Remos. Just how you are thinking about that now, how those conversations are progressing, and if you think S&P will need to go live as well before you see other banks move.
Thanks, Tharan. I will take that one. Look, S&P with NatWest, we are targeting March. That is very much part of the relationship and the contractual agreement and the solution we have built with NatWest. That is very much on train. In the financial year, obviously, we would have liked other lenders to come on board, as I mentioned in my script. We keep and remain engaged with all the Tier 1 lenders and many of the Tier 2 lenders. We keep engaged with the mortgage origination software providers that facilitate a lot of the loan transactions for the Tier 2 and mutuals. There are many concurrent conversations. I would say one interesting and positive development in the last, let us say, six to nine months has been we have been engaging with the lenders also from a collective perspective. How might the lenders do something together?
How might the industry move together towards greater digitization? That is something that is kind of a change in tone, and I think it is very much linked to the U.K. housing market reforms that the government has spoken about in terms of digitization.
Thanks, guys. That is all from me.
As a reminder, if you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. Your next question comes from the line of Kieren Chidgey of UBS. Your line is open.
Morning, Russell and Liz. Just like to start with the first question, coming back to the volume price interaction under IPART's proposal. I think you mentioned, Liz, in your submission, you are clearly flagging a lower volume outlook. Can you just talk us through what has been discussed with them and how we should be thinking about a weaker transactional backdrop in 2027 and how that might impact the price per transaction from 2028 onwards? Have they committed to reassessing the transaction volume that is implied within those prices ahead of formalizing or locking in pricing?
Yeah, no, look, they have not committed to it. What we do know is that we have certainly shared, though, our model, and we have also seen their model. So we know our models are reasonably aligned. As you saw from our submission, we certainly, if you update the models for the more recent experiences and macroeconomic factors, we would expect it to come down, but there is no guarantee. We cannot predict what IPART will do, and they will not give us that guidance on that. But look, it is very key because, of course, IPART, in how they have calculated, they calculate a revenue requirement, and then they use their volume forecast to back-solve the price. So it certainly will be a critical input, and we have certainly shared our views with them on those numbers.
All right. Just given their final report is due on 30th of September, we will only be a couple of months into software activity. Will there be a further review point, do you believe, or is that pricing in that 30th of September report likely to be the final view?
As far as we know, what is in the final report is likely the recommendation that will go to ARNECC, and then ARNECC will complete their own work jurisdiction by jurisdiction. That is the best understanding we have right now. There could be more questions that come back to PEXA on a range of topics, but right now, from a process perspective, that is our best understanding, Kieren.
All right. Just a second question sort of on the longer-term future review impacts, Russell, sort of the comments you made around going cash flow negative or minimal cash flow by 2034, I think, was in your submission. I know you have not had detailed sort of feedback from IPART so far, but that is a pretty critical aspect, I guess, of declining IAB over time. Has there been any response in regards to sort of, I guess, what a roll forward of the currently proposed model would mean longer term?
No formal response, Kieren. We have highlighted that, and we did highlight that quite soon after we read the draft and had done our own analysis, and it became clear that the way in which the building block model had been structured, the way in which the calculation had been, yeah, structured in the IPART draft report would have this peculiar impact of really pushing PEXA's free cash flow negative, you know, over the next 10 years. For that reason, as I said in my script, we believe it is not the intention of IPART for that to be the case. We think it is an unintentional calculation and almost like a quirk in the model as a result of using the building block methodology and some of the assumptions that were included. We have made it very clear there is a way to correct it. There are more appropriate models.
It is all laid out in our submission, and we are hopeful that IPART will take that on board. One important thing is that should they stick with the methodology and should the draft report become the final recommendation, and PEXA was trending towards that hypothetical negative free cash flow picture, there would likely need to be a review of the right methodology in the next period. One of the really important things is I do not think anyone wants the third pricing methodology to be applied to a business like PEXA in three IPART reviews, 2019, 2026, and then, you know, 2031 or 2032. We think that is just a really undesirable outcome for any regulated space, and we made that pretty clear in our submission.
All right. If the current proposal from IPART moves ahead with no changes, I presume we are looking at a fairly decent intangible write-down and change in the acquired amortization profile moving forward?
Yeah, if you have a Note 3(b) at count, we have called out that, look, a reasonable, possible change could result in an impairment. Look, it is, you know, sub-AUD 50 million, but it is a possibility.
Okay. Just a final question, PEXA Clear. Sorry, I might have missed a comment earlier, but can you just give us a quick update on how that is progressing?
Yeah, I will take that one. Look, it is progressing well. We have found really nice product-market fit, in particular with the real estate segment in Australia, Kieren. Real estate agents were not a customer grouping that PEXA had served throughout its history. So, yeah, getting to know that segment. Obviously, it is a separated business from the PEXA Exchange. We have distinct salespeople and distinct tooling and distinct marketing, and that has resonated really, really well with that segment. We have a number of lawyers and practitioners as well using the tool who are familiar with the PEXA brand, but it has really been the real estate segment that has connected well. The pay-as-you-go model has been really, really well received. We are just kind of fine-tuning our operational processes.
You know, the AML regime is new for everyone in Australia for property, so there is a lot of understanding and education that is needed to occur across the market, as well as, you know, really the compliance onboarding with AUSTRAC. So it has been a really good learning for us, but I am really happy with how the team have performed and how the product works, and now we are just kind of fine-tuning some of the operational processes.
All right. And materiality, Russell, for FY 2027, is it still fairly small in terms of the broader group?
Yeah, it is, Kieren . It is very much.
Financially and stock.
Yeah, yeah. Financially, it is still very much a startup software product. I mean, we have come into a market with some very established players that have been around for a long time, so we are really trying to carve out our niche and our differentiator.
All right. I will leave it there. Thank you.
Thanks, Kieren.
Your next question comes from the line of Christian Waked from Jarden. Your line is open.
Hi, thank you for taking my question. Just a follow-up question on the pricing free cash flow step-down at the next review. In your response to IPART, you note the RAB will fall to AUD 214 million, assuming that the unrecovered cost balance drops off. Shouldn't PEXA still be getting a return on capital on that balance? I guess, what is the discrepancy that's bringing your free cash flow to flat or negative? Also, I assume that doesn't include interest on client accounts and how to think about that also?
When you look at it and how they calculate, actually, that return on capital, it's based on the asset base. You know, starting with that initial asset base, and as they called out, they did include some initial costs in that asset base, but they actually start depreciating those costs in the year that they were spent. You know, the costs back in sort of pre-2019, a lot of that will have been fully amortized, certainly by the end of the, you know, 2031. That is why the asset base falls off so fast.
That is and that's sort of absolutely one of our key points back to IPART is that it makes no sense to start depreciating that asset base as it was, you know, in the year that it was spent when clearly we weren't getting any return on that asset base at that point in time. So, you know, there's certainly more detail on that in our detailed report if you want to read it in there.
Yeah. Well, I guess the question was more so I understand that the asset base drops, but, you know, assume you do receive return on capital on that asset base. I mean, assume 6.5% WACC should be, I don't know, close to AUD 15 million. What is the discrepancy between that, let's say, AUD 15 million and the negative or slightly negative free cash flow forecast that you've put in your response? That's more so the question.
And, look, it is really just the timing. It is the timing of that depreciation profile as well as the CapEx that we would expect. If you just roll forward the CapEx at, you know, sort of the consistent rates that what IPART had assumed, it is just kind of a timing thing. Over time, you certainly wouldn't see under their model permanent negative cash flow. It would even out over time and become sort of a stable, you know, low single-digit cash flow net cash flow number.
Yeah, understood. Just one more question on the U.K. specifically. In terms of government, do you have any comments on the tokenization kind of initiative happening in the U.K., GBTD, and that the banks are all participating in? Any thoughts on that and if that is a threat in any way?
We are also participating in a range of synchronization, let's say, workshops and engagements and pilots. We have obviously got a partnership with Mastercard, which is a variation on that, and we are testing some interesting technology with them, sort of fitting in with the theme around synchronization and delivery versus payment concepts that we, as in Australia, know very, very well. I do not have any particular comments on how the bank's using synchronization. I know there is a lot of pilots going on. Yeah, when and if we have got more to share, we will do so publicly. I think the most public we have been is on how we are working with Mastercard on testing their version of that.
Okay, understood. Thank you for taking my questions.
Thank you.
As there are no further questions, I would like to thank our speakers today for the presentation and thank you all for joining us. This now concludes today's conference. You may now disconnect.