Thank you for standing by and welcome to the Zip Co Limited HY23 results briefing. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via webcast, please enter it into the Ask a Question box and click Submit. I would now like to hand the conference over to Vivienne Lee, Director of Investor Relations. Please go ahead.
Thanks, operator. Good morning and thank you for joining Zip's first half 2023 earnings call. To open the call, I'd like to begin by acknowledging the traditional owners of the land on which we meet today, the Gadigal people of the Eora Nation, and pay my respects to elders, past and present. This conference call is also being webcast, and both the results, presentation, and call details are available on the ASX. I'm joined today by Zip Co-founder and Global CEO, Larry Diamond, Zip Co-founder and Global COO, Peter Gray, and our CFO, Martin Brooke. We'll start this call with some prepared remarks and then open up to questions. With that, I'll now hand over the call to Larry.
Thanks, Vivian. Good morning and welcome once again to Zip Co's half year FY 2023 results presentation. We founded Zip to create a more financially fearless world, we are just getting started on our mission to be the first payment choice everywhere and every day, to create a world where people can live fearlessly today, knowing they're in control of tomorrow. We continue to believe that when you give people knowledge, access, and the ability to control their financial lives, you give people the ability to live every day with confidence. When users click our button, that's the promise we wish to deliver. We have your back. Particularly at a time of heightened inflation and increasing cost of living pressures, BNPL is established as an important budgeting tool for everyday use for consumers and a real necessity for all our merchants.
Zip has delivered a strong result and as we look forward to celebrating our tenth birthday in June this year. Before we get into the details of today's results presentation, I'd like to set the scene and talk about the journey that Zip has been on. 12 months ago, in response to changes in market conditions, we pivoted the strategy from a focus on top-line global growth to one of sustainable growth, accelerating our path to profitability. We said that we would focus on core products and core markets and allocate resources to those geographies that were either profitable or had a near and clear path to profitability. We reset our strategic pillars and shifted our focus to drive growth in these core markets, improve unit economics and reduce our global cost base.
Over the last 12 months, Zip has been executing exactly on this updated strategy, and you will see significant progress in the results we are sharing today. Along with the initiatives that we have delivered over the past 12 months, we've now finalized the strategic review and will be streamlining the business from 14 to 4 markets. We are now emerging as a stronger and leaner company that is well-funded and our results today demonstrate that we are at or approaching our financial targets. Just moving on to the table of contents. Today, I will cover the highlights and US business performance. Pete, our Global Chief Operating Officer, will cover the ANZ business performance and our financial performance. This will be followed by Martin, our Chief Financial Officer, who will walk us through the summary financial statements, and I'll then conclude with a few remarks regarding our outlook.
Our key operating highlights are set out on slide five. Before I begin, I should say that all the numbers throughout the presentation will be referring to financial and operating metrics on a continuing basis, which excludes Zip's UK, Mexico and Singapore businesses, which are now closed, and a reconciliation is provided in the appendix. As you can see here, we are very pleased to deliver another period of record volumes. This was despite the challenging external environment and adjustments to our risk settings. We delivered close to AUD 5 billion in transaction volume from over 42 million transactions, driven by a solid increase in customer engagement across the business. Slide six, if you just turn over, is a summary of our key financial metrics.
In line with our clear focus on profitability, I'm particularly pleased with the team's execution of our revised strategy to focus on core markets and core products. That is clear in these financial results. Revenue margins lifted by 50 basis points to 7.1%. The cash transaction margin expanded to 2.5% and net bad debts came in at 1.9%, down 50 basis points year-over-year, all in line with our target ranges. This performance was achieved despite a significant rise in interest rates and I think clearly shows healthy demand for our products and services. As a result, half year 2023 cash EBITDA for the underlying core business improved by $27 million to a loss of $33 million.
Core cash EBITDA, I'd just like to remind everyone, includes EBITDA from our core markets of Australia, New Zealand, the Americas, plus corporate costs and is a better indicator of the go forward business. This very strong result has us well and truly on the path to positive group cash EBITDA during the first half of fiscal 2024. Turning to the highlights on slide 7. From a highlights perspective, the core business is performing well. We were very pleased to see the US and New Zealand businesses both deliver positive cash EBITDA in November and December for the first time, excuse me, for the first time in our history, with both markets continuing that result in January, joining the already profitable Australian business. This performance reflected strong seasonal volumes and our progress in improving unit economics, coupled with good cost discipline.
The incremental value we bring to merchants continues to resonate. We consolidated our leading presence in travel and marketplaces in Australia with the addition of eBay, Qantas, Jetstar, and Uber, and a very strong pipeline emerging. In the US, we were supported by the likes of Best Buy, Fanatics and Barnes & Noble. While our Shop Anywhere proposition enabled customers to use Zip at hundreds of thousands of locations. Finally, we took actions to manage our balance sheet liabilities, retiring AUD 110 million of convertible notes. We were particularly pleased with the transaction in December, where you would have seen us retire AUD 70 million of our zero interest AUD 400 million convertible notes, which were undertaken at an attractive price of AUD 0.23 in the dollar and a cash neutral outcome to Zip.
While the remaining convertible bond liability has several years until maturity, management remains focused on opportunities to address this liability and further strengthen the balance sheet as market conditions permit. Moving on. Slide eight shows the movement in Zip's available cash and liquidity position from 30 June to 31 December 2022. As highlighted on the chart, there are a significant number of one-off, non-operating and non-core cash flows that occurred in the first half that we do not expect to occur in the second half of this financial year. These included payments for past M&A activity, convertible note repayments, as well as movements related to Zip's funding programs. These activities totaled more than AUD 140 million in aggregate.
You can see in the dark blue on the chart what we define as core operating cash flows, and the light purple and light blue for the non-operating items. You can read more detail on this slide and in the half year report. The next slide, which is arguably more important, demonstrates why we expect a significant improvements in cash flows in the second half as compared with the first. Firstly, core cash EBITDA of negative $33 million is expected to improve further in the second half by up to 50%, driven by continued focus on productivity and efficiency improvements to our fixed costs. Secondly, we expect a reduction in non-operating and one-off payments, as I mentioned earlier, which had an outsized impact in the first half.
We also have a number of initiatives underway to release restricted cash from our facilities, while funding from peak sales is expected to largely unwind over this quarter. In addition, Zip's strategic review is now complete as the company elects to exit its rest of world regions. Actions to divest, restructure or wind down these regions are well progressed and expected to deliver cash inflows during the second half of this financial year, while neutralizing the cash burn in these markets. Finally, we expect to see further improvements to group corporate costs as the business simplifies its footprint from 14 down to four markets. With these actions and ongoing improvements in our core business, we are confident that we have the capital and strategy in place to deliver positive group cash EBITDA profitability during the first half of fiscal 2024.
Just moving on to slide 10. This shows Zip's continuing cash EBITDA for the group was negative $43 million. Removing those geographies under review to be divested, restructured, or closed in the second half, core cash EBITDA, as I previously mentioned, was negative $33 million, a significant improvement of $27 million year-over-year. On the next slide, we break down cash EBITDA over the half. As demonstrated by the charts, performance improved considerably during the period. As you can see, the majority of the losses incurred in Q1 of FY23 versus Q2. The core business delivered a cash EBITDA loss of $32 million in Q1, which improved to a loss of only $1.4 million in Q2. The movement was assisted by peak seasonal volumes, also driven by significant improvements in the underlying business.
As we exit H1 2023, we expect the second half to show an improvement of up to 50% on the first half cash EBITDA results. Now let's turn to slide 12. At the beginning of FY 2023, we reset the Zip strategy to deliver sustainable growth and an accelerated path to profitability while executing on the strategic priorities of core products and core markets, strong unit economics and rightsizing our cost base. I believe we have delivered a strong set of outcomes against these three pillars. In core markets, customer engagement continued to grow. In the US, spend per active customer grew by 9% year-over-year. In Australia, we focused on scaling our higher margin Zip Money product, which delivered its highest 2 months of TTV in November and December.
With regards to unit economics, the margins from the continuing business expanded this half, offsetting the impact of interest rate rises and supported by significantly better credit outcomes. Pete will delve into this later. In addition to the outcomes I just mentioned on our strategic review, we completed the wind down of our non-core businesses in Singapore, the U.K., Mexico and Zip Business Trade. In the core business, Zip continues to focus on driving operating efficiencies, portfolio simplification and higher margin revenue growth, all driving towards sustainable profitability. Now let's move to slide 13 and look at the rest of world. These geographies have been under strategic review as we determined as a group that we would focus on businesses that were either profitable or had a near and clear path to profitability.
I can say that the strategic review is now complete as Zip has made the decision, as flagged earlier, to exit its rest of world non-core regions. Initiatives are well progressed to wind down, restructure, or divest these geographies that will result in the removal of any cash burn during H2 FY23. This will have the effect of reducing our global footprint from 14 markets to our four core markets. In addition to the neutralization of the cash burn from these regions, these actions are also expected to deliver additional cash inflows during the half, which will contribute directly to the group's availability of cash and liquidity. Now moving to slide 14. As a global organization, we remain committed to operating responsibly and in a way that positively impacts all stakeholders.
I'm very proud of the progress we have made in the last 6 months. Supporting financial empowerment for our communities is central to our vision for a financially fearless world. Our partnership with Young Change Agents is a clear example of this, as we've continued to support their financial literacy and entrepreneurial education programs. For our customers, we remain committed to responsible lending and driving smart money management with the recent addition of bank linking in the Australian app, leveraging the IP and smarts inherited from those who remember our dear Pocketbook app. We are committed to driving gender balance and have lifted the percentage of women to 44% of our global workforce. Importantly, this included a lift in female representation across all management levels below the board.
At Zip, we pride ourselves on being a company that really cares for its people and providing a workplace where they can thrive. We are pleased with our latest survey results, with employee engagement levels remaining high at 78%, despite, as we see around us, elevated levels of attrition across the industry. Finally, we have continued our commitment to be a global climate neutral organization. We work with a solutions provider, South Pole, to achieve this in FY 2022 and continue, excuse me, to work towards setting emissions reduction targets. That's the end of the first section, and we'll just now move on to the business performance. On slide 16, we look at the U.S.
We always believed the U.S. was a significant opportunity for Zip, but we understood there was a limited window of opportunity to establish our footprint given the rapid market forces catching on to the global BNPL trend. After carefully considering our options to buy versus build, you will recall that we chose to enter the U.S. via the acquisition of Quadpay in 2020. At the time, the business was doing $75 million in monthly TTV. As we fast-forward today, we have a large operation with over 250 staff on ground, processing annualized volumes of $4.6 billion, up around five times since we acquired the business, an experienced leadership group, and some great household names such as Best Buy, Fanatics, and Barnes & Noble. We also have a great and differentiated product to market where you can literally pay in full anywhere.
Hopefully, you can understand why I'm extremely excited for our future here, notwithstanding the competitive landscape, and even moved the family over here late last year. On to the results. The US delivered positive cash EBITDA in the months of November and December for the first time. This was driven by significant improvements in credit performance, coupled with disciplined cost management. We note here that top line growth was impacted as expected, should I say, by the changes we made to risk settings. Customer engagement with our existing base improved meaningfully with transactions per active customer up 23% year-over-year. Our install strategy also continued to take shape. We are seeing incremental volumes coming through the physical card program with over 300,000 cards now in market and significant pent-up demand from the existing back book. On slide 17.
Every year since its launch in 2019, we have seen customer engagement steadily increase in the Zip app. The proposition is resonating with our US customers, where we have a very strong customer NPS of 49 as at December. As mentioned earlier, spend per active customer continues to grow. Importantly, on the right-hand side of this page, you can see through the steepening of the charts that revenue per customer has increased over time, demonstrating our customers' long-term engagement with Zip and continued investment in the app. We are annualizing at around $780 in annual spend and around $50 in annual revenue. We also have recently seen brand awareness rise to 20% in the US for under 45s on a 4-week rolling basis.
Although some of this came from some seasonal activity, it shows a healthy step-up for the business from 2022. Just on the next slide. It's important to remember how early we are on the BNPL journey. I just came back last week from San Antonio, where there was a huge payments conference. Many of the U.S., the top U.S. retailers were there. It confirmed to me that consumer finance, in general, is a huge part of their business models with a large range of private label credit card programs on offer. Interestingly, we have been able to demonstrate to merchants that BNPL is indeed incremental to their current programs. It doesn't appear to meaningfully cannibalize their private label volumes. When we run data washes, we actually see very little customer overlap. BNPL customers tend to skew younger and with a much more diverse FICO range.
This really validates the role of BNPL in the consumer financial toolkit for retailers across America. With total addressable market estimated to be over $10 trillion, and BNPL still only around 2%, you can see the sheer size of the opportunity before us. Over 40% of millennials in the US have adopted BNPL, and they keep on signing up. Worldpay in fact projects volumes to triple by 2025 from 2021 levels. We do believe that the US is on a similar trajectory to Australia, where a third of adults now have an account. I will now pass on to Pete, who will walk us through the ANZ business.
Yeah. Thanks, Larry. The ANZ business continued to deliver very, very strong results. Revenue was up 23% year-on-year, which is a very strong number, with revenue margins also expanding to 7.8%, which is very healthy. Transaction volume and customer growth rates were pretty moderate and reflected changes to internal risk settings, beg your pardon, compared to the prior period. The New Zealand business delivered positive cash EBITDA in November and December, which included record volumes in December. We consolidated our leading position in the travel vertical, launching with Jetstar and Uber, who joined Virgin and Qantas on our platform. Our differentiated Zip Money product offering will play a key role in our strategy to own this vertical. We also launched with eBay, and the initial customer feedback has been very positive post the introduction with an NPS of +71 from those customers.
Zip Money installments will provide a great point of difference and will drive strong growth once it has been fully implemented. Moving to the next slide. Increased engagement is driving much higher spend and revenue per customer in Australia. We know that customers who take up our dual product offering are more engaged and substantially more profitable than single product holders. Cross-selling initiatives are a focus area to drive future growth. Pleasingly, this focus is driving strong results with a percentage of our Zip Pay customers who then go on to take up Zip Money within the first six months of joining, increasing to 25% of all new customers. Transaction frequency is also increasing, and in the half, our top 20% of customers have transacted over 60 times on average.
A really strong proof point that our product is becoming increasingly relevant to customers in this rising cost environment. As called out on both this and the previous slide, our differentiated and refreshed Zip Money installments product is a key driver of future growth. Moving to the next slide. With close to 60% brand awareness now in the Australian market for Australians under 45, Zip is both well-established and well-placed to strengthen our position in the Australian market. As expected, we are now seeing consolidation in the Australian market from the smaller players. As we've experienced in New Zealand with the withdrawal of Humm, this provides opportunity for Zip to increase our market share. Our brand, market position, and differentiated product offering continues to attract new merchants and customers to our platform.
Following recent developments in the Australian market, we are already seeing a significant lift in inbound merchant inquiries, creating significant opportunity for Zip to increase its market share. We expect this consolidation to continue. Imminent changes to the regulatory framework also have us well placed to increase our market share. We have a demonstrated and proven capability to operate in a fully regulated environment with core competencies in underwriting and affordability assessments. We are seeing increases in average monthly transacting customers, and favorably, our active customer spend continues to grow. In a world of rising interest rates and inflation, our differentiated product construct and Shop Anywhere feature provide even more benefit to our millions of customers. During the half, Australians paid with Zip at over 450,000 locations, both online and in store, with our broad range of categories encompassing both everyday and discretionary spend.
We are well-positioned to continue to thrive despite any economic uncertainty. Moving on to slide 22, a little bit more detail on the regulatory landscape in Australia. We've been driving and very supportive of appropriate regulation for our sector since 2019. With over 6 million Australians now embracing BNPL, it is entirely appropriate that fit for purpose regulation is put in place to ensure the industry meets community expectations and provides protections for consumers while still promoting and supporting innovation and competition. We have been engaged with Treasury as part of their review process and have made a submission based on the options put forward as part of this process. We believe that the guardrails and requirements from option 2 of Treasury's proposals would be an appropriate regulatory framework for our industry.
This option would amend the Credit Act to require BNPL providers to hold an Australian credit license, along with obligations around scaling, affordability, and responsible lending checks. It would ensure consumers were appropriately protected from any potential harms, as well as striking the very appropriate balance of building confidence in the sector while encouraging and supporting innovation and competition. We have long been operating ahead of any proposed regulatory changes. ID credit and affordability checks, and providing credit responsibly are part of our DNA. Simple interest-free terms, tools to help our customers repay on time, a low reliance on late fees, and a mature and developed hardship assistance program are already part of our profitable Australian business, and we believe, a great point of differentiation to others in market.
To be clear, we have been offering a fully regulated credit product under the credit legislation in Australia for 10 years. No matter what the outcome of the treasury process, Zip has the existing processes, practices, and demonstrated capability to continue with business as usual. In fact, regulation would likely provide further competitive advantage. Moving on to some financial performance on slide 24. Transaction volume grew by a solid 10% versus the previous corresponding period. This was impacted by adjustments to our risk settings, which have clearly delivered very strong outcomes. Importantly, revenue delivered almost twice that growth, up to AUD 351 million for the period, an increase of 19%, really demonstrating the benefits of our two-sided revenue model. Bad debts increased, reduced, I beg your pardon. It's very important I get that one right.
Bad debts reduced by 90 basis points year-on-year on peak volumes, and are now in line with Zip's target loss range. A great outcome. Portfolio management through the credit cycle remains a key and ongoing area of focus, and we're continuing to monitor leading indicators such as early arrears and higher risk cohorts as the macroeconomic environment evolves. We have many levers at our disposal to deploy to control credit outcomes, as we have demonstrated over the previous 9 months, should the external environment deteriorate. The uptick in the interest expense line largely reflects the impacts of base rate rises, particularly for the Australian business. The U.S. pay in full product is more resilient to a rising rate environment, where any 25%, 25 basis point rise only impacts cost of funds by around 2 basis points.
Finally, and very importantly, despite this rising interest rate environment, higher revenue margins and improved credit losses drove a 20 basis point lift in net transaction margin to 2.5%, now in line with our target range and an absolutely great result in this environment. Slide 25 and credit losses for the Australian business and a more detailed update on our performance. You know, thanks to our unique product construct and capital recycling profile, we can respond and take actions to rapidly improve credit performance and have seen a continuation of the improvement on the outcomes delivered at the end of FY22. In Australia, we proactively manage credit limits with a disciplined approach to approvals and cut off scores through the peak retail season, leveraging bank transactional data and ongoing account management and collection optimization initiatives.
These actions have driven a reduction in the number of customers entering arrears, and losses are trending very strongly towards 2% of TTV, which is our current target. On slide 26, targeted actions in the US, including tightened cut off scores, increased focus on limit and exposure management, and repayment and collections initiatives, have delivered an improvement in bad debts by around 150 basis points year-on-year. An absolutely outstanding result. Despite continued deterioration in the external environment, the most recent monthly cohorts are trending at around 1.5% loss rates of monthly TTV, well inside our targeted range. Looking forward, we anticipate loss rates to stabilize broadly around current levels to deliver outcomes at a group level in line with our targets of below 2% in FY 2023.
This performance really does give us a strong platform to adjust our risk settings either for growth or should there be a further deterioration in the external environment. Over to Martin now for some financial statements.
Thanks, Pete. Turning to slide 28 for a few brief comments on the segments. As Pete has covered off, APAC continued to deliver strong growth and grew cash EBITDA despite interest rate pressures. The Americas, which is largely the U.S., has delivered an improved on improved credit losses and reduced its marketing costs, driving benefits to cash EBITDA. EMEA includes the full period impact of acquisitions made in the first half of FY 2022, as Larry spoke to earlier, we have actions underway to neutralize the cash burn from this region. Jumping to the income statement on slide 29. Pete's covered off the key moving parts and the gross profit line, I'll focus my comments on the remaining items on the slide.
On cash operating costs, salaries and employment-related costs have increased compared to the six months to December 2022 to AUD 91 million, reflecting the full period impact of Spotii, Twisto and Payflex. Pleasingly, as a percentage of underlying volumes, salaries and employment-related costs have fallen from 2.4% in the second half of FY 2022 down to 1.9% in the current period. This fall reflects proactive changes we made last year to reduce our people costs, remove duplication, and simplify the business. Marketing costs have been another key area of focus, excluding the one-off rebranding costs in HY 2022, marketing costs have halved to AUD 27.4 million or to 0.6% of underlying volumes in the last six months.
Information technology costs are broadly in line with the prior year as a percentage of transaction volume, and we have activities in train to rationalize suppliers and optimize unit costs. After allowing for the termination payment paid to Sezzle, other costs sit at 0.5% of underlying volumes, a similar level to the prior year. We've reassessed the likely conversion of both the zero coupon notes and the CVI notes. Based on this assessment, we expect the zero coupon notes to be redeemed in April 2025 and the next two CVI payments to be settled in cash rather than be converted. As a result, effective interest on the convertible notes of $62.6 million include an accelerated effective interest charge of $47.7 million being reported. Obviously, this is a non-cash item.
Finally, the provision for expected credit losses has fallen to 4.9% compared to 6% last year as a result of the significantly improved performance of our receivables portfolio. Looking at the corporate items and one-off adjustments on slide 30. As Larry mentioned, there are a number of one-off items in the half. We settled the agreed termination fee to Sezzle for AUD 16.3 million in July. We paid $12.5 million incentive payment in relation to the conversion of $70 million of zero coupon convertible notes in December, which taken with the shares issued on conversion, amounted to a payment of approximately $0.23 in the dollar for notes redeemed.
The fair value loss of AUD 30.3 million includes a fair value loss of AUD 10.6 million on the embedded derivative contained within the convertible notes and warrants, compared to a fair value gain of AUD 70 million the previous year. This directly reflects the movement in Zip's share prices. In addition, there was an AUD 19.7 million loss reported on the group's investment in this month. Impairment losses were recorded on the goodwill intangibles attributable to Payflex and on the group's investment in Tendo. On slide 1, adjusted loss. You'll see that adjusting for some of these items on this slide brings us to an adjusted loss of AUD 113.5 million. Looking to the balance sheet on slide 32, I'll cover our cash position in a couple of slides.
The growth in receivables, which is reported net of unearned income and allowance of bad debts, is supported by the increase in borrowings. ZestMoney previously reported as an associate is now reported at fair value following Zip foregoing its conditional right to increase its shareholding in the business. Deferred consideration of AUD 19.3 million was held back to settle any claims against Twisto and has been settled as no claims have been made. Sorry, against Twisto shareholders. The increase in trade and other payable includes the pre-funding of transaction volumes by our partners to cover the seasonal peak. The convertible notes and warrants are reported as debt and embedded derivatives.
The movement in this line includes the revaluation of the embedded derivative at 31 December, which resulted in a loss of AUD 11 million being recorded compared to a gain in the previous year and the accelerated and standard effective interest charged in the year as I covered off before. Turn to the cash flow side on slide 33. Movement in receivables is largely supported by the net movement in borrowings, which is shown in financing activities. In line with the agreed terms with CVI Investments, we paid AUD 43 million to reduce the number of convertible notes they held in Zip. This included the 3 previous 6 monthly payments of AUD 10.8 million, which had been deferred by CVI. We also raised AUD 30 million net of costs to fund the incentive payment on the conversion of the AUD 70 million in convertible notes.
Moving on to slide 34, where we talk about our available cash. At 31 December, we had AUD 78.5 million in available cash and liquidity to fund operations. After allowing for cash to help the balance at the state that was unavailable to us and after including cash that can be withdrawn from our funding vehicles. As set out on a previous slide, the movement in available cash from June to December included both cash requirements for the core business of approximately AUD 57 million and non-core, non-operating and one-off payments of AUD 143.2 million that Larry spoke to earlier in the presentation. In addition to the AUD 78.5 million, Zip has AUD 32.4 million invested in debt funding programs. We are in the process of looking to replace ourselves with third-party investors and release this cash to fund operations.
Also, funding requirements for peak sales will reduce during the second half, reducing the level of equity funding and floats required. We're also expecting to release cash, as mentioned before, from the proceeds of asset sales. Turning to slide 35. On the funding side, we are well-placed to support our strategic initiatives. We completed our second triple A rated issuance under the masters trust structure in October, and repaid the issuance maturing in the month. We extended our variable funding note two for a further 12 months, FIIG Securities arranged mezzanine funding for us to sit below RBC as the senior funder, with a revised limit to better reflect the usage of the facility.
Our weighted average cost of funds on drawn balances at 31 December across the group has increased to 6.03% due to a 195 basis point increase in floating rates and a 38 basis point increase in weighted average margin. Handing back to Larry now to make some comments on our business model, priorities, and outlook.
Thanks, Martin. I'm just on the priorities and outlook section. Slide 37 covers Zip's competitive advantage, which we really group into three key buckets. The first is product flexibility. Next, we have our two-sided business model. Third, our ability to manage regulatory change. Firstly, we know that the macro environment remains uncertain, with interest rates lifting, inflationary pressures, and post-COVID spending patterns evolving. In this higher cost of living environment, BNPL is expanding at pace as consumers look for more ways to budget and merchants seek to drive incremental sales and respond to the shift back to in-store. Our products provide fair and simple solutions for both discretionary but also everyday spend, with the right level of payment flexibility and importantly serviceability for any purchase, be they big or small.
It's how we help customers budget and manage their cost of living to maintain the lifestyle they choose. We also operate both an open and integrated payments network, and in the first half, customers shopped with Zip at close to 1 million locations. We provide additional value to customers. For example, in Australia, Zip customers earned over AUD 3.6 million through our rewards program, simultaneously driving demand for our merchants. For merchants, it's all about driving incremental top-line growth. We saw recently in Australia that the BIS Oxford Economics calculated that BNPL delivered AUD 3.5 billion in net benefits to merchants in FY22. Through things like new customer acquisition, increased basket size, and higher customer satisfaction and retention. Great validation of the sector. Secondly, through this period, our business model has remained resilient, as Pete touched on earlier.
With our unique two-sided revenue model, we increased revenue margins whilst maintaining a laser focus on credit losses and still delivering top-line growth. Through this, we saw our NTM expand by 20 basis points, which is a great result in the rising interest rate environment. Finally, as the regulatory discussions evolve in our core markets, Zip is supportive and always has been a simple fit for purpose regulation. We are well positioned for BAU for any of the three outcomes proposed by Treasury in the Australian market. Similarly, in the US, the recent CFPB report really validated the role of BNPL in the industry, recognizing that BNPL imposes significantly lower direct financial costs on consumers than legacy consumer credit products.
With our partnership with WebBank, we remain well positioned to innovate as well as adapt to any future changes. We look forward to continuing to maintain an open dialogue with regulators in both markets. Slide 38. We remain committed to our FY 2023 priorities. As we look to the remainder of this financial year, we will continue to execute on our stated strategy, building what we have already delivered so far and accelerating our path to profitability. We are committed to sustainable growth in our core markets, which means we will continue to pursue new profitable merchants, fueling customer acquisition as well as TTV growth, while also scaling recent merchant wins. For our millions of customers, we are investing heavily to enhance core product experiences, driving continued engagement and referrals to our merchant partners.
We will continue the great work achieved on credit performance to deliver on management target range and have a range of cost-cutting initiatives underway to continue to drive down other variable costs, including payment processing. Finally, we are focused on executing the outcomes of the strategic review. Our outlook on slide 39 really remains unchanged, and we are committed as ever to really achieve the best outcomes for our customers and merchants, as well as driving long-term shareholder value creation. We have clear medium-term targets that we are driving the business towards as we continue to scale. What this slide also shows is that we are at or on the path to achieving these targets, with the core business delivering a 2.7% net transaction margin this half.
We acknowledge that there is more work to be done on our fixed costs, and we have taken actions to deliver efficiencies such as business reorganizations, streamlining management roles, reducing marketing spend, third-party procurement savings, and initiatives to lower our IT spend. With a simpler business and the outcomes of the strategic review now finalized, we expect to exit the US in FY 2023, cash EBITDA positive, to also neutralize the cash burn from our Rest of World footprint during this second half. With all of this, we remain on track to deliver positive cash EBITDA as a group in the first half of financial year 2024. On to the final slide, where I'd like to make some closing re-remarks. We have continued our solid momentum into January, with TTV up 9% and revenue up 13% year-over-year.
US credit losses, as Pete touched on, are currently trending at 1.4% on a cohort basis. Zip's differentiated business model is proving resilient in the current operating environment, and our proposition is delivering more value to consumers and merchants every day. The addressable opportunity remains significant, particularly in the U.S., with BNPL and embedded finance still maturing in these markets. In Australia, we are well positioned to strengthen our competitive position in market and ready for any regulatory change. As presented, we are taking healthy strides to reduce our cash burn and have the balance sheet to fund the company through to profitability. Finally, we have the team and focus to execute on our strategic plan and group cash EBITDA positivity in the first half in FY 2024.
On behalf of Pete and I, we would like to thank the entire Zip team, our dear Zipsters, for everything they have passionately delivered this half, and to our shareholders for their loyal and ongoing support. That ends the formal part of the presentation. We'll now open up for Q&A.
Thank you. If you wish to ask a question via the phones, you will need to press the star key followed by the 1 on your telephone keypad. If you wish to ask a question via webcast, please enter it into the ask a question box and click Submit. In the interest of time, we ask that participants limit themselves to 2 questions. To ask further questions, please rejoin the queue. Your first question comes from Elise Kennedy with Jarden. Please go ahead.
Hi, Larry and Pete. Thanks for the questions. The first one I wanted to ask is just around those marketing costs. Can you give some color around where those changes are coming from? If you're still able to invest enough to grow the customer, kind of the trade-off that you're making there, and any data that you might be seeing there. The second question is just on the capital recycling against a softer consumer. What's your experience or expectations on the transaction frequency as the consumer gets softer? I'm trying to understand there if in this type of environment, and maybe if you've seen it in the States, more than Australia today, are they more or less reliant on buy now, pay later, and any data you've got captured on that? Thanks.
Thanks, Elise. I might throw to Larry for the first question, which was largely related, I think, to marketing costs in the U.S. Thanks. We saw really good improvement over the period. You know, of course, some of that related to the brand work we did in August of the year prior, around launching the brand. I think what we've actually seen is a bit of a normalization in expectations in the industry. You know, whereas previously, you know, there were larger co-marketing, You know, partnerships that was structured with the retailers. I think they sort of recognized that in a rising cost environment, those can be done at a much more affordable, at affordable amount.
They're also tend to tie to some historical deals that we've done. As we sort of roll forward, we expect a much more manageable marketing cost. Of course, we derive, you know, most of our, you know, 70% plus of customer acquisition through merchant partners. In fact, not all merchant partners are necessarily looking for co-marketing. They're starting to see the value that BNPL delivers for them. If you talk to CMOs, for example, who are spending 5%-15% on advertising marketplaces to drive new customer acquisition, they're able to get that at a much more de minimis amount through Zip, which is driving, you know, obviously, increased basket size and repeat customer traffic.
I think the market's getting much more normalized, which obviously puts us in really good place going forward.
Thanks, Larry. I think the second question, at least if I understand you correctly, is utilization of BNPL accounts and categories as the market matures.
Yeah.
It's probably early stages in the US, you know, market maturity with regards to multiple use or reliance on BNPL. Certainly it's more heavily exposed potentially to discretionary spend categories in that market, but obviously has significant runway for growth given the market maturity is at very early stages. In Australia, obviously consolidation will likely reduce the number of players. We haven't seen a significant increase in utilization of multiple BNPL providers. I think it's reasonably consistent. With regards to customers, you've probably used both ourselves and Afterpay is the dominant one and two players in this market, interchangeably, depending on where they're shopping. We haven't seen a huge mix shift with regards to discretionary versus everyday spend.
I think what we have seen in the discretionary spend category is probably a shift towards the market leaders such as JB Hi-Fi and the top 10 brands, which continue to deliver increases to top-line sales. Albeit, you know, maybe in contradiction to broader sales figures more generally, which has seen an increase in their market share. Again, we're really well placed, not only to capitalize on that shift as we have, you know, integrations with all those partners, but also to capitalize on market share due to consolidation.
Great. Thank you.
Your next question comes from Siraj Ahmed with Citigroup. Please go ahead.
Thanks. Just the first question, Larry or Pete, just on the guidance for the cash EBITDA loss to reduce by 50%. I mean, if you look at your one Q versus two Q, there's been a material improvement, right? The core markets, I think, is just at AUD 1 million loss. Maybe can you just talk to the, you know, three Q versus four Q exit that you're thinking, looking ahead?
Yeah. Thanks, Siraj. I'll take that one. Obviously, the core cash EBITDA number of AUD 33 million was a great result and a very strong improvement on the previous period, and particularly as you're calling out the split over the quarters, which gave us the exit run rate. I think in terms of the guidance, what we're really trying to show is a more normalized run rate for that cash. If you know, took the top end of the range and it was a $16 million burn for the half, that's probably more reflective of natural burn, taking out seasonal peak volumes, which we were the benefit of in the December quarter.
Okay. Just clarifying. That means essentially some of those peak volumes from November, December will come through the bad debts in 3Q. Is that the way to think about it?
Yeah. Some of the volume that we were written will, you know, lead to increased volumes as a percentage of TTV over a more seasonally quiet quarter. I think, some of the benefits we've seen in January, with regards to, revenue margins, off the back of that peak revenue flowing in, over February and March. We will see slightly higher losses, as a percentage of TTV. I think the important call-out with regards to our loss performance, is the performance on a cohort basis. So ie, of the volume that we wrote in November and December, we are, you know, suggesting that the losses from that volume will be about 1.4%-1.5% of those volumes, and that will flow through in this quarter.
Understood. The second thing, in terms of, just the expected cash balance at the end of the half, I mean, you're flagging a few things here, and I guess you can't talk to specific potential proceeds from, sales, but just, I mean, ballpark, how much should we think, the sales plus the, you know, the mezzanine debt or whatever could bring in?
I'll get Martin to respond to that one. Thanks, Siraj.
Yeah. I think we called out, with regards to the target that we're looking at from the funding side of things, which is AUD 32.4. On the asset side of things, obviously part of the half-year end process, we go and look at the carrying values of our assets and we write those down or generally down to what we expect the realizable value is. I'd refer you to those sections of our half-year report to get, I guess, a bit of an indicator of what our expectations are.
Okay, great. You're saying the carrying value has been written down. Okay, perfect.
Yeah.
Thank you.
Yeah.
Thanks a lot.
Your next question comes from Wei-Ling Chin with RBC Capital Markets. Please go ahead.
Hi. Just a question on salaries. You had AUD 91 million in the half. Just wondering how we should think about that going forward as you exit some of your businesses?
Yeah, again, I'll get Martin to respond to that one.
That's, that number is from core operations. That includes everything other than the continued operations. Everything other than discontinued. We'd expect that to reduce over this half because of the, you know, we're winding down the Middle East, which we've called out. Part of the strategic review, we'll be looking at exiting the other non-core markets. That will obviously reduce the wages and salaries down as a consequence. We'd expect it to be significantly or reasonably reduced in the second half. There'll also be the benefits of the activities we're taking to sort of streamline the operation in our core markets and make things simpler. We'll also have an impact there.
Okay, great. Is there a number that you can kind of maybe help us think about, you know, at what that reduces to?
Mate, you know, there is, but I can't tell you.
Okay. Okay. I guess, you know, I guess you alluded to it in, one of your points earlier that, you know, one of your much smaller peers, you know, went into administration earlier this year as lenders pulled support. Just wondering if you could speak to how we should think about this risk as it relates to Zip?
Yeah. We have been of the view that consolidation would occur in our industry, and that's certainly what we're seeing now. It's a very positive outcome for Zip, and should in fact enable us to strengthen our market-leading position. As we called out in the call, we've already received a significant number of inbound inquiries, you know, off the back of that consolidation. It seems to be following similar trends to what we saw in the New Zealand market with a reduction in the number of players. It does position the market leaders very well to increase their market share, so a strong opportunity for us.
Yeah. Okay. Just last question on the your sort of second half expected cash or movements in cash flow. Just item four, you mentioned a significant reduction in it was basically your M&A and your your convertible note redemption. Does this go to zero, or are there still payments that you're committed to?
Yeah. Again, I'll defer to Martin on this one.
Yeah. There's a commitment to pay AUD 10.8 million to CVI each 6 months under the terms of the convertible note we have with them at their request. The next payment will happen on the 1st of March. That's in process. There's very immaterial other payments. There's AUD 1 million or so. Pretty much.
Okay.
This one's the only big one.
Okay. Thanks. That's all for me.
Your next question comes from Tom Beadle with UBS. Please go ahead.
Hi, guys. Thanks for the opportunity. Actually, Siraj and Wei Wei asked most of my questions. Just maybe just to clarify on that AUD 32 million, in debt funding that you might replace, with third-party providers. I guess, are you looking to replace 100% of this, and would, this require the renegotiation of any of your covenants at all?
Thanks, Tom.
Sorry. We are looking to replace 100% of it wouldn't require us to renegotiate anything.
Okay. Great. Thanks.
Your next question comes from Siraj Ahmed with Citigroup. Please go ahead.
Yep. Just one follow-up. Pete, you sort of mentioned about the Australian regulatory changes, that you're pretty well placed. Thinking about Zip Money versus Zip Pay, I understand Zip Pay is completely regulated. You do all the steps, right? For Zip Pay, how is that placed in either option two or option three?
Siraj, just to clarify, Zip Money is the regulated product, so that is fully compliant with existing legislation and responsible lending obligations.
Yep.
With regards to Zip Pay. We already actually do ID credit checks and affordability checks via connecting to transactional banking accounts. We're actually already largely compliant with full responsible lending obligations. There would be a minor tweak with regards to information customers might be required to provide at the point of application. Again, that's what we're already doing with Zip Money. In terms of process and, you know, risk rules, and data plug-ins to third-party providers, et cetera, we're already operating in totally compliant fashion for that product.
Okay. Okay. Got it. Some tweaks there. Just a quick clarification. On losses in Australia, previously you've sort of shown an expected loss trend. You're not showing that. Have losses ticked up or anything in January, February that you're seeing, or is the trend in line with what you're expecting?
No. Nothing sinister there. I think we showed forecast losses because we were operating outside our target range, and we were very important to show the market that, you know, we were delivering improved losses and continued to see that forecast coming to get inside our targeted range. Now that we're largely operating there, that is, you know, simply the reason for that. We don't see any deterioration in our performance, and it's largely continuing on trend. Having said that, as we called out in the presentation, we are really well placed, you know, with a very low loss base now, should there be deterioration in the external environment.
Again, we're well-placed in terms of monitoring early indicators, to adjust our risk settings further, should they be required to be, you know, more conservative.
Okay. Thank you.
That is all the time we have for questions today. I'll hand the conference back over to Mr. Diamond.
Thank you. Look, I just want to thank everyone for listening in today. I think hopefully what you've seen is when we kind of look back over the last 12 months, that we've made significant inroads on the updated strategy and really coming to the end of that, you know, with a core business that has never looked better, you know, improving margins, improving cash EBITDA and continued healthy BNPL demand. You know, the next piece is really just the global simplification, which has not been easy, I might add, and thank, you know, all the team involved. You know, reducing from 14 to 4 markets and simplifying the model is going to, you know, deliver cash inflows this half and also a much more simpler business model.
Finally, you know, we are well-funded and have the cash and liquidity to carry us through to EBITDA positivity in FY 2024. Thanks again, everyone, and thanks for your loyalty. Cheers.
That does conclude our conference for today. Thank you for participating. You may now disconnect.