Ladies and gentlemen, thank you for standing by, and welcome to the Zip half-year results presentation. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. I will now hand the conference over to your first speaker today, Mr. Larry Diamond. Thank you. Please go ahead.
Thank you, and good morning, and welcome to Zip Co Limited's first half results for fiscal 2020. I'm Larry Diamond, the Chief Executive Officer of Zip. With me today is Peter Gray, the Chief Operating Officer, and Martin Brooke, our Chief Financial Officer. Before we jump into the presentation, just wanted to, you know, on behalf of the board, it's been a very, very busy half, and wanna thank the executive team, as well as, our great team of Zipsters and, of course, our retail partners who have supported the growth of our business.
In terms of the contents for today, we will go through the highlights, a quick business update across our three key growth areas, a look at the financial results, and the outlook for FY 2020. And apologies, it looks like the page numbers haven't come through, but if you're reading this on PDF, I'll read out some of the page numbers. So just to refresh on Zip, on page three, our purpose is the freedom to own it. And really, Zip is all about giving customers the freedom to own the experience, own the moment, own their well-being. We, as a company, of course, own our responsibilities that come with issuing microcredit in real time.
And then also culturally, how we've architected our company in terms of empowering troops and giving them the freedom to really push and change the game within the organization. Our mission, of course, is to be the first payment choice everywhere and every day, and we're really excited about that mission. I thought I'd set the scene a little bit on page four. Zip was founded six years ago in 2013, and when we started, we saw a large opportunity to disrupt the broken and unfair credit card. And when you look at this slide in particular, you can actually see this starting to come true. Credit cards are in decline, while debit cards, buy now, pay later, and interest-free digital wallets are enjoying soaring demand.
If you look just in the last couple of years, there's been around 2 million credit card account closures, and balances have declined by about AUD 2 billion, which is about 3% per annum, with one in two buy now, pay later customers cutting up their credit cards. So we're seeing this fallout with the unfriendly, unfair, and interest-bearing credit card. And an interesting point happened last year in twenty nineteen. In November of last year, we actually saw for the first time debit card payment volume overtake credit card, and that's personal and commercial. About AUD 337 billion versus AUD 334 billion.
And what we've seen on the right here is, while we've seen the decline of the credit card, buy now, pay later accounts have obviously increased significantly. They're about six million in Australia, and this millennial phenomenon has now moved into Gen Xers as well, and we see one in five are now using BNPL. So, you know, while BNPL is a fast-growing category, if you look at slide five, we really are only at the infancy here. Things will change very quickly, but we are at the infancy. Zip in Australia has about 1.6 million accounts, but if you compare that to PayPal, 7 million, and credit card accounts in Australia, 15, you can see there's actually a long way to go.
The Australian market is about AUD 320 billion in retail, but if you include bills, non-retail, it's actually over AUD 1 trillion. And as you can see here, still only a small portion of the population are using these really exciting new ways of paying. And then, as we cast our eyes globally, you know, if you just look at retail dollars, that's about $ 22 trillion across most markets. So while it's, you know, it's incredibly noisy, it's getting a lot of awareness, we're still very much at the infancy, and a big reason why we're still very focused on the Australian market and obviously beginning our journey globally.
On page six, so really, you know, in contrast to the credit card, we're trying to provide a better, fairer digital alternative. One that is founded in interest-free terms, one that is founded in flexibility, and a strong focus on responsibility. You know, it's really important when we are issuing microcredit that we do due diligence customers appropriately, and we've done ID and credit checks since inception. While we create very seamless onboarding, it's really important that we make sure the right customers get on the platform and the right customers are using the product. Having said that, these products are getting really good traction in market. They provide a great mobile experience. Instead of the credit card being in your pocket, we sit where customers are at checkout.
We're obviously very excited about this space and believe we've got a long, long way to go. In terms of the financial scorecard, on slide seven, what you can see here is, you know, really strong growth across a lot of the key metrics that we focus on. Our revenue was up over 100% for the half, at close to AUD 70 million. Transaction volume was also up close to a hundred percent. That was up 95% to AUD 965 million. And receivables pleasingly reached over AUD 1 billion as well. Customers of 1.8 million were up 80% over the previous corresponding half.
Retail partners across Australia and New Zealand of close to 21,000 were up about 66%, and our market-leading credit seasoning technology was able to deliver net bad debts of 1.68%, which was an improvement actually on the last half last year. We set out a very clear strategy and plan at the beginning of FY 2020, and we are delivering on those goals. Some of the key highlights, just to touch on, we continue to focus on growth, and Zip delivered AUD 70 million in revenue, which, as I mentioned, was up 103%, and we ended December annualizing at AUD 2.3 billion.
The company also was able to deliver a cash flow breakeven result, which is a great result as we continue to invest for growth, and this is demonstrating the strong unit economics of the business. Our statutory adjusted loss was AUD 20 million. There's a lot of non-cash items that do flow through the P&L, and Martin will take us through, but we're very focused on the cash result as our peers are. We're also able to sign a number of lighthouse brands. We had 4,700 retail partners join the platform. We saw Amazon launch with Zip as the first installment solution in Australia, other great retailers such as Big W, Optus, and Ola. This is really driving engagement for our customers.
So customers that are joining us are coming into a much more exciting world, and we have a very exciting pipeline ahead, in Australia and also increasingly overseas. Globally, our strategic investments in Quadpay and Payflex are showing really, really strong growth, and we'll talk a bit about that later on the call. And on the global expansion, New Zealand has gone very successfully. It's up significantly since we acquired the business, and UK is getting ready for a launch in Q4. We've hired an MD, and we'll go through what's happening there, but really excited about the global opportunity and the ability to now start cutting deals on a global stage with our retail partners.
And finally, on the funding side, we launched a world-first Master Trust program, and Pete will talk through why that was such a great and exciting result, and we raised AUD 62 million in an oversubscribed placement and SPP in December. I'm gonna go through three key areas of the business. At the beginning of the year, we highlighted three key growth areas focused on The Core, Product Innovation, and Global Expansion. And I'll step through each of these, and this will provide a business update for everyone. So on slide 11, it was a record half. Good momentum is building. So if we look really at the customer side around acquisition, awareness, and engagement, I'll just drill down into some of those.
On the customer front, acquisition has really been driven through a range of initiatives. Awareness, we had our first ever brand campaign in at the end of last year, really to drive awareness across Australia. And after doing that work and increased retail networks, we've been able to lift brand awareness from one in four to one in three. Aussies now know of Zip. A long, long way to go, but heading in a really, really good, good direction. On the customer front, we were able to sign up 1.8 million customers this year. We have big targets, but we've got even bigger targets over the next few years.
The customers that joined the platform, you know, spent 140% growth in their transaction numbers year on year, which is a really great result when you look at the transaction dollar volume, was up about 95%. So we're seeing much more increased frequency and much more engagement coming from that base, and you can see a 45% increase in the monthly transacting users just over the last quarter. Pleasingly as well, we're also seeing in-store really starting to get a lot of traction, you know, much more seamless payments experience, and there's a few initiatives I'll talk to about that. And at the centerpiece of all of this is the Zip app.
That is really the native experience that is driving really strong user engagement, still remaining a top ten app in the Google Play stores, and really healthy ratings. On slide 12, if we look at engagement, these numbers are really exciting for us. So we've seen about 105% increase in app usage over the year, and as we know, app users transact 3.5x more than non-app users, so really important that we get users onto the Zip native mobile app.
What's interesting as well is that new customers that are joining the platform are actually coming into a world that's a lot more exciting than those that joined previously, and so we saw a 25% lift in the cohorts that joined now versus the cohorts that joined a year ago in their, in their engagement metrics. But having said that, even our older cohorts are transacting more frequently as they have more places to shop, such as Amazon, Optus, and we've seen a 33% increase in transactions per active if we look at those, those cohorts. On the merchant front, on slides 13 and 14, we'd just like to quickly highlight, we really see Zip as a credit card differentiator.
Unlike a lot of the other buy now, pay laters that are splitting it forward in the Australian market, we really have built an account concept and therefore can play in many, many categories. Retail, auto, travel, bills is where we look to get into every day. So, you know, this breadth of addressable market we're seeing play out and shows that we've got a long way to go on the addressable market. On slide 14, we were able to add 4,700 retailers to the platform. New Zealand is going really well. We've been able to sign Bunnings New Zealand, which was a relationship we had in Australia.
And New Zealand's going really well with brands like the Warehouse Group, The Market, which is their digital marketplace, and have just recently signed Mighty Ape as well. For Australia, companies like Carsales, Chemist Warehouse, Freedom, so a lot of the big brands are really seeing enormous opportunity in the buy now, pay later space. Most of the retailers that we're talking to, this is a very, very topical conversation, and lead times are improving through the pipeline. We've also got a number of large merchants that we are in final stage negotiations with, which we hope to announce in the coming months.
On slide fifteen, you know, while we build direct merchant relationships and have a direct acquiring business, we also build channel partnerships, and really embedding ourselves in the payment ecosystem is critical to surface Zip, Zip at every checkout across Australia. Three noteworthy partnerships that we've been able to bring to life have been Adyen, Westpac, and Tyro. Westpac and Adyen very much focused on the online space, and we've just recently accredited the integration with Westpac for their Qvalent system, which has access to 50,000 businesses, and we'll now be able to target that base, and setting Zip up at checkout is a really simple digital configuration. Also, in the period, we certified our Tyro integration.
Tyro has 32,000 Australian retailers and is the fifth largest acquiring bank, and we hope to partner with them to offer Zip to their in-store customers. Adyen has been a great partnership for us and have really brought out a number of partners, where once we have a strong sales conversation, again, configuration, plug and play to enable those merchants. The other big piece to highlight on the technology front on slide 11 is, you know, we are planning for continued growth. We've had great growth over the last few years, particularly based on the number of transactions that are coming through the platform. This is a fraction of our ambitions over the next few years. So there's a continued program to invest in technology to prepare for growth and prepare for scaling.
A lot of great work has gone in over the last six months, which has lifted our ability to process transactions simultaneously or concurrently, much faster response times and service levels to support not just our customers, but also our retail partners. If you look at our engineering workforce, just over the last year, they've grown from about 35 up to about 110. You know, we do believe it is a bit of an arms race if you look forward over the next few years. Having great engineers is really important to be able to deliver quick solutions, respond to market conditions, and build fantastic products. Finally, on slide 17, you know, none of this would be possible without the investment in people.
You know, the Zippers have done a great job over the last half year and should be incredibly proud. We're up to about 350 across the regions, being Sydney, Melbourne, Brisbane, Auckland, London now, as well as in WA and South Australia. Pleasingly, we were able to really bolster our executive team. This was one of the big goals for us at the beginning of the year, to bring on great talent and experience to join our executive team, and really happy to bring on Hamish as Chief Commercial Officer, Anna, Chief People, Steve, Chief Customer Officer, and Patrick, Chief Product.
These folks really raised the bar and have brought enormous experience to Zip across a lot of successful payment companies, be that PayPal or marketplaces such as Uber, or sorry, eBay, or technology companies such as Google. So we're really excited about the road ahead as this team forms and starts helping to grow the business. On the product innovation front, the product and tech team have been incredibly busy. On slide nineteen, you know, we have a really strong focus to improve the payments experience. If we make it easy and we reduce friction, more transactions come through. And what you can see here are three really awesome user journeys. Through Amazon, we've been able to provide a one-click checkout.
We've also rolled out a mobile SDK and a QR technology to improve the in-store payments experience. Really, our ambition is to make that moment between, you know, intent and payment feel like magic, and we're starting to see the fruits of this. Another big focus on product was bills. You know, bills really is a major customer pain point. Bill smoothing and budgeting is a really good fit for the Zip product. It is a differentiator versus a lot of our other players and is really helping the customer. It's a powerful problem, and paying in interest-free installments really helps for customers. We're seeing really great traction. It is a large market, and we work with BPAY to facilitate those transactions.
This is all part of our strategy in the app to provide utility and jobs to be done to customers. On slide 21, what you can see here is facial ID recognition, which the team is really excited about. We've pioneered OCR and AI technology, which allows verification and really for us to help on the identification of new customers, but also help unblock accounts as well. The results have actually been fantastic and really promising in terms of the speed for customers to self-cure and to onboard. We are a digital company. Our customers are digital natives, and providing really seamless digital experiences across the entire journey is yielding great, great results.
This is really fantastic, and we're looking to see that roll out across many other user journeys. On slide 22, so on the business front, it actually has been a really busy half. We are big believers in providing fair interest-free installments and credit to small business, who we believe have been locked out of the system. In the half, two big initiatives: we piloted Zip Biz, and we integrated the Spotcap business. Quick refresher, Zip Biz is an offering to small, medium-sized enterprises. It's a digital wallet, up to AUD 25,000, that lets small business pay in installments. The pilot has been really successful. It's validated a lot of our hypothesis around these products and services, and we're seeing the initial pilot group transacting around three times a month.
So we think this is gonna be a great fit, not just for our existing merchants, but also for many other small businesses in the market as they pay for everyday consumables. On the Spotcap front, we integrated that business last year. We're leveraging its real-time decision technology to power the credit technology on the Zip Biz side, and that's going really well. The business finished the half with receivables at just shy of AUD 37 million and really strong credit performance. You know, credit loss is between 2% and 3%. So we'll see a lot more coming out of the small business segment over the next twelve months, but really healthy results. And finally, on global.
We are, and as we spoke about last year at the AGM, we're really excited about the global opportunity. For us to really push ahead globally, we've done a number of things. We acquired the PartPay global installment technology stack and have integrated that into the core Zip platform. And we also raised capital in December of just north of AUD 60 million, some of which is to help us on scaling globally. And what you can see here is, you know, New Zealand has now been rebranded, and we'll jump into that. In Australia, UK will be launching soon, and the investments in Payflex and Quadpay.
So drilling into the results, Zip is now live and operational in New Zealand, being led by our MD there, John O'Sullivan, doing really a fantastic job. We've successfully rebranded. We've functionally integrated. We've also managed to really port a lot of our Aussie relationships into New Zealand, and we see a lot more to come there. Customer numbers in the half grew just north of 80%, and a net transaction margin of just over 2%, with losses stable at 1%. So we've also hired a head of sales and more engineering talent as well. So that business with integrators working really nicely, and you know, we hope to double, triple that business over the coming future. In the U.K., we hired Anthony Drury, who comes from PayPal, American Express, and easyJet.
He landed in that role in January, so just last month, and he's building out the sales and marketing team. Again, we're really excited about the U.K. opportunity. Some of our competitors have been there for a year or two, quite focused on some particular sectors. But when you look there, you walk the streets, and you look at other categories, there's an enormous opportunity set. Not just on the retail front, on the banks and issuer front, and we see a, you know, a huge opportunity there. Furthermore, a lot of the big retailers are still, you know, using high interest-bearing, 30% APR consumer finance products bolted to their businesses. So we really do see a huge opportunity there.
We think a lot of the retailers there are gonna have to change the products that they offer to market to really keep up with this with this changing demand. So we're hoping for a launch in the next few months, and as you can see there, that market is three to five times bigger than Australia. We've got a team there of just north of 15 getting ready for launch, and we have a number of global payment deals that we're close to signing as well. On slide 26, our strategic investments in the buy now, pay later players, Quadpay and Payflex, which use our technology, are going really well. Payflex is in South Africa.
South Africa is about a $67 billion market opportunity, and they've just recently launched in the last, you know, six months, but they were able to pick up Superbalist, which is one of the leading online fashion retailers owned by Naspers, and really have a first-mover opportunity in that market. A lot of great learning around emerging markets, we hope will come from that area as well. Quadpay has also been doing really well. If you looked in the App Store last year, they were bumping up against some of their competitors and really showing that they are innovating and delivering great customer experiences. They were also one of the first over in America to adopt virtual card technology, which has really helped them scale online and in-store. So thanks for that.
I'll now hand over to Peter Gray, our Chief Operating Officer, who will go through a bit on the financial economics, credit, and funding. Thanks, Peter.
Thanks, Larry. I'm talking to slide 28 in the unnumbered slide, book, the financial dashboard, which is effectively our cash dashboard, which is a great way that we measure the business. A very important call-out, that cash EBITDA was in line with our guidance and strategy. We're continuing to invest in growth while maintaining cash flow breakeven, so we had previously stated that we wouldn't be looking to significantly increase the cash EBITDA in the short term, and that we would maintain it above the cash flow breakeven line while we chase growth or invest it for growth, I should say. You'll see a slight decrease to the revenue yield. We've made some conscious decisions to establish programs to accelerate customer growth. There's a touch of seasonality comprised in that number.
The receivables effectively grew 27% in the last quarter, and typically it takes a couple of months for repayments and yield to stabilize following such significant growth in that period. We have initiatives such as the global platform coming on board, and Zip Biz, which will also assist in the yield profile, and we've seen a further penetration to everyday spend categories, which would typically be at the lower end of the yield spectrum.
In terms of the cash cost of sales, with the implementation of the Zip Master Trust and improved funding, we expect to drive the cost down up to 1.5% in the medium term, and cash operating costs will really be a great line item for us to drive down as we look to scale the business to AUD 5 billion plus receivables in the medium term. Just moving on to the credit performance. The credit performance remains significantly better than industry benchmarks, and certainly in line with management guidance. As at the thirty-first of November, gross bad debts were at 1.91%.
We've previously indicated we believe this is slightly lower than optimal for the business, so we'll probably expect to see that slowly increase just north of 2%, somewhere settling somewhere around 2.25% - 2.5%, we believe is probably the optimum sort of bad, gross bad debt number for our business. The net bad debts continue to perform very well. Just to recap, a net bad debt is gross bad debts less any recoveries that we receive on a monthly basis from previously written-off debts, 1.68%. That's a very strong metric when compared to either credit cards, other retail finance providers, or other buy now, pay later providers, and the arrears remains reasonably steady at 1.58%. Repayment profile of the receivables is very, very healthy.
This sort of places us in a fantastic position with regard to how we might adjust our scorecard. We can quickly respond to any changes to our risk appetite or in economic conditions. The book continues to perform very well with, you know, approximately one in one hundred customers late in any given month. Again, considerably better than any market comparables with credit cards, about that one in six, other buy now, pay later providers at one in six. And in terms of, you know, trying to visualize the quality of our, our receivables, the average credit score of a Zip customer is higher than the average credit score of a big four bank credit card applicant.
Those results really are a testament to the investment we've made in our proprietary decision technology, and we continue to invest in that asset to deliver better outcomes for the business. With regard to funding update on page 30, we were extremely pleased to launch the world's first BNPL Master Trust. When we say world first, it was the first sort of fintech offering in public markets that encapsulates both regulated and unregulated credit assets in the same master trust. So it was a great outcome for the business. We've effectively identified the Master Trust program as the best structure to support our long-term growth ambitions. Via this vehicle, we're able to issue notes, I beg your pardon, as we're required to support the growth of the receivables.
So we, to some degree, have significant control over our own destiny and flexibility as to how and when we issue those notes. We expect to receive significant cost benefits over time via this vehicle, as we continue to build track record and grow the receivables, hopefully in the region of 1.5% across the portfolio there. And as you can see from the slides, the weighted average interest rate dropped from 4.7% - 4.3% over the half. Very pleased also to receive the Australian Innovative Debt Fund of the Year. Who said debt funding couldn't be sexy for this deal? So that was a great outcome for the business.
As you can currently see, we have lines available in funding about AUD 1.18 billion, and we have about AUD 260 million available to support the growth in the current structures. It is most likely we'll issue a new series of notes out of the Master Trust in the coming quarter. I'll just hand over to Martin Brooke, our CFO, to take you through the rest of the financials.
Thanks, Pete, and I still don't see debt rating as sexy, but anyway. So overall, I believe we delivered on what we said we'd do for the half. We invested in growth, remained cash flow positive, and also invested in CapEx. As you'll note from the half year report, we acquired PartPay and Spotcap in the second quarter, and the results have not had a material impact on the half, reporting AUD 3 million in revenue and EBITDA of around AUD 1 million. As covered by Larry, portfolio income has hit record levels, AUD 69 million, an increase of 104% on the six months to December. Just as a reminder, portfolio income for Zip includes revenue on an accruals basis using the effective interest method.
Merchant fees, establishing fees, and monthly fees are recognized over the expected payment repayment profile as Zip Pay and Zip Money respectively, which is six and 12 months. Fees that are added to a customer account but not recognized as income are shown in unearned future income and shown in the balance sheet as a reduction in gross customer receivable. Also, the revenue that's generated by PartPay and Spotcap is also recognized in the same manner, using the effective interest method. Cash cost of sales, which comprises interest, bank fees, data costs, and net bad debts written off, increased to 106%, and cash gross profit, 103%, to a record AUD 35 million. Cash gross profit was around 51% of portfolio income, which is consistent with last year.
As Pete previously mentioned, we'd expect to see an improvement in this figure as we achieve reduced funding costs in the Master Trust. There are also a number of initiatives underway to decrease the unit cost of both bank fees and data costs. Cash operating costs, excluding acquisition costs, increased AUD 19 million, and the group reported positive cash earnings before tax depreciation and amortization of AUD 1.5 million. Movement in the bad debt provision reflects increase in receivables. We, within the main Zip portfolio, we provision consistently at the rate of 3.75% across the six months, whereas in the comparable half, the provision reduced from 4.57% - 3.97% across the six months, and therefore, that movement is a little lower than we would otherwise be hoping it would go.
Amortized finance costs include the costs associated with entering the group funding programs, amortized over the term of those facilities, and obviously include the costs associated with amortizing the Master Trust entered into during the period. Share-based payments have increased, largely due to the issuance of warrants to Amazon Australia. AUD 6 million was recognized in relation to the 25% of the warrants that vested on inception, and a further AUD 600,000 relating to the remaining 75% that vest over the next seven years, based on the achievement of transaction volume hurdles. Those warrants are independently valued, and then they get recognized based on the assessment of the achievability of the transaction volumes. Value is quite high, really relating to the fact that the Zip share price is quite volatile, so that leads into quite a high valuation.
The balance of the increase reflects an increase in employee rates in share-based payments, noting that all bonuses to employees are paid in shares. The acquisition costs obviously relate to professional fees for the acquisitions that occurred in the acquisition of PartPay and Spotcap. Depreciation and amortization has increased due to the amortization of acquired intangibles following the acquisitions of PartPay and Spotcap, including AUD 1.9 relating to the write-off of the PartPay brand on rebranding to Zip. We essentially had to value that on acquisition and then write it off as we rebranded. Additional AUD 400,000 was recognized amortizing the group IT development and software, and AUD 1 million depreciation on the right of use asset.
The right of use asset is a creation of accounting standard AASB 16, whereby we have to report an asset on the balance sheet and a corresponding liability in relation to our long-term lease commitments. The asset is then depreciated. Earnings before tax was a loss of 30.3 and include a number of non-recurring item, one-off items, which we've added back in our adjusted loss before tax. So if you turn to the adjusted loss before tax slide, you can see we recorded 30, adding back acquisition costs in relation to PartPay and Spotcap, 2.3. The write-off of the PartPay brand, 1.9. Share-based payments in relation to the Amazon warrants on signing, 6. We get to an adjusted loss before tax of 20.
Looking a little bit more detail into the cost base, looking at the cost as a percentage of average quarterly receivables, cash cost of sales have dropped from 8.5% - 8.2%. Interest costs have dropped from 4.7% - 4.3% of average quarterly receivables, and the average overall interest rate on our funding program has dropped, Pete pointed out. We've also used funds from capital raise to fund receivables, which obviously impacts this number. Bank fees and data costs have dropped from 1.3% - 1.1% on the back of lower unit costs. Net bad debt is better considered as a percentage of closing receivables, and Pete really covered the performance of our debt portfolio.
For the six months, we wrote off a net amount of AUD 11.2, compared to AUD 4.6 in the corresponding six. Bad debt recoveries are running at about 7%, which is a little bit lower than the previous corresponding period, but we only started actively seeking recoveries in mid-2008. So last year's recoveries are a little bit higher than the number we would expect on an ongoing basis. Also worth noting that Zip retains ownership of all debts written off, and we use the services of a third party to help in the collection process, paying them a percentage of the amount they collect. Headcount, being the largest component of our operating costs, comprises 53%, or with under 53% of cash operating costs.
Permanent headcount totals 354 at the end of December, including casuals, up from 204 at the end of December 2018. Included in that number, we have 50, 50 employees, Spotcap and PartPay, obviously acquired during the period. The group has invested and will continue to invest further in the products and technology teams, data and risk, and sales and marketing teams. Larry's covered off some of the initiatives that they've been working on during the period. As pointed out, we've also invested significantly in the executive team to grow and develop Zip's operations globally. Marketing costs increased by AUD 4.5 million. Launched a brand campaign during the six months, rebranded PartPay to Zip, and also increased our promotional and other spend to maximize transaction volumes in the seasonally strongest quarter.
Other operating costs include IT costs, up AUD 2.8 million, and professional services at 1, and really a general increase in the cost base to support what is now a much larger business than it would have been twelve months ago. Now, if you look to the balance sheet, group reported cash of AUD 39.1 million on the balance sheet as of December, of which 20.2 was held in the accounts of trust. We report that as restricted and is not available to the creditors of the company. Typically, we do not retain cash on the balance sheet. We would rather invest in receivables and therefore reduce the need to do external funding.
However, as at thirty-first of December, we were in the process of deploying funds from the capital raise and held higher balances to ensure funds were available to fund transactions over the January sales period. Due to the thirty-first of December being a Tuesday and thirty-first of June a Sunday, the timing differences in both receipt and payments reflected in other receivables and trade and other payables, whereby amounts are recorded in customer receivables, that funds are not received or payment made at balance date. Generally, we receive funds to make payments on the next working day, but we record in customer receivables on the transaction date. So there's a timing difference there that appears depending on the actual day of the end of the year. Property, plant, and equipment increased as the group fitted out an additional floor in Sydney.
The right-of-lease assets I mentioned before and associated lease liability relates to the implementation of AASB 16. Other intangibles includes acquired intangibles of AUD 12.5 million from the acquisition of Spotcap and AUD 6.5 million from PartPay. Oh, sorry, AUD 12.5 million in both, and a 6.5 million addition due to the group's investments in proprietary software applications, obviously, all net of amortization. It should be noted that we've valued the acquired intangibles provisionally, so we value those internally, and we will get an external valuation prior to thirtieth of June, and we'll report the external valuation in the accounts, in the annual report to thirty June. Investment is our investment in Quadpay and the investment in associate reflects the investment in Payflex, net of our share issue.
Deferred consideration relates to amounts that we paid to the vendors of PartPay on the achievement of transaction volumes over this financial year or the next. Any payments are separately shared. Goodwill increased by AUD 42 million on the acquisition of PartPay and AUD 5 million on the acquisition of Spotcap, which explains the movement there. Just turning to the cash flow, generated a positive cash flow from operations of six point seven million compared to seven point five in the previous year. We fitted out an additional from Sydney, as I mentioned, and spent an additional five point one investing in proprietary software systems. As we largely paid for the acquisition in Spotcap and PartPay in shares, when they were added to the balance sheet, added a net two point seven million in cash position.
We paid AUD 16.6 million to take our investment in Quad up to 15% and incurred costs of AUD 2.3 on the acquisition of Spotcap and PartPay. We've covered off before. Movement in receivables is obviously supported by the movement in borrowings and the proceeds from the capital raise. We raised AUD 62 million from the capital raise and AUD 0.2 from conversion of options, incurring costs of AUD 2.1. Borrowing costs relate primarily to the cost of establishing the Master Trust and the repayment of lease liabilities, which reflect. Oh, repayment of lease liabilities reflects our property leases, and is shown in finance lease and IFRS 16. That's me. I'll hand you back to Pete.
Thanks, Martin. I'm just talking now to the regulatory update slide in the twenty twenty outlook. I thought it was pertinent to include a slide just on the regulatory environment, given that it's fairly topical and a fairly busy environment. You may have noticed Zip taking a strong leadership position with regard to this. We're engaging actively with regulators. We played a strong role in the formation of the buy now, pay later industry-specific code of conduct. We're also engaging with parliamentarians to ensure we endeavor to help shape the secretary's regulatory environment. We briefly outlined some of the initiatives or activities going on with regard to this. ASIC is engaging with the buy now, pay later providers with regard to Report six hundred.
They've issued round one of Report 600 at the end of 2018 . They'll be providing a further update with regard to that report in the coming months. As touched on, we have the buy now, pay later code of conduct is an industry participants code of conduct that's currently out for consultation. We believe that that will be a strong starting point, but we'll continue to implement our own more robust and comprehensive standards. Obviously, the RBA is conducting a review into the payments landscape, and we also participated recently in the Senate Fintech inquiry, where we made a strong case for greater coordination between regulators, endeavoring to provide an outcomes-based approach to regulation of Fintechs.
Overall, given our robust business model and processes, understanding with ID and credit checks, and ensure a customer's financial position prior to entering into any relationship with them, we remain well-placed in the current regulatory environment. Just hand over to Larry to close.
Thanks, Pete. So as we look at the year ahead, we obviously remain really focused on delivering our targets that we set for fiscal 2020, targeting 2.5 million customers and AUD 2.2 billion in annualized transaction volume. And at the end of December, we were on track, annualizing at AUD 2.3 billion and 1.8 million customers. You know, the focus this year is really about acquisition, retention, onboarding lighthouse brands, and starting to expand globally, you know, by deliberate lift, shift, and scale strategy, and we're really excited about the road ahead. So in closing, probably a few comments here. You know, for us, we are executing on the strategy that we have set out.
We like to set a very clear strategy, set out a strategic plan for the year, get buy-in from the executive team, and then farm out across the group, and we've been doing exactly that. We've also been able to deliver really strong growth year on year. If you just look at the last five years, that's over 100% revenue growth year on year, and we've just seen that again in the half, so AUD 70 million for the recent half. You know, even though we are six years in and growth has been great, if you look at the penetration, it is still incredibly small, and the market opportunity before us, we assess as very, very large, not just in Australia, but now globally.
And so where we are today, at the end of this financial year, is gonna be good, but we're really looking at the next few years and really believe that we can build a very significant business. We've got the team in place. The timing for buy now, pay later has probably never been better. We're seeing all stakeholders lean in, not just retailers. We're seeing the banks and issuers. We're seeing the schemes, and with the globalization and connectivity of tech, we're really excited about the road ahead. So thank you all for listening in. I will now hand over to the operator to take any questions. Thank you.
Thank you, Larry. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, just please press star one on your telephone and wait for your name to be announced. If at any time you do need to cancel your request, that's just the pound or the hash key. But your first question today comes from Jonathan Higgins from Shaw and Partners. Please ask your question, Jonathan.
Hi, guys. Thanks for taking my question today. Just two from me. Firstly, just around the U.K. rollout, you've obviously spoken in regards to some timing for that rollout in the presentation. Are you able to give us just a little bit of color just around pressing go on that rollout? And, you know, is it gonna be an offline and online thing that happens, and are you gonna launch with a number of large partnerships, or are you gonna try to feel it out in a bit of a slower manner?
Yeah, thanks. Thanks, Jona. Yeah, so, you know, we are very much treating the U.K. as a big opportunity and not really a go slow. I think what you see there is very much, you know, a startup, but with the VC firm having already raised the capital. So we're not treating incremental. We are looking for kind of radical growth, and that's why, as you know, as I mentioned earlier, we've already got 50 on the ground there, focused on really getting into the market. We definitely hope to launch with, you know, a number of strong brands. And our plan is to be online and in store. We are an omni-channel play.
There's been a bit of work done over the last few months in first getting the right team together, which we've now done under Anthony Drury, and also doing some additional work on the technology platform that we acquired via the PartPay acquisition, and that's getting ready as well. You know, we see the opportunity as you know, significantly larger than Australia, and we're gonna treat it seriously like that.
Just second question, just in regards to just your targets. You're obviously well ahead in terms of your annualized transaction volumes, and you've got the 2.5 million number for the end of the financial year, and, you know, obviously ended as per the last quarterly update. Are you able to talk towards where you expect to see the leverage in that customer number? Because it does imply, obviously, a pretty significant step up from what we saw in the second quarter, excluding the, you know, sort of the acquired PartPay customer base. Just, you know, where you expect to get that, because 2.5 million customers at sort of your average transaction rates rolling into next year is obviously a pretty material number.
Probably the second part of that question would be, are you seeing any sort of difference in the core competition in the Australian market with a couple of these players, you know, making moves around the various product sets with Klarna? Obviously, Flexi's launched a bit of a different product, et cetera.
Yeah, sure. Yeah, so look, I think, you know, the 2.5 number. We've got a large number of initiatives that are in place, which, you know, we're not gonna go into necessarily on the call. But certainly, there's also a large number of technology and product solutions, as well as some pretty large retail partners that we are. They're in the final stages of, and once they're on, you know, we do expect some really exciting growth there.
So, you know, we're still pushing pretty hard at the two and a half, and, you know, if you look at just the market opportunity, seven million PayPal accounts, seven million credit card accounts, we've got a long way to go. We've also now got a great chief on that side of the business, Steve Brennan, ex Uber. He led there as well as PayPal, and, you know, he's firmly focused on that result. In terms of competition, you mentioned Klarna. Look, you know, I think it's great to see an Australian bank backing a foreign tech company to fight against two homegrown Australian tech stories. So that's really great to see, sarcastically, of course.
But look, I think if we look at the competitive landscape, you know, we do believe that our product in Australia, this account concept, is very differentiated. And if you look at the market, most retailers have put Zip and Afterpay. Afterpay has been a fantastic success story in the pay in four, and, you know, I really struggle to see how others are gonna come close. I think Klarna's, they're late to the party. They'll try pretty hard with CBA, but, you know, I think Afterpay is gonna have them over a barrel.
And I think just more generally on the competitive landscape, if you look under the hood, some of the other peers don't have the focus on product and tech and customer as we do; the DNA and culture of the organization. So while there are products being released and, you know, lots of different brands out there, you know, I think if you just remain focused on the customer, invest in product and tech with our differentiated strategy, you know, we've got a really strong position. You know, we have had Westpac on the register. They have been a little bit slow, but, you know, there's always. You know, if you look around, there's lots of areas for us where we look forward; we're really excited about.
Thanks for answering the questions, guys.
Your next question comes from Philip Chippendale, from Ord Minnett. Please ask your question, Philip.
Hi, guys. Just a couple of questions from me. Firstly, just on the gift cards and the bill payments offering that you've got, can you give us a sense of how much of your TTV comes from those types of products?
Hey, hey, Phil. It's Larry here. So look, I think you know, they do deliver good numbers, but obviously, we can't share the exact share. That's probably as far as we can go. I think, you know, for us-
Yeah, I suppose-
... bills, you know, the bills are bigger than gift cards.
Yeah, I suppose where I'm going with this is, if I look at the revenue yield that you guys have achieved over the last what, four halves, I think slide 26 demonstrates it well that that's continued to come down. I think Peter made the point that some of those lower-yielding products have had some of that impact. I guess I'm just trying to get a sense of how much of that TTV is coming from the lower-yielding products, and then the lead-in to that is what is it that's gonna drive that yield to increase? You know, because you are obviously restarting your medium-term target to 18%.
Yeah. So, I'll hand over to Pete, but you know, I wouldn't go down that path because if you look at gift cards, I mean, gift cards have a much higher fee associated with it, with the gift card market. You know, it's anywhere from 3% up to 10%. So it's that. You know, if you had just gift cards, you would have merchant rates of 5%-10%.
Yeah
... and even higher. So, you know, I wouldn't look it at that path. But in terms of the overall yield, yeah, Pete, you go.
For example, Phil, one of the initiatives we're looking at with regard to the yield is, obviously, we as Larry sort of touched on throughout the preso, is that we've done a really good job at getting customers to use us more and transact more. One of the things that we're really focused on is how do we get them to repay faster? Obviously, that makes a material difference to the recycling of the capital, and that will be an upward shift in yield. Part of the reason that in terms of seasonality, that we sort of drop slightly at this time of the year is because customers are carrying slightly larger balances. Those are some of the initiatives sort of have, you know, in the arsenal.
As the global story grows and, you know, the Zip Biz sort of product, they're naturally significantly higher-yielding products than perhaps the core Zip product. So there's a number of ways that we can sort of affect that number as we continually, you know, strive to scale to this AUD 5 billion sort of receivable.
Yes. I think, you know, we're definitely. If you kind of look forward, the next year or two, you know, we should see faster recycling of the book than we have in the past, based on all the initiatives that we have in front of us, which obviously improve the yield.
Okay, thanks. Secondly, can we just turn to the U.K. for a moment? I'm just trying to understand what your product aspirations are there in terms of rolling out the Zip brand. I'm just wondering a couple of things specifically. Are you looking to launch your Zip Money product in that marketplace? And then secondly, what about Zip Biz? Is there sort of aspirations to have that offering in the U.K. as well?
Yeah, Phil, I'll take this one. So initially, I think obviously the PartPay or the now acquired Zip Pay is a pay-in-full product, so that would be the first launch piece. That's a proven model to acquire customers in multiple verticals. And yes to the second answer, with regard to Zip Money. We see a huge opportunity for the Zip Money in the longer-dated, higher-purchase type items in the U.K. Again, it's a reasonably well-known and understood marketplace for a product like that, but there's no one sort of delivering it within the technology sort of fashion that we have in terms of the way we utilize the credit decisioning platform we've built to deliver that product. So that's a huge opportunity for us.
You know, there is a very high interest rate, retail finance market over there that is ripe for disruption, with the correctly structured interest-free, longer-dated stuff. And similarly with Zip Biz, you know, there's a huge utility for that product, not only in Australia but globally as well. And what we're already seeing in terms of the value prop and the take-up from customers in Australia, there's a significant need for this sort of digital service, which allows customers to make purchases, but also spread the cash flow burden of bills and invoices, as you know, great utility. And the usage of, you know, three-plus times per month in terms of the use case for Zip Biz customers, we believe will be very transferable to other jurisdictions, such as the UK.
Okay, thank you.
Thanks.
That's all from me.
Your next question comes from Tim Piper, from the Royal Bank of Canada. Please ask your question, Tim.
Afternoon, team. Just first one around the Zip Biz product. Can you just provide a bit more detail around the pilot program you've run in terms of the breadth of merchants and the size of the merchants? And also, how many customers are you seeing elect to use the PartPay option in that product so far?
Hey, Tim, it's Pete. So we're seeing sort of a broad mix of very small, you know, enterprise businesses from your local plumber or tradie to sort of some medium-sized turnover businesses in the AUD 3 million-5 million dollar sort of turnover range, sort of take up the product. Admittedly, it's very early days, but the results we're seeing are really promising. We're actually seeing a reasonably even split of customers electing to pay the balance in full, you know, under the up to 60-day term, and in terms of an even number sort of carrying it over and using the PartPay feature.
It's probably too early days to sort of give you a strong steer on that one, but the flexibility is already being embraced. The customers are understanding the concept and the option very clearly, and again, similarly to on the consumer side, we've already tapped into a sort of great market opportunity in these bills and invoices in terms of spreading this cash flow load that some small businesses are carrying.
Okay, sure. Sorry, did you say that Zip Biz is a higher revenue-yielding product?
Yes, it is.
Okay. And sort of what's the, what would be the rough difference in revenue yield between a customer utilizing the PartPay option versus not?
In terms of the yield profile?
Yeah.
Yeah. So it's pretty agnostic, the way it's currently structured. You know, it is still in pilot phase, so whether or not we tweak any of the pricing, you know, but we would anticipate a yield across the portfolio in the mid-twenties. So that's the sort of contextual difference that we're hoping that that sort of product will deliver for us.
... Okay, so in the mid-twenties, that's largely being driven by a high turnover in the book, is it? In that product.
That's one of the factors.
One, yeah, sure. Okay, and just to follow up on the U.K. again, just looking at how much some companies have spent investing in expanding in the U.K. and, you know, appreciate that you're in growth mode. Just looking at your cash EBITDA yield, going forward, does that stay positive?
Yeah, so I think, that's, you know, U.K., we will be investing for growth. You know, I think we'll use some different tactics to what we've seen in market over there. You know, I can't see us writing, you know, silly checks to go on to checkouts that aren't gonna yield, you know, significant volume just to be there. So we are gonna take a very different approach in the go-to-market. You know, and so to get to a cash flow breakeven result for U.K., it's probably a couple of years I would have thought, and obviously keep Australia in the black.
Okay, great. Thanks for your response.
Your next question comes from Sameer Chopra from Bank of America. Please ask your question, Samir.
Good afternoon. Congratulations. Good, good set of numbers. I had two questions. One, you know, is it possible to get some sort of color around how your brand is tracking on some of the newer merchants, people like sort of Amazon and, and Optus and Bunnings? Just wanna get a sense around, you know, is Zip frequently used? What sorts of purchases are made? What sort of purchase size occurs on some of these sort of newer merchants? And my second question is, could you maybe, you know, guide us around how we should think about salary, marketing costs, other OpEx through the rest of FY 2020 and into next year? What sort of pace of growth should we expect in these expense line items? Thank you.
Thanks. So we had a couple of angles to that. We've had the
Performance on new merchants.
Expenses, and performance on new merchants. So those are the two.
Yeah.
So I might take the performance, and I'll hand over to Martin for the expenses. So I think, you know, some of the examples that you've used, in the case of Amazon, we are the only option, and in Bunnings, you know, it's us and Openpay. So I think what you're seeing is, I mean, the checkout experiences are a lot more slicker than they were a few years ago, in the case of Amazon. So conversion rates at that payment point are going up. We've got more customers in the base now, so when we turn on a merchant, we're able to deliver, you know, immediate value to that retailer on day one, and we've got, you know, quite an active base. So that's really strong.
And I'd probably point to some of the stats we showed earlier around customers that are joining Zip now are coming into a world where they sign up and, you know, we look at the funnel from sign up to, you know, add a card, make a first transaction, make a repayment, et cetera, et cetera. So we're seeing a much faster flow through on those activities where they might sign up. If they come direct, they sign up, you know, add their payment method, and then much quicker than our shopping at our retail partners. They can see in the app who we have, they can search, they can find, and that's getting a lot easier.
In terms of share of checkout relative to peers, it's hard for us to know without asking our competitors. But you know, anecdotally, I think we're doing a pretty good job, you know, at Bunnings, where we're side by side.
It's still early days for Amazon, obviously, but you know, at the likes of Big W and Appliances Online, we're really starting to get a meaningful share of checkout and to deliver some meaningful volumes to those businesses, and similarly with the likes of Bunnings, as that relationship continues to mature.
Bunnings, you know, obviously going, you know, more digital. I personally think we've got, you know, the numbers are good, but we've got a long way to go in terms of really penetrating the in-store. Buy Now, Pay Later has done a good job at penetrating online checkouts, getting to a target share of checkout. In-store is obviously a lot more gradual, and that's for a whole raft of reasons. The ability to see that you can use these products and services, the actual payments experience. We're doing a lot of work this year on the in-store piece. You've seen QR. We've got a couple of teams working on that, which we think is gonna yield some pretty good results. Even those accounts, we've done well online, but I would assess the opportunity as, you know, much bigger in store.
On the expenses around headcount, I'll hand over to Martin.
Cost side, the simplest way to think about it is that we will continue to invest in growth. So, we will invest in growth with the objective of maintaining the cash EBITDA positive. So that will obviously imply increased marketing spend, decreased headcount spend, half on half.
And I think if you look at a lot of the people costs, you know, engineering, you know, it's gone up from 35- 110 over the last year and a bit. We're doing some work now to also scale teams offshore. So, you know, building distributed teams in Vietnam and India, not only do they provide a lower cost, they also provide a higher velocity. And so our Chief Product Technology Officer has that in one of his big initiatives. Space is obviously an issue in Australia, but also, you know, growth and hiring. So that's gonna be kind of. You'll see more of that happening, which actually would probably reduce the overall average cost of engineering resources.
So, sequentially, we can expect costs to keep growing, what? 20%-30%, these kind of fixed OpEx? Meaning not cost of goods sold. Do you think, you know, sequentially, half on half, these things will keep picking up trade?
Modeling it in line with your, I guess, the growth in revenue, so the model will be revenue is going to grow, cash cost of sales will stay at the same kind of level, maybe reducing, and then what flows through, we'll be investing in growth, so the cash EBITDA remains around the break-even or thereabout.
Perfect. Thank you.
Your next question comes from Andrei Stadnik from Morgan Stanley. Please ask your question, Andrei.
Good morning. Just wanted to ask, firstly, just around the comprehensive credit rules now being applied more vigorously with credit cards. Do you think this has permanently increased the burden of taking out a credit card in Australia? So the volumes, new volumes, credit cards will remain at a much lower level?
Yeah, I wouldn't suggest, Andrei, that the Comprehensive Credit Reporting regime is necessarily impacting credit cards. I think what we've seen in Australia is a shift away from traditional credit products, you know, significantly more complex, high reliance on interest. You know, and probably to some degree, a large level of the increase of mistrust of the Big Four banks, you know, which obviously came out as part of the Royal Commission. So I think it's more a shift on the basis of product construct, simplicity.
You know, this concept of carrying, you know, large debt at high interest rates for long periods of time is probably outdated, and consumers are embracing solutions such as us, you know, because of the simplicity and the quick, you know, recycle period of the repayments, as opposed to anything to do with the Comprehensive Credit Reporting regime.
Thank you. My second question, just in terms of the integration with Tyro, are there any incentive fees, you know, one-off or ongoing that, you know, you will be paying to Tyro for, you know, helping deliver on board merchants?
Yeah. So obviously, there's a commercial relationship in place with Tyro, you know, for the integration piece. I think what we liked about them was they actually have a proven model of being able to sort of roll out an alternative payment solution across their network. So Alipay, for example, would exist in 20,000 of their merchants. So we're hoping to sort of follow that model in terms of this mass rollout across their network.
Cheers. Thank you.
Thanks.
Your next question comes from Richard Coles from Morgans Financial. Please ask your question, Richard.
Good morning, guys. So just trying to reconcile some of the comments you're making on sort of growth and expense, you know, relative to your medium-term margins. I mean, you have the medium-term cash EBIT margin, 7%, say it's sort of a two to three-year timeframe, but then you're making comments that you're obviously gonna look to be cash flow positive in the U.K. in maybe a few years' time, and you're willing to invest in the business for growth, which everyone understands. So I guess when you're giving those targets, are they really a two to three-year timeframe, or are they, we're talking more of a three to five-year timeframe on some of those medium-term financial dashboard targets?
Yeah. Yeah, so I think if you look at it, I mean, it's no surprise that we do need to invest for growth because the window is here. So I think it's really about our ability to invest and get the operating leverage coming through. We've got some big things in the horizon, which we hope to secure, and you will start to see the operating leverage come through 100%. I mean, we're already, you know, you can see just the weight of investment in product and tech. As those squads formalize, get more mature, you don't need to add more to the different parts of the customer experience. So, you know, the next year is investing for growth.
We've got some, you know, pretty ambitious targets for the UK, and the MD there is, you know, incentivized accordingly. So, you know, we hope to see some really strong results. But I think, yeah, we need to be mindful that this is, we said a three-year range, and, you know, a lot of the investment going in is for growth. We could take out a huge number of costs out of the business, and you could be at that number overnight. So, that's not really the challenge.
Nice. Thanks so much.
There are no further questions at this time. I'll hand the conference back to your presenters for any closing remarks.
Okay, well, thanks all for your time. I think we've run a little bit over. You know, as always, if there's any further questions, feel free to reach out to the company via the investors line, and we'll be happy to ask any questions or have any of you over at the office to showcase the operations. Thanks so much.
Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation. You may now all disconnect.