Company Interview / PEXA narrows FY loss; CEO to retire

Glenn King, CEO of PEXA Group (ASX:PXA), clarifies his decision to retire, stating that the company is in a firm position with growth and expansion in Australia and the UK. Glenn appreciates the team for their contributions and reviews the positive figures behind the group's success, such as a reported group revenue increase of 21% to 340 million, 16% group operating EBITDA at 140 million, and a pleasing 36.5% operating margin. The company's success is seen across Australia and its enhanced digital solutions which register 15.7 million in revenue, highlighting growth and customer satisfaction at 90%.

Focusing on PEXA's digital solutions aspect, Glenn reveals withdrawal of their previous revenue guidance. He stresses the company's dedication to making sure that the existing areas are operating efficiently before diversifying. PEXA's regulatory issues seem clear, with Glenn characterising the relationship with regulators as proactive and positive. The pause in the interoperability program was welcomed due to its complexity and the company’s commitment to delivering secure, reliable services.

Addressing the Australian property market, Glenn notices improvement in transaction volumes, albeit not back to pre-2022 levels due to socio-economic uncertainties and regional variations. The company expects growth in PEXA Exchange revenue, with sale and purchase volumes being robust compared to refinancing. Interest rate cuts predicted for next year will likely stimulate more transaction volumes. As for the UK expansion, PEXA’s platform is being integrated into major banks, and Glenn anticipates they'll start transacting this financial year.

Full unedited transcript:

0:00

Uh, my decision to retire is based on a couple of reasons. Firstly, we're in a very good position in terms of the group with, uh, progress. Well, in Australia, we're expanding out with our new digital solutions, and the momentum we've got in the UK is pleasing. And importantly, we have a good team in place to take the organisation, uh, further. So I've been here for five years now. Uh, Andrew and I have worked nearly 40 years as a professional, and it's the right time to move forward, uh, for myself and for the organization. So, Glenn, let's unpack then, those results and how you leave the company. Then what? Um, what do you make of those numbers and improvement there?

0:45

Yeah, I'm really pleased with the numbers, actually. Andrew, the group revenue is up. As you said, it's 340 million, 21% up. Uh, group operating EBITDA is up at 140 million, uh point nine, which is uh, 16% improvement. And also importantly, is our group. Uh, margin. Operating margin is at 36.5%, which is also up 1.7 percentage points on the expectation that we set. So what's also pleasing is our expansion in, uh, Australia. We're now, uh, in infrastructure right across Australia in terms of property transactions, including now Tasmania. So got national coverage and we saw that our market penetration is at 89% and a customer satisfaction score of 90%. In addition to that, our new digital solutions, we've seen growth in our digital solutions. In fact our revenue is up at 15.7 million, which is up on the prior year. But importantly, the solutions are now starting to get

1:45

penetration into our customer base, many more needs of our customers and finally the expansion into the UK. We've been working on this for four years and we're seeing pleasing results. We've got a number of financial institutions using the pixel proposition in the UK. We've got two top ten financial institutions wanting to take it forward. And we've integrated successfully into our optimal legal business that has six of the eight major banks as customers. So we're in good shape. Uh, we're making traction with our strategy, and we're delivering on solid financials as well. Just a question in regard to your digital solutions portfolio there. You have withdrawn your previous revenue guidance. Why is that?

2:26

Well, firstly we're focused on, uh, the areas that we've already acquired and ensure we get the right return on those. And, uh, that includes our business, such as informed decisions, that provides our data solutions to 380 plus local councils around Australia, and also our AVM Value Australia, which is a leader. We've signed a T1 bank as it already is a customer of uh, Value Australia. The, uh, guidance that we provide on the 50 million revenue for 25 included organic and inorganic solutions. Uh, what we've decided is to focus on what we've got to make sure they work well, get the right return on investment, and there's no real inorganic opportunities at this stage that makes sense for shareholders and for us strategically. So we'll focus on executing on what we've got.

3:16

Can you give us an update on regulatory issues involved at the moment, with the regulator pausing its program for interoperability, as I understand it there? Um, look, clearly you do have what would be called a monopoly in this, this area. What issues are you facing with the regulator?

3:36

Well, firstly, we we work proactively and positively positively with the regulator. And in this case, that regulator is called arsenic. Interoperability has been going for a number of years and it's extremely complex. It's more than just pexa. It's also involves banks and revenue officers. And we provide a service that has high customer satisfaction score at 90%. And our platform needs to be up 100% of the time. And it's also classified as critical infrastructure. The bottom line is that interoperability is complex. Uh, we deliver about 300 million per annum of efficiencies for the sector. And, uh, the transaction price for a Pexa transaction is regulated around about $137, uh, 0.01% of average, uh, house prices when you're selling. So it's a very small element of it. And, uh, you know, we welcome the pause. Uh, and we do think

4:36

it's the right thing to do to really consider what are we trying to achieve here to deliver consumer benefits, given the quality service that we provide when we take a look at the Australian property market? Glenn, what are you seeing there at the moment just as far as transaction volumes are concerned?

4:53

Well, we certainly, uh, are seeing improvements in truck transaction volumes. So we're starting to see improvements back to the 22 period, but not at that level at this stage. Andrew, what we are also seeing is you still have, uh, population growth. There is housing demand that is greater than supply. We're seeing challenges, as we know, around housing affordability, but there's also mixture across the country. So you're seeing some really good progress in WA, in New South Wales and in Queensland. But housing transactions in Victoria are still mixed and are different also in areas of South Australia. So it's a mix, but we are starting to see some positive trends. Yeah, of course you did see that significant decline, um, in the previous financial year. As far as those transfer volumes are concerned, do you have a forecast for the for the current financial year? Yeah, we

5:52

we haven't given a forecast in terms of transactions or the picture exchange revenue. But I think the best thing I can say is we do have, uh, forecasts for growth in over group revenue of our 13% plus, and that does include growth in the Pixel Exchange revenue as well. So we would certainly see that exchange volumes will grow. What we also do expect, Andrew, is that the mix of sale and purchase volumes or sound transfer will continually be strong on a comparable basis to refi. In saying that, though we do have to take into consideration, it still could be uncertainty in the economy. Uh, we do know we've got elections in different countries that could cause uncertainty, and we do know that they're still whilst improving. There still are inflationary pressures amongst other areas as well. But we we are cautious, but we do expect to see some growth. And with a focus on the Australian market, the

6:51

likelihood that interest rates are going to remain on hold for the rest of this year, but look to begin cutting next year. Is that going to be a catalyst, do you think, to see a rise in those transaction volumes?

7:03

Yeah, one of the positives of the picture exchange platform is it? As I mentioned earlier, he does run about 90% of property transactions go through the Pixel Exchange platform, which includes sale and purchase and refinance. Uh, interest rate reductions should lead to more transaction volumes, certainly on the sale and purchase or sound transfer, but also with the interest rate movements. We'd also expect to see some changes in refinance volume. So I wouldn't see it being a negative. Put it that way, I think it would be a positive. But the platform is resilient in interest rate rises as well. And just as far as your expansion in the UK is concerned, how would you describe how that's going just as far as your strategy is concerned, and perhaps what are you looking forward to as perhaps you're looking to find further commitments, particularly from from banks that use Paxos platform there?

7:58

Yeah, there's a couple of things in terms of a UK strategy that if I look at, firstly, the things that we can control, the build of our platform has gone very well and uh, the platform already does our percent of remortgage capability. We're already now on to building our sale and purchase capability as well. We expect to have 50% plus of the sale purchase capability built by the end of this financial year. We've integrated the pixel platform into optimally, which is a bulk, uh, mortgage processing, uh, conveyancer that does give or take around about 20% of remortgage volume in the UK. So we want to aim at ensuring that the customers have optimal legal start to use the pixel tech. We have two financial institutions that already live on the Pexa platform, being Sherbrooke Bank and Hinckley and Rugby Building Society. We're working with NatWest, which is one of the top three financial institutions in the UK, and we're working with another large financial institution which is in the

8:58

top ten, so we want to get them transacting in this financial year. But of course that does depend on their technology work and and us working with them closely. But we do expect that they'll be transacting this financial year. In addition to that, we're engaging with a number of other financial institutions, including two more of the top six financial institutions, and we're working with the Bank of England to get them enabled this financial year so that they can start to progress with the pixel platform as well. So I, I remain confident we're delivering everything we can within our control. There's good engagement, is a good need for the pixel proposition. And the UK government policies are conducive for pexa to be in that market. There's no like competitor but pexa in the UK market. And the last thing I'd add, Andrew, is that Pexa is a wonderful success story from COAG in 2010, a tech platform that is very unique, that is adding value to the Australian economy,

9:58

creating jobs and is now moving into international markets. It should be something that we continually celebrate, and let's hope we get more of these examples from public policy reform