PEXA GROUP LIMITED — Capital/Financing Update 2023

Oct 5, 2023

ASX ANNOUNCEMENT

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ASX:PXA

Friday 6 October 2023

PEXA update on UK strategy and Smoove acquisi�on commentary

Melbourne, Australia : PEXA Group Limited ( PEXA or the Group ) – a world-leading digital property exchange pla�orm and property insight solu�ons business – provides an update on our UK strategy and the proposed acquisi�on of Smoove plc (Smoove).

Chief Financial and Growth Officer Scot Buterworth, and recently joined CEO UK Joe Pepper.

joining me this morning in our Melbourne office is our Chief Financial and Growth Officer, Scot Buterworth and on the line is our recently joined CEO UK Joe Pepper.

We are pleased to welcome you to PEXA’s UK Strategy update, and to also provide you with a litle more detail on this morning’s announcement of our proposed acquisi�on of Smoove plc. As always, we appreciate your interest in our company.

Before we start, as is usual with these types of announcements, slide 2 sets out importance no�ces and disclaimers.

Slide 3:

Turning to slide 3, In the spirit of reconcilia�on, PEXA acknowledges the Tradi�onal Custodians of country throughout Australia and their connec�ons to land, sea and community.

We pay our respect to their Elders past and present and extend that respect to all Aboriginal and Torres Strait Islander peoples today.

We at PEXA accept the invita�on to walk with First Na�ons Peoples, to a beter future for us all, and invite you to join the movement.

Slide 4:

Slide 4 outlines the agenda for this morning’s call.

I will start with providing an update on our UK strategy and progress.

I would then like to introduce you virtually to Joe Pepper. Joe started with us this week as our UK CEO, and it is great to have him on board. You will get a chance to meet Joe later this year and we will have more to say on this shortly.

Scot will then provide an overview of the proposed Smoove acquisi�on that we announced this morning.

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We will then be happy to take your ques�ons.

Turning to the UK Update

Slide 5:

Slide 5 is one that I have spoken to many �mes, and this is because it drives how we think and act across the business.

Our strategy is anchored in our purpose of “Connec�ng People to Place”, which frames how we work and our values. A purpose that is values-based for our customers, our people, community, and our shareholders. A purpose that mo�vates our people.

Our strategy is simple. Deliver sustainable business growth by:

• Enhancing the PEXA Exchange;

• Extending further into the property ecosystem with addi�onal customer solu�ons through product adjacencies;

• Expanding our core capability into jurisdic�ons with similar customer opportuni�es to solve; and

• Evolving our opera�ng model to underpin a produc�ve and engaged professional team, built on our values of Beter Together, Making it Happen and Count, and Innovate for Good.

Today, Scot, Joe and I will focus on the Expand part of our strategy in the UK. As we do so, there are three factors which shape our approach to the market: its rela�ve atrac�veness, the benefits created by the PEXA pla�orm, and the structure of the UK’s conveyancing sector.

Slide 6:

As we have previously men�oned, the UK market is rela�vely sizeable. In par�cular, the sale and purchase market segment is substan�ally larger than that of Australia, reflec�ng the differences in the popula�on and size of the two economies.

You may be surprised that the UK re-mortgage market is only slightly larger than that of Australia. In part, this is due to structural differences between the two markets, including differences in the tenor of fixed rate mortgages, and the use of SVR vs fixed rate products. However, we also know from our research that just under half of eligible customers choose not to refinance due to the stress involved, despite the higher costs they may face. I will touch on this detriment in a litle more detail shortly.

Slide 7:

setlement process in the UK is highly challenged. Rela�ve to other key Torrens markets, transac�on fail rates are unacceptably high and the �me to complete transac�ons is overly long. This is key to the

The UK market does feature “daisy chains” (albeit about 70% of deals are “chainless”), “gazumping” and “gazundering”. However, while these factors are features of this market, the real issue is that �me kills all deals… the longer a contract remains open, the more likely it is to fail. It is here where the PEXA

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pla�orm, which is designed to facilitate easy transac�on co-ordina�on and to remove key costs and fric�ons from the conveyancing process, comes into its own to create benefits for consumers and other stakeholders. As we found in Australia, implemen�ng PEXA pulled transac�on �mes down from roughly 90 days to 60 days in jurisdic�ons such as Victoria, and reduced error rates at land registries from circa 30% to less than 1%.

Slide 8:

delays, uncertainty about next steps, and unplanned costs. The PEXA pla�orm assists with resolving each of these issues and creates benefits for all key stakeholders.

ability to build share by providing rela�vely faster services to customers and key intermediaries.

low margins that can be found in the conveyancing sector, no�ng however, that this is somewhat offset by the impact of lower interest receipts from trust accounts in certain part of the economic cycle.

of a typical sales and purchase transac�on, where 2/3rds of consumers suffer unexpected losses of more than £1,000. In the re-mortgage segment, 8% of customers undertaking such a transac�on will

Slide 9:

Moving now to slide 9, the last factor determining our strategy in the UK is the shape of the industry. This is dis�nct between the re-mortgage and sales and purchase segments. I’ll start with the remortgage segment.

As you can see from the slide, there are two types of re-mortgage transac�on, driven by the fact that UK lenders do not have their own conveyancing capacity. The mix of the two types varies over �me with market cycles and compe��on.

transac�on itself and chooses a conveyancer directly, or through a panel manager. This is the segment where Op�ma Legal operates, and it receives its work directly from its lender customers.

The second type of transac�on is a ‘cash back’ re-mortgage. In this situa�on, the lender will provide the borrower with a cash sum to pay for the conveyancing required to complete the re-mortgage. No�onally the customer, or more usually, their broker, will then choose a conveyancer directly or through a panel.

across the re-mortgage sector, with the four largest firms (including Op�ma Legal) carrying out about 80% of the work across the re-mortgage segment.

Slide 10:

Slide 10 deals with the sale and purchase segment. This is much more fragmented than the remortgage market.

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comparison websites, past experiences, and customer and friend recommenda�ons.

home builders, estate agents, brokers, and lenders. They will choose directly from a panel they have arranged (or have had arranged on their behalf), or through a panel manager.

law specialists or conveyancing factories. The other half is done by a large number of small high street

together they intermediate around about 10% of sales and purchase flows.

Slide 11:

the market, as described on slide 11. Our star�ng point has been to ensure that we have a high quality, flexible and reusable pla�orm. We have also been working to ensure that the pla�orm is wired into key parts of the market. In parallel, we have been building our business capacity in the UK, and we have also been crea�ng advocacy for e-conveyancing and PEXA across important stakeholder groups. Of course, this is all a precursor to building re-mortgage flow (and Op�ma Legal is an important part of this) and sales and purchase volumes in due course.

We have made progress against many of these factors, albeit not always at the pace our ambi�ons would set for us and no�ng that in many ways our UK development has taken 1-2 years less than that required to reach a similar stage in Australia.

use of PEXA technology and capabili�es by lenders.

Slide 12:

Slide 12 describes the work we are doing to broaden out our re-mortgage pla�orm. By the end of this year, we will have expanded the capability of PEXA’s pla�orm to address a broader range of remortgage transac�ons including those involving limited companies. By the end of mid-next calendar year, we are targe�ng further upgrades which will allow us to handle up to 80% of re-mortgage flows.

Slide 13:

As set out on slide 13, we are also beginning work on our sales and purchase proposi�on, which will allow us to enter the largest part of the market. We aim to do a limited release during the third calendar quarter of next year and move to more fully featured releases over the end of calendar 2024 into the beginning of calendar 2025.

Slide 14:

As we have discussed previously, the integra�on of PEXA technology into Op�ma Legal is an important component of our UK strategy to build our presence with lenders. Slide 14 lays out the program of work we are undertaking. We have already started offering commercially bundled PEXA/Op�ma offers, and I’ll talk about some early outcomes of this work in a moment.

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However, we will be moving progressively beyond this over the course of the coming calendar year, and our goal is to have a fully integrated, UI and API enabled PEXA-Op�ma journey in market by the middle of calendar 2024.

Slide 15:

This work has been helpful in our task of enabling lenders to use PEXA’s technology. This includes working with an addi�onal four PEXA Pay testers (with three of whom we have signed non-binding MOUs, one of which we are s�ll working with) to par�cipate in the next round of Bank of England tes�ng slots in November 2023.

Addi�onally, Op�ma Legal has just won a substan�al tender with Lloyds Banking Group. Pleasingly, this was the first major tender posi�oned as a joint PEXA and Op�ma proposi�on. Our feedback was that LBG par�cularly welcomed this. Whilst LBG have not commited to using PEXAGO yet, it is a good first step. We are progressing the other conversa�ons which we spoke about circa 6 weeks ago and we will provide you updates as required.

Slide 16:

Before I close on this sec�on, I want to turn slide 16, which is a slide that we have shared previously in May 2022. We remain commited to the targets described on the slide.

To reiterate these:

• We are targe�ng to achieve a minimum of 25% PEXA pla�orm penetra�on for re-mortgage market share in calendar 2025

• purchase by calendar 2027

Introduc�on of Joe Pepper

Slide 17:

Of course, key to achieving these outcomes is pu�ng in place capable and experienced leaders to execute our strategy. In this context, I am pleased to introduce you to Joe Pepper, our new UK CEO, who started with us this week. Joe is a highly creden�alled execu�ve, with strong experience in business development, digitalising markets, and building effec�ve and high performing teams.

Joe’s most recent role before joining PEXA was as the CEO of TM Group. TM Group is one of the UK’s largest property search providers and this provides Joe with a wealth of experience in the broader conveyancing space. Joe will be joining us in person in Australia before Christmas, when we look forward to introducing him to key stakeholders across the market.

CEO UK, Joe Pepper

Slide 18:

[Joe provided a brief overview of his career and experience and ini�al observa�ons].

Update on the Smoove transac�on

Slide 19:

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Thank you for that update, Joe. With that background on our strategy and Joe’s observa�ons, I will now hand over to Scot to go through the details of the proposed acquisi�on of Smoove.

Slide 20:

Thanks Glenn. Turning now to slide 20, I want to point out some of the legal parameters rela�ng to this transac�on. As you know, Smoove is listed on the Alterna�ve Investment Market of the London Stock Exchange. This means that this takeover is governed by UK law. That constrains some of the maters that we would normally talk about at this stage of a transac�on in Australia, par�cularly in rela�on to integra�on and future synergies. We will update you on these maters as soon as we can as the transac�on progresses.

Slide 21:

I am now moving to slide 21. Before going through the detail on this slide, I want to provide a perspec�ve on how we got to here. As you know, we have been very keen to de-risk our UK expansion through organic and / or inorganic means. To that end, we have reviewed over 70 inorganic opportuni�es for availability, strategic fit, economic value crea�on poten�al, and cultural and people alignment. Only two organisa�ons have made the cut. The first was Op�ma Legal. The second is Smoove. Given this, we do not at this stage believe that further UK acquisi�ons are required to build our UK posi�on.

Moving to Smoove itself, the business was originally established in 2003, and it was IPO’d in 2014. It has a long history of par�cipa�ng in the UK conveyancing market as a panel manager. As you heard from Glenn, Panel Managers are an important conduit for the flow of conveyancing business in the UK. Today, Smoove’s panel members deal with c7% of UK re-mortgage flows, and c3% of S&P flows. Smoove’s panel firms also obtain business from non-Smoove sources, which provides addi�onal reach into the S&P market.

The business has had a long-standing, and deep, rela�onship with Lloyds Banking Group. It has also con�nued to grow its reach across the market by building rela�onships with intermediaries such as the Mortgage Advice Bureau, one of the UKs largest mortgage introducers. Smoove has also built a sizeable rela�onship presence in the fragmented conveyancing market, with over 75 panel members, and rela�onships with a further circa 2,100 firms through its ‘white label’ panel arrangement ac�vi�es.

The business has been loss making in recent years as it is has invested in growing its product range, funded through the sale of its previous Conveyancing Alliance business. In this context, I note the trading statement provided by Smoove which accompanied the release of its FY23 results on 5 July of this year.

Slide 22:

As you can see from slide 22, the business has a comprehensive set of products in varying stages of development along the conveyancing value chain. Its primary business is e-Conveyancer, which is the core panel management business. In recent years, Smoove has also added Digital Move, a customer on-boarding portal, and Smoove Start, which is aimed at the agent market. It has also started to grow SmooveComplete, which provides a ‘conveyancer in a box’ solu�on for those conveyancers who want to do conveyancing work without the hassle of running their own business. Amity Law is a very small

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business providing compliance related services in the property space.

Slide 23:

Pleasingly, as set out on Slide 23, the business has a long track record of industry recogni�on and innova�on, star�ng right at the beginning of its journey, and culmina�ng in its recent award as conveyancer of the year in the 2023 Mortgage Awards. Customer feedback is also strong, with an average Trust Pilot ra�ng of 4.4 (albeit from a small sample).

Slide 24:

Slide 24 brings us to the strategic ra�onale for the transac�on. In summary there are 5 points:

1. The transac�on builds addi�onal presence for PEXA in the Remo market through Smoove’s 7% share of that market.

2. It provides PEXA with an entrée into the Sale and Purchase segment through Smoove’s 3% share of that segment. It also provides an opportunity to cross sell PEXA services in rela�on to the non Smoove S&P flows generated by Smoove panel firms.

3. The transac�on provides addi�onal rela�onship strength for PEXA in a fragmented market, including Smoove’s long-standing LBG rela�onship, and access to the 75+ panel firm members and circa 2,100 members of the lender panels arranged by Smoove.

4. Smoove’s products extend and enrichen those contained in the PEXA pla�orm.

5. The acquisi�on strengthens PEXA’s business in the UK by providing access to Smoove’s business management pla�orms and people.

Slide 25:

Slide 25 sets out the key transac�on parameters. In summary:

• The acquisi�on price is 54p per share, which translates to a gross price of circa A$59m, or circa A$40m a�er adjus�ng for the projected acquired cash balance of £9.2m as at 30 September. This price is in the mid-range of the trading mul�ples for UK peers.

• directors will be recommending the transac�on to its shareholders, and also we have transac�on commitments covering 56% from Smoove listed capital.

• Subject to comple�on of customary condi�ons, regulatory clearances, and court approvals, we expect the transac�on to close in the calendar 4Q23. In terms of regulatory clearance, we will need to seek approval from the relevant legal regulatory body, the CLC.

Slide 26:

Slide 26 sets out funding considera�ons. The transac�on will be funded from cash resources obtained through drawing down on exis�ng and new lending facili�es.

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A�er taking account of acquired cash, the net increase in indebtedness for the group will be A$42m, represen�ng the cost of the acquisi�on and transac�on costs.

As you can see from the slide, there is a spike in the net debt / ebitda ra�o on a pro forma basis (taking account of Smoove losses and acquired cash). There is also a dip in the �mes interest ra�o, albeit this ra�o does also benefit from the interest received in respect of source account balances.

However, as we work within the guidance previously given at our full year results, we expect the net debt/ebitda ra�o to decline, and the �mes interest ra�o to increase.

A further update on our balance sheet construct will be provided at our half year results, taking account of our overall performance to that point and further detail on the Smoove business and its trading outcome.

Slide 27:

Slide 27 sets out the process from here. In short, the transac�on will proceed through a court and general mee�ng process, and assuming it passes these two hurdles and regulatory clearances are obtained, we expect the transac�on will close before the end of the calendar year.

I’ll now pass back to Glenn to co-ordinate the rest of the agenda.

Slide 28: Glenn King

Thanks Scot. We would now be happy to take any ques�ons that you may have.

-Ends-

This release was authorised by the Group Managing Director & Chief Executive Officer

For more informa�on, please contact:

Media

Investors Media Hany Messieh Danielle Tricarico PEXA PEXA

M: +61 414 446 876 M: +61 403 688 980

E: investors@pexa.com.au

E: Danielle.tricarico@pexa.com.au

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