Annual Report 2017 Contents
About us 4
Chairman's message 6
CEO's message 8
How we've performed 10
Australian highlights 14
Asian highlights 16
Strategic investments 18
Our latest innovations 20
Our people 22
Community partnerships & programs 24
Executive Leadership Team 26
Board of Directors 28
Directors' Report 30
Auditor’s Independence Declaration 40
Remuneration Report 41
Consolidated Financial Statements 54
Directors’ Declaration 97
Independent Auditor's Report 98
Historical results 103
Shareholder information 104
Corporate information 105
REA Group Limited (ASX:REA) ABN 54 068 349 066 www.rea-group.com Everything we do is driven by our purpose to ‘change the way the world experiences property’
REA Group Annual Report 2017 1 From humble beginnings in 1995, we have expanded to provide services across Australia, Asia and North America
2 Our competitive advantage comes from engaging the passion and creativity of each and every one of our employees
REA Group Annual Report 2017 3 Year in review
About us
REA Group Limited is a global, digital advertising company specialising in property. We want to change the way the world experiences property by investing in new technology, and developing innovative and personalised products. Our footprint connects a global audience of property seekers, which now spans three continents.
A global network of property portals Our property portals provide exceptional experiences for our customers and consumers REA Group is not your average digital media across the full range of devices, from large to company. Our business is innovative and small screen. We add to the experience by disruptive. We are constantly improving the way leveraging our rich data to provide property the world experiences property by using new insights to our consumers around the globe. technology, innovative products and leveraging our global footprint. Our growth strategy
We have a team of more than 1,400 talented Our strategy rests on three pillars: people around the world who work in a highly > Property advertising collaborative and agile culture. The online advertising of property remains at Our Australian residential property site, our core. Our strategy involves using data on realestate.com.au, is the market leader. The residential and commercial property to make site attracts 49.9 million average monthly visits1. it easier for our consumers to find a property We also operate Australia’s leading commercial to buy, rent or share. property site, realcommercial.com.au, with average monthly visits of 1.8 million2, and We continue to develop new, more intelligent, Australia’s biggest share accommodation site, and personalised products and services for Flatmates.com.au, which is the leader in the property seekers around the world. share accommodation segment3. Agents are critical to the success of our business, Beyond Australia, our businesses span Southeast and retaining their loyalty and engagement is Asia, China, North America and, most recently, of great importance. Core to this is our ability India, where in 2017 we acquired a 14.7% to deliver value for our customers by providing stake in online real estate services company, new property leads. PropTiger4.
1 Source: Nielsen Online Market Intelligence Home and Fashion Suite average monthly visits for the audited sites of realestate.com.au for the year ended 30 June 2017. Excludes apps. 2 Source: Nielsen Online Market Intelligence Home and Fashion Suite average monthly visits for the audited sites of realcommercial.com.au for the year ended 30 June 2017. Excludes apps. 3 Source: Google Analytics average monthly visits for the year ended 30 June 2017. 4 PropTiger is owned and operated by Elara Technologies, which also owns and operates Housing.com and makaan.com
4 > Lifestyle and financial services In June 2017, we entered into an agreement to acquire a majority stake in mortgage broking We want to be with people throughout their franchise business, Smartline, as well as entering entire property journey. Whatever they’re doing; into a strategic mortgage broking partnership whether they’re searching for a flatmate; renting, with NAB. buying or selling a property; searching for finance to buy a home; looking for inspiration Our investment in property-related services will on how to decorate their existing home; or help our users around the world connect with simply dreaming about their next home here the right services, at the right time. or abroad, we want REA to be their choice. > Global In 2017, we extended our property-related We know that everybody around the world is services strategy to include Lifestyle. It is a video- connected to, or touched by, property. We are led content experience that connects our brand already on three continents and we want people to a wider audience of home owners, decorators to be able to search for property anywhere in the and property improvers, all of whom are seeking world with us. We will leverage our global scale, inspiration on ways to create their perfect space. knowledge and capability to increase our speed We have also moved into financial services to market and competitiveness. and home financing. In December 2016, we partnered with National Australia Bank (NAB) to develop an Australian-first, digital property buying experience on realestate.com.au, which will transform the way people search for and finance their home.
REA Group Annual Report 2017 5 Year in review
Chairman's message
Delivering strong results These are impressive metrics in a competitive environment, and demonstrate the strength It has been another strong year for REA Group, of our consumer experience across all 16% with revenue in 2017 increasing by 16% to devices. We are delivering products and $671 million. revenue growth innovative experiences that strongly resonate from core This is an excellent achievement, driven by with consumers. operations our ongoing focus on implementing our three We continue to work closely with agent core strategies: property advertising; diversifying customers to grow their business and provide across the property journey; and building a value for them. They are core to our success global property network. and we thank them for their ongoing support.
Importantly, EBITDA from our core operations Global commitment increased by 16% to $381 million and we achieved a 12% increase in net profit, finishing This year we shifted our global priorities to where the year at $228 million. we could make the greatest impact and optimise returns for shareholders. After completing the I am pleased to report the Board has declared successful sale of our European business, we a full year dividend of 91 cents, which is a focused on the growth opportunities in Australia, 12% increase on last year. Asia and North America.
Australian growth The acquisition of iProperty Group last year, We have continued to see robust growth in coupled with the investment in PropTiger in Australia in a market where the overall volume India, means that Asia is now the geographic of property listings remained lower than in 2016. centre of our global strategy. The increased The Australian businesses delivered 14% growth collaboration and integration between our teams in revenue to $633.5 million. have resulted in product innovation and stronger consumer engagement. We have a significant Our Australian flagship site, realestate.com.au, opportunity to leverage our Australian insights is the clear number one and extended its and experience into a region which is very early lead against the competition. People visited in its transition to digital advertising. realestate.com.au 2.5 times more5 and spent 7.8 times6 longer on the site compared to our Our investment in Move, Inc. continues to nearest competitor. perform well, allowing us to shape and share insights from North America, the largest property market in the world.
6 Leadership
I’d like to thank Tracey Fellows and the Our Australian flagship REA Group leadership team for their hard work and achievements this year, ensuring site, realestate.com.au teams across our global network are passionate, engaged and remain focused on delivering is the clear number outstanding results.
I would also like to thank my fellow Board one and extended members for their guidance and counsel. It is a cohesive and knowledgeable Board. its lead against the We remain on strategy and will continue to focus on delivering superior returns for competition our shareholders.
Finally, I would like to thank all of our customers, shareholders, consumers and staff for their Hamish McLennan continued support. Chairman
5 Source: Nielsen Online Market Intelligence Home and Fashion Suite average monthly visits for the audited sites of realestate.com.au compared to domain.com.au for the full year ended 30 June 2017. Excludes apps. 6 Source: Nielsen Online Market Intelligence Home and Fashion Suite average Hamish McLennan monthly time on site for the audited sites of realestate.com.au compared to Chairman domain.com.au for the year ended 30 June 2017. Excludes apps.
REA Group Annual Report 2017 7 Year in review
CEO's message
It has been another strong year for REA Group with revenue and EBITDA growth of 16%. Our commitment 12% to create the best products and experiences has been increase in core to achieving this result. net profit from core operations In Australia, we remain the clear leader with Globally, Asia and North America remain our the largest and most engaged online property priority. We are the market leader in Malaysia and audience. We extended our market leadership Indonesia9. This year, we also made a strategic position, with visits reaching record highs investment to enter the Indian market by buying against our main competitor7. a 14.7% stake in PropTiger10, a leading local real estate platform. The core of the Group’s business remains property advertising, and we grew this in Leadership remains critical to our global success. innovative and exciting ways. We launched new We have made some key appointments this advertising products for our customers, such as year, including Henry Ruiz as CEO REA Group Front Page and Audience Maximiser. We also Asia from his prior role as Chief Digital Officer, created a richer and more engaging experience alongside other senior appointments in Malaysia, for consumers based on their personal Singapore and the Greater China Region. behaviours and preferences. Our mobile focus was clear and we continued During the year we diversified the Group’s to innovate in the region by launching new iOS business, expanding our reach across the and Android apps in Hong Kong, Malaysia and property journey. The most significant and Indonesia. We now provide a more seamless and exciting step has been our move into financial simple property search experience. Overall, the services through a partnership with NAB. The Asian business contributed revenue of $37.7m acquisition of the broking business, Smartline, for the year. is also a logical and strategic move, given over Through our 20% holding in Move, Inc., which 50% of all home loans8 come through the operates a leading US real estate portal, we have broker channel. a key foothold into this large property market. It hasn’t just been in financial services where In FY17, realtor.com's revenue grew by 10%. our reach has expanded. The Group’s new Lifestyle video and editorial experience goes REA people beyond property search to attract an even wider Our people are key to the success of REA Group. audience of home improvers, renovators, and They are a diverse group representing over decorators looking for insights and inspiration. 25 ethnic and cultural backgrounds, including We also created a dedicated virtual reality Europe, the Middle East, Africa, Asia, the property app where people can explore houses Americas and the Pacific Islands. from the comfort of their couches. Through Spacely, we entered a new market for short-term Our fifth generation of graduates start next year, commercial rentals and co-working spaces. and we are fortunate to attract the best and brightest young digital talent in Australia.
8 Women represent 42% of all senior leadership positions and we have set a target of 50% by 2020. We enter the new We pride ourselves on having a creative and financial year with inventive workplace. Four times a year we hold group-wide ‘hack days’ that allow our people to develop the next generation of products a clear leadership and experiences. position and strategy, Making a positive impact in the community is a big part of who we are and we are committed to underpinned by a some important causes, particularly those linked to homelessness and domestic violence. highly engaged and With over 1,400 people around the world – we bring diversity, insights and passion to the motivated team office every day.
It has been another strong performance by Tracey Fellows REA Group and we enter the new financial Chief Executive Officer year with a clear leadership position and strategy, underpinned by a highly engaged and motivated team. 7 Source: Nielsen Online Market Intelligence Home and Fashion Suite total monthly I would like to thank the Board for their support visits for the audited sites of realestate.com.au compared to domain.com.au for the month ended 30 June 2017. Excludes apps. and guidance throughout the year, my executive 8 IBISWorld Mortgage Brokers market research report 2017. team, and the awesome people who make up 9 Source: SimilarWeb average monthly visits for the iproperty.com.my site in Malaysia the REA family. We have an exciting year ahead and the rumah123.com site in Indonesia for the six months ended 30 June 2017 as we continue to change the way the world compared to the nearest market competitors. experiences property. 10 REA’s strategic stake in PropTiger is 14.7% on a fully diluted basis (16.4% on a non-diluted basis).
Tracey Fellows CEO
REA Group Annual Report 2017 9 Our performance
How we've performed
Revenue* 2017 $671.2m
2016 $579.1m
2015 $477.3m $671.2m +16% 2014 $394.6m 2013 $303.0m 2011 $238.4m
EBITDA* 2017 $380.9m
2016 $327.8m
2015 $271.8m $380.9m +16% 2014 $219.1m 2013 $157.4m
Net profit* 2017 $228.3m
2016 $204.3m
2015 $177.4m $228.3m +12% 2014 $148.3m 2013 $106.0m 2011
Total dividend per share 2017 91.0¢
2016 81.5¢
2015 70.0¢ 91.0¢ +12% 2014 57.0¢ 2013 41.5¢
2012 33.0¢
Earnings per share* 2017 173.3¢
2016 155.1¢
2015 134.7¢ 173.3¢ +12% 2014 112.6¢ 2013 80.5¢
* From core operations. Information for 2013 - 2016 is restated to exclude discontinued operations.2012 66.2¢ 2011 $238.4m
10 Our strong performance this year is testament to our commitment to providing unrivalled value for our customers and consumers. We’ve done this by developing products that give property seekers the best and most personalised property search experience on every device. Continuing to invest and work with new technology has positioned us as a market leader and contributed to our success.
Strong financial growth continues Flatmates.com.au remains the biggest Australian player in shared accommodation in terms of We achieved strong financial results across the both revenue and audience. The site received board and you can find a more detailed report an average of 2.4 million visits a month, with of our business operations and financial results a growth of 19% from the previous year15. in our Directors’ Report on pages 30-52. Global and strategic shifts help Audience growth drive success 11 Source: Nielsen Online Market Intelligence Home Our audience has continued to grow for all and Fashion Suite, average Growth was led by Australia as the biggest devices, with a significant shift to mobile. Average monthly visits for the audited contributor to the Group. The increased use sites of realestate.com.au and monthly visits to the Group’s Australian residential of our premium listings by residential and realcommercial.com.au for and commercial sites combined increased by the year ended 30 June 2017 commercial property agents, and property approximately 14% to 51.7 million11. compared to the year ended developers, contributed significantly to this 30 June 2016. Excludes apps. realestate.com.au continues to be the number growth in Australia. 12 Source: Average monthly time on site for the audited sites of one property site in the country, with the REA Group will continue to benefit by realestate.com.au compared largest and most engaged audience of property to domain.com.au for the increasing its presence in Australia to help seekers. In 2017, consumers spent over 7.8 times year ended 30 June 2017. people throughout their entire property Excludes apps. longer on realestate.com.au than our nearest journey through Lifestyle and financial 13 Source: Google Play and competitor12, which is a key indicator of audience services, and extending its reach across iTunes Downloads for the engagement. The realestate.com.au app has realestate.com.au iOS and Asia and North America. now been downloaded more than 6.7 million Android apps to 30 June 2017. 14 Source: Adobe Analytics average 13 times and launches of the realestate.com.au We are well placed to capture future total monthly launches for app grew by 52%14 compared with the opportunities wherever they arise because the realestate.com.au app for previous year. of our strong consumer audience position, the year ended 30 June 2017 compared to the year ended customer relationships, and our leading 30 June 2016. digital products. 15 Source: Google Analytics average monthly visits for the year ended 30 June 2017 compared with the year ended 30 June 2016.
REA Group Annual Report 2017 11 Our performance
How we've performed
Average monthly visits Time on site Global property listings 51.7m 7. 8 x 4m combined average monthly visits more time on realestate.com.au average listings on our global property to realestate.com.au and than the No. 2 property site17 network each month18 realcommercial.com.au16
Employee engagement Payroll giving Volunteer bank 85 % 14.4 % 17% overall employee engagement of our Australian-based workforce of our Australian-based workforce in Australia participated in Matched Payroll Giving used days from our bank
Executive Leadership Team Senior Leadership Team REA Group
Male 60%Male 58%Male 58%
Female 40% Female 42%Female 42%
16 Source: Nielsen Online Market Intelligence Home and Fashion Suite, average monthly visits for the audited sites of realestate.com.au and realcommercial.com.au for the year ended 30 June 2017. Excludes apps. 17 Source: Nielsen Online Market Intelligence Home and Fashion Suite, average monthly time on site for the audited sites of realestate.com.au compared to domain.com.au for the year ended 30 June 2017. Excludes apps.. 18 Source: REA Group internal analytics, average number of properties listed on the global property network per month for the year ended 30 June 2017.
12 Our diversity extends beyond gender, with representation of over 25 ethnic and cultural groups from Europe, the Middle East, Africa, Asia, the Americas and the Pacific Islands
REA Group Annual Report 2017 13 Our performance
Australian highlights
REA Group’s Australian operations comprise the country’s leading residential, commercial and share 2.5x accommodation property sites – realestate.com.au, more average realcommercial.com.au and Flatmates.com.au – and monthly visits to realestate.com.au the short-term, commercial rental and co-working than the number spaces site – Spacely. two site19 We’ve continued to grow and strengthen our Average monthly visits to realestate.com.au position in the market this year with revenue grew 13.8%, with 30 million (or 2.5 times) more growth of 14% to $633.5 million. This is a strong average monthly visits than the number two performance, and is the result of our investment site20. Consumers spent over 7.8 times more in innovation and new products, despite a time on realestate.com.au than on the number decrease in listing volumes. two site21.
Developer and commercial listing depth and Average monthly launches of our subscription revenue increased by 15%. This realestate.com.au app increased 52%22 against growth was due to the positive take-up of our the previous year and we have now reached premium developer product, Project Profiles, over 6.7 million app downloads23. which showcases large developments. We It is important to provide relevant information achieved this strong result during a period of and we’ve invested heavily to make each decline in new dwelling commencements. experience on realestate.com.au uniquely Our media and other business revenue increased personal. We modified our app to deliver smarter 2% to $95.3 million, despite a decline in display and more personalised push notifications. advertising on content sites. This growth was a These notifications react and change according result of continued innovation of media display to user behaviour, ensuring property seekers are products and the inclusion of revenues from alerted to the properties that are right for them Flatmates.com.au. at the right time.
realestate.com.au continues to be the number Our Commercial team has continued to innovate one property site in the country, with the largest by re-launching the realcommercial.com.au and most engaged audience of property seekers. app across iOS and Android, and introducing
19 Source: Nielsen Online Market Intelligence Home and Fashion Suite average monthly visits for the audited sites of realestate.com.au compared to domain.com.au for the year ended 30 June 2017. Excludes apps. 20 Source: Nielsen Online Market Intelligence Home and Fashion Suite average monthly visits for the audited sites of realestate.com.au compared to domain.com.au for the year ended 30 June 2017. Excludes apps. 21 Source: Nielsen Online Market Intelligence Home and Fashion Suite average monthly combined minutes on site for the audited sites of realestate.com.au compared to domain.com.au for the year ended 30 June 2017. Excludes apps. 22 Source: Adobe Analytics average monthly launches of the app for realestate.com.au for the year ended 30 June 2017 compared to the year ended 30 June 2016. 23 Source: Google Play and iTunes total downloads for the realestate.com.au iOS and Android apps to 30 June 2017.
14 a commercial news section. In 2017, visits to our realcommercial.com.au site reached 1.8 million average monthly visits24. realestate.com.au In 2017, the total number of visits to continues to be the realestate.com.au increased and we continue to have more than twice the number of visits of our number one property nearest competitor25. Together, the realestate.com.au and realcommercial.com.au sites attracted average site in the country with monthly visits of 51.7 million26 during the year.
Flatmates.com.au continues to be Australia’s the largest and most biggest share accommodation website. Visits to the site increased by 19% year-on-year27. engaged audience With Flatmates.com.au, someone finds a new flatmate every two minutes28.
Launch of Spacely
In May 2017, REA Group launched spacely.com.au, a listings site that makes it easier for Australians to find short-term commercial rentals and co-working spaces. Spacely helps Australians work the way that best suits them. We expect Spacely to grow in 2018 as more short-term commercial listings become available.
24 Source: Nielsen Online Market Intelligence Home and Fashion Suite average monthly visits for the audited sites of realcommercial.com.au for the year ended 30 June 2017. Excludes apps. 25 Source: Nielsen Online Market Intelligence Home and Fashion Suite average monthly visits for the audited sites of realestate.com.au compared to domain.com.au for the year ended 30 June 2017. Excludes apps. 26 Source: Nielsen Online Market Intelligence Home and Fashion Suite average monthly visits for the audited sites of realestate.com.au and realcommercial.com.au for the year ended 30 June 2017. Excludes apps. 27 Google Analytics average monthly visits for the year ended 30 June 2017 compared with the year ended 30 June 2016. 28 Flatmates.com.au internal data – user exit survey.
REA Group Annual Report 2017 15 Our performance
Asian highlights
Asia is a key market in REA Group’s long-term global strategy through our operations in iProperty Group and 38% myfun.com. We are continuing to invest in the region growth in Malaysian through new products, innovation and people. site visits iProperty Group REA Group continues to invest in senior leadership in the region. Henry Ruiz was iProperty remains in a strong position to appointed REA Group Asia Chief Executive capitalise on Southeast Asia’s long-term growth. Officer from his prior role as REA Group Chief iProperty operates the market leading portal in Digital Officer and we have made other key 29 Malaysia , and eminent portals in Indonesia, leadership appointments across the region Hong Kong, Thailand and Singapore. During the in Malaysia, Singapore and the Greater year, we experienced a 38% growth in Malaysian China region. site visits30 and a 94% growth in Indonesian app visits31. In Malaysia, to reinforce iProperty Malaysia’s number one position, we launched a new In 2017, the Group launched new iOS and marketing campaign during the year. Android apps in Hong Kong, Malaysia and Indonesia. In Malaysia, we also released a new There has been a decline in several Asian search functionality on our desktop and mobile property markets partly due to changes to experience, bringing together new developments government and banking regulations. In Malaysia, and existing property listings in one place for the there has been a 33% reduction in the number of first time. units sold32. In Hong Kong, the Government has introduced a number of cooling measures to try The new apps and improved search experience to soften a highly competitive market, including are designed to make searching for property the increase of stamp duty for residential easier, while giving property developers and property transactions to 15%. agents the opportunity to generate more leads.
29 Source: SimilarWeb average monthly visits for the iproperty.com.my site in Malaysia for the six months ended 30 June 2017 compared to the nearest market competitor. 30 Source: Adobe Analytics average monthly visits for the iproperty.com.my site in Malaysia for the year ended 30 June 2017 compared to the year ended 30 June 2016. 31 Source: Adobe Analytics average monthly visits for the rumah123.com app in Indonesia for the year ended 30 June 2017 compared to the year ended 30 June 2016. 32 Source: Malaysia National Property Information Center 2016 Annual Property Market Report- Newly Launched Units sold for the twelve months ended 31 December 2016 compared to the twelve months ended 31 December 2015.
16 Following the completion of the Group’s annual intangible asset impairment testing process, we reported a non-cash impairment charge iProperty remains of $182.8 million (pre and post-tax) in relation to the carrying value of the Group’s goodwill in a strong position for the Asian reporting segment. to capitalise on We are confident in the long-term growth opportunities in the region. The investment in Southeast Asia's innovation, marketing and people positions the Group well for a market recovery. Our teams are long-term growth working together to apply insights from Australia to further capitalise on the opportunity the Asian market offers. myfun.com
Our Chinese language site, myfun.com, has continued to grow its unique monthly visitors by 15%33 and now includes more than 45,000 Australian residential, commercial and new development property listings, as well as 1.5 million North American property listings34.
This provides us with the opportunity to further support our customers in Australia by extending their reach to a wider, highly engaged audience.
33 Source: Adobe analytics for the year ended 30 June 2017 compared with the year ended 30 June 2016. 34 Source: Adobe analytics, listings on myfun.com as at 30 June 2017.
REA Group Annual Report 2017 17 Our performance
Strategic investments
REA Group has invested in two international markets with long-term growth prospects. In 2017, we extended our investment portfolio beyond North America by acquiring a 14.7% stake in PropTiger, which operates online real estate services across India.
Indian highlights It is estimated that India’s real estate market will be worth US$180 billion by 202035. The In January 2017, REA Group acquired market is still early in its move to digital real 14.7% of digital real estate marketing platform, estate advertising, but the long-term growth Elara Technologies (Elara), for $67.9 million. opportunities in India are clear: India’s urban population is projected to grow from 420 million % Elara owns and operates proptiger.com, 14.7 36 in 2015 to 583 million by 2030 . stake in PropTiger, Makaan.com and Housing.com. Elara is the expanding our only player in India offering the full range of In June 2017, Elara also joined REA Group’s footprint into India online to offline property services, such as Global Property Network. This collaboration, personalised search, virtual viewing, site visits, an industry first in India, has brought together legal and financial diligence, negotiations, Elara’s and REA Group’s owned and partnered property registration, home loans and sites to include more than 4 million listings from post-sales services. 72 countries37.
India is one of the fastest growing property The investment, coupled with our investment markets in the world and the country is seeing in iProperty, extends our footprint in Asia and a rapid transition from traditional to digital real strengthens our presence in a region with estate advertising. As an early international considerable, long-term potential. entrant into India, REA Group is well positioned to capitalise on the country’s growth opportunities.
35 Source: India Brand Equity Foundation, Real Estate Industry Sectoral Report, July 2017. 36 Source: KPMG, Urban Indian Real Estate – Promising Opportunities Report, August 2016. 37 Source: REA Group internal analytics, average number of monthly listings on the global property network for the year ended 30 June 2017.
18 North American highlights Once again, realtor.com delivered record consumer audience and engagement results, In 2017, realtor.com cemented itself as the clear with 11% year-on-year growth to 52 million number two property portal in North America, unique users a month38. Unique visitor the world’s largest residential real estate market. engagement increased 27% year-on-year39 Our 20% investment in Move, Inc., operator of and realtor.com now leads all United States’ realtor.com, continues to see positive returns and real estate sites on this measurement. 10% provides us with a strong presence in the market. Move, Inc. increased revenue by 10% to increase in News Corp, parent company of REA Group and US$394 million40 driven by the strength of its revenue majority shareholder News Corp Australia, holds the remaining 80% of Move, Inc. Connections for Buyers product, as well as strong growth in non-listing media revenues. Teams from REA Group and Move, Inc. work Revenue was partially offset by a decline in closely together to bring consumer and revenue from the sale of TigerLead and the customer experiences to market more quickly. impact of the absence of the additional week Through knowledge, technology sharing and in the year prior, which resulted in underlying collaboration, realtor.com launched a concept revenue growth of 16%. version of our Australian real estate virtual reality app.
realtor.com’s focus on innovation also delivered new products to market including two features on its Android app, Sign Snap and Street Peek. Sign Snap uses image recognition and GPS to allow a consumer to take a photo of a for-sale sign and be automatically directed to the listing. Street Peek uses augmented reality to surface property information over the top of real houses in the street.
38 Source: Move internal data average monthly unique users for the year ended 30 June 2017 compared to the year ended 30 June 2016. 39 Source: comScore Multiplatform Unique Visitors time per visitor (in minutes) 30 June 2017 compared to 30 June 2016. 40 Source: NewsCorp’s Earnings Release (10 August 2017) stated in US Dollars for the year ended 30 June 2017. Revenue was partially offset by a $12 million, decline in revenue associated with the sale of TigerLead® in November 2016 and a $6 million, impact from the absence of the additional week in the prior year resulting in underlying revenue growth of 16%.
REA Group Annual Report 2017 19 Product experience
Our latest innovations
The inventive culture at REA Group continues to create new experiences and products that help us change the 4.3 way the world experiences property. million visits to In 2017, we worked collaboratively with our In March 2017, we launched Front Page. Lifestyle since global network to make our products more Customers can now advertise their property we launched innovative and personalised. Our focus or development on the realestate.com.au in March 2017 on innovation is powered by more than homepage across all devices and target 1,400 talented people focussed on creating potential buyers by suburb. Front Page gives exciting new experiences for our consumers our customers a higher level of exposure. and customers. Listings are also targeted and displayed based on the buyer’s previous search behaviour. Lifestyle A personalised consumer experience For more than 20 years realestate.com.au has helped Australians find a house. Now we’re also The realestate.com.au app has become our giving Australians the power to turn their property most popular platform in Australia. We continue into the living space they’ve always dreamed to evolve our small screen experience by of. Lifestyle on realestate.com.au, launched developing features that are personalised, in March 2017, hosts a range of videos and making searching for property simpler and inspiring content to help Australians throughout more time-efficient. their entire property journey, whether they’re We’ve enhanced our app by including a new renovating, decorating or taking inspiration Collections tool, enabling property seekers to from the latest trends. categorise their property searches by favourite The video content also provides highly shareable features, such as houses to buy or rent, dream material, which has led to increased reach and homes, or even kitchen inspiration. Our smart engagement across realestate.com.au’s social notifications now mean property seekers are media platforms. Lifestyle has had more than alerted to any changes to a property they’ve 4.3 million visits since its launch41. previously showed interest in, even if they didn’t save or follow the listing. New products for our customers Our Australian-first Energy Scores tool, launched We released Audience Maximiser in October in November 2016, now allows home seekers 2016, which allows property sellers to reach and home owners to calculate how energy- more potential buyers online beyond our owned efficient a property is. sites. Through Audience Maximiser, agent listings are seen by potential buyers on websites they are browsing, even when they’re not on realestate.com.au.
41 Source: Adobe Analytics, Site Sections Report, visits to the Lifestyle Section, 9 March – 30 June 2017.
20 Virtual Reality the network is the largest source of global property in the world. Investors, people on In November 2016, we launched realestate the move, inspiration seekers and daydreamers VR by realestate.com.au, Australia’s first now have access to international property, dedicated virtual reality property app available and for sellers, their property is showcased to on Daydream, Google’s mobile virtual reality a wider international audience. Since launching, platform. realestate VR enables users to explore the network has had more than 36.6 million listings and dream homes from the comfort of page views43. their couch. iProperty IQ While virtual reality technology is still in its infancy, it’s set to become an increasingly iProperty has launched iProperty IQ in Malaysia, useful tool and will save property seekers’ time a new data service that provides subscribers with when searching for their next home. realestate transaction data and analysis of the Malaysian VR currently features more than 1,200 listings property market. The service offers more and the technology is compatible with any transparency on the market, helping buyers realestate.com.au listing that includes a and investors to make more informed buying Matterport scan. decisions using comprehensive market data and insights. Builder Profiles A new consumer experience in Asia This is a new section on realestate.com.au for consumers who are looking to build a new To further improve the property experience for home. Consumers can now view builders from consumers in our Asian markets, we launched around Australia, their display home locations, a new iOS and Android app in Hong Kong, and their current listings on realestate.com.au. Malaysia and Indonesia this year. The new app is designed to improve the search experience Global Property Network for property seekers, while giving property In July 2016, we enabled our users to tap into developers and agents the opportunity to a global property network. Property seekers generate more leads. in each of our markets can now search for In Malaysia, the new app joins web and mobile properties in up to 72 countries across Europe, combined search, which was launched in the Americas and the Asia-Pacific. With more May 2017. Combined search brings together 42 than 4 million listings on average per month , developer and existing property listings in one place for the first time, simplifying the way people search for properties.
42 Source: REA Group internal analytics, average number of monthly listings on the global property network for the year ended 30 June 2017. 43 Source: Adobe Analytics, total number of page views to the global property network to the year ended 30 June 2017.
REA Group Annual Report 2017 21 Our people
Our people
At REA Group, we believe a workforce with a diversity of ideas and experiences is more creative, more effective 85% and fuels disruptive thinking. overall employee Our people are passionate about what we do. engagement in will benefit the community. This year our people They want to make a difference for everyone created ‘Park it Forward’, a responsive online ‘bot’ Australia throughout their entire property journey: from which allows employees to rent out their unused consumers looking for their dream home; to car spaces, with all proceeds donated to a charity customers looking to prosper in a changing of their choice. property landscape; as well as those who are affected by homelessness. We value difference
We have a culture that supports our people and At REA Group, we believe in the strength and enables them to reach their full potential. As a energy that comes from working in multi- rapidly growing business in the digital sector, disciplinary and diverse teams. Diversity is we know how critical it is to have high employee particularly important in our business because engagement. In 2017, our engagement results our products and services engage consumers in continue to be above the benchmark for similar every market and segment in our global network. technology companies, with a 96% response rate We recruit talented people from all backgrounds and an overall engagement of 85% in Australia. and provide inspiring and inclusive workplaces where they will thrive. Invention is at the heart of what we do We know there is work to be done to encourage > REAio – Hack Days more women and young people into digital careers. Women currently make up 40% of our REAio is our quarterly company-wide festival executive leadership team, 42% of our senior of invention and creativity, giving staff the leadership team, and 42% of our total employees. flexibility to work on an idea in a supportive and structured environment. These ‘hackathon’ This year we became the major Australian events are curated and led by our people and partner of the ‘Girls in Tech’ Australian chapter. result in new products and experiences for Girls in Tech is a global non-profit organisation our consumers, customers and community that aims to engage, educate and empower partners. Most importantly though, our people girls and women who are passionate are encouraged to think like inventors, working about technology. in multi-disciplinary creative teams where We are also actively making a difference with everyone’s input is valued and no idea is too initiatives such as the 2016 Anda High School big or too small. mash-up, where we brought in high school kids > Hack it Forward to show them how to code and build a product. The aim was to demonstrate to them the career ‘Hack it Forward’ recognises a team that uses opportunities in the digital and technology their time at REAio to build a product or tool that industry. We also launched ‘DevOps Girls’,
22 a program to run free coding weekends specifically aimed at women. We recruit talented Our Senior Women’s Network has evolved to include a broader female employee base and people from all our ‘Spectrums of Equality’ network creates better awareness, inclusion and support of backgrounds and our LGBTIQ employees.
We introduced Domestic Violence Sensitivity provide inspiring and Training for people managers as well as 20 days paid leave for employees who disclose that they inclusive workplaces are experiencing domestic violence. where they will thrive Our diversity extends beyond gender, with representation of over 25 ethnic and cultural groups from Europe, the Middle East, Africa, Asia, the Americas and the Pacific Islands.
How we do it is as important as what we do
We are proud that we continue to be recognised for our strong culture. This year we were once again included in the LinkedIn Top Companies 2017 list as one of the Top 25 Australian companies to work for.
This success is testament to the shared values that underpin our energised and inspiring workplace. We know that values are important in building the culture of REA Group and extending its success to other countries. Our new global values are to ‘Own it’, ‘Re-imagine it’, ‘Inspire it’, ‘Do it as One Team’, ‘Keep it Real’ and ‘Do it with Heart’.
REA Group Annual Report 2017 23 In the community Community partnerships & programs
REA Group’s community partnerships and programs 1,492 provide much needed support to the most vulnerable women and members of the community. These programs also enable children helped our people to give to causes that are important to them. through Launch Housing We focus on addressing the issue of homelessness.
Our most significant partnership is with Launch REA Group supports The Big Issue Women’s Housing who we’ve worked closely with since Subscription Enterprise (WSE) through our 2015. Together we developed the National Rapid subscription of 100 copies of The Big Issue each Rehousing Fund to provide financial assistance fortnight. The WSE provides employment for to women and children at risk of homelessness marginalised and disadvantaged women who because of domestic violence. package up copies of the magazine to send to subscribers from the safety and comfort of one Since launching in 2015, we've helped provide of The Big Issue offices. assistance to 1,492 women and children around Australia. The money from the fund has helped these families avoid homelessness by helping them pay bonds, purchase essential goods, and pay rent. Our support also extends beyond direct financial contributions. Every six weeks, new In January 2017, we celebrated the one-year REA Group employees build furniture for families anniversary of Ask Izzy. The mobile website in need as part of our corporate induction. launched in 2016 in collaboration with founding partners REA Group, Infoxchange, News Corp Australia and Google. Ask Izzy connects people who are homeless or at risk of becoming homeless with the critical services they need, As part of our partnership with Launch Housing, such as food, shelter and health services. Since we also provide financial and in-kind support to launching, Ask Izzy has had more than 489,295 Australia’s first not-for-profit real estate agency, searches Australia-wide. The most popular HomeGround Real Estate. The ‘Affordable search has been for housing, mostly as a result Housing’ arm of the agency connects landlords of escaping family violence44. who are happy to rent their property out at a subsidised rate. Eligible tenants can rent homes for 30% of their household income, helping them avoid homelessness.
24 Matched Payroll Giving
Our Matched Payroll Giving program allows our We had 14.4% of our people to donate to more than 1,800 charities directly from their payroll. Not only does this Australian-based reduce their taxable income, but REA Group also matches the donation dollar-for-dollar up people signed up to to $500 a year. In 2017, we had 14.4% of our Australian-based people signed up to Matched Matched Payroll Giving, Payroll Giving, with a combined employee and company matched donation of $130,454. with a combined Volunteer Bank donation of $130,454 We put one day of paid leave in our Volunteer Bank for every employee in Australia. Our people can take leave from the ‘bank’ to work with any not-for-profit organisation and, if one day isn’t enough to achieve the impact they’re looking to make, they can use their colleagues’ unused days. During 2017, over 17% of our Australian- based people used days from the bank.
Employee Community Grants
Our Employee Community Grants program allows our people to apply for one of 60 grants worth $1,500 each, offered three times each year. Since the program started in 2014, a total of $199,000 in grant funding has been distributed to 144 local grassroots organisations across Australia.
44 Based on people who chose to identify.
REA Group Annual Report 2017 25 Executive Leadership Team
Tracey Fellows Owen Wilson Nigel Dalton Henry Ruiz Joseph Lyons Andrew Chief Executive Officer Chief Financial Officer Chief Inventor Chief Executive Officer Executive General Rechtman – REA Group Asia Manager – Appointed Appointed Appointed 4 June 2012 Executive General Commercial & 20 August 2014 1 September 2014 Appointed Manager – Residential As REA Group’s Chief Developer 20 April 2009 As REA Group’s Chief Owen Wilson is Chief Inventor, Nigel Dalton Appointed Appointed 2 June 2015 Executive Officer, Financial Officer of is a leader in lean and Henry Ruiz is REA 17 August 2015 Tracey Fellows is REA Group and is agile principles and is Group’s Chief Executive As REA Group’s As REA Group’s responsible for driving responsible for all responsible for ensuring Officer for its Asian Executive General Executive General the company’s strategy, aspects of the Group’s the company is ahead business, leading the Manager for Manager for Residential, operations and global finance portfolio and of the curve with future Group’s digital strategy Commercial & Andrew Rechtman investments. With global investments. technology and social and expansion across Developer, Joseph leads the realestate. more than 25 years’ trends. Southeast Asia, China Lyons provides overall Before joining REA com.au residential experience working and India. direction and strategic Group he was Chief Nigel has more than listings business, which with IT businesses, management for Financial Officer and 25 years of IT-related He joined REA Group in services customers Tracey is passionate the Commercial and Company Secretary experience across 2009 as Chief Product throughout Australia. about technology, Developer lines of at Chandler MacLeod multi-nationals, Officer – Consumer His focus is on building innovation and building business, ensuring the Group Ltd, leading the government and start- Experiences & Product strong relationships highly skilled teams to needs of customers Finance and Mergers & ups, including Lonely Marketing before with real estate agents help change the way and property seekers Acquisition functions. Planet where he was moving into the role and franchise groups, the world experiences are at the forefront of General Manager of of Chief Digital Officer helping them to property. Previously, Owen all decisions. Information Technology in 2014. He previously win and sell listings worked with ANZ for She joined REA Group and later, Deputy held leadership roles Joseph brings to and strengthen 15 years in strategic in 2014 and has seen Director of Digital (web with Local Matters the role more than their reputation roles including Head the company expand and mobile businesses). in the USA, World 15 years of commercial in the industry. of Retail Banking into Asia, India and Directories in Europe leadership experience – Asia, responsible Nigel is active in Andrew joined North America, as and Sensis in Australia. spanning sales, for retail banking Australia’s start-up REA Group in August well as acquiring and marketing, brand and branches, credit card community and most Henry is passionate 2015 after five years developing new brands product management businesses and banking recently co-founded about technology and with PayPal Australia, locally in Australia. across financial services partnerships across Asia. Luna Tractor, a its impact on consumer most recently as Senior Under her leadership, and healthcare. Prior Prior to this Owen had consultancy to help behaviour thanks to Director – SMB, Retail the company has to joining REA Group a successful career with organisations apply his background in and Strategy. He brings grown to now have in 2014, Joseph KPMG in Melbourne systems thinking, psychology and over a broad range of more than 1,400 people held leadership and London. and lean and agile 20 years’ experience in experience to his role globally, and has been positions with global software development digital media. He holds at REA, including sales, named as one of the Owen holds a Bachelor organisations GE techniques to all a Masters of Applied customer service, top companies to of Commerce, and GlaxoSmithKline. aspects of business. Psychology from the operations, strategy, work for in Australia. Accounting and Royal Melbourne He holds a Bachelor product management Computer Science Previously, Nigel held Tracey joined Institute of Technology, of Management from and business from Deakin University. roles with AXA Australia, REA Group from and is also a graduate the University of South development. online human resource Australia Post where member of the Australia, and is also a startup ePredix in the Andrew holds she was responsible Australian Institute of graduate member of USA (now owned by a Bachelor of for the physical and Company Directors. the Australian Institute SHL), as well as Silicon Commerce and Arts digital mail. Prior to this, of Company Directors. Systems and Mitsubishi Henry has played a from the University she held several senior Electric in New Zealand. critical role in driving of Melbourne, and a roles with Microsoft, the product strategy Master of International including Vice President for the company Economics and for the Asia-Pacific over the last eight International Relations region and CEO of years, including being from Johns Hopkins Microsoft Australia. accountable for the University. Tracey holds a Bachelor consumer experience, of Economics from developing business Monash University. models, and leading She sits on the board technology teams that for the Royal Children’s help bring our products Hospital Foundation and experiences to life. and the APEC Business Advisory Council.
26 Sarah Turner Elizabeth Tomas Varsavsky Barb Hyman Kieren Cooney Arthur Charlaftis General Counsel and Minogue Chief Engineer Executive General Chief Marketing Officer Chief Operating Officer Company Secretary Manager, People & – International Executive General Appointed 13 June 2017 Appointed Culture Appointed Manager – Media 14 March 2017 Appointment period As REA Group’s Chief 7 September 2015 Appointment period 8 August 2011 – Appointed Engineer, Tomas As REA Group’s Chief 2 June 2015 – 31 March 2017 As REA Group’s General 14 December 2015 Varsavsky is responsible Marketing Officer, 30 June 2017 Counsel and Company Elizabeth ‘Libby’ for setting the strategic Kieren Cooney is As REA Group’s Secretary, Sarah Turner Minogue joined direction for the Barb was responsible responsible for driving Chief Operating is responsible for the REA Group in company’s engineering for leading the people the brand, marketing Officer – International, company’s global legal December 2015 and teams across Australia and culture team at and digital strategy for Arthur Charlaftis was and secretariat function. is Executive General and Asia. Tomas leads REA Group, including its REA’s Australian and responsible for leading Sarah has more than Manager, Media. centralised teams employees in Australia global brands. the international around data, security, and Asia. She believed operations of 19 years’ experience She is responsible Kieren leads a high enterprise technology, that a great culture REA Group, including practising law in for setting the long performing team of infrastructure and attracts the best people, Southeast Asia and a Australia and Europe, term strategic direction, marketing professionals architecture. increases productivity, strategic investment covering mergers product design and across brand, and fosters creativity in North America. and acquisitions and delivery, as well as Tomas started with communications, through high levels He also managed the complex corporate ensuring the profitability REA Group in 2010 and behavioural analytics of collaboration. Group’s international and regulatory of REA Group’s media has more than 17 years’ and digital search to strategy including advisory work. Sarah’s business. Libby plays a experience working Barb worked closely bring REA’s story to life international mergers knowledge of the digital critical role in driving with technology. Prior with REA Group’s CEO, and communicate our and acquisitions. and technology sectors the Group’s strategy to joining REA Group, business leaders and purpose in a compelling has enabled her to for property related he was a Principal her peers, to attract way to consumers and Arthur joined REA support the business services, including Consultant with and develop top talent customers worldwide. Group in August 2011 and build a successful Lifestyle. ThoughtWorks where and to create an as General Manager, growth strategy that has He believes in Libby is a media he worked with many environment where Sales & Operations. seen REA Group expand developing innovative advertising specialist iconic organisations everyone can perform In this role, Arthur was into Southeast Asia and and creative ways with more than including AXA, Lonely at their best to achieve responsible for sales India, and acquire local to acquire new, 15 years’ experience Planet and ANZ on business objectives. strategy, customer brands in Australia. and retain existing, areas such as agile service and operational in the media and With more than audiences, as well Sarah started her career methodologies, efficiencies across the entertainment sectors 20 years’ experience as maintaining the at Corrs Chambers software development, residential, commercial, within Australia and the working in business company’s reputation Westgarth in Melbourne IT strategy and IT developer and media United States, including strategy, including Head in market as a trusted before heading to US architecture. businesses. at Fox Cable Networks. of HR and Marketing at and leading property firm Kaye Scholer (now Tomas holds a Bachelor The Boston Consulting resource. He has more than Arnold & Porter Kaye She joined REA Group of Computer Science Group, she brought 20 years’ experience Scholer) in London, after a long tenure as With more than and Honours in a highly innovative in sales, marketing and and returning home National Director for 20 years’ experience Computer Engineering approach to leading business development to BlueScope Steel Integration and Content working in marketing, from the University of organisational change, including nine years Ltd. Prior to REA, Partnerships for The product, sales and Melbourne. shaping culture, with multinational she held General Multi Channel Network strategy, Kieren joined and driving business pharmaceutical Counsel and Company (MCN), a joint venture REA Group from results in fast-paced, company Secretary roles at between Foxtel and Omnicon Interbrand highly collaborative GlaxoSmithKline (GSK). SMS Management & Fox Sports. where he was Chief organisational Technology Ltd, and Libby presently sits on Executive Officer. He’s During his time with environments. most recently at EBOS the board of Tennis also previously held GSK, Arthur gained Group Ltd. Australia and the Barb holds a Bachelor CMO positions at NBN valuable international She holds a Bachelor International Advertising of Law from Melbourne Co and Telecom New experience working in of Laws with Honours, Bureau (IAB). University and a Zealand (now Spark). Puerto Rico, the West Master of Business Indies, and Central a Bachelor of Arts and Kieren holds a Bachelor Administration from America. a Graduate Diploma of Science from the Melbourne Business in Applied Corporate University of Auckland. Arthur holds a Bachelor School. Governance. She is of Science from recognised as one of Monash University and the top 100 General is a Graduate of the Counsels in Australia Australian Institute of and New Zealand by Company Directors. the Legal 500.
REA Group Annual Report 2017 27 Board of Directors
Hamish McLennan Tracey Fellows BEc Roger Amos Kathleen Conlon Richard J Freudenstein Non-executive Director Executive Director and FCA, FAICD BA (ECON)(DIST), MBA, BEc, LLB (Hons) Chief Executive Officer Appointed 21 February 2012 Independent non- FAICD Non-executive Director and Chairman since Appointed 20 August 2014. executive Director Independent non-executive Appointed 21 November 10 April 2012. Age 51 Age 52 Appointed 4 July 2006. Director 2006. Age 52 Independent: No – Independent: No Age 69 Appointed 27 June 2007. Independent: No – Nominee Nominee Director of Director of News Corp Skills and experience: As CEO Skills and experience: Age 53 News Corp Australia Australia of REA Group, Ms Fellows Mr Amos is an experienced Skills and experience: Skills and experience: leads the Group’s strategy, non-executive Director Ms Conlon brings over Skills and experience: Mr McLennan is an operations and investments with extensive finance and 20 years of professional Mr Freudenstein was Chief experienced media and in Australia, Asia, India and management expertise management consulting Executive Officer of Foxtel from 2011 to 2016, prior to marketing industry executive. North America. gained during a long and experience. She is a which he was CEO of News He was Executive Chairman distinguished career in recognised thought leader Ms Fellows joined Digital Media (the digital and Chief Executive Officer accounting. He was a in the fields of strategy and REA Group in 2014 from division of News Limited) and of Ten Network Holdings Partner in the international business improvement and Australia Post where she The Australian newspaper. until July 2015 and prior accounting firm KPMG for 25 was a Partner and Director of was responsible for the Mr Freudenstein was previously to which he was Executive years before retiring in 2006. physical and digital mail. the Boston Consulting Group the Chief Operating Officer of Vice President, Office of the Other current directorships for seven years. British Sky Broadcasting. Previously, Ms Fellows Chairman, at News Corp. and offices: Other current directorships Other current directorships Previously, Mr McLennan was was based in Singapore as >> Chairman of Contango and offices: and offices: Global Chairman and CEO Microsoft Vice-President, Asset Management of Young & Rubicam, part Asia-Pacific where she >> Director of Lynas >> Director of Wenona Limited (since of WPP, one of the world’s was responsible for the Corporation Limited School Limited (since November 2007) largest communications management, sales, (since November 2011), September 2012) services group. marketing and operations >> Director of Enero Group Chair of the Remuneration >> Director of Astro Malaysia for 12 countries across Limited (since November Committee and member Holdings Berhad, member Other current the region. Prior to this, 2009), Chairman of of the Audit Committee of the Audit Committee Ms Fellows was CEO of directorships and offices: the Audit and Risk >> Director of Aristocrat and Remuneration Microsoft Australia for four Committee and member Leisure Limited (since Committee (since > > Director of Magellan years and also served on of the Remuneration and January 2014), Chair of the September 2016) Financial Group the ninemsn Board. Nomination Committee Remuneration Committee, Recent directorships Recent directorships Other current directorships >> Director of 3P Learning member of the and offices: and offices: and offices: Limited (since June 2014), Compliance Committee >> Former CEO of Foxtel >> Former Executive >> Member of Chief Chairman of Audit and and member of the Management Pty Limited Chairman and Chief Executive Women Risk Committee and Strategic Risk Committee (December 2011 to Executive Officer of member of the Human March 2016) >> Member of the Royal >> Director of Benevolent Ten Network Holdings Resources Committee Children’s hospital Society (since February >> Former Director of Ten Limited (from March Network Holdings Ltd foundation board >> Governor of the Cerebral 2013) 2013, Chairman from Palsy Alliance Research (November 2015 to March 2014 to July 2015) >> APEC Business Advisory >> Member of Chief Foundation March 2016) Council (Australian Executive Women >> Former Executive Vice >> Former Director of Bell Representative) Recent directorships >> Chair Audit Committee President, Office of the Shakespeare Company and offices: Chairman of News Corp Board Committee for the Commonwealth Limited (February 2007 Australia (March 2011 to membership: >> Former Director of Austar Department of Health to June 2013) United Communications March 2013) >> Ms Fellows attends Recent directorships >> Former Chairman of REA Ltd (May 2008 to April Board Committee all Audit, Risk and and offices: Group Limited (April 2007 2013) membership: Compliance Committee >> Former Director of CSR to April 2012) and Human Resources >> Former Chairman of the >> Chairman of the Board Limited (from December Board Committee Committee meetings Opera Foundation of 2004 to November 2015) membership: >> Member of the Human at the invitation of the Australia (2009 to 2013) Board Committee >> Member of the Human Resources Committee Board/Committee. Board Committee membership: Resources Committee membership: (appointed September >> Chair of the Human 2016) >> Chair of the Audit, Risk and Resources Committee Compliance Committee >> Member of the Audit, >> Member of the Audit, Risk and Compliance >> Member of the Human Risk and Compliance Committee (appointed Resources Committee Committee July 2017)
28 John D McGrath Michael Miller Susan Panuccio Ryan O’Hara BEc, MBA Independent non- B.A.Sc, Communication B. Bus (Hons), ICAA Non-executive Director executive Director and Media Non-executive Director Appointed 14 July 2017. Appointed 15 September Non-executive Director Appointment period 22 March Age 48 1999. Age 53 Appointed 12 November 2016 – 14 July 2017. Age 45 Independent: No – Skills and experience: 2015. Age 48 Independent: No – Nominee Nominee Director of Mr McGrath founded Director of News Corp News Corp Australia Independent: No – McGrath Estate Agents in Australia Nominee Director of Skills and experience: 1988. He has grown McGrath News Corp Australia Skills and experience: Mr O’Hara is Chief Executive Estate Agents to be one of Ms Panuccio has extensive Officer of Move, Inc., a Australia’s most successful Skills and experience: media experience across leading provider of online integrated property services Mr Miller was appointed the UK and Australia. She real estate services and groups, listing McGrath Executive Chairman of was appointed News Corp’s the operator of realtor. Limited on the Australian News Corp Australasia in Chief Financial Officer in com® websites and mobile Securities Exchange in November 2015. He has March 2017, based in New experiences in the United November 2015. In 2003, he over 20 years’ experience York. Prior to this, she served States. He assumed the role was awarded a Centenary working in senior executive as Chief Financial Officer in January 2015, shortly Medal for service to business. roles in the media industry, of News Corp Australia, after News’ acquisition In 2008, he was honoured most recently as the CEO beginning in September 2013. of the company. of APN News and Media. by the Real Estate Institute Before joining News Corp Mr Miller was previously the Mr O’Hara served as a of NSW with the Woodrow Australia, Ms Panuccio Regional Director for News President at The Madison Weight OBE Award, a lifetime worked 11 years with the Limited in New South Wales, Square Garden Company, achievement award for his News UK business in various the sports and entertainment outstanding contribution to the Managing Director of roles including Chief Financial the real estate industry. Advertiser News Media, Officer, Director of Strategic firm for which he led media and News Limited’s Group assets MSG and Fuse Other current directorships Program Management Marketing Director. He and Director of Corporate network, technology and and offices: has served on the Boards Planning. sales. Previously, he was >> Founder and Executive of News Limited, Adshel, Chief Executive Officer Prior to joining News UK, Director of McGrath Australian Radio Network, of The Topps Company, Ms Panuccio worked in the Limited and related carsguide.com.au, Sky a leading consumer finance teams of companies subsidiaries Network Television NZ products business. such as AngloGold Ashanti, Limited, the Committee for >> Director South Sydney Ansett Australia and KPMG. Move, Inc., represented Rabbitohs Rugby Sydney, the South Australian Mr O’Hara’s return to News Rugby Union Limited and Other current directorships League Club and offices: Corp following several roles Waratahs Rugby. with affiliated companies, Board Committee >> Director of Dow Jones Mr Miller is currently including Gemstar-TV Guide, membership: & Company, Inc. the Chairman of where he led TV Guide >> Member of the Human NewsMediaWorks and a >> Director of Move, Inc. Network and TVG. Earlier he Resources Committee Director of Unruly, Foxtel >> Executive Vice President held senior roles at Fox Cable and Fox Sports. and CFO of News Networks in Los Angeles and with BSkyB in London. Other current directorships Corporation Previously, Mr O’Hara served and offices: >> Director of News Group/ in consulting with PwC Times Newspapers >> Executive Chairman of and in brand management U.K., Inc. News Corp Australasia with Nestlé. >> Director of News Corp >> Chairman of Investments LLC Other current directorships NewsMediaWorks and offices: N/A >> Director of News Limited >> Director of Unruly Group of Australia, Inc. Recent directorships Limited and offices: >> Director of NYP Holdings, >> Director of Foxtel Inc. >> Former Director of Management Pty Limited The Topps Company Board Committee (February 2010 >> Director of Fox Sports membership: to February 2013) Board Committee >> Member of the Audit, membership: N/A Risk and Compliance Board Committee Committee (until 14 July membership: N/A 2017)
REA Group Annual Report 2017 29 Directors' Report
The Directors present their report together with the Financial Statements of the consolidated entity (the “Group”), being REA Group Limited (the “Company”) and its controlled entities, for the year ended 30 June 2017 and the Independent Auditor’s Report thereon. Meetings of Directors
The number of Board and Committee meetings held during the year and the number of meetings attended by each Director are disclosed in the following table:
Board Audit, Risk & Compliance Human Resources Director meetings Committee Committee A B A B A B Hamish McLennan 18 18 - 5* 4 4 Tracey Fellows 18 18 - 8* - 4* Roger Amos 18 17 8 8 4 4 Kathleen Conlon 18 18 8 8 4 4 Richard J Freudenstein1 18 18 - - 3 2 John D McGrath 18 17 - - 4 4 Michael Miller 18 17 - - - - Susan Panuccio 18 15 8 8 - -
A Indicates the number of meetings held during the period the Director was a member of the Board and/or Committee. B Indicates the number of meetings attended during the period the Director was a member of the Board and/or Committee. With respect to Committee meetings, the table above records attendance of Committee members. Any Director is entitled to attend these meetings and from time to time the Directors attend meetings of Committees of which they are not a member. The CEO attends Committee meetings at the invitation of the Board/Committee. * Attended at the invitation of the Board/Committee. 1 Appointed to the Human Resources Committee on 13 September 2016.
30 Principal activities Operating and financial review
REA advertises property and property-related services on websites and Reconciliation of results from core operations mobile apps across Australia and Asia. A summary of financial results from core operations for the year Its purpose is to ‘change the way the world experiences property’. ended 30 June 2017 is set out below. It fulfils this purpose by: For the purposes of this report, core operations are defined as the >> Providing digital tools, information and data for people interested reported results as set out in the financial statements adjusted for in property. REA calls these users of its services ‘consumers’. significant non-recurring items such as revaluation and unwind of contingent consideration, foreign exchange (‘FX’) on proceeds from >> Helping real estate agents, developers, property-related businesses European operations, impairment charge, transaction costs and and advertisers promote their services. REA calls these users of its discontinued operations (net of gain on sale). In 2016, this included services ‘customers’. the step-up gain on iProperty acquisition, proceeds from settlement REA’s growth focuses on the three pillars of its strategy; property of a legal case between Move and Zillow (a US real estate advertising advertising, lifestyle and property-related services, and global. Further portal) and transaction costs relating to the iProperty acquisition. details are set out in the corporate expansion and investment activities A reconciliation of results from core operations and non-IFRS of this Directors’ Report. (International Financial Reporting Standards) measures compared with the reported results in the financial statements on page 54 is set out below. The following non-IFRS measures have not been audited, but have been extracted from the audited financial statements.
2017 2016 Core and reported results $’000 $’000 Growth Revenue from core operations 671,206 579,059 16% Fair value gain on step-up acquisition - 40,827 n/m Reported revenue & other income 671,206 619,886 8% EBITDA from core operations (excluding share of losses of associates)* 385,323 341,678 13% Share of losses of associates (4,417) (13,850) (68%) EBITDA from core operations* 380,906 327,828 16% Revaluation of contingent consideration 2,783 - n/m FX on proceeds from European operations (4,112) - n/m Impairment charge (182,837) - n/m Fair value gain on step-up acquisition - 40,827 n/m Proceeds from settlement of legal case of associate - 20,169 n/m Business combination transaction costs (2,545) (9,330) (73%) Reported EBITDA* 194,195 379,494 (49%) Net profit from core operations 228,298 204,251 12% Revaluation and unwind of contingent consideration 7,864 (2,130) (>100%) FX on proceeds from European operations, net of tax (2,879) - n/m Discontinued operations (net of gain on sale) 158,423 (1,456) (>100%) Impairment charge (182,837) - n/m Fair value gain on step-up acquisition - 40,827 n/m Proceeds from settlement of legal case of associate - 20,169 n/m Business combination transaction costs, net of tax (2,536) (8,381) (70%) Reported Net profit 206,333 253,280 (19%)
* The Directors believe the additional information to IFRS measures included in the report is relevant and useful in measuring the financial performance of the Group.
REA Group Annual Report 2017 31 Directors' Report (continued)
Group results from core operations >> On 10 January 2017, the Group announced its intention to acquire a 14.7% stake on a fully diluted basis (16.4% on a non- Group revenue from core operations grew by 16% to $671.2 million diluted basis) in PropTiger, a leading digital real estate marketing driven by the continued growth in our listing depth products (where platform in India. PropTiger owns and operates proptiger.com, agents pay extra to feature a more prominent listing of a particular makaan.com and housing.com. The Group’s stake was acquired property) and the inclusion of iProperty revenue, which was held for cash consideration of $67.9 million (US$50.0 million) and for five months in the prior comparative period. This was achieved was funded by cash reserves. The investment was completed in a market that had lower listing volumes. The Group achieved a on 20 January 2017. 16% increase in EBITDA from core operations to $380.9 million and a 12% increase in net profit from core operations to $228.3 million. >> On 27 June 2017, the Group announced an intention to acquire Operating expenses increased due to the inclusion of iProperty an 80.3% majority stake in Smartline, a premier mortgage broking expenses for the full year, an increase in marketing in both Australia franchise group. The Group’s final purchase consideration and Asia, and continued investment in product innovation. of $69.4 million was funded from existing cash reserves and the transaction completed on 31 July 2017. The Group also Revenue grew across all segments for the year and Australia remained announced that it had strengthened its partnership with NAB the primary revenue driver for the business, delivering 94% of the to build a realestate.com.au broking service. Group’s revenue. The revenue growth in Australia reflects the success of our strategy to promote our depth products and our continued Strong operational results and key investment activities offset by product innovation, both of which have strengthened our customer shareholder returns in the form of dividends, resulted in a cash relationships and consumer experience. balance of $358.5 million as at 30 June 2017.
The Group’s operations attracted record growth in audience visits Dividends with a 14% increase across REA Group’s Australian residential and Dividends paid or declared by the Company during, and since, the commercial listings sites1. This figure is particularly impressive, given end of the year are set out in Note 9 to the Financial Statements that property listings were down for the year ending 30 June 2017. and below: Corporate expansion and investment activities Interim The Group has continued to deliver on its global strategy and Final 2017 2017 Final 2016 corporate expansion: Per share (cents) 51.0 40.0 45.5 >> On 19 December 2016 the Group announced it had entered into Total amount ($’000) 67,174 52,686 59,930 a five-year partnership with National Australia Bank (NAB) to create Franked* 100% 100% 100% an integrated digital home loan experience on realestate.com.au. 14 Sept 15 Mar 15 Sept The partnership will see realestate.com.au and NAB work together Payment date 2017 2017 2016 to develop an innovative end-to-end digital property buying experience. *All dividends are fully franked based on tax paid at 30%.
>> On 20 December 2016 the Group announced it had entered into an agreement to sell its European businesses, atHome Group S.à r.l. and REA Italia S.r.l. The sale enables us to focus on our key growth areas in the Australian, Asian and North American markets. The consideration was $193.7 million (€132.6 million). This resulted in a gain of $161.6 million (€111.5 million), after deducting net assets, accumulated foreign exchange reserves and transaction costs. The profit from the discontinued operations for the year ended 30 June 2017 was $158.4 million, including the gain on sale. The sale was completed on 1 February 2017.
1 Source: Nielsen Online Market Intelligence Home and Fashion Suite average monthly visits for the audited sites of realestate.com.au and realcommercial.com.au for the year ended 30 June 2017 compared to the year ended 30 June 2016. Excludes apps.
32 Performance by region
North Australia Asia America Corporate Total 2017 $’000 $’000 $’000 $’000 $’000 Segment revenue Total segment revenue 634,102 38,110 - - 672,212 Inter-segment revenue (575) (431) - - (1,006) Revenue from external customers 633,527 37,679 - - 671,206
Results Segment EBITDA from core operations (excluding share of losses of associates) 404,089 2,462 - (21,228) 385,323 Share of losses of associates - (3,300) (1,117) - (4,417) Segment EBITDA from core operations 404,089 (838) (1,117) (21,228) 380,906 Revaluation of contingent consideration - - - 2,783 2,783 FX on proceeds from European operations - - - (4,112) (4,112) Impairment charge - - - (182,837) (182,837) Business combination transaction costs - - - (2,545) (2,545) EBITDA 404,089 (838) (1,117) (207,939) 194,195 Depreciation and amortisation (37,816) EBIT 156,379 Net finance expense (5,692) Profit before income tax 150,687
North Australia Asia America Corporate Total 2016 $’000 $’000 $’000 $’000 $’000 Segment revenue Total segment revenue 556,146 25,588 - - 581,734 Inter-segment revenue (967) (1,708) - - (2,675) Revenue from external customers 555,179 23,880 - - 579,059
Results Segment EBITDA from core operations (excluding share of losses of associates) 349,266 9,330 - (16,918) 341,678 Share of losses of associates - (2,099) (11,751) - (13,850) Segment EBITDA from core operations 349,266 7,231 (11,751) (16,918) 327,828 Proceeds from settlement of legal case of associate - - - 20,169 20,169 Business combination transaction costs - - - (9,330) (9,330) Fair value gain on step acquisition - - - 40,827 40,827 EBITDA 349,266 7,231 (11,751) 34,748 379,494 Depreciation and amortisation (29,658) EBIT 349,836 Net finance expense (6,467) Profit before income tax 343,369
REA Group Annual Report 2017 33 Directors' Report (continued)
Performance by region (continued) Innovation is driving consumer engagement
Benefits of continued expansion The Group has the largest and most engaged audience of property seekers in Australia. Combined, realestate.com.au The Group has benefited greatly from its continued expansion, and realcommercial.com.au attracted average monthly visits increasing its presence both domestically in Australia and of 51.7 million6 during the year, which represents growth of internationally across Asia and North America. As a result of our 14%7 compared with the previous period and an average time strong market positions, customer relationships and products, on site of 269.0 million minutes8. we are positioned to capture long-term market opportunities on a global scale. The high consumer engagement is due to the Group’s continued efforts to enhance the online experience for people looking to buy, Australia sell, rent or share property. Additionally, this large audience provides The Group operates Australia’s number one residential, commercial rich data into how people search, where they look and what they and share property sites, realestate.com.au, realcommercial.com.au2 look for. This information enables us to personalise consumers’ and Flatmates.com.au3. experiences based on their own search behaviour.
Customers value our number one2 position with a 5% increase in the Recent innovations mean consumers can now find more detailed, number of Australian real estate agent offices that list properties on relevant and up-to-date information on more properties. our sites for the year ended 30 June 2017. Examples of such innovations are:
Overall, Australian revenues increased by 14% to $633.5 million during realestate VR App – This was Australia’s first virtual reality property the year. app available on Daydream, which is Google’s mobile virtual reality Australia’s listing depth revenue increased 18% to $481.8 million. platform. This was driven by the success of our residential Premiere All offering Seller Hub – This gives consumers access to the best information and increased yield, despite the decrease in listing volumes. and insights before their property is auctioned.
Developer and commercial listing depth and subscription revenue Frontpage – This is a new depth product that gives customers increased 15%. This growth was due to the positive take-up of our the opportunity to prominently advertise their properties on the premium developer product, Project Profiles, which showcases large realestate.com.au homepage. It is personalised for consumers developments. We achieved this strong result during a period of based on their search behaviour. decline in new dwelling commencements. Lifestyle – This is a video-led content experience for consumers Our media and other business revenue increased 2% to $95.3 million to help them to upgrade all aspects of their property. with the inclusion of revenues from Flatmates.com.au and the NAB partnership. Media display revenue, in particular developer advertising, Spacely – This new listings site makes it easier for Australians to has been impacted by the decline in both dwelling commencements find a short-term commercial space that meets their specific needs and display advertising on content sites4. whether it be retail, event, office, co-working, or creative spaces.
Flatmates.com.au is the number one site in share accommodation by Builder Profiles – This is a new section on realestate.com.au visits3. It receives over 2.4 million average monthly visits, representing for consumers looking to build a new home, search for a range growth of 19% compared with the previous comparative period5. The of builders in their preferred location and preview designs. Group is well placed to strengthen this leadership position through the sharing of technology, expertise and marketing.
2 Source: Nielsen Online Market Intelligence Home and Fashion Suite average monthly visits and average monthly minutes for the audited sites of realestate.com.au and realcommercial.com.au, compared to domain.com.au and commercialrealestate.com.au, for the year ended 30 June 2017. Excludes apps. 3 Source: Google Analytics average monthly visits for the Flatmates.com.au site for the year ended 30 June 2017 compared to the nearest market competitor. 4 Source: Standard Media Index (SMI) Advertising Expenditure for Digital Content Sites for the eleven month period July 2016-May 2017 compared to the eleven month period July 2015-May 2016. 5 Source: Google Analytics average monthly visits for the year ended 30 June 2017 compared to the year ended 30 June 2016. 6 Source: Nielsen Online Market Intelligence Home and Fashion Suite average monthly visits for the audited sites of realestate.com.au and realcommercial.com.au for the year ended 30 June 2017. Excludes apps. 7 Source: Nielsen Online Market Intelligence Home and Fashion Suite average monthly visits for the audited sites of realestate.com.au and realcommercial.com.au for the year ended 30 June 2017 compared to the year ended 30 June 2016. Excludes apps. 8 Source: Nielsen Online Market Intelligence Home and Fashion Suite combined minutes for the audited sites of realestate.com.au and realcommercial.com.au for the year ended 30 June 2017. Excludes apps.
34 As a result of the Group’s focus to deliver an exceptional in innovation, marketing and people positions the Group well for a mobile experience, launches of our apps grew by 52%9 and app market recovery. downloads exceeded 6.7 million10. Average monthly visits for We experienced a 38% growth in Malaysian visits16 and a 94% growth realestate.com.au’s sites outperformed the nearest competitor in Indonesian app visits17. The release of innovative android and iOS site by more than 2.5 times.11 apps in Malaysia, Indonesia and Hong Kong brought a best in class Revenues increased, due to greater uptake mobile experience to these markets. In Malaysia, as a market-first, of ‘listing depth products’ we combined developer and existing property listings to improve search functionality. The Group’s revenue growth is particularly strong, given lower property listing volumes and the lower average days on-market due iProperty and Brickz.my have partnered to launch iPropertyIQ, which to high auction clearance rates in Sydney and Melbourne, compared is a subscription-based data service providing transaction insights on with the previous year. the property market in Malaysia.
The Group’s results can be attributed to the implementation of its The Group is investing in senior leadership based in-region, strategic initiatives. An important factor has been the expansion and strengthening the Asian management team to implement innovation of depth products, increasing adoption by both residential the strategy and greater connectivity to Australia. and commercial property agents. On 20 January 2017, the Group acquired a 14.7% stake on a fully Asia diluted basis (16.4% on a non-diluted basis) in PropTiger, a leading digital real estate marketing platform in India. News Corp, the parent The Group’s Asian operations comprise iProperty, which operates of REA Group’s majority shareholder News Corp Australia, is currently leading property portals across Malaysia12 and Indonesia13, and the largest shareholder of PropTiger, holding a 23% investment. This prominent portals in Hong Kong, Thailand and Singapore, as well investment, coupled with iProperty, extends our footprint in Asia as Chinese site, myfun.com. Additionally the Group holds a strategic and strengthens our presence within the region. PropTiger has been investment in PropTiger, which operates in India. accounted for as an associate since 20 January 2017 and is included The Asian business recorded $37.7 million of revenue for the year. in the Asian segment. The Asian financial results have been affected in the year by a cyclical North America decline in several Asian property markets as a result of changes to government and banking regulations. The Group holds a 20% investment in Move, Inc., a leading provider of online real estate services in the United States. News Corp, the parent Following the completion of the company’s annual intangible of REA Group majority shareholder News Corp Australia, holds the asset impairment testing process, a non-cash impairment charge remaining 80%. During the period, the Group paid additional capital of $182.8 million was recorded pre-tax ($182.8 million post-tax) for contributions of $1.6 million (US$1.2 million) cash to fund rollover the year ended 30 June 2017 in relation to the carrying value of the awards held by Move employees. Group’s goodwill for the Asian reporting segment. Move, Inc. primarily operates realtor.com®, a premier real estate In Malaysia, stricter lending rules have resulted in a decrease in loan information services marketplace, under a perpetual agreement and applications and approvals14 and there has also been a 33% reduction trademark license with the National Association of Realtors®, the in the number of properties sold15. In Hong Kong, the Government largest trade organisation in the USA. has introduced a number of cooling measures to try to soften a highly competitive market, including the increase of stamp duty for Knowledge and technology sharing between REA and Move, Inc. residential property transactions to 15%. The Group remains focused across product and consumer experience has led to a number of new on the long-term growth opportunities in the region. Investment innovations. Realtor.com® is the number two property portal in the
9 Source: Adobe Analytics average monthly launches of the app for realestate.com.au for the year ended 30 June 2017 compared to the year ended 30 June 2016. 10 Source: Google Play and iTunes, total downloads for the realestate.com.au iOS and Android apps to June 2017. 11 Nielsen Online Market Intelligence Home and Fashion Suite average monthly visits for the audited sites of realestate.com.au compared to domain.com.au, for the year ended 30 June 2017. Excludes apps. 12 Source: SimilarWeb average monthly visits for iproperty.com.my site in Malaysia for the six months ended 30 June 2017 compared to the nearest market competitor. 13 Source: SimilarWeb average monthly visits for rumah123.com site in Indonesia for the six months ended 30 June 2017 compared to the nearest market competitor. 14 Source: Bank of Negara Malaysia Monthly Highlights and Statistics May 2017 loans applied by sector and loans approved by sector for the period July 2016 to May 2017 compared to the period July 2015 to May 2016. 15 Source: Malaysia National Property Information Center 2016 Annual Property Market Report – Newly Launched Units sold for the twelve months ended 31 December 2016 compared to the twelve months ended 31 December 2015. 16 Source: Adobe Analytics average monthly visits for iproperty.com.my site in Malaysia for the year ended 30 June 2017 compared to the year ended 30 June 2016. Excludes apps. 17 Source: Adobe Analytics average monthly visits for rumah123.com app in Indonesia for the year ended 30 June 2017 compared to the year ended 30 June 2016.
REA Group Annual Report 2017 35 Directors' Report (continued)
United States, the world’s largest real estate market. Reported revenue The Group has also announced it will enter the Financial Services growth of 10% to US$394 million18 was primarily due to the strength in segment. As part of this, the Group has entered into a five-year its ConnectionsSM for Buyers product, as well as growth in non-listing partnership with NAB to create an integrated digital home loan Media revenues. Average monthly unique users for the year grew experience on realestate.com.au. It has also announced strategic 11% year-over-year to approximately 52 million19. investments into the mortgage broking market. This includes the intention to acquire an 80.3% majority stake in Smartline, The Group’s share of Move, Inc. for the year resulted in a $1.1 million and strengthening its relationship with NAB to build a loss recognised in the Income Statement. realestate.com.au mortgage broking offering which will State of affairs be called realestate.com.au Home Loans at launch in the first half of financial year 2018. In the Directors’ opinion, other than the investments and divestment The 1Form online application for renters received 2.5 million20 rental referenced in the operating and financial review of this report, there applications for the year, representing 45%20 year-on-year growth. have been no significant changes in the state of affairs of the Group This technology provides early visibility of consumers who are during the year. planning to move. Advertisers can utilise this information to target Events since the end of the financial year these consumers through initiatives such as Connections.
As at the date of this report, the Directors are not aware of any Connections helps consumers compare and connect services to their matter or circumstance that has arisen since 30 June 2017 that has property, such as electricity, telecommunications and pay TV, etc. significantly affected the operations of the Group, the results of Global the operations or the state of affairs of the Group, except for those outlined in Note 24. We will continue to expand into new markets, and people will increasingly be able to search for property all over the world with Business strategies and future developments us. We will leverage our global scale, knowledge and capability to increase our speed to market and competitiveness. The online advertising market continues to grow and we will continue to invest in innovation. Our acquisition of iProperty and our strategic investment in PropTiger gives exposure to the Asian market, which represents an opportunity Our growth strategy reflects three priorities: property advertising, for growth. lifestyle and property-related services, and global.
Property advertising With average property prices in Singapore and Hong Kong already higher than in Australia, and the volume of transactions The foundation of the business is online advertising of property exceeding that of Australia, the iProperty acquisition is important listings, supported by data on residential and commercial property. for our expansion. Agents continue to play an important role, and increasing engagement is important for future growth. Our investment in Move, Inc., a leading digital real estate advertising business in the United States, gives us access to the largest real estate The aim of property advertising is to improve both the existing market in the world. products and become more personalised to consumers. By continuing to innovate and develop new products and services, In January 2017, the Group completed the sale of its European the Group assists property developers and real estate agents, businesses, atHome Group S.à r.l. and REA Italia S.r.l., which enables as well as making it easier for our consumers to find properties. us to focus in our key growth areas in the Australian, Asian and North American markets. Lifestyle and property-related services Opportunities and risks The Group is now one of the largest sources of property-related information, insights and inspiration in Australia. In particular, the Everything we do is driven by our purpose to ‘change the way depth, breadth and increased personalisation of our consumer data the world experiences property’ – from product innovation to our increases the opportunities to engage a wider range of advertisers. international investments. Having a clearly defined and committed purpose provides us with opportunities to drive further value.
18 Source: NewsCorp’s Earnings Release stated in US Dollars (10 August 2017) for the year ended 30 June 2017. Revenue was partially offset by a $12 million decline in revenue associated with the sale of TigerLead® in November 2016 and a $6 million impact from the absence of the additional week in the prior year resulting in underlying revenue growth of 16%. 19 Source: Move internal data average monthly unique users for the year ended 30 June 2017 compared to the year ended 30 June 2016. 20 Source: REA internal data for the year ended 30 June 2017 compared to the year ended 30 June 2016.
36 These include: system integrity. As a technology-focused business, managing security, and taking care of consumer and customer data is >> A significant increase in transaction volumes in all of our markets. essential. To manage the risk of damaging security incidents, >> Increased speed-to-market for new products and greater uptake we have appropriate data management, security and compliance of new and existing products. policies, procedures and practices in place.
>> Expansion of our international presence, either through acquisition >> Lack of availability or downtime of our websites and apps may or investment. result in a poor experience for our consumers and customers. >> Utilising our data to provide a new or enhanced experience for To manage the risk of any of our sites going down, we have our consumers and/or further support our customers in achieving developed and implemented disaster recovery strategies, high- their strategic aims. availability architecture, and processes for monitoring the health of our systems on an ongoing basis. >> Building a market-leading home loan offering by entering into the mortgage brokering industry and utilising our leading >> A decline in market conditions could result in a significant digital capability. reduction in the number of property listings on our sites. The property market is driven by employment, interest rates Our growth and success are a result of seeking out opportunities. and consumer confidence. A substantial change in these market These also come with risks. We take our responsibility to shareholders indicators could result in a deterioration in the performance of and employees very seriously and are never complacent about the property market. Interest rates remain low and we do not risk. This year we continued our focus on strengthening our risk foresee any significant risks in relation to the other drivers of culture by: transaction volumes. As a business with international operations, >> Further developing our Risk Management Framework by enabling we have a small exposure to currency fluctuations, which we responsible risk management with alignment to our strategic monitor and manage. business objectives; and >> A breach of REA’s privacy obligations could occur. REA recognises >> Raising the profile of risk management throughout the Group, that privacy compliance is critical to maintaining consumer trust. with the primary intent to both educate and enable our people to: We maintain a comprehensive privacy compliance program and update our program to align with changes in the law. REA >> Take responsibility for risk management as part of their business is committed to the ‘privacy by design’ method of embedding as usual roles; and privacy considerations into the company’s products, processes >> Make good business decisions, by taking the right risks and systems. (within Board approved Risk Appetite), at the right time, based on quality data and information. Corporate governance
The Executive Risk Committee oversees the implementation of our REA Group is committed to being ethical, transparent and risk-management framework and ensures management fulfils its accountable. We believe this is essential for the long-term risk-management responsibilities. The Executive Risk Committee performance and sustainability of our Company and supports the is focused on operational, financial and strategic risks, including IT- interests of our shareholders. The REA Group Board of Directors related risks such as IT Security, Data Privacy and Disaster Recovery. is responsible for ensuring that the Company has an appropriate corporate governance framework to protect and enhance Key REA business risks include: company performance and build sustainable value for shareholders. This corporate governance framework acknowledges the ASX >> The development of new technologies and increased competition Corporate Governance Council’s Corporate Governance Principles from existing or new sites and apps could affect our existing and Recommendations (ASX Principles and Recommendations) and business model. We operate in a highly competitive market and is designed to support our business operations, deliver on strategy, constantly monitor and assess the competitive environment and monitor performance and manage risk. any potential risks to our Australian and international operations. We recognise we must continue to earn the support of consumers Our Corporate Governance Statement addresses the and our agent partners, and we focus on delivering a market- recommendations contained in the third edition of the ASX leading user experience and outstanding return on investment for Principles and Recommendations and is available on our website agents and their vendors. at www.rea-group.com/corporate-governance. This statement >> Security incidents caused by adversarial, accidental or should be read in conjunction with our website and with the environmental threat which may result in the theft or destruction Directors’ Report, including the Remuneration Report. of confidential consumer/customer data and/or loss of REA
REA Group Annual Report 2017 37 Directors' Report (continued)
Sustainability Chief Executive Officer/Chief Financial Officer declaration The Group has made significant advances in the management and measurement of its social and environmental impacts/risks including: The Chief Executive Officer and the Chief Financial Officer have given the declarations to the Board concerning the Group’s Financial >> A greater contribution to the community through our internal Statements and other matters as required under section 295A(2) of community program (called ‘Because we care’) to empower our the Corporations Act 2001. people to make a tangible positive contribution. >> This year we evolved our Senior Women’s Networks at REA Indemnification and insurance of directors to include our broader female employee base and welcomed and officers multiple external thought leaders to encourage diversity of thought, innovation and critical thinking. The Company has entered into a standard form deed of indemnity, insurance and access with the non-executive Directors against >> In alignment with our focus on gender equity and our work liabilities they may incur in the performance of their duties as towards obtaining White Ribbon accreditation, we also introduced Directors of REA Group Limited, except liabilities to REA Group Domestic Violence Sensitivity Training for people managers as well Limited or a related body corporate, liability for a pecuniary penalty or as 20 days paid leave for employees who disclose that they are compensation order under the Corporations Act 2001, and liabilities experiencing domestic violence. arising from conduct involving a lack of good faith. REA Group Environmental regulation Limited is obliged to maintain an insurance policy in favour of non- executive Directors for liabilities they incur as Directors of REA Group The Directors are not aware of any material breaches of any particular Limited and to grant them a right of access to certain company or significant environmental regulation affecting the Group’s records. In addition, each Director is indemnified, as authorised by the operations and the Group has complied with all required reporting. Constitution, on a full indemnity basis and to the full extent permitted Directors’ qualifications, experience by law, for all losses or liabilities incurred by the Director as a Director of a member of the Group. The indemnity operates only to the extent and special responsibilities that the loss or liability is not covered by insurance. At the date of this report, the Board comprises seven non-executive During or since the end of the financial year, the Company has paid Directors and one executive Director, the Chief Executive Officer, premiums under contracts insuring the Directors and Officers of the who collectively have a diverse range of skills and experience. The Company, and its controlled entities, against liability incurred in that names of Directors and details of their skills, qualifications, experience capacity to the extent allowed by the Corporations Act 2001. The and when they were appointed to the Board can be found on pages terms of the policies prohibit disclosure of the details of the liability 28 to 29 of this report. and the premium paid. Details of the number of Board and Board Committee meetings held During the year the Group has been covered under the Directors during the year, Directors’ attendance at those meetings and details of & Officers (D&O) insurance policy for the News Corp Group of Directors special responsibilities are shown on page 30 of this report. companies. In addition, REA Group Limited took out a further Details of directorships of other listed companies held by each current D&O policy to cover certain exclusions in the News Corp Group Director in the three years before the end of the 2017 financial year D&O policy and to provide a dedicated program providing cover are listed on pages 28 to 29 of this report. independently of the News Corp program. Company Secretary’s qualifications Indemnification of auditors and experience The Group has agreed to indemnify its auditors, Ernst & Young Australia, to the extent permitted by law, as part of the terms of its Sarah Turner was appointed REA Group’s General Counsel and audit engagement agreement against claims by third parties arising Company Secretary in September 2015. She has extensive experience from the audit (for an unspecified amount). No payment has been in corporate and commercial law, mergers and acquisitions and made to indemnify Ernst & Young during or since the financial year. technology. Ms Turner holds a Bachelor of Laws (with Honours), a Bachelor of Arts and a Graduate Diploma in Applied Corporate Governance. She is a member of the General Counsel 100, a division of the Association of Corporate Counsel, a Fellow of the Governance Institute of Australia and a Graduate of the Australian Institute of Company Directors.
38 Non-audit services Auditor
The Company may decide to employ the external auditor on Ernst & Young continues in office in accordance with section 327 assignments additional to its statutory audit duties where the of the Corporations Act 2001. auditor’s expertise and experience with the Company and/or the Group are important. Rounding of amounts
The Board of Directors has considered the position and, in The Company is a company of the kind referred to in Australian accordance with advice received from the Audit, Risk and Compliance Securities and Investments Commission Instrument 2016/191 Committee, is satisfied that the provision of the non-audit services is pursuant to sections 341(1) and 992(B) of the Corporations Act compatible with the general standard of independence for auditors 2001. Amounts in the Directors’ Report and the accompanying imposed by the Corporations Act 2001. The Directors are satisfied Financial Statements have been rounded off in accordance with that these services did not compromise the auditor independence that Instrument to the nearest thousand dollars, except where requirements of the Corporations Act 2001 for the following reasons: otherwise indicated.
>> All non-audit services have been reviewed by the Audit, Risk and Auditor’s Independence Declaration Compliance Committee, in line with the Committee Charter, to A copy of the Auditor’s Independence Declaration as required under ensure they do not impact the impartiality and objectivity of the section 307C of the Corporations Act 2001 is set out on page 40. auditor; and
>> None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants.
During the year the following fees were paid or payable for non-audit services provided by the external auditor (Ernst & Young) of the parent entity, its related practices and non-related audit firms:
2017 2016 Consolidated REA Group $ $ Tax compliance services 268,160 171,050 International tax consulting 118,510 31,050 Other assurance services 103,842 199,040 Total remuneration for non-audit services 490,512 401,140
Further details on the compensation paid to Ernst & Young is provided in Note 22 to the Financial Statements.
REA Group Annual Report 2017 39 Auditor’s Independence Declaration to the Directors of REA Group Limited
Ernst & Young Tel: +61 3 9288 8000 8 Exhibition Street Fax: +61 3 8650 7777 Melbourne VIC 3000 Australia ey.com/au GPO Box 67 Melbourne VIC 3001
Auditor’s Independence Declaration to the Directors of REA Group Limited
As lead auditor for the audit of REA Group Limited for the financial year ended 30 June 2017, I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of REA Group Limited and the entities it controlled during the financial year.
Ernst & Young
David McGregor Partner
11 August 2017
A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation
40 Remuneration Report
This report details REA Group’s remuneration framework and outcomes for Key Management Personnel (KMP) for the financial year ending 30 June 2017. This report forms part of the Directors’ Report for this period. 1. Introduction and scope of report
The information provided in the Remuneration Report has been audited as required by section 308(3C) of the Corporations Act 2001.
This Remuneration Report for the year ended 30 June 2017 outlines the remuneration arrangements in place for the key management personnel (‘KMP’) of REA Group Limited and its controlled entities (‘the Group’), which comprises all Directors (executive and non-executive) and those executives who have authority and responsibility for planning, directing and controlling the activities of the Group.
The following executives of the Group were classified as KMP during the 2017 financial year and unless otherwise indicated were classified as KMP for the entire year.
Executive Directors Tracey Fellows Chief Executive Officer
Senior Executives Owen Wilson Chief Financial Officer
Non-Executive Directors Hamish McLennan Chairman Roger Amos Independent Director Kathleen Conlon Independent Director Richard J Freudenstein Director John McGrath Independent Director Michael Miller Director Susan Panuccio Director 2. Role of the Human Resources Committee
The Human Resources Committee (HR Committee) is responsible for reviewing and making recommendations to the Board on the remuneration arrangements for the non-executive Directors, the Chief Executive Officer (CEO), the Chief Financial Officer (CFO) and other executives. Further information on the HR Committee’s role and responsibilities is contained in its Charter, which is available on the Group’s website at www.rea-group.com.
To assist in performing its duties, and making recommendations to the Board, the HR Committee may seek independent advice and data from external consultants on various remuneration related matters. The HR Committee follows protocols around the engagement and use of external remuneration consultants to ensure compliance with the relevant executive remuneration legislation. Any remuneration recommendations and data are provided by the external consultant directly to the Chair of the Committee.
During the 2017 financial year, the HR Committee engaged Aon Hewitt to provide benchmarking data as an input into our annual remuneration process. Aon Hewitt was paid a total of $13,600 for these services during the year. No actual remuneration recommendations were provided by Aon Hewitt.
REA Group Annual Report 2017 41 Remuneration Report (continued)
3. Executive remuneration philosophy and framework
The Group’s executive remuneration philosophy is founded on the objectives of:
>> driving desired leadership behaviours;
>> recognising both individual and organisational performance, that are focussed on achieving the Group’s longer term corporate plans;
>> generating acceptable returns for shareholders; and
>> rewarding executive performance for generating high growth returns above expected threshold levels.
The four core ‘guiding principles’ of our executive remuneration framework approved by the Board are shown in the diagram below:
Remuneration Guiding Principles
Shareholder aligned Rewards for high performance Consistency & transparency Simplicity
3.1 Remuneration structure
Executive total remuneration is made up of the following three components:
Component What is it? How does it link to strategy & performance? Fixed Annual Remuneration Fixed remuneration consists of base compensation >> Provides competitive ongoing remuneration in (‘FAR’) and statutory superannuation contributions. KMP recognition of day-to-day accountabilities. may also elect to have other benefits provided out of their FAR, including additional superannuation and the provision of a motor vehicle. Short-Term Incentive (‘STI’) The STI program is a cash based plan that involves >> Rewards delivery of key strategic and financial linking specific financial and non-financial targets objectives in line with the annual business plan. with the opportunity to earn incentives based on a >> Enables differentiation of reward on the basis of percentage of fixed salary. individual performance.
>> Ensures annual remuneration is competitive. Long-Term Incentive (‘LTI’) The LTI plan is designed to link long-term executive >> Rewards delivery against longer-term strategy reward with ongoing creation of shareholder value, and sustained shareholder value creation. with the allocation of equity awards which are >> Provides greater alignment between subject to satisfaction of long-term performance shareholder and executive outcomes. conditions.
Details on each of the individual components are set out in section 5 of this report.
42 3.2 Remuneration mix
Remuneration mix refers to the proportion of Total Remuneration that is made up of each remuneration component. The following diagrams set out the remuneration mix for each KMP at both target (the amount that would be paid for delivering target performance) and maximum (the amount that would be paid for delivering stretch performance) remuneration levels. CEO CFO
Target Maximum Target Maximum Remuneration Remuneration1 Remuneration Remuneration1
Fixed Annual Remuneration 50.0% Fixed Annual Remuneration 33.4% Fixed Annual Remuneration 53.0% Fixed Annual Remuneration 35.4% Short-Term Incentive 25.0% Short-Term Incentive 33.3% Short-Term Incentive 24.3% Short-Term Incentive 32.3% Long-Term Incentive 25.0% Long-Term Incentive 33.3% Long-Term Incentive 22.7% Long-Term Incentive 32.3%
1 Pay mix for maximum based on value of performance rights at grant date. 4. Link between group performance, shareholder wealth and executive remuneration
A key underlying principle of the Group’s executive remuneration framework is that executive remuneration outcomes should be linked to performance. Understanding REA Group’s performance over both the financial year ending 30 June 2017 and the longer-term will provide shareholders and other interested stakeholders with important context when reviewing our remuneration framework and outcomes in more detail over the following pages of this report.
4.1 REA Group performance
It has been another strong year for REA Group, with revenue increasing by 16% and EBITDA from core operations increasing by 16% on prior comparative period.
Summary of Group performance
The table on the following page summarises key indicators of the Group’s performance and the effect on shareholder value over the past five years.
REA Group Annual Report 2017 43 Remuneration Report (continued)
Key Indicators 2013 2014 2015 2016 2017 Revenue* 302,966 394,602 477,292 579,059 671,206 EBITDA* 157,424 219,114 271,785 327,828 380,906 Net profit after tax* 105,965 148,263 177,435 204,251 228,298 Earnings per share* 80.5c 112.6c 134.7c 155.1c 173.3c Dividends per share 41.5c 57.0c 70.0c 81.5c 91.0c Share Price 30 June $27.53 $42.71 $39.21 $59.49 $66.40
*From core operations $’000. Information for 2013 – 2016 is restated to exclude discontinued operations. Compound Annual Growth & Share price performance
REA Group’s growth over the last five years has been exceptional, and as detailed in the following graphs, has delivered strong revenue and earnings per share (‘EPS’) compound annual growth rates (‘CAGR’). REA Group’s relative share price in comparison to the ASX 100 is also outlined below. REA’s share price has significantly outperformed the ASX 100 in the last three years.
Revenue ($m) EBITDA ($m)