Annual Report 2022 Changing the way the world experiences property About us Contents About us Year in review 2022 Highlights Chairman’s message Overview 2 4 6 8 10 CEO’s message 12 Our people and culture 14 Australian highlights 20 Global highlights 22 Environment, Social and Governance Governance 26 Executive Leadership Team 28 Board of Directors Financial Report 30 Directors’ Report 43 Auditor’s Independence Declaration 44 Remuneration Report 59 Consolidated Income Statement 60 Consolidated Statement of Comprehensive Income 61 Consolidated Statement of Financial Position 63 Consolidated Statement of Changes in Equity 64 Consolidated Statement of Cash Flows 65 Notes to the Consolidated Financial Statements 111 Directors’ Declaration 112 Independent Auditor’s Report Additional Information 117 Historical Results 118 Shareholder Information 120 Corporate Information Our Purpose To change the way the world experiences property. Our Business REA Group is a leading digital property-centric business. Data and technology are at the company’s core, and power the delivery of the best products and services to our customers and consumers. Our People Our people are at the heart of REA and they are the key to our success. Our team of more than 3,100 people come to work every day embracing our values and driving our unique culture. 1 Annual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportEnvironmental, Social and GovernanceOur Leaders About us Changing the way the world experiences property Largest audiences, most engaged consumers Building the next generation marketplaces Superior customer value Unparalleled data & insights The 2022 financial year (FY22) was an outstanding period for REA Group Ltd and its subsidiaries (the ‘Group’ or ‘REA’) with the delivery of exceptional financial results. The Group continued to invest heavily in the development of the core business while growing meaningful adjacent businesses and progressing the integration of key strategic investments. Globally, we continued to consolidate significant footprints in some of the world’s most exciting property markets. Our focus on the delivery of superior customer value and unique consumer experiences continued in FY22, while we also focused on supporting our people and the communities in which we operate. Clear strategy driving significant growth REA’s growth is underpinned by our clear strategy, which is centred around four core objectives: Australia’s largest, most engaged consumer audience driving the most leads and the best leads to our customers; providing our customers with superior value across property advertising, our agent marketplace and agency services; and becoming Australia’s leading property data, valuations and insights provider. We focus on fulfilling these objectives while also building the next generation of property-related marketplaces. People at the heart of REA’s success Our team of more than 3,100 talented people are at the heart of REA and they make our organisation truly great, with strategy and culture contributing equally to the growth and momentum of the business. Our strategy and purpose guide us, while our culture drives us to deliver strong results. We have a common language about who we are, which is very important to us, and a unique workplace culture. Together, these attributes make REA one of Australia’s Best WorkplacesTM. We have a strong focus on nurturing and evolving our culture to ensure we optimise the employee experience and therefore the contributions of our team. Our people are connected by our purpose as we are changing the way the world experiences property. They aspire to deliver the most value for our customers and the best experiences for our consumers, while looking after each other and keeping community top of mind. 2 REA Group Ltd | Annual Report 2022 Our global network Australia Y e a r i n r e v e w i India International 3 Our values . . Everything we achieve, we achieve as one team. It’s our collective genius that gives us our edge and a willingness to stand by any decision that’s made for the greater good of REA. People are at the heart of REA. Every connection with each other, with our customers, with consumers and with our community matters. We care and we’re not afraid to show it. We don’t expect anyone to fit a certain mould – we accept everyone for who they are, quirks and all. We’re not afraid to have a laugh. We take our work seriously, but never ourselves. We’re thirsty for knowledge – and generous with it too. Our curiosity is endless, and every day we seek out opportunities to grow ourselves and others. We don’t do comfort zones. We always seek to do the right thing, and if things don’t quite go to plan, we own it. We review what happened, learn from it and move on, smarter and better than before. We’re not afraid to try new things or fail fast. We’re all about challenging the status quo and taking risks. And at times, while it may feel uncomfortable, we know this is where the magic happens. Year in reviewDirectors’ ReportFinancial Statements Remuneration ReportEnvironmental, Social and GovernanceOur LeadersAnnual Report 2022 | REA Group Ltd Year in review Year in review The Group delivered an exceptional financial performance in FY22. The Group delivered an exceptional financial performance in FY22. The result reflects the strength of REA’s product portfolio, and our team’s unwavering focus on delivering outstanding value for customers, unique experiences for consumers and our long-term strategic goals. Group financial highlights from core operations1 include year-on-year (YoY) revenue growth of 26% to $1,170 million. EBITDA including associates increased 19% to $674 million, and net profit from core operations increased 25% to $408 million. The Group result includes the consolidation of REA India from 1 January 2021 and Mortgage Choice from 1 July 2021. Excluding the impact of these acquisitions, core revenue increased by 18%. Revenue growth was underpinned by strong growth in Australian Residential revenues, which were up 24%. Core operating costs increased 34%, largely driven by the Mortgage Choice and REA India acquisitions. Excluding acquisitions, core operating costs increased by 11%, reflecting investment to deliver strategic initiatives, a tight labour market driving higher remuneration costs, an increase in revenue-related variable costs, and investment in brand and marketing. The Board determined to pay a record final dividend of 89 cents per share fully franked. Together with the interim dividend announced in February, this represents a total dividend of $1.64 per share for the 2022 financial year, a 25% increase on the prior year, reflecting the strength of the business. Alongside REA’s strong financial results, key milestones were achieved as the Group made significant progress in the delivery of its growth strategy. The core business continued to achieve unprecedented audience levels, and the record uptake of key customer advertising solutions and unique consumer experiences delivered greater engagement and increased value for our customers. A number of highlights were also achieved in adjacencies, with excellent growth in our property data, financial services and Indian businesses. Further details regarding business operations and financial results can be found in the Directors’ Report on pages 30 - 42. Sources: Unless otherwise specified, all metrics included from page 2 to 25 are REA Internal Data for the financial year (Jul 21 – Jun 22). 1 Core operations are defined as the reported results set out in the financial statements adjusted for significant non-recurring items such as restructuring costs, gain/loss on acquisitions, disposals and closure of subsidiaries, associates and operations, associate IPO and restructuring costs, and integration costs. The prior year comparative also includes a historic tax provision (historic indirect tax provision reflects potential retrospective changes to interpretation of tax law). 44 REA Group Ltd | Annual Report 2022 Revenue2 EBITDA2 $1,169.5m 26% $673.5m 19% 2022 2021 2020 2019 2018 2022 2021 2020 2019 2018 0 200 400 600 800 1,000 1,200 0 100 200 300 400 500 600 700 800 Net profit after tax3 Earnings per share4 $407.5m 25% 308.5¢ 25% 2022 2021 2020 2019 2018 2022 2021 2020 2019 2018 0 100 200 300 400 500 0 50 100 150 200 250 300 350 Dividends per share 164.0¢ 25% 2022 2021 2020 2019 2018 0 50 100 150 200 2 From core operations. 3 From core operations attributable to the ordinary equity holders of the company. 4 From core operations attributable to the ordinary equity holders of the company. Y e a r i n r e v e w i 5 Environment, Social and GovernanceYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersAnnual Report 2022 | REA Group LtdEnvironmental, Social and Governance Year in review 2022 Highlights 12.7m people visit Australia’s number one address in property, realestate.com.au, on average each month5 124.1m average monthly visits to realestate.com.au achieved6 59m average monthly launches of the realestate.com.au app, up 7% YoY7 with the app holding position as Australia’s number one property app 4th REA India reached audience leadership in India with Housing.com achieving record audience levels8 named Australia’s 4th best workplace by Great Place to Work for the second consecutive year, the highest ranking ASX listed company recognised as an Inclusive Employer 2021-2022 by Diversity Council Australia after running our first Diversity and Inclusion Index 5 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 – Jun 22 (average), P2+, Digital (C/M), text, realestate.com.au, Unique Audience. 6 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 – Jun 22 (average), P2+, Digital (C/M), text, realestate.com.au, Total Sessions. 7 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 - Jun 22 vs. Jul 20 - Jun 21 (average), P2+, Digital (C/M), text, realestate.com.au, App Launches. 8 Similarweb, average site visits Oct 21 – Jun 22 vs nearest competitor – excludes app. 66 REA Group Ltd | Annual Report 2022 +54%YoY increase in Seller Leads generating quality leads for customers +25%YoY increase in active members with a record number of Australians signed up personalised experiences on realestate.com.au 1,000+ Brokers in the Mortgage Choice network for the first time 87% employee engagement achieved in Australia, an increase of 3% on the previous year helping REA attract and retain the best talent Property.com.au launched in March 2022 with the aim of offering the full picture on every property in Australia, whether it’s for sale or not PropTrack made significant progress towards the goal of becoming Australia’s number one property data business and achieved strong revenue growth Y e a r i n r e v e w i 7 Environment, Social and GovernanceYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersAnnual Report 2022 | REA Group LtdEnvironmental, Social and Governance Year in review Chairman’s message REA Group finished FY22 in an extremely strong position, having delivered an exceptional financial result and meaningful progress on the strategic priorities that will drive further long-term growth. The business again rose to the challenges of the pandemic in the first half and seamlessly navigated changing operating and market conditions throughout the year, maintaining strong growth momentum. The Group’s financial highlights from core operations9 for the full year included revenue of $1.17 billion, an increase of 26% year-on-year and EBITDA, including associates, was $674 million, an increase of 19%. Net profit increased 25% to $408 million. The Board has determined to pay a final dividend of 89 cents per share fully franked. This represents a total dividend of $1.64 per share for FY22, an increase of 25% on the prior year. The record dividend is a testament to the strength of REA’s business and balance sheet. Our talented team are the driving force behind the Group’s ongoing success, and I am continually impressed by their focus and delivery. Under the leadership of our Chief Executive Officer, Owen Wilson, in FY22 the team has accelerated the business’s transformation from a property classified portal to become a truly property-centric business. The team’s deep commitment to our purpose, changing the way the world experiences property, is more apparent than ever as REA continues to deliver greater value, more services, and better experiences, to our customers and consumers at every stage of the property life cycle. REA’s growth momentum is driven by a clear strategy that balances the continued growth of our core business, and the defence of its strong position, with expansion into new adjacent and diverse markets. Central to this strategy is our unwavering focus on delivering Australia’s largest and most engaged property audience. Our audience, and the unparalleled data and insights it provides, in turn enables us to drive more value for our customers than anyone else, while opening up opportunities to invest and grow in new property-centric marketplaces. 9 Core operations are defined as the reported results set out in the financial statements adjusted for significant non-recurring items such as restructuring costs, gain/ loss on acquisitions, disposals and closure of subsidiaries, associates and operations, associate IPO and restructuring costs, and integration costs. The prior year comparative also includes a historic tax provision (historic indirect tax provision reflects potential retrospective changes to interpretation of tax law). 8 REA Group Ltd | Annual Report 2022 Our extension into these adjacent markets – including our finance, property data and Indian businesses – was a pleasing contributor to our ongoing growth story in FY22. The strength of our core business is evident in our impressive Residential revenue result, increasing revenue 24% in FY22. The market clearly recognises the value of our premium listing products, and this is a credit to the team and their commitment to delivering unrivalled value to our customers. Our Commercial and Developer business saw revenue growth increase by 3%, with strong momentum and audience growth in Commercial offset by challenging conditions in Developer, which was impacted by fewer project launches. Commercial and Developer remains extremely well positioned following strong price growth in FY22, with good potential for Developer to benefit when property development conditions improve. We have strong ambitions for our Financial Services business, and our acquisition of Mortgage Choice last year accelerated this strategic agenda. The integration of our Mortgage Choice and Smartline broker businesses is on target for completion this financial year, moving us closer to becoming Australia’s leading mortgage broker. Our goal is to be Australia’s leading property data, valuations and insights provider. This strategic focus led to a rapid expansion of our property data business, PropTrack, in FY22. Our unrivalled audience means we have access to the best source of property supply and demand data in the market. Capitalising on this position, we expanded our relationships with major banks during the year and achieved strong revenue growth in our data business. In our global business, Elara Technologies Pte. Ltd. rebranded to REA India in September, and we increased our shareholding from 60.8%. to 73.3% reflecting the significant opportunity we see for this business in the world’s fastest growing trillion-dollar economy. The delivery of enhanced products and elevated consumer experience along with brand investment resulted in the flagship site, Housing.com, reaching the number one position by audience10. Our transaction with PropertyGuru, a leading proptech company in Southeast Asia, consolidated REA’s former assets in Malaysia and Thailand and completed in August 2021. PropertyGuru is the clear market leader in the exciting markets of Singapore, Malaysia, Vietnam and Thailand. In a significant milestone, PropertyGuru commenced trading on the New York Stock Exchange in March and REA now holds a 17.5% interest in the company. The Board is committed to driving a sustainable future through the enhancement of REA’s Environmental, Social and Governance (ESG) practices. The Group improved its MSCI ESG rating for the second consecutive year, moving from A to AA, classifying REA as a leader in the interactive media and service industry. REA strives to be an inclusive and diverse workplace and pleasingly this was recognised with the Diversity Council Australia naming REA an Inclusive Employer for 2021-22. REA has also partnered with Reconciliation Australia to develop our first Reconciliation Action Plan and we look forward to progressing this. On behalf of the Board, I would like to convey my sincere appreciation for the dedication shown by Owen, the Executive Leadership Team and all REA employees. REA’s clear strategic focus and growth momentum has been maintained despite the abnormal environment and remaining impacts of the pandemic, and this is thanks to the exceptional work and ingenuity of our team. As a leading employer and one Australia’s Best WorkplacesTM, we are committed to continuing to invest in creating a diverse, inclusive, and high-performing organisation. I would also like to thank my fellow Board members for their valuable contributions supporting REA’s continual success. In November, Kathleen Conlon retired as a Non-executive Director of the Company. Kathleen joined the Board in 2007 and I would like to acknowledge the significant contribution she made serving in a number of roles including Chair of the Human Resources Committee and member of the Audit, Risk & Compliance Committee. Following Kathleen’s departure, in January, we were pleased to welcome Kelly Bayer Rosmarin to the Board. Kelly’s depth of experience across financial services and her excellent track record of driving innovation at scale, while growing and operating large global businesses, further complements and strengthens the Board and its diversity. REA is strongly positioned for continued growth, with a clear purpose and momentum behind our strategic agenda. On behalf of the Board, I would like to thank all our valued shareholders for your ongoing support. I look forward to another successful year for REA Group in FY23. Hamish McLennan Chairman REA Group 10 Similarweb, average site visits Oct 21 – Jun 22 vs nearest competitor – excludes app. Y e a r i n r e v e w i 9 Year in reviewDirectors’ ReportFinancial Statements Remuneration ReportEnvironmental, Social and GovernanceOur LeadersAnnual Report 2022 | REA Group Ltd Year in review CEO’s message The 2022 financial year was an outstanding year for REA Group. The strength of our product portfolio enabled us to fully capitalise on healthy market conditions to deliver an exceptional financial performance. I am incredibly proud to lead this business and of our team’s ability to continue to create outstanding value for our customers and consumers, while maintaining focus on our long-term strategic goals. Our consumers are the air we breathe; they power our marketplaces and drive the value we deliver our customers. In Australia, realestate.com.au is the number one address in property. In FY22 we delivered record audience numbers, expanding our leadership position to become the seventh largest online brand11 reaching 62% of the adult population12. Australians continue to turn to our brand as part of their everyday lives, with 12.7 million people visiting our site on average each month13. Over half of this audience use our site exclusively14, which means the only way to access this significant cohort is through realestate.com.au. Our large and highly engaged audience enhances the powerful lens we have on the property market and leveraging this unique data is a key part of our growth strategy. Our data enables the delivery of personalised realestate.com.au member experiences. Pleasingly, our focus on converting our audience into members resulted in a 25% year-on-year increase in monthly active members in FY22. We know members are three times more likely to act and result in a high-quality lead for our customers. Through understanding our members, we can connect them with the right content and experience, in the right place, at the right time, to drive their property journey forward. Our goal is to remain Australia’s first choice for digital property advertising solutions while helping our customers grow their businesses. Our focus on customer value saw the launch of Premiere+, our most comprehensive advertising product package for the Residential market. The customer response has been outstanding with strong uptake which positions us for further growth into FY23. We’re extremely proud of our exceptional customer service, which was supported by record customer sentiment ratings in FY22. realestate.com.au is also the number one destination for renters in Australia, and during the year we delivered on our objective to make the rental process simpler and more efficient for renters and property managers. 11 Nielsen Digital Media Ratings (Monthly Total), Jul 21 - Jun 22 (average rank), P2+, Digital (C/M) Text, All Categories, Unique Audience. 12 Nielsen Digital Media Ratings (Monthly Tagged), Jun 22, P18+, Digital (C/M), text, realestate.com.au, Active Reach %. 13 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 - Jun 22 (average), P2+, Digital (C/M), text, realestate.com.au, Unique Audience. 14 Nielsen Digital Content Planning, Jul 21 - May 22 (average), P2+, Digital C/M, text, Exclusive Reach, realestate.com.au and Domain. 10 REA Group Ltd | Annual Report 2022 At a time when rental markets present significant challenges for renters seeking a home, we were pleased to launch our enhanced realestate.com.au Rental Applications platform, featuring integrated renter profiles, and our new tenant verification product, Tenant Check. Both these products improved efficiency and security in the rental process and have achieved significant momentum. Three renter profiles are created every minute, demonstrating the high level of trust consumers have in our new platform, and our Tenant Check service grew sales 66% year on year, with a purchase every four minutes, as renters sought to optimise applications. Data underpins everything we do at REA, and we believe PropTrack can become Australia’s number one property data business. We continued to invest in technology and talent, resulting in new banking customers and 28% revenue growth in our data business. We also made significant progress towards our goal to have Australia’s most accurate property valuation model. In June we released AVM 3.0, which leverages more data sources than ever before and uses machine learning technology to value more properties at a higher level of accuracy. Innovation is in our DNA at REA and our new REAx business unit was established in late 2021 as a driver of transformative growth. The REAx team achieved an exciting milestone in March with the re-launch of property.com.au with 15 million searchable properties. Our aspiration is to build Australia’s number one property research site with the full picture on every property. We made significant headway towards our goal of becoming Australia’s leading mortgage broking business in FY22, with excellent progress in the integration of our Mortgage Choice and Smartline broker businesses. Unified under the Mortgage Choice brand, our broker network reached a milestone of 1,000+ brokers for the first time, and record results were achieved with submissions up 13% and settlements up 28% compared to the same period last year. Globally, REA India is on a clear pathway to become the number one digital property brand in India, and we believe we have the right strategy in place to deliver on this exciting ambition. We were delighted to see our flagship site, Housing.com, achieve record audience levels and secure the number one audience position in the country15. In addition to this key milestone, REA India continued to grow its market reach and product portfolio, with expansion into more tier two cities, the launch of commercial listings and the extension of the Housing Edge platform with new product offerings. We have made strong progress in India and are very excited about what’s to come. In Southeast Asia, we were delighted to see PropertyGuru commence trading on the New York Stock Exchange in March, and I was also pleased to join the board in October, representing REA Group. The business holds leadership positions in four key markets in the region16 and has an excellent platform for future growth. Driving change to deliver a more sustainable future is an important focus at REA, and we were pleased to improve our MSCI ESG rating to AA. We provide a summary of our ESG agenda in this Annual Report and share further detail in our 2022 Sustainability Report. Y e a r i n r e v e w i During the year we made changes to our organisational structure to simplify and better align with REA’s strategic objectives. These changes reflected the growing interdependence of our Consumer, Customer and Data marketplaces and the opportunity to fully leverage our scale and increasing connectivity across these markets. As a result, we announced a new combined Product & Audience Group, led by Melina Cruickshank as Chief Product & Audience Officer. We also welcomed Anthony Waldron to our Executive Leadership Team as CEO Financial Services, reflecting the increasing importance of our financial services business. As a result of the consolidation of Product & Marketing portfolios, Val Brown, Chief Consumer Product Officer, decided to leave the business after an illustrious career with REA. I would like to acknowledge and thank our talented Executive Leadership Team. Our leadership group has organised and motivated their teams to deliver outstanding results and contributed to building REA’s globally leading workplace culture. I was delighted to see REA recognised as a Great Place to Work in both Australia and India. It was very pleasing to be ranked fourth again in the large company category in Australia’s Best Workplaces List for 2022, the highest of any ASX-listed company. In a hotly contested talent market, this recognition contributes to REA retaining and attracting the best people. Finally, I would like to extend my sincere thanks to our people for their outstanding contribution during the year. It has been a delight spending more time together in our refreshed fit-for-purpose offices, having left lockdowns behind and now embracing our hybrid way of working. I would also like to thank REA’s Board of Directors for their ongoing counsel and support. REA enters the new financial year in an extremely strong position. Our growth momentum is backed by an unrivalled audience and an exciting product pipeline that will enable us to deliver exceptional value to our customers and consumers in FY23 and beyond. Owen Wilson Chief Executive Officer REA Group 15 Similarweb, average site visits Oct 21 – Jun 22 vs nearest competitor – excludes app. 16 SimilarWeb data, average 6 months to 31 Dec 21. Engagement Market Share defined as time spent on PropertyGuru website multiplied by the number of visits relative to comparable websites. 11 Year in reviewDirectors’ ReportFinancial Statements Remuneration ReportEnvironmental, Social and GovernanceOur LeadersAnnual Report 2022 | REA Group Ltd Year in review 87% employee engagement Our people and culture Our values set the foundation for our culture, and our purpose is what anchors teams across Australia and India to our strategy. Talented individuals and empowered teams are at the heart of REA. A great place to work Our people and culture are our competitive advantage and what differentiates us to ensure we are successful now and into the future building a next generation organisation. Our focus on culture ensures we are consciously nurturing and strategically designing an impactful employee experience. REA was officially certified as a Great Place to Work in 2022, for the second consecutive year. Known as the global authority on workplace culture, the Great Place to Work Best Workplaces List was announced in August 2022 with the Group ranking fourth for companies of more than 1,000 employees. Our people are proud to be part of REA, with 90% of engagement survey participants responding favourably to that question in our annual survey in October 202117. Pleasingly, our overall Australian engagement increased by 3% to 87%. Our commitment for change in tech REA joined the Tech Council of Australia (TCA) in October 2021. The TCA is a united voice of the country’s most successful technology companies and was formed to help shape Australia’s digital future. Technology is a major economic contributor, and key targets for the TCA include the creation of one million technology jobs by 2025 and contributing $250 billion to the economy by 2030. We are committed to generating technology jobs, and pathways into technology, and look forward to working with the TCA and its members on initiatives that support growth and investment in Australia’s technology sector. Entry to REA programs are designed to help graduates learn, grow and find their passion. Our Software Development and Engineering graduate program will mark a 10-year milestone in 2023. To expand and diversify our graduate program, this year we launched our inaugural Finance Graduate program and hired three design interns. 17 REA Group annual engagement survey, Oct 21. 12 REA Group Ltd | Annual Report 2022 Through our industry partnership with RMIT Online, REA subject matter experts have had the opportunity to inform RMIT Online Future Skills course content and design. We are also able to offer employees access to discounted short courses to help our people consolidate their knowledge and upskill. Impactful diversity and inclusion progress Maintaining a diverse and inclusive culture ensures REA remains innovative. This year, we partnered with Diversity Council Australia (DCA) to run our first Diversity and Inclusion Index to better understand the demographics of our people and their experiences of inclusion at work. We’re proud that our scores surpassed the two benchmarks – DCA membership organisations, and the Australian workforce – on every metric measured, and REA Group was recognised as an Inclusive Employer 2021-2022. This program of work has been integral in identifying where to focus our diversity and inclusion efforts moving forward and will be used to inform new initiatives, including partnering with Reconciliation Australia to develop a Reconciliation Action Plan in 2023. In November 2021, we announced an exciting new partnership with Circle In, a digital platform with access to support and resources for parents and caregivers. Circle In helps our people navigate every stage of the caregiving journey and complements our generous non-gender specific primary and secondary carer parental leave benefits. We continue to strive to close the gender gap in technology, investing in a dedicated resource to support diversity, equity and inclusion efforts within our technology teams. In 2021, we partnered with the TechDiversity Foundation to explore additional ways in which we can support under- represented groups, including piloting an inclusive behaviours program for our technology teams. Our Guide to Hybrid Working meant that I was able to move to regional Victoria and establish a new working rhythm that suited my role, my team and REA. I come into our Richmond office once a week, which is a great balance for me, as it means I can connect with my team and others in the office while making the most of focus work time from home. Chloe White Tech L&D Specialist Becoming a developer was my dream but I wasn’t sure how successful I was going to be without a university degree in Computer Science. The Springboard program helped me achieve this goal and I can safely say the choice to transition into a technical career was the right one for me. The wonderful support structure of the program ensured I transitioned seamlessly and never felt lost or stuck Leah Eramo Developer Our Springboard to Tech program recognises the opportunity and responsibility to reduce barriers for women transitioning into, or back into, the technology industry. It is a personalised program focused on hiring candidates who identify as female or non-binary into software development positions. Open to both internal and external candidates, we increased our intake in the program by 50% in 2022. This year we added a new category, fresh to tech, which supports women moving into a technical career for the first time. We partnered with Holberton School to further help out fresh to tech ‘Springboarders’ without previous technical experience. The Silicon Valley education start-up launched in Australia in late 2021, and two of our Springboarders joined the nine-month online program this year to efficiently gain practical software engineering skills before they participate in the Springboard to Tech program in 2023. REA is committed to retaining and attracting the brightest and best talent, and our diversity and inclusion programs continue to move the dial on improving the gender ratio in technology-based roles. In FY22, 31% of people in technology roles identified as female. Our future of work 2.0 Flexibility is important to our people and our pragmatic approach to a hybrid workplace model is based on the premise that all employees can enjoy a blend of office and virtual working. Following initial employee feedback and applying REA’s test and learn ethos, we launched our Guide to Hybrid Working 2.0 in November 2021. We recognised that for our people to connect and collaborate online and in the office, we needed to reimagine our physical and digital spaces. Our digital tools ensure we can support hybrid meetings with capabilities beyond recording and chat, while our office spaces support agile ways of working with collaboration spaces, breakout areas and focus rooms. Pleasingly, employee sentiment around hybrid working effectiveness has been measured at 91% in a company-wide culture check in, while results from our Great Place to Work survey showed 95% positive sentiment to our facilities contributing to a good working environment. Y e a r i n r e v e w i 13 Year in reviewDirectors’ ReportFinancial Statements Remuneration ReportEnvironmental, Social and GovernanceOur LeadersAnnual Report 2022 | REA Group Ltd Year in review 1414 Australian highlights In Australia, REA operates the leading residential and commercial property sites, realestate.com.au18 and realcommercial.com.au19, as well as a leading provider of property data services, PropTack. REA also operates the leading website dedicated to share property, Flatmates. com.au20, Mortgage Choice and property research site, property.com.au. Residential property market holds strong In FY22, core operating income increased by 23% to $1,115.6 million, driven largely by the outstanding result in the Australian Residential business which experienced record uptake of premium listings products. The Group also delivered excellent growth in its Property Data and Financial Services businesses. Australian Residential revenue increased 24% with a combination of 11% growth in new national listings, increased depth and Premiere penetration, a national price rise, and continued growth in add-on products driving the strong growth. Rent revenue benefited from increased depth penetration and product mix, and a price rise, but this was largely offset by a decline in rental listings due to lack of supply. Revenue from Commercial and Developer increased 3% with strong growth in Commercial revenue driven by depth penetration and price increases. This was partly offset by a decline in Developer revenue, which was impacted by a 21% decline in project launches for the year. 18 Nielsen Digital Media Ratings (Monthly Total), Jul 21 – Jun 22, P2+, Digital (C/M), text, Real Estate/Apartments subcategory, Unique Audience. 19 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 – Jun 22 (average), P2+, Digital (C/M), text, realcommercial.com.au vs commercialrealestate. com.au, Unique Audience. 20 SimilarWeb, Jul 21 - Jun 22, unique visitors to flatmates.com.au vs flatmatefinders.com.au. Excludes app. REA Group Ltd | Annual Report 2022 The Group achieved 9% growth in Media, Data and Other revenue for the year. This was largely due to a 28% increase in Data revenue. Media revenue was up YoY with the largest contributor, Developer display, flat, while programmatic revenue grew. Flatmates revenue declined marginally YoY. Financial Services core operating revenue increased 12% YoY on a pro- forma basis, assuming REA owned Mortgage Choice in the prior period. This revenue growth benefited from an increase in settlements, driven by continued broker growth, and increased productivity in a strong housing market, partly offset by higher broker payout rates. Investment in new technology and the integration of strategic acquisitions, aimed at improving the experience for customers and consumers, continued to strengthen the Group’s existing leadership positions throughout the year and accelerated strategic initiatives. realestate.com.au is Australia’s #1 address in property The millions of Australians visiting realestate.com.au each month power the Group’s marketplace and drive its customer value proposition. realestate.com.au remains the number one address in property in Australia, attracting 124.1 million visits each month on average on all platforms21 which equates to 3.36 times more visits than the nearest competitor each month on average22. Of the 12.7 million people who visit realestate.com.au 12.7m people visit realestate.com.au on average each month23 each month on average23, 6.7 million of these visitors use the site exclusively24, meaning realestate.com.au is the only avenue to access this significant cohort. Demonstrating Australians’ passion for property and the strength of demand throughout the year, average monthly buyer enquiries were at an all-time high, up 11% year on year and a record 13.2 million people visited realestate.com.au in October 202125. The realestate.com.au app remains Australia’s leading property app with an average of 59 million launches each month, up 7% YoY26. Australians continue to turn to realestate.com.au as part of their everyday lives. The brand is the seventh largest digital brand in the country in terms of audience27, reaching 62% of Australia’s adult population28. The unrivalled number of people turning to the Group’s platforms to buy, sell, rent or share property provides REA with the most comprehensive data-driven view of Australia’s property market. realcommercial.com.au is Australia’s leading commercial property site29. Throughout the year, the site achieved 2.65 million visits on average each month, up 1% YoY30. realcommercial. com.au also continues to be the leading commercial property app in Australia, with app launches up 10% YoY at a level 20.2 times higher than the nearest competitor31. Flatmates is the leading website dedicated to share property in Australia32. The pandemic impacted the share accommodation community, but with the opening of international and domestic borders, the Flatmates audience regained traction. In January, Flatmates welcomed 42,000 new members, the largest number of new monthly members since before the pandemic began. 21 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 - Jun 22 (average), P2+, Digital (C/M), text, realestate.com.au, Total Sessions. 22 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 - Jun 22 (average), P2+, Digital (C/M), text, realestate.com.au vs Domain, Total Sessions. 23 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 - Jun 22 (average), P2+, Digital (C/M), text, realestate.com.au, Unique Audience. 24 Nielsen Digital Content Planning, Jul 21 - May 22 (average), P2+, Digital C/M, text, Exclusive Reach, realestate.com.au and Domain. 25 Nielsen Digital Media Ratings (Monthly Tagged), Oct 21, P2+, Digital (C/M), text, realestate.com.au, Unique Audience. 26 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 - Jun 22 vs. Jul 20 - Jun 21 (average), P2+, Digital (C/M), text, realestate.com.au, App Launches. 27 Nielsen Digital Media Ratings (Monthly Total), Jul 21 - Jun 22 (average rank), P2+, Digital (C/M) Text, All Categories, Unique Audience. 28 Nielsen Digital Media Ratings (Monthly Tagged), Jun 22, P18+, Digital (C/M), text, realestate.com.au, Active Reach %. 29 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 – Jun 22 (average), P2+, Digital (C/M), text, realcommercial.com.au vs commercialrealestate.com.au, Unique Audience. 30 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 - Jun 22 vs. Jul 20 - Jun 21 (average), P2+, Digital (C/M), text, realcommercial.com.au, Total Sessions. 31 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 - Jun 22 vs. Jul 20 - Jun 21 (average), P2+, Digital (C/M), text, realcommercial.com.au vs commercialrealestate. com.au, App Launches. 32 SimilarWeb, Jul 21 - Jun 22, unique visitors to flatmates.com.au vs flatmatefinders.com.au. Excludes app. Y e a r i n r e v e w i 15 Year in reviewDirectors’ ReportFinancial Statements Remuneration ReportEnvironmental, Social and GovernanceOur LeadersAnnual Report 2022 | REA Group Ltd Year in review Australian highlights continued Personalised experiences driving rapid growth in loyal and active consumers The Group’s consumer strategy is centred around converting its powerful audience of engaged property seekers into active members. realestate.com. au is the lifelong property companion for Australians, adding unique experiences, value and efficiency to their property journey. Member profiles allow for the delivery of highly personalised consumer experiences. These unique experiences, underpinned by rich data, helped deliver a 25% YoY increase in monthly active members. Through understanding our members, REA can connect them with the right content, at the right time to drive their property journey forward. A number of enhancements were made to the membership offering throughout the year, accelerating the growth of this cohort. The Property Owner Dashboard experience leverages consumer behaviour data, property supply data, content, and financial calculators to assist owners in making decisions related to their property. Demonstrating this unique value, visits to the Property Owner Dashboard increased almost 200% YoY33. Our data shows that members are three times more likely to complete a high value action, such as tracking a property, and the number of owner tracked properties was up 51% YoY. Generating quality leads for customers with 54% increase in Seller Leads YoY Strong consumer engagement in data- driven experiences ultimately leads to high quality seller and landlord prospects for our customers and clients and our brokers. In FY22 we achieved a pleasing 54% YoY increase in seller leads delivered to customers and a 32% YoY increase in finance leads delivered to brokers. Australia’s leading rental marketplace realestate.com.au is the number one destination for renters in Australia, and throughout the year a number of enhancements were adopted to make renting simpler and more efficient. The rental application process plays a key role in the rent journey, and it was significantly enriched with the retirement of 1form, REA’s previous application platform, in June. The enhanced realestate.com.au Rental Applications offers a simplified process with more privacy for renters, and also streamlines Property Manager workflows. The new platform includes integrated realestate.com.au renter profiles which enable renters to efficiently submit applications for multiple properties. Consumers have a high level of trust in the new platform, with three renter profiles created every minute. realestate.com.au’s tenant verification offering, Tenant Check, was relaunched in January and was swiftly adopted by renters. Momentum behind Tenant Check continued into the final part of the year, with a 66% YoY increase in the number of renters purchasing the service in Q4. 1616 33 Adobe Analytics, internal data, Apr 22 – Jun 22 vs. Apr 21 – Jun 21. REA Group Ltd | Annual Report 2022 Y e a r i n r e v e w i 17 Driving quality customer leads as the first choice for digital property advertising REA’s integrated suite of products and services connects customers with Australia’s largest audience of buyers, sellers and renters. The goal is to remain Australia’s first choice for digital property advertising solutions while helping customers grow their businesses. A pleasing increase in Premiere depth was achieved throughout the year reflecting the superior value our advertising products provide customers and vendors. Supporting evolving customer needs and changing market conditions, Premiere+, REA’s most comprehensive advertising product package for the residential market, launched in March. The customer response and uptake of Premiere+ was outstanding, well surpassing the business’ expectations. The package is designed to meet the needs of customers in each phase of the property advertising process, including new pre-market and post- market features. Add-on product, Audience Maximiser, remained on a strong trajectory with a record year in FY22 and growth of over 50% YoY. This demonstrates the value customers place on our advertising products on both our platforms, and across social media. In March, we also launched Ignite to Developer customers, with self-service campaign reporting for Project Profiles and Developer Display. Developer customers embraced the platform with strong usage, retention, and positive feedback. Products and features in our Agency Marketplace received excellent uptake throughout the year. We saw a 13% YoY increase in monthly visits to our Agency Marketplace and a 41% increase in Agents collecting Ratings and Reviews which helps our customers build their brand and generate more leads. Our suite of Agency Services provides customers with leading digital services aimed at streamlining their workflow. At the heart of the Agency Services strategy is the customer self-service platform Ignite. Feature enhancements and the migration of rental applications to the Ignite platform resulted in strong growth, with a 186% YoY increase in monthly active users. The Connect suite of products brings together tools and insights from realestate.com.au, and industry- leading digital platform Realtair. Further value was added to the Connect offering throughout the year including the addition in November of market insights, which provides agents with unique supply and demand data to assist with their marketing. In March, the value of Connect was extended to Property Managers, with the opportunity for these customers to leverage the benefits of the product suite, which includes increased brand exposure across realestate.com.au, tools to instantly build professional, on-brand digital presentations to pitch, and the ability to secure a management agreement on the spot with digital signing. Connect achieved a pleasing 147% increase in usage in the second half of the year. Year in reviewDirectors’ ReportFinancial Statements Remuneration ReportEnvironmental, Social and GovernanceOur LeadersAnnual Report 2022 | REA Group Ltd Year in review Australian highlights continued Prosper launched with a series of expert webinars led by our wellbeing partners at Benny Button and hosts a growing library of content and on- demand learning modules to support property managers in their day-to-day lives. Prosper will expand in FY23 with new content and will also be offered to a wider group of customers through our Advantage program. Advantage is available with every realestate.com.au and realcommercial. com.au subscription and provides value to our customers through exclusive events, professional development opportunities, industry sponsorships and community grants. Advantage initiatives are free of charge and include insight series, thought leadership programs and exclusive event and hospitality experiences. Unique data underpins the business The large realestate.com.au audience provides REA with the most comprehensive data-driven lens on the Australian property market. This unique data delivers direct revenue growth through the PropTrack business while also powering the growth and innovation of consumer experiences and customer products. PropTrack made excellent progress towards the goal of becoming Australia’s number one property data business throughout the year. Visits to the PropTrack Insights page on realestate.com.au increased 210% YoY in Q434, demonstrating the value consumers place in our exclusive content and market insights delivered by our expert team of economists. During the year, significant progress was made towards the goal of having Australia’s most accurate property valuation model. AVM 3.0 was released in June and leverages more data sources than ever before and utilises innovative machine learning technology to value more properties at a higher level of accuracy. 34 Adobe Analytics & Apple News, Visits and Pageviews, Apr-Jun 22 vs Apr-Jun 21. In-person customer events returned, including the Annual REA Awards for Excellence. Industry collaboration maintains momentum REA continues to strengthen collaboration with industry partners, supporting their efforts in advocacy, advice and training programs. A united industry can more effectively influence positive change and we are focused on maintaining meaningful relationships with the peak bodies that represent our customers. We are proud to recognise and celebrate the real estate industry through our ongoing partnership with the Real Estate Institute of Australia (REIA) and to sponsor the national body’s Strategic Policy Forum and annual REIA Awards for Excellence in 2022. Customer well-being focus Driving positive industry change in partnership with our customers has been one of REA’s key goals over the past 12 months. Following our Rent Industry Leaders Forum in 2021, we understood from our customers that property managers were facing overwhelming expectations and workload demands, which was resulting in elevated levels of burn out and resignation. Responding to this significant challenge, REA launched a new wellbeing platform ‘Prosper’ to actively help our customers support their people and improve mental health outcomes across the industry. Prosper is an online wellbeing centre of excellence that provides content from leading property management and mental health experts to equip our customers with the skills required to navigate these particularly challenging times. 18 REA Group Ltd | Annual Report 2022 1,000+ brokers are part of the Mortgage Choice network The AVM enhancements helped drive the expansion of PropTrack’s relationship with major banks as we accelerate the digital transformation of the mortgage valuation process. Pleasingly, PropTrack achieved strong revenue growth, up 28% YoY, and excellent customer satisfaction results. Financial Services accelerates growth A fundamental pillar of REA’s growth strategy is to create next generation marketplaces through adjacencies, and financial services is key to this strategy. Record results were achieved in FY22, with submissions up 13% YoY and settlements up 28% YoY. This pleasing growth was primarily driven by broker recruitment, productivity improvements and favourable market conditions. Home finance is an integral part of the property purchase journey and REA is building a destination for consumers to easily find and finance property. In October we announced that the combined Mortgage Choice and Smartline broking businesses would come together under the Mortgage Choice brand. Integration of the two businesses is set for completion in Q3 FY23. Our broking business achieved a milestone with 154 new brokers joining the business in FY22, taking the network above 1,000 brokers for the first time. The goal is to build Mortgage Choice to be the clear number one branded mortgage broking franchise in the market. A refreshed Mortgage Choice brand was taken to market in October and was supported by a national media campaign highlighting the message ‘You’re never a loan’. Leveraging Simpology technology, we delivered an enhanced home loan comparison experience and were also pleased to establish a new direct-to-lender digital lending partnership with Ubank. The strength of Mortgage Choice, combined with the Group’s digital expertise, unmatched audience of property seekers, and unique data and insights, provides an excellent platform of long-term growth opportunities for our Financial Services business. REAx enabling deeper innovation In late 2021 REA established REAx, a new business unit focusing solely on innovation and emerging models. REAx is designed to complement the existing core business. In a significant milestone, the team launched the new look property.com.au in March with the ambition of building Australia’s leading property research destination. The site’s aim is to provide the full picture on every property in Australia, whether it is for sale or not. With 15 million searchable addresses across Australia, the search experience leads to detailed property pages which include photos, historical timeline, detailed attributes, value estimates, history, and similar properties for sale, for rent and off market. The site is designed to empower buyers and sellers while delivering opportunities for customers to further build their brand and connect with consumers. Y e a r i n r e v e w i 19 Year in reviewDirectors’ ReportFinancial Statements Remuneration ReportEnvironmental, Social and GovernanceOur LeadersAnnual Report 2022 | REA Group Ltd Year in review Global highlights REA’s global presence provides exposure to some of the fastest growing and most exciting international markets. REA India is the number one property portal in India by audience Elara Technologies rebranded to REA India in September 2021. REA India operates the country’s leading digital real estate portal, Housing.com, as well as PropTiger.com and Makaan.com. The Group first invested in REA India in 2007, it became a majority shareholder in 2020, and increased its shareholding to 73.3% during 2022. REA India delivered an impressive performance for the year with pro forma revenue growth of 92% to $53.9 million, assuming it was owned for the full prior period35. REA India’s significant increase in revenue was driven by the strength in its flagship site Housing.com’s property advertising, which also benefited from strong customer growth. In FY22, Housing.com secured and maintained its position as the number one property portal in the country, achieving record audience levels36. The site recorded 14.2 million average monthly visits, an increase of 50% YoY37, and a new record was reached in May with 16.7 million visits38. Investment in search engine optimisation (SEO), an improved mobile experience and targeted marketing helped drive the audience leadership position. Housing.com’s effective marketing campaigns continued to deliver benefits, with the brand achieving great progress in spontaneous brand awareness. Brand awareness increased in the past two years from 53% to 74%39. Growing and diversifying its marketplace, while leveraging India’s national marketing platforms, Housing.com operations expanded into additional tier- two cities throughout the year with a hybrid model of in-person sales, tele-sales and self-service. The depth of the product mix also extended to include the launch of commercial property listings in 12 major cities across India. #1 Housing.com achieved record visits becoming the #1 property portal in India in terms of audience36 Adjacency products on the Housing Edge platform expanded during the year and contributed to the excellent result. Despite being a lower margin offering, Housing Edge supports cross sell and strong customer retention. The platform offers digital solutions, for homeowners and tenants, designed to simplify the process of moving home. It includes multiple services such as rent agreements, tenant verification and Rent Pay, which was particularly strong. REA India has significant momentum and made excellent progress in FY22 achieving key milestones that further demonstrate a compelling runway of growth and opportunity ahead. 35 Growth rate is based on constant currency. 36 Similarweb, average site visits Oct 21 – Jun 22 vs nearest competitor – excludes app. 37 Similarweb, average site visits Jul 21 – Jun 22 and compared to Jul 20 - Jun 21 – excludes app. 38 Similarweb, site visits May 22 – excludes app. 39 IPSOS Brand track study May 2022. 20 REA Group Ltd | Annual Report 2022 Y e a r i n r e v e w i 21 PropertyGuru providing exposure to large and growing markets In August 2021, the Group completed the sale of its Malaysia and Thailand entities (which operated iProperty.com.my and Brickz.my in Malaysia and thinkofliving.com and Prakard.com in Thailand) to the leading South-east Asia based proptech company, PropertyGuru. In exchange, the Group received an 18% equity interest (16.6% diluted) of the combined PropertyGuru Group. REA Group CEO, Owen Wilson, was appointed to the board of PropertyGuru in September 2021. An exciting milestone was achieved in March when PropertyGuru began trading on the New York Stock Exchange (NYSE). REA Group contributed US$52 million to the PIPE capital raising associated with the listing and the Group now holds a 17.5% undiluted interest in PropertyGuru. Southeast Asia is one of the fastest growing regions globally, and is predicted to become the fourth largest economy by 2030 in terms of combined GDP. PropertyGuru is extremely well positioned in this region and holds the market leadership position in the four key markets of Singapore, Vietnam, Malaysia and Thailand40. In FY22, the business delivered robust revenue growth driven by improved yield and high utilisation of premium products, along with the inclusion of REA’s former Malaysia and Thailand assets. As a strategic shareholder, REA will participate in the next phase of growth for the PropertyGuru business. The impressive relative engagement market share held in Singapore, Malaysia, Vietnam and Thailand places PropertyGuru in the perfect position to continue to transform these markets. Move delivers growth in challenging market In North America REA has a 20% investment in Move, Inc. Move operates realtor.com®, which is a leading property portal in the United States, the world’s largest real estate market. Move delivered revenue growth of 11% during the year41 driven by the referral model and the traditional lead generation product. This solid result also reflected a focus on yield enhancement and diversification of Move’s revenue streams including seller, rentals and new homes. This result was achieved despite very strong prior year comparables and a challenging macroeconomic environment in the United States. 40 PropertyGuru’s Form 6-K stated in Singapore Dollars for the three-month period ended 31 March 2022. (2) SimilarWeb data, average 6 months to 31 Dec 21. Engagement Market Share defined as time spent on PropertyGuru website multiplied by the number of visits relative to comparable websites. 41 NewsCorp’s Form 10-K stated in US Dollars for the twelve-month period ended 30 June 2022. Year in reviewDirectors’ ReportFinancial Statements Remuneration ReportEnvironmental, Social and GovernanceOur LeadersAnnual Report 2022 | REA Group Ltd Environment, Social and Governance Supporting a sustainable future Alongside REA’s growth agenda is a commitment to a sustainable future and driving positive change. Because we care REA continued to progress its Environmental, Social and Governance (ESG) goals in FY22. We are proud that our efforts have been recognised with an increased ESG rating to AA through Morgan Stanley Capital International (MSCI). MSCI ESG ratings are designed to measure a company’s resilience to long- term, industry material ESG risks and our improved rating classifies REA as a leader among interactive media and service industry companies. Sustainability Report 2022 Changing the way the world experiences property Our dedicated Sustainability Report, published on rea-group. com in September 2022, contains a detailed overview of the Group’s ESG programs, policies and initiatives, alongside our key focus areas for the year ahead. 22 REA Group Ltd | Annual Report 2022 a n d G o v e r n a n c e E n v i r o n m e n t a l , S o c i a l 23 $211,315 in combined employee and company- matched donations through our opt-in Matched Payroll Giving program $159,000 Advantage Community Grants provided to customers to support local causes $37,429 distributed to community organisations through employee community grants Recognised as an Inclusive Employer 2021-2022 by Diversity Council Australia Improved MSCI ESG rating to AA in FY22 Recognised as Australia’s 4th best workplace by Great Place to Work for the second consecutive year Year in reviewDirectors’ ReportFinancial Statements Remuneration ReportEnvironmental, Social and GovernanceOur LeadersAnnual Report 2022 | REA Group Ltd Environment, Social and Governance Supporting a sustainable future Environment We strengthened our commitment to environmental issues with an expanded focus on our environment pillar in 2022. We reduced our energy consumption with the installation of solar panels at our headquarters in Richmond, Melbourne and 100% Green Energy has been implemented across most REA locations in Australia. Green Energy is accredited under the National Green Power Accreditation Program. At the time of publishing this report, REA was in the process of finalising its Climate Active carbon neutral certification requirements and we will provide an update on the certification process on rea-group.com in the coming months. Social REA was recognised by Diversity Council Australia as an Inclusive Employer 2021-2022 after scoring above the 90th percentile on all factors in our inaugural Diversity and Inclusion Index. This program of work was integral in identifying where to focus our diversity and inclusion efforts and will be used to inform new initiatives, including partnering with Reconciliation Australia to start the development of our first Reconciliation Action Plan (RAP) in 2023. The RAP will see REA embed the principles and purpose of reconciliation in the way we function, engage with our employees and interact with the community and other organisations. We remain passionate about our purpose to change the way the world experiences property, including for those at risk of, or currently experiencing, homelessness. It is our belief that everyone deserves a safe place to sleep, every night, which is why we partner with experienced organisations to ensure our financial and in-kind support is directed to areas with the most need. In February this year, we acknowledged seven years of partnership with Launch Housing. Launch Housing’s National Rapid Rehousing Fund has provided financial assistance to more than 5,286 women and children since its inception. We also continued our longstanding partnerships with Orange Sky Australia and The Big Issue. Our Because We Care program supports and empowers employees to give back to local grassroots organisations and causes close to their hearts. We do this through our matched payroll giving, volunteer leave, employee community grants, and a community café in REA’s Melbourne office. Governance REA recognises that being ethical, transparent, and accountable is essential and supports the interests of our shareholders, employees, customers, consumers and the broader community. The Governance section within the FY22 Sustainability Report details our approach to governance, including ethics and integrity, risk management, cyber security, innovation, responsible marketing, sustainable procurement, and human rights and labour standards. 2424 REA Group Ltd | Annual Report 2022 In FY22, REA undertook a gap analysis across the four pillars of governance, risk management, strategy, and metrics and targets, to establish a roadmap in respect of the Task Force on Climate Related Financial Disclosures (TCFD) recommendations. The TCFD provides a consistent framework for reporting on both physical and transitional climate related risks and opportunities, in a way that is well recognised. In line with TCFD governance recommendations, the remit of the Executive Risk Committee (ERC) has been expanded to include climate related risks and opportunities to reflect its responsibility for keeping the Board (and Board Committees as appropriate) informed on climate change related risks and opportunities from FY23. REA’s management of climate change related responsibilities is reflected in REA’s: Board Charter; Audit, Risk and Compliance Committee (ARCC) Charter; Human Resources Committee (HRC) Charter; and Climate Change Policy. REA’s Employee Community Grants program has allowed me to support my local fire station, the Chirnside Park Fire Brigade Country Fire Authority (CPFB). I’m thrilled REA’s contribution has enabled the CPFB to purchase a new marquee, which will be used to deliver safety education messaging to the community and for safe training for CFA members. Natalie Thresher Customer Success Consultant Carbonauts is an organisation that helps people create actionable change to live more sustainably. Being from Tassie, I grew up with a huge focus on the environment and how we can minimise our carbon footprint. I was lucky enough to participate in the Carbonauts course and found that when it comes to sustainability, the learning never stops! I really appreciated how Carbonauts made the course actionable, interactive and demonstrated that even small changes can make a big difference. The Carbonauts course is a brilliant example of how REA supports its employees’ passions but also cares about sustainability. Claudia Conley Associate Product Manager, Community a n d G o v e r n a n c e E n v i r o n m e n t a l , S o c i a l 25 Year in reviewDirectors’ ReportFinancial Statements Remuneration ReportEnvironmental, Social and GovernanceOur LeadersAnnual Report 2022 | REA Group Ltd Our Leaders Executive Leadership Team Owen Wilson Chief Executive Officer (CEO) Owen Wilson is responsible for driving the Group’s growth, operations and global investments. With more than 30 years’ experience working across the information technology, recruitment and banking industries, Owen is a strategic leader who is passionate about building high performing teams and creating personalised experiences to help change the way the world experiences property. Prior to being appointed CEO, Owen was REA Group’s Chief Financial Officer for four years and looked after all aspects of the Group’s finance portfolio including strategy, M&A and operations, as well as REA Group’s Financial Services businesses. Previously, Owen was Chief Financial Officer and Company Secretary of Chandler MacLeod Group. He has previously held positions with ANZ and KPMG across Australia, Asia and the UK. During his 15 years at ANZ, his roles included Chief Operating Officer of ANZ’s Institutional and Investment Bank and Managing Director Retail Banking and International Partnerships Asia. Owen is a Director of the Hawthorn Football Club and PropertyGuru Group Limited. Owen holds a Bachelor of Commerce in Accounting and Computer Science from Deakin University. Janelle Hopkins Chief Financial Officer Janelle Hopkins is responsible for all aspects of the Group’s finance and business services portfolio and global investments. Her portfolio includes finance, risk and assurance, tax, corporate development, property and procurement, corporate communications, and investor relations. Janelle is an accomplished executive with more than 25 years’ experience. She joined REA Group from Australia Post, where she was the Group Chief Financial Officer. Prior to Australia Post, Janelle held a number of senior finance roles at National Australia Bank including financial controllership of the Australian region, MLC and strategic transformation roles within the Wholesale division. She started her career with professional services firm Deloitte Touche Tohmatsu, where she developed her passion for leadership, business transformation and growth. Janelle is a graduate of the Australian Institute of Company Directors. She holds a Master of Business Administration from the Australian Graduate School of Management, and a Bachelor of Commerce from Melbourne University. She is a member of Chief Executive Women, and Director and Immediate past Chair of G100. Henry Ruiz Chief Strategy Officer and Chief Executive Officer REAx Henry Ruiz is responsible for REA Group’s strategy and the REAx business – which is focussed on transformational concepts to drive future growth. He has played a central role in driving the digital strategy for REA Group since joining the company in 2009 as Chief Product Officer. He has held various roles across the company including Chief Digital Officer, CEO – Asia and Chief Strategy and Customer Product Officer. Henry is currently responsible for driving REA Group’s long-term growth strategy across Australia and globally; as well as driving property.com.au to become the number one property research site and other market shaping offerings across REA. Henry has more than 20 years of digital industry experience gained in leadership roles across the globe at companies including Local Matters in the USA and Asia Pacific, World Directories in Europe across five countries and Sensis in Australia. Henry holds a Master of Applied Psychology from the Royal Melbourne Institute of Technology; a Bachelor of Behavioural Science (Honours) from Latrobe University; a certificate in Strategy, Disruption and Innovation from Harvard University. He is a member of the Australian Institute of Company Directors. Tamara Kayser General Counsel and Company Secretary Tamara Kayser is responsible for the company’s global legal and secretariat function. Tamara is a senior corporate lawyer with significant experience across a wide range of areas including mergers and acquisitions, corporate governance and regulatory affairs. Prior to joining REA, she held the position of Group General Counsel at Incitec Pivot Limited. Prior to this, she practised as a lawyer at King & Wood Mallesons in Australia and Linklaters in London. She holds a Master of Laws, a Bachelor of Laws with Honours, and a Bachelor of Commerce. Tamara is member of the Legal 500 GC Powerlist Australia and New Zealand, which recognises Corporate Counsels who are driving the legal business forward. She is also a graduate member of the Australian Institute of Company Directors. Melina Cruickshank Chief Product and Audience Officer Melina Cruickshank is responsible for leading the Consumer and Customer Product teams as well as the Marketing and PropTrack divisions for the Group. With more than 20 years’ experience in Australia and the UK, Melina’s background covers product management and brand marketing, working primarily on large consumer prime digital businesses. Melina joined REA Group from Domain, where she was Chief Marketing Officer. Prior to this, she was Group Director, Life Media at Fairfax leading a multi-disciplinary product, marketing and editorial function. Her work experience in London includes working for e-commerce start up MoonPig and Advertising agency View Communications. Melina holds a BA (Hons) from Monash University, a Grad Diploma from Birkbeck University of London and has completed an Executive Leadership Program with Oxford University. She is also a graduate member of the Australian Institute of Company Directors. 26 REA Group Ltd | Annual Report 2022 Mary Lemonis Chief People and Sustainability Officer Mary Lemonis is responsible for the Group’s people strategy across its global network. She leads teams across business partnering, talent acquisition, remuneration, organisation development, human resources operations, employee communication, community partnerships and sustainability. With more than 20 years’ experience in human resources, Mary is passionate about realising enterprise value and growth by creating an exceptional employee experience. Mary joined REA from Campbell Arnott’s where she was the Vice President – Human Resources for Asia Pacific for eight years and worked in a variety of senior HR roles with Campbell Soup Company both in Australia and the US. Mary holds a Bachelor of Manufacturing Management from The University of Technology Sydney and is a founding member of the International Women’s Forum Australia. Kul Singh Chief Customer Officer Chris Venter Chief Technology Officer Kul Singh is responsible for all aspects of Customer across REA Group Australia, including sales teams supporting Residential, Developers, Commercial and Media customer segments. In this role, Kul’s focus is on ensuring the delivery of innovative products and solutions that align with customers’ business objectives and deliver long term value. Kul joined REA Group in 2015, assuming a number of leadership roles across Marketing, International and Customer portfolios during this time. Prior to this he held senior sales, marketing and strategy positions at GE Capital and GlaxoSmithKline. Kul holds a Masters in Public Health from Melbourne University, a Bachelor of Medical Science and Marketing from La Trobe University and is a graduate member of the Australian Institute of Company Directors. Chris Venter is responsible for leading REA Group’s technology strategy and providing the platforms underpinning REA’s products, services, and operations. Chris is a passionate technologist who is focused on building a talented, engaged and motivated engineering organisation. He loves creating solutions that make it easy for people to experience the world, whilst maintaining the philosophy to start with the customer and work backwards to find the right technology to enable the best customer experience. Chris has over 27 years’ experience within the IT industry ranging from professional services at Accenture and Deloitte to start-ups and large software companies such as Oracle. Prior to joining REA, he held various senior positions at ANZ leading their agile transformation and Digital portfolios. Chris holds a Bachelor of Information Technology from The University of Sydney and provides strategic guidance to the Computer Information Systems department within Melbourne School of Engineering at The University of Melbourne. Anthony Waldron Chief Executive Officer Financial Services Anthony Waldron is REA Group’s CEO Financial Services and CEO Mortgage Choice. He is responsible for making it easy for property seekers to find and finance property – whether via digital channels or our network of more than 1,000 mortgage brokers across the country. Anthony joined REA in October 2021 and has over 25 years’ experience across financial services and business management. He previously spent six years as Executive General Manager, Broker Partnerships at NAB – responsible for the bank’s presence in the Australian mortgage and finance broking market and has held other senior positions across the finance sector. He has a reputation for leading positive strategic change, building inclusive and high-performing teams, and growing sustainable businesses. Anthony has a graduate diploma in Applied Finance and Investments and a Bachelor of Business, Finance and Economics from The University of Technology Sydney. O u r L e a d e r s 27 Year in reviewDirectors’ ReportFinancial Statements Remuneration ReportEnvironmental, Social and GovernanceOur LeadersAnnual Report 2022 | REA Group Ltd Our Leaders Board of Directors Nick Dowling BAcc, GradDipAppFin Independent non-executive Director Appointed 9 May 2018. Age 46. Skills and experience: Mr Dowling is Chief Executive Officer of the Jellis Craig Group, a leading real estate business based in Melbourne, Australia. He assumed the role in June 2011 and is responsible for overseeing the growth, risk management, and long-term strategic direction of the group. Prior to this, Mr Dowling was the Head of Real Estate, Business Banking at Macquarie Bank Limited. He commenced his career with National Australia Bank across various divisions of the bank. Directorships of listed entities, current and recent (last three years): n/a Board Committee membership: • Chair of the Human Resources Committee. Tracey Fellows BEc Non-executive Director Appointed Executive Director and Chief Executive Officer 20 August 2014 until 25 January 2019, before becoming a non-executive Director on 26 January 2019. Age 57. Independent: No – Nominee Director of News Corp Australia. Skills and experience: Ms Fellows is a digital media executive with extensive experience in real estate, technology and communications across Australian and international markets. Ms Fellows is President of Global Digital Real Estate for News Corp, responsible for driving the strategy and growth of its digital real estate interests. Ms Fellows was previously the Chief Executive Officer of REA Group where she oversaw the rapid expansion of the digital real estate business in Australia and Asia, as well as leading the company’s investments in India and North America. Directorships of listed entities, current and recent (last three years): • Director of Hemnet Group AB (since November 2020) Board Committee membership: • Ms Fellows attends all Human Resources Committee meetings at the invitation of the Board/Committee. Owen Wilson BCom, ACA, GAICD Executive Director and Chief Executive Officer Appointed 7 January 2019. Chief Financial Officer from 3 September 2014 until 6 January 2019. Age 58. Skills and experience: As CEO of REA Group, Mr Wilson is responsible for driving the Company’s growth, operations and global investments. With more than 30 years’ experience working across the information technology, recruitment and banking industries, Mr Wilson is a strategic leader who is passionate about building high performing teams and creating personalised experiences to help change the way the world experiences property. Prior to being appointed CEO, Mr Wilson was REA Group’s Chief Financial Officer for four years and looked after all aspects of the Group’s finance portfolio including strategy, M&A and operations, as well as REA Group’s Financial Services businesses. Previously, Mr Wilson was Chief Financial Officer and Company Secretary of Chandler MacLeod Group. He has previously held positions with ANZ and KPMG across Australia, Asia and the UK. During his 15 years at ANZ, his roles included Chief Operating Officer of ANZ’s Institutional and Investment Bank and Managing Director Retail Banking and International Partnerships Asia. Directorships of listed entities, current and recent (last three years): • PropertyGuru Group Limited (listed since March 2022) Board Committee membership: • Mr Wilson attends all Audit, Risk & Compliance Committee and Human Resources Committee meetings at the invitation of the Board/ Committees. Hamish McLennan Non-executive Director Appointed 21 February 2012 and Chairman since 10 April 2012. Age 56. Independent: No – Nominee Director of News Corp Australia. Skills and experience: Mr McLennan is an experienced media and marketing industry executive. He was Executive Chairman and Chief Executive Officer of Ten Network Holdings until July 2015 and, before that, Executive Vice President, Office of the Chairman, at News Corp. Previously, Mr McLennan was Global Chairman and CEO of Young & Rubicam, part of WPP, one of the world’s largest communications services group. Directorships of listed entities, current and recent (last three years): • Chairman of HT&E Limited (since October 2018) Chairman of Magellan Financial Group (joined March 2016, Chairman since February 2022) Director of Scientific Games Corp (since November 2020) • • Board Committee membership: Chairman of the Board. • 28 REA Group Ltd | Annual Report 2022 Richard J Freudenstein BEc, LLB (Hons) Non-executive Director Appointed 21 November 2006 (Chairman from 2007 to 2012). Age 57. Independent: No – Nominee Director of News Corp Australia. Skills and experience: Mr Freudenstein has extensive experience as a media executive in Australian and international markets. He was Chief Executive Officer of Foxtel from 2011 to 2016, and prior to that was CEO of News Digital Media and The Australian newspaper and the Chief Operating Officer of British Sky Broadcasting. Directorships of listed entities, current and recent (last three years): • Director of Coles Group Limited (since November 2018) Chairman of Appen Limited (joined August 2021, Chairman since October 2021) Director Astro Malaysia Holdings Berhad (from September 2016 to August 2019) • • Board Committee membership: • Member of the Audit, Risk & Compliance Committee • Member of the Human Resources Committee. Alternate Director: Marygrace DeGrazio (age 46) was appointed an Alternate Director for Richard J Freudenstein on 5 May 2020. Ms DeGrazio has not attended any meetings or exercised any powers in that capacity since that time. Ms DeGrazio is currently the Senior Vice President, Global Financial Operations at News Corp responsible for global accounting and financial reporting. Prior to joining News Corp, she spent 15 years in the audit practice of PricewaterhouseCoopers servicing entertainment and media clients. Ms DeGrazio holds a Masters of Business Administration and is a Certified Public Accountant. Michael Miller B.A.Sc, Communication and Media Non-executive Director Appointed 12 November 2015. Age 53. Independent: No – Nominee Director of News Corp Australia. Skills and experience: Mr Miller is Executive Chairman Australasia of News Corp Australia, a role he has held since November 2015. He has over 25 years’ experience working in senior executive roles in the media industry, most recently as the CEO of APN News and Media (now HT&E). Mr Miller was previously the Regional Director for News Limited in New South Wales, the Managing Director of Advertiser News Media in South Australia, and News Limited’s Group Marketing Director. Directorships of listed entities, current and recent (last three years): n/a Board Committee membership: n/a Jennifer Lambert BBus, MEc, CA, FAICD Independent non-executive Director Appointed 1 December 2020. Age 55. Skills and experience: Ms Lambert has extensive business and leadership experience at the senior executive and board level with more than 25 years of financial management and accounting experience, including over 15 years specialising in the property industry. Ms Lambert was CFO at Valad then 151 Property for 13 years, and prior to this was a director at PwC specialising in audit, capital raisings and acquisitions and disposals. Directorships of listed entities, current and recent (last three years): • Director of BlueScope Steel Limited (since September 2017) Director of NEXTDC Limited (since October 2019) • Board Committee membership: Chair of the Audit, Risk & • Compliance Committee • Member of the Human Resources Committee. Kelly Bayer Rosmarin Independent non-executive Director Appointed 1 January 2022. Age 45. Skills and experience: Ms Bayer Rosmarin is CEO of Optus and Consumer Australia. She has experience in banking, risk management and regulated markets. Prior to joining Optus, Ms Bayer Rosmarin spent 14 years with Commonwealth Bank of Australia where she held several senior positions, most recently, as Group Executive of Institutional Banking and Markets. Ms Bayer Rosmarin holds a bachelor’s degree in Industrial Engineering and Engineering Management and a Master of Science in Management Science and Industrial Engineering from Stanford University. Directorships of listed entities, current and recent (last three years): • Director of Airtel Africa plc (since October 2020) Director of Openpay Group Ltd (from December 2018 – January 2022) • Board Committee membership: • Member of the Audit, Risk & Compliance Committee. O u r L e a d e r s 29 Year in reviewDirectors’ ReportFinancial Statements Remuneration ReportEnvironmental, Social and GovernanceOur LeadersAnnual Report 2022 | REA Group Ltd Directors’ Report Directors’ Report The Directors present their report together with the Financial Statements of the consolidated entity (the ‘Group’ or ‘REA’), being REA Group Ltd (the ‘Company’) and its controlled entities, for the year ended 30 June 2022 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: Director Hamish McLennan Owen Wilson Nick Dowling Tracey Fellows Richard J Freudenstein Michael Miller Jennifer Lambert Kelly Bayer Rosmarin (appointed 1 January 2022) Kathleen Conlon (retired 11 November 2021) Column A: number of meetings held while a member. Column B: number of meetings attended. Board Meetings1 Audit, Risk & Compliance Committee2 Human Resources Committee2 A 11 11 11 11 11 11 11 6 4 B 11 11 11 103 11 11 11 53 4 A – – – – 5 – 5 3 2 B 5* 4* 3* 3* 5 3* 5 3 2 A 2 – 7 – 7 – 7 – 2 B 7* 7* 7 6* 7 – 7 – 2 1. From time to time the Board also establishes ad hoc committees to support the Board in carrying out its responsibilities. During the 2022 financial year, the Board established several subcommittees to oversee various matters, including M&A proposals. Membership of these subcommittees varied. A total of 9 subcommittee meetings were held during the year. 2. Committee meetings are open to all Directors to attend. Where a Director has attended a meeting of a Committee of which he or she was not a member, this is indicated by *. The exception to this is Hamish McLennan who ceased being a member of the Human Resources Committee part-way through the year, so the * applies to only 5 of the 7 meetings he attended. 3. The one meeting not attended by each director was an unscheduled Board meeting. Principal activities REA provides property and property-related services on websites and mobile apps across Australia and India. The purpose of the Group is to ‘change the way the world experiences property’. It fulfils this purpose by: • Providing digital tools, information and data for people interested in property. REA refers to those who use these services as ‘consumers’ • Helping real estate agents, developers, property-related businesses and advertisers promote their services. REA refers to those who use these services as ‘customers’ • Helping consumers finance their property needs through a multi-channel digital and broker proposition. REA’s growth strategy is centred around four core objectives: Providing our customers with access to the largest and most engaged audience of property seekers • • Delivering unparalleled customer value • Providing the richest content, data and insights to empower our customers and consumers throughout their property journey • Creating the next generation of property and property-related marketplaces. Further details are set out in the business strategies and future developments section of this Directors’ Report. 30 REA Group Ltd | Annual Report 2022 Operating and financial review Reconciliation of results from core operations A summary of financial results from core operations for the year ended 30 June 2022 is set out below. For the purposes of this report, core operations are defined as the reported results set out in the financial statements adjusted for significant non-recurring items such as restructuring costs, gain/loss on acquisitions, disposals and closure of subsidiaries, associates and operations, associate IPO and restructuring costs, and integration costs. The prior year comparative also includes a historic tax provision (historic indirect tax provision reflects potential retrospective changes to interpretation of tax law). A reconciliation of results from core operations and non-IFRS (International Financial Reporting Standards) measures compared with the reported results in the financial statements on page 59 is set out below. The following non-IFRS measures have not been audited but have been extracted from the audited financial statements. Core and reported results Core operating income Trail commission integration adjustment Reported operating income Segment EBITDA from core operations (excluding share of gains and losses of associates)* Share of (losses)/gains of associates Associate IPO and restructuring costs Gain on associate disposals and transaction costs EBITDA from core operations* Restructure costs Net gain/(loss) on acquisitions, disposals and closure of subsidiaries, associates and operations Associate IPO and restructuring costs Integration costs (including trail commission adjustment) Historic tax provision Reported EBITDA* Net profit from core operations attributable to owners of parent Restructure costs Net gain on acquisitions, disposals and closure of subsidiaries, associates and operations Associate IPO and restructuring costs Integration costs (including trail commission adjustment) Historic tax provision 2022 $M 1,169.5 (9.3) 1,160.2 670.5 (21.9) 24.9 – 673.5 (3.1) 22.0 (24.9) (19.6) – 647.9 407.5 (2.1) 21.9 (24.9) (17.6) – 2021 $M 927.8 – 927.8 555.7 12.6 – (3.5) 564.8 Growth 26% n/a 25% 21% < (100%) n/a n/a 19% (0.9) < (100%) (1.1) – (3.9) (3.3) 555.6 > 100% n/a < (100%) n/a 17% 326.4 25% (0.7) < (100%) 1.7 – (2.4) (2.3) > 100% n/a < (100%) n/a 19% Reported net profit attributable to owners of parent 384.8 322.7 * 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. 31 Directors’ Report Directors’ ReportAnnual Report 2022 | REA Group LtdcontinuedYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance Operating and financial review (continued) Group results from core operations Group operating income from core operations increased 26% to $1,169.5 million. This includes the consolidation of REA India from 1 January 2021, and the consolidation of Mortgage Choice from 1 July 2021. The Group delivered an exceptional result, with strong growth across both Australia and India, and continued investment in strategic initiatives. The Group’s EBITDA from core operations increased 19% to $673.5 million and net profit from core operations attributable to owners of the parent increased 25% to $407.5 million. Core operating costs increased 34%, largely driven by Mortgage Choice and REA India acquisitions. Core operating costs, excluding these acquisitions, increased by 11%, reflecting investment to deliver our strategic initiatives, a tight labour market driving higher remuneration costs, an increase in revenue-related variable costs and investment in brand and marketing. Australia continues to be the primary revenue driver for the business. The Group’s result reflects an ongoing focus on continued innovation and the release of new products and features to deliver excellent customer value and highly personalised consumer experiences. realestate.com.au continues to be the clear leader in online real estate1 with audience metrics reaching new all-time highs during the year2 and average monthly visits topping 124.1 million3, outperforming the closest competitor by 3.36 times each month on average4. Average monthly buyer enquiries were at an all-time high, up 11% year on year5. Strong operating cashflows during the year allowed the Group to continue to invest through innovation and strategic investments, as well as to continue to provide shareholder returns in the form of dividends, resulting in a cash balance of $248.2 million at 30 June 2022. The Group had net current assets of $210.2 million as at 30 June 2022. The Group generated positive operating cashflows and traded profitably for the period. The Directors expect this to continue for the foreseeable future. The Group strengthened its liquidity position by entering into a new syndicated facility during the year, replacing the previous facility. The facility consists of two tranches, $400 million maturing in September 2024 and $200 million maturing in September 2025. As at 30 June 2022 the Group’s total debt was $413.7 million with $186.3 million of the new facility undrawn. Refer to Note 9(d) for further details. Dividends Dividends paid or determined to be paid by the Company during, and since the end of, the financial year are set out in Note 10 to the Financial Statements and below: Per share (cents) Total amount ($M) Franked* Payment date * All dividends are fully franked based on tax paid at 30%. Final 2022 89.0 117.6 100% Interim 2022 75.0 99.1 100% Final 2021 72.0 95.1 100% 15 Sep 2022 22 Mar 2022 16 Sep 2021 1 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 – Jun 22 (average), P2+, Digital (C/M), text, Real Estate/Apartments subcategory, Unique Audience. 2 Nielsen Digital Media Ratings (Monthly Tagged), Oct 21, P2+, Digital (C/M), text, realestate.com.au, Total Sessions. 3 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 - Jun 22 (average), P2+, Digital (C/M), text, realestate.com.au, Total Sessions. 4 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 - Jun 22 (average), P2+, Digital (C/M), text, realestate.com.au vs Domain, Total Sessions. 5 Adobe Analytics, internal data, Jul 21 - Jun 22 vs Jul 20 - Jun 21. 32 continuedDirectors’ Report Directors’ ReportREA Group Ltd | Annual Report 2022 Performance by region 2022 Segment operating income1 Australia India International Corporate Total Property & Online Advertising $M Financial Services $M $M $M $M $M Total segment operating income1 1,007.5 67.2 53.9 Segment operating income – other2 Inter-segment operating income Trail commission integration adjustment 41.8 (0.9) – – – – – – – Operating income1 1,048.4 67.2 53.9 Results Segment EBITDA from core operations (excluding share of gains and losses of associates) Share of gains/(losses) of associates3 Segment EBITDA from core operations Restructure costs Net gain on acquisitions, disposals and closure of subsidiaries, associates and operations4,5 Associate IPO and restructuring costs3 Integration costs (including trail commission adjustment) 721.8 (3.7) 9.3 (1.3) (34.9) – (16.9) 24.9 3.0 718.1 8.0 (34.9) (16.9) – – – – – – – – – – – – – – – – EBITDA 718.1 8.0 (34.9) (16.9) Depreciation and amortisation EBIT Net finance expense Profit before income tax – – – – – – – – – 1,128.6 41.8 (0.9) (9.3) (9.3) (9.3) 1,160.2 (25.7) 670.5 (0.8) (3.1) 673.5 (3.1) 22.0 (24.9) (19.6) (26.4) 22.0 (24.9) (19.6) 647.9 (93.1) 554.8 (6.9) 547.9 1 2 This represents revenue less commissions for Financial Services. This represents the former Asia operations, being Malaysia, Thailand and Hong Kong (Note 17), inclusive of MyFun and legacy Asia operations which has been integrated into the Australian operations. Inclusive of $24.9 million of associate restructuring and transaction costs reflecting REA’s share of costs incurred by PropertyGuru. 3 4 Comprised of $15.8 million gain relating to the divestment of Malaysia, Thailand and 99 Group shareholder rights; $9.0 million loss relating to the divestment of Hong Kong assets to 28Hse, closure of Hong Kong operations and rationalisation of the remaining Asia subsidiaries; and $5.7 million reduction of 99 Group SPV financial asset. The impact of the deemed disposal as a result of the dilution from the initial public offering (IPO) of PropertyGuru resulted in a $20.9 million gain. 5 33 Directors’ Report Directors’ ReportDirectors’ Report Directors’ ReportAnnual Report 2022 | REA Group LtdcontinuedYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance Performance by region (continued) 2021 Restated Segment operating income1 Total segment operating income1 Segment operating income – other2 Inter-segment operating income Operating income1 Results Segment EBITDA from core operations (excluding share of gains and losses of associates) Share of gains/(losses) of associates3 Restructure costs Net loss on acquisitions, disposals and closure of subsidiaries and operations3 Integration costs Historic tax provision4 EBITDA Depreciation and amortisation EBIT Net finance expense Profit before income tax Segment EBITDA from core operations 585.9 Australia India5 International Corporate Total Property & Online Advertising $M Financial Services $M $M $M $M $M 848.1 41.0 (2.6) 886.5 590.2 (4.3) – – – – 24.0 17.3 – – – – 24.0 17.3 6.4 – 6.4 – – – – (18.0) (2.4) (20.4) – – – – – – – – 19.3 19.3 – – – – – – – (22.9) (3.5) (26.4) (0.9) (1.1) (3.9) (3.3) 585.9 6.4 (20.4) 19.3 (35.6) 889.4 41.0 (2.6) 927.8 555.7 9.1 564.8 (0.9) (1.1) (3.9) (3.3) 555.6 (82.6) 473.0 (4.6) 468.4 1 2 This represents revenue less commissions for Financial Services. This represents the former Asia operations, being Malaysia, Thailand and Hong Kong (Note 17), inclusive of MyFun and legacy Asia operations which has been integrated into the Australian operations. Inclusive of $3.5 million gain relating to Move, Inc. sale of Top Producer. 3 4 Historic indirect tax provision reflects potential retrospective changes to interpretation of tax law. 5 Represents REA India Pte. Ltd. which was consolidated in the Group’s results from 1 January 2021 and prior to that previously recognised as an investment in associate. 34 continuedDirectors’ Report Directors’ ReportREA Group Ltd | Annual Report 2022 Australia The Group operates Australia’s leading residential and commercial sites, realestate.com.au6 and realcommercial.com.au7, data and insights business, PropTrack, and a leading mortgage broking business, Mortgage Choice. Core operating income increased by 23% to $1,115.6 million YoY, or 18% excluding the impact of the Mortgage Choice acquisition. realestate.com.au continues to be the number one property portal in Australia, attracting 124.1 million visits each month on all platforms8, 3.36x more visits than the nearest competitor9. 12.7 million people visited the site each month on average10, with a new record of 13.2 million in October 202111. This unrivalled audience of people looking to buy, sell, rent or share property provides valuable insights to the Group on how people search and view property. In addition, our audience comprises high intent property seekers, making it possible for REA to deliver more leads to our customers. Active members are proven to drive more value to our customers and our focus on personalisation and consumer experience has significantly accelerated the growth of this group with a 25% increase in active members YoY12. When compared to other leading digital brands, realestate.com.au was Australia’s seventh largest in terms of audience13, reaching over 60% of Australia’s adult population14. Property and Online advertising Property and Online Advertising operating income increased by 18% to $1,048.4 million. Australian residential revenue increased 24% to $776 million. Buy revenue experienced strong growth, benefiting from new national listings growth of 11%, increased depth and Premiere penetration, an 8% average national price rise, and continued growth in add-on products such as Audience Maximiser. Residential rent revenue benefited from increased depth penetration and product mix, and a 6% price rise, however this was largely offset by a decline in rental listings due to lack of supply. Commercial and Developer revenue increased 3% to $134 million. Commercial revenue growth was driven by increased depth penetration and 1 July price increases. Developer revenues were down on prior year, impacted by a 21% decline in project launches for the year, partially offset by the benefits from the growth in project launches in FY21. realcommercial.com.au continues to be the leading commercial property app in Australia, with 20.2 times more app launches than the nearest competitor15. Media, Data and Other revenue grew by 9% during the year to $97 million. Data revenues increased by 28%, with PropTrack benefiting from new contracts and increased desktop and automated valuation model (AVM) volumes. Media revenue was up YoY, with Developer display, the largest component, flat, while programmatic revenue grew. Other revenues, largely made up of flatmates.com.au, declined marginally YoY. The Group continues to strengthen its existing leadership positions through investment in new technology, aimed at improving the digital offering for customers and consumers alike and through strategic acquisitions that complement our existing business and accelerate our strategic initiatives. Following the divestment of the Asian operations, the remaining MyFun business, which syndicates Australian premium Residential, Commercial and Developer listings to the Chinese website MyFun, has been presented as part of the Australia – Property & Online Advertising segment. Comparative information has also been adjusted accordingly. Financial Services The Financial Services business performed well with the acquisition of Mortgage Choice and the consolidation the Group’s broker offerings under the Mortgage Choice brand. Financial Services core operating revenue16 increased 12% YoY on a pro forma basis to $79 million, assuming REA Group owned Mortgage Choice in the prior period. Operating revenues benefited from a 28% increase in settlements, driven by continued broker growth, and increased productivity in a strong housing market, partly offset by higher broker payout rates. Revenue was negatively impacted by a valuation adjustment to expected future trail commission due to faster loan run-off rates and higher broker commission payout ratios. Including this valuation adjustment, net Financial Services revenue decreased by 2% to $66 million17 on a proforma basis. The integration of Mortgage Choice is progressing well and is expected to be completed by Q3 FY23. 6 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 – Jun 22 (average), P2+, Digital (C/M), text, Real Estate/Apartments subcategory, Unique Audience. 7 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 – Jun 22 (average), P2+, Digital (C/M), text, realcommercial.com.au vs commercialrealestate.com.au, Unique Audience. 8 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 - Jun 22 (average), P2+, Digital (C/M), text, realestate.com.au, Total Sessions. 9 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 - Jun 22 (average), P2+, Digital (C/M), text, realestate.com.au vs Domain, Total Sessions. 10 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 - Jun 22 (average), P2+, Digital (C/M), text, realestate.com.au, Unique Audience. 11 Nielsen Digital Media Ratings (Monthly Tagged), Oct 21, P2+, Digital (C/M), text, realestate.com.au, Unique Audience. 12 REA internal data, Jul 21 - Jun 22 and compared to Jul 20 - Jun 21. 13 Nielsen Digital Media Ratings (Monthly Total), Jul 21 - Jun 22 (average rank), P2+, Digital (C/M) Text, All Categories, Unique Audience. 14 Nielsen Digital Media Ratings (Monthly Tagged), Jun 22, P18+, Digital (C/M), text, realestate.com.au, Active Reach %. 15 Nielsen Digital Media Ratings (Monthly Tagged), Jul 21 – Jun 22 (average), P2+, Digital (C/M), text, realcommercial.com.au vs commercialrealestate.com.au, App Launches. 16 Operating revenue excludes valuation adjustments to the trail book and discontinued business (FinChoice). 17 Excludes discontinued business (FinChoice). 35 Directors’ Report Directors’ ReportDirectors’ Report Directors’ ReportAnnual Report 2022 | REA Group LtdcontinuedYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance India REA India has delivered an impressive performance for the year, with revenue growth of 92% to $54 million on a pro forma basis assuming it was owned for the full prior period18. Revenue growth was largely driven by Housing.com’s property advertising business, which saw strong customer growth. An increased focus on search engine optimisation (SEO), improved mobile experience and targeted marketing had driven audience growth of 50% YoY19, with Housing.com maintaining the #1 audience share for the last 9 months20. Revenue has also benefited from growth in lower margin adjacency products on the Housing Edge platform, such as Rent Pay. International The International segment includes our equity accounted strategic investments comprising Move, Inc. (“Move”) and PropertyGuru Group Limited (“PropertyGuru”). Move The Group holds a 20% investment in Move, Inc., a leading provider of online real estate services in the United States. News Corp holds the remaining 80%. Move, Inc. primarily operates realtor.com®, a premier real estate information services marketplace, under a perpetual agreement and trademark licence with the National Association of Realtors®, the largest trade organisation in the USA. realtor.com® is a leading property portal in the United States, the world’s largest real estate market. Move’s reported revenue growth of 11%21 was driven by both traditional lead generation and referral mode growth. Lead generation revenues benefited from increased yield, partly offset by a 23% decline in leads21, while referral model revenue was driven by higher average home values, partially offset by lower transaction volumes. Move also saw higher employee and marketing costs as the business continued to reinvest to drive their core businesses and expand into adjacencies. This resulted in a $2 million decline in Move’s equity accounted contribution to $14 million. Average monthly unique users of realtor.com®’s web and mobile sites for FY22 declined 1% YoY22. PropertyGuru On 3 August 2021, the Group completed the sale of its Malaysia and Thailand entities (which operated iProperty.com.my and Brickz.my in Malaysia and thinkofliving.com and Prakard.com in Thailand) to PropertyGuru. In exchange, the Group received an 18% equity interest (16.6% diluted) of the combined PropertyGuru Group and Owen Wilson was appointed to the board of PropertyGuru in September 2021 (refer to Note 18). On 18 March 2022, PropertyGuru began trading on the New York Stock Exchange (NYSE), following a merger with the special purpose acquisition company Bridgetown 2 Holdings Limited. Following the listing, the Group holds a 17.5% undiluted equity interest in PropertyGuru. REA contributed US$52 million to the PIPE capital raising associated with the listing. Contributions from equity accounted investments declined from the prior year to $3.0 million23 in FY22, largely reflecting the Group’s investment in PropertyGuru and a combined $5.0 million loss from early-stage Australian investments24,25. State of affairs In the Directors’ opinion, other than the investments and divestments referenced in the operating and financial review of this report, there have been no significant changes in the state of affairs of the Group during the year. Events since the end of the financial year Details of any events that have arisen from 30 June 2022 to the date of signing this report that have significantly affected, or may significantly affect, the Group’s operations, the results of those operations, or the Group’s state of affairs, in future financial years are provided in Note 26. Business strategies and future developments The way people search and find property continues to evolve, and consumer expectations are shaped by their digital experience. REA’s goal is to provide an easy and highly relevant experience for both its customers and consumers across Australia and India, right throughout their property journey. 18 Growth rate is based on constant currency. 19 Similarweb, average site visits in Jul 21 – Jun 22 vs. Jul 20 – Jun 21. 20 Similarweb, average site visits Oct 21 – Jun 22 vs nearest competitor. 21 NewsCorp’s Form 10-K stated in US Dollars for the twelve-month period ended 30 June 2022. 22 Realtor.com internal metrics. 23 From core operations, excluding PropertyGuru restructure and transaction costs. 24 Includes 35.2% stake in Simpology Pty Limited, 35.8% in Realtair Pty Limited, 29.8% in CampaignAgent Pty Ltd and 27.5% in Managed Platforms Pty Ltd (all on an undiluted basis). 25 Prior year included losses from 99 Group (divested on 30 July 2021) and REA India (consolidated from 1 January 2021). 36 continuedDirectors’ Report Directors’ ReportREA Group Ltd | Annual Report 2022 Business strategies and future developments (continued) REA has access to the largest audience of property seekers across Australia and increasing audience numbers in India. This provides the Group with rich data and insights about what people are searching for and their individual property needs, enabling the delivery of highly relevant and personalised experiences. Property The foundation of the business is the online advertising of property listings, supported by data on residential and commercial property. Agents continue to play a critical role in the success of the business. The Group focuses on improving the way properties are displayed on its sites and apps, to ensure people are provided with the best and most up-to-date content. It does this by using rich data to support the development of innovative products and experiences. This creates more opportunities for customers to continue growing their businesses, while creating personalised experiences for consumers. Finance Home finance is an integral part of the property purchase journey. As part of the Group’s Finance strategy, the Group combines searching for property and obtaining a home loan in a single experience and allows consumers the choice of a digital loan application or being connected to a mortgage broker. The Group recognises the value mortgage brokers bring to people looking to finance their next property. The Group now has over 1,000 brokers in market. REA’s audience, brand strength and digital expertise provides a unique position for long-term growth within the financial services sector. Property-related services REA’s strength lies in the ability to understand its audience and it is continually looking for new ways to create value for our customers and consumers and remove any barriers for them to be able to achieve their property dreams. The Group does this by providing rich data and market insights to help customers and consumers make the most informed property-related decisions. For consumers, this means REA provides a personalised experience, inspiring content and a range of tools, calculators and other information so that people are equipped to make the right decision depending on where they are in their property journey. For customers, it’s about giving them deep insight into market trends and consumer behaviour to support their business growth. Corporate Sustainability Statement REA Group’s commitment to responsible and sustainable business practices underpins everything we do. In October 2021, REA published its third Sustainability Report which is available on REA’s website at www.rea-group.com/investor-centre. REA’s Sustainability Report details business activity and commitments across the areas of Environment, Social and Governance (ESG). The Group’s policies reflect the standards REA expects of its people and ensures that REA monitors and adheres to those standards. The Group values the opportunity to share the ESG activity and associated commitments in order to continually improve overall sustainability performance and play a role in creating positive change. The Board is responsible for corporate governance and is committed to developing and implementing appropriate policies while adhering to a fundamental commitment to create and sustain long-term value for its shareholders and stakeholders. This is achieved through: Transparent reporting on operations and activities; Implementing sound corporate governance practices; • • Operating in a responsible manner towards employees through fair and equitable practices; • • Monitoring potential risks and applying mitigating policies and practices; • Making a positive impact on the community; and • Reducing our impact on the environment. Corporate governance REA is committed to being ethical, transparent and accountable. It believes this is essential for the long-term performance and sustainability of the Company and supports the interests of shareholders. The Company’s Board of Directors is responsible for ensuring that the Company has an appropriate corporate governance framework to protect and enhance company performance and build sustainable value for shareholders. This corporate governance framework acknowledges the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (‘ASX Principles and Recommendations’) and is designed to support business operations, deliver on strategy, monitor performance and manage risk. 37 Directors’ Report Directors’ ReportDirectors’ Report Directors’ ReportAnnual Report 2022 | REA Group LtdcontinuedYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance Corporate governance (continued) The Corporate Governance Statement addresses the recommendations contained in the fourth edition of the ASX Principles and Recommendations and is available on REA’s website at www.rea-group.com/corporate-governance. This statement should be read in conjunction with REA’s website and the Directors’ Report, including the Remuneration Report. Environmental regulation Good environmental practices and the impact that operations have on the environment are of great importance to REA. The Group is committed to adopting responsible environmental practices. The operations of the Group are not subject to any particular or significant environmental regulations under a Commonwealth, State or Territory law. Opportunities and risks REA is driven by its purpose to ‘change the way the world experiences property’ through product innovation and investment. Having a clearly defined purpose provides the Group with opportunities to drive further value. These include: Broadening the suite of products and services to maximise value for customers; • • Utilising content, data and insights to provide a new or enhanced experience for consumers and/or further support customers in achieving their strategic aims; Exploring and pursuing adjacencies such as building a market-leading home loan offering via its mortgage broking businesses, Smartline and Mortgage Choice, and leveraging REA’s leading digital capability; and Entering international markets where there is a strategic opportunity. • • REA remains committed to delivering the best experience and value for both customers and consumers. This includes engaging with people at every step of their property journey and making the experience easy and stress free. Effective risk management is about taking the right risks, at the right time, for the right return. To achieve this, REA follows accepted standards and guidelines for managing risk. The Group is committed to ensuring that a consistent and integrated approach is established at all levels and is embedded in the Company’s processes and culture. The REA Risk Management Framework comprises several important elements: (i) Identifying and analysing the main risks facing the Group; (ii) Evaluating those risks – making judgements about whether they are acceptable; (iii) Implementing and documenting appropriately designed controls to manage these risks; (iv) Testing of controls to ensure they are appropriately designed and operating effectively; (v) Planning for business interruptions and crises; and (vi) Ongoing monitoring, consultation, communication and review. The Group has identified five material risk categories to which the Company has its most significant risk exposures, being: • Strategic risk; • Operational risk; • Compliance risk; • • Credit risk. Regulatory risk; and Each of these material risk categories has either a framework, procedure or policy that sets out how the risks that fall within these categories are to be identified and managed. Clear accountabilities, roles and responsibilities are also articulated from the Board all the way through to a risk and/or control owner. The Executive Risk Committee oversees the implementation of the REA Risk Management Framework, ensuring management fulfils its risk management responsibilities and that risks are operating within the Risk Appetite Statement and Limits approved by the Board. Key REA business risks include: • The development of new technologies and increased competition from existing or new sites and apps, which could affect the existing business model. REA operates in a highly competitive market and constantly monitors and assesses the competitive environment and any potential risks to the Australian and international operations. REA must continue to earn the support of consumers and customers by delivering a market-leading consumer experience and outstanding value for agents and their vendors. 38 continuedDirectors’ Report Directors’ ReportREA Group Ltd | Annual Report 2022 Opportunities and risks (continued) • • • Security incidents caused by adversarial, accidental or environmental threat that may result in the theft or destruction of confidential consumer/customer data and/or loss of REA system integrity. As a technology-focused business, managing security and taking care of consumer and customer data is of crucial importance. REA is vigilant in managing the risk of damaging security incidents, and has appropriate data management, security and compliance policies, procedures and practices in place. Lack of availability or downtime of websites and apps may result in a poor experience for consumers and customers. To manage the risk of any of the Group’s sites or apps going down, REA has developed and implemented disaster recovery strategies, high-availability architecture, and processes for monitoring the health of systems on an ongoing basis. Key group business activities (specifically, real estate listings and financial services) are highly dependent on the exposure to macroeconomic, regulatory, legal and geopolitical conditions across the Australian and Indian markets in which REA operates. These conditions impact economic growth rates, the property market (house prices and availability of stock), interest rates and consumer confidence which can adversely impact the volume of real estate listings and consumers’ willingness and ability to acquire credit. REA mitigates these risks by proactively managing stakeholder relationships, keeping abreast of regulatory change through dedicated committees, monitoring key risk indicators and market conditions. • A breach of REA’s privacy obligations could occur. REA recognises that privacy compliance is critical to maintaining consumer and customer trust. REA maintains a comprehensive privacy compliance program and updates the program to align with changes in the law. REA is committed to the ‘privacy by design’ method of embedding privacy considerations into the company’s products, processes and systems. Sustainability REA is committed to building a sustainable next generation business - this is reflected in our values and underpins everything we do. Our Sustainability program incorporates community partnerships, community programs (internally known as ‘Because We Care’) and initiatives aligned with our commitment to the environment. We also report more broadly across the areas of Environment, Social and Governance (ESG) in our Sustainability Report, which we have been publishing each year since FY19. REA’s community partnerships are aligned with our purpose, which is to change the way the world experiences property. This includes initiatives to assist and support people experiencing or at risk of homelessness. We have multi-year partnerships with charities focused on the issue of homelessness and have extended our relationships with Launch Housing, Orange Sky Australia and The Big Issue through to 30 June 2023. Our Because We Care program encourages and supports our people to give back to causes that are important to them. They can do this through matched payroll giving, our volunteer bank, employee community grants, our Melbourne office’s community café and the Hack it Forward Award as part of REAio Hack Days. FY22 is the third consecutive year we will achieve Climate Active carbon neutral certification and we continue to make progress with our carbon emissions reduction program, as well as the commitments we’ve made in our Climate Change policy. The FY22 Sustainability Report is published on the Company’s corporate website. Highlights from REA’s sustainability program in FY22: Environment • Task Force on Climate Related Financial Disclosures (TCFD) – Continued progress toward aligning with the TCFD framework. In FY23, the Company’s Board will be kept informed on climate change related risks and opportunities by the Audit, Risk & Compliance Committee, which is responsible for overseeing the Company’s processes to identify and manage financial and non-financial risks. In FY23, the Executive Risk Committee will be responsible for assessing and managing climate change related risks and opportunities for the Company, remaining informed about climate-related risks and ensuring climate change related responsibilities are assigned to management positions. • Green Energy – As part of our ongoing commitment to reduce our footprint, we moved to Green Energy across most of our REA locations. Green Energy is accredited under the National Green Power Accreditation Program and our Green Energy percentage is 100%. • Climate Active carbon neutral certification – The Group is undergoing carbon neutral certification through Climate • Active for the third consecutive year. We have committed to reducing our carbon emissions in line with our carbon emission reduction targets and achieving carbon neutral certification annually. Solar & LED – Our Church Street Richmond headquarters represents 70% of REA’s total energy consumption. To increase our energy reduction we installed solar panels in the Church Street office and are in the process of replacing all the lights with LED lighting. 39 Directors’ Report Directors’ ReportDirectors’ Report Directors’ ReportAnnual Report 2022 | REA Group LtdcontinuedYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance Sustainability (continued) Social • Diversity Council Australia Inclusive Employer 2021 – 22 – REA was named an Inclusive Employer for 2021 – 22 by Diversity Council Australia, following the Diversity & Inclusion Index we completed in March 2022. The Diversity & Inclusion Index was undertaken to better understand who we are as a business, how we feel about inclusion at REA and to identify the opportunities for active change. • Great Place to Work – REA has again been certified by Great Place to Work in FY22, with 93% of employees at REA saying it’s a great place to work, compared to 55% of employees at a typical Australian-based company. • Reconciliation Action Plan (RAP) – REA has partnered with Reconciliation Australia to begin developing our first Reconciliation Action Plan (RAP). We aim to build a Reflect RAP which involves scoping and developing relationships with Aboriginal and Torres Strait Islander stakeholders, deciding on our vision for reconciliation and exploring our sphere of influence. • Hack Day – REA’s 40th Hack Day was held in June 2022, with one team taking out both the People’s Choice and Hack it Forward Award – ‘Red Cross Rental Applications’. The team informally collaborated with the Australian Red Cross to understand and address the rental application barriers for disadvantaged and vulnerable members of the community. The team delivered multiple product improvements to help rent applicants provide more information about themselves or on behalf of others. Because We Care program (FY22) i. Matched Payroll Giving - $211,315 in combined employee and company matched donations. ii. Employee Community Grants - distributed 38 employee community grants valued at $37,429, bringing the total number • of grants distributed to 385 and valued at $438,090 since the program began. iii. Volunteer Bank – 469 hours iv. Community Café – $9,661 donated to our charity partners. • Community partnerships – REA continued its financial and in-kind support to Launch Housing, Orange Sky Australia and The Big Issue. The National Rapid Rehousing Fund REA Group created with Launch Housing in 2015 provided financial support to more than 5,286 women and children since inception. Smartline Charity Fund – Smartline brokers have a long history of supporting local charities across Australia. Brokers contribute $5 for every loan settled which is matched by REA. These funds are donated to a wide range of charities including youth support, homelessness and cancer research among others. The charity fund donated $132,841 in FY22. • Governance • Materiality Assessment – REA undertook its second materiality assessment in 2022 in connection with sustainability reporting, resulting in 11 highly material ESG topics identified. REA is forming an ESG steering committee to lead our activity on each topic and positively address the related UN Sustainable Development Goal (SDG) targets and indicators. • MSCI ESG rating – Our rating improved in FY22 to a ‘AA’, classifying REA as a leader among the 25 companies in the • interactive media & service industry. S&P Global Corporate Sustainability Assessment ESG score – Increased in FY22 to 40, with REA out-performing the industry mean across all three categories of Environment, Social and Governance & Economic. • More information about REA’s highly material topics under the Governance heading, including responsible and ethical business practices, data privacy and cyber security, innovation and technology, and risk and resilience, can be found in our FY22 Sustainability Report. Directors’ qualifications, experience and special responsibilities The names of Directors and details of their qualifications, experience and special responsibilities can be found on pages 28 to 29 of this report. Details of the number of Board and Board Committee meetings held during the year and Directors’ attendance at those meetings are shown on page 30 of this report. Details of directorships of other listed companies held by each current Director in the three years before the end of the 2022 financial year are listed on pages 28 to 29 of this report. Directors’ shareholdings in the Company The relevant interests of each director in shares of the Company as at the date of this report are disclosed in the Remuneration Report. 40 continuedDirectors’ Report Directors’ ReportREA Group Ltd | Annual Report 2022 Company Secretary’s qualifications and experience Tamara Kayser was appointed REA Group’s General Counsel and Company Secretary in November 2020. Ms Kayser (LLM, LLB (Hons), BCom, GAICD) is a corporate lawyer with over 20 years of legal and governance experience. Immediately prior to joining REA, Ms Kayser held the position of Group General Counsel at Incitec Pivot Limited. Before that, she practised as a lawyer at King & Wood Mallesons in Australia and Linklaters in London. Indemnification and insurance of directors and officers The Company has entered a standard form deed of indemnity, insurance and access with the non-executive Directors against liabilities they may incur in the performance of their duties as Directors of REA Group Ltd, except liabilities to REA Group Ltd or a related body corporate, liability for a pecuniary penalty or compensation order under the Corporations Act 2001 (Cth), and liabilities arising from conduct involving a lack of good faith. REA Group Ltd is obliged to maintain an insurance policy in favour of non-executive Directors for liabilities they incur as Directors of REA Group Ltd and to grant them a right of access to certain company records. In addition, each Director is indemnified, as authorised by the Constitution, on a full indemnity basis and to the full extent permitted 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 that the loss or liability is not covered by insurance. During or since the end of the financial year, the Company has paid premiums insuring the Directors and Officers of the Company, its controlled entities and associates, against liability incurred in that capacity to the extent allowed by the Corporations Act 2001 (Cth). The terms of the policies prohibit disclosure of the details of the liability and the premium paid. During the year the Group has been covered under the Directors & Officers (“D&O”) insurance policy for the News Corp Group of companies. Indemnification of auditors The Group has agreed to indemnify its auditors, Ernst & Young Australia, to the extent permitted by law, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the end of the financial year. Auditor and non-audit services Ernst & Young continues in office as the Group’s auditor. The Company may decide to employ the external auditor on assignments additional to its statutory audit duties where the auditor’s expertise and experience with the Company and/or the Group are important. The Board of Directors has considered the position and, in accordance with advice received from the Audit, Risk & Compliance Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth). The Directors are satisfied that these services did not compromise the auditor independence requirements of the Corporations Act 2001 (Cth) for the following reasons: • Non-audit services have been reviewed by the Audit, Risk & Compliance Committee, in line with the Committee Charter, to ensure they do not impact the impartiality and objectivity of the 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 and its related practices: Consolidated REA Group Category 2 fees - assurance services required by legislation to be provided by auditor Category 3 fees – other assurance services Category 4 fees – other services Total remuneration for non-audit services 2022 $ 13,000 12,000 313,648 338,648 2021 $ 12,000 10,000 323,153 345,153 Further details on the fee categories and compensation paid to Ernst & Young are provided in Note 24 to the Financial Statements. 41 Directors’ Report Directors’ ReportDirectors’ Report Directors’ ReportAnnual Report 2022 | REA Group LtdcontinuedYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance Auditor’s Independence Declaration A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 (Cth) is set out on page 43. Proceedings on behalf of the Company No application has been made under section 237 of the Corporations Act 2001 (Cth) in respect of the Company, and there are no proceedings that a person has brought or intervened in on behalf of the Company under that section. Rounding of amounts The Company is a company of the kind referred to in Australian Securities and Investments Commission Instrument 2016/191 pursuant to sections 341(1) and 992(B) of the Corporations Act 2001 (Cth). Amounts in the Directors’ Report and the accompanying Financial Statements have been rounded off in accordance with the relief provided, to the nearest million and one decimal place, except where otherwise indicated. 42 continuedDirectors’ Report Directors’ ReportREA Group Ltd | Annual Report 2022 Directors’ Report Auditor’s Independence Declaration Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Auditor’s independence declaration to the directors of REA Group Ltd As lead auditor for the audit of the financial report of REA Group Ltd for the financial year ended 30 June 2022, 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; b. No contraventions of any applicable code of professional conduct in relation to the audit; and c. No non-audit services provided that contravene any applicable code of professional conduct in relation to the audit. This declaration is in respect of REA Group Ltd and the entities it controlled during the financial year. Ernst & Young Alison Parker Partner 8 August 2022 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Page 43 43 Annual Report 2022 | REA Group LtdDirectors’ Report Directors’ ReportYear in reviewRemuneration ReportOur LeadersDirectors’ ReportFinancial Statements Environmental, Social and Governance Remuneration Report Remuneration Report Dear Shareholder, On behalf of the Board, I am pleased to present our Remuneration Report for the financial year ended 30 June 2022. REA Group in FY22 – an exceptional performance During the 2022 financial year, REA Group continued the execution of our strategy of growing consumer audience and engagement, enhancing customer value and rapidly develop our property data capabilities. We also made significant progress in our chosen international markets, and in our ongoing expansion into providing financial services. This contributed to an outstanding company performance in FY22, enabling the business to leverage buoyant market conditions and position us for future growth. This strong performance enabled us to reward our shareholders with the distribution of a record level of dividends. Revenue grew 26% and for the first time we generated more than $1 billion in group revenue. EBITDA from core operations (excluding acquisitions) showed considerable growth at 20% and we maintained our leadership as Australia’s number one property site. realestate.com.au is now the 7th largest online brand in Australia. Our CEO and Executive Leadership Team have consistently demonstrated strong leadership, maintaining momentum and support as our industry, team and community continued to manage the ongoing effects of the pandemic. REA Group’s success is underpinned by the millions of people who engage with our platforms every month, with 12.7 million people driving an average 124.1 million visits a month. As part of our ongoing evolution from a residential listings portal to a property, finance and data business, we have continued to grow our financial services business following the acquisition of Mortgage Choice. This is a core pillar of REA Group’s strategy and we are well on the way to being the number one retail broking business in Australia. Outside of the financial realm, our focus on our people has been publicly recognised as we were named among Australia’s best workplaces by Great Place to Work, ranking 4th overall and being the only ASX listed company in the Top 5. We also achieved an employee engagement score of 87%, with 93% of employees recommending REA Group as a great place to work and REA Group was named by the Diversity Council of Australia as an Inclusive Employer in 2021-22. Furthermore, our ESG rating was upgraded to AA by MSCI. Remuneration in FY22 – reward for performance As a result of the enhancements made to the remuneration framework as detailed in our FY21 Remuneration Report, the Board determined it was unnecessary to make any further changes in FY22. Incentive remuneration outcomes in FY22 reflect the financial and business performance outlined above, noting that long-term incentive (LTI) targets were set prior to the pandemic and short-term incentive (STI) targets were set during the pandemic. Specifically: • • • STI outcomes for the year were above target – 71% of maximum for the CEO and 73% of maximum for the CFO; LTI outcomes for the period 1 July 2019 to 30 June 2022, were above threshold but below target, vesting at 43.5% of maximum; Tranche 2 of the recovery incentive was granted to provide an incentive opportunity at the beginning of the pandemic when the LTI granted in 2019 was viewed as highly likely to be unachievable for reasons outside the control of management. The recovery incentive vested against its performance measures at 83.33%. However, as the LTI granted from 1 July 2019 was measured and did vest, albeit below target, the recovery incentive vesting outcomes were reduced accordingly. Noting the rationale for the grant of this incentive, this governance arrangement was implemented by the Board to prevent double dipping. The Human Resources Committee continues to believe that REA Group has a robust and fit for purpose remuneration framework that serves the organisation well. It appropriately balances competitive fixed pay levels to reward core performance, has an STI that underpins the achievement of our annual budget and strategic plan, and an LTI that is focused on delivering top and bottom-line growth. 44 REA Group Ltd | Annual Report 2022 Remuneration Report Remuneration Report Disclosures in FY22 We have revised this year’s Remuneration Report to provide more detail on our short and long-term performance measures, their link to our business plans and strategy and how the remuneration outcomes of our executives reflect our performance. In particular, we have: • • provided disclosure of targets for incentives that vested in the financial year; and presented discussion of incentive opportunities at maximum level (as opposed to our past practice of target). I invite you to read our report, and look forward to your views and support of the Board and the Committee in its endeavours to attract, retain and motivate a top team of talented executives. Yours sincerely, Mr Nick Dowling Chair Human Resources Committee 45 continuedRemuneration ReportRemuneration ReportAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance This report details REA Group’s remuneration framework and outcomes for Key Management Personnel (KMP) for the financial year ended 30 June 2022. This report forms part of the Directors’ Report for this period. Introduction and scope of report 1. 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 2022 financial year outlines the remuneration arrangements in place for KMP of REA Group Ltd 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 2022 financial year and unless otherwise indicated were classified as KMP for the entire year. Executive Directors Owen Wilson Chief Executive Officer Senior Executives Janelle Hopkins Chief Financial Officer Non-Executive Directors Hamish McLennan Chairman Jennifer Lambert Independent Director Nick Dowling Independent Director Tracey Fellows Director Richard J Freudenstein Director Michael Miller Director Kelly Bayer Rosmarin Independent Director (appointed 1 January 2022) Kathleen Conlon Independent Director (retired 11 November 2021) 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 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. 2.1 Use of remuneration consultants 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 HR Committee. For the financial year, SW Corporate provided a remuneration recommendation in relation to the fees paid to Non-executive Directors. SW Corporate was paid $15,000 (excluding GST) for this service. SW Corporate was engaged directly by the HR Committee and the report prepared by SW Corporate was provided directly to the Chair of the HR Committee. The remuneration consultant provided a declaration that its advice had been prepared free of any undue influence of any of the key management personnel of REA. On that basis, the Board was satisfied that the remuneration recommendation was made free from undue influence by any of the key management personnel to whom the recommendation related. SW Corporate also provided other services during the 2022 financial year relating to senior executive benchmarking data and assistance with the preparation of our Remuneration Report. SW Corporate was paid a total of $35,500 (excluding GST) for these services. 46 continuedRemuneration ReportRemuneration ReportREA Group Ltd | Annual Report 2022 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, with measures that are focused 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: Shareholder aligned Rewards for high performance Consistency & transparency Simplicity Remuneration Guiding Principles 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 (FAR) Short Term Incentive (STI) Long Term Incentive (LTI) FAR consists of base compensation and statutory superannuation contributions. KMP may also elect to have other benefits provided out of their FAR, including additional superannuation and the provision of a motor vehicle. The STI Plan is a combination of a cash based and equity deferral plan that involves linking specific financial and non-financial targets with the opportunity to earn incentives based on a percentage of fixed salary. The LTI Plan is designed to link long- term executive reward with ongoing creation of shareholder value, with the allocation of equity awards which are subject to satisfaction of long-term performance conditions. • • • • • • Provides competitive ongoing remuneration in recognition of day- to-day accountabilities. Rewards delivery of key strategic and financial objectives in line with the annual business plan. Enables differentiation of reward on the basis of individual performance. Ensures annual remuneration is competitive. Rewards delivery against longer- term strategy and sustained shareholder value creation. Provides greater alignment between shareholder and executive outcomes. Details on each of the individual components are set out in section 5 of this report. 3.2 Remuneration mix Remuneration mix refers to the proportion of total remuneration that is made up of each remuneration component. The following diagram sets out the remuneration mix for each KMP at the maximum remuneration level, being the amount that would be paid for delivering stretch performance. Remuneration mix is presented based on contractual remuneration packages rather than actual remuneration received during the year. 47 continuedRemuneration ReportRemuneration ReportRemuneration ReportRemuneration ReportAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 3. Executive remuneration philosophy and framework (continued) Maximum Remuneration 25.0% 27.0% 33.0% 37.5% CEO CFO Fixed Annual Remuneration Short Term Incentive Long Term Incentive 37.5% 40.0% 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 2022 financial year 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 Summary of Group performance The table below summarises key indicators of the Group’s performance and the effect on shareholder value over the past five years. Key Indicators Revenue1 EBITDA1 Net profit after tax2 Earnings per share3 Dividends per share Share Price at 30 June 2018 807.7 463.7 279.6 212.5c 109.0c $90.87 2019 874.9 501.2 295.2 224.3c 118.0c $96.04 2020 820.3 475.6 268.7 204.1c 110.0c 2021 927.8 564.8 326.4 247.4c 131.0c 2022 1,169.5 673.5 407.5 308.5c 164.0c $107.88 $169.03 $111.83 1 2 3 From core operations ($’m). From core operations attributable to the ordinary equity holders of the company ($’m). From core operations attributable to the ordinary equity holders of the company. 48 continuedRemuneration ReportRemuneration ReportREA Group Ltd | Annual Report 2022 4. Link between group performance, shareholder wealth and executive remuneration (continued) Compound Annual Growth & Share price performance The Group’s growth over the last five years has been exceptional, and as detailed in the following graphs, has delivered strong revenue and earnings per share (EPS) compound annual growth rates (CAGR). The Group’s relative share price in comparison to the ASX 100 is also outlined below. REA Group’s share price has significantly outperformed the ASX 100 in the last 3 years. Revenue ($m) C A G R 9 . 7 % 1169.5 +26% 807.7 874.9 820.3 927.8 1400 1200 1000 800 600 400 200 0 EBITDA ($m) C A G R 9 . 8 % 673.5 +19% 564.8 463.7 501.2 475.6 900 800 700 600 500 400 300 200 100 0 FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22 EPS (cents) 350 C A G R 9 . 8 % 308.5 +25% 247.4 212.5 224.3 204.1 300 250 200 150 100 50 0 Share Price Growth Share Price Growth e c i r p e r a h s e v i t a e R l 400 350 300 250 200 150 100 50 FY18 FY19 FY20 FY21 FY22 Jun 2018 Jun 2019 Jun 2020 Jun 2021 Jun 2022 REA Group Limited ASX 100 4.2 KMP performance outcomes The following table provides a summary of KMP financial and non-financial objectives and outcomes of the Group’s 2022 STI Plan for the 2022 financial year: Category Financial Consumer and customer satisfaction Growth People Objective Group revenue targets Group EBITDA targets Key consumer metrics – audience and consumer satisfaction Customer satisfaction and loyalty metrics Adoption of product – impact on volume and revenue PropTrack Financial Services REA India Employee engagement Great Place to Work ranking Outcome (vs target level except where otherwise stated) 77% of maximum 77% of maximum Met Exceeded Met Met Met Exceeded Exceeded Exceeded 49 continuedRemuneration ReportRemuneration ReportRemuneration ReportRemuneration ReportAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance Link between group performance, shareholder wealth and executive remuneration (continued) 4. The following table sets out LTI Plan performance outcomes for the three-year performance period ended 30 June 2022: Performance measure Weighting Revenue CAGR EPS CAGR 50% 50% Target 1,167.8 336.0 Outcome 1,169.5 308.5 % of maximum LTI payable 25.25% 18.25% 43.5% achievement The following table sets out Recovery Incentive Plan performance outcomes for tranche 2 of the Recovery Incentive 2021-2022: Performance measure category Weighting Outcome % of tranche 2 incentive payable Relative Total Shareholder Return (rTSR) Data Strategy AVM accuracy Bank desktop valuations Financial Services Integration Synergies Lead Generation Market Penetration REA India Revenue EBITDA Customers & Consumers Audience Customer sentiment 20% 20% 20% 20% 20% Exceeded Partially met 20% 10% Partially met 13.33% Met 20% Exceeded 20% 83.33% achievement1 1 Recovery incentive payout reduced to reflect the portion of LTIP vesting for the 2022 financial year. 4.3 KMP remuneration outcomes The following table sets out the STI outcomes for the 2022 financial year based on achievement of financial and non-financial objectives: Measure Financial Achieve REA Group Revenue target Achieve REA Group EBITDA target Personal Individually assigned in relation to specific measures, set annually by Board Weighting Per 5.2 Per 5.2 Per 5.2 Target 1,069.2 614.2 Delivery of measure Executives CEO CFO Actual STI payment % of maximum STI payable $1,776,119 $814,217 71%** 73%** ** 70% paid in cash and 30% deferred in restricted shares. 50 continuedRemuneration ReportRemuneration ReportREA Group Ltd | Annual Report 2022 4. Link between group performance, shareholder wealth and executive remuneration (continued) The following table sets out details of performance rights held by and granted to Mr Wilson and Ms Hopkins during the 2022 financial year under the LTI Plans along with the number of performance rights that vested and forfeited. Name O Wilson Recovery Incentive Plan 2021/2022 (tranche 1) Recovery Incentive Plan 2021/2022 (tranche 2)6 LTI Plan 2022 (Plan 13)6 LTI Plan 2023 (Plan 14)4 LTI Plan 2024 (Plan 15) Total J Hopkins Recovery Incentive Plan 2021/2022 LTI Plan 2022 (Plan 13) LTI Plan 2023 (Plan 14) LTI Plan 2024 (Plan 15) Total Balance at 1 July 2021 Granted during year5 Vested during year1 Forfeited during year2 Balance at 30 June 20223 $ face value of rights at grant date 5,016 7,525 8,342 7,093 – 27,976 3,147 3,858 2,926 – 9,931 – (4,848) – – 2,660 7,959 10,619 – – – 2,738 2,738 – – – – (4,848) – – – – – (168) – – – – (168) – – – – – – 565,731 7,525 8,342 9,753 7,959 33,579 3,147 3,858 2,926 2,738 12,669 848,596 800,000 1,100,000 1,250,000 4,564,327 354,936 370,000 330,000 430,000 1,484,936 1 2 3 4 The number of performance rights vested during the year is equal to the number of performance rights settled during the year. Forfeited during the year as a result of underperformance compared to company targets. The balance of performance rights at 30 June 2022 are unvested. These rights granted to O Wilson comprise two separate awards: 7,093 rights were granted on 17 November 2020 with a total face value at grant date of $800,000; and 2,660 rights granted on 11 November 2021 with a total face value at grant date of $300,000. 5 No cash amount is payable on the issue or vesting of each performance right as the performance rights form part of the remuneration of the CEO and CFO. 6 Performance rights granted to the CEO during the year were approved by shareholders at the 2021 Annual General Meeting. 8,073 rights granted to O Wilson under Recovery Incentive Plan 2021/2022 (tranche 2) and LTI Plan 2022 (Plan 13) vested on 2 August 2022 and were converted into ordinary shares, with the remaining rights forfeited. The table below sets out the details of the percentage performance achieved and percentage vested against the applicable LTI Plan. Refer to section 5.5 for the percentage of total remuneration that consists of performance rights. Plan Grant date Vesting date1 Value per performance right at grant date 2 Target % achieved % vested Recovery Incentive Plan 2021-2022 (tranche 1) Recovery Incentive Plan 2021-2022 (tranche 2) LTI Plan 2022 (Plan 13) LTI Plan 2023 (Plan 14) LTI Plan 2023 (Plan 14) LTI Plan 2023 (Plan 14) LTI Plan 2024 (Plan 15) LTI Plan 2024 (Plan 15) 17 November 2020 1 July 2021 $128.57 – $138.55 93.3% - 100.0% 96.7% 17 November 2020 11 November 2019 17 November 2020 23 June 2021 11 November 2021 24 September 2021 11 November 2021 1 July 2022 1 July 2022 1 July 2023 1 July 2023 1 July 2023 1 July 2024 1 July 2024 $126.36 – $140.95 $97.55 $135.82 – $188.21 $164.77 – $277.38 $161.82 – $249.65 $164.17 – $167.47 $151.91 – $160.06 0.0% - 100.0% 72.5% - 101.4% To be determined To be determined To be determined To be determined To be determined 10.8% 87.0% – – – – – 1 2 Subject to Board approval of the performance hurdles being met. Value per grant date calculated using the Black Scholes model. 5. Executive remuneration components 5.1 How REA Group determines appropriate remuneration levels As the Group continues to grow and diversify into different markets and business lines, it is important to check that the remuneration levels support the Group in attracting and retaining high-calibre talent within what is a competitive market. Executive remuneration is therefore reviewed on an annual basis. 51 continuedRemuneration ReportRemuneration ReportRemuneration ReportRemuneration ReportAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 5. Executive remuneration components (continued) Market positioning How much is paid to each executive depends on a number of factors including the scope of their role and their overall contribution to the Group but, as a starting position, REA Group compares current fixed remuneration to the 60th percentile and target total remuneration to a position between the 50th and 75th percentiles in the market. This aligns with the Group’s principle of rewarding for above threshold performance. Benchmarking methodology The HR Committee utilises market data provided by external consultants as part of the review process. Remuneration levels are compared to the following two comparator groups: 1. Size-based comparator group having regard to both revenue and 12-month average market capitalisation (excluding companies from outside our market for talent, e.g. resources sector) 2. All companies within the ASX 10-50 and ASX 35-85 respectively This methodology provides the Group with a balanced approach which has regard to both company size and general ASX market practice in remuneration decision making. Full details of remuneration received during the 2022 financial year are detailed in section 5.5. Setting remuneration for new KMP (or on promotion) In addition to utilising benchmark information from our two comparator groups, when setting remuneration levels for new KMP (or on promotion), the Board considers the skills and experience of the new KMP (relative to the outgoing KMP where applicable) along with their current remuneration package (where applicable). 5.2 Short term incentive arrangements The following table summarises the key components, operation, and outcomes of the Group’s 2022 STI Plan and, as provided in the remuneration mix section, this table demonstrates annualised maximum opportunity for the CEO and CFO in their current roles: Short Term Incentive Summary KMP participants CEO and CFO Award type 30% payable in deferred shares with the balance paid in cash Performance period One-year performance period beginning 1 July 2021 and ended on 30 June 2022 When are performance conditions tested? Performance metrics and weightings • • Performance against financial measures is determined in line with approval of the Financial Statements at the end of the financial year. Performance against non-financial measures within individual KPIs is determined after a review of executive performance by the CEO, in consultation with the HR Committee and, in the case of the CEO, by the Board. 35% 30% CEO 35% 25% 25% CFO 50% Individual KPIs EBITDA Revenue Maximum1 $2,500,000 $1,120,000 Relationship between performance and payment Individual performance is determined based on performance against KPIs with the individual component paying out between 0% and 100% of maximum. Calculation of outcome STI Plan 2022 Revenue Outcome + EBITDA Outcome + Individual Outcome = STI Plan Outcome 1 2 Amount that would be paid for delivering stretch performance. Incremental payment is made between Threshold and Target, as well as between Target and Stretch points. 52 continuedRemuneration ReportRemuneration ReportREA Group Ltd | Annual Report 2022 5. Executive remuneration components (continued) Why were these performance measures chosen? The Board considers the financial measures to be appropriate as they are aligned with the Group’s objective of delivering profitable growth and, ultimately, improved shareholder returns. The non-financial performance measures for the CEO have been set by the Board to drive strategic initiatives, leadership performance and behaviours consistent with the Group’s corporate philosophy and its overall business strategy. The CEO sets individual and business key performance indicators for the executive team in consultation with the Board. 5.3 Long term incentive The following table summarises the key components and operation of the Group’s LTI plan: Long Term Incentive Summary KMP participants CEO and CFO Award type Performance rights Performance period Performance metrics The performance rights allocated during the year are subject to a three-year performance period beginning 1 July 2021 and ending on 30 June 2024. The Group refers to this grant as the “LTI Plan 2024” as the performance period ends in FY24. Metric CAGR – Revenue CAGR – EPS rTSR Weighting 25% 50% 25% When are performance conditions tested? Incentive payments are determined in line with the approval of the Financial Statements at the end of the performance period. How is the LTI grant determined? Maximum LTI value Relationship between performance and vesting The number of performance rights issued to each executive is calculated by dividing their ‘maximum LTI’ value by the value per right. The value per right is determined on a face value basis using a 10-day volume-weighted average price (VWAP) of Company shares traded on ASX over the period 2 August to 15 August 2021, representing the five working days before, and the five working days after annual results. Each performance right is a right to acquire one share in REA Group Ltd upon vesting. CEO $2,500,000 CFO $860,000 delivered in performance rights delivered in performance rights The following vesting schedule applies to the Revenue and EPS hurdles for the LTI Plan 2024 granted this year. The LTI Plan 2022 that was performance tested at the end of this financial year had 43.5% vesting as performance was between threshold and target. Performance level % of maximum awards vesting1 Below Threshold Threshold Target Stretch 0% vesting 30% vesting 50% vesting 100% vesting 53 continuedRemuneration ReportRemuneration ReportRemuneration ReportRemuneration ReportAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 5. Executive remuneration components (continued) Long Term Incentive Summary rTSR Relative TSR compared to a select group of 39 ASX150 companies (excluding mining and resources, energy and infrastructure, materials, industrials and healthcare companies) measured over the period 1 July 2021 to 30 June 2024. The peer group at the beginning of the performance period for the rTSR performance hurdle comprised: • Altium • Appen • Aristocrat Leisure • carsales.com.au • Charter Hall Group • Coles Group • Computershare • Crown Resorts • Dexus • Domain • Domino’s Pizza Enterprises Flight Centre Travel Group • • Goodman Group • GPT Group • • • JB Hi-Fi Lendlease Group Link Administration Holdings • Metcash • Mirvac Group • National Storage • NextDC • Nine Entertainment Company Scentre Group SEEK Shopping Centres Australia Property Group Stockland • • • • • • • • • Super Retail Group Tabcorp Holdings Telstra Corporation The a2 Milk Company The Star Entertainment Group TPG Telecom Treasury Wine Estates • • • Unibail-Rodamco- Westfield Vicinity Centres • • Wesfarmers • Wisetech Global • Woolworths Group • Xero The following vesting schedule applies to the rTSR performance hurdle for the LTI Plan 2024 granted this year. Performance level Below Threshold Threshold Stretch % of maximum awards vesting1 0% vesting 37.5% vesting 100% vesting 1 Incremental vesting is made between Threshold and Target, as well as between Target and Stretch points. Why were these performance conditions chosen? The Board considers the combination of the Revenue and EPS hurdles to be an appropriate counterbalance to ensure that any ‘top line’ growth is long term focused and balanced with an improvement in earnings. In particular, revenue is considered to be an appropriate hurdle given that the Group continues to pursue growth. Additionally, the Board selected EPS as a performance measure on the basis that it: • • is an indicator of increasing shareholder value; and provides an appropriate balance to the revenue target, as revenue growth needs to be pursued in a way that grows earnings. Relative Total Shareholder Return (rTSR) was again chosen as a performance condition to provide a direct link between the experience of the Company’s shareholders and executive long-term rewards. Are there any restrictions placed on the rights? Group policy prohibits executives from entering into transactions or arrangements which operate to transfer or limit the economic risk of any securities held under the LTI Plan while those holdings are subject to performance hurdles or are otherwise unvested. What happens in the event of a change of control? In accordance with the LTI Plan rules, the Board has discretion to waive any vesting conditions attached to the performance rights in the event of a change of control. 54 continuedRemuneration ReportRemuneration ReportREA Group Ltd | Annual Report 2022 5. Executive remuneration components (continued) What happens if the executive ceases employment? Unvested performance rights lapse on cessation of employment except to the extent that the Board exercises a discretion to allow them to remain on foot. Generally, where the Board has exercised its discretion in the past it has done so where REA Group has terminated an executive’s employment with notice (a ‘good leaver’) and in that circumstance has allowed retention of a pro-rata portion (by reference to time served in the performance period), with the unvested rights continuing until the usual performance testing date, without acceleration of vesting. 5.4 Service agreements The table below sets out the main terms and conditions of the employment contracts of the CEO and CFO. All contracts are for unlimited duration. Title Notice Period/Termination Payment CEO/CFO 9 months for the CEO and 6 months for the CFO (or payment in lieu) Immediate termination for misconduct, breach of contract or bankruptcy Statutory entitlements only for termination with cause • • • • Where employment terminates prior to STI or LTI vesting due to resignation or termination for cause, all holdings and short-term incentive payments are forfeited, with the exception of Restricted Shares issued under STIP Deferral, which are subject to forfeiture only in more limited circumstances. Good leaver provisions apply as detailed in Section 5.3 5.5 Executive remuneration table Details of the remuneration paid to KMP for the 2022 and 2021 financial years are set out as follows: Short term employee benefits KMP Salary STI Plan1 Other4 Post- employment benefits5 Long term employee benefits Deferred STI Plan2 LTI Plan3 Total Perfor- mance related % LTIP % O Wilson 2022 2021 J Hopkins 2022 2021 Total 2022 2021 1,626,432 1,243,283 1,378,306 1,128,855 946,432 569,952 848,306 662,074 2,572,864 1,813,235 2,226,612 1,790,929 – – – – – – 23,568 98,448 496,888 835,496 4,324,115 21,964 63,058 483,795 1,287,130 4,363,108 23,568 7,366 223,120 356,233 2,126,671 21,964 4,323 309,868 419,724 2,266,259 47,136 105,814 720,008 1,191,729 6,450,786 43,928 67,381 793,663 1,706,854 6,629,367 60% 66% 54% 61% 58% 65% 19% 30% 17% 19% 18% 26% STI Plan represents accrued payment for the current year net of under/over accrual from prior year. 1 2 Deferred STI Plan represents restricted shares awarded in the Group’s STI Plan net of under/over accrual from prior year. 3 4 Other includes non-monetary benefits. 5 LTI Plan represents accrued expenses amortised over vesting period of grant. Refer to Note 15 of the Financial Statements. Post-employment benefits relates to Australian superannuation contributions. 6. Non-executive director remuneration 6.1 Policy Overview of policy The Board seeks to set the fees for the Non-executive Directors at a level which provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. During 2022 the Board’s policy was that the Chairman and Directors – other than current News Corp employees – receive remuneration for their services as Directors. Promote independence and objectivity The Chairman and Non-executive Director remuneration consists only of fixed fees (inclusive of superannuation). To preserve independence and impartiality, Non-executive Directors do not receive any performance related compensation. 55 continuedRemuneration ReportRemuneration ReportRemuneration ReportRemuneration ReportAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 6. Non-executive director remuneration (continued) Aggregate fees approved by shareholders The current aggregate fee pool for the Non-executive Directors of $1,900,000 was approved by shareholders at the 2021 AGM. Board and Committee fees, as well as statutory superannuation contributions made on behalf of the Non-executive Directors, are included in the aggregate fee pool. Regular reviews of remuneration The Chairman and Non-executive Director fees are reviewed regularly and set and approved by the Board based on benchmarking, undertaken by external consultants, against other ASX companies of a comparable size. The last increases to Chairman and Non-executive Director fees were effective 1 July 2021. 6.2 Non-executive Director fees The table below shows the structure and level of annualised Non-executive Director fees. Fee applicable Board Audit, Risk & Compliance Committee Human Resources Committee Year 2022 2021 2022 2021 2022 2021 Chair $ Member $ 575,000 495,000 50,000 40,000 41,000 37,000 195,000 180,000 25,000 21,000 22,000 20,000 6.3 Non-executive Director remuneration Details of remuneration for the Chairman and independent Non-executive Directors are set out in the table below. As outlined above, two of the non-independent Directors do not receive any directors’ fees as they are current News Corp employees. Remuneration applicable H McLennan (Chairman) R Freudenstein N Dowling J Lambert1 K Bayer Rosmarin2 R Amos3 K Conlon4 Total Year 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 551,432 473,306 220,000 201,826 214,545 190,411 243,432 127,345 100,000 – – 83,497 80,834 209,571 Fees and allowances $ Post- employment benefits5 $ Total $ 575,000 495,000 242,000 221,000 236,000 208,500 267,000 139,443 110,000 – – 91,429 88,917 23,568 21,694 22,000 19,174 21,455 18,089 23,568 12,098 10,000 – – 7,932 8,083 19,909 229,480 1,410,243 108,674 1,518,917 1,285,956 98,896 1,384,852 1 2 3 4 5 J Lambert was appointed as an independent non-executive director on 1 December 2020, replacing R Amos as the Chair of the Audit, Risk & Compliance Committee. K Bayer Rosmarin was appointed as an independent non-executive director on 1 January 2022. R Amos retired as an independent non-executive director on 17 November 2020. K Conlon retired as an independent non-executive director on 11 November 2021. Post-employment benefits relates to Australian superannuation contributions. 56 continuedRemuneration ReportRemuneration ReportREA Group Ltd | Annual Report 2022 7. Shareholdings of key management personnel and Board of Directors The numbers of ordinary shares in the Company held during the financial year (directly and indirectly) by each Non-executive Director and KMP of the Group, including their related parties are set out below1: Executives O Wilson J Hopkins Non-executive directors H McLennan K Conlon3 N Dowling T Fellows6 R Freudenstein J Lambert K Bayer Rosmarin4 Balance at 1 July 2021 Received upon vesting5 Purchase/ (Sale) of shares Balance at 30 June 20222 12,000 886 6,388 903 1,095 2,248 433 7,386 1,470 – 146 – – – – – – – – – – – 323 – – 400 – 18,388 1,789 1,095 2,248 756 7,386 1,470 400 146 1 2 3 4 5 6 If KMP or non-executive director is not listed, there are no shares held. Includes shares held directly, indirectly or beneficially by KMP. The closing balance for K Conlon reflects her shareholding on the date she ceased being a non-executive director being 11 November 2021. The opening balance for K Bayer Rosmarin reflects her shareholding on the date she commenced being a non-executive director. Includes the vesting of performance rights, and the release of restricted shares. T Fellows also holds 53,224 Class A shares in News Corporation. The table below sets out the number and movement of Restricted Share awards held by executives. Restricted Shares are generally issued under STIP Deferral (Restricted Equity): Executives O Wilson J Hopkins Balance at 1 July 2021 Granted/ acquired1 Received upon vesting Balance at 30 June 2022 – – 3,080 1,806 (1,540) (903) 1,540 903 1 Restricted Shares granted under the Group’s 2021 STI Plan, with 50% vesting on 30 June 2022 and 50% on 30 June 2023. Refer to Section 5.2 for further details on the Group’s short term incentive arrangements. Declaration This Directors’ Report and Remuneration Report is made in accordance with a resolution of Directors. Mr Hamish McLennan Chairman Mr Owen Wilson Chief Executive Officer Melbourne 8 August 2022 57 continuedRemuneration ReportRemuneration ReportRemuneration ReportRemuneration ReportAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 96 96 97 97 99 101 101 102 104 104 109 110 110 Table of Contents FINANCIAL STATEMENTS Consolidated Income Statement 59 59 GROUP STRUCTURE 16. Business combinations Consolidated Statement of Comprehensive Income 60 17. Divested operations 18. Investment in associates 19. Parent entity financial information OTHER DISCLOSURES 20. Property, plant and equipment 21. Leases 22. Contingencies and commitments 23. Related parties 24. Remuneration of auditors 25. Other accounting policies 26. Events after the Statement of Financial Position date Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements CORPORATE INFORMATION 1. Basis of preparation OUR PERFORMANCE 2. Segment information 3. Revenue from contracts with customers and other income 4. Expenses 5. Earnings per share (EPS) 6. Intangible assets and impairment 7. Income tax RETURNS, RISK AND CAPITAL MANAGEMENT 8. Cash and cash equivalents 9. Financial risk management 10. Dividends 11. Equity and reserves 12. Trade and other receivables 13. Trade and other payables OUR PEOPLE 14. Employee benefits 15. Share-based payments 61 63 64 65 65 65 66 66 69 72 72 73 76 79 79 80 88 88 90 91 92 92 93 58 Financial Statements REA Group Ltd | Annual Report 2022 FINANCIAL STATEMENTS Consolidated Income Statement for the year ended 30 June 2022 Revenue from property and online advertising Revenue from financial services Expense from franchisee commissions Revenue from financial services after franchisee commissions Total operating income Employee benefits expenses Consultant and contractor expenses Marketing related expenses Technology and other expenses Operations and administration expense Share of gains/(losses) of associates 18 Net gain on acquisition, disposal or closure of subsidiaries, associates and operations 9(b), 17 Earnings before interest, tax, depreciation and amortisation (EBITDA) Depreciation and amortisation expense Profit before interest and tax (EBIT) Net finance expense Profit before income tax Income tax expense Profit for the year Profit/(loss) for the year is attributable to: Non-controlling interest Owners of the parent Earnings per share attributable to the ordinary equity holders of REA Group Ltd Basic earnings per share Diluted earnings per share 4 4 7 5 5 Notes 3 3 3 3 2022 $M 1,102.3 325.1 (267.2) 57.9 1,160.2 2021 $M 903.8 101.6 (77.6) 24.0 927.8 14 (300.6) (234.2) (20.4) (81.8) (66.3) (43.3) (21.9) 22.0 647.9 (93.1) 554.8 (6.9) 547.9 (176.2) 371.7 (13.1) 384.8 371.7 (10.0) (58.3) (44.3) (41.1) 12.6 3.1 555.6 (82.6) 473.0 (4.6) 468.4 (155.4) 313.0 (9.7) 322.7 313.0 291.3 291.3 244.6 244.6 The above Consolidated Income Statement should be read in conjunction with the accompanying notes. 59 Financial Statements Financial Statements Annual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance Consolidated Statement of Comprehensive Income for the year ended 30 June 2022 Profit for the year Other comprehensive income Items that may be reclassified subsequently to the Consolidated Income Statement Exchange differences on translation of foreign operations, net of tax Other comprehensive income/(loss) for the year, net of tax Total comprehensive income for the year Total comprehensive income/(loss) for the year is attributable to: Non-controlling interest Owners of the parent Total comprehensive income for the year 2022 $M 2021 $M 371.7 313.0 51.5 51.5 423.2 (8.7) 431.9 423.2 (32.8) (32.8) 280.2 (9.7) 289.9 280.2 The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 60 Financial Statements REA Group Ltd | Annual Report 2022 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position as at 30 June 2022 ASSETS Current assets Cash and cash equivalents Trade and other receivables Commission contract assets Assets held for sale Total current assets Non-current assets Property, plant and equipment Intangible assets Other non-current assets Investment in associates Commission contract assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Current tax liabilities Provisions Contract liabilities Interest bearing loans and borrowings Commission liabilities Liabilities held for sale Total current liabilities Non-current liabilities Other non-current payables Deferred tax liabilities Provisions Interest bearing loans and borrowings Commission liabilities Total non-current liabilities Total liabilities Net assets Notes 2022 $M 2021 $M Restated1 8 12 9 17 20 6 9 18 9 248.2 155.7 156.1 – 560.0 82.4 842.3 23.9 637.3 422.9 168.9 147.9 148.7 221.6 687.1 89.4 833.2 5.0 309.2 431.3 2,008.8 2,568.8 1,668.1 2,355.2 13 114.0 3 9 9 7 9 9 2.0 15.4 87.6 8.6 122.2 – 349.8 11.6 20.2 15.4 478.4 330.1 855.7 1,205.5 1,363.3 95.7 15.1 13.8 75.8 8.8 113.9 28.5 351.6 7.5 32.0 13.1 486.8 325.0 864.4 1,216.0 1,139.2 61 Financial Statements Financial Statements Annual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance Consolidated Statement of Financial Position continued EQUITY Contributed equity Reserves Retained earnings Parent interest Non-controlling interest Total equity Notes 11 11 11 2022 $M 2021 $M Restated1 146.4 88.5 1,067.1 1,302.0 61.3 152.1 40.4 876.5 1,069.0 70.2 1,363.3 1,139.2 1 Comparative information for the year ended 30 June 2021 has been restated due to the finalisation of a purchase price allocation (PPA) adjustment. Refer to Note 16 for further details. The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 62 Financial Statements REA Group Ltd | Annual Report 2022 Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity for the year ended 30 June 2022 Notes Contributed equity $M 152.1 Balance at 1 July 2021 Profit for the year Other comprehensive income 11 Total comprehensive income for the year Transactions with owners in their capacity as owners Share-based payment expense Acquisition of treasury shares Settlement of vested performance rights Dividends paid Balance at 30 June 2022 15 11 11 10 Balance at 1 July 2020 Profit for the year Other comprehensive income 11 Total comprehensive income for the year Transactions with owners in their capacity as owners Share-based payment expense Acquisition of treasury shares Settlement of vested performance rights Issue of new shares Acquired minority interest Dividends paid Change in non-controlling interest Balance at 30 June 2021 15 11 11 11 11 10 11 Reserves $M 40.4 – 47.1 Retained earnings $M 876.5 384.8 – Parent interest $M 1,069.0 384.8 47.1 Non- controlling interest $M 70.2 (13.1) 4.4 Total equity $M 1,139.2 371.7 51.5 47.1 384.8 431.9 (8.7) 423.2 11.3 – (10.3) – 88.5 67.8 – (32.8) – – – 11.3 (16.0) – (194.2) (194.2) 1,067.1 1,302.0 704.3 322.7 – 864.2 322.7 (32.8) – – – (0.2) 61.3 0.4 (9.7) – 11.3 (16.0) – (194.4) 1,363.3 864.6 313.0 (32.8) (32.8) 322.7 289.9 (9.7) 280.2 9.1 – (3.7) – – – – – – – – – 9.1 (3.7) – 59.8 – (150.5) (150.5) – 0.2 40.4 876.5 1,069.0 – – – – 81.3 (0.2) (1.6) 70.2 9.1 (3.7) – 59.8 81.3 (150.7) (1.4) 1,139.2 – – – – (16.0) 10.3 – 146.4 92.1 – – – – (3.7) 3.7 59.8 – – 0.2 152.1 The Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 63 Financial Statements Financial Statements Annual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance Consolidated Statement of Cash Flows for the year ended 30 June 2022 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest paid Income taxes paid Net cash inflow from operating activities Cash flows from investing activities Payment for acquisition of subsidiary, net of cash acquired Payment for investment in associates Proceeds from sale of business assets Payment for property, plant and equipment Payment for intangible assets Investments in short term funds Payment for financial assets Purchase of subsidiary shares from non-controlling interest Net cash outflow from investing activities Cash flows from financing activities Dividends paid to company's shareholders Dividends paid to non-controlling interests in subsidiaries Payment for acquisition of treasury shares Proceeds from borrowings Repayment of borrowings and leases Related party loan to associate Net cash inflow/(outflow) from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents held for sale at the beginning/(end) of the year Effects of exchange rate changes on cash and cash equivalents Notes 2022 $M 2021 $M 1,288.4 (592.7) 695.7 1.3 (7.3) (202.1) 487.6 – (87.6) 0.4 (7.6) (87.4) (6.9) (5.6) – 997.4 (472.0) 525.4 2.5 (6.1) (200.4) 321.4 (267.4) (34.0) – (2.7) (64.2) – (11.8) (1.4) 8 18 6 (194.7) (381.5) 10 (194.2) (150.4) 9 9 (0.2) (16.0) 413.7 (422.3) (0.4) (219.4) 73.5 168.9 4.9 0.9 (0.2) (3.7) 413.4 (247.2) – 11.9 (48.2) 222.8 (4.9) (0.8) Cash and cash equivalents at end of the year 8 248.2 168.9 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 64 Financial Statements REA Group Ltd | Annual Report 2022 Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements for the year ended 30 June 2022 CORPORATE INFORMATION REA Group Ltd (the Company) is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange (ASX). The consolidated Financial Statements of the Company as at and for the year ended 30 June 2022 comprise the Financial Statements of the Company and its subsidiaries, together referred to in these Financial Statements as the ‘Group’ and individually as the ‘Group entities’. The nature of the operations and principal activities of the Group are described in the Directors’ Report. The consolidated Financial Statements of the Company for the year ended 30 June 2022 were authorised for issue in accordance with a resolution of the Directors on 8 August 2022. Directors have the power to amend and reissue the financial statements. 1. Basis of preparation • • • • • • REA Group Ltd and its controlled entities (together referred to as the ‘Group’) is a for-profit entity and is primarily involved in providing property and property-related services on websites and mobile apps across Australia and India. These general purpose Financial Statements have been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB). The Financial Statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). These Financial Statements have been prepared on a going concern basis under the historical cost convention except for financial assets and liabilities measured at fair value. The preparation of the Financial Statements requires the use of certain critical accounting estimates. It also requires the exercise of judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Statements, are disclosed separately in each relevant note. The Company is of a kind referred to in Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Financial Statements. Amounts in the Financial Statements have been rounded off in accordance with that Instrument to the nearest million and one decimal place unless otherwise stated. 65 Financial Statements Financial Statements Annual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance OUR PERFORMANCE This section highlights the performance of the Group for the year, including results by operating segment, revenue, expenses, earnings per share, intangible assets and the annual impairment assessment, and income tax expense. 2. Segment information Accounting policies Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision maker, being the CEO, who provides the strategic direction and management oversight of the company through the monitoring of results and approval of strategic plans for the business. The Group’s operating segments are determined firstly based on location, and secondly by function, of the Group’s operations. Following the divestment of the Malaysia and Thailand businesses, resulting in structural and operational changes, the Group completed a review of the reporting segments. As a result of the review, the Group’s reporting segments are outlined below: • • • • • Australia – Property & Online Advertising: includes property & online advertising across Australia and the equity investments of Campaign Agent Pty Ltd, Realtair Pty Limited and Managed Platforms Pty Ltd. Australia – Financial Services: includes Mortgage Choice (consolidated from 1 July 2021), Smartline, REA Home Loans and equity investment of Simpology Pty Limited. India – includes REA India Pte. Ltd. International – includes equity investments in Move, Inc. and PropertyGuru Group Limited. Corporate – includes the costs of certain head office functions that are not considered appropriate to be allocated to the Group’s operating businesses. The Group has two revenue streams, the first of which is the provision of advertising and other property-related services to the real estate industry. While the Group offers different brands to the market from this stream, it is considered that this offering is a single type of product/service, from which the Property & Online Advertising operating segments in each of Australia, India and International derive their revenues. The second revenue stream comes from the Financial Services operating segment in Australia, which derives its revenue through commissions earned from mortgage broking and home financing solutions offered to consumers. Intersegment transactions are reported separately, with intersegment revenue eliminated from total reported revenue of the Group. 66 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 2. Segment information (continued) The following tables present operating income and results by operating segments for the years ended 30 June 2022 and 30 June 2021. Australia India International Corporate Total Property & Online Advertising $M Financial Services $M $M $M $M $M 2022 Segment operating income1 Total segment operating income1 1,007.5 67.2 53.9 Segment operating income – other2 Inter-segment operating income Trail commission integration adjustment Operating income1 Results Segment EBITDA from core operations (excluding share of gains and losses of associates) Share of gains/(losses) of associates3 Segment EBITDA from core operations Restructure costs Net gain on acquisitions disposals and closure of subsidiaries, associates and operations4,5 Associate IPO and restructuring costs3 Integration costs (including trail commission adjustment) 41.8 (0.9) – – – – – – – 1,048.4 67.2 53.9 721.8 (3.7) 9.3 (1.3) (34.9) – – – – – – – (16.9) 718.1 8.0 (34.9) (16.9) – – – – – – – – – – – – – – – – EBITDA 718.1 8.0 (34.9) (16.9) Depreciation and amortisation EBIT Net finance expense Profit before income tax – – – 1,128.6 41.8 (0.9) (9.3) (9.3) (9.3) 1,160.2 (25.7) 24.9 (0.8) (3.1) 22.0 (24.9) (19.6) (26.4) 670.5 3.0 673.5 (3.1) 22.0 (24.9) (19.6) 647.9 (93.1) 554.8 (6.9) 547.9 1 2 This represents revenue less commissions for Financial Services. This represents the former Asia operations, being Malaysia, Thailand and Hong Kong (Note 17), inclusive of MyFun and legacy Asia operations which has been integrated into the Australian operations. Inclusive of $24.9 million of associate restructuring and transaction costs reflecting REA’s share of costs incurred by PropertyGuru. 3 4 Comprised of $15.8 million gain relating to the divestment of Malaysia, Thailand and 99 Group shareholder rights; $9.0 million loss relating to the divestment of Hong Kong assets to 28Hse, closure of Hong Kong operations and rationalisation of the remaining Asia subsidiaries; and $5.7 million reduction of 99 Group SPV financial asset. The impact of the deemed disposal as a result of the dilution from the initial public offering (IPO) of PropertyGuru resulted in a $20.9 million gain. 5 67 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 2. Segment information (continued) 2021 Restated Segment operating income1 Total segment operating income1 Segment operating income – other2 Inter-segment operating income Operating income1 Results Segment EBITDA from core operations (excluding share of gains and losses of associates) Share of gains/(losses) of associates3 Segment EBITDA from core operations Restructure costs Net loss on acquisitions, disposals and closure of subsidiaries and operations3 Integration costs Historic tax provision4 EBITDA Depreciation and amortisation EBIT Net finance expense Profit before income tax Australia India5 International Corporate Total Property & Online Advertising $M Financial Services $M $M $M $M $M 848.1 41.0 (2.6) 886.5 590.2 (4.3) 585.9 – – – – 24.0 17.3 – – – – 24.0 17.3 6.4 – 6.4 – – – – (18.0) (2.4) (20.4) – – – – – – – – – 19.3 19.3 – – – – – – – – (22.9) (3.5) (26.4) (0.9) (1.1) (3.9) (3.3) 889.4 41.0 (2.6) 927.8 555.7 9.1 564.8 (0.9) (1.1) (3.9) (3.3) 585.9 6.4 (20.4) 19.3 (35.6) 555.6 (82.6) 473.0 (4.6) 468.4 1 2 This represents revenue less commissions for Financial Services. This represents the former Asia operations, being Malaysia, Thailand and Hong Kong (Note 17), inclusive of MyFun and legacy Asia operations which has been integrated into the Australian operations. Inclusive of $3.5 million gain relating to Move, Inc. sale of Top Producer. 3 4 Historic indirect tax provision reflects potential retrospective changes to interpretation of tax law. 5 Represents REA India Pte. Ltd. which was consolidated in the Group’s results from 1 January 2021 and prior to that previously recognised as an investment in associate. 68 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 3. Revenue from contracts with customers and other income (a) Revenue recognition Accounting policies Revenue is recognised at an amount that reflects the consideration to which the Group expects to be entitled in exchange for transferring products or services to a customer. The contract transaction price that will be recognised as revenue excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control over a product or service to a customer. Where services have been billed in advance and the performance obligations to transfer the services to the customer have not been satisfied, the consideration received will be recognised as a contract liability until such time when or as those performance obligations are met and revenue is recognised. The Group’s customer contracts may include multiple performance obligations. In these cases, the Group allocates the transaction price to each performance obligation based on the relative standalone selling prices of each distinct service. Standalone selling prices are determined based on prices charged to customers for individual products and services taking into consideration the size and length of contracts, product rate cards and the Group’s overall go-to-market strategy. Contract liabilities relate to consideration received in advance of the provision of goods or services to a customer and primarily arise from the difference in timing between billing and satisfaction of the performance obligation. Type of revenue Recognition criteria Property & online advertising Subscription services Listing depth products Banner advertising Subscription revenues are derived by providing property advertising services over a contracted period. Consideration is recorded as deferred when it is received which is typically at the time of sale and revenue is recognised over time as the customer receives and consumes the benefits of the access to display listings over the contract period. The measurement of progress in satisfying this performance obligation is based on the passage of time (i.e. on a straight-line basis). The amount of revenue recognised is based on the amount of the transaction price allocated to this performance obligation. Listing depth revenues are derived by providing property advertising services over a contracted period. Transaction price is allocated to the performance obligations (i.e. upgrades of listings to feature more prominently) and revenue is recognised over time as obligations are satisfied. Depth products are billed monthly in advance and the timing and duration of the contract may result in contract liabilities. Revenues from banner advertising are recognised over the time which the advertisements are placed or as the advertisements are displayed, depending on the structure of the contract. Advertising customers are billed on a monthly basis, and contract liabilities may arise between the date of contract commencement and the date all performance obligations are met. Performance advertising and contracts transactional and other services Revenues from performance advertising and performance contracts are recognised at a point in time, being when the performance measure occurs and is generated (e.g. cost per click or cost per impression). Customers are billed monthly in arrears. Transactional services revenue is recognised at a point in time when the transaction is completed on the platform. Fees are charged on a transaction basis. Service revenue is recognised at a point in time when services are rendered in relation to providing consulting and facilitation services for properties. 69 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 3. Revenue from contracts with customers and other income (continued) Type of revenue Recognition criteria Data revenue Financial services Lender commissions Automated valuation model (AVM) income is derived from providing customers access to AVMs over a contracted period. Consideration is received monthly in arrears, with customers charged either a flat monthly fee or based on volume. Revenue is recognised over time where a flat fee is charged as the performance obligation is to stand ready to provide services, whereas volume driven fees are recognised at a point in time when the valuation is performed. Platform build revenue is recognised based on contract milestones. Where the Group has an enforceable right to payment for performance completed to date and no alternative use for the asset, it recognises revenue for the period build, based on time incurred. Platform licence fees are recognised over time as the customer receives and consumes the benefits of the access to the platform evenly over time. The Group provides mortgage broking services, where the service provided by the Group is to establish a loan contract between financial institutions and the borrower. No other services are provided by the Group to the borrower on behalf of the financial institution once the loan has been established. In exchange for that mortgage broking service, the Group is entitled to consideration in the form of an upfront commission and a trail commission. The upfront commission is recognised once the loan has been established and is subject to a clawback provision. The trail commission is received over the life of the loan to the extent that the borrower continues to hold the loan with the financial institution. The outcomes of both these uncertainties are outside the control of the Group, however the Group has extensive historical data and incorporates current market data to support the assessment of the consideration. Both commissions are accounted for as variable consideration and are estimated on an expected value basis. The estimated amount is included in the transaction price to the extent it is highly probable that a change in the upfront commissions or trail commission estimation would not result in a significant reversal of the cumulative revenue recognised. Revenue is updated each reporting period based on any changes in the estimates of variable consideration. The Group applies the practical expedients in accordance with AASB 15 Revenue from Contracts with Customers paragraph 94, to expense the commissions in relation to obtaining contracts, and AASB 15 paragraph 121, to be exempt from disclosure of information about remaining performance obligations where the performance obligations are part of contracts that have original expected durations of one year or less, or remaining performance obligations where we have a right to consideration from a customer in an amount that corresponds directly with the value provided to the customer for the entity’s performance obligations completed to date. 70 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 3. Revenue from contracts with customers and other income (continued) (b) Revenue from contracts with customers reconciliation Total revenue for the Group: Timing of revenue Services transferred at a point in time Services transferred over time Total revenue Consolidated for the year ended 30 June 2022 Property & Online Advertising $M Financial Services $M 16.6 325.1 1,031.8 1,048.4 – 325.1 India $M 24.6 29.3 53.9 Total $M 366.3 1,061.1 1,427.4 Restated1 Consolidated for the year ended 30 June 2021 Total revenue for the Group: Timing of revenue Services transferred at a point in time Services transferred over time Total revenue Property & Online Advertising $M 14.7 871.8 886.5 Financial Services $M 101.6 – 101.6 India $M 8.4 8.9 17.3 Total $M 124.7 880.7 1,005.4 1 Comparative information for the year ended 30 June 2021 has been restated for the effects of changes in reportable segments. Reconciliation of operating income: Total revenue Expense from franchisee commissions Total operating income 2022 $M 2021 $M 1,427.4 1,005.4 (267.2) 1,160.2 (77.6) 927.8 (c) Contract liabilities As of 1 July 2021, contract liabilities amounted to $75.8 million, of which $75.8 million was recognised during the year ended 30 June 2022 (FY21: $61.5 million was recognised during the year ended 30 June 2021 relating to opening contract liabilities of $61.5 million). 71 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 4. Expenses Profit before income tax includes the following specific expenses: Finance (income)/expense Interest income Interest expense Foreign exchange loss - financing Total finance expense Depreciation of property, plant and equipment Amortisation of intangibles Total depreciation and amortisation expense Advertising placement costs Net foreign exchange (gain)/loss 5. Earnings per share (EPS) Accounting policies 2022 $M 2021 $M (1.3) 8.1 0.1 6.9 16.0 77.1 93.1 31.5 (1.6) (2.2) 6.5 0.3 4.6 17.4 65.2 82.6 15.3 1.9 The Group presents basic and diluted earnings per share in the Consolidated Income Statement. Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year. There are no dilutive potential ordinary shares. (a) Earnings per share Basic and diluted earnings per share attributable to the ordinary equity holders of the company (b) Reconciliation of earnings used in calculating earnings per share Profit attributable to the ordinary equity holders of the company used in calculating basic and diluted earnings per share (c) Weighted average number of shares 2022 Cents 291.3 2022 $M 2021 Cents 244.6 2021 $M 384.8 322.7 2022 Shares 2021 Shares Weighted average number of ordinary shares used as the denominator in calculating basic and diluted earnings per share1 132,117,217 131,927,327 1 The Group does not have any dilutive potential ordinary shares. There is no effect of the share rights granted under the share-based payment plans on the weighted average number of ordinary shares, as shares are purchased on-market. 72 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 6. Intangible assets and impairment Accounting policies Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is not amortised and is measured at cost less any impairment losses. IT development and software costs incurred in developing products or systems and costs incurred in acquiring software and licences that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Costs capitalised include external direct costs of materials and services and direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straight-line basis over three to five years. IT development costs include only those costs directly attributable to the development phase and are only recognised following completion of technical feasibility and where the Group has an intention and ability to use the asset. Other intangible assets such as customer contracts and brands acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the Consolidated Income Statement on a straight-line basis over the estimated useful lives of the intangible assets, ranging from three to 17 years for customers contracts, and 15 years for those brands that do not have an indefinite useful life (for which no amortisation charge is recognised). Impairment testing is performed annually, or more frequently if events or changes in circumstances indicate that it might be impaired. The Group identifies its cash generating units (CGU’s), which are the smallest identifiable groups of assets that generate cash inflows largely independent of cash inflows of other assets or other groups of assets. The Group monitors goodwill at a segment level and the carrying amount of goodwill acquired through business combinations has been assessed for impairment testing on that basis. An impairment loss is charged to the income statement to reduce the carrying amount in the balance sheet to its recoverable amount. The recoverable amount is the higher of an asset’s or CGU’s value in use or fair value less cost of disposal. Key estimate and judgement The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. All estimates require management judgements and assumptions and are subject to risk and uncertainty that may be beyond the control of the Group. The recoverable amount of an asset or CGU is the higher of its fair value less costs of disposal and its value in use. The determination of recoverable amount requires the estimation and discounting of future cash flows. These estimates include establishing forecasts of future financial performance, discount rates and terminal growth rates. Each of these is based on a ‘best estimate’ at the time of performing the valuation, and by definition, the estimate will seldom equal the related actual results. The assets’ residual values, useful lives and amortisation methods are reviewed and adjusted if appropriate, at each financial year end. The estimation of useful lives of assets has been based on historic experience and turnover policies. Any changes to useful lives may affect prospective amortisation rates and asset carrying values. In assessing whether a brand has a finite or indefinite useful life, the Group makes use of information on the long-term strategy of the brand, the level of growth or decline of the markets that the brand operates in, the history of the market and the brand’s position within that market. Assets other than goodwill and intangible assets that have an indefinite useful life are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 73 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 6. Intangible assets and impairment (continued) Year ended 30 June 2022 Opening net book amount Additions - internally generated Disposals (net of amortisation) Amortisation charge Exchange differences Closing net book amount As at 30 June 2022 Cost Accumulated amortisation and impairment Closing net book amount Year ended 30 June 2021 Opening net book amount Additions - internally generated Other business combinations3 Disposals (net of amortisation) Amortisation charge Transferred to assets held for sale Exchange differences Closing net book amount As at 30 June 2021 Cost Accumulated amortisation and impairment Closing net book amount Goodwill $M Software1 $M Customer contracts $M Brands2 $M Total $M 575.8 – – – – 575.8 153.0 87.4 (2.3) (68.7) 1.1 170.5 829.8 (254.0) 575.8 513.7 (343.2) 170.5 414.8 – 263.7 – – (102.7) – 575.8 829.8 (254.0) 575.8 123.9 64.2 41.0 (0.9) (62.0) (11.8) (1.4) 153.0 428.8 (275.8) 153.0 67.6 36.8 833.2 – – (4.5) – 63.1 79.4 (16.3) 63.1 27.6 – 46.0 – (3.1) (2.9) – 67.6 79.4 (11.8) 67.6 – – (3.9) – 32.9 50.1 (17.2) 32.9 84.1 – 27.0 – (0.1) (74.2) – 36.8 50.1 (13.3) 36.8 87.4 (2.3) (77.1) 1.1 842.3 1,473.0 (630.7) 842.3 650.4 64.2 377.7 (0.9) (65.2) (191.6) (1.4) 833.2 1,388.1 (554.9) 833.2 Software includes capitalised development costs, being an internally generated intangible asset. 1 2 Brands includes indefinite life intangible assets allocated to the Financial Services CGU of $11.4 million (FY21: $15.3 million), and to the India CGU of $15.6 million (FY21: $15.6 million). 3 Acquisitions of Mortgage Choice and REA India. 74 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 6. Intangible assets and impairment (continued) (a) Impairment tests for goodwill and indefinite life intangibles The Group monitors goodwill at segment level and the carrying amount of goodwill acquired through business combinations has been assessed for impairment testing as follows: Australia – Property & Online Advertising1 Australia – Financial Services India Total Discount rates Terminal growth rates Goodwill1 $M 2022 2021 2022 2021 2022 2021 11.7% 12.4% N/A 13.1% 14.4% N/A 3.0% 3.0% N/A 2.4% 2.4% N/A 283.0 129.5 163.3 575.8 283.0 129.5 163.3 575.8 1 Includes $120.2 million of goodwill that has been integrated into Australia – Property & Online Advertising. Prior to integration, goodwill was tested for impairment with no impairment recognised. The recoverable amounts for Australia – Property & Online Advertising and Australia Financial Services have been determined based on a value-in-use calculation using cash flow projections based on financial forecasts approved by the Board. These cash flow projections cover a five-year period for Australia – Property & Online Advertising and a seven-year period for Australia Financial Services, to appropriately reflect the growth profile of the respective businesses. Cash flows beyond the final year of cash flows are extrapolated using a terminal growth rate. The recoverable amount for India has been determined based on a fair value less costs of disposal calculation, based on a market value methodology utilising a revenue multiple and Board approved financial forecasts. The inputs would be categorised as Level 2 within the fair value hierarchy. (b) Result of impairment testing The Group has not recorded an impairment charge for the year ended 30 June 2022 (2021: nil). (c) Key assumptions used for valuation calculations Discount rates (pre-tax) represent the current market specific to each segment, taking into consideration the time value of money and individual risks that have not been incorporated in the cash flow estimates. The discount rate calculation is based on specific circumstances of the Group and the segment and is derived from its weighted average cost of capital (WACC). Segment-specific risk is incorporated by applying additional regional risk factors. The WACC is evaluated annually based on publicly available market data. Growth rate estimates are based on industry research and publicly available market data. The rates used to extrapolate the cash flows beyond the budget period includes an adjustment to current market rates where required to approximate a reasonable long-term average growth rate. Over the extended forecast period, growth rate assumptions are above the terminal growth rate as the Group operates in a high growth industry. Real estate industry and lending industry conditions impact assumptions including volume of real estate and borrowing transactions, number of real estate agencies, broker productivity and new development project spend. Assumptions are based on research and publicly available market data. Revenue trading multiples for comparable companies using FY22 revenue forecasts have been applied. Cost of disposal are estimated to be 2.5% of incremental costs directly attributable to the disposal of the CGU which is consistent with FY21. (d) Sensitivity to changes in assumptions There is no reasonable possible change in a key assumption used to determine the recoverable amount that would result in impairment. 75 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 7. Income tax Accounting policies Income tax expense for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax law in the countries where the subsidiaries, associates, and joint ventures operate and generate taxable income. The Group establishes liabilities where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred tax is provided in full, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated Financial Statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Utilisation of tax losses also depends on the ability of the entity to satisfy certain tests at the time the losses are recouped. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Where there are current and deferred tax balances attributable to amounts recognised directly in equity, these are also recognised directly in equity. Presentation of deferred tax assets and liabilities are on a net basis where the Group intends to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. Comparative amounts in the Consolidated Statement of Financial Position have been reclassified for consistency. Tax consolidation legislation The head entity, REA Group Ltd and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a standalone taxpayer in its own right. Details about the tax funding agreement in place between REA Group Ltd and wholly owned entities are disclosed in Note 23. GST is netted against revenues and expenses, unless the GST is not recoverable from the taxation authority, where it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the Consolidated Statement of Financial Position. Cash flows are presented on a gross basis and the GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the taxation authority are presented as operating cash flows. Adoption of Voluntary Tax Transparency Code On 3 May 2016, the Australian Treasurer released a Voluntary Tax Transparency Code (the Voluntary Code). The Voluntary Code recommends additional tax information be publicly disclosed to help educate the public about the corporate sector’s compliance with Australia’s tax laws. The Group supports the Voluntary Tax Transparency Code as part of our commitment to paying the right amount of tax and complying with all tax laws and signed up to this Voluntary Code in FY19. 76 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 7. Income tax (continued) Key estimate and judgement The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the worldwide provision for income taxes. There are transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax liabilities based on the Group’s understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made. In addition, the Group has recognised deferred tax assets relating to carried forward tax losses to the extent there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same subsidiary against which the unused tax losses can be utilised. However, utilisation of the tax losses also depends on the ability of the entity to satisfy certain tests at the time the losses are recouped. The Group is also required to assess if it has any uncertain tax treatments. An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment will be accepted by the relevant tax authority, and these require additional disclosures. (a) Income tax expense Current tax Adjustments for current tax of prior periods Deferred tax Adjustments for deferred tax of prior periods Total income tax expense reported in the Consolidated Income Statement (b) Numerical reconciliation of income tax expense to prima facie tax payable Accounting profit before income tax Tax at the Australian tax rate of 30% (2021: 30%) Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Research and development deduction Share of (gains)/losses of associates Prior period adjustments including research and development claim Tax losses not recognised (Gain)/loss on acquisitions (Gain)/loss on sale of business Tax cost setting adjustments for acquired entities Transaction costs Other 2022 $M 190.4 (0.7) (14.6) 1.1 176.2 2022 $M 547.9 164.4 (3.4) 6.6 0.4 12.8 – (6.5) – 0.2 1.7 2021 $M 159.1 0.3 (4.8) 0.8 155.4 2021 $M 468.4 140.5 (1.6) (3.8) 1.2 15.7 (1.3) – (0.4) 2.7 2.4 Total income tax expense reported in the Consolidated Income Statement 176.2 155.4 77 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 7. Income tax (continued) (c) Amounts recognised directly into equity Aggregate current and deferred tax arising in the reporting period and not recognised in the Consolidated Income Statement or other comprehensive income but directly debit/(credit) to equity: Current tax – credit directly to equity Net deferred tax – debit/(credit) directly to equity Total amount recognised directly into equity (d) Summary of deferred tax The balances comprise temporary differences attributable to: Employee benefits Expected credit losses Accruals and other Intangible assets Foreign currency revaluation of associate Purchase price accounting adjustment Total temporary differences Deferred tax assets Deferred tax liabilities Net deferred tax liabilities Movements: Opening balance Credit to the Consolidated Income Statement (Debit)/Credit to equity Deferred taxes on acquisition of subsidiary Transferred to assets held for sale Purchase price accounting adjustment Exchange differences Closing balance Deferred tax assets expected to be recovered within 12 months Deferred tax assets expected to be recovered after more than 12 months Deferred tax liabilities expected to be payable within 12 months Deferred tax liabilities expected to be payable after more than 12 months Net deferred tax liabilities 2022 $M 2021 $M – 2.3 2.3 2022 $M 16.6 1.1 10.2 (44.4) (3.7) – (20.2) 27.9 (48.1) (20.2) (32.0) 13.5 (2.3) 0.5 – – 0.1 (20.2) 24.1 3.8 – (48.1) (20.2) – (0.4) (0.4) 2021 $M 5.0 1.2 7.7 (53.7) (1.5) 9.3 (32.0) 13.9 (45.9) (32.0) (25.3) 4.0 0.4 (38.9) 18.5 9.3 – (32.0) 11.5 2.3 – (45.8) (32.0) (e) Unrecognised temporary differences The Group has unused revenue tax losses for which no deferred tax asset has been recognised of $256.7 million (2021: $238.0 million) on the basis that it is not probable that the Group will derive future assessable income of a nature and amount sufficient to enable the temporary difference to be realised. Of the $256.7 million, $65.7 million (2021: $49.0 million) has no time limit expiry and $191.0 million (2021: $189.0 million) is subject to a time limit of expiry ranging five to eight years from when the loss was incurred. The Group has also incurred approximately $650.0 million of capital losses resulting from the wind down of its Asia business units. The precise quantum of these capital losses will be finalised upon lodgement of the Group’s respective FY22 income tax returns. 78 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 RETURNS, RISK AND CAPITAL MANAGEMENT This section sets out the policies and procedures applied to manage capital structure and the related risks and rewards. Capital structure is managed in such a way so as to maximise shareholder return, maintain optimal cost of capital and provide flexibility for strategic investment. 8. Cash and cash equivalents Accounting policies Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of less than three months and are subject to an insignificant risk of change in value. For cash flow statement presentation purposes, cash and cash equivalents are as defined above, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the Consolidated Statement of Financial Position. Cash at bank and in hand Short-term deposits Total cash and short-term deposits (a) Cash flow reconciliation Profit for the year Depreciation and amortisation Share-based payment expense Net exchange differences Share of (gains)/losses of associates Net gain on acquisitions, disposals and closure of subsidiaries, associates and operations Other non-cash items Change in operating assets and liabilities Acquisition/divestment of net working capital (Increase) in trade receivables (Increase)/Decrease in other assets (Increase)/Decrease in net commission assets (Decrease)/Increase in net deferred tax liabilities Increase in trade and other payables Increase in contract liabilities Increase in other liabilities and provisions (Decrease) in current tax liabilities Net cash inflow from operating activities 2022 $M 247.4 0.8 248.2 2022 $M 371.7 93.1 10.4 (1.6) 21.9 (23.1) (1.5) (12.2) (13.1) 13.1 14.5 (11.8) 13.3 11.8 14.2 (13.1) 487.6 2021 $M 168.4 0.5 168.9 2021 $M 313.0 82.6 9.1 3.7 (12.6) (3.1) 0.4 35.4 (34.0) (14.6) (99.4) 25.2 26.1 18.3 14.9 (43.6) 321.4 79 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 9. Financial risk management The financial risks arising from the Group’s operations comprise market, credit and liquidity risk. The Group seeks to manage risks in ways that will generate and protect shareholder value. Management of risk is a continual process and an integral part of business management and corporate governance. The Group’s risk management strategy is aligned with the corporate strategy and company vision to ensure that it contributes to corporate goals and objectives. The Board determines the Group’s tolerance for risk, after taking into account the strategic objectives, shareholder expectations, financial and reporting requirements and the financial position, organisational culture and the experience or demonstrated capacity in managing risks. Management is required to analyse its business risk in the context of Board expectations, specific business objectives and the organisation’s risk tolerance. One of the key areas of the Group’s risk management focus is on financial risk management of financial instruments, used to raise and distribute funds for the Group’s operations and opportunities. Borrowings are made at variable interest rates. Cash and cash equivalents draw interest at variable interest rates. All other financial assets and liabilities are non-interest-bearing. The Group holds the following financial instruments: Notes AASB 13 Fair value hierarchy level AASB 9 Classification Cash and cash equivalents Trade and other receivables1 Investment in short term funds Commission contract assets2 Other non-current financial asset3 Other assets Total financial assets and contract assets Non-financial assets Total assets Trade and other payables4 Commission liabilities Interest bearing loans and borrowings Total financial liabilities Non-financial liabilities Total liabilities 8 12 12 9(a) 9(b) 9(b) 13 9(a) 9(d) Amortised cost Amortised cost FVTPL FVTPL Amortised cost 2 3 Amortised cost Amortised cost Amortised cost 2022 $M 248.2 139.0 7.4 579.0 19.9 3.6 997.1 1,571.7 2,568.8 102.8 452.3 487.0 1,042.1 163.4 1,205.5 2021 $M 168.9 126.4 0.5 580.0 – 4.2 880.0 1,475.2 2,355.2 89.6 438.9 495.6 1,024.1 191.9 1,216.0 Excludes Prepayments $9.7 million (2021: $21.8 million) included in Other Receivables. 1 2 Commission contract assets are accounted for in accordance with AASB 15, with an Expected Credit Loss (ECL) measured in accordance with AASB 9. Refer to Note 9(a) for further details. The financial asset ($19.9 million) is measured at fair value and uses assumptions that are unobservable inputs categorised as Level 3 within the fair value hierarchy. The Group uses the discounted cash flow method of estimating the fair value of the financial asset and is measured on a non-recurring basis. Excludes Current Indirect Tax Liability $11.2 million (2021: $6.1 million) included in Other Payables. 3 4 The Group assessed that the fair values of cash and cash equivalents, trade receivables and other assets, and trade and other payables approximate their carrying amounts largely due to the short-term maturities of these instruments. Refer to section (d) for measurement details on borrowings. 80 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 9. Financial risk management (continued) (a) Commissions Accounting policies On initial recognition at settlement, the Group recognises trailing commission revenue and a related commission contract asset representing management’s estimate of the variable consideration to be received from completion of the performance obligation. The Group uses the ‘expected value’ method of estimating variable consideration which requires significant judgement. A significant financing component is also involved when determining this variable consideration. As such, the contract asset is adjusted by recalculating the net present value of estimated future cash flows at the original effective interest rate. The transaction price is a percentage of the expected outstanding balance of the loan. A corresponding expense and payable is also recognised, initially measured at fair value being the net present value of expected future trailing commission payable to brokers. These calculations require the use of assumptions that are unobservable inputs categorised as Level 3 within the fair value hierarchy. The trail commission liabilities that are initially recognised at fair value are subsequently carried at amortised cost using the effective interest rate (EIR) method. Any resulting adjustment to the carrying value is recognised as income or expense in the Consolidated Income Statement. Key estimate and judgement The determination of the assumptions used in the valuation of trailing commissions is based primarily on an annual actuarial assessment at year end of the underlying loan portfolio, including historical run-off rate analysis and consideration of current and future economic factors. These factors are complex and the determination of assumptions requires a high degree of judgement. The key assumptions underlying the expected value calculations of the trailing commission contract asset and the corresponding liability due to franchisees at 30 June are detailed below. The assumptions reflect the ‘best estimate’ of the trailing commission contract asset and corresponding liability at the time of performing the valuation. Assumptions 2022 2021 Relationship of assumptions Weighted average loan life 4.1 years 4.2 years Discount rate per annum 4.5 – 5.5% 4.5 – 6.5% Average percentages paid to franchisees 78.0% 75.4% Average loan life is impacted by the future run-off rate. A reduction in the average loan life as a result of higher run-off would result in a lower net asset position. An increase/decrease by 1.0% in the run-off rate would lead to a movement in the net assets of $4.7 million. An increase/decrease by 0.5% in the discount rate would lead to a movement in the net assets of $0.5 million. An increase/decrease by 0.5% in the pay-out rate would lead to a movement in the net assets of $2.6 million. 81 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 9. Financial risk management (continued) Future trail commission contract assets are due from a combination of highly rated major lenders. There have been no historical instances where a loss has been incurred, including through the global financial crisis. ECLs are not considered material and consequently have not been recognised. The carrying amounts of contract assets and financial liabilities recognised as they relate to trailing commissions are detailed below: Future trailing commission contract asset – current Upfront commission contract asset – current Total current commission contract assets Future trailing commission contract asset – non-current Future trailing commission liability – current Upfront commission liability – current Total current commission liabilities Future trailing commission liability – non-current (b) Financial assets Accounting policies Recognition and measurement 2022 $M 129.4 26.7 156.1 422.9 100.5 21.7 122.2 330.1 2021 $M 122.4 26.3 148.7 431.3 92.2 21.7 113.9 325.0 Financial assets are classified at initial recognition and subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. Except for trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. For a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding on specified dates. This assessment is referred to as the SPPI test and is performed at an instrument level. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets at amortised cost is the category most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met: • • The financial asset is held within a business model with the objective to hold financial assets to collect contractual cash flows; and The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets at amortised cost are subsequently measured using the EIR method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group’s financial assets at amortised cost include trade receivables and other assets (Note 12). Financial assets designated at fair value through OCI (equity instruments) Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under AASB 132 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis. Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the Consolidated Income Statement when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment. The Group does not currently hold investments under this category. 82 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 9. Financial risk management (continued) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value, with net changes in fair value recognised in the statement of profit or loss. The Group’s financial assets held under this category include investment in short term assets and other non-current financial assets. Impairment of financial assets and commission contract assets The Group recognises an allowance for expected credit loss (ECL) for all debt instruments not held at fair value through profit or loss and commission contract assets. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. Further information about the Group’s ECLs on trade receivables and other assets in Note 12. On 30 July 2021, as part of the contractual arrangement between the Group and PropertyGuru, the Group divested the shareholder rights associated with the 27% interest in 99 Group and the associated convertible note, and therefore ceased to have significant influence over 99 Group. At 30 June 2021 these assets were classified as held for sale. As of 30 June 2022, the settlement for this transaction is no longer expected to occur within the next 12 months and is no longer presented as held for sale. Accordingly, the Group recognised a non-current financial asset with a settlement period of up to 30 months. In the unlikely event that the sale proceeds are not settled within that period, a market sale process would be initiated to recover the funds. The financial asset is measured at fair value and uses assumptions that are unobservable inputs categorised as Level 3 within the fair value hierarchy. Based on the information and assumptions underlying the fair value calculation, the carrying amount was reduced by $5.7 million which is reflected in the Consolidated Income Statement. 83 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 9. Financial risk management (continued) (c) Financial liabilities Accounting policies Recognition and measurement Financial liabilities are classified as subsequently measured at amortised cost, except for: • • Financial liabilities at fair value through profit or loss. Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies Financial guarantee contracts • • Commitments to provide a loan at a below-market interest rate • Contingent consideration recognised by an acquirer in a business combination to which AASB 3 applies. All financial liabilities are recognised initially at fair value, and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, commission liabilities and loans and borrowings. Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised, as well as through the EIR amortisation process. Amortised cost is calculated by considering any discount or premium on acquisition, and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss. Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the actual drawdown of the facility, are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the drawdown occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is amortised on a straight-line basis over the term of the facility. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. This category generally applies to interest-bearing loans and borrowings (refer to section (d)). Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by AASB 9 Financial Instruments. Gains or losses on liabilities held for trading are recognised in the Consolidated Income Statement. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in AASB 9 are satisfied. (d) Borrowings Facility1 Syndicated facility – Tranche A Syndicated facility – Tranche B2 Unsecured bridge facility 1 2 The carrying value of the debt approximates fair value. The undrawn amount at 30 June 2022 was $186.3 million. Interest rate Maturity BBSY + 1.0 – 2.1% September 2024 BBSY + 1.15 – 2.25% September 2025 BBSY + 0.80% July 2022 2022 $M 400.0 13.7 – 2021 $M – – 413.8 (i) Syndicated facility In September 2021, the Group refinanced the $520 million bridge facility with a new $600 million syndicated facility, split in two tranches: a $400 million three-year facility and $200 million four-year facility. The lenders to the new syndicated facility are National Australia Bank Limited as Lead Arranger, Australia and New Zealand Banking Group Limited, HSBC Bank Australia Limited, ING Bank (Australia) Limited and Commonwealth Bank of Australia. The facilities were recognised initially at fair value net of directly attributable transaction costs. As at 30 June 2022, the Group was in compliance with all applicable debt covenants. The Group’s risk management policies and objectives are summarised on the following page: 84 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 9. Financial risk management (continued) (e) Market risk – foreign exchange Nature of risk Risk management Material arrangements Exposure Foreign currency risk arises when future transactions or financial assets and liabilities are denominated in a currency other than the entity’s functional currency. The Group currently operates internationally and is therefore exposed to foreign exchange risk, relating to the Singapore Dollar (SGD), Indian Rupee (INR), US Dollar (USD), Chinese Yuan (CNY), Arab Emirates Dirham (AED), Hong Kong Dollar (HKD), and Malaysian Ringgit (MYR). The Group manages foreign currency risk by evaluating its exposure to fluctuations and entering forward foreign currency contracts, where appropriate. The Group also holds foreign currency cash balances in order to fund significant transactions denominated in non-functional currencies. At the reporting date, cash and cash equivalents included the AUD equivalent of $44.0 million (2021: $14.8 million) in SGD, INR, USD, CNY, AED, HKD, and MYR. At reporting date, no forward or foreign currency contracts were in place. The Group’s exposure to foreign currency changes for all other currencies is not considered material. Sensitivity analysis was performed to illustrate the impact of movements in each foreign currency with all other variables held constant and utilising a range of +5% to -5%: Cash and cash equivalents: the impact to the profit and loss would be between ($2.2 million) and $2.2 million. (f) Market risk – cash flow interest rate Nature of risk Risk management Material arrangements Exposure The Group is exposed to variable interest rate risk on its interest-bearing financial assets and liabilities due to the possibility that changes in interest rates will affect future cash flows. As at 30 June 2022, the Group’s primary exposure to interest rate risk arises from interest bearing loans and borrowings (excluding lease liabilities) and cash and cash equivalents. Cash and cash equivalents consist primarily of cash and short-term deposits, which are predominately interest-bearing accounts. Funds that are excess to short-term liquidity requirements are generally invested in short-term deposits. The Group is primarily exposed to domestic interest rate movements, therefore exposure and impact to foreign interest change is considered immaterial. The Group manages interest rate risk by evaluating its exposure to interest rate changes and entering contracts where appropriate. As at 30 June 2022, the Group held cash and cash equivalents of $248.2 million (2021: $168.9 million), of which $0.8 million (2021: $0.5 million) was held in short-term deposits. As at 30 June 2022, the Group held interest bearing loans and borrowings (excluding lease liabilities) of $413.7 million (2021: $413.4 million) which are exposed to interest rate movements. See further details in section (d) on the Group’s borrowing facilities. Sensitivity analyses were performed to illustrate the impact of movements in interest rates, with all other variables held constant. Borrowings: the weighted average interest rate for the year ended 30 June 2022 was 1.31% (2021: 0.49%). If the interest rate were to increase or decrease by 10%, the impact to the interest expense would be between $0.5 million and ($0.5 million). Cash and cash equivalents: if cash and cash equivalents were to increase or decrease by 10%, based on historic interest rates, the impact to interest income would be between $0.1 million and ($0.1 million). (g) Market risk – price The Group does not have any listed equity securities that are susceptible to market price risk arising, other than the equity accounted investment in PropertyGuru (Note 18) at 30 June 2022 (2021: nil). 85 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 9. Financial risk management (continued) (h) Credit risk Nature of risk Credit risk can arise from the non-performance by counterparties of their contractual financial obligations towards the Group. The Group is exposed to credit risk from its operating activities (primarily from trade receivables and commission contract assets) and from its financing activities, including deposits with financial institutions. Risk management Material arrangements Exposure The gross trade receivables balance at 30 June 2022 was $137.4 million (2021: $125.1 million). Refer to Note 12 for an aging analysis of this balance. As at 30 June 2022, the Group held cash and cash equivalents of $248.2 million (2021: 168.9 million) of which $0.8 million (2021: $0.5 million) was held in short-term deposits. The Group’s maximum exposures to credit risk at balance date in relation to each class of recognised financial assets is the carrying amount of those assets. Refer to Note 12 for details on the provision for expected credit losses as at 30 June 2022. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures, which may include an assessment of their financial position, past experience and industry reputation, depending on the amount of credit to be granted. Receivable balances are monitored on an ongoing basis. Refer to Note 12 for further details on the expected credit loss policy. Credit risk arising from other financial assets, i.e. cash and cash equivalents, arises from default of the counterparty. The Group’s treasury policy specifies a minimum long term “BB” or better investment grade risk rating for financial institutions in order to transact with the Group. (i) Liquidity risk Nature of risk Risk management Material arrangements Exposure Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations as they fall due. Liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due. Liquidity risk is managed via the regular review of forecasted cash inflows and outflows, with any surplus funds being placed in short term deposits to maximise interest revenue. Principally the Group sources liquidity from cash generated from operations and where required external bank facilities. The table below categorises the Group’s financial liabilities into their relevant maturity groupings. The amounts included are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. The gross trade receivables balance at 30 June 2022 was $137.4 million (2021: $125.1 million). Refer to Note 12 for an aging analysis of this balance. As at 30 June 2022, the Group held cash and cash equivalents of $248.2 million (2021: $168.9 million), of which $0.8 million (2021: $0.5 million) was held in short-term deposits. The Group also has access to the Syndicated facility with an undrawn amount of $186.3 million. See further details in section (j) on the Group’s contractual maturities of financial assets and liabilities. 86 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 9. Financial risk management (continued) (j) Contractual maturities of financial liabilities, commissions contract assets and liabilities At 30 June 2022 Commission contract assets Commission contract liabilities Trade payables Borrowings At 30 June 2021 Commission contract assets Commission contract liabilities Trade payables Borrowings < 6 months $M 6-12 months $M 1-2 years $M >2 years $M 94.5 (52.6) (102.8) (5.1) (66.0) 87.2 (66.7) (89.6) (5.3) (74.4) 62.3 (48.3) – (5.2) 8.8 67.2 (51.0) – (5.5) 10.7 112.5 (87.7) – (9.1) 15.7 115.4 (87.4) – (424.0) (396.0) 420.7 (329.1) – (478.5) (386.9) 412.1 (311.2) – (71.8) 29.1 Total contractual cash flows $M 690.0 (517.7) (102.8) (497.9) (428.4) 681.9 (516.3) (89.6) (506.6) (430.6) Carrying amount $M 579.0 (452.3) (102.8) (487.0) (463.1) 580.0 (438.9) (89.6) (495.6) (444.1) (k) Reconciliation of liabilities arising from financing activities Balance at 1 July 2021 $M Additions1 $M Principal payments $M Other $M Balance at 30 June 2022 $M Current loans Current lease liabilities Total current interest bearing loans and borrowings Non-current loans Non-current lease liabilities Total non-current interest bearing loans and borrowings 1 Additions include $413.7 million drawdown from new syndicated facility. – 8.8 8.8 – 0.1 0.1 – (8.9) (8.9) 413.4 73.4 413.7 1.8 (413.4) – – 8.6 8.6 (2.0) (8.5) – 8.6 8.6 411.7 66.7 486.8 415.5 (413.4) (10.5) 478.4 Balance at 1 July 2020 $M Additions1 $M Principal payments $M Current loans Current lease liabilities Total current interest bearing loans and borrowings Non-current loans Non-current lease liabilities 69.5 7.0 76.5 169.8 80.9 – 1.3 1.3 413.4 1.6 Total non-current interest bearing loans and borrowings 250.7 415.0 1 Additions include $2.7 million relating to lease liabilities as part of the acquisition of Mortgage Choice. (240.0) (7.2) (247.2) – – – Other $M 170.5 7.7 178.2 (169.8) (9.1) Balance at 30 June 2021 $M – 8.8 8.8 413.4 73.4 (178.9) 486.8 87 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 10. Dividends Accounting policies Dividends determined to be paid are provided for when the dividend is appropriately authorised on or before the end of the reporting period but not distributed at the end of the reporting period. Paid during the period (fully franked at 30%) Interim dividend for 2022: 75.0 cents (2021: 59.0 cents) Final dividend for 2021: 72.0 cents (2020: 55.0 cents) Total dividends provided for or paid Proposed and unrecognised as a liability (fully franked at 30%) 2022 $M 2021 $M 99.1 95.1 194.2 77.9 72.4 150.3 Final dividend for 2022: 89.0 cents (2021: 72.0 cents). Proposed dividend is expected to be paid on 15 September 2022 out of retained earnings at 30 June 2022 but is not recognised as a liability at year end 117.6 95.1 Franking credit balance (based on a tax rate of 30%) Franking credits available for future years, adjusted for franking credits and debits that will arise from the settlement of liabilities or receivables for income tax and dividends after the end of the year Impact on the franking account of the dividend recommended by the Directors since year end, but not recognised as a liability at year end 708.7 585.9 (50.4) (40.8) 11. Equity and reserves (a) Equity Accounting policies Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. The company does not have authorised share capital or par value in respect of its shares. The number of ordinary shares issued at 30 June 2022 was 132,117,217 (2021: 132,117,217). The number of treasury shares held at 30 June 2022 was 50,858 (2021: 15,377). Balance at 1 July 2020 Acquisition of treasury shares Settlement of vested performance rights Issue of new shares Other – change in non-controlling interest Balance at 30 June 2021 Balance at 1 July 2021 Acquisition of treasury shares Settlement of vested performance rights Balance at 30 June 2022 88 Contributed equity $M Other contributed equity $M 102.6 (10.6) Total $M 92.0 (3.7) 3.7 59.9 0.2 (3.7) 3.7 – 0.2 (10.4) 152.1 (10.4) (16.0) 10.3 (16.1) 152.1 (16.0) 10.3 146.4 – – 59.9 – 162.5 162.5 – – 162.5 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 11. Equity and reserves (continued) (b) Reserves Accounting policies Share-based payments reserve represents the value of the grant of rights to executives under the Long Term Incentive Plans and other compensation granted in the form of equity. The amounts are transferred out of the reserve when the rights vest and the shares are purchased on-market. Refer to Note 15 for further details on share-based payment arrangements. Currency translation reserve is used to record exchange differences arising from the translation of the Financial Statements of its overseas subsidiaries and equity investments. Balance at 1 July 2020 Foreign currency translation differences Total other comprehensive gain Share-based payments expense Settlement of vested performance rights Balance at 30 June 2021 Balance at 1 July 2021 Foreign currency translation differences Total other comprehensive gain Share-based payments expense Settlement of vested performance rights Balance at 30 June 2022 Share-based payments reserve $M Currency translation reserve $M 9.0 – – 9.1 (3.7) 14.4 14.4 – – 11.3 (10.3) 15.4 58.8 (32.8) (32.8) – – 26.0 26.0 47.1 47.1 – – 73.1 Total $M 67.8 (32.8) (32.8) 9.1 (3.7) 40.4 40.4 47.1 47.1 11.3 (10.3) 88.5 (c) Non-controlling interests Summarised financial information relating to each of the Group’s subsidiaries with non-controlling interests (NCI) that are material to the Group before any intra-group eliminations is shown below: Balance at 1 July 2020 Acquired minority interest Change in controlling interest Share of profit/(losses) Dividends paid Balance at 30 June 2021 Net operating cash flow Net investing cash flow Net financing cash flow Balance at 1 July 2021 Share of profit/(losses) Other comprehensive income Dividends paid Balance at 30 June 2022 Net operating cash flow Net investing cash flow Net financing cash flow REA India $M Other1 $M 0.4 – – 0.2 (0.2) 0.4 0.4 0.5 – (0.2) 0.7 – 81.3 (1.6) (9.9) – 69.8 (3.7) (3.0) 10.8 69.8 (13.6) 4.4 – 60.6 (19.3) (10.8) 61.5 Total $M 0.4 81.3 (1.6) (9.7) (0.2) 70.2 70.2 (13.1) 4.4 (0.2) 61.3 1 ‘Other’ represents other individually immaterial subsidiaries. 89 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 11. Equity and reserves (continued) As at 30 June 2022, REA India had current assets of $50.9 million (2021: $17.7 million), non-current assets of $206.8 million (2021: $203.8 million), current liabilities of $27.9 million (2021: $22.8 million) and non-current liabilities of $22.0 million (2021: $14.1 million), all reported pre-intercompany eliminations. Total funding provided during the year was $61.5 million. At 30 June 2022, News Corp holds a non-controlling interest in REA India of 26.64% (2021: 39.13%). 12. Trade and other receivables Accounting policies Trade receivables are initially recognised at the transaction price. Due to their short-term nature, trade receivables have not been discounted. Trade receivables are generally due for settlement between 15 and 60 days. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for expected credit losses) is made when the Group expects that it will not be able to collect all amounts due according to the original terms of the receivables. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows. A provision matrix is used to calculate ECLs for trade receivables. The provision rates are based on days past due for groupings of customer segments that have similar loss patterns. The ECL calculation performed at each reporting date reflects the Group’s historical credit loss experience, adjusted for forward-looking factors specific to debtor profiles and the economic environment. Generally, trade receivables are written off if past due for more than one year. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 9. Impairment losses are recognised in the Consolidated Income Statement within operations and administration expenses. When a trade receivable for which an allowance has been recognised becomes uncollectible in a subsequent period, it is written off against the provision account. Key estimate and judgement The provision matrix used to calculate ECLs is initially based on the Group’s historical observed default rates and the matrix is adjusted for forward-looking information. The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is an estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of customers’ actual default in the future. Trade receivables Provision for expected credit losses Net trade receivables Current prepayments Investment in short term assets Accrued income and other receivables Contract assets Current trade and other receivables and contract assets Non-current prepayments Other assets Non-current contract assets Other non-current assets and contract assets Total trade receivables, other and contract assets 90 2022 $M 137.4 (4.7) 132.7 9.3 7.4 6.3 156.1 311.8 0.4 23.5 422.9 446.8 758.6 2021 $M 125.1 (5.5) 119.6 21.0 0.5 6.8 148.7 296.6 0.8 4.2 431.3 436.3 732.9 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 12. Trade and other receivables (continued) (a) Ageing of trade receivables Not due 1-30 days past due not impaired 31-60 days past due not impaired 61+ days past due not impaired Provisions for expected credit losses Total gross trade receivables 2022 $M 117.3 10.7 1.4 3.3 4.7 2021 $M 103.7 9.5 1.0 5.4 5.5 137.4 125.1 During the year, a total expense of $0.3 million (2021: $1.0 million) was recognised in the Consolidated Income Statement in relation to trade receivables written off. Information about the Group’s exposure to foreign currency, interest rate and credit risk in relation to trade and other receivables is provided in Note 9. 13. Trade and other payables Accounting policies Trade and other payables are carried at amortised cost and are not discounted. These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are paid in accordance with vendor terms. Trade payables Accrued expenses Other payables Total trade and other payables 2022 $M 15.0 82.4 16.6 114.0 2021 $M 5.9 78.2 11.6 95.7 91 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance OUR PEOPLE This section provides information about employee benefit obligations, including annual leave, long service leave and post-employment benefits. It also includes details about employee share plans. 14. Employee benefits Accounting policies Wage and salary liabilities are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. Long service leave liabilities are measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Expected future payments are discounted using market yields at the end of the reporting period of high-quality corporate bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Re-measurements as a result of experience adjustments and changes in actuarial assumptions are recognised in the Consolidated Income Statement. Termination benefits are payable when employment is terminated before the normal retirement date or an employee accepts voluntary redundancy in exchange for these benefits. It is recognised when the Group is demonstrably committed to either terminating employment according to a detailed formal plan without possibility of withdrawal or to providing termination benefits as a result of an offer made to encourage voluntary redundancy. Share-based payments are further described in Note 15. Provisions are measured at the present value of the Group’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. 2022 $M 2021 $M 266.8 23.4 10.4 300.6 15.4 7.0 22.4 208.0 17.1 9.1 234.2 13.8 4.9 18.7 Employee benefits Salary costs Defined contribution superannuation expense Share-based payments expense Total employee benefits expenses Provisions Current employee benefit provisions1 Non-current employee benefit provisions2 Total employee benefits provisions 1 2 Included within current provisions. Included within non-current provisions. 92 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 15. Share-based payments Accounting policies The cost of equity settled transactions is recognised in employee benefits expense in the Consolidated Income Statement, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). At each reporting date until vesting, the cumulative charge to the Consolidated Income Statement is in accordance with the vesting conditions. Equity settled awards granted by the Company to employees of subsidiaries are recognised in the subsidiaries’ separate Financial Statements as an expense with a corresponding credit to equity. As a result, the expense recognised by the Group is the total expense associated with all such awards. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated. Key estimate and judgement The Group measures the cost of equity settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The Long Term Incentive (LTI) plan, deferred share and deferred equity plan valuations were performed using the Black Scholes model. The accounting estimates and assumptions relating to equity settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity. (a) LTI plan The Group operates a LTI plan for executives identified by the Board. The plan is based on the grant of performance rights that vest as shares on a one-to-one basis at no cost to the employee subject to performance hurdles. Settlement of the performance rights is made in ordinary shares purchased on-market. The performance measures approved by the Board for all executives are based upon Group revenue and EPS compound annual growth rate, and relative Total Shareholder Return (rTSR) achievement over the performance period. Rights are vested after the performance period. The LTI Plan 2022 rights performance period ended on 30 June 2022 and performance rights vest upon approval by the Board. The LTI Recovery Plan was granted to provide an incentive opportunity at the beginning of the pandemic when the LTI granted in 2019 was viewed as highly likely to be unachievable for reasons outside the control of management. As all other performance periods conclude in the future, no performance rights are exercisable (or have been exercised) at balance date. The fair value of each performance right is estimated on the grant date using the Black Scholes model. The tables below summarise the movement in the Group’s LTI plan during the year and other information required to understand how the fair value of the equity instruments has been determined. Plan Performance period LTI Plan 2021 (Plan 12) 1 July 2018 - 30 June 2021 LTI Plan 2022 (Plan 13) 1 July 2019 - 30 June 2022 LTI Plan 2023 (Plan 14) 1 July 2020 - 30 June 2023 LTI Plan 2024 (Plan 15) 1 July 2021 - 30 June 2024 LTI Recovery Plan 2021 1 July 2020 - 30 June 2021 LTI Recovery Plan 2022 1 July 2020 - 30 June 2022 Total Balance at start of the year Number Granted during the year Number Exercised during the year Number Forfeited/ cancelled during the year Number Balance at end of the year1 Number 17,243 25,632 21,456 – 11,553 23,173 99,057 – – 2,689 21,328 – – – – – – (11,165) – (17,243) – (1,773) (1,464) (388) – 24,017 (11,165) (20,868) – 25,632 22,372 19,864 – 23,173 91,041 1 The weighted average remaining contractual life of these rights at the end of the reporting period is 10 months. 93 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 15. Share-based payments (continued) Plan LTI Plan 2022 (Plan 13) LTI Plan 2023 (Plan 14) LTI Plan 2024 (Plan 15) LTI Recovery Plan 2022 Value per right at measurement date Expected volatility1 Risk-free interest rate Expected life of performance rights Annual dividend yield $97.55 - $107.30 25.0% 0.9% 38 months 1.6% $135.82 - $277.38 27.5% - 35.0% 0.1% - 0.7% 20 - 38 months 1.0% - 1.1% $151.91 - $167.47 27.5% 0.3% - 1.0% $126.36 - $140.95 37.5% 0.0% - 0.1% 38 months 26 months 1.1% 1.0% 1 The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the rights is indicative of future trends, which may not necessarily be the actual outcome. (b) Deferred equity plan The deferred equity plan operates in the same manner as the Group’s LTI plan, for certain non-executive employees, dependent on their position in the Group’s remuneration framework. The performance measures approved by the Board for these employees are based upon personal performance and Group revenue, EBITDA, EPS and rTSR annual growth rate achievement over the performance period. Rights are vested after the performance period. The deferred equity plan 2022 rights performance period ended on 30 June 2022 and the rights vest upon approval by the Board. As all other performance periods conclude in the future, no performance rights are exercisable (or have been exercised) at balance date. The fair value of each performance right is estimated on the grant date using the Black Scholes model. The tables below summarise the movement in the Group’s deferred equity plan during the year and other information required to understand how the fair value of the equity instruments has been determined. Plan Performance period Deferred equity plan 2021 1 July 2019 - 30 June 2021 Deferred equity plan 2022 1 July 2020 - 30 June 2022 Deferred equity plan 2023 1 July 2021 - 30 June 2023 Total Balance at start of the year Number Granted during the year Number Exercised during the year1 Number Forfeited/ cancelled during the year Number Balance at end of the year2 Number 21,757 22,913 – 44,670 – – 20,372 20,372 (20,358) (1,399) – – – (20,358) (1,530) 21,383 (523) (3,452) 19,849 41,232 1 2 The weighted average share price over the settlement period for these rights was $154.28. The weighted average remaining contractual life of these rights at the end of the reporting period is 8 months. Plan Value per right at measurement date Expected volatility1 Risk-free interest rate Expected life of performance rights Annual dividend yield Deferred equity plan 2022 $131.45 - $140.95 Deferred equity plan 2023 $155.84 37.5% 27.5% 0.1% 0.0% 26 months 26 months 1.0% 1.1% 1 The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the rights is indicative of future trends, which may not necessarily be the actual outcome. (c) Deferred share plan Rights granted under these plans vest 24 months after grant date, except for rights under the key talent share plan which vest 36 months after grant date. Each share right automatically converts into one ordinary share at an exercise price of nil at the end of the performance period, subject to service conditions. All performance periods conclude in the future and no performance rights are exercisable at balance date. The fair value of each performance right is estimated on the grant date using the Black Scholes model. The number of share rights granted is determined based on the dollar value of the award divided by the volume weighted average price (VWAP) leading up to the date of grant. The tables below summarise the movement in the Group’s deferred share plan during the year and the fair value of these equity instruments. 94 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 15. Share-based payments (continued) Plan Deferred share plan 2019 Deferred share plan 2021 Deferred share plan 2022 Future leaders deferred share plan 2022 Future leaders deferred share plan 2023 Deferred share plan 2023 Key talent deferred share plan 2022 Key talent deferred share plan 2022 Total Performance period end date 30 June 2021 30 June 2021 30 June 2022 Balance at start of the year Number 2,917 3,629 8,601 Granted during the year Number Exercised during the year1 Number Forfeited/ cancelled during the year Number Balance at end of the year2 Number – 2,141 2,071 (1,981) (5,770) (3,863) (936) – – – (1,035) 5,774 30 June 2022 4,384 858 (4,543) (699) – 30 June 2023 30 June 2023 30 June 2023 1 March 2025 – – – – 19,531 3,334 2,390 (51) (1,135) (117) – 3,166 1,255 22,313 (7,802) (2,711) 11,800 26,868 59,975 – – (25,145) (5,498) 26,868 48,863 1 2 The weighted average share price over the settlement period for these rights was $116.48. The weighted average remaining contractual life of these rights at the end of the reporting period is 15 months. Plan Deferred share plan 2022 Future leaders deferred share plan 2023 Deferred share plan 2023 Key talent deferred share plan 2022 Key talent deferred share plan 2022 Value per right at measurement date $140.95 - $148.14 $165.94 $155.90 - $155.98 $155.84 - $157.55 $123.74 - $125.11 95 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance GROUP STRUCTURE This section provides information on the Group structure and how this impacts the results of the Group as a whole, including parent entity information, details of investments in associates and business combinations. 16. Business combinations Accounting policies Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at fair value on the date of acquisition and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and relevant conditions. All identifiable assets acquired, and the liabilities assumed are measured at their acquisition date fair values. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of AASB 9, is measured at fair value with the changes in fair value recognised in the Consolidated Income Statement. Acquisition-related costs are expensed as incurred and included in consultant and contractor expenses and operations and administrative expenses, and net gain on acquisition of subsidiaries. Key estimate and judgement The purchase price of businesses acquired as well as its allocation to acquired assets and liabilities requires estimates and judgements. On acquisition date, the fair value of the identifiable assets acquired, such as brands, customer relationships, software and liabilities is determined. The assumptions and estimates made have an impact on the assets and liability amounts recorded in the Consolidated Financial Statements. In addition, the estimated useful lives of the acquired amortisable assets, the identification of intangible assets and the determination of the indefinite or finite useful lives of intangible assets acquired will have an impact on the Group’s future profit or loss. The Group has also adopted the fair value method in measuring contingent consideration. The determination of these fair values involves judgement and the ability of the acquired entity to achieve certain financial results. On 18 June 2021, the Group obtained control of 100% of Mortgage Choice Pty Ltd (formerly Mortgage Choice Limited) (Mortgage Choice), a leading Australian mortgage broking business. The acquisition provides the Group with an expanded broker network, accelerating REA’s financial services strategy. After reporting a provisional balance sheet at 30 June 2021, the Group has determined the fair value of assets and liabilities acquired as part of the business combination. This resulted in adjustments relating to the deferred tax liability on the Mortgage Choice trail commissions and an increase in non-current provisions relating to FinChoice remediation obligations. The adjustment decreased goodwill reported at 30 June 2021 from $103.5 million to $100.3 million, decreased Group deferred tax liabilities balance reported at 30 June 2021 from $55.1 million to $45.8 million and increased Group non-current provisions from $7.0 million to $13.1 million at 30 June 2022. The Group has now finalised its purchase price adjustments of the Mortgage Choice acquisition. Following the acquisition of Mortgage Choice and as part of integration, the Group reviewed the useful life of all assets across the financial services business including the Mortgage Choice brand name and software. As a result, the Group determined the Smartline brand no longer has an indefinite useful life and has commenced accelerated amortisation on the brand name. The Group has also re-assessed the useful life of other intangible assets and commenced accelerated amortisation on software intangible assets. There are no other changes to the acquisition accounting of Mortgage Choice. 96 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 17. Divested operations On 3 August 2021, the Group completed the sale of its Malaysia and Thailand entities to PropertyGuru in exchange for an initial 18% equity interest (16.6% diluted) of the combined PropertyGuru Group. PropertyGuru began trading on the NYSE on 18 March 2022, after the completion of the initial public offering (IPO). A dilution gain of $20.9 million arising from the deemed partial disposal was recognised in the Consolidated Income Statement as a result of the IPO, refer to Note 18 for further information. The PropertyGuru transaction completed after the Group entered into a contract to sell the 27% interest in 99 Group Pte. Ltd. (99 Group) and associated convertible note, which had a combined book value of $21 million at 30 June 2021 and was classified as held for sale at this time. Refer to Note 9(b) for further information. The divestment of the Malaysia and Thailand businesses and the loss of significant influence in REA’s investment in 99 Group resulted in a net gain of $15.8 million. The associated assets and liabilities of the divested operations were previously classified as assets and liabilities of disposal group held for sale as at 30 June 2021. The goodwill balance attributed to the Asia operations was partially allocated to the disposal group and the residual Asia operations (included under the Australia – Property & Online Advertising CGU) based on their relative value. On 15 November 2021, the Group completed the sale of the Hong Kong business assets (held by REA Hong Kong Management Co Limited) to 28Hse Ltd for $0.4 million. On 17 December 2021, after a one-month transition period, the REA Hong Kong Management Co Limited ceased business operations. Following the completion of the disposal of the Malaysia and Thailand businesses and Hong Kong asset divestments, the Group commenced a restructure of the remaining Asia businesses resulting in a loss of $9.0 million, of which $6.5 million relates to foreign exchange loss on historic funding previously held in the foreign currency translation reserve. 18. Investment in associates Accounting policies The Group’s interest in equity accounted investees comprise interests in associates and joint ventures. Associates are those entities in which the Group has significant influence, but no control or joint control over the financial or operating policies. Joint ventures are arrangements in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement rather than rights to its assets and obligations for its liabilities. Interests in associates and joint ventures are accounted for using the equity method. They are recognised initially at cost which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of profit or loss and other comprehensive income of equity accounted investees until the date of significant influence or joint control ceases. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group recognises the loss as an impairment expense in the Consolidated Income Statement. (i) Move, Inc. The Group has a 20% interest in Move, Inc. (Move), which is equity-accounted in the Group financial statements. The remaining 80% of Move is held by News Corp who granted the Group a put option to require News Corp to purchase all (but not less than all) the Group’s interest in Move, which can be exercised at any time at fair value, which has been assessed to be greater than the carrying value at 30 June 2022. (ii) PropertyGuru Pte. Ltd On 3 August 2021, the Group completed the sale of its Malaysia and Thailand entities to PropertyGuru. In exchange, the Group received an initial 18% equity interest (16.6% diluted) of the combined PropertyGuru Group and the right to appoint one Director to the PropertyGuru board, with the appointment of Owen Wilson being made in September 2021. On 24 July 2021, PropertyGuru announced a business combination with the special purpose acquisition company Bridgetown 2 Holdings Limited, through which the PropertyGuru business planned to list on the NYSE. PropertyGuru Group Limited began trading on the NYSE on 18 March 2022, after the completion of the initial public offering (IPO) following the merger with the Bridgetown 2 Holdings Limited where the Group contributed US$52 million to the PIPE capital raising associated with the listing. The Group’s shareholding was diluted from 18.0% to 17.5% following issuance of shares to third parties which is considered a deemed disposal that resulted in a dilution gain of $20.9 million, which is reflected in the Group’s Consolidated Income statement. The Group’s share of the IPO costs totalled $22.3 million, which is reflected in the Group’s share of loss under equity accounting for the year ended June 2022. 97 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 18. Investment in associates (continued) (iii) Realtair Pty Limited In December 2021, the Group invested an additional $15.0 million in Realtair to increasing its shareholding from 24.7% (21.5% diluted) to 35.8% (30.7% diluted). The carrying amounts of investments in associates is provided below: Carrying amount of the investment Move PropertyGuru Other 2022 $M 317.6 2021 $M 2022 $M 271.8 272.3 2021 $M – 2022 $M 47.4 The share of (gains)/losses in associates is provided below: Share of (gain)/losses of associate Move PropertyGuru Other 2022 $M (14.0) 2021 $M (19.4)1 2022 $M 30.82 2021 $M – 2022 $M 5.1 2021 $M 37.4 2021 $M 6.8 1 2 Includes REA’s share of the gain in the sale of Top Producer ($3.5 million). Includes REA’s share of the IPO costs ($22.3 million) at 30 June 2022. The following illustrates the summarised financial information of the Group’s material investments in associates: Move 2022 $M 259.1 1,684.1 (275.6) (95.8) 2021 $M 270.8 1,405.3 (268.4) (69.2) 1,571.8 1,338.5 20% 314.4 3.2 317.6 995.8 20% 267.7 4.1 271.8 857.1 (833.6) (688.6) 0.2 – (71.3) 2.2 (23.3) 70.0 70.0 14.0 0.2 – (62.1) 22.7 (32.5) 96.8 96.8 19.4 Current assets Non-current assets Current liabilities Non-current liabilities Net assets Proportion of the Group’s ownership REA’s share of net assets Other1 Carrying amount of the investment Revenue Other operating costs Interest/dividend income Interest expense Depreciation and amortisation2 Other Income tax (expense)/benefit Profit/(loss) for the year from continuing operations Total comprehensive profit/(loss) Share of gain/(loss) of associates 1 2 Amount includes fair value uplift of intangible assets acquired and other adjustments. Inclusive of amortisation of fair value uplift on acquisition of associates. 98 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 18. Investment in associates (continued) Current assets Non-current assets Current liabilities Non-current liabilities Net assets Proportion of the Group’s ownership REA’s share of net assets Other3 Carrying value of the investment2 Revenue Other gains Other operating costs Depreciation and amortisation Other Income tax (expense)/benefit Profit/(loss) for the year from continuing operations Total comprehensive profit/(loss) PropertyGuru1 2022 $M 377.3 413.6 (133.3) (14.8) 642.8 17.50% 112.5 159.8 272.3 87.2 10.6 (108.8) (14.1) (134.6) 0.6 (159.1) (157.0) 1 2 Based on latest publicly available information which represents the Balance Sheet as at 31 March 2022 and Income Statement for 9 months ended 31 March 2022 as PropertyGuru has a 31 December year-end. At 30 June 2022 the share price of PropertyGuru (‘PGRU’) was USD $4.50. The recent decline in share price since IPO listing is considered an indicator of impairment. Accordingly, the investment has been tested for impairment and it was determined that the recoverable amount is greater than the carrying value. The recoverable amount was based on a value in use calculation, based on assumptions described in Note 6(c). 3 Other primarily relates to the fair value uplift of intangible assets acquired and the net assets corresponding to the latest financial statements REA is permitted to disclose translated at closing rates at 30 June 2022. 19. Parent entity financial information Accounting policies The financial information for the parent entity has been prepared on the same basis as the Consolidated Financial Statements, except as set out below. Investments in subsidiaries, associates and joint ventures are accounted for at cost. Dividends received from associates and joint ventures are recognised in the parent entity’s Income Statement, rather than being deducted from the carrying amount of these investments. In addition to its own current and deferred tax amounts, REA Group Ltd also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate the Company for any current tax payable assumed and are compensated by the Company for any current tax receivable and deferred taxes relating to unused tax losses or unused tax credits that are transferred to REA Group Ltd under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable or payable to other entities in the group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment. 99 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 19. Parent entity financial information (continued) The individual Financial Statements for the parent entity, REA Group Ltd show the following aggregate amounts: Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Contributed equity Reserves Retained earnings Total shareholders’ equity 2022 $M 3.6 456.4 460.0 17.1 – 17.1 442.9 151.6 6.3 285.0 442.9 2021 $M 6.5 456.0 462.5 20.7 – 20.7 441.8 150.0 5.1 286.7 441.8 Profit and other comprehensive income of the parent entity 192.5 148.6 REA Group Ltd had net current liabilities of $13.5 million as at 30 June 2022 (2021: $14.2 million), driven by intercompany balances with its subsidiaries. REA Group Ltd intends to repay these balances as they fall due. (a) Guarantees entered into by the parent entity The parent entity has not provided unsecured financial guarantees in respect of loans of subsidiaries (2021: $nil). Refer to Note 23 for further information relating to the Deed of Cross Guarantee. (b) Commitments and contingencies Refer to Note 22(b) for commitments held by the parent entity. Various claims arise in the ordinary course of business against REA Group Ltd. The amount of the liability (if any) at 30 June 2022 cannot be ascertained, and any resulting liability is not expected to materially impact REA Group Ltd’s financial position. 100 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 OTHER DISCLOSURES This section includes other balance sheet and related disclosures not included in the other sections, for example fixed assets, related parties, remuneration of auditors, other significant accounting policies and subsequent events. 20. Property, plant and equipment Year ended 30 June 2022 Opening net book amount Additions1 Disposals (net of accumulated depreciation) Depreciation charge Impairment Exchange differences (net) Closing net book amount At 30 June 2022 Cost Accumulated depreciation Net book amount Year ended 30 June 2021 Opening net book amount Additions Other business combinations2 Disposals (net of accumulated depreciation) Depreciation charge Transferred to assets held for sale Transfers Exchange differences (net) Closing net book amount At 30 June 2021 Cost Accumulated depreciation Net book amount 1 2 Additions include $1.9 million in non-cash items relating to right of use assets. Acquisitions of Mortgage Choice and REA India. 7.5 3.6 – (3.6) – (0.1) 7.4 22.6 (15.2) 7.4 4.9 3.9 0.9 – (4.1) (0.5) 2.5 (0.1) 7.5 26.4 (18.9) 7.5 Plant and equipment $M Leasehold improvements $M Right of use assets $M Total $M 89.4 9.8 (0.1) (16.0) (0.5) (0.2) 82.4 143.6 (61.2) 82.4 8.1 4.3 (0.1) (2.7) – (0.2) 9.4 28.4 (19.0) 9.4 73.8 1.9 – (9.7) (0.5) 0.1 65.6 92.6 (27.0) 65.6 14.3 82.4 101.6 0.1 0.6 – (3.6) (0.6) (2.5) (0.2) 8.1 26.3 (18.2) 8.1 0.2 2.4 (0.3) (9.6) (1.0) – (0.3) 73.8 93.0 (19.2) 73.8 4.2 3.9 (0.3) (17.3) (2.1) – (0.6) 89.4 145.7 (56.3) 89.4 101 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 21. Leases Accounting policies At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. A portion of an asset is an identified asset if it is physically distinct. If it is not physically distinct, the portion of an asset is not an identified asset, unless the lessee has the right to use substantially all the capacity of the asset during the lease term. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in AASB 16 Leases. As a lessee At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component based on its relative stand-alone prices. However, for property leases the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. Right‐of‐use assets are depreciated on a straight‐line basis over the lease term. If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. In addition, the right-of- use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined or ascertained, the incremental borrowing rate. The Group used its incremental borrowing rate as the discount rate. The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease for each lessee and type of the asset leased. Lease payments included in the measurement of the lease liability comprise the following: • • • • fixed payments, including in-substance fixed payments; variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; amounts expected to be payable under a residual value guarantee; and the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. The Group presents right-of-use assets in ‘property, plant and equipment’ and lease liabilities in ‘interest bearing loans and borrowings’ in the Consolidated Statement of Financial Position. Short-term leases and leases of low-value assets The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. 102 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 21. Leases (continued) (a) Leases as a lessee The Group typically leases office space over periods of two to seven years, with an option to renew the lease after that date. Lease payments are renegotiated on the exercise of renewal options to reflect market rentals. Some leases provide for additional rent payments that are based on changes in local price indices. For certain leases, the Group is restricted from entering into any sub-lease arrangements. The Group leases IT equipment with contract terms of one to five years. These leases are short-term and/or leases of low-value items. The Group has elected not to recognise right-of-use assets and lease liabilities for these leases. (i) Right-of-use assets Right-of-use assets are presented as property, plant and equipment (see Note 20). The Group leases various assets including buildings and IT equipment. (ii) Lease liabilities Lease liabilities are presented as interest bearing loans and borrowings (see Note 9). Maturity analysis – undiscounted cash flows Less than one year One to five years More than five years Total undiscounted lease liabilities at 30 June Lease liabilities included in the Consolidated Statement of Financial Position Current Non-current Transferred to liabilities of disposal group held for sale (iii) Amounts recognised in profit and loss Interest on lease liabilities Variable lease payment not included in the measurement of lease liabilities Expenses relating to short-term leases Expenses relating to leases of low-value assets, excluding short-term, low value leases (iv) Amounts paid during the year Total cash outflow for leases 2022 $M 2021 $M 10.3 43.5 30.5 84.3 75.3 8.6 66.7 – 2022 $M 2.0 – 0.7 0.1 2022 $M 10.9 10.8 37.2 44.9 92.9 82.2 8.8 73.4 1.1 2021 $M 2.2 – 0.5 0.1 2021 $M 9.4 (v) Extension options A number of the Group’s property leases contain extension options exercisable by the Group, up to 6 months before the end of the non-cancellable contract period. Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility. The extension options held are exercisable only by the Group and not by the lessors. The Group assesses at lease commencement date whether it is reasonably certain to exercise the extension options. The Group re-assesses whether it is reasonably certain to exercise the options if there is a significant event or significant changes in circumstances within its control. The Group has an exposure of $2.2 million (2021: $2.2 million) from extension options not reflected in the lease liability. 103 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 22. Contingencies and commitments (a) Contingent liabilities (i) Claims Various claims arise in the ordinary course of business against REA Group Ltd and its subsidiaries. The amount of the liability (if any) at 30 June 2022 cannot be ascertained, and any resulting liability would not materially affect the financial position of the Group. (ii) Guarantees At 30 June 2022, the Group had bank guarantees totalling $11.1 million (2021: $4.5 million) in respect of various property leases for offices used by the Group. (iii) Other Matters From time to time, the Group is subject to both formal and informal reviews by various tax authorities as well as legal claims. The outcome of any tax review or audit cannot be determined with an acceptable degree of reliability. At 30 June 2022 the Consolidated Statement of Financial Position accurately reflects all potential taxation liabilities and the Group is taking reasonable steps to conclude all outstanding matters with the relevant tax authorities and legal claims. (b) Commitments As at 30 June 2022, the Group was committed to provide future funding up to a maximum of USD$4.78 million as part of the divestment of 99 Group, refer to Note 17. Subsequent to 30 June 2022, and prior to the date of signing, the commitment of USD$4.78 million was paid. The Group has no capital commitments at 30 June 2022 (2021: nil). 23. Related parties a) Transactions with related parties Ultimate parent entity (News Corporation), group entities and associates Sale of goods and services Purchase of goods and services Dividends paid Management fee Amounts receivable from ultimate parent, group entities and associates Amounts owing to ultimate parent, group entities and associates Key management personnel Short term employee benefits Post-employment benefits Long term employee benefits Deferred Short Term Incentive Plan (STI Plan) Long Term Incentive Plan (LTI Plan) (i) Parent entities 2022 $ 2021 $ 3,225,093 1,724,841 9,902,519 5,645,684 119,285,200 92,485,723 155,000 816,133 155,000 33,555 81,436 3,657,237 5,796,342 5,303,496 155,810 105,814 720,008 142,825 67,381 793,663 1,191,729 1,706,854 The parent entity within the Group is REA Group Ltd. The ultimate parent entity of the Group is News Corporation (News Corp), a resident of the United States of America, which owns 61.42% of REA Group Ltd via its wholly owned subsidiary News Australia Pty Limited. News Corp is listed on the NYSE. During the year, the Group sold advertising space at arm’s length terms to News Corp (or one of its related entities) and recharged promotional costs. The Group also utilised advertising and support services of News Corp (or one of its related entities) on commercial terms and conditions. Insurance premium recharges were paid to News Corp (or one of its related entities) and News Corp (or one of its related entities) recharged the Group relating to the use of IT content delivery services. The Group has entered certain agreements with independent third parties under the same terms and conditions as those negotiated by News Corp. 104 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 23. Related parties (continued) (ii) Key management personnel For a list of key management personnel and additional disclosures, refer to the Remuneration Report. (iii) Commitments Refer to Note 22 for details. (b) Investment in subsidiaries and associates Accounting policies Subsidiaries are all those entities which the Group controls. Control exists if the Group has: • • • Power over the investee (i.e. ability to direct the relevant activities of the investee); Exposure, or rights, to variable returns from its involvement with the investee; and The ability to use its power over the investee to affect its returns. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group. A change in ownership interest of a subsidiary that does not result in a loss of control is accounted for as an equity transaction. The Financial Statements of subsidiaries are prepared for the same reporting period as the parent company, with the exception of certain Asian entities with a financial reporting period ending 31 December and REA India with a financial reporting period ending 31 March. All subsidiaries apply consistent accounting policies to their Financial Statements. The consolidated Financial Statements incorporate the assets, liabilities and results of the following subsidiaries and associates of REA Group Ltd as at 30 June 2022 in accordance with the above accounting policy. Name of entity REA US Holding Co. Pty Ltd realestate.com.au Pty Limited 1Form Online Pty Ltd Flatmates.com.au Pty Ltd PropTrack Pty Ltd realestate.com.au Home Loans Mortgage Broking Pty Ltd NOVII Pty Ltd HomeGuru Finance Pty Ltd1 (previously Ozhomevalue Pty Ltd) REA Financial Services Holding Co. Pty Ltd Mortgage Choice Pty Ltd (previously Mortgage Choice Limited) FinChoice Pty Limited Help Me Choose Pty Limited REA Asia Holding Co. Pty Ltd iProperty.com Events Sdn. Bhd. Think iProperty Sdn. Bhd. REA Hong Kong Management Co Limited GoHome H.K. Co. Limited2 SMART Expo Limited3 Big Sea International Limited GoHome Macau Co Ltd REA Group Hong Kong Limited Country of incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Malaysia Malaysia Hong Kong Hong Kong Hong Kong British Virgin Islands Macau Hong Kong Equity Holding 2022 % Equity Holding 2021 % 100 100 100 100 100 100 56.2 56.2 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 56.2 56.2 100 100 100 100 100 100 100 100 100 100 100 100 100 105 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 23. Related parties (continued) Name of entity REA HK Co Limited REA Group Consulting (Shanghai) Co., Limited Smartline Home Loans Pty Ltd Smartline Operations Pty Limited Austin Bidco Pty Ltd iProperty Group Pty Ltd iProperty Group Asia Pte. Ltd.4 IPGA Management Services Sdn. Bhd.5 iProperty.com Malaysia Sdn. Bhd.5 Brickz Research Sdn. Bhd.5 iProperty (Thailand) Co., Ltd5 Prakard IPP Co., Ltd5 Kid Ruang Yu Co., Ltd5 REA India Pte. Ltd.6 Locon Solutions Private Limited7 IREF Solutions Private Limited8 Realty Business Intelligence Private Limited7 Sadanika Solutions Private Limited9 PropTiger Marketing Services Private Limited7 Aarde Technosoft Private Limited7 Makaan.com Private Limited7 Oku Tech Private Limited10 Associates: Move, Inc.11 Managed Platforms Pty Ltd12 99 Group Pte. Ltd13 ScaleUp Media Fund 2.0 Pty Limited14 Realtair Pty Limited15 Campaign Agent Pty Ltd16 Simpology Pty Limited17 PropertyGuru Group Limited18 Country of incorporation Hong Kong China Australia Australia Australia Australia Singapore Malaysia Malaysia Malaysia Thailand Thailand Thailand Singapore India India India India India India India India United States Australia Singapore Australia Australia Australia Australia Grand Cayman Equity Holding 2022 % Equity Holding 2021 % 100 100 100 100 100 100 100 – – – – – – 73.3 73.3 – 73.3 – 73.3 73.3 73.3 58.6 20.0 27.5 16.7 35.8 29.8 35.2 17.5 100 100 100 100 100 100 100 100 100 100 100 100 100 60.8 60.8 60.8 60.8 60.8 60.8 60.8 60.8 48.6 20.0 27.6 27.0 16.7 24.7 30.4 35.2 – 1 HomeGuru Finance Pty Ltd is 100% owned by NOVII Pty Ltd. The deregistration process commenced on 10 March 2022. 2 The deregistration process commenced on 23 February 2022. 3 An external liquidator was appointed on 22 June 2022 to manage the deregistration and liquidation process of iProperty Group Asia Pte. Ltd. On 28 June 2022, the 4 liquidator made a formal declaration that he has reasonable grounds to believe that there is no likelihood that the sole shareholder of iProperty Group Asia Pte. Ltd. will receive any further distributions for their shares. Investment is held by REA US Holding Co. Pty Ltd. Investment is held by realestate.com.au Pty Limited and decreased to 27.5% on 28 February 2022. Diluted holding is 22.7% (2021: 27.6%). 5 Divested on 3 August 2021, refer to Notes 9(b) and Note 17 for further details. Equity Holding increased to 65.6% on 5 July 2021, 68.0% on 3 December 2021 and 73.3% on 30 June 2022. Diluted holding is 73.2% (2021: 60.7%) 6 7 100% owned by REA India Pte. Ltd. 8 Deregistered on 31 January 2022. 9 Deregistered on 21 March 2022. 10 80.09% owned by REA India Group (7.73% held by Locon Solutions Private Limited and 72.36% held by REA India Pte. Ltd.). Balance owned by external parties. 11 12 13 Refer to Notes 9(b) and Note 17 for further details. 14 15 16 17 18 Investment is held by realestate.com.au Pty Limited. Investment is held by realestate.com.au Pty Limited and increased to 35.8% on 21 December 2021. Diluted holding is 30.7% (2021: 22.3%). Investment is held by realestate.com.au Pty Limited and decreased to 29.8% on 8 July 2021. Diluted holding is 26.5% (2021: 27.0%). Investment is held by realestate.com.au Pty Limited. Diluted holding is 33.8% (2021: 34.4%). Investment is held by REA Asia Holding Co. Pty Ltd. Initial investment of 18% (undiluted) in PropertyGuru Pte. Ltd. was acquired on 3 August 2021. On 17 March 2022 the investment was converted into shares in PropertyGuru Group Limited upon its listing on the NYSE. This together with an additional investment made at the same time resulted in a 17.5% (undiluted) investment in the new entity. 106 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 23. Related parties (continued) (c) Deed of Cross Guarantee Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, relief has been granted to realestate.com.au Pty Limited, Austin Bidco Pty Ltd, PropTrack Pty Ltd (previously Hometrack Australia Pty Limited), Flatmates.com.au Pty Ltd, Smartline Home Loans Pty Ltd, Smartline Operations Pty Limited, iProperty Group Pty Ltd, REA Financial Services Holding Co. Pty Ltd, Mortgage Choice Pty Ltd and REA Asia Holding Co. Pty Ltd (the Closed Group) from the Corporations Act 2001 requirements for the preparation, audit and lodgement of separate Financial Statements. As a condition of the Class Order, REA Group Ltd and realestate.com.au Pty Limited entered into a Deed of Cross Guarantee (the Deed) on 26 May 2009, with all other entities added to the Deed during the 2019, 2020, 2021 and 2022 financial years. The effect of the Deed is that REA Group Ltd guarantees to each creditor payment in full of any debt in the event of winding up of the aforementioned entities under certain provisions or if they do not meet their obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The controlled entities have also given a similar guarantee in the event that any other party to the Deed is wound up or if it does not meet its obligations under the terms of overdrafts, leases or other liabilities subject to the guarantee. The summarised Consolidated Income Statement, Consolidated Statement of Financial Position and Retained Earnings of the Closed Group are below. Consolidated Income Statement Profit from continuing operations before income tax Income tax expense Profit for the year Summary of movements in consolidated retained earnings Retained earnings at beginning of the financial year Earnings for the year Other Dividends provided for or paid during the year Retained earnings at end of the financial year 2022 $M 597.1 (180.8) 416.3 2021 $M 505.7 (156.6) 349.1 1,587.9 1,429.0 416.3 99.5 (194.2) 1,909.5 349.1 (39.8) (150.4) 1,587.9 107 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 23. Related parties (continued) Consolidated Statement of Financial Position ASSETS Current assets Cash and cash equivalents Trade and other receivables Total current assets Non-current assets Plant and equipment Intangible assets Deferred tax assets Other non-current assets Investment in associates Investment in subsidiaries Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Current tax liabilities Provisions Contract liabilities Interest bearing loans and borrowings Total current liabilities Non-current liabilities Provisions Other non-current liabilities Interest bearing loans and borrowings Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained earnings Total Equity 108 2022 $M 2021 $M 207.2 375.7 582.9 81.0 132.6 13.9 446.3 319.7 450.1 161.0 589.9 750.9 84.7 99.3 6.0 282.8 37.4 682.3 1,443.6 2,026.5 1,192.5 1,943.4 287.7 19.3 14.9 79.7 8.5 307.1 29.3 11.4 70.0 6.7 410.1 424.5 5.9 330.6 478.3 814.8 1,224.9 801.6 (1,156.4) 48.5 1,909.5 801.6 4.7 188.9 485.2 678.8 1,103.3 840.1 (782.9) 35.1 1,587.9 840.1 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 24. Remuneration of auditors Services provided by the auditor of the parent entity and the auditor’s related practices, as well as non-EY audit firms, are categorised as below: • Category 1: Fees paid or payable to the auditor of the parent entity for auditing the statutory financial report of the parent covering the group, and for auditing statutory financial reports of any controlled entities; • Category 2: Fees paid or payable for assurance services that are required by legislation, and are required by that legislation to be provided by the auditor of the parent entity; • Category 3: Fees paid or payable for other assurance and agreed-upon procedures services that are required by legislation or other contractual arrangements, where there is discretion as to whether the service is provided by the auditor of the parent or another non-EY audit firm; and • Category 4: Fees paid or payable for other services (including tax compliance). During the year, the following fees were paid or payable for services provided by the auditor of the parent entity and its related practices, as well as non-EY audit firms, split for the categories described above: Category 1 fees Category 2 fees Category 3 fees Category 4 fees EY Australia Related practices of EY Australia Non EY Audit Firms1 2022 $ 2021 $ 2022 $ 2021 $ 2022 $ 2021 $ 1,650,875 1,682,027 294,730 695,575 235,360 196,620 13,000 12,000 12,000 10,000 – – – – – – 394,045 304,105 272,175 280,650 41,473 42,503 1,098,293 1,141,468 Total auditor's remuneration 1,948,050 1,984,677 336,203 738,078 1,727,698 1,642,193 1 Non EY Audit Firms are not the group auditors. 109 for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsFinancial Statements Notes to the Consolidated Financial StatementsAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance 25. Other accounting policies Accounting policies Foreign currency translation The consolidated Financial Statements are presented in Australian dollars, which is the Group’s presentation currency. Items included in the Financial Statements of each of the Group’s entities are measured using the currency of the primary economic environments in which the entity operates (“the functional currency”). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. All foreign exchange gains and losses are presented in the Income Statement on a net basis within operations and administration expenses. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognised in the Income Statement as part of the fair value gain or loss. Translation differences on non-monetary assets are included in the fair value reserve in equity. The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows, with all resulting exchange differences are recognised in OCI: • Assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the • date of that Statement of Financial Position; and Income and expenses for each Income Statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions). Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. New standards, interpretations and amendments adopted by the Group Several new or amended accounting standards and interpretations were effective for the Group from 1 July 2021. However, these are not considered relevant to the activities of the Group, nor have a material impact on the financial statements of the Group. New standards, interpretations and amendments not yet adopted by the Group New accounting standards, interpretations and amendments have been issued but are not yet effective. However, these are not considered relevant to the activities of the Group, nor are they expected to have a material impact on the financial statements of the Group. 26. Events after the Statement of Financial Position date From the end of the reporting period to the date of this report, no matters or circumstances have arisen which have significantly affected the operations of the Group, the results of the operations or the state of affairs of the Group. 110 Financial Statements for the year ended 30 June 2022Financial Statements Notes to the Consolidated Financial StatementsREA Group Ltd | Annual Report 2022 Directors’ Declaration The Directors of REA Group Ltd (the Company) declare that: a. in the Directors’ opinion the Financial Statements and notes for the financial year ended 30 June 2022 set out on pages 59 to 110 are in accordance with the Corporations Act 2001 (Cth), including: (i) complying with the Australian Accounting Standards and Corporations Regulations 2001; and (ii) giving a true and fair view of the financial position and performance of the Company and the consolidated entity; b. c. in the Directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; the Basis of Preparation note confirms that the Financial Statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board; d. the Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001 for the financial year ended 30 June 2022; and e. as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in Note 23 to the Financial Statements will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee. This declaration is made in accordance with a resolution of the Directors. Mr Hamish McLennan Chairman Mr Owen Wilson Chief Executive Officer Melbourne 8 August 2022 111 Financial Statements Financial Statements Annual Report 2022 | REA Group LtdFinancial Statements Notes to the Consolidated Financial StatementsYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersEnvironmental, Social and Governance Financial Statements Independent Auditor’s Report Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Independent auditor’s report to the members of REA Group Ltd Report on the audit of the financial report Opinion We have audited the financial report of REA Group Ltd (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2022, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a. Giving a true and fair view of the consolidated financial position of the Group as at 30 June 2022 and of its consolidated financial performance for the year ended on that date; and b. Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Page 112 112 REA Group Ltd | Annual Report 2022 Property and online advertising revenue recognition and its reliance on automated processes and controls Why significant How our audit addressed the key audit matter The Group recognised $1,048.4m in Property and Online Advertising revenue for the year ended 30 June 2022. The Group’s revenue recognition processes are heavily reliant on IT systems with automated processes and controls over the capturing and measurement of transactions. These processes include a combination of manual and automated controls. The understanding and testing of the IT systems and controls that process revenue transactions is a key part of our audit. The recognition of revenue is considered a key audit matter due to the significance of revenue to the financial report and the level of audit effort required, with the associated disclosures found in Note 3. In performing our audit procedures, we: • Assessed the design and operating effectiveness of relevant controls over the capture and measurement of revenue transactions. • Assessed the Group’s manual and automated controls over IT systems relevant to revenue recognition. • Examined the process and controls over the capture and determination of the timing of revenue recognised , as well as performed testing on a sample of transactions to supporting evidence. • Performed data analysis procedures over the revenue transactions and the relationship of these transactions against the contract liability, trade receivables and cash accounts. We also assessed the timing, aging profile and nature of the transactions. • Assessed the Group accounting policies set out in Note 3, and the adequacy of disclosures for compliance with the revenue recognition requirements of Australian Accounting Standards. Our IT specialists were involved in the conduct of these procedures where appropriate. Impairment Assessment of Intangible Assets Why significant How our audit addressed the key audit matter At 30 June 2022, the Group held $842.3m in goodwill and other identifiable intangible assets (relating to software, customer contracts and brands). As outlined in Note 6 to the financial report, impairment testing is performed by the Group annually to support the carrying value of goodwill and other identifiable intangible assets. The recoverable amount for both the Australia – Property and Online Advertising Cash Generating Units (“CGU”) and Australia – Financial Services CGU, to which goodwill is allocated has been determined using a value- in-use model, whereas the carrying value of the India CGU to which goodwill is allocated, was determined using the fair value less cost of disposal model. As this process involves estimates and significant judgments regarding forecasted future cash flow projections, discount rate, growth rates and terminal values, as well as the significant value of the intangible asset balances, we have determined that this is a Key Audit Matter. In performing our audit procedures, we: • Assessed the appropriateness and application of the methodologies applied to estimate recoverable amount. • Assessed the key inputs and assumptions including board approved cash flows, discount rates and growth rates adopted in the estimate of recoverable amount. • Evaluated whether the Group’s determination of its CGUs is in accordance with Australian Accounting Standards, including the consideration of the level at which goodwill is allocated and monitored. • Compared the cash flows used in the assessment to the actual and budgeted financial performance of the underlying CGUs. • Assessed the reasonableness of the Group’s sensitivity analysis around the key assumptions to determine whether any reasonably possible changes would result in an impairment where no impairment had been recognised. • Compared earnings multiples to those observable from external market data of comparable listed entities, where available. • Assessed the adequacy of the disclosures made in the financial report. Our valuation specialists were involved in the conduct of these procedures where appropriate. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 113 continuedAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersFinancial Statements Independent Auditor’s ReportEnvironmental, Social and Governance Financial Services: Trailing Commissions Why significant How our audit addressed the key audit matter At 30 June 2022, the Group recognised a contract asset representing the expected value of trailing commissions receivable of $579.0m and a corresponding trailing commission payable of $452.3m representing the net present value of trailing commissions payable by the Group, as disclosed in Note 9. The measurement of the trailing commissions is considered a key audit matter due to the size of the contract assets and trailing commission payable and the degree of judgment and estimation uncertainty associated with the calculations. Key areas of judgment include: ► ► ► The estimation of the discount rate; The payout ratio; and Loan book run off rate assumptions. In performing our audit procedures, we: • Assessed the appropriateness and application of the measurement methodologies applied, including the mathematical accuracy. • Assessed the key inputs and assumptions applied, including the discount rate and the assessment of the run-off rate assumptions • Assessed the completeness and accuracy of the loan data used in managements model by testing a sample of the data back to external supporting documents such as lender commission statements and contracts with lenders and brokers. • Tested the key management controls in place to assess the reasonableness of the measurement outcome. • Performed an independent assessment, developed by internal experts, using the loan data inputs and assumptions applied by management, to recalculate the trailing commission receivable and payable. • Assessed the adequacy and appropriateness of the disclosures related to trailing commission within the financial report. Our actuarial specialists were involved in the conduct of these procedures where appropriate. Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2022 annual report, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Page 114 114 continuedREA Group Ltd | Annual Report 2022Financial Statements Independent Auditor’s Report Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ► Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ► Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. ► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. ► Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. ► Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Page 115 115 continuedAnnual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersFinancial Statements Independent Auditor’s ReportFinancial Statements Independent Auditor’s ReportEnvironmental, Social and Governance Financial Statements Independent Auditor’s Report continued ► Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 44 to 57 of the directors’ report for the year ended 30 June 2022. In our opinion, the Remuneration Report of REA Group Ltd for the year ended 30 June 2022, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Alison Parker Partner Melbourne, Australia 8 August 2022 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Page 116 116 REA Group Ltd | Annual Report 2022 Financial Statements Independent Auditor’s Report Historical Results A$M (except where indicated) 2022 2021 2020 2019 2018 Consolidated Results: Revenue from continuing operations Profit before interest and tax (EBIT) Profit before income tax Profit for the year attributable to owners of the parent Earnings per share from continuing operations (cents) Return on average shareholders’ equity (% p.a.) Dividend and distribution Dividend per ordinary share (cents) Dividend franking (% p.a) Dividend cover (times) Financial Ratios: Net tangible asset backing per share ($) Net EBITDA (continuing operations) interest cover (times) Gearing (debt/debt and shareholders’ equity) (%) Financial Statistics: Income from dividends and interest Depreciation and amortisation provided during the year Net finance expense/(income) Net cash inflow from operating activities Capital expenditure and acquisitions Balance Sheet Data as at 30 June: Current assets Non-current assets Total Assets Current liabilities Non-current liabilities Total Liabilities Net Assets Shareholders’ Equity Contributed equity Reserves Retained profits Shareholders’ equity attributable to REA Non-controlling interests in controlled entities Total Shareholders’ equity Other data as at 30 June: Fully paid shares (000’s) REA share price: – year’s high ($) – year’s low ($) – close ($) Market capitalisation ($b) Employee numbers (continuing operations) Number of shareholders 1,160.2 554.8 547.9 384.8 291.3 30% 194.2 164.0 100% 1.91 927.8 473.0 468.4 322.7 244.6 31% 150.3 131.0 100% 2.08 820.3 239.3 233.7 112.4 85.3 13% 155.4 110.0 100% 0.72 874.9 252.6 245.0 105.0 79.7 11% 154.1 118.0 100% 0.68 807.7 390.5 377.7 252.8 191.9 24% 129.1 109.0 100% 1.96 3.94 0.84 1.63 0.93 (0.01) 132.65 26% 262.36 30% 1.3 93.1 6.9 487.6 194.7 560.0 2,008.8 2,568.8 349.8 855.7 1,205.5 1,363.3 146.4 88.5 1,067.1 1,302.0 61.3 1,363.3 2.2 82.6 4.6 321.4 381.5 687.1 1,668.1 2,355.2 351.6 864.4 1,216.0 1,139.2 152.1 40.4 876.5 1,069.0 70.2 1,139.2 68.14 27% 2.9 78.6 5.6 419.1 101.2 373.1 1,217.4 1,590.5 317.7 408.3 726.0 864.5 92.0 67.8 704.3 864.1 0.4 864.5 30.02 26% 2.2 59.6 7.6 364.1 64.7 306.9 1,274.8 1,581.7 444.9 231.4 676.3 905.4 89.6 68.1 747.3 905.0 0.4 905.4 37.67 31% 4.6 48.7 12.8 326.3 372.1 289.6 1,438.5 1,728.1 311.0 476.3 787.3 940.8 91.4 52.5 796.4 940.3 0.5 940.8 132,117 132,117 131,715 131,715 131,715 176.81 95.29 111.83 14.8 3,103 24,531 173.11 102.95 169.03 22.3 2,931 20,842 117.30 62.05 107.88 14.2 1,496 19,155 97.37 69.23 96.04 12.6 1,642 14,359 93.20 62.17 90.87 12.0 1,519 12,985 117 Annual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersAdditional InformationEnvironmental, Social and Governance Shareholder Information as at 12 August 2022 Listing information REA Group Ltd is listed, and our issued shares are quoted on the Australian Securities Exchange (ASX) under the code: REA Share capital and voting rights As at 12 August 2022, REA Group Ltd had 132,117,217 fully paid ordinary shares on issue which were held by 24,759 shareholders. The Constitution provides for votes to be cast (a) on a show of hands, one vote for each shareholder; and (b) on a poll, one vote for each fully paid share. Distribution of shareholders and shareholdings as at 12 August 2022 Size of holding 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total Number of shareholders Number of Shares % of issued capital 23,442 1,132 86 79 20 3,725,553 2,229,231 623,701 2,220,629 123,318,103 24,759 132,117,217 2.82 1.69 0.47 1.68 93.34 100 The number of shareholders holding less than a marketable parcel of shares ($500) was 297 (based on the closing market price on 12 August 2022 of $133.85). Twenty largest shareholders as at 12 August 2022 Shareholder Name 1 News Australia Pty Limited 2 HSBC Custody Nominees (Australia) Limited 3 J P Morgan Nominees Australia Pty Limited 4 Citicorp Nominees Pty Limited 5 BNP Paribas Noms Pty Ltd 6 National Nominees Limited 7 Citicorp Nominees Pty Limited 8 BNP Paribas Nominees Pty Ltd 9 HSBC Custody Nominees (Australia) Limited-Gsco Eca 10 Australian Foundation Investment Company Limited 11 Netwealth Investments Limited 12 Vintage Crop Pty Ltd 13 BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd 14 Mr Vivian Faram Findlow 15 HSBC Custody Nominees (Australia) Limited 16 Mr Timothy John Twomey Stewart 17 Mutual Trust Pty Ltd 18 BNP Paribas Noms(NZ) Ltd 19 Washington H Soul Pattinson and Company Limited 20 Mirrabooka Investments Limited Total for Top 20 118 Number of Shares % of issued capital 81,141,397 17,111,290 8,536,583 6,103,319 1,956,405 1,834,409 1,519,300 1,250,471 861,470 644,308 494,393 315,087 305,857 292,239 291,333 170,400 166,923 120,430 101,489 101,000 61.42 12.95 6.46 4.62 1.48 1.39 1.15 0.95 0.65 0.49 0.37 0.24 0.23 0.22 0.22 0.13 0.13 0.09 0.08 0.08 123,318,103 93.34 REA Group Ltd | Annual Report 2022Additional Information Shareholder Information Shareholder Information as at 12 August 2022 Substantial shareholders as at 12 August 2022 The following organisations have disclosed a substantial shareholder notice to ASX. Shareholder Name News Australia Pty Limited Number of Shares % of voting power 81,141,397 61.42 On-market purchases of REA securities During the 2022 financial year, 106,168 shares were purchased on-market for the purposes of REA’s employee incentive schemes at an average price per share of $150.74. There is no current on-market buy-back of the Company’s shares. Unquoted equity securities As at 12 August 2022, 111,512 performance rights with 89 holders were on issue pursuant to REA’s employee incentives schemes. 119 Annual Report 2022 | REA Group LtdYear in reviewDirectors’ ReportFinancial Statements Remuneration ReportOur LeadersAdditional InformationEnvironmental, Social and Governance REA Group Ltd Corporate Information Directors Hamish McLennan (Chairman) Owen Wilson (Chief Executive Officer) Nick Dowling Tracey Fellows Richard J Freudenstein Michael Miller Jennifer Lambert Kelly Bayer Rosmarin (appointed 1 January 2022) Kathleen Conlon (retired 11 November 2021) Chief Financial Officer Janelle Hopkins Company Secretary Tamara Kayser Principal Registered Office in Australia 511 Church Street Richmond, VIC 3121 Australia Ph: +61 3 9897 1121 Fax: +61 3 9897 1114 Share register Link Market Services Limited Tower 4, 727 Collins Street Melbourne, VIC 3000 Ph: 1300 554 474 (within Australia) or +61 1300 554 474 (outside Australia) Fax: 02 9287 0303 Auditor EY 8 Exhibition Street Melbourne, VIC 3000 Australia Bankers National Australia Bank Limited Securities Exchange Listing REA Group Ltd shares are listed on the Australian Securities Exchange (ASX:REA) Website www.rea-group.com 120 REA Group Ltd | Annual Report 2022 REA Group Ltd Corporate Information