Welcome to The Property Franchise Group full year 2022 results webinar. All attendees are in listen-only mode. At the end of the presentation, there will be the opportunity to ask questions. At any point during the presentation, you can submit a question via the Q&A button. This webinar is being recorded. I now hand over to Gareth Samples, CEO, and David Raggett, CFO. Gareth, over to you.
Thanks, Tamsin, and thanks for everybody's interest today. A great set of results to report. Strong financial performance ahead of market expectations is the title slide. We're delighted with the way we navigated 2022. In terms of just to get an understanding for those of you not aware of who we are, we're the U.K.'s largest property franchise business. We operate out nine brands, three of those being national, and six of those being strong regional brands. Martin & Co. is predominantly lettings and improving their result in sales. Hunters, a business we bought a couple of years ago, predominantly sales with a strong lettings business that's growing.
Our hybrid estate agency business, EweMove, that we acquired back in 2014 or 2015, actually celebrated its 10th anniversary this year. We've then got six really strong regional brands, CJ Hole, Parkers, Country Properties, Ellis & Co, Whitegates and Mullucks. That gives us significant scale. We have 570 businesses trading territories, including EweMove. EweMove, in its own right, has 189 territories operating, and that will break 200, I would hope in the next six months. We look after on behalf of landlords, 76,000 managed properties. In 2022, we sold in excess of 24,000 properties, which would put us number two in the estate agency market in terms of volume. What's our purpose?
You know, this is really important to us is to support our franchisees, helping them to become more profitable, more successful. A big part of the transformation over the last two years, or three years, has been about putting in place that leadership team that we'll talk about a little bit later, that really on a day-to-day basis, supports the franchisees in looking at the opportunities that they have within their business and helping them execute on those. Our vision is to achieve an increasing U.K. market share of lettings, estate agency transactions, and property-related financial services. Record year for the group, and we've said that every six months since we came out of lockdown.
You know, we've been on a really fast journey. You know, if you look at what the business looked like five years ago to what it looks like today, it's absolutely chalk and cheese. We're gonna talk you through some of those numbers, or David is a little bit later. You know, we've delivered on investment and growth objectives with strong financial performance, significantly increasing revenue and profit this year. Strong organic growth in lettings revenues. The market in lettings is on fire and the rent inflation is driving good levels of income into the franchise businesses. That's underpinned by our quality of service and market strength. You know, with 76,000 properties under management, again, we'd be number two in that marketplace. We've got real scale across that business.
Operating profit increased to 40%, which we were delighted about, and that's in second year in a row, to GBP 9.3 million. The integration of Hunters has been achieved ahead of target. You know, I remember sitting on this call two years ago when we just, you know, bought the business and we're cock-a-hoop, and a lot of people said, "Well, it's okay buying a business, but you know, you've got to demonstrate that you can make it work." I think we've done that. We're now benefiting as an enlarged group with most of the synergies achieved. Big part, I've touched on this already, is continued investment into our highly experienced senior management team.
I look back to when I joined the group back in February 2020, and it really was just me and David. We've now got, you know, what I consider to be the best, most capable leadership team that on a day-to-day basis, works with our franchisees. We've got an MD in each business. They have operations directors that look after about 40 branches each. The relationship between franchisor and franchisee has never been closer. We're working together to look at the opportunities and how locally we can secure that additional market share in both sales, lettings, and laterally, financial services. That's been a big change in terms of the group. We've returned to a net cash position.
You know, we took out a GBP seven and a half million term loan when we acquired Hunters, and due to the strong performance of the group over the last two years, we've managed to repay that early, and now sit in a cash positive position that again, David will elaborate on a little bit later. Yeah, final part, we're delighted with the results we're gonna present to you today. It's been a really successful year for the group and we're happy to share those with you. I'll now pass you over to David, who'll add some color to that.
Good afternoon, everyone. Well, I mean, I've been 10 years in the business, and, every year I've been, you know, delighted and proud with the results we've reported. This year is just the, vindication of something that we started, two and a half years ago, to drive, the business from where it was. Don't get me wrong, I was very proud of those and of those results in 2018, 2019. Even 2020 was a record year. To drive us forward, put us into a wholly different position, and I think, these results reflect that. Group revenue up, 13% to GBP 27.2 million.
On a like-for-like basis, looking at just those businesses we've owned throughout, that was 8% growth. Management Service Fees are royalties, the lifeblood, the most important revenue stream to keep developing for us, up 8% to GBP 15.9 million. At like-for-like up 5%. If you were to just look at the two key component parts, lettings. Lettings was up 12% year-on-year, and sales up 2%. I mean, up 2% in a market that went back 15% in transactions, that's quite something. Adjusted EBITDA, a measure that I always include because it's close to reflecting what's happening in cash generation all the time, up 14% to GBP 11.8 million.
Almost 100% of that converted into cash from operations, which is why I tend to keep that measure there. Adjusted operating margin strong again, up above my threshold of 40% that I set for the business when I started. Just there, 41%. That's perfect for us. Profit before tax up 38% to GBP 8.8 million. You know, again, that's a hell of a growth in a year. You know, operating profit, which lies behind that has gone up 40% this year. Went up 40% last year. Just terrific. Net cash as a result of all this cash generation, net cash has gone positive by GBP 1.7 million.
That's despite us, paying out, record dividends, investing in record amounts, actually in, our operating systems that our franchisees use. Gratefully, we've managed to repay the term loan that we had very early. All of that done and in a net cash position of GBP 1.7 million. Dividends. Well, you know, we're generating all this cash, it follows that we, are generating profits, we're generating the earnings. We've, raised the, dividend for the full year from GBP 0.116 to GBP 0.13, up 12%. There is some headroom in that 'cause it's only around, by most measures, about 50% of what we've generated and could have paid out if we'd wished to.
You know, that's done deliberately in years where there might be slightly slower growth, and you never know what's around the corner. I like to know that we can continue with our progressive dividend policy. Last but no means least, if I look at the adjusted earnings per share, fully diluted, well, that's up 6% to GBP 0.284. Where did all of that come from? Well, let's have a look at revenue. Always pleased when the slide clicks on. Last year, just over 60% of our revenue came from Management Service Fees or royalties. This year, just under. The big change year-over-year has been financial services.
We are making, as we stipulated or set out two years ago, a concerted effort to generate more income from financial services, both within our franchise network, and within our own business that we've bought, The Mortgage Genie. You know, we're on that journey. That's, that's the big change year -on -year. For those who are new to us, other represents the services that we supply to our franchisees. We do that in two ways. One, we have the master licenses for all the operating systems that they use, and we provide the frontline support and license them on those systems. In EweMove, fully and in Hunters partially, we manage the properties on the landlord's behalf through the franchisees, so that generates a income stream for us as well.
Management Service Fees, slight change. Lettings has improved a little bit over 2021. Some might have thought it would have improved further given the reduction in the sales market, you can see from the fact that MSF grew 2% year-over-year that it wasn't going to change too much. Market's gonna be slower again for sales transactions in 2023, I think you can expect a bit of a drift out again, and lettings MSF to probably represent 57%-58% of total MSF in 2023. Management Service Fees from financial services, yes, currently at 1%. There's been a lot of work on that, Gareth will update on how that's progressing this year. Do I think it'll be a larger element overall?
Slightly, maybe, it might be 2%. It's not going to suddenly dramatically change. The two key streams are still going to be sales and lettings, with lettings being the majority at the end of the day. One last thing on performance in the year. I'd like to just keep us rooted in cash. Indeed, these days, with so many entries that go into accounts to follow, you know, the theory of how we have to account, it sometimes can be difficult to under see what's happening, and cash is always a leveler in this regard. Cash at the start of the year was GBP 8.4 million. We generated GBP 9 million from net cash from operations. That's after paying tax and interest on our loans.
We paid the bank loan, paid out dividends of GBP 3.8 million, and ended the year at GBP 7.6 million. Where were we in terms of net cash from operations? Almost the same year-over-year. That reflects slightly higher tax we've had to pay in 2022 over prior years, more interest on the loans, a little bit of working capital that had to go into the business to secure some arrangements for the franchisees. On a free cash flow basis, just slipped slightly because there's more shares at issue in 2022 in the way we calculate this number than there were in 2021 as a result of Hunters' acquisition.
Just slipped down from 27 P to 26 P, but was still healthy when we're only paying out a divvy of 13 P. I'm gonna take you on to the next part of this, which is a period of significant growth. You know, 10 years ago, we'd come to market, we were a relatively small cap business with what we were proud of as a very good profit record. We've went through the first five years, grew, bought a very good business from Legal & General, got into the hybrid market through EweMove and came to 2019 and started to look and say, "What do we need to do next?" As you know, Ian was leaving, as Gareth joined, and we set out on a new strategy.
I wanted to just sort of show what that looked at before and after. I could have just shown you 2020 and 2021 and 2022, but some of you might say, "Well, that's all very well. 2020, that wasn't the greatest year." Even it was a record year for us, there were plenty of issues around that year for all of us. I've gone a bit further out and just given us five-year trends. If this clicks on, but this is what it looks like. Turnover, you know, take us back to 2018, 2019, 2020, GBP 11.2 million-GBP 11.5 million, now GBP 27.2 million. I mean, it's gone up 2.5 times since 2020.
MSF up from a low of GBP 9.4-GBP 15.9, 69% growth. Profit before tax just about doubled up from GBP 4 and a bit, depending on which year you look at, GBP 4 2021, now up at GBP 8.8 million. The real sort of measure that we measure this in the business all the time 'cause this is how we performance measure and task our own businesses every day. Adjusted PBT up from GBP 5.3 in 2020 to GBP 10.7 now. That underlying trend is always important for us. That tells us where the headline number, this number is going. Just in EBITDA, we've talked about 4, I'm gonna skip on.
Earnings per share fully diluted, 22.5p in 2022, up 69% on the five years. Adjusted fully diluted EPS, so where are things going to, if we continue on as we are at what's underlying our business, up to 28.4p, 114% growth. That should show that dividend per share that we've set now at 13p for 2022 has got some room to grow yet. Clearly, off the back of this, we've been generating a good amount of cash to keep investing. That's why net assets have gone up, 137% over the five years. We've talked about net cash being in a positive position now.
We're back on this working through our organic growth, and just in tweaking things in the business so that return on capital employed will start to grow back towards 25%, and return on capital invested will start to grow back towards 30%. All those metrics, I mean, you know, as I said, we're proud of the results we created and generated in 2018, 2019, and 2020, but on all those metrics, the strategy of the last two and a bit years has really paid off. Now it's a case of us, looking again, looking at the market and deciding how we want to grow. With that, I'm gonna hand back to Gareth.
Thanks, David. As David said, you know, we've been on a, you know, really fast journey over the last two and a half years. You know, in effect, doubled the size of the business, which is impressive. We're sort of at that stage now where we need to push on again, and look at where those next opportunities come. I think the thing to say, the great news we've got is that leadership team and that organic growth coming from the team we've put in place, irrespective of whatever acquisition activity we can get involved in, does give us the opportunity to continue to grow the profit line.
Not at the speed we have in the last 2.5 years, but still, pretty reasonable. In terms of. This should give you some clarity about what the market's done and how the lettings business at about 76,000 properties under management, sort of protects us from the sort of bumps of the sales market. You can see, you know, on the sales side, on the right-hand side, the peaks of 2021 with the stamp duty holidays, the flatter market, albeit, you know, a reducing market in 2022. Our estimates are that there were 1.5 million transactions in 2021, and probably about 1.25 in 2022, but much flatter profile. You'll see the graph of 2019.
The 2019 profile is the one that we're following this year. We believe it to be a much more normalized market and probably gonna deliver somewhere between 1 and 1.1 million transactions in 2023. What you'll see on the left-hand side, however, is this rental inflation and just, you know, I've never known a lettings market as active as the one we've got today. You know, rent inflation is significant, and that's driving its way into the income that's generated to us as the franchisor. You know, that graph, if we put the start to sort of 2023 on there, would be yet again above the blue line.
we're really confident that, you know, whatever reduction in the sales market there may be in 2023, the lettings business will more than make up for that as it did in 2022. In terms of market update, talked about this. Residential sales gone from 1.5 to 1.2, but to probably one to 1.1, and likely to align to 2019. Rental demand continues to outstrip supply. There is an increasing drive towards professionalism and we're really conscious of that. Our job as the franchisor is to make sure that we educate our franchisees and we protect them.
Eric Walker, one of my MDs, is the guy that takes the lead on that, and that's becoming more and more relevant moving forward. Net migration is still on the up. Rising mortgage costs are a factor, however, not quite the factor we thought they were gonna be back in October, when the mini budget took place. The lack of new build will continue to drive rental inflation. The government set a target of something like 300,000 housing units. They've scrapped that target. They're delivering somewhere around 130,000-140,000 houses a year, and that's just not enough. We expect to see that rental inflation continue.
In 2022, the U.K. lettings market saw double-digit growth in terms of rental inflation, and we're seeing at least that this year. Why are we well-positioned? You know, we are. We've got a really robust business and we're a market leader with a proven franchise model, and a growth track record. You know, although the group has grown significantly over the last three years, there's still a long way to go. There's still work to do that will improve those results still further. We're strongly cash generative. With a net cash position, which puts us, you know, in a really good position, I think, in 2023.
We've got a very experienced senior management team adding value that I've talked about, and that's a massive change for us. We've got a clear, simple, and focused growth strategy that's working. Core strength is to capitalize on the opportunities that arise out of disruption. You know, we said we're ready to push again. We'd love to think there's an opportunity that's right for us that we can secure this year or early part of next year, and we'll have the cash to do it. The acquisitions we have done are delivering well. Hunters has integrated really nicely.
Mortgage Genie that we acquired in September 2021, again, is one performing very well in its own right, but also, we're learning an awful lot about financial services that we're then able to push across the group. We've got high hopes that that will continue to drive a good return for us. We have a high proportion of recurring income, so the cyclical sort of housing market fear sort of doesn't really affect us. You know, the peaks and the troughs are much less for us, being a franchisor. As David's touched on, a really strong focus on enhanced margin.
That 40% really is a sort of test for us that we don't allow our cost to get away from us, and we keep delivering that strong margin. We talked about the growth initiatives and, you know, just going through those. We launched these in September 2020 when we came out of lockdown, and actually haven't seen any reason to change them because it is still work in progress. It is still growing on an annual basis. Lettings growth is a massive focus for us, and we would do that through assisted acquisitions and local organic growth. And again, this year, that's proving really successful.
When I joined the group, our Martin & Co business was suboptimal from a sales perspective, very strong from a lettings perspective, but there was definitely opportunity from a sales perspective, and we focused on that, and we'll talk about the results in the next slide. Increasing the penetration of financial services across the network. you know, we are a 24,000 exchange unit business and two years ago had no real financial services offering. That was always a significant opportunity. It's probably taken longer and has been harder than we would have liked, but we are now beginning to make some real progress that I'll touch on later.
EweMove recruitment, you know, we set that as a real focus back in September 2020, and we've come really close to that. That business is 10 years old. As of two weeks ago, it was a 10-year celebration conference, and is really adding value to the group. It's grown significantly over the last three years and now represents a, you know, a good chunk of our profits, and has the ability to really push forward. Acquisitions at a franchise or level I've touched on, if there was a business there that fitted the group, we would undoubtedly consider it.
Digital marketing, we talked about that customer for life journey with the data that we hold, and I'll touch on the sort of progress we've made on the next slide. Lettings growth, 76,000 managed properties, up 2,000 on the year. Assisted acquisitions last year, we brought 1,890 units into the network, which will deliver GBP 2.1 million of revenue at franchise, franchisee level. Our aspiration issue is to try and deliver between 2.5 and 3.5 additional units, and that will be our plan for the next five years. How will we do that?
The fact that our footprint has extended significantly as a result of the Hunters acquisition and the growth of EweMove means that we've now got more territories in the U.K. Before, if an acquisition opportunity came up, we could only buy it in 200 locations in the U.K. We've now got double the size, 400 locations. By definition, we should be able to complete on more acquisitions as a result of our footprint. We'll really push that over the next five years. In terms of the sales activity, again, when I joined the group, Martin & Co was suboptimal in the sales side of the business. They moved their market share forward last year.
Although the market in the U.K. probably dropped back 15%, 16%, Martin & Co's market share moved forward. They did more exchanges last year than they did in 2021. Good progress being made there. Financial services, it's been a challenge. You know, the uncertainty after the mini budget was a concern, but luckily that stabilized quite quickly and the mortgage rates now are, you know, you've got competitive rates around 4%, 4.5%. Our mortgage business has significantly improved in the last six months, and we're on a run rate currently to deliver about 3,000 mortgage units. Our target when we set out two years ago was to get 6,000, and that's growing quite nicely.
Although there's still a lot of work to do, we're pretty happy with the progress that we've made in the last 12 months on financial services. The Mortgage Genie has performed resiliently, but the biggest asset of The Mortgage Genie, I think, is the knowledge that they provided us in terms of how do we make financial services a success across the group. Matt Stevens, the MD there, has been instrumental in, you know, looking at the opportunities we've got and how we'd go about securing those. EweMove recruitment, 44 new territories sold last year. Second best year on record. 189 under contract. Sales rate of between three and four a month, which, you know, is pretty steady progress.
You know, the opportunity in EweMove is probably 1,200 territories. I don't think we'll ever get to 1,200 territories, but there's certainly optimism to think we could get to at least 400, and that would make EweMove the largest single brand estate agency in the U.K. Big focus on that over the next five years to drive that number past 200 and beyond. Acquisitions at a franchisor level, Hunters, The Mortgage Genie integrated and performing well. I think, you know, I look back two years ago, almost to the day, and we were cock a hoop about the acquisition that we've made with Hunters.
What a lot of people said, "Well, congratulations on that, but you've now got to demonstrate you can integrate it." I think we've done that. I think we've delivered everything and more that we talked about two years ago, and that gives us real confidence in being able to take forward another acquisition, which is why we're keen to sort of investigate that this year. Then the big part for the group, which probably doesn't get the value it deserves. You know, being the largest franchisor in the U.K. means that we've got 600 businesses on a daily basis collecting consumer data and storing those in CRM. We've made a huge investment in 2022 to upgrade each business's CRM.
We started with Hunters. We've just about finished with EweMove. We'll move on to Martin & Co. The whole group's data will be in accessible CRMs. All feeds up to the mothership, let's call it, and we get the opportunity to communicate with that data and to send appropriate communications to that data to try and drive leads back to the franchise business. Okay? We've got our CRM sorted. We've launched new websites across all of the business. We've got our email service provider in the middle, and that's what the vehicle that will send the communications out.
Our intention is to build this customer for life journey with multiple touchpoints, all aimed with a click, a call to action to drive additional sales back to the business in terms of financial services, rent indemnity, conveyancing, lettings, and sales. We're partway through that, but it's a really exciting piece for the future. In addition, we're looking at some referral software which I may have touched on before, where, you know, we have situations currently where somebody will go into Derby with a house to sell in, let's say Bournemouth, be registered as a buyer in Derby, and Bournemouth will never get to hear about that customer with a house to sell. Our intention is to have this clever software in the middle that will alert Bournemouth office to the Derby buyer.
The Bournemouth office will have a conversation with that seller in terms of marketing their property. The data piece, don't underestimate that. You know, we collect now significant amounts of data, all of which we intend to communicate to drive additional income into the business. Our industry-leading executive team, loads of investment in this. Again, two years ago, none of these people were there, or two and a half years. We've got Ellie Hall, who looks after Martin & Co Midlands and North. In addition to, if you like, a day job, she's also an acquisition specialist. She's probably been involved in more portfolio acquisitions on behalf of franchisees over the last 10 years than anyone else.
She's our real expert in the acquisition side of the business. Eric Walker runs Martin & Co South & Scotland, in addition to that, takes the lead on compliance, GDPR, and regulation across the business, which is absolutely needed. We've got Rob Smith, who looks after Hunters and Whitegates, he's from a big corporate background, looking after multiple office locations, and he's really experienced in residential sales and financial services, he's taking the lead on our financial services offering with Toby Phillips. Nick Neill, we've touched on, MD of EweMove. Absolutely, you know, has driven that business from the day he took over.
As I say, celebrated their 10-year anniversary, he's growing that business into, you know, probably the most successful hybrid estate agency offering in the U.K. We've got Glynis Frew, who was the ex-CEO of Hunters, who now takes a lead on training and development and regulation from an estate agency's perspective. RoPA is still on the cards and Glynis will lead the sort of help franchisees on RoPA. Toby Phillips supporting Rob Smith in terms of residential sales improvement and financial services. Adam Noonan, our new commercial director, who oversees marketing, IT, and third-party suppliers. Matt Stevens of The Mortgage Genie, who I've talked about.
You know, a significant team of people that have the ability to organically grow the business that we currently get, have. Outlook, you know, we're pretty confident. You know, we're confident that, you know, we're in a good position and can execute on our strategic plan. Quarter one has been ahead of management expectations, both in terms of revenue and profitability, and we see no reason why that will fall in the remainder of the year. Experienced team continues to support the group of franchisees with further growth expected in 2023. Our ultimate goal and the thing we've said consistently for three years, our ultimate goal remains to support our franchisees in order to help them become more successful.
The relationships that we've built with franchisees over the last two and a half years means that we now have a stronger relationship than ever before. That gives me real confidence that we will be able to drive forward the results. We remain confident in delivering growth in full year 2023 and beyond.
Tremendous. Thank you.
Thanks for listening. That's the presentation. Tamsin, over to you.
Thank you very much, Gareth. We've got a few questions here. This time last year, you had 74,000 managed properties. You acquired nearly 2,000 and now have 76,000. How hard is it for your franchisees to find local organic growth?
Yeah, really tricky. There's a number of reasons for that. Firstly, you know, there's not loads and loads of landlord properties that are vacant, so everything that you've got is rented. I guess if you're a landlord and you've got a tenant, you're not gonna change, agent. Then the new, you know, the new generation of buy-to-let landlords, there's not many coming in at the moment. We've got a big piece that we're working on at the moment, which is: How do we attract new landlords into the buy-to-let sector? Then, of course, you've got some landlords at the height of the market deciding to exit that market. You know, local growth is very, very difficult, which is why we're very focused on that acquisition program, buying small local portfolios.
The good news is, you know, people, you know, the agents didn't sell in 2020 because of COVID. The market then was very busy in 2021 and 2022. The number of opportunities to buy small to medium-sized portfolios locally has been subdued, and we've already seen in the first sort of three months of 2023. Far more opportunities coming to market. I think our growth will be very much focused on acquisitions of local portfolios rather than sort of organic growth with new landlords coming to us.
Thank you very much. With the acquisitions of Hunters and Mortgage Genie, are you concerned that you made the acquisitions at what might be considered at or near the top of the market? As you state in the results, sales activity is not where it was in 2021 or 2022, Q1 to Q3.
I think from my perspective, Dave will have his view, we the timing was incredible, so we bought the business at just the right time to take advantage of that really strong market and that generated all the cash in 2021 and 2022 that's enabled us to pay off our term loan probably ahead of schedule. You know, what we're going back to is a more normalized market. I think what we've done with both businesses is align them to the TPFG model, and that's driven out, you know, some upside. There was clearly some synergies with the Hunters deal.
you know, if you look at what Hunters achieved in 2019 let's say, 2020 was obviously COVID, compared to what it's delivering now is significantly up on that result. obviously with a more normalized market, I think it will continue to go from strength to strength. I think, you know, the synergies coupled with the increased focus on the lettings market and the financial services opportunity within Hunters, gives room for real optimism over the next two or three years that that business will continue to deliver enhanced profits.
Tremendous. Thank you. I see some of the growth opportunities referenced include conveyancing and block management. Is block management not quite a departure from the existing competencies?
Sort of yes and no. We've partnered with a company that does block management on scale. It's sort of a joint venture on block management for the lettings agents that want to do it. We were pushed by a number of franchisees to allow them to get into that space. We picked a partner that would, from a compliance perspective, keep them safe, that was quite a compelling proposition. We've had a number of franchisees take that option up and are doing incredibly well on it actually. I was talking to a franchisee down south last month and they won about 500 properties from a block management perspective.
Block management is pretty low margin, income, but what it does is open up the opportunities to understand all of the landlords in that block to be able to let those properties. It's sort of not a sprat to catch a mackerel, but it's good data, it's good information that enables them to locally understand their lettings market a little bit better and give them opportunity to go out from a landlord perspective.
Great. Thank you.
Sorry, Tam. I didn't touch on conveyancing. Conveyancing is, if you like, quite a new income stream that we've launched. We've partnered with a couple of businesses, and the early signs of that is actually hugely impressive. I think we've done 1,000 instructions in Q1 from a standing start, that's moving much quicker than financial services did initially. It's all about increasing the profitability of a transaction. If you only charge a sales fee, that's maybe GBP 3,000 of income. If you can then do the mortgage, that's GBP 4,500 worth of income. If you can then do the conveyancing, that's another GBP 350 worth of income. It's about maximizing the income out of that deal.
you know, I wouldn't say we've been good at that historically, and we're much more focused on that today. I think in a reducing transaction marketplace, what we've got is engagement from franchisees. I think last year and in 2021, anything you ask them to do extra, they just couldn't do. Their bandwidth wasn't there. This year we're seeing signs immediately that they recognize that they need to earn money from other sources and therefore, that's driven the success I think.
Thank you very much. Many of your EweMove franchisees don't last the course. It must be hard to grow a business from scratch. How do you help them get established and grow?
So the EweMove model is, you know, fairly cheap to get in, but also fairly cheap to get out. What we do in the first six months is we charge them no fees, so they get, they get the momentum. There's also what Nick calls the Lean Green Marketing Machine, which is the marketing support that EweMove provide to each new franchisee. Then there's the local effort made by the franchisee. There's three elements, I guess. No pressure on money first six months. Marketing support from the center, it's about the franchisee getting out there and having conversations with as many people on a daily basis they can to talk about their business. I touched on it earlier was at the NEC Metropole for their 10-year anniversary conference.
And we talked about it, we talked about knocking on 50 doors and having 50 conversations every single day. To make sure you are putting your business at the forefront of that local community. We've got, you know, operations managers that help franchisees get off to a cold start. Undoubtedly, there will be failures, you know, that not every business will succeed. Our job is to try and, yeah, reduce the number that don't make it. And I think we've done a really good job at that when you look at the growth we've seen in the last two years.
Thank you. Your growth strategy relies on, M&A. What are your priorities in M&A? Is it financial services? Is it increasing the lettings book? Is it sales? What should we expect?
First, I don't think it relies on mergers and acquisitions. I think we've got two paths to growth now. We've got the organic growth within the existing business, supported by the team of people we've put together, that is showing real signs of growth. You know, if you take the figures from last year and the growth that we saw in the old business, the TPFG business, pre the Hunters acquisition, that growth is significant year -on- year. The financial services opportunity within the business when I talk about having an aspiration to do 6,000 exchange units on financial services, well we're doing 24,000 exchanges, so 6,000, you know, we could do a lot more.
You look at the conveyancing that can come into the business, and again, that can move the dial. I think we've got... Then the lettings book acquisition. That's our existing business. I think, you know, there's absolutely room to grow year-on-year with that side of the business. We are highly acquisitive because of the cash generation that we have. What would we consider? We'd love another franchise business. We'd certainly consider a financial services business. You know, we've bought Mortgage Genie, and that's been a really good learning curve and a real asset to the group, and that will just grow over the next five years.
If we could buy another business like The Mortgage Genie, I think we'd be interested in doing that. We don't, you know, we don't wanna dominate our result through financial services, but there's still significant room to grow in the financial services space. I think, you know, a franchise model business we'd be very interested in, a financial services business that would integrate and fit our current strategy, and our The Mortgage Genie business would also be attractive. David, I don't know whether you'd add to that.
I think the only other thing to add to it is that occasionally we see complementary businesses that we think are a relatively small scale that could sit alongside our franchise network and provide a meaningful service and would be worth considering. That's the other area, I guess that we look at. you know, everyone's strategy is open for change, and we notice a few that are changing right now. We think does that give us an opportunity maybe there to buy an element of the business that would sit well with us. that's where our acquisitions then come from. Having put ourselves in the position that we're in, you can imagine, we'd be keen to have conversations with anybody.
If you're out there and you're listening, you know, give us a call.
Thank you very much. With the U.K. residential transactions down 20%-25% year to date, how's your network performing on transactions alone?
Do you want me to pick that, Gareth?
Yeah.
I follow the stats a lot. I don't think there's quite that decline in the marketplace at this moment in time. There's a lot of headline talk about this, but not so much when you start to delve into the actual nitty-gritty of it. We're not seeing that in our own businesses, so I presume others aren't as well. We've had a bit of adjustment in the first quarter. Prices have come down just a smidgen, not that much really. The amount of listing activity going on would suggest to us that we are heading towards that 2019 market that we thought we were heading towards, and certainly at Zoopla when they were putting their data out in the market thought so as well.
Yes, there is some element of drop down that will be spread across our businesses. If Martin & Co performs in the same way as it did in 2022, you'll see very little change. It won't see a reduction in transactions, that's for sure. The brands we've owned for a long period of time will see some modest contraction, maybe 8% or 9%. EweMove, probably similar 'cause it's got the growth phase of adding new franchisees on. Hunters is probably the most effective, affected by the market because, A, it's got a large element of its earnings coming from sales, and B, it's an established player in that marketplace, so it's the most likely to follow the market.
The other side, of course, is that while that's happening, lettings is growing all the time, and in all those businesses, we are actively engaged in growing the lettings activity there. It should play out, no reason to say it shouldn't, should play out exactly like 2022. Lettings growth will outweigh any sales reduction. You know, if we do see 15% drop-down in the market in 2023 for sales as we did in 22, well, a similar sort of result you would have thought, wouldn't you? Something like, you know, 8% like for like growth in revenue, 5% in MSF. You know, I think, you know, come what may, there will be some growth there year- on -year.
What do you think, Gareth?
Yeah, I'd agree. You know, the market's normalizing. I mean, we're going back to a normal market. 2019 was the last normal market we saw. Definitely less transactions, but average house prices are higher, and therefore average fee is higher. There's it's not a direct comparison. Yeah, we're really encouraged about how the market started this year. You know, it could have been a lot worse. You know, you looked at October, if you'd have asked me in October, November, I'd probably be a little bit more cautious. Certainly, Q1 is started, you know, in line with where we'd hoped.
Thank you very much. I expect some franchisees generate a lot more MSF compared to others, the Pareto principle. Further, I expect some of the most successful franchisees are of an older demographic. To that end, if franchisees retire or want to exit their franchise, how does it work? Would that reduce the number of franchisees' properties, or would they be sold on to new existing franchisees? To what extent do you get involved in succession plans for high-performing franchisees?
I'll take the start of that, David. Really good question. Yes, our franchise community is an aging population. Do we help them? Absolutely. You know, we have a franchise services team that deals with all franchise inquiries and all franchise resales. We probably deal with, I don't know, 10 to 20 a year, ranging from, I think the largest one we sold in the last 18 months was GBP 1.5 million-GBP 1.6 million, down to, you know, the smaller ones at GBP 250,000-GBP 300,000. You know, we have a responsibility as the franchisor to ensure there's a steady flow of new generation franchisees coming into the business. A number of our existing franchisees will bring family in and pass it to family.
it's probably, I don't know, 50/50 split with people that have a exit plan based on when they wanna retire to the ones that wanna pass on to family and take a bit more of a back seat in the business. Yeah, we're absolutely. We've got a team centrally based in Bournemouth, headed by Penny Sanders, who's been with us for, well, almost since day one. I think she was employee number three. Who absolutely understands franchise marketplace, and is constantly interviewing potential franchisees of the future.
Do you want me to pick up on just the spread of business? 'Cause I think naturally, given the models that we run, they are going to be those franchisees are gonna be generating different levels of turnover right the way across the piece. If they're generating different levels of turnover, then, you know, they're contributing the same percentage more or less in terms of Management Service Fees to us, but obviously, from quite small amounts to quite large amounts. That's the nature of it. Will some franchisees, yeah, come, of course, could retire? Yeah, always. As Gareth touched on, that's the very nature of it. It's something that we stress. You know, we also spend a lot of time talking with them about what it is that really generates the value for their business.
Unlike some of these other models that run, franchising is all about the fact that you generate a reasonable or good living during the time that you run the business, and then you've got an asset at the end to sell. That's much different to a lot of other models working in our sector. That is something that they so have as almost as their pension, and they're very incumbent on us to make sure that they're growing that value and that at the time they come to sell, that they have something that's worthwhile to do so. We spend a lot of time talking about that with them. That means actually that as Gareth said, we don't see so many franchisees decide to sell up.
More are working on ways to either pass on to employees or to members of the family. Yeah, changing dynamic there.
Thank you very much. Before asking this question, I must commend you on the disclosure included around the share options in the preliminary results statement. May I ask about the share options? A substantially larger grant was made in 2021, 1.1 million shares versus 400,000 in 2022. The earnings per share target has benefited from the Hunters acquisition, which was pretty much in the pipeline at the time of the grant. A cynical unsatisfied shareholder might feel a substantial grant was made aware that there would be a substantial uplift in the earnings per share in the year to 2021 through a sizable acquisition.
I'd like to pick that up, if you don't mind, 'cause I've been here overseeing the whole granting of share options during my time in the business, from the day before we were quoted. I think it's absolutely right to say that, you know, we bought Hunters 'cause we could see it was earnings accretive. We wouldn't have done so if we hadn't, therefore we knew that earnings per share would drive on, come what may. It's just how far, that was down to actions that we were required to take after acquisition. There was a threshold set, a hurdle rate set fairly high, in that 2021 grant, deliberately so to say that, you know, we accept that some of this will happen, come what may.
You need to get above that threshold, through the initiatives that you're going to take and prove to us that you can drive it on that bit further. And a target was set out that reflected the additional growth and activity that we had to undertake. I think that's the, you know, that was the fair way to do it. Over to Gareth.
Yeah, I think the target was too high, to be fair. Yeah, it was a fair, a fair target. You know, share options are quite divisive, aren't they? I mean, the shareholders don't like them, and ex-executives, I guess, think they should get more. I think, you know, what we've managed to do as a board is come up with, you know, fair incentivization. You know, you look at the growth in the business that's been generated by David, me and the team and, you know, I guess you ask each shareholder what would they be willing to pay back to the executive for doing that. You know, I think we're, yeah, I think it's very reasonable.
I look at other companies and some of the share awards that are made and some of the targets that are set and they're far less, less challenging than the ones we've been set.
Thank you very much. Finally, can you comment on the current valuations of potential franchised businesses? Presumably Winkworth would be a great fit, but not for sale.
Yeah. The Winkworth's a great business. Would be a great fit, but it is a great business and, you know, the valuations of I think all three listed franchise businesses are probably a little bit too low at the moment based on the recurring income that you've got. We're probably the most developed, I would say that, wouldn't I? You've got Belvoir that had a big move forward over the last four weeks, you've got Winkworth. You know, we, you know, when you look at the business model, you look at the success the three businesses have had over the last three or four years, you know, they all strike me as undervalued at the moment.
Our job is to, you know, keep working, keep driving the profit, keep driving performance to a level that, we get fair value, I guess, in the market. You know, yeah, Winkworth would be a lovely fit for us.
Thank you both very much. That's the end of questions. Gareth, have you got any closing remarks?
Just as always, just thanks for your interest. You know, time's precious and giving up an hour to listen to us is really appreciated. You know, we're delighted with the results we delivered this year. You know, we've got plans for 2023, 2024 and beyond, that are really exciting and hopefully we've been able to relay that to you guys today. You know, hopefully your interest will stay there and look forward to speaking to all of you again in September.
Many thanks indeed, Gareth and David. To everyone listening, you'll now be taken to a webpage to give feedback on the presentation. If you're unable to complete it now, you'll receive a follow-up email. We would be really grateful if you could take a few minutes to complete. Your comments are really helpful for the company. Many thanks for joining. This is the end of the webinar.