Good afternoon, ladies and gentlemen, and welcome to the M Winkworth PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press Send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so, and these will be available via your Investor Meet Company dashboard. Before we begin, I would like to submit the following poll, and I would now like to hand you over to the executive management team from M Winkworth PLC. Dominic, Andrew, good afternoon.
Good afternoon.
Afternoon. Good to see everyone, well, be with everyone on this rather hot day. I'm Dominic Agace, CEO of Winkworth, and this is Andrew Nicol, CFO of Winkworth, and it's our pleasure to take you through the first half results of 2023. So without much further ado, we'll start our presentation. So I think for those of you who may not know us or know the model, because it's fairly... There are not many of us in the franchise in the estate agency industry. We're a franchise business. The Winkworth name was established in 1835, and we were the first to franchise an estate agency business in 1981.
We started off life in Central London and grew from sort of within, Central London outwards, and now have 101 UK franchised offices, 58 across London, two owned offices and 45, outside of London. And really, the USP of the Winkworth franchise model, in terms of how it grows and its market positioning, so we, we see ourselves as sort of mid to upper, market agency, growing to areas that affiliate with London. That, the USP being the fact that because it was so long ago when we first started in London, we had this sort of network, and we grow to areas that affiliate with London, which would be very hard to replicate that network now, really due to the cost of entry.
So that really defines everything we do, defines our ability to sell sort of prime property, and our ability to go and open into areas like Winchester, where people choose to use the Winkworth name to open their estate agency, 'cause the appeal is for clients to have London buyers be able to offer their clients London buyers. So that's a little bit about us, and so I'll hand you over on to Andrew for the business highlights for the first half.
Thanks very much, Dom. The network turnover, so that's sort of the business done by all our franchisees across the network, dropped by 5% to GBP 26.4 million in H1. Within that network, sales revenue dropped by 18% to GBP 12.3 million, but network lettings revenue rose by 10% to GBP 14 million. Winkworth revenue was, was broadly flat at GBP 4.27 million. Again, within that, the owned offices revenue was down by about GBP 50,000 in the first half, and the franchising business revenue was up by about GBP 40,000, so a net 10,000 movement on that.
As a result of some increased overheads, basically on the back of investment in new business and increased salary across the business, profit before tax dropped by GBP 260,000 to GBP 0.81 million from the GBP 1.07 million that it was in H1 2022. Cash at bank had gone up at the half year to GBP 4.23 million, and we declared ordinary dividends of 5.8p per share, which was 7% up on the same period in 2022.
So really to sort of break down the network performance in the first half in terms of, the different revenue streams, we're broadly a 50/50, lettings and sales business. And clearly, this year has been a transition to a higher, interest rate environment. As a result, somewhat, unsurprisingly, sales income has reduced, from the highs of the last few years in the post-post-pandemic boom. But on the other side of it, we've seen lettings and management income grow above our historic trend. I mean, normally, we've grown at sort of... I think we averaged around 8% a year for sort of 20 years on lettings. So we're seeing a sort of fairly dramatic growth at the moment.
So as I said, this sort of gives everyone an idea of, the division in our business, and what's interesting is it's pretty much an inversion of last year. So where sales has dropped off a bit, lettings has picked up a bit, and hopefully, that's part of the sort of beauty of the business, in terms of its balance. It provides our franchisees good balance to lean on different revenue streams at different times in the market, and obviously us as a PLC to do so too. Income by area, as I said, we've sort of grown out of London, so that's our heartland really.
We now obviously have a significant amount of our revenue coming from the country, and this is where we are growing in terms of new franchises, because obviously there are sort of more opportunities, whereas with 58 in London, there are less opportunities. There's a different opportunity, which is perhaps revitalizing some of those that are not performing at their best, or opening within territories. But for new sites, really we look to the country. So demand in H1, really again, you can see, I mean, what's interesting about this is obviously been a lot of news flow about the market we're in.
I mean, I look at this slide, and I think that sort of is quite reflective of the fact that actually, it has performed far better than perhaps expected at the end of last year by many commentators. And when you look at sales applicants in the first half, and you look back to 2019, where interest rates were 1%, then you can see that that there is activity. On the letting side, you can see that that it's been very strong since the pandemic. I think really what we've seen is that there was a catch-up period, a lot of movement, a lot of people moved country, a lot of people moving back to London.
A lot of people sat on their hands during the sort of COVID pandemic, and so that created a sort of flurry of activity. Now, it's beginning to see it calm a bit in terms of activity, but at the same time, we've seen the buy-to-let market reduce in size, and so they're still incredibly busy in terms of number of applicants per property. And so we expect the letting business to continue to grow over the years to come.
In terms of our dividends, this slide sets out the historic dividends that we've declared in H1, going back to 2012. We are committed to paying a progressive dividend as long as trading conditions permit.
Really then, just a bit about some of the things we do. Obviously, we see ourselves as an evolving business. We see ourselves as a platform for independent businesses to succeed, and when I say succeed, I mean to be in the top three in their marketplace through market share and the sales side of their business. We focus on that because we believe that ensures that they can run profitable businesses in different market conditions. So as part of that ongoing investment, we need to make sure the platform we provide continues to be, you know, best in class and give them that opportunity. This, I suppose, just demonstrates our focus over the last few years.
You know, we've grown up as a sort of analog business and are now increasingly a digital business and involving our investments accordingly. So this just shows, you know, one of the things we've done very well for a very long time is Google search. So if you type in estate agents in Fulham or estate agents in Tooting or the like, generally within the top three results, which means that we can deliver a lot of leads to our franchisees from clients looking to get their property valued. So that's sort of a great success for us, and we invest on ensuring we stay up there amongst the sort of tough competition to do so. Social media, really, this is a growing feature. I mean, in terms of leads generation, Google is sort of well out ahead.
You know, we are investing in marketing campaigns to ensure that not only we grow social media across our network, and I think if you add it all together, it's around 180,000 followers, but really the all-important engagement, which you can see here from sort of likes and follows. Sorry, likes and follows, yeah, which is as important as followers. Really, that just gives you a flavor to show that we're evolving our offering from perhaps canvassing to digital, as well as doing canvassing. This, again, I suppose, is something we're proud of as a slide, and you know, this is for across the area we operate. The bits we're probably most proud of, I think, are the...
Well, the bits we're most proud of are the percentage of withdrawn properties and the number of days from listing to subject to sold, subject to contract. So what you can see is, is that we, of all of the top 10 agencies, have the fewest clients who withdraw their property from us. So hopefully, what that shows is that we're getting it right with our clients. They are, we're offering them a sort of a transparent service that that we meet, and so they choose to continue with us through the process to sell their property. And fastest agent to SSTC, obviously, clearly, we're, we're pretty chuffed about that as well. That shows that, you know, we're working with our clients to get them the best outcome as, you know, quicker than other agents.
So I think it's reflective of, I suppose, I hope it's reflective of the quality in our offices because of the independent proprietors with great experience, employing experienced teams that get the best outcomes for clients. So from the franchising outlook, perspective, this gives you some history in terms of offices opened and offices closed, over recent years. We, as a business, I suppose, you know, don't hang on to those that may not be performing at all costs. You know, we will walk away from those situations with a view to re-franchising them. I don't think it does anyone any good to be hanging on to offices that are, you know, not succeeding, for various reasons. There are a million reasons why that can happen, personal circumstances, et cetera, et cetera.
You know, because it doesn't do the brand any good to have an office that's not performing well and doesn't do the individual franchisee. So we, we take that view, and you'll see a couple of these we have reopened, having closed in previous years. And in this year, one to note is Salisbury, which, we're looking to relaunch, with a new franchisee, imminently, actually. So I think the, the thing to say on this piece really is also that I, you know, we're in a, we're in a changing market. It's changed, and, what that means is there's gonna be, someone put it to me, greater liquidity. Greater liquidity in terms of talent, who are employed, and may have been earning very well in the sort of boom years and now looking for other opportunities and in businesses.
You know, it's to help assisted acquisition strategy, where we support franchisees acquiring other businesses to bolt into their own. You know, again, prices were full on the basis of boom years, and now perhaps there might be a more, a realism for those that wish to sell, to approach it with greater, greater realism, reflecting the sort of current market. So we see there's opportunities within there, and I must say, with the franchise business, there's increased liquidity too, and we have a, hopefully, a healthy pipeline of offices to come. They're never done until they're done, but, but we would expect to sort of open, as I say, we have a pipeline of, 6, 6 at the moment.
For those of you who haven't sort of had a presentation before, just a quick recap, we grow three routes, by three routes in franchising. Someone comes to us and wants to set up a cold start, we call it, a new site. They take their shop in their name, and they work within our—we work with them on their business plan, and we give them the sort of marketing support they need, and they plug into our database of buyers across the whole network, and off they go. We support existing franchisees to acquire, where it would be good bolt onto their business, or perhaps they want to take the next step and open into a complementary area to their existing business.
So, and I suppose the third way is the conversion of existing estate agents. We operate in a certain marketplace, and I suppose some people, it is appealing to some to come to us in order to offer their clients more, you know, London buyers, the database, the sort of marketing, the website, the extra leads. And so come to us to plug into that platform and prove their market share. And in a market where there are less transactions, then obviously that becomes more of a route of growth. And in the long term, roughly, it's been a third, each route has been a third of Winkworth growth.
The own businesses are a recent initiative, really, and what we've looked at as a business is that, you know, we've got this amazing London network in particular, you know, we've been doing franchising for a long, a long time and, you know, we're in different generations now of franchisees over the years. There's a job to be done in, you know, those that wish to exit and giving them good exits. Perhaps, you know, the nature of the business is that, you know, young and energetic new blood can regenerate offices. Really, it sort of, we looked at that, and we looked at how we get the best possible people. We're, as a business, totally focused on getting the best possible people in, in all we do.
So good people to open new offices, not just, not just, you know, opening new offices, with, with that, with general applicants. And this was a way of... Sorry, I'm on the wrong slide. Oops! That's what it is. This was a way of, this is a, this is a way of developing, of getting talent in, who may not have, the funds to do it themselves. So we would come up with a model where they would be able to earn equity based on their success, and we would be partners. So we're not trying to replicate a sort of wholly owned network with all, all the, all the issues that might rise, that might rise from that. We want to be partners with these people and it to be their business, but clearly, we sit behind them.
The benefit for us is, you know, we maximize the revenue of these offices, and where we've done this, we can see revenue increase 3-4 times as a result of just new engine, new blood. So this slide gives you an idea of the progression. I think some of the things to point out in this is 2023 time lags on sales continually takes more time to progress the sales. So some of these things have significant revenue that didn't fall into H1. So they are performing pretty well. We have Crystal Palace, which last year was sixth in market share, and is now second this year. So that's getting into the magic top 3 that we think is all important.
Tooting has maintained its position at number one in sales agreed. And we have a commercial business that we launched that is obviously slightly different, but benefits from, has synergies with the network, obviously, and the connection to the franchisees, and then providing them potential income through partnership on transactions and referrals.
In terms of, of our digital evolution, it's something that we've been focusing on for an awfully long time. Winkworth was one of the first estate agencies to have its own website back in the sort of the late 1990s. We've been, as I say, investing over some time, and this slide demonstrates the benefits to the network of the, that sort of website investment. So we launched our new website version in 2021, and it generates significant business for the group. The average leads about 350,000 people a month come to visit the site.
This chart shows the number of leads that that generates, and even though the number of visitors have dropped slightly over the last couple of years since the sort of pandemic high, our conversion rate is at 1.6%, so the number of leads generated has remained fairly constant. The good thing from our point of view is that it is generating a significant number of vendor leads who want to sell their houses through us, or landlord leads who want to let their properties through us. So the continuing investment has sort of paid off. What we're also looking at doing is continuing to invest, making sure that the website is delivering value for our franchisees and their offices, and also giving us, as a sort of franchisor, a view over office performance.
So the left-hand slide, the Dashboard v1 , something I think we were talking about in the last presentation we did, that's basically taking data from our website and looking at visualizing it for the offices and for the franchisor. So it's looking at the number of leads coming into offices, it's looking at offices and their properties that they have on the market, and it's also sort of ranking those offices from our point of view. What we've been looking at since the start, and sort of an underlying driver of our investment, is what we call the cradle-to-grave journey, and that's being able to look at a lead coming into the website to ultimately, hopefully, convert into a letting or a sale at the end of that process.
What the investment that we've been doing since the start of this year is focusing on, has been looking at integrating the information coming in from the website with the information that is generated by our back-end CRM, our customer relationship management system. We've completed the sort of more technically challenging, data aspects of that, so we've married up both of those sets of data now quite successfully. What we're looking at doing now, which is gonna take a bit of, a bit of time to work through, is how we visualise, how we take the significant amounts of data and make sure it's generating useful information for offices to actually act on. That is something that we'll be rolling out, hopefully, Q4 of this year.
So looking back and sort of looking ahead, so in the last half and ongoing, a lot of these are... We're a long-term focused business with a strategy that we've sort of been consistent with. We believe in evolving our platform, as I said, and in investing in that evolution to ensure that it maintains its competitiveness. We're a business that is resilient in all markets and has proven itself in all markets, and that has maintained a growing dividend over many years. And that dividend, we would look to continue to be progressive in our approach with, and support that through the growth of new franchisees in the different revenue streams we've added into over the years. So I think that's the presentation for now.
So, really it's into the Q&As and see if I can answer, or we can answer some of the questions.
Dominic, Andrew, that's great, and thank you very much indeed for your presentation this afternoon. If I may, what I'll do is I'll just bring back up your camera there. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab that's situated on the top right-hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. Andrew, Dominic, we did receive a number of pre-submitted questions ahead of today's event, and as you can see there in the Q&A tab, we've also received a number of questions throughout your presentation this afternoon as well.
Firstly, thank you to all of those on the call for taking the time to submit their questions. Andrew, Dominic, if I may just hand back to you just to give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you.
Thank you very much. So question one, the question is: Challenging times on fresh inventory. The loss of the franchisee who operated in Battersea, Clapham, and Pimlico will be keenly felt. Hopefully, these valuable areas, new franchisees will be quickly found. Appreciated it took a court case to resolve, but just a little surprising that no formal announcement was made or investors informed. Due to sort of compliance-related reasons, Winkworth decided not to renew the franchisee. The franchisee contested that decision, and unusually, and unfortunately, we had to take legal action around that. On the seventeenth of July, the court ruled in our favor, and so the franchisee's franchises were terminated. We're now in a transitional period while we're completing the legal proceedings and the settlement agreement associated with that. So unfortunately, we're unable to say any more at this time.
So the second question was, has the Chislehurst shut down? The lettings inventory at Kennington has disappeared from the website. Clearly a market in flux, but surely an opportunity for head office to self-start someone like Tooting and Crystal Palace. Both of these have been successful. Thank you very much. Plenty of talent out there, a winning formula. Any reason why this hasn't been expanded, especially with holes appearing? There are absolutely lots of talented people out there. I think hopefully in this, in the presentation, I sort of, I think I do see it as an opportunity, and we're obviously speaking to a number, and there, and I think that number will, will grow as, you know, people look, at-...
You know, whereas bonuses might have been larger in the last few years as an employee, they probably won't be reduced. And so people look at how they can make a sustainable income going forward, and hopefully we can provide a model where if they don't have the appropriate funding themselves, they can have a chance to have equity and have that business ownership, and we can provide the funds needed to close the gap. So yes, I think there are opportunities, and we intend to continue to do it. We, you know, as a business want to make sure that we believe in the top three being where you need to be. We don't want to be taking on too many offices that aren't in the top three.
We want to make sure each one's completed its journey into the top three, before sort of pushing on. That allows us to, it's not at risk and we can progress the company without too much unnecessary risk. In terms of Chislehurst, yes, it's the franchisee of Blackheath and Greenwich, and there are lots of reasons why this happens, but he's retrenched to Blackheath and Greenwich. Obviously, those are fantastic offices for us, and if he chose to do that, we were happy to support him in doing so. The next question is one for Andrew.
Thank you very much, Tom. The question reads: The dividend seems a little high given the current operating environment, the business' free cash flow, and ongoing refresh of the network. Could you share your thoughts on this and whether you have had any discussions with the board on this topic? As I said previously, we are, as a company, committed to paying a progressive dividend as long as trading conditions permit. As we pay dividends on a quarterly basis, we are in regular discussions with the board about the level of that dividend and its appropriateness.
Okay, so those are the pre-submitted questions. So, there are a couple more that I will try and work through. So, Steve K., Winkworth is a well-known and respected brand. You reference enhancing your social media digital footprint. Do you use influencer marketing at all within your marketing strategy? The honest answer is no. We have looked at it, and we have used smaller scale influencers. I suppose social media will evolve with the characters we have in our office becoming front and center and their own social media stars, although stars may be a step too far, but their own leaders, as they are leaders in their neighborhood anyway, then that translates to their profile on social media in their local community.
The next question is, do you see interest rates peaking this year? Well, so that it might be beyond my expertise to call that. It certainly seems positive from recent news from Mr. Bailey. I think they'll make a, you know, make a difference. Really, the market, actually expanding on that, the challenge in the sales market is that there's been waves of uncertainty and news flow around inflation, and they have a short-term detrimental effect before everything settles down again. You know, the classic being the Liz Truss, you know, all the mortgages got pulled, products, rates went up, and then it took three months for them to settle down, and activity picked up again.
So I think when you see the top and people are confident that that is the top of the cycle, you will see transactions improve. Because actually, fundamentally, I believe in the sales market at the moment, there are different dynamics which will drive activity going forward. So the dynamics I see are you've got a very tight rentals market. There's prices are going up at 15% a year, and even if you were happy with paying that, the actual ability to find a property that you want to be in is competitive. You know, you're getting 40 people to a property to get there. So you look at that, you look at the fact that we're now beyond the ultra-low interest rate era, I believe.
So I don't think anyone's expecting it to go back to the last or pre-pandemic times, or pre, pre-last year times, in fact, of the 1%-2%. So why would people not get on with, with buying their property? Because once there's a settlement of it, that being a new level, then, then people will progress. There's also incredibly strong employment and wage inflation. So I think all those factors support the case for transactions to continue. You know, in the, in the previous times when interest rates were 1%, everyone just withdrew properties. Now, the other factor to add on is obviously, sadly, there is increased cost, and so sellers will be coming to the market to downsize where, you know, those costs are too much of a burden on them.
So I think every cycle is different, and those are different dynamics which will support sales going through. So the next one, "Has what has been the rationale behind increasing shares outstanding, even when the shares are cheap and the company has a lot of cash?
I'm not sure I fully understand that question.
No. No, I'm not sure. I'll pass on to that one. We'll try and respond to that at a later date.
So Mike D, "Also, have you included any form of AI in your digital rollout?" We have had chatbots up on the site for a number of years now, looking at sort of filtering conversations coming in on a 24/7 basis from potential customers. Some offices love it, other offices really want to engage with individuals. So it's something that we have there. We use a bit. It's not a massive driver. We've been looking at various other AI opportunities in the background as part of the development. There's nothing ready to roll out at the moment, but it's something that we will be continuing to monitor because potentially it will offer efficiencies going forwards.
So then there's a question from Colin C: "Given the change in the sale rental mix, can you tell us the profit margins on new sales and new rentals? My assumption is that lots of possible sales have become rentals. The seller hoped for a better market, lower interest rates." Yeah, I mean, that happens. I would say it's not a big feature this time because, unfortunately, you know, the interest rates and the cost of finance has gone up. So, you know, that has gone up more than perhaps rents. And so, those that look to exit, it may not be the support that it has been in previous moments where people can't quite get what they want for their property, and these sort of become accidental landlords.
You know, really there is a need in certain cases now because the mortgages have gone up significantly, so to trade out is the route they'll choose. Take them, Tony.
What is the cash management strategy? Will cash on hand be deposited into short-term interest-bearing accounts to generate some return on capital?" I'm pleased to say that we are seeing interest being paid on our deposits, and we expect that to increase over the rest of the year. We have various investments we are looking at at the moment, so it's difficult to lock away money for an extended period of time, and it's something that we continue to monitor.
So I think those are the questions on the presentation, and it's been a pleasure to hopefully talk you through some of the slides and hopefully show you a bit of the Winkworth story. And yeah, thank you all for joining us.
Dominic, Andrew, that's great. And thank you very much indeed for being so generous with your time, then addressing all of those questions that came in from investors this afternoon. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, just for you to review, to then add any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses out. But if I may, guys, just thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations.
This may only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of M Winkworth PLC, we would like to thank you for attending today's presentation. That now concludes today's session, so good afternoon to you all.