Good morning and welcome to the M Winkworth PLC interim results for the 6 months ended 30th of June 2022 investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, can be submitted any time via the Q&A tab situated in the right-hand corner of your screen. Just click Q&A, scroll to the bottom, type your question and press send.
The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Andrew Nicol, CFO, and Dominic Agace, CEO. Very good morning to you.
Good morning. It's a pleasure to be here to talk through the results of the first half of 2022. On that note, I will turn to slide 3. I thought we best to start with a sort of intro for those who don't know the Winkworth system, the franchise model we run. Just sort of a couple of bullet points on that really.
The model is that we have 103 offices, 65 offices in London. They are all independently owned. They're independently owned and operated. Under that model, each franchisee takes their own lease, and they sign a contract for 10 + 10 years with us.
To secure our rights on that lease, we have an option on every premises, so in the event that a franchisee leaves, we can continue to trade from that site. The sort of main feature of Winkworth, sort of USP versus other franchise models or point of difference really is the London coverage.
Because we're I think we're the first estate agency to franchise in 1981. We sort of set up in Central London and moved out, and that has built a network that's fairly irreplaceable, certainly from a franchise perspective due to the cost of entry of trying to set up an estate agency in Central London these days. Obviously in those days it was a bit cheaper. That really sort of separates us out in a number of ways.
It separates us out because it puts us into the prime markets, and our brands operate in the middle to upper end. It also delivers our growth. We grow with areas that affiliate with London. Lots of people in country markets such as Winchester, or the like, look to London buyers to sell their house.
That's important as an estate agent to have that link, and obviously they can plug into our network of 58 London offices, and offer that to their sellers. It helps define our market positioning and it also helps us define our growth, which is really areas influenced by London. The other important thing to say on the model is that all the billing is done through us centrally.
We collect the money directly from the solicitors, and pay out to the franchisees, once a week, deducting our 8% or any other costs that may arise, which is obviously good for ensuring there are no bad debts.
A little bit about businesses on this slide. We're second in terms of sales agreed in London, in the first half of 2022. In the areas we cover, we sell more properties than anyone else. We were established 1835, and in brand recognition, we have a very high brand recognition. That's a little bit about us.
I suppose in terms of the period that we've been trading the first half of 2022, I think the important thing to say is that the results are versus a very boom half in 2021 driven by the stamp duty. Actually despite percentages down, it was quite a strong first half. In terms of sales agreed versus 2021 first half, we were just 16% down, which is quite a good performance.
In terms of versus 2019, which we see as the last normalized year, where there wasn't a pandemic or a stamp duty holiday, we were 50% ahead in terms of sales. Actually, quite strong, but a record first half to compare against. During that time, we are very much a people-led business.
That's the whole focus of our business and everything we do, and that's been important to us, which we'll discuss in the presentation as we go through it, to focus on getting new talent in. That's what we see as defining the success of our business and the ventures we do to generate new revenue streams. On that note, I'll pass you over to Andrew to talk through the sort of financial and operational highlights.
Thanks very much, Dominic. In terms of the highlights, we had 14% revenue growth from our own offices, and as Dominic pointed out, we had a very strong performance versus the pre-pandemic 2019 H1 results. You'll see in this slide we refer to the 2019 figures as well as the 2021 ones.
We opened 2 new franchise offices, and as part of our continued investment in the tech platforms that underpin the Winkworth offering, we had the successful launch of the latest version of the Winkworth website. We'll go into detail on those aspects as the presentation goes through. In terms of the numbers themselves, the network turnover was GBP 27.7 million. That was 24% down on H1 2021, but 29% up on H1 2019.
Within those, lettings in H1 2022, a record half year, up 8% on the previous record of 2021. Sales revenue is where the revenue hit has really come through. That was at GBP 15 million, 39% down on H1 2021. Just a bit of color around that.
In June 2021, the network sold GBP 8.5 million worth of properties. In July 2021, the network sold GBP 850 thousand of properties. There's a real pull forward in 2021 into H1. This year, the lettings and sales split is coming back to a more normalized sort of 50/50 split.
In terms of our revenue, that was at GBP 4.28 million, 18% down on last year's numbers, but 68% up on 2019. Profit before tax at GBP 1.07 million was 46% down versus last year, but 84% up on 2019. We had GBP 4.11 million in the bank at June 2022, down slightly from GBP 4.57 million at June 2021.
In the last year, we've paid out more than GBP 800,000 of special dividends, equating to sort of 6.4p per share in that period. We declared ordinary dividends of 5.4p in the first half, and that was up from 4.4p in the first half of last year. Really just to get into the business and the dynamics, we'll go through the sort of sales and lettings revenue in the first half and how they performed.
What you can see from here really, I suppose, is first of all, the sort of tough comparisons that I mentioned versus a very strong first half in 2021. I think the other thing you can see though is part of our business that's slightly missing at the moment.
You know, when you look at the Central London revenue numbers, and compared to 2019, it clearly hasn't grown back in the same proportion to the others. Now, in part, well, that's basically due to pandemic issues. You know, travel didn't open up, quarantines were in place for a number of countries, and so the international investment community weren't buying in the numbers.
We're seeing that change now, and so within our business and within our different sections, if you like, so we sort of see the country markets, the suburban markets, and Central London as different markets with different drivers, we would expect to see Central London, which is less affected perhaps by cost of living and more about sentiment and the international appetite for London property, start to accelerate and grow their share, supporting our overall revenue. As I said, then that's the sales part. On the lettings side of things, broadly, well, the picture is one of growth. As a board, it's above expectations. The lettings revenue, it's been very strong.
There's been sort of dramatic price increases in lettings property due to a constraint of supply, particularly recent times in London as the return to cities is upon us. Again, though, you can see that Central London, whilst it grew significantly, has a long way to go to come back to a more normalized contributor.
It should be above 2019. We do think lettings is a lead indicator there, and so we would expect sales. Well, it's another sign of sales following suit in Central London. The other part I suppose is worth pointing out is management. So in our lettings and management business, property management's the stickiest part of the business.
That has been growing, outgrowing the lettings-only part of the business significantly, for a number of years now. When you look at the H1 performance, on lettings only, that's a 4% increase. When you look at the management revenue stream, that's a 13% increase. When you look back to 2019, you're talking about a 31% increase.
Our franchisees are adapting and getting better at retaining the sticky part, not just the sort of let and forget, dare I say, element of the business. That's positive for the durability of all our offices and the sustainability of our revenues going forward. Oh, sorry. Fat fingers. What we talked about here is the breakdown of our revenue.
I sort of mentioned this about Central London, usually performing, I mean, greatest share of the pie. I suppose this is a slide that shows where it is as we stand. Our revenue is predominantly driven by London revenue.
But within that, Central London has been underperforming, and it has been underperforming for a number of years. Historically, it's around 20% of the pie, and I've seen it up to 25%. It grew in the first half, and that was based purely on the lettings growth, outstripping other areas. Clearly, that's without the sales growth performing at its best.
That has a sort of oversized impact on our business because obviously the fees in Central London are far higher than the fees elsewhere due to the value of the properties. We look at the sort of income by type.
Our subdivision of sales and lettings, which we've grown to 50%. Previously, it slipped back, but that slip back is not due to a lack of performance on the lettings business. In fact, you know, the first half was the record ever revenue for a first half in lettings and grew strongly and continued that trend that's been going on for many years. Clearly sales, as we said, was still a strong part of our business.
I suppose you can just see the value of the balance we have where, you know, both performing well and we can lean on either one dependent on the circumstances in front of us. Again, just looking at the sort of detail of the business, this is the top of the funnel, I suppose. The leading indicator for future activity as they register with us to start their journey. Sales, you know, you can see the impact of the last two years and why we referenced 2019 as an important, as the last normalized year really because, you know, there's peaks and troughs are not normal really. What you expect to see on sales applicants is that everything starts at its best in January.
Everyone comes out of Christmas and registers, and generally every year that fades off. That's just a normal trend you're seeing across those lines dipping off towards Christmas as other priorities come to the fore.
What it also shows us, I suppose though, is that our applicants are tracking 2021 now. Our activity since July has been somewhat a little bit above 2021, which is hugely encouraging. I suppose a note of caution that obviously the first and second half of 2021 were somewhat different in activity. It did come off in the second half, but still it's encouraging for the performance to date. The letting side of things, you can see how strong it's been.
There's been a huge amount of activity, and that has been increasingly focused, moved from initially a countryside lettings focus to a London lettings focus in terms of the peak activity, regions with the peak activity for us.
As I said, the issue is really, constraints of supply. There's a bit of a balancing act playing out where, you know, there is very little around, and that's pushing prices up significantly to about 20% for rents in London areas, which is huge. At the moment, that balance is leading to positive rental growth for our business. Hopefully that will continue to do. It is also something though that I think is supportive of sales activity.
I think the thing to note is that this cost and lack of availability of rentals property is a driver for buyers to commit to purchasing. You know, if you're—I was looking at a case the other day where to rent a flat in Fulham is, for a two-bed flat is GBP 2,500-GBP 3,000 per month.
Now if you lock in a mortgage, you can get a mortgage on a four-bed house in Fulham for GBP 2,500 a month. I think that's quite a supportive driver. As there's a continual, aside from the kind of the hassle factor of, you know, people having to turn up to offices with their offer before viewing a property because they're so scared of losing out on that property.
I think that will, while you can lock in five-year rates at historically low levels, will be very supportive of sales activity. In terms of dividends, we look to pay dividends and declare dividends on a quarterly basis throughout the year. We look to pay progressive dividends, and I think this slide is a good demonstrator of our track record on that.
The blip in 2020 is clearly sort of pandemic related, but one of the key things to note from that is while our competitors were holding their dividends, not paying them, we continued to pay during that period, and we caught up in 2021 with some special dividends. Trading conditions allowing, we will continue to look to pay progressive dividends.
Really a bit more about the business, and that's really the brand, which is all important to us as a business and our licensing of it to the individuals. This is really the next slide. This is really to say, you know, we have a cracking high street presence, had it for years.
When we survey consumers each year, you know, one of the number one reason generally is they know the Winkworth brand is from that footprint, from walking down and seeing us on their local high street. That's very important to us. Obviously, we like to keep up with and evolve the business, ensure we're hitting the right channels to keep us successful and competitive in the marketplace.
Google, we've been doing for many years actually, and have in-house resource focused on ensuring that we succeed in coming up in the top 3 under the relevant searches. A bit of explanation. Estate agents in each particular office. Estate agents in Battersea or in Fulham or in Islington, and the same with lettings.
From here, you can see that 88 out of the offices are in the top 3 under estate agents in and in letting agency, and it's 91. Say that's a very good route that people type into Google when they want to look for an estate agent, if they haven't walked past them on the high street, and they can come to us. That delivers leads to them through our website.
In a broader picture, just to kind of show, because we've been doing it for a while, we have an old website, and we've developed, but historic as in we were the first to have a website. We have very good traction. If you type estate agent in London, we're second generally on Google. In the UK, despite not covering many parts of it, we're fourth.
That's very, hopefully shows we've evolved to the digital channels as much as the offline channels. Really, there's a bit here about social media because this is something we're focusing on. It is a new route to generate leads for our business and our franchisees within it. It is growing.
We're investing in resources internally and new videos and content that can hopefully continue to grow that reach to, again, ensure that we're just continually evolving the business to ensure that it's competitive. We want to be in the top three in every market we're in. We need to ensure that we're giving the platform to the talent we have as franchisees to succeed.
This slide is really. I think I mentioned it in the introduction. It just shows, I suppose, within the areas we cover, you know, we are number one in terms of sales agreed. It's, I suppose, of interest is the online Purplebricks block, which I don't think they've ever overtaken us in London, but in the country they were, had sold more than us.
I think that graph would have been the other way around last year. We sort of accelerated and improved our position. We're able to say we're the number one within the areas we cover versus our peers.
That's not just, we put these down because these are listed ones that the information is freely available from, but actually covers all estate agents in U.K. within our areas. From franchising outlook, this is our, well, it's our growth.
I suppose here is the open book view of our, the ebb and flow of the network since the last 5 years or 6 years, encompassing this half. You can see this year we've grown. I should probably say for those that aren't aware, there's sort of 3 routes to grow.
One is, someone approaches us, an experienced individual, and they have an area they'd like to open up with, and we help them set up a brand new business, and they launch it, and hopefully support them through to success. One is, another route is existing estate agents looking to grow their market share, or perhaps move into a higher sales price bracket. They're approaching, speaking to them, and hopefully bringing them on board.
The third route would be sort of existing franchisees opening further offices or us supporting them with sort of assisted, well, with funds to be able to acquire competitors or lettings portfolios and grow their book accordingly. As you can understand, it does ebb and flow which one drives the growth over the years dependent on the market.
In a sort of boom market, clearly the cold start, as we call it, is the most favorable route. In a more difficult market, the conversion is a more favorable route. Hopefully the opening up of second offices and third offices by existing franchisees is. It's also a stage of our business, but it's also something that hopefully shows that it's a positive network where people are happy to grow their businesses.
We have within our network, now have been in the country for a number of years and reaching maturity across those offices. Well, very much reaching maturity in those offices. We know the talented individuals we have in different regions that we are happy to back and believe they're highly capable to grow their business with our funding.
The first two, well, the two for 2022 on this chart, are exactly that. Crediton is our Exeter franchisee. He's been with us many years. We helped with his successful business. We helped him to acquire a Tiverton business last year. This year, a Crediton business to form a Golden Triangle for his market, also to add to make the fifth Devon office and hopefully a localized regional hub that's a point of growth for us going forward. We actually lent some money to him to enable him to buy that business. Bristol simply a fantastic opportunity for us.
It is similarly our Bath franchisees who are, like Frank, a husband and wife team who were sort of partners, elected partners, came to us to run a successful Bath office, and used to operate, one of them used to be a manager in Bristol.
There was an opportunity to acquire a lettings business there. We provided some funding alongside the bank, and they've acquired a business in Bishopston that hopefully will be the first of several in Bristol and sort of, again, a new point of growth for us, by supporting quality franchisees. The other things that. Beyond that, I suppose, we have a sort of pipeline at the moment of a number of, like, 5 offices.
Four of those, well, actually a bit more than five, but four of those are another assisted acquisition, and then one or two from existing. One's a cold start and one's existing franchisee opening a further office. Hopefully they will come to fruition, although not there yet.
The other important thing to say, which is important to us, is we spend a lot of time ensuring that we've got a sort of portfolio management, but really it's to ensure that we have. It's as valuable to us to get a tired franchise, you know, that maybe has been reached the end of its sort of proactive lifestyle, lifespan, if you like, and reintroduce new vigor to it through new sort of hungry franchisees who will acquire the business and use their energy to take it forward.
Where we've done that, we've seen fantastic results. I mean, recently, recent sales have been Ealing, Shepherd's Bush, Fulham. They've all increased revenue. I think they'll all beat 2021 revenue this year.
The revenue increases on these, you know, key locations, if you like, key offices, what that really means, the opportunity is probably the equivalent to opening 4 or 5 new offices. It's a way for us to grow our revenue as well as sort of reinforcing, reinvigorating our existing network, and making the most out of key locations, key assets where we can generate 80%. The other part of our strategy is we've looked at. I'll just go through here.
For those that don't know, we're taking this view that there is a huge amount of potential in certain offices. We can look at Rightmove and see where the transactions are in our marketplace, in particular London, and where we can come across some fantastically talented people, but they may not have the funds to kind of take on the office, which would obviously be hugely in our interest. In certain situations. Sorry, I've actually got the wrong slide.
I'll go to the slide I'm talking about and then come back to that one. In certain situations, we have acquired local franchisees, local offices where we feel there's a significant upside, and we put in place this alternative person we've identified.
We give them equity reward for delivering numbers, or delivering revenue and profits, and turning it around. Really the first of which was the Tooting office, which has been a sort of storming success. It's number one now, in its marketplace. Probably reached maturity, as not much further to go after number one.
The lettings will continue to grow, and it's a well-run business with an equity partner in there, so we're in partnership. Since then we've also done the Crystal Palace business, that is growing. It's not gonna contribute much profit this year, but we'd expect it to contribute profits next year.
It's on track to grow by about 20-30% this year in terms of revenue lines, again, with a partner in place to become equity upon hitting certain numbers. We're finding this quite an effective way of delivering revenue for us, generating 8% south of an area that has great potential and obviously securing the best talent, where they may not be otherwise been able to join the business.
The third one at the moment we have is the business called this commercial business, developments in commercial investments. It sits well for us. It's in its second year to fill with us because it is a central business. We're a business that leans to having a central business, not a localized business.
It is a huge part of the network that we don't have. Obviously, we're a residential sales and lettings business. Could leverage off the network and hopefully from referrals from reps, from franchisees. It basically sells you know gyms or mixed-use buildings or commercial sites that can be developed into new build properties.
That will obviously feed into developing a new build business. That new build business will then feed the properties generated for the commercial business back to the network on splits.
Hopefully we generate extra revenues in the middle by exploiting a sort of new sector of the property market. The offices benefit from new properties that they probably weren't going to get otherwise because they went to other central new homes departments.
Hopefully it's a sort of virtuous circle to deliver growth for us. Again, it's growing significantly. It's profitable at the moment and hopefully will deliver growth going forward. We are, as I said at the beginning, perpetually focused on this sort of people element, and so we are looking at other opportunities where we're in discussions with, as I say, the sort of talented people is the phrase to do the next one of these.
We are aware we're not changing the model, but we find this is a positive rightly for revenue, but for learning for the front end and introducing new talent to the network for us is a positive avenue.
Obviously want to maintain ourselves as a fixed cost light business model capable of paying progressive dividends, and so don't want it to become the new model, as such. Going back to the slide I accidentally forgot to talk about.
This really is about central services, and I'll be fairly brief on it, but it's a department that calls through the database to generate. We believe that the risk-reward balance is correct in the franchise network. Obviously, the franchisee is taking the risk and deserves the 92% of the reward. We want the network to be as competitive as possible.
We want it to be seamless for the consumer, for the client, so they get the benefit of both the sort of owner-operator delivering heart and soul and a competitive platform behind them. This goes through the database and calls clients. For example, someone's registered in Kensington and they've got a flat in South Ken.
You know, they'll contact them and say, "Look, would you like us to value your flat in South Ken?" Thereby sort of join the dots. Pass that valuation over to the local office, which otherwise might have been missed, fallen between the cracks. That delivers 10% of all valuations at Winkworth, so it's quite a positive. Actually, when you look at it with the website, the website delivers around 25%.
Outside of brand value or other added benefits, I suppose this and the website delivering 1/3, should we say, of valuations going to the website. Hopefully separating our offering out, making it compelling to independents and ensuring that we're able to try to target that top three in each marketplace. In terms of the digital side of things, I talked about it a wee bit in the introduction.
We have a vision for the Winkworth network that, as Dominic was saying, it's very much people focused. We're looking at making sure we have very strong local operators, that they have a very visible high street presence. The critical other element to it is that their offering is supported by very good tech, and the website is a key part of that.
As Dominic said, we had the first website in the estate agency field.
Yep. Sorry, Michael.
We just launched version 10 of that in April of this year. Had a new look and feel and was focusing on things like user experience, functionality, a particular focus on the mobile-first design, where we get a significant number of users coming through mobile.
Each of the offices has a microsite that they can tailor to give them their own particular unique flavor, again, part of the strong local operators aspect to it. In terms of the conversion rate, so visitors converting to leads, the rate in H1 of this year was 1.63%, which is a record, and that compares with H1 2021, the old site, which was 1.21%. It's not just about the website.
What we're looking at doing is sort of integrating the website with our underlying CRM databases and the like. Now that the website has been launched and has bedded down, the focus on the second half of the year will be looking at integrating with that CRM system. A number of aspects to it.
We're looking at sort of personalizing the visits so that we can make visitors their journey more efficient and more effective. We're looking at analytics around that to track how people interact with us, so that we can look to benefit from that. In terms of the integration with the CRM side of things, there's two key drivers for that. We want to drive leads to the business, and we want also to offer the franchisees the opportunities to introduce efficiencies into their local businesses.
Just a brief slide on the leads side of things. As Dominic said, it's a key part, leads from the website, of generating business for the network. Although the number of visitors to the site has dropped off since the peaks during the pandemic, they're still high.
With the conversion rate that we've been able to get, we're very much in line with the last couple of years in terms of the leads being generated. There seems to be a step change on pre-pandemic levels.
Really in summary, yes, we're looking at the half and then looking at 2022 and beyond. I will just go to the next slide. As we've sort of gone through the various parts of 2022, lettings record first half, sales significantly down, but against a sort of once in a generation period, I would suggest, in my time anyway.
The market for businesses retained its sort of highly competitive nature in terms of being second in sales agreed in London, and first in the areas we cover. Our revenue was down. The impact of the wholly owned businesses or partnership businesses offset that to a certain extent, not totally reflect the network. Dividends were grown and 5.4p, as we like to pay a progressive dividend.
We continue obviously to say there are several more to kind of squeeze through this year. We see ongoing growth. We see one of our wholly owned or partnership businesses, having reached maturity, but the other two, a fair way off it, so we expect more to come from that. As I said, Tooting has got to number one, and hopefully the others will follow.
Going forward, you know, our aspiration is always to be the first option for agents wishing to set up their own business operating in the prime markets. That's what we align ourselves to. We do believe those individuals need to be supported digitally as well as the sort of analog platform. We continue to invest in evolving the platform through digital evolution.
That said, as we've hopefully got across, you know, first and foremost, it is about people for us. They are critical to the success of the business and any ventures we undertake. We will be guided by the ability to work with those talented people. We do have, hopefully more of these active participation businesses that we'll be able to bring online in due course.
We hope to keep our target of 6 new franchise offices, conversion new franchise or existing expansion. I think within the markets, what we're seeing at the moment is. Well, first of all, Central London has some way to go before sort of, I'd call it, full recovery. I think we're seeing that now.
I also think the other part to note is that the prime markets at the moment, the best part of our business, probably the best, is, you know, houses in zones 2, 3 in London. You know, those family houses are very popular and achieving significant prices above what they were in January.
London having not really shone for many years really, largely over sort of fiscal uncertainty, I suppose, and hung parliament fears and all the like, has sort of picked up this year significantly. At the moment, we'd say that's the busy part of the market for us.
Within all that, we have, you know, we retained a solid cash balance, so that's one for risk against the dividend, so it gives us good security and also so that we can take advantage whichever opportunity comes our way, we're in a position to act quickly should we wish with the cash we have on our balance sheet and obviously no debt. Therefore, we hope that we will continue to be able to pay a progressive dividend. That's that. Thank you.
Fantastic. Thank you very much, indeed, Dominic, Andrew, for the presentation. Ladies and gentlemen, do please continue to submit your questions using the Q&A tab situated in the top right-hand corner of your screen. Be sure the team take a few moments to review those questions submitted today. I'd like to remind you the recording of the presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard.
Perhaps before we just go on to some of the live questions, we did receive a number of pre-submitted questions, and if I may just read out the first one. I think some of this you have covered off market-wise, but if there's anything further to add. How are you finding the second half of the year for London rental and sales market? Has it started to slow? If markets are slowing, does that provide you an opportunity to onboard new franchisees and therefore grow your market share?
Brilliant. Yes. The answer is it's been very busy. August is always hard to tell. It's August, but it's been a good August in terms of agreed. As I said, it's a bit above 2021 activity. Rentals is incredibly hot still. Price increases, shortage of supply. September is a key month for both sales and rentals as everyone comes back from holidays.
Early indications are that it is busy. At the moment, the property market from our perspective is looking quite strong. In terms of the other question about opportunities, yes. I mean, I think with every different market, there's a different approach for us.
You know, we have, as I was trying to say in the new markets, people coming to us, starting new offices and giving it a go. In more difficult markets, it's those almost a defensive nature, looking to grow market share to ensure profitability in a lesser transactional market.
On the other side, obviously, you know, the opportunities for our sort of more our partnership businesses where we have a greater equity stake, you know, they arise and the prices reduce, if the market is not as strong as it has been. The beauty is with a strong balance sheet and some cash, you know, we can adapt which way we're focused, dependent on the market conditions.
Fantastic. Thank you very much. The next question we've got here, what are you doing right that Foxtons is not, that you've resulted in your superior performance?
Everything. It is, I would say, you know, it's people-led. I think we're a long-term business. You know, we grow steadily in a considered manner with the right people. I think when you look at where, you know, really in those sort of Outer London areas zone two outwards, we have some long-term, incredibly experienced and successful operators who are delivering.
You know, I feel the general environment is moving towards, you know, local business. People wanna connect with the proprietor, they wanna do business with them, and someone with experience and our platform, I think puts us in a good place, hopefully versus all competitors, going forward.
Thank you very much indeed. Next question here we've got is, notably the inventory is being hard won, with some branches yet to gain a single sales instruction so far in H2, making lettings more of a focus.
The buy-to-let market has increasingly become more important in the areas that you farm, with major investors and institutions heavily involved. Is this an area where you're currently making active steps to exploit? And if so, what's the success? Where do you see Winkworth's role here?
Yeah. I think, I mean, you know, stock level is dependent on area and value of stock and lettings businesses underneath it. I would say I don't think there's any complaints from any of our franchisees at the moment about difficulties. I think everyone's. It's a happy camp, I suppose, is the first thing to say.
Beyond that, what are our steps? I mean, there is the challenge of PRS to institutional investment in build to rent, and I think some of the interesting parts of having a commercial business in the middle, development commercial investment business, is that starts to put a foot in that camp.
There are lots of opportunities to grow that in many directions, and one of them would be to look at, more the rental side or from a sort of institutional investment perspective. That's not something we're doing at the moment, but it does because clearly it's growing, and we wanna focus on, its transactional investment nature, to grow initially. But it's something that gives us an opportunity to develop that channel in due course.
That's great. Thank you very much indeed. The final question, which I think, and we did kind of part cover off in the first one, but good to see current franchisees expanding into new territories, Southwest, South Coast, Norfolk, Tooting and Crystal Palace. Two franchises where you hold a major stake and been very successful. Just a little surprised there have been no new additions. This is likely to change in the near future.
Yeah. Exactly. I mean, we are, you know, we're a considered business. We're not, we're people-led, opportunity-led. We don't want to get ourselves in a position where we're beholden to open over a set timeframe because we feel that might push the wrong decisions. We will, we are, I guess if you say, in discussion with some pretty talented people, and there are some opportunities that we'd like to see come on board.
We are focused on developing that at a pace that is easily digestible, and staying true to our franchise, not thumping our franchise nature and the sort of defensive qualities of it all and its ability to generate significant cash and progressively pay progressive dividends.
That's fantastic. Thank you very much indeed. That does conclude the pre-submitted questions. As you can see, we have had a number of questions submitted throughout today's presentation. If I may just ask you to click on that Q&A tab, and where appropriate to do so, if you could just read out your question and give your response, and I'll pick up from you at the end. Thank you.
No problem. The investment in digital, so the second one from Andrew, investment in digital, is this on internal platforms to increase efficiency also or just external?
As we covered off in the sort of digital element of the presentation, we're looking to do both. We're looking to make sure that franchisees have access to a very strong tech platform.
Very good. Okay, next one. A large number of franchisees in top three, as you said, but small minority who are not that productive. What is your business model to improve their performance? Training, terminate franchisees, et cetera? Many ways, I suppose. Dialogue is really where it sits at its core.
Speaking to them, you know, if they're not in the top three, it's not the end of the world for us. We want to ensure they're doing a good job. They are good. They have generated goodwill, adding to the goodwill of the brand. They're not letting anyone down. No one's letting down another franchisee. Our aspiration is top three, so giving them facilities and speaking to them about how they can achieve that.
Clearly if there are situations, sometimes you find that franchising is such a personal thing that there's so many million different situations. Sometimes, if someone's perhaps done their years, you know, it is a tiring job. Estate agency is highly competitive and takes a huge amount of energy. Sometimes you find that we're very old. In 1981 we started franchising. Some may have just sort of lost the pizzazz for it all. In which case we speak to them, that dialogue will be, "Well, look, we've got people to buy the businesses.
Why don't you sell, take time out, de-stress, you know, and we can trade you to a new, sort of perhaps more energetic individual." Or the conversation is, "Look, why don't you bring someone in the same way we've done with Tooting?"
You know, if you've found your energy levels are dropping, you know, there is a way, you bring in young talent, and a lot of our franchisees have done this, bring in young talent that, you know, have an opportunity to have the security of a small stake, and work in an independent business with a long-term chance to take over that business. Really, and obviously we have training and everything else, but really it's dialogue, I suppose, to see what fits the personal circumstances.
You mentioned the Fulham example of rent versus buy costs. Interest rates are clearly going to 4.5% plus. Will Central London be less affected than the rest of the country? It would also seem to change the Fulham example to renting being more attractive, at least in the short term. I guess interest rates is the big, big question.
I spoke to someone the other day that was quite interesting, who said that the, I mean, employment's the primary driver for us, that interest rates decide the size of the property you buy and the location, but employment's the one that decides the market really. That was an interesting look at it. I think, you know, it's worth remembering 2007 interest rates were 6%.
You know, the lending criteria has changed dramatically since those days. There aren't the self-cert mortgages where people sort of didn't necessarily have the actual income. You know, the gearing that banks have stress tested those buyers to a far greater degree. I think most importantly is in the direction of employment going forward. I suppose in answer to the question of the dynamics, it does change it.
Rents are continuing to grow though, and so both costs are going up, and we will see. We're in a very different position as a business and as franchisees. I think important to say than previous moments. I mean, we've been through. I've been through 20 years. I've been through a few, you know, the 2008 pandemic.
you know, we've got very good businesses that can adapt to all circumstances. 50% of the businesses are lettings, that's grown 8% a year for 20 years. It's 12 years since 2008. There is uncertainty and I can't deny that. We will see how Liz plays out with her policies. I think at the moment I can say the property market's busy.
Is the availability of rental stock likely to prove a long-term structural issue? I think it is of concern, yes, a huge concern. Rentals has always tracked wage inflation pretty closely. Yes, it is a challenge.
I mean, I think in the country, I believe that there's more investment going to buy-to-let. Really, what's happened is the changes have all meant that buy-to-let requires less debt, less leverage. You know, back in the day, it was, you could get 75% loan-to-value and have a buy-to-let, and it would sort of stack up, and you'd wait for capital growth. Now, you know, you can't really have more than 50% loan-to-value.
It's a good investment if you're probably at a lower property price level where you can afford not to have so much debt. In London, we've seen, you know, a sell-off. Is that trend, that link between wage inflation and rental prices going to break? I would suggest that it may well do, because I'm not sure what the solution is.
It's a challenge. At the moment rents are going up, our revenue's going up. I think the balance of our business, you know, if the people aren't renting, they will be buying. We're sort of well-placed either way, but I think some of the policies have been a bit negative for rental supply in London. Sorry, which was this?
Dividend cover is less than 1.2 times in this half. One question for Andrew. I think dividend cover is less than 1.2 times this half and may decrease in future if the progressive dividend policy is pursued and earnings stagnate due to reduced sales activity. What is the board's policy of dividend cover, and would the board be comfortable with a dividend cover of less than one?
Um-
Interesting question. I think we are committed to paying quarterly dividends where trading permits. I think it would have to be some fairly dramatic changes to our circumstances to impact on that. Short term, interesting question, I think it's something the board would have to consider if ever dropped to less than one.
I suppose our commitment was shown by the pandemic, wasn't it?
Yeah.
Where we paid the quarterly dividend amidst the lockdown with a 20% reduction. We are committed to that dividend, and we were able to do that because of the defensive nature of our business, and comfort in the lettings business underpinning it all. I suppose that's our view on it. We're keen to maintain that. Sorry, I just got that. Is this the new one? Yeah.
Immediate macro-economic matters aside, how do you see the medium term level of sales transactions evolving following the pandemic fluctuations? Are you likely to revert to the 2019 levels?
Do you think they should be higher than 2019? I believe they're gonna be higher, because I think that those were quite bad years for London. For us anyway, I'm not saying nationally, I wouldn't know all the parts quite as well.
But London, you know, we're talking pretty grim years those years. We do look at the comparatives of being up until 2019. It is a normal year, but at the same time it was a pretty grim year in terms of sentiment for the property market. I think that's supportive of levels staying above that. I think that those are all the Q&A questions. I hope I've covered, that we've covered them off.
No, I think you have covered off pretty much all those questions you came from.
Excellent. Well, good to be able to present to you guys. Thanks very much.
That's wonderful. That's fantastic. Andrew, Dominic, thank you indeed for updating investors today. Dominic, I don't know if you've got any final closing comments just before we redirect to investors to give you any feedback.
I think I've probably hopefully quite extensive and sort of run through it all, so not particularly. I think it's, you know, as I say, we're not a short-term business, we're in it for long term. We're sort of growing progressively.
We believe keep it at the core. We're not going to gear up the business. We've got cash supply, cash balance sheet enabling us to take opportunities when they arise. We will do that as and when they are, they're perceived value. Yeah. I think that is our summary.
That's fantastic. Dominic, Andrew, thank you indeed for updating investors today. Can I please ask investors not to close the session? You should be automatically redirected to provide your feedback and all the management team can better understand your views and expectations.
This will only take a few moments to complete, and is greatly valued by the company. On behalf of the management team of M Winkworth PLC, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you and good afternoon to you all.