Good morning everyone. Thank you for joining the Foxtons 2022 full year results presentation. I'm joined by Chris Hough, Group CFO. We will both be available at the end of the call to answer any questions you may have. To provide an outline of the running order, I will start by giving an overview of our performance in 2022 and commentary on the market environment. Chris will take you through the financials. I will finish with an update on our findings of the operational review, our refocused strategic priorities, and some thoughts on outlook. This is my first time presenting our results. On a personal note, I'm extremely proud to be back at the company where I started my career over 20 years ago.
There is undoubtedly significant unfulfilled potential within the business, and I could not be more excited by the opportunity and the journey we have ahead. Turning to Slide five, 2022 was a year of progress for the business, both financially and operationally, as we begin to get back on the front foot. Revenue grew 11% in the year, with significant growth in lettings as a main driver. This revenue growth translated into a 56% increase in adjusted operating profit. The high drop-through underlines my firm belief that our best approach to delivering growth is through aggressively growing revenue. While doing this, we will continue to monitor and adjust our cost base as necessary, but profit growth cannot be achieved solely through cutting costs, as has clearly happened in the past.
Finally, we had GBP 12 million of cash on our balance sheet at year-end. This provides valuable protection in an uncertain economy and supports the implementation of our growth plans. Operationally, 2022 was a year of reset for the business. We have a refreshed and streamlined senior management team, including Chris taking over as our CFO in April. I took over in September. Several of our key estate agency's senior management team have also changed. I have now completed the operational review of the business. It is clear to me how we lost our way. To deliver long-term growth, we need to rebuild the Foxtons DNA across areas such as our data strategy, people and culture, and brand visibility.
Over the last six months, there has already been a huge momentum of change in the business, and these changes have universally been embraced by everyone at Foxtons. We now have a refocused set of strategic priorities with an emphasis on driving growth in non-cyclical and recurring revenue streams. This will significantly enhance group revenue, profit, and resilience through the sales market cycle. As mentioned earlier, I believe there is significant unfulfilled potential within the business, and today I have set out our growth ambitions to deliver GBP 25 million-GBP 30 million of operating profit in the medium term. It is my aim to return Foxtons to being London's go-to estate agent, unlock the potential in the business, and create value for shareholders. Turning now to Slide six, an update on the lettings market.
You can see on the graph, the current dynamic is one of lower rental inventory, high levels of tenant demand, which is driving price growth. Data from Zoopla suggests that rental property listings in London were 32% lower than in the prior year. At the same time, tenant demand is increased considerably, both locally and from overseas, as the effects of COVID-19 are put behind us. This drove rental price growth of 20% across last year. Looking ahead to 2023, we expect little change in this dynamic. We do expect year-on-year price growth rates to normalize, reflecting the economic backdrop and tenant affordability. It is also worth noting the impact of this dynamic on our operations.
In London, lettings instructions are typically listed on a multi-agency basis. In current market conditions, speed of winning the instruction and then bringing to market and finally conducting viewings is critical to winning the deal. Through updating and optimizing our processes and then ensuring sufficient headcount, we have a solid platform to deliver organic growth. Turning to Slide seven and an update on the sales market. Volumes in 2022 were broadly similar to 2021. Over the same period, prices in London increased by 6%. The key driver of price growth was in the house market, while the prices of flats remained relatively unchanged. Against this backdrop, it is disappointing to note that our sales revenues only grew by 1%. This outlines that we have lost market share in the higher value house market over time.
Looking forward to 2023, you can see from the chart on the right-hand side how the September mini-Budget reduced new buyer activity by up to 35%. Lower buyer activity means exchange volumes are expected to be lower through the majority of this year. On a more positive note, we have seen a reduction in mortgage rates in the last few weeks, and this has started to encourage new buyer activity, which we hope will continue and positively impact the sales market towards the latter part of the year. I will now pass over to Chris, who will run you through the financial review.
Thank you, Guy, and good morning, everyone. I'll start on Slide nine with an overview of financial performance. Revenue from continuing operations grew 11% to just over GBP 140 million, primarily driven by strong growth in lettings. Despite making cost investments in the year to rebuild our competitiveness, there was good drop through from revenue to adjusted operating profits, which increased by 56% to GBP 13.9 million. This drop through is reflective of the inherent operating leverage in the business. Adjusted operating profit margin increased by 286 basis points to around 10%, and profit before tax grew 100% to GBP 11.9 million. Cash generation was strong and we delivered GBP 7.7 million of net free cash flow in the year. Total dividend per share for the year was 0.9 pence, which is double last year's level.
Turning now to Slide ten on the adjusted operating profit walk, which sets out the key profit drivers. Starting from the left-hand side of the chart. In 2021, we delivered an adjusted operating profit of GBP 8.9 million. Revenue grew by GBP 13.8 million, primarily driven by lettings growth, as I mentioned earlier. GBP 2.9 million of incremental variable staff commission charges were incurred due to this increase in revenue. GBP 2.6 million of incremental operating costs from acquisitions were incurred. This includes two additional months of trading from D&G and the operating costs associated with the acquisitions we announced in May. GBP 2.5 million of cost savings benefited 2022, of which GBP 2 million relates to streamlining senior management positions. A further GBP 1 million of senior management savings is expected to benefit 2023 as the savings annualize.
These savings offset GBP 2.5 million of inflationary cost pressures, which included wage inflation and National Insurance costs, branch costs, including utilities, and general admin cost inflation. We invested GBP 2.1 million back into the business to strengthen core operations and improve our competitiveness. This included investing in fee earner and sales support headcount, alongside overhauling our sales force remuneration packages. We also increased marketing costs, including launching a new brand messaging campaign and increasing our marketing activity and visibility in core markets. GBP 1.2 million of property restructuring costs were incurred in the period as we take steps to reduce the ongoing cost base of our property portfolio. These movements take us to the GBP 13.9 million of adjusted operating profit in 2022. Turning now to Slide 11 on segmental performance.
In 2022, revenues from non-cyclical and recurring activities, mainly from lettings, comprised 65% of the group's total revenue. These non-cyclical revenues will provide significant earnings resilience going forwards. In lettings, revenue grew by GBP 12.6 million to GBP 86.9 million and comprised GBP 7.6 million of growth from our underlying lettings portfolio, GBP 2 million of incremental revenues from two months of additional D&G trading and GBP 3 million revenue from the May 2022 acquisitions. As Guy mentioned, the lettings market dynamic was one of low levels of stock and high levels of tenant demand, leading to a 20% year-on-year increase in rental prices. Revenue per transaction grew by 25%, reflecting these higher rents, but also increased tenancy lengths and an increase in the number of landlords opting for our higher value fully managed service.
The operating leverage within lettings, alongside synergies delivered from the integration of D&G, resulted in GBP 18 million of adjusted operating profit. That's an 84% year-on-year increase. Turning now to sales. Revenue grew 1% to GBP 43.2 million, driven by a 3% increase in volumes, offset by a 2% reduction in average revenue per transaction. The lower revenue per transaction reflects an increase in Help to Buy sales volumes in the run-up to the closure of the Help to Buy scheme. Direct contribution from sales was healthy at GBP 22 million, but after charging an allocation of central costs, an adjusted operating loss of GBP 3.2 million was made. This loss reflects cost investments in headcount to rebuild capacity, which will ultimately increase the competitiveness of the sales business and return it to profitability in the longer term.
In financial services, revenue grew 8% to GBP 10.2 million, driven by growth in cross-selling of financial products and higher value mortgages. In the year, we have increased financial advisor headcount to deliver future growth. Turning now to Slide 12 and a deeper dive into lettings business, which represented 62% of total group revenue in 2022. The left chart shows the lettings portfolio has grown by 7.2% per annum since 2019, primarily driven by acquisitive growth. The middle chart shows revenue grew by a similar level, and after annualizing the revenue from the May 2022 acquisitions, underlying growth was closer to 7.7%. The right-hand chart shows adjusted operating profit has grown by around 36% per annum over the same period, highlighting the inherent operating leverage in the business model.
Restarting organic growth in lettings, alongside earnings increasing from acquisitions, will be the primary driver to realizing our medium-term operating profit ambitions. Turning now to Slide 13, where I present some detail on our previous lettings acquisitions. As you can see from the table, the four acquisitions completed across 2020 and 2021 have delivered good levels of return on capital employed, significantly above our target rate of 20%. This was achieved by efficiently integrating the acquired portfolio onto our scalable operating platform, enabling good levels of synergies to be realized. I'm also pleased to report the two acquisitions we completed in May 2022 are now trading under the Foxtons brand and are fully integrated onto our platform. The acquisitions were earnings accretive in 2023 and are on track to deliver good returns on capital employed.
Taking a step back, it's worth outlining that our acquisitions criteria is carefully considered. Firstly, we target only the best quality portfolios. Secondly, we undertake high levels of operational planning and due diligence. Finally, we ensure the price paid supports the returns on capital above our 20% target rate. Yesterday, we were pleased to announce the GBP 7.4 million acquisition of Atkinson Mcleod, a 4-branch estate agency generating 90% of its revenues from lettings. The acquisition will be earnings-enhancing in 2023. Turning now to Slide 14. Here, I presented a breakdown of our cost base and our 2023 expectations. I will talk to the key items on the Slide. Direct costs total GBP 49 million in the year. That's around 40% of our cost base. In the second half of the year, we have invested in fee earner headcount.
This additional headcount is expected to take 12-18 months to deliver a meaningful profit contribution due to the time it takes for fee earner to break even. Sales support costs total GBP 24.8 million or around 20% of the cost base, and includes head office roles critical for supporting our sales force and delivering revenue growth. Some further investment is expected here, primarily in our property management and lead generation functions. Property costs, including our branch network and headquarters, total GBP 16.7 million or around 13% of the cost base. We are taking proactive steps to reduce property costs where possible by regearing leases or relocating branches.
It's worth noting, our branch network remains a key component of our operating model, generating high levels of brand awareness in our local markets and playing an important part in bringing our sales force together and rebuilding our high-performance culture. Other admin costs of GBP 29.7 million represents around 23% of the cost base, captures all admin spend and head office functions, including marketing, IT, and admin support. As mentioned previously, we have taken cost action in the year to reduce overheads and corporate costs. These savings will enable us to fund investments for growth in 2023. As Guy mentioned earlier, the key to delivering on our medium-term ambitions is by growing revenues and maximizing the operating leverage within the business. As noted on the right-hand side of the Slide, I believe the cost base is broadly around the right level for 2023.
Turning to group cash flow on Slide 15. The business generated net cash flow of GBP 7.7 million in the period, driven by increased profitability. Looking at the bridge on the left-hand side, which starts with operating cash before working capital movements of GBP 27.8 million, we had a GBP 1.2 million working capital outflow. This is reflective of the billing cycles on longer tenancies. Income tax paid in the period was GBP 2.7 million. We made GBP 12.7 million of lease payments in the period, and capital expenditure was GBP 3.6 million, primarily relating to technology capital spend and branch fit-out costs. Moving to the uses of cash flow on the right-hand side, there was an GBP 8.5 million cash outflow relating to lettings acquisitions in the period.
GBP 3.7 million of cash was left in the D&G sales business at disposal. This was funded by the previous owners of D&G, who left GBP 3.9 million of surplus cash in the business at the point we originally acquired the business. Lastly, we returned a total of GBP 6.4 million of cash to shareholders, with GBP 4.9 million returned through share buybacks and GBP 1.5 million in dividends. Total cash at the end of the period was GBP 12 million with no borrowings. As announced yesterday, we acquired Atkinson Macleod for GBP 7.4 million, of which GBP 0.7 million is deferred for 12 months. The acquisition was funded from our existing cash reserves. Finally, turning to Slide 16 and our capital allocation policy. Our main priority is ensuring we have sufficient cash in the business to serve our working capital requirements.
We will use capital to invest in areas that drive organic revenue growth. We will distribute cash under our dividend policy, which is to return 35%-40% of profit after tax, excluding one-off non-cash items. After this, our preferred use of excess cash is to fund acquisitions in lettings portfolios, where we have a track record of delivering good returns on capital. Finally, we will distribute excess cash above operational and growth requirements back to shareholders. In summary, we're aiming for a strong but sufficient balance sheet that allows us to invest appropriately and deliver revenue growth. I'll now hand you back to Guy.
Thank you, Chris. As mentioned earlier in the presentation, I undertook a forensic review of the business shortly after joining, reviewing all aspects of the business and its operating model. On a positive note, I have now spent time with every department and visited every branch across our network, meeting every one of our colleagues, and I've been blown away by their enthusiasm, professionalism, and quality. At more senior levels, I'm very pleased to report that there is no doubt in my mind that our people are best in class in the industry. However, it is also very clear that operational and strategic missteps have impacted our performance over the last few years. Looking across the group, it is apparent how investment and focus was prioritized in the wrong areas.
On a longer timeline, the business never truly recovered from the rapid expansion in branch footprint from 2011 - 2016, when the group more than doubled in size. During this period, front office headcount did not keep pace with this expansion, and high-performing sales staff were spread too thin, diluting the culture of the business. Productivity and market share was already starting to slip. Revenues were underpinned by a buoyant sales market with high levels of annual price growth. Following the slowdown in the sales market after the Brexit vote in 2016, the business was managed for year-to-year profitability rather than to deliver long-term growth. This included cutting costs in the wrong areas, such as reducing fee-earning staff, and overinvestment in other areas, such as at senior management levels. As Chris has mentioned earlier, we have already made significant cost savings here. Finally, decision-making was not estate agency-led.
Processes that I encountered over 20 years ago were almost unchanged. There seems to have been little innovation despite many of our competitors doing so over the same period. We have not taken the opportunity to drive innovation within the industry through our unique in-house CRM team. Looking at performance on a business level, lettings, true organic portfolio growth has not been prioritized or delivered, as evidenced by the organic tenancy portfolio only growing by 1% per annum since 2016. Whilst rising rents hid most of this underperformance, a return to a culture of organic growth will drive high levels of profit uplift. In addition, acquisitions were started too late and significantly after competitors. Subsequently, the business missed out on good opportunities. In sales, costs were cut in the wrong areas. The business that I knew so well from my time here was damaged.
The Foxtons USP of delivering results for customers was heavily diluted, many of the fundamentals of estate agency are lacking. Since 2016, market share has declined from around 4.5% to around 3.4%. Even before rejoining the company, it was clear to me that Foxtons was no longer a leading player in core London markets. Market share loss has disproportionately impacted higher value markets, further reducing the profitability of the business. Finally, the financial services business was subscale and had received little investment for over a decade. Despite receiving an excess volume of lead referrals that most other mortgage brokers could only dream of, there was limited growth due to insufficient advisor headcounts and outdated processes. Slide 19.
Looking at some of these core operational issues a bit closer, they can be grouped into four categories: data strategy, estate agency processes and culture, staffing levels and experience, and lastly, the brand. Firstly, I was surprised by our low levels of data maturity, as subsequently confirmed by an external review that I've asked Microsoft to carry out this year. The architecture is outdated and not fit for purpose for a firm that aspires to be data-led. As a result, data was not cascaded or truly understood through the business, and significant opportunity is being missed. Despite owning the largest proprietary database of customers and properties across London, poor accessibility has significantly hampered this utilization. Currently, we rely on external data of what's already in the market to identify new opportunities. By that point, we're in competition with multiple agents also receiving the same data.
Instead, we need to mine our own database in a much more sophisticated manner, cross-referencing this information with thousands of publicly available datasets to identify properties before they come to market. I'm pleased to report we are already making very good progress here. Our data team have recently launched a propensity model to better identify and engage with potential sellers and landlords before they come to market. In addition, we've also launched a proprietary recommendation engine to better serve up a wider range of suitable properties to buyers and tenants. Both of these are version 1.0 and will significantly evolve and improve as our data capabilities mature and we test and learn. In addition, I was surprised by the low level of real-time KPIs and management information available to create business insights, support decision-making, and identify areas of weakness and opportunity.
Estate agency processes are outdated and Foxtons' unique culture had been diluted. As I mentioned earlier, in lettings, speed is critical. When reviewing our processes, it is very apparent that these are slowing us down and definitely limiting growth. In sales, the estate agency fundamentals that Foxtons once pioneered have fallen away and need completely rebuilding. There has been a shift in culture away from empowered estate agents. The sales force had stopped identifying and creating property instructions opportunity and focused on cross-selling that once drove growth in lettings and financial services has largely fallen away. As Peter Rollings noted at the interim results, staffing levels were significantly below the level required to service the level of inventory and customer demand across each of our businesses. This is clearly demonstrated by some of the new business KPIs I've asked our data team to generate.
In tandem, the business displays unacceptably high staff turnover. This drives low tenure, insufficient experiences built up, which results in low productivity, further detracting from the culture. Lastly, the once clear Foxtons proposition of delivering results was no longer clear. The once prominent brand is almost invisible in key markets. In a sector with high levels of competition, there are over 3,000 estate agents in London alone, and where the average consumer only interacts with agents infrequently, this has significantly hurt our positioning. Turning now to Slide 20. I don't want to go through every part of this Slide. However, it does highlight how core operational upgrades are required to ensure that we can deliver on our strategy. I'm pleased to report that we are moving at speed and have made significant progress on several of these upgrades in a very short space of time.
As a good early indicator, we have seen significant increase in our market share of new instructions coming to market since September. This has been achieved across both lettings and sales, as was confirmed by Rightmove. This reflects improvements across multiple areas, including a rapid change in our sales force culture of self-generating opportunities, better utilization of our data, and progress in increasing brand visibility. There is still a lot to do. I am encouraged by the genuine level of enthusiasm across the business and by the progress that we have made in a short space of time. Slide 21. After identifying key issues across the business, it is more satisfying to look ahead and outline how we will deliver growth both strategically and operationally.
As part of the review, we have also refined and refocused our strategic priorities to ensure that we can better deliver growth through the sales market cycle. A key driver is prioritizing returns from non-cyclical and recurring activities. Growth in lettings is core to our strategy, and many of the operational and technology upgrades we have started implementing are focused here. We will continue to deliver inorganic growth through acquisitions, and you've already seen the results that we can deliver. The major change is the focus on delivering organic growth. This will be achieved by better maximizing our opportunity by improving let-through rates while using our property database to drive instruction levels and ultimately further grow market share. Together, organic and inorganic growth will deliver higher levels of non-cyclical revenue and profit and substantially improve the earnings resilience of the group.
In sales, we are targeting market share growth to return to a leading position in our markets. This will position the business well to capture the upside from any sales market recovery. Furthermore, a focus on cross-selling across the group will be a key driver for supporting growth in lettings and financial services. Finally, in financial services, we will better maximize the revenue opportunity from estate agency referrals from within the group. In the first instance, this will grow revenues from new purchase mortgages and consequently increase revenue and profitability from sales transactions. Over time, these will feed through into our portfolio of long-term refinance business, creating a further growth in our high-quality recurring revenues. Slide 22. On Slide 22, we've outlined tangible objectives to measure our growth against and how these feed our medium-term ambitions.
In lettings, we are looking to deliver annual organic growth rates of 3%-5%. From our acquisitions, we continue to target returns in excess of 20%. In sales, our ambition is to restore market share back to 4.5% and consequently return the business back to a leading position in core markets. In financial services, we are targeting an annual revenue growth rate of 7%-10%. Taken together, these feed our medium-term growth ambitions of GBP 25 million-GBP 30 million of operating profit, with the range highlighting various sales market scenarios. Through maximizing operating leverage within the business, we aim to increase our operating profit margin to above 15%. As we progress against our strategy, we will be able to deliver shareholder cash returns in line with our capital allocation policy.
The ambitions outlined above illustrate the significant value that we believe can be unlocked from the business over the medium term. Slide 24. Before wrapping up, I think it is worth outlining our investment case as presented on Slide 24. Underpinning our investment case is the highly valuable market we operate in. London remains the most valuable residential property market in the U.K. with some of the highest property prices and agent commission levels. Whilst London sales volumes have been more impacted than regional markets since 2016, the private rental sector is the largest in the U.K., with incredible levels of non-cyclical demand and highly compelling long-term growth prospects. Secondly, the business model is becoming increasingly resilient over time. As we focus on non-cyclical and reoccurring revenue streams, these will underpin group earnings through the cyclical sales market.
We have a clear plan to deliver growth, both organically through operation improvements and inorganically from our well-established lettings acquisition strategy. The business model is characterized by high levels of operating leverage. Whilst this may have worked against the group in some years, it is a clear advantage under our revenue growth focused strategy. Both 21 and 22 demonstrate that delivering a relatively small increase in revenue results in a much higher percentage growth in profit. There is significant potential from a sales market recovery from some of the depressed levels that we have seen since 2016. Ensuring the business is positioned to capitalize on this will drive revenue and profit growth. To finish on Slide 25. In terms of outlook, as expected, it remains mixed. Non-cyclical revenues in lettings and financial services will be relatively unchanged and continue to deliver high levels of resilience.
The sales market will be more challenging, reflecting weaker buyer sentiment in Q4 of last year and entering 2023 with a reduced under offer sales pipeline. As property transactions typically take 4-5 months, this is expected to impact volumes throughout the majority of 2023. While it is still very early to say with confidence, we have seen some signs of market improvement, and we are cautiously optimistic that the latter part of this year will be less impacted. However, it is very early days, and economic uncertainty will be challenging throughout the year. Above all, I hope today's presentation has given you a sense of the opportunity by unlocking the potential within the business. The operational review has confirmed that while areas of the business will need rebuilding, the foundations remain strong.
As an example, despite the period of underperformance, the lettings acquisition program has been very successful, showcasing that the operating platform is genuinely best in sector. I was very pleased to announce just yesterday the acquisition of Atkinson McLeod, showing continued progress against our strategy at speed. The refocused strategic priorities ensure that we can deliver through the sales market cycles and create a business with a more dependable level of earnings. This belief is echoed within the growth ambition set out today. To deliver GBP 25 million-GBP 30 million of operating profit over the medium term and deliver shareholder value creation. Thank you all very much for joining us today, and I look forward to speaking with many of you in the coming weeks. I will now pass back to the operator for any questions you may have.
If you wish to ask a question, you please press star followed by one on your touch-tone telephone. If you change your mind and wish to remove your question, please press star followed by two. When preparing to ask a question, please ensure that your phone is unmuted locally. To confirm, that's star followed by one to ask a question. First question. One moment for the first question, please. The first question comes from Greg Poulton from Singer Capital Markets. Please go ahead.
Hi. Morning, guys. Just have three questions for me. First is just on the medium-term target, how much of that do you expect to be made up from M&A versus organic growth? Second was, will we likely see any further M&A in the current year given the Atkinson McLeod deal yesterday? The third one, again, on the medium-term target, how much of that do you expect to be represented by lettings versus sales and FS? Thanks.
Morning. Thank you for the questions. I'll take the last two before handing back to Chris for the first question. We've certainly made good progress with Atkinson McLeod, and we're now trying to look forward to continuing our acquisition program. This is entirely opportunity-led when we look across the 3,000 agents that operate within the M25. We have an in-house acquisitions team who are engaging with owners of these types of businesses. The pipeline is constantly evolving, and we, you know, ultimately we will make an acquisition should the acquisition be the correct fit for us, and that we have the cash available to do the acquisition at the time.
secondly, looking in the medium term, I think the balance that we've struck, this year, with 65% of our revenue coming from recurring high-quality lettings, business, is a great target for us to continue to have as we grow the business. The reality is, that may flex up and down depending on what's going on in the sales market cycle. I think the resilience that we've built, at that 65% level is very, very positive and something that we'd like to aim to keep close to.
Then, Greg, I think your first question was around the medium-term targets and how much of that would come from M&A. I think to answer that, I'd probably guide somewhere between GBP 5 million-GBP 10 million a year would be spent on acquisitions.
Obviously dependent on capital availability and so on. In terms of multiples, when you're looking at our revenue multiples, we're sort of seeing in the market somewhere between 2.2x-2.5x revenue. Hopefully off the back of that, you can get a feel for what is being contributed by M&A over the medium-term target.
Thanks guys. Cheers.
The next question comes from Andy Murphy from Edison Group. Please go ahead.
Good morning. I have one two-part question. It's really for Guy, I think. Very refreshing to hear you talking about operational failings, which is not something you hear about very often. I was curious to know, given your sort of recent arrival or re-arrival at Foxtons, whether you suspected that things were a bit awry anyway. Perhaps you could talk a little bit about that. I was just wondering, having done your review, what has perhaps most surprised you on the upside and the downside?
Good questions. Thank you. Morning. I think from an outsider's point of view, obviously, I've been in the industry, since leaving Foxtons 15 years ago. It was very clear that, you know, this once incredible machine that was created, 20 years ago, was certainly not operating at its zenith, past 2016. You could see visibly that, market share was in decline. The visibility of the brand was also massively in decline. I mean, there was one point where, you couldn't move on the London streets but for seeing, Foxtons boards and Foxtons cards, and Foxtons offices. That definitely has changed dramatically, which is something we're keen to reverse.
Obviously we're taking a number of steps to make sure that we're doing that. Then I think operationally we're, you know, very excited about the upsides that I've found since arriving in the business six months ago. You know, the big upside here is what we're planning to return back to organic growth of the portfolio, where we really haven't delivered any organic growth really, or any meaningful organic tenancy portfolio growth over the last four years.
I strongly believe that with the change in our operational procedures, with bringing in some industry-leading technology and with the use of data being shared across the business, to drive performance and to understand the markets further and better, I believe that that organic piece is very, very, very important to our future growth, as well as then bolting on what we're doing with our acquisitions and of course, an improvement in our sales position as well.
Okay. Great. Thank you very much.
We have another question from Sam Cullen from Peel Hunt. Please go ahead.
Yeah. Morning. I've got four I think, but I think three of them are fairly easy that Chris should be able to deal with. The, the main one really is for you Guy, in terms of the share loss that you alluded to, and you kind of pulled out that the ASP growth has been lower than the market. What is it that from the outside and then from the inside, do you think was behind that kind of loss of share? Has the brand lost its kind of resonance with consumers and vendors, or is it down to the negotiators and the, and the lack of negotiators or lack of seasoned experienced negotiators? Can you pull all that together? I think that would be interesting to hear your thoughts on that.
Yeah.
Kind of three easy ones for Chris, hopefully. Just, can you? You kind of alluded to mix of flats and houses. If you could just give us the mix of how many flats you're selling relative to houses. The CapEx line ticked up this year. Should that be kind of going higher again next year or last year be a peak? Just if you could walk us through the Atkinson McLeod kind of cost base and what will be added to your cost base. You've given us the like-for-like numbers, but just kind of interested to hear on Atkinson McLeod.
Great. Thank you for your question. What caused our loss of market share certainly since 2016? Well, there was a rapid expansion of opening cold start new offices in areas where we weren't previously operating, and that's a, you know, looking back on that now, that's a very difficult, a very difficult project to deliver when you open day one and you have no clients. Much more important for us moving forward that we're not opening cold start offices, and that we are growing through acquisition and growing organically within the existing portfolio.
What caused that market share decline really came down to spreading the number of high-performing sales negotiators across sales and lettings too thinly, essentially, as the branch portfolio expanded rapidly, the number of negotiators didn't keep pace with that expansion. That meant that the culture that was once absolutely key to the success of Foxtons had been massively diluted down. When you really start looking at some of the data that we've been able to pull together over the last six months, looking back historically, it's very clear that we are underutilized in terms of headcounts when we get, particularly in lettings, when we get to the very busy periods of summer.
We're almost at, we're throttled by that volume of people that we have working in the front offices. We are in a process at the moment, and have been since I arrived, a process of rebuilding headcounts. Of course, when we take when we bring new negotiators into the business, they need a considerable amount of training, they need time to bed in. This is a longer term project of rebuilding both sales and lettings headcounts, and also then growing headcount within our client services. Where we have a, you know, an entire floor at head office dedicated to a call center function to drive new listing opportunities.
You know, the volume of the people doing that function has been slashed dramatically since 2016. We're again rebuilding this function because it is such a core part to us, making sure that we're rebuilding that market share and doing much more sophisticated things with our database than we have been in the last 15 years. Yeah, it's a combination of things like this. Also, as I've mentioned before, the brand became diluted and almost invisible on the streets of London, where we were once very, very clear and very, very active. That's a big piece that we're also focused on. Of course, we were once the industry leaders in all parts of the aspect operationally.
We created, first of all, really, I suppose the original disruptor in the estate agency world with centralized, siloed operational functions that were being carried out by high-performing teams. Again, the numbers of those teams hasn't kept pace with the evolution of the business. Also, the new innovation coming out of the business, in my opinion, hasn't kept pace to where it was, again back 15 years ago. I'll hand over to Chris for your-
Sorry, can I just come with just one follow-up on that? Are you saying in your sort of core boroughs that you've been in for a long time, so the Westminster, Wandsworth, Kensington and Chelsea, Camden, et cetera, have you lost share in those boroughs as well? Or is this an underperforming cold start story, or is it kind of a bit of both or what's the major driver, I guess?
We've definitely lost market share in our core markets as well. You know, when I was a negotiator and worked my way up to run Foxtons largest office in South Kensington, you know, our market share in that location was enormous. It was over 20% in 2026. That's definitely been diluted, and it has been in other areas where we were once very, very strong also. Ultimately, you know, we definitely don't believe in cold starts as a business model anymore, which is why we'd much rather grow through organic growth and also through acquisition.
Thank you.
Sam, to pick up your remaining questions, I might just need a reminder on question two, if you can, please. In terms of flats, versus houses, I'd probably put us around 85%-90% in terms of bias towards flats. Atkinson McLeod cost base, as of today, it's around GBP 2 million. In terms of bringing that onto our platform and realizing some of those synergies we've got a decent track record of doing, are probably looking at around a 40% reduction in that cost base. your second question, would you mind repeating that?
CapEx. Just CapEx. It kinda ticked up this year.
Okay.
Is it gonna go up again or go down or stay flat?
CapEx is probably unusually high in FY 2022, partly for a couple of reasons. One is some much needed and one-off investment in particular areas of our IT hardware and infrastructure, that work is substantially complete now. I'd expect that to normalize in FY 2023, back towards the sort of GBP 2 million-GBP 2.5 million level.
Great. Thank you.
Then we have some questions, we have some questions from Chris Millington at Numis over the web. I'll read them all out. Can you please give me more detail about the improved buyer demand in recent weeks? Over what time period would you hope to achieve the new targets, and what market assumptions have you made? How could we think about divisional drop-through margins and incremental revenue in light of the investment being made? Has pricing changed from lettings book deals? Please can you comment on the scale of the market share uplift in sales lettings listings, and what is the Foxtons share of the London lettings market?
Great. Thank you for those questions. I'll start off with the first question, which is, buy-demand in 2023.
We saw a dramatic drop-off in buy-demand, as a result of the mini-Budget at the end of last year. I'm pleased to report that certainly January, February, have seen a quite a considerable reverse of this directionally. Now, of course, that buyer activity that we've seen at the start of this year will take quite some time to start to work its way through the system as buyers ultimately register and then follow on to carry out viewings. They then go through an educational process to find what they're looking for. Then they start making offers, then the offer's accepted, and then, you know, several months later, once that offer's accepted, two or three months later, you might expect to see it dropping through as revenue in an exchange.
That is certainly encouraging, I think, for us at the start of the year, but we don't expect to see any particular swing in our suspected revenue through to the until the second half of the year. Hopefully that kinda gives you the overview. Second question, which was the time period set to be able to achieve our proposed profit targets of between GBP 25 million-GBP 30 million. We've posted that at the medium term, which we think is between 3 - 5, 3- 4 years. Absolutely we want to try to get back to, you know, more normalized sales volumes in the sales market.
There's obviously a lot of uncertainty around that sector of our business. Again, it's now a much smaller part of our overall revenue with again, 65% of our revenues coming from high quality recurring lettings revenue.
Y eah. And the third question from Chris was around the divisional drop-throughs from revenue down to profit. I'd put that around 50% for sales and lettings, noting the investments we're making in those areas, and then around 25% for financial services.
Chris, you also had a question on the web around the pricing on lettings books, and if there's been any change there. I'd probably say multiples have been relatively unchanged. I've mentioned earlier around the 2.2x - 2.5x revenue, which is generally how the market values these books. What I would say is that we'll continue to evaluate what we are buying against the 20% return on capital employed I mentioned earlier.
Thank you, Chris. Okay, for question five, which was about our market share uplift in listings since I arrived. I changed a number of our operational processes, and also the focus of what we're asking our workforce to do has definitely shifted to make sure that we are very, very focused on driving new listing opportunities and therefore growing market share. As confirmed to us by third-party source, we've had some very good information from Rightmove, where our market share of new sales and lettings instructions hit an inflection point in September when we made these changes, and we've seen a dramatic increase in our market share of new listings coming to the market.
Just to give you a snapshot, for example, as confirmed by Rightmove, in January of this year, the overall market within London saw a 3% decline year-over-year on instructions coming to the market. For Foxtons, we were at 47% increase due to these changes and this focus that we've had within the business, and that was for sales and for lettings. The overall market was down in terms of market new listings coming to the market in January 2023 by 1%. However, for Foxtons, we were actually up 11% versus prior year. Certainly those changes having made a very considerable improvement straight away. Again onto question six, which is our share of the London lettings market.
We look at this on a listings basis because the data on on actual let properties is unreliable, but we are market leading within London at circa 8% market share of all listings coming to the market. I hope that answers all your questions. If it doesn't, please let us know.
That's all the web questions.
All right. We have no more questions, and I would like to turn back to Guy Gittins for any closing remarks.
I thank you all for your time today joining and listening through our presentation. Hopefully, we've been able to highlight our belief that this business has got significant unfulfilled potential. We're very excited about our future journey and I'm looking forward to being able to hopefully present further improvement on our numbers throughout this year.