M Winkworth (LSE:WINK) — Audited final results for the year to 31 December 2021

0:00 Good afternoon, and welcome to the M WINKWORTH PLC final results for the year ended 12/31/2021 investor presentation. Throughout this recorded presentation, investors are in listen only mode. Questions are encouraged. It could be submitted any time via the Q and A tab situated in the right hand corner of your screen. Simply click q and a, scroll to the bottom, type your question, and press in.

0:20 The company may not be in a position to answer every question received during the meeting itself. Have the company review all questions submitted today. We'll publish responses where it's appropriate so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Dominic Egggrace, CEO, and Andrew Nichols, CFO. Good afternoon. Afternoon. Well, it's a pleasure to be here to present our 2021 results. And on that note, I will crack on with the presentation. So if you move to slide three. So I thought we'd start a little bit about us for those that don't know the WINKWORTH brand and the WINKWORTH model. We were established in 1835. We started franchising in 1981. I believe we were the first estate agency franchise in The UK. Over that time, we built up a highly recognized brand. So we're the fourth most recognized brand in all the areas we cover, which we're very proud of.

1:10 And that area is a 102 UK franchised offices, 59 of which are in London and 45 elsewhere in The UK, with a further two that are based in London that we own the majority of the shares in. So that's a little bit about Badass. The model the franchise model is low fixed cost. We charge 8% on the gross revenue of an office plus some additional fees for additional services such as the website and training. When you add those all together, it comes in around, what, 11 and a half percent or 12% of the average revenue of a franchised office. So for that, we aim to provide a platform for an independent and estate agency to appear in the top three in their marketplace.

1:58 So in the case of our target market is an agent that's currently working as a manager for a company such as Hamptons or or Foxtons or or any other well known estate agency and for them to come and run their own business under our brand using our systems and plug into our database and have the same support services as they would have experienced as an employee of a wholly owned estate agency chain. There's some key features of the of the network and of the business are that it's are really how it started. So it started 1981 in Knightsbridge, which was possible in those days and grew out from there. And, obviously, we now have 59 in London and are second in terms

2:43 of sales agreed in the London area. So, really, our business has grown from Central London outwards, and that defines our market positioning and how we grow the business across The UK. It defines a market positioning because the nature of those Central London offices and these prime London offices mean that we operate in the middle to upper end of the property market. So the family house market in Suburban London is perhaps our sweet spot. It defines how we expand because, really, really, we expand with the influence of London. So people come to take on the WINKWORTH brand or convert their state agency to a WINKWORTH franchise because they're seeking to offer their clients more. And part of that offering is only the database and the system and the website and the brand, but it's the appeal to London buyers. So areas markets such as your Winchester's or your Tunbridge Wells are fed by London buyers. And so the estate agency in those towns wants to be able to offer their client when they're looking to sell their property access to that London market to get them the best price.

3:53 Another key part of the model is that for foreign housekeeping is is that all the contracts sales contracts are in our name. So we collect all the monies on all the sales and then pay them out to the franchise network once a week, which is fantastic, obviously, because it ensures that we can control any debts as all the money flows through us first. So on that note, if we Andrew will talk through the financial highlights. Thanks very much, Dominic. An absolutely superb year for WINKWORTH. The 104 offices in the the network network turned over £64,800,000.

4:38 That was 36% up on 2020. Within that, the lettings portion of the turnover went up by 8%, but the really, really strong sales performance dwarfed that. Sales were up 64%. So the split between sales and lettings went sixty-forty in the year. And that's against a more traditional fiftyfifty split that we tend to see under more normal circumstances. That fed through down to the group's revenue, which was 9,450,000, 47% up on the previous year. We opened six new franchise offices. We resold two.

5:23 We acquired an additional 35% in one of our owned offices, Tutti. And we had the first full year of trading from our Crystal Palace office and our development and commercial investment business. The net effect for the group was that the PBT went up by 110% to £3,210,000 in the year. We have a very, very simple, very clean balance sheet. We don't have any debt. We have $5,000,000 of cash in the bank at the year end. And we were able through the course of the year to make significant cash returns to shareholders totaling 17 p per share. We paid ordinary dividends of 9.3 p, which was 39% up on the previous year. And in addition, we paid special dividends of 7.7 p.

6:18 Go to the next slide, please. So this is just a slide about the performance in 2021. 2021 was a record year for us in terms of revenue and profit and and was fantastic. With this slide, you can see the different dynamics of the business, so split by sales, by lettings, and the various areas. So UK, Central London, Outer London. Central London, we call nine offices in the middle, which covers Westminster and Kensington and Chelsea, and the country markets, which are beyond the market beyond London. As you can see, all were incredibly busy as one would expect with the as the media's told us. The move to the country was a big factor. 76% growth there was the largest within the network.

7:06 What's interesting about this this period, as periods since the pandemic, is that traditionally Central London has led the property market out of all macro macro events that affected the economy, obviously, in this case, the pandemic. This is the first time I've known that it's been led by the country, and Central London has lagged behind. We are beginning to see of course, we're beginning to see towards the end of last year, at midway through last year, London, then Central London towards the end of last year, beginning of this, then begin to pick up the pace. So we would expect those to be very positive going forward as people return to the city and international travel opens. Again, a similar picture on the lettings and management. What we saw was a lot of people left London during the pandemic and moved to the country.

7:54 And so the growth in rentals was in the country as people would exploit hybrid working and new locations to base themselves. However, again, towards the end of last year, we saw a recovery, and we saw lots of people moving back to London. I mean, what's interesting to note is in London markets, rents went down 15 to 20% over the pandemic in 2020 well, over 2020. They're now 10% ahead of pre pandemic levels. So there's been a huge roller coaster of rents there as demand has returned, and we're seeing that again as a positive influence going forward this year. I think the other thing to say on this one, I suppose, a little bit on the slide is that look at how we've fared so far this year. And when we're looking at activity wise, we're seeing sales applicants 10% ahead of 2021 in the first thirteen weeks of of this year and 57 ahead of 2019.

8:59 So there's a lot of activity in 2021. There and the stamp duties were a large part driving that, but what we're still seeing is incredibly busy marketplace. That's in sales. And similarly, lettings, in lettings applicants in the first ten weeks, twenty percent ahead of 2021 and thirty seven percent ahead of 2019. We referenced 2019 as really that's the, in theory, the last normal year before, obviously, the pandemic affected the property market in the traditional cycle of the year. So I think on on moving on to the next slide. This slide, we just need to show everyone our well, the diversification of the business and how it breaks down. So in 2020, we were a fifty fifty sales and listings management business.

9:53 The very busy sales market moved that to 60% sales and 40% lettings and management. However, that's not to say lettings performed badly. As the prior slide hopefully showed, lettings grew by 8% last year. And in actual fact, it's grown by 8% every year since 2005. And so approximately 8%, I should say. But it's growing every year by since 2005. And so it still remains a very important part of our business and underpins our franchisees' individual businesses. In terms of income by area, this just shows we pushed the country since 2005 from being a London centric business. And now that represents enabled us to benefit from the move to the country, and that represents 32% of our revenue.

10:41 It gives us a great broad base because across that, we we see them as slightly distinct markets. We've got Central London's of international internationally focused sentiment led investor market, domestic Outer London market led by the dynamics of of London, and the country markets outside of those, which are, again, domestically led. But they all operate slightly differently at different times, and so that spread gives a good base to the business. Central London used to be 25% of the revenue and in part that is obviously the growth of the country markets, but it's also Central London has been sighting the doldrum since thousand and fifteen and 2016 in particular with the Brexit vote.

11:27 But we see with sort of Brexit behind us, international travel due to open up increasingly, we expect that to increase as an influence within our network, and we see that as one of the positives going forward within the business. We're certainly seeing that, as I meant, that this year, there is enthusiasm in the London market. I think we saw that in q four twenty twenty one, I think it's 4% price growth annual price growth nationwide in the q one twenty twenty two. That's moved up seven and half percent. That's still a long way behind the country where there was been sort of 15% price growth or more in certain areas. So we feel that London having not moved anywhere price wise since 2015 is now beginning to move forward.

12:16 So on that, I will move on to next slide. This shows WINKWORTH's dividend since 2012. As a company, we looked to pay a progressive dividend, clearly trading conditions permitting. Our Our dividends are paid quarterly. The blip in 2020 where the blue line or the blue bars, which are our ordinary dividends, drops a wee bit is clearly the pandemic and the impact of the pandemic, but we were one of very, very few companies that continue to declare and pay quarterly dividends throughout the pandemic. The beige bars on top represent special dividends. So there was the 7.7 that we paid out this year. We paid out specials in 2015.

13:09 And in 2018, as part of a tidying up of of the balance sheet, we returned 9 p per ordinary share to shareholders in a capital reorganization. We can move on to the next two slides, please. So next one is just talk about the WINKWORTH brand. So established in 1835 and has grown out of London into the Southeast, Southwest. We do the survey every year to check-in on how we're being perceived and our awareness in the areas we cover to help us adapt our strategy if need to be, adapt our strategy if need to be. So left, you can just see we're fourth, misrecognized in Greater London or in the areas we cover across the Southeast, Southwest, which we're fairly happy with.

14:05 On the right, you can see that we ask people what they look for in estate agents as part of it, a part of many questions, but this is one of them. And we also ask them what they attribute, what they feel they associate with WINKWORTH. And we're pleased to see that the charts match up so people are looking looking for the attributes they feel WINKWORTH possess. So we're very pleased. The brand is hopefully in a positive place with the consumer. So moving on to the next slide about brand. The brand obviously started offline and still has a very big offline presence, but online is very important. And we've been investing in Google as the sort of main area of drawing visibility to our brand and growing our brand online over many years, actually.

14:54 And as a result, one of the well, we we have a very old website, and we invest in SEO expertise in house that continue to kind of refine it to ensure it gains traction. As a result, we feature and sort of we target the phrase key estate agent in any area of our offices or region or UK or London and have a great deal of success in it. So we're most offices appear in the top three on Google if you type in estate agent in Fulham or state agent in Exeter or certainly the first page. And if you type in a state agent in London, we're, again, generally top three or second. It may vary slightly day to day. That obviously drives huge amount of leads to our franchisees. Around 30% of their valuations come from WINKWORTH website, and it's something we continue to invest in and evolve that to, obviously, the social media being the new new game in town. So we have 73,000 followers. We have a devolved Instagram approach led by the local offices, and we have in house expertise supporting those local offices as well as our central account to ensure we can gain greater traction every year. And it's something we're sort of continuing to invest in to ensure that we move continue to move the brand forward online across the relevant platforms that that it needs to be on.

16:19 So having talked about the brand and moving on to the franchising outlook for the business. The franchising, we have three routes to franchise. So we have a as I mentioned briefly at the beginning, we have the situation where someone comes, approaches us, and they've worked for a a list agency as a manager in a specific location, and they come and speak to us and say, you know, we'd like to set up our own business, but we need

16:49 you know, we want your support to get more cut through and to ensure that we can appear be successful as we can be. And in that case, they pay us upfront license fee of £25,000, and they signed a contract for ten plus ten years that's personally guaranteed. We help them find a shop and create a business plan and obtain funding from HSBC or another bank, if need to be, to help them with their start up monies. That's one route. The other route is existing estate agents, in particular, in areas that affiliate with London who are looking to grow their market share or their average average price point. And and they want to plug into the WINKWORTH platform or network to offer more to their clients so they can have greater success in attaining properties to sell and, obviously, then greater success in terms of revenue generation as a business.

17:45 For For those, those, we will look at contributing paying some money. So we look at a model where we obviously earn 8% of gross revenue and a multiple of that 8% we would offer, say, up to four times the 8%. So if it was a million pound business and they were signing a contract with us, million pound revenue business, contract with us for twenty years with 8%, we would offer them four times 8%. So four times that 80,000 that they would pay us in year one.

18:14 So that's the conversion. And the third way is existing franchisees and investing in talented operators within our network that we believe in to help them grow their business and obviously add to the WINKWORTH network. So having grown over the since 2005 with country markets, we now have some mature businesses in key locations which are localized regional hubs that we can invest in to take the next step to the benefit of them, them, and us. And we will do that through a combination of potentially loans as or contributing the capital payment on the model I mentioned of up to four times the 8% of the turnover of the business they're acquiring.

18:59 So let's look at 2021. This is the chart that shows the ebb and flow of the network. 2021, actually, five of those were existing franchisees, which we're really pleased with. It shows that people are the franchisees within the network are happy to grow with WINKWORTH. And Eaton are very successful Norfolk franchisee. Ferndale is off our Bournemouth hub no. Sorry. Hub base, I should say, a network of offices. And Tiburton off our Exeter franchisee made available for St John's Wood one with Wimbledon being a new starter who's joining us as to starting with a new shop to launch a new business in the area.

19:46 So they've been six last year, and we've helped target rate. We have a fair few in the pipeline, we're pleased to say. Hopes of eight to 10 in the pipeline. And we hope that they will they will come through over the course of the next twelve to fifteen months, if it be twelve. So just having talked through the franchising part of a business, then moving on to the owned businesses. And we have a slide here. This is sort of a new strategy world since 2018. We looked at our business, and we're very much focused on people. I mean, it's which is a bit of a cliche to say, but the it is very much true in the state agency that that is all important because that is you know, large part of the differentiator between different estate agents.

20:35 And so we've looked at our we've been a long established network, and we've looked at the right new statistics across our network. And we look at where there opportunities, I suppose. And opportunities because the individual office is not performing well in that area, and that area has a very large amount of transactions. So one of these offices in 2018 was Tutu, which has a very large transaction base due to the price point, the mix of property, its

21:08 location, obviously, with easy access to to employment in Central London. So what we found, once we've identified these areas, we go and look for the best possible people in line with our our belief in people. And they often don't have the money. So rather than to in order to take the business forward, we're happy to in in the case of this business, in Tutu business in Crystal Palace is one that we've done more recently, acquire the business and offer the the opportunity for the talented individual to earn shares through delivering performance. So in case of Tutti, he now has a 10% stake within the business for hitting his targets, and that may grow in due course. And for us, we get a return return over and above the 8% out of an area that is has a very significant revenue potential.

21:59 So and in on top of that, we obviously then benefit The benefits of the WINKWORTH network is we revitalize an office, and that has a ripple effect on brands and its strength within the region. As you can see, they've grown it's all grown very well. It starts with tutoring in the first full year of our Crystal Palace acquisition. It was 2021, which doubled its revenue from the prior year. And, hopefully, that will move upwards on a positive trajectory too. Business, wholly owned business, is somewhat slightly different. It's a development and commercial investment business that we own. Again, we have a talented individual who's been doing this that it's that's placed in our office that will earn a share of equity based on performance.

22:48 Just to give you a little info of what it is, effectively, he sells commercial building, a gym or a mixed use building with shop a shop with flats above to developers who would develop that out into new build properties that then will be fed back to the local office and the central business on the central new homes business on a split. So it not only is the business where there's transactional fees in selling the commercial property, there's then obviously fee to network and fees to the franchisees with new properties to sell. So hopefully, it's a fairly virtuous circle. Again, Again, it's in its first year of trading in 2021, and so hopefully, we'll see it move forwards in the years to come. So moving on from that.

23:35 In terms of and if you can move to the next slide, please, Paul. The vision, as as Dom has said, is very much people driven and making sure that we get good people, very strong local agents who are well done in their areas and are good operators in those areas. The other critical element of it is that they are supported by good tech. WINKWORTH was one of the first estate agencies to get a website set up in in the nineteen nineties. We're currently on version nine of the website. That was launched back in April 2020 as the pandemic hit.

24:24 And bizarrely enough, you can see what an important part of the business it is now because the two lines that have really taken off on that chart are the launch of the new website. So we get about 450 to 500,000 visitors a month to the website. We did that last year. In terms of leads, it generates about 30% of leads for the network. We're working on a new version, version 10, that was gonna be launched at the end of this month looking at a mobile first approach. We've seen the importance of people having access via mobile to the website really take off over the last few years.

25:15 So we're looking to address that. And in addition to the website, we also run WINKWORTH Hub, which is a best practice knowledge sharing platform that the franchisees and staff across the network can also get their training sorted out through they have access to suites of letters so that they can run their business as effectively and as efficiently as possible. So just looking back at 2021 and looking forward, we can move to the next slides. So in summary, the revenue the year was a record year for WINKWORTH by sort of a release of pent up demand to move.

26:09 Part of that was pandemic driven. Part of that is after years of repressed activity. So we saw a very busy year. That meant that sales moved up. Lessons moved up. We maintained our market share in London as as second in London for sales agreed. The WINKWORTH franchise revenue grew by nine WINKWORTH revenue of 9,450,000, up by 45 47%, and the PBT of 3,210,000, up by a 110%. We paid out record dividends. Seventeen p declared 9.7 ordinary and special 7.7 versus 6.68 in 2020. We opened 60 franchised offices, which was great to see, and, hopefully, there'll be more over the year to come.

26:56 And we saw significant growth in our new venture in taking larger stakes in estate agency businesses where we have the right individual to run them. So looking forward, our vision is to always be the is to be the first option for those wishing to set up their own estate agency business in the prime markets. We're gonna continue to invest in digital to improve the functionality and evolve the network offering and the platform to ensure that we are up to speed in offering our franchisees best in class service. Remain at the heart of us a people led business, and we'll put identifying talent and working with talent as the first criteria in new ventures we take on.

27:42 We plan to target new equity participation businesses where we can find the right talent and the right location and match them and roll out that model. We target eight new franchisees each year. We see further growth in the majority of businesses we've currently got, two of which have just had one full year of trading and hope to see those revenues move forward significantly going forward. We see return in activity in the prime markets, particularly Central London, the prime markets in London post the Brexit deal and the opening up of and with the opening up of travel and the fact that prices have gone nowhere since 2015, we see that there will be a catch up in activity, which will be positive for our revenue going forward.

28:29 We We also also see let's and management, particularly in London, with rents now increasing and rents increasing across the board, but perhaps increasing faster in London as a positive for the year ahead for revenue. We remain we expect market conditions to remain fairly positive and certainly above twenty nineteen levels as hopefully the slides have shown. And with that in mind, then we will hope to continue to be to pay a progressive dividend going forward. That's fantastic. Thank you very much indeed for your presentation. Ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated in the right hand corner of your screen. Just want the team take a few moments to review those questions submitted today. I'd like to remind you that recording this presentation, along with a copy of the slides and the published Q and A, can be accessed via your investor dashboard.

29:17 Perhaps before we go on to some of the live questions we've had through, we did have one pre submitted questions, if I may. I'll just read that out, Which as follows, the co investment with the franchisees, Tooting and Crystal Palace, has worked out well, particularly Tooting. Company enjoyed the extra revenue and the profitability associated with that adding shareholder value. Appreciate that expanding in this direction very much depends on the individual case by case. In the current market, which is short of inventory, it must be difficult for talented individuals to strike out solo. Are there any particular initiatives that that you are taking to winkle these individuals away, where funding is an an issue, WINKWORTH WINKWORTH PLC, WINKWORTH PLC, WINKWORTH WINKWORTH Great. Yeah. I'll try and try and cover it off.

30:08 How we find yeah. It's all this strategy is all dependent on finding the right individual terms of individual to work with and find them the right place to to back them into. That's critical. How we find them, we try and network our way through the industry. We have new franchisees joining us, and we ask them for the best in their in their agencies that they're coming from. We ask our existing franchisees who's incentivized to provide us the best competitors they know, and we try and have conversations with them continually with different people to to suss them out and make sure that we have work people in place for the opportunities. So as far as difficult time now, the model for the active participation really relies on acquiring existing WINKWORTH offices that perhaps, for whatever reason, may not be performing up to their maximum potential.

31:03 So they have established databases. They have underpinning lettings and management books. And so I don't think the stock shortage is huge problem. Certainly not one that a a very talented individual can't overcome fairly quickly. So in terms terms of of moving forward with it, there isn't a set number we plan to do a year because we are don't want to be we want to leave ourselves open to dependent on the right person and the right opportunity rather than delivering a a number as as we feel that would be that's the right approach towards this to make sure we we make the right decisions. But, yes, we think it's an exciting way to boost the network revenues as well as earn a reward a a return over and above the 8% from from key assets within the network.

31:52 Hope that covers that question. That's that's fantastic. Guys, I may just ask you now for just to click on that q and a tab just just to to have a look at some of those questions that have come through during the meeting itself. If I may just ask you to read out the question where appropriate to do so and just give you a response. Yeah. Great. No no problem. So, Matthew r, how do you expect the expansion to new areas to progress? How quickly can you set up and grow new offers, and what's the typical payback return? So I suppose part of that's for Andrew, and part of that is for me. So the answer to we are, again, is very much led. So we're perpetually doing, you know, whether it's advertising on LinkedIn or PR or our networking or however we can come across these people, we're fetching marketing them. And when we find the right person, then we're able to open offices with them or bit with a in a new franchise. So we are dependent on those flow of people coming to us.

32:47 How quickly can we set them up? It's a lot of it's down to the premises. So once we have the right person, it's whether how quickly can they find a shop and how quickly can can they fit out that shop. And that does mean that things can slip. So, generally, I'd say a quick time frame would be four months. Normal time frame may be around eight. Obviously, it's a life decision for people, and these things take a bit of a bit of time to work through. In terms of payback return, Andrew, we expect offices to get up to their sort of optimal trading level after about three years. There's a three year betting in process. The first year will be loss making, but it will improve from then on.

33:33 And we would expect, as I say, from year three, then to be operating at a level. To give an indication, I think our average franchise size for last year was at just over £600,000. And I think the only thing to say on that is, obviously, there are multiple for us as as a a business, there are different routes. So that's the cold start approach. But where we're supporting existing franchisees that are known to acquire businesses, you know, they may be buying a business with a million pound turnover already. So that can bring that revenue in much more quickly. So there's a blend of ways we grow to grow our revenue because the cold start can take a couple of years to to provide larger returns.

34:22 So I think that's that one. And then Ryan N, will mortgage lenders reduce ratios in your view, reduce the cost of living increases we're seeing? I suppose I wouldn't I wouldn't be honest if I said I knew exactly their thinking, but I would say that I think what what happens generally and what will probably happen is that there will be a bit of a separation where those markets with individuals with more disposable income and lower gearing, so second time movers, will probably be offered cheaper products than those first time buyers where cost of living is more of a burden on them. So I I don't know that because, obviously, that's the bank's decision, but that would be my thoughts what might happen.

35:09 And then the next question we've got is oh, sorry. Graham e, have you any plans to offer financial products mortgages to your clients? We do have a association with an independent mortgage broker. So where clients are looking for mortgages, we have a place to offer them independent advice. Our model is to focus on the sales expertise for our client sales and lettings expertise rather than perhaps selling them financial services but can provide them if need be. So that seems to be a happy relationship with our franchisees and how they want to operate their businesses. And so we're we're happy to keep it along those lines.

35:55 And I think the final question, what exposure to lease liabilities of franchised offices? The answer to that one is we we don't have any. Our contract is sorry. We have one, actually. Our contract is that we have options to take over the lease should it require, but that's an option. So the the lease is taken over in the franchisee's name with their or in their service company's name. So we're not involved in the liabilities of the lease. That's fantastic. You've covered off every question we've had through. And of course, if we do get any further questions through, the team will have the ability to review those questions, and we'll publish those responses where appropriate to do so on the Investor Me company platform.

36:40 Donnik, perhaps before redirecting investors to give you their feedback, which I know is particularly and the team, can I just please ask you for a few closing comments? I suppose to in summarizing our business, we're asset well, we're a low fixed cost business that doesn't require capital to grow. We're long established have a large brand within the industry that we feel bodes well for the future. That's fantastic. Dominic, Andrew, thank you indeed for updating investors today. Can I please ask investors not to close the session? It should be automatically redirected to provide your feedback in order that management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure it's greatly valued by the company. On behalf of the management team of M WINKWORTH PLC, we'd like to thank you very much for attending today's presentation. That concludes today's session. Thank you, and good afternoon to you all.

37:32 Thank you. Thanks.