M Winkworth (LSE:WINK) — Interim Results for the six months ended 30 June 2023

0:02 Good afternoon, ladies and gentlemen, and welcome to the M WINKWORTH PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so and these will be

0:32 available via your Investor Meet company dashboard. Before we begin, I would like to submit the following poll, and I would now like to hand you over to the executive management team from M WINKWORTH PLC. Dominic, Andrew, good afternoon. Good afternoon. Afternoon. Well, good to see everyone. Well, be with everyone on this rather hot day. I'm Dominic Aghay, CEO of WINKWORTH. This is Andrew Nicol, CFO of WINKWORTH. And it's our pleasure to take you through the first half results of 2023. So without much further ado, we'll start our presentation. So I think for those of you who may not know us or know the model because it's fairly not many of us in the French in the state and sea industry, we're a franchise business. We were the WINKWORTH name was established in 1835.

1:21 You know, we were the first to franchise an estate agency business in 1981. We started off life in Central London and grew from sort of within Central London outwards and now have a 101 UK franchised offices, 58 across London, two owned offices, and 45, outside of London. Really, the USP of the WINKWORTH franchise model, in terms of how it grows and its market positioning. So we we see ourselves as sort of mid to upper, market agency, growing to areas that affiliate with London, that the USP being the fact that because it was so long ago when we launched started in London, we have this sort of network, and we grow to areas that affiliate with London, which would be very hard to replicate that network now really due to the cost of entry.

2:12 So that really defines everything we do. It defines our ability to sell sort of prime property and an ability to go and open into areas like Winchester, where people choose to use the WINKWORTH name to open their estate agency because appeal is for clients to have London buyers be able to offer their clients London buyers. So that's a little bit about us.

2:34 And so I'll hand you over on to Andrew for the business highlights for the first half. Thanks very much, Tom. The network turnover, so that's sort of the business done by all our franchisees across the network, dropped by 5% to £26,400,000 in H1. Within that, network sales revenue dropped by 18% to £12,300,000 but network lettings revenue rose by 10% to 14,000,000 WINKWORTH revenue was broadly flat at 4,270,000 Again, within that, the owned offices revenue was down by about 50 k in the first half, and the franchising business revenue was up by about 40 k, so a a net 10 movement on that.

3:28 As a result of, some increased overheads basically on the back of investment in new business and increased salary across across the business, profit before tax dropped by 260 k to 810,000 from the 1.07 that it was in H1 twenty twenty two. Cash at Bank had gone up at the half year to £4,230,000 and we declared ordinary dividends of £5.8 per share, but was 7% up on the same period in 2022. So really to sort of break down the network performance in the first half in terms of the different revenue streams. We're broadly a fifty fifty Lettings and sales business.

4:18 And, clearly, this year has been a transition to a higher interest rate environment. As a result, somewhat unsurprisingly, income has reduced from the highs of the last few years in the post post pandemic boom. But on the other side of it, we've seen lettings and management income grow above our historic trend. Normally, we've grown at sort of I think we averaged around 8% a year, of twenty years on lettings. So we're seeing a sort of fairly dramatic growth at the moment.

4:51 As I said, this sort of gives everyone an idea of the division in our business. And what's interesting is it's pretty much an inversion of last year. So where sales has has dropped off a bit, lettings has picked up a bit. And, hopefully, that's part of the sort of beauty of the business in terms of its balance. It provides our franchisees good balance to to lean on different revenue streams at different times in the market and, obviously, us as a as a as a PLC to do so too. Income by area, as I said, we're sort of growing out of London. So that's our our heartland, really. It has now we now obviously have a significant amount of our revenue coming from the country, and this is where we are growing in terms of new franchises because, obviously, there's sort of more opportunities. Whereas with 58 in London, there are less opportunities. There's a different opportunity, which is perhaps revitalizing some of those that are not performing at their best or opening within territories. But for new sites, really, we look to the country.

5:53 So demand in h h one, really, again, you can see I mean, what's interesting about this. There's obviously been a lot of news flow about the market we're in. I mean, I look at this slide, I think that sort of is quite reflective of the fact that actually it has performed far better than perhaps expected at the end of last year by many commentators. And when you look at sales applicants in the first half and you look back to to 2019 where interest rates were 1%, then you can see that, that there is activity. On the letting side, you can see that, that it's been very strong since pandemic. Think, really, what we've seen is that there was a catch up period. A lot of movement, lot of movement to country, lot people moved back to London, a lot of people sat on their hands during this sort of COVID pandemic.

6:39 And so that created a a sort of flurry of activity. Now it's beginning to see it come a bit in terms of that's in terms of activity, but at the same time, we've seen the buy to let market reduce in size, and so they're still incredibly busy in terms of number of applicants per property. And so we expect the letting business to continue to grow over the years the years to come. In terms of our dividends, this slide sets out the historic dividends that we've declared in H1 going back to 2012. We are committed to paying an aggressive dividend as long as trading conditions permit.

7:31 So really then just a bit about some of the things we do. Obviously, we see ourselves as an evolving business that we continue to we see ourselves as a platform for independent businesses to succeed. And when I say succeed, I mean to be in the top three in their marketplace through market share and the sales side of their business. We focus on that because we believe that is a ensures that they can run profitable businesses in different market conditions. So as part of part of that ongoing investment, we need well, as part of that, we need to make sure the platform we provide continues to to be, you know, best in class and give them that opportunity. This, I suppose, just demonstrates our focus over the last years. You know, we we've grown up as a subanalog business and are now increasingly a digital business and involving our investments accordingly.

8:25 So this just shows, you know, one of the things we've done very well for a very long time is Google search. So if you type in estate agents in Fulham or estate agents in Tuting or the like, generally within the top three results, which means that we can deliver a lot of leads, to our franchisees from clients looking to get their property valued. So that's sort of a a great success for us, and we invest ensuring we stay up there amongst the sort of tough competition to do so. Social media, really, this is a a growing feature. I mean, in terms of leads generation, Google is sort of well out ahead. But, you know, we are investing in marketing campaigns to ensure that not only we grow social media across our our network, and I think if you add it all together, around a 108 80,000 followers, but, really, the all important engagement, which you can see here from sort of likes and follows.

9:20 Sorry. Likes and follows. Yeah. Which is important as important as followers. So, really, that's just gives you a flavor to show that we're evolving our offering from from perhaps canvassing to digital as well as to recanvassing. So this, again, I suppose, something we're proud of as a slide, and, you know, this is for across the area we operate. The bits we're we're probably most proud of, I think, are the well, the bits we're most proud of are the percentage withdrawn properties and the number of days from listing to subject to sold subject's contract. So what you can see is is that we have all of the top 10 agencies have the fewest clients who withdraw their property from us. So, hopefully, what that shows is that we're getting it right to with our clients. They are we're offering them sort of a transparent service that that we meet, and so they choose to continue with us through the process to sell their property.

10:18 And fastest agent to to SSTC, obviously, clearly, we're we're pretty chuffed about that as well. That shows that, you know, we're working with our clients to get them the best outcome as, you know, quicker than other agents. So I I think it's reflective of I suppose hope I hope it's reflective of the quality in our offices because of the independent proprietors with great experience, employing experienced teams that get the best outcomes for clients.

10:47 So from franchising outlook perspective, this gives you some history in terms of offices opened and offices closed over recent years. We, as a business, I suppose, you know, don't hang on to those that may not be performing at all costs. You know, we will we will walk away from those situations with a view to refranchising them. I don't think it does anyone any good to, be hanging on to offices that are, you know, not succeeding, for various reasons. There are there are many reasons why that can happen, personal circumstances, etcetera, etcetera. It doesn't do the brand any good to have an office that's not performing well and doesn't do the individual franchisees. So we take that view, and you'll see a couple of these we have reopened, having closed in previous years.

11:35 And in this year, one to note is Salisbury, which we're looking to relaunch with a new franchisee imminently, actually. So I think the the thing to say on this piece really is also that I you know, we're in a we're in a changing market. Changed, and, what that means is there's gonna be, someone's put it to me, greater liquidity, great liquidity in terms of talent who are employed, and maybe earning very well in the sort of boom years and now looking for other opportunities and in businesses, you know, to help the assisted acquisition strategy where we support franchisees acquiring other businesses to bolt into their own. You know, again, prices were were full on the base of boom years, and now perhaps there might be a more, a realism for those that wish to sell, to to approach it with greater greater realism reflecting this of a current market. So we see these opportunities within there. And I must say with the nine business, there's increased liquidity too, and we have a, hopefully, a healthy pipeline of offices to come. They're never done until they're done.

12:37 But we would expect to sort of open, as I say, we have a pipeline of six at the moment. And for those of you, I should have said, who haven't sort of had the presentation before, just a quick recap. We grow three routes by three roots in franchising. So someone comes to us and wants to set up a cold start, we call it, a new site. They take their shop in their name, and they work within our we work with them on their business plan, and we give them the sort of marketing support they need. And they plug into our database of buyers across the whole network and off they go. We support existing franchisees to acquire where it would be good bolt ons to their business or perhaps they wanna take the next step and open into a complementary area to their existing business. So and I suppose the the third way is the conversion of of existing estate agents. We operate in a certain certain marketplace, and I suppose some people is appealing to some to come to us in order to offer their clients more, you know, London buyers, the database, the sort of marketing, the website, the the extra leads.

13:44 And so come to us to to plug into that platform and and improve their market share. And and in a market where there are less transactions, then obviously, that becomes more of a route of growth. And in the long term, roughly, it's been a third. Each route has been been a third of WINKWORTH's growth.

14:04 So the owned businesses, our recent initiative, really, and what we've looked at as a business is that, you know, we've we've got this amazing London network in particular. And, well, you know, we've been franchising for a long a long time, and and, you know, we're in different generations now of franchisees over the years. And so there's there's a job to be done in with those that wish to exit and giving them good exits. And, you know, the nature of the business is that, you know, young and energetic new blood can regenerate offices. So, really, it's sort of we looked at that and we looked at how we get the best possible people. We're, as a business, totally focused on getting the best possible people in in all we do. So good people to open new offices, not just not just, you know, opening new offices with with that with general applicants. And this was a way of sorry. I'm on the wrong slide. Oops.

15:00 That's what it is. This was a way of this is a this is a way of developing of getting talent in who may not have the funds to do it themselves. So we would come up with a model where they would be able to earn equity based on their success, and we would be partners. So we're not trying to replicate a sort of wholly owned network with all all the all the issues that might rise that might arise from that. We want to be partners with these people and it to be their business. But, clearly, we sit behind them. And the benefit for us is, you know, we maximize the revenue of these these offices. And where we've done this, we can see see revenue increase, yeah, three three, four times as a result of just just new new engine, new blood. So this slide gives you an idea of the the progression.

15:50 I think some other thing to point out on this in 2023, time lags on sales continually take continually takes more time to progress the sales. So some of these things were have significant revenue that didn't fall into h one. So they are performing pretty well. We have Crystal Palace, which last year was sixth in market share and is now second this year. So that's getting into the magic top three that we think is all important. Tutting has maintained its position as number one in sales agreed. And we have a commercial business that we launched that is obviously slightly different but benefits from has synergies with the network, obviously, in the connection to the franchisees and then providing them potential income through partnership on transactions and referrals.

16:49 In terms of our digital evolution, it's something that we've been focusing on for an awfully long time.

17:00 WINKWORTH was one of the first estate agencies to have its own website back in the sort of the late 1990s. We've been, as I say, investing over some time. And this slide demonstrates the benefits to the network of that sort of website investment. So we launched our new website version in 2021, and it generates significant business for the group. The average leads, about 350,000 people a month come to visit the site. This chart shows the number of leads that that generates.

17:50 And even though the number of visits have dropped slightly over the last couple of years since the sort of pandemic high, Our conversion rate is is at 1.6%. So the number of leads generated is has made sort of fairly constant. The good thing from our point of view is that it is generating a significant number of vendor leads who want to sell their houses through us or landlord leads who want to let their properties through us. So the continuing investment has sort of has paid off. What we're also looking at doing is continuing to invest, making sure that the website is delivering value for our franchisees and their offices and also giving us as a sort of franchisor a view over over office performance.

18:50 So the left hand slide, the dashboard v one, something I think we were talking about in the last presentation we did. That's basically taking data from our website and looking at visualizing it for the offices and and for the franchisor. So it's looking at at the number of leads coming into offices. It's looking at offices and their properties that they have on the market, and it's also sort of ranking those offices from our point of view.

19:25 What we've been looking at since the start and sort of an underlying driver of our investment is what we call sort of the cradle to grave journey, and that's being able to look at a lead coming into the website to ultimately, hopefully, converting to a letting or a sale at the end of of of that process. What the investment that we've been doing since the start of this year is focusing on has been looking at integrating the information coming in from the website with the information that is generated by our back end CRM, that's relationship management system.

20:10 We've completed these more technically challenging

20:15 data aspects of that. So we've married up both of those sets of data now quite successfully. What we're looking at doing now, which is gonna take a bit of a bit of time to work through, is how we visualize, how we take the significant amounts of data and make sure it's generating useful information for offices to actually act on. That is something that we'll be rolling out, hopefully, Q4 of this year. So looking back and sort of looking ahead, so in the last half and ongoing, a lot of these are we're a long term focused business with a strategy that we should be consistent with.

21:03 We believe in evolving our platform, as I said, and investing in that evolution to ensure that it maintains its competitiveness. We're a business that is resilient in all markets and has proven itself in all markets and that has maintained a growing dividend over many years. And that dividend, we would look to continue to be aggressive in our approach with and support that through the growth of new franchisees and the different revenue streams we've added into over the years.

21:40 So I think that's the presentation for now. So really, it's into the Q and As and see if can we can answer some of the questions. Dominic, Andrew, that's great. And thank you very much indeed for your presentation this afternoon. If I may, what I'll do is I'll just bring back up your camera there. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that situates on the top right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Andrew, Dominic, we did receive a number of pre submitted questions ahead of today's event. And as you can see there in the q and a tab, we've also received a number a number of questions throughout your presentation this afternoon as well. So firstly, thank you to all of those on the call for taking the time to submit their questions. And Andrew, Dominic, if I may just hand back to you just to give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you.

22:40 Thank you very much. So question one. The question is challenging times on fresh inventory, The loss of the franchisee who operates in Battersea, Clapham and Bimlico will be keenly felt. Hopefully, these valuable areas, new franchisees will be quickly found, appreciated, took a court case to resolve, but just a little surprising that no formal announcement was made or investors informed.

23:07 Due to sort of compliance related reasons, WINKWORTH decided not to renew the franchisee. The franchisee contested that decision and unusually, and unfortunately, we had to take legal action around that. On the July 17, the court ruled in our favor, and so the franchisees franchises were terminated. We're now in a transitional period while we're completing the legal proceedings and the settlement agreement associated with that. So, unfortunately, we're unable to say any more at this time. So the second question was, has Chislehurst shut down? The letters inventory at Kennington disappeared from the website, clearly, a market influx, but surely an opportunity for head office to self start someone like Tutu and Crystal Palace. Both of these have been successful. Thank you very much.

24:00 Plenty of talent out there, a winning formula, any reason why this hasn't been expanded, especially with holes appearing. There are absolutely, lots of tons of people out there. Think, hopefully, in this in their presentation,

24:11 I sort of I think I do see it as an opportunity. I will see speaking to a number, and and I think that number will will grow as, you know, people look you know, whereas bonuses might have been larger than last few years in in as an employee, they probably won't be will be reduced. And so people look at how they can make a sustainable income going forward. And, hopefully, we can provide a model where if they don't have the appropriate funding themselves, they can have a chance to have equity and have that business ownership, and we can provide the funds needed to close the gap. So, yes, I think there are opportunities, and we can tend to continue to do it. We, you know, we we as a business want to make sure that we believe in the top three being where you need to be. We don't want to be taking on too many offices that aren't in the top three.

25:03 So we want to make sure which one's completed its journey into the top three before sort of pushing on. That allows us to is not at risk, and and we can progress the company without too much unnecessary risk. In terms of Chiselhurst, yes, it's the franchisee of Blackheath in Greenwich.

25:24 And there are lots of reasons why this happens, but he's retrenched to Blackheath in Greenwich. Obviously, those are fantastic offices for us. And if you chose to do that, we're happy to support him in doing so. So next question is one for Andrew. Thank you very much, Tom. The question reads, the dividend seems a little high given the current operating environment, the business' free cash flow and ongoing refresh of the network.

25:49 Could you share your thoughts on this and whether you have had any discussions with the Board on this topic? As I said previously, we are, as a company, committed to paying a progressive dividend as long as trading conditions permit. As we pay dividends on a quarterly basis, we are in regular discussions with the Board about the level of that dividend and its appropriateness. Okay. Today's the pre submitted questions. So there are a couple more that I will try and work through. So Steve K. WINKWORTH is a well known and respected brand. You referenced enhancing your social media digital footprint. Do you use influencer marketing at all within your marketing strategy?

26:35 The honest answer is no. We have looked at it, and we have used small scale influencers. I suppose social media will evolve with the characters we have in our office becoming front and center and their own social media stars, although stars may be a step too far. But but their own leaders as they are leaders in the their neighborhood anyway, then that translates to their profile on social media in their local community. And the next question is, do you see interest rates peaking this year? Well, it might be beyond my expertise to to to call that. It certainly seems positive from from news recent news from mister Bailey. I think they'll make a, you make a difference. Really, the market, actually, on that.

27:28 The challenge in the sales market is is this there's been waves of of uncertainty and news flow around inflation, and they have a short term detrimental effect before they everything settles down again. You know, the classic being the list trust. All the mortgage mortgages reps got pulled products, rates went up. And then it's a three months for them to settle down, and activity picked up again. So I think when you see the top and people are confident that that is the top of the cycle, you will see transactions improve. Because actually, fundamentally, I I believe in the in the sales market at the moment, there are different dynamics which will drive activity going forward. So the the dynamics I see are you've got a very tight rentals market. There's Prices are going up at 15% a year and even if you were happy with paying that, the actual ability to find a property that you want to be in is is competitive.

28:22 Know, you're getting 40 people to a property to get there. So if you look at that, you look at the fact that we're we're we're now beyond the ultra low interest rate era, I believe. So I don't think anyone's expecting it to go back to the last or pre pandemic times or pre pre last year times, in fact, of being 2%. So why would people not get on with with buying their property? Because once there's a settlement of it, that being a new level, that then people will progress. There's also incredibly strong employment and wage inflation. So I think all those factors support the case for transactions to continue, you know, in previous times when interest rates were 1%, everyone's withdrew properties. Now the other factor to add on is obviously, sadly, there is increased cost. And so sellers will be coming to the market to downsize where those costs are too much of a burden on them. So I think every cycle is different and there's a different dynamics which will support sales going through.

29:28 So next one has what has been the rationale behind increasing its shares outstanding even when the shares are cheap and the company has a lot of cash? I don't fully understand that question. No. No. I'm not sure. I'll pass on for that one. The we'll try and respond to that at a later date. So, Mike Dee, also, have you included any form of AI in your digital rollout? We have had chatbots up on the site for a number of years now looking at sort of filtering conversations coming in on a twenty four seven basis from potential customers. Some offices love it. Other offices really want to engage with individuals.

30:18 So it's something that we have there. We use a bit. It's not a massive driver. We've been looking at various other AI opportunities in the background as part of the development. There's nothing ready to roll out at the moment, but it's something that we continuing to monitor because potentially, it will offer efficiencies going forwards. So then there's a question from Colin C. Given the change in the sale rental mix, can you tell us the profit margins on new sales and new rentals? My assumption is that lots of possible sales have become rentals. The seller hope for a better market, lower interest rates. Yeah. I mean, that that that happens. I would say it's not a it's not a big feature this time because, unfortunately, you know, the cost the the interest rates and the cost of finance has gone up. So, you know, that has gone up more than perhaps rents. And so those that list look to exit, it may not be the support that it has been in previous moments where people can't quite get what they want for their property and these sort of come accident to landlords.

31:27 Really, there is a need in certain cases now because the mortgages have gone up significantly. So to trade out is the route they'll choose. Howard W. What is the cash management strategy? Will cash on hand be deposited into short term interest bearing accounts to generate some return on capital? I'm pleased to say that we are seeing interest being paid on our deposits, and we expect that to increase over the rest of the year. We have various investments we are looking at at the moment, so it's difficult to lock away money for an extended period of time, and it's something that we continue to monitor.

32:18 So I think those are the questions on the presentation, and it's been a pleasure to hopefully talk you through some of the slides and hopefully show you a bit of the WINKWORTH story. And, yeah, thank you for joining us. Dominic, Andrew, that's great. And thank you very much indeed for being so generous of your time there in addressing all of those questions that came in from investors this afternoon. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses out. But if I may, guys, just thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations.

33:07 This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of M WINKWORTH PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.