M Winkworth PLC (WINK.L) Earnings Call Transcript & Summary

Good morning, and welcome to the M Winkworth Plc Interim Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll. I'd now like to hand you over to the executive management team. Dominic, Andrew, good morning to you.

Good morning, everyone. I'm Dominic Agace, CEO of Winkworth, and this is Andrew Nicol, the CFO of Winkworth. It's a pleasure to be here again to talk through the first half results of 2025. So without further ado, we'll start the presentation. So really for those of you -- some of you have been on these presentations before, but sort of for those that haven't, we always do a little sort of recap of the model, just to give the sort of fundamentals. Winkworth it's a franchising model. It was established in 1835. It's its 190th year, but it didn't franchise until 1981, which was actually the first time an estate agency franchised in the U.K. So it was a trailblazer in that regard. Today, it stands with 100 U.K. franchised offices, 57 of which are in London, 43 outside of London and 3 of which we own and are in London. The model itself grew out before anyone else started franchising as a result, grew from London outwards. That, in essence, is it's a defining characteristic to a large extent. It has a network of 57 offices that grew at a time when it was affordable to grow offices as independent businesses across London. The network, therefore, grows in areas that affiliate with London, particularly you look at markets, the obvious ones being the commuter belt where people, when they come to sell their house, look to use an agent that has access to London buyers. That's what we provide an independent business to allow them to attract better clients, properties to sell. So that's very much shaped -- it's also shaped our market positioning is obviously, we have been competing in the Golden postcodes of London for many years now, and that ensures our positioning as a sort of prime market, mid- to upper family house market agency. The model itself, we charge 8% royalty on gross revenues. If you took the -- there are, as we are very old, additional fees that have been brought on as things evolve, say, for example, the Internet. If you put all those additional fixed fees, which are our monthly fixed costs on to the 8%, then it would equate to 11% of the average turnover of a franchise office. We do not take leases. The leases are held by franchisees, and therefore, we have a low fixed cost base and have options should we require to take over those leases. Our aspiration as a business is to provide a platform that enables an independent estate agency to operate in the top 3 of its marketplace. That is, I suppose, a marriage of the investment we make into our platform and being able to find the talented operators that can operate at that level. In essence, we believe in growing by backing talented individuals and bringing them into our business. So on that note, on to the slide, operational overview of H1. Business very strong in the first half. Network sales were 26% up. We had growth in lettings. We were the largest sales agent in our operating area. We opened 3 new offices. We refranchised 2 offices, which is -- so it's an important part of us. It's bringing in new talent where those might be looking to retire and reenergizing parts of our network. We made a significant investment into Prime Central London to follow the acquisition of a talented operator into our Knightsbridge office last year. We increased our investment in consultancy to support systems development to ensure that we're evolving the platform as we go to support these operators to make sure the sort of top 3 ambition can be realized. So on that, I suppose Andrew can talk you through the numbers.

Thanks, Dominic. In terms of the network revenue, as Dom said, it was a strong performance in H1. Network revenue was up 15% to GBP 32 million in H1. Within that, the network lettings revenue increased by 3% to GBP 15.1 million. The real driver behind the growth was though the sales side, which grew by 27% to GBP 16.9 million. That increase in sales revenue drove the sales lettings split to reverse from last year and in H1 was 53% sales, 47% lettings. In terms of our revenue, our revenue at GBP 5.2 million was up 1% on last H1. Two elements to that. The owned offices were up 11% to GBP 1.67 million. And within the franchising business, the growth -- the strong growth in sales and lettings was offset by timing differences on revenues booked on new or resold franchise agreements, in particular, the ongoing proceeds from the sale of the Kennington lettings business that happened in 2023. The cost of sales were down slightly due to the change in split commissions on one of the equity offices. The admin expenses were up by just under GBP 400,000 in the half. As Dominic said, a combination of one-off fees. So we put GBP 100,000 into Prime Central London marketing and the new Knightsbridge franchisee. We had a head office move that we moved costs and double rent per month or so was cost us GBP 70,000, and we put GBP 50,000 into consultancy work to help build our systems. Overall, the cost went up, as I say, by just under GBP 400,000. So the profit before tax in H1 was GBP 0.83 million, which was down 19% on H1 last year. In terms of the owned offices, they were profitable in H1, and we'll come into more detail on that as we go through the presentation. Cash at the end of June was GBP 3.86 million versus GBP 4.12 million in H1 '24. And we declared dividends per ordinary share of 6.6p in the half versus 6p per share in H12024.

So operationals, we saw this breakdown the sales and lettings performance of the business in the first half with the various regions, I suppose, as we categorize them. So Central London, outer London and the country market outside of London. As you can see, they all grew pretty healthily as effectively, we had some momentum from sort of Q4 last year based on the end of fiscal tightening and the sort of lowering of mortgage rates, encouraging people to transact as well as a change in stamp duty in April, which encouraged people to transact more quickly in order to beat that time frame. I suppose it's interesting to note the different regions. The strong region, which is the majority of our business in terms of the highest growth was outer London. This is a needs-based market with families. There are lots more properties available at the moment. where families are reorganizing their lives, come out of a period of increased costs and perhaps on skill fees, all these things feed into reasons why people would like to transact at the moment. So you can see that in the kind of buoyancy of outer London the country market, slightly lagging others. In large part, there was a significant growth after COVID and the rush to the country, and that is sort of being digested, that sort of 20% price increases are now coming off somewhat, and therefore, there's lesser activity. I think the thing to note on this also is there is the sort of overhang of the market is divided with the higher end of the market has more uncertainty in it. That is for -- that has meant traditionally, those houses higher end have sort of been accused for because there's a higher cost budgets are reined in and because of the concern around taxation on some of these larger properties and the wealthier, particularly in London, we're seeing them more sticky than previously. So it's led by the sort of middle market rather than the higher end. While lettings revenue, what was a great result to see here was it broadly reflects activity and where people are buying, obviously, they're not letting and vice versa. And we have higher growth rates in the country because we have new offices. So the sort of maturity of London means a slightly lower natural growth in lettings. There's also, I suppose, I would say more -- a few more landlords exiting because of the cost of increased interest rates. The great thing to see here is the mix of our lettings revenues, the revenue for letting a property has reduced by 4% in the first half. That in itself is not fantastic. We look at the management income and that's grown by 10%. So what you're seeing is a net increase of 3% of our lettings and management business, which is sort of make for the best ever H1 Winkworth's had because where there might be some landlords exiting the sector, we are managing more properties and offering that service to our existing landlords, and therefore, the net effect is growth of 3%. So moving on to the breakdown by region. I sort of talked about this slightly already, but it shows this is the outer London, our stronghold, I suppose, for Winkworth, where we've been there many years. We're deeply embedded and it delivers a large proportion of our income. So that they stay broadly in similar margins. We do feel there is a moment where Central London and -- will improve significantly. We made the efforts to invest in individuals. That obviously takes time, but we see that growing sector of the chart. It just needs a bit of a break on political news. On the lettings and sales split, you can see that it's swung in favor of sales. But as I said in the previous slide, that's still -- lettings still grew by 3%. So it's not from lettings not growing. It's just that as cost of finance reduced and people just on with their transacting, we saw sales grow at a faster rate. So sales by demand, and this is a further breakdown, which I think is interesting because it's the number of people registering to buy a property. So a number of buyers per property for sale. And on the right, it's the number of tenants per property to let. So in effect, if the prices were going up, you'd see more people registering to buy a property for sale. What you're seeing is kind of that being a lot of properties on the market. I think there are 45% more properties than there were 3 years ago on the market. To put that in context, that's still 50% less than they were in 2009. So it's been a lower volume market for many years, and it kind of shows where potential volume headroom is. What it also shows is that we're saying really, which is there is not price growth, but what there is, is there is a desire to transact and that's driven by, say, we've had a period of far higher costs. People may have overspent on their doing up their house. They may becoming off fixed mortgages. They may find all sorts of things that mean that perhaps they either downscale or they have -- people have reasons to transact. And obviously, our business is driven by transactions rather than price increases. On the letting side, it's been -- there's a tightening of supply, and we sort of talked about the fact that we're managing more, which is offsetting a tightening of supply in terms of reduction of landlords. I think the -- ultimately, we've seen the significant growth in rents post COVID, a lot of mass movement and now it's settling down and it will track wage inflation plus 1, which it always historically does because ultimately, rents can only -- there's an affordability ceiling to them. But clearly, there are issues in this market where there is not the same number of new buy-to-let landlords coming in as they have been previously. In terms of our dividends, this chart shows the progressive nature of the dividends we pay. We pay our dividends quarterly, and we would look to continue paying a progressive dividend circumstances, trading conditions, et cetera, allowing. So moving on to drivers of growth. To remind those where we -- how we look to move the business forward. As I said, ultimately, overriding all of this, it is kind of belief in finding the right individual and investing in them. That's the sort of overarching vision. And then this breaks down into 4 parts of our business. So the new franchising part, which is new people coming to us and opening offices under the Winkworth system and brand, assisted acquisition where we're supporting talented people either by existing Winkworth franchises if they don't have the money or buy other estate agency businesses to add to their own portfolio. So that would be an example would be lettings portfolios and the like. Portfolio management would be looking at where someone else is maybe looking to be there for a long time, looking to exit and making sure we can find the best possible people for that sort of opportunity. That one moment is a big opportunity to make sure that every time a business sells, the next person is even better and it goes forward. And then owned businesses, which is the sort of final part, which is clearly, there are some opportunities out there that we look at that we have the perfect person for and they can't afford it or perhaps they're at a position in life where they don't quite want to take the risk. And so we would look at owning that business and they're building a stake and eventually buying it off us in due course as a way of getting this talent into the network. So on the franchising territories, sort of the new franchising ebb and flow, we've opened 3 so far this year. There are 1, hopefully 2 further new offices set for the remainder of the year, sort of 5 for the year. We have resold 2 offices and with a further 4 to come. So approximately 11 sort of new franchise -- new people coming into our business this year, which we feel will be able to move forward -- move our business forward. Interesting enough, 8 of those 11 are related to London. We see this as positive because I suppose the London has, I think, the highest potential in terms of revenue per area due to the value of the properties and the sort of mix of those properties flats and houses and the churn because obviously, it is a relatively young marketplace where people are moving up through their lives and buying and selling properties along the way. So that leads to the other part, which we're always trying to do a slide of introducing someone people, characters in the network. And at the full year, we'll do a slide on the broader, hopefully compounding effect of all these investments in people. But at the half year part, we'll talk about Neil. Neil was franchisees in John's Wood, very experienced agent. He bought -- it's always been a very good office for us. So John's Wood, but he's got a very big territory as part of the franchise we grant these exclusive territories, and it was a very old business. So this territory covered for those of you who know Maida Vale, West Hampstead, Belsize Park, all within this area and obviously, huge potential to develop for Winkworth and generate more fees. So with his enthusiasm, we have supported him to open further offices. second office in Maida Vale 2021, West Hampstead 2023, Belsize Park beginning of this year. And in that time, the net result is not only more offices, but an increase in revenue of 101%, 100%, which is fantastic. It's exactly what we want to be doing is good people, backing them, developing the opportunities. These areas have great brand awareness because they're already sort of cheap and we already have data in the area of clients we can approach. So they're sort of easier wins in many ways. Then we move to the owned businesses and profit revenue. I say we sort of Pimlico was the most recent in 2023. So sort of very early days. It's sort of on its trajectory of sort of hopefully 3-year term to get to sort of maturity. We -- the revenue is growing out of the profits. As time comes, we will look to potentially exit one of these to management and then due course, at the right time, add an exit and kind of continue to use it as a tool to bring talent in and obviously have the benefit of income over and above 8% from areas that we've assessed and analyzed as having significant potential uplift for Winkworth. So moving into operating area and performance. Just to say hopefully that the combination of the strategy and the people within the business are delivering. It's a fantastic concept really to have people owning their own business within a network where they get the benefits of that network, but have the drive and ambition to reach their own heights. As a result, we -- they also are very efficient. They are telling their clients the long term in their areas and selling clients what they need to be told in order to sell the house at the best possible value. Therefore, we're #1 at converting new instructions, new listings to selling property to sold across our area. So sold subject contract, I should say. And then beyond that, we're #1 from agreeing that sale to getting into exchange. So I think it shows the efficiency of having good people running that -- running these businesses. And that's all part of building the goodwill of the name because people have good experiences and they're getting their sales through and it's not falling through like at the same rate as perhaps others. So let me go into digital evolution. So we've talked a lot about people and this part really, I suppose, is to reflect that the bit we are trying to -- if you go to the next slide, actually, Andrew. We are investing in our capabilities. We want to make sure we pick our routes through it where we respect the role of the individual and the importance they have and the value they have. So we want to do things that support them rather than take away from what we believe is important, which is a personal experience for clients. So these are just examples really. It's a my Winkworth sort of effectively where people can go to a section of the website and follow the transaction proceeding through the process. That's one idea, one concept that's coming through there. And the other one is just simple use of an example, we're looking at AI solutions just where they can obviously take notes on the phone calls, and that means the whole data quality of the whole network will improve significantly by having that functionality. So really sort of practical use of it. And next slide, we just talk about another area, simple Winkworth hub and bringing all that together so that we give better support to our franchisees in terms of all the information they need and regulation increases, we can provide more support through this. We can give the sort of greater connectivity for those individuals by having it as a place where they can communicate and ideas can be shared. And we hope that it's a tool that we've had, but this is a vast improvement step forward as we always try and do to allow people to benefit and ultimately to run better businesses that generate more money. So then I suppose the next one is just to talk about the long-standing Winkworth website, which I believe was the first estate agency to have a website of 1992. So it's been around a while. This is the engine room of the franchise network ultimately. It delivers -- increasingly delivers the leads, the all-important leads to value of property, which is the sort of lifeblood of an estate to the office. If you look at this in around 100 offices in the first half, it's delivering around 40 valuations per office. So on that basis, it is more than paying its way for the value for the 8% royalty fee that we charge for a franchisee to be part of Winkworth. So looking back and looking ahead, we sort of like to check in where we are. I mean it's a strong first half in line with our expectations. We've continued really to -- as we do continue through always to execute plan and bring in new talent. And we've sort of accelerated our investment in some of that talent in recent times and are comfortable continuing to do that because we can see that this just gives us our forward pipeline of growth. We opened 3 offices. We refranchised 2. We've got net cash generated from operational activities doubled to GBP 0.96 million, and we increased the dividend for the year by 10%. So going forward, and these are very much -- some of these are ongoing -- obviously ongoing and have been ongoing for a while as an aspiration to aim to be the first option for estate agency wishing to set up their own business operating in prime markets. That's our -- I suppose that's another way of explaining the sort of top 3 strategy we have of building something that is best-in-class or top 3 in their areas. We do that just to remind everyone because we think that's not only -- that's where there's durability in the market. If there's always enough transactions if we're in the top 3 to ensure that you can run a profitable business in all markets. So we feel that's a sustainable goal for our franchise network, which is obviously made up of independent businesses that are long term and often cases, only family held. So we continue to evolve this menu to attract new franchisees and work out ways to grow new sites, but also within existing territories and improve existing offices. We have the continued investment in digital. We remain a business that is led by people and guided by available talent, and that feeds into all the things we do. We target participation businesses with key talent in suitable areas where that's available. We see further growth in the majority-owned businesses, and we have a strong balance sheet. And obviously, we'll always look to pay a progressive dividend as we go forward. I think that's the presentation. So thank you for listening.

Fantastic. [Operator Instructions] I'd like to remind you the recording of the presentation along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. As you can see, we've received a number of questions throughout today's presentation and also presubmitted. If I may just ask you to click on that Q&A tab where appropriate to do so, just read out the question, give a response and I'll pick up from you at the end.

Great. So the first question is Winkworth recently closed. There is a debt to Winkworth. Does this have an impact on outstanding loans or provisions for Winkworth Franchise Limited. And the answer is I can't sort of comment in full that it doesn't have an impact. There were no loans from us to that franchise. So there is no sort of need for any provisions in regard to any monies due.

So another pre-submitted question. What interest rate are you able to obtain on your cash balance? At the moment, we're getting just over 4%. That's down slightly from the start of the year on the monies we have in the money market or through treasury bills.

Institutional build to rent, how do you see this impacting the market versus private landlords who exit does it matter to make the larger concentration of clients, properties. I think, obviously, there is a big push for build-to-rent. It is a long way off covering the market and we're a long way away from covering the market. And so I think there's private landlords are needed. Also, I think the sort of real thing is private landlords, it is a great investment. The issue that's happened over the years is that the debt to -- if you have a buy-to-let property, having debt has made less sense, so you have less debt now. But clearly, if you can afford a buy-to-let property for your pension pot, then it's a fantastic asset. So I think that will endure.

Question -- today's results refer to the ongoing proceeds from the Kennington sale. Can management outline the scale of these proceeds and when they were recognized? So this relates to the successful high court action we took to change one of our franchisees. It resulted in us getting the Pimlico office, which is one of our owned offices and also in the acquisition of the Kennington Lettings business, which we sold to the Kennington sales franchisee. He paid GBP 500,000 upfront, GBP 100,000 in 2023, GBP 400,000 in 2024. And then there are 3 subsequent tranches of GBP 100,000 each in this year, 2026 and 2027, assuming that various performance targets are met and the 2025 one was duly paid over, earlier on in the year.

Great. So next question for me. All franchisees seem to pay a flat 8% on all commissions, but what flexibility is there on that 8%? The very best agents might become more attractive to Winkworth on a percentage lower than 8% and you actually generate more income to Winkworth overall than a less talented agent on 8% due to much greater commission values. Very good question. I think we are -- have been set in stone that from 1981. So we would rather invest in that talented individual and maintain our fee structure because obviously, we believe that fee structure supports the evolution of the systems we need to support the agent. So rather than sort of go down that spiral, we would rather put our money to helping that agent acquire Winkworth office in the first place or another office that's outside of Winkworth. So I suppose that's our mindset on that question.

There's a question from James...

Yes. Sorry. How do you balance franchise autonomy with maintaining brand consistency and quality across the network? So that is a lot of work of running franchise organization there. Ultimately, -- the best way is to get the right person in the first place. Once they're in, you've got a good quality person who believes in the same standards and values as you, then you're off to a winning start. Beyond that, there is a huge investment and a number of people involved in ensuring that we do continue to, I suppose, monitor -- respect but monitor the standards offered by Winkworth offices and support them. We try and do it as a supportive basis rather than a sort of school mastery basis because we respect them as individuals and business owners, but we also need to ensure that everyone -- no one lets down another one. So we try to be very -- as business deserves and mature in our conversations about it. And hopefully, we've achieved that to date.

Then final question. On the interim dividend, when will it be paid? Will dividends be paid quarterly still? Yes, we will always be looking to pay quarterly dividends. I think the next one is due to be announced in mid-October for the Q2 dividend, answers that one.

Great. I think those are all the questions. So thank you, everyone, for those. I think that's covered for H1 presentation.

Thanks very much, everybody.

Thank you very much indeed for taking those questions we can. Of course, the company can review all further questions that are submitted and publish responses on the Investor Meet Company platform. Dominic, perhaps just before redirecting investors to give their feedback, just if you did have any closing comments, otherwise, I'll wrap up.

I suppose, accessing the talented people is the opportunity. It's kind of like that is the bit that we believe will shape our growth and where we can't access them, that we're limited. So as a business, we believe in that sincerely, and that's the #1 pursuit.

Fantastic. Dominic, Andrew, thanks indeed for updating investors today. Can I please ask investors not to close the session you will be automatically redirected to provide your feedback in order the team can better understand your views and expectations. This may take a few moments to complete and that's greatly valued by the company. On behalf of the management team of M Winkworth Plc, we'd like to thank you for attending today's presentation. That concludes today's session, and good morning to you all.