M Winkworth PLC (WINK) Earnings Call Transcript & Summary

Good morning, and welcome to the M Winkworth PLC full results investor presentation. [Operator Instructions]. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand over to CEO, Dominic Agace. Good morning to you.

Good morning, everyone. It's a pleasure to be here to present 2024 results. Myself, Dominic Agace, CEO of M Winkworth; and Andrew Nicol, CFO.

Good morning.

So, about later we will get underway. So I think really the best place for those that don't know us is to talk a little bit about the Winkworth, the model, a bit about our history, sort of give some background before we go into the results of 2024. We're a very old business. We established in 1835, and this is our 190th year of trading. Despite being old, we were innovative and we were the first state agency to franchise in the U.K. and did so in 1981. Since then, we've grown, we have 100 offices across the U.K. We own 3 offices ourselves in what we call entrepreneurial manager initiatives. We have 44 outside of London and 59 in London. Really, the 59 are, I suppose, the differentiator of Winkworth versus other franchise networks. Indeed, many other state agencies -- it's a fairly irreplaceable network. It was done and grown [ best ] from Central London outwards at a time when cost of opening offices were far lower. And so that really defines the business. We've grown in areas that affiliate with London as people look to use an estate agent that can access London buyers and there are areas where people -- our clients have moved out to having sold through us. So a little bit about the franchising platform. As I said, London is sort of what's defined the business to date. We were the first franchise. Our aspiration is to be a franchise operation that operates in the middle to upper markets and that we provide a platform for our franchisees to enable them to operate in the top 3 of their marketplace. So if they were gainfully employed for -- as an estate agent used to selling [ Knight houses ] and hopefully, they can come to us, have their own business, and they will be able to have all the same things at the [ end of the phone ] that they're used to as an employee. We charge 8% of gross revenues plus some additional fees, which is part of the business evolution towards the sort of website contribution and training contribution. But if you add it together, would equate to around 11% of the average franchisee turnover. The business is -- we'll go into further detail of broadly 50-50 sales and lettings. As a result to the sales side, we collect the money centrally and pay up to franchisees weekly, which is obviously a strong asset for ensuring cash flow. Our focus as a business and sort of which runs through everything in this presentation is really about getting the best people into the business. We have developed over the years different routes to allow us to capture as many talented stage as possible because once they're sort of in our network, good things follow. So we are very focused on that. So that's a little introduction on us. That will take us neatly into the operational overview. And obviously, Andrew talk through some of the numbers. Last year was a very strong year for us. We made some great market share gains as well as grew our revenue significantly. Our performance was in line with management expectations. Our sales performance outperformed our lettings. It was very strong. Not to say that our lettings wasn't strong as well. It was our record ever lettings year. It's just that sales grew even faster. Our market share, as I said, was impressive. We grew our market share faster than any of the other top 5 estate agents in London by a number of new listings. In terms of sales agreed, we grew our market share faster than any of the other top 10 in London. So the platform worked well. Tooting business was something that we owned through our entrepreneurial manager initiative. We had a management change there. However, all the other equity offices progressed well. Portfolio management, which is really this concept of -- as I started with about bringing the best people possible into the business and helping them acquire those that may look to retire or take a change in life and therefore, use that moment to bring in great talent sort of carried on a pace and has continued to accelerate going into this year, and we opened 3 offices.

In terms of the numbers themselves, network revenue, as Dom has alluded to, was up 12% in the year to GBP 64.7 million. The split moved from a predominantly lettings focus to slightly in favor of sales. And the sales performance was strong, up 18% in the year, which tends to distract a [ Winkworth ] from another record lettings year, having 6% growth up to GBP 32 million of revenue. In terms of our actual revenue, that increased by 17% to GBP 10.79 million, driven by increases on the franchising side of the business, but also on the owned offices, which grew to GBP 3.44 million. Cost of sales were pretty much in line with the previous year. Admin expenses were up and profit before tax of GBP 2.36 million was 10% up on the previous year. We have GBP 4.1 million of cash in the bank, and we declared ordinary dividends of 12.3p in the year, up 5% on 2023.

So getting into the bones of that performance. Here's a slide to show the difference between the sales and lettings management revenue and the areas we break our business down into differing areas. So you can see which parts moved the most. Really, I suppose in the sales side of things, what you're seeing is there was London led the way. London is 75% of our revenue. It has -- did not have the sort of boom of the post-pandemic move to the country. And as we return to a more needs-based market with those needing to go back to the office more than perhaps initially post pandemic, you're seeing an increased activity in the London markets. There's also a good Central London initiative. I think you saw a significant increase in Americans buying in London. There was also a certain number of people who were trading prior to the autumn budget. On the letting side of things, you'll see it grew across the board. It's grown every year since I've been -- 2005 traditionally continue to grow last year. I think you'll see us grow at a slightly lower level in part because, obviously, the sales was much more active, and so they slightly balance each other, which is one of the beauties of the business, obviously. So you saw slightly less activity in London, where you saw increased sales activity and more activity in the country where we saw slightly lesser sales activity. So I think you can see the balance there. Rental prices for everyone's sort of benefit generally tapered off, and we didn't see rental price growth, particularly in London. I think what you've seen there is affordability ceilings being bounced off. Really, people are either moving area to avoid the sort of recent rent increases or trying to buy a property or perhaps staying at home for longer. So that gives you the sort of internal dynamics of the network. As I mentioned, we've sort of achieved the 50-50 status, which I remember, again, going back from sort of lettings was sort of 20% or 25% of the business, but it has grown every year and every year was a record year for us. Sales tipped -- the balance tipped in favor of sales last year. That, as I said, was not through lack of lettings growing. So hopefully, this puts us in a very healthy position where both parts are taking out very seriously, and we're able to take advantage of both departments. On the revenue by area, again a lot of you are familiar with this, you'll see that we still -- London is the predominant driver of revenue in our business. That's because obviously we're oldest and therefore, most established and market share is at its highest. The country will continue to grow. And obviously, that is where new locations are being added and lettings portfolios are being acquired. Central London, this was previously at a higher level before sort of 2014 for sort of 2016 sort of Brexit, where obviously less activity from international buyers. We have some initiatives underway to hopefully grow that share of the pie to help boost overall revenue going forward. So again, coming to the theme, I mean, the theme of the market at the moment. And what we're seeing is really this -- to explain this chart, on the sales demand, this is the number of sales applicants registering to buy a home against the number of properties we have listed. So on that chart, you can see that actually the demand is less than it has been for a number of years. This is really -- because there are a lot of properties coming to the market, and we're seeing more properties listed than we have seen for 10 years. I think what you're seeing is it's been a different market period -- previous moments. The recent cost of living and interest rate increases led people to increase the cost of people. And therefore, more people are adjusting and say we're dealing with people who are adjusting to a higher cost of life and so perhaps are trading to a new location or smaller house within the same location. So there's a sort of need to sell. And on the buy side, recent rental price growth has obviously given motivation to buy to escape the difficulties of limited supply and high rental prices as well as take advantage of lowering mortgage costs. I think people [ accept ] that we're not going back to the ultra-low interest rate era of yesteryear, but it is becoming more affordable as real wage inflation has been present for a while. On the letting side, again, you're seeing a sort of more of a reversion to 2019 we saw some big mass migration really in the sort of post-pandemic years and that's caused surge in people moving properties. I think we're seeing that settling down. And as I say, I think it's bouncing off its affordability. And people are taking measures to avoid having to rent amongst young professionals, staying at home longer or more -- putting more -- sharing with more friends per property in order to try and avoid some of the higher costs in the rental market.

In terms of our dividend progression, this is a sort of an update on our standard slide. The white line shows the revenue increases over the years and the bar charts show the dividend payments. The solid gold bars are the ordinary dividends that we've declared each year, and there have been a couple of special dividends and the capital reorganization. Clearly, one of our key things is to look to pay a progressive dividend, provided trading conditions permit. What we've done this year is added in a slide looking at total shareholder returns, and this is a chart that looks at the simple total return. There's no reinvestment of dividends in it. What it shows is that a share bought on the 1st of January 2017 that generated a total return of 185% by the end of 2024, which is something that we as a management team are very proud of.

So again, revisiting the drivers of growth of Winkworth. So broadly, the overarching vision is to bring in the best talent into the business. And I said that we're looking at a menu of options of how we do that and different points and then supporting them once we've identified them to grow their businesses to our mutual benefit. So I mean, I will go through these slides in order so. New franchising is probably the place to start. This gives us an ebb and flow of the franchise network over previous years. There were -- this is a sort of blend of portfolio management and new franchising. So that incorporates resales and areas where we have walked away from offices because we felt that they are not -- they're good for the franchisee and they're good for the Winkworth brand with the confidence that we can return to those areas with new operators if need to be. In particular, to sort of validate that strategy, you look at the fact that despite these closures in 2024, our market share grew by more than any other top 10 agents in London in 2024. In terms of new offices, we opened 3 new offices. These were 2 existing franchisees opening further offices and one was a new franchisee who came to the network. This year, so far, we've sort of accelerated -- also resold 5 offices, I should say, which is to new operators to push revenue forward. As to stand, we have 10 resales under the sort of portfolio management title agreed and progressing. So you can see the sort of acceleration there of rejuvenation and 5 new offices lined up for opening this year. And really, where we started and said the investing in people is sort of critical to the business, I suppose this is the latest and perhaps the latest example and perhaps the highest profile example of that initiative. So we had -- we headhunted Christian Lock Necrews to take over our [ lettings ] in Chelsea office, which was sadly not in the top 3. He is sort of 18 years at Knight Frank and obviously was running the market leader in that area. While we're particularly pleased about this, is it shows that we can go and secure the best-in-class operator and bring them into Winkworth so that hopefully, Winkworth can appeal to anyone, which puts us in good stead for the future that we can bring in the people that we want to ensure that the business moves forward as we like. So portfolio management, I talked about at the beginning, and this is really where we're bringing new talent in and where I started was bring someone good or great into the organization and good things will happen. And I'll pass it to Andrew to talk through the flow.

So what this slide does is look at the revenue generated by the offices on the slide back in 2018 at the beginning of 2018 and looks at the growth that has happened through the focused portfolio management since that time. And there's a combination of impacts, a, the performance of the offices that have actually changed has improved and they have generated more revenue for us. But as a sort of an add-on to that, some of the good operators have actually added second and indeed third offices over that period, which has sort of continued to build on that growth. So the St. John's Wood franchise at the top, just to sort of take you through a specific example that was sold or resold at the back of 2019. They opened Maida Vale in 2021, and they opened West Hampstead, and they're looking at opening in other areas as well. So it's a way of not just improving the underlying performance, but it's generating revenue from new offices as well. And to give it a wee bit of context, in the period on the slide, revenue increased by 77% or GBP 7.5 million over those offices.

Yes. And I think it also fits into category of -- these are talented people who are ambitious that we are happy to support. So using our cash to help them grow where they've identified new opportunities. So a number of these, we provided loans to help them take the next step, obviously, to the benefit of both of us by expanding their influence within Winkworth and using the money on our balance sheet. So [indiscernible] is, again, the initial concept to sort of come back to is that there are some great people out there sadly in their peak expense times, they do not have the money to start their own business. And so we thought we identified -- we looked at our market and we saw where the biggest opportunities or perhaps the biggest misses were for Winkworth. So a huge transactional revenue potential, but where we weren't realizing that. So it was a missed opportunity in terms of 8% and for Winkworth as a whole. So it started with Tooting. Obviously, we saw a dramatic increase from acquiring that, finding the best possible person who may not have had the funds and rewarding them with shares for performance. Since then, it has evolved and now we have Crystal Palace and [indiscernible] alongside Tooting and then somewhat separately, development and commercial investment and new homes, which we'll talk about separately. The -- as you can see the revenues continue to grow, where I think we flagged last time was -- the Tooting entrepreneur manager wanted to. [indiscernible] And so we helped him acquire neighboring franchisees in [ State Manhattan ] Hill, and now he's doing very well there. That meant we had to bring in to our benefit is a Winkworth franchisee, so increasing our 8% there, which a new management team, which sort of having to resettle and there. Beyond that, they are progressing in line with expectations. And then really to just talk about the market share, as I said at the start, some charts to yes, put some sort of color to that. As you can see on the right-hand chart, change in new instructions market share in our operating area. We are certainly keeping ahead of competition. Our market share of sales agreed, as we said, grew more than any of the other top 10 agents in 2024 in London. And you can see that we are outperforming last year in terms of our metrics on the left-hand chart within our operating area. So the business is growing and improving its market share. And then the third slide, again, this is Winkworth's performance versus the operating area. So as you can see, we're ahead of the average on all these metrics in the area we operate. And so from a marketing perspective, we say more likely to agree a sale on a property than others in our operating area, more likely to exchange a property, less likely to withdraw a property and less likely to have a price reduction. So all of those are hopefully quite powerful things that our franchisees can use in their conversations with clients. And beyond that, in 2024, we retained the role of having the highest conversion from new instruction to exchange of any properties above GBP 1 million in London out of the top 10 [ states ]. So really then to talk a little bit about the platform and obviously, digital is a part of that, a very important part of that. We feel as part of the evolution of the platform to ensure that it's providing what our talented operators need today. This really gives you a chart to show how we have the plan and how we have organized ourselves. So we have our data in the warehouse. We are able to look at our data analysis. We have a data hub. We have our -- my Winkworth platform for clients to use. we are exploring how we use AI in our business. One example on the sort of right are 3 different things that -- how it can be used, just 3 things. We are wary to tread the line where we believe in the value of the individual, and we don't want to replace that. But there may be areas where it can obviously be a great benefit. And so are undertaking trials in certain offices with different tools that if successful, we will onboard and make available for the network. And really, this just comes back to the sort of core I suppose, [indiscernible] the engine of the network, really, this is Winkworth [indiscernible] we're the first ever state agency website. It might have been the first ever state website. It has tremendous traction on Google as a result of its history and the investment we make in search engine optimization. If you type in a state agent in Tooting or the like, it should generally be in the top 3 rankings in Google. As a result, it delivers an awful lot of potential leads for offices. So talking about 60 -- well, 6,000, so broadly 60 valuations for properties to sell for per office, which is a big differentiator versus being on your own or on part of a smaller business where the website doesn't have that traction. We will be continuing to invest in it to keep it evolving and make sure it is considered a best-in-class product and it's something the franchisees can be proud of and deliver them the business they need. So then looking back and looking ahead, broadly, we have a very simple plan, and we know that we want to execute. Last year was actually a cracking year in terms of record-breaking lettings revenue. The total shareholder return was 40%. We opened new offices. We resold [indiscernible] to really good people. Within that, we got the best-in-class operators, which is this aspiration we now firmly have. And we grew our market share more than our the best of our peers. So it's fantastic. And we've accelerated that hopefully into 2025. We see more portfolio management, more talented people coming on board to the business, more new offices. We see that we can be able to continue to invest in that platform to make sure it still enables those people to be attracted to Winkworth and be able to do their job to the best of their ability. And within all of that, obviously, we'll look to continue to pay a progressive dividend. So I think that's our presentation. So hopefully, that was interesting for everyone, those who have seen it before and those who haven't. And time to take some questions.

Fantastic, Dominic, Andrew, thank you very much indeed for your presentation. [Operator Instructions]. And Dominic, Andrew, as you see, we have received a number of questions from investors. And Andrew, if I may now hand back to you to chair the Q&A, and I'll pick up from you at the end.

Thank you very much. So in terms of the first question, I'll just read it out. the new Knightsbridge franchisee arrives with proven success. Do you envisage more new franchisees being persuaded to take a Winkworth franchise from similar quality upmarket firms? And how can you make that prospect more attractive?

I think a large part of that is sharing that success. We've already seen the impact of this recruit in terms of others approaching us. So that's been fantastic. Ultimately, we would like to see what works best for the individual. So whether that be -- obviously, the big attraction, I should say, is equity ownership and having your own business. And I think that's the most attractive offer in the industry. So obviously, that is what everyone really looks for. And obviously, we're very pleased that this chat obviously believes that we can compete at the top, and we will, yes, continue to look to recruit others where possible.

So stretching out from London, Essex is a county that you have not made headway. Further east is Bow and Hackney in London, nothing beyond except for an outlier in [indiscernible]. Why is that?

Ultimately, we're defined by the people that we come across and that we can source and that will sort of always define our growth. And so we are open to all areas that affiliate with London. But as I say, that is defined as to date.

Results disclosed property worth GBP 3.4 billion was sold during the year, which given network sales income of GBP 32.7 million equates to the franchisees taking an average 1% commission from each sales transaction. How much influence does Winkworth have with franchisees and the rate of commission they set for transactions?

I think it's quite a broad brush calculation and the average is well above 1%. Winkworth will always be competitive in its local market, but we'll never seek to be the cheapest in the marketplace as we believe we add value to our clients.

A few questions on the company seemingly moving towards sales rather than lettings versus the latest 50-50 split. What would be the ideal split between sales and lettings revenue over the next few years?

So to say we've always -- our lettings has grown every year. since I've been here, so back in the early 2000s. And we don't prioritize one over the other. I suppose what it shows is a great balance to our business. That means that we do envisage sales transactions to grow faster than perhaps lettings in the next year or 2. And so we're incredibly well placed. Our franchisees are incredibly well placed to take advantage of that with full teams in situ ready to work very hard to do so.

Can Winkworth actually influence the split of sales and lettings revenue generated by franchisees? Or are the franchisees completely free to choose how they generate revenue between sales and lettings?

I think the -- we obviously work hard to ensure that everyone has a proposition that is credible for sales and lettings and that they can service both markets. And we seek to work with [indiscernible] people and bring on board people that understand that. They are slightly different, but they are different expertise and require different people. And every franchisee, obviously, we try and ensure we ensure that has that capability. So ultimately, the franchisee, as we said at the start, is a sort of defining factor and the quality and talent to that franchisee, but we provide all we can, training and technology and conversation about how best to do that using our experience.

Will management be more likely to retain greater cash on the balance sheet just in case, perhaps to the detriment of slower dividend improvements. We have an identified plan about how we want to grow the business involving deploying some of that cash. But clearly, a progressive dividend remains a key priority for us. The preceding H1 2024 results said Winkworth was targeting good profitability from all 4 own equity businesses in 2025, but these latest results did not seem as optimistic. What are the current profit prospects for 2025 of the 4 own equity businesses?

I think all I can probably say is in line with expectations. So they are -- all have plans to grow over a number of years to reach their potential and are doing so.

What is the current policy around capital allocation, particularly with regard to potential acquisitions or expanding the own equity office model?

The -- I mean we have -- so I say the central part is acquisition of people really. We are, first and foremost, a franchise organization, and that is the core of the business. The owned offices was a way of further developing course of markets and bringing talent on board. And so we will allocate our funds to continue to bring people into the franchising business as the priority going forward as that continues to roll forward.

With headhunting new talent, how do you persuade such talent to join Winkworth? Presumably the headhunted talent still pays the standard 8% to Winkworth. Do headhunted talent enjoy a different agreement, financial or otherwise, to agents who approach Winkworth direct?

No. So the terms are the same, the franchise agreements are the same. The 8% is the same. The only difference is that for -- if the talent doesn't have sufficient funds to do it and deliver the plan that we believe is the best plan for the outlet, then we might be happy -- be happy to use our funds to support them via loan if need to be to ensure that they can be able to come on board. So that's the difference really probably us being supporting on funding, although that's not always the case. It's very much a bespoke situation. But the core terms remain the same.

Foxtons announced very strong growth in sales in calendar Q1 2025 as a result of changes in stamp duty thresholds. To what extent has Winkworth seen a similar spike? Should we expect Q2 to Q4 to show substantially lower volumes compared to H2 2024, Q1 2025?

So I think the stamp duty holidays always have a distorting effect. It seems to be fairly regular property market at the moment. And clearly, everyone wants to save the cost of a new kitchen or the like if they can. And so yes, I'm not surprised to see the Foxtons Q1 numbers. I think the -- that aside, this is what I sort of touched on earlier, I think we're in a needs-based market where people are adjusting their lives, and therefore, there are a lot of properties around and there's a lot of motivation to transact. And I think we saw realistically the chances of agreeing something and progressing it before the deadline at the beginning of April was ended at sort of Christmas time. But despite that, we've seen the year start briskly as people are cracking on with the transacting. And I think there are reasons for that, which is people either -- there are lots of different reasons. But you could pick one, one would be they bought a house in 2021. They did some work. The works will cost a lot more than it could have done. Cost of everything has gone up. Therefore, you need to readjust to higher mortgage and move house. And as I said on the buy side, it's the rental market costs are very high and there's less supply, the quality of the rental market is less than it has been. So you don't want to be -- people don't want to be staying in that. And there's been real wage growth. So I think there's many reasons beyond the stamp duty, although the stamp duty, obviously, what it generally does is bring a couple of months together to make one sort of super month. The actual direction of travel, I think, is positive.

Are you seeing any difference in profitability or operational performance between franchised and owned equity offices?

So that's a good question to answer really. They are different -- we try and replicate the franchise model. We're not trying to become a command and control estate agency chain in any way. We see the value of how a franchisee runs his business and the profitability they can deliver from that business. And so we're just trying to provide the funds for a talented person to take that role, and then look to exit to them if they need to be or stay on board if they prefer that route. But we're sort of trying to mimic it. The difference is, I suppose, that the cost of us in any business requires you need to be in certain markets with a higher revenue potential. If you're in the franchise model in a smaller town, particularly in the country, for example, can obviously be run on a far leaner basis and so it's more suited to that, whereas perhaps some markets are perhaps more suited to the additional investment we can make to realize their potential. So -- and the other point is, obviously, every franchise office is different as everyone has a slightly different style of how they run things.

That's great. Dominic, Andrew, if I may just jump back in there. And thank you for addressing all those questions for investors today. And of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. But before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Dominic, could I please ask you for a few closing comments?

Yes. I think it's just to say that the plan [ as such ] is very much focused on people and this menu of bringing quality people into the business. And I think we're making good headway, and I think that will accelerate. We found that we can appeal to anyone, and we're prepared to use our funds to ensure we can -- they can fit. So hopefully, that places us pretty well going forward.

Fantastic. Dominic, Andrew, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the Board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will 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, and good afternoon to you all.