The Agency Group Australia Limited ($AU1)

Good morning, everyone, and welcome to today's webinar. My name is David Tasker from Chapter One Advisors, and I'll be hosting today's webinar for The Agency Group, which, as you know, is stock code AU1. Today's session will focus on The Agency's first half full year '26 financial results and outlook based on the investor presentation that was recently released to the market. So we won't be going through the full presentation as presented. We'll just be focusing on the salient slides. Joining me today are Andrew Jensen, Executive Chairman; and Paul Niardone, Executive Director. Before we get started, just a quick note on questions. [Operator Instructions] Time permitting, we'll aim to get through as many as we possibly can and any that we miss, we will deal with at a later date. Also, a quick reminder that today's presentation may include forward-looking statements. Investors should refer to the company's ASX announcements for full disclosures. This morning will be a good opportunity for investors to hear directly from management. about the company's strong first half performance and how that momentum is expected to carry through into the second half and beyond. With that, I'll hand over to Andrew and Paul to begin the presentation. Jensen, over to you.

Great. Thanks, David. Look, thank you for joining us. First thing I'd like to probably just cover off before we get started on the financial takeaways is our business model, just a quick touch base on that. And we're not your typical franchise real estate model that we know is in every, I suppose, territory or market as such, we're a direct model. We're actually only one of the direct models in the top 20 brands in Australia for us. The Agency is actually #8 ranked in Australia now in 9 years. The closest one to us is actually another real estate group that's been going 27 years. So it just demonstrates that we've been able to get there very quickly to become #8. And we've done that by being a direct model rather than a franchise model, which is a model which basically we have a franchisor, a franchisee, which is known in the market as a principal and then they actually recruit their own agents. The difference between us is that we're actually, I suppose, seen as the franchisor direct to the agent. So basically, what we do is we pass on all those savings and benefits to those agents to get a greater commission structure, but also free them to do their own business and grow their business. We've had all the headaches that's normally attached to being a franchise model such as people, staff and premises, et cetera. So for us, it's important just to touch on why we are a bit different, a bit unique and to demonstrate why this growth to be seen as #8 in market share across the country in such a short time just demonstrates where we are heading and we are on something that is unique and different in the market. So, just to start with just some key takeaways. So as you can see from the graphs that are in front of you there, our EBITDA for the 6 months was $2.1 million EBITDA, which was up from $700,000 in the prior year period. So that was actually based on a number of transactions that have actually seen a declined. Now the reason why you see that is the shift to the market, and this comes where it's important being a national business. The number of transactions and listings actually did drop from state to state, but that was based on the fact of the West Coast going from around about 50% to 40% of all our transactions. So 60% actually came from the East Coast, which is a higher-margin business as well, which contributed to $57.1 million of our revenue. That increase in itself obviously demonstrated that we had a large increase that went straight to the bottom line to our EBITDA number of the $2.1 million. That was a 34% increase in GCI, we've actually been able to demonstrate. What that does mean is that our net profit after tax actually was a loss of only $800,000. We will touch on that throughout the presentation, but we actually had amortization for the first 3 months of around $880,000. So we would have made actually a breakeven for the 6 months. That amortization is actually to do with the rent roll that we acquired some 7 years ago. That is now ceased on those investments at that time. It takes 6.5 to 7 years to amortize those assets, even though they're actually an asset that continues to grow within our portfolio. Unfortunately, from an accounting piece, we do have to amortize those. So the last 3 months, actually, we did have a net profit position, but we'll start to get the benefit from that in the next reporting period. So our balance sheet, I'll just touch on that. We do have a balance sheet that is net assets of $1.6 million. But because we do amortize that rent roll, unfortunately, the assets are now $34.4 million that's not actually on our balance sheet. Though they're still there, they're generating significant revenue, basically on the revenue up of $57.1 million, around $7 million is actually contributed from our property management portfolio. So it's a significant component of our total revenue. The amortization there is below its financial position, $3.1 million annualized. As I said, that has now been removed or significantly reduced. Another key milestone after the reporting period in June last year was the fact that our banking facilities extended out to June '28 with Macquarie Bank. They also did provide a $1.6 million increase in our facility. That's because of the opportunities that are coming forward to us regularly from principals that actually do want to just get back to selling real estate, not running businesses, getting back to why we are unique and cashing in on their opportunity of their rent roll assets. So we haven't drawn down that as yet. We actually have done some vendor finance options that we're looking at currently just to demonstrate that they are a business or attraction business to join. Our agent productivity, we're 474 nationally. That hasn't grown significantly from 30 June. The reason being is we're really focused on removing those nonproducing agents. We couldn't put them within a team, our primary agents. We've actually moved those agents on. Obviously, there is a cost to holding on to agents if they don't perform. And we also want to set a minimum standard across our network, which obviously is where we make our margins. So the 474, I'm happy to actually report as of this morning, we're actually at 489. So from the 31st December to now, we've increased that by 15. Next slide, Dave. Just on our profit, you can see the increase, which is significant from an EBITDA. And this is not just from last year, you can see on prior years as well. And it's obviously contributed by the fact that we are growing our GCI. GCI has gone on a run rate basis now to $150 million. Last year, it was around a run rate of around about $120 million. So we're actually now in a position that demonstrates that any increase in our GCI, be it from increasing productivity of our existing agents or those new agents that we do bring on to our network are actually contributing to our bottom line. Next slide, Dave.

And I think, AJ, also to mention that we're focusing on the cost of the business, and we take that seriously, and I could see that the actual cost of doing business has also dropped as we make the agents more efficient and the business processes more efficient.

That's great, Paul. Significant share on the -- off balance sheet. Look, I think this is one thing that people don't understand, I suppose, in the market is about that amortization, which is not seen on the balance sheet. I don't think I need to emphasize it anymore. We do have a rent roll. It does contribute around $14 million revenue annualized. We do make a profit of around $2.5 million EBITDA on that rent roll, and it is growing. We're trying -- we're targeting a 25% EBITDA margin on that rent roll, which will come from streamlining and efficiencies of automation and also offshoring, but we are working towards 25% margin. We're around 21% at the moment. So it's definitely an attractive asset that continues to support our sales business. Next slide, Dave. Did you want to go through this, Paul?

Look, I think we've -- I know I've seen the list of attendees. We've been through this quite a bit. So just quickly, the main business is residential sales and property management. We have a strong conveyancing business that we're just starting to roll that out nationally. It is a big market. However, in WA, the market is a bit tight with the number of listings having dropped to 2,500 from when we started this business of 10,000. But we have got the platforms in place now to grow the business and as we said, expand the efficiencies in the business. The rent roll is growing. We've got big plans there, obviously, with MDC and the trial we did with the fund. And we now have a management team who has virtually been in the business since when it started.

Next slide, Dave. I think we touched on this, David, the traditional franchise model or a direct model. One thing I will say about the franchising model, which has been demonstrated by the U.S. recently was the acquisition by Compass of Realogy or Anywhere, as known previously. Anywhere was acquired, which is a significant franchise brand with Sotheby's, Century 21, et cetera, was acquired by Compass, which is very similar to us, a direct model, direct to agents, providing a platform which is just demonstrating that the pressures that have been seen actually on the franchising model. There is consolidation in the industry. There's a lot of growth that is happening in the U.S. at the moment is, in fact, the direct models only. The franchise models are basically under attack from this model. So it is demonstrating that we are on the right path and the model that we've actually put forward and demonstrated in the market today in Australia is something that we -- I believe, over time, we will see more consolidation in the franchise world.

The only maybe difference in this one, AJ, is in relation to Rightmove that people might have seen in previous presentations. So Rightmove was a model designed to target franchise offices and independent offices that wanted to rebrand to their own brand. After we looked at it and examined it carefully, we decided to change it and call it plus agent -- Plus Services (sic) [ Service Plus ], agency services. The reason for that is that we wouldn't have to spend money reintroducing a total new brand into the market. And also when we were talking to these offices, they actually like the idea of being connected to The Agency.

Yes. Good point, Paul. Okay. I think in focus, so I did touch on our run rate. So for FY '26, our current run rate based on the current market is circa $150 million GCI. We have an additional pipeline of $10 million. That pipeline is actually agents that we are in third plus stages of discussions with. It's not -- we've got a significant pipeline if you look at our target list. However, in relation to those agents that we are definitely in further advanced discussions with, it's around $10 million GCI, and that's across nationally across the network. And as previously communicated, we always focus on that margin to the bottom line on any new agent that we bring on that contributes 12.5% to our bottom line. So once again, if you put on the $10 million GCI, annualized benefit of that is a minimum $1.25 million that we target. So the factor of trying to achieve this target, which is our next milestone of $175 million, let's assume that if $20 million comes from new agents and $5 million comes from existing agents' productivity, that $20 million growth, we should contribute around the $2.5 million EBITDA. So that's why there's always this focus and target on new agents and agents that contribute to our GCI portion. Property management, we continue to monitor that, as I discussed. We're trying to increase our productivity also of our property managers, and that's by offshoring and also support from automation through compliance pieces. So they spend more time managing properties rather than day-to-day manual tasks. We've seen a slight increase in our properties under management. And what it is, has actually seen a growth in our revenue in property management just because of the actual sector at the moment and the pressures that we're seeing on rent in the market in all markets. Next slide, Dave. Did you want to talk to this, Paul?

Yes, I'm happy to. Again, it's referring to the gross profit and the split between the businesses. You can see the sales business in red that's been growing steadily. The rent roll business has been growing. The conveyancing business is the same because it's been pretty much focused in WA, and we've only tied up a relationship 2 months ago to take it nationally. And you can also see with the mortgage business dropping off because that was also the JV that we set up with Oxygen. Again, down there, if you see the cost of doing business has been dropping. And as I mentioned, that's through the efficiencies we've been developing in the business. The listings in WA, there's a point on the side, it is tight at the moment. It's very tight. But again, if we can go back, and I think it comes up in another slide. And what you mentioned previously, AJ, in the short time we've been around, we're now in the top 10. We're #8. When you look at the number of agents of the people above us, we're probably less than half to 1/3 of what they've got in agents. And when you look at the people under us, they've probably got another 25% to 40% of the number of agents that we have. So we do have a very productive group of agents.

Great. Thanks, Paul. One of the key messages from this slide is that what we're demonstrating here is the market share by state and where the growth opportunities are. As you can see, in WA, all markets we've actually grown market share. Yes, the market has increased in volume and transactions and dollar value, but we haven't maintained our market. We've actually grown our market share. So we're actually obviously increasing the market well above what the market is, and we'll continue to do so based on the fact that we've got greater productive agents and also the fact that we've entered new markets relatively new. And we've got new opportunities that are coming from Queensland and Victoria by the fact that we've only been there in infancy and we've got new GMs in there have been pretty 12 months that have actually now got a pipeline that they're working through, which is helping us recruit into these markets. Because obviously, we've got the infrastructure there and the cost structure there to support it. We're now starting to see the benefit coming through to the GCI growth and gaining market share in these markets. It's a significant market. And to be #8, we've got such a massive opportunity ahead of us.

One of the highlights there was that we got voted the #1 sales office in the country by REB. So what that is, that's an award that's based on numbers, not fluff. So the number of agents you have, the number of transactions, the sale volumes, the sale values. Again, it's pointing to the fact that we have got a very good team. There's a total number of agents in WA of about 8,000. So you can see we've got about 3% of the total number of registered agents but we're doing about 10% of the sales. So again, that's a highlight of the model that we've got.

Great. Thanks, Paul. I just thought we'd touch on this quickly. This is a slide we put together to demonstrate what those new agents that we are recruiting, what they've contributed in the last 12 months versus the productivity increases on existing agents. As you can see, they're contributing $6 million in that half. We talk about the 12.5%. That's probably where it comes from, the growth in our EBITDA and obviously, the increase in product our existing agents. But this is something that we monitor and what it demonstrates the importance to continue to grow our business and evolve in different markets so we can obviously grow our agent numbers, but focus on agents that actually contribute to GCI, not just an agent number. They need to be producing agents that we try and target a minimum 300,000 GCI annualized, and that has been a key shift to where we focus our recruitment and energy to ensure that they -- once they are recruited, they actually start contributing from day 1 to our bottom line. Thanks, Dave. I think I've already touched on this in relation to our milestone. We know milestone 1 is in our sights. $150 million is our run rate. That was a milestone we set 18 months ago. We hit that much quicker than we anticipated. And based on the pipeline that we have in front of us at the moment, the additional $10 million, we believe that $175 million is very achievable rather in the short to medium term. We've -- obviously, milestone 2 is a $200 million business. If that's all contributed by the fact of new agents, we will see that obviously drop directly to our bottom line. And finally, on the next slide, The Agency growth, the productivity. Once again, I'll just touch on that. The properties sold might have only been a 12% increase versus where those properties were sold, it was on the East Coast, which has helped us grow and contribute significant GCI and gross sales volume. We're on track to do close to $9 billion in sales this year, which is significant growth, which is also just demonstrating the fact of having a market that is growing in other states such as Queensland and Victoria. It is helping us grow our GCI a lot quicker than just focusing on 2 core markets. It has now opened up more opportunity for us to get quicker wins, quicker recruits to contribute to our EBITDA. Looking ahead, I think, Dave, I might let you do this, Paul.

Okay, mate. Again, so we've -- the first half has placed us with a good base to move forward for the rest of the financial year. We've got good recurring revenue through the property management. We're looking at the fund to see how we can expand that with the relationship with MDC. The management, we're focused on our productivity and market share growth. As we've said, we've already mentioned that we've pivoted with Rightmove to the Service Plus model, which has already recruited a dozen or so agents in that through offices. So that's been working well. AJ has mentioned that we're on track for the $150 million GCI run rate. And so we're confident to get to the $175 million with our recruitment numbers that AJ has mentioned earlier, we're very confident we're going to hit the $500 million mark this financial year, which was our target. So -- and with the amortization anchor that we've had for the past years coming off, that puts us in a good state now to start focusing on getting profitability as well.

Thanks David. We might come to you now and see what questions you might have from...

Thanks, guys. Thanks for taking us through the presentation and giving us a bit deeper insight into the numbers. [Operator Instructions] We have had a number of questions come through, so we'll jump straight into it. I will throw it open to sort of both of you and feel free to answer as you see fit. So first question, the company delivered strong growth in gross commission income during the half. What were the key drivers behind that growth? And how sustainable do you see that momentum heading into the second half?

I can answer part of it. Yes, Paul -- I guess behind that is, look, obviously, the market has had an increase, especially on the East Coast. How? As we demonstrated, we're growing market share in those markets. Yes, the market has increased on the East Coast, not the West Coast. We've been able to gain market share in every market we operate in. And that's because of the unique infrastructure and I suppose the growth around our agents that we focus on. I also believe that the recruitment numbers that we have in our pipeline and removing the nonperformance is that we're focusing on those agents that actually contribute to the bottom line directly straight away. So what we've seen is $5.9 million contributed in the 6 months. If we continue to bring on new agents, which is obviously what we're driving that have GCI, we'll continue to see GCI growth continue, subject to obviously any headwinds that we might occur. But I believe that based on what the model we've demonstrated year-on-year consistently, we've continued to be able to grow GCI and recruitment numbers and gain market share. So I believe that we'll continue to do so.

Yes. And the flip side to that is, as everyone knows, there's 2 levers. One is more agents and the second one is getting your existing agents to sell more. And we've invested a lot in training. We've appointed a new training, national training manager. We've got several case studies within our team where people started with us earning X and now have moved on to earning Y. So we know that the training and the processes we've got in place are helping our agents do more business as well.

You referenced towards the end of the presentation, the pipeline and the strong pipeline of opportunities across the network. Can you talk a little bit further or go a little bit deeper in what the pipeline actually looks like, both in terms of agent recruitment and potential listings coming through the business over the coming months? Where is the pipeline coming from?

The problems by agent numbers, the problems actually can even be offices. For example, we put on an office last month, which will contribute $2 million GCI. In that office, there was 5, 1 primary agent or principal normally and 4 co-agents, which we call our secondary agents. So there's 5 agents that have come across last month. Now this is an example of networks or franchisees or even independent groups that actually want to join us for our unique model and for our brand -- growth of our brand that we've been receiving. So I actually see that there will be more uptake in that as we continue to grow. It's kind of that hockey stick moment for us at the moment. We're seeing a lot of momentum, a lot of inward calls, a lot of growth inquiries coming to us rather than the other way. We've got obviously 5 GMs in each state driving growth. They're driven by KPI on recruitment and GCI. And we -- so we obviously monitor this daily. And I do feel that we can actually see this momentum of $10 million grow quite significantly.

You touched on agent recruitment, particularly, and there's a question here around commission is one thing. Brand is another thing. But is the process, the training, that sort of national spread of opportunity really piquing a lot of agent interest?

Yes, it is. There's no doubt we've seen a spike in inquiries coming to us from both offices and individual agents. I think the brand is appealing. I think the discussion out there as we've put more agents on and they're talking to other fellow agents about the process and systems and support they're getting is starting to sink in. It's always hard to sell that. Everyone claims that they've got great support. So it's not until you come into The Agency and experience that you realize how good it is. And so the fact that our existing agents now are saying, no, no, this is really good from -- we didn't even know how good it was until we came and put our feet under the desk, that's now driving inquiries back to us where previously we were always chasing people, trying to get them to join. Now there is a clear distinction in that where yesterday, I got a large office in the Southwest called me. So the news is out, they're calling us. They're saying that they've talked to people that they trust and know in the industry who have given us a good wrap. So I think this is just going to keep getting stronger and stronger.

Dave, I would just add on to that piece. We rolled out culture out last year as a survey, which is a recognized global platform for engagement. And we roll that out. We're the first real estate group in Australia to roll that out. 89% of those people that were engaged and nearly, I think, 80-something percent actually did submit answers to our questions. 89% have come back and said that they are happy to refer and stay at The Agency for the next 3 years. So that basically tells us what we are doing is working. There is -- they are satisfied, but it also did raise obviously some areas for growth and to improve on. But the fact is that our agents are engaged with us. We are working with them. We are giving them a voice. So what that does demonstrate is that we're on the right track with what we are doing, and they do see value in what we're providing.

Question here in relation to balance sheet and sort of, I suppose, market cap. How can the company bridge the gap between the market cap of about $11 million, $12 million and the off-balance sheet value of the rent roll, which sits at circa $37 million?

Yes. Look, one of those things -- one of those options to us has always been the funds under management being a fund set up directly to support growth. Obviously, we're conscious of the fact that people don't value that asset, though it generates, as I said, $7 million for the last half in revenue, and it will contribute close to $2.5 million EBITDA. People still don't value that asset, unfortunately, in what the share price is currently at in the market value. The only way we could probably demonstrate and get value from that is if we did set up our own fund or work with Trilogy Group, which we could possibly look at rolling that existing rent roll into a fund, which does have a yield, which can pay investors directly from that yield that return on the rent roll and that we obviously capitalize on with some cash. However, what we would be doing by doing such a thing is removing obviously that EBITDA from our business. However, that way, we could definitely crystallize the value of it. However, we've got to also take into consideration that, that is the sales business and the property management business are one together as a business. But we are looking at ways how we can try and extract value from what we are getting and seeing in the market today based on the size of that asset.

Presentation highlights the company moving towards $150 million -- approximate $150 million GCI run rate with the next milestone being around $175 million. How should investors think about the pathway to those targets? And importantly, how does -- how that growth translates into improving the profitability and EBITDA over time?

Well, as we said, well, obviously, recruitment of quality agents is one. The improvement of productivity of our existing agents is two. The turbocharge factor is the establishment of a fund that allows us to go and acquire more agencies in the rent rolls is the one that we're doing a lot of work on as well. We've built up quite extensive and detailed financial models on that. And our model, and AJ can touch on this is actually showing now that we're dropping about 12.5% to our bottom line as our revenue grows.

You touched on agent productivity, and you gave a few initiatives that you're implementing. Where do you see agent productivity lifting coming from? What are the things you need to do to continue to enhance productivity amongst your agents?

Well, I mean the model started with relieving the agents of administration and compliance activities. And we've done that quite well. And we're always improving it. And always you have to understand that legislation is changing in each state. But I think we've got that really down path now. So the second stage is how can we help our agents now market themselves better to attract more listings and build their database, and that's where we're focusing now.

Question on national expansion. AJ did touch on it a little bit earlier. The Agency does continue to grow its national footprint. What are you seeing the biggest opportunities? Or where are you seeing the biggest opportunities for expansion across Australia?

Well, I think when you look at the sales business, how we broke it down, it's actually all markets. WA, obviously, we're #2 market share on transactions in that state. It doesn't mean we cannot continue to grow or continue to invest in WA. But the margins are really seen from our side, definitely in the New South Wales, Queensland and Victorian markets. And we believe that with the footprint we've now got and established, we've got opportunities still to continue to grow those markets priority should be New South Wales because the fact is that we've got a significant infrastructure there, and we've got a lot of gaps. We obviously -- we actually look at all markets where we target and where our GM should target growth. But because we've got obviously a lot of great momentum in New South Wales at the moment and the margins are significant. The average sale price is higher. So that means if the average sale price is higher, we actually get more dollars from sharing the commission versus, for example, it's $1.9 million average sale price compared to WA, let's say, it's $1 million. So it's been double access to the GCI. So mean double dollars to the bottom line for us. So we need to really drive and key focus on those markets that are going to continue to contribute to revenue growth, which obviously then goes to our bottom line.

Just a final question to wrap things up. For investors who may be newer to the story or who are watching the company closely as it continues to grow, what do you see as the key milestones or indicators of progress that the shareholders should be looking for over the next 12 months?

Well, the main ones are GCI growth, obviously, agent numbers and the progression of the fund.

Yes, that's good.

Thanks, Andrew and Paul, and thanks to everyone who joined us today. If we didn't get to your question, there were a couple left, but if we didn't get to your question, feel free to reach out to the team at The Agency or contact Chapter One Advisors directly, and we'd be happy to assist any shareholder who wants to talk to the company and get a greater understanding or potential shareholder and get a greater understanding of the business and its plans moving forward. Thanks again for your time, and we look forward to updating investors again in the near future. Thanks, Jensen.

Thank you. Thanks, Dave.

Thank you, Dave.

Thanks, everyone, and have a great day.