The Property Franchise Group PLC (TPFG) Earnings Call Transcript & Summary

Belvoir Group PLC and The Property Franchise Group PLC merger briefing. Throughout this recorded meeting, investors will be in listen-only mode. The presentation is being given solely in connection with the proposed all-share merger of Belvoir Group PLC with The Property Franchise Group PLC and for no other purpose. Questions are encouraged and could be submitted at any time via the Q&A tab situated on the right-hand corner of your screen. Just please simply type in your questions at any time and press send. To the extent possible and in line with the restrictions and obligations applying under the Takeover Code and under applicable law, the companies will endeavor to answer many of these questions as possible either during the presentation or after it. I would now like to hand over to CEO of Belvoir Group PLC, Dorian Gonsalves. Good afternoon.

Good afternoon, Mark, and good afternoon to you and to everyone. Firstly, Mark, thank you very much for that kind introduction. Just to go a little bit deeper with the introductions. I've been in the property sector for 25 years, and I've been with Belvoir for 18 years or almost 19 years. In fact, 19 years in April. My shareholding is on the screen as in my share options. I'm also joined today and very pleased to say joined by Gareth Samples, CEO of TPFG, The Property Franchise Group. Gareth has 30 years experience in the property sector and 4 years' experience at TPFG. I think it's fair to say, Gareth, we've had some quite interesting discussions over the last kind of 6 or I guess, 6 months or so since July, and it's nothing to short of the miracle that we've managed to keep a lid on a lid on these discussions, which we did keep a lid on it. And I'm very excited to say that we made the 2.7 announcement last Wednesday. And the whole purpose really of today's session is to just put a little bit of color around 2.7. Talking about the 2.7. So there are 2 statements within the announcement. So neither Gareth or I put a statement inside the 2.7. But our respective Chairman did, so just on the screen, we got a couple of comments from the Chairman of each respective business. What I would sort like to add to that is to say that we -- so Belvoir many years go back in 2017, made a proactive approach to TPFG with a view to looking to bring the businesses together. It's something that I've always believed in. If you've -- I know a lot of you've heard me present over the years. And if you've ever asked me the question, I've always had a great respect for the TPFG business. The similarities are so close that I can't imagine there are any other listed businesses or 2 listed businesses with such close similarities and we'll go into that in slightly more detail through the presentation. But the overall deal has my absolute support and the support of our Board, and I'm really excited to think about what happens next or what might happen next. On the next slide, Gareth going to run through some of the brands just to explain the construction of the business post deal.

Thanks, Dorian, and good afternoon to everybody. And I'd reiterate everything Dorian just said. This has been years in the making. Ultimately, every roadshow I went on we were asked when are you and Belvoir going to come together. So I'm delighted that we finally managed to do it, and that's no small part down to Dorian and Louise and it's a relief, as Dorian said, to finally be able to talk about it. I think when you look at both businesses, they have traded spectacularly well over the last sort of 10 years, but certainly since 2020 when COVID hit and both have really demonstrated their ability to acquire good quality businesses and drive their earnings with you go back to 2019, and both businesses are probably twice the size they were back in 2019. They coming together really, really important, puts us as one of the leading property groups in the U.K., probably sitting just behind countrywide and Connells from a sales perspective and #1 or very close to #1 from a lettings perspective. The Combined Group gives us 15 brands that we will trade across 6 of those being national and 9 of those being regional brands, along with an incredibly impressive financial services division that's headed up by Michelle Brook. So it gives us real scale, really respected brands across the country, they still have a phenomenal opportunity to grow. And that's the exciting bit about post-merger that we believe we can continue to grow all of the business at a really great pace. So that gives you some idea about the scale of the business, the new business going forward and why we believe Dorian I, Louise, David, that this is one a meeting of minds, but two, putting 2 grade companies together with significant opportunity for the future.

Thanks, Gareth just to -- just sort of add to that, too. The -- I appreciate that neither of these businesses is the biggest sort of business name market caps have been relatively modest and that's soon to change. But actually, in the sort of franchising world and also the property world. This will create a property franchise business that U.K. franchising has never seen anything with this scale before. It is unprecedented in the franchise world, and it's also unprecedented in the property world. So the outline of the deal itself. What does it consist of? Well, it's a recommendation for an all-share merger of TPFG and Belvoir to create, as we say, a leading property franchise business. It's been unanimously recommended by each respective Board. The ratio, the TPFG offering is sort of -- so for every 1 Belvoir share holders will be given 0.8. I won't go into the decimal points, but it's roughly 0.8 the TPFG share going forward. Belvoir shares, the sort of valuation of Belvoir share is 277.4p. That was based on the market cap that you can see on the screen. And with an anticipated market cap of around GBP 214 million. We feel at that sort of level, sort of over GBP 200 million that it's fairly likely that shares in the large network will appeal to maybe a wider base of fund managers and institutions, but as that's yet to be seen. It provides TPFG shareholders. So the eventual share allocation will be 51.75% in favor of TPFG and 48.25% on the Belvoir side. The reason for that is the -- we talked about that quite a lot over the sort of months leading up to the deal being announced, and it's just some way to recognize the difference into the market cap between 2 businesses. The one question we sort of -- I think Gareth had the same. A few shareholders have said, look, in some deals, there's a cash-out element of deals. There's no -- in this particular deal, the intention was for a nil premium all-share merger, that was the intention from the outset. And the deal will enable Belvoir shareholders to participate in the future returns of the enlarged business. That was always the intention from the outset. The merger has already been supported by a number of Belvoir shareholders. This was before the announcement by means of irrevocable undertakings or letters of intent. And an aggregate, that represents those letters of intent or irrevocable represent about 30% of Belvoir shareholder base. On the TPFG side, it's higher than that. It's sort of 56.7% of TPFG shareholders have already committed. And clearly, holders will have a vote on this in the days to come. Just to sort of highlight TPFG I'm making a special dividend of 2p per share payable on the 2nd of February. The reason for that is that TPFG will be paying a dividend to both sets of shareholders sort of post deal and therefore, shareholders in TPFG need to be paid what they were expecting before the deal was announced. The 2p are sort of leveling up on the TPFG side. And then post deal all holders will receive the same level of dividends. So the bottom line is that all shareholders will receive what they expected in dividend terms. The TPFG Board is expecting to declare a formal dividend following the publication of the full year '23 results of 7.4p and dividends will be structured in each company, as I say, just to ensure that all holders are paid exactly what they were expecting before the deal was announced. The merger is to be implemented by means of a court-sanctioned scheme of arrangement under 26 of the Companies Act. The timescale that we envisage for completion is kind of the first half of March. Would you say that's fair, Gareth it's sort of it could be the first or second week in March. That's kind of what we're expecting subject to. Over to you to Gareth just to talk about the combined new Board.

Great. I think it's fair to say, both Dorian and I have been supported massively over the last 4, 5 years from our Board, and it was really important that we put together a high-caliber board going forward. And I think we've done just that. Paul Latham, who's my current Chairman, will remain as Chairman of the enlarged group. I'll continue as CEO of the enlarged Property Franchise Group. David Raggett will stay as CFO. Delighted to welcome Michelle Brook. Michelle Brook an incredible financial services business over within the Belvoir business, and we're really looking forward to working with Michelle to come up with some solutions for the TPFG mortgage business. So Michelle joins the Board as an Executive Director. We've then got Jon Di-Stefano, joining currently Chairman of Belvoir Group, delighted that Jon has agreed to stay on. Dean Fielding, who came across as part of the Hunter's acquisition we made back in 2021. I've worked with Dean for in excess of 20 years and he adds real value to the business. Paul George long serving Belvoir non-executive has also agreed to join the Board, which I'm delighted about, and Claire Noyce one of the TPFG, current non-exec directors, again, agreed to join the Board. So we have a really varied skill set there that will help with everything we're going to go through over the next 12 months, which is not insignificant. I'm also delighted that Dorian and Louise both agreed to stay on post completion to help us with that integration, that implementation work. We are 2 big businesses. We need that expertise, that Dorian and Louise will bring to the business to ensure we make the right decisions and get the company structure right going forward. So I'm delighted that both Dorian and Louise are staying with us. And then Richard Martin, who was the TPFG founder, is stepping down as a NED, but he has taken a position with us as Lifetime President moving forward and again Richard has been incredibly supportive to me over the last 4 years, understands the business inside out, was the original founder, and I think it's really important that Richard is part of the combined group. So I hope you see what we see, a really, really strong board that will help us drive this business forward over the next 24 months. In terms of -- and we've touched on this, but this just sort of articulate it a little bit more. We have had a very similar growth path over the last 28 years. We were -- from a franchise perspective, we probably both got going in 1995, Richard down in Yeovil, Mike in Grantham, and the pair of them competed for, I don't know, 15 years, 20 years, Dorian, building 2 exceptional businesses, 2 exceptional property franchise businesses that then later went on to AIM and again, have shown spectacular growth. Focusing on TPFG, founded in 1986 with the first franchise sold in 1995. We've been on AIM since 2013. With one of the U.K.'s largest property franchise groups currently doing 25,000 exchanges a year and looking after 75,000 managed properties, substantial state agency network and property lettings portfolio. So 9 estate agents and letting agency brands throughout the U.K., 600 franchise locations, including EweMove which is our hybrid business. Strong acquisition track record. We did legal in general actually in 2015. We bought their franchising business. We did EweMove in 2016 and then did Hunters and Mortgage Genie in 2021. Full year revenue of GBP 27.2 million in 2022 with adjusted EBITDA of GBP 11.8 million, which was a record result. And currently, in 2023, as we discussed in the 2.7, we're trading in line with TPFG management expectations for full year '23. So that's a little bit of color about TPFG. In terms of Belvoir again founded in 1995 in Grantham, quoted on AIM a year earlier that's in 2012, a leading U.K. property mortgage and franchise group operating through 2 divisions. The property franchising, which is 6 estate agency and letting agency brands operating throughout the U.K. 333 locations across 6 brands in residential lettings, property management and residential sales. And then the financial services business that we touched on Michelle's Shell's Financial Services business, largest appointed representative of the Mortgage Advice Bureau and one of the U.K.'s leading networks for mortgage intermediaries. We've grown organically and through acquisitions since 2017, now comprises of 308 advisers and in 2022 wrote 18 in excess of 18,000 mortgages, which is a phenomenal business. Strong acquisition track record, corporate and franchise level with a really strong assisted acquisition program within the group. Full year 2022 revenue, GBP 33.7 million and adjusted EBITA -- EBITDA of GBP 10.7 million. So again, very, very similar results, very similar businesses. And again, it was contained in the 2.7. Belvoir trading comfortably in line with Belvoir management's expectations for the full year '23. So that gives you, again, a little bit of color about both groups, why they are so complementary, why this deal is the right one to do and why we're so excited about it. Dorian, I think it's back to you.

The sort of -- really the factors that demonstrate how complementary the 2 businesses are and that they really are sort of complementary and similar. And just to highlight the sort of main reasons for the merger, what was the sort of driving factor? And clearly, these businesses are so complementary and so similar. But even if you overlay, I think you touched earlier, Gareth, the sort of similarity in performance. And if you just look at the share price performance over the last 5 years and overlay one with the other. I wouldn't say it's like the businesses were sort of joined -- separated at birth, but it kind of gives that -- just have a look at them and you sort of -- you'll see that if you overlay one over the other. So the main reasons for the merger, clearly, one of the biggest reasons is compelling opportunity to combine 2 highly complementary businesses. The businesses will have or continue to have a franchise focus, that's really important to us because franchising is resilient. Both businesses showed their resilience through the pandemic. Both businesses have shown resilience to throughout market changes in the housing market has sort of got better. The businesses have benefited when the housing market has been more challenging. Franchising has underpinned the success of both networks, and that is going to continue. Gareth and I are both very passionate about franchising. And when you've got the entrepreneurial drive of franchisees at the heart of each of these small businesses, but with the backup of a central support system providing training, acquisition, support, compliance, a long list of services to franchisees that partnership is a very effective partnership between franchisee and franchisor. And I appreciate if you've been following our story, you will understand that anyway. So just to touch on a few of the sort of numbers. Now these numbers aren't because we haven't released full year 2023 yet, I'll base this on full year 2022. So the Combined Group in 2022 generated in excess of GBP 60 million in gross revenue, 41%, of which is from recurring revenue, which is very important to a lot of our holders. And management service fees, which is the, in effect, the royalty that a franchisee pays to a franchisor that generated around GBP 27 million. I think Gareth touched on this earlier, but adjusted EBITDA of over GBP 22 million, and the combined network will benefit from enhanced scale and geographic reach that neither business has ever been able to achieve in its own right, but it will, as a collective entity, operating over 930 locations, managing 152,000 tenanted properties and expected to sell more than 28,000 properties per year. Earnings accretion, we certainly have no intention of going into the kind of the cost synergies within this presentation. That's something that we're not allowed to do. But there are areas that have been identified within the 2.7 that sort of explained that there will be a stronger platform for growth, enhancement of a progressive dividend policy. Clearly, each business won't need joint listing costs in isolation, so there will be some cost savings there. And there will be a comprehensive integration strategy, as Gareth mentioned earlier, to be developed following completion. And Louise and I will play a very active part in that. We're looking forward to playing our part in bringing these businesses together. And we're excited about that. I think you mentioned this earlier, as well Gareth, the acceleration of the Combined Group's financial services offering is an interesting one because I think before Belvoir acquired the Brook Financial Services business back in 2017, we have tried every way, Gareth, to kind of drive to succeed with financial services. And we just hadn't -- we hadn't succeeded. But actually, what we have got now is a very -- it's a successful model. Back in 2017, we started with just 32 mortgage advisers. Now we're sort of well over 300. And we are one of mortgage advice bureau, we are their largest customer in effect. The -- with a much bigger footprint of now 900-plus franchisees, you can see -- I think the opportunities is obvious for future financial services business. That is something that the combined network will focus on going forward. Strengthened management team and the Board, we've already mentioned. So I'm not going to put any more detail around that, which kind of brings us on to just a few questions that we are going to sort of move to Q&A in a second. But we've compiled just 4 or 5 questions that have been frequently asked. And when I say frequently asked, I think it's fair to say I must have got in front of maybe 300 people either face-to-face or within sort of online presentations since Wednesday at 7:00. So some of the common questions are, for example, I mean, why are the 2 businesses merging? I think we sort of covered that, I think, as the presentation has unfolded. The main reasons that the businesses are coming together is the -- really to benefit from the scale of the combined businesses. It's going to be such a large business. We can leverage skills, expertise, acquisition expertise, financial services. We can leverage the expertise that TPFG have built up in their very successful personal agency model and EweMove from my point of view, it's a real sort of hand in glove fit. So we won't -- there's probably not much need to go any deeper into that question. I suspect think we've covered that in the presentation.

So perhaps, Gareth, I can sort of ask you why are we looking to an all-paper deal? That's one question that we've had from a few investors.

Well, can I just cover off how shareholders of Belvoir and TPFG can support the merger. So just in terms of the, if you like, the next steps, TPFG Board and the Belvoir are intending to unanimously recommend the merger, both group shareholders, Belvoir shareholders to look out for the scheme document and associated forms of proxy, times too, to be sent to them in due course. TPFG shareholders to look out for TPFG General Meeting circular and associated form of proxy to be sent to them in due course. Shareholders to complete the forms of proxy and return them as instructed. And then alternatively, we've provided shareholders to register their e-proxy votes online in accordance with instructions to be sent to them. So they're sort of housekeeping. How do we get from where we are today through to sort of completion in that first or second week of March and the things we need you guys to do. So that's just to run through the boring paperwork side of stuff and what have you. So that gets us to the end of the presentation. And as Dorian has touched on, we're now going to go into sort of those 5 key questions that we've captured over the last week during the presentations, which we think will be really useful and probably the questions that are on the tips of your tongue. So Dorian over to you.

Okay. So first of all, I'll ask you this question. I think it's fair to say, we've covered a lot of this in the presentation. But just in summary, why, as you said, are the 2 businesses merging?

I think you touched on it earlier. I've touched on it throughout the last week. I think scale becomes incredibly important. Two really strong businesses, but with loads more opportunity. But that scale from an investor perspective will become more attractive. We believe we, as a combined business will be more attractive to investors than separate entities. Scale created by the deal will be significant with the resilient growth being one of the leading players in the U.K. property sector with combined full year 2022 pro forma revenues of GBP 60 million. MSF of and that's management service fees, royalties of GBP 27 million and EBITDA of GBP 22.5 million. The creation of a significant more brand network of a estate agency and letting agencies and related financial services businesses across England, Scotland, Wales, should enable the Combined Group to provide a wider array of services to more customers across all of the various brands and platforms we have, and should provide a significant platform from which to bring a more independent operators into our franchise network. We believe this is not 2 businesses that have got to the end of their growth journey, and they're now merging. We believe putting them together gives us significant more opportunity. If you look at the digital side of things that we've invested heavily in over the last 18 months, the number of contacts we have, the number of customers we have that we can digitally market to going forward, we believe is really, really exciting. So scale really important. We've both demonstrated incredible resilience from or forever, but certainly from COVID onwards. We've grown significantly since 2019. But this is the next step. This is the next step to drive a business that we believe, I think, is undervalued individually, putting them together to realize that true value of what a great business this will be moving forward. And I'm really excited to be leading that into the future. Dorian?

That was really helpful. And I mean why initially was the intention and still is the intention to do an all-paper deal, what was the sort of thinking behind that, Gareth?

So -- and I'll touch on it a little bit more a little bit later, but the all-paper combination enables both set of shareholders to remain invested in what we believe is a really exciting Combined Group and benefit from all of the potential upside advantages of the deal. And again, when Dorian and I first met months ago, we, on that day agreed to certain things if it was going to proceed. Actually, we stuck pretty close to that, Dorian, and we delivered it. And one of those things was the all share piece. And yes, I'm delighted that, that first initial conversation has taken us to where we are today. But we stuck pretty close to that, which was great made the deal a lot easier.

And what about the deal synergies? I know we're sort of recapping a little bit because we have covered some of this in the presentation. But I think this is a question that I sort of had and you've had in respect to sort of holder meetings. So what do you think are the main synergies, the deal synergies kind of going forward?

As we said in the 2.7, and we are sort of restricted buyback. We've obviously got the one listing, not 2. We've got some group functions that we will look at with 2 businesses. We're coming together, you would expect synergies, but we really haven't majored on that to get to this point. And I think what's really important with any acquisition, any merger. We saw this with the Hunters Group when we bought that in 2021, which prior to this was our biggest ever acquisition. Those synergies come over time. So what you don't want to be doing is forcing those synergies in the early stages. You need to understand both businesses. The bit -- it excites me the most is Dorian and Louise have an intimate knowledge of Belvoir. We understand TPFG. We're all going to be there for 12 months and making the right decisions, I think, is the key thing. So the 4 of us will make the right decisions for the enlarged business moving forward. And as everybody would expect, there will be some synergies, and we will drive that. But the synergies aren't a reason for doing the deal. The upside in terms of income growth and opportunity is just as exciting as anything that we may be able to pull out of costs.

And we've just got a couple of questions left. And perhaps this next question, we can maybe just do a little bit sort of between us. So the question is, why is the TPFG executive team going to run the Combined Group? And I think from my point of view before I hand across to you, Gareth, I'd say that I think to me, and Louise feels exactly the same. I think that we went into these discussions in the first place with a view to being happy to either lead a deal or not as the case may be. And I say we're not simply because I think the deal itself, I think, is more important than the sort of wishes of the directors, ultimately, their personal sort of requirements. And we've made it very clear by the approach in 2017 and everything I've said since 2017. I made it very clear that the deal is a deal that should be done because it will benefit the holders in both businesses. It will benefit the holders as well as the stakeholders in the business. It also gives staff more opportunities, it gives franchisees more opportunities, more acquisitions, et cetera, et cetera. So if I believe that I think stakeholders and shareholders will benefit. I certainly couldn't stand in the way of the deal happening. So Louise and I went into the discussions. I'm happy to stand aside if we needed to or happy to lead it. If we needed to, either or. And as it's transpired, you can't have 2 CEOs and 2 CFOs, which is just too expensive and it certainly wouldn't make good leadership. So Louise and I 100% supportive of Gareth and David going forward. So over to you.

I'd reiterate all of that. I think at the time we met the first meeting, we were pretty relaxed, weren't we? Ultimately, we were both willing to run it, and we were both willing to step aside if that was the right decision. And through discussions and progressing, we came to the decision that TPFG would lead it. And as I say, Dorian and Louise have been incredibly supportive in terms of making this deal happen. And I'm eternally grateful for that. And as I say really excited to be leading the group into the future, but we'll continue to use Dorian and Louise as a sort of fount of knowledge to make sure we execute that first year effectively. And I think that's really important.

Excellent. And just one final sort of question as far as the FAQs are concerned. So why our TPFG shareholders getting a larger percentage of the Combined Group. In terms of the larger percentage, it is fairly minimal. It's sort of 51 points just to remind viewers it was 51.75% versus 48.25% if I've got my numbers correct.

Yes.

But what -- how did it end up at that sort of position, Gareth?

So there has to be a dominant part slightly dominant party. Our market cap was and has been for the last sort of 9 months ahead slightly, and this was the number that reflected that slight advantage in terms of TPFG's market cap. So as simple as that. I mean, say, and as Dorian has touched on, over the last 5 years, that's been variable. That's been different where Belvoir may have been ahead in some months, and we were ahead in some months. So it's -- you have to pick a moment in time. We picked a moment in time. That was the share split. And we're both really happy with that.

That's great. Gareth, Dorian. Thank you once again for updating investors today. Can please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the management teams can better understand your views and expectations. This may take a few moments to complete, but I'm sure it'll be greatly valued by the respective companies. On behalf of the management teams of both Belvoir Group PLC and The Property Franchise Group PLC. I'd like to thank you for attending today's presentation, and good afternoon to you.