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

Good afternoon, and welcome to the Property Franchise Group PLC Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. I would now like to hand you over to CEO, Gareth Samples. Good afternoon to you.

Good afternoon Alex. And thanks for that. Good afternoon, everybody. I'm delighted to be able to present to you today our full year results for 2023, and give a little bit more color about our recent merger with the Belvoir Group PLC, which I'm sure everybody is interested in. Just for some sort of context, the Property Franchise Group PLC is the U.K.'s largest multi-brand property franchisor. And we're going to touch on some of the sort of key components of the group during this presentation. In terms of the size of the business, this is the numbers down the left-hand side that David will cover off a little bit later. But TPFG, as I've said, it's the U.K.'s largest property franchisor. We are -- most of our income comes from lettings, about 2/3 of our MSF comes through lettings. We also do an estate agency, financial services, and conveyancing. The business was established in 1986, and it's grown both organically and through acquisition. It's now a national business throughout the U.K. We operate now through 15 unique property brands with over 910 franchise outlets. In terms of our income streams are resilient and recurring. I think the numbers for 2023, will demonstrate that with, as I say, lettings at the core of our business. But we also believe there's some really strong organic growth drivers that we're really focused on. We've got the market drivers in terms of rental increases, rental inflation. We've got franchisee recruitment, new people coming into the business. We've got our assisted acquisitions program for franchisees. And we've got big acquisitions at a franchisor level that obviously we've demonstrated in the first quarter this year. The business is highly cash generative and debt-free. And we're really focused on a sustainable growth in our dividend policy, and that's grown by 23.3% each year over the last 11 years. In terms of 2023, this is the Property Franchise Group before the Belvoir merger. Full year '23 was another year of record performance. In what was a challenging market, 2023 sales market was probably the most challenging I've experienced in my tenure at the group, excluding COVID lockdown. So 2023, only 1 million transactions took place in the year, set against 2021, and there was 1.5 million sales transactions. So a tough year, I think, to deliver the results, we have been absolutely incredible. I think the business model has proven its strength and resilience. A lot of people ask us about the cyclical nature of the property market. And with this being a franchise, it's a much more stable income stream. I think we've demonstrated that in 2023. The franchise model with huge focus on lettings and diversification of income is improving network resilience, which I think are really important points. And then, of course, there's the transformational merger that took place on March 7 with Belvoir, which creates the U.K.'s largest multi-brand lettings, an estate agency business with what is now a very large financial services business, ran by Michelle Brook. And the combined group will benefit from increased scale and geographical reach. I think in the early days of ownership in the last 4 weeks, we've been incredibly positive about the opportunities that exist with that Belvoir Group and the discussions and the meetings we've already had, which will be great for the future. In terms of just giving some context about the new group, we now, as I said earlier, operate our 15 property brands, there's national brands, Martin & Co, Hunters, EweMove, Belvoir Northwood, Nicholas Humphreys, 6 national -- sorry, and Mr and Mrs Clarke, 7 national brands. And then we've got 8 regional brands, Whitegates, Parkers, CJ Hole, Ellis & Co, Country Properties, Mullucks, Lovelle and Newton Fallowell. Actually, they're all dotted around the country. So that gives us strength within most parts, most regions across the U.K. We're also represent in Scotland and Wales and for the first time, Northern Ireland. In terms of financials, I'm now going to hand it over to my CFO, David Raggett. He is going to talk you through some of the numbers. David?

Good afternoon, everybody. This next slide is going to see is a bit busy, busy for all of us, but I need to set a scene on how we -- we came into 2023. And in fact, I'm going to step back a bit further and just talk about 2021, because 2021 was fantastic sales year, and we started to see lettings growth mainly driven by rental inflation. Come 2022 lets sales market was starting to dip away and rental inflation was taking hold in the marketplace. And 2023. We've got about as far as we think we're going to go in terms of reductions in sales completions. So the U.K. market now 2023, about just over 1 million transactions completed, sales transactions. And we are seeing 8% to 10% increase in rents on new lets and an intent rental inflation running at about 5%. And what do we -- so we came into 2023, expecting the drop in the sales market, expecting 5% in tenancy increases in rents and 8% to 10% on new lets. And we ended up with a result of GBP 27.3 million of turnover, and I guess, GBP 27.2 million for the same time prior year, same year. The difference is small, but the quality is quite different in terms of where the revenue came from with an increase in letting revenues, both across the network and in our own offices. And a natural reduction in sales MSF and sales income across the offices. The net result of the good lettings market and a poorer sales market was that the growth in lettings MSF offset the reduction of sales MSF, we -- of course the result of GBP 16.1 million for MSF overall, so up GBP 200,000. But within that, the quality is different. The 60% of all of MSF came from lettings in 2023, up from 55% the prior year. And that's important to us because that's our recurring income within that number and our recurring income from lettings alone across the group was 53% or turnover. One of the things that we've held on to right throughout my 11 years in the business, its operating margin. So as we held on to -- we always had a view what I have, that should be over 40%. And we always work on that to make sure that we are between 40% and 45%. We have the 1 year in 2020 because of COVID, a bit unique. But otherwise, we're within those bands, up a little bit in 2023 to 42%. And in profit before tax moved on again a little bit from GBP 8.8 million to GBP 9 million, just GBP 200,000, during that time, of course, the corporation tax rates changed. So we've gone from a 19% environment to a 25% environment, which naturally will come off of those numbers when you get to earnings per share. So earnings per share was 28.4p fully diluted in 2023, the same as 2022. And it still in the main because the tax rate has gone up at this moment in time. But it's something we do need to drive forward and to drive that forward, we need to drive that revenue while holding up costs as constant as we can. That's the P&L. And then balance sheet-wise, in 2023, we had GBP 5.1 million of net cash in TPFG of old. Just a comparative Belvoir had GBP 1.7 million. And so between us, we had GBP 6.8 million when we came into this year. And at the moment, at the end of March, we had GBP 4.7 million net cash between us, a little bit more of the acquisition cost to go through about GBP 1 million. So really, that's a GBP 3.7 million number. But that's probably about as low as we're going to go at the end of the day. Now it's all about generating cash again and building that backup and what we do with it. Free cash flow per share, 27p this year, 27p last year, 27p in 2021. That -- 2 factors there. One, clearly, profit growth, but two, tax rates changing. And unless we need to contribute more to cut their treasury in order to progress the plans of either party coming into this year, then we should start to move that forward. And we do, we need to move that to 35p, 36p, 37p as a reason for that because the next slide, dividend. Dividend per share in 2023 was 14p. Gareth and I've been talking about this, we'd like to see that at 25p. So if we were to move that on, we need to move our free cash flow on it, to move free cash flow on, we need to move revenue on to generate greater profits. And then 2 metrics that we just keep a good eye on, return on capital employed. We are in the site at the moment. We're building up from a low of the acquisition of Hunters or 20% return on capital employed, and that will hit towards 25%, unless we have a further acquisition, which we'll see. And then it will go through a similar climb again from a low building back up to 25% and the return on capital invested, which if we continue on that trend will end up about 30% for 2024. So good returns of capital employed and return on capital invested. And if you can look at our growth rate, whether it's revenue, profits, dividends. If you look at any of those if you look at them over the last 3 11 years since we've been on the market, you'll find cumulative annualized growth rate or compound average growth rate, sorry, running around about 20% to 23%, right the way across the period. Next slide, please, Gareth. For those of you who don't know us, we do have a mix of revenue like most businesses. And roughly 60% of our revenue is coming from our management service fees, royalties we charge on franchisees, 18%, 19% for owned offices. We own 9 offices in the Hunters brand in the Midlands and also the country. And so naturally, we try to drive those forward. And that's where that income comes from. Financial Services running about the same year-on-year, but it's around 6% of total revenue. There was a time when we said that it was 5% of total revenue, would be happy. But now in the new environment, 6% [indiscernible]. Our franchise sales, a small part of our business every year. We do have franchisees who retire, which use to do something else and sell that franchise. And we take some filing for doing so. We also charge new entrants, mainly to EweMove, a fee for joining, and that's where the franchise sales income comes from. And then other is a combination of 2 things: It's assisting franchisees in the management of their portfolios of tenanted properties, which we do essentially in a number of locations. And it's from the licenses that we hold for the operating system. So we're the main licensee and then we sub-license down to the franchisees, That's our sources of income. Group MSF split. I've touched on this. We're up from 55% of all MSF coming from lettings to 60% now. And as a consequence of that in the sales market being where is that slipped away? When we bring Belvoir into this chart because it's predominantly a lettings business when it comes to the franchise network, this full metric will change again. And we will sit somewhere between 70% to 75% all our MSF coming from lettings. Cash in the year. So it started off GBP 6.7 million. We generated from operations GBP 9 million. We paid back half of our RCF to Barclays, GBP 2.5 million outlook that's out, paid dividends of GBP 4.3 million. We had a few other movements in financing, investing and we ended up with the cash end of the year to GBP 7.6 million. And if you take the GBP 2.5 million of which still own Barclays and pay them back in January 2024. We ourselves had net cash of GBP 5.1 million. We've grown our cash generation from operations. As you can see, there was a step change. And now we're looking for that next step change up. I mean that's what will take us from that GBP 9 million, we know the combined number with Belvoir would be GBP 18 million. So what takes us to GBP 20 million, will that get further? That's the challenge for us. And consequently, as we move that on, we'll see our free cash flow per share [indiscernible].

Okay. Thanks, David. So we can talk about a period of significant growth. I think if you look at 2023 and again, this is just TPFG's results, I think it's to do with Belvoir, you can see each month last year on lettings that they outperformed the year before. And the really good news is 2024 has started exactly the same. So every month so far in 2024 has been ahead of its -- the same month last year. Sales MSF, you can see the flip of that story, the 2021, obviously, stamp duty whole life it peaks, 1.5 million transactions. 2022, a little bit flat to a 1.25 million transactions. And then 2023, 1 million transactions, well below '23-- sorry, '22 and '21. Good news, and I'll touch on this later, is the first 3 months of 2024 are ahead of last year. So it's looking like the transaction market will be around GBP 1.1 million, which is back to a sort of normalized market from 2012 to 2019. So 1.1 million transactions will be about a 10% lift year-on-year. So marketing update, really, really strong market for lettings in 2023. Demand for every property coming to the market, 10, 12, 15 people looking to view every letting property that came to the market, outstripping supply for the 10 year on the trough and rising rental rate is increasing cost for landlords. Landlords were actually quite sympathetic during COVID and during the low-interest rate environment. And actually, rents lag behind a little bit, because landlords didn't need any more money. I think what's happened since the interest rates started to rise, landlords' costs started to increase as they now need that income. So over the last 18 months, 2 years, we've seen landlords getting much keen to address their rents and increase their rents for tenants. And I think there's just an element of catch-up. And we think that will go this year and probably into next year. As we said at the beginning, we look after 78,000 properties, as old TPFG, 152,000 in the combined group. And it takes a long time to wash rental increases on every property through that portfolio. So there's still work to do on that, at a local level and that will be -- that will come through in terms of a more positive result on rental inflation for 2024 results. Touched on this subdued sales market in 2023, a really challenging market. It did improve in the second half year as the interest rate started to not go up so much. But the good news from a TPFG perspective is although the market was down 19%, we were only down 16% and therefore, slightly outperformed the market. And there's reasons for that, I'll go into later when we start talking about the growth initiatives that we've got. And then 2024 so far, improving sales market, letting is continuing to grow at high single digits, and we're expecting 1.1 million completions in 2024. So it gives you some color in terms of the market and the fast start to the year. Back in September 2020, 6 months after joining the group and coming out of lockdown, we set in place the growth initiatives of strategy that has seen us through over the last couple of years. And I want to give you an update on that. And it's very likely that we will implement this into the Belvoir Group as well. We've just gone into our new 5-year growth strategy with the objective within TPFG increasing profits organically by GBP 1 million a year. And our intention is to do exactly the same in the Belvoir Group. So GBP 1 million in TPFG, GBP 1 million in Belvoir, so GBP 2 million in large group. And a big question is how are we going to do that? So we see the opportunity still within lettings. We think inflation will continue to impact on the result over the next 2 or 3 years. We had double-digit growth last year and 53% of our total revenue came from lettings. And we ended the year with 78,000 managed properties. Sales, we've touched on, we outperformed the market in 2023. There's still an incredible opportunity about -- across both groups to sell more houses. So within TPFG, we do about 22,000 exchanges of the year, within Belvoir, [indiscernible]. But we still have a number of offices that don't do any house sales. So our operations team and our managing directors are working very hard to improve those results, and we see that very much as an opportunity for the future. Financial Services, Belvoir had a really, really strong financial services business headed by Michelle Group. TPFG had a small mortgage business, and we acquired Mortgage Genie in 2021. So the combination of bringing those 2 businesses together, I think, still creates a huge opportunity. If I look at the penetration to those 30,000 house sales units the group does, we still only do a franchise level about 3,000 mortgages. If I look at that into a corporate environment, they'd expect to do about 15,000 mortgages from those house sales. So still a lot of work to do. Delighted to have Michelle's expertise within the group and we will start to execute on those plans to drive a better result our financial services within the franchise businesses over the next 18 months. Recruitment, really, really important part of the group's long-term strategy. We recruited 46 new franchise owners in 2023. 15 is traditional agents and 31 in our hybrid estate agency business EweMove. We extended the EweMove footprint territories to 182, which was a small increase from the previous year, but last year was a very tough year. Pleased to say that 2024 started really briskly. I think we've got 15 new territories sold already this year. And we did 21 resales, which is becoming a really important component of both businesses. We have an aging population of franchisees, and it's really important that we bring new blood into the group when people want to exit and retire and spend less time in the business. So going forward, both across the Belvoir network and the TPFG network, it's really important we bring this new blood in who hopefully, have that most patience to take those businesses further forward. Acquisitions, and I always talk about acquisitions in sort of 2 stages. There's the franchisee acquisitions. Across both businesses where our franchisees buy local lettings books off of their competition, and we support that, from an implementation perspective and a financial perspective. And last year, TPFG did just short of 2,000 units, 1879 and Belvoir just over 2,000 units. So across the group, about 4,000 new portfolio units brought into the group. And our intention is to continue that and hope to try and move it forward. And then there's the acquisition piece of a franchisor level of which, obviously, we've done the Belvoir merger, Michelle Group bought 2 financial services businesses last year that added about GBP 600,000 Belvoir's profit before tax. And we're committed to continue to support Michelle in growing that business. Along with looking at any of the acquisitions that are profitable and are accretive to shareholders. So if we can pull off another acquisition in 2024 that was accretive and profitable, we would look to do that. And then the big piece is the digital marketing strategy. We now as an enlarged group look after 9 million data records, which is huge, okay? We've invested significantly in technology to become best-in-class digital marketers across the estate agency and financial services space. And quite a lot of investment went into TPFG last year in terms of getting that digital platform built. There's still some work to do at Belvoir but again, they're quite a way down that road as well. And our intention is to understand the customers that we have, communicate them at relevant times, offering relevant services and become almost a lead generation system for our franchisees. So we want to be able to pass valuation leads, lettings leads, insurance leads, financial services leads back to our franchisees to drive their income and their profitability, by utilizing the data that we now hold in a centralized way. So that talks about the 6 growth strategies that we're really focused on, that we're investing in across the group that, will drive that GBP 1 million worth of growth out of each side of the business over the next 5 years. In terms of taking that step further, the growth drivers, so how we're going to do this in the next 5 years. We want to increase our market penetration and keep lettings our core. So we've talked about lettings acquisitions, lettings inflation, but there's also more regulation coming into the letting side of the business. And we very much see that as an opportunity with the Rents Reform Bill as opposed to the sort of carrier. And what we're doing across the group is running landlords seminars to inform private landlords about the changes and the impact of the Rent Reform Bill. And having 10, 12 of those over the last 4 or 5 months, what's become really clear is the landlords that self-manage are a little bit in the dark and they're very, very grateful for the sessions that we've run. And all of the sessions that we've run has resulted in landlords who would normally manage their own properties deciding to use an agent. So we see that very much as an opportunity. Now we can't just run seminars. We've got to do webinars, we've got to do digital marketing. So there's a strategy to become, if you like, the expert in the lettings market to inform private landlords about the changes, the Rent Reform Bill will drive out. So that's an important opportunity. Sales, I touched on this already. We are underperforming in the sales market as a business in the main. Got some very good sales offices, but we are informing from a market share perspective across the whole network. And we've got a management team that will work with our franchisees to drive that side of the business. So that's going on at the moment. And some of the results you can see through the results, I talked about earlier. We've seen market share gains in 2023. Financial Services, it's about building the Michelle's business, supporting the inner acquisitions, but more importantly, increasing the productivity of each of the 3 financial advisers that we've got employed. Last year it was really, really tough. Most of the mortgage activity came from product transfers and remortgages as opposed to new transactions. And of course, product transfers and remortgages earn U.S. money. So you've got to run harder to deliver the results that the Financial Services business dip last year, which actually were astounding given the sort of landscape that Michelle is navigating through last year. But our intention is looking at increasing our transactional business that will increase the productivity of each of those 300 main financial advisers. So that's where the growth is going to come from the financial services business. In terms of recruitment, big piece on attracting new franchisees to increase our U.K. coverage develop the brands further and enable the resell of existing franchise territories. I touched on earlier, the aging population of both networks means bringing this fresh blood, we perceive as a real opportunity. They embrace the new income streams. And they'll do it, if you like, in a modern way. It's a really important part of our strategy going forward, the recruitment of new franchisees. Acquisitions, we're really acquisitive. We do another deal this year if the right business came up. And I guess the metric for us is, as I've discussed, profitability and earnings accretive to shareholders with no dilution. And then digital marketing, 9 million customers. We've invested in the technology. We've got the websites. We've got the lead generation tools. We've got the referral system in place so we can spot the opportunities and serve them up to our franchisees to close. And the amazing thesis before AI plays its part. And I'm seeing demos of technology at the moment that is nothing like I've seen before. AI will play a massive part in this dealing with the 9 million customers, understanding where the opportunities exist and maximizing the revenue is driven from, that digital marketing strategy. So we're really excited about the future, and they are the growth drivers that we're going to focus on in 2024. In terms of Belvoir Group, talking specifically about Belvoir, merger creates the U.K.'s largest multi-brand property franchisor, which is great news for us. It's a great business. We said at the time that it has certainly the disability that the 2 businesses at some point would come together. And 2023, the Star Alliance to enable that to happen. But both TPFG and Belvoir sort of attracted to each other since being founded really in 1995. They listed at a similar time that both did acquisitions, since they listed those acquisitions have been integrated really, really well. [indiscernible] did an incredible job for a long period of time. David's been here 11 years, again, did an incredible job with Wilson, my predecessor and we've grown again since I came onboard. So 2 really well-run businesses, 2 profitable businesses, 2 resilient businesses. And our belief is that 2 and 2 can equal 5 or 6. The opportunity this large group has to really drive forward now is really exciting, and we're looking forward to the next 12 months working with [ Dorian and Louis ] and then beyond identifying those opportunities and starting to really drive value to our shareholders to make sure that everybody gets the return rate there. In terms of -- would it give us enhanced scale and geographical reach, we've already identified some really interesting opportunities that we'll be working on in the second half of the year. We'll operate out 910 locations. We'll look after 153,000 properties on behalf of landlords, which is the biggest in the country. And we expect to sell more than 28,000 properties. I think they'll go over 30,000 this year, actually. And I think what it enables us to do is that in large group, can enhance its value proposition to franchisees and consumers. We've got great reach. We've got great technology. We've got a huge database and the customer for life journey that we can do through our data marketing and the leads that we can pass back to our franchisees is going to be significant. Earnings accretion and annual synergies. I think the earnings accretion piece is certainly the bit that we're most interested in. The annual synergies will come but both businesses are actually well run. So it's not like loads of fact that we're going to cut out. I think investing in that opportunity is where we see our focus over the next 6 months. We want to accelerate the financial services structure. Michelle states really good business. We do 20,000 mortgages or we did 20,000 mortgages in 2023, from the 308 advisers. And if we can continue on our acquisition track and increase the productivity of each of those advisers then that puts that business in really good shape from a profitability perspective. And then great news, we've got a strengthened management team. Michelle has joined the Board as Executive Director with responsibility for all things financial services. Belvoir's ex-Chairman, [indiscernible], has joined us as a non-exec. And Paul George has joined us and will head up the Audit Committee, replacing Phil Crooks who comes to the end of his time. So really, the Board met with them a couple of times, really, really supportive and really excited about the future. I'm now going to hand you back to David. He is going to talk you through some of the Belvoir financial numbers for 2023.

Yes, they overriding -- not the impression, the overriding memory, I want to take away from this is that the start of the year, Belvoir 2023, Belvoir faced the struggle of financial services and what impact that would have on revenue and profitability. And come the end of the year, they managed to come out with a result, which reflected where they thought they would be at the start of the year, which is quite something. And it all really hinged on financial services. There were 2 acquisitions, small ones during the year, which added some revenue and profitability. And then it worked its backward quite hard. So [indiscernible] because that made up the difference. And we need to understand more about that backlog, but we will do in time. So where it was turn, just turn over like ourselves just up slightly, GBP 34.2 million in 2023. PBT headline PBT, same as the prior year. Adjusted PBT at GBP 0.5 million. That's important because that's telling you what's happening in the underlying business and the potential that stays on adjusted EBITDA and adjusted PBT. So you're seeing good growth there, and that will come through that should be sustained in future years. Basic adjusted EPS up slightly to GBP 22.6 million. I mentioned the net cash, little up from GBP 1.7 million. And then other side of the coin, how do they compare to us, well, TPFG was 331 offices at the end of 2023, where the TPFG will be 580. Average MSF per franchise office is almost GBP 36,000 is higher than the old TPFG. The reason for that is we've got a reasonably young brand and new, which is growing quite well and then by the very nature of it, that dilutes our own averages. A number of managed properties, very similar. They ended up at 75,000 just over an old TPFG at 78,000. Where they've always done well while compared to TPFG is on MSF from assisted acquisitions, and the GBP 400,000 would be considerably different to being achieved in TPFG at this moment in time. So we've got some need to learn that and something to build on. A number of buyers, well, old TPFG had 8 -- 308 there. So it's a completely different scale of operation and clearly, we need as much as we understand financial services at the moment in time, Michelle will drive that forward and bring our knowledge up to speed. And a number of mortgages have ranged well just under 20,000. And to put that in scale, and you added in TPFG as well as achieved in 2023. We'd be up just over about 21,000. So you can see how much bigger that operation is than the operation we had. Next slide, please. Revenue-wise, if you -- well, let's think about this. If you think about it on a network scale, the whole network generated on a pro forma basis GBP 261 million worth of revenue in 2023. It's not that long ago that TPFG was showing network revenue of GBP 90 million. And from that, I mean that's the main driver at the end of the day, the revenue that you see on a pro forma basis here alongside the financial services business. We see GBP 60 million -- just over GBP 61 million worth of combined revenue in 2023, gross profit at a same GBP 42 million. Adjusted EBITDA over GBP 23 million. If you were to take 25% of that roughly is the tax rate, you'll come down to very close to what the free cash flow was. That was GBP 18 million and then be hold PBT in 2023 for the combined group was GBP 18 million. Just to the left-hand side, that's the important result for me. Belvoir came in, as you can see, almost bang on the same numbers as the prior year and it hit all its expectations in 2023. And against the background that it had to work with, that was -- we thought we were challenged, but clearly, they were more challenged, and that really does underline how would that result was and just how resilient that business is.

Thanks, David. So looking toward 2024 and the outlook. Quarter 1 is ahead of management expectations across both businesses in terms of both revenue and profitability. So look back last year when the sort of the impact of the lease trust budget, the interest rate rises, starting to kick in and that worried us all about 2023. 2024 is a much more positive environment ahead on revenue, head on profitability, really, really pleased how the year started. In terms of lettings, every month up on the same period last year, so still ticking along really, really nicely, improving sales market. We're focused on that. But an improving sales market will mean an improving financial services market. So each of the 3 major income streams, lettings, sales, financial services, are all head in 2023 so far, and that's driven our profitability as well. But it's a general election. And we don't know when that's going to be called, but we believe it will be called in 2024. And it normally goes a bit quiet for 4 or 5 weeks leading up to the election. So that's the only sort of a bit on the horizon that gives us some concern. All I would say is if it is going to be November and it's looking more and more likely that it's going to be November and it's called in October then actually our sales market and our financial services pipeline has already been established for 2024. So it won't actually affect 2024 result. It might have some impact in 2025's early results. And with the merger of the size of Belvoir, we have a transformational year ahead of us. We're really excited about the opportunity. We're really pleased to have brought those 2 businesses together. And the commitment is we will work as hard as we need to in 2024, to get the business in real shape to move into 2025, as a combined group. That's the outlook. Now over to you, thanks for listening. We will now have questions.

[Operator Instructions] I would like to remind you that a recording of this presentation along with the copy of the slides and the published Q&A can be accessed for our Investors dashboard. Gareth, David, we have received a number of questions throughout today's presentation. And if I may start the Q&A session with the first question, which reads as follows: Do you plan to franchise the company-owned branches at some point?

Yes, in the main. I think we'll always have a few if the truth be known, but I think David and I have the same opinion if we could reduce the number of owned offices down, and we've got just a context, I think, 12 -- 13 at the moment. I think we'll always have 5, but if we could franchise at the rate we would do.

Perfect. Thank you, Gareth. Turning on to the next question. What are your return hurdles for acquisitions?

I think it depends whether you're talking about our acquisitions. You're talking about those franchisees undertake. So our acquisitions, well, they're quite unique and the ones that we've done so far. So there's no set criteria apart from the fact that the first year likely to be earnings accretive at least into early double digits. That would be -- that's important. In conditions, a little bit to try to get to a point where there's a cash terms is a 5-year payback, but clearly, that's to be appropriate to the business that we're buying at the end of the day. It needs -- well, in [indiscernible], we recall we expected less recurring revenue, but now we like businesses were recurring revenue even more. So they are the ones that we would be more focused on right now in our journey. And certainly, we can see over 50% recurring revenue, that will be what we'll be looking for. When it comes to franchisees, There's some set metrics in the market, what is paid for a portfolio, and that runs anything from spending on quality from 1.4x the annual revenue to 2.2 or 2.3x, depending where it is. So the market kind of dictates the price. But what we do look for when we are rising our franchisees is payback and again, 5 to 7 years in cash terms, that's where we would sit at the end of the day. Certainly, if we thought -- I mean, they -- most acquisitions add a lot of profitability to a franchise business just by the very nature obviously going to have to increase the back office too much. But we still go through that process and advise our franchisees on the quality of the return. Just as we talked about return on capital employed we invested, we go through that same process with them. Just to make them aware of it before they make the decisions perceived or not.

The next question is on the Belvoir merger, which I will break into 4 different questions. First part of the question, any unforeseen setback Belvoir integration? What is going well? And where are the challenges?

So no one seen setbacks apart from not being able to go on that often, but it's a huge, huge business and getting to understand the business has obviously taken all of the last sort of 3, 4 weeks along with game ready for these presentations. So Dorian and Louis are very much involved still in the day stay learning of the group. The integration is more project-based at the moment in terms of identifying what the integration and what those opportunities look like. I think what's going well is the teams are working really, really well together. We're learning an awful lot of good stuff about Belvoir business and what they do well and what we do well and bringing that to get us really, really exciting. And the challenge, I guess, is the scale and the amount of opportunity. We've identified probably 3 or 4 big projects that we need to undertake over the next couple of months that financially could be really productive for the group overall. And we've got to make sure we've got the correct resource to be able to understand that opportunity and turn opportunity into cash for the group. In terms of synergies, again, we're looking at them. And of course, there will be synergies but I'll take everybody back to what I said in the presentation, they are well-run groups. There wasn't a lot of fat, and Belvoir wasn't a lot of fat in TPFG, bringing departments together may create synergies. But what we've also got then is the opportunity and how do we resource those opportunities. And I think 3, 4 weeks in, it's too early to say. Marketing -- group marketing services, digital marketing that I talked about, AI, will that mean that we do more marketing and need more people with AI mean that we need best people. There are lots of questions that haven't gotten necessarily definitive answers yet. So I think we'll keep working away. We've got September results update that I think we'll have a lot more clarity on both the projects, the opportunity, the types of money those opportunities could drive out and the synergies that have been realized already for 2025. So work in progress. So that's the first 2 parts of the question. I think the third part of the question is probably for David.

Sorry, can we just repeat the question in the third part?

Yes, of course. So the third part of the question is, do you expect to change your capital allocation strategy following the Belvoir merger? I can imagine that it's hard to do further acquisitions in the next 12 to 18 months as we integrate Belvoir. So could you shift more cash flows towards dividends and share buybacks, given that you're also net cash?

Can I answer the first part, David? So we will definitely do more acquisitions in the next 12 to 18 months. We are keen to do another accretive profitable acquisition in 2024. So we will do that, but then David will answer the rest of the question.

Once we get through that, once that's might speculate at the moment -- let's say we achieve that. Well, whether we do or we don't. The fact of the matter is that we are going to generate more free cash flow in future years than we have in the past. And therefore, we've got to think about what to do with it. It's always -- we can continue a track record of investing in businesses, the earnings accretive and concerning our 20-plus cumulative growth rates in profit and dividend, of course, we will. But if we can't, then we have 2 choices. We either -- in my -- send that money back to you as shareholders by way of dividends. We can buy back shares. We probably won't change the amount of money we invest organically in the business. So I think it was one of those to increase the dividends or start the share buyback program. And I wouldn't want to get ahead of ourselves on that, but we would need to sit down on share buybacks and just look at what's really worked effectively for other businesses that we engaged in the U.K. market as U.K. quoted businesses in doing that, before we set out on that journey. But we certainly would look to buybacks in the future, assuming, I mean, it could well be on share price starts to really move forward. And we think that's not a sensible use of our cash. But -- and where we are today and where we see the value of the business, there is a mismatch. And so we've certainly got to do it.

And the last part of the question is what is your target leverage net debt to EBITDA?

I don't think we've ever been beyond about 1.2x EBITDA. You can probably safety go to 2x, but our appetite has been around the one time. So they are -- it will sit somewhere between 1 and 2x depending on the acquisition.

Perfect. Moving on. Congratulations on the good results. I love the consistency and return on capital employed, while quite many acquisitions are happening. The question is, please, could you provide us with numbers over the past few years, if we exclude acquisitions effect, especially for the lettings, MSF part of the business?

I think that was sort of hard question to answer in this session. But let me -- we had a look at this when we were thinking about the Belvoir merger and starting to put together the documents and what have you, and organic growth to us has been about 1/3 of our overall growth rates over the last 5 years. But if we step back a bit further, so I do want to give you a history lesson on this. But if I look at the businesses we have acquired, when we acquired the brands from [indiscernible], we tripled their -- at least tripled the earnings after tax in the first 2 years. When we bought new just breaking even. So that makes between GBP 1.5 million and GBP 2 million before tax. So $1.2 million to GBP 1.5 million after tax is right within time. Hunters, we bought it in '21. I mean 2020 wasn't a great year for them for a good reason, at this COVID, 2021 was a fantastic year for them and that generates a lot of cash for us. That result hasn't actually changed too much year-on-year, which against the backdrop of it being a self-dominated brand and where the market's gone where the markets dropped 1/3 in terms of the number of transactions completed, give me surprise and I am sure it's to learn that we've managed to maintain the return to EBITDA of that business almost the same number, through synergies. So we bought businesses at different times, and we've gone through different cycles. But we've always organically grown them from where they are. And as I say, if you look at the piece up until the premerger with Belvoir, about 1/3 of our growth comes organically.

Thank you, David. Turning to the next question. What impact do you foresee from the new regulations in the lettings industry?

I'm going to keep that water down so the impact sort of gets less and less. But I think the Rent Reform Bill, we see very much as an opportunity. Those laterals that have 1 that sort of 6, 10 conferences, I think we'll really question whether the time is right to employ a specialist as opposed to try and do it themselves. The fines that the Rent Reform Bill drive for getting stuff wrong, 5,000, I think they start out and then if you make the same mistake, it doubles. So it's a heavy price to pay for getting it wrong. You compare letting agent GBP 80 a month sort of look out your property. So I think we see that as an opportunity. And [indiscernible] in the presentation, we've been running these landlord evenings. And what's really apparent is they are desperate for help, they desperate to understand, and they're really grateful for us putting on those events. And what we've got to do is ramp them up. And I think we're going to do them the sort of webinar series that people enjoy. And I think that will create a good value in the business. I think we'll win business as a result, educating taking that place as the expert letting agent in that locality, to help landlords. So definitely see regulation as an opportunity. But again, if you look at BBC News , you say [indiscernible] doesn't think you'll get no [indiscernible] the election. So it's changed quite a lot over the last year, 18 months and has been awarded down significantly.

And perhaps one last question here. Are there big segments of the market where you should be more active?

Okay. Segments of the market. So I'll take this as opportunity, and I may not be answering the question here, Alex, so apologies if I'm not, but other areas that we can -- that we underperformed. So I think lettings insurances, I think big opportunity that we've seen across the group now are so big, there are a range of services that our franchisees use different companies for, that actually we could get involved, we'd probably do it slightly cheaper and still make sort of a margin. So I think that's part of this analysis where could we do better. I think the other that probably is a segment is by select mortgages. So throughout the group, we've got 155,000 landlords looking towards us managing their property, plus all of the tenant find only landlords, which is probably a similar number. So 300,000 landlords across the group, at least half of which will have finance on their portfolio and currently need a business does anything from a [indiscernible] perspective. So we've been talking about some really, really clever technology that enables through an app or through a laptop to manage your portfolio and have that update in value terms and yield terms in real time. So you can carry about your portfolio and your phone, which is quite nice. And seeing what the current value is. And we're going to develop that app in terms of having a sales site so that a landlord wants to sell, we much prefer they sell to another landlord, as opposed to a first-time buyer. So encouraging, selling a buy to let property with a tenant in site to another landlord, offering the finance to be able to do that, both from an individual perspective and a company vehicle perspective, slightly different and being able to fire our headline rates as the buy-to-let market changes. So the last 12 months has been pretty tough for buy-to-let financing. There's much more choice available in 2024 with lower fees because the fees just spiked incredibly in 2023. So we see that as a massive opportunity and something that I want to work with Michelle, in terms of understanding and then building for our landlords, it's not just about [indiscernible] it's sort of landlord concierge service because there are a number of things that we can offer wealth management. We can offer buy-to-let mortgages, insurances. So -- but not in a way where they feel like we're just selling stuff to them. I want to be able to provide them with a service with an app, which is informative, it offers them products that they're going to need. And the size of that opportunity, I think, is significant, which is one of the projects, which is going to take some time to really sort of calculate and get that proposition defined before we can launch.

That's great, Gareth, David. That concludes the Q&A session for today. And of course, any further questions that come through the company can review all questions submitted today. I will publish those responses on the Investor company platform. But before we direct the investors to provide you with their feedback, which are particularly important to the company. Gareth, can I please ask you for a few closing comments.

Absolutely. Thank you for taking an interest. We're delighted that you're interested in our results, and we look forward to updating you again in September. Thank you very much.

Gareth, David, thank you once again for updating investors today. [Operator Instructions] On behalf of the management team of the Property Franchise Group PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.