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

Good afternoon, and welcome to The Property Franchise Group PLC Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses, which is appropriate to do so. Before we begin, I would like to submit the following poll. I would now like to hand over to CEO, Gareth Samples. Good afternoon to you.

Good afternoon. Thanks very much, and I'm delighted to be able to be here this afternoon to talk about the company's half year results. It's been a pretty transformational period for the group and delighted to be able to talk about record results following a couple of acquisitions in the first 6 months of the year. So a little bit about us. We are the U.K.'s largest property franchise group. For those of you that don't know us, established in 1986, we listed in 2013. And since 2013, we've been sort of busy doing acquisitions. We've now done 8 acquisitions across the space. We now operate out of 18 unique brands across the country, some of those brands being national, some of those brands being regional. And look after 1,900 territories across the U.K. and now across the international locations. So we are, by far, the largest property group by office location in the country. We've also recently acquired Fine & Country, which has 65 international locations across Europe, Africa, Asia, Australia, Dubai, all over the world, which really is a new string to our boat. Some highlights. Over the last 6 months, we've been admitted to the AIM top 100, and that's as a result of our market cap moving forward so significantly in the period. We now have a market cap of GBP 301 million. Combined revenue of the group in 2023 was just short of GBP 75 million. 56% of our income is recurring, which is really important and a real attraction. Just short of GBP 19 million worth of free cash flow in a capital-light business and EBITDA in 2023 equated to just short of GBP 27 million. So we've got a proven track record of delivering growth, underpinned by a really resilient business model and a strong bias towards lettings, which provides a really robust recurring revenue stream. That's a little bit about the group. In terms of the brands, I touched on this earlier. Big national footprint with a real local expertise, so the national brands and hopefully some of you recognize some of these, Martin & Co, predominantly lettings, Hunters, predominantly sales, EweMove our hybrid disruptor brand. So that was part of the old TPFG stable, and since we brought in Belvoir and The Guild and Fine & Country, we also have Belvoir as a national lettings brand, Northwood is a national lettings brand, Nicholas Humphreys specializes in student lettings, and Mr and Mrs Clarke is a marketable mid to upper market hybrid disruptor brand. You've then got the regional brands. We've got it all around the country, Whitegate in the North of England, Parkers in and around Reading, CJ Hole in and around Bristol, Ellis & Co butting up to London, Country Properties, Mullucks, Hertfordshire, Lovelle's on the East Coast rooms, the Newton Fallowell, Midlands based predominantly sales agent. And then you've got, obviously, Fine & Country, big national luxury brand that has 193 outlets in the U.K. and 65 outlets internationally. And in The Guild, which is a Licensing model, which we'll touch on in a little bit more detail shortly, with 778 independent state agents, subscribing as members to The Guild. So it gives you an idea about the business. We also have a Financial Services brand, which is Brook Financial. So what was the acquisition of The Guild. We did this just before June. So wanting to sort of give some context in terms of the business that we bought. Obviously, we're big in franchising. As a result of the Belvoir acquisition, we also have a big Financial Services business. And this is our Licensing business. So The Guild and Fine & Country provides services to a total of 1,036 outlets, of which 65 were international. It strengthens our reach and marketing and delivers an international footprint, which is really important to us. Both businesses will continue to operate under their existing brands. The Guild is a well-known and long-standing brand that's been going for 30 years, supports its network of 778 independent estate agencies, and they pay a monthly fee for a range of services that includes technology, marketing, compliance and training and has a really good retention rate and delivers a really good proposition to our estate agency partners. Fine & Country is that luxury brand I talked about to support these licensees with technology, websites, market insight, market capabilities of the global brands and again, as I touched on 193 locations across the U.K. with another 65 across Europe, Africa, Asia and Australia. Great news is we've strengthened our team, the CEO, Iain McKenzie and [ Nicki Stevenson ] have come across from Nurtur, and they continue to run the business on a day-to-day basis. And the great news is TPFG gained access to a 20 strong team of marketing professionals as a result of the acquisition. So the rationale behind the acquisition that we did just before June. In terms of operational highlights, obviously, we've been really, really busy getting these acquisitions over the line, but the performance that we've delivered in the first half year is also really impressive. David will touch on the financials a little bit later, but we significantly increased scale, and that's driven out a number of benefits that I'll touch on later in the presentation. We've done the merger with Belvoir that settled down really, really well. We've completed the acquisition of The Guild and Fine & Country in May 2024. The market this year has been pretty good. We've got a sales agreed pipeline on a like-for-like basis, that's up 16% and stands at GBP 47.5 million, which by far the biggest it's ever been in total. Our EweMove recruitment has increased 29% this year over last year with 22 new territory sales. We've just gone through a restructure of the senior leadership team and have created a really strong team that will run the business day to day. We look after 152,000 properties on behalf of landlords. That's up 96% as a result of the Belvoir merger. And we've got Financial Services commissions of GBP 7.7 million in the period, which is a growth of 756%, which sounds really impressive that says TPFG weren't very good in mortgages before. So we've got a really strong Financial Services business now, which is really complementary to the group. I'm now going to hand you over to David, my CFO, who's going to talk you through some of the financial highlights so far this year. David?

Good afternoon to everybody. This is one of those periods where when you've got 2 acquisitions -- or a large merger, I should say, in March and then an acquisition in -- at the end of May, it starts to test us in terms of how we present all the information, and I'll walk you through some, what I think are, fairly simple explanations of where we're up to, but please if we get to the end and think I haven't hit the mark, ask us the question, and I will try my best to reply to it. So overall, we've got, let's say, 4 months of Belvoir's numbers, a month of GPEA. Turnover increased 104%. Behind that, the like-for-likes of the business it was before these merger and acquisitions up 3% and turn over to GBP 13.6 million. Now of that, GBP 12.3 million has come from our Management Service Fees. So that's the royalties we charge to franchisees. And if we again, to look at the contribution from the old business prior to the activity, then we see Management Service Fees up 8% like-for-like take GBP 8.3 million. Now you might say, well, why hasn't the Management Service Fees gone up by GBP 12.3 million? And the main factor is because of about half of Belvoir's revenue comes from Financial Services at a smaller Property Franchising business compared to ourselves. So that's why you don't see a 100% increase there. But more sort of telling then is what's happening to adjusted EBITDA, it's up at GBP 9.7 million. That's up 65%, or adjusted PBT up 71%. I've picked those 2 numbers because they exclude things that have happened like additional amortization arising on consolidation of the new group. We've taken out from there the cost of the acquisitions and a little bit of what the share -- share-based payment charge was relatively small in the period. So you can get some sort of like-for-like comparisons to what the business was prior to this and what it is now. If we'd have had a bit more -- 2 more months of Belvoir and 5 months of GPEA, clearly those numbers would have moved on, but then so would a turnover. If we were to look at where we are in the process right now, how far have we got compared to the numbers in the market, depending on which measure you look at, between about 35% and 40% of the way there. But I think I can assure everybody that between the old business that was, and it's like-for-like growth and then the businesses that we bought into the group in the last 6 months, we will be on to at least hit those numbers in the market, everything that's here tells me that we all on course to do that and probably a little bit more depending on where like-for-like growth goes. So what's next really? Well, basic earnings per share up to 15.5p, so up 12%, a little bit growth there. We've got net debt again because we use that -- use debt to buy GPEA. We actually drew down GBP 20 million of our GBP 27 million facility, GBP 14 million of its term loan and GBP 6 million of our revolving credit facility. We will probably have very little use of revolving credit facility by the end of the year. So that will have probably gone back into Barclays. But of the term loan, we'll probably get ourselves down to about GBP 12.5 million probably of term loan by the end of the year and net debt, I suspect, we're running around about GBP 10 million. So we then just generate cash as we always do, pay -- probably pay down our term loan quicker than the 3 years that's on its moment in time. It's a little bit tick forward in cash generated from operations. That does include the cost, obviously, of the acquisitions to date or most of them. So it would be slightly -- it's reduced for that amount. And also just this half year as for '23, as for '22, this is the period where our working capital requirements increased noticeably, not massively, but they'll go from GBP 700,000 to maybe GBP 2 million at this point in time. If you add in Belvoir, then you see actually that's stretching out further because it's on the same cycle as us. So we're businesses that in the first half of the year have a greater need for working capital when it comes back in the second half of the year. And last, by no means least, I suppose to give a clear indication to the market that the business has improved to look at the pay away ratio, which has been falling a little bit, and we've been running about 2.1, 2.2x earnings, which is a tremendous amount to cover. But we started out in a journey of being wanting to be 2 or a little less. So we brought that cover down. But we also know we're going to generate a lot more earnings in the future. So we've increased the interim dividend by 30% to 6p, which for us because we pay a 1/3 now and 2/3 after the end of the year means that we're on for 18p this year. And for anyone who is looking ahead, yes, next year is we'll probably go out to about 21p as it stands based on the numbers we can see. So group revenue up 104%, but now we have to start trying to track through what that really looks like for everybody, including ourselves, some clarity and some focus on each of these segments that we have and why they're important to us. So Property Franchising, 900 territories, 4 group MDs allocated to that. So that's a big business for us to run a very good business. That's the reason for the 4 MDs. Turnover revenue up 67% to GBP 18.2 million. But it's here just to put a stake in the ground and then see where that goes clearly over the next few years and for you to be able to see our success or otherwise. Financial Services segment. Well, that's all down to Belvoir and the Financial Services business within there. That's 300 advisers. As you can see, we have very little revenue beforehand up. But it's up 29% -- sorry, accounted for 29% of group revenue at GBP 7.7 million. It's up considerably from its GBP 0.9 million. And then Licensing revenue of GBP 1 million for 1 month. It's greatly appreciated. It says here accounts for 4% of group revenue at this moment in time. There's 1,000 outlets through there. And these mixes now, if you look at June, which is the first month, and we've had all the segments running at the same time, Property Franchising just of over 50%, Financial Services just under 30% and Licensing just under 20%. So we thought 50-30-20, probably about the right proportions for each of them. I won't go through that. There we go. On the side -- the right-hand side of this just gives us a relative mix I've discussed through, so I'll pick on. So most important sector for us is Property Franchising. And just to recap, for most of all our franchise systems by EweMove, we charge a royalty based on the revenue that the franchisee generates every month. And those rates run depending on which system from between 8% and 12% system and type of income. And we've asked a couple of times, will we seek to align these? And our answer to that is, no. We run each franchise or in a separate legal entity, we always have done. We have different arrangements in each of those. We look to preserve those, and our franchisees would like us to preserve them as well, and that's how we will remain at this moment in time. But of the income that we have, you can see this first 6 months, 68% of it comes from Management Services fees for royalties, 17% from our owned offices. So that's the line we've always owned since we acquired Hunters. We've picked up three in Belvoir as well. They are predominantly lettings businesses. They're not sales businesses. And then that might be strange for Hunters, which is the brand is more dominated by sales than lettings. But these are predominantly lettings businesses, and we will look to buy portfolios into those to grow their value over time. We then got a little bit of franchise sales activity, whether it's new recruits into EweMove or our other brands catch about 2% of revenue. And then we have 13% coming from franchisee support and similar services. And of that, there's 2 main aspects: one, we support our franchisees and helping to manage the portfolios that landlords have entrusted to them. And secondly, we provide most of the CRM systems into our franchise network because we are the master licensee, and we license that on and we support it, and we charge for that service. MSF split, not much change in this 6 months, last 6 months, 38% on sales and 61%, 62% now on lettings MSF. Don't see that changing too much despite the fact that we'll have a full 6 months of Belvoir on the second half, predominantly because I think the sales market is going to move ahead, and that's going to strengthen its case as well at the same time. And profit before tax wise. Well, if we look at Property Franchising, we're up 38% to GBP 7.4 million, and very welcome to have that. We're up 175% to GBP 1.1 million of Financial Services, all thanks, I say, to Brook. And in Licensing, GBP 200,000. These scales are interesting, GBP 200,000 in our first month. The key one is where's the adjusted PBT? Strip out the exceptional costs and the acquisitions, the extra amortization, share-based payments, where is that at this moment in time? So that's GBP 9.1 million at the moment against a number in the market of GBP 22 million. So it's not quite half, but then it's not so far away, I suppose, some half of it. The second half of the year will certainly bring the remaining, what is it, just about GBP 13 million and then maybe a bit more. And last by no means, least, just a run through what's happened with the interim dividends, and they're reflective of our strategy, I suppose, in that, one, we've said we try and maintain around about 2x earnings cover. So when we see earnings increase because of the acquisitions we've had, we tend to come back in and say we need to reflect that in the interim and final dividend immediately. So -- and knowing for well, we've got a lot of cash generation behind us to pay down the debt and think about other acquisitions that we need to. So 2021, we bought Hunters and saw step up from 2.1p to 3.8p at the interim. In 2024, we bought Belvoir -- we merged with Belvoir, and we bought GPEA. And again, we've stepped it up from 4.6p to 6p. We look at around a 4% yield as our yardstick. We will try as much as possible to be there or slightly above it over the coming years. Share price has run a bit faster ahead maybe than we would have thought, but we're generating the cash, the cash will be there in the future. We can certainly match that with a 4% yield. And with that, I'll hand you back to Gareth.

Thanks, David. So some really good numbers. We're partway through integrating the businesses in, but they're already showing really positive signs of delivering a great result. And with the opportunity that exists, we bringing it all together. There's plenty more to come. So looking at the market, market drivers, as I said earlier, the market was probably slightly better from a sales perspective this year than we probably planned for. So demand for housing outstrips supply and residential property remains a key investment asset class. We're seeing that sales completions in the period still slow, conveyancing time scales from sale agreed to completion are still much slower than they should be and much slower than they would have been 10 years ago. So there's still work to do on that. And we talked earlier about our bulging pipeline. Well, part of the reason it's so big is because stuff isn't coming out quickly enough. So we're going to work on that in the second half of the year, historically over the last sort of 2 or 3 years, the second half has been better than the first. So we hope that's similar this year. We obviously benefit from a continued strong demand in the lettings market, and lettings activity this year in terms of rent inflation is again probably ahead of where we thought it would be. We've had 2, 2.5 years of significant increases. And this year, the third year, we're still seeing close to double-digit increases in rental prices, increased levels of sales activity and actually stock coming to the market. So when you go back to '21, when we were coming out of COVID and there was a lack of stock and that drove prices up and basic supply and demand. So there is more stock coming to the market, and there is more choice for buyers, but the level of buyers that we're seeing suggest that we'll do something like 1.15 million transactions this year. Last year it was about 1.50 million, a normal over the last 10 years is about 1.1. So slightly over the norm in 2024. Lettings demand continues at similar levels. Every property that comes to market, we're still seeing in most locations in the U.K., 10 people for that rental property. So that's showing no signs of letting up, even though rents have gone up significantly. And in Financial Services, revenue set to grow as the sales market improves. If you look at last year after the Liz Truss budget, interest rates for a 5-year fixed rate were about 6%. Last week, there was a deal that came to market through NatWest of 3.7%. So significantly cheaper. And the number of transaction -- transactional mortgages this year is up on last year because the rate is cheaper. So that will drive the revenue in the Financial Services business. So we're really optimistic about that. I wanted to touch on this piece. I think for those of you that followed the story over the last 2 or 3 years, we've got a real consistency about how we -- the strategy for the business, how we look at growth and how we drive growth. And part of the driver for that growth is the management team that we've put together. But these are the key areas, that if we can affect these at franchisee level, then franchisees will earn more money, they make more profit and we, in turn, will make more money. And that's the whole reason we've put that structure in place. Alongside this, through the acquisitions and that building of scale, there are a number of other opportunities that have become apparent, and I am going to put them in sort of a project, at least that I'll talk to you about after we have been through the strategic growth initiatives. So lettings obviously a massive part of our business. We look after 153,000 tenanted properties, but we still want to grow. And over the last few years, we've grown in 2 distinct ways. First way is to buy out local competition, so to buy smaller lettings books off of people looking to retire or get out of the lettings market and integrate them into an existing franchisees and portfolio. So we're highly acquisitive. We help our franchisees on a number of levels in terms of identifying those potential acquisitions, helping them to agree terms, helping them to do the due diligence on that lettings book. And in some cases, we will fund them or part fund them, okay? So we're really active. And our target across both businesses going forward will be to do between 4,000 and 6,000 units a year. Last year, I think both businesses did just short of 4, and I think we're on track to do 4 to 4.5 in 2024. So they're the 2. And the second distinct way is the rent inflation. So rent inflation has been running at sort of circa 10% for the last 3 years. We believe that will settle at some point, and we think that will settle around about 4%. So they are the 2 areas in which we're looking to grow our lettings footprint. In terms of residential sales, the franchise business will do approaching 30,000 exchanges a year, which sounds a lot, but in terms of market share by location, we probably underperformed. So we've got a plan to help scale all of our agents, get all of them doing residential sales, and that's a big opportunity. So our MDs and Ops Directors are helping our franchisees, launch a business, look at their marketing, look at their recruitment, do the training with a view to growing that 28,000 number nationally. We've talked about Michelle's business, Michelle Brook, who runs our Financial Services division. And lastly, she would have done 21,000 mortgage completions across 300 financial advisers. And Michelle has built that business by -- with a buy-and-build strategy, along with growing her own business. So we are still acquisitive. We would like to do an acquisition this year into Financial Services. We set some criteria, which is circa 20 to 30 financial consultants and profitable. So it will be a profitable business that we will look to acquire. And I'd be disappointed if we didn't do that towards the end of this year's or early part of next year, and that will be a consistent strategy. We'll continue to buy businesses into our Financial Services business. And then there's the utilization of the opportunity that exists now within the wider group to drive leads through into Brook financial. So we've just launched to The Guild, the 800 offices in The Guild, a Financial Services proposition through Brook Financial and that was launched last month, and we've already had some 10 members sign up. So we think we can get that to 200 members supporting the financial services part of the business. So we're really excited about Financial Services as a significant growth area for the business. I touched on the strong senior leadership team. When you put a business together this big, you need to have that second tier of your senior sort of operational team of high quality. And I'm delighted with the team we put together, and they are the future. They are going to drive this business forward over the future. Some other interesting things, 14 million data records now held by the group. And we have invested in technology from a digital marketing perspective to ensure we've got up-to-date website, lead referral -- sorry, lead generation software and then lead referral software. So we've got the ability to track across the 1,900 operations. Anybody with a house to sell may go into one of our offices in, let's say, Derby with a house to sell in Leamington Spa, and we can identify that person, and we can pass that person on to the Leamington Spa franchisee to have a conversation about selling their house. So the scale and the footprint that we've got utilizing that to drive leads and activity back to our franchise -- franchisees, a best-in-class in digital marketing piece, which means, do we send the right message at the right time with the right call to action is also then widely important. So a big investment in our digital marketing capability. And then the bit that's coming is AI, and we're seeing stuff at the moment, which sort of is blown our socks off in terms of how AI will influence processes, procedures, sales activity going forward. And this is going to happen quite quickly. So we're talking currently to an American firm that has a digital twin technology, which is where you can copy me, I can stand against a green screen for 10, 15 minutes, it will learn to talk like me and then will learn my mannerisms and be able to have conversations with customers. So that's pretty -- it's a bit out there, but it's moving really, really quickly, and all of the sort of research we've done and this technology is being used in utility companies and IT support desks. And if you look at utility companies, they deal with customers, and then they ask the customer to score the individual dealing with them. And the robots had a higher customer satisfaction score than the humans. And exactly the same thing happening in a computer help desk scenario, the robots scored higher than the human. So things are changing, probably quicker than we thought, and we need to make sure that we're at the forefront of that and to able to deal with these 14 million data records in a different way that doesn't necessarily involve loss of humans, I guess. So they are the sort of growth initiatives that we've got across the piece. I then said we had a number of high-value projects, and I'll talk to you about one of those. So when we bought The Guild, we discovered that they had a very successful print business, so digital print and traditional print, and they service The Guild members and they service the Fine & Country members. And our intention is to stick that print business across all of the franchise business as well, so with the hope doubling turnover and doubling profitability within that business. And I guess that just illustrates one of the many opportunities that bringing these 3 businesses together has given us. And you'll have noticed in yesterday's announcement when we talk about David's replacement. But David is staying on to help me with those projects. There's probably 10 high value that requires some work and some resource and some thoughts that if we can get a number of those along the line, I think there's sort of GBP 1 million type return to the business. So we're really excited about that. So that's a little bit about us and our growth plans. Summary and outlook. Summary for me. We've had a transformational 6 months, it feels like 18 months following the merger with Belvoir. They've both been integrated really well. They feel part of the business already. There's a load of work to do, a long way to go, but in that first sort of 3 to 4 months with both businesses, we're delighted with the way the business has come together. We've got significantly increased scale, bolstered Financial Services business, massive Financial Services business with loads of upside and potential, and a new Licensing revenue stream, but they're all complementary to each other. So it's not like we're going off into different areas we know nothing about. These are businesses that we've admired for a long period of time. And believed it to be right to bring them into the group. And as I said, the first 4 months has just put a big tick in that box. Another record set of results, every single 6 months, we delivered a record set of results, and group revenue more than doubling. Really happy with the share price, the market cap. And I think the big takeaway for me is we've invested in technology, so that puts us at the forefront of wherever it goes with AI and digital marketing, we're at the forefront of that. And that will be a key growth driver, not just this year, but for the next 5, 10 years. Really proud to have entered AIM 100, double the size of the business, and to increase the interim dividend in a 6-month period where we've done so much by 30%, I think, reflects our confidence in delivering further growth, which we're really keen to see. Outlook, integration of acquisitions, obviously, it's still quite a lot to of work to do, to release the benefits of the synergies in 2025. So David and I will work really, really hard on those projects and that integration and drive those synergies. Strong lettings demand, we believe, will continue into second half of this year and beyond. Sales revenue should go up because the pipeline is bigger than it's ever been. Just to clarify as well, the sales markets, so the new stuff selling is also very active. So it showed no signs of slowdown after the election, so that's really good news. And the Financial Services revenues are growing as the sales market improves, as you'd expect. And we remain confident the trading remains at least in line with market expectations for the full year. So we shall stop here through our presentation. Thanks for listening. We now would like to hand over to you guys to come to us with any questions you'd like answering.

[Operator Instructions] First one reads as follows. How are you addressing the potential challenges posed by technological advancements in the property markets, such as online platforms and virtual meetings?

So I'll take that one. Really good question. But I think with past virtual viewings and online meetings, you look at -- so COVID was a big factor where we can get into properties, we use that technology, and we have a number of branches that are still using that technology. But I think things are moving on at pace. So the session I covered with the AI piece, we want to make sure that as the biggest business in this space, we are at the forefront of all technology development. We work very closely with Nurtur in terms of providing tech across our network, and they have a big responsibility to stay relevant and stay up to speed. And then you've got AI that sits on top of that, which is brand new and has a number of different potential uses, and we're taking control of ourselves. So we're in discussions with a number of providers in the U.S. We will probably visit the U.S. in the next month to look at the sort of the [ telephony ] products that I touched on in the presentation that I think will be game changing and get better and better and better. And with 14 million data records, we currently have through the group, 4,000 leads, leads I'm going to call them, that are -- that go unanswered because the franchisees are too busy. So if I can find some technology solution that fulfills those initial requests better than we do currently, that's all upside for our franchisees. So technology encompasses everything we do and everything we think about, and we'll do moving forward because it's moving at such a pace, and we have to be at the forefront of it.

Another one on the market. What are the companies plan to mitigate the risks associated with the cyclical nature of the property market?

Yes. So that's a really interesting one. We did a load of analysis on this probably 3 years ago. So the cyclical piece of it is sales, not lettings, okay? So there's constant trade on sales. A normal market in sales in the last 10, 15 years is defined as 1.1 million transactions. I think the worst month or the worst year in that period has been about 980,000 transactions. Last year was 1.50 million. So it was a tough year, really, really tough year. So we did the analysis of what does a 100,000 transactions in a free in franchise or terms mean to us. And when you looked at it, it means about GBP 0.5 million upside or downside depending on the cyclicality. So GBP 0.5 million to GBP 600,000 worth of profit is at risk if you dropped below 1.1 million transactions. So for us, we don't get a massive cyclical bump. But similarly, when the market is really good, we don't get a big spike. So it's much more balanced, much more protected. Clearly, our franchisees feel it more. But from a franchisor level, we're relatively protected. And I think we demonstrated that in 2023 with 1.50 million transactions and the record profit.

Next question is, can you provide an update on the group's efforts to improve sustainability and reduce its environmental footprint?

David?

Yes, I'll pick that up. Well, if we look at our footprint environmentally, it's relatively small, but we're going through the process now of the carbon measuring that we need to do. And we're also looking at just emissions and efficiency with what we're using in the offices. We've done quite a bit of work on that over time, but we're going back through that and again, measuring it just to see how we've progressed. We've got 2 firms of consultants that we're working with at the moment. One to advise us and do a lot of the measurement work, and one to review what we've done and audit that and then come back with recommendations. So we'll see in the next annual report that update. But more importantly, I suppose for us at the end of the day is the social piece. I mean we are local business people working in local markets. And how do we support our franchisees and licensees in those local markets to serve the local communities beyond what they do with their own services. So that's something very much in our minds. We know lots of franchisees and licensees are heavily involved in local groups and their communities and supporting them. So essentially, we just want to have a look at that and understand how we can do that better. And in the Fine & Country brand, which is one of the businesses we picked up, Licensing businesses and the acquisition of GPEA, they have their own foundation. So again, we were looking at that and just understanding how that mechanism works and whether a charitable foundation might be the way to go across the whole group. But time will tell, we'll have a look. But certainly, we want to deliver as much as we can benefit back into the local communities and build stronger and stronger relationships between franchisees, licensees and those communities.

Next question is, what does GPEA actually do? I noticed the intangible note referenced master franchise agreements with the income statement references Licensing? What is the distinction between the 2?

Well, happy to pick that up. GPEA as it is today is a Licensing model with 2 brands. There are licensees in Fine & Country brand on slightly longer licenses. But generally, everyone is on 12 months license and has to give 12 months' notice if they want to come out of that arrangement. That's different to the franchise agreements because people are in 5-year agreements. And they've got to give -- well, they've got to stay there for the 5 years. And if they want to come out, their option usually is they have to sell the business on to some either another franchisee or a new entrant. And the charging mechanisms are different. So in The Guild, it's a fixed fee for a month, a subscription almost in Fine & Country. It's a mixture of that and a charge on revenue. in the franchise arena, everyone's charge a percentage of their revenue every month. So slightly different charging mechanisms. And a license agreement, if you end it, you walk away the business and a franchise agreement if you end it, you can't. That's the nature of that. In reality, if you look at the commercials of this, there have been many, many, many members in The Guild for a long, long period of time and continue to do so. So that is not really that much different on that aspect of a franchise business. Fine & Country's a newer brand. But again, the founding members and many of the licensees are coming up being there and seen through this journey. It's a fantastic brand. It's strong in the marketplace. People don't want to walk away from it. So in that respect, again, it's not very different to franchisee.

Perfect. The next question consists of many questions. There is a lot of chat about landlords exiting the market, and it was also referenced in Winkworth's results. Does this present -- does this present a risk to the business and its stability as franchisees lose recurring letting revenues and the company use service fees? Are you able to quantify this risk? Presumably, could it also result in franchisees exiting their own businesses?

Okay. I'll take that one. So our landlords exiting the business, yes. And have they been since 2021. Yes, in 2021, prices went up, people saw that as the height of the price for that asset and decided to cash in at the top of the market as they perceived it. Are people selling now because of the possible capital gains tax changes? Yes. I'll give you a real life example. My Cheltenham office looks after 600 properties on behalf of landlords. Last year, he had 23 landlords wanting to sell their properties, 21 of those sold to existing landlords, 2 went back to normal market to a first-time buyer, okay? And that's what happens. When you want to put your house on the market as a landlord, you have to give the tenant notice if you want to sell it with a concession. So the letting agent always finds out about it sooner than anybody else and can do something about it. So our good progressive franchisees would just ring a landlord and get them to buy that property and just increase their stock. If you're like a bad operator wouldn't and then that may give some problems. But you still got 6 months to wait the tenant to exit in most cases. So you've got some notice to understand, which ones are looking to sell. So it is an issue. And that's why we keep buying 4,000, 5,000 units a year in terms of local acquisitions and the number the 152,000 remains quite static. I think there's an opportunity for landlords that currently look after their own management to increase supply. I think regulation, the Renters Reform Bill, I think there's been some stuff on it say is about to be launched. We're told it is similar to the Renters Reform Bill that wasn't sorted before the government called an election. So we've got used to the sort of topics within the Renters Reform bill, but what it has showed -- shows that we have the landlord road shows we've run is that a number of people are unaware of the changes. And the biggest change is landlords being fine. So if you self-manage your property going forward, you get it wrong. There are some pretty penal fines that are applied to. You get it wrong again, that fine doubles. Get it wrong again, that fine doubles. And I think it starts at 5 five, then becomes 10, then becomes 20. So the incredibly low good value services that a letting agent would offer for 10%, 12% of the monthly rent will give landlords protection like never before and becomes even better value. So I think we will see growth in the properties dealt with buy estate agents, for letting agents because of the regulation. And that's a positive thing for the Renters Right Bill.

Next question is how quickly might we expect some of the owned offices to be franchised out?

We've done one already, to be fair. But we've got -- what we're left with is pretty significant profitable franchise businesses, and they represent such a small percentage of the network now that -- the reality is we will probably keep most of them, and we will probably practice what we preach and buy lettings books into those branches and drive profitability that way. So I think we'll end up with 10 to 12, maybe a dozen owned offices that are super stores, delivering a really good profit. And we're operating some really great areas like York, Manchester and Leeds and Birmingham and Lester. So yes, having 10 doesn't faze David or I, the ones that were not super offices we will look to franchise back out. But yes, we will probably always have some owned offices.

What is the appeal of having the [ FNC ] international presence?

It's a really good business. But the day after we acquired the business, I flew out to Lisbon because it happened to be the international conference. And if I hadn't gone then, I'd have to away 12 months. And it was really impressive to see the caliber of agents, the countries that they worked in, the types of property they were selling from -- and the camaraderie of an international business, lady flew in from South Africa, got delayed, turned up a little bit late on, but just was so excited to be there. We're opening in Dubai shortly. I've been invited to the opening there. We've got a great business in Cannes and Nice, Portugal, both [ Algard ] and beyond. We've got Spain, Costa del Sol, costa de Almeria. So it's a really good business. Go on the website, if you don't believe me, there's absolutely cracking properties. And yes, we should be proud of what these people are doing overseas to drive to fining the country brand. Will we invest the load in further expansion? I think it's -- so the investment probably not, but we have inbound inquiries all of the time to open in different parts of the world. And we will consider that and made the right decisions, but we're really proud to have it. There's some incredible operators. And yes, it will grow over time.

Next question here. You touched on higher working capital requirements in H1, but there has been a substantial increase in receivables combined with an increase in provision for bad debt. Can you provide some additional color in relation to these increases?

Yes. First thing to say is I don't think there's been a significant increase in provision for bad debt. It's quite minor. I think I said it's GBP 200,000 in the RNS. So that's nothing too substantial. And as to the increase in receivables, well, it's kind of 2 aspects, isn't it? We've got a lot that come through the acquisition. The loans to franchisees came through Belvoir as well as the normal trading debt to have with the franchise network. We have a Licensing business now again with trade debts there, normal sort of pattern of things. And then we have our existing business. So there's absolutely nothing stand out in any of that at all. Nothing at all. And before we acquired the businesses, we looked at the provisions that existed against the various steps that were there, and we were happy with them, and that's not just us. And obviously, we have external third-party firm of accountants that take a look at that and come back to us to report. So there's nothing stand out, nothing out of the ordinary for this period of our trading.

The next question is on competition. Is your notable success attracting meaningful new competition for franchising of property businesses in the U.K.? If so, how are you positioned to continue to win new franchisees going forward?

Yes. I mean really good question. Certainly, we're looking to invest in here. We will have 30 to 50 resales a year, we think, in the enlarged group. And we probably haven't focused enough on that next generation of franchisee. So our intention is to recruit a franchise sales director to take franchise to the masses, I guess, and reeducate people do all the things that Iain and Richard Martin will have done back in the '80s and the '90s to launch their franchise brand. And some of these businesses are now really significant and go for really good money. So making sure that we understand how someone would finance that acquisition. But that new blood is a big focus for us, a big topic of compensation. We understand we need to drive next-generation franchise interest to enable us to continue to grow and drive. So a big, big topic on the agenda.

Have you seen much of a change in the ownership or rental property? Are smaller owners selling up as worried about potential capital gains changes?

So I think we've covered that in the previous. So yes, people are selling. Lots of people have put their properties into a company structure. They're less likely to sell. But again, we're selling on to landlords. So it's not something that we're panicking too much about.

Perfect. What was the H1 organic growth rate of the businesses you acquired, Belvoir and The Guild and Fine & Country?

You're right. Let's think about, all the business we acquired. I think across lettings and sales in Belvoir, it was slightly less than 5%. Financial Services wise, that is the business because we didn't have much of any business beforehand. So on a like-for-like, that was 9%. The Guild is probably slightly away from the growth rate last year, not by March, a couple of percent, and Fine & Country's about the same. So yes, business as usual Fine & Country.

Changing topics here. What would you like to see at the upcoming budget? And what don't you want to see?

Well, what you don't want to see is an increase in capital gains tax clearly now, and a lot's of reasons for that. If I was putting a different hat on for the market, the end market, I'd say business property relief needs to remain. We need capital invested in this country to help businesses grow from the fledging ones that they are through and hopefully into the A market and then on to the main market. That's been something that's been a success for decades, since Second World War probably. And we -- I think that would be awful to see that slip. Inheritance tax, again, that might change. Entrepreneurs relief might go. All these things, I think, are threatening capital being allocated to the U.K. economy. And if that's a threat then there's uncertainty that causes capital to go elsewhere, and that's not good for us as a nation. So yes, I wouldn't want to see any changes, quite frankly, but I think we're going to see some.

Yes.

And the last question we've got here is, how quickly do you think the financial part of the business can grow, the potential seems enormous?

I totally agree. I think 1,900 outlets, 300 financial consultants and growing, some decent looking acquisitions to consider and 800 Guild members that can embrace financial services and have a proposition that will earn their money, but also drive productivity from [ Chelle's ] business. So all those component parts exist. I guess it's down to us now from an execution point of view, but early signs are really good, really, really good. We've got good activity. The market is decent, 300 financial consultants, 1,900 offices, 100,000 sales transactions, it's an exciting proposition.

Perfect. That's great, Gareth, David. Thank you for addressing those questions for investors today. And of course, the company can review all questions submitted today, and we'll publish those responses on Investor Meet Company platform. And Gareth, I was going to ask you for a few closing comments there, but I believe you have given those. So could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the Board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure it'll be greatly valued by the company. 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.

Thank you.

Thank you very much.