THE PROPERTY FRANCHISE GROUP PLC

(the "Company" or the "Group") 

Interim Results for the six months ended 30 June 2017

Group revenue up 28%

Interim dividend increased by 5%

The Property Franchise Group, one of the UK's largest property franchises, today announces its interim results for the period ended 30 June 2017.

Financial Highlights

·              Revenue increased by 28% to £4.7m (H1 2016: £3.7m)

·              Management Service Fees (royalties) increased by 19% to £3.8m (H1 2016: £3.2m)

·              Operating margin* of 31% (H1 2016: 42%) 

·              Profit before tax** increased by 36% to £2.1m (H1 2016: £1.6m)

·              Strong balance sheet with a cash position of £2.3m (H1 2016: £4.5m) and debt of £3m (H1 2016: £1.8m)

·              Basic earnings per share** increased by 30% to 7.4p per share (H1 2016: 5.7p)

·              Interim dividend increased by 5% to 2.1p per share (H1 2016: 2.0p)

Operational Highlights 

·              383 trading offices up 94 from H1 2016

·              Tenanted managed properties increased to 50,000 (H1 2016: 46,000)

·              20 new franchisees recruited (H1 2016: 7)

·              18 new offices opened (H1 2016: 4)

·              Group remains heavily weighted towards lettings, accounting for 70% of Management Service Fees (H1 2016 74%)

* excludes exceptional items

** includes exceptional items

Ian Wilson, Chief Executive Officer of The Property Franchise Group, commented:

"We have delivered a strong performance at our traditional high street brands, which grew market share despite the general challenging market backdrop.

"In line with our strategy, we have also invested in experienced individuals and technology capabilities, translating insights gained from our online business, EweMove, to our five traditional high street brands.   The Company has continued to support our franchisees operationally and financially with local acquisition opportunities, as smaller competitors decide to exit the lettings market.

"With the appointment of a new Managing Director for EweMove and a new focus on recruiting experienced estate agents as EweMove's local franchisees, management is confident of rapidly improving trading performance in this strategically important subsidiary."

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Chief Executive's Review

The Group has delivered a robust performance during the first half of the year and the board is pleased to announce a 5% increase in the interim dividend to 2.1p per share in line with our progressive dividend policy. 

Growth across our traditional high street brands has been strong with revenue growing 4% year-on-year to £3.8m. We have maintained tight cost controls in the traditional brand businesses, where profits are up 22% to £2.0m.  Lettings Management Service Fees ("MSF") increased by 5% (£0.1m) and sales MSF remained unchanged despite a higher comparative following the Stamp Duty induced "spike" in transactions in April 2016.  Group revenue remains heavily weighted towards lettings at 70% with sales and financial services representing 29% and 1% respectively.

Our franchisees have completed on seven local acquisitions in the period from 1 January to 31 August 2017, adding 1,482 to the Group's portfolio of tenanted managed properties.  An additional four offices have been added to the franchise network as at 31 August 2017 as a result of re-branding these acquired businesses.  This has resulted in additional fee income (at a franchisee level) of approximately £2m over a full 12-months based on the trading run rate.

As announced on 6 September 2017, the disruption caused by the early departure of the EweMove co-founders on 30 June 2017, has meant that EweMove's trading position is behind management expectations.  EweMove has recorded losses at the half year to 30 June of £0.3m against a target loss of £0.1m, on revenues of £0.9m.  Despite this, the Board remains committed to its strategy of rapidly scaling EweMove, which the Board believes will contribute significantly to earnings in the medium term.  The appointment of a new Managing Director in Nick Neill, a successful EweMove franchisee, means the brand now has focused and dedicated leadership.

EweMove has over 100 franchisees. Progress so far has been promising with the brand recruiting 18 new franchisees in the first six months of 2017 and recording MSF up 35% year-on-year to £0.6m.

Investment in our technology is an important part of our strategy and during the period we launched new brand websites for Whitegates, Parkers and Martin & Co, representing 85% of our total traditional office network. The new sites were designed in conjunction with Fountain, a Google Award Winning Business Partner agency.

We have also invested in experienced individuals to improve the leadership of our franchisees, including the appointment of two Managing Directors, one for Martin & Co and one for the Xperience & Whitegates brands, as well as a Group Marketing Director, all of whom bring a wealth of experience. 

The Group has a strong operating margin of 31% and a solid balance sheet with net debt of £0.7m. The board remains confident about the outlook for the lettings market in relation to maintaining its ability to meet its objective of progressive dividend payments. In the first half of this year dividend cover was 3.5 (H1 2016: 2.8).

The lettings market faces a changing commercial environment with Government initiatives increasing the tax burden on private buy-to-let landlords taking effect in April 2018 and an intended total ban on tenant fees in England & Wales. However, we successfully managed to navigate our business through the Scottish total tenant fee ban in 2012 and we are engaged in several initiatives to ensure that Group revenue continues to grow both organically, from improved digital marketing and through local acquisitions by assisting franchisees operationally and financially.  With regard to our past experience, we feel confident that the Group will be able to ameliorate the changing conditions to ensure minimal long term impact to the Group.

Ian Wilson, Chief Executive Officer

Financial Review

Revenue

Revenue for the six months ended 30 June 2017 was £4.71m (H1 2016: £3.67m), an increase of £1.04m (28%) over the comparative period. The addition of EweMove contributed £0.91m (24%) to the increase in revenue and the traditional brands contributed £0.13m (4%) to the increase.

Traditional brands

MSF for the traditional brands were split 78% from Lettings, 21% from Sales and 1% from Financial Services. Lettings MSF increased by 5% (£0.13m) in the six months to 30 June 2017 compared to the same period of 2016. Sales MSF was unchanged compared to the same period of 2016, which is a good result given the comparative period included the spike in sales prior to the stamp duty increase in April 2016 (H1 2016 increased by 24% over H1 2015).

Other income increased by £0.1m (15%) from the previous period, comprising of a £0.2m increase in revenue from support services provided to franchisees and a £0.1m decrease in Franchise Sales revenue.

EweMove

EweMove franchisees pay a monthly licence fee and a completion fee per transaction. The total of the licence fees and completion fees for the six months ended 30 June 2017 was £0.55m, which is a 35% increase on the same period of 2016 (prior to our acquisition). We refer to these licence fees and completion fees as MSF.

Franchise Sales income was £0.2m, unchanged from the six months ended 30 June 2016, from 18 new franchisees recruited.

Administrative expenses

Administrative expenses have increased by £0.75m. The main elements of this increase are £0.8m costs relating to the EweMove business, £0.2m amortisation relating to EweMove and a £0.3m reduction in traditional brand costs (mainly staff costs).

Exceptional items

The net exceptional income of £0.7m in the six months ended 30 June 2017 all relates to EweMove.

On acquisition, the Founders of EweMove received £5m in cash and £3m via the issue of ordinary shares in the Group. The Founders were entitled to a further £7m conditional upon the achievement of Group targets in the financial year ended 31^st December 2018. However, following the decision by the Founders to depart, the Group is paying the Founders £1m in total via two instalments payable on 31 July 2017 and 31 December 2017 in full and final settlement. 

Management assessed the likelihood of the targets being achieved at last year end and valued the deferred consideration at £2.2m. As a result of crystallising the deferred consideration at £1m, an exceptional gain of £1.2m has been recognised.

Following evidence suggesting that the business value of EweMove may have been impaired, a revaluation was undertaken. This has resulted in an impairment charge of £0.5m against goodwill.

Operating profit

Operating profit includes exceptional items, share based payment charges and amortisation charges relating to acquired businesses. It has increased by 38% to £2.15m (H1 2016: £1.56m), 

Operating profit before exceptional items decreased 5% to £1.47m (H1 2016 £1.56m) and operating margin, on the same basis, was 31% (H1 2016: 42%). Underlying this reduction is the fact that EweMove has yet to scale up its revenues and generate a profit. That said, the underlying trends and actions the management have instigated do mean we are confident in improving the revenue contribution from EweMove hereon.

EBITDA

The Group's EBITDA before exceptional items was £1.8m (H1 2016: £1.7m), an increase of £0.1m (5%) over the comparative period. 

Earnings per share

Earnings per share for the six months ended 30 June 2017 was 7.4p (H1 2016:  5.7p). The income attributable to owners was £1.9m (H1 2016: £1.2m).

Dividends

The Board intends to continue to pursue a progressive dividend policy providing an attractive yield to shareholders. The Group has increased the interim dividend by 5% over last year and intends to make an interim dividend payment of 2.1p per share on 6 October 2017 to shareholders on the register on 22 September 2017.

Cash flow

The net cash inflow from operating activities in the first six months of 2017 was £1.8m (H1 2016: £1.3m).

In the first 6 months of 2017 the Group made bank loan repayments of £0.45m (H1 2016: £0.25m) and paid a final dividend of £1.2m for the year ended 31 December 2016 (H1 2016: £0.9m for the year ended 31 December 2015).

Overall cash increased in the first six months of 2017 by £0.2m (H1 2016: £0.2m).

Liquidity

The Group had cash balances of £2.3m at 30 June 2017 compared to £4.5m at 30 June 2016. The reduction being mainly due to the acquisition of EweMove on 5 September 2016 which resulted in a net cash outflow of £3m; the cash consideration was £5m of which £2m was drawn down on the Santander loan facility.

The Group had unutilised bank loan facilities of £2.05m at 30 June 2017 (30 June 2016: £3.25m).

Financial position

The Group continues to be strongly cash generative. This combined with its robust balance sheet and unutilised bank loan facility puts it in a strong position to continue to fulfil the acquisition element of its strategic plan and to pursue the fulfilment of EweMove's potential

David Raggett, Chief Financial Officer

THE PROPERTY FRANCHISE GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2017

THE PROPERTY FRANCHISE GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2017

THE PROPERTY FRANCHISE GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2017