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Edited Transcript of CWD.L earnings conference call or presentation 31-Jul-19 8:00am GMT

Half Year 2019 Countrywide PLC Earnings Call

London Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Countrywide PLC earnings conference call or presentation Wednesday, July 31, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Himanshu Raja

Countrywide plc - CFO & Executive Director

* Paul Lewis Creffield

Countrywide plc - Group MD & Director

* Peter James Long

Countrywide plc - Executive Chairman

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Presentation

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Peter James Long, Countrywide plc - Executive Chairman [1]

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So good morning ladies and gentlemen, so all of you here in person and also a big good morning to everybody for this dialed in on the -- joining us on the webcast. We are presenting our first half results this morning, and the format is as usual. I will make some opening remarks. Himanshu will then talk about the financial performance. And then in terms of our agenda item 3 we turn to the growth strategy. Paul and Himanshu will double-act in terms of that session. And then I will wrap up and summarize at the end and then we will take any questions that you may have.

So let me make some opening remarks. We're a different business to where we were 18 months ago. This is a business now which is run by industry leaders under the stewardship of Paul. Paul has built a very strong team of industry leaders. This is a trading business and therefore that instinct is really important within our business. And now we have that in spades with that depth of industry knowledge and particularly in what is and continues to be a challenging market. We've brought back a number of colleagues, some 200, which is huge. Paul has empowered the businesses, and we moved away from a centralized structure to decentralized and re-empowered the business.

And that sits under an overall framework of Back to Basics now doing things well and executing very effectively. And this really then leads to the first half and the outlook for the year because this is the last picture here around so what does the second half look like as well. We entered the year with assumptions around transaction levels both in sales and commercial.

We changed our guidance in terms of at the prudence and in April about the market because Brexit didn't happen as we all know. And we have assumed in our planning the market -- we're not relying on improved market conditions. And our numbers for the first half are in line with the expectations, the Board's expectations. We have been building back our business and we've seen a growth in our market share which was one of the key platforms in terms of Back to Basics.

But we are looking at the business around being reliant on what we are in control of, what we describe as self-help measures, and we've looked at our cost-base and we've looked at our cost-base to ensure that it's aligned for the current level of activity. Those actions that Paul and the team took were in the second quarter, so there's a big benefit that comes through in the second half of the year. We've also had very positive and supportive discussions with our banking group, and we've reset covenants with their agreement to give us the flexibility to continue to execute on our turnaround.

Because this -- there's a lot of actions done in the second quarter where we will be describing, both Paul and Himanshu, those actions in more detail that have been taken as well Himanshu talk about the covenant reset. So the second half of the year is going to be very much underpinned by those cost actions. We will absorb the impact of tenant fee ban which came into effect from the 1st of June. And Paul will talk about this momentum that we've now got building with what we describe as complementary services which are selling product to our customers that are very beneficial to them.

The first one is mortgage advice and mortgage products. Because of our size of business, we obtain very attractive mortgage rates for our customers and that is proving very popular for many of our customers who are allowing us to arrange the mortgage for them.

The other aspect is that we have a very large in-house conveyancing group and that team can steer our customers through the chain typically 3 to 4 weeks quicker than if they were using external lawyers. And in this market, we see that as a huge strength and again Paul will be describing in more detail that momentum and the benefits that it brings to us. Which then leads us to so why the confidence in the outlook for the year. We're confident in the outlook for the year because the actions that we are taking, those self-help measures, are within our control and we are actively implementing those self-help measures. Clearly the overall market and the political environment and the Brexit uncertainty remains, but we believe that we are in a very strong position to continue on the turnaround of our business.

So without further ado, I'm going to ask Himanshu now to come up and he will talk about the financial performance.

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Himanshu Raja, Countrywide plc - CFO & Executive Director [2]

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Thank you Peter, and good morning, everyone. I'm going to cover off the financial performance in terms of P&L, an overview of the segment performance for the half as well as the cash flow. Of course in these results we see in common with others that we've adopted IFRS 16 which will be on a transition basis and that means the H1 includes the effects of IFRS 16, but the prior year does not and is therefore not on a like-for-like basis that as the transition adjustments go through open reserves. But you'll also note through the results even -- IFRS 16 is an accounting change, it does not affect closure of the business, it does not affect the cash position or the cash flows of the group, it does not affect our relationship with lenders and debt from the way covenants are managed. But it's a subject that attracts clearly a lot of attention as you go through the cycle.

What we have done in our results and what we'll take you through in the presentation is the results on a like-for-like basis, but I've included 2 slides in the appendix for those either on the webcast or in the room that would like a conversation on IFRS 16 and the group finance team is also here, so that offer is there for you. So like-for-like performance, clearly why IFRS 16 affects those of you updating your models on interest and so on, I'll kind of group out to help you, but otherwise, it's like-for-like performance.

Let me turn then to the summary financials on that basis. Our group income was GBP 291 million, down 4% year-on-year, and that compares with 7% down this time last year. If you recall, we said 2018 was our year of reset and 2019 is the first year of execution into our 3-year turnaround plan. Today Paul and I will take you through the proof points so that you can see what we see which is and this ship is beginning to turn. We saw a good progress in our Sales and Lettings business, which Paul will cover off in more detail, and (inaudible) B2B in Surveying and Conveyancing, those businesses are also in line.

The one disappointments in the results is a 9% decline in our commercial business Lambert Smith Hampton which was -- it maintained its consultancy income, so a downturn in commercial transaction income due to the effects of Brexit and we flagged that as Peter mentioned at the time of the prelims, and again at the end of April at our AGM. Those effects are still continuing and Paul will give some color to those.

Our adjusted EBITDA on a like-for-like basis is in line with what we signaled at the time of the AGM at GBP 3.9 million EBITDA, which was down GBP 6 million on the prior compared with our guidance that we'll be down around GBP 5 million. And as you've seen our release that was wholly attributable to the GBP 5 million down on EBITDA in LSH.

On an IFRS 16 basis, we adjusted -- we benefited the adjusted EBITDA level by GBP 16.3 million as operating lease rentals drop away and are replaced by rights of use, depreciation and interest on the lease rentals. After depreciation, amortization of GBP 10 million, operating profit was also GBP 10 million. I expect depreciation and amortization for the full year to be at around GBP 20 million on the new basis.

Finance costs were GBP 5.1 million and we benefited from average lower net debt following on from the capital raised last year. And again that benefit is marked. On a like-for-like basis, our interest charge went from around GBP 5 million this time last year to GBP 2 million. And then you get an IFRS effect which makes it GBP 5 million for this year.

Finally turning to exceptionals, the detail of the GBP 43 million summarized and is set out in the release in detail. The largest element of exceptionals is GBP 36 million of noncash impairment charges. The cash-related exceptionals were GBP 4.6 million, of which GBP 3.4 million is already washed through the cash flow and GBP 1.2 million results in future cash outflows in relation to property exit on loss-making branches that we've exited through the period.

The rate of tax for the period is 5.7% and the 2019 forecast tax rate is 4.9%. In the period we got a tax -- a cash tax refund of GBP 900,000 and I expect no cash tax charge in 2020 owing to brought-forward losses. The underlying profit after tax was GBP 4.7 million and the [stack-through] retained loss was GBP 37.7 million. Adjusted earnings per share was GBP 0.3. On debt, we finished the year with net debt of GBP 90 million, which is on the pre-IFRS 16 basis, and a net debt-to-EBITDA ratio of 3.4x.

This is a GBP 19 million increase in net debt since the year-end and reflects the seasonal nature of our cash flow as well as the investment of GBP 9 million in IT transformation, which is an investment that will unlock future cost savings.

Let me just cover off the segmental performance, which then Paul will build on in his section. Starting with Sales and Lettings. Sales and Lettings were a loss of GBP 4.5 million, down GBP 800,000 year-on-year, which is effectively (inaudible) tenancy ban. The tenancy effect was in line with our previous guidance, so I expect the full year effect to be around GBP 6 million to GBP 7 million in 2019 with an annualized impact of around GBP 12 million. This is also the benefit of the self-help measures that we've already taken in the Lettings arena to mitigate the effects of tenancies in gross terms.

The overall performance in Sales and Lettings also benefited from the self-help actions that Peter referred to earlier on complementary services and on cost actions, for which we will see significant benefits flow through in H2. Specifically, the Conveyancing income which we recognized in Sales and Lettings is up 27% year-on-year. And going into the second half, we have a strong pipeline that we'll complete in the second half.

And on cost, on top of the planned cost actions, we took further actions to accelerate and reset our cost structure, which underpinned H1 delivery. And that included branch closures, realigning staffing levels, looking and assessing the return on our marketing investment in each of our local markets, and of course reducing overheads and discretionary costs.

In Financial Services, we posted GBP 6.4 million, down 12% year-on-year. We saw a drag in the P&L in Financial Services because part of our build back was bringing back more within protection consultants in the branch network. And we expect to see the results of that investment flow through into the second half as those fee-earning consultants come online and deliver productivity.

Our results in B2B in Surveying was a really robust result. A strong momentum in Conveyancing as I noted earlier in the penetration of sales from estate agency. And therefore, overall pleased with the progress before the effects of LSH, which I've already referenced. Other segments reflect the ongoing action on cost reductions.

And then turning to cash flow. This sets out the operating cash flow and this is necessarily on an IFRS 16 basis. It starts with the GBP 20 million IFRS 16 EBITDA number. But remember, IFRS 16 does not affect net cash, it simply shows cash flows essentially reclassified from within the EBITDA to repayments of capital elements of finance leases of GBP 12.7 million that you see and the interest charges of GBP 3 million that I referenced earlier. Our operating cash flow on this basis was GBP 16.2 million.

In terms of the uses of cash, our steady state CapEx was GBP 2.5 million. And by way of guidance, I expect to see around GBP 6 million to GBP 8 million of steady state CapEx for 2019. The GBP 12.8 million of IFRS 16 lease payment is shown now as a use of funds. Tax, pensions and interest of GBP 6.1 million was a tax inflow around GBP 900,000; regular pension contributions of GBP 2 million, and the GBP 5 million interest, which I broke down earlier. In the second -- in the half we saw debt reduction benefit offset by the IFRS 16 elements of rental payments around GBP 3 million.

Cash from operations with a cash outflow of GBP 5 million, down only GBP 1.9 million in spite of the EBITDA being GBP 6 million down. And after contingent consideration from previous acquisitions and IT transformation and restructuring costs, total cash outflow was GBP 20 million. This is the last year in which we'll see significant contingent and deferred consideration and that really begins to phase out in 2020 and 2021. Finally on cash flow, we completed our pension fund [triennial] review and we agreed that the GBP 2 million cost per annum will remain static for the next 3 years.

Let me now just turn to guidance before handing back to Paul. We are confident that we'll deliver the full year results in line with the Board's expectations. In Sales and Lettings, there is good momentum with pipelines entering the second half in line with the first half of last year. Our income streams are also underpinned by self-help measures on complementary conveyancing services. And of course we took the further cost actions and accelerated the reset of our cost structure, which will deliver around a GBP 5 million incremental benefit in the second half. Together, these actions will more than offset the effects of the tenancy ban around GBP 6 million to GBP 7 million. We have a clear line of sight to our Sales and Lettings business returning to profitable growth.

In Financial Services, the results in the first half reflect the level of investment required to build back mortgage consultants and we expect productivity gains will be made during the second half as these (inaudible) deliver to more experienced levels of productivity in writing mortgages.

Within B2B, surveying contract retentions provide confidence in the delivery of that business in H2, whereas Conveyancing has continued to deliver the greater attachment rates from the sales of conveyancing services and also conveyancing referrals from Financial Services. This delivery will be offset in B2B by the ongoing weakness in capital and commercial transaction markets in LSH.

Let me now pass you over to Paul to take you through the pillars of our strategy. Thanks, Paul.

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Paul Lewis Creffield, Countrywide plc - Group MD & Director [3]

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Thank you, Himanshu. And say a good morning to everyone, let's just put ourselves onto the slide. Before I start this, I thought it'd be really good both to build upon what Himanshu said and provide you some degree of clarity around the market context in which we're operating. I think none of us can challenge that the market conditions are really tough at the moment. Significant uncertainty around the political environment and Brexit have impacted our market.

And what I wanted to do is to bring out a couple of small statistics that help I think to bring that into context. Our Land Registry published the full Q1 housing transactions for this year compared to last year and the market is 9.9% down in Q1 compared to Q1 2018. That's a significant shortfall in anyone's kind of history if you like. Perhaps 2008 was more dramatic, but that is quite a shortfall and we've delivered against that backdrop and we certainly see ourselves looking out into half 2 delivering as well.

What we've also provided a really interesting statistic which is new properties, these are people wanting to sell their homes, so there's been a reduction so far this year of 7% of new properties coming to the market. And I think that's a sign of nervousness in the market amongst consumers. The other interesting part to that was 25% of their stock and as you know 95% of properties for sale in the U.K. appear on Rightmove, 25% of their stock had been on the market for 6 months or more. And that is quite significant actually because that stock is going stale if you like and you know what it is when you moved as well. So putting that into the rounds we've delivered against that background and we'll continue to do so through half 2.

I did want to touch upon something Himanshu stated about the commercial market. The commercial market for Lambert Smith Hampton, and that was the big delta if you like year-on-year for us, it was actually the whole of that delta, hasn't been down for the consultancy part of that business which is around 70% of their revenues. It's the transactional and capsule markets arena that is found that is 30% of their revenues and of that 30%, 20% is down year-on-year for them, but that's reflective of what's going on in that market. Commercial property transactions are measured in terms of investment in the U.K. and that market for investors is 30% down. So we have to navigate that, but we see and we're looking forward to the post-Brexit scenario to see that change.

However, against that bit of negativity, there's always some positive out there. The macroeconomic conditions for the housing market remain I think really, really positive. It's still in our culture, British people want to buy property, they want to buy their own their own home, so that's good. So that culture still remains. The population is growing. People are living longer. So the demand for housing is really there. So at some stage that pent-up demand will feed through into the market. So it's a matter of time and we're not here to speculate when that might be, but that's pretty much factual.

So hopefully that gives you a feel as to the market context in which we are operating in. So a very quick recap on our 5 pillars which we called Back to Basics. We said -- and there's 5 things, and I won't go through these, these have been in your pack. We go back to basics in Sales and Lettings. That's around turning around what's making branches and making sure we've got the right people in the right quantities in the right branches. Growing our complementary services that both Peter and Himanshu touched upon, that is within our gift and I'll spend a bit of time this morning talking about that.

Continued growth in our B2B sector and in our Financial Services business, that is really important. That's quite a strong main state of this group and we've been talking about increasing our mortgage and potential consultants in the network. And then finally cost efficiency which is around 2 things really, our investment in the IT infrastructure for the future of the reengineering of that contact centers to provide the efficiency and lower the cost of delivery. And finally financial discipline and cash flow.

So the details are in the pack. So out of those to bisect kind of what have we done. Again on this slide I'm only going to pick out one or two highlights because I want to get into the detail of some of the real nuggets here. So in Back to Basics we talked about returning loss-making branches back to profit. We are doing that. We've got a heavy focus upon that, but we've also closed a number of loss-making branches that I will touch upon. For me having a really large branch network that we have in excess of 800 branches when we last reported on that, if you've got branches in small towns, but even is a good market barely make a contribution to the business, you question why we have them, so we've also looked to branch closures.

Complementary services, that second pillar. This is about driving behaviors and cultures within the Countrywide business that is an integral part of what we do and just not about selling homes. It is about selling the full service out there. Continue growth, I talked about branch coverage of mortgage and protection consultants and I'll just tease out here one statistic. At the end of 2018, our mortgage consultants only covered 71% of our network. We are now up to 84%. There will always be branches where they can't sustain a full-time person, but effectively as our branches as we have closed some get bigger, are more profitable, then we can afford to put a mortgage consultant in there. So making the most out of our investment in that establishment.

Cost efficiency and financial discipline in cash flow, the final two. The detail of that will be covered in a moment by Himanshu. So let me move on some of the detail of Back to Basics, why it's working. So I think in half 1 we've had a really resilient performance in the challenging market that I referred to, and importantly, which I'll touch upon now, the cost actions we've taken in half 1 bearing in mind we only really started work on that at the beginning of Q2, we started to see the impacts of that first coming through in May and June into our P&L. So it annualizes through half 2.

So that provides us with strong momentum and confidence for our delivery in half 2. So as Himanshu mentioned in terms of our overall Sales and Lettings business, income was GBP 158 million, 4% down year-on-year. But when you compare to the previous year, the rates of loss is reducing. And you need to factor in the 10% reduction in the market as well. So good progress we feel in estate agency. Right at the start of that, markets have changed down the years. One of the most important things is winning new listings in the market because without the stock you're not going to sell anything. Our market share of listings is growing from 7.8% at the end of 2018 up to 8.4% as measured independently for us by Rightmove. Exchanges 2% down year-on-year against a market reduction of 9.9%, so really happy with that.

Now having said what I've said about market share, people combine market share out there because they can just sacrifice their fee if you like to win market share. That is not what we do here. That's a dangerous road to go down, so I'm delighted to report the withheld income per exchange to in excess of GBP 3,200. Our average FTE as you can see here is down 350. That's primarily to reflect the activity levels in the market that we've seen in Q1. So we've looked in our branch the numbers of people we employ in the branch and where we have 6 let me say, if we feel we can live adequately on 5, then that's good. But the impacts on the people perversely is they kind of welcome that because their ability to earn through commission increases, so they feel more confident, so that's really good.

So overall happy with Sales. On Lettings we continue to be resilient in that business. We are down 2% and that really affect the first elements that we've seen of the tenant fee ban in England that came in on the 1st of June. Our market share again is very important because we need that stock. We've gone up only slightly, so we went up from 7.25% to 7.3%, but there's a really good reason for that. Government policies around buy to let, so the additional tax not only when you buy properties, but the phasing out of mortgage interest relief and the wear and tear allowance is -- really has an impact.

And one quick statistic from a year ago, we're waiting for last year's, is the number of available properties in the private rental sector was down 4% in the year. So that was back to 2017. We're waiting for 2018 and what government will tell us, it could be more. So that market is shrinking as landlords start to sell on. So the availability of that stock is really, really important. So what comes with that is landlord retention for us. Historically, we did use to lose landlords, but now it's a matter of what we need to do to support landlords in that sector. So our rate of landlord attrition has improved from 80.5% which the figure was at the end of actually 2017 up to 84% as we speak in 2019.

Properties under management we said are 2% down. That breaks out differently across the U.K. That's really all driven outside of London and the corporate arena. So what we refer to U.K. north and south, again, a better performance and the market being off 4%.

Tenant fee ban, there's been a lot of talk about that. It came in, in England on the 1st of June. We expect to see that happen in Wales on the 1st of September. The impact is obviously much, much smaller there for us. So the tenant fee ban mitigation, delighted to say with our cost actions and our tenant fee ban mitigation, we've totally covered that. So that's good as we proceed out into the half 2 of this year.

So the self-help, the really important nugget that Peter teased out earlier. It's in 2 areas, those self-help measures. One is around the sale of complementary services, ancillary revenues. Conveyancing, big, big focus on that as we can see. Instructions year-on-year 17% up. That's a significant increase, and we've driven that through culture and driving and putting the targets out there and supporting people to deliver that. And in Financial Services, it's about the buildup of consultants as I referred to in our network.

The second part, and there's a guarantee in anything you do in this world, and that is in your pure cost. So the cost actions we've taken through branch closures, staff reductions and general cost spend items in the group will have a significant impact for us in half 2. We started to see, as I mentioned, in May and June the annualization effect gives us that strong confidence of delivery in half 2.

So in a challenging market, we've got a strong closing pipeline for half 2 in core trading in our sales business. We said income was down 6% and this is just sales and not Sales and Lettings together, income down 6% in sales versus 23% down in the equivalent period in 2018, and in anyone's terms against a smaller market I think that's a good performance.

Excluding our closed branches, sales income was only down 3%, but the important points here that will be drawn out as you can see on the quarter-by-quarter chart as well, our register of stock driven by that market share growth 6% up. And our pipeline and the pipeline is agreed fees, so sales that have been agreed and the lawyers instructed and the chain complete, the pipeline is up 3%. So that provides us again in core trading, putting apart from the cost savings, a good momentum into half 2. And that complementary services, half won last year, I stood here and I talked about GBP 0.43 in the pound that we've driven up from GBP 0.38. Delighted to say now we've gotten that to GBP 0.49 in the pound. So a magic one penny away from where we were IPO in 2013.

So a little bit of detail about north and south. So we've got continued good progress there, and strong closing pipelines underpin our half 2 performance. So in the north of the country, that has been less affected actually by far. Income flat year-on-year, which is really good. The register 6% up and the pipeline 2%. So that's really, really good. So that's up nicely in the north now for half 2. And our complementary services in the north sit at GBP 0.75. The demand in housing in the north for our complementary services of mortgages, general insurance and conveyancing has historically always been higher in the north because in the south we have the London impact and the higher value property and on those some people would have existing relationships.

So in the north, that's really good. In the south, that part of the country was affected over the last 3 to 4 years to a much greater extent than it was in the north. The good news is we've put a lot of focus back on to that, got the right people in place. Our income flat year-on-year, register actually up 11% in the south, and that will easily come out in these stats and you see on the chart, and the pipeline of agreed sales up 9%.

Complementary services as I said dragging slightly behind where it is in the north. So in the second pillar, complementary services, good progress as I've mentioned in the first half of 2019. Great momentum in Conveyancing, but a little bit of lag in our Financial Services business, and you'll see that in the numbers because when you appoint the new mortgage protection consultant, they're not 100% productive on day 1. It normally takes up to a year to get them up to full productivity.

So Conveyancing business I'm really proud of. We are one of the leading -- we're top 3 leading U.K. firm, legal services in Conveyancing. We've won 4 awards already this year, including Best Conveyancer of the Year. We're absolutely delighted with that. And the one beauty we have over many firms because we act mostly for our estate agency sales and purchases, the people are taking our financial services offering, we get to compare what our performance is when we do it compared to when a third-party firm does it.

And Peter has touched upon that. And on average, this is just an average, we achieve legal exchange of contracts in England and Wales 13 days faster than when our chains use external lawyers. So we're really delighted by that. That's a great statistic and has underpinned some of the awards that we've been given.

So gross Conveyancing revenue in the business up 8% in half 1, really, really good. Financial Services, our focus, as I said at the beginning, was to build up our mortgage and protection consultants. And as a result of that, increase referral rates from our estate agency branch network for customers that need mortgages. And I've said there is a link to that on productivity. Consultants don't get to productivity for about a year, so we're carrying that and we'll start to see the improvement as we move forward into half 2.

Our B2B business, strong half 1 performance as referred to by Himanshu in survey, particularly delighted with that. And really good momentum for Conveyancing that will feed through into half 2. The impact you'll see on the numbers in B2B is wholly down to Lambert Smith Hampton and I touched upon that earlier. So in Surveying, the really good news for us, clearly, we act for major U.K. banks and building societies to consolidated market, the mortgage lending that these days and we've maintained significant allocations with the top 3 of our clients that have retained it earlier on this year. So to retain those contracts is really important for us.

We've also for the first time held an agreement with Santander for their first-time buyers to provide those customers funded by the bank a free full survey, and that is to protect their customers. We have got that contract 100%. So it's a trial to see how it goes. So it's important that we service that. So we're really delighted to have been picked to do that.

As you can see our valuation completed numbers are on par with half 1 2019 against the challenging transactional market where fewer valuations are available. Conveyancing, total group instructions, as I mentioned, up 17% year-on-year. Our completions, and that is when we get paid, 16% up year-on-year. So that is really -- we can see that coming through, we've got that already. And importantly as well, our pipeline is 18% higher as we go into half 2 year-on-year. So that sets us up well into half 2. We've had to make an investment in half 1 because we know in Conveyancing we have to service. We can't hold up chains. We can't always be the lawyer that's always at the end of the chain. We have to be on the front foot. So we've funded an investment into our people to build up our capacity for this extra business in half 2.

Lambert Smith Hampton, well, I touched upon that earlier. The important thing is we've got continuous strength in our consultancy delivery. Some challenges that will be more short-term I believe in the transactional arena.

Finally from me, Financial Services. Really important part of our business is really robust here. There's been some challenges, but let me just touch upon that. In terms about mortgage distribution, we've seen a 3% growth in our gross value of mortgage distribution, up from GBP 9.5 billion to GBP 9.8 billion in half 1. We're delighted against that because that's outstripped the market which only went up according to UK Finance by 1%.

In terms of gross numbers of mortgages written for us, 1% up. So happy with that. But the increased investment into mortgage and protection consultants, growing that number in coverage in the U.K. will provide significant increase for us we believe into half 2, once we get through that lag of productivity with them. But sometimes you need to make those investments for the future. As you know, that's the core part. So our consultants in the branches is the core part of our business. We have in our Financial Services division, 3 other businesses that are more specialist. So the Buy To Let business in terms of performance, but obviously mortgage exchange numbers, that drives the income. Buy To Let business 16% up. Mortgage Bureau, which is our specialist new homes brokerage up in the Midlands, 2% up. Only in our network of Mortgage Intelligence, that was 1% up.

The important message again over a 12-month period and a third of our consultants have less than 12 months service. As those start to come on-stream with their productivity, that will feed our figures through into half 2. So delighted with that.

So, thank you. And at this stage, what I'd like to do, Himanshu, hand over to you to talk through cost efficiency. Thanks everyone.

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Himanshu Raja, Countrywide plc - CFO & Executive Director [4]

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Thanks, Paul. A familiar story by now and one which has intense focus in the company. You know we previously reported a significant increase in the indirect cost-base between 2014 and 2017, a time when income was declining. And therefore we started our journey in 2018 to radically resize our central function costs when we took out around 150 people, we shut down our Central London HQ from the premises in Oxford Street to a premises near Aldgate. And our indirect costs over that period is therefore reduced by 14%. And of that, we reinvested around GBP 6 million in Sales and Lettings.

The reset of the cost-base has really taken place in the first half in light of the current market which Paul has covered in detail and is listed there for completeness. The numbers, which is what's really important, are covered on the next slide. You'll recall that we are focused on 3 structural opportunities. On the top right, IT; on the bottom left, customer contact centers; and on the bottom right, the group-wide overheads. But I've also added the color on the cost actions on the top left that we took in 2019. And I just want to cover all of those in a little more -- bit more detail.

We are targeting GBP 15 million to GBP 20 million of cost savings from the 3 structural programs on top of the savings that we've made this year. So starting with the top left, the cost action this year will deliver around GBP 8.5 million -- say GBP 8 million to GBP 9 million, so down GBP 3 million in the first half and we'll get the benefits of around GBP 5 million in the second half. Turning to top right. Our IT transformation commenced as you know in the second quarter of 2018 and we've been in delivery mode through the second half of 2018 and into 2019. And that, to remind you, is about transforming our infrastructure, the data networks, the voice networks, the hosting. It's also about simplifying our application estate to remove multiple databases in multiple applications and make the organization more efficient and lean.

Our delivery is well underway as evidenced by the GBP 9 million invested in H1 on IT infrastructure. And the size of the price going forward remains at around GBP 14 million incremental savings. Turning to the bottom left, customer contact optimization, this has moved now beyond the fact-finding stage and analysis stage, and is now in the early stages of mapping out the end state processes and therefore beginning to set out the delivery milestones. We are confident of delivering the GBP 5 million of cost savings whilst improving customer experience and aiding the retention of customers at the same time. We believe there'll be more to come out of that, but we'll save that for another day.

Adding central and support functions on top of the GBP 10 million that we delivered will continue to rationalize processes and resources through '20 and '21. And I expect to deliver an incremental GBP 3 million from that category.

And finally, let me turn to financial discipline and cash flow. You remember there were 3 priorities here; working capital discipline and capital allocation; the timeliness of billing and cash collection; and leverage. I'm taking leverage to begin with. At the time of our firm placing and placing an open offer in August 18, we reduced our borrowing facility to GBP 125 million revolving credit facility repayable in September '22. The group's covenants are calculated on what's known as frozen GAAP before the adoption of IFRS 16 and results in a net debt of around GBP 90 million at 30th of June. And therefore, the net debt-to-adjusted EBITDA ratio is 3.4x compared with 31 December of 2.2x.

When we did the capital raise this time last year, our planning assumption was that Brexit would have been and gone by March 2019. Well, remember, Brexit means Brexit, but whatever that means. Well, we know Brexit has shifted to the right. And in view of Brexit shifting to the right, our lenders agreed also to shift our covenants to the right, with an expansion of covenants through March '20 and an extension of the covenants through September '21, an 18-month window as we navigate the difficult and challenging market that is Brexit. The group's lenders remain very supportive and the covenant package provides the group with the financial flexibility to continue to execute the turnaround plan. The group has previously acknowledged its commitment to reduce the leverage ratio down to the group's medium-term target of below 1x.

Turning then to cash flow and working capital. We will see meaningful cash generation in H2 from operations and that will fund the investment that we're making in IT. Our cash from operations was GBP 5.1 million, and GBP 1.9 million lower in H1. And H1 is seasonally weaker, reflecting the seasonal trends in the property cycle. On the working capital front, we've made significant improvements in our working capital management, in our debt and debt collection practices in new homes and in our commercial terms, and also in our LSH business. And we continue to be very disciplined in the allocation of capital through the investment committee process we introduced 2 years ago.

Procurement is still unmet and we still have opportunities in procurement which remains an area of untapped opportunity, but still over 9,000 suppliers in the business, and we can do a better job of leveraging the group's purchasing power and we'll seek to get after that in the next period of time. So net-net, second half cash flow very different from the first half cash flow, which is a pattern that you will have seen before.

With that let me hand back to Peter.

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Peter James Long, Countrywide plc - Executive Chairman [5]

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Thank you, Himanshu and Paul. You've heard in terms of the 5 pillars of our strategy, and where we are in the turnaround program. And I think there's some very positive proof points to reiterate that came out in both Paul and Himanshu's presentation. I think it's interesting and very positive that our exchanges for the first half are only marginally down 2%, down year-on-year, which is quite different to what we're seeing, building in the first half from the published HMRC and Land Registry data.

We've got a positive situation within our register of properties, up 6%. We've got a positive situation in terms of our pipeline of agreed sales, up 3%. We've got a positive situation in terms of the complementary revenues and we measure that pence per pound of sales revenue, go from GBP 0.43 up to GBP 0.49, and as Paul also called out, a big increase in terms of the pipeline of Conveyancing up some 18%.

There's a very clear plan in terms of the cost actions, and they're already embedded and being executed. And that is -- that encapsulates in terms of those self-help measures that we've talked about. And I think it is worth reiterating because you've heard how we're going to do it and that's why we come to the conclusion that we are confident in terms of the full year results being in line with Board's expectations because it's underpinned heavily by those both self-help revenue and cost measures.

So that's the presentation, ladies and gentlemen. Any questions from the analysts? Young man.

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Questions and Answers

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Unidentified Analyst, [1]

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[Michael Brown], (inaudible). Just about the -- if you can discuss the thought processes when making branch closures and key criteria assets besides the obvious cost and profitability? Second question is how many levels you can pull to deleverage faster if you need to, for instance, go for further asset sales going forward? And finally, it'd be interesting to hear whether you've seen any impact so far from [BORC's] prospective plans for stamp duty?

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Peter James Long, Countrywide plc - Executive Chairman [2]

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Very interesting questions. Thank you very much. Paul will do 1 and 3. So why don't you just cover those sequentially before, and then Himanshu will pick up levers.

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Paul Lewis Creffield, Countrywide plc - Group MD & Director [3]

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Certainly, will do. Really good questions. Thank you. In terms of the criteria that sat around the branch closures, to give you some examples, we looked at every single branch that we operated in excess of 800 across the U.K., so it's a complete kind of review of every one. We didn't just look at financial performance this year. In fact, we went back at least 3 years, if not more, and looked at Sales and Lettings performance over that period, and also the level of complementary services that they drove for other parts of the group.

So we didn't look at it in isolation, how they performed in sales, we looked at the total revenue and profitability for the group driven by that branch so that we didn't miss anything and we think that's really important. Certainly branches that we closed, if we find -- found a branch that let us say 3 years ago in a much better market was barely making a contribution. Then for us that was an easy close, right? Probably if it's only making a very tiny contribution even in a good market, why would you put all of your efforts and resources into that? So those branches got closed. Branches -- and there was a number of examples where we had, for example, 2 in the same High Street where they are in totally different property segments or pricing segments.

So for example, perhaps Hamptons and (inaudible), that's fine, because they never compete against one another. But where there are 2 branch primarily competing against themselves in the same market, why duplicate that overhead into 2 establishments and 2 sets of people and duplicate everything? So for us, we chose the poorest-performing branch, there's still a couple of those to do by the way, but we chose the kind of poorest-performing branch and then invested everything into the highest-performing branch. So we actually concentrate our resources where it would give us the greatest concern.

And finally on the branch network, we are also mindful that, for example, we may be acting for a developer locally and signed an agreement where they've got 300 houses to release over the next 2 years. We wouldn't obviously shut it for that reason because that is -- those instructions would move off elsewhere. So we looked at everything around that branch. And also we had an eye to what was going on in that town in terms of the total level of transactions in the market because for me, if you're struggling to make a profit, and you've got a 30%-40% market share to take it to its extreme in that town, then there's no point, you shouldn't be there. And what we've done in those closed branches, we've transferred the register from pipelines and the opportunities for the future to the next nearest main branch. So those are some of the criteria that we've put and I hope that was helpful to you.

In terms of BORC's plan, just you mentioned kind of stamp duty there, SDLT. We will be hugely supportive of that because in history, if you go back into the early '90s when the market was really kind of on its knees, it took government to introduce a stamp duty holiday to kick-start the market. There's plenty of examples of that down the years, when I've been working in agency where that -- government has used that tool. It is within their grasp to do that. And plus also to get the markets going, almost the taxes got so high on stamp duty, whereas in the north it doesn't generally impact people too much because they're below the threshold or they might be into the first stage of it.

So -- but average families in the south, you know how expensive it is to buy property. The impacts of those on stamp duty to move, whether they're first-time buyer in the south or London, or second time, third-time mover, it's very significant indeed and in spite of the market. So our call has always been to government kind of review it, lower it, because it stifles what is one of the most important parts of the U.K. economy, the housing market, because it also drives a lot of other activities. So we support it with one caveat, right? Don't announce it too far in advance because the whole of the market then check to that period because human nature being what it is, if I can save GBP 30,000, right, I'm going to cancel my sales, sit back for a few months until it's in. That's not good. You're better off kind of planning that and not announcing stuff too far in advance. So that's points 1 and 3.

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Peter James Long, Countrywide plc - Executive Chairman [4]

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Very good. Himanshu?

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Himanshu Raja, Countrywide plc - CFO & Executive Director [5]

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Deleveraging REIT, I think 2 elements for that; one is the leverage ratio; and second is the absolute levels of debt on leverage ratio. You'll have seen from this morning's presentation all of the self-help leases that we believe we have available to us around driving and continuing to build that in Sales and Lettings in the cross-sell and complementary services and in cost out. And feel that that drives the EBITDA number.

On the cash side, still staying on the leverage ratio. I referenced in my presentation that this will be the last year that we'll see the deferred and contingent consideration in the P&L and in the cash flow as that cash [gain] then drops away. The one investment we're committed to them making is in the IT and IT transformation, which again benefits the EBITDA number. Of course, we're committed to reducing the absolute levels of debt as well. As you referenced, disposal is up. Never say never, I mean, that's (inaudible) available to us. But right now we're focused on really driving through the self-help measures the leverage and driving cash flow.

I also mentioned in my presentation there remains more opportunity on working capital. I think the teams involved have made great progress, but we're not at the levels I would like us to be at right across the business. That includes the timeliness of billing and collections when properties are exchanged and client monies are held in the hands of solicitors. That's the other advantage, by the way, we get when it's held within Countrywide Conveyancing because it can be also for spurious reasons why a local solicitor or conveyancer might withhold the fees issue at the time of exchange, all the way through to continuing to improve what we can do in our B2B businesses. So that's both leverage ratio and deleveraging.

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Peter James Long, Countrywide plc - Executive Chairman [6]

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Thank you, Himanshu. Are there any more analyst questions?

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Unidentified Analyst, [7]

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[Richard Williams] from [Martin & Co]. Just one from me on Lambert Smith Hampton. Clearly there's been a drag on your results. Is there any plans to dispose of that business. There's previously been speculation about management buyout and things like that.

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Paul Lewis Creffield, Countrywide plc - Group MD & Director [8]

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That's news to me about a management buyout, but, yes, in the middle of 2016, we did pipe that business to market, that's a matter of public fact. And at that stage, we never had an offer for the business that was acceptable. And I think that was impacted because that was the middle of 2016 and right in the second round bidding stage, we got the Brexit vote result and all of a sudden people running to the hills. So we decided to kind of withdraw basically on that. We have no current plans, but we keep it under review.

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Peter James Long, Countrywide plc - Executive Chairman [9]

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Thanks, Paul. Any other questions?

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Unidentified Analyst, [10]

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My name is [Ray]. I've been writing about proptech for about 6 years now. I would like to understand more specifics around the IT transformation and who's leading that. IT transformations are very hard, a lot of people have lost a lot of money on them. You see even proptech startups like Goodlord losing a lot of money. The second thing is, you've done an incredible job to turn this around. So thank you very much. But what does the future of this group look like? Where's the growth going to come from and who's going to lead that?

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Peter James Long, Countrywide plc - Executive Chairman [11]

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Sir, you are not an analyst, and this is an analyst presentation. So we're not here to have general questions from people today. So I'm afraid we are not going to answer, take questions from you. Nothing personal, but this is an analyst presentation. Anybody else is listening in, but it is purely for analysts.

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Himanshu Raja, Countrywide plc - CFO & Executive Director [12]

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Any more question?

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Peter James Long, Countrywide plc - Executive Chairman [13]

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It's been a busy morning in the sector. The learn for us in future is that we will take that in consideration in terms of our planning. Thank you all very much for joining us today. Thank you.