Earnings Transcript for RMV.L - Q2 Fiscal Year 2019

Peter Brooks-Johnson: Good morning, everyone. And welcome to the presentation of Rightmove's Half Year Results. My name is Peter Brooks-Johnson; and I'm joined by Robyn Perriss, our Finance Director; and will be joined later by Miles Shipside, our housing market analysts. Recognizing this is our first webcast results, for those of you who are regular to our events, we've amended the running order. I'm going to talk through the highlights of the last six months, Robyn is going to go through the more detailed financials, and then I'm going to spend a little bit of time giving you some more color on the housing market and a product update, and we'll finish off with questions from you in the room. So on to the highlights. In the first half of this year, we've delivered financially. And more importantly, we've delivered strategically, which sets us up well for the future. You'd be right to assume that the political uncertainty, which has led to a more hesitant housing market would be more challenging for some of our customers. For some, it is, and advertisers on the 30th of June were standing at 20,209, which is 1% lower than the 31st of December. But for many, it creates opportunities. And Rightmove is the place where many of our customers choose to invest to exploit those opportunities. As you can see, with a record ARPA growth of GBP 90 year-on-year. It's in market conditions like this, one can see the unique position Rightmove holds and the robustness of our model, with revenue up 10% year-on-year to just shy of GBP 144 million. And that increase flows through to profit, with EPS just a shade higher, as a result of our continuing share buyback policy. Consistent with our long-established policy, we're increasing our dividends by 12%, in line with our EPS growth. Beyond our KPIs, we've made much strategic progress so far this year. Agents compete to win a greater share of instructions using the Rightmove product suite. They also trust us to deliver products that work. As many agents who are seeing opportunity have chosen to invest in our premium packages. We've seen a 30% rise in agents on either Enhanced or the Optimiser package in the first half of this year, and we now have 35% of our agency customers taking a premium package. New Homes developers continue to recognize the value of the Rightmove digital marketing solutions to access our unique in-market audience of home hunters. Our revenue from our e-mail, SMS and Facebook marketing, on behalf of those New Homes developers, was also a record in the first half of 2019, 20% higher than the same period a year ago. And as ever, we are restless, and we continue to innovate. We launched Auto Featured Property in May, and we already have nearly 500 branches signed up to the product. And in June, we started the early rollout of our next-generation digital marketing product for New Homes developers, Rightmove Active Extension. I'll talk about both of these later on. We continue to innovate to help agents be more efficient with the full rollout of our next version of our market-leading Best Price Guide tool, and also the launch of a new suite of tools to help agents focus on the markets, which present them with the greatest opportunity. And finally, we continue to innovate in the underserved rental market. We've enhanced the Rightmove Tenant Passport with a credit check and we're getting pleasing feedback from agents on its efficiency. And many of you who have seen this morning, we've announced our agreement to purchase Van Mildert, which gives us reference and rent guarantee insurance capability. Again, more of which later. There's much excitement for the future, but this is all built on our strong position today. I'll hand over to Robyn to talk about what we've achieved financially in the last six months.

Robyn Perriss: Everyone, take a seat. So thank you, Peter. So turning to some of the detail on the financials. And if we start with revenue. Our revenue was up 10% in the first half to 143.9 million, in absolute terms, we grew revenue by 12.8 million. If we take a look at the drivers of that, you can see on the revenue bridge, the vast majority of that revenue growth came to ARPA, which is our average revenue per advertiser, that grew by 11 million. That was a combination of membership price increases and continued adoption of our high-value product packages, such as Optimiser and Enhanced. And we also had 1.1 million growth from our other businesses, such as our Overseas, our Commercial and our Data Services business, and the primary driver of growth within that business line was our Commercial business, that was up £800,000 on year-on-year, which is growth of 30%. So turning to membership. As Peter said, we've ended the half with our overall membership numbers down 1% at 20,209. Our agency branch numbers, they continue to decline, they were down 3%. In terms of the kind of profile of those leases, they were typically lower-stock branches, who has been disproportionately affected by a more hesitant U.K. housing market and by cash flow constraints as an average, and transactions have taken longer to complete in the first half of this year. And the decline in agency branches has been offset to a large extent by meaningful growth in our New Home development numbers, they were up 10% to 3,441. That's the highest number of developments we've had in Rightmove since 2009. We continue to be in the U.K. marketplace, so we continue to have virtually all of the U.K. residential properties, advertising Rightmove with 1.1 million properties there on. In terms of ARPA today, we announced ARPA growth of £90, that's a record ARPA growth. So we ended the half year position as £1,077. All the detail of the ARPA is in the appendix to your presentation. In terms of Agency New Homes. But it is probably worth pointing out that the Agency ARPA growth was ahead of that in the New Homes. And if we take a look at the drivers of that strong agency ARPA growth, it's a combination of core price increases to our members. Together with adoption of our Enhanced and Optimiser packages, we now have more than one third of our agency branches and one of those higher-value packages, and we've had some small positive mix effect of the fact that delivers were typically on average lower spending customers. Turning to costs. Our costs increased by £2.8 million to £32.9 million. This cost increase principally represents growth in salary and wages costs, which is an increase in our average headcount, year-on-year, together with general wage inflation. And similar to last year, the phasing of cost this year, we believe, will be slightly more weighted to the second half of the year. That reflects the timing of headcount added in the first half of 2019, together with the planned timing on our marketing activities, but our overall cost guidance year-on-year is unchanged at around £5 million in terms of absolute cost growth. While that delivered in terms of underlying operating profit was a 10% increase to GBP 111 million and a margin of 77.1%. If we move on to the income statement, it's a very straightforward story with the strong growth in revenue and profits dropping through. This year, the IFRS 2 share-based payment charge and the National Insurance on share-based incentives, GBP 2.8 million, is exactly comparable to the same charge a year ago. And you can see that the tax charge of GBP 20.6 million, that's an effective tax rate of 19.1%. So our tax charge continues with the U.K. and active tax rates. Moving on to the balance sheet. As you recall, this time last year, I had lots of explanation about the 2 new big accounting standards, which was IFRS 15 revenue recognition and IFRS 16, the new leasing standard. Obviously, this year, the balance sheet is on a consistent basis. So there's no big kind of movement in those numbers. In terms of the key things to highlight, you can see that the net asset value of GBP 47.3 million, that's higher than this time a year ago, and that's principally because we've ended the first half of the year with a bit high cash balance. And also, we have a slightly larger trade and other receivables balance. In terms of that debit balance, that's really a function of the growth in revenue, but also that a great proportion of that balance is comprised by New Home developer customers. They don't place an advance by direct debit, they have payment terms. Moving on to the cash bridge and our dividend. We've continued to have very strong cash conversion over 99%, and we've continued to return our free cash flow to our shareholders in accordance with our policy. If we have a look at the movements in the first half of this year, we've had a working capital outflow of GBP 4.5 million, we paid GBP 16.9 million in corporation tax, and our capital expenditure continues to be really modest about GBP 600,000. And we've paid GBP 35.5 million in dividends, which is the full year dividend for last year, and we bought back 3.6 million shares at a total cost of GBP 18.6 million. We spent GBP 1.1 million to buying some shares for employee share schemes. And we've had GBP 800,000 of lease rental charges, meaning that we've ended the first half on GBP 54.1 million, which as I said, is a little higher than our historic cash balance. As Peter mentioned, we have today announced the acquisition of Van Mildert, and we will be using our free cash flow to fund the initial purchase consideration of GBP 16 million, and the balance of cash will be returned to shareholders in the second half in accordance with our policy. And finally, as Peter touched on in the highlights, we did announce an increase in our interim dividend, we grew that by 0.3p to 2.8p. That's an increase of 12%, with our policy being to continue to grow our dividend, and that's in line with the growth in earnings per share. I'll hand back to Peter, who will take you through the housing market update and strategy.

Peter Brooks-Johnson: Thank you, Robyn. Before we talk about Rightmove, I thought it was worthwhile to talk about the housing market. As there seems to be a lot of noise and the data does take some deciphering. As a brief reminder, agents are only sensitive to house price at the margin and has demonstrated great resilience over the years and to over drops in transaction numbers. And finally, despite all sorts of any distractions in 2014 to 2018, each year ended with around 1.2 million transactions in England, Scotland and Wales. This chart shows the cumulative number of transactions compared to last year according to HMRC. The orange line is the cumulative percentage change in transactions year-to-date. I've included the June data with an asterisk there, and that was published at the start of this week, it's worth noting that this is provisional data. And the June data doesn't actually correlate with a number of other sources, including the mortgage lending figures from U.K. Finance, which are much more positive. However, it may still be a surprise, given all the noise, but year-to-date transactions are only down 4.5% on last year. Back in February, I noted that we were seeing buyers and sellers hesitating to commit. But hopefully, we see some Brexit certainty to accelerate the market. Well, we haven't yet got that certainty. But as you can see from our proprietary leading indicator of sales agreed, consumers appear to be shaking off the shackles of uncertainty for now. Just a couple of health warnings on this graph. It's typically a three to six months leading indicator on transaction numbers, and directionally, it's a very strong indicator. It's slightly less reliable as a size of change indicator. Health warnings notwithstanding, I would expect to see some lower transaction months in the second half of this year, as these are sold -- these sales agreed work through the system. Given the transaction numbers are unremarkable, it's a reasonable question to ask why 3% agency branches have left the industry. The answer, as you heard from Robyn, in the May, is cash flow. This is a year-on-year change in the time from listing a property to the property being marked as sold subject to contract. Whilst the measure crept up last year, one can see the secondary impact of consumers hesitating in their house purchase. Time to sell is now 10% higher than it was this time last year. To compound this, there's anecdotal evidence that the time taken to complete the transaction, when the agent actually gets paid, has also increased. Now in the end, this timing isn't a particular problem for branches with larger stock. But the cash flow impact for branches with smaller stock is noticeable. And in many cases, it makes the branches uneconomic. It's worth noting that this is true at the branch level, regardless of the size of the operation that the branch is part of. And you will see announcements from larger customers who have been tidying up their networks based on exactly this. I think this graph illustrates what's happened to those low-stock branches over the last year. It shows the distribution of our sales agents' branches by the stock they hold, both in June 2018 and June 2019. You can see that the low-stock branches have fallen. At a stock of around 20 properties in a branch, there's actually little change. And beyond 40 properties per branch, the share is increasing. In terms of our branch numbers, these -- this stat also point to why it's a tough time to start a new business. Initially, of course, new businesses have lower stock. So we've seen fewer branches joining than in previous years. And in lettings, it's a similar story. From the available rental properties, one can see the impact of the stamp duty changes on second properties a few years ago, and the rolling impact of tax duty -- of tax changes on buy-to-let properties. And that fed through into number of available rental properties. With fewer rental properties coming to market, and therefore, fewer -- a smaller rental books, agents have become more dependent on revenue from the initial rental agreement. Many agents have put in place a number of strategies to recoup the loss revenue from the Tenant Fee Ban, which was implemented on the 1st of June. That's included increasing landlord charges and rents are also increasing. However, all these strategies have less immediate cash flow. So again, the majority of rental agents leaving the industry are low stock branches as that cash flow impact bites. It's worth talking about New Homes developers to complete the picture of our primary customer groups. This graph shows the number of New Home starts in teal versus the number of New Homes developments advertised on Rightmove, indexed back to the start of 2011. You can see that the unremarkable transaction numbers in recent years haven't dissuaded the developers from starting to build. Perhaps it's dissuaded them from continuing to grow their numbers back to the pre-2008 start levels. I think it also illustrates the value in New Homes developers place on Rightmove advertising. Apart from this brief period when Help To Buy was introduced and demand for new homes massively outstrips supply, they've continued to grow the proportion of their stock listed on Rightmove. And as I mentioned, perhaps more importantly, for us, they've invested heavily in our digital marketing solutions. As a reminder, with the first half of this year being a record for that part of our business. Returning to Rightmove. And this is our strategy to which I'm sure you're all familiar with. And of course, our revenue can be expressed simply as number of advertisers multiplied by the average revenue per advertiser. And to be clear, we don't control the number of advertisers in the market. However, in all but the very extremes of the market, the offer is a factor of the value of our products and services. We do however, influence the number of consumers on our platform on which that value is built. So let's start there. Despite the hesitancy, there's no doubt, latent demand remains in the market, and consumers continue to turn to Rightmove first. Channel site remains unchanged with record highs, and the number of the visits to the sites nudged up to 2%. The market share according to Comscore gives us a little explanation. This big step that you can see in February is a result of a methodology change in the way Comscore calculate Zoopla's traffic. Our internal measures don't suggest there was a material change in February. If one looks at the trend since then, it also confirms our internal data that we continue to run at about 77% market share in old money. I think it's possible that the methodology change will reverse in coming months. And if you want to know the gory details about the change, come and have a conversation later. Building on that audience, both our customer groups recognize the value of our products. Very much because of that consumer hesitancy, those agency customers who see opportunity have been upgrading to our premium packages to compete for an increasing share of motivated sellers. This has led, as we've said, to a record number of agents taking either the Enhanced or Optimiser package. As I've mentioned, our New Homes developers are spending more than ever on our digital marketing solutions. And we have the opportunity to grow both of these revenue streams through sales, innovation and pricing. We also want to help our customers be more profitable by delivering tools, which help them operate more efficiently. One can talk about innovation in the hopeful future tense, but I thought it will be worth demonstrating innovation by talking about what we've actually done. You may remember me talking about Auto Featured Property back here in February. Auto Featured Property helps larger stock agents by automatically featuring a property for a week when it's first listed, if the property transaction falls through, or if the price is reduced. We launched the product in May, and pleasingly, nearly 500 branches have already signed up, and that represents a revenue run rate of £3 million a year. Perhaps importantly, with reference to our earlier discussions on the market, this product was designed to appeal to those branches with higher stock levels. Those branches who signed up for these products have an average stock of over 110 properties. And last year, I described our Active suites of solutions for New Homes developers. Our unrivaled knowledge of home hunters allows us to target advertising on behalf of those developers. At the start of 2018, we launched the first phase of our Active display products, which upgraded our local -- our popular local homepage to target our New Homes developers adverts based on the home hunters' search habits, not just the search they were executing. This has increased the exposure of those adverts by about 50% and has now generated a revenue with a run rate of about £7 million a year. I also talked about the next-generation product, which was under development. We've just launched Rightmove Active Extension, which allows us to target home hunters on other websites on behalf of our developer customers. In trialing RAE, as it's now known, demonstrated 33 times better performance than an equivalent Google keyword audience, demonstrating the power of our data and of our targeting. The product innovation which drives growth is only valuable to me if it drives long-term growth, not flash in the pan successes, which fade away over time. You may be familiar that we talked about our products in three categories

Robyn Perriss: I think this is being recorded they just need to pass the mic around. And if you could just say [indiscernible] and your question. Thank you. Will?

Q - Will Packer: Hi, it's Will Packer from Exane BNP Paribas, three questions, please. Firstly, New Home has been very strong for the last couple of years, particularly strong in this half. Could you talk us through the sustainability of that growth as we move into FY '20? You talked to flat new development adds in H2 can offer drive the story, some confirmation will be helpful. Secondly, you've talked about shifting stock from low-stock to higher stock agents. If they shift to hybrid agents, you're well placed because of the nature of the contracts. Could you just help us understand the nature of the contracts with the non-hybrid larger stock agents? Is there a headwind there to ARPA? And then lastly, you're speaking to agents, communication for your competition is all very inquiry focused. You haven't revealed your inquiry number today. Is there a risk that your competitors are all emphasizing inquiries, and it's a lesser part of your communication? Could you just help us think through your inquiring momentum?

Peter Brooks-Johnson: Maybe we'll sort of start bottom up. So inquiry on this, you might remember, I said back in the start of the year, we're now at a position where our inquiry numbers reflect the marketplace. We absolutely believe it's important to deliver quality inquiries. Each inquiry requires cost for an agent to service, he's answering the phone or replying to an e-mail. So we focused on, on many years, upping the quality. And actually, in February, I mentioned the leads were down 10% year-on-year, reflecting the hesitancy. Actually improved a little bit, we're down 7.6% now for the first half. What's interesting is we consistently work with agents to check on that quality to make sure it leads to better outcomes for them. And recently, on a -- we've got a number of survey -- detail survey work where a team go in and look at an agent's database and with the agent to look at where the leads came from and what the outcome was. And in those -- in that survey work, we're consistently seeing we generate 20 times the number of transactions deal by our sellers than the competition. I think it's a very easy place to go to cost per lead, but we think about cost per outcomes, it's much more important to our customers. ARPA. So second question was ARPA to what happens if the stock switches to larger agents, a larger stock branches. I think what you can see in our ARPA number's actually is, it's positive for us because those guys are the ambitious, often challenger agencies, is where the stock goes. So whilst their largest stock, of actually quite your average stock of 50, they're not necessarily big companies. So again, just to point out the difference, we talk about stock per branch, which is really important because often most companies run their businesses at a branch level. And what you see is, typically, those are the customers who buy into Enhanced and Optimiser. And they are the customers who got ambition and see opportunity. So actually, them having a little bit more stock, if you like a little bit bigger share of the pie is good news for ARPA. On the whole, one of the things that's driven that 30% growth in packaged adoption in the first half. And then your first question, New Homes growth. I think it's unlikely that we will see a big growth in developments in the second half of the year, although you will be able to read most of what our customers are predicting, because most of our customers in New Homes are large PLCs. So you can see their own forecasts. Some of them have had a slight delay in the first half. So we'll see more from them. I think what we'll see in the second half is continued ARPA growth from New Homes. I think there's plenty that they want to do, and plenty we can now help them with, with our more advanced targeting, which really works for those companies. Again, to sort of paint a difference, if most of our agency customers are smaller businesses, most of our New Homes customers are larger businesses with very sophisticated marketing teams. And it works really well now with things like targeting and with RAE coming on stream because we can talk ad tech to them. And in fact, many of our larger customers have helped us develop the Rightmove Active Extension targeting by working with us and working with their analytics to make sure that the targeting works, hence, the fact that we know it's 33% more effective than keyword search because they are working with us to develop it.

Will Packer: Just to come back on the comment around ARPA rent agent membership. Should we, therefore, think that if agent membership continues to suffer because of the cyclical backdrop? The ARPA can compensate for that because you can monetize the stock by different agents.

Peter Brooks-Johnson: I certainly think for the rest of this year, we should absolutely consider the ARPA pattern will be similar.

Robyn Perriss: Andrew?

Andrew Ross: It's Andrew Ross from Barclays. First, I'll maybe just follow up on that last question, you expect the ARPA pattern for rest of this year to be similar. How you're thinking about 2020, and I guess, in the context of, if you were to have a reduction in agents in the second half, at what point do you evaluate that you want to get with the agents on the platform for the long term? And then your fixed pricing for 2020? Second question is, can you give us a sense as to how the agent numbers look month by month, because there is obviously a decline towards the end of half. And you've talked around losing low-stock branches, but what about the big change? And I've seen some more publicized headlines around more closures. Are you thinking there's going to be more to come through there? Third question is on the acquisition you've done, maybe a fourth question, it might be a bit tricky.

Peter Brooks-Johnson: That would be harder, yes.

Andrew Ross: Yes. Just on Van Mildert, maybe anything you can give us a sense in terms of what you think the take-up could be, you sort of got a few hundred branches now, but how many branches in where it could take that once you're better?

Peter Brooks-Johnson: So top down. So ARPA for 2020, actually, there's an awful lot of things that the group's probably need to find out in the next 6 months, maybe, or maybe we'll all be disappointed, we will find out. But I think as we sit today, what's worth noting is a lot of the ARPA growth is being driven by those agents who are spotting opportunity. It's being driven by the agents who are seeing transaction and stock come to them. Let's say transaction number is only down 4.5%. So actually, broadly, it's not very similar. So at the moment, I don't see that ARPA growth in 2020 would necessarily -- there's nothing I see that makes me think it should be different. Month for month, agent decline, it's been relatively steady through the year. There's not been any notable acceleration towards the end of this half. And actually, pacing, also very dissimilar till we saw in Q4 last year. So there's nothing notable there. In terms of big agents, and what are the larger group's doing, they're actually doing exactly the same thing. So the branches, what they're doing is they're tidying up their branch network based, I think, on the amount of stock closed branches hold. Because remember, most of those large networks, they evaluate their branches at the branch level and the profitability at branch level, often, in fact, some of them will reward their branch managers on a sort of see their P&L. So they're just -- they're following exactly the same pattern. It's the low stock that one can see them tidying up in their networks. And finally, Van Mildert, where could that go? I think it's very early for us, I think we can make a significant difference to penetration. When we talk to any small business in the sort of agency space, one of -- they have two challenges. One is communicating to consumers, and the other one is communicating to agents, both of which, I think, our platform allows us to do with some efficiency. So I'd like to think we can make a real difference. Actually, I suspect we can make a bigger difference to the penetration of the insurance products, and that would certainly be a focus as opposed to straightforward referencing. I think we can make a difference for referencing, but I think insurance is potentially more exciting, but also plumbing in the Passport. But once we got the Passport plumb in, I think that will really help with the efficiency of the process and also the speed, which makes quite a big difference in some markets, particularly London, it's not true everywhere. But actually, the speed of process is quite important, at say, London specifically because you have a lot more multi-listing of rental properties in London. So agents who can get the contract signed first, it makes a big difference.

Silvia Cuneo: It's Silvia Cuneo from Deutsche Bank. First, another question on the ARPA growth. Can you share some color about how much of the growth was driven by price and by product compared to previous reporting season? And then second question, I'm not actually -- still on the ARPA. Can you give some sense about what would have been the ARPA growth if the number of agents would have stayed the same? And then second question on the agency number. Is there anything you can say in terms of growth in online agency maybe? And I guess, that's not enough for offsetting the decline in traditional agents anymore. And then finally, just on the acquisition, are there any KPIs you can say about the business? And then like, what do you think you can add in terms of when being part of the big group or Right move can add to the business?

Robyn Perriss: I'll take the ARPA question, please. They're very similar to last year. I think in terms of mix, around 50% of the ARPA came through core price increase and about 50% through product. So we probably, price-wise, a few more customers in this time a year ago, but we had slightly stronger upgrades on our product packages. So that came through as a slightly higher ARPA. So in terms of mix, not a significant change from last year. In terms of the kind of mix benefit that we said, we got some positive benefit from I guess, slightly lower stock, lower spending customers leaving. It's not the big proportion of the outperformance in ARPA. So I don't think, however, ARPA would have been that to some of that from the economy achieved.

Peter Brooks-Johnson: What was your third question, Silvia? Put your fourth one. I can do that one, what was the third one?

Silvia Cuneo: Hybrid agents.

Peter Brooks-Johnson: Hybrid agents. That's right. Actually, as many of you will have seen from announcements, hybrid agents haven't grown in this half. You will have seen this publicized closures in hybrid-agent sector. And Van Mildert KPIs, I think the things that we think we can add beyond, obviously, the skills and experience we have with working with estate agents. Actually, we think we can increase the penetration of the referencing products and I'd say, more importantly penetration of the insurance products. We won't take control until the end of October. So we won't see much movement this year, but it's something that's really exciting about plumbing into the Passport and plumbing into our communication networks, I think will make quite a big difference. To sort of give you a sense of color, Van Mildert has 2 people who sell this product to agents, and we have 150. So to give you a sense of what we think we can bring in time once we put our hands on it.

Robyn Perriss: Robert?

Rob Berg: It's Rob Berg from Berenberg. A couple of questions. Your explanations on why agencies are leaving Rightmove due to cash flow would we seem pretty sensible. But I'm wondering of the 3% that left, it sounds like you think the majority closed down. But I'm wondering if you can give some points on how many chose to leave in order to save cash to survive. So the other side of that coin. I've also noticed on some industry blocks for the first time, maybe it's new, maybe it's not, but you've started to offer some retention discounts. Is struggling, is this something new, a few comments on that would be interesting.

Peter Brooks-Johnson: So yes, what we do when a customer says they want to leave, we ask them why they're leaving. And most of the time, we get a good read. What we also do periodically, typically once a quarter, is we go back and try and find out whether those companies are still trading because sometimes people are just being polite. And what we see in the numbers, absolute similar to previous years, the vast majority of customers who leave us are going out of business. Most of the rest of the customers who leave us, if you look 3 months on, have gone out of business. So they're not going out of business that month, but actually, they're on the way. In terms of discounts, I think there's a misunderstanding. So one of the things we want to do is absolutely help our customers trade through difficulties. So what we do have for the very low stock agents, we do have a different pricing basis for them, if they've got a very low number of stock. We're trying to help our customers, and I think there's much excitement to describe that as a discount, but Rightmove doesn't do discounts to its independent customers. So I think it's just a misunderstanding in that very low-stock option. And the interesting thing about that low-stock option is it doesn't include all our efficiency tools. So there's a motivation for customers to get back on to the normal option.

Robyn Perriss: Adam?

Adam Berlin: It's Adam Berlin from UBS, just two questions from me. The first thing is, you've given us guidance on agency branches for the rest of this year. Can you help us think through the factors that could impact 2020, positive and negative, and maybe give it a range on what you think the outcome could be? Maybe you probably expect to help us think that through. And the second question is, you gave us a very helpful chart on the big development of the product revenue over the time. Could you give us the size of the Y axis, and how much product revenue was there in H1 '19? how much product revenue was there in H1 '19? And also, you've often given us the amount of unsold product inventory. When you talked about product before, I wonder if you can give us that number as well.

Peter Brooks-Johnson: Where should we start? Let's talk about what might make a difference, and I'll add some comment about what it thinks. Crystal ball, what do you think going to happen? Now clearly, there's lots that we need to see play out in the second half of the year. One of the things that we certainly see from consumers is they want certainty. We'll see where do we get certainty? I think any sort of certainty we've seen in the past. If you remember back in February, I showed a graph of lead flow over the referendum and the speed in which actually wants people to get over the fact that there's been a decision the speed at which that lead flow comes back is remarkable. So again, one might imagine there's been an upside to any decision as opposed to no decision. Secondly, there's lots of rumor and gossip about stamp duty. Who knows? Actually, who knows? I would say, I'm certainly glad I'm not a policymaker because we know what its impact is going to be. I certainly think it's complex. I think those -- actually, both those things could be upsides. I think fundamentally, what we see in the data is, we are in a world where there's lots of demand. Mortgage availability is really good. So mortgage rates in reality are probably at their lowest real levels, historically. Lenders seem to be willing to lend money. In fact, I've heard all sorts of things about loan-to-value increasing. So they're more willing to lend money. And I think that's probably why they're reducing their margins. So that's positive. I think we just have to get through the uncertainties. I don't know, Miles, what that might mean for 2020.

Miles Shipside: To look forward, it's useful to look back. We've had three years of uncertainty. April, I think, saw the highest mortgage approvals for two years. June's mortgage approvals at 2.9% up on June a year ago. So the mass market's moving. It seems from our analysis that it's the cash buyers who are more discretionary movers, obviously, a lot smaller percentage of the market. So the upper sector and, obviously, to a degree, the lower sector whereby to let investors often buy for cash. They've got the cash, they're accounting people. That's why they've got the cash, they're waiting in the wing. So I would like to think, the last two or three years have shown that the mass market has kept moving, we can't decide not to move. But hopefully, with a degree of certainty, we'll get the upper end and the cash buyers starting to come back, which could well happen in 2020. Interestingly, on London, we're not calling a recovery, but maybe a bottom of the market, time to sell in London. Peter talked about it being 10% longer in the country as a whole, but London, last month, actually was stable with a year ago. So maybe we're bottoming out in London and obviously, lots of counting cash buyers there waiting for the right deal. So I think there's confidence looking forward, if we can get some certainty and a lack of hesitancy on that sector of the market, which really is looking to be the cash element to the market, especially the mass mortgage market.

Peter Brooks-Johnson: And the axis on the graph, it's broadly 50% of our revenue comes from product.

Robyn Perriss: Joe?

Joe Barnet-Lamb: Joe Barnet-Lamb from Crédit Suisse. I think just one more for me, actually. Could you update us with regard to your thoughts on the Tenant Fee Ban? Obviously, it's all pretty topical around now. So should see that ramping up? And obviously, you've seen reasonable issues with regards to agency volumes so far. So can you help us, say, what you think it'll lead to?

Peter Brooks-Johnson: I think you probably asked me this question back in February. And I said, the outlook is just fascinating. You talk to small agents and they say the big agents are going suffer, you talk to the big agents and the small agent say they're going to suffer. I was with some rental agency in Brighton, 3 weeks ago, we've been running seminars on what the Tenant Fee Ban means for them because there's actually some other legislation along with it. So in our attempt to assist them through the legislation, we run these seminars and it was exactly the same situation, even then, that the big agents feel really comfortable to think that little guys will offer and the little guys think the big guys will suffer. To give you some color, on a couple of conversations, I spoke to a two-person letting agent. She operates in Crowborough in Sussex. It does exist. Well, I start with Sussex and well, I approached with great caution and said, "Ah, Tenants Fee Ban, how do you think that's going to go for you then?" She said, "Ah, it's been brilliant." And she gave me sort of binge, because she said, what they've chosen to do, they trade on service. You need to put in that information, that's what they do, they trade on service. They haven't changed their fee to landlords, she fought for immediate competition had pushed their landlord fees up and she was winning business. So she was happy. So I felt relieved and moved away from conversation. I then spoke to someone who is responsible for lettings in one of the larger national chains, and I said, "Tenant Fee Ban, how is it going for you?" And there they said, they then run me through their revenue mitigation strategy, which wouldn't check, it's not fair. But it was complex and comprehensive. And they felt they had plugged more or less all of the revenue that with different products. So that's a positive view. I think, as I said earlier, the one of the things about the revenue sort of recouping strategies, some of which is putting landlord fees, it tends to be slower cash return than asking a tenant for money before I do anything. And that certainly for some of the lower stock lettings agents who've historically relied on that to top-up their maintenance book revenue. I think that's what's causing issue. I think going forward, many agents seem confident that they've now got their strategies in place. Miles?

Miles Shipside: So there was also evidence of some tenants delaying giving notice and moving from one rented property to another. And therefore, the churn was less coming up to June, so obviously, unaffected. Some of the cash flows some agents are used to churn and immediate letting fees with the delay in tenants, candidly, not giving notice and saving several hundred pounds. So that was obviously, if you're a low stock agent, that's quite an impact as well.

Robyn Perriss: Okay. Yes, go ahead. It's Robin.

Robin Savage: It's Robin Savage from Zeus. Just a question on the 10% rise in the number of developments. Just wondering whether you could tell us how many new developers have actually joined. Is it just simply an increase in the number of developments? And if we look to Slide 18, and you've got just the starts, but actually, you had the completions and worked out what the stock. Is it not the rise really to do with the slow number of transactions? And that when transactions eventually do pick up or when developments don't continue to grow, that is an event to begin to contract?

Peter Brooks-Johnson: In terms of customer numbers, so if you like, invoice payers, it's increased a little bit. It's not -- that's not really what is driving the growth, it's the developers developing more. So we have the top 20 large developers who account for the bulk of the building activity. So it isn't -- there's no notable change. I haven't looked at the completions, but my belief is they pretty much follow the starts, except for the very difficult period. So when the market stopped in 2008, of course, they stopped completing. Generally, developers like to complete because they're in for most of the cost as soon as they start. So they like to complete to yield the revenue.

Robyn Perriss: And I think if you look at the proportion of new build transactions and the Van Mildert transaction, it's actually higher because Van Mildert helped. So I think house builders have done well in terms of transaction levels relative to stations.

Natasha Brilliant: It's Natasha Brilliant from Citi. Three questions. First of all, on the Tenant Passport, you've previously hinted that you might be able to sort of monetize that. Is the acquisition your way of doing that? Or is there still potential for further opportunities there? And secondly, on the Enhanced and Optimized packages, where do you think penetration could get to? And then thirdly, there's a lot of sort of doom and gloom at the moment, if you think about when things get better, and there's a bit of an upturn in the macro, would you expect new agents to start opening again and numbers to increase? And on the flip side, New Homes. Would you expect them to be as reliant on your platform as they are now? Or would they start to look to the sell-off plan?

Peter Brooks-Johnson: So the Passport monetization, yes, this is part of the monetization strategy, Van Mildert in referencing and selling to join up those flows. So possible from being the start, if you like of that process. The Passport is still free and will remain free. In terms of package penetration, we would expect for the Enhanced package, its design criteria, if you like, is about 5,000 of the independent branches. Reminding it's only sold to independent branches, of which we have about 13,000. And about 4,000 branches on Optimiser. So that's unchanged to our sense of penetration. In terms of the upturn, I think what's fascinating and perhaps with reference for those of you who are in the room back in February. Small agents who are new starters, we can see, spend proportionately more with us. Typically, I think that's because those small new starters have lower fixed-cost overhead. They typically run, they start with fewer people than the traditional branch of the same stock. They're often more digitally savvy. So they absolutely understand what our products and tools can do for them. So I do think what we'll see is, as the market picks up, agents will be encouraged back into the industry. They'll start with a smaller number of people, and they'll spend more on marketing in our products. So generally output, positive. As a reminder, those customers if you remember, quite a complicated chart from February. Those customers who spent most with us were the youngest customers. And I certainly see that as happening once agents come back. And I think it's exactly what we've seen in past situations where there's an uptick. In terms of developers, I think what we see is that we are now demonstrating the value of our targeting to them. I think it's a really strong position for us in the future. Because remembering in a good market, developers want to increase their margins. So what they want to do is sell their properties for a higher price and targeting, of course, really helps that. It's not just sort of blank advertising, it's really targeting. So I think the development work that they've done with us, we have done with them in terms of developing our products, stand us in really good stead for an uptick in transaction numbers.

Robyn Perriss: It's Miriam at the back.

Miriam Adisa: Miriam Adisa from Morgan Stanley. Just one question for me. Could you just talk a bit more about the digital marketing opportunity, where you are in terms of product development? You're talking about your developers, helping you to sort of improve the tech product. And could you just sort of quantify the opportunity and how much you think you can capture that sort of advertising market?

Peter Brooks-Johnson: So where we are is, we have just released Rightmove Active Extension, RAE, our new product that helps developers target offsite, which we just launched. What's exciting, as I said is we've developed it with our developer-customers, and they've been critical to development because they've allowed us to look in their analytics, so we can work out what's most effective. And I think whilst there's lots of talk of clever predictive algorithms, we know what people are looking for because they told us, which beats any algorithm as you can see in the performance data. So that will now gently rollout through the second half of this year. I don't think we'll see huge revenue contribution from it this year again. As ever, many of you will know, we like to put out products out slowly to make sure they work. This is all about preparing for the future. In terms of how big could that be, work at the penetration, if one looks at developers, marketing budgets, they are large. I wouldn't want to say what proportion this sort of product could take. But I think being able to help them target on other websites is a key part of their strategy. So I think it's a great revenue line for the future. And beyond that, actually, what we've seen with other products is we start in New Homes. As I say, they have big sophisticated marketing teams. We can then work over time to create a version of that product for our estate agency customers too, who typically don't have the marketing team, so the full product has to be configured slightly differently. So I'm really excited about what we're doing in digital marketing, and how we can help them, not just on Rightmove but on Facebook and other platforms.

Jessica Pok: Jessica Pok from Peel Hunt, just one question, please. On the New Home developed products that you were just talking about, can you give us more color how the monetization works? As in, if they sign on to use a service, can they come on and come off or is it their lead or how do it work?

Peter Brooks-Johnson: So what we do is we allow them to come on and come off, because we want to be flexible for their need. So for example, if you're a developer and you're marketing a development quite often, a proportion of development will just sell. There's a proportion where things, depending on your pricing decisions, you might need to help it. And then almost with every development, there's a proportion at the end where you need to work quite hard to sell it, just sort of how the market works. So what we do is we allow developers to turn on and off the advertising at a development level. So it really matches their marketing need. So I think that's what we would see. And it's what we've seen actually with all of our digital solutions. They are campaign products, if you like. And it fits much better with what they're trying to do, and that's one of the reasons over time, I think, we've grown the revenue basis. We've better match their needs, and that will drive them harder.

Unidentified Analyst : Aditya from Goldman Sachs. Just two questions from my side. Firstly, on Van Mildert, I can see how that fits with the Tenant Passport. Are there any other areas with any of the sales or rentals so you might think of doing some smaller bolt-on like this, which would make sense to just add to the product portfolio for consumers or the agents? And secondly, just any comment on the competitor landscape, if you've seen anything in the last few months or to shrink anything in from your mutual competitors.

Peter Brooks-Johnson: So yes, we've signed a deal last night for Van Mildert. I think we're always excited by people who can absolutely give us great product. That's what we look forward to, Van Mildert would give us. No immediate plans to do anything. We've got to get the Van Mildert integrated and working, but I would never say no to anything. I think those small bolt-ons makes sense where we think it can accelerate our portfolio. Actually, finding good ones is a lot harder than you might imagine. Finding businesses which make money seems to be quite a -- it seems not very fashionable. But -- yes, so we'll wait and see, but nothing in the pipeline. Second question? Well, competitive landscape. Well, I think you can see it really from the Comscore chart, if you take out the slight flattery of the numbers. There's actually not an awful lot that's changed in the last six months. And I sort of don't expect it to for the next few months. I think everyone is developing in their own directions. And yes, it makes their strategies make sense for them. I think you can see that consumer network effect is unbelievably powerful, leading to the site, really growing. And then we're getting more visits, it's quite interesting. It's -- again, we have a growing proportion of traffic on mobile still, which is an industry trend. And I think our general development philosophy has really helped us with mobile. So we'll stick to on it, I think. We are about marketing properties. And that means when you try and then put it on a mobile screen, which is inevitably smaller, and it seems they're getting bigger, but it's still much smaller than desktop. It's much, much easier. I would, of course, say we've got a great design team, but it's much easier, because there's many fewer things we want to talk about other than -- we're just trying to talk about properties and big focus on properties, and that really helps. And so I think the switch to mobile over the last seven years and continuing, really helps us because we've got a laser-like focus on property. And I think that continues to stand us in good step.

Miles Shipside: Just on the competitors, Will's point about leads, we could increase leads far more if we wanted to. In fact, we've taken active steps to decrease the number of leads, but increased the quality. Agents need to become more streamlined and more efficient. So our goal is really delivering quality leads and those numbers that Peter referred to in the detailed orders, orders that we do with agents, really do improve the quality of the leads as opposed to entering a contest about how numbers of leads.

Robyn Perriss: I think we'll take two final questions. So, one from Marcus and one from Gareth. Thank you.

Marcus Diebel: Just a follow lead, I mean very simplistic, why is the quality of lead there so much better? Is it...

Peter Brooks-Johnson: So I think -- how would I describe it? I think there's two ways of thinking about what we do to make quality of leads better. Simplistically, we ask more questions. At one point is when you ask more questions, you reduce the number of people who will fill them in or you have to be a bit more motivated. So simplistically, we do that. The other thing one can do, and certainly, our guys know how to do it, but we don't do it, is you can multiply the number of customers who see a lead, either by increasing search geographies, we've certainly seen that in the past or allowing people to send one consumer to send leads to many agents at the same time. So there's sort of a positive. We increase the quality by asking more questions. And there's also, we don't get involved in the things that just generate more and more leads. For example, we make it very obvious if the property has been sold subject to contract or less been agreed, because there's little point in most cases on a consumer inquiring on a property that has less agreed, not everybody does that. Now that just changes the dynamic in terms of number of leads and the quality is inversely proportional.

Marcus Diebel: [indiscernible] customers were more likely to transact.

Peter Brooks-Johnson: Yes. I mean it's one of the things that, I guess, having been in the industry for long time. It's quite easy to generate more leads. But the thing is they're not really useful. And as I've said, it probably cost an agent to service the lead. So actually generating more leads, it makes one sort of feel warm because we can go out and tell them leads are up, but it doesn't deliver business outcomes.

Robyn Perriss: Thanks. We'll take the final question from Gareth.

Unidentified Analyst : Just a quick one on Commercial. It's 30% growth again, it's becoming a more meaningful business. I mean what stops you scaling that business more quickly and sort of make it even more meaningful? Is it the market is just not ready? And then a follow-on to that is really from an M&A perspective. I mean is there a competition out there doing something similar, doing something better that you could consolidate to scale that business more quickly? Or is it you are the only one out there, and you're waiting for the market?

Peter Brooks-Johnson: So we're by far the market leader in Internet, Commercial property on both sides of the network. Really, the scaling, as you say, it's a factor we are probably making a market in Commercial because commercial online advertising hasn't existed. So in some ways, you can imagine what we're doing is a little bit similar to what we were doing in residential in 2003, 2004. So we're persuading, we're particularly persuading agents that it's valuable. What's fascinating is when an agent joins us, there have been occasions where then an commercial agent has some issues because we generate them too many leads. And they're not scaled to deal with what happens on the sort of demand side I think, one calls them occupiers in the commercial world. But on the occupier front, we do very, very well. I think it's a slow pace or behavioral change in agents to really be able to recognize the value, but then also exploit it because they're just not organized in some ways as residential agents to be able to explore that value. So that's what's governing the pace of growth, Gareth. I think therefore, actually, is there a bolt-on acquisition? There aren't really many strong players in Commercial. And I don't think it would help us because that won't mean the market change faster.

Robyn Perriss: Thank you very much.