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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, everyone, and thank you for joining the Foxtons 2023 Interim Results Presentation. I'm joined by Chris Hough, Group CFO, and we will both be available at the end of the call to answer any questions you may have.
To provide an outline of the running order, I will start by giving an overview of our performance in H1 and commentary on the market environment. Chris will then take you through the financials, and I will finish with an update on our operational initiatives, an update on delivery against our strategic priorities and, finally, some thoughts on trading in July and an outlook for the rest of the year.
As everybody is undoubtedly aware, we are operating in a challenging market environment. However, as I laid out in March, there is still significant unfulfilled potential within the business. And whilst this is our first step on the journey, I am excited by the rapid progress that we have made to date.
Turning to Slide 5. On this slide, we've presented some key financial and operational highlights for H1. As you can see, we have made significant progress in a short space of time against the challenging market backdrop, and we are delivering upgrades in our operational capabilities to rebuild our competitive advantages. Operationally, we are delivering change at pace, and the business is responding well as evidenced by a much improved performance in H1.
Investments in our marketing capabilities and overhauling our estate agency culture grew our market share of new property instructions by a market-leading 8% in lettings and an astounding 43% in sales. Property instructions are the lifeblood of a estate agency, and growth here supports delivery of future market share and revenue growth. In my operational review in March, I highlighted the lack of true organic growth in lettings since 2016 and indicated that growth here was the main priority for the group.
In H1, we delivered a 14% uplift in revenue as operational improvements delivered both market share gains and higher average revenues per transaction. In sales, we significantly outperformed the market, delivering a 15% increase in the market share of exchanged deals. And even more pleasingly, our share of new agreed sales grew by an impressive 33% in H1 versus the same period last year. This is a fantastic turnaround and was at the higher end of my expectations in such a short space of time.
And in financial services, we grew volumes of refinance business by 29%, significantly mitigating the impact of the challenging external market environment. And this improved operational performance drove improved financial performance. Revenue grew 9% with significant growth in lettings as the main driver. Pleasingly, over 70% of revenues were from noncyclical and reoccurring income streams as we continue to decouple our business from the sales market cycle and enhance the group's earnings resilience. This is evidenced in the 10% growth in adjusted operating profit as we more than mitigated sales market headwinds and the cost of increasing fee earner headcount.
Finally, profit before tax grew 42%, reflecting growth in underlying profits. It remains my aim to return Foxtons to being London's go-to estate agent, unlock the potential in the business and crucially create value for shareholders. I'm very pleased with our progress towards our ambition to deliver GBP 25 million to GBP 30 million of operating profit in the medium term.
Turning now to Slide 7 and an update on the London lettings market. As you can see on the graph, the current dynamic is one of lower rental inventory but higher levels of tenant demand, which continues to drive rental price growth. Data from Zoopla suggests that rental property listings in London were broadly flat versus the prior year, but still 27% lower than in 2019 levels. At the same time, tenant demand has remained at a considerably elevated level. This drove further rental price growth of 12% in H1, but we do expect year-on-year growth rates to normalize in H2, reflecting the economic backdrop and tenant affordability. The continued growth in the imbalance between supply and demand is at some of the highest levels we have ever seen. And it's also worth noting the impact of this dynamic on our operations.
In London, lettings instructions are typically listed on a multi-agency basis. And in current market conditions, the speed of winning the instruction, then bringing to market and finally conducting gearings is critical to winning the deal. Through H1, we have significantly overhauled updated and optimized our lettings processes to deliver organic volume growth. This includes developing a new end-to-end digital lettings platform to launch in H2, which I will touch on later in the presentation.
Turning now to Slide 8 and an update on our own performance versus the competition and the wider market. As you can see from the graph, the business has responded well to the reintroduction of a estate agency culture focused on driving new instructions, which we began embedding soon after my arrival in September. And in H1, we grew our share of new lettings instructions by 8%. This is particularly pleasing as such rapid growth in lettings instructions is rare due to the nature of the lettings market and the general stickiness of landlords. We are the largest and fastest-growing lettings agent in London but still only control 5.8% of the market, highlighting the significant opportunity still available in the areas that we operate. And through our strategy of rebuilding operational capabilities to deliver organic growth and a well-established lettings acquisition strategy, I am extremely confident that we can continue to deliver growth.
Turning now to Slide 9 and an update on the London sales market. The sales market was challenging in H1, driven by the impact of the September mini budget on buyer demand at the beginning of the period, the rapid growth in interest rates and the subsequent impact on mortgage rates and affordability and further headwinds in new homes due to the withdrawal of the Help to Buy scheme. Against this backdrop, it will be unsurprising to see that exchange volumes in H1 were 24% lower in London than in the same period in 2022 and more akin to the levels seen in the market lows of 2019 and 2020 than the prior 2 years.
The volume of newly agreed sales in H1 were 19% lower, which will impact exchange volumes across London in H2. In addition, pricing softened in H1 with exchange prices dropping 3% as growing interest rates impacted affordability levels. A similar dynamic was also seen on the average price of new sold subject-to-contract properties or under-offer properties in the market.
And on Slide 10, you can see our significant outperformance despite these challenging market conditions. Similar to lettings, the sales business responded very strongly to the new lead generation culture we are embedding and delivered an outstanding 43% increase in the share of new instructions coming to market. This performance was even more impressive in the light of the impact of the September 2022 mini budget, which led to a contraction of instructions across London. Very strong growth in our market share of new property instructions also delivered growth in the number of new buyer inquiries despite numbers falling in the wider market. And increased headcount meant that we were able to consistently conduct record level of viewings across the year so far. This, coupled with a focus on more proactively aligning prices with market conditions, enabled us to create a similar level of new sales to last year's much more buoyant market and rebuild our under-offer pipeline at the fastest rate in the last 5 years. Finally, a 15% market share growth in exchanges helped mitigate some of the reduction in market volumes.
Whilst investment in the headcount capacity is a drag on profitability this year, it is also key to rebuilding our sales business and recapturing our leading agency position in our markets, and I'm pleased that we're already seeing this approach bearing fruit. Trading in July has remained robust as we exchange deals in our under-offer pipeline, but an elevated and increased mortgage rates are leading to a softening of buyer demand. We continue to monitor this very carefully in real time and will align our business with prevailing market conditions as required, and all decisions will be data-led.
I'll now pass over to Chris, who will run you through the financial review.
Thank you, Guy, and good morning, everyone. I will start on Slide 12 with an overview of financial performance.
Revenue grew 9% to GBP 70.9 million, primarily driven by strong growth in lettings that more than mitigated the impact of the challenging sales markets that Guy has outlined. Adjusted operating profit increased to GBP 6.8 million, an increase of 10% year-on-year. This is a robust result, noting the challenging sales market, combined with the planned cost increases to rebuild fee earner headcount, which has driven significant market share gains in the half.
Adjusted operating profit margin increased by 11 basis points to 9.6%. And profit before tax grew 42% to GBP 6.1 million, reflecting underlying profit growth, no reorganization costs being incurred this year and higher interest income. Net free cash flow was negative at GBP 4.3 million, reflecting a planned GBP 9 million working capital outflow in our lettings business as we introduce shorter billing periods for landlords opting to agree to longer tenancies. I'll talk to this point further later in the presentation. Finally, we maintained our interim dividend at 0.2p per share, in line with our policy to deliver 35% to 40% of profit after tax as an ordinary dividend.
Turning now to Slide 13 on the adjusted operating profit walk, which sets out the key profit drivers in the half. Starting from the left-hand side of the chart, with the GBP 6.2 million of adjusted operating profits were delivered in the first half of 2022. Underlying revenue, which excludes GBP 2.7 million of incremental revenue from acquisitions, increased by GBP 3.1 million or 5%. I will talk to the moving parts within revenue on the next slide. Variable staff commission charges were GBP 0.5 million higher due to the increase in underlying revenue. We incurred an additional GBP 3.6 million of cost as part of our strategy to rebuild our operational capabilities. The majority of this spend was incurred in increasing fee earner headcount, reintroducing our branded vehicle fleets and delivering technology and data upgrades. These areas of investment drive market share improvement and support revenue growth.
GBP 2.2 million of cost savings benefited the half. These savings include lower branch operating costs as we benefit from steps taken to streamline our branch property portfolio. We also benefited from senior management cost savings off the back of the reorganization steps completed last year. These savings offset GBP 1.4 million of inflationary cost pressures, which included wage inflation, branch and head office utilities and general admin cost inflation. These movements resulted in GBP 6 million of adjusted operating profit on a like-for-like basis. Finally, the 2 acquisitions completed in May 2022 and the Atkinson McLeod acquisition completed earlier in the year are performing in line with expectations and delivered GBP 0.8 million of incremental profit in the half. After incorporating the acquisitions, adjusted operating profits for the half were GBP 6.8 million compared to last year's GBP 6.2 million, an increase of 10%.
Turning now to Slide 14 on segmental performance. In the half, revenues from noncyclical and recurring activities, mainly lettings, comprised 73% of total revenue and enabled us to mitigate the impact of the weaker sales market. In lettings, revenue grew by GBP 10.3 million to GBP 49.8 million, with lettings volumes up 3% and average revenue per transaction up 23%. The GBP 10.3 million year-on-year increase comprised GBP 5.6 million or 14% of organic revenue growth, GBP 2.7 million of incremental revenues from the May 2022 acquisitions and the Atkinson McLeod acquisition and GBP 2 million of additional interest income on tenants deposits.
The organic revenue growth of 14% was driven by a number of key drivers. Firstly, an operational focus to secure longer tenancy terms, which has not only driven revenue growth but will also improve retention of the portfolio over the medium term. Secondly, a continued focus on increasing the cross-sell of a higher value property management service, increasing the penetration of new deals under management by 21% year-on-year. And thirdly, a 12% year-on-year increase in average rents, reflecting a rental market where demand continues to outstrip supply, driving competition for rental properties. The operating leverage within the lettings business, alongside synergies delivered from acquisitions, result in GBP 14.1 million of adjusted operating profit, a 93% year-on-year increase.
Turning now to sales. Revenue decreased by 19%, primarily driven by a 15% decrease in exchange volumes compared to the more normalized markets seen last year. The decline in exchange volumes is attributable to a lower pipeline at the start of the year as well as significant increase in mortgage rates during the period. Average revenue per transaction was 4% lower, reflecting lower sold prices as sellers adjusted prices to match market dynamics. As Guy mentioned earlier, our 15% volume decline represented a good level of outperformance versus the market, where sales volumes decreased by 24%. The reduced exchange volumes and planned investment in sales fee earner headcount, which typically takes 12 to 18 months to become fully productive, impacted profitability, resulting in an operating loss of GBP 6.4 million.
Encouragingly, the investment in fee earner headcount enabled us to significantly grow our market share of new sales agreed, which increased by 33% compared to the prior year. The new hires also enable us to rapidly rebuild our under-offer pipeline, which we expect to convert to exchange revenue in the second half. The pipeline growth should also enable us to continue to outperform the market and mitigate some of the effects of the challenging sales market conditions.
Finally, in Financial Services. Revenue decreased 13% to GBP 4.2 million, reflecting lower new purchase transaction volumes and smaller loan sizes, in line with wider sales market trends. Our portfolio of noncyclical refinance business partially mitigated the impact of the purchase business headwinds. And aided by investments in adviser head count, we delivered 29% growth in refinance volumes as well as good growth in the cross-sell of ancillary products.
Turning to group cash flow on Slide 15. The business saw a net free cash outflow of GBP 4.3 million, driven by planned working capital investments. Looking at the bridge on the left-hand side, which starts with operating cash before working capital movements of GBP 13.3 million. We had a planned GBP 9 million working capital outflow in the period. This outflow reflects lettings revenue outpacing cash collections as a result of the introduction of shorter billing periods for landlords opting to agree to longer tenancy terms. This initiative improves the competitiveness of our lettings proposition for landlords and importantly, supports the retention and organic growth of the lettings portfolio over the medium term.
Working capital flows are expected to normalize across 2024 as the portfolio continues to transition to shorter billing periods. Income tax paid in the period was GBP 1.1 million. We made GBP 6.3 million of lease payments in the period. And finally, capital expenditure was GBP 1.4 million, primarily relating to branch upgrades and technology software development, giving a total net free cash outflow of GBP 4.3 million.
In the period, we successfully refinanced the RCF with our existing lender, increasing the committed facility from GBP 5 million to GBP 20 million and extending the term to June 2026. The enhanced RCF provides us with increased strategic flexibility to accelerate lettings growth, including investments in working capital to drive organic growth as well as delivering our lettings acquisition strategy. The terms of the RCF have remained materially the same as the previous facility and remains unsecured. Drawdowns on the facility accrue interest at SONIA +1.65%.
Finally, moving to the opening to closing net cash bridge on the right-hand side of the slide. We started the year with GBP 12 million of net cash. As mentioned previously, we had a net free cash outflow of GBP 4.3 million. We spent GBP 6.3 million of cash on acquisitions, and we returned a total of GBP 3.3 million of cash to shareholders, with GBP 1.1 million returned through share buybacks and GBP 2.1 million in dividends. These key movements drove the GBP 14.1 million reduction over the course of the period, resulting in the GBP 2.1 million net debt position at 30th of June. At 30th of June, the RCF was drawn down by GBP 5 million, enabling us to manage our working capital position.
I'll now hand back to Guy, who will take you through the operational and strategic update.
Thank you, Chris. As you will be aware, I undertook a forensic review of the business shortly after joining Foxtons, reviewing every single department and its operating model. In our 2022 results presentation in March, I set out the findings of my review, the upgrades required and a refreshed strategy with tangible objectives and outcomes. I'm pleased to report that the business has responded extremely well to the changes that we have made, and we are progressing strongly against our operational and strategic objectives as our turnaround gathers pace.
On Slide 17, we have laid out the areas of operational upgrade identified in March and our progress to date. To recap, the core operation upgrades can be grouped into 4 categories: number one, data strategy; number 2, estate agency processes and culture; number 3, staffing levels and experience; and fourth, the Foxtons brand.
Firstly, I was surprised by our low levels of data maturity, as subsequently confirmed by an external review that I'd ask Microsoft to carry out this year. Upgrading and future-proofing our capabilities is now a top priority for our data and IT things. In H1, we built and fully implemented a new data reporting suite to provide real-time business KPIs at granular level alongside market intelligence. The suite has already been rolled out at all levels of the business and is already positively influencing employee behavior and supports the embedding of a high-performance culture through managing our employees against new KPI measures and truly using data to drive the business forward.
Secondly, we have reintroduced new machine learning algorithms to better identify and convert new league opportunities from our unrivaled London database. This is the first in our industry. Foxtons possesses the largest database in London Agency, and upgrading our capabilities to those of a data-led business will position Foxtons as a leader in our sector and deliver high levels of differentiation and competitive advantage. As I mentioned earlier, property instructions are the lifeblood of a estate agency and driving data innovation, optimization and usage alongside embedding a culture of being a data-led organization is a core area of focus for me personally.
Delivering industry innovation is a key element in rebuilding Foxtons' DNA. And as mentioned earlier, we have spent much time identifying and developing new functionalities to modernize and digitalize many aspects of our business. We have seen particular progress in the lettings processes for landlords, tenants and the Foxtons teams. We are well progressed with the delivery of our new digital end-to-end rental solution, which is an industry first and has the potential to really accelerate our lettings growth, and I look forward to providing an update later in the year. Allied to updating our estate agency processes is rebuilding and updating our estate agency culture. The key here is not just to rediscover the high-performing Foxtons culture of old, but to ensure that it is appropriate for the modern environment and utilizes our enormous competitive advantage of having our own bespoke industry-leading CRM completely in-house.
Finally, we have overhauled our approach to training, reintroducing a comprehensive in-person ongoing training program to support the development of industry-leading expertise. In H1, our learning and development team delivered over 1,100 hours of in-person training, a tenfold increase from the level prior to my arrival. As mentioned earlier, understaffing of our fee earners was a significant driver of underperformance over the past few years.
We've grown fee earner headcount by 16% in sales and lettings and by 21% in financial services. Despite the short-term impact to profitability, this was a key contributor to our outperformance in H1, particularly driving sales market share and financial services volume growth in challenging markets. Not only did we have to grow fee earner headcount but also fix the unacceptably high staff turnover rate that was observed prior to my arrival. High staff turnover drives low tenure, insufficient experience is built up, which then results in low productivity, further detracting from the culture and performance of our sales force. Good progress is being made here with staff retention increasing 16% in the period.
Finally, our marketing capabilities and performance were degraded with once prominent brand becoming almost invisible and the customer proposition confused. At the end of last year, we made good progress, including a new brand position, We Get it Done, and introducing the iconic branded minis to the streets of London, which I'm sure many of you will have seen driving around, building high levels of brand awareness for a relatively low additional cost. In H1, we continued our rebuilding of our marketing capabilities, including the hiring of an experienced new marketing director with a remit to rapidly grow market share through overhauling our marketing approach. These changes are already working with good growth in customer consideration as measured through property valuations and instructions and increasing renter and buyer registrations.
Turning now to Slide 18. In March, we presented our refocused strategy alongside tangible objectives to deliver our growth ambition, to deliver GBP 25 million to GBP 30 million of profit over the medium term. Emphasis is on growing noncyclical and reoccurring revenue streams in lettings and financial services to enhance the group's earnings resilience alongside returning sales to profitability in the longer term. I'm pleased to report that we are making good progress here. In lettings, we are targeting 3% to 5% of organic growth per annum, supplemented by our acquisitive growth from good levels of returns from our lettings acquisition strategy. As already shown, we are able to significantly outperform here. Lettings organic revenue grew by 14% as operational upgrades drove new instruction market share growth and higher average revenues per transaction through considerably improving the cross-sell of our property management service and securing longer tenancy length.
Regarding acquisition growth, we completed the purchase of Atkinson McLeod in March, and we rapidly integrated the business into our operating platform to begin to deliver revenue and cost synergies. The acquisition and integration was completed at a speed not normally seen in our sector. Atkinson McLeod is a great business, and I've been very impressed by the caliber and quality of colleagues who've moved across to us. As Chris mentioned, our prior acquisitions continue to deliver returns ahead of our minimum expectations. We have a good pipeline of future acquisition opportunities, and this remains an area where further investments will continue to deliver higher returns.
In Sales, the focus is on returning the business to profitability at all points in the sales market cycle through rapidly improving market share in our core markets. As previously mentioned, we are delivering change at pace here with strong growth in our market share of exchange deals and new properties sold subject to contract or under offer.
Finally, in Financial Services, we will better maximize the revenue opportunity from a estate agency referrals from within the group and target delivery of revenue growth of 7% to 10% per annum. Unsurprisingly, revenues were lower in H1 due to unprecedented turmoil in the mortgage market. However, investments in adviser headcount and operational upgrades delivered outperformance as we grew total volumes driven by a 29% increase in refinance volumes. In addition, the business achieved record levels of protection cross-sell in H1.
Crucially, the benefits of our strategy can clearly be seen on Slide 19 with the following standout trends. We have delivered year-on-year growth in operating profits through highly challenging sales market conditions. We have grown our portfolio of noncyclical and recurring revenues, which has significantly decoupled our earnings from the sales market cycle. As the comparison to 2019 illustrates well, we delivered an operating profit of GBP 6.8 million in this half versus the near GBP 1 million loss in the first half of 2019 despite a similar level of sales market volumes and the drag on profitability from our investments this year, a result, we believe, shows very solid progress against our plan.
Turning now to Slide 21 and a summary of our performance and some thoughts on July trading and outlook for the year. Operational upgrades are being implemented at pace and supported a higher level of business outperformance in H1 against a highly challenging market backdrop. The Sales business turnaround is well underway, with strong levels of market share growth in the period. Lettings delivered good levels of organic growth, supplemented by our well-established acquisition program. The group's strategy is to prioritize growth in this area of the business to continue to enhance our earnings resilience. The majority of our tech investment and innovation is focused here, and I look forward to the rollout of our new Lettings digital platform over the next couple of months and providing you with an update later in the year. Finally, operational and financial delivery in H1 means that we are progressing well to our medium-term profit ambitions.
Now looking to July trading and outlook for the year. Lettings delivered further growth in July as the trends we saw in H1 continued. I expect this momentum to remain particularly as we enter the peak letting season. But looking ahead, we do expect year-on-year rental price growth rates to moderate. In Sales, exchange volumes in July were ahead of the H1 2023 run rate as deals in our under-offer pipeline converted into revenue. This dynamic is expected to continue through Q3. However, the continued rise in interest rates and impact on the mortgage market is beginning to cascade down and finally impact buyer demand, which softened in July for the first time this year. The market remains challenging, and it's difficult to predict future buyer demand with so much uncertainty in interest rates over the next 12 months. Weaker buyer demand may also impact exchange volumes in Q4 but continuing to win market share should mitigate some of this impact.
And finally, in Financial Services, purchase volumes and loan sizes will track the wider sales market, but we will mitigate the majority of this impact through our high-quality reoccurring refinance business.
This concludes the formal presentation. Thank you all so much for joining us today. Chris and I look forward to meeting with many of you in the coming weeks, and I will now pass back to the operator for any questions you may have.
[Operator Instructions] The first question is from the line of Chris Millington with Numis.
A few questions, if I could, please. Firstly, just like to understand how you've seen July progress. I mean, obviously, it's been in the face of rising mortgage rates, but I just wonder if any more confidence as we turn later in July as we've seen a slight moderation in the forward curve. That's number one. Number two is whether or not the recent volatility in the sales market has changed your expectation of timing of achieving the profit targets. I think I've gotten into 2026. So I'd love your thoughts on that. Next one is just on the pipeline of letting deals and just your thoughts around your willingness to use debt to actually finance these going forward? Obviously, historically, we've seen them financed in cash. And then the final one, I'm sorry to ask for, but whether or not you're seeing any strain in landlords at the moment in light of the rising mortgage costs and whether that's adding to the sales pipeline at the moment? And are you benefiting disproportionately because of the scale of your lettings operation? That's all.
Thanks a lot for your questions. We're frantically scribbling them down. So I'll try to make sure that we cover all your great questions. Thank you. First question, I think, was about July progression, particularly potentially in the sales market. Of course, as you know, we're, by quite some considerable margin, 73% of our revenues are reoccurring from lettings activities and mortgage refinance business. But if we look at the smaller part of our business, which is Sales, what happened in July, we had the 5% interest rate hike.
But actually, right the way across the year, up until that point, we've seen buyer numbers, new buyer numbers coming into the market at a very, very similar level to the same period last year. Now that might not have been the case for the whole of the market. Obviously, that's a reflection in Foxtons having considerably grown our market share of new instructions coming to the market. In fact, we grew our market share of new instructions by what I believe is a really great growth number of 43%. And that means that all of the other metrics we're pulling through the business have been very positive, including growing our pipeline this year at the fastest rate that we've grown it at any point in the last 5 years. That's our pipeline of under-offer properties. And obviously, that's then need a couple of months later to drop down through to revenue.
So we've been particularly interested in what's been happening. Despite the increased -- the numerous increases in interest base rates, we haven't really seen any kind of slowdown in appetite from buyers whatsoever up until we got to the 5% interest rate rise when we did see a temporary pause of breath. But actually, as we all know, the inflation numbers came down very shortly afterwards. And as soon as that happened, we saw quite a strong rebound back to a much more normalized numbers.
And certainly, what we didn't see at any point this year is a total collapsing of the buyer numbers as we saw once the mini budget was announced at the end of last year. The buyer numbers, when the mini budget happened and the subsequent rate rise happened, our buyer numbers dropped by over half almost overnight. So that definitely hasn't happened. And I think there's also so much momentum still coming from tenants, renters, who are very, very keen to get out of rented accommodation at the moment. There's still an awful lot of buyers out there. And ultimately, we can focus on what we can control, which is very aggressively growing market share, delivering great results for our clients and making sure that we can pull as many through -- as many sales through as we possibly can be. So does that -- was it specifically Sales? Or do you want me to talk about the Lettings dynamics?
Well, yes, Lettings would be helpful as well. It's more just Sales, obviously, I know there was going to be more friction there in light of the mortgage rate. But yes, I'd be interested in Lettings as well, please, Guy.
So Lettings, obviously, we're right at the point now where Lettings explode the volume of applicants that's already doubled over the last few months for what we're receiving on a weekly basis. So we're really starting to get into the meat of the next 2 months ahead, which is where we see the most of the activity. The extreme supply and demand imbalance is still where it was more or less last year. It's not quite as aggressive as last year, I think possibly because last year, we also had the double-whammy effect of coming out of COVID, but also a much bigger backlog of students coming back into London as well. But buyer numbers are still 75% up over what we saw in the last normalized market of -- sorry, applicant -- tenants applicant numbers are still running at about 75% above the last normal lettings market, which we saw in 2019.
And our stock levels across London, not just at Foxtons, but across London, are down about 30%. And that dynamic has changed a little over the last year, but still it's that supply-demand balance -- imbalance, which has caused us to continue to see the price growth changes over the last 18 months, and we'll continue to do so, but perhaps now not quite at the same rate that we've seen over the last 18 months.
So point 2, we talked about profit targets in the medium term. I think we're very, very confident still certainly, I feel very confident given just what progress we've made in the 10 months that I've been running the business, and how well the businesses has changed and the pace of change that we've delivered to the changes that were made shortly after my arrival 10 months ago. And that gives me great confidence that the pivoting to become a lettings-focused business and decoupling our results from the cyclical sales market, I think, is a strategy that is only underlined by our results at the half year, and we'll continue to very firmly grow our focus on growing our organic lettings portfolio. And as you know, we've delivered a proper organic growth this time for the first time in -- since 2016 in Lettings. But we're also obviously supplementing that growth as well with our acquisition strategy, and we continue to grow the pipeline of potential targets that we talk to.
So I do feel confident in that medium-term profit target of GBP 25 million to GBP 30 million of profit. And yes, we're very, very focused on delivering it. Your third question -- sorry, does that answer your question, Chris?
It does, Guy, yes.
And your third question, I'll actually hand over to Chris.
Your question here was around would we take on some debt for acquisitions and also is a question around the pipeline generally in terms of acquisitions. So perhaps I can start off with just reminding you and the others on the call on our capital allocation policy. So first and foremost, we've got to maintain enough cash on the balance sheet to manage the business and also maintain the strength of our balance sheet. That's really number one. Two is being able to invest in the business organically, for example, the working capital investments we've made in the half. And thirdly, the dividend, we've got the dividend policy. After taking those things into account, we will then look at the acquisitions.
On the acquisitions, that return on investment hurdle we've spoken about previously being up 20%, that needs to be satisfied, that needs to be satisfied after any debt financing costs we may have. So to answer your question, we would take on some debt if it allows us to accelerate our acquisition strategy for the right acquisitions, which are meeting those hurdles. I think also, we take more confidence now, as you can really see in the results with the resilience and recurring nature of the Lettings business. We have those resilient earnings, which give us more cover of any debt financing costs.
In terms of pipeline, I'm actively looking for acquisitions. We've got some opportunities we are very excited about and really give you an update at the right time as we progress those opportunities.
Great. Onto question 4, I think we scribbled it down in time. Any -- are we seeing an outflow of landlords in the market? The landlord market has always seen outflows because -- just purely because of the nature of holding property, particularly when you've got accidental landlords as they -- as people are going through the various moments in time and taking the next step on the ladder. Those numbers of outflows are broadly the same. We're probably seeing a slight increase in the number of our outflow landlords. But what we're not seeing due to government changes in taxation that were made 5 years ago are the same volume of new landlords coming into the market. So the opportunity for new people coming in is made much harder, particularly in the light of higher interest rates, higher taxation hurdle for stamp duty to get into the market for second and third homeowners. And then also, of course, with the changes in interest tax relief that were made by Osborne 5 or 6 years ago.
But I think even in that environment for Foxtons to have been able to take such a big step forward in our market share just actually shows that, a, it is a highly fragmented market in London. And for Foxtons, there is still a huge amount left on the table that we're very, very focused on going after, and we will continue to aggressively focus on going after that. We are the largest London lettings agent by some margin. And yet we still only hold 6% of the stock that comes to market. So that's our focus now is to continue to go that -- to focus on that. I think these early signs in the last 10 months to have delivered for the first time, as I said before, organic growth for our Lettings business out of our own portfolio gives us great confidence that we will continue to do that.
The next question is from the line of Gregory Poulton from Singer Capital Markets.
So first one is just following up on the M&A question. Given the strength in the lettings market, are you seeing pricing increasing in M&A opportunities and has that, therefore, limited the pipeline at all? Second question is on headcount investment. Obviously, you made some good investments in the first half of this year. To what extent does that might continue and at what level in the remainder of this year and next year? And then third question is just on the change in Lettings offering where you're offering better payment terms or longer tenancy periods. Is that something you're actively marketing to landlords? And if so, what's been the takeup there?
Great. Thanks, Greg. I'll pass the first question on M&A over to Chris, please.
We're seeing it's pretty stable in terms of an M&A opportunity. The opportunities are there. We've been highly fragmented as Guy mentioned earlier. So the pipeline of opportunities is very similar today as it was and we commented with you back in March. I think looking forward, certainly with the more challenging sales market, regulatory changes and so on, there may be some more opportunities for us there, and we will take advantage of those.
Great. And thanks also for your great few questions on headcount investment. We absolutely have to drive this machine again, and we can't save our way to making -- not making a loss in sales. We have to go after market share. We've got our fixed costs. They're not going anywhere in the short term. And I strongly believe as I've proven in my prior role coming into Foxtons, if you invest in people, if you can grow the headcount, if you can train the negotiators and the brokers on the ground floor to be the absolute best, you can take market share. You can then convert that market share into revenue, and that very much is our aggressive focus with headcount. And that works for both Sales and Lettings. And also, of course, we've grown our headcount in Financial Services as well. We've, in total, increased our fee earning headcount in the front offices by 13% and for Financial Services by 19%. And that's something that we do believe passionately in.
And just touching on that investment in people, we've also this year, to date, carried out a tenfold increase in face-to-face training over previous years, such as I believe the importance of making sure that we've got the best agents on the ground. And I think that's already starting to filter through if you look at the results that we're starting to deliver. So we're particularly pleased in that. But yes, absolutely, this year and probably part of next year, we will still be feeling the drag of investing in that headcount. But this was always part of the plan and absolutely part of what we believe we need to do in order to get back on top. Does that answer your question?
Yes, it does.
Third question, we talked about the change in payment terms to longer term for our landlords. Look, it's something that is part of being competitive. We don't need to go out there and actively market it. But absolutely, it's a part of our strategy to make sure that we're as competitive on the ground as we can do while still delivering the best service in London.
This concludes our question-and-answer session. I would like to turn the conference back over to Guy Gittins for any closing remarks.
Thank you very much. Well, firstly, thank you all for joining us today. I'm delighted that you could share our results with us. We're pleased with the progress. I think certainly, we're most excited about delivering organic growth in Lettings, followed closely by our Sales and Lettings market shares taking such a big step forward in such a short space of time, having now, we think, made some of the big incremental changes to our operation 10 months ago when I first arrived.
And obviously, being now not only London's largest lettings and sales agency, but we're also growing at the fastest rate, which is something we're very, very proud in. And ultimately, we want to continue to drive and improve our revenue, which at the half year is up 9% and our adjusted operating profit being up 10%. And this all comes back to our main strategy, which is we've invested heavily in data, making sure that we are now able to realize the significant value in having -- holding the largest landlord and sales database in London. We're utilizing that data to rapidly grow our market share and better inform our agents on the ground and then use that data to be able to drive behavior on the ground and improve all of our lead generation opportunities.
So we've invested in data. We've reinvigorated the culture across the business and getting very much back into wanting to deliver the best results for clients while also creating a fun environment for people to work in, where we can harbor an environment that delivers and creates the best agents which is what Foxtons has been -- has had a reputation for over the last 30 years. And while we're doing that, obviously, large investment in people in order to deliver those results and then also an investment in our brand with our new marketing director and numerous new marketing campaigns led by the tagline, We Get it Done, and of course, bringing Foxtons mini back onto the streets, which is helping our overall visibility. And all of this now helps our momentum moving towards the end of the year. And of course, we're now in the busy lettings market, and we'll continue to make sure that we grab every opportunity and continue to drive the team forward to grow market share as we do so.
That's all for me. Very grateful for your time, and I look forward to meeting many of you in person over the coming weeks. Thanks, everybody.