Foxtons — Clear growth plans drive upside potential

Foxtons is London’s leading and most widely recognised estate agency, with an 8% market share of available lettings and a c 7% share of the sales commission pool. This is similar in size to the market share of the entire online estate agency market combined. The next largest agent has a c 5% share of the lettings market. Foxtons operates from a network of 57 inter-connected branches, offering a range of residential related services, which breakdown into three separate revenue streams: sales, lettings and mortgage broking. Its network covers 85% of the Greater London area.

Foxtons achieves a 4% higher selling price and an 8% higher rental income on lettings than peers, according to Foxtons’ internal research and supported by consumer consultancy TwentyCi. These attractive outcomes for clients arguably justify Foxtons’ premium commission rates. The best-in-class IT suite also gives Foxtons a competitive advantage.

Our base case scenario, our 2022 estimates, shows basic reported EPS for the year of 2.4p and at the current price this implies a P/E of 23.6x. This rating is at the top end of Foxtons’ historical range of 9–27x (average 17.5x) achieved in the 2014–15 period. However, we would argue that future growth may not be fully reflected in the current share price and our estimates. To highlight the leverage of potential earnings outcomes, we estimate that acquisitions of lettings books for £10m could add £5.6m to revenue and c £3.6m to operating profit. These events would add c 0.9p to earnings in a full year, boosting our 2022e base case EPS by c 40%. Our bull case scenario highlights the potential upside in forecasts, where Foxtons is particularly geared to further acquisitions of lettings books as well as growth from BTR, regional expansion and underlying markets. Our bull case scenario suggests potential EPS of 7.4p, which implies a valuation of 129p when a 17.5x P/E is applied.

Our 2021 and 2022 forecasts are ahead of consensus, highlighting the attractive position in which Foxtons now finds itself, with material risks, we believe, to the upside. After several years of declining revenues and three years of losses, there is now considerable light at the end of the tunnel. Furthermore, the quality of its revenue has materially improved as lettings revenue has become the dominant income stream, of which c 75% can be considered recurring. We forecast free cash flow (FCF) to more than double from £4.5m in 2020 to c £10.5m in 2022, thus funding investment in the business, M&A, dividends and, potentially, cash returns to shareholders. We expect a year-end net cash position of £22.8m.

Given that Foxtons’ key market is London, the UK’s financial centre, it is sensitive to changes in the financial services sector’s performance and employment rate, in the UK and globally, both positive and negative. Given its operational gearing, this can have a material effect both on the upside and on the downside. Currently, we believe that the market outlook is experiencing an upturn. There are, of course, a range of other sensitivities that can have an impact on the revenue and profitability of the group. Typical sensitivities for Foxtons include:

As the leading estate agency in London, and with one of the most iconic brands in the sector, Foxtons has an opportunity to leverage its operations, people and IT platforms as London and the rest of the UK emerge from the COVID-19 crisis. It also has an ungeared balance sheet and cash-generative characteristics that should allow it to expand its services and revenues in both London and other chosen regions of the UK. We forecast year-end net cash of £22.8m and expect a net cash position to be maintained except in exceptional circumstances (eg an attractive, large M&A opportunity at the right price).

Foxtons is London’s leading estate agency with a c 7–8% share of lettings and sales. It operates from a network of 57 inter-connected branches offering a range of residential related services, which breakdown into three separate revenue streams: sales, lettings and mortgage broking. Its network covers 85% of the Greater London area.

Foxtons prides itself on having the best information technology in the market available to employees and clients, which results in Foxtons achieving a 4% higher selling price than peers and an 8% higher rental income on lettings. The IT gives Foxtons a competitive advantage and, arguably, justifies its premium commission rates, although holding rates at a time of market weakness did lead to a loss of market share. Competitors appear now to be rebuilding commission rates, which has led to the reversal of the market share decline.

Foxtons has a single ‘tech stack’ called BOS, which includes a database with over 250 datapoints that model every household in London. This allows clients to manage their property through MyFoxtons, and allows Foxtons to predict customer behaviour and provide value-add consulting services for BTR and New Homes customers. Furthermore, it also reduced the cost per acquisition (CPA) of customers by 23% in 2020 and management asserts that it allows Foxtons to better cross-sell services.

Foxtons will continue to focus on the higher-density, higher-value London market. That said, it is now planning to break out of London as it sees a low-risk opportunity to expand geographically. It plans to develop a low capital-intensity estate agency in selected markets in the South East outside London, as well as 15 hand-picked urban areas in other parts of the UK that have some similar characteristics to London, for example premium-priced property and markets with an appetite for lettings services.

Historically, the group aimed to achieve an even balance of revenue between the more stable lettings income and the more cyclical sales income. However, in the short term, the former is the subject of greater focus as the lettings market is becoming more complex due to regulations around safety issues for example and lettings books are becoming available to buy from incumbents as in many cases there are succession issues as business owners age. Recent deals have been agreed on c 1.5x historical revenue.

Furthermore, Foxtons has developed and intends to grow its revenue stream from the rapidly expanding institutional BTR sector.

Foxtons has a strong and experienced management team. The non-executive chairman of Foxtons is Ian Barlow, who is a retired senior partner of KPMG in London. He is also a non-executive director of the Goodwood Estate Company. He has previously served as a senior independent director of Urban and Civic, and Smith and Nephew, as well as being chairman of the board at HM Revenue and Customs for four years until 2016.

Nic Budden is the chief executive officer of Foxtons. He joined the company as COO in 2005 and has been in his current position since 2014. Before joining Foxtons, he held a wide range of international positions at BT Group, Cable and Wireless and Severn Trent Group. The chief financial officer is Richard Harris, who joined Foxtons in 2019 from Laird Plc, where he was group financial controller. He also spent 11 years at Marks and Spencer in numerous senior finance roles.

Foxtons’ chief operating officer is Patrick Franco, who joined the group in 2015. Before coming to Foxtons, he held a number of differing positions in London and New York with Credit Suisse Asset Management. Below the senior management there is a raft of experienced professionals. For example, the average director in the company has a tenure of over 17 years, branch managers 10 years and senior negotiators five years.

London, Foxtons’ core market, is beginning to see early signs of recovery with sales volumes and prices increasing (Q1 sales revenue up 50% ex Douglas and Gordon (D&G)), and rental rates being less depressed since February/March (Exhibit 1). Furthermore, Foxtons is targeting other revenue streams that could add materially to group revenue from, for example, the acquisition of lettings books (we assume each £10m investment could add c £5.6m to revenue and c £3.6m to operating profit), increased exposure to the rapidly growing BTR market (currently 5% of lettings revenue, but potentially set to triple in magnitude) and geographical growth outside London, a market opportunity of similar size to its existing London market. We estimate that Foxtons could grow its revenue by c £49m or c 50% over the next three years, even before further acquisitions. The operational gearing impact of this growth is very high and is discussed in the next section.

Foxtons is almost entirely focused on the London market, a market that was heavily disrupted by the effects of Brexit (referendum, negotiations, actual departure) and multiple general elections, and is currently depressed by the effects of the COVID-19 pandemic. During this extended five-year period, average house price growth has been limited to c 3% pa, but sales volumes fell 43% and 60% in Greater London and Central London respectively, according to the Land Registry.

However, we believe that both the lettings and sales markets are recovering (see charts below) as London, and rest of the UK, head towards a ‘new normal’ as the population returns to work and the rest of the economy opens back up for business. Foxtons’ Greater London region contains 13% of the UK population, and by value accounts for 33% of sales and 38% of UK lettings.

London is the UK’s only truly ‘global’ city and Savills forecasts suggest that it will benefit from the effect of a population increase of c 300,000 over the next five years. On the assumption that the average UK household comprises 2.4 people, it implies demand for c 130,000 new dwellings over the period, which is likely to stimulate sales and lettings activity.

Given that London and the rest of the UK have been undersupplied with housing for many years, JLL expects sales prices to rise c 20% over the next five years despite affordability issues. Furthermore, London is the most unaffordable city (average first-time buyer mortgage cost is c 57% of average earnings) in the country, which often implies that renting is a popular alternative to ownership. Rental tenure is expected to increase 11%, and rental rates (prices) are also expected to rise by 17% according to Foxtons’ own published figures. Clearly, the increased sales activity will benefit Foxtons, but the shift to rental will also improve the quality of Foxtons’ income stream, given that c 75% of lettings income is either recurring or semi-recurring (see section titled ‘75% of lettings revenue is considered recurring’).

There has been a long history of corporate activity in the estate agency market and this looks set to continue. The most recent high-profile deal was the acquisition at the end of 2020 of the 651-branch network of Countrywide by Connells, which itself had a network of 581 branches at the time of the deal. Both groups included numerous local brands that had been largely pulled together through acquisition. Connells is owned by the Skipton Building Society.

Foxtons itself has agreed four acquisitions in the last year (see Exhibit 4 below), all of which were to secure lettings portfolios that are viewed as having attractive, recurring revenue streams. In total, Foxtons has invested £18.9m and added c 4,500 properties to its own book of tenancies, increasing it by c 25%. It is also worth noting that Foxtons’ landlords tend to stay with the new owner after acquisition. In the case of London Stone, Foxtons acquired 687 tenancies; it sold 15 of the properties through its own network, gained a net seven tenancies and ended the first year with 679 in total. This compares favourably with Foxtons’ repeat business, which ran at 86% in 2019 and 2020.

We believe the trend to consolidate will continue as the market professionalises in response to increased regulatory and compliance requirements for both landlords and agents, and also the entry of institutional landlords, particularly in the BTR sector.

Foxtons can drive considerable value from adding lettings portfolios to its existing business because its IT platform has considerable capacity to accommodate greater volumes. In fact, Foxtons claims that it could handle the entire London lettings volumes from its existing infrastructure. This allows Foxtons to achieve attractive synergies (see Exhibit 9).

In Exhibit 4 above, there is a range of revenue multiples that have been agreed to date. The range from 0.9x to 2.0x reflects the fact that in the case of D&G, Foxtons acquired the branch network as well as the lettings book, and in the case of Aston Rowe, the vendors kept the branches and only sold the lettings book. Therefore c 1.5x revenue would be a reasonable benchmark for pure lettings book acquisitions.

As investment yields have continued to fall in recent years, the attractiveness of investing in the relatively low-yield BTR sector has increased. Institutional investment in the sector was almost non-existent before 2015, but it had steadily grown to an estimated £4bn in 2020 (Knight Frank/RCA). In total, it is estimated that c £41bn had been committed to the sector by the end of 2020, with a further £19bn ready to be deployed in schemes with planning consent.

Foxtons has developed a leading market share in the London BTR markets and now works with some of the largest BTR developers and operators including Grainger, Essential Living, Harrow Council and British Land. BTR differs from traditional lettings because the former focuses on a single development that is mainly/completely rented out, whereas a traditional portfolio of lettings properties could include a ‘pepper pot’ distribution of individual properties.

Furthermore, the predictability of rent collection of such schemes has become more appreciated, adding to its attractions. Last year, in the period between March and August, 95.2% of rents were collected from institutional BTR schemes.

In London, the BTR sector (schemes with 75 units or more) amounted to c 17,000 units. Roughly half of this number was externally managed, of which Foxtons has built a 22% market share, due to data systems, its track record, brand awareness and existing relationships. This implies that c 1,850 of its 21,800 portfolio at the end of December 2020 were BTR units, 8% of the total. On the assumption that Foxtons maintained its market share of the 12,000 units under construction and the 23,000 in planning, BTR could account for c 5,500 units in Foxtons’ portfolio by 2025. On current forecasts, BTR would then account for c 20% of the lettings portfolio at that point, although the fees are lower at c 8%, compared to c 11% on ‘traditional’ lettings.

Foxtons’ brand awareness in London is very high at 84% (YouGov). Outside of London, it is still a respectable 36%. By harnessing Foxtons’ brand recognition with its sector expertise and strong technology, it is developing a new sales channel outside the capital. Initially, it set up a sales office within the Chiswick Park head office to cover Berkshire and it currently has more than 50 properties on the market for sale.

Foxtons hopes, of course, that this asset-light ‘virtual’ sales office model will be a success and it will then be rolled out into the home counties, targeted areas of South East England and ultimately to 15 targeted urban areas such as Manchester, Leeds and Edinburgh.

This expansion represents a departure from Foxtons’ ‘home turf’ but the scale of the opportunity is similar in size to its London market, which accounts for 33% of UK sales and 38% of lettings by value. The targeted areas account for c 31% of the UK’s sales and 35% of lettings by value. Therefore, in theory, this initiative could double the size of the business over the long term assuming a similar market share to London (c 7–8%), although it could take many years to achieve this. As yet, Foxtons has not publicly set any revenue or margin targets, nor announced any capital investment plans, and expansion is not reflected in our forecasts.

Foxtons has a China and Hong Kong sales desk, which is partnered with a number of estate agents in China. This operation accounts for c 1% of sales currently and is split c 70%/30% between lettings and sales.

In other moves designed to diversify sales channels, Foxtons is beginning to develop a network of contacts addressing high-yield (versus alternative investments) new home developments across the UK, targeted at London property investors. Typically, Foxtons arranges the purchase of properties off-plan on behalf of investors with a view to adding the lettings to its own portfolio. This is still an embryonic operation, but one that could perhaps grow more rapidly as Foxtons’ regional presence becomes more established.

In the period since 2015, Foxtons’ revenue has been continually depressed by external factors including the Brexit hiatus, tax changes, the tenancy fee ban and of course COVID-19. Due to the operational gearing of the model, underlying operating profit turned into losses in 2018 and 2019. We believe that this gearing, which averages c 75% across the group, can once again be a positive for the group as the market recovers and Foxtons increases its exposure to the stable income generated by lettings activity. We estimate that revenue could grow by c £44m between 2020 and 2022, which implies operating profit of £11.5m in our base case. However, our bull case suggests higher revenue from expansion and M&A, and material profit if operational gearing assumptions hold.

Foxtons’ business model is highly operationally geared, which was clearly evidenced between 2016 and 2018 when revenue fell £38.3m to £111.5m, and adjusted operating profit collapsed from £40.9m to a loss of £1.8m. This period excluded the introduction of the tenancy fee ban (from 1 June 2019), which cost Foxtons a further 7% of revenue. This operational gearing exists because a large part of Foxtons’ costs are fixed in the short run and Foxtons has a centralised operating model with a single technology platform. This, in turn, is supported by a branch network populated with skilled, highly incentivised employees. Foxtons should also feel the benefit of c £5m of cost savings that have been taken out of the business since 2019, largely offsetting the tenancy fee ban.

We estimate that the largest revenue stream, Lettings, has a drop-through rate of c 75% on incremental organic revenue growth and a drop-through rate of around 65% on M&A revenue. The latter is demonstrated in Exhibit 9, which illustrates how the £2.6m of annualised revenue generated by the three lettings books purchased in 2020 generated an operating profit of £0.6m. However, once integrated into the Foxtons infrastructure, synergies of £1.1m were realised, implying an underlying operating profit of £1.7m, a 65% drop-through from revenue. After amortisation, the adjusted operating profit contribution totals £1.1m.

Exhibit 10 below demonstrates the attractive recurring revenue characteristics of Foxtons’ lettings division. 34% of tenancies also include property management activity, often on behalf of absent or overseas landlords. Property management and tenancy renewals are considered recurring revenues, which are collected monthly through the tenancy agreement. Furthermore, over 80% of landlords re-let property through Foxtons after a tenant vacates. Collectively, 75% of lettings revenue is considered recurring and therefore a high-quality predictable income. The remaining 25% typically comes from new property lettings, which replace tenancies that are lost.

Between 2012 and 2019, the number of tenancies in the Foxtons portfolio was relatively stable, at around 20,000, and these tenancies generated revenue of between £63m and £69m over the period. The average revenue per tenancy was also relatively consistent, fluctuating between £3,225 in 2014 and £3,560 in 2015, when the lettings market was particularly buoyant. These stable figures lend support to the notion of resilient revenue described above.

2020 was an interesting year for several reasons; firstly, the COVID-19 pandemic prompted around 10% of Foxtons tenants to ask for rent reductions. This activity led to a c 12% decline in the average annual rent in London and had an impact on most, if not all, landlords and letting agents. Secondly, the last part of the tenant fee ban was felt across the sector, which cost Foxtons another £1.5m in 2020. Finally, and more positively, Foxtons made the decision to begin to buy tenant portfolios thus resulting in the first meaningful increase in the absolute volume of tenancies on the books. This was further boosted in 2021 with the purchase of D&G on 1 March, which added nearly 3,000 tenancies, which typically generated a higher revenue/unit than the existing portfolio.

Foxtons’ new growth strategy, introduced at a time when the market was rapidly improving, is likely to result in better revenue and profits, and we estimate that, with a c 90% cash conversion rate, it should give it more flexibility in the future to consider capital allocation. Its main priorities are to invest in the business and its people, but it will now consider further M&A in the lettings market, and only after that will it consider returning cash to shareholders. That said, we believe Foxtons is minded to invest in the business, execute M&A and pay dividends. Further share buybacks will probably have to wait.

Historically, Foxtons was a cash-generative business, paying away 80–90% of its earnings as dividends in 2014 and 2015, and executing an £11m share buyback in 2016. However, with the decline in revenue and profits since then, dividends were initially reduced and have not been declared at all since 2018. This looks likely to change as revenue and margins are rebuilt. The management team’s ranking of capital priorities are as follows:

The last priority in the list above is to return excess cash to shareholders. The company completed a £3m share buyback programme in April 2021 at a weighted average price of 58p, partially returning some of the £22m of capital that was raised in the placing in April 2020 at 40p/share. The placing was designed to protect the business from uncertainty in the early weeks of the pandemic and to allow management to make decisions for the long term. It also allowed Foxtons to repay its revolving credit facility and ensure that the company could exit the pandemic in a sound financial position.

From here, however, cash returns are likely to be carried out in the form of an ordinary dividend representing 35–40% of profit after tax. In the current year, this is likely to be a very modest amount given the improving but low profitability. However, the positive outlook and operating leverage give us optimism that higher and more meaningful payouts are probable further out.

The buyback suggests that management is alert to the notion of returning surplus cash to shareholders. However, any future share buybacks will depend on the level of M&A activity, which is expected to take precedence over returning cash to shareholders. Considering that the lettings market is very fragmented (Foxtons enjoys the highest market share of new lettings deals at c 8%) and is consolidating rapidly, we believe further share buybacks are unlikely over our forecast period.

Our base case scenario shows 2022e EPS of 2.4p and at the current price this implies a P/E of 23.6x. This rating is at the top end of Foxtons’ historical range of 9–27x (average 17.5x) achieved in the 2014–15 period. We would argue therefore that the current price is factoring in future growth not reflected in our current estimates. Our bull case scenario highlights the potential upside in our forecasts, where Foxtons is particularly geared to further acquisitions of lettings books as well as growth from BTR, regional expansion and underlying markets. Our bull case scenario suggests potential EPS of 7.4p, which implies a valuation of 129p when the 17.5x average P/E is applied.

Our base case forecasts suggest revenue of £137.7m in 2022. Rationalised, this is a starting point of £106.9m of revenue from 2019, organic revenue growth of £12.8m (including 2020 deals), plus revenue of £18.0m, being a full-year contribution from D&G. Excluding the D&G deal, the remaining revenue of £117.1m is similar to that achieved in 2017. Our model also includes further pressure on revenue per unit in lettings in 2021, which could prove harsh. It implies revenue per unit c 15% below the 2019 level.

In our base case sales revenue, we estimate 2,746 units in 2021, up 35% y-o-y, but still c 8% lower than volumes reported as recently as 2017. We then applied interest and tax and arrived at a profit after tax of £7.7m in 2022. This equates to 2.4p of EPS. Applying a 17.5x P/E gives a valuation of 41p. If we roll our forecasts over to 2023e, our EPS of 2.9p would imply a valuation of 50.8p, much closer to the current price. It is worth noting of course that neither of these forecasts reflects future acquisitions, which we believe are likely and could add materially to the forecasts. One such upside scenario is outlined in our bull case valuation.

To highlight, we estimate that acquisitions of lettings books for £10m could add £5.6m to revenue and c £3.6m to operating profit. These events would add c 0.9p to earnings in a full year, boosting 2022e EPS by c 40%.

In our bull case scenario, we have attempted to model some of the potential revenue growth that Foxtons may generate from its expansion initiatives. In this case, we have assumed a further £14.1m of organic revenue growth from the core business, and a doubling of the BTR revenue, adding £3.5m. In addition, we have added £2.0m for two mature branches covering areas of the home counties. Collectively, these add £32.4m of ‘organic’ revenue to the £106.9m base.

In addition, we have grown the revenue from D&G by 10% to reflect a recovery in rental rates and added revenue of £5.6m to reflect a full-year contribution from £10m of M&A transactions. Collectively, this implies a ‘bull case’ revenue total of £164.6m in 2022. We have then applied a 75% drop-through rate to the incremental revenue, which implies an operating profit of £31.7m versus £11.5m in our ‘base case’. We then deducted the same interest costs and taxed the profit at 19%, giving a profit after tax of £24.1m. This equates to an EPS of 7.4p, and when we apply the 17.5x P/E we arrive at a potential valuation of 128.8p, implying 122.1% upside.

On a P/E basis, Foxtons is currently more highly rated than its peers, but we believe this is because its earnings are depressed having experienced three years of losses up to 2020, and the market is factoring in some expectation of growth that the company is likely to achieve for possible M&A deals, for example as highlighted above. Not all the peers have seen their earnings decimated in the same way as Foxtons for differing reasons. For example, Savills is a much bigger international business, and Belvoir is a franchise model.

Our bear case scenario assumes flat underlying volumes across the existing and the acquired businesses, but further pressure on letting rates. We then applied the same 75% operational gearing to the revenue decline, which implies that the company moves into losses. In this scenario, management would undoubtedly take corrective action to adjust the cost base, but we have not made any assumptions to that effect.

Historically, Foxtons was a cash-generative company and we believe it fundamentally remains so. This is likely to become more evident as its revenues grow. On current forecasts, we believe Foxtons could generate FCF in 2022e of £8.5m, which implies FCF per share of 2.6p and an FCF yield of 4.5%. This yield is not unattractive, but is perhaps unspectacular. If we were to assume that investors would require a yield of, say 6%, in excess of the average FCF yield of 5.6% in the period 2014–17, Foxtons would require FCF of £11.4m, up from £8.5m currently forecast.

We believe this kind of uplift is entirely possible considering the sensitivity of FCF to potential letting acquisitions, for example. A £10m investment could add c £3.6m to operating profit and £2.9m to FCF, thus resulting in FCF of £11.4m (ie £8.5m, plus £2.9m) and an FCF yield of 6.0%. This FCF would potentially all be available to shareholders for distribution.

Our forecasts are ahead of consensus estimates, highlighting the exciting position in which Foxtons now finds itself. After several years of declining revenues and three years of losses, there is now considerable light at the end of the tunnel. Furthermore, the quality of the revenue has materially improved as the largely recurring Lettings revenue has become the dominant income stream. FCF should grow, thus funding investment in the business, M&A, dividends and, potentially, cash returns to shareholders.

2021 should mark the turnaround in the fortunes of Foxtons after five tough years of declining revenues as the impact of several unhelpful events fade away.

In 2021, we expect a much-improved sales market as pent-up demand is satisfied, and Foxtons will also reap the benefit from a full-year contribution of the three acquisitions made in 2020, and 10 months’ contribution from the D&G acquisition. In total, we expect revenue to increase from £93.6m in 2020 to £130.1m in 2021, an increase of 39%.

In addition to the revenue growth and M&A benefits, Foxtons should feel the benefit of c £3m of cost savings that have been taken out of the business since 2019, offsetting the tenancy fee ban.

The other notable change is the shift in the revenue mix from Sales to better-quality Lettings income. In 2015, the split was 48%/46% in favour of Sales. In 2021 it is expected to be 58%/34% in favour of Lettings. We believe lettings is likely to remain the dominant revenue stream, assuming Foxtons continues to be acquisitive in this space. Each £10m of spend could result in c £5.6m of revenue.

At the year end we anticipate that Foxtons will generate a profit after three years of post-tax losses and declare a small dividend.

The table below shows a bridge of revenue, cost and profit from 2019 to 2021e and 2022e. This in effect looks through the ‘noise’ created by the pandemic and clearly highlights the various elements that have an impact on our forecasts.

We expect Foxtons to generate headline FCF of c £20m in 2021, rising to £22.5m next year, before the impact of lease repayments of £14m and £12m, respectively, implying underlying FCF of £6m and £10.5m in the periods. However, net cash is expected to fall from £37m at the end of December 2020 to £22.8m at the end of this year due to the acquisition of D&G for £14.25m, and a small amount of deferred consideration on another deal.

Foxtons has also invested c £3.1m in IT platform Boomin. Net cash is expected to rise again next year, but with the company in an acquisitive mood, we are not ruling out further deals, which would clearly have an impact on the year-end net debt figure, but are not included in our forecasts.