TIDMFOXT
RNS Number : 3468R
Foxtons Group PLC
28 February 2019
Foxtons Group plc
FINAL RESULTS FOR THE FULL YEARED 31 DECEMBER 2018
28 FEBRUARY 2019
Foxtons Group plc, London's leading estate agent, today
announces its financial results for the year ended 31 December
2018.
Financial summary
Year ended 31 December 2018 2017
----------------------------------------- ----------- ----------
Group revenue GBP111.5m GBP117.6m
Group Adjusted EBITDA(1,3) GBP3.6m GBP15.1m
Adjusted EBITDA margin 3.2% 12.8%
(Loss)/Profit before tax (GBP17.2m) GBP6.5m
Net cash from operating activities GBP1.8m GBP13.5m
Net free cash inflow(2) GBP0.1m GBP11.3m
Basic (loss)/earnings per share (6.3p) 1.9p
Adjusted (loss)/earnings per share (0.8p) 2.6p
Full year dividend per share - ordinary Nil 0.70p
Year end cash balance GBP17.9m GBP18.6m
----------------------------------------- ----------- ----------
Financial summary:
-- Group revenue declined by 5% as a resilient lettings
performance was offset by ongoing weakness in the London sales
market.
-- Adjusted EBITDA GBP3.6m (2017: GBP15.1m). Loss before tax
GBP17.2m (2017: Profit before tax GBP6.5m).
-- Decline in profitability was driven by lower revenue in the
sales business and additional planned investments in people, brand
and technology.
-- The lettings business continues to demonstrate resilience,
with revenue of GBP67.0m up 1% versus prior year and with improving
H2 performance.
-- Sales revenue was GBP36.2m, down 15%, reflecting continued
market weakness due to lower sales transactions.
-- Alexander Hall mortgage revenue GBP8.3m, down 6%. A solid
performance in the context of the wider London Sales market, driven
by re-mortgages.
-- Adjusted items charge of GBP15.7m, GBP12.5m of which is
non-cash. Mainly relates to write down of the goodwill in the sales
segment and closure of six branches in Q4.
-- Strong balance sheet maintained with no debt and cash balance
of GBP17.9m at 31 December 2018.
-- There will be no final dividend in this financial period in line with our policy.
Operational highlights:
-- Strong single brand, clear proposition and exceptional
service continues to drive listings. Maintained No 1 market
listings position in both sales and lettings.
-- Ongoing improvements to My Foxtons including tenants' issue
tracker and app have been well received.
-- Took action to align cost base with market conditions by
closing six branches largely in the network's periphery.
-- Continued focus on efficiency with marketing spend refocused
towards digital channels, reducing cost of acquisition.
Commenting on the results, Nic Budden, CEO, said:
"Our performance in 2018 was impacted by a further deterioration
in the sales market, with transaction levels falling for another
year from their already low levels. We are pleased with the
lettings business and the investment we made earlier in the year
helped to drive a good second half performance.
We are managing the business for these conditions with a focus
on cost control and appropriate investment to improve efficiency
and reinforce our customer focused offering. Our brand and its
associated characteristics of high service levels, professionalism
and delivering for customers, resonates in the market as evidenced
by the thousands of customers who continue to trust Foxtons to sell
or let their property. We will continue to evolve and enhance our
offer in a way that builds on this and maintains our
differentiation.
The outlook for sales remains unchanged with a range of factors,
including political uncertainty, likely to contribute to ongoing
low transaction levels in the short to medium term. There is
momentum in the lettings business and we are pleased with how that
business is progressing.
The overall fundamentals of Foxtons and our market are
attractive. London is a desirable global city with a sophisticated
and varied residential property market. Our brand is synonymous
with London property and we have enhanced our offer in order to
reinforce our lettings business and position our sales business for
any upturn. We remain confident of our long term prospects."
For further information, please contact:
Foxtons Group plc
Mark Berry, Chief Financial +44 20 7893 6261
Officer investor@foxtonsgroup.co.uk
Muhammad Patel, Investor Relations
-----------------------------
Teneo
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Robert Morgan / Anthony Di Natale +44 20 7420 3194
-----------------------------
The Company will host a conference call today at 10:30am for
analysts and investors - dial in details: UK: +44 (0)330 336 9411,
US: +1 323 794 2093, Confirmation code: 5417638. There will also be
a replay of the call: UK: +44 (0)207 660 0134. US: +1 719 457
0820.
The presentation will be webcast live. To access you will be
required to pre-register using the following link:
https://globalmeet.webcasts.com/starthere.jsp?ei=1232872&tp_key=2687876423
1 Adjusted EBITDA is defined by the Group as profit before tax,
depreciation, amortisation, finance costs, finance income, other
gains, Adjusted items, profit on disposal of assets, and share
based payments. A definition of Adjusted items is included in Note
4.
2 Net free cash flow is defined as net cash from operating
activities less net cash used in investing activities.
3. A number of alternative performance measures are used by the
Board as they provide additional understanding of the underlying
operations of the Group. See Financial Review.
Performance at a Glance
2018 2017
------------------------------------ ----------- ---------- ------
Income statement
------------------------------------ ----------- ---------- ------
Revenue GBP111.5m GBP117.6m (5%)
------------------------------------ ----------- ---------- ------
Adjusted EBITDA GBP3.6m GBP15.1m (76%)
------------------------------------ ----------- ---------- ------
Adjusted EBITDA margin 3.2% 12.8%
------------------------------------ ----------- ---------- ------
(Loss)/Profit before tax (GBP17.2m) GBP6.5m
------------------------------------ ----------- ---------- ------
Earnings per share
------------------------------------ ----------- ---------- ------
Basic and fully diluted EPS (6.3p) 1.9p
------------------------------------ ----------- ---------- ------
Adjusted EPS (0.8p) 2.6p
------------------------------------ ----------- ---------- ------
Dividends
------------------------------------ ----------- ---------- ------
Interim paid - 0.43p
Final proposed - 0.27p
------------------------------------ ----------- ---------- ------
Total Dividend for the period - 0.70p
------------------------------------ ----------- ---------- ------
Cash flow
------------------------------------ ----------- ---------- ------
Operating cash conversion(1) 117.5% 91.8%
------------------------------------ ----------- ---------- ------
Net cash from operating activities GBP1.8m GBP13.5m
------------------------------------ ----------- ---------- ------
Net free cash flow GBP0.1m GBP11.3m
------------------------------------ ----------- ---------- ------
Net free cash flow as a percentage
of Adjusted EBITDA 2.7% 75.2%
------------------------------------ ----------- ---------- ------
Year end cash balance GBP17.9m GBP18.6m
------------------------------------ ----------- ---------- ------
KPIs
------------------------------------ ----------- ---------- ------
Sales revenue GBP36.2m GBP42.6m
------------------------------------ ----------- ---------- ------
Sales units 2,529 2,962
------------------------------------ ----------- ---------- ------
Revenue per sales unit GBP14,324 GBP14,376
------------------------------------ ----------- ---------- ------
Lettings revenue GBP67.0m GBP66.3m
------------------------------------ ----------- ---------- ------
Lettings units 19,621 19,806
------------------------------------ ----------- ---------- ------
Average revenue per lettings unit GBP3,415 GBP3,348
------------------------------------ ----------- ---------- ------
Mortgage broking revenue GBP8.3m GBP8.7m
------------------------------------ ----------- ---------- ------
Units 4,318 4,243
------------------------------------ ----------- ---------- ------
Average revenue per broking unit GBP1,915 GBP2,062
------------------------------------ ----------- ---------- ------
Definitions:
1. Operating cash conversion is computed as Adjusted operating
cash flow/Adjusted EBITDA. Adjusted operating cash flow is defined
as the summation of Adjusted EBITDA, change in working capital and
net capital spend excluding Adjusted items. See Note 13.
CHAIRMAN'S STATEMENT
Overview
Group revenues were GBP111.5 million (2017: GBP117.6 million),
due to continued weakness in the London sales market with 2018
volumes at around record lows. Following the completion of our
branch rollout we took the decision, in the first quarter of the
year, to shift our investment from capex into other areas including
people, brand and technology. We made a number of planned
Investments in the year, including launching a targeted brand
advertising campaign. We are confident these investments will
enhance the long term prospects of the business, however the net
impact was to increase our cost base in the year. These actions,
and the lower revenue in the sales business, resulted in a decline
in Adjusted EBITDA to GBP3.6 million (2017: GBP15.1 million).
In addition, we recognised a non-recurring charge of GBP15.7
million: In the second half of the year we took further steps to
maintain efficiency by ensuring our cost base reflects market
conditions and recent technological advances. Following a review of
all our sites we took the decision to close six branches,
Beckenham, Enfield, Loughton, Ruislip, Park Lane and Barnes. We
continue to cover over 85% of London from 61 branches and have no
current plans for further closures. This action resulted in a
charge to the income statement of GBP5.9 million. The remaining
GBP9.8 million of the charge comprised the write down of the sales
business goodwill, which we consider to be an appropriate course of
action given the prolonged nature of the current sales market
downturn.
As a result Loss before tax was GBP17.2 million (2017: Profit
GBP6.5 million). The branch closures and other cost saving
initiatives undertaken are expected to deliver circa GBP3 million
savings during 2019.
Board and governance
The Board places significant importance on corporate governance
and compliance with the UK Corporate Governance Code. Full details
are set out in the Corporate Governance section of our Annual
Report and accounts.
Board update
Very sadly Andrew Adcock, a Non-Executive Director of the
Company, passed away in January 2019 following a period of illness.
Andrew joined Foxtons in August 2013 at the time of the Company's
flotation and was a very kind and thoughtful colleague and friend.
Andrew made a significant contribution to the Foxtons Board and we
will deeply miss his experience, guidance and humour. We send our
sincere condolences to Andrew's wife and family.
Michael Brown retired as a Non-Executive Director of the Company
on 18 September 2018. Michael made a significant contribution to
Foxtons over a career which started in 2002 and included seven
years as Chief Executive. On behalf of the Board, I'd like to
acknowledge Michael's contribution to Foxtons and to thank him for
his help and support as a fellow director. We wish him well for the
future.
Dividend
We have a policy of returning 35% to 40% of profit after tax as
an ordinary dividend but as the company did not make a profit this
period the Board has taken the decision to not pay a final
dividend.
The Board's priorities for free cash flow are unchanged: to fund
investment in the future development of the business, maintain a
strong balance sheet and return excess cash to shareholders.
Operating cash conversion in the year was 117% and we ended the
year with GBP17.9 million cash.
Summary
The London sales market is in a prolonged downturn and the
current uncertainty surrounding Brexit is clearly impacting
consumer confidence. We are managing the business to reflect this
and ensure we are well prepared for any change in market
conditions. Foxtons retains a strong balance sheet with no debt and
has a powerful, high service model, which is increasingly relevant
to our clients who want an agent that delivers results. Technology
is improving our business both by making it more efficient and
enabling clients to interact in a way that is most convenient for
them.
We believe that close management of the agency process through
personal relationships combined with excellent technology is the
most successful and sustainable business model. We continue to have
excellent coverage in London which, in the long-term, is a highly
attractive property market. On behalf of the Board thank you to
everyone at Foxtons for their hard work this year. Their passion,
dedication and commitment is what differentiates us and is why our
clients choose Foxtons.
Garry Watts
Chairman
CHIEF EXECUTIVE'S REVIEW
Review of the year
2018 was one of the toughest sales markets we have ever had in
London with transactions falling from last year's historically low
levels. Though our lettings business continues to provide a steady
income stream the sales market remains weak. Low consumer
confidence due to ongoing political uncertainty, the impact of
stamp duty changes introduced in 2016 and affordability concerns in
London have led to a sustained period of very low activity levels
which have clearly impacted our business.
Foxtons 2018 Group revenue was GBP111.5 million (2017: GBP117.6
million) comprising lettings revenue of GBP67.0 million (2017:
GBP66.3 million), sales revenue of GBP36.2 million (2017: GBP42.6
million) and mortgage broking revenue of GBP8.3 million (2017:
GBP8.7 million).
Revenue from lettings grew 1% on the prior year as it continued
to provide a resilient, less cyclical revenue stream which now
represents 60% of Group revenue. The people investment we made
earlier in the year was a success and enabled us to better manage
demand particularly over the peak summer period. The 15% decrease
in sales revenue is a result of continued market weakness which
results in lower transaction volumes. Revenue at Alexander Hall,
our mortgage broker, comprised a higher proportion of re-mortgage
business, though decreased by 6% overall as the result of lower
average revenue per deal.
For 2018, our Group Adjusted EBITDA reduced to GBP3.6 million
(2017: GBP15.1 million) driven principally by lower revenues in the
sales business and our planned investments in people, brand and
technology. As expected these targeted investments have impacted
profitability in the short term but are designed to enhance our
differentiated model. We continue to review our cost base to
reflect market conditions.
In addition, we recognised a non-recurring charge of GBP15.7
million in respect of Adjusted items in the year with GBP12.5
million of the charge being non-cash. GBP5.9 million of the charge
related mainly to the closure of six branches, four of which were
in the outskirts of our network. Having reviewed these areas
closely we concluded that customers there could be served equally
well from other nearby branches. The branches we have closed are in
Loughton, Enfield, Beckenham and Ruislip and followed earlier
closures in Barnes and Park Lane. Today we continue to cover over
85% of London with 61 branches and have no immediate plans for
further closures. We remain focussed on driving efficiency and
ensuring we have a cost base which reflects market conditions and
accounts for the fact that technology now allows us to extend
branch reach.
The remaining GBP9.8 million of the charge comprised the write
down of the goodwill in the sales segment, which we consider to be
an appropriate course of action given the prolonged nature of the
current downturn in the sales market. The GBP3.2 million of the
non-recurring charge which is cash related, all of which relates to
branch closures, is expected to be spent over a three year period.
The branch closures and other cost saving initiatives undertaken in
the second half are expected to deliver circa GBP3 million of cost
savings during 2019.
Overall the loss before tax was GBP17.2 million (2017: GBP6.5
million profit before tax).
Despite the market backdrop, we have been able to maintain our
sales infrastructure and have taken steps to ensure the business is
best prepared for these conditions. The Group continues to be cash
generative before dividend and tax payments made in respect of
previous years. After allowing for these, net free cash inflow
during the year was GBP0.1 million. At year-end the Group held a
cash balance of GBP17.9 million and remains debt free.
Property sales market
Our listings share remains at consistent levels and we are
confident that our differentiated proposition is even more relevant
in today's challenging market. In the medium term we believe
transaction levels will improve because London has strong
fundamentals as a global hub, a growing population and structural
demand driven by limited housing stock. We will continue to manage
the business such that we are well placed to benefit from any
improvements in market conditions.
Lettings market
Lettings continues to deliver a consistent and stable revenue
stream for the Group. It is a market with good long-term
fundamentals, particularly in London where more than one million
households now rent. In the near term we believe we have a good
opportunity to do more with existing landlords and in 2018
introduced enhanced dedicated account management to help target
this group. In addition, we have upgraded the My Foxtons portal so
it now incorporates a tenants' issue tracker and app which enables
tenants to easily log their property issues, and provides landlords
with more visibility.
Our lettings business is the largest single brand portfolio in
London and during 2018 the proportion of actively managed
properties in the portfolio increased to 33% (2017: 32%).
Whilst demand for rental properties remains high, the year saw
broadly flat average rental prices representing a stabilisation
versus the prior year as the supply of rental properties has
returned to more normal levels.
As the lettings market grows, landlords are faced with increased
regulatory risk and seek an agent that can navigate this
complexity, maximise the value of their property and secure high
quality tenants. Foxtons reach, which covers nearly all of London,
combined with our exceptional service offering positions us well to
benefit from these trends over the longer term.
We anticipate the implementation of the Tenant Fees Bill in June
2019. Internally management has been focusing on how best to
mitigate the impact of the ban in various scenarios and we will
update the market in due course of the actions we propose to
take.
Investing for future growth
Over the past four decades, Foxtons has built a distinctive
business that covers nearly all of London with its leading brand,
exceptional service and innovative application of technology. Our
ambition is to build on this through selective investment in order
to create the most resonant customer offering in the
marketplace.
In February 2018 we laid out plans to shift investment away from
branch roll outs and into other areas of our business including our
brand. Foxtons is the most recognised estate agent in London and we
feel our proposition - of excellent service which delivers results
- is highly relevant in today's market and yet not as well
understood as it could be. To address this, in 2018 we embarked on
a series of brand building initiatives to reinforce our proposition
amongst potential customers, buyers and tenants.
Maintaining our leadership in technology is vital as it will
play an increasingly important role in enabling us to deliver
exceptional service to our customers. As part of our strategy to
identify future growth areas within residential property, Foxtons
regularly considers partnerships with companies that potentially
offer diversified income streams, complementary technology, and
access to new customer segments. In 2018 we made a strategic
investment in Propoly, a young company providing business to
business white label digital estate agency software services,
currently focused on lettings. This investment gives us access to
nascent technology, which we may potentially leverage in the
future. We also invested in a partnership with Zero Deposit, a
service which offers an alternative to traditional cash deposits
for tenants when renting a property. It gives renters greater
choice and flexibility while helping landlords maximise the
marketing of their properties.
Estate agency is a people-based industry and it is therefore
important that we attract and retain the best talent, and that our
agents stay motivated. In 2018 we invested more heavily in people,
including new remuneration structures, a higher number of
negotiators focused on lettings and additional property managers to
enhance our service to landlords.
We believe our investment in technology, our people, and our
brand over the last year has been a key driver of the improved
performance in lettings and we expect to continue to see its
benefit.
Outlook
Looking ahead, we expect trading conditions to remain
challenging in 2019. Whilst our sales pipeline remains at a similar
level to the same time last year, the sales market remains very
subdued with less visibility on exchanges proceeding. Our less
cyclical lettings business provides resilience against sales market
cycles and we continue to target growth in this area. Enhanced
operational focus, customer initiatives and utilisation of
technology and data have already shown some progress; we aim to
build on this going forward.
Foxtons remains in an attractive position with a robust balance
sheet, good cash generation and with no debt. We will continue to
review and optimise our business structure and leverage our
proprietary technology and data, in order to make our agents as
productive and competitive as possible.
In the longer term, whilst recent political events have produced
uncertainty for buyers and sellers, we expect London to remain a
highly attractive property market for sales and lettings. We have
several initiatives underway to promote growth in our lettings
business and remain focused on growing market share in our less
mature branches. Our commitment to achieving the best result for
our customers and powerful brand continue to be key
differentiators. We have become accustomed to operating in these
conditions, and are well placed to withstand them given our leaner
cost base and continued strong balance sheet with no debt.
Nic Budden
Chief Executive Officer
FINANCIAL REVIEW
Overview
Total revenue fell by 5% during the period and whilst our cost
base remains under constant review, we made a number of planned
investments in key areas during the period. These included
increased targeted spend in marketing and branding; a new
negotiator pay scheme to improve the incentivisation and retention
of our best people; and specific investments to enhance our
Lettings customer service offering. Each of these investments will
enhance the long term prospects of the business, however the net
impact was to increase our cost base in the short term.
Administrative expenses excluding Adjusted items in the period
were GBP4.6 million higher than prior year with planned new
investments and general cost inflation, being partially offset by
lower net commissions and lower depreciation. Taken together with
the lower sales revenue achieved in the period, this led to an
GBP11.5 million fall in Adjusted EBITDA. The Group remains
profitable at the Adjusted EBITDA level and remains debt-free with
GBP17.9 million cash as at 31 December 2018 (31 December 2017:
GBP18.6 million).
Summary income statement
Year ended 31 December 2018 2017 % change
---------------------------------- ----------- ---------- ---------
Group revenue GBP111.5m GBP117.6m (5%)
Group Adjusted EBITDA GBP3.6m GBP15.1m (76%)
Depreciation, amortisation,
share based payments and profit
on disposal of fixed assets (GBP5.4m) (GBP6.2m)
Adjusted items (GBP15.7m) (GBP2.3m)
Other gains GBP0.3m -
(Loss)/profit before tax (GBP17.2m) GBP6.5m
Net cash inflow from operating
activities GBP1.8m GBP13.5m
Net free cash inflow GBP0.1m GBP11.3m
Basic (loss)/earnings per share (6.3p) 1.9p
Dividend per share - 0.7p
---------------------------------- ----------- ---------- ---------
In reporting financial information the Group presents
Alternative Performance Measures (APMs) such as Adjusted EBITDA,
Contribution and Net Free Cash Flow which are not defined or
specified under the requirements of IFRS. The Group believes that
the presentation of APMs provides stakeholders with additional
helpful information on the performance of the business, but does
not consider them to be a substitute for or superior to IFRS
measures. Our APMs are aligned to our strategy and together are
used to measure the performance of the business and form the basis
of the performance measures for remuneration. Adjusted results
exclude certain items because if included, these items could
distort the understanding of our performance for the year and the
comparability between periods.
Group Adjusted EBITDA, net cashflow from operating activities
and net free cash inflow are APMs. See notes 3 and 13
respectively.
Revenue
The Foxtons Group comprises three business segments: Sales,
Lettings and Mortgage broking. The majority of operations are in
the London area with two branches in the adjacent area of
Surrey.
GBPm 2018 2017 % variance
------------------ ----------- ------- -----------
Sales 36.2 42.6 (15%)
Lettings 67.0 66.3 1%
Mortgage broking 8.3 8.7 (6%)
Total revenue 111.5 117.6 (5%)
------------------ ----------- ------- -----------
Sales
The London property sales market worsened year on year as
continued market weakness caused lower transaction volumes.
Revenues fell by 15% versus the prior year, reflecting a 15% fall
in volumes to 2,529 (2017: 2,962). "Average revenue per
transaction" decreased marginally versus the prior year to
GBP14.3k. The decrease was a reflection of a combination of factors
with a slightly higher proportion of higher value transactions in
the period being offset by lower overall prices. The average price
of a Foxtons property sale was GBP581k (2017: GBP582k).
Lettings
The Lettings segment continues to provide a consistent recurring
revenue stream which comprises 60% of Group revenues. Lettings
revenue was up 1% versus prior year driven by increased revenue per
deal resulting from longer deal length and broadly flat deal
volumes. The Lettings business is seasonal with the peak period
occurring in the second half of the year.
Mortgage broking
Revenue at our mortgage business, Alexander Hall, decreased by
6%. In the context of the wider London Sales market, this was a
solid performance driven by a higher proportion of re-mortgage
deals which typically attract a lower margin. Overall volumes were
4,318 (2017: 4,243).
Balanced business
A key strategic priority for the Company is to maintain a
balanced business. This balance across the Sales and Lettings
segments enables the Group to withstand fluctuations in the
property market.
% of total revenue 2018 2017
-------------------- ----------- -------
Sales 32% 36%
Lettings 60% 57%
Mortgage broking 8% 7%
Total revenue 100% 100%
-------------------- ----------- -------
Segmental Contribution and Adjusted EBITDA
A key metric for management is the contribution generated by the
three business segments. Contribution is defined as revenue less
direct salary costs of front office staff and costs of bad debt.
Contribution and contribution margin % are used as APMs as they are
both measures of the profitability and efficiency of the operating
business segments. The Group contribution margin was lower than in
the prior year mainly due to the fall in sales revenue. We
maintained headcount levels in the period in order to re-build our
under offer sales pipeline with a view to increasing sales
exchanges in the second half of the year. Our front office
headcount remains under constant review.
Contribution 2018 2018 2017 2017
--------------------
GBPm margin GBPm margin
-------------------- ----- ------- ----- -------
Sales 19.2 53.0% 25.1 59.0%
Lettings 47.8 71.4% 48.6 73.3%
Mortgage broking 3.9 47.1% 4.4 49.8%
Group contribution 70.9 63.6% 78.1 66.4%
-------------------- ----- ------- ----- -------
Adjusted EBITDA comprises contribution less shared costs and
before Adjusted items:
Adjusted EBITDA 2018 2018 2017 2017
-----------------------
GBPm Margin GBPm margin
----------------------- ------ -------- ----- -------
Sales (4.5) (12.3%) 1.2 2.8%
Lettings 6.7 10.0% 12.1 18.3%
Mortgage broking 1.4 16.7% 1.8 20.0%
Group Adjusted EBITDA 3.6 3.2% 15.1 12.8%
----------------------- ------ -------- ----- -------
The integrated nature of the business model means that a
relatively large proportion of the cost base is shared between the
sales and lettings segments.
Sales Adjusted EBITDA and margin reduced versus prior year
driven primarily by lower revenue.
Lettings Adjusted EBITDA and margin reduced versus prior year
driven primarily by an increased apportionment of shared costs,
which for the purposes of segmental reporting are allocated between
the sales and lettings segments according to headcount. As 2018
headcount was higher in the lettings business than in the sales
business, a higher proportion of shared cost has been allocated to
Lettings than in the prior year. A full reconciliation of these
items to (Loss)/Profit before tax is included in Note 3.
Adjusted items
We incurred a GBP15.7 million charge in respect of Adjusted
items in the year, GBP12.5m of which is non-cash.
GBP5.0m of the charge related to the closure of six branches in
the second half of the year. A further four branches had their net
assets impaired by GBP0.9m. The remaining GBP9.8m of the charge
comprised the write down of the goodwill in the sales segment,
which we consider to be an appropriate course of action given the
prolonged nature of the current downturn in the sales market. The
GBP3.2m of the non-recurring charge which is cash related is
expected to be spent over a three-year period.
We remain focussed on driving efficiency and ensuring we have a
cost base which reflects market conditions. The branch closures and
other cost saving initiatives undertaken in the second half are
expected to deliver circa GBP3m of cost savings during 2019.
Loss/Profit before tax
The Loss before tax in the period was GBP17.2 million (2017:
Profit before tax GBP6.5 million) and was after charging:
-- Direct salary costs of front office staff of GBP40.6 million (2017: GBP39.5 million)
-- Shared costs of GBP67.3 million (2017: 63.0 million)
-- Depreciation, amortisation and profit on disposal of fixed
assets of GBP4.1 million (2017: GBP4.9 million)
-- Share based payment charge of GBP1.3 million (2017: GBP1.3 million)
-- Adjusted items GBP15.7 million (2017: GBP2.3 million)
-- Other gains (GBP0.3m) (2017: GBPnil); and
-- Net finance costs GBPnil (2017: GBP0.1 million)
The Loss before tax arose due to lower Group revenue and
specific long term investments in marketing, people and brand, and
general inflation which was partially offset by underlying cost
savings.
Taxation
The Group has a low risk approach to its tax affairs. All
business activities of Foxtons operate within the UK and are UK tax
registered and fully compliant. The Group does not have any complex
tax structures in place and does not engage in any aggressive tax
planning or tax avoidance schemes. Foxtons always sets out to be
transparent, open and honest in its dealings with tax authorities.
Foxtons effective tax rate for the period was 0.2% (2017: 17.0%).
This compares to the statutory corporation tax rate of 19.0% (2017:
19.25%).
The main drivers leading to a lower taxable loss compared to the
reported loss and the effect on the tax expense are the impairment
on goodwill, depreciation on leasehold improvements and branch
asset write downs that are non-qualifying for capital allowance
purposes, and share option charges.
Tax payments during the year totalled GBP1.5 million (2017:
GBP2.1 million). The 2017 figure included a GBP0.4 million refund
in respect of prior years.
Earnings per share (EPS)
Basic (loss)/earnings per share was (6.3p) (2017: 1.9p) and
diluted (loss)/earnings per share was (6.3p) (2017: 1.9p) both
driven by reduced profitability. Adjusted (loss)/earnings per share
was (0.8p) (2017:2.6p).
Cash flow
The operating cash inflow before movements in working capital in
the period was GBP1.9m (2017: GBP14.2m). A normal working capital
inflow of GBP1.3m and income taxes paid of GBP1.4m in the period,
gave rise to a net cash inflow from operating activities of GBP1.8m
(2017: GBP13.5m).
After deducting GBP0.4m net capital expenditure and the GBP1.3m
investment in associate, the net free cash inflow for the period
was GBP0.1m (2017: GBP11.3 million inflow). The reduction versus
prior year of GBP11.2 million was due to reduced cash generated by
operations of GBP12.3 million, partially offset by and GBP0.7
million lower tax payments, and GBP0.4 million lower capital
spend.
The Group held net cash of GBP17.9m as at the period end (31
December 2017: GBP18.6m).
Dividends
The Board's priorities for free cash flow are to fund investment
in the future development of the business, maintain a strong
balance sheet and to return excess cash to shareholders.
Our immediate priorities are to maintain the strength of our
balance sheet and invest in the business to enhance our offer. We
have a policy of returning 35% to 40% of profit after tax as an
ordinary dividend but as the Company did not make a profit this
period the Board has taken the decision to not pay a final
dividend.
Share buy-backs
No share buy-backs were undertaken during the period (2017:
GBPnil).
Post balance sheet events
There are no post balance sheet events to report.
Treasury policies and objectives
The Group's treasury policy is designed to reduce financial
risk.
Financial risk for the Group is low as:
-- The Group is debt-free;
-- The Group is entirely UK-based with no foreign currency risks; and
-- Surplus cash balances are held with major UK based banks.
As a consequence of the above, the Group has not had to enter
into any financial instruments to protect against risk.
The Group has a GBP10 million Revolving Working Capital Facility
which remains undrawn. The facility expires in July 2019 and the
Board has a reasonable expectation that the Group will be able to
enter into a new appropriate facility upon expiry.
Pensions
The Group does not have any defined benefit schemes in place but
is subject to the provisions of auto-enrolment which require the
Company to make certain defined contribution payments for our
employees.
Mark Berry
Chief Financial Officer
PRINCIPAL RISKS
Risk management
The Board is responsible for establishing and maintaining the
Group's system of risk management and internal control, with the
aim of protecting its employees and customers and safeguarding the
interests of the Company and its Shareholders in the constantly
changing environment in which it operates. The Board regularly
reviews the principal risks facing the Company together with the
relevant mitigating controls and undertakes a robust assessment. In
reviewing the principal risks the Board considers emerging risks
and significant changes to existing risk ratings. In addition the
Board has set guidelines for risk appetite as part of the risk
management process against which risks are monitored.
The identification of risk in the Group is undertaken by
specific executive risk committees which analyse overall corporate
risk, information technology risk and mortgage broking risk. Other
committees exist below this level to focus on specific areas such
as anti-money laundering. A common risk register is used across the
Group to monitor gross and residual risk with the results being
assessed by the Board. The Compliance department constantly reviews
operations to ensure that any non-standard transactions have been
properly authorised and that procedures are being properly adhered
to across the branch network. The Audit Committee monitors the
effectiveness of the risk management system through regular updates
originating from the various executive risk committees.
The principal risks table below sets out the risks facing the
business at the date of this Report analysed between external and
internal factors. These risks do not comprise all of the risks that
the Group may face and are not listed in any order of priority.
Additional risks and uncertainties not presently known to
management or deemed to be less material at the date of this Report
may also have an adverse effect on the Group.
External factors
Risk Impact on company
Market Risk Continuous high property price inflation may impact
affordability which in turn may reduce transaction
levels in the market. The market may also be affected
by a reduction in London's standing as a major financial
city caused by the UK's decision to leave the EU.
The market is also reliant on the availability of
mortgage finance, a deterioration in which may adversely
affect Foxtons.
The market may also be impacted by any changes in
government policy such as increases in stamp duty
taxes or increased regulation in the lettings market.
----------------------------------------------------------
Competitor challenge Foxtons operates in a highly competitive marketplace.
New or existing competitors could develop new services
or methods of working including online and hybrid
agents which could give them a competitive advantage
over Foxtons.
----------------------------------------------------------
Compliance with Breaches of laws or regulations could lead to financial
the legal and regulatory penalties and reputational damage.
environment
The Mortgage broking division is authorised and
regulated by the FCA and could be subject to sanction
for non-compliance.
----------------------------------------------------------
Internal factors
Risk Impact on company
IT systems and Foxtons business operations are dependent on sophisticated
cyber risk IT systems which could fail or be deliberately targeted
by cyber-attacks leading to interruption of service
or corruption of data or theft of personal data.
-----------------------------------------------------------
People There is a risk that Foxtons may not be able to
recruit and retain sufficient people to achieve
its operational objectives as competition for talent
increases due to challenging market conditions.
-----------------------------------------------------------
Forward looking statements:
This preliminary announcement contains certain forward-looking
statements with respect to the financial condition and results of
operations of Foxtons Group plc. These statements and forecasts
involve risk and uncertainty because they relate to events and
depend upon circumstances that will occur in the future. There are
a number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these
forward-looking statements and forecasts. The forward-looking
statements are based on the Directors' current views and
information known to them at 27 February 2019. The Directors do not
make any undertakings to update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise. Nothing in this statement should be construed as a
profit forecast.
Responsibility statement:
The following statement will be contained in the 2018 Annual
Report and Accounts:
Each of the Directors confirms that to the best of their
knowledge:
-- the consolidated financial statements, prepared in accordance
with the relevant financial reporting framework, give a true and
fair view of the assets, liabilities, financial position and loss
of the Company and the undertakings included in the consolidation
taken as a whole;
-- the Strategic Report and the Directors' Report include a fair
review of the development and performance of the business and the
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that it faces; and
-- the Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for Shareholders to assess the Company's position and
performance, business model and strategy.
On behalf of the Board
Chief Executive Officer Chief Financial Officer
Nic Budden Mark Berry
27 February 2019 27 February 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2018
2018 2017
Continuing operations Notes GBP'000 GBP'000
-------------------------------------- ----- ------------------ ---------
Revenue 3 111,505 117,648
Administrative expenses (129,059) (111,055)
-------------------------------------- ----- ------------------ ---------
Operating (loss)/profit (17,554) 6,593
Other gains 291 -
Finance income 94 1
Finance costs (60) (70)
-------------------------------------- ----- ------------------ ---------
(Loss)/Profit before tax (17,229) 6,524
Tax 5 39 (1,175)
-------------------------------------- ----- ------------------ ---------
(Loss)/Profit and total comprehensive
(loss)/ income for the year (17,190) 5,349
-------------------------------------- ----- ------------------ ---------
Earnings per share
Basic (pence per share) 7 (6.3) 1.9
Diluted (pence per share) 7 (6.3) 1.9
Adjusted (pence per share)(1) 7 (0.8) 2.6
-------------------------------------- ----- ------------------ ---------
(1) Adjusted earnings per share is defined as earnings per share
excluding Adjusted items. See note 7.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2018
2018 2017
Notes GBP'000 GBP'000
------------------------------------- ----- --------- --------
Non-current assets
Goodwill 10 9,349 19,168
Other intangible assets 101,455 100,975
Property, plant and equipment 17,171 24,009
Interest in associate and investment 1,289 -
Deferred tax assets 1,158 1,015
------------------------------------- ----- --------- --------
130,422 145,167
------------------------------------- ----- --------- --------
Current assets
Trade and other receivables 7,532 7,082
Current tax assets 212 -
Prepayments 6,195 6,341
Cash and cash equivalents 8 17,927 18,630
------------------------------------- ----- --------- --------
31,866 32,053
------------------------------------- ----- --------- --------
Total assets 162,288 177,220
------------------------------------- ----- --------- --------
Current liabilities
Trade and other payables (13,747) (12,634)
Current tax liabilities - (1,003)
Provisions (2,532) (1,307)
Deferred revenue and lettings refund
liability (4,988) (4,524)
------------------------------------- ----- --------- --------
(21,267) (19,468)
------------------------------------- ----- --------- --------
Net current assets 10,599 12,585
Non-current liabilities
Deferred tax liabilities (16,830) (16,830)
------------------------------------- ----- --------- --------
(16,830) (16,830)
------------------------------------- ----- --------- --------
Total liabilities (38,097) (36,298)
------------------------------------- ----- --------- --------
Net assets 124,191 140,922
------------------------------------- ----- --------- --------
Equity
Share capital 2,751 2,751
Own shares held (720) (720)
Other capital reserve 2,582 2,582
Capital redemption reserve 71 71
Retained earnings 119,507 136,238
------------------------------------- ----- --------- --------
Total equity 124,191 140,922
------------------------------------- ----- --------- --------
The financial statements of Foxtons Group plc, registered number
07108742, were approved by the Board of Directors on 27 February
2019.
Signed on behalf of the Board of Directors
Mark Berry
Chief Financial Officer
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2018
Own Other Capital
Share shares capital redemption Retained Total
capital held reserve reserve earnings equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ----- -------- -------- -------- ----------- --------- --------
Balance at 1 January
2018 2,751 (720) 2,582 71 136,238 140,922
------------------------------- ----- -------- -------- -------- ----------- --------- --------
(Loss) and total comprehensive
(loss) for the year - - - - (17,190) (17,190)
Dividends 6 - - - - (742) (742)
Credit to equity for
share based payments - - - - 1,201 1,201
------------------------------- ----- -------- -------- -------- ----------- --------- --------
Balance at 31 December
2018 2,751 (720) 2,582 71 119,507 124,191
------------------------------- ----- -------- -------- -------- ----------- --------- --------
Own Other Capital
Share shares capital redemption Retained Total
capital held reserve reserve earnings equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ----- -------- -------- -------- ----------- --------- --------
Balance at 1 January
2017 2,751 (1,540) 2,582 71 132,777 136,641
------------------------------- ----- -------- -------- -------- ----------- --------- --------
Profit and total comprehensive
income for the year - - - - 5,349 5,349
Dividends 6 - - - - (2,089) (2,089)
Exercise of shares
from EBT - 820 - - (820) -
Credit to equity for
share based payments - - - - 1,021 1,021
------------------------------- ----- -------- -------- -------- ----------- --------- --------
Balance at 31 December
2017 2,751 (720) 2,582 71 136,238 140,922
------------------------------- ----- -------- -------- -------- ----------- --------- --------
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2018
2018 2017
Notes GBP'000 GBP'000
----------------------------------------------- ------ -------------- -------------------
Operating activities
Operating (loss)/profit (17,554) 6,593
Adjustments for:
Other gains 291 -
Depreciation of property, plant and equipment 4,100 4,847
Impairment of goodwill 4 9,819 -
Loss on adjusted items 4 2,717 447
Gain on disposal of property, plant and
equipment (166) (59)
Amortisation of intangibles 206 101
Increase in provisions 1,225 1,021
Share based payment charges 1,303 1,292
Operating cash flows before movements in
working capital 1,941 14,242
(Increase)/decrease in receivables (304) 11
Increase in payables 1,609 1,334
Cash generated by operations 3,246 15,587
Income taxes paid (1,453) (2,136)
----------------------------------------------- ------ -------------- -------------------
Net cash from operating activities 13 1,793 13,451
----------------------------------------------- ----- -------------- ---------------------
Investing activities
Interest received 94 1
Proceeds on disposal of property,
plant and equipment 504 340
Purchases of property, plant and
equipment (317) (1,507)
Purchases of intangibles (686) (972)
Purchases of investments (1,289) -
----------------------------------------------- ----- -------------- ---------------------
Net cash used in investing activities (1,694) (2,138)
----------------------------------------------- ----- -------------- ---------------------
Financing activities
Dividends paid 6 (742) (2,089)
Interest paid (60) (70)
Net cash used in financing activities (802) (2,159)
----------------------------------------------- ----- -------------- ---------------------
Net (decrease)/increase in cash
and cash equivalents (703) 9,154
Cash and cash equivalents at beginning
of year 18,630 9,476
----------------------------------------------- ----- -------------- ---------------------
Cash and cash equivalents at end
of year 17,927 18,630
----------------------------------------------- ----- -------------- ---------------------
NOTES TO THE FINANCIAL STATEMENTS
1. General information
Foxtons Group plc (the "Company") is a company incorporated in
the United Kingdom under the Companies Act. The address of the
Company's registered office is Building One, Chiswick Park, 566
Chiswick High Road, London W4 5BE. The principal activity of the
Company and its subsidiaries (collectively, the "Group") is the
provision of services to the residential property market in the
UK.
These financial statements are presented in pounds sterling
which is the currency of the primary economic environment in which
the Group operates.
2. Significant accounting policies
The consolidated preliminary results of the Company for the year
ended 31 December 2018 comprise the Company and its
subsidiaries.
The consolidated preliminary results of the Group for the year
ended 31 December 2018 were approved by the Directors on 27
February 2019. The Annual General Meeting of Foxtons Group plc will
be held at Chiswick Park on 20 May 2019. These consolidated
preliminary results have been prepared in accordance with the
recognition and measurement criteria of IFRS. They do not include
all the information required for full annual financial statements
to comply with IFRS, and should be read in conjunction with the
consolidated financial statements of the Group as at and for the
year ended 31 December 2018.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Financial Review. The Financial Review also
includes a summary of the Group's financial position and its cash
flows.
After making enquiries, the Directors have a reasonable
expectation that the Group and Company have adequate resources to
continue in operational existence for the foreseeable future,
having considered the Group and Company forecasts and projections,
taking account of reasonably possible changes in trading
performance and the current economic uncertainty. Accordingly, they
have adopted the going concern basis in preparing the financial
statements.
The financial information for the year ended 31 December 2018
does not constitute statutory accounts as defined in sections 435
(1) and (2) of the Companies Act 2006. Statutory accounts for the
year ended 31 December 2017 have been delivered to the Registrar of
Companies and those for 2018 will be delivered following the
Company's Annual General Meeting convened for 20 May 2019. The
Auditor has reported on these accounts; their report was
unqualified, did not include a reference to any matters to which
the auditor drew attention by way of emphasis of matter and did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
The accounting policies applied by the Group in these
consolidated preliminary results are the same as those applied by
the Group in the Foxtons Group plc annual financial statements for
the year ended 31 December 2017 with the exception of certain new
standards and interpretations adopted in the current period which
had no significant effect on the Group's results.
3. Business and geographical segments
Products and services from which reportable segments derive
their revenues
Management has determined the operating segments based on the
monthly management pack reviewed by the Directors, which is used to
assess both the performance of the business and to allocate
resources within the entity. Management has identified that the
Directors are the chief operating decision-makers in accordance
with the requirements of IFRS 8 'Operating segments'.
The operating and reportable segments of the Group are (i)
Sales, (ii) Lettings and (iii) Mortgage Broking.
The Sales segment generates commission on sales of residential
property. The Lettings segment earns fees from the letting and
management of residential properties and income from interest
earned on tenants' deposits. As these two segments operate out of
the same premises and share support services, a significant
proportion of costs have to be apportioned between the segments.
The basis of apportionment used is headcount in each segment.
The Mortgage Broking segment receives commission from the
arrangement of mortgages and related products under contracts with
financial service providers and receives administration fees from
clients.
The accounting policies of the operating segments are the same
as the Group's accounting policies described in note 2. Adjusted
EBITDA represents the profit before tax for the period earned by
each segment before allocation of finance costs, finance income,
depreciation, amortisation, profit on disposal of fixed assets,
share based payments and Adjusted items. This is the measure
reported to the Directors for the purpose of resource allocation
and assessment of segment performance.
Adjusted items include costs or revenues which due to their
size, incidence and departure from the Group's strategy require
disclosure in the financial statements to give a true
representation of the underlying performance of the Group and allow
comparability of performance from one period to another.
All revenue for the Group is generated from within the UK and
there is no intra-group revenue.
Segment revenues and results
The following is an analysis of the Group's revenue and results
by reportable segment for the year ended 31 December 2018:
Mortgage
Sales Lettings Broking Consolidated
Notes GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- --------- --------- --------- ----------------
Revenue 36,227 67,009 8,269 111,505
--------------------------------- -------- --------- --------- --------- ----------------
Contribution(1) 19,191 47,819 3,896 70,906
Contribution margin(2) 53.0% 71.4% 47.1% 63.6%
--------------------------------- -------- --------- --------- --------- ----------------
Adjusted EBITDA (4,457) 6,693 1,377 3,613
Adjusted EBITDA margin(3) (12.3%) 10.0% 16.7% 3.2%
--------------------------------- -------- --------- --------- --------- ----------------
Depreciation (4,100)
Amortisation (206)
Profit on disposal of property,
plant and equipment 166
Other gains 291
Adjusted items 4 (15,722)
Finance income 94
Finance cost (60)
Share based payment charge (1,305)
--------------------------------- -------- --------- --------- --------- ----------------
Loss before tax (17,229)
--------------------------------- -------- --------- --------- --------- ----------------
1. Contribution is defined as revenue less directly attributable
salary costs and bad debts in each business unit.
2. Contribution margin is defined as Contribution divided by
revenue.
3. Adjusted EBITDA margin is defined as Adjusted EBITDA divided
by revenue.
Segment assets and liabilities, including depreciation,
amortisation and additions to non-current assets, are not reported
to the Directors on a
segmental basis and are therefore not disclosed.
The following is an analysis of the Group's revenue and results
by reportable segment for the year ended 31 December 2017:
Notes Mortgage
Sales Lettings Broking Consolidated
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- --------- --------- --------- -------------
Revenue 42,583 66,314 8,751 117,648
--------------------------------------- --------- --------- --------- -------------
Contribution(1) 25,107 48,633 4,362 78,102
Contribution margin(2) 59.0% 73.3% 49.8% 66.4%
--------------------------------------- --------- --------- --------- -------------
Adjusted EBITDA 1,182 12,120 1,749 15,051
Adjusted EBITDA margin(3) 2.8% 18.3% 20.0% 12.8%
--------------------------------------- --------- --------- --------- -------------
Depreciation (4,847)
Amortisation (101)
Profit on disposal of property, plant
and equipment 59
Adjusted items 4 (2,277)
Finance income 1
Finance cost (70)
Share based payment charge (1,292)
--------------------------------------- --------- --------- --------- -------------
Profit before tax 6,524
--------------------------------------- --------- --------- --------- -------------
1. Contribution is defined as revenue less directly attributable
salary costs and bad debts in each business unit.
2. Contribution margin is defined as Contribution divided by
revenue.
3. Adjusted EBITDA margin is defined as Adjusted EBITDA divided
by revenue.
Segment assets and liabilities, including depreciation,
amortisation and additions to non-current assets, are not reported
to the Directors on a segmental basis and are therefore not
disclosed.
4. Adjusted items
2018 2017
GBP'000 GBP'000
---------------------------- --------- ---------
Impairment of goodwill 9,819 -
Property restructure costs 2,442 771
Reorganisation costs 744 1,059
Branch asset impairments 2,717 447
15,722 2,277
---------------------------- --------- ---------
Adjusted items comprise the following:
-- GBP9,819k relating to the impairment of goodwill in respect
of the sales cash generating unit (refer to note 10).
-- GBP2,442k (2017: GBP771k) of Property restructure costs
comprising GBP601k (2017:GBP244k) dilapidation costs, and GBP1,841k
(2017: GBP527k) onerous contract costs;
-- GBP744k (2017:GBP1,059k) in respect of reorganisation costs
relating to a limited number of senior management changes; and
-- GBP2,717k (2017:GBP447k) associated with branch asset impairments.
5. Tax
2018 2017
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Current tax
Current period UK corporation tax - 1,874
Adjustments in respect of prior periods 239 81
----------------------------------------------------- -------- --------
Total current tax charge 239 1,955
Deferred tax
Origination and reversal of temporary differences (521) (749)
Impact of change in tax rate 67 67
Adjustment in respect of prior periods 176 (98)
----------------------------------------------------- -------- --------
Total deferred tax credit (278) (780)
----------------------------------------------------- -------- --------
Tax (credit)/charge on profit on ordinary activities (39) 1,175
----------------------------------------------------- -------- --------
Corporation tax for the year ended 31 December 2018 is
calculated at 19% (year ended 31 December 2017: 19.25%) of the
estimated taxable profit for the period.
Changes to the UK corporation tax rates were substantively
enacted as part of Finance Bill 2017 (on 6 September 2016). These
include reductions to the main rate to reduce the rate to 17% from
1 April 2020. Deferred taxes at the balance sheet date have been
measured using these enacted tax rates and reflected in these
financial statements.
The origination and reversal of temporary differences includes a
credit of GBP437k (2017: GBP572k) representing the recognition that
it is probable that there will be future taxable profits available
to be utilised against certain tax losses brought forward.
6. Dividends
2018 2017
GBP'000 GBP'000
---------------------------------------------- ---------
Amounts recognised as distributions to equity
holders in the period:
Final and special dividends year ended 31 Dec
2017: 0.27p (2016: 0.33p) per ordinary share
(declared and paid in the following year) 742 908
Interim dividends year ended 31 Dec 2018: Nil
(2017: 0.43p) per ordinary share - 1,181
742 2,089
---------------------------------------------- --------- ---------
For 2018, the company did not make a profit after tax and the
Board has proposed not to pay a final dividend.
7. Earnings per share
2018 2017
GBP'000 GBP'000
---------------------------------------------
(Loss)/Earnings for the purposes of basic
and diluted earnings per share being
profit for the half year (17,190) 5,349
Adjusted for:
Adjusted items(1) 15,111 1,909
Adjusted earnings (2,079) 7,258
(1) Adjusted items totalling GBP15,722k (2017: GBP2,277k) per note
4, less associated tax of GBP611k (2017: GBP368k), resulting in an
after tax cost of GBP15,111k (2017: GBP1,909k).
Number of shares
Weighted average number of ordinary shares
for the purposes of basic earnings per
share 274,870,477 274,791,016
Effect of potentially dilutive ordinary
shares 1,164,474 727,703
---------------------------------------------- ------------ -----------
Weighted average number of ordinary shares
for the purpose of diluted earnings per
share 276,034,951 275,518,719
---------------------------------------------- ------------ -----------
Basic (loss)/earnings per share (in pence
per share) (6.3) 1.9
---------------------------------------------- ------------ -----------
Diluted (loss)/earnings per share (in
pence per share) (6.3) 1.9
---------------------------------------------- ------------ -----------
Adjusted earnings per share (in pence
per share) (0.8) 2.6
---------------------------------------------- ------------ -----------
As there is a loss in 2018, the diluted loss per share is equal
to the basic loss per share.
8. Cash and cash equivalents
Cash and cash equivalents comprise cash and short-term bank
deposits with an original maturity of three months or less, net of
outstanding bank overdrafts. The carrying amount of these assets is
approximately equal to their fair value. Cash and cash equivalents
excludes client monies. See note 12.
9. Financial instruments
The Group does not hold any financial instruments categorised as
level 1, 2 or 3 as detailed by IFRS 13.
Management considers that the book value of financial assets and
liabilities recorded at amortised cost and their fair value are
approximately equal.
The book value and fair value of the Group's financial assets,
liabilities and derivative financial instruments are as
follows:
2018 2017
GBP'000 GBP'000
---------------------------- --------- ---------
Cash and cash equivalents 17,927 18,630
----------------------------- --------- ---------
Trade and other receivables 7,532 7,082
----------------------------- --------- ---------
Trade and other payables (13,747) (12,634)
----------------------------- --------- ---------
10. Goodwill
a) Carrying value of goodwill and other intangible assets
The components of goodwill and other intangible assets assessed
for impairment comprise:
2018 2017
GBP'000 GBP'000
----------------------------------- ---------- ----------
Sales goodwill - 9,819
Lettings goodwill 9,349 9,349
Brand asset - sales and lettings 99,000 99,000
----------------------------------- ---------- ----------
108,349 118,168
----------------------------------- ---------- ----------
b) Impairment review
Management has historically assessed the Group's intangible
assets for impairments using the Group's three year business plan.
However, given the extended nature of the current downturn and the
associated political environment, the length of the forecast period
has been extended from three to five years so as to recognise the
potentially prolonged nature of the expected sales market
recovery.
The impairment review has been undertaken using cash flow
projections from formally approved budgets and forecasts covering a
five-year period for each cash generating unit (CGU). The key
assumptions in determining the cash flows are expected changes in
sales and lettings volumes throughout the forecast period, together
with likely changes to associated direct costs incurred during the
forecast period. These assumptions are based upon a combination of
past experience of recently observable trends and expectations of
future changes in the market.
To evaluate the recoverable amounts of each CGU, a terminal
value has been assumed after the fifth year and includes a long
term growth rate in the cash flows of 2.0% (2017: 2%) into
perpetuity. The discount rates used reflect the risks specific to
the CGUs. The pre-tax rate used to discount cash flows from Sales
is 10.1% (2017: 9.9%), from lettings is 9.6% (2017: 9.4%) and from
the aggregation of Sales and Lettings is 9.9% (2017: 9.7%)
The Brand asset has been tested for impairment by aggregating
the value in use amounts computed in the goodwill impairment test
for Sales and Lettings. The grouping of CGUs represents the lowest
level at which management monitors the brand internally, and
reflects the way in which the brand asset is viewed as relating to
the Sales and Lettings segments as a whole, rather than being
allocated to each segment on an arbitrary basis.
2018 was one of the toughest sales markets we have ever had in
London with transactions falling further from previous years
historically low levels. Low consumer confidence due to ongoing
political uncertainty, the impact of stamp duty changes introduced
in 2016 and affordability concerns in London have led to a
sustained period of low activity levels. At the half year review we
expected a gradual recovery in the sales market as being likely
during full year 2019. Due to ongoing uncertainty, particularly
surrounding macroeconomics and political events, we now view this
as less likely and have impaired the full goodwill in the sales
segment of GBP9.8m. We consider this to be an appropriate given the
prolonged nature of the current downturn in the sales market.
c) Sensitivity analysis
We performed a detailed sensitivity analysis to assess the
recoverable amounts of goodwill and other intangible assets, based
on changes to key assumptions that we consider reasonably possible,
and whether any changes in these assumptions would cause an
impairment that would be material to the consolidated financial
statements. The sensitivity analysis identified the Brand asset as
the asset most sensitive to changes in key assumptions. The
lettings goodwill showed significant headroom against all scenarios
in the sensitivity analysis.
Given the prolonged nature of the current downturn in the sales
market the headroom on the Brand asset is lower meaning that the
sensitivity to the lettings growth plan is greater. The key
judgement in the impairment assessment relates to the expected
lettings growth. The carrying value of the Brand asset is not
highly sensitive to changes in discount rates or long term growth
rates.
Under management's plan, the headroom in the Brand is GBP55m.
The plan assumes that lettings revenue growth throughout the plan
period will be driven by a number of significant investments made
over 2017 and 2018 in our service offering. Assuming no
improvements in other elements of the plan, the headroom would
reduce to zero if the CAGR for lettings over the five year plan
period was 1%. If there was no growth in lettings revenue over the
five year plan period, this would impair the Brand asset by GBP24m.
Both these downside scenarios to the Plan include controllable cost
mitigation in negotiator headcount and reduction in back office
costs. Further mitigating actions would be available should these
two scenarios arise.
We will continue to monitor the Brand for impairment indicators.
It is managements view however, that lettings continues to deliver
a consistent and stable revenue stream for the Group with good long
term fundamentals.
11. Related party transactions
Balances and transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
Remuneration of key management personnel
The remuneration of the key management personnel of the Group is
set out below in aggregate for each of the categories specified in
IAS 24: Related Party Disclosures. Our definition of key management
personnel in the year includes the Executive and Non-Executive
Directors of Foxtons Group plc and the Chief Operating Officer of
Foxtons Limited.
2018 2017
GBP'000 GBP'000
----------------------------- -------- --------
Short-term employee benefits 2,128 2,089
----------------------------- -------- --------
Share-based payments 673 398
----------------------------- -------- --------
2,801 2,487
----------------------------- -------- --------
The 2017 comparative figures have been corrected to reflect the
actual short-term employee benefits payable. The disclosure made in
2017 was GBP1,972k.
Trading transactions
During the period, no Group companies entered into transactions
with related parties who are not members of the Group.
12. Client monies
At 31 December 2018, client monies (all held by Foxtons Limited)
in approved bank and building society accounts amounted to GBP90.2
million (31 December 2017: GBP88.1 million). Neither this amount
nor the matching liabilities to the clients concerned are included
in the consolidated balance sheet. Foxtons Limited's terms and
conditions provide that interest income on these deposits accrues
to the Company.
Client funds are protected by the Financial Services
Compensation Scheme (FSCS) under which the government guarantees
amounts up to GBP85,000 each. This guarantee applies to each
individual client's deposit monies, not the sum total on
deposit.
13. Operating cash conversion and net free cash flow
The Group utilises two key performance indicators for cash,
namely:
-- Operating cash conversion; and
-- Net free cash flow
Operating cash conversion is defined as the ratio of Adjusted
operating cash to Adjusted EBITDA. Adjusted operating cash is
defined as Adjusted EBITDA less the movement in working capital and
net capital spend and demonstrates the proxy for cash
generation.
2018 2017
GBP'000 GBP'000
------------------------------------------- -------- ---------
Adjusted EBITDA 3,613 15,051
--------------------------------------------- -------- ---------
(Decrease)/Increase in receivables (304) 11
Other gains included in receivables 68 -
Proceeds from other gains 223 -
Increase in payables 1,577 1,372
Decrease/(increase) in NI accrual on
share based payment 32 (38)
Increase in Adjusted items included
in payables and provisions (1,691) (1,467)
Increase in provisions 1,225 1,021
Purchases of property, plant and equipment (317) (1,507)
Purchases of intangibles (686) (972)
Proceeds on disposal of property, plant
and equipment 504 340
--------------------------------------------- -------- ---------
Adjusted operating cash 4,244 13,811
--------------------------------------------- -------- ---------
Operating cash conversion 117.5% 91.8%
--------------------------------------------- -------- ---------
Net free cash flow is used as a measure of financial
performance. It is defined as net cash from operating activities
less net cash used in investing activities.
2018 2017
GBP'000 GBP'000
------------------------------------------- -------- ---------
Net cash from operating activities 1,793 13,451
--------------------------------------------- -------- ---------
Investing activities
Interest received 94 1
Proceeds on disposal of property, plant
and equipment 504 340
Purchases of property, plant and equipment (317) (1,507)
Purchases of investments (1,289) -
Purchases of intangibles (686) (972)
--------------------------------------------- -------- ---------
Net cash used in investing activities (1,694) (2,138)
--------------------------------------------- -------- ---------
Net free cash flow 99 11,313
--------------------------------------------- -------- ---------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR TRMPTMBTTBRL
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