Foxtons Preliminary results presentation For the year ended December 2018

Transcription

1 Foxtons Preliminary results presentation For the year ended December 2018

2 Important information This presentation includes statements that are, or may be deemed to be, forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms believe, estimates, plans, projects, anticipates, expects, intends, may, will, or should or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not historical facts and include statements regarding the Company s intentions, beliefs or current expectations. Any forward-looking statements in this presentation reflect the Company s current expectations and projections about future events. By their nature, forwardlooking statements involve a number of risks, uncertainties and assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These risks, uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Forward-looking statements contained in this presentation regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this presentation. No representations or warranties are made as to the accuracy of such statements, estimates or projections. 2

3 Overview Nic Budden, Chief Executive Officer 3

4 GROUP OVERVIEW FINANCIAL PERFORMANCE Group revenue in the year 111.5m delivering 3.6m EBITDA Decline in profitability driven by lower revenue in the sales business and 4m investments in people, brand and technology Lettings revenue 67.0m (+1%). Volumes broadly flat with higher revenue per deal. Remains a resilient, recurring revenue stream Sales revenue 36.2m (-15%). Impacted by continued market weakness causing lower transaction volumes Mortgage broking revenue 8.3m (-6%). Solid performance in a constrained sales market Adjusted items charge of 15.7m, 12.5m of which is non cash. Relates to write down of the goodwill in the sales segment and closure of six branches in Q4. Cash costs will be incurred over 3 years Continued cash generation supporting strong balance sheet with no debt. 17.9m net cash at period end STRATEGY AND OPERATIONAL FOCUS Maintain number 1 London market position in listings and brand awareness by providing exceptional service and results for our customers (1) 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 Note: Throughout this presentation EBITDA refers to Adjusted EBITDA. Operating cash flow refers to adjusted operating cash flow. 1) Source: Rightmove, Zoopla, YouGov 4

5 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Dec-18 LETTINGS MARKET UPDATE 1,000, , , , , , , , , ,000 0 Number of privately rented homes in London (Number of households) (1) % 6% 4% 2% 0% -2% -4% -6% -8% Change in rental prices (1 year change) (2) Market fundamentals remain strong with 30% of households in London in private rentals (1m), nearly double the proportion in rest of UK (3) Rental prices generally reversed the downward trends seen since Q reflecting; (i) decrease in supply of rental properties mirroring the reduction in buy-to-let transactions due to regulatory and lending changes, and (ii) wage growth since average rent 2.5% higher than prior year, bringing rents back to levels seen in 2015 (2018: 455 per week, 2017: 444 per week) (4) Increasing complexity for landlords - with additional regulatory, legislative and tax changes introduced in the last couple of years - driving flight to higher quality agents better able to safeguard landlord interests Strong tenant take-up of Institutional PRS as high-quality, professionally managed schemes reach completion. However majority of developments still at planning or build stage (c.75%) (5) 1) Source: Department for Communities and Local Government 2) Source: Foxtons research. 3m moving average 3) Source: Department for Communities and Local Government 4) Source: Foxtons research 5) Source: Molior 5

6 London annual transaction volumes England & Wales annual transaction volumes Price / earnings ratio SALES MARKET UPDATE 140, , ,000 80,000 Residential property sales transaction volumes (1) London (LHS) England & Wales (ex. London) (RHS) 900, , , , , Affordability key driver of low volumes (House price / earnings ratio) (2) London England & Wales 60,000 40,000 20, , , , , F Sales market continues to be negatively weighed upon by political and macroeconomic uncertainty In addition, rapid London house price inflation post-2009 has not been matched by corresponding wage growth leading to reduced affordability further exacerbated by tighter mortgage lending criteria London house prices inflation slowed in 2018 with average prices broadly flat (3) These combined factors resulted in extremely constrained transaction volumes in London volumes were at levels similar to those seen in 2009 and c.50% below 2007 (4) Foxtons remains number 1 agent in London despite intense competition as market listings levels decrease (5) Note: London defined as the Greater London administrative area. Central London defined as TFL Zone 1 1) Source: Land Registry, Foxtons research. Annualised Jan-Oct ) Source: ONS, Land Registry, Foxtons research 3) Source: Land Registry 4) Source: Land Registry, Foxtons Research. Annualised Jan-Oct ) Source: Rightmove and Zoopla listings 6

7 Financial review Mark Berry, Chief Financial Officer 7

8 A BALANCED BUSINESS THROUGH THE CYCLE Sales Lettings 15% Revenue decrease 1% Revenue increase 15% Volume decrease 1% Volume decrease 0% Revenue per unit flat 2% Revenue per tenancy increase Revenue: 36.2m (2017: 42.6m) Contribution margin 53% preallocation of shared costs (2017: 59%) Sales volumes: 2,529 (2017: 2,962). H1: 1,188; H2: 1,341 Revenue per unit 14.3k (2017: 14.4k) Average Foxtons sales price: 581k (2017: 580k) 36.2m (32% of revenue) 67.0m (60% of revenue) Revenues resilient at 67.0m (2017: 66.3m) Volumes 1% lower at 19,621 (2017: 19,806) Increased revenue per tenancy driven by longer tenancy lengths and some increase in rental prices Contribution margin marginally lower than prior year at 71% (2017: 73%) 33% of portfolio with Foxtons Property Management (2017: 32%) which generally attracts higher renewal rates Mortgage broking Tenant fee ban expected to be implemented in June 2019 Revenue 8.3m (2017: 8.7m) Good performance driven by remortgages in a challenging sales market Revenue per unit 1.9k (2017: 2.1k) 8

9 INCOME STATEMENT Income statement m Change Revenue (5%) Revenue decrease driven by sales business down 15% Lettings revenue 1% higher with 2% increase in revenue per deal partially offset by 1% decrease in units Operating costs (107.9) (102.5) 5% EBITDA (76%) Depreciation, amortisation, LTIP & other gains (5.1) (6.3) (18%) Adjusted items (15.7) (2.3) (Loss) / profit before tax (17.2) 6.5 Selective revenue investments in lettings, technology, brand and digital marketing to drive company growth and position business to capture any future market recovery Continue to proactively review cost base. Further 3m savings expected in FY19 as a result of actions taken Comprised of: ( 9.8m) ( 2.7m) ( 12.5m) Impairment of sales goodwill Branch asset write-down Total non-cash Tax - (1.2) (Loss) / profit after tax (17.2) 5.3 ( 3.2m) ( 15.7m) Onerous lease and exit costs Cash cost to be incurred over next 3 years Total Adjusted items Basic EPS (6.3p) 1.9p Adjusted EPS (1) (0.8p) 2.6p Note: Adjusted EBITDA is defined as profit before tax, finance costs, finance income, depreciation, amortisation, profit on disposal of assets, share-based payments and Adjusted items 1) Excludes Adjusted items 9

10 PRO-ACTIVE COST REDUCTION PROGRAMME Pro-active cost reduction programme since June 2016 has delivered 11m cost savings and supported targeted FY 18 investments ( m) 14m cost reduction programme has delivered 11m cost savings since 2016, allowing us to invest 4m in new initiatives and offset significant inflationary pressure: 11m cost savings implemented since Brexit vote 4m invested into 2018 cost base in retention, commissions, marketing and branding campaign 6 branches closed Q Network of 61 branches with no plans for further closures. Further 3m savings in the FY18 exit rate FY16 cost run rate (as at June 2016) Cost savings FY16-FY18 Inflation FY16-FY18 FY18 investments FY18 cost base FY19 savings FY19F cost base (assuming flat revenues) 10

11 CONTINUED CASH GENERATION EBITDA to free cash flow conversion Operating cash flow: 4.3m / 117% conversion ratio Opening cash Uses of cash flow 18.6m Free cash flow 0.1m 2017 Final dividend paid ( 0.7m) Other ( 0.1m) (1.3) Change in cash ( 0.7m) Cash at end of period 17.9m EBITDA Working capital Other gains Capex Cash cost Adj. items Tax Underlying free cash flow Proptech investments Free cash flow Cash generative before dividends paid in respect of 2017: 117% operating cash conversion 1.4m underlying free cash flow before investments in Zero Deposits and Propoly FY19 capex guidance c. 1.0m, depreciation, amortisation and LTIPS c. 5.0m 11

12 FREE CASH FLOW PRIORITIES FREE CASH FLOW PRIORITES Fund investment in the future development of the business Maintain a strong balance sheet Return excess cash to shareholders CORE DIVIDEND POLICY Return 35% - 40% of profit after tax as an ordinary dividend No final dividend to be paid for m returned to shareholders since IPO (1) EXCESS CASH RETURNS POLICY Excess cash after operational needs distributed to shareholders as special dividend The Board remains committed to returning excess cash when appropriate 1) Includes share buy-backs 12

13 FINANCIAL SUMMARY BALANCED BUSINESS BUILT TO WITHSTAND THE CYCLE Resilient lettings performance Subdued sales volumes throughout the year FOCUS ON EFFICIENCY Current infrastructure is integral to maintaining customer service and experience levels Selective investments in marketing and brand, people, tech and data completed in the year Strong underlying cost control maintained in 2018 and continue to review and align cost base with market conditions 11m savings since 2016 and further 3m savings expected in 2019 CASH GENERATIVE WITH NO DEBT Continued cash generation before prior year dividends Year end net cash position of 17.9m and no debt No 2018 dividend in line with Group policy 13

14 Strategy and operational update NicBudden, Chief Executive Officer 14

15 INVESTING IN PEOPLE, TECHNOLOGY AND BRAND TO DELIVER SUPERIOR SERVICE Strategy 2018 Investments 1. Service and brand Continue to deliver premium customer service and results to substantiate our price premium Leverage strong single brand which drives market leading listings Enhanced account management for largest landlords, and launched Foxtons Prime for high value properties and high net wealth customers Enhanced resourcing of lettings service centre to drive landlord and tenant retention After extensive customer research launched new brand campaign articulating Foxtons value proposition and the results we achieve for customers 2. Our people 3. Technology Attract, develop and retain the best people to drive superior service for our customers Prioritise lettings and align sales business to market conditions whilst positioning for growth Use technology to save costs and increase the reach of each branch Innovate with enhanced product delivery Select complimentary investments Restructured pay and commission schemes to attract and keep the best talent in the industry Hired experienced staff to complement existing workforce and launched dedicated China desk Maintained core sales capability to capture any upside from sales market recovery Further investment in digital marketing programme leveraging our brand awareness and data Further upgrades to My Foxtons portal incorporating enhanced property management capabilities Investments in external prop tech companies 4. Lettings Operate in high value London markets Prioritise resource allocation to lettings New retention and loyalty initiatives for existing landlords Launched new products including Zero Deposits for tenants Continue to grow institutional PRS offering 15

16 INVESTING FOR FUTURE GROWTH: GET FOXTONS ON IT BRAND CAMPAIGN Get Foxtons on it brand campaign across digital, public transport, static advertising and branches: 16

17 INVESTING FOR FUTURE GROWTH: GET FOXTONS ON IT BRAND CAMPAIGN Get Foxtons on it brand campaign across digital, public transport, static advertising and branches: Strong initial public response: Metric: Net change TrustPilot score: Brand consideration (1) +284% Purchase intent (1) +433% Direct website traffic (2) +8% Direct mail efficiency (3) +33% Front office calls (3) +8% 1) Source YouGov. Dec vs. Jul ) Source Google Analytics. H vs. H ) Source: Foxtons research. H vs. H

18 SUMMARY AND OUTLOOK LONDON S LEADING AGENT Tech-enabled, centralised business with strong single brand and culture of exceptional service and results for all our customers Number 1 market position and brand awareness in London estate agency Well positioned in current environment business remains cash generative, debt free and supports a strong balance sheet Six branches closed in 2018 as we took action to align the cost base with market conditions OUTLOOK Sales business is transactional with limited forward visibility. Pipeline currently slightly below 2018 levels Pleased with progress and momentum in lettings business Continued focus on efficiency, maintaining cash balance and preserving culture 18

19 Appendices 19

20 BALANCE SHEET NET CASH POSITION Goodwill & intangibles m goodwill-write down of sales business Property, plant & equipment Investments Net working capital 0.2 (0.2) Low working capital requirements Net deferred tax (15.7) (15.8) Provisions and deferred revenue (7.5) (5.8) Net cash Net cash position. Expect to replace existing Revolving Credit Facility which expires in July 2019 Net assets

21 SEGMENTAL EBITDA AND KPIs H1 18 H2 18 FY 18 H1 17 H2 17 FY 17 Sales revenue ( m) Sales EBITDA ( m) (3.6) (0.9) (4.5) 1.4 (0.2) 1.2 Sales units 1,188 1,341 2,529 1,544 1,418 2,962 Lettings revenue ( m) Lettings EBITDA ( m) Lettings units 9,430 10,191 19,621 9,435 10,371 19,806 Mortgage broking revenue ( m) Mortgage broking EBITDA ( m) Mortgage broking units 2,120 2,198 4,318 1,992 2,251 4,243 21

22 EARNINGS PER SHARE AND EFFECTIVE TAX RATE Basic earnings ( 17.2m) 5.3m Weighted average number of shares* Basic earnings per share (6.3p) 1.9p Earnings excluding Adjusted items ( 2.1m) 7.3m Adjusted earnings per share (0.8p) 2.6p *Number of shares used for EPS calculation purposes excludes shares held in Treasury Taxation Effective tax rate 0.2% 18.0% Drivers leading to taxable income on the reported loss 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 22

23 IFRS 16 LEASE ACCOUNTING: FY19 OUTLINE IMPACT (NON-CASH) Right of use assets Balance sheet 62.0m Lease liabilities Net balance sheet impact ( 62.5m) ( 0.5m) Income statement Decrease in operating expenses Increase in depreciation charge Interest charge Net reduction in profit before tax 11.0m ( 10.0m) ( 2.5m) ( 1.5m) 23

24 FOXTONS MID MARKET SALES POSITION MIRRORS LONDON London Volumes (%) Foxtons Volumes (%) London and Foxtons sales distribution by price (2018) 38% 34% 33% 32% 14% 13% 4% 2% 6% 6% 3% 3% 2% 2% 1% 1% 1% 1% 1% 1% 3% 2% Source: Land Registry, Foxtons research 24

25 BEST IN THE SECTOR TECHNOLOGY PLATFORM Foxtons unique technology underpins every aspect of the business and provides a significant competitive advantage Leading database and CRM system Internally integrated and externally connected Delivering outcomes to drive growth Single digital platform BOS Property records Internal Automated workflows Linked to MyFoxtons portal External Embedded with aggregators 1 2 Operational effectiveness Best customer service Vendor, landlord, buyer and tenant contacts Management information Operational intelligence Online search capabilities Social media and digital marketing 3 Digitally-enabled staff and customers The best service to customers: vendors, landlords, buyers and tenants 25

26 WE OPERATE A UNIQUE CENTRALISED ESTATE AGENCY MODEL SINGLE BRAND BRANCH NETWORK FOCUSED SOLELY ON SALES & CUSTOMER SERVICE New business & lead generation team Lettings management team OUR SCALEABLE CENTRE IS A KEY DIFFERENTIATOR Web, Portal & IT development teams Support services Marketing Protography Compliance Training Recruitment Fleet services 26