Foxtons Interim results presentation For the period ended 30 June 2018
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
Overview Nic Budden, Chief Executive Officer 3
GROUP OVERVIEW FINANCIAL PERFORMANCE Group revenue 53.0m and adjusted EBITDA 0.1m Lettings revenue 31.7m (- 1%). Broadly flat volumes with slightly lower average revenue per deal. Remains a resilient, recurring revenue stream. Sales revenue 17.2m (- 23%). Decline driven by record low housing sales transaction levels Mortgage broking revenue 4.1m (-3%). Solid performance in the context of the wider London Sales market, driven by re-mortgages Investing for long term growth by re-focusing investment to brand, people and technology following completion of branch roll-out programme Strong balance sheet with no debt. 11.8m net cash at period end In line with policy, there will not be an interim dividend STRATEGY AND OPERATIONAL FOCUS Strong single brand, clear proposition and exceptional service continues to drive listings with Foxtons maintaining No 1 market listings position in both sales and lettings Prioritising Lettings business whilst positioning Sales business to capture upside from any sales market recovery Selectively investing in new initiatives including marketing and brand, people, tech and data to continue to grow through the cycle Note: Throughout this presentation EBITDA refers to Adjusted EBITDA 4
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Average weekly rent Indexed (jan-17 = 100) MARKET UPDATE - LETTINGS 470 465 460 455 450 445 440 435 430 425 420 415 Average London rental prices (1)(2) 140 130 120 110 100 90 80 70 60 London rental stock levels (Indexed) (3) Rental prices remained broadly flat in H1 2018 versus the same period last year, with a small price increase in Q1 offset by lower prices in Q2. Average prices remain 5% lower than before the Brexit vote Rental stock levels declined in H1 2018, with stock levels 8% below H1 2017 Market fundamentals remain strong with 30% of households in London in private rentals (1m), nearly double the rate in rest of UK (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 build stage 1) Source: Foxtons research 2) 3m moving average 3) Source: Foxtons research 4) Source: ONS 5
London annual transaction volumes England & Wales annual transaction volumes Price / earnings ratio MARKET UPDATE - SALES 130,000 120,000 110,000 100,000 90,000 80,000 70,000 60,000 Residential property sales transaction volumes (1) London (LHS) England & Wales (ex. London) (RHS) 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 15.0 14.0 13.0 12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0 Affordability key driver of low volumes (House price / earnings ratio) (2) London England & Wales 50,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 4.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sales volumes have fallen further in the half, with Land Registry data suggesting Q1 2018 volumes were 19% lower than the same period in 2017 Sales transaction volumes are currently at levels last seen in 2009/10 Affordability remains a key driver of low volumes with rapid house price growth post-2009 not matched by corresponding wage growth. This is particularly marked in London where the house price / earnings ratio is nearly double the rest of England & Wales Foxtons sales pipeline is currently 40% higher than the beginning of the year, however both time to sell and fall through rates have increased considerably (3) Note: London defined as the Greater London administrative area. 1) Source: Land Registry 2) Source: ONS 3) Source: Rightmove, Foxtons research 6
Financial review Mark Berry, Chief Financial Officer 7
A BALANCED BUSINESS THROUGH THE CYCLE Sales Lettings 23% Revenue decrease 1% Revenue decrease 23% Volume decrease - Volumes flat flat Revenue per unit 1% Revenue per deal decrease Revenue: 17.2m (H1 17: 22.2m) Contribution margin 51% preallocation of shared costs (H1 17: 61%). Focus on under offer pipeline. Sales volumes: 1,188 (H1 17: 1,544) (Q1 560 / Q2 628) 17.2m (32% of revenue) 31.7m (60% of revenue) Revenue resilient at 31.7m (H1 17: 32.1m) Q2 revenue up 5% vs. PY; Q1 down 8% vs. PY partly due to Easter Deal volumes broadly flat at 9,430 vs 9,435 in H1 17 Revenue per unit broadly flat at 14.5k (H1 17: 14.4k) Average Foxtons sales price: 582k (H1 17: 589k) Mortgage broking Revenue 4.1m (H1 17: 4.2m) 34% of portfolio with Foxtons Property Management (H1 17: 32%), which generally attracts higher renewal rates Contribution margin, pre allocation of shared overheads, 72% vs. 73% in H1 17 due to lower revenue and modest HC investment Solid performance driven by re-mortgages in challenging sales market 6% increase in units to 2,120. Revenue per unit 1.9k (H1 17: 2.1k) 8
INCOME STATEMENT Income statement m H1 18 H1 17 Change Revenue 53.0 58.5 (9%) Operating costs (52.9) (51.4) (3%) Adj. EBITDA 0.1 7.1 Depreciation, amortisation & LTIP (Loss)/Profit before tax (2.6) (3.3) (2.5) 3.8 Tax (0.4) (0.4) 5.0m of the 5.5m revenue decrease was from the sales business Lettings revenue and mortgage broking revenue was resilient. Lettings volumes in line with prior year overall with an improvement in Q2 1.5m net cost increase following targeted investments launched in Q1 c. 2.0m new investments in marketing, customer service, staff retention and recruitment c. 1.0m general cost inflation (business rates/rents/pay) partially offset by c. 0.5m lower commission c. 1.0m further underlying cost savings (in addition to c. 6m in FY17) Continue to proactively review cost base to reflect market conditions Tax charge arises due to timing differences and add back of share based payments. PY includes benefit of 0.4m deferred tax credit. (Loss)/Profit after tax (2.9) 3.3 Basic EPS (1.1)p 1.2p 1) Adjusted EBITDA excludes depreciation, amortisation, share based payments and Adjusted items 9
SUMMARISED CASH FLOW EBITDA to free cash flow conversion Cash flow bridge Opening cash 18.6m Free cash outflow (6.0m) Dividends paid (0.7m) Other (0.1m) Change in cash (6.8m) Cash at end of period 11.8m EBITDA Working capital Cash cost of FY17 adj. item Normal working capital outflow in the half due to higher revenue in June vs. seasonal low in December 0.7m outflow in respect of FY17 Adjusted items Capex & investments Tax paid Free cash outflow Capex & investment includes 1m investment in Propoly provider of B2B software services for estate agents FY18 capex and investments guidance: c. 2.0m; Depreciation, amortization & LTIPs: c. 6m 10
FREE CASH FLOW PRIORITIES FREE CASH FLOW PRIORITIES 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 interim dividend; in line with policy EXCESS CASH RETURNS POLICY Excess cash after operational needs distributed to shareholders as special dividend - 93m returned since 2013 IPO The Board remains committed to returning excess capital where appropriate MAINTAINING THE STRENGTH OF OUR BALANCE SHEET IS THE KEY PRIORITY AT THIS STAGE OF THE CYCLE 11
FINANCIAL SUMMARY BALANCED BUSINESS BUILT TO WITHSTAND THE CYCLE Lettings revenue resilient after slow start to Q1. Q2 exit rate in line with PY as we enter Q3 peak period Sales volumes subdued throughout the period FOCUS ON EFFICIENCY & SELECTIVE LONG TERM INVESTMENTS Selective investments in marketing, brand, tech and incentives to maximise productivity of our people, whilst driving underlying cost savings Ongoing review of cost base to continue to align with market conditions DEBT FREE Period end net cash position of 11.8m. Focus on preserving cash resources. No interim dividend in line with policy 12
Operational update and outlook NicBudden, Chief Executive Officer 13
INVESTING FOR FUTURE GROWTH KEY PRIORITIES 1. Investing in customer service and brand 2. Investing in our people 3. Focusing on less cyclical lettings business 4. Investing in tech & digital marketing 5. Leveraging London-wide network Enhanced account management for largest landlords, and launched Foxtons Prime for HNW buyers and sellers 9.2/10 TrustPilot review score and outperform rivals by achieving average 9% sales price premium vs. competitors Highest brand awareness in London and synonymous with property, sales intensity and service New campaigns articulating Foxtons value proposition and the results we achieve for customers to launch in H2 Staff retention and incentivisation programmes implemented to attract and keep the best talent in the industry Proactively hired experienced staff to complement existing workforce New retention and loyalty initiatives for existing landlords New product development; AirBnB host management service and offering alternative to traditional rental deposits Continue to grow institutional PRS offering Further upgrades to MyFoxtons portal incorporating enhanced property management capabilities Digital marketing program leveraging our brand awareness and data Investment in Propoly - provider of B2B software services for estate agents Focus on making the network more effective by increasing branch reach through data driven marketing Staff upskilling and productivity programmes underway Focus on accelerating maturity of newer branches REFOCUSING INVESTMENT FROM CAPEX TO OPEX FOLLOWING BRANCH ROLLOUT PROGRAMME 14
SUMMARY AND OUTLOOK LONDON S LEADING AGENT Strong single brand, clear proposition and exceptional service continues to drive listings Highly motivated, experienced estate agents renowned for delivering exceptional results for clients Market-leading tech and digital offering continues to deliver a premium high-touch service to our customers WEAK SALES MARKET IMPACTED PERFORMANCE IN THE FIRST HALF OF 2018 Resilient lettings performance which improved throughout the period Very low housing sales transactions in London impacted sales business and to a lesser extent mortgage broking Maintained strong balance sheet with no debt OUTLOOK Outlook remains mixed. Under offer sales pipeline has improved but less visibility on exchanges proceeding Momentum building in the lettings business. Enhanced offering and better resourced as we go into the peak Summer period We continue to pro-actively review our cost base to reflect market conditions 15
Appendices 16
STRONG BALANCE SHEET NET CASH AND NO DEBT m H1 18 H1 17 Goodwill & intangibles 120.4 119.8 Property, plant & equipment 22.1 26.5 Investment in associate 1.0 - Net working capital 4.6 3.3 Low working capital requirements Deferred tax (16.1) (15.9) Provisions and deferred revenue (6.0) (4.7) Cash 11.8 10.6 Net assets 137.8 139.6 Positive cash position with 10m working capital Facility available 17
SEGMENTAL EBITDA AND KPIs H1 18 H1 17 Sales revenue ( m) 17.2 22.2 Sales EBITDA ( m) (3.6) 1.4 Sales units 1,188 1,544 Lettings revenue ( m) 31.7 32.1 Lettings EBITDA ( m) 3.0 4.9 Lettings units 9,430 9,435 Mortgage broking revenue ( m) 4.1 4.2 Mortgage broking EBITDA ( m) 0.7 0.8 Mortgage broking units 2,120 1,992 18
EARNINGS PER SHARE AND EFFECTIVE TAX RATE H1 2018 H1 2017 Basic earnings (2.9m) 3.3m Weighted average number of shares * 274.9m 274.8m Basic earnings per share (1.1p) 1.2p Effective tax rate ** -17.1% 11.4% * Number of shares used for EPS calculation purposes excludes shares held in Treasury ** Effective tax rate in 2018 negative due to an accounting loss in the first six months, non-qualifying capital allowances and share option charges. Effective tax rate in 2017 below corporation tax rate due to recognition of a deferred tax asset 19
FOXTONS MARKET LEADING OUTCOMES DRIVE #1 LISTINGS POSITION Foxtons and competitor sales price achieved for average Foxtons house sale (1) Sales instructions (H1 2018) (2) 580,000 570,000 560,000 550,000 540,000 530,000 +9.4% 520,000 510,000 Lettings instructions (H1 2018) (2) 500,000 Foxtons Top 20 competitors On average Foxtons achieves 9.4% price premium compared to top 20 competitor agents for the average house sale Data calculated using surveyor data and TwentyCi average valuation model 1) Source: TwentyCi research 2) Source: Zoopla 20
FOXTONS MID MARKET SALES POSITION MIRRORS LONDON London Volumes (%) Foxtons Volumes (%) London and Foxtons sales distribution by price (2017) 36% 32% 31% 34% 16% 13% 4% 3% 6% 6% 3% 3% 2% 2% 1% 1% 1% 1% 1% 1% 2% 1% 1) Source: Land Registry, Foxtons research 21
THE SCALE AND SCOPE OF OUR BUSINESS 2017 STATISTICS 33,600 VIEWINGS EACH MONTH +9.4% PRICE ACHIEVED VS. COMPETITORS 4.8 million WEBSITE VIEWS 250,000 APPLICANTS REGISTERED 1.7 billion PROPERTY SOLD 0.5 billion RENT COLLECTED 1 PROPERTY LET EVERY 16 MINUTES, 1 PROPERTY SOLD EVERY HOUR 22
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 23
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 Internal External 1 Operational effectiveness 4.4 million property records 2.2 million customer records Automated workflows Management information Operational intelligence Linked to MyFoxtons portal Online search capabilities Embedded with aggregators Social media connectivity 2 3 Best customer service Digitally-enabled staff and customers The best service to customers: vendors, landlords, buyers and tenants 24