TIDMFOXT
RNS Number : 2233U
Foxtons Group PLC
28 July 2020
Foxtons Group plc
INTERIM RESULTS FOR THE HALF YEARED 30 JUNE 2020
28 JULY 2020
Foxtons Group plc, London's leading estate agent, today
announces its financial results for the half year ended 30 June
2020.
Overview
Covid-19 and the associated measures implemented by the
Government to control its spread had a significant impact on the
business during the first half of 2020, but a strong Group
operational response considerably mitigated the impact of lockdown
on profitability. In particular, despite the closure of all
branches during the period 23 March 2020 to 30 May 2020 and the
restrictions of the Coronavirus Bill on the housing market, the
hard work of our dedicated employees, centralised business model
and integrated technology platforms all enabled the Group to
deliver relatively resilient revenues and take swift actions on
cost to protect profitability.
Financial summary and highlights
Half year ended 30 June 2020 2019(1)
----------------------------------- ---------- ----------
Group revenue GBP40.4m GBP51.8m
Group adjusted operating loss(2) (GBP2.4m) (GBP0.9m)
Group statutory loss before tax (GBP4.3m) (GBP2.5m)
Net free cash inflow/(outflow)(3) GBP5.7m (GBP3.5m)
Basic loss per share (1.8p) (0.9p)
Interim dividend per share - -
Net cash(3) GBP40.5m GBP14.5m
----------------------------------- ---------- ----------
-- Group revenue declined by 22% to GBP40.4m (2019: GBP51.8m):
- Lettings revenue: GBP25.7m (2019: GBP32.4m); down 21%
(including GBP1.4m tenant fee impact).
- Sales revenue: GBP11.1m (2019: GBP15.4m); down 28%.
- Mortgage broking revenue: GBP3.6m (2019: GBP4.0m); down 9%.
-- Group adjusted operating loss of GBP2.4m (2019: GBP0.9m).
Lower revenues of GBP11.4m were largely mitigated by a GBP10.0m
reduction in operating costs, which included GBP3.8m of wages
claimed under the Coronavirus Job Retention Scheme (CJRS) passed
through to furloughed employees and GBP1.0m of other Government
support.
-- Net cash of GBP40.5m at 30 June 2020 (31 December 2019:
GBP15.5m). This reflects the proceeds from the successful equity
placing in April 2020 and proactive cash flow management through
the period. Despite there being deferred lease payments of GBP4.3m
and deferred VAT payments of GBP3.5m, both to be settled over the
next 18 months, the Group has sufficient liquidity and flexibility
to manage through should there be a prolonged period of disruption
whilst continuing to invest in long term growth opportunities.
-- No interim dividend for this financial period in line with
previously disclosed dividend policy.
Operational highlights
-- We reacted swiftly to lockdown measures by temporarily
closing branches and moving effectively to remote working and
virtual viewings; the health and safety and wellbeing of our
customers and employees remain our key priority. We continue to
scenario plan for a variety of trading conditions and have
processes in place to effectively manage Covid-19 developments as
they arise.
-- The flexibility and adaptability of our business model
combined with our strong lettings and sales infrastructure ensures
we are well-placed to capitalise as the London market recovers;
digital developments such as over 2,500 virtual viewings launched
during lockdown and a 85% increase in 'My Foxtons' portal traffic
demonstrates the power of our digital service model, safeguarding
future growth opportunities.
-- Our branches fully re-opened on 1 June 2020; with over 85% of
our employees now back at work providing a full service experience
to customers within a Covid-19 secure environment.
-- In February 2020, the Group acquired London Stone Properties
Limited, a high quality independent estate agent, primarily
focussed on lettings in South East London. The acquisition forms
part of the Group's stated strategy to acquire high-quality
lettings books.
-- Employees have reacted positively to market conditions since
re-opening and continue to drive a strong culture of sales and
service.
Trading since re-opening our branches
During the 8 weeks following the re-opening of our branches on 1
June 2020 we have seen steady improvement in activity across key
areas of the business:
-- Good recovery in lettings applicant numbers, listings and
commissions, with lettings commissions over the 4 weeks of June
down 12% and over the 4 weeks of July down 3% against the prior
year.
-- Sales commissions over the 4 weeks of June were down 44% and
over the 4 weeks of July were down 32% against the prior year. The
sales commission pipeline has strengthened since re-opening and is
now broadly in line with last year. Short term fut ure sales
activity is further supported by the Government's Stamp Duty relief
effective from 8 July 2020.
Commenting on the results, Nic Budden, CEO, said:
"At Foxtons we have always recognised that our people are the
key to our success and never has this been more apparent than
during the Covid-19 pandemic. I am extremely proud of our
colleagues across the entire business as they have continued to
deliver exceptional service to our customers through truly
unprecedented conditions. This would not have been possible without
our best in class technology, which enabled us to support customers
remotely as they navigated the challenges of national lockdown.
"In addition, management's rapid response to protect the
business for the future with a range of measures, including our
successful GBP22m capital raising, will ensure that we will emerge
from this crisis with the capability and financial strength to
thrive.
"Before lockdown we were seeing first signs of a recovery from
the prolonged downturn in London, however the market has been
profoundly affected by the Covid-19 pandemic and it is still
unclear what the long-term impact of the virus will be. There is a
long road ahead, but we remain confident in London's resilience and
ability to bounce back from this crisis as one of the most
attractive property markets in the world.
"With the determined action that we have taken to ensure
financial and operational flexibility, as well as ensuring the
safety of our employees and customers, we remain confident that
Foxtons is well-placed to capitalise as the market recovers. In
such challenging times, we are committed to delivering the best
results for our customers."
For further information, please contact:
Foxtons Group plc
Richard Harris, Chief Financial
Officer
Muhammad Patel, Investor Relations
Manager +44 20 7893 6484
----------------------------
Teneo
------------------------------------- ----------------------------
+44 7713 157 561 / +44 7880
Zoë Watt / Anthony Di Natale 175 975
----------------------------
The Group will host a conference call today at 9.00am (BST) for
analysts and investors - dial in details: UK: +44 (0)330 336 9411,
US: +1 323-994-2093, Confirmation code: 6562699. There will also be
a replay of the call available for 5 days: 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=1345005&tp_key=8960669019
(1) The 30 June 2019 comparative income statement has been
restated to reflect the change in the Group's lettings commission
revenue recognition policy made in the second half of 2019 and
explained in the Group's 2019 Annual Report and Accounts. The
restatement increased 2019 revenue by GBP0.7m with a corresponding
decrease in the reported loss before tax. Refer to Note 1 for
further details of the change in policy.
(2) Adjusted operating profit/(loss) is defined as profit/(loss)
before tax for the period before finance income, finance cost,
other gains/(losses) and adjusted items. The Group's alternative
performance measures (APMs) are defined and purpose explained
within Note 15.
(3) Net free cash flow is defined as net cash from operating
activities less repayment of IFRS 16 lease liabilities and net cash
generated/used in investing activities, excluding the acquisition
of subsidiaries (net of any cash acquired). Net cash is defined as
cash and cash equivalents less external borrowings.
PERFORMANCE AT A GLANCE
Half year ended 30 June 2020 2019 Change
-------------------------------------- ---------- ------------------------ ----------
Income statement
-------------------------------------- ---------- ------------------------ ----------
Group revenue GBP40.4m GBP51.8m (22.2%)
Group adjusted operating loss(1) (GBP2.4m) (GBP0.9m) (GBP1.5m)
Group adjusted operating loss
margin(1) (5.8%) (1.7%) (410 bps)
Group statutory loss before tax (GBP4.3m) (GBP2.5m) (GBP1.8m)
Loss per share
-------------------------------------- ---------- ------------------------ ----------
Basic and fully diluted loss
per share (1.8p) (0.9p) (0.9p)
Adjusted loss per share(1) (1.6p) (0.8p) (0.8p)
Dividends
-------------------------------------- ---------- ------------------------ ----------
Interim dividend per share - - -
Cash and cash flow
-------------------------------------- ---------- ------------------------ ----------
Period end cash balance GBP45.5m GBP14.5m GBP31.0m
Net cash(1) GBP40.5m GBP14.5m GBP26.0m
N et cash from operating activities GBP8.5m GBP2.6m GBP5.9m
Net free cash inflow/(outflow)(1) GBP5.7m (GBP3.5m) GBP9.2m
Financial key performance indicators
(2)
-------------------------------------- ---------- ------------------------ ----------
Lettings revenue GBP25.7m GBP32.4m (20.8%)
Lettings volumes 7,952 9,265 (14.2%)
Average revenue per lettings
transaction GBP3,229 GBP3,499 (7.7%)
Sales revenue GBP11.1m GBP15.4m (28.2%)
Sales volumes 858 1,194 (28.1%)
Revenue per sales transaction GBP12,906 GBP12,934 ( 0.2%)
Mortgage broking revenue GBP3.6m GBP4.0m (9.2%)
Mortgage volumes 2,066 2,099 (1.6%)
Average revenue per mortgage
transaction GBP1,744 GBP1,889 (7.7%)
(1) These measures are APMs used by the Group and are defined
and purpose explained within Note 15.
(2) Average revenue per branch and average revenue per employee
were presented as key performance indicators in the Group's 2019
Annual Report and Accounts. These metrics are not considered to be
relevant at the half year reporting date and therefore have not
been presented.
CHIEF EXECUTIVE'S REVIEW
Summary
The business performance in the first 11 weeks of the year was
in line with the Board's expectations and strong growth in the
sales pipeline during January and February had started to flow
through into revenues in March. However, adherence to the UK
Government's necessary Covid-19 safety measures severely impacted
the London residential property market. On a quarterly basis, Q1
trading was marginally affected, with both lettings revenue
(including the impact of the tenant fee ban) and mortgage revenue
down 5% versus prior year and sales revenue flat. Q2 Group revenues
were significantly impacted being 38% below the prior year, with
lettings, sales and mortgage revenues falling 34%, 53% and 14%
respectively.
Overall, this meant first half Group revenue was GBP40.4m (2019:
GBP51.8m) of which revenue from lettings was GBP25.7m (2019:
GBP32.4m), revenue from sales was GBP11.1m (2019: GBP15.4m) and
revenue from mortgage broking was GBP3.6m (2019: GBP4.0m).
This was a resilient performance within the context of the
market and testament to the flexibility and adaptability of our
business model that allowed the Group to switch seamlessly to
effective remote working. Our industry-leading technology has meant
we have continued to support customers online and over the
telephone, with over 2,500 virtual viewings launched during the
lockdown period. The Group is well-positioned to deal with any
future Covid-19 related restrictions should they arise.
Swift management action in response to Covid-19 also enabled us
to protect cash flow, profitability and long-term employment. The
CJRS provided the Group with the flexibility to furlough 750
employees by the end of March and the majority of these employees
remained on furlough until our branches re-opened on 1 June 2020.
Since re-opening, furloughed employees have been gradually brought
back to work and we currently have over 85% of our employees at
work providing a full service experience to our customers within a
Covid-19 secure environment. We will continue to closely manage
staffing levels in line with business activity.
Management worked quickly to reduce discretionary expenditure as
far as possible across the business. The vast majority of employees
earning a basic salary of over GBP40,000, including all Executive
Directors and Non-Executive Directors, took a voluntary 20% pay
reduction for April and May when our branches were closed.
Tight financial discipline throughout the period, in addition to
the successful placing of 19.9% equity capital in April, has
enabled the Group to maintain sufficient liquidity and flexibility
to support the business through the worst of the market impact. As
a result, the Group remains in a strong financial position with a
net cash balance of GBP40.5m at 30 June 2020. We are
well-positioned to capitalise on the recovery of the residential
market in London and are pursuing the acquisition of additional
lettings books as we expect further market consolidation in London
as a result of the Covid-19 crisis.
Group adjusted operating loss was GBP2.4m (2019: GBP0.9m) in the
first half as reductions in the Group's cost base largely offset
the reductions in revenue.
Lettings
Part of the strategic rationale for shifting the Group's focus
towards lettings over recent years was driven by the market's
inherent resilience and strong structural drivers of demand.
Lettings now represents 64% of Group revenues and this has proven
vital to supporting the business during the current period as lower
sales volumes continue to be exacerbated by Covid-19. Our 'My
Foxtons' portal and mobile application enabled us to continue to
serve landlords and tenants safely and expertly during the lockdown
with end-to-end online transactional capabilities.
Although new deal volumes in lettings dropped significantly
during lockdown, recurring renewal and property management income
helped mitigate the impact on total revenues. Whilst there
continues to be uncertainty over the speed of recovery as tenants
remain cautious, forward looking metrics indicate new tenancy
volumes will continue to build. Our lettings stock levels are
approximately 50% above the same period last year ahead of the Q3
peak rental season, however, the level of demand in Q3 from
students and corporate relocations remains to be seen given the
economic environment and ongoing Covid-19 disruption. In the
current environment we are confident that our outstanding
proposition to landlords and strong compliance culture leave us
well-positioned for any challenges that may lie ahead.
During the period we also passed the anniversary of the tenant
fee ban, which impacted revenues in the first half by GBP1.4m. We
remain committed to not transferring this cost onto landlords and
have absorbed the full GBP4.1m annualised impact.
Sales
As reported previously, strong and steady growth in the Group's
sales commission pipeline during the first two months of the year
had started to flow through to revenues in March 2020.
During the lockdown, sales activity was severely constrained
with sales revenue 61% lower over the course of April and May
compared to the prior year, with exchanges primarily relating to
properties which went under offer prior to the lockdown. Over the
course of June 2020, as the housing market reopened, revenue
improved to be 41% lower than the comparative period, as pent-up
demand started to flow through and the sales commission pipeline
started to re-build.
Despite the ongoing impact of Covid-19 on the residential sales
market, we remain confident in the long-term attractiveness of the
London residential market. The Government's strategy to support the
housing sector by increasing the threshold for Stamp Duty relief is
expected to benefit all home movers, as well as having a positive
multiplier effect on the economy.
Trust is vital during periods of financial uncertainty and our
number one position in the London market shows that customers
continue to turn to Foxtons when it comes to buying or selling a
home. Our high service model and expert workforce will continue to
deliver for customers during these challenging times.
Mortgage broking
Mortgage broking has held up well during the period, supported
by a 10% increase in remortgages as new mortgage volumes declined.
Our ability to find the appropriate mortgage solution for our
customers is proving more important than ever. Customers place even
greater value on our professional mortgage advice during periods of
uncertainty and we are supporting our customers to navigate a
market that has reduced mortgage availability and increased
complexity.
Outlook
The Group has so far been able to weather the severe disruption
to trading caused by the lockdown. We are pleased with the way the
business and, in particular, our employees have dealt with the
difficult conditions of the last few months. Their expertise and
dedication, combined with our long-term investments in technology
and strong financial position mean we are well-placed for the
future.
We remain cautious about the impact Covid-19 will have on the
London residential sales and lettings markets in the months to
come, but we are well-prepared both to deal with any further
Covid-19 restrictions should they arise and also to capitalise on
any market recovery.
Nic Budden
Chief Executive Officer
FINANCIAL REVIEW
Overview
Group revenue fell by 22% to GBP40.4m (2019: GBP51.8m), with
revenue from lettings down 21%, revenue from sales down 28%, and
revenue from mortgage broking down 9%.
Group adjusted operating loss was GBP2.4m (2019: GBP0.9m). Given
the significant impact on revenue in the period, the Group took
significant cost action to mitigate the impact of Covid-19 on
profitability. Management sought to minimise all discretionary
expenditure during the period, with 20% pay reductions for all
Directors and the vast majority of employees, reductions in
employee commissions earnt, reduced marketing expenditure and a
broad range of other initiatives contributing to savings of GBP5.2m
in the period.
The reduction in the cost base was also supported by GBP3.8m of
wages claimed under the CJRS and passed through to furloughed
employees and GBP1.0m via rates relief/business interruption
grants, for which estate agents are eligible in the 2020/21 tax
year. The Group currently has over 85% of employees at work, with
usage of the CJRS being gradually phased out - as a result, the
pass through of wages claimed under the scheme will be
significantly lower in the second half of the year. The Group will
continue to benefit from rates relief through to the end of March
2021.
Taking both the management actions and Government support/relief
into account, the cost base in the first half of the year was
GBP10.0m lower than prior year.
The Group's statutory loss before tax was GBP4.3m (2019:
GBP2.5m).
At 30 June the Group held a net cash balance of GBP40.5m ( 31
December 2019: GBP15.5m ). The Group's GBP5m revolving credit
facility (RCF) was fully drawn in March 2020 as a precautionary
measure in response to the uncertain financial conditions that
prevailed at the time. The Group has subsequently repaid the RCF in
full in July 2020 and retains access to the facility if required in
the future.
Summary income statement
2020 2019 Change
Half year ended 30 June GBPm GBPm
---------------------------------- ------ ------ -------
Group revenue 40.4 51.8 (22.2%)
Group contribution (1) 24.9 33.2 (25.2%)
Group adjusted operating loss (1) (2.4) (0.9) (1.5)
Adjusted items (0.8) (0.4) (0.4)
Net finance costs (1.1) (1.2) 0.1
Group statutory loss before tax (4.3) (2.5) (1.8)
Basic loss per share (1.8p) (0.9p) (0.9p)
Dividend per share - - -
---------------------------------- ------ ------ -------
(1) These measures are APMs. Measures are defined and purpose
explained within Note 15.
Revenue
The Group consists of three operating segments: Lettings, sales
and mortgage broking.
GBPm H1 2020 H1 2019 Change
----------------- ------- ------- -------
Lettings 25.7 32.4 (20.8%)
Sales 11.1 15.4 (28.2%)
Mortgage broking 3.6 4.0 (9.2%)
----------------- ------- ------- -------
Group revenue 40.4 51.8 (22.2%)
----------------- ------- ------- -------
Lettings
Lettings revenues fell by 5% during Q1 2020, broadly level with
last year excluding the impact of the tenant fee ban. During Q2
2020, lettings revenues were 34% lower than the prior year at
GBP11.7m (2019: GBP17.8m) primarily due to a reduction in new
tenancy revenue. Lettings renewal revenue and ongoing property
management revenues provided resilience to the lettings business.
The lettings business is seasonal and the Group is well placed to
capitalise on any market recovery with strong stock levels going
into the peak lettings season.
Sales
Sales revenue was flat during Q1 2020 at GBP7.1m with the value
of the sales commission pipeline building to be more than 20%
higher than the prior year. During Q2 2020, sales volumes were
severely disrupted by the lockdown restrictions with revenues 53%
lower compared to the prior year at GBP3.9m (2019: GBP8.3m). The
average revenue per transaction remained flat in the first half at
GBP12.9k (2019: GBP12.9k) and the average price of properties sold
increased marginally to GBP556k (2019: GBP544k).
Mortgage broking
Mortgage broking revenue fell by 9% to GBP3.6m (2019: GBP4.0m).
This reduction reflects a decline in new mortgages attributable to
the significantly reduced sales volumes noted above, partially
offset by growth in remortgages.
Resilience through the cycle
Our balance of business enables the Group to withstand
fluctuations in the property market thereby providing protection
from the potentially volatile sales market. During H1 2020 the
lettings business has contributed 64% (2019: 62%) of the Group's
revenue, which has provided stability in the current volatile
trading environment.
% of total revenue H1 2020 H1 2019
------------------- ------- -------
Lettings 64% 62%
Sales 27% 30%
Mortgage broking 9% 8%
------------------- ------- -------
100% 100%
------------------- ------- -------
Profitability
Contribution, contribution margin, adjusted operating
profit/(loss) and adjusted operating profit/(loss) margin are APMs
management uses to monitor the profitability of the Group and
operating segments. The Group's APMs are defined and purpose
explained in Note 15.
Contribution and contribution margin
Contribution is revenue less direct salary costs and cost of bad
debt. Group contribution has decreased to GBP24.9m (2019: GBP33.2m)
as a result of reduced sales and lettings revenue.
Group contribution margin decreased to 62% (2019: 64%). Direct
salary costs were carefully managed in the period through the use
of the CJRS with headcount adjusted to reflect market conditions,
whilst ensuring the level and quality of staffing was appropriate
for the levels of business activity.
H1 2020 H1 2020 H1 2019 H1 2019
GBPm margin GBPm margin
------------------- ------- ------- ------- -------
Lettings 18.4 71.6% 23.5 72.5%
Sales 4.9 43.9% 7.9 50.9%
Mortgage broking 1.6 44.9% 1.8 46.9%
------------------- ------- ------- ------- -------
Group contribution 24.9 61.6% 33.2 64.1%
------------------- ------- ------- ------- -------
Adjusted operating profit/(loss) and adjusted operating
profit/(loss) margin
Adjusted operating loss for the period was GBP2.4m (2019:
GBP0.9m). This measure has replaced adjusted EBITDA as the measure
by which resource allocation and segment performance is monitored.
For the purposes of segmental reporting, shared costs are allocated
between the lettings business and the sales business with reference
to their relative headcount.
H1 2020 H1 2020 H1 2019 H1 2019
GBPm margin GBPm margin
----------------- ------- ------- ------- -------
Lettings 2.0 7.8% 2.0 6.2%
Sales (4.8) (43.4%) (3.5) (22.5%)
Mortgage broking 0.4 12.5% 0.6 15.5%
----------------- ------- ------- ------- -------
Group (2.4) (5.8%) (0.9) (1.7%)
----------------- ------- ------- ------- -------
Adjusted items
A net GBP0.8m (2019: GBP0.4m) adjusted items charge relating to
branch impairments and property restructure costs has been incurred
in the period.
Statutory loss before tax
The statutory loss before tax in the period was GBP4.3m (2019:
GBP2.5m) after charging:
-- Direct operating costs of GBP15.5m (2019: GBP18.6m) and
shared costs of GBP20.2m (2019: GBP27.1m)
-- Depreciation of GBP6.3m (2019: GBP6.4m) and amortisation of GBP0.4m (2019: GBP0.3m)
-- Share-based payment charge of GBP0.5m (2019: GBP0.4m)
-- Adjusted items charges of GBP0.8m (2019: GBP0.4m)
-- Other losses: nil (2019: Other losses of GBP0.1m)
-- Net finance costs of GBP1.1m (2019: GBP1.2m)
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. The Group always sets out to be
transparent, open and honest in its dealings with tax authorities.
The Group received a tax refund of GBP0.3m in the period (2019:
GBP0.1m tax refund).
Loss per share
Basic and fully diluted loss per share was 1.8p (2019: 0.9p)
driven by reduced profitability. Adjusted loss per share was 1.6p
(2019: 0.8p).
Cash and cash flow
The Group held net cash, excluding lease liabilities, of
GBP40.5m at 30 June 2020 (31 December 2019: GBP15.5m). The Group's
cash position at 30 June 2020 has benefited by GBP7.7m as a result
of Government Covid-19 related support/relief, of which GBP3.5m
relates to deferred VAT payments to be settled prior to 31 March
2021. Net free cash inflow of GBP5.7m (2019: GBP3.5m outflow),
driven by the deferral of GBP4.3m of lease payments following
agreements with lease providers as a result of the Covid-19
disruption and VAT payments of GBP3.5m, both to be settled over the
next 18 months.
H1 2020 H1 2019
GBPm GBPm
---------------------------------------------------------- ------- -------
Operating cash inflow before movements in working capital 4.6 5.5
Working capital inflow/(outflow) 3.6 (3.0)
Income taxes refund 0.3 0.1
---------------------------------------------------------- ------- -------
Net cash from operating activities 8.5 2.6
---------------------------------------------------------- ------- -------
Repayment of IFRS 16 lease liabilities (2.7) (5.9)
Net cash generated/(used) in investing activities(1) (0.1) (0.2)
---------------------------------------------------------- ------- -------
Net free cash inflow/(outflow) 5.7 (3.5)
---------------------------------------------------------- ------- -------
(1) Excluding the acquisition of subsidiaries (net of any cash
acquired)
Acquisitions
On 28 February 2020, the Group acquired 100% of the share
capital of London Stone Properties Limited and its subsidiary
London Stone Property Sales Limited (collectively "London Stone"),
a high quality independent estate agent, primarily focussed on
lettings and property management based in South East London.
Consideration of GBP4.4m was settled in cash. Net assets fair
valued at GBP2.2m (including GBP2.5m of cash) were purchased, in
addition to GBP1.4m of customer contract intangibles and GBP0.8m of
goodwill being recognised upon acquisition. From the date of
acquisition, London Stone contributed GBP0.5m of revenue and
GBP0.3m of profit to the Group's performance from 28 February 2020
to 30 June 2020.
Other balance sheet positions
Within the 30 June 2020 trade and other payables balance of
GBP12.6m (2019: GBP13.0m), is a VAT payable balance of GBP3.5m
which has been deferred under HMRC's Covid-19 VAT deferral scheme
due for repayment prior to the 31 March 2021 deadline.
Within the 30 June 2020 total lease liability balance of
GBP56.5m (2019: GBP59.0m) there are GBP3.6m of property and vehicle
IFRS 16 lease payments which have been deferred to future periods.
The deferrals have been agreed with the Group's lease providers and
will be settled over the next 18 months.
The Group completed an equity placing in April 2020 resulting in
net proceeds of GBP21.1m. A total of 54,993,367 ordinary shares
were issued at a total premium to nominal value of GBP21.5m and
GBP0.9m of incremental transaction costs were incurred, resulting
in a net total premium of GBP20.6m that has been recognised as a
merger reserve.
Capital allocation policy
At the time of the placing in April 2020, we highlighted that
the net proceeds would be used to repay in full the RCF and to
provide sufficient liquidity and flexibility to support the
business through the anticipated disruption from Covid-19. To date,
we have been able to navigate the lockdown period and the
subsequent opening-up of the housing market with minimal impact on
cash flow. That said, it is unclear how the pandemic will continue
to affect the residential sales and lettings markets in London over
the coming months and it is important to retain sufficient
liquidity to manage through this uncertainty.
Beyond working capital needs we intend to use our cash to
continue to fund investment in the organic development of the
business, both people and technology, and to prioritise lettings
book acquisitions. The strong performance we have seen from the
London Stone acquisition, with lettings revenue growing by 3% over
the four months of ownership compared to the prior year, despite
the impact of Covid-19, gives us the confidence to make further
similar investments which we believe will generate high rates of
return on investment and healthy payback periods. The recurring
nature of the acquired lettings books improves the Group's
resilience during fluctuations in the residential sales market.
Should sufficiently attractive lettings acquisitions not emerge
we would then consider returning cash excess to working capital
needs to shareholders.
Dividend
The Group's core dividend policy is to return 35-40% of profit
after tax to shareholders as an ordinary dividend. In the first
half of the year the Group made a loss after tax and therefore no
dividend will be paid.
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 in a net cash position;
-- 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 access to a GBP5m RCF which expires in June 2022.
Pensions
The Group does not have any defined benefit schemes in place but
is subject to the provisions of auto-enrolment which require the
Group to make certain defined contribution payments for our
employees.
Richard Harris
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 Group and its shareholders in the constantly
changing environment in which it operates. The Board regularly
reviews the principal risks facing the Group 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.
At half year 2020, the Group has reviewed the Group's principal
risks in light of Covid-19. The principal risks are considered to
be consistent with those set out on pages 38 to 41 of the 2019
Annual Report and Accounts except for the addition of the Covid-19
risk described below. The impact of the Group's existing principal
risks have been reviewed and updated to take into account Covid-19
where required. A summary of the principal risks is provided
below.
External risk factors
Risk Impact on Group
Covid-19 As set out in the Chief Executive's review, the Group's
performance has been significantly impacted by Covid-19.
Although transaction volumes are slowly recovering following
the Covid-19 lockdown, the pandemic has introduced additional
uncertainty to the future market outlook and continues
to impact the operations of the Group. Whilst the Group
has mitigations in place to protect the business and
stakeholders, Covid-19 has introduced a number of uncertainties:
* Covid-19 continues to impact the UK economy and
consumer confidence, which is expected to have an
adverse impact on residential property transaction
levels in the short to medium term. The speed and
extent of recovery is difficult to predict and
therefore there is a high degree of uncertainty in
the market outlook;
* in the event of future local lockdowns, there is a
risk that the Group's offices and branches may have
to temporarily close and customer facing activities
would be restricted due to remote working
arrangements. Property viewings would be required to
switch to virtual viewings which may not be as
effective as in person viewings; and
* there is an ongoing Covid-19 health and safety risk
which has to be carefully and responsibly managed to
ensure the ongoing safety of our employees and
customers.
------------------------------------------------------------------
Market risk Prior to Covid-19, the Group continued to be impacted
by the prolonged downturn in the London sales market
and the very low transaction levels experienced in 2019.
The key factors currently contributing to the market
risk are summarised below:
* affordability, which in turn may reduce transaction
levels;
* a reduction in London's standing as a major financial
city caused by the macro-economic and political
environment, including the UK's decision to leave the
EU;
* the market being reliant on the availability of
mortgage finance, a deterioration in which may
adversely affect the Group; and
* the market being impacted by changes in Government
policy such as changes in stamp duty taxes or
increased regulation in the lettings market. In July
2020 UK Government announced an increase in the stamp
duty threshold in order to stimulate an accelerated
recovery in the UK housing market. This favourable
change in the UK stamp duty regime mitigates some of
the risk in the short term.
Covid-19 has introduced additional market risk and operational
risk the impact of which is summarised separately above.
------------------------------------------------------------------
Competitor Foxtons operates in a highly competitive marketplace.
challenge 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 Breaches of laws or regulations could lead to financial
with the penalties and reputational damage.
legal and The mortgage broking division is authorised and regulated
regulatory by the FCA and could be subject to sanctions for non-compliance.
environment
------------------------------------------------------------------
Internal risk factors
Risk Impact on Group
IT systems Foxtons business operations are dependent on sophisticated
and cyber and bespoke IT systems which could fail or be deliberately
risk targeted by cyber-attacks leading to interruption of
service, corruption of data or theft of personal data.
Such a failure or loss could also result in reputational
damage, fines or other adverse consequences.
------------------------------------------------------------
People There is a risk that Foxtons may not be able to recruit
or retain sufficient staff to achieve its operational
objectives as competition for talent increases due to
challenging market conditions.
------------------------------------------------------------
Reputation Foxtons is a strong, single network brand with a reputation
and brand of delivering exceptional service. Our reputation and
brand provides a competitive advantage and is critical
to maintaining and growing market share.
There is a risk our reputation and brand could be damaged
through negative press coverage due to customer service
falling below expectations, or actions of the Group being
considered to be inappropriate. In the current Covid-19
environment the Group has placed even more emphasis on
compliance with safety guidelines and industry compliance,
however there is a risk that such precautions are not
fully effective. This could adversely impact our ability
to retain and attract new customers and damage the future
prospects of the business.
------------------------------------------------------------
FORWARD LOOKING STATEMENTS
This interim results 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 July 2020. 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.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
We confirm that to the best of our knowledge:
(a) The condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting';
(b) The interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
(c) The interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board
Nic Budden Richard Harris
Chief Executive Officer Chief Financial Officer
27 July 2020 27 July 2020
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended 30 June 2020
Six months
Six months to 30 June
to 30 June 2019(1)
2020 (unaudited) (unaudited)
Continuing operations Notes GBP'000 GBP'000
------------------------------------ ----- ----------------- --------------------
Revenue 2 40,350 51,831
Direct operating costs (15,478) (18,585)
Other operating costs (28,021) (34,488)
------------------------------------ ----- ----------------- --------------------
Operating loss (3,149) (1,242)
Other losses (32) (55)
Finance income 78 67
Finance costs (1,192) (1,300)
------------------------------------ ----- ----------------- --------------------
Loss before tax (4,295) (2,530)
Tax (charge)/credit 3 (1,152) 165
------------------------------------ ----- ----------------- --------------------
Loss and total comprehensive loss
for the period (5,447) (2,365)
------------------------------------ ----- ----------------- --------------------
Loss per share
Basic and diluted (pence per share) 5 (1.8) (0.9)
Adjusted (pence per share) (2) 5 (1.6) (0.8)
------------------------------------ ----- ----------------- --------------------
(1) The 30 June 2019 comparative income statement has been
restated to reflect the change in the Group's lettings commission
revenue recognition policy made in the second half of 2019 and
explained in the Group's 2019 Annual Report and Accounts . The
restatement increased revenue for the 6 months ended 30 June 2019
by GBP0.7m with a corresponding decrease in the reported loss
before tax . Refer to Note 1 for further details of the change in
policy.
(2) Adjusted loss per share is an APM and is reconciled to
statutory loss per share in Note 5.
The notes below form part of this condensed consolidated
financial information.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2020
31 December
2019
30 June
30 June 2019(1)
2020 (unaudited) (unaudited) (audited)
Notes GBP'000 GBP'000 GBP'000
-------------------------------------- ----- ----------------- ------------ -----------
Non-current assets
Goodwill 6 10,100 9,349 9,349
Other intangible assets 6 102,074 101,248 100,995
Property, plant and equipment 11,428 15,082 13,020
Right-of-use assets 7 47,854 57,854 51,404
Contract assets 759 703 564
Interest in associate and investments 1,239 1,265 1,274
Deferred tax assets 2,859 1,507 2,056
-------------------------------------- ----- ----------------- ------------ -----------
176,313 187,008 178,662
-------------------------------------- ----- ----------------- ------------ -----------
Current assets
Trade and other receivables 11,589 16,020 13,424
Contract assets 1,061 139 969
Current tax assets - 82 342
Cash and cash equivalents 9 45,545 14,516 15,482
-------------------------------------- ----- ----------------- ------------ -----------
58,195 30,757 30,217
-------------------------------------- ----- ----------------- ------------ -----------
Total assets 234,508 217,765 208,879
-------------------------------------- ----- ----------------- ------------ -----------
Current liabilities
Trade and other payables (12,581) (13,042) (10,479)
Borrowings 9 (5,000) - -
Lease liabilities 7 (12,780) (11,788) (9,690)
Current tax liabilities (154) - -
Provisions (611) (1,419) (1,426)
Contract liabilities (6,272) (4,963) (6,255)
-------------------------------------- ----- ----------------- ------------ -----------
(37,398) (31,212) (27,850)
-------------------------------------- ----- ----------------- ------------ -----------
Net current assets/(liabilities) 20,797 (455) 2,367
Non-current liabilities
Lease liabilities 7 (43,755) (47,235) (46,174)
Contract liabilities (1,211) (1,650) (1,295)
Provisions (1,174) - (949)
Deferred tax liabilities (19,066) (16,830) (16,830)
-------------------------------------- ----- ----------------- ------------ -----------
(65,206) (65,715) (65,248)
-------------------------------------- ----- ----------------- ------------ -----------
Total liabilities (102,604) (96,927) (93,098)
-------------------------------------- ----- ----------------- ------------ -----------
Net assets 131,904 120,838 115,781
-------------------------------------- ----- ----------------- ------------ -----------
Equity
Share capital 11 3,301 2,751 2,751
Merger reserve 12 20,568 - -
Other reserves 12 2,653 2,653 2,653
Own shares held (56) (774) (56)
Retained earnings 105,438 116,208 110,433
-------------------------------------- ----- ----------------- ------------ -----------
Total equity 131,904 120,838 115,781
-------------------------------------- ----- ----------------- ------------ -----------
(1) The 30 June 2019 comparative balance sheet has been restated
to reflect the change in the Group's lettings commission revenue
recognition policy made in the second half of 2019 and explained in
the Group's 2019 Annual
Report and Accounts . Refer to Note 1 for further details of the change in policy.
The notes below form part of this condensed consolidated
financial information.
These unaudited condensed consolidated interim financial
statements for the 6 months ended 30 June 2020 were approved by the
Board on 27 July 2020.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months ended 30 June 2020
Own
Share shares Merger Other Retained Total
capital held reserve reserves earnings equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ----- -------- -------- -------- --------- --------- --------
Balance at 1 January 2020 2,751 (56) - 2,653 110,433 115,781
--------------------------------- ----- -------- -------- -------- --------- --------- --------
Loss and total comprehensive
loss for the period - - - - (5,447) (5,447)
Dividends 4 - - - - - -
Share issuance 11 550 - 20,568 - - 21,118
Credit to equity for share-based
payments - - - - 452 452
Balance at 30 June 2020
(unaudited) 3,301 (56) 20,568 2,653 105,438 131,904
--------------------------------- ----- -------- -------- -------- --------- --------- --------
Own
Share shares Merger Other Retained Total
capital held reserve reserves earnings equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ----- -------- -------- -------- --------- --------- ---------
Balance at 1 January 2019 2,751 (720) - 2,653 118,640 123,324
--------------------------------- ----- -------- -------- -------- --------- --------- ---------
Loss and total comprehensive
loss for the period - - - - (2,365) (2,365)
Dividends 4 - - - - - -
Own shares acquired in
the period - (54) - - - (54)
Credit to equity for share-based
payments - - - - 381 381
Settlement of share incentive
plan - - - - (448) (448)
--------------------------------- ----- -------- -------- -------- --------- --------- ---------
Balance at 30 June 2019
(unaudited)(1) 2,751 (774) - 2,653 116,208 120,838
--------------------------------- ----- -------- -------- -------- --------- --------- ---------
Own
Share shares Merger Other Retained Total
capital held reserve reserves earnings equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ----- -------- -------- -------- --------- --------- ---------
Balance at 1 January 2019 2,751 (720) - 2,653 118,640 123,324
--------------------------------- ----- -------- -------- -------- --------- --------- ---------
Loss and total comprehensive
loss for the period - - - - (7,775) (7,775)
Dividends 4 - - - - - -
Own shares acquired in
the period - (54) - - - (54)
Credit to equity for share-based
payments - - - - 735 735
Settlement of share incentive
plan - 718 - - (1,167) (449)
--------------------------------- ----- -------- -------- -------- --------- --------- ---------
Balance at 31 December
2019 2,751 (56) - 2,653 110,433 115,781
--------------------------------- ----- -------- -------- -------- --------- --------- ---------
(1) Retained earnings as at 30 June 2019 have been restated to
reflect the change in the Group's lettings commission revenue
recognition policy made in the second half of 2019 and explained in
the Group's 2019 Annual Report and Accounts . The retained earnings
balances as at 1 January 2019 and 31 December 2019 are as presented
in the 2019 Annual Report and Accounts. Refer to Note 1 for further
details of the change in policy.
The notes below form part of this condensed consolidated
financial information.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Six months ended 30 June 2020
Six months
to 30 June
2020
Six months
to 30 June
2019(1)
(unaudited) (unaudited)
Notes GBP'000 GBP'000
----------------------------------------- ---------------------------------------------------------- --------------------
Operating activities
Operating loss (3,149) (1,242)
Adjustments for:
Other losses - (55)
Depreciation of property, plant
and equipment and right-of-use assets 6,262 6,383
Branch asset impairments 1,420 587
Gain on disposal of property, plant
and equipment and right-of-use assets (173) (244)
Amortisation of intangible assets 389 278
Decrease in provisions (590) (130)
Share-based payment charges 473 392
Cash settlement of share incentive
plan - (448)
----------------------------------------- ---------------------------------------------------------- --------------------
Operating cash flows before movements in
working capital 4,632 5,521
Decrease/(increase) in receivables 1,662 (5,048)
Increase in payables 1,848 2,048
----------------------------------------- ---------------------------------------------------------- --------------------
Cash generated by operations 8,142 2,521
Income taxes received 339 130
----------------------------------------- ---------------------------------------------------------- --------------------
Net cash from operating activities 8,481 2,651
----------------------------------------- -------------------------------------- ------------------ --------------------
Investing activities
Interest received 54 33
Proceeds on disposal of property,
plant and equipment 94 63
Proceeds on disposal of investments 57 -
Purchases of property, plant and
equipment (208) (153)
Purchases of intangibles (29) (116)
Purchases of investments - (31)
Acquisition of subsidiaries (net
of cash acquired) 10 (1,913) -
Net cash used in investing activities (1,945) (204)
----------------------------------------- -------------------------------------- ------------------ --------------------
Financing activities
Dividends paid 4 - -
Interest paid (56) (30)
Repayment of lease liabilities (2,707) (5,934)
Sub-lease income received 173 160
Purchase of own shares - (54)
Net proceeds from issue of ordinary
share capital 11 21,117 -
Proceeds from external borrowings 9 5,000 -
----------------------------------------- -------------------------------------- ------------------ --------------------
Net cash from/(used in) financing
activities 23,527 (5,858)
----------------------------------------- -------------------------------------- ------------------ --------------------
Net increase/(decrease) in cash
and cash equivalents 30,063 (3,411)
Cash and cash equivalents at beginning
of period 15,482 17,927
----------------------------------------- -------------------------------------- ------------------ --------------------
Cash and cash equivalents at end
of period 45,545 1 4,516
----------------------------------------- -------------------------------------- ------------------ --------------------
(1) The comparative cash flow statement has been restated to
reflect the change in the Group's lettings commission revenue
recognition policy made in the second half of 2019 and explained in
the Group's 2019 Annual Report and Accounts. There has been no
impact of the policy change on the previously reported 30 June 2019
closing cash balance.
The notes below form part of this condensed consolidated
financial information.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT
1. accounting policies, judgements and estimates
1.1 General Information
Foxtons Group plc ("the Company") is a company incorporated in
the United Kingdom under the Companies Act 2006. 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.
1 .2 Basis of preparation
These unaudited condensed consolidated interim financial
statements have been prepared in accordance with the Disclosure
Guidance and Transparency Rules of the UK Financial Conduct
Authority, and with IAS 34 'Interim Financial Reporting', as
adopted by the European Union. Unless otherwise stated, the
accounting policies applied, and the judgements, estimates and
assumptions made in applying these policies, are consistent with
those described in the Group's Annual Report and Accounts 2019 and
in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union.
These unaudited condensed consolidated interim financial
statements for the six months ended 30 June 2020 do 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 2019 have been reported upon by the Group's auditor and
have been delivered to the Registrar of Companies. The report of
the auditor 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 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.
1.3 Going concern
At 30 June 2020, the Group was in a net cash position of
GBP40.5m, consisting of GBP45.5m of cash and cash equivalents, net
of GBP5.0m of external borrowings following the drawdown of the RCF
in March 2020 as part of the Group's Covid-19 response. In
assessing the Group's ability to continue as a going concern, the
Directors have reviewed the Group's cash flow forecasts which have
been stress tested for reasonable possible changes in trading
performance as a result of a deterioration in market conditions,
with specific consideration given to the ongoing impact of
Covid-19.
On 17 April 2020, the Group announced the successful completion
of a non-pre-emptive placing of ordinary shares raising gross
proceeds of GBP22.0m. As part of the placing, the Group analysed a
broad range of potential scenarios, primarily based on assumptions
for the residential sales and lettings markets in London to recover
to more normal levels of activity. The proceeds provide the Group
with sufficient liquidity and flexibility through a reasonable
worst case scenario and will help the Group exit in a strong
financial position in the event of less pessimistic outcomes.
The Covid-19 pandemic has significantly impacted trading in
2020, with both demand and supply in sales and lettings being
adversely affected by the lockdown. In response, management rapidly
undertook a number of actions in order to minimise the impact of
the lockdown on cash flow.
These actions included utilising the Government's Coronavirus
Job Retention Scheme, temporary salary reductions across employees
and all Directors, agreeing temporary flexibility and payment
deferral with some of the Group's landlords and its vehicle leasing
company and reducing discretionary spend.
In addition to the above actions taken by management, the Group
is eligible for rates relief in the financial year 2020/21 and it
has been agreed VAT payments due between March and June 2020 will
be deferred and settled prior to March 2021.
The financial statements of the Group have been prepared on a
going concern basis as the Directors have satisfied themselves
that, at the time of approving the financial statements, the Group
will have adequate resources to continue in operational existence
for the foreseeable future. The assessment has taken into
consideration the Group's financial position, the availability of
the RCF due to expire in June 2022 (which the Group repaid in full
on 8 July 2020), recent trading performance and the outcome of
reverse stress testing.
1.4 New standards, interpretations and amendments adopted by the Group
The accounting policies applied in these interim statements are
the same as those applied in the Group's 2019 Annual Report and
Accounts.
As explained in the Group's 2019 Annual Report and Accounts, in
the second half of 2019 the Group updated its lettings commission
revenue recognition policy following a post-implementation review
of IFRS 15. Lettings commission is now accounted for under IFRS
15's 'cancellable contracts' guidance, compared to the previous
policy which accounted for the contracts as variable consideration.
The new policy has been applied under the IFRS 15 transition
provisions from 1 January 2018 (the date at which IFRS 15 became
effective).
The 30 June 2019 income statement and balance sheet have been
restated, including the relevant notes to the financial statements,
to reflect the new policy, resulting in an increase in profit
before tax of GBP0.7m and a GBP0.3m decrease in net assets. At 30
June 2019, the following balance sheet lines have been restated to
reflect the change in policy:
-- recognition of contract assets of GBP0.8m; recognition of
contract liabilities of GBP6.6m; and an additional deferred tax
asset of GBP0.1m. and
-- offsetting this, the previously reported 30 June 2019
deferred revenue and lettings refund liability of GBP5.4m has been
derecognised.
Contract assets represent the accrual of revenue beyond amounts
invoiced for contracts with no break clause, where invoicing only
covers part of the contract period, and contract liabilities
represent amounts invoiced for contracts with a break clause, where
invoicing has extended past the break clause point.
1.5 Alternative performance measures
In reporting financial information the Group presents APMs 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. APMs are also used to enhance the
comparability of information between reporting periods, by
adjusting for uncontrollable factors which affect IFRS measures, to
aid users in understanding the Group's performance.
Within the period the Group has introduced three new APMs:
Adjusted operating profit/(loss), adjusted operating profit/(loss)
margin and net cash/(debt). These new APMs, and existing APMs, have
been defined and purpose explained within Note 15.
Adjusted operating profit/(loss) replaces adjusted EBITDA as the
measure by which resource allocation and segment performance is
monitored. Following the application of IFRS 16, adjusted operating
profit/(loss) is considered to be a superior measure to adjusted
EBITDA since the new measure includes the depreciation of IFRS 16
right-of-use assets and therefore the costs related to the Group's
leased assets are appropriately captured with a profitability
APM.
Adjusted operating profit/(loss), adjusted operating
profit/(loss) margin and adjusted profit/(loss) per share, exclude
adjusted items. Adjusted items include costs or revenues which due
to their size and incidence require separate disclosure in the
financial statements to reflect management's view of the underlying
performance of the Group and allow comparability of performance
from one period to another. Items include restructuring and
impairment charges, significant acquisition costs and any other
significant exceptional items.
1.6 Critical accounting judgements and key sources of estimation uncertainty
The Group's critical accounting judgements and key sources of
estimation uncertainty are consistent with those described in the
Group's 2019 Annual Report and Accounts.
2. 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)
lettings, (ii) sales and (iii) mortgage broking.
(i) Lettings earns commission from the letting and management of
residential properties and income from interest earned on tenants'
deposits.
(ii) Sales segment generates commission on sales of residential property.
(iii) Mortgage broking receives commission from the arrangement
of mortgages and related products under contracts with financial
service providers and receives administration fees from
clients.
Since the sales and lettings 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.
All revenue for the Group is generated from within the UK and
there is no intra-group 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. Goodwill and intangible assets have been allocated to
reportable segments as described in Note 6.
Adjusted operating profit/(loss) and adjusted operating
profit/(loss) margin
Adjusted operating profit/(loss) represents the profit/(loss)
before tax for the period before finance income, finance cost,
other gains/losses and adjusted items. As explained in Note 15,
this measure replaces adjusted EBITDA and is used by the Directors
for the purpose of resource allocation and assessment of segment
performance. Adjusted operating profit/(loss) margin is used to
measure the delivery of the Group's strategic priorities.
Segment revenues and results
The following is an analysis of the Group's revenue and results
by reportable segment for the half year ended 30 June 2020:
Mortgage
Lettings Sales broking Consolidated
2020 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- --------- --------- --------- -------------
Revenue 25,675 11,073 3,602 40,350
---------------------------------- --------- --------- --------- -------------
Contribution(1) 18,394 4,859 1,619 24,872
Contribution margin(1) 71.6% 43.9% 44.9% 61.6%
---------------------------------- --------- --------- --------- -------------
Adjusted operating profit/(loss) 1,996 (4,806) 450 (2,360)
Adjusted operating profit/(loss)
margin 7.8% (43.4%) 12.5% (5.8%)
Finance income 78
Finance cost (1,192)
Other losses (32)
Adjusted items (2) (789)
Loss before tax (4,295)
---------------------------------- --------- --------- --------- -------------
(1) Contribution and contribution margin are defined in Note
15.
(2) The Group incurred a GBP0.8m charge (H1 2019: GBP0.4m
charge) in respect of adjusted items relating to branch impairments
and property restructure costs.
The following is an analysis of the Group's revenue and results
by reportable segment for the half year ended 30 June 2019. This
comparative analysis has been restated under the Group's new
segmental reporting measures, adjusted operating profit/(loss) and
adjusted operating profit/(loss) margin:
Mortgage
Lettings Sales broking Consolidated
2019 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- --------- --------- --------- -------------
Revenue 32,423 15,443 3,965 51,831
---------------------------------- --------- --------- --------- -------------
Contribution(1) 23,519 7,868 1,859 33,246
Contribution margin(1) 72.5% 50.9% 46.9% 64.1%
---------------------------------- --------- --------- --------- -------------
Adjusted operating profit/(loss) 1,996 (3,467) 614 (857)
Adjusted operating profit/(loss)
margin 6.2% (22.5%) 15.5% (1.7%)
Finance income 67
Finance cost (1,300)
Other losses (55)
Adjusted items (385)
Loss before tax (2,530)
---------------------------------- -------------------- --------- -------------
(1) Contribution and contribution margin are defined in Note
15.
3. Taxation
The components of the income tax charge/(credit) recognised in
the Group income statement are :
Six months
to 30 June Six months to
2020 30 June 2019
GBP'000 GBP'000
----------------------------- ----------- -------------
Current tax charge - -
Deferred tax charge/(credit) 1,152 (165)
----------------------------- ----------- -------------
Income tax charge/(credit) 1,152 (165)
----------------------------- ----------- -------------
In the Spring Budget 2020, the Government announced that the
previously enacted decrease in the corporate tax rate from 19% to
17% from 1 April 2020 would no longer go ahead and that rates would
remain at 19% for the foreseeable future. As IFRS requires that
deferred tax be measured at tax rates that have been substantively
enacted at the reporting date, the Group's deferred tax balances
have been remeasured at 19% and the impact has been reflected
within the interim financial statements.
4. Dividends
As the Group did not make a profit after tax, in line with the
policy, the Board has taken the decision to not pay an interim
dividend (H1 2019: nil interim dividend).
5. LOSS per share
Basic loss per share is calculated by dividing the loss for the
year attributable to ordinary equity holders of the Company by the
weighted average number of ordinary shares outstanding during the
year.
Diluted loss per share is calculated by dividing the loss
attributable to ordinary equity holders of the Company by the
weighted average number of ordinary shares outstanding during the
year plus the weighted average number of ordinary shares that would
be issued on conversion of all the dilutive potential ordinary
shares into ordinary shares. The Company's dilutive potential
ordinary shares are in respect of share options granted to
employees.
Six months Six months
to to
30 June 2020 30 June 2019
GBP'000 GBP'000
-----------------------------------------------
Loss for the purposes of basic and diluted
earnings per share being loss for the period (5,447) (2,365)
Adjust for:
Adjusted items(1) 730 290
Adjusted loss (4,717) (2,075)
----------------------------------------------- ------------- -------------
Number of shares
Weighted average number of ordinary shares
for the purposes of basic earnings per share 300,734,042 274,859,980
Effect of dilutive potential ordinary shares - -
----------------------------------------------- ------------- -------------
Weighted average number of ordinary shares
for the purpose of diluted earnings per share 300,734,042 274,859,980
----------------------------------------------- ------------- -------------
Basic and diluted loss per share (in pence
per share) (1.8) (0.9)
----------------------------------------------- ------------- -------------
Adjusted loss per share (in pence per share) (1.6) (0.8)
----------------------------------------------- ------------- -------------
(1) Net adjusted items charge of GBP789k (2019: GBP385k), less
associated tax of GBP59k (2019: GBP95k), resulting in an after tax
charge of GBP730k (2019: GBP290k).
As the Group made a loss in the first six months of both 2019
and 2020, the diluted loss per share is equal to the basic loss per
share, due to the potentially dilutive share options resulting in a
reduction in the loss per share and are therefore
anti-dilutive.
6. Goodwill and other intangible assets
Goodwill and other intangible assets of GBP112.2m comprises:
30 June 2020 30 June 2019 31 December
GBP'000 GBP'000 2019
GBP'000
------------------------------------- ------------ ------------ -----------
Goodwill 10,100 9,349 9,349
------------------------------------- ------------ ------------ -----------
Brand 99,000 99,000 99,000
Software 1,706 2,125 1,922
Customer contracts 1,368 123 73
------------------------------------- ------------ ------------ -----------
Other intangible assets 102,074 101,248 100,995
------------------------------------- ------------ ------------ -----------
Goodwill and other intangible assets 112,174 110,597 110,344
------------------------------------- ------------ ------------ -----------
a) Review for indicators of significant impairment at 30 June
2020
Under IAS 36 'Impairment of assets', the Group is required
to:
-- review its intangible assets in the event of a significant
change in circumstances that would indicate potential impairment;
and
-- review and test its goodwill and indefinite-life intangible
assets annually or in the event of a significant change in
circumstances
At 30 June 2020, the Group has assessed for indicators of
significant impairment of the Group's goodwill and brand asset.
Following consideration of both internal and external impairment
indicators, indicators of impairment of the brand asset have been
identified as a result of the unprecedented market disruption
resulting from the Covid-19 pandemic and an impairment review of
the brand asset has been performed as at June 2020 in accordance
with IAS 36 'Impairment of assets'. Lettings goodwill continues to
have significant headroom under downside scenarios.
b) Impairment review approach and outcome
The brand asset has been tested for impairment by aggregating
the value-in-use relating to the sales and lettings segments. This
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.
The value-in-use calculations use cash flow projections from
formally approved budgets and forecasts covering a five-year
period, with a terminal growth rate after five years. The resultant
cash flows are discounted using a pre-tax discount rate appropriate
for the relevant group of CGUs.
Following the June 2020 impairment review, there has been no
impairment of the carrying amount of the brand asset.
c) Impairment review assumptions
The assumptions used in the June 2020 impairment review are
summarised below:
-- Cash flow assumptions
The key assumptions in determining the cash flows are expected
changes in sales and lettings volumes, 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. The impact of Covid-19 has been incorporated into the
cash flow assumptions including an estimation of the expected
market recovery.
Sales revenue is assumed to recover to levels broadly in line
with those experienced in 2017 by 2024 and lettings revenue is
assumed to grow at an average growth rate of 2% over the forecast
period which excludes management initiatives which are not
permitted under accounting standards, such as future lettings book
acquisitions.
-- Long-term growth rates
To evaluate the recoverable amounts, a terminal value has been
assumed after the fifth year and includes a long-term growth rate
in the cash flows of 2% (FY 2019: 2%) into perpetuity.
The long-term growth rate is derived from management's
estimates, which take into account the long-term nature of the
market, external industry forecasts of long-term growth in the
housing market and inflation rates and with reference to historical
and macro-economic trading performance in the UK.
-- Discount rates
In accordance with IAS 36, the pre-tax discount rate applied to
the cash flows of each CGU is based on the Group's Weighted Average
Cost of Capital (WACC), and is calculated using a capital asset
pricing model. The WACC has been adjusted to reflect risks not
already reflected in the future cash flows.
The pre-tax discount rate used to discount aggregated sales and
lettings cash flows used in the assessment of the brand asset is
10.8% (31 December 2019: 10.3% on a comparable basis).
d) Sensitivity analysis
Sensitivity analysis has been performed to assess whether the
carrying value of the brand asset is sensitive to reasonable
possible changes in key assumptions and whether any changes in key
assumptions would materially change the carrying value.
The key assumption in the brand asset impairment assessment is
the forecast revenues for the sales and lettings businesses, and
specifically the timing and extent of market recovery following the
market disruption caused by the Covid-19 pandemic. The carrying
value of the brand asset is not highly sensitive to changes in
discount rates or long-term growth rates.
The impairment model indicates brand asset headroom of GBP48.7m.
Assuming no changes in other elements of the plan, the brand asset
headroom would reduce to zero if the combined revenue CAGR over the
forecast period reduces by 1.1%. Under a reasonable possible
downside scenario, in which sales revenue fails to recover to 2017
levels by 2024 (approximately 2% average growth over the forecast
period), lettings revenue growth is limited to 1% and the Group
takes appropriate mitigating actions, the brand asset would be
impaired by GBP6.4m.
7. leases
Right-of-use assets
The carrying amounts of the right-of-use assets recognised and
the movements during the period are outlined below:
31 December 2019
30 June 2020 GBP'000 30 June 2019 GBP'000 GBP'000
----------------------------------------- -------------------- -------------------- ----------------
Opening balance 51,404 61,049 61,049
Additions 2,005 1,810 3,670
Acquisition through business combination 424 - -
Disposals (96) (300) (601)
Depreciation (4,857) (4,681) (9,763)
Impairment charge (1,026) (24) (2,951)
------------------------------------------ -------------------- -------------------- ----------------
Closing balance 47,854 57,854 51,404
------------------------------------------ -------------------- -------------------- ----------------
In the period, the right-of-use assets associated with a small
number of property leases were impaired resulting in an impairment
charge of GBP1.0m which has been classified within the adjusted
items net charge of GBP0.8m.
Lease liabilities
The carrying amounts of lease liabilities recognised and the
movements during the period are outlined below:
30 June 2020 30 June 2019 31 December 2019
GBP'000 GBP'000 GBP'000
----------------------------------------- ------------ ------------ ----------------
Opening balance 55,864 62,436 62,436
Additions 2,005 1,810 3,556
Acquisition through business combination 424 - -
Disposals (187) (559) (625)
Interest charge 1,136 1,270 2,469
Payments (2,707) (5,934) (11,972)
Closing balance 56,535 59,023 55,864
----------------------------------------- ------------ ------------ ----------------
Current 12,780 11,788 9,690
Non-current 43,755 47,235 46,174
----------------------------------------- ------------ ------------ ----------------
At the balance sheet date, the Group had outstanding commitments
for future minimum lease payments which fall due as follows:
30 June 2020 30 June 2019 31 December 2019
GBP'000 GBP'000 GBP'000
-------------------------------------------------------- ------------ ------------ ----------------
Maturity analysis - contractual undiscounted cash flows
Within one year 14,322 12,290 11,763
In the second to fifth years inclusive 32,647 36,416 32,606
After five years 18,329 24,819 20,746
65,298 73,525 65,115
-------------------------------------------------------- ------------ ------------ ----------------
8. Financial instruments
Financial risk factors
The Group's activities expose it to a variety of financial risks
including, interest rate risk, credit risk and liquidity risk. The
condensed interim financial statements do not include all financial
risk management information and disclosures as required in the
annual financial statements; they should be read in conjunction
with the Group's annual financial statements as at 31 December
2019. There have been no changes in any risk management policies
since the year end.
Fair value hierarchy
The Group uses the following hierarchy for determining the fair
value of the financial instruments held:
-- Level 1 - Quoted market prices
-- Level 2 - Valuation techniques (market observable)
-- Level 3 - Valuation techniques (non-market observable)
The Group does not hold any financial instruments categorised as
Level 1 or 2 by IFRS 13. The Level 3 financial instruments held by
the Group relate solely to unlisted equity shares. The Group
determines that using cost is an appropriate estimate of fair value
of the unlisted equity securities.
The following table shows the changes in Level 3 financial
assets for the six months ended 30 June 2020:
GBP'000
------------------------------- -------
Opening balance 1 January 2020 317
Additions -
Transfers -
------------------------------- -------
Closing balance 30 June 2020 317
-------------------------------- -------
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 and liabilities are as follows:
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
---------------------------- -------- -------- -----------
Cash and cash equivalents 45,545 14,516 15,482
---------------------------- -------- -------- -----------
Trade and other receivables 10,529 10,729 10,323
---------------------------- -------- -------- -----------
Trade and other payables (12,581) (13,042) (10,479)
---------------------------- -------- -------- -----------
Borrowings (5,000) - -
---------------------------- -------- -------- -----------
Lease liabilities (56,535) (59,023) (55,864)
---------------------------- -------- -------- -----------
9. borrowings
As at 30 June 2020, the Group had fully drawn down the Group's
arranged GBP5m RCF. The RCF attracts an interest rate of 1.5% above
LIBOR and is recognised as a current liability in the Group's
consolidated statement of financial position based on the planned
repayment date. Following an assessment of the Group's liquidity
requirements the RCF was repaid in full on 8 July 2020. The
facility, which expires in June 2022, continues to be available to
the Group.
At 30 June 2020 the Group had a net cash position of GBP40.5m
(31 December 2019: GBP15.5m), consisting of GBP45.5m of cash and
cash equivalents (31 December 2019: GBP15.5m) net of GBP5m of
borrowings (31 December 2019: nil).
10. business combinations
On 28 February 2020, the Group acquired 100% of the share
capital of London Stone Properties Limited and its subsidiary
company London Stone Property Sales Limited, both non-listed
companies that are high quality independent estate agents,
primarily focussed on lettings and property management based in
London, thereby obtaining control. The acquisition was primarily
made to add to the Group's high quality lettings books and to
increase the Group's branch network.
Assets acquired and liabilities assumed
The provisional fair values of the identifiable assets and
liabilities of the combined acquired entities as at the date of
acquisition were:
Fair value recognised on acquisition
GBP'000
----------------------------------------------------- ------------------------------------
Assets
Acquired intangible assets recognised on acquisition 1,438
Property, plant and equipment 9
Right-of use assets 424
Investments 57
Cash and cash equivalents 2,513
Trade and other receivables 131
Contract assets 128
----------------------------------------------------- ------------------------------------
4,700
Liabilities
Trade and other payables (104)
Contract liabilities (62)
Lease liabilities (424)
Current tax liability (157)
Deferred tax liability (277)
----------------------------------------------------- ------------------------------------
(1,024)
----------------------------------------------------- ------------------------------------
Total identifiable net assets at fair value 3,676
----------------------------------------------------- ------------------------------------
Goodwill arising on acquisition 750
Fair value of consideration transferred 4,426
----------------------------------------------------- ------------------------------------
The Group measured the acquired lease liabilities using the
present value of the remaining lease payments at the date of
acquisition. The right-of-use assets were measured at an amount
equal to the lease liabilities.
The deferred tax liability mainly comprises the tax effect of
the accelerated depreciation for tax purposes of the acquired
intangible assets recognised on acquisition.
The acquired intangible assets of GBP1.4m consist of customer
contracts which are identifiable and separable, and which are
amortised over 1 to 7 years.
The goodwill of GBP0.8m is primarily attributable to synergies,
new customers, the acquired workforce and business expertise. The
acquired goodwill has been allocated entirely to the Lettings
segment and is not expected to be deductible for tax purposes.
From the date of acquisition, London Stone contributed GBP0.5m
of revenue and GBP0.3m of profit to the Group's performance from 28
February 2020 to 30 June 2020. If the combination had taken place
at the beginning of the year, revenue for the Group would have been
GBP0.2m higher and loss before tax would have decreased by
GBP0.1m.
Purchase consideration
GBP'000
---------------------------------------- -------
Amount settled in cash 4,216
Deferred cash consideration 210
Fair value of consideration transferred 4,426
---------------------------------------- -------
As part of the purchase agreement with the previous owner of
London Stone, GBP0.2m of deferred cash consideration has been
agreed and is held in an escrow account. The additional cash amount
will be due if the Group does not make any claims on the breach of
any agreed warranties over a 12 month period after the acquisition
date.
Analysis of cash flows on acquisition
GBP'000
--------------------------------------------------------------------------------------------------
Consideration settled in cash (included in cash flows from investing activities) (4,426)
Net cash acquired with the subsidiary (included in cash flows from investing activities) 2,513
Transaction costs of the acquisition (included in cash flows from operating activities) (44)
Net cash flow on acquisition (1,957)
------------------------------------------------------------------------------------------ -------
Transaction costs amounting to GBP44k are not included as part
of consideration transferred and have been recognised as an expense
in the Group's consolidated income statement, as part of other
operating costs.
11. SHARE CAPITAL
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
--------------------------------------------- -------- -------- -----------
Authorised, allotted, issued and fully paid:
Ordinary shares of GBP0.01 each
At 1 January 2,751 2,751 2,751
Issuance of share capital 550 - -
--------------------------------------------- -------- -------- -----------
At 30 June 3,301 2,751 2,751
--------------------------------------------- -------- -------- -----------
During the period, the authorised share capital was increased by
GBP549,934 due to the issue of 54,993,367 ordinary shares of
GBP0.01 each.
On 17 April 2020 a total of 54,993,367 new ordinary shares were
issued in a placing transaction at a price of GBP0.40 per share,
raising gross proceeds of GBP22.0m (before expenses). Net of
expenses the proceeds were GBP21.1m. The shares represented
approximately 19.9% of the Company's issued ordinary share capital
(excluding treasury shares) prior to the placing.
12. reserves
The capital reserves held by the Group comprise the
following:
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
--------------------------- -------- -------- -----------
Merger reserve 20,568 - -
Capital redemption reserve 2,582 2,582 2,582
Other capital reserve 71 71 71
--------------------------- -------- -------- -----------
23,221 2,653 2,653
--------------------------- -------- -------- -----------
During the period, there were no movements in both the capital
redemption and other capital reserves.
The Group issued 54,993,367 of ordinary shares at a total
premium to nominal value of GBP21.5m and incurred GBP0.9m of
incremental transaction costs, resulting in a net total premium of
GBP20.6m. The share issue was effected by way of a cash box
placing. The Group has applied merger relief under the Companies
Act 2006 and recognised a merger reserve of GBP20.6m which
represents the net premium realised.
13. 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.
During the period, no Group companies entered into transactions
with related parties who are not members of the Group.
14. Client monies
At 30 June 2020, client monies in approved bank and building
society accounts amounted to GBP85.9m (31 December 2019: GBP87.0m,
30 June 2019: GBP91.0m). Neither this amount nor the matching
liabilities to the clients concerned are included in the
consolidated balance sheet. The Group's terms and conditions
provide that interest income on these deposits accrues to the
Group.
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.
15. Alternative performance measures
In reporting financial information the Group presents APMs 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 period and the
comparability between periods.
Within the period the Group has introduced three new APMs:
Adjusted operating profit/(loss), adjusted operating profit/(loss)
margin and net cash/(debt). The definition, purpose and how the
measures are reconciled to statutory measures are set out
below.
a) Adjusted operating profit/(loss)
Adjusted operating profit/(loss) represents the profit/(loss)
before tax for the period before finance income, finance cost,
other gains/(losses) and adjusted items (defined within Note 1) .
This is the measure reported to the Directors for the purpose of
resource allocation and assessment of segment performance. This
measure has been introduced during the period and replaces adjusted
EBITDA as the measure by which resource allocation and segment
performance is monitored. Following the application of IFRS 16,
adjusted operating profit/(loss) is considered to be a superior
measure to adjusted EBITDA since the new measure includes the
depreciation of IFRS 16 right-of-use assets and therefore the costs
related to the Group's leased assets are appropriately captured
with a profitability APM.
The closest equivalent IFRS measure to adjusted operating profit
/(loss) is profit/(loss) before tax. A reconciliation between
profit/loss before tax and adjusted operating profit /(loss) is
included within the segmental analysis table included in Note
2.
b) Adjusted operating profit/(loss) margin
Adjusted operating profit/(loss) margin is defined as adjusted
operating profit/(loss) divided by revenue. This APM has been
introduced during the period and is a key performance indicator of
the Group and is used to measure the delivery of the Group's
strategic priorities. Refer to Note 2 for the inputs used to derive
adjusted operating profit/(loss) margin.
c) Contribution and contribution margin
Contribution is defined as revenue less direct salary costs of
front office staff and costs of bad debt. Contribution margin is
defined as Contribution divided by revenue. Contribution and
contribution margin are key metrics for management since both are
measures of the profitability and efficiency before the allocation
of shared costs. A reconciliation between revenue and contribution
is presented below.
Six months to 30 June Lettings Sales Mortgage Consolidated
2020 GBP'000 GBP'000 broking GBP'000
GBP'000
----------------------------- --------- --------- --------- -------------
Revenue 25,675 11,073 3,602 40,350
Less: Directly attributable
salary costs (7,077) (6,048) (1,983) (15,108)
Less: Bad debt charges (204) (166) - (370)
----------------------------- --------- --------- --------- -------------
Contribution 18,394 4,859 1,619 24,872
----------------------------- --------- --------- --------- -------------
Contribution margin 71.6% 43.9% 44.9% 61.6%
----------------------------- --------- --------- --------- -------------
Six months to 30 June Lettings Sales Mortgage Consolidated
2019 GBP'000 GBP'000 broking GBP'000
GBP'000
----------------------------- --------- --------- --------- -------------
Revenue 32,423 15,443 3,965 51,831
Less: Directly attributable
salary costs (8,815) (7,458) (2,106) (18,379)
Less: Bad debt charges (89) (117) - (206)
----------------------------- --------- --------- --------- -------------
Contribution 23,519 7,868 1,859 33,246
----------------------------- --------- --------- --------- -------------
Contribution margin 72.5% 50.9% 46.9% 64.1%
----------------------------- --------- --------- --------- -------------
d) Adjusted earnings/(loss) per share
Adjusted earnings/(loss) per share is defined as earnings/(loss)
per share excluding adjusted items. The measure is derived by
dividing profit/(loss) after tax adjusted for adjusted items by the
weighted average number of ordinary shares in issue during the
financial period. This APM is a measure of management's view of the
Group's underlying earnings/(loss) per share.
The closest equivalent IFRS measure is basic earnings/(loss) per
share. Refer to Note 5 for a reconciliation between basic loss per
share and adjusted loss per share.
e) Net free cash flow
Net free cash flow is defined as net cash from operating
activities less repayment of IFRS 16 lease liabilities and net cash
generated/used in investing activities, excluding the a cquisition
of subsidiaries (net of any cash acquired) . This measure is used
to monitor cash generation. A reconciliation between net cash from
operating activities and net free cash flow is presented below.
Six months Six months
to 30 June to 30 June
2020 2019
GBP'000 GBP'000
--------------------------------------------- ----------- --------------------
Net cash from operating activities 8,481 2,651
---------------------------------------------- ----------- --------------------
Less: Repayment of IFRS 16 lease liabilities (2,707) (5,934)
Investing activities
Interest received 54 33
Proceeds on disposal of property, plant
and equipment 94 63
Proceeds on disposal of investments 57 -
Purchases of property, plant and equipment (208) (153)
Purchases of intangibles (29) (116)
Purchases of investments - (31)
Net cash used in investing activities (32) (204)
---------------------------------------------- ----------- --------------------
Net free cash inflow/(outflow) 5,742 (3,487)
---------------------------------------------- ----------- --------------------
f) Net cash/(debt)
Net cash/(debt) is defined as cash and cash equivalents less
external borrowings. The APM has been introduced in the period to
define how the Group measures net cash/(debt) after applying IFRS
16 accounting principles. The definition of the measure is
consistent with the definition of the leverage ratio covenant
attached to the Group's RCF and therefore monitored internally for
the purposes of covenant compliance. A reconciliation of the
measure is presented below.
30 June 30 June 31 December
2020 20 19 2019
GBP'000 GBP'000 GBP'000
-------------------------- -------- -------- -----------
Cash and cash equivalents 45,545 14,516 15,482
Borrowings (5,000) - -
Net cash 40,545 14,516 15,482
-------------------------- -------- -------- -----------
INDEPENT REVIEW REPORT TO FOXTONS GROUP PLC
Introduction
We have been engaged by Foxtons Group Plc ("the Group") to
review the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2020 which
comprises the condensed consolidated statement of comprehensive
income, condensed consolidated statement of financial position,
condensed consolidated statement of changes in equity, condensed
consolidated cash flow statement and the notes to the condensed
consolidated interim financial report. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of and
has been approved by the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in Note 1.2, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with International
Accounting Standard 34, "Interim Financial Reporting", as adopted
by the European Union.
Our responsibility
Our responsibility is to express to the Group a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Financial Reporting Council for use
in the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34, as adopted by the
European Union, and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Use of our report
Our report has been prepared in accordance with the terms of our
engagement to assist the Group in meeting its responsibilities in
respect of half-yearly financial reporting in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. No person is
entitled to rely on this report unless such a person is a person
entitled to rely upon this report by virtue of and for the purpose
of our terms of engagement or has been expressly authorised to do
so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other
purpose and we hereby expressly disclaim any and all such
liability.
BDO LLP
Chartered Accountants
London
27 July 2020
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
LEI: 5493001HCMG6R1MYKC59
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
IR SEWFWWESSEDW
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July 28, 2020 02:00 ET (06:00 GMT)
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